Tenneco Reports Strong Second Quarter Results
- Net income up 67%, EPS up 65% year-over-year
- EBIT up 39%; EBITDA up 26% year-over-year
- Record high quarterly revenue of $1.7 billion
LAKE FOREST, Ill., July 26, 2007 -- Tenneco reported second quarter 2007 net income of $40 million, or 84-cents per diluted share, a significant increase from $24 million, or 51-cents per diluted share in second quarter 2006. Adjusted for the items below, net income was $41 million, or 87-cents per diluted share, versus $33 million, or 71-cents per diluted share one year ago (the tables attached to the press release reconcile GAAP results to non-GAAP results). The comparative 2006 financial results reflect the preliminary results of the restatement discussed in the company's July 23, 2007 press release. Final 2006 results will be reflected in Tenneco's restated financial statements that it expects to file in August 2007.
EBIT (earnings before interest, taxes and minority interest) increased to $102 million, from $74 million a year ago. Adjusted EBIT was $104 million, compared with $88 million in second quarter 2006. Growth in global sales on OE platforms featuring advanced technology content and operational efficiencies drove the year-over-year profit improvement.
EBITDA (EBIT before depreciation and amortization) was $152 million, up from $121 million and adjusted EBITDA rose to $154 million from $135 million for the same period last year.
Second quarter revenue increased 36% to $1.7 billion versus $1.2 billion a year ago. Substrate sales were $460 million, up from $213 million in second quarter 2006. Excluding substrate sales and favorable currency of $49 million, revenue was up 16% to $1.16 billion from $1.0 billion. The revenue growth was driven by volume increases on large North American OE emission control platforms as well as continued revenue growth in the European OE businesses and in expanding markets like China.
Adjusted second quarter 2007 and 2006 results:
Q2 2007 Q2 2006
Net Per Net Per
EBITDA EBIT Income Share EBITDA EBIT Income Share
Earnings Measures $152 $102 $40 $0.84 $121 $74 $24 $0.51
Adjustments (reflects
non-GAAP measures):
Restructuring and
restructuring related
expenses 2 2 1 0.03 8 8 5 0.12
New aftermarket
customer changeover
costs - - - - 6 6 4 0.08
Non-GAAP earnings
measures $154 $104 $41 0.87 $135 $88 $33 0.71
Second quarter 2007 adjustments:
-- Restructuring and restructuring related expense of $2 million pre-
tax, or 3-cents per diluted share.
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.
"We are very pleased with our results this quarter. In North America, the ramp-up and execution on our large diesel aftertreatment truck business is reaching the production levels we had anticipated," said Gregg Sherrill, chairman and CEO, Tenneco. "In addition, we saw robust performance in Europe and China, which reflects Tenneco's strong geographic position."
Gross margin in the quarter was 17.2% versus 20.5% in second quarter 2006. The decline was driven by substantially higher substrate sales, primarily from volume increases on diesel truck platforms in North America, lower OE ride control sales for commercial vehicles due to the significant production decline in that industry, and a shift toward a lower percentage of total revenue generated by higher margin aftermarket business.
Total steel costs in the quarter increased $18 million year-over-year. The company offset these increases with cost reductions, material substitutions, low cost country sourcing and steel price recovery efforts with aftermarket and OE customers. The company has completed nearly all its customer steel recovery negotiations.
SGA&E (selling, general, administrative & engineering) expenses as a percent of sales decreased to 8.1% from 10.5% at the end of second quarter 2006. The company held overhead costs flat while increasing revenues and continuing to invest in engineering and technology development for its OE emission control and ride control businesses globally.
EBIT as a percent of revenue in the quarter was up year-over-year. The margin benefit from advanced technology content on new large-volume OE platform launches, cost reduction efforts and an improvement in SGA&E as a percent of sales offset the unfavorable margin impact of higher substrate sales and the shift to a higher percentage of OE revenues.
Interest expense in the quarter was $40 million, up from $35 million a year ago. The requirement to mark Tenneco fixed to floating interest rate swaps to market increased interest expense by $3 million in second quarter 2007, versus an increased expense of $2 million in the second quarter 2006. A higher level of borrowings in the quarter drove the remainder of the interest expense increase.
