Tenneco Reports First Quarter Results
-- Cash flow from operations improves $73 million year-over-year
-- European segment EBIT up 45%
-- North American aftermarket improves; revenue up 8%
-- Debt net of cash down $52 million year-over-year
LAKE FOREST, Ill., April 27 -- Tenneco Inc. reported first quarter 2006 net income of $7 million, or 14-cents per diluted share, versus $7 million, or 16-cents per diluted share in first quarter 2005. Adjusted for the items below, net income was $9 million, or 20-cents per diluted share, even with a year ago (see the tables attached to the press release, which reconcile GAAP results to non-GAAP results). This quarter's net income includes an expense of $1 million for adopting the new accounting standard for expensing stock-based compensation.
(Logo: http://www.newscom.com/cgi-bin/prnh/20051028/CGF002LOGO )
EBIT (earnings before interest, taxes and minority interest) was $42 million compared with $44 million in first quarter 2005. On an adjusted basis, EBIT was $49 million, up from $47 million a year ago. Currency had a $2 million negative impact on EBIT in the quarter, versus first quarter 2005. EBITDA (EBIT before depreciation and amortization) was $86 million, compared with $90 million the previous year. Adjusted EBITDA was $93 million, even with first quarter 2005. Currency had a $3 million negative impact on EBITDA in the quarter, versus first quarter 2005.
Cash used by operations in the quarter was an outflow of $23 million, reflecting the seasonality of the business, compared with an outflow of $96 million for the same period one year ago. The $73 million improvement was driven by working capital improvements and reflects year-over-year improvement of $19 million in inventory and $46 million in cash from accounts payable.
The strong cash performance resulted in debt net of cash of $1.288 billion, an improvement versus $1.340 billion a year ago. The ratio of debt net of cash balances to adjusted LTM (Last Twelve Months) EBITDA was 3.1, down from 3.3 for the same period last year. Total debt was $1.384 billion, down from $1.408 billion a year ago.
Adjusted first quarter 2006 and 2005 results:
Q1 2006 Q1 2005
Net Per Net Per
EBITDA EBIT Income Share EBITDA EBIT Income Share
Earnings Measures $86 $42 $7 $0.14 $90 $44 $7 $0.16
Adjustments
(reflects non-
GAAP measures):
Restructuring
and
restructuring
related expenses 6 6 4 0.09 3 3 2 0.04
Stock based
compensation
accounting change 1 1 1 0.03 - - - -
Tax adjustments - - (3) (0.06) - - - -
Non-GAAP earnings
measures $93 $49 $9 $0.20 $93 $47 $9 $0.20
First quarter 2006 adjustments:
-- Restructuring related expenses of $6 million pre-tax, or 9-cents per
diluted share;
-- Expense of $1 million, or 3-cents per diluted share, to adjust for new
stock-based compensation accounting standard and the impact of a
higher number of diluted shares outstanding due to the new accounting
standard.
-- Tax benefit of $3 million, or 6-cents per diluted share, primarily
related to resolution of tax issues with former affiliates.
First quarter 2005 adjustments:
-- Restructuring related expenses of $3 million pre-tax, or 4-cents per
diluted share.
Tenneco's first quarter revenue was $1.13 billion, up 3% year-over-year. Excluding the negative impact of currency and substrate sales, quarterly revenue increased 2%.
Tenneco's balanced global presence helped drive first quarter results with earnings gains in Europe; stronger North American aftermarket performance on higher ride control volumes; and increased OE revenues in China due to the ramp-up of new platform launches. The company's North American OE revenues and earnings were negatively impacted by the wind down on several emission control vehicle platforms. Also, an increase in substrate sales in the company's European OE emission control business had an impact on Europe's year-over-year earnings improvement. Tenneco's ongoing efforts to improve manufacturing efficiency and reduce costs partially offset the impact from these issues.
"Our earnings results reflect current North American market conditions including the earlier than anticipated wind down on a large platform. Additionally, unfavorable currency had a negative impact on our EBIT results and year-over-year comparison. However, our geographical balance helped offset North American OE market pressure as we continued to see improvement in our European operations, North American aftermarket and in China," said Mark P. Frissora, chairman, CEO and president, Tenneco. "We are also pleased with the momentum we maintained on key strategies - improving cash performance, reducing debt and controlling costs - as we prepare for significant new business launches scheduled for later this year."
