Tenneco Automotive Announces Lower Second Quarter Earnings
27 July 2000
Improved Cash Flow On Strong Revenue Growth
LAKE FOREST, Ill. - Tenneco Automotive today announced revenues of $948 million for the second quarter ended June 30, 2000, a nine percent increase over second quarter 1999 revenues of $868 million. The company also reported income from continuing operations of $15 million, or 42 cents per diluted share, compared to $37 million, or $1.06 per diluted share in the second quarter of 1999. Cash flow before financing activities was $24 million versus a negative $113 million in cash flow for the second quarter of 1999, allowing the company to pay down another $32 million of debt during the quarter.Included in the second quarter results are pre-tax stand-alone costs of $13 million, and the costs associated with the company's new capital structure following the November 4, 1999 spin-off of Pactiv Corporation. If the company had incurred the same level of stand-alone and interest costs in 1999 as it did in 2000, its net income and earnings per diluted share for the second quarter of 1999 would have been $22 million, or 66 cents per share.
"We are disappointed with our earnings this quarter despite solid revenue growth and, as a result, are accelerating our efforts to cut costs and improve our operating efficiency worldwide," said Mark P. Frissora, chairman and CEO, Tenneco Automotive. "On the positive side, we continue to generate strong cash flow. As a result, we've been able to reduce our debt by approximately $100 million since becoming an independent company eight months ago."
Including stand-alone costs, EBITDA for the quarter was $105 million, a decline of 21 percent compared to $133 million in the second quarter of 1999. Second quarter 1999 EBITDA would have been $122 million if the stand-alone costs were included in the results.
The company reported EBIT, including stand-alone costs, of $68 million, a decline of 30 percent compared to $97 million in the same quarter last year. EBIT in the second quarter of 1999 would have been $86 million if the stand-alone costs were included.
The company has also shown a year over year improvement in EVA(R) (Economic Value Added) performance of $7 million through the first two quarters of 2000.
NORTH AMERICA
Continued strong OE production levels helped fuel a 23 percent increase in the company's North American original equipment business, reporting revenues of $374 million compared to $304 million in second quarter 1999. A change in revenue recognition for catalytic converter sales accounted for $52 million of the increase. A greater percentage of higher content exhaust system contracts versus components as well as supply contracts for a large number of top-selling vehicles also contributed to the growth.
Second quarter revenues for the North American aftermarket were $165 million, compared to $166 million in the second quarter of 1999. Despite a softening aftermarket in North America, overall aftermarket revenues were stronger during the last month of the quarter due to the introduction of the new premium Reflex shock absorber for passenger vehicles, and the increase of Sensa-Trac sales in the retail channel. In addition, the company recorded strong sales of its high performance Rancho shock absorber and suspension systems.
Before stand-alone costs, the second quarter EBIT for North American operations was $49 million, a 29 percent decrease from $69 million in the previous year.
The decline in EBIT was primarily driven by higher costs in the North American original equipment operations. Contributing to the decline were higher costs associated with the delayed closing of the Culver, Indiana exhaust plant; increased R&D spending to support future platform launches including advanced suspension technologies; and lower than expected margins on some of the new OE exhaust platform launches.
The Culver, Indiana exhaust plant was closed on July 14, 2000, after remaining open beyond the first quarter at the request of the customer. The advanced suspension R&D expenses represent investments in new technologies, which should be recovered on future OE programs. In addition, margins should improve on the new OE exhaust platforms in the second half of the year as the company implements already identified manufacturing efficiency improvements.
EUROPE
The company reported second quarter 2000 revenues for the European original equipment business of $213 million, a five percent increase compared to second quarter 1999 revenues of $202 million. Revenue would have increased by 16 percent if exchange rates had been the same in the second quarter 2000 as in second quarter 1999. The increase was driven by new ride control business, and higher volume exhaust business.
Revenues for the European aftermarket business were $109 million, a 12 percent decrease from $124 million in the second quarter of 1999. Had exchange rates been the same in the second quarter of 1999 as in 2000, revenue would have declined three percent. The overall softness in the European aftermarket influenced the quarter results, as well as excess capacity in the European exhaust industry.
Despite the weakness of the euro, European EBIT, before stand-alone costs, was up four percent at $26 million.
Tenneco Automotive reported second quarter results in other geographical areas as follows:
Region Revenue Growth (Decline) (year over year) --------- ------- ---------------------------------- South America $39 million 39 percent Australia $33 million (3) percent Asia $15 million 50 percent
Stronger sales in Brazil and Asia; and efficiency improvements and headcount reductions in South America continue to drive improvement in EBIT for South America, Australia, and Asia. Combined EBIT, before stand-alone costs, for these areas in the second quarter was $6 million, slightly higher than the $5 million recorded in second quarter 1999.
OUTLOOK
Despite softening in the global aftermarket and the North American OE market, Tenneco Automotive products were featured on 15 new product launches during the second quarter 2000, with revenue exceeding $80 million. In addition, Tenneco Automotive captured new platforms in this quarter, which should generate future global OE business of $150 million. In the aftermarket business, the company also recorded new incremental revenue of more than $16 million from new and existing North American customers in the second quarter. This new revenue, the result of aggressive product launches and product repositioning programs, helped offset the downturn in the aftermarket during the quarter.
