The Auto Channel: North America | Europe
Tenneco Reports Fourth Quarter and Full-Year 2006 Results
-- 4Q net income of $14 million, or 30-cents per diluted share
-- Full year net income of $51 million, or $1.10 per diluted share
-- European segment 4Q EBIT improves 13% year-over-year
-- Company delivers $132 million in 4Q cash flow from operations
-- Company expects $1.1 billion in estimated OE revenue growth in 2007; estimates additional $300 million in 2008
LAKE FOREST, Ill., Jan. 30 -- Tenneco Inc. reported fourth quarter 2006 net income of $14 million, or 30- cents per diluted share, up from $8 million, or 18-cents per diluted share a year ago. Excluding the adjustments below, net income was $3 million, or 6- cents per diluted share, versus $13 million, or 28-cents per diluted share, in fourth quarter 2005 (the attached tables reconcile GAAP results to Non-GAAP results).
(Logo: http://www.newscom.com/cgi-bin/prnh/20051028/CGF002LOGO )
EBIT (earnings before interest expense, taxes and minority interest) was $36 million, down from $38 million the prior year. On an adjusted basis, EBIT was $40 million, compared with $53 million in fourth quarter 2005. EBITDA (EBIT before depreciation and amortization) was $84 million versus $81 million a year ago. On an adjusted basis, EBITDA was $88 million compared with $96 million.
Fourth quarter revenue was $1.2 billion, compared with $1.1 billion a year ago. Favorable currency benefited revenue by $55 million and substrate sales increased to $282 million from $173 million a year ago. Excluding the impact of currency and substrate sales, revenue was $872 million, down from $891 million in the fourth quarter of 2005.
Tenneco's fourth quarter results reflect the tough North American market conditions facing all automotive suppliers. The company's revenues were negatively impacted as the North American OEMs continued to cut production schedules. However, the company's geographic balance - more than half of Tenneco's revenue is generated outside North America - and diverse customer base helped partially offset the impact of scaled back OE production volumes in North America. In addition, the company has a substantial global aftermarket business, which posted solid results worldwide.
The company generated $132 million in cash flow from operations in the quarter despite challenging North American market conditions and a $32 million inventory build in preparation for significant North American OE platform launches scheduled in 2007. This compares to $160 million in cash flow from operations in fourth quarter 2005, which did not have the same level of launch activity.
At quarter-end, total debt was $1.378 billion, even with a year ago. Debt net of cash balances was $1.176 billion, down from $1.237 billion at the end of fourth quarter 2005. At quarter-end, the ratio of debt net of cash balances to annual adjusted EBITDA was 2.9x.
"Tenneco's global footprint, diverse OE customer base and strong global aftermarket business continued to help buffer the very soft market conditions we and other suppliers faced in North America over the last year," said Gregg Sherrill, Tenneco Chairman and CEO. "Once again, our European segment and rapidly growing business in China, as well as our relentless focus on managing costs, improving efficiency and flexing our operations, carried Tenneco in a difficult quarter."
Adjusted fourth quarter 2006 and 2005 results:
Q4 2006 Q4 2005
Net Per Net Per
EBITDA EBIT Income Share EBITDA EBIT Income Share
Earnings Measures $84 $36 $14 $0.30 $81 $38 $8 $0.18
Adjustments (reflect
non-GAAP measures):
Restructuring and
restructuring related
expenses 6 6 4 0.08 5 5 3 0.06
New aftermarket
customer changeover
costs - - - - 10 10 7 0.15
Pension replacement (7) (7) (5) (0.10) - - - -
Tax adjustments - - (13) (0.28) - - (5) (0.11)
Reserve for receivables
from former affiliate 3 3 2 0.04 - - - -
Stock option adjustment 2 2 1 0.02 - - - -
Non-GAAP earnings
measures $88 $40 $3 $0.06 $96 $53 $13 $0.28
Fourth quarter 2006 adjustments:
-- Restructuring related expenses of $6 million pre-tax, or 8-cents per
diluted share;
-- Expense of $2 million pre-tax, or 2-cents per diluted share, related
to an accounting charge for employee stock options;
-- A reserve of $3 million pre-tax, or 4-cents per diluted share for
receivables from a former affiliate;
-- Benefit of $7 million pre-tax, or 10-cents per diluted share, from
replacing the defined benefit pension plans in the U.S. with an
enhanced defined contribution plan;
-- Tax benefits of $13 million or 28-cents per diluted share, related to
an investment income tax credit in the Czech Republic and final
adjustments related to prior year income tax returns.
Fourth quarter 2005 adjustments:
-- Restructuring related expenses of $5 million pre-tax or 6-cents per
diluted share;
-- New aftermarket customer changeover costs of $10 million pre-tax, or
15-cents per diluted share;
-- Tax benefit of $5 million, or 11-cents per diluted share, related to
the favorable resolution of foreign tax contingencies.
Gross margin in the quarter was 15.6% versus 18.7% for fourth quarter 2005. As expected, higher substrate sales, which typically carry lower margins, continue to impact Tenneco's gross margin. Substrate sales were 25% of total revenue in the quarter versus 16% a year ago, due to more diesel aftertreatment and hot-end exhaust business. This mix shift accounted for 2.5 percentage points of the gross margin decline. In addition, higher year-over- year steel costs of $8 million negatively impacted gross margin.
Tenneco's efforts to cut costs globally through tight spending controls and the benefit from replacing the defined benefit pension plan in the U.S., announced in August 2006, significantly lowered SGA&E (selling, general, administrative and engineering) expense to 8.9% of sales in the quarter versus 11.0% of sales a year ago. The replacement of the defined benefit pension plan accounted for 0.5 percentage points of the change. Last year's SGA&E expense as a percent of sales included 1.0 percentage point related to aftermarket changeover costs.