Cash provided by operating activities was an inflow of $67 million, versus $73 million in second quarter 2006. Cash used for working capital was $14 million versus $10 million a year ago despite higher revenues in second quarter 2007.
At quarter-end, debt net of cash balances was $1.282 billion, compared with $1.256 billion a year ago. Total debt was $1.450 billion versus $1.379 billion at the end of second quarter 2006, driven by working capital investments to service a higher level of revenues. At quarter-end, the ratio of debt net of cash balances to adjusted LTM (last twelve months) EBITDA was 2.9x, improved from 3.0x a year ago.
NORTH AMERICA
-- North America OE revenue increased 80% to $661 million from $367
million a year ago. Industry production was down 3% in the quarter.
Excluding substrate sales, revenue was $395 million, up 29% year-
over-year from $306 million. Higher volumes on the Toyota Tundra,
GM cross-over vehicles and the ramp-up on significant new diesel
emission control platforms including the Ford Super-Duty, the GM
Duramax engines, the Dodge heavy-duty Ram and International's
medium-duty diesel trucks drove the increase.
-- North America aftermarket revenue was down 5% to $149 million from
$156 million a year ago. Softer market conditions for both ride and
emission control products were partially offset by price increases
to recover steel costs.
-- EBIT for North American operations was $49 million, versus $37
million a year ago. Adjusted for the items below, EBIT was $49
million, versus $47 million in second quarter 2006. Strong OE
emission control volumes and manufacturing efficiencies,
particularly the efficient ramp-up on key emission control truck
platforms, offset lower aftermarket volumes and higher material
costs.
-- Second quarter 2006 EBIT includes $4 million in restructuring and $6
million for customer changeover costs.
EUROPE, SOUTH AMERICA AND INDIA
-- Europe OE revenue was $513 million, up 25% from $412 million in
second quarter 2006. Industry production increased 4% in the
quarter. Excluding $29 million in favorable currency and higher
substrate sales, revenue was $347 million, up 18% compared with $292
million a year ago. The increase was largely driven by increased
volumes on emission control platforms and new ride control model
launches.
-- Europe aftermarket revenue increased 5% to $124 million from $118
million the previous year. Excluding favorable currency, revenue
was relatively flat year-over-year. Stronger ride control volumes
were offset by lower emission control product sales.
-- South America and India revenue increased to $81 million from $66
million the previous year, driven by favorable currency and stronger
volumes in South America. Excluding currency and substrate sales,
revenue was $65 million, versus $58 million a year ago, an increase
of 12%.
-- EBIT for Europe, South America and India increased 29% to $45
million, versus $35 million a year ago. Stronger OE volumes and
operating efficiency improvements more than offset the impact of
higher material costs. Favorable currency had a $3 million impact
on EBIT. Adjusted for the items below, EBIT was $47 million, versus
$38 million in second quarter 2006.
-- Second quarter 2007 EBIT includes $2 million in restructuring costs
and second quarter 2006 EBIT includes $3 million in restructuring
costs.
ASIA PACIFIC
-- Asia revenue was up 48% to $85 million, compared with $58 million a
year ago. Excluding substrate sales, Asia revenue was up 43% to $55
million from $39 million a year ago. The China operations drove the
increase with strong OE volumes and a 57% year-over-year revenue
gain.
-- Australia revenue increased 14% to $50 million from $44 million in
second quarter 2006. Excluding favorable currency and substrate
sales, revenue was $37 million, down from $39 million a year ago.
-- Asia Pacific EBIT was $8 million, up from $2 million in second
quarter 2006, driven by OE volume growth in China. Excluding the
items below, EBIT increased 146%.
-- Second quarter 2006 EBIT includes $1 million in restructuring costs.
OUTLOOK
Industry predictions indicate stronger year-over-year OE production in North America through the remainder of the year and Tenneco is well-positioned to benefit with its new diesel pick-up truck platforms and a good position on strong-selling cross-over vehicles. However, the company will continue to closely monitor market uncertainties, namely rising inventory levels and labor negotiations in North America.