The company's gross margin was 18.6%. The decrease from 19.3% in first quarter 2005 was driven by an increase in substrate sales, which, on average, carry lower margins; timing on recovering costs on some steel increases; $7 million in gross material cost increases; $3 million in restructuring costs; and $1 million in higher fuel surcharges, all of which offset improved manufacturing performance from Lean and Six Sigma efforts.
Sales, General, Administrative and Engineering (SGA&E) expense in the quarter improved to 10.9% of sales from 11.1% of sales for the prior year as the company benefited from spending controls and previously announced restructuring. SGA&E on an LTM basis was 10.5%, improved from 11.4% for the same period a year ago.
NORTH AMERICA
-- North American OE revenue was $374 million, slightly down from revenue
of $375 million a year ago. Excluding the impact of currency and
substrate sales, revenue was $305 million, compared with $308 million
in first quarter 2005. (Tables to the press release reconcile GAAP
revenues to revenues adjusted for substrate sales and currency.)
Higher ride control revenues were offset by lower exhaust volumes,
primarily due to the wind down on several exhaust platforms.
-- North American aftermarket revenue increased 8% to $141 million from
$130 million the previous year, driven by stronger ride control unit
sales and higher pricing in both product lines.
-- EBIT for North American operations was $34 million, down from
$37 million in first quarter 2005. Volume declines on key exhaust
platforms more than offset improved manufacturing efficiencies and
cost reduction efforts. EBIT results reflect a negative currency
impact of $1 million and $1 million in costs associated with preparing
for new business launches later in the year.
-- EBIT for first quarter 2006 includes $3 million in restructuring and
$1 million for adopting the new accounting standard for stock-based
compensation. First quarter 2005 EBIT includes $2 million in
restructuring.
EUROPE, SOUTH AMERICA, INDIA
-- European OE revenue was $387 million up from $381 a year ago.
Adjusted for currency, substrate sales and a change in reporting for a
customer contract, revenue was up 5% from the previous year, driven by
higher volumes in both exhaust and ride control product lines.
-- European aftermarket revenue declined to $75 million, versus
$82 million the previous year. Excluding the impact of currency,
revenue was $81 million compared with $82 million in first quarter
2005. The decline was primarily due to slightly lower exhaust unit
sales, which offset higher ride control sales and price increases in
the exhaust business.
-- South America and India revenue was $65 million, up from $51 million a
year ago. South America drove the increase with higher OE volumes and
a slight increase in aftermarket ride control sales. Adjusting for
currency and substrate sales, revenue was $52 million, up from
$47 million the prior year.
-- EBIT for Europe, South America and India was $8 million, up from
$5 million in first quarter 2005 as a result of improved manufacturing
performance and continued benefits from restructuring and cost
reduction efforts. EBIT results reflect a negative currency impact of
$1 million.
-- EBIT included $1 million in restructuring costs in both first quarter
2006 and 2005.
ASIA PACIFIC
-- Asia operations generated $50 million in revenue, a 45% increase from
$35 million a year ago. Newly launched platforms and 69% higher OE
volumes in China drove the improvement. Excluding substrate sales,
revenue was $33 million compared with $22 million a year ago.
-- Australian revenue was $40 million versus $47 million the prior year,
largely the result of lower volumes due to the weakening Australian OE
market and lower aftermarket sales. Excluding the impact of currency
and substrate sales, revenue was down 11%.
-- Asia Pacific EBIT was breakeven, versus $2 million a year ago.
Adjusted for $2 million in restructuring in first quarter 2006, EBIT
was flat year-over-year. Stronger OE volumes in China offset OE
volume declines and lower aftermarket sales in Australia.
"Looking ahead, we are cautiously optimistic as we manage this year and prepare for significant growth in 2007," said Frissora. "We expect year-over- year profitability improvements to continue in our European operations as well as in the North American aftermarket. We will also begin to see early benefits in our North American OE businesses from significant new platforms scheduled to launch later this year, and our operations in China are expected to continue to grow."
Attachment 1:
Statements of Income - 3 Months
Balance Sheet
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 Revenues to Non-GAAP Revenue Measures - 3 Months
Reconciliation of Non-GAAP Measures - Ratio of Debt Net of Cash to
Adjusted EBITDA- LTM
Reconciliation of Non-GAAP Measures - SGA&E as Percent of Sales - LTM
CONFERENCE CALL
The company will host a conference call on Thursday, April 27, 2006 at 10:30 a.m. EDT. The dial in number is 888-790-1408 (domestic) or 773-756-0157 (international). The pass code 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 April 27, 2006. To access this recording, dial 866-422-8164 (domestic) or 203-369-0833 (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.
