Tenneco Automotive Reports Record First Quarter Revenues and Net Income
- Twelfth consecutive quarter of year-over-year revenue growth
- Net income of $7 million; EPS of 16-cents versus year earlier loss
- EBIT up 35%; EBITDA up 16%
LAKE FOREST, Ill., April 21 -- Tenneco Automotive reported improved first quarter net income of $7 million, or 16-cents per diluted share, compared with a net loss of $2 million, or 5-cents per diluted share in first quarter 2004. The company improved net income despite North American OE production cuts and higher steel prices globally. Adjusted for the items below, first quarter net income increased to $9 million, or 20-cents per diluted share, versus $6 million, or 15-cents per diluted share a year ago.
EBIT (earnings before interest, taxes, and minority interest) increased 35 percent year-over-year to $44 million compared with $33 million in first quarter 2004. EBITDA (EBIT before depreciation and amortization) was $90 million versus $78 million a year ago. Adjusted EBIT was $47 million, flat year-over-year, and the company reported its 13th consecutive quarter of year-over-year improved adjusted EBITDA at $93 million, up from $92 million a year ago. See the tables attached to the press release, which reconcile GAAP results to non-GAAP results.
Adjusted first quarter 2004 and 2005 results:
Q1 2005 Q1 2004
Net Per Net Per
EBITDA EBIT Income Share EBITDA EBIT Income Share
Earnings Measures $90 $44 $7 $0.16 $78 $33 $(2) $(0.05)
Adjustments (reflects
non-GAAP measures):
Restructuring and
restructuring
related expenses 3 3 2 0.04 5 5 3 0.07
New Aftermarket
customer changeover
costs - - - - 6 6 3 0.08
Consulting fees
indexed to stock
price - - - - 3 3 2 0.05
Non-GAAP earnings
measures $93 $47 $9 $0.20 $92 $47 $6 $0.15
First quarter 2005 adjustments:
-- Restructuring and restructuring related expenses of $3 million
pre-tax, or 4-cents per diluted share.
First quarter 2004 adjustments:
-- Restructuring and restructuring related costs of $5 million pre-tax,
or 7-cents per diluted share;
-- Expenses of $6 million pre-tax, or 8-cents per diluted share,
associated with changeover costs for a new aftermarket customer;
-- Expenses of $3 million pre-tax, or 5-cents per diluted share, related
to consulting fees indexed to the stock price based on a 1999
agreement for implementing EVA(R), a shareholder value improvement
initiative.
"We are pleased with our performance this quarter, especially in light of tough market conditions with slowing OE production in North America and the ongoing high cost of steel worldwide," said Mark P. Frissora, chairman and CEO, Tenneco Automotive. "New incremental OE business in North America and Europe and our strong aftermarket presence globally, combined with a diverse OE customer base, a favorable platform mix and our geographical balance, helped us counter these negative market conditions."
Tenneco Automotive reported its twelfth consecutive quarter of year-over- year revenue growth with $1.106 billion in the quarter, compared with $1.033 billion in first quarter 2004. Favorable currency exchange rates benefited revenue by $37 million. Incremental new OE business; higher heavy duty and specialty vehicle volumes; strong Japanese OE transplant business (21% of North America OE sales); and improved North America aftermarket sales drove the increase.
The company's gross margin in the quarter was 19.3%, compared with 19.7% a year ago. Restructuring impacted gross margin by 0.1 percentage point in the quarter and 0.3 percentage point in first quarter 2004. This year, higher net steel costs also had a 0.8 percentage point impact, more than accounting for the year-over-year decline in gross margin.
Steel cost increases for the first quarter, net of other material cost savings and recovery from OE and aftermarket customers, were $9 million. The company still expects its total 2005 steel cost increases, net of other material cost savings and recovery from customers, will be between $30 million and $50 million.
Sales, General, Administrative and Engineering (SGA&E) expense in the quarter was 11.0% of sales, including 0.1 percentage point for restructuring versus 12.2% a year ago, which includes 0.7 percentage point for restructuring, costs related to a new aftermarket customer and consulting fees indexed to the stock price.
