Tenneco Reports Solid Second Quarter Results
-- Global aftermarket revenue increases 7%
-- European segment EBIT up 34%
-- Gross margin improves to 20.5%
LAKE FOREST, Ill., July 27 -- Tenneco Inc. reported second quarter 2006 net income of $24 million, or 53-cents per diluted share, versus $33 million, or 71-cents per diluted share one year ago. Adjusted for the items below, net income was $33 million, or 73-cents per diluted share, compared with $35 million, or 77-cents per diluted share in second quarter 2005 (see the attached tables, which reconcile GAAP results to non-GAAP results).
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EBIT (earnings before interest, taxes and minority interest) was $73 million, versus $83 million in second quarter 2005. On an adjusted basis, EBIT was $87 million, versus $85 million a year ago. EBITDA (EBIT before depreciation and amortization) was $120 million, compared with $127 million the previous year. Adjusted EBITDA was $134 million, compared with second quarter 2005 adjusted EBITDA of $129 million.
Although adjusted EBIT and EBITDA were up year-over-year, adjusted net income declined with the impact of higher interest costs on the company's variable rate debt and increased minority interest expense due to growth in the company's China joint ventures.
Tenneco said its strong geographic and market balance, and diverse customer base helped the company produce solid results in light of challenging original equipment market conditions in North America and Australia. The company's European segment, the global aftermarket and China operations delivered improved revenue and earnings performance, partially offsetting the impact of lower OE volumes in North America and higher material costs globally. The company was also aided in the quarter by ongoing efforts to improve operational efficiency through Lean manufacturing and Six Sigma programs, and tight control of discretionary spending.
Adjusted second quarter 2006 and 2005 results:
Q2 2006 Q2 2005
Net Per Net Per
EBITDA EBIT Income Share EBITDA EBIT Income Share
Earnings Measures $120 $73 $24 $0.53 $127 $83 $33 $0.71
Adjustments (reflects
non-GAAP measures):
Restructuring and
restructuring
related expenses 8 8 5 0.12 2 2 1 0.03
New Aftermarket
customer changeover
costs 6 6 4 0.08 - - - -
Tax adjustments - - - - - - 1 0.03
Non-GAAP earnings
measures $134 $87 $33 $0.73 $129 $85 $35 $0.77
Second quarter 2006 adjustments:
-- Restructuring and restructuring related expenses of $8 million pre-tax,
or 12-cents per diluted share;
-- Aftermarket customer changeover costs of $6 million pre-tax, or 8-cents
per diluted share.
Second quarter 2005 adjustments:
-- Restructuring and restructuring related expenses of $2 million pre-tax,
or 3-cents per diluted share;
-- Tax expense of $1 million, or 3-cents per diluted share, primarily
related to adjusting state tax net operating loss carry forwards.
Tenneco reported second quarter revenue of $1.22 billion, up from $1.18 billion a year ago. Favorable currency benefited revenue by $19 million. Excluding the impact of currency and substrate sales, revenue was down about 1%.
Cash flow generated from operations in the quarter was $80 million, compared with $32 million in second quarter 2005 when the discontinuation of the General Motors Advanced Payment Program negatively impacted cash performance. This improved cash performance has allowed the company to make additional capital investments for significant growth expected in 2007.
Debt net of cash was $1.246 billion, down from $1.346 billion a year ago. The ratio of debt net of cash balances to adjusted LTM (Last Twelve Months) EBITDA was 3.0, versus 3.3 for the same period last year. At quarter-end, total debt decreased to $1.369 billion from $1.412 billion a year ago.
Tenneco's gross margin in the quarter was 20.5%, an improvement over 20.3% a year ago. Operational improvements and the impact of higher margin North American aftermarket ride control sales more than offset higher restructuring costs; the impact of increased European substrate sales on high volume platforms; and $8 million related to higher gross material costs.
Sales, General, Administrative and Engineering (SGA&E) expense in the quarter was 10.6% of sales versus 9.4% in second quarter 2005. SGA&E expense for the quarter as a percentage of LTM sales was 10.8%, an improvement from 11.1% for the same period a year ago. SGA&E in the quarter was impacted by restructuring and aftermarket customer changeover costs.
NORTH AMERICA
-- North America OE revenue was $367 million, down from revenue of
$390 million a year ago. Excluding the impact of currency, revenue was
$365 million (the attached tables reconcile GAAP revenues to revenues
adjusted for substrate sales and currency.) The decrease was primarily
the result of lower exhaust volumes due to OE production declines and
the build out on several key exhaust platforms, which more than offset
stronger heavy duty ride control volumes and the ramp-up of a major
ride control platform.