NORTH AMERICA
-- North American OE revenue was $363 million, versus $372 million a year
ago. Excluding substrate sales, revenue was down 10% from $304
million to $272 million, reflecting an industry production decline of
8% and a 13% production decline among the domestic U.S. automakers.
Revenue was impacted by significant volume declines, particularly on
key exhaust platforms like the GM Trailblazer/Envoy and the Ford F-150
and Dodge Ram pick-up trucks.
-- North American aftermarket revenue increased to $115 million from $113
million, primarily driven by price increases to help offset higher
material costs in both product lines and higher ride control sales
from previously announced new customers, which more than offset lower
exhaust product unit sales.
-- EBIT for North American operations was down $3 million year-over-year
to $16 million. Adjusted for the items below, EBIT was $17 million
versus $31 million the prior year. OE volume declines and higher
material costs had a significant negative impact on EBIT and more than
offset the benefits from cost reduction efforts.
-- Fourth quarter 2006 EBIT includes expenses of $3 million for
restructuring, $2 million for an accounting charge for employee stock
options and a $3 million reserve for receivables from a former
affiliate. It also included a benefit of $7 million for the U.S.
pension plan replacement. Fourth quarter 2005 EBIT includes expenses
of $2 million for restructuring and $10 million for new aftermarket
customer changeover costs.
EUROPE, SOUTH AMERICA AND INDIA
-- European OE revenue was $452 million, compared with $352 million a
year ago. Excluding the benefit of stronger currency, revenue was
$409 million. The revenue increase was driven by the ramp-up of new
emission control platforms and stronger volumes overall in both the
ride control and emission control segments despite the production
build-out on some key exhaust platforms. Adjusting for currency and
higher year-over-year substrate sales, revenue was $257 million,
versus $268 million in fourth quarter 2005, as the mix of emission
control business continues to move to hot-end exhaust and diesel
aftertreatment.
-- European aftermarket revenue increased to $90 million from $76 million
a year ago, driven by higher ride control and exhaust volumes.
Excluding the impact of currency, revenue increased to $82 million in
the quarter.
-- South America and India revenue increased to $71 million, versus $61
million the previous year. Excluding the impact of currency and
substrate sales, revenue was up 7%, driven by strong OE and
aftermarket volumes in South America.
-- EBIT for Europe, South America and India improved 13% to $15 million
from $13 million a year ago. The fourth quarter EBIT improvement was
driven by operational improvements, especially in the company's OE
emission control business, and currency benefits, which more than
offset the impact of higher material costs.
-- Excluding $3 million in restructuring costs in both fourth quarter
2006 and 2005, EBIT was $18 million compared with $16 million a year
ago.
ASIA PACIFIC
-- Asia revenue was $72 million compared with $41 million in fourth
quarter 2005. Excluding substrate sales, revenue was up 50% from $31
million to $46 million. The increase was driven by stronger OE
volumes in China including business on strong selling GM, Ford and VW
platforms.
-- Industry OE production declines continued to impact Australian
revenue, which was $46 million, down from $49 million the previous
year. Excluding currency and substrate sales, revenue was down 14%,
from $44 million to $38 million.
-- Asia Pacific EBIT was $5 million compared with $6 million a year ago.
The decline in Australian OE volumes offset stronger volumes in Asia.
FULL YEAR 2006 RESULTS
Tenneco reported annual revenue of $4.7 billion in 2006, up from $4.4 billion in 2005, largely driven by new OE and aftermarket business, which helped offset significant OE production volume declines in North America during the last half of the year. Favorable currency benefited 2006 annual revenue by $71 million.
The company reported net income of $51 million, or $1.10 per diluted share, compared with last year's net income of $58 million, or $1.29 per diluted share. Full year EBIT was $196 million, versus $215 million last year. EBITDA declined to $380 million from $392 million in 2005.
Adjusted for the items below, full year net income was $55 million, or $1.21 per diluted share, compared with $69 million, or $1.52 per diluted share, in 2005. Adjusted EBIT was $228 million, versus $237 million in 2005 and adjusted EBITDA was $412 million compared with $414 million the prior year.
Adjusted Full Year 2006 and 2005 Results:
YTD 2006 YTD 2005
Net Per Net Per
EBITDA EBIT Income Share EBITDA EBIT Income Share
Earnings Measures $380 $196 $51 $1.10 $392 $215 $58 $1.29
Adjustments (reflect
non-GAAP measures):
Restructuring and
restructuring related
expenses 27 27 17 0.39 12 12 8 0.17
New aftermarket
customer changeover
costs 6 6 4 0.08 10 10 7 0.15
Pension replacement (7) (7) (5) (0.10) - - - -
Stock based
compensation
accounting change 1 1 1 0.02 - - - -
Tax adjustments - - (16) (0.34) - - (4) (0.09)
Reserve for receivables
from former affiliate 3 3 2 0.04 - - - -
Stock option adjustment 2 2 1 0.02 - - - -
Non-GAAP earnings
measures $412 $228 $55 $1.21 $414 $237 $69 $1.52
Full-year 2006 adjustments:
-- Restructuring related expenses of $27 million pre-tax, or 39-cents per
diluted share;
-- An expense of $2 million pre-tax, or 2-cents per diluted share,
related to an accounting charge for employee stock options;
-- A reserve of $3 million pre tax, or 4-cents per diluted share for
receivables from a former affiliate;
-- Aftermarket customer changeover costs of $6 million pre-tax, or 8-
cents per diluted share;
-- An expense of $1 million pre-tax, or 2-cents per diluted share, to
adjust for new stock-based compensation accounting standard;
-- Benefit of $7 million pre-tax, or 10-cents per diluted share, from
replacing the defined benefit pension plans in the U.S.;
-- Tax benefits of $16 million or 34-cents per diluted share primarily
for an investment tax credit in the Czech Republic, resolution of tax
issues with former affiliates, and final adjustments to prior year
income tax returns.