2006 ANNUAL MEETING
Tenneco's annual meeting of shareholders will be on Tuesday, May 9, 2006 at 10:00 a.m. CDT. The meeting will be held at the corporate headquarters, 500 North Field Drive, Lake Forest, Illinois. The meeting will also be available by webcast. To access the listen-only annual meeting webcast, go to the financial section of the company's website at least 15 minutes prior to the meeting to register and download any necessary software. The webcast will include an audio transmission of the proceedings and slides used in the speaker presentation. Voting will not be available electronically through the webcast.
Tenneco is a $4.4 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 "estimates," "continue," "will," "plans," "outlook" 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 12% of its 2005 net sales, recently announced 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 MARCH 31,
(Millions except share and per share amounts)
2006 2005
Net sales and operating revenues $1,132 $1,101
Costs and Expenses
Cost of Sales (exclusive of
depreciation shown below) 921 (a) 888 (d)
Engineering, Research and
Development 22 24
Selling, General and
Administrative 101 (b) 98 (d)
Depreciation and Amortization of
Other Intangibles 44 46
Total Costs and Expenses 1,088 1,056
Loss on sale of receivables (1) -
Other Expense (1) (1)
Total Other Expense (2) (1)
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 34 (a) (b) 37 (d)
Europe & South America 8 (a) 5 (d)
Asia Pacific - (a) 2
42 44
Less:
Interest expense (net of
interest capitalized) 34 32
Income tax expense - (c) 4
Minority interest 1 1
Net Income 7 7
Average common shares outstanding:
Basic 43.9 42.7
Diluted 46.7 (b) 45.0
Earnings per share of common stock:
Basic $0.15 $0.17
Diluted $0.14 (b) $0.16
(a) Includes restructuring and restructuring related charges of
$6 million pre-tax, $4 million after tax or $0.09 per share, all of
which is recorded in cost of sales. Geographically, $3 million is
recorded in North America, $1 million in Europe and South America and
$2 million is recorded 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 0.6 million for a combined impact of
$0.03 per share.
(c) Includes a $3 million or $0.06 per share tax benefit, primarily
related to resolution of tax issues with former affiliates.
(d) Includes restructuring and restructuring related charges of
$3 million pre-tax, $2 million after tax or $0.04 per share. Of the
charges, $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 and South America.
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(Unaudited)
(Millions)
March 31, 2006 December 31, 2005
Assets
Cash and Cash Equivalents $96 $141
Receivables, Net 628 (a) 543 (a)
Inventories 392 360
Other Current Assets 161 153
Investments and Other Assets 703 700
Plant, Property, and Equipment,
Net 1,052 1,043
Total Assets $3,032 $2,940
Liabilities and Shareholders' Equity
Short-Term Debt $32 $22
Accounts Payable 729 651
Accrued Taxes 43 31
Accrued Interest 33 38
Other Current Liabilities 212 237
Long-Term Debt 1,352 (b) 1,356 (b)
Deferred Income Taxes 81 86
Deferred Credits and Other
Liabilities 367 366
Minority Interest 26 24
Total Shareholders' Equity 157 129
Total Liabilities and
Shareholders' Equity $3,032 $2,940
March 31, 2006 December 31, 2005
(a) Accounts receivable
securitization programs $147 $129
(b) Long term debt composed of: March 31, 2006 December 31, 2005
Term loan B (Due 2010) $356 $356
10.25% senior notes (Due 2013) 488 489
8.625% subordinated notes
(Due 2014) 500 500
Other long term debt 8 11
$1,352 $1,356
ATTACHMENT 1
Tenneco Inc. and Consolidated Subsidiaries
Statements of Cash Flows
(Unaudited)
(Millions)
Three Months Ended
March 31,
2006 2005
Operating activities:
Net income $7 $7
Adjustments to reconcile income
to net cash used by operating
activities -
Depreciation and amortization
of other intangibles 44 46
Stock option expense 1 -
Deferred income taxes 5 (4)
Loss on sale of assets, net 1 -
Changes in components of
working capital (net of
acquisition)-
(Inc.)/dec. in receivables (82) (78)
(Inc.)/dec. in inventories (27) (46)
(Inc.)/dec. in prepayments
and other current assets (14) (23)
Inc./(dec.) in payables 67 21
Inc./(dec.) in taxes
accrued (2) -
Inc./(dec.) in interest
accrued (4) (3)
Inc./(dec.) in other
current liabilities (18) (8)
Other (1) (8)
Net cash used by operating
activities (23) (96)
Investing activities:
Net proceeds from sale of
assets - 1
Expenditures for plant,
property & equipment (38) (32)
Acquisition of business - (11)