The company also expects its strong performance will continue in Europe and in emerging markets like China, where industry conditions are expected to remain positive. In the aftermarket, the company continues to support its strong brands and aggressively pursue new customers, actions that it hopes will counter any continued softness in the European and North American markets.
Tenneco will continue to invest in engineering and new technologies, primarily to develop next generation emissions and ride control products. The company's diesel aftertreatment capabilities and innovative hot-end emission control solutions are generating new business opportunities and positioning Tenneco for future growth.
"The next five years offer significant opportunities for Tenneco as emissions standards tighten in key markets worldwide. We are staying focused on using our technology and global footprint to capture this new business," said Sherrill. "Equally important, we are working to continue growing profitably, keeping a sharp eye on costs and continuously improving our manufacturing efficiency."
Attachment 1 Statements of Income - 3 Months Statements of Income - 6 Months Balance Sheets Statements of Cash Flows - 3 Months 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
The company will host a conference call on Thursday, July 26, 2007 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 www.tenneco.com. A recording of the call will be available one hour following completion of the call on July 26, 2007. To access this recording, dial 866-395-4188 (domestic) or 203-369-0476 (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 $4.7 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 19,000 employees worldwide. Tenneco is one of the world's largest designers, manufacturers and marketers of emission control and ride control products and systems for the automotive original equipment market and the aftermarket. Tenneco markets its products principally under the Monroe(R), Walker(R), Gillet(TM) and Clevite(R)Elastomer brand names.
This press release contains forward-looking statements. Words such as "hopes," "may," "expects," "anticipate," "will," and "outlook" and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of the company (including its subsidiaries). Because these forward-looking statements involve risks and uncertainties, the company's plans, actions and actual results could differ materially. Among the factors that could cause these plans, actions and results to differ materially from current expectations are:
(i) changes in automotive manufacturers' production rates and their actual and forecasted requirements for the company's products;
(ii) the overall highly competitive nature of the automotive parts industry, including pricing pressure from the company's OE customers and the loss of any awards of business, or the failure to obtain new awards of business, from our large customers, on which we are dependent for a substantial portion of our revenues; for example, Ford, from whom the company derived more than 10% of its 2006 net sales, announced in 2006 a plan to significantly reduce the number of its global suppliers. While the company currently believes that its relationship with Ford will not be impacted by this plan, any significant reduction in sales to Ford could have a material adverse effect on the company;
(iii) the company's resultant inability to realize the sales represented by its awarded book of business which is based on anticipated pricing for the applicable program over its life, and is subject to increases or decreases due to changes in customer requirements, customer and consumer preferences, and the number of vehicles actually produced by customers;
(iv) increases in the costs of raw materials, including the company's ability to successfully reduce the impact of any such cost increases through materials substitutions, cost reduction initiatives, customer recovery and other methods;
(v) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector, and changes in consumer demand and prices, including longer product lives of automobile parts and the cyclicality of automotive production and sales of automobiles which include the company's products, and the potential negative impact on the company's revenues and margins from such products;
(vi) the company's continued success in cost reduction and cash management programs and its ability to execute restructuring and other cost reduction plans and to realize anticipated benefits from these plans;
(vii) the general political, economic and competitive conditions in markets and countries where the company and its subsidiaries operate, including the strength of other currencies relative to the U.S. dollar and currency fluctuations and other risks associated with operating in foreign countries;
(viii) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals;
(ix) changes in capital availability or costs, including increases in the company's costs of borrowing (i.e., interest rate increases), the amount of the company's debt, the ability of the company to access capital markets and the credit ratings of the company's debt;
(x) the cost and outcome of existing and any future legal proceedings, and compliance with changes in regulations, including environmental regulations;
(xi) workforce factors such as strikes or labor interruptions;
(xii) the company's ability to develop and profitably commercialize new products and technologies, and the acceptance of such new products and technologies by the company's customers and the market;
(xiii) further changes in the distribution channels for the company's aftermarket products, further consolidations among automotive parts customers and suppliers, and product warranty costs;
(xiv) changes by the Financial Accounting Standards Board or other accounting regulatory bodies to authoritative generally accepted accounting principles or policies;
(xv) acts of war, riots or terrorism, including, but not limited to the events taking place in the Middle East, the current military action in Iraq and the continuing war on terrorism, as well as actions taken or to be taken by the United States or other governments as a result of further acts or threats of terrorism, and the impact of these acts on economic, financial and social conditions in the countries where the company operates; and
(xvi) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the control of the company and its subsidiaries.
