Tenneco Third Quarter Results Benefit From Geographic Balance - Partially Offsets Impact Of Significant North American OE Volume Declines
-- European segment EBIT improves 151% year-over-year
-- Global aftermarket revenue up 4%
-- China growth drives Asia revenue up 76%
-- Lower customer production drives down North America OE revenue by 17%
LAKE FOREST, Ill., Oct. 24 -- Tenneco Inc. reported third quarter 2006 net income of $6 million, or 12-cents per diluted share, versus $10 million, or 23-cents per diluted share in third quarter 2005. Excluding restructuring and restructuring related adjustments, net income was $10 million, or 22-cents per diluted share, compared with $12 million, or 27-cents per diluted share a year ago (the attached tables reconcile GAAP results to Non-GAAP results).
(Logo: http://www.newscom.com/cgi-bin/prnh/20051028/CGF002LOGO )
EBIT (earnings before interest, taxes and minority interest) was $45 million, down from $50 million a year ago. On an adjusted basis, EBIT was $52 million, flat year-over-year. EBITDA (EBIT before depreciation and amortization) was $90 million, versus $94 million in third quarter 2005. Adjusted EBITDA was $97 million, up from $96 million a year ago.
Tenneco's strong European segment (Europe, South America, India) performance and growth in China and global aftermarket revenues helped counter the significant impact of North American OE light truck and SUV production declines on some of the company's largest platforms. Tenneco's quarterly results were also helped by the company's ability to cut costs, improve manufacturing efficiency and flex down operations as volumes declined.
Adjusted third quarter 2006 and 2005 results:
Q3 2006 Q3 2005
Net Per Net Per
EBITDA EBIT Income Share EBITDA EBIT Income Share
Earnings Measures $90 $45 $6 $0.12 $94 $50 $10 $0.23
Adjustments (reflects
non-GAAP measures):
Restructuring and
restructuring related
expenses 7 7 4 0.10 2 2 2 0.04
Non-GAAP earnings
measures $97 $52 $10 $0.22 $96 $52 $12 $0.27
Third quarter 2006 adjustments:
-- Restructuring and restructuring related expenses of $7 million pre-
tax, or 10-cents per diluted share.
Third quarter 2005 adjustments:
-- Restructuring and restructuring related expenses of $2 million pre-
tax, or 4-cents per diluted share.
Third quarter revenue was $1.122 billion compared with $1.096 billion the previous year. Favorable currency benefited revenue by $21 million. Substrate sales, which typically carry lower margins, increased to $215 million from $166 million a year ago. Excluding the impact of currency and substrate sales, revenue was $886 million versus $930 million a year ago. The decrease was primarily the result of OE production volume declines in North America.
Gross margin in the quarter was 17.5% versus 18.9% the previous year. European manufacturing productivity improvements and global cost reduction efforts were more than offset by significant OE volume declines in North America, higher steel costs, and higher restructuring costs. In addition, the growth in substrate sales in Europe, driven by more diesel aftertreatment and hot-end exhaust business, diluted gross margin. Steel costs in the quarter increased $9 million year-over-year.
Selling, General, Administrative and Engineering (SGA&E) expense in the quarter improved to 9.4% of sales versus 10.8% a year ago. Aggressive efforts to reduce costs globally to help offset North American OE volume declines and tight discretionary spending controls drove the improvement.
Cash flow from operations declined year-over-year. The company used $45 million in cash from working capital during the quarter, up from $11 million in third quarter 2005. The year-over-year changes in cash flow from accounts receivable and accounts payable offset each other in the quarter. Cash flow used for inventory was $18 million higher than a year ago, in part to prepare for platform launches in North America. The remainder of the change in cash flow used for working capital was due to timing on the payment of other current liabilities.
At quarter-end, total debt decreased to $1.403 billion compared with $1.429 billion at the end of third quarter 2005. Debt net of cash balances was $1.287 billion, down from $1.340 billion a year ago. The ratio of debt net of cash balances to adjusted last twelve months EBITDA was 3.1, versus 3.2 for the same period last year. Taking into consideration the projected fourth quarter OE production cuts in North America, Tenneco doesn't anticipate much change at year-end to this ratio, which is higher than the company's year-end goal of 2.8.