Full-year 2005 adjustments:
-- Restructuring related expenses of $12 million pre-tax, or 17-cents per
diluted share;
-- Aftermarket changeover costs of $10 million pre-tax, or 15-cents per
diluted share;
-- Tax benefits of $4 million, or 9-cents per diluted share.
Gross margin for the year was 18.1% versus 19.3% in 2005. The decline in gross margin was largely due to a higher percentage of substrate sales and higher material costs during the year. Tenneco successfully controlled overhead costs in 2006, bringing SGA&E expense down to 9.9% of sales versus 10.5% in 2005.
2007 OUTLOOK
Tenneco anticipates that 2007 will be another challenging year given current predictions on OE production levels, especially during the first half of the year when the North American OE market is expected to continue to be down. The company anticipates stable market conditions in the global aftermarket. In addition, Tenneco expects that the pricing environment for steel will increase the company's costs by up to $100 million in 2007. Tenneco will work to offset these increases through cost reductions, manufacturing efficiencies, material substitutions, low-cost country sourcing and customer recovery.
"Although our industry continues to face significant challenges in 2007, Tenneco is well-positioned given the new business we're launching that is expected to add more than $1 billion in OE revenues this year," said Sherrill. "We remain relentlessly focused on managing costs, strengthening margins and launching programs flawlessly. We also expect to continue benefiting from our geographic and customer balance and will pursue additional opportunities to leverage our advanced technologies."
The company's goals for 2007 include maintaining SGA&E as a percent of sales at 9% of sales and achieving net debt/adjusted annual EBITDA of 2.7x.
Tenneco estimates that its global original equipment revenues will be approximately $4.7 billion in 2007 and $5.0 billion in 2008. Adjusted for lower margin substrate sales, the company's global original equipment revenues are estimated to be approximately $3.1 billion in 2007 and $3.4 billion in 2008.
These revenue estimates 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; Tenneco's status as supplier for the existing program and its relationship with the customer; and the actual original equipment revenues achieved by the company for each of the last several years compared to the amount of those revenues that the company estimated it would generate at the beginning of each year. These revenue estimates are also based on anticipated vehicle production levels and pricing, including precious metals pricing and certain actions to recover a portion of materials cost increases. The revenue estimates assume that foreign currency exchange rates will remain constant over the entire period.
Attachment 1: Statements of Income - 3 Months Statements of Income - 12 Months Balance Sheet Statements of Cash Flow - 3 Months Statements of Cash Flow - 12 Months Attachment 2: Reconciliation of GAAP Net Income to EBITDA - 3 Months Reconciliation of GAAP to Non-GAAP Earnings Measures - 3 Months Reconciliation of GAAP Net Income to EBITDA - 12 Months Reconciliation of GAAP to Non-GAAP Earnings Measures - 12 Months Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures - 3 Months Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures - 12 Months Reconciliation of Non-GAAP Measures - Ratio of Debt Net of Cash to Adjusted EBITDA - 12 Months CONFERENCE CALL
The company will host a conference call on Tuesday, January 30, 2007 at 10:30 a.m. EST. The dial-in number is 888-790-1408 (domestic) or 773-756- 0157(international). The passcode is TENNECO. The call and accompanying slides will be available on the financial section of the Tenneco web site at http://www.tenneco.com/ . A recording of the call will be available one hour following completion of the call on January 30, 2007. To access this recording, dial 800-677-5211 (domestic) or 402-998-1032 (international). The purpose of the call is to discuss the company's operations for the quarter, as well as other matters that may impact the company's outlook. A copy of the press release is available on the financial and news sections of the Tenneco web site.
2007 ANNUAL MEETING
The Tenneco board of directors has scheduled the corporation's annual meeting of shareholders for Tuesday, May 8, 2007 at 10:00 a.m. CDT. The meeting will be held at the corporate headquarters, 500 North Field Drive, Lake Forest, Illinois. The record date for shareholders to vote at the meeting is March 13, 2007.
Tenneco is a $4.7 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 19,000 employees worldwide. Tenneco is one of the world's largest designers, manufacturers and marketers of emission control and ride control products and systems for the automotive original equipment market and the aftermarket. Tenneco markets its products principally under the Monroe(R), Walker(R), Gillet(R) and Clevite(R)Elastomer brand names. Among its products are Sensa-Trac(R) and Monroe Reflex(R) shocks and struts, Rancho(R) shock absorbers, Walker(R) Quiet-Flow(R) mufflers, Dynomax(R) performance exhaust products, and Clevite(R)Elastomer noise, vibration and harshness control components.