The company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release. Additional information regarding these risk factors and uncertainties is detailed from time to time in the company's SEC filings, including but not limited to its report on Form 10-K for the year ended December 31, 2006. Further information can be found on the company's web site at www.tenneco.com.
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
Unaudited
THREE MONTHS ENDED JUNE 30,
(Millions except per share amounts)
2007 2006 (1)
Net sales and operating revenues $1,663 $1,221
Costs and Expenses
Cost of Sales (exclusive of
depreciation shown below) 1,377 (a) 971 (b)
Engineering, Research and
Development 29 22
Selling, General and
Administrative 105 106 (b) (c)
Depreciation and Amortization of
Other Intangibles 50 47
Total Costs and Expenses 1,561 1,146
Loss on sale of receivables (1) (1)
Other Income (Expense) 1 -
Total Other Expense - (1)
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 49 37 (b) (c)
Europe & South America 45 (a) 35 (b)
Asia Pacific 8 2 (b)
102 74
Less:
Interest expense (net of
interest capitalized) 40 35
Income tax expense 20 14
Minority interest 2 1
Net Income 40 24
Average common shares outstanding:
Basic 45.8 44.5
Diluted 47.7 47.2
Earnings per share of common stock:
Basic $0.88 $0.55
Diluted $0.84 $0.51
(a) Includes restructuring and restructuring related charges of $2
million pre-tax, $1 million after tax or $0.03 per share, which is
recorded in cost of sales in Europe, South America and India.
(b) 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.
(c) Includes customer changeover costs of $6 million pre-tax, $4 million
after-tax or $0.08 per share.
(1) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
Unaudited
SIX MONTHS ENDED June 30,
(Millions except per share amounts)
2007 (1) 2006 (1)
Net sales and operating revenues $3,063 $2,352
Costs and Expenses
Cost of Sales (exclusive of
depreciation shown below) 2,557 (a) 1,892 (c)
Engineering, Research and
Development 56 44
Selling, General and
Administrative 200 (a) 207 (c) (d)
Depreciation and Amortization of
Other Intangibles 98 91
Total Costs and Expenses 2,911 2,234
Loss on sale of receivables (3) (2)
Other Income 3 (1)
Total Other Income / (Expense) - (3)
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 79 (a) 70 (c) (d)
Europe, South America & India 59 (a) 43 (c)
Asia Pacific 14 2 (c)
152 115
Less:
Interest expense (net of interest
capitalized) 81 (b) 72
Income tax expense 22 14 (e)
Minority interest 4 2
Net Income 45 27
Average common shares outstanding:
Basic 45.6 44.2
Diluted 47.4 46.9
Earnings per share of common stock:
Basic $0.98 $0.62
Diluted $0.95 $0.59
(a) Includes restructuring and restructuring related charges of $4
million pre-tax, $3 million after tax or $0.06 per share, of which $3
million is recorded in cost of sales and $1 million is recorded in SG&A.
Geographically, $1 million is recorded in North America, $3 million in
Europe, South America and India.
(b) Includes a pre-tax expense of $5 million, $4 million after-tax or
$0.07 per share related to the write off of debt issuance costs from our
debt refinancing in March of 2007.
(c) 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.
(d) Includes customer changeover costs of $6 million pre-tax, $4 million
after-tax or $0.09 per share.
(e) Includes a $3 million or $0.06 per share tax benefit, primarily
related to resolution of tax issues.