NORTH AMERICA
-- North America OE revenue was $307 million, versus $369 million a year
ago. Excluding the impact of currency and substrate sales, revenue
was down 16% to $252 million. The decrease was the result of OE
volume declines on key platforms like the Dodge Ram and Ford F-150
pick-up trucks and GM's Trailblazer/Envoy vehicles, three of Tenneco's
top ten largest OE platforms. The timing on the transition of
Tenneco's emission control business on one of GM's largest light truck
platforms also negatively impacted revenue.
-- North American aftermarket revenue increased to $135 million from $133
million in third quarter 2005, driven by price increases in both
product lines and previously announced new business, which more than
offset lower ride control and exhaust unit volumes.
-- EBIT for North American operations was $16 million, compared with $37
million the previous year. Third quarter 2006 EBIT includes $3
million in restructuring costs.
-- EBIT was primarily impacted by OE volume declines and higher material
costs, as well as an increase in warranty costs in the quarter, all of
which more than offset SGA&E expense reductions, manufacturing
efficiency improvements and the company's efforts to adjust operations
to match lower customer demand.
EUROPE, SOUTH AMERICA AND INDIA
-- European OE revenue was $393 million, up from $341 million the prior
year. Revenue was driven by the ramp-up on new emission control
platforms including more diesel aftertreatment and hot-end exhaust
business, which resulted in an increase in substrate sales. Substrate
sales were 41% of total OE emission control revenue versus 30% a year
ago. Excluding the impact of favorable currency and substrate sales,
revenue was $255 million, versus $264 million in third quarter 2005.
The decrease was largely due to OE production declines on a number of
older vehicle models.
-- European aftermarket revenue was $106 million, an increase from $97
million in third quarter 2005. Excluding favorable currency, revenue
was still up 5% at $102 million. The increase was largely driven by
price increases in both product lines, exhaust market share gains and
the introduction of new diesel particulate filter business.
-- Stronger OE and aftermarket sales increased South America and India
revenue to $70 million, from $62 million the previous year. Excluding
$3 million in currency and $9 million in substrate sales, revenue was
$58 million, compared with $57 million a year ago.
-- EBIT for Europe, South America and India was $24 million, versus $9
million a year ago. Third quarter 2006 and 2005 EBIT both included $2
million in restructuring costs. Third quarter 2006 EBIT included $1
million in favorable currency.
-- The 151% year-over-year EBIT improvement was primarily driven by
significant manufacturing improvements and SGA&E cost reductions,
which more than offset volume declines and higher material costs.
ASIA PACIFIC
-- Asian operations generated $66 million in revenue, a 76% increase over
$38 million a year ago. Excluding the impact of currency and
substrate sales, revenue was up 58%. Quarterly revenue gains were
driven by the ramp-up of new OE platform launches in China as well as
higher volumes on existing platforms.
-- Australian revenue was $45 million, down from $56 million the previous
year. Excluding the impact of currency and substrate sales, revenue
was down 22%, mostly due to an 18% decline in industry OE production.
-- Asia Pacific EBIT was $5 million, versus $4 million in third quarter
2005. Third quarter 2006 EBIT included $2 million in restructuring
costs.
-- The 85% improvement in EBIT, before restructuring, was due to stronger
OE production and new platform launches in China, partially offset by
higher warranty costs in the quarter.
OUTLOOK
Tenneco's geographic, market and customer balance, and ability to flex down spending and operations only partially offset the impact of significant North American OE volume declines in the third quarter. The company anticipates continued challenges in the fourth quarter as North American OE production is expected to be down significantly year-over-year, primarily in the light truck and SUV segment. Given the anticipated impact on fourth quarter performance, Tenneco will intensify its efforts to reduce operating costs and continue its focus on improving manufacturing productivity worldwide through programs like Lean and Six Sigma. In addition, the company's strong geographic and market balance with more than 50% of revenue generated outside North America and a strong presence in the global aftermarket should help partially offset the downswing in North America through the end of the year.