-- North America aftermarket revenue increased 8% to $157 million, versus
$146 million a year ago. The increase was driven by higher ride
control volumes and price increases in both the ride control and
exhaust product lines. Business from previously announced new
customers generated $3 million of the revenue increase.
-- EBIT for North American operations was $37 million, compared with
$52 million in second quarter 2005. Second quarter 2006 EBIT includes
$4 million in restructuring costs and $6 million for aftermarket
customer changeover costs.
-- In addition to the negative impact of restructuring and aftermarket
customer changeover costs, EBIT was impacted by lower OE exhaust
volumes and higher material costs, which more than offset manufacturing
efficiency improvements and cost reduction efforts.
EUROPE, SOUTH AMERICA AND INDIA
-- Europe OE revenue was $412 million, up from $382 million a year ago.
Excluding the impact of currency, revenue was up almost 5%. Substrate
sales as a percentage of revenue increased to 37% of total Europe OE
emission control revenue from 31% a year ago due to an increase in
diesel aftertreatment and hot-end exhaust business.
-- Europe aftermarket revenue was $118 million, up 9% from $109 million in
second quarter 2005 and up 7% excluding the impact of currency. The
increase was driven by stronger ride control volumes and price
increases and market share gains in the exhaust business.
-- South America and India revenue was $66 million, up from $59 million
the previous year. Higher volumes in South America and India and a
$4 million positive currency impact in South America drove the
increase.
-- EBIT for Europe, South America and India was $34 million, a 34%
increase over $27 million a year ago. EBIT benefited from $1 million
in currency.
-- EBIT included $3 million in restructuring costs compared with
$2 million in second quarter 2005.
-- The significant EBIT improvement, despite a higher percentage of
substrate sales, was primarily driven by better manufacturing
performance, particularly in the European OE emission control business;
higher aftermarket sales; and tight spending controls.
ASIA PACIFIC
-- Asia revenue was $58 million, a 60% increase over $35 million a year
ago, mainly driven by higher OE exhaust sales in China including new
platform launches. Excluding substrate sales, revenue was up 51%
year-over-year.
-- Australia revenue was $44 million, down 26% from $59 million in second
quarter 2005, primarily driven by a sharp decline in OE volumes with
domestic industry production down almost 25% compared with the previous
year. Lower aftermarket sales also negatively impacted revenue.
-- Asia Pacific EBIT was $2 million, versus $4 million a year ago. Second
quarter 2006 EBIT included $1 million in restructuring costs.
-- The EBIT decline was the result of lower OE volumes in Australia and
higher workers compensation costs in Australia, which more than offset
operational improvements in Asia OE operations and the benefit from new
business launches in China.
YEAR-TO-DATE RESULTS
Like other auto suppliers, Tenneco has faced a difficult environment through the first half of 2006. The company's strong global manufacturing and distribution footprint; presence in a variety of markets; and diverse customer base have helped mitigate market pressures, particularly in North America and Australia. In addition, the company has benefited from its focus on consistent strategies for improving cash performance, optimizing operations, and controlling costs, while preparing for a significant growth year in 2007.
Through the first half of 2006, Tenneco reported net income of $31 million, or 67-cents per diluted share, versus net income of $40 million, or 88-cents per diluted share for the first six months of 2005. On an adjusted basis, year-to-date net income was $42 million, or 94-cents per diluted share, compared with $44 million, or 97-cents per diluted share a year ago.
Year-to-date EBIT was $115 million compared with EBIT of $127 million for the first half of 2005. Adjusted year-to-date EBIT was $136 million compared with $132 million the previous year. EBITDA was $206 million, versus $217 million a year ago. Adjusted EBITDA was $227 million for the first half of 2006, versus $222 million for the same period a year ago.
OUTLOOK
Tenneco anticipates that the North American and Australian OE markets will continue to be challenging with revenue and earnings pressure from lower OE production rates through the remainder of the year. The company hopes to counter the impact of market downturns with its European segment and China operations. The company also intends to stay focused on factors within its control - intensely managing costs; continuously improving manufacturing efficiency; and leveraging global supply chain spending.
Tenneco remains committed to its goal of de-leveraging by reducing net debt to adjusted EBITDA to 2.8X by the end of the year.