(1) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(Unaudited)
(Millions)
June 30, 2007 December 31, 2006 (1)
Assets
Cash and Cash Equivalents $168 $202
Receivables, Net 913 (a) 592 (a)
Inventories 523 441
Other Current Assets 209 176
Investments and Other Assets 773 753
Plant, Property, and Equipment,
Net 1,104 1,093
Total Assets $3,690 $3,257
Liabilities and Shareholders' Equity
Short-Term Debt $31 $28
Accounts Payable 1,049 782
Accrued Taxes 49 49
Accrued Interest 30 33
Other Current Liabilities 247 237
Long-Term Debt 1,419 (b) 1,356 (b)
Deferred Income Taxes 122 107
Deferred Credits and Other
Liabilities 402 424
Minority Interest 32 28
Total Shareholders' Equity 309 213
Total Liabilities and
Shareholders' Equity $3,690 $3,257
June 30, 2007 December 31, 2006
(a) Accounts receivable securitization
programs $148 $133
(b) Long term debt composed of: June 30, 2007 December 31, 2006
Borrowings against revolving
credit facilities $272 $-
Term loan A (Due 2012) 150 -
Term loan B (Due 2010) - 356
10.25% senior notes (Due 2013) 487 487
8.625% subordinated notes (Due 2014) 500 500
Other long term debt 10 13
$1,419 $1,356
(1) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
ATTACHMENT 1
Tenneco Inc. and Consolidated Subsidiaries
Statements of Cash Flows
(Unaudited)
(Millions)
Three Months Ended
June 30,
2007 2006 (1)
Operating activities:
Net income $40 $24
Adjustments to reconcile income
to net cash used by operating
activities -
Depreciation and amortization
of other intangibles 50 47
Stock option expense 1 1
Deferred income taxes (10) 2
Loss on sale of assets, net 1 1
Changes in components of
working capital -
(Inc.)/dec. in receivables (112) (20)
(Inc.)/dec. in inventories 3 (13)
(Inc.)/dec. in prepayments
and other current assets (14) (14)
Inc./(dec.) in payables 89 16
Inc./(dec.) in taxes accrued - 2
Inc./(dec.) in interest
accrued 6 5
Inc./(dec.) in other current
liabilities 14 14
Other (1) 8
Net cash provided by operating
activities 67 73
Investing activities:
Net proceeds from sale of assets 1 2
Cash Payments for plant,
property & equipment (36) (42)
Cash payments for software-
related intangibles (4) (3)
Investments and other 1 1
Net cash used by investing
activities (38) (42)
Financing activities:
Issuance of common shares 2 2
Issuance of long-term debt - -
Debt issuance costs on long-term
debt - -
Retirement of long-term debt (2) (1)
Net inc./(dec.) in short-term
debt excluding current
maturities on long-term debt (7) (12)
Other (1) 2
Net cash used by financing
activities (8) (9)
Effect of foreign exchange rate
changes on cash and
cash equivalents 11 5
Increase in cash and cash
equivalents 32 27
Cash and cash equivalents, April 1 136 96
Cash and cash equivalents, June 30 $168 $123
Cash paid during the period for
interest $35 $33
Cash paid during the period for
income taxes 20 7
Non-cash Investing and Financing
Activities
Period ended balance of payables
for plant, property and equipment 15 23
(1) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
ATTACHMENT 1
Tenneco Inc. and Consolidated Subsidiaries
Statements of Cash Flows
(Unaudited)
(Millions)
Six Months Ended
June 30,
2007 (1) 2006 (1)
Operating activities:
Net income $45 $27
Adjustments to reconcile net
income
to net cash provided (used) by
operating activities -
Depreciation and amortization
of other intangibles 98 91
Stock option expense 2 2
Deferred income taxes (12) 7
Loss on sale of assets, net 3 2
Changes in components of
working capital (net of
acquisition)-
(Inc.)/dec. in receivables (310) (102)
(Inc.)/dec. in inventories (71) (40)
(Inc.)/dec. in prepayments
and other current assets (26) (28)
Inc./(dec.) in payables 240 92
Inc./(dec.) in taxes accrued (4) -
Inc./(dec.) in interest
accrued (3) 1