Attachment 1: Statements of Income - 3 Months Statements of Income - 9 Months Balance Sheets Statements of Cash Flows - 3 Months Statements of Cash Flows - 9 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 - 9 Months Reconciliation of GAAP to Non-GAAP Earnings Measures - 9 Months Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures - 3 Months Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures - 9 Months Reconciliation of Non-GAAP Measures - Ratio of Debt Net of Cash to Adjusted EBITDA - LTM CONFERENCE CALL
The company will host a conference call on Tuesday, October 24, 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 October 24, 2006. To access this recording, dial 800-947-6450 (domestic) or 203-369-3539 (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/ .
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
Unaudited
THREE MONTHS ENDED SEPTEMBER 30,
(Millions except per share amounts)
2006 2005
Net sales and operating revenues $1,122 $1,096
Costs and Expenses
Cost of Sales (exclusive of
depreciation shown below) 926 (a) 889 (b)
Engineering, Research and
Development 24 22
Selling, General and
Administrative 82 (a) 96
Depreciation and Amortization of
Other Intangibles 45 44
Total Costs and Expenses 1,077 1,051
Loss on sale of receivables (2) (1)
Other Income 2 6
Total Other Income - 5
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 16 (a) 37
Europe & South America 24 (a) 9 (b)
Asia Pacific 5 (a) 4
45 50
Less:
Interest expense (net of
interest capitalized) 34 33
Income tax expense 3 7
Minority interest 2 -
Net Income 6 10
Average common shares outstanding:
Basic 45.0 43.3
Diluted 47.2 45.6
Earnings per share of common stock:
Basic $0.13 $0.25
Diluted $0.12 $0.23
(a) Includes restructuring and restructuring related charges of $7
million pre-tax, $4 million after tax or $0.10 per share. Of the
adjustment $6 million is recorded in cost of sales and $1 million is
recorded in SG&A. Geographically, $3 million is recorded in North
America, $2 million in Europe and South America and $2 million is
recorded in Asia Pacific.
(b) Includes restructuring and restructuring related charges of $2
million pre-tax, $2 million after tax or $0.04 per share. The entire
$2 million adjustment is recorded in cost of sales and geographically
in Europe and South America.
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
Unaudited
NINE MONTHS ENDED SEPTEMBER 30,
(Millions except per share amounts)
2006 2005
Net sales and operating revenues $3,476 $3,377
Costs and Expenses
Cost of Sales (exclusive of
depreciation shown below) 2,819 (a) 2,718 (e)
Engineering, Research and
Development 68 64
Selling, General and
Administrative 290 (a)(b)(c) 287 (e)
Depreciation and Amortization of
Other Intangibles 136 134
Total Costs and Expenses 3,313 3,203
Loss on sale of receivables (4) (2)
Other Income 1 5
Total Other Income / (Expense) (3) 3
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 87 (a)(b)(c) 126 (e)
Europe & South America 66 (a) 41 (e)
Asia Pacific 7 (a) 10
160 177
Less:
Interest expense (net of
interest capitalized) 101 97
Income tax expense 18 (d) 29 (f)
Minority interest 4 1
Net Income 37 50
Average common shares outstanding:
Basic 44.5 43.0
Diluted 46.8 (b) 45.2
Earnings per share of common stock:
Basic $0.84 $1.17
Diluted $0.79 (b) $1.11
(a) Includes restructuring and restructuring related charges of $21
million pre-tax, $13 million after tax or $0.31 per share, of which
$19 million is recorded in cost of sales and $2 million is recorded
in SG&A. Geographically, $10 million is recorded in North America, $6
million in Europe and South America and $5 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
$0.02 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 $7
million pre-tax, $5 million after tax or $0.11 per share. Of the
charges, $6 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 $5 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.