Attachment 1:
Statements of Income - 3 Months
Statements of Income - 6 Months
Balance Sheets
Statements of Cash Flows - 6 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 - 6 Months
Reconciliation of GAAP to Non-GAAP Earnings Measures - 6 Months
Reconciliation of GAAP Revenues to Non-GAAP Revenues - 3 Months
Reconciliation of GAAP Revenues to Non-GAAP Revenues - 6 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, July 27, 2006 at 10:30 a.m. EDT. 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 July 27, 2006. To access this recording, dial 800-262-5125 (domestic) or 402-220-9716 (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.
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 "hopes," "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/ .
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
Unaudited
THREE MONTHS ENDED JUNE 30,
(Millions except per share amounts)
2006 2005
Net sales and operating revenues $1,222 $1,180
Costs and Expenses
Cost of Sales (exclusive of
depreciation shown below) 972 (a) 941 (c)
Engineering, Research and Development 22 18
Selling, General and Administrative 107 (a) (b) 93
Depreciation and Amortization of
Other Intangibles 47 44
Total Costs and Expenses 1,148 1,096
Loss on sale of receivables (1) (1)
Other Loss - -
Total Other Loss (1) (1)
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 37 (a) (b) 52
Europe & South America 34 (a) 27 (c)
Asia Pacific 2 (a) 4
73 83
Less:
Interest expense (net of
interest capitalized) 33 32
Income tax expense 15 18 (d)
Minority interest 1 -
Net Income 24 33
Average common shares outstanding:
Basic 44.5 43.0
Diluted 47.2 45.1
Earnings per share of common stock:
Basic $0.56 $0.75
Diluted $0.53 $0.71
(a) Includes restructuring and restructuring related charges of
$8 million pre-tax, $5 million after tax or $0.12 per share. Of the
adjustment $7 million is recorded in cost of sales and $1 million is
recorded in SG&A. Geographically, $4 million is recorded in North
America, $3 million in Europe and South America and $1 million is
recorded in Asia Pacific.
(b) Includes customer changeover costs of $6 million pre-tax, $4 million
after-tax or $0.08 per share.
(c) Includes restructuring and restructuring related charges of
$2 million pre-tax, $1 million after tax or $0.03 per share. The
entire $2 million adjustment is recorded in cost of sales and
geographically in Europe and South America.
(d) Includes a $1 million or $0.03 per share tax expense primarily
related to adjusting state tax net operating loss carry forwards.
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
Unaudited
SIX MONTHS ENDED JUNE 30,
(Millions except per share amounts)
2006 2005
Net sales and operating revenues $2,354 $2,281
Costs and Expenses
Cost of Sales (exclusive of
depreciation shown below) 1,893 (a) 1,829 (e)
Engineering, Research and
Development 44 42
Selling, General and
Administrative 208 (a)(b)(c) 191 (e)
Depreciation and Amortization of
Other Intangibles 91 90
Total Costs and Expenses 2,236 2,152
Loss on sale of receivables (2) (1)
Other Loss (1) (1)
Total Other Loss (3) (2)
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 71 (a)(b)(c) 89 (e)
Europe & South America 42 (a) 32 (e)
Asia Pacific 2 (a) 6
115 127
Less:
Interest expense (net of
interest capitalized) 67 64
Income tax expense 15 (d) 22 (f)
Minority interest 2 1
Net Income 31 40
Average common shares outstanding:
Basic 44.2 42.8
Diluted 46.9 (b) 45.0
Earnings per share of common stock:
Basic $0.71 $0.92
Diluted $0.67 (b) $0.88
(a) Includes restructuring and restructuring related charges of
$14 million pre-tax, $9 million after tax or $0.21 per share, of
which $13 million is recorded in cost of sales and $1 million is
recorded in SG&A. Geographically, $7 million is recorded in North
America, $4 million in Europe and South America and $3 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 0.6 million for a combined impact of
$0.03 per share.
(c) Includes customer changeover costs of $6 million pre-tax, $4 million
after-tax or $0.09 per share.
(d) Includes a $3 million or $0.06 per share tax benefit, primarily
related to resolution of tax issues.
(e) Includes restructuring and restructuring related charges of
$5 million pre-tax, $3 million after tax or $0.07 per share. Of the
charges, $4 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 $3 million in Europe and South America.
(f) Includes a $1 million or $0.02 per share tax expense primarily
related to adjusting state tax net operating loss carry forwards.