This press release contains forward-looking statements. Words such as "hopes," "estimates," "continue," "will," "plans," "outlook" "scheduled" and "goal" and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of the company (including its subsidiaries). Because these forward-looking statements involve risks and uncertainties, the company's plans, actions and actual results could differ materially. Among the factors that could cause these plans, actions and results to differ materially from current expectations are:
(i) changes in automotive manufacturers' production rates and their actual
and forecasted requirements for the company's products;
(ii) the overall highly competitive nature of the automotive parts
industry, including pricing pressure from the company's OE customers and
the loss of any awards of business, or the failure to obtain new awards of
business, from our large customers, on which we are dependent for a
substantial portion of our revenues; for example, Ford, from whom the
company derived more than 10% of its 2006 net sales, announced in 2006 a
plan to significantly reduce the number of its global suppliers. While
the company currently believes that its relationship with Ford will not be
impacted by this plan, any significant reduction in sales to Ford could
have a material adverse effect on the company;
(iii) the company's resultant inability to realize the sales represented
by its awarded book of business which is based on anticipated pricing for
the applicable program over its life, and is subject to increases or
decreases due to changes in customer requirements, customer and consumer
preferences, and the number of vehicles actually produced by customers;
(iv) increases in the costs of raw materials, including the company's
ability to successfully reduce the impact of any such cost increases
through materials substitutions, cost reduction initiatives, customer
recovery and other methods;
(v) the cyclical nature of the global vehicular industry, including the
performance of the global aftermarket sector, and changes in consumer
demand and prices, including longer product lives of automobile parts and
the cyclicality of automotive production and sales of automobiles which
include the company's products, and the potential negative impact on the
company's revenues and margins from such products;
(vi) the company's continued success in cost reduction and cash management
programs and its ability to execute restructuring and other cost reduction
plans and to realize anticipated benefits from these plans;
(vii) the general political, economic and competitive conditions in
markets and countries where the company and its subsidiaries operate,
including the strength of other currencies relative to the U.S. dollar and
currency fluctuations and other risks associated with operating in foreign
countries;
(viii) governmental actions, including the ability to receive regulatory
approvals and the timing of such approvals;
(ix) changes in capital availability or costs, including increases in the
company's costs of borrowing (i.e., interest rate increases), the amount
of the company's debt, the ability of the company to access capital
markets and the credit ratings of the company's debt;
(x) the cost and outcome of existing and any future legal proceedings, and
compliance with changes in regulations, including environmental
regulations;
(xi) workforce factors such as strikes or labor interruptions;
(xii) the company's ability to develop and profitably commercialize new
products and technologies, and the acceptance of such new products and
technologies by the company's customers and the market;
(xiii) further changes in the distribution channels for the company's
aftermarket products, further consolidations among automotive parts
customers and suppliers, and product warranty costs;
(xiv) changes by the Financial Accounting Standards Board or other
accounting regulatory bodies to authoritative generally accepted
accounting principles or policies;
(xv) acts of war, riots or terrorism, including, but not limited to the
events taking place in the Middle East, the current military action in
Iraq and the continuing war on terrorism, as well as actions taken or to
be taken by the United States or other governments as a result of further
acts or threats of terrorism, and the impact of these acts on economic,
financial and social conditions in the countries where the company
operates; and
(xvi) the timing and occurrence (or non-occurrence) of transactions and
events which may be subject to circumstances beyond the control of the
company and its subsidiaries. The company undertakes no obligation to
update any forward-looking statement to reflect events or circumstances
after the date of this press release. Additional information regarding
these risk factors and uncertainties is detailed from time to time in the
company's SEC filings, including but not limited to its report on Form 10-
K for the year ended December 31, 2005. Further information can be found
on the company's web site at http://www.tenneco.com/ .
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
Unaudited
THREE MONTHS ENDED DECEMBER 31,
(Millions except per share amounts)
2006 2005
Net sales and operating revenues $1,209 $1,064
Costs and Expenses
Cost of Sales (exclusive of
depreciation shown below) 1,021 (a) 865 (f)
Engineering, Research and
Development 20 19
Selling, General and
Administrative 87 (a) (b) (c) (d) 98 (f) (g)
Depreciation and Amortization of
Other Intangibles 48 43
Total Costs and Expenses 1,176 1,025
Loss on sale of receivables (2) (1)
Equity Income 2 1
Other Income 3 (1)
Total Other Income / (Expense) 3 (1)
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 16 (a) (b) (c) (d) 19 (f) (g)
Europe, South America & India 15 (a) 13 (f)
Asia Pacific 5 6
36 38
Less:
Interest expense (net of
interest capitalized) 35 33
Income tax (benefit) (15) (e) (4) (h)
Minority interest 2 1
Net Income 14 8
Average common shares outstanding:
Basic 45.1 43.5
Diluted 47.2 45.6
Earnings per share of common stock:
Basic $0.31 $0.19
Diluted $0.30 $0.18
(a) Includes restructuring and restructuring related charges of $6
million pre-tax, $4 million after tax or $0.08 per share. Of the
adjustment $4 million is recorded in cost of sales and $2 million is
recorded in SG&A. Geographically, $3 million is recorded in North
America and $3 million in Europe, South America and India.
(b) Includes pension replacement benefit of $7 million pre-tax,
$5 million after tax or $0.10 per share. The entire $7 million
adjustment is recorded in SG&A and geographically in North America.
(c) Includes Stock option expense adjustment of $2 million pre-tax and
$1 million after tax or $0.02 per share. The entire $2 million
adjustment is recorded in SG&A and geographically in North America.
(d) Includes reserve for receivables from former affiliate adjustment of
$3 million pre-tax and $2 million after tax or $0.04 per share. The
entire $3 million adjustment is recorded in SG&A and geographically
in North America.
(e) Includes a $13 million or $0.28 per share tax benefit primarily
related to FAS 109 adjustment, prior year true-up and Czech
investment tax credit.
(f) Includes restructuring and restructuring related charges of
$5 million pre-tax, $3 million after-tax or $0.06 per share. Of the
adjustment $4 million is recorded in cost of sales and the remaining
$1 million is in SG&A. Geographically, $3 million is recorded in
Europe, South America and India and $2 million in North America.
(g) Includes changeover costs for new aftermarket customers of
$10 million pre-tax, $7 million after-tax or $0.15 per share. The
adjustment is recorded in SG&A. Geographically, the entire amount is
recorded in North America.
(h) Includes a $5 million or $0.11 per share tax benefit primarily
related to favorable resolution of foreign tax contingencies.