Operating cash outflow in the quarter was $99 million versus a $13 million inflow in the first quarter 2004. The change was driven by seasonal inventory growth, primarily to support stronger aftermarket sales globally; the impact from the discontinuation of Ford Motor Company's and DaimlerChysler's advance payment programs; and a days payable outstanding performance of 74 days, in-line with the company's historical average over the last two years of 74 days, versus a record 81 days payable outstanding in first quarter 2004.
"This was a particularly heavy cash use quarter, due to our typical higher working capital use in the first quarter as well as higher use of operating cash to support stronger revenue growth. Additionally, we used $40 million in cash to reduce our long-term debt, as well as another $11 million to acquire the exhaust operations of Gabilan Manufacturing. We believe these two decisions, which reduced our financing costs and completed an accretive acquisition that also resulted in acquiring 100% of Harley Davidson's exhaust business, will deliver short and long-term benefits for shareholders," Frissora said. "Generating cash to pay down debt remains our number one priority and we will continue our intense focus on working capital reductions."
Cash performance in the quarter resulted in cash balances of $68 million at quarter-end and debt net of cash balances of $1.340 billion. Total debt was $1.408 billion versus $1.426 billion a year ago.
The company outperformed its bank debt covenants in the quarter. At March 31, the leverage ratio was 3.52, below the maximum limit of 4.75; the fixed charge ratio was 1.86, exceeding the required ratio of 1.10; and the interest coverage ratio was 2.84, exceeding the minimum coverage ratio of 2.0.
The company also announced that it has been notified by General Motors that GM's current advanced payment program will terminate during the second quarter. At March 31, 2005, that program had reduced the company's receivables by $74 million. Tenneco Automotive believes the GM decision will have minimal impact on its liquidity given that Tenneco Automotive expanded its borrowing facilities by $55 million during the first quarter.
NORTH AMERICA
-- North American original equipment revenue decreased to $375 million
versus $381 million in first quarter 2004. Excluding the impact of
currency and catalytic converter pass-through sales, revenue was up 4%
(Tables to this press release reconcile GAAP revenues to revenues
adjusted for catalytic converter pass-through sales and currency). A
favorable platform mix, new platform launches and strong heavy duty
ride control volumes helped offset production declines on key vehicle
platforms.
-- North American aftermarket revenue was $130 million, versus
$122 million in first quarter 2004. The increase was driven by new
business, stronger unit sales and higher pricing in both product
lines.
-- EBIT for North American operations was $37 million, versus $30 million
a year ago. Adjusted first quarter 2005 EBIT was $39 million, flat
year-over-year. The company's intensified efforts to control costs,
improve manufacturing efficiencies and generate savings from
restructuring initiatives as well as stronger volumes helped offset
higher steel costs.
-- First quarter 2005 EBIT results include $2 million in restructuring
and restructuring related costs. First quarter 2004 EBIT results
include $9 million in costs related to the adjustments described
above.
EUROPE AND SOUTH AMERICA
-- European original equipment revenue was $386 million versus
$328 million a year ago. Adjusted for favorable currency and
catalytic converter pass-through sales, revenue increased 11%. The
increase was driven by record ride control revenues and the company's
position on top-selling vehicles.
-- European aftermarket revenue was $82 million (which includes
$4 million in favorable currency) versus $80 million a year ago.
Exhaust sales outpaced an 8% industry decline due to market share
gains and price increases, but were more than offset by slowing ride
control sales.
-- South American operations generated $44 million in revenue compared
with $34 million in first quarter 2004. Adjusted for favorable
currency, revenues increased 22% driven by higher OE and aftermarket
sales.
-- EBIT for European and South American operations significantly improved
to $5 million versus breakeven for the same period one year ago.
Adjusted EBIT also improved to $6 million from $4 million in the first
quarter 2004. Record OE ride control volumes, stronger OE production
rates overall and more efficient aftermarket operations drove the
improvement.
-- First quarter 2005 EBIT adjustments include $1 million in
restructuring and restructuring related costs. First quarter 2004
EBIT includes $4 million in costs related to the adjustments described
above.
ASIA PACIFIC
-- Revenue from Asian operations was $42 million, up from $39 million in
first quarter 2004. Stronger ride control and exhaust sales in India
and stronger exhaust sales in Thailand more than offset a 6% revenue
decline in China due to weakened market conditions.