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(Unaudited)
(Millions)
September 30, 2006 December 31, 2005
Assets
Cash and Cash Equivalents $116 $141
Receivables, Net 641 (a) 543 (a)
Inventories 419 360
Other Current Assets 185 153
Investments and Other Assets 712 700
Plant, Property, and Equipment,
Net 1,080 1,043
Total Assets $3,153 $2,940
Liabilities and Shareholders' Equity
Short-Term Debt $51 $22
Accounts Payable 730 651
Accrued Taxes 52 31
Accrued Interest 34 38
Other Current Liabilities 238 237
Long-Term Debt 1,352 (b) 1,356 (b)
Deferred Income Taxes 84 86
Deferred Credits and Other
Liabilities 364 366
Minority Interest 28 24
Total Shareholders' Equity 220 129
Total Liabilities and
Shareholders' Equity $3,153 $2,940
September 30, 2006 December 31, 2005
(a) Accounts receivable securitization
programs $144 $129
(b)Long term debt composed of: September 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 8 11
$1,352 $1,356
ATTACHMENT 1
Tenneco Inc. and Consolidated Subsidiaries
Statements of Cash Flows
(Unaudited)
(Millions)
Three Months Ended
September 30,
2006 2005
Operating activities:
Net income $6 $10
Adjustments to reconcile net
income to net cash provided (used) by
operating activities -
Depreciation and amortization
of other intangibles 45 44
Stock option expense 1 -
Deferred income taxes 1 8
Loss on sale of assets, net - 1
Changes in components of
working capital (net of
acquisition)-
(Inc.)/dec. in receivables 17 (9)
(Inc.)/dec. in inventories (7) 11
(Inc.)/dec. in prepayments
and other current assets (7) (4)
Inc./(dec.) in payables (39) (12)
Inc./(dec.) in taxes accrued (8) (8)
Inc./(dec.) in interest accrued (5) (4)
Inc./(dec.) in other
current liabilities 4 15
Other (5) (14)
Net cash provided by operating
activities 3 38
Investing activities:
Net proceeds from sale of assets 4 1
Expenditures for plant,
property & equipment (43) (37)
Acquisition of business - -
Expenditures for software-
related intangibles (3) (5)
Investments and other (2) (1)
Net cash (used) by investing
activities (44) (42)
Financing activities:
Issuance of common shares 3 2
Issuance of long-term debt - 1
Retirement of long-term debt (1) (1)
Net inc. in short-term debt
excluding current
maturities on long-term debt 32 22
Other - 1
Net cash provided by financing
activities 34 25
Effect of foreign exchange rate
changes on cash and
cash equivalents - 2
Increase (decrease) in cash and cash
equivalents (7) 23
Cash and cash equivalents, July 1 123 66
Cash and cash equivalents,
September 30 $116 $89
Cash paid during the period for
interest $36 $33
Cash paid during the period for
income taxes 11 $5
ATTACHMENT 1
Tenneco Inc. and Consolidated Subsidiaries
Statements of Cash Flows
(Unaudited)
(Millions)
Nine Months Ended
September 30,
2006 2005
Operating activities:
Net income $37 $50
Adjustments to reconcile net
income to net cash provided (used) by
operating activities -
Depreciation and amortization
of other intangibles 136 134
Stock option expense 3 -
Deferred income taxes 9 3
Loss on sale of assets, net 2 2
Changes in components of
working capital (net of
acquisition)-
(Inc.)/dec. in receivables (85) (209)
(Inc.)/dec. in inventories (47) (22)
(Inc.)/dec. in prepayments
and other current assets (34) (23)
Inc./(dec.) in payables 51 52
Inc./(dec.) in taxes accrued (8) 11
Inc./(dec.) in interest accrued (4) (2)
Inc./(dec.) in other
current liabilities - 5
Other - (27)
Net cash provided (used) by
operating activities 60 (26)
Investing activities:
Net proceeds from sale of
assets 6 4
Expenditures for plant,
property & equipment (130) (100)
Acquisition of business - (11)
Expenditures for software-
related intangibles (9) (12)
Investments and other (1) 1
Net cash (used) by investing
activities (134) (118)
Financing activities:
Issuance of common shares 13 6
Issuance of long-term debt - 1
Retirement of long-term debt (3) (43)
Net inc. in short-term debt
excluding current
maturities on long-term debt 29 56
Other 2 1
Net cash provided by financing