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
Unaudited
TWELVE MONTHS ENDED DECEMBER 31,
(Millions except per share amounts)
2006 2005
Net sales and operating
revenues $4,685 $4,441
Costs and Expenses
Cost of Sales (exclusive of
depreciation shown below) 3,838 (a) 3,583 (h)
Engineering, Research and
Development 88 83
Selling, General and
Administrative 377 (a) (b) (c) (d) (e) (f) 385 (h) (i)
Depreciation and Amortization
of Other Intangibles 184 177
Total Costs and
Expenses 4,487 4,228
Loss on sale of receivables (6) (3)
Equity Income 3 1
Other Income 1 4
Total Other Income / (Expense) (2) 2
Income before Interest Expense,
Income Taxes, and Minority
Interest
North America 103 (a) (b) (c) (d) (e) (f) 145 (h) (i)
Europe, South America & India 81 (a) 54 (h)
Asia Pacific 12 (a) 16
196 215
Less:
Interest expense (net of
interest capitalized) 136 130
Income tax expense 3 (g) 25 (j)
Minority interest 6 2
Net Income 51 58
Average common shares
outstanding:
Basic 44.6 43.1
Diluted 46.8 (b) 45.3
Earnings per share of common
stock:
Basic $1.15 $1.35
Diluted $1.10 (b) $1.29
(a) Includes restructuring and restructuring related charges of
$27 million pre-tax, $17 million after tax or $0.39 per share, of
which $23 million is recorded in cost of sales and $4 million is
recorded in SG&A. Geographically, $13 million is recorded in North
America, $8 million in Europe, South America and India and $6 million
in Asia Pacific.
(b) Includes $1 million pre-tax and after tax increase in stock
compensation expense associated with the adoption of FAS 123R.
Adoption of this accounting standard also increased the calculated
number of diluted shares by .6 million for a combined impact of $0.02
per share.
(c) Includes customer changeover costs of $6 million pre-tax, $4 million
after-tax or $0.08 per share.
(d) Includes pension replacement benefit of $7 million pre-tax,
$5 million after tax or $0.10 per share. The entire $7 million
adjustment is recorded in SG&A and geographically in North America.
(e) Includes Stock option expense adjustment of $2 million pre-tax and
$1 million after tax or $0.02 per share. The entire $2 million
adjustment is recorded in SG&A and geographically in North America.
(f) Includes reserve for receivables from former affiliate adjustment of
$3 million pre-tax and $2 million after tax or $0.04 per share. The
entire $3 million adjustment is recorded in SG&A and geographically
in North America.
(g) Includes a $16 million or $0.34 per share tax benefit primarily
related to FAS 109 adjustment, prior year true-up, Czech investment
tax credit and resolution of tax issues with former affiliates.
(h) Includes restructuring and restructuring related charges of
$12 million pre-tax, $8 million after tax or $0.17 per share. Of the
adjustment $10 million is recorded in cost of sales and $2 million is
in SG&A. Geographically, $4 million is recorded in North America and
$8 million in Europe, South America and India.
(i) Includes changeover costs for new aftermarket customers of
$10 million pre-tax, $7 million after-tax or $0.15 per share. The
adjustment is recorded in SG&A. Geographically, the entire amount is
recorded in North America.
(j) Includes a $4 million or $0.09 per share tax benefit primarily
related to favorable resolution of foreign tax contingencies.
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(Unaudited)
(Millions)
December 31, 2006 December 31, 2005
Assets
Cash and Cash Equivalents $202 $141
Receivables, Net 604 (a) 543 (a)
Inventories 439 360
Other Current Assets 177 153
Investments and Other Assets 748 700
Plant, Property, and Equipment,
Net 1,093 1,043
Total Assets $3,263 $2,940
Liabilities and Shareholders' Equity
Short-Term Debt $28 $22
Accounts Payable 782 651
Accrued Taxes 49 31
Accrued Interest 40 38
Other Current Liabilities 234 237
Long-Term Debt 1,350 (b) 1,356 (b)
Deferred Income Taxes 107 86
Deferred Credits and Other
Liabilities 424 366
Minority Interest 28 24
Total Shareholders' Equity 221 129
Total Liabilities and
Shareholders' Equity $3,263 $2,940
December 31, 2006 December 31, 2005
(a) Accounts Receivables net of:
Accounts receivables
securitization programs $133 $129
(b) Long term debt composed of: December 31, 2006 December 31, 2005
Term loan B (Due 2010) $356 $356
10.25% senior notes (Due 2013) 487 489
8.625% subordinated notes
(Due 2014) 500 500
Other long term debt 7 11
$1,350 $1,356
ATTACHMENT 1
Tenneco Inc. and Consolidated Subsidiaries
Statements of Cash Flows
(Unaudited)
(Millions)
Three Months Ended
December 31,
2006 2005
Operating activities:
Net income $14 $8
Adjustments to reconcile net
income to net cash provided
(used) by operating activities -
Depreciation and amortization
of other intangibles 48 43
Stock option expense 2 -
Deferred income taxes (52) (3)
Loss on sale of assets, net 1 1
Changes in components of
working capital (net of
acquisition)-
(Inc.)/dec. in receivables 56 115
(Inc.)/dec. in inventories (9) 29
(Inc.)/dec. in prepayments
and other current assets 20 28
Inc./(dec.) in payables 36 (51)
Inc./(dec.) in taxes accrued 23 2
Inc./(dec.) in interest accrued 6 6
Inc./(dec.) in other
current liabilities (6) (21)
Other (7) 3
Net cash provided by operating
activities 132 160
Investing activities:
Net proceeds from sale of assets 11 -
Expenditures for plant,
property & equipment (40) (44)
Acquisition of business - (3)
Expenditures for software-
related intangibles (4) (2)