-- Australian revenue was $47 million versus $49 million a year ago.
Soft OE sales as a result of an OE customer's start-up issues were
partially offset by new ride control springs business.
-- EBIT for the Asia Pacific operations was $2 million versus $3 million,
or $4 million on an adjusted basis, in first quarter 2004. The
decline was driven by a drop in China's profitability due to lower
volumes combined with higher costs associated with the company's plans
for a new technical center to support its OE business and to establish
a stronger aftermarket presence.
-- First quarter 2004 EBIT includes $1 million in costs related to the
adjustments described above.
"While we are not immune to production changes in North America or other market uncertainties, we have plans in place to adjust our operations to respond to changing market conditions," Frissora said. "We believe our product, market and global diversity will help us counter current and future market challenges."
The company also announced that it elected to change its accounting for inventory valuation in North America from Last In/First Out (LIFO) to First In/First Out (FIFO). The change, which did not have any impact on the company's results of operations, will drive greater global consistency in accounting methodologies and improve administrative efficiency. The balance sheet has been restated to reverse LIFO reserves and related deferred tax effects.
Attachment 1 to this press release provides additional information on Tenneco Automotive's first quarter 2005 results:
Statements of Income (Loss) - 3 Months Balance Sheets Statements of Cash Flow Attachment 2: Reconciliation of GAAP Net Income to EBITDA - 3 Months Reconciliation of GAAP to Non-GAAP Earnings Measures - 3 Months Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures - 3 Months
Tenneco Automotive is a $4.2 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 18,400 employees worldwide. Tenneco Automotive 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 Automotive 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.
ATTACHMENT 1
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
Unaudited
THREE MONTHS ENDED MARCH 31,
(Millions except share and per share amounts)
2005 2004
Net sales and operating revenues $1,106 $1,033 (b)
Costs and Expenses
Cost of Sales (exclusive of
depreciation shown below) 893 (a) 829 (c)
Engineering, Research and
Development 24 17
Selling, General and
Administrative 98 (a) 109 (b) (c) (d)
Depreciation and Amortization of
Other Intangibles 46 45
Total Costs and Expenses 1,061 1,000
Other Loss (1) -
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 37 (a) 30 (b) (c) (d)
Europe & South America 5 (a) - (c) (d)
Asia Pacific 2 3 (d)
44 33
Less:
Interest expense (net of interest
capitalized) 32 35
Income tax expense (benefit) 4 (1)
Minority interest 1 1
Net Income (Loss) 7 (2)
Average common shares outstanding:
Basic 42.7 40.9
Diluted 45.0 43.5
Earnings (loss) per share of common stock:
Basic $0.17 $(0.05)
Diluted $0.16 $(0.05)
(a) Includes restructuring and restructuring related charges of
$3 million pre-tax, $2 million after tax or $0.04 per share. Of the
adjustment $2 million is recorded in cost of sales and the remaining
$1 million is in SG&A. Geographically, $2 million is recorded in
North America and $1 million in Europe.
(b) Includes changeover costs for a new aftermarket customer of
$6 million pre-tax, $3 million after-tax or $0.08 per share. Of the
adjustment $4 million is recorded in Sales and $2 million is recorded
in SG&A. Geographically all of the charge is recorded in North
America.
(c) Includes restructuring and restructuring related charges of
$5 million pre-tax, $3 million after tax or $0.07 per share. Of the
adjustment $2 million is recorded in SG&A and the remaining
$3 million is in cost of sales. Geographically, $2 million is
recorded in North America and $3 million in Europe.
(d) Consulting fees indexed to stock price of $3 million pre-tax,
$2 million after-tax or $0.05 per share. The entire charge is
recorded in SG&A. Geographically $1 million of the charge is
recorded in North America, Europe and Asia Pacific respectively.