Inc./(dec.) in other current
liabilities 17 (4)
Other (6) 11
Net cash provided (used) by
operating activities (27) 59
Investing activities:
Net proceeds from sale of assets 1 2
Expenditures for plant, property
& equipment (75) (89)
Expenditures for software-
related intangibles (11) (6)
Investments and other 2 1
Net cash used by investing
activities (83) (92)
Financing activities:
Issuance of common shares 4 10
Issuance of long-term debt 150 -
Debt issuance costs on long-term
debt (6) -
Retirement of long-term debt (359) (2)
Net inc. in short-term debt
excluding current
maturities on long-term debt 273 (3)
Other - 2
Net cash provided by financing
activities 62 7
Effect of foreign exchange rate
changes on cash and
cash equivalents 14 8
Decrease in cash and cash
equivalents (34) (18)
Cash and cash equivalents,
January 1 202 141
Cash and cash equivalents,
June 30 $168 $123
Cash paid during the period for
interest $77 $67
Cash paid during the period for
income taxes 28 $7
Non-cash Investing and Financing
Activities
Period ended balance of payables
for plant, property and equipment 15 23
(1) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
Q2 2007
North Europe Asia
America & SA Pacific Total
Net income $40
Minority interest 2
Income tax expense 20
Interest expense (net of interest
capitalized) 40
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $49 $45 $8 102
Depreciation and amortization of
other intangibles 25 21 4 50
Total EBITDA(2) $74 $66 $12 $152
Q2 2006 (3)
North Europe Asia
America & SA Pacific Total
Net income $24
Minority interest 1
Income tax expense 14
Interest expense (net of interest
capitalized) 35
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $37 $35 $2 74
Depreciation and amortization of
other intangibles 24 20 3 47
Total EBITDA(2) $61 $55 $5 $121
(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.
(3) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
TENNECO INC.
RECONCILIATION OF GAAP(1) TO NON-GAAP EARNINGS MEASURES(2)
Unaudited
Q2 2007 Q2 2006 (5)
EBITDA Net Per EBITDA Net Per
(3) EBIT Income Share (3) EBIT Income Share
Earnings Measures $152 $102 $40 $0.84 $121 $74 $24 $0.51
Adjustments (reflects
non-GAAP measures):
Restructuring and
restructuring related
expenses 2 2 1 0.03 8 8 5 0.12
New aftermarket customer
changeover costs (4) - - - 6 6 4 0.08
Non-GAAP earnings
measures $154 $104 $41 $0.87 $135 $88 $33 $0.71
Q2 2007
North Europe Asia
America & SA Pacific Total
EBIT $49 $45 $8 $102
Restructuring and
restructuring related
expenses - 2 - 2
Adjusted EBIT $49 $47 $8 $104
Q2 2006 (5)
North Europe Asia
America & SA Pacific Total
EBIT $37 $35 $2 $74
Restructuring and
restructuring related
expenses 4 3 1 8
New Aftermarket customer
changeover costs(4) 6 - - 6
Adjusted EBIT $47 $38 $3 $88
(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 2007 and 2006 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.
(5) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
YTD 2007 (3)
North Europe Asia
America & SA Pacific Total
Net income $45
Minority interest 4
Income tax expense 22
Interest expense (net of interest
capitalized) 81
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $79 $59 $14 152
Depreciation and amortization of
other intangibles 48 42 8 98
Total EBITDA(2) $127 $101 $22 $250
YTD 2006 (3)
North Europe Asia
America & SA Pacific Total
Net income $27
Minority interest 2
Income tax expense 14
Interest expense (net of interest
capitalized) 72
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) $70 $43 $2 115
Depreciation and amortization of
other intangibles 46 39 6 91
Total EBITDA(2) $116 $82 $8 $206
(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.
(3) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
TENNECO INC.