Investments and other 2 -
Net cash used by investing
activities (31) (49)
Financing activities:
Issuance of common shares 4 1
Issuance of long-term debt - -
Retirement of long-term debt (1) (2)
Net inc. in short-term debt
excluding current
maturities on long-term debt (26) (55)
Other (2) (1)
Net cash used by financing
activities (25) (57)
Effect of foreign exchange rate
changes on cash and cash
equivalents 10 (2)
Increase in cash and cash
equivalents 86 52
Cash and cash equivalents,
October 1 116 89
Cash and cash equivalents,
December 31 $202 $141
Cash paid during the period for
interest $34 $32
Cash paid during the period for
income taxes 8 $7
Non-cash Investing and Financing
Activities
Retirement of obligation and
exchange of property - (2)
ATTACHMENT 1
Tenneco Inc. and Consolidated Subsidiaries
Statements of Cash Flows
(Unaudited)
(Millions)
Twelve Months Ended
December 31,
2006 2005
Operating activities:
Net income $51 $58
Adjustments to reconcile net
income to net cash provided (used) by
operating activities -
Depreciation and amortization
of other intangibles 184 177
Stock option expense 5 -
Deferred income taxes (43) -
Loss on sale of assets, net 3 3
Changes in components of
working capital (net of
acquisition)-
(Inc.)/dec. in receivables (29) (94)
(Inc.)/dec. in inventories (56) 7
(Inc.)/dec. in prepayments
and other current assets (14) 5
Inc./(dec.) in payables 87 1
Inc./(dec.) in taxes accrued 15 13
Inc./(dec.) in interest
accrued 2 4
Inc./(dec.) in other current
liabilities (6) (16)
Other (7) (24)
Net cash provided by operating
activities 192 134
Investing activities:
Net proceeds from sale of assets 17 4
Expenditures for plant, property
& equipment (170) (144)
Acquisition of business - (14)
Expenditures for software-
related intangibles (13) (14)
Investments and other 1 1
Net cash used by investing
activities (165) (167)
Financing activities:
Issuance of common shares 17 7
Issuance of long-term debt - 1
Retirement of long-term debt (4) (45)
Net inc. in short-term debt
excluding current maturities
on long-term debt 3 1
Other - -
Net cash provided (used) by
financing activities 16 (36)
Effect of foreign exchange rate
changes on cash and cash equivalents 18 (4)
Increase (Decrease) in cash and
cash equivalents 61 (73)
Cash and cash equivalents, January 1 141 214
Cash and cash equivalents,
December 31 $202 $141
Cash paid during the period for
interest $137 $126
Cash paid during the period for
income taxes 26 $23
Non-cash Investing and Financing
Activities
Retirement of obligation and
exchange of property - (2)
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
Q4 2006
North Europe Asia
America & SA Pacific Total
Net income $14
Minority interest 2
Income tax benefit (15)
Interest expense (net of
interest capitalized) 35
EBIT, Income before
interest expense, income
taxes and minority interest
(GAAP measure) $16 $15 $5 36
Depreciation and amortization
of other intangibles 24 20 4 48
Total EBITDA(2) $40 $35 $9 $84
Q4 2005
North Europe Asia
America & SA Pacific Total
Net income $8
Minority interest 1
Income tax benefit (4)
Interest expense (net of
interest capitalized) 33
EBIT, Income before
interest expense, income
taxes and minority
interest (GAAP measure) $19 $13 $6 38
Depreciation and
amortization of other
intangibles 23 18 2 43
Total EBITDA(2) $42 $31 $8 $81
(1) Generally Accepted Accounting Principles
(2) EBITDA represents income before interest expense, income taxes,
minority interest 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 data. 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 its debt holders utilize and analyze
our 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.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) TO NON-GAAP EARNINGS MEASURES(2)
Unaudited
Q4 2006 Q4 2005
EBITDA Net Per EBITDA Net Per
(3) EBIT Income Share (3) EBIT Income Share
Earnings Measures $84 $36 $14 $0.30 $81 $38 $8 $0.18
Adjustments (reflect
non-GAAP measures):
Restructuring and
restructuring related
expenses 6 6 4 0.08 5 5 3 0.06
New aftermarket customer
changeover costs (4) - - - - 10 10 7 0.15
Pension replacement (7) (7) (5) (0.10) - - - -
Tax adjustments - - (13) (0.28) - - (5) (0.11)
Reserve for receivables
from former affiliate 3 3 2 0.04
Stock option adjustment 2 2 1 0.02 - - - -
Non-GAAP earnings
measures $88 $40 $3 $0.06 $96 $53 $13 $0.28
Q4 2006
North Europe Asia
America & SA Pacific Total
EBIT $16 $15 $5 $36
Restructuring and
restructuring related
expenses 3 3 - 6
Pension replacement (7) - - (7)
Reserve for receivables
from former affiliate 3 - - 3
Stock option adjustment 2 - - 2
Adjusted EBIT $17 $18 $5 $40
Q4 2005
North Europe Asia
America & SA Pacific Total
EBIT $19 13 $6 $38
Restructuring and
restructuring related
expenses 2 3 - 5
New aftermarket customer
changeover costs 10 - - 10
Adjusted EBIT $31 $16 $6 $53
(1) Generally Accepted Accounting Principles
(2) Tenneco presents the above reconciliation of GAAP to non-GAAP earnings
measures primarily to reflect the results for the fourth quarters 2006
and 2005 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
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.
(3) EBITDA represents income before interest expense, income taxes,
minority interest 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 data. 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 its debt holders utilize and analyze our
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.