ATTACHMENT 1
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(Unaudited)
(Millions)
Restated
March 31, 2005 December 31, 2004
Assets
Cash and Cash Equivalents $68 $214
Receivables, Net 556 (a) 488 (a)
Inventories 432 396
Other Current Assets 212 194
Investments and Other Assets 694 693
Plant, Property, and Equipment, Net 1,095 1,134
Total Assets $3,057 $3,119
Liabilities and Shareholders' Equity
Short-Term Debt $48 $19
Accounts Payable 704 696
Accrued Taxes 25 24
Accrued Interest 32 35
Other Current Liabilities 250 273
Long-Term Debt 1,360 (b) 1,401 (b)
Deferred Income Taxes 125 126
Deferred Credits and Other
Liabilities 353 362
Minority Interest 25 24
Total Shareholders' Equity 135 159
Total Liabilities and
Shareholders' Equity $3,057 $3,119
(a) Accounts Receivables net of: March 31, 2005 December 31, 2004
Accounts Receivable securitization
programs $147 $124
Receivables collected under advance
payment programs $74 $132
(b) Long term debt composed of: March 31, 2005 December 31, 2004
Term loan B (Due 2010) $356 $392
10.25% senior notes (Due 2013) 490 490
8.625% subordinated notes (Due 2014) 500 500
Other long term debt 14 19
$1,360 $1,401
ATTACHMENT 1
Tenneco Automotive Inc. and Consolidated Subsidiaries
Statements of Cash Flows
(Unaudited)
(Millions)
Three Months Ended
March 31,
2005 2004
Operating activities:
Net income $7 $(2)
Adjustments to reconcile income (loss)
to net cash provided (used) by operating
activities -
Depreciation and amortization 46 45
Deferred income taxes (4) (9)
Changes in components of working capital
(net of acquisition) -
(Inc.)/dec. in receivables (78) (70)
(Inc.)/dec. in inventories (43) (27)
(Inc.)/dec. in prepayments and other
current assets (23) (26)
Inc./(dec.) in payables 18 79
Inc./(dec.) in taxes accrued - 5
Inc./(dec.) in interest accrued (3) (2)
Inc./(dec.) in other current liabilities (8) 15
Other (11) 5
Net cash provided by operating activities (99) 13
Investing activities:
Net proceeds from sale of assets 1 11
Expenditures for plant, property & equipment (32) (25)
Acquisition of business (11) -
Investments and other 3 (1)
Net cash used by investing activities (39) (15)
Financing activities:
Issuance of common shares 2 3
Retirement of long-term debt (41) (2)
Net inc./(dec.) in short-term debt
excluding current maturities on long-term
debt 33 (2)
Other 1 1
Net cash used by financing activities (5) -
Effect of foreign exchange rate changes on
cash and cash equivalents (3) 6
Inc./(dec.) in cash and cash equivalents (146) 4
Cash and cash equivalents, January 1 214 145
Cash and cash equivalents, March 31 $68 $149
Cash paid during the period for interest $31 $37
Cash paid during the period for income taxes $7 $3
ATTACHMENT 2
TENNECO AUTOMOTIVE
RECONCILIATION OF GAAP(a) NET INCOME (LOSS) TO EBITDA
Unaudited
Q1 2005
North Europe Asia
America & SA Pacific Total
Net income $7
Minority interest 1
Income tax expense (benefit) 4
Interest expense (net of interest
capitalized) 32
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $37 $5 $2 44
Depreciation and amortization of
other intangibles 23 20 3 46
Total EBITDA(b) $60 $25 $5 $90
Q1 2004
North Europe Asia
America & SA Pacific Total
Net income (loss) $(2)
Minority interest 1
Income tax expense (benefit) (1)
Interest expense (net of interest
capitalized) 35
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $30 $- $3 33
Depreciation and amortization of
other intangibles 24 17 4 45
Total EBITDA $54 $17 $7 $78
(a) Generally Accepted Accounting Principles
(b) 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 Automotive has presented EBITDA because it
regularly reviews EBITDA as a measure of the company's performance.