RECONCILIATION OF GAAP(1) TO NON-GAAP EARNINGS MEASURES(2)
Unaudited
YTD 2007 (5) YTD 2006 (5)
EBITDA Net Per EBITDA Net Per
(3) EBIT Income Share (3) EBIT Income Share
Earnings Measures $250 $152 $45 $0.95 $206 $115 $27 $0.59
Adjustments (reflect
non-GAAP measures):
Restructuring and
restructuring related
expenses 4 4 2 0.06 14 14 9 0.21
Charges related to
refinancing - - 4 0.07 - - - -
New aftermarket
customer changeover
costs (4) 6 6 4 0.09
Tax adjustments - - (3) (0.06)
Non-GAAP earnings
measures $254 $156 $51 $1.08 $226 $135 $37 $0.83
YTD 2007 (5)
North Europe Asia
America & SA Pacific Total
EBIT $79 $59 $14 $152
Restructuring and
restructuring related
expenses 1 3 4
Adjusted EBIT $80 $62 $14 $156
YTD 2006 (5)
North Europe Asia
America & SA Pacific Total
EBIT $70 43 $2 $115
Restructuring and
restructuring related
expenses 7 4 3 14
New Aftermarket
customer changeover
costs (4) 6 - - 6
Adjusted EBIT $83 $47 $5 $135
(1) Generally Accepted Accounting Principles
(2) Tenneco presents the above reconciliation of GAAP to non-GAAP earnings measures primarily to reflect the results for 2007 and 2006 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) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
TENNECO INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
Q2 2007
Substrate Revenues
Sales Excluding
Revenues Excluding Currency
Currency Excluding Currency and Substrate
Revenues Impact Currency Impact Sales
North America
Original Equipment
Ride Control $132 $- $132 $- $132
Exhaust 529 - 529 266 263
Total North America
Original Equipment 661 - 661 266 395
North America
Aftermarket
Ride Control 110 - 110 - 110
Exhaust 39 - 39 - 39
Total North America
Aftermarket 149 - 149 - 149
Total North America 810 - 810 266 544
Europe Original
Equipment
Ride Control 107 6 101 - 101
Exhaust 406 23 383 137 246
Total Europe
Original
Equipment 513 29 484 137 347
Europe Aftermarket
Ride Control 61 4 57 - 57
Exhaust 63 4 59 - 59
Total Europe
Aftermarket 124 8 116 - 116
South America
& India 81 6 75 10 65
Total Europe, South
America & India 718 43 675 147 528
Asia 85 - 85 30 55
Australia 50 6 44 7 37
Total Asia Pacific 135 6 129 37 92
Total Tenneco Inc. $1,663 $49 $1,614 $450 $1,164
Q2 2006 (1)
Substrate Revenues
Sales Excluding
Revenues Excluding Currency
Currency Excluding Currency and Substrate
Revenues Impact Currency Impact Sales
North America
Original Equipment
Ride Control $131 $ - $131 $- $131
Exhaust 236 - 236 61 175
Total North America
Original Equipment 367 - 367 61 306
North America
Aftermarket
Ride Control 112 - 112 - 112
Exhaust 44 - 44 - 44
Total North America
Aftermarket 156 - 156 - 156
Total North America 523 - 523 61 462
Europe Original
Equipment
Ride Control 98 - 98 - 98
Exhaust 314 - 314 120 194
Total Europe
Original Equipment 412 - 412 120 292
Europe Aftermarket
Ride Control 54 - 54 - 54
Exhaust 64 - 64 - 64
Total Europe
Aftermarket 118 - 118 - 118
South America & India 66 - 66 8 58
Total Europe, South
America & India 596 - 596 128 468
Asia 58 - 58 19 39
Australia 44 - 44 5 39
Total Asia Pacific 102 - 102 24 78
Total Tenneco Inc. $1,221 $ - $1,221 $213 $1,008
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.