activities 41 21
Effect of foreign exchange rate
changes on cash and
cash equivalents 8 (2)
Decrease in cash and cash
equivalents (25) (125)
Cash and cash equivalents,
January 1 141 214
Cash and cash equivalents,
September 30 $116 $89
Cash paid during the period for
interest $103 $94
Cash paid during the period for
income taxes 18 $16
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
Q3 2006
North Europe Asia
America & SA Pacific Total
Net income $6
Minority interest 2
Income tax expense 3
Interest expense (net of interest
capitalized) 34
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $16 $24 $5 45
Depreciation and amortization of
other intangibles 22 20 3 45
Total EBITDA(2) $38 $44 $8 $90
Q3 2005
North Europe Asia
America & SA Pacific Total
Net income $10
Income tax expense 7
Interest expense (net of interest
capitalized) 33
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $37 $9 $4 50
Depreciation and amortization of
other intangibles 22 19 3 44
Total EBITDA(2) $59 $28 $7 $94
(1) Generally Accepted Accounting Principles
(2) EBITDA represents income before interest expense, income taxes,
minority interest and depreciation and amortization. EBITDA is not a
calculation based upon generally accepted accounting principles. The
amounts included in the EBITDA calculation, however, are derived from
amounts included in the historical statements of income data. In
addition, EBITDA should not be considered as an alternative to net
income or operating income as an indicator of the company's operating
performance, or as an alternative to operating cash flows as a measure
of liquidity. Tenneco has presented EBITDA because it regularly
reviews EBITDA as a measure of the company's performance. In
addition, Tenneco believes its debt holders utilize and analyze our
EBITDA for similar purposes. Tenneco also believes EBITDA assists
investors in comparing a company's performance on a consistent basis
without regard to depreciation and amortization, which can vary
significantly depending upon many factors. However, the EBITDA
measure presented may not always be comparable to similarly titled
measures reported by other companies due to differences in the
components of the calculation.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) TO NON-GAAP EARNINGS MEASURES(2)
Unaudited
Q3 2006 Q3 2005
EBITDA Net Per EBITDA Net Per
(3) EBIT Income Share (3) EBIT Income Share
Earnings Measures $90 $45 $6 $0.12 $94 $50 $10 $0.23
Adjustments (reflect
non-GAAP measures):
Restructuring and
restructuring related
expenses 7 7 4 0.10 2 2 2 0.04
Non-GAAP earnings
measures $97 $52 $10 $0.22 $96 $52 $12 $0.27
Q3 2006
North Europe Asia
America & SA Pacific Total
EBIT $16 $24 $5 $45
Restructuring and
restructuring related
expenses 3 2 2 7
Adjusted EBIT $19 $26 $7 $52
Q3 2005
North Europe Asia
America & SA Pacific Total
EBIT $37 9 $4 $50
Restructuring and
restructuring related
expenses - 2 - 2
Adjusted EBIT $37 $11 $4 $52
(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 third
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.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
YTD 2006
North Europe Asia
America & SA Pacific Total
Net income $37
Minority interest 4
Income tax expense 18
Interest expense (net of interest
capitalized) 101
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $87 $66 $7 160
Depreciation and amortization of
other intangibles 68 59 9 136
Total EBITDA(2) $155 $125 $16 $296
YTD 2005
North Europe Asia
America & SA Pacific Total
Net income $50
Minority interest 1
Income tax expense 29
Interest expense (net of interest
capitalized) 97
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $126 $41 $10 177
Depreciation and amortization of
other intangibles 68 57 9 134
Total EBITDA(2) $194 $98 $19 $311
(1) Generally Accepted Accounting Principles
(2) EBITDA represents income before interest expense, income taxes,
minority interest and depreciation and amortization. EBITDA is not a
calculation based upon generally accepted accounting principles. The