(4) Represents costs associated with changing new aftermarket customers
from their prior suppliers to an inventory of our products. Although
our aftermarket business regularly incurs changeover costs, we
specifically identify in the table above the changeover costs that,
based on the size or number of customers involved, we believe are of
an unusual nature for the time period in which they were incurred.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
YTD 2006
North Europe Asia
America & SA Pacific Total
Net income $51
Minority interest 6
Income tax expense 3
Interest expense (net of
interest capitalized) 136
EBIT, Income before interest
expense, income taxes and
minority interest (GAAP measure) $103 $81 $12 196
Depreciation and amortization
of other intangibles 92 79 13 184
Total EBITDA(2) $195 $160 $25 $380
YTD 2005
North Europe Asia
America & SA Pacific Total
Net income $58
Minority interest 2
Income tax expense 25
Interest expense (net of
interest capitalized) 130
EBIT, Income before interest
expense, income taxes and
minority interest (GAAP measure) $145 $54 $16 215
Depreciation and
amortization of other
intangibles 91 75 11 177
Total EBITDA(2) $236 $129 $27 $392
(1) Generally Accepted Accounting Principles
(2) EBITDA represents income before interest expense, income taxes,
minority interest 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 data. 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 its debt holders utilize and analyze our
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.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) TO NON-GAAP EARNINGS MEASURES(2)
Unaudited
YTD 2006 YTD 2005
EBITDA Net Per EBITDA Net Per
(3) EBIT Income Share (3) EBIT Income Share
Earnings Measures $380 $196 $51 $1.10 $392 $215 $58 $1.29
Adjustments (reflect
non-GAAP measures):
Restructuring and
restructuring related
expenses 27 27 17 0.39 12 12 8 0.17
New aftermarket
customer changeover
costs (4) 6 6 4 0.08 10 10 7 0.15
Pension replacement (7) (7) (5) (0.10) - - - -
Stock based
compensation
accounting change (5) 1 1 1 0.02 - - - -
Tax adjustments - - (16) (0.34) - - (4) (0.09)
Reserve for receivables
from former affiliate 3 3 2 0.04 - - - -
Stock option adjustment 2 2 1 0.02 - - - -
Non-GAAP earnings
measures $412 $228 $55 $1.21 $414 $237 $69 $1.52
YTD 2006
North Europe Asia
America & SA Pacific Total
EBIT $103 $81 $12 $196
Restructuring and
restructuring related
expenses 13 8 6 27
New aftermarket
customer changeover
costs (4) 6 - - 6
Pension replacement (7) (7)
Stock based
compensation
accounting change (5) 1 - - 1
Reserve for receivables
from former affiliate 3 - - 3
Stock option adjustment 2 2
Adjusted EBIT $121 $89 $18 $228
YTD 2005
North Europe Asia
America & SA Pacific Total
EBIT $145 54 $16 $215
Restructuring and
restructuring related
expenses 4 8 - 12
New aftermarket
customer changeover
costs 10 - - 10
Adjusted EBIT $159 $62 $16 $237
(1) Generally Accepted Accounting Principles
(2) Tenneco presents the above reconciliation of GAAP to non-GAAP earnings
measures primarily to reflect the results for 2006 and 2005 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 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.
(3) EBITDA represents income before interest expense, income taxes,
minority interest 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 data. 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 its debt holders utilize and analyze our
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.
(4) Represents costs associated with changing new aftermarket customers
from their prior suppliers to an inventory of our products. Although
our aftermarket business regularly incurs changeover costs, we
specifically identify in the table above the changeover costs that,
based on the size or number of customers involved, we believe are of
an unusual nature for the time period in which they were incurred.
(5) 2006 includes adjustments to eliminate the additional stock based
compensation expense and the impact on the diluted shares calculation
associated with FAS 123R, which the company adopted in 2006. See also
Attachment I, Statements of Income footnote (b for the twelve months
ended December 31).
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
Q4 2006
Revenues
Sub- Exclud-
strate ing
Sales Currency
Revenues Exclud- and
Exclud- ing Sub-
Currency ing Currency strate
Revenues Impact Currency Impact Sales
North America Original
Equipment
Ride Control $112 $- $112 $- $112
Exhaust 251 - 251 91 160
Total North America
Original Equipment 363 - 363 91 272
North America Aftermarket
Ride Control 81 - 81 - 81
Exhaust 34 - 34 - 34
Total North America
Aftermarket 115 - 115 - 115
Total North America 478 - 478 91 387
Europe Original Equipment
Ride Control 100 9 91 - 91
Exhaust 352 34 318 152 166
Total Europe Original
Equipment 452 43 409 152 257
Europe Aftermarket
Ride Control 40 3 37 - 37
Exhaust 50 5 45 - 45
Total Europe Aftermarket 90 8 82 - 82
South America & India 71 1 70 8 62
Total Europe, South America
& India 613 52 561 160 401
Asia 72 - 72 26 46
Australia 46 3 43 5 38
Total Asia Pacific 118 3 115 31 84
Total Tenneco Inc. $1,209 $55 $1,154 $282 $872
Q4 2005
Revenues
Sub- Exclud-
strate ing
Sales Currency
Revenues Exclud- and
Exclud- ing Sub-
Currency ing Currency strate
Revenues Impact Currency Impact Sales
North America Original
Equipment
Ride Control $117 $- $117 $- $117
Exhaust 255 - 255 68 187
Total North America
Original Equipment 372 - 372 68 304
North America Aftermarket
Ride Control 77 - 77 - 77
Exhaust 36 - 36 - 36
Total North America
Aftermarket 113 - 113 - 113
Total North America 485 - 485 68 417
Europe Original Equipment
Ride Control 87 - 87 - 87
Exhaust 265 - 265 84 181
Total Europe Original
Equipment 352 - 352 84 268
Europe Aftermarket
Ride Control 35 - 35 - 35
Exhaust 41 - 41 - 41
Total Europe Aftermarket 76 - 76 - 76
South America & India 61 - 61 6 55