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(Unaudited)
(Millions)
June 30, 2006 December 31, 2005
Assets
Cash and Cash Equivalents $123 $141
Receivables, Net 659 (a) 543 (a)
Inventories 414 360
Other Current Assets 178 153
Investments and Other Assets 707 700
Plant, Property, and Equipment, Net 1,084 1,043
Total Assets $3,165 $2,940
Liabilities and Shareholders' Equity
Short-Term Debt $20 $22
Accounts Payable 769 651
Accrued Taxes 50 31
Accrued Interest 39 38
Other Current Liabilities 235 237
Long-Term Debt 1,349 (b) 1,356 (b)
Deferred Income Taxes 80 86
Deferred Credits and Other
Liabilities 378 366
Minority Interest 26 24
Total Shareholders' Equity 219 129
Total Liabilities and
Shareholders' Equity $3,165 $2,940
June 30, 2006 December 31, 2005
(a) Accounts receivable
securitization programs $148 $129
(b) Long term debt composed of: June 30, 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 5 11
$1,349 $1,356
Tenneco Inc. and Consolidated Subsidiaries
Statements of Cash Flows
(Unaudited)
(Millions)
Six Months Ended
June 30,
2006 2005
Operating activities:
Net income $31 $40
Adjustments to reconcile net income
to net cash provided (used) by
operating activities -
Depreciation and amortization of
other intangibles 91 90
Stock option expense 2 -
Deferred income taxes 8 (5)
Loss on sale of assets, net 2 1
Changes in components of working capital
(net of acquisition)-
(Inc.)/dec. in receivables (102) (200)
(Inc.)/dec. in inventories (40) (33)
(Inc.)/dec. in prepayments and other
current assets (27) (19)
Inc./(dec.) in payables 90 64
Inc./(dec.) in taxes accrued - 19
Inc./(dec.) in interest accrued 1 2
Inc./(dec.) in other current
liabilities (4) (10)
Other 5 (13)
Net cash provided (used) by
operating activities 57 (64)
Investing activities:
Net proceeds from sale of assets 2 3
Expenditures for plant, property & equipment (87) (63)
Acquisition of business - (7)
Expenditures for software-related intangibles (6) (11)
Investments and other 1 2
Net cash (used) by investing activities (90) (76)
Financing activities:
Issuance of common shares 10 4
Retirement of long-term debt (2) (42)
Net inc./(dec.) in short-term debt excluding
current maturities on long-term debt (3) 34
Other 2 -
Net cash provided (used) by financing
activities 7 (4)
Effect of foreign exchange rate changes on
cash and cash equivalents 8 (4)
Decrease in cash and cash equivalents (18) (148)
Cash and cash equivalents, January 1 141 214
Cash and cash equivalents, June 30 $123 $66
Cash paid during the period for interest $67 $61
Cash paid during the period for income taxes 7 $11
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
Q2 2006
North Europe Asia
America & SA Pacific Total
Net income $24
Minority interest 1
Income tax expense 15
Interest expense (net of interest
capitalized) 33
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $37 $34 $2 73
Depreciation and amortization of
other intangibles 24 20 3 47
Total EBITDA(2) $61 $54 $5 $120
Q2 2005
North Europe Asia
America & SA Pacific Total
Net income $33
Income tax expense 18
Interest expense (net of interest
capitalized) 32
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $52 $27 $4 83
Depreciation and amortization of
other intangibles 23 18 3 44
Total EBITDA(2) $75 $45 $7 $127
(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
Q2 2006 Q2 2005
EBITDA Net Per EBITDA Net Per
(3) EBIT Income Share (3) EBIT Income Share
Earnings Measures $120 $73 $24 $0.53 $127 $83 $33 $0.71
Adjustments (reflects
non-GAAP measures):
Restructuring and
restructuring
related expenses 8 8 5 0.12 2 2 1 0.03
New Aftermarket
customer changeover
costs (4) 6 6 4 0.08 - - - -
Tax adjustments - - - - - - 1 0.03
Non-GAAP earnings
measures $134 $87 $33 $0.73 $129 $85 $35 $0.77
Q2 2006
North Europe Asia
America & SA Pacific Total
EBIT $37 $34 $2 $73
Restructuring and
restructuring
related expenses 4 3 1 8
New Aftermarket
customer changeover
costs (4) 6 6
Adjusted EBIT $47 $37 $3 $87
Q2 2005
North Europe Asia
America & SA Pacific Total
EBIT $52 27 $4 $83
Restructuring and
restructuring
related expenses - 2 - 2
Adjusted EBIT $52 $29 $4 $85
(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 second 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.