amounts included in the EBITDA calculation, however, are derived from
amounts included in the historical statements of income data. In
addition, EBITDA should not be considered as an alternative to net
income or operating income as an indicator of the company's operating
performance, or as an alternative to operating cash flows as a measure
of liquidity. Tenneco has presented EBITDA because it regularly
reviews EBITDA as a measure of the company's performance. In
addition, Tenneco believes its debt holders utilize and analyze our
EBITDA for similar purposes. Tenneco also believes EBITDA assists
investors in comparing a company's performance on a consistent basis
without regard to depreciation and amortization, which can vary
significantly depending upon many factors. However, the EBITDA
measure presented may not always be comparable to similarly titled
measures reported by other companies due to differences in the
components of the calculation.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) TO NON-GAAP EARNINGS MEASURES(2)
Unaudited
YTD 2006 YTD 2005
EBITDA Net Per EBITDA Net Per
(3) EBIT Income Share (3) EBIT Income Share
Earnings Measures $296 $160 $37 $0.79 $311 $177 $50 $1.11
Adjustments (reflect
non-GAAP measures):
Restructuring and
restructuring related
expenses 21 21 13 0.31 7 7 5 0.11
New Aftermarket
customer changeover
costs (4) 6 6 4 0.09 - - - -
Stock based
compensation
accounting change (5) 1 1 1 0.02 - - - -
Tax adjustments - - (3) (0.06) - - 1 0.02
Non-GAAP earnings
measures $324 $188 $52 $1.15 $318 $184 $56 $1.24
YTD 2006
North Europe Asia
America & SA Pacific Total
EBIT $87 $66 $7 $160
Restructuring and
restructuring related
expenses 10 6 5 21
New Aftermarket
customer changeover
costs (4) 6 - - 6
Stock based
compensation
accounting change (5) 1 - - 1
Adjusted EBIT $104 $72 $12 $188
YTD 2005
North Europe Asia
America & SA Pacific Total
EBIT $126 41 $10 $177
Restructuring and
restructuring related
expenses 2 5 - 7
Adjusted EBIT $128 $46 $10 $184
(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 nine 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.
(3) EBITDA represents income before interest expense, income taxes,
minority interest and depreciation and amortization. EBITDA is not a
calculation based upon generally accepted accounting principles. The
amounts included in the EBITDA calculation, however, are derived from
amounts included in the historical statements of income data. In
addition, EBITDA should not be considered as an alternative to net
income or operating income as an indicator of the company's operating
performance, or as an alternative to operating cash flows as a measure
of liquidity. Tenneco has presented EBITDA because it regularly
reviews EBITDA as a measure of the company's performance. In
addition, Tenneco believes its debt holders utilize and analyze our
EBITDA for similar purposes. Tenneco also believes EBITDA assists
investors in comparing a company's performance on a consistent basis
without regard to depreciation and amortization, which can vary
significantly depending upon many factors. However, the EBITDA
measure presented may not always be comparable to similarly titled
measures reported by other companies due to differences in the
components of the calculation.
(4) Represents costs associated with changing new aftermarket customers
from their prior suppliers to an inventory of our products. Although
our aftermarket business regularly incurs changeover costs, we
specifically identify in the table above the changeover costs that,
based on the size or number of customers involved, we believe are of
an unusual nature for the time period in which they were incurred.
(5) 2006 includes adjustments to eliminate the additional stock based
compensation expense and the impact on the diluted shares calculation
associated with FAS 123R, which the company adopted in 2006. 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 nine months ended September 30).