Expenditures for software-
related intangibles (3) (3)
Investments and other - 3
Net cash used by investing
activities (41) (42)
Financing activities:
Issuance of common shares 8 2
Retirement of long-term debt (1) (41)
Net inc./(dec.) in short-term
debt excluding current
maturities on long-term debt 9 33
Other - 1
Net cash provided (used) by
financing activities 16 (5)
Effect of foreign exchange rate
changes on cash and cash equivalents 3 (3)
Decrease in cash and cash equivalents (45) (146)
Cash and cash equivalents,
January 1 141 214
Cash and cash equivalents, March 31 $96 $68
Cash paid during the period for interest $34 $31
Cash paid during the period for income
taxes - $7
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
Q1 2006
North Europe Asia
America & SA Pacific Total
Net income $7
Minority interest 1
Income tax expense -
Interest expense (net of interest
capitalized) 34
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $34 $8 $- 42
Depreciation and amortization of
other intangibles 22 19 3 44
Total EBITDA(2) $56 $27 $3 $86
Q1 2005
North Europe Asia
America & SA Pacific Total
Net income $7
Minority interest 1
Income tax expense 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(2) $60 $25 $5 $90
(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.
TENNECO INC.
RECONCILIATION OF GAAP(1) TO NON-GAAP EARNINGS MEASURES(2)
Unaudited
Q1 2006 Q1 2005
EBITDA Net Per EBITDA Net Per
(3) EBIT Income Share (3) EBIT Income Share
Earnings Measures $86 $42 $7 $0.14 $90 $44 $7 $0.16
Adjustments (reflects
non-GAAP measures):
Restructuring and
restructuring related
expenses 6 6 4 0.09 3 3 2 0.04
Stock based
compensation
accounting change 1 1 1 0.03 - - - -
Tax adjustments - - (3) (0.06) - - - -
Non-GAAP earnings
measures $93 $49 $9 $0.20 $93 $47 $9 $0.20
Q1 2006
North Europe Asia
America & SA Pacific Total
EBIT $34 $8 $- $42
Restructuring and
restructuring related
expenses 3 1 2 6
Stock based
compensation
accounting change 1 - - 1
Adjusted EBIT $38 $9 $2 $49
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
(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 first quarters of
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.
In addition, 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. The company plans to continue making this adjustment for the
remainder of 2006 to enhance investors' understanding of the
comparability between 2006 and 2005 results. See also Attachment I,
Statements of Income footnote (b).
(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.
TENNECO INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
Q1 2006
Revenues
Substrate Excluding
Sales Currency
Revenues Excluding and
Currency Excluding Currency Substrate
Revenues Impact Currency Impact Sales
North America
Original Equipment
Ride Control $131 $- $131 $- $131
Exhaust 243 3 240 66 174
Total North
America Original
Equipment 374 3 371 66 305
North America
Aftermarket
Ride Control 101 - 101 - 101
Exhaust 40 - 40 - 40
Total North America
Aftermarket 141 - 141 - 141
Total North America 515 3 512 66 446
Europe Original Equipment
Ride Control 95 (a) (6) 101 - 101 (a)
Exhaust 292 (19) 311 111 200
Total Europe Original
Equipment 387 (25) 412 111 301
Europe Aftermarket
Ride Control 36 (2) 38 - 38
Exhaust 39 (4) 43 - 43
Total Europe
Aftermarket 75 (6) 81 - 81
South America & India 65 6 59 7 52
Total Europe, South
America & India 527 (25) 552 118 434
Asia 50 - 50 17 33
Australia 40 (2) 42 4 38
Total Asia Pacific 90 (2) 92 21 71
Total Tenneco Inc. $1,132 $(24) $1,156 $205 $951
Q1 2005
Revenues
Substrate Excluding
Sales Currency
Revenues Excluding and
Currency Excluding Currency Substrate
Revenues Impact Currency Impact Sales
North America
Original Equipment
Ride Control $127 $- $127 $- $127
Exhaust 248 - 248 67 181
Total North
America Original
Equipment 375 - 375 67 308
North America Aftermarket
Ride Control 91 - 91 - 91
Exhaust 39 - 39 - 39
Total North America
Aftermarket 130 - 130 - 130
Total North America 505 - 505 67 438
Europe Original Equipment
Ride Control 109 (a) - 109 - 109 (a)
Exhaust 272 - 272 79 193
Total Europe Original
Equipment 381 - 381 79 302
Europe Aftermarket
Ride Control 37 - 37 - 37
Exhaust 45 - 45 - 45
Total Europe
Aftermarket 82 - 82 - 82
South America & India 51 - 51 4 47
Total Europe, South
America & India 514 - 514 83 431
Asia 35 - 35 13 22
Australia 47 - 47 4 43
Total Asia Pacific 82 - 82 17 65
Total Tenneco Inc. $1,101 $- $1,101 $167 $934
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 Inc. recorded $15 million in revenues for
this contract.