(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 quarter in which they were incurred.
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
YTD 2006
North Europe Asia
America & SA Pacific Total
Net income $31
Minority interest 2
Income tax expense 15
Interest expense (net of interest
capitalized) 67
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $71 $42 $2 115
Depreciation and amortization of
other intangibles 46 39 6 91
Total EBITDA(2) $117 $81 $8 $206
YTD 2005
North Europe Asia
America & SA Pacific Total
Net income $40
Minority interest 1
Income tax expense 22
Interest expense (net of interest
capitalized) 64
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $89 $32 $6 127
Depreciation and amortization of other
intangibles 46 38 6 90
Total EBITDA(2) $135 $70 $12 $217
(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
YTD 2006 YTD 2005
EBITDA Net Per EBITDA Net Per
(3) EBIT Income Share (3) EBIT Income Share
Earnings Measures $206 $115 $31 $0.67 $217 $127 $40 $0.88
Adjustments (reflects
non-GAAP measures):
Restructuring and
restructuring
related expenses 14 14 9 0.21 5 5 3 0.07
New Aftermarket
customer changeover
costs (4) 6 6 4 0.09 - - - -
Stock based
compensation
accounting change 1 1 1 0.03 - - - -
Tax adjustments - - (3) (0.06) - - 1 0.02
Non-GAAP earnings
measures $227 $136 $42 $0.94 $222 $132 $44 $0.97
YTD 2006
North Europe Asia
America & SA Pacific Total
EBIT $71 $42 $2 $115
Restructuring and
restructuring
related expenses 7 4 3 14
New Aftermarket
customer changeover
costs (4) 6 - - 6
Stock based
compensation
accounting change 1 - - 1
Adjusted EBIT $85 $46 $5 $136
YTD 2005
North Europe Asia
America & SA Pacific Total
EBIT $89 32 $6 $127
Restructuring and
restructuring
related expenses 2 3 - 5
Adjusted EBIT $91 $35 $6 $132
(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 six months 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 for the six months ended June 30.
(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.
TENNECO INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
Q2 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 236 2 234 61 173
Total North
America Original
Equipment 367 2 365 61 304
North America
Aftermarket
Ride Control 112 - 112 - 112
Exhaust 45 - 45 - 45
Total North America
Aftermarket 157 - 157 - 157
Total North America 524 2 522 61 461
Europe Original
Equipment
Ride Control 98 5 93 - 93
Exhaust 314 7 307 117 190
Total Europe
Original
Equipment 412 12 400 117 283
Europe Aftermarket
Ride Control 54 1 53 - 53
Exhaust 64 1 63 - 63
Total Europe
Aftermarket 118 2 116 - 116
South America & India 66 4 62 8 54
Total Europe,
South America &
India 596 18 578 125 453
Asia 58 - 58 19 39
Australia 44 (1) 45 5 40
Total Asia Pacific 102 (1) 103 24 79
Total Tenneco Inc. $1,222 $19 $1,203 $210 $993
Q2 2005
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 259 - 259 68 191
Total North
America
Original
Equipment 390 - 390 68 322
North America
Aftermarket
Ride Control 103 - 103 - 103
Exhaust 43 - 43 - 43
Total North
America
Aftermarket 146 - 146 - 146
Total North America 536 - 536 68 468
Europe Original
Equipment
Ride Control 98 - 98 - 98
Exhaust 284 - 284 87 197
Total Europe
Original
Equipment 382 - 382 87 295
Europe Aftermarket
Ride Control 51 - 51 - 51
Exhaust 58 - 58 - 58
Total Europe
Aftermarket 109 - 109 - 109
South America & India 59 - 59 5 54
Total Europe,
South America
& India 550 - 550 92 458
Asia 35 - 35 10 25
Australia 59 - 59 5 54
Total Asia Pacific 94 - 94 15 79
Total Tenneco Inc. $1,180 $- $1,180 $175 $1,005
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.