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
Q3 2006
Revenues
Subst- Exclud-
rate ing
Sales Curr-
Reven- Exclud- ency
ues ing and
Exclu- Curr- Subst-
Currency ding ency rate
Revenues Impact Currency Impact Sales
North America Original Equipment
Ride Control $109 $- $109 $- $109
Exhaust 198 1 197 54 143
Total North America Original
Equipment 307 1 306 54 252
North America Aftermarket
Ride Control 91 - 91 - 91
Exhaust 44 - 44 - 44
Total North America Aftermarket 135 - 135 - 135
Total North America 442 1 441 54 387
Europe Original Equipment
Ride Control 87 2 85 - 85
Exhaust 306 12 294 124 170
Total Europe Original Equipment 393 14 379 124 255
Europe Aftermarket
Ride Control 48 1 47 - 47
Exhaust 58 3 55 - 55
Total Europe Aftermarket 106 4 102 - 102
South America & India 70 3 67 9 58
Total Europe, South America &
India 569 21 548 133 415
Asia 66 - 66 23 43
Australia 45 (1) 46 5 41
Total Asia Pacific 111 (1) 112 28 84
Total Tenneco Inc. $1,122 $21 $1,101 $215 $886
Q3 2005
Revenues
Subst- Exclud-
rate ing
Sales Curr-
Reven- Exclud- ency
ues ing and
Exclu- Curr- Subst-
Currency ding ency rate
Revenues Impact Currency Impact Sales
North America Original
Equipment
Ride Control $120 $- $120 $- $120
Exhaust 249 - 249 69 180
Total North America Original
Equipment 369 - 369 69 300
North America Aftermarket
Ride Control 90 - 90 - 90
Exhaust 43 - 43 - 43
Total North America Aftermarket 133 - 133 - 133
Total North America 502 - 502 69 433
Europe Original Equipment
Ride Control 84 - 84 - 84
Exhaust 257 - 257 77 180
Total Europe Original Equipment 341 - 341 77 264
Europe Aftermarket
Ride Control 46 - 46 - 46
Exhaust 51 - 51 - 51
Total Europe Aftermarket 97 - 97 - 97
South America & India 62 - 62 5 57
Total Europe, South America
& India 500 - 500 82 418
Asia 38 - 38 10 28
Australia 56 - 56 5 51
Total Asia Pacific 94 - 94 15 79
Total Tenneco Inc. $1,096 $- $1,096 $166 $930
Tenneco presents the above reconciliation of revenues in order to reflect
the trend in the company's sales, in various product lines and
geographical regions, separately from the effects of doing business in
currencies other than the U.S. dollar. Additionally, substrate sales
which the company previously referred to as pass-through sales include
precious metals pricing, which may be volatile. Substrate sales occur
when, at the direction of its OE customers, Tenneco purchases catalytic
converters or components thereof from suppliers, uses them in its
manufacturing processes and sells them as part of the completed system.
While Tenneco original equipment customers assume the risk of this
volatility, it impacts reported revenue. Excluding substrate sales
removes this impact. Tenneco uses this information to analyze the trend
in revenues before these factors. Tenneco believes investors find this
information useful in understanding period to period comparisons in the
company's revenues.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
YTD 2006
Revenues
Subst- Exclud-
rate ing
Sales Curr-
Reven- Exclud- ency
ues ing and
Exclu- Curr- Subst-
Currency ding ency rate
Revenues Impact Currency Impact Sales
North America Original
Equipment
Ride Control $371 $- $371 $- $371
Exhaust 677 6 671 181 490
Total North America
Original Equipment 1,048 6 1,042 181 861
North America Aftermarket
Ride Control 304 - 304 - 304
Exhaust 129 - 129 - 129
Total North America Aftermarket 433 - 433 - 433
Total North America 1,481 6 1,475 181 1,294
Europe Original Equipment
Ride Control 280 (a) 1 279 - 279
Exhaust 912 - 912 352 560
Total Europe Original
Equipment 1,192 1 1,191 352 839
Europe Aftermarket
Ride Control 138 - 138 - 138
Exhaust 161 - 161 - 161
Total Europe Aftermarket 299 - 299 - 299
South America & India 201 13 188 24 164
Total Europe, South America &
India 1,692 14 1,678 376 1,302
Asia 174 - 174 59 115
Australia 129 (4) 133 14 119
Total Asia Pacific 303 (4) 307 73 234
Total Tenneco Inc. $3,476 $16 $3,460 $630 $2,830
YTD 2005
Revenues
Subst- Exclud-