TENNECO INC.
RECONCILIATION OF NON-GAAP MEASURES
Debt net of cash / Adjusted EBITDA - LTM
Quarter Ended March 31
2006 2005
Total debt $1,384 $1,408
Cash and cash equivalents 96 68
Debt net of cash balances (1) 1,288 1,340
Adjusted LTM EBITDA 414 404
Ratio of net debt to adjusted LTM
EBITDA (2) 3.1x 3.3x
Q2 05 Q3 05 Q4 05 Q1 06 Q1 06
LTM
Net income 33 10 8 7 58
Minority interest - - 1 1 2
Income tax expense 18 7 (4) - 21
Interest expense (net of interest
capitalized) 32 33 33 34 132
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) 83 50 38 42 213
Depreciation and amortization of
other intangibles 44 44 43 44 175
Total EBITDA(3) 127 94 81 86 388
Restructuring and restructuring
related expenses 2 2 5 6 15
Stock based compensation accounting
change - - - 1 1
New Aftermarket customer changeover
costs - - 10 - 10
Total Adjusted EBITDA (4) 129 96 96 93 414
Q2 04 Q3 04 Q4 04 Q1 05 Q1 05
LTM
Net income 30 6 (19) 7 24
Minority interest 2 1 - 1 4
Income tax expense 10 2 (35) 4 (19)
Interest expense (net of interest
capitalized) 34 35 75 32 176
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) 76 44 21 44 185
Depreciation and amortization of
other intangibles 44 42 46 46 178
Total EBITDA(3) 120 86 67 90 363
Restructuring and restructuring
related expenses 5 2 28 3 38
New Aftermarket customer changeover
costs 2 - - - 2
Consulting fees indexed to stock
price 1 - - - 1
Total adjusted EBITDA(4) 128 88 95 93 404
(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) Tenneco presents the above reconciliation of the ratio debt net of
cash to the last twelve months (LTM) of 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, adjusted LTM
EBITDA is used as an indicator of the company's performance over
the most recent twelve months and debt net of cash is presented as an
indicator of our credit position and progress toward reducing our
financial leverage. LTM adjusted EBITDA is used to reflect annual
values and remove seasonal fluctuations. 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), (3) and (4) for a description of the
limitations of using debt net of cash, EBITDA and adjusted EBITDA.
(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 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.
(4) 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. 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. 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. In addition,
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. The
company plans to continue making this adjustment for the remainder of
2006 to enhance investors' understanding of the comparability between
2006 and 2005 results. See also Attachment I, Statements of Income
footnote (b).
TENNECO INC.
RECONCILIATION OF NON-GAAP MEASURES
SGA&E as Percent of Sales - LTM
Q1 06
Q2 05 Q3 05 Q4 05 Q1 06 LTM
Revenues 1,180 1,096 1,064 1,132 4,472
Engineering, research, and development 18 22 19 22 81
Selling, general, and administrative 93 96 98 101 388
Total SGA&E 111 118 117 123 469
SGA&E as Percent of Sales 10.5%
Q1 05
Q2 04 Q3 04 Q4 04 Q1 05 LTM
Revenues 1,113 996 1,071 1,101 4,281
Engineering, research, and
development 19 20 20 24 83
Selling, general, and administrative 100 93 115 98 406
Total SGA&E 119 113 135 122 489
SGA&E as Percent of Sales 11.4%
Tenneco presents the above reconciliation of the last twelve months
(LTM) of selling, general, administrative and engineering (SGA&E)
expenses as a percentage of revenues to provide information investors may
find useful in measuring the company's progress toward its goals
to lower selected operating expenses supported by existing revenues. LTM
values are used to highlight annual trends and remove seasonal
fluctuations. This reconciliation is provided as supplemental
information and not as a replacement for any other financial ratios that
investors may find useful for measuring the company's operating
performance.
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