In addition, Tenneco Automotive believes its debt holders utilize and
analyze our EBITDA for similar purposes. Tenneco Automotive 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 AUTOMOTIVE
RECONCILIATION OF GAAP(a) TO NON-GAAP EARNINGS MEASURES(b)
Unaudited
Q1 2005 Q1 2004
EBITDA Net Per EBITDA Net Per
(c) EBIT Income Share (c) EBIT Income Share
Earnings Measures $90 $44 $7 $0.16 $78 $33 $(2) $(0.05)
Adjustments (reflects
non-GAAP measures):
Restructuring and
restructuring
related expenses 3 3 2 0.04 5 5 3 0.07
New Aftermarket
customer changeover
costs - - - - 6 6 3 0.08
Consulting fees
indexed to stock
price - - - - 3 3 2 0.05
Non-GAAP earnings
measures $93 $47 $9 $0.20 $92 $47 $6 $0.15
Q1 2005
North Europe Asia
America & SA Pacific Total
EBIT $37 $5 $2 $44
Restructuring and restructuring related
expenses 2 1 - 3
Adjusted EBIT $39 $6 $2 $47
Q1 2004
North Europe Asia
America & SA Pacific Total
EBIT $30 - $3 $33
Restructuring and
restructuring related
expenses 2 3 - 5
New Aftermarket
customer changeover
costs 6 - - 6
Consulting fees
indexed to stock
price 1 1 1 3
Adjusted EBIT $39 $4 $4 $47
(a) Generally Accepted Accounting Principles
(b) Tenneco Automotive presents the above reconciliation of GAAP to
non-GAAP earnings measures in order to reflect the results for the
first quarters of 2005 and 2004 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.
(c) 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 Automotive has presented EBITDA because it
regularly reviews EBITDA as a measure of the company's performance.
In addition, Tenneco Automotive believes its debt holders utilize and
analyze our EBITDA for similar purposes. Tenneco Automotive 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 AUTOMOTIVE
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
Q1 2005
Revenues
Pass- Excluding
through Currency
Sales and
Revenues Excluding Pass-
Currency Excluding Currency through
Revenues Impact Currency Impact Sales
North America Aftermarket
Ride Control $91 $- $91 $- $91
Exhaust 39 - 39 - 39
Total North America
Aftermarket 130 - 130 - 130
North America Original
Equipment
Ride Control 127 - 127 - 127
Exhaust 248 2 246 67 179
Total North America
Original Equipment 375 2 373 67 306
Total North America 505 2 503 67 436
Europe Aftermarket
Ride Control 37 2 35 - 35
Exhaust 45 2 43 - 43
Total Europe
Aftermarket 82 4 78 - 78
Europe Original Equipment
Ride Control 109 11 98 - 98
Exhaust 277 16 261 80 181
Total Europe Original
Equipment 386 27 359 80 279
South America 44 3 41 4 37
Total Europe & South
America 512 34 478 84 394
Asia 42 - 42 13 29
Australia 47 1 46 4 42
Total Asia Pacific 89 1 88 17 71
Total Tenneco Automotive $1,106 $37 $1,069 $168 $901
Q1 2004
Revenues
Excluding
Currency
and
Revenues Pass- Pass-
Currency Excluding through through
Revenues Impact Currency Sales Sales
North America Aftermarket
Ride Control $85 $- $85 $- $85
Exhaust 37 - 37 - 37
Total North America
Aftermarket 122 - 122 - 122
North America Original
Equipment
Ride Control 118 - 118 - 118
Exhaust 263 - 263 88 175
Total North America
Original Equipment 381 - 381 88 293
Total North America 503 - 503 88 415
Europe Aftermarket
Ride Control 38 - 38 - 38
Exhaust 42 - 42 - 42
Total Europe Aftermarket 80 - 80 - 80
Europe Original Equipment
Ride Control 85 - 85 - 85
Exhaust 243 - 243 77 166
Total Europe Original
Equipment 328 - 328 77 251
South America 34 - 34 4 30
Total Europe & South
America 442 - 442 81 361
Asia 39 - 39 13 26
Australia 49 - 49 4 45
Total Asia Pacific 88 - 88 17 71
Total Tenneco Automotive $1,033 $- $1,033 $186 $847
Tenneco Automotive 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,
pass-through catalytic converter sales include precious metals pricing,
which may be volatile. While Tenneco Automotive's original equipment
customers assume the risk of this volatility, it impacts reported
revenue. Excluding pass-through catalytic converter sales removes this
impact. Tenneco Automotive uses this information to analyze the trend
in revenues before these factors. Tenneco Automotive believes
investors find this information useful in understanding period to
period comparisons in the company's revenues.