rate ing
Sales Curr-
Reven- Exclud- ency
ues ing and
Exclu- Curr- Subst-
Currency ding ency rate
Revenues Impact Currency Impact Sales
North America Original
Equipment
Ride Control $378 $- $378 $- $378
Exhaust 756 - 756 204 552
Total North America
Original Equipment 1,134 - 1,134 204 930
North America Aftermarket
Ride Control 284 - 284 - 284
Exhaust 125 - 125 - 125
Total North America Aftermarket 409 - 409 - 409
Total North America 1,543 - 1,543 204 1,339
Europe Original Equipment
Ride Control 291 (a) - 291 - 291
Exhaust 813 - 813 243 570
Total Europe Original
Equipment 1,104 - 1,104 243 861
Europe Aftermarket
Ride Control 134 - 134 - 134
Exhaust 154 - 154 - 154
Total Europe Aftermarket 288 - 288 - 288
South America & India 172 - 172 14 158
Total Europe, South America &
India 1,564 - 1,564 257 1,307
Asia 108 - 108 33 75
Australia 162 - 162 14 148
Total Asia Pacific 270 - 270 47 223
Total Tenneco Inc. $3,377 $- $3,377 $508 $2,869
Tenneco presents the above reconciliation of revenues in order to reflect
the trend in the company's sales, in various product lines and
geographical regions, separately from the effects of doing business in
currencies other than the U.S. dollar. Additionally, substrate sales
which the company previously referred to as pass-through sales include
precious metals pricing, which may be volatile. Substrate sales occur
when, at the direction of its OE customers, Tenneco purchases catalytic
converters or components thereof from suppliers, uses them in its
manufacturing processes and sells them as part of the completed system.
While Tenneco original equipment customers assume the risk of this
volatility, it impacts reported revenue. Excluding substrate sales
removes this impact. Tenneco uses this information to analyze the trend
in revenues before these factors. Tenneco believes investors find this
information useful in understanding period to period comparisons in the
company's revenues.
(a) Beginning in the second quarter of 2005, Tenneco changed its
accounting for a customer contract in its European OE Ride Control
unit. The cost of sales for this contract are now netted against the
revenues, reducing reported revenues and cost of sales. In the first
quarter of 2005, Tenneco recorded $15 million in revenues for this
contract.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF NON-GAAP MEASURES
Debt net of cash / Adjusted EBITDA - LTM
Quarter Ended September 30
2006 2005
Total debt $1,403 $1,429
Cash and cash equivalents 116 89
Debt net of cash balances (1) 1,287 1,340
Adjusted LTM EBITDA 420 413
Ratio of net debt to adjusted LTM
EBITDA (2) 3.1x 3.2x
Q4 05 Q1 06 Q2 06 Q3 06 Q3 06 LTM
Net income 8 7 24 6 45
Minority interest 1 1 1 2 5
Income tax expense (4) - 15 3 14
Interest expense (net of interest
capitalized) 33 34 33 34 134
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) 38 42 73 45 198
Depreciation and amortization of
other intangibles 43 44 47 45 179
Total EBITDA(3) 81 86 120 90 377
Restructuring and restructuring
related expenses 5 6 8 7 26
Stock based compensation accounting
change (4) - 1 - - 1
New Aftermarket customer changeover
costs (5) 10 - 6 - 16
Total Adjusted EBITDA (6) 96 93 134 97 420
Q4 04 Q1 05 Q2 05 Q3 05 Q3 05 LTM
Net income (19) 7 33 10 31
Minority interest - 1 - - 1
Income tax expense (35) 4 18 7 (6)
Interest expense (net of interest
capitalized) 75 32 32 33 172
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) 21 44 83 50 198
Depreciation and amortization of
other intangibles 46 46 44 44 180
Total EBITDA(3) 67 90 127 94 378
Restructuring and restructuring
related expenses 28 3 2 2 35
Total adjusted EBITDA(6) 95 93 129 96 413
(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) 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 nine months ended September 30.
(5) 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.
(6) 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.
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