Total Europe, South America
& India 489 - 489 90 399
Asia 41 - 41 10 31
Australia 49 - 49 5 44
Total Asia Pacific 90 - 90 15 75
Total Tenneco Inc. $1,064 $- $1,064 $173 $891
Tenneco presents the above reconciliation of revenues in order to
reflect the trend in the company's sales, in various product lines
and geographical regions, separately from the effects of doing
business in currencies other than the U.S. dollar. Additionally,
substrate sales which the company previously referred to as pass-
through sales 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 these factors. Tenneco believes investors find this
information useful in understanding period to period comparisons in
the company's revenues.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
YTD 2006
Revenues
Sub- Exclud-
strate ing
Sales Currency
Revenues Exclud- and
Exclud- ing Sub-
Currency ing Currency strate
Revenues Impact Currency Impact Sales
North America Original
Equipment
Ride Control $483 $- $483 $- $483
Exhaust 928 6 922 272 650
Total North America
Original Equipment 1,411 6 1,405 272 1,133
North America Aftermarket
Ride Control 385 - 385 - 385
Exhaust 163 - 163 - 163
Total North America
Aftermarket 548 - 548 - 548
Total North America 1,959 6 1,953 272 1,681
Europe Original Equipment
Ride Control 380 (a) 10 370 - 370
Exhaust 1,264 34 1,230 504 726
Total Europe Original
Equipment 1,644 44 1,600 504 1,096
Europe Aftermarket
Ride Control 178 3 175 - 175
Exhaust 211 5 206 - 206
Total Europe Aftermarket 389 8 381 - 381
South America & India 272 14 258 32 226
Total Europe, South America &
India 2,305 66 2,239 536 1,703
Asia 246 - 246 85 161
Australia 175 (1) 176 19 157
Total Asia Pacific 421 (1) 422 104 318
Total Tenneco Inc. $4,685 $71 $4,614 $912 $3,702
YTD 2005
Revenues
Sub- Exclud-
strate ing
Sales Currency
Revenues Exclud- and
Exclud- ing Sub-
Currency ing Currency strate
Revenues Impact Currency Impact Sales
North America Original
Equipment
Ride Control $495 $- $495 $- $495
Exhaust 1,011 - 1,011 272 739
Total North America
Original Equipment 1,506 - 1,506 272 1,234
North America Aftermarket
Ride Control 361 - 361 - 361
Exhaust 161 - 161 - 161
Total North America
Aftermarket 522 - 522 - 522
Total North America 2,028 - 2,028 272 1,756
Europe Original Equipment
Ride Control 378 (a) - 378 - 378
Exhaust 1,078 - 1,078 327 751
Total Europe Original
Equipment 1,456 - 1,456 327 1,129
Europe Aftermarket
Ride Control 169 - 169 - 169
Exhaust 195 - 195 - 195
Total Europe Aftermarket 364 - 364 - 364
South America & India 233 - 233 20 213
Total Europe, South America &
India 2,053 - 2,053 347 1,706
Asia 149 - 149 43 106
Australia 211 - 211 19 192
Total Asia Pacific 360 - 360 62 298
Total Tenneco Inc. $4,441 $- $4,441 $681 $3,760
Tenneco presents the above reconciliation of revenues in order to
reflect the trend in the company's sales, in various product lines and
geographical regions, separately from the effects of doing business in
currencies other than the U.S. dollar. Additionally, substrate sales
which the company previously referred to as pass-through sales 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 these factors. Tenneco believes
investors find this information useful in understanding period to
period comparisons in the company's revenues.
(a) Beginning in the second quarter of 2005, Tenneco changed its
accounting for a customer contract in its European OE Ride Control
unit. The cost of sales for this contract are now netted against the
revenues, reducing reported revenues and cost of sales. In the first
quarter of 2005, Tenneco recorded $15 million in revenues for this
contract.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF NON-GAAP MEASURES
Debt net of cash / Adjusted EBITDA - 12 months
Year Ended December 31
2006 2005
Total debt $1,378 $1,378
Cash and cash equivalents 202 141
Debt net of cash balances (1) 1,176 1,237
Adjusted EBITDA (2) (3) 412 414
Ratio of net debt to adjusted EBITDA (4) 2.9x 3.0x
(1) Tenneco presents debt net of cash balances because management believes
it is a useful measure of Tenneco's credit position and progress
toward reducing leverage. The calculation is limited in that the
company may not always be able to use cash to repay debt on a dollar-
for- dollar basis.
(2) EBITDA represents income before interest expense, income taxes,
minority interest 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 data. 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 Inc. has presented EBITDA because it regularly
reviews EBITDA as a measure of the company's performance. In
addition, Tenneco believes its debt holders utilize and analyze our
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.
(3) Adjusted EBITDA is presented in order to reflect the results in a
manner that allows a better understanding 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. Similar adjustments to EBITDA have been recorded in
earlier periods, and similar types of adjustments can reasonably be
expected to be recorded in future periods. 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 the above reconciliation of the ratio debt net of
cash to annual adjusted EBITDA to show trends that investors may find
useful in understanding the company's ability to service its debt.
For purposes of this calculation, annual adjusted EBITDA is used as an
indicator of the company's performance and debt net of cash is
presented as an indicator of our credit position and progress toward
reducing our financial leverage. This reconciliation is provided as
supplemental information and not intended to replace the company's
existing covenant ratios or any other financial measures that
investors may find useful in describing the company's financial
position. See notes (1), (2) and (3) for a description of the
limitations of using debt net of cash, EBITDA and adjusted EBITDA.
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