(1) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
TENNECO INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
YTD 2007 (1)
Substrate Revenues
Sales Excluding
Revenues Excluding Currency
Currency Excluding Currency and Substrate
Revenues Impact Currency Impact Sales
North America
Original Equipment
Ride Control $265 $ - $265 $ - $265
Exhaust 905 - 905 432 473
Total North America
Original Equipment 1,170 - 1,170 432 738
North America Aftermarket
Ride Control 208 - 208 - 208
Exhaust 75 - 75 - 75
Total North
America Aftermarket 283 - 283 - 283
Total North America 1,453 - 1,453 432 1,021
Europe Original Equipment
Ride Control 214 16 198 - 198
Exhaust 793 52 741 263 478
Total Europe
Original Equipment 1,007 68 939 263 676
Europe Aftermarket
Ride Control 100 6 94 - 94
Exhaust 104 8 96 - 96
Total Europe
Aftermarket 204 14 190 - 190
South America
& India 151 7 144 18 126
Total Europe, South
America & India 1,362 89 1,273 281 992
Asia 155 - 155 56 99
Australia 93 9 84 12 72
Total Asia Pacific 248 9 239 68 171
Total Tenneco Inc. $3,063 $98 $2,965 $781 $2,184
YTD 2006 (1)
Substrate Revenues
Sales Excluding
Revenues Excluding Currency
Currency Excluding Currency and Substrate
Revenues Impact Currency Impact Sales
North America
Original Equipment
Ride Control $262 $ - $262 $ - $262
Exhaust 479 - 479 127 352
Total North America
Original Equipment 741 - 741 127 614
North America
Aftermarket
Ride Control 212 - 212 - 212
Exhaust 84 - 84 - 84
Total North
America Aftermarket 296 - 296 - 296
Total North America 1,037 - 1,037 127 910
Europe Original Equipment
Ride Control 193 - 193 - 193
Exhaust 606 - 606 222 384
Total Europe
Original Equipment 799 - 799 222 577
Europe Aftermarket
Ride Control 90 - 90 - 90
Exhaust 103 - 103 - 103
Total Europe
Aftermarket 193 - 193 - 193
South America
& India 131 - 131 15 116
Total Europe, South
America & India 1,123 - 1,123 237 886
Asia 108 - 108 36 72
Australia 84 - 84 9 75
Total Asia Pacific 192 - 192 45 147
Total Tenneco Inc. $2,352 $ - $2,352 $409 $1,943
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.
(1) As disclosed in Tenneco's July 23, 2007 press release, Tenneco is restating its financial results for the years ended December 31, 2004, 2005 and 2006 and for the quarters ended March 31, 2006 and 2007, June 30, 2006 and September 30, 2006. The amounts presented in this table reflect the preliminary results of the restatement.
TENNECO INC.
RECONCILIATION OF NON-GAAP MEASURES
Debt net of cash / Adjusted EBITDA - LTM(8)
Unaudited
Quarter Ended June 30
2007 2006
Total debt $1,450 $1,379
Cash and cash equivalents 168 123
Debt net of cash balances (1) 1,282 1,256
Adjusted LTM EBITDA 441 419
Ratio of net debt to adjusted LTM
EBITDA (2) 2.9x 3.0x
Q2 07
Q3 06 Q4 06 Q1 07 Q2 07 LTM
Net income 9 17 5 40 71
Minority interest 2 2 2 2 8
Income tax expense 3 (15) 2 20 10
Interest expense (net of interest
capitalized) 30 35 41 40 146
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) 44 39 50 102 235
Depreciation and amortization of
other intangibles 45 48 48 50 191
Total EBITDA(3) 89 87 98 152 426
Restructuring and restructuring
related expenses 7 6 2 2 17
New Aftermarket customer changeover
costs (4) - - - -
Pension Curtailment (5) - (7) (7)
Reserve for receivables from former
affiliate - 3 3
Stock Option Adjustment (6) - 2 2
Total Adjusted EBITDA (7) 96 91 100 154 441
Q3 05 Q4 05 Q1 06 Q2 06 Q2 06
LTM
Net income 10 8 2 24 44
Minority interest - 1 1 1 3
Income tax expense 7 (4) 1 14 18
Interest expense (net of interest
capitalized) 33 34 37 35 139
EBIT, Income before interest expense,
income taxes and minority interest
(GAAP measure) 50 39 41 74 204
Depreciation and amortization of
other intangibles 44 43 44 47 178
Total EBITDA(3) 94 82 85 121 382
Restructuring and restructuring
related expenses 2 5 6 8 21
New Aftermarket customer changeover
costs (4) - 10 - 6 16
Total adjusted EBITDA(7) 96 97 91 135 419
(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) 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 those 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.
(5) In August 2006, we announced that we were freezing future accruals under our U.S. defined benefit pension plans for substantially all our U.S. salaried and non-union hourly employees effective December 31, 2006. In lieu of those benefits, we are offering additional benefits under defined contribution plan.
(6) The adjustment is related to our past administration of stock option grants and represents an adjustment for several prior years.
(7) 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.