TENNECO INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
YTD 2006
Revenues
Substrate Excluding
Sales Currency
Revenues Excluding and
Currency Excluding Currency Substrate
Revenues Impact Currency Impact Sales
North America Original
Equipment
Ride Control $262 $- $262 $- $262
Exhaust 479 5 474 127 347
Total North America
Original Equipment 741 5 736 127 609
North America Aftermarket
Ride Control 213 - 213 - 213
Exhaust 85 - 85 - 85
Total North America
Aftermarket 298 - 298 - 298
Total North America 1,039 5 1,034 127 907
Europe Original Equipment
Ride Control 193 (a) (1) 194 - 194 (a)
Exhaust 606 (12) 618 228 390
Total Europe Original
Equipment 799 (13) 812 228 584
Europe Aftermarket
Ride Control 90 (1) 91 - 91
Exhaust 103 (3) 106 - 106
Total Europe Aftermarket 193 (4) 197 - 197
South America & India 131 10 121 15 106
Total Europe, South America
& India 1,123 (7) 1,130 243 887
Asia 108 - 108 36 72
Australia 84 (3) 87 9 78
Total Asia Pacific 192 (3) 195 45 150
Total Tenneco Inc. $2,354 $(5) $2,359 $415 $1,944
YTD 2005
Revenues
Substrate Excluding
Sales Currency
Revenues Excluding and
Currency Excluding Currency Substrate
Revenues Impact Currency Impact Sales
North America Original
Equipment
Ride Control $258 $- $258 $- $258
Exhaust 507 - 507 135 372
Total North America
Original Equipment 765 - 765 135 630
North America Aftermarket
Ride Control 194 - 194 - 194
Exhaust 82 - 82 - 82
Total North America
Aftermarket 276 - 276 - 276
Total North America 1,041 - 1,041 135 906
Europe Original Equipment
Ride Control 207 (a) - 207 - 207 (a)
Exhaust 556 - 556 166 390
Total Europe Original
Equipment 763 - 763 166 597
Europe Aftermarket
Ride Control 88 - 88 - 88
Exhaust 103 - 103 - 103
Total Europe Aftermarket 191 - 191 - 191
South America & India 110 - 110 9 101
Total Europe, South America
& India 1,064 - 1,064 175 889
Asia 70 - 70 23 47
Australia 106 - 106 9 97
Total Asia Pacific 176 - 176 32 144
Total Tenneco Inc. $2,281 $- $2,281 $342 $1,939
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.
TENNECO INC.
RECONCILIATION OF NON-GAAP MEASURES
Debt net of cash / Adjusted EBITDA - LTM
Quarter Ended June 30
2006 2005
Total debt $1,369 $1,412
Cash and cash equivalents 123 66
Debt net of cash balances (1) 1,246 1,346
Adjusted LTM EBITDA 419 405
Ratio of net debt to adjusted LTM
EBITDA (2) 3x 3.3x
Q3 05 Q4 05 Q1 06 Q2 06 Q2 06 LTM
Net income 10 8 7 24 49
Minority interest - 1 1 1 3
Income tax expense 7 (4) - 15 18
Interest expense (net of interest
capitalized) 33 33 34 33 133
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) 50 38 42 73 203
Depreciation and amortization of
other intangibles 44 43 44 47 178
Total EBITDA(3) 94 81 86 120 381
Restructuring and restructuring
related expenses 2 5 6 8 21
Stock based compensation accounting
change - - 1 - 1
New Aftermarket customer changeover
costs - 10 - 6 16
Total Adjusted EBITDA (4) 96 96 93 134 419
Q3 04 Q4 04 Q1 05 Q2 05 Q2 05 LTM
Net income 6 (19) 7 33 27
Minority interest 1 - 1 - 2
Income tax expense 2 (35) 4 18 (11)
Interest expense (net of interest
capitalized) 35 75 32 32 174
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) 44 21 44 83 192
Depreciation and amortization of
other intangibles 42 46 46 44 178
Total EBITDA(3) 86 67 90 127 370
Restructuring and restructuring
related expenses 2 28 3 2 35
Total adjusted EBITDA(4) 88 95 93 129 405
(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) for the six
months ended June 30.
TENNECO INC.
RECONCILIATION OF NON-GAAP MEASURES
SGA&E as Percent of Sales - LTM
Q3 05 Q4 05 Q1 06 Q2 06 Q2 06 LTM
Revenues 1,096 1,064 1,132 1,222 4,514
Engineering, research,
and development 22 19 22 22 85
Selling, general, and administrative 96 98 101 107 402
Total SGA&E 118 117 123 129 487
SGA&E as Percent of Sales 10.8%
Q3 04 Q4 04 Q1 05 Q2 05 Q2 05 LTM
Revenues 996 1,071 1,101 1,180 4,348
Engineering, research,
and development 20 20 24 18 82
Selling, general, and administrative 93 115 98 93 399
Total SGA&E 113 135 122 111 481
SGA&E as Percent of Sales 11.1%
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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