"We are confident that we have the right growth strategies in place," said Mark Frissora. "However, it's critical that we continue to manage cost cutting initiatives worldwide with the goal of significantly reducing working capital, SG&A, and debt."
Attached are exhibits that provide additional information on Tenneco Automotive's 2000 and 1999 operating results.
Tenneco Automotive is a $3.3 billion manufacturing company headquartered in Lake Forest, Ill., with 24,000 employees worldwide. Tenneco Automotive is one of the world's largest producers and marketers of ride control and exhaust systems and products, which are sold under the Monroe(R) and Walker (R) global brand names. Among its products are Sensa-Trac(R) and Reflex (R) shocks and struts, Rancho(R) shock absorbers, Walker(R) Quiet-Flow(TM) mufflers and DynoMax(TM) performance exhaust products, and Monroe(R) Clevite(TM) vibration control components.
TENNECO AUTOMOTIVE INC. CONSOLIDATED EARNINGS RESULTS
Unaudited
THREE MONTHS ENDED JUNE 30,
2000 1999
----- -----
Net sales and operating revenues: $ 948 $ 868
===== =====
Operating income (loss):
North America $ 40 $ 69
Europe 23 25
Rest of World 5 5
Other - (2)
----- -----
68 97
Less:
Interest expense (net of interest capitalized) 48 23
Income tax expense (benefit) 5 30
Minority interest - 7
----- -----
Income (loss) from continuing operations 15 37
Income (loss) from discontinued
operations, net of income tax - 55
Extraordinary loss, net of income tax - -
Cumulative effect of change in accounting
principle, net of income tax - -
----- -----
Net income (loss) $ 15 $ 92
===== =====
Average common shares outstanding:
Basic 34.4 33.4
===== =====
Diluted 34.6 33.5
===== =====
Earnings (loss) per share of common
stock:
Basic-
Continuing operations $0.42 $1.07
Discontinued operations - 1.67
Extraordinary loss - -
Cumulative effect of change
in accounting principle - -
----- -----
$0.42 $2.74
===== =====
Diluted-
Continuing operations $0.42 $1.06
Discontinued operations - 1.67
Extraordinary loss - -
Cumulative effect of change
in accounting principle - -
----- -----
$0.42 $2.73
===== =====
TENNECO AUTOMOTIVE INC. CONSOLIDATED EARNINGS RESULTS
Unaudited
---------
SIX MONTHS ENDED JUNE 30,
2000 1999
----- -----
Net sales and operating revenues: $1,830 $1,657
===== =====
Operating income (loss):
North America $ 74 $ 103
Europe 34 51
Rest of World 7 2
Other - (4)
----- -----
115 152
Less:
Interest expense (net of interest capitalized) 93 42
Income tax expense (benefit) 4 44
Minority interest 2 13
----- -----
Income (loss) from continuing operations 16 53
Income (loss) from discontinued
operations, net of income tax - (111)
Extraordinary loss, net of income tax - (7)(a)
Cumulative effect of change in accounting
principle, net of income tax - (134)(b)
----- -----
Net income (loss) $ 16 $ (199)
===== =====
Average common shares outstanding:
Basic 34.1 33.4
===== =====
Diluted 34.3 33.5
===== =====
Earnings (loss) per share of common
stock:
Basic-
Continuing operations $ 0.45 $ 1.54
Discontinued operations - (3.30)
Extraordinary loss - (0.20)(a)
Cumulative effect of change
in accounting principle - (4.00)(b)
----- -----
$ 0.45 $(5.96)
===== =====
Diluted-
Continuing operations $ 0.45 $ 1.54
Discontinued operations - (3.30)
Extraordinary loss - (0.20)(a)
Cumulative effect of change
in accounting principle - (4.00)(b)
----- -----
$ 0.45 $(5.96)
===== =====
(a) Loss on early retirement of debt used to finance a
Containerboard facility.
(b) Change in accounting principle related to costs of start-up
activities of $102 million or $3.05 per share pursuant to
AICPA Statement of Position 98-5 and change in accounting
principle related to costs to acquire new aftermarket customer
contracts of $32 million or $.95 per share.
Tenneco Automotive
Statement of Income (Loss)
Quarter Ended June 30, 2000
(Millions Except Per Share Amounts)
Operating Stand Alone
Units Company Reported
Results Expense Income
---------- ----------- ----------
EBIT
North America 49 (9) 40
Europe 26 (3) 23
Rest of World 6 (1) 5
Other - - -
---------- ----------- ----------
Total 81 (13) 68
---------- ----------- ----------
Tenneco Automotive
Statement of Income (Loss)
Six Months Ended June 30, 2000
(Millions Except Per Share Amounts)
Operating Stand Alone
Units Company Reported
Results Expense Income
---------- ----------- ----------
EBIT
North America 92 (18) 74
Europe 41 (7) 34
Rest of World 9 (2) 7
Other - - -
---------- ----------- ----------
Total 142 (27) 115
---------- ----------- ----------
Tenneco Automotive Inc. and Consolidated Subsidiaries
Balance Sheet
(Unaudited)
(Millions)
December 31, 1999 June 30, 2000
----------------- -------------
Assets
Current Assets $ 1,201 $ 1,284
Other Assets 705 700
Plant, Property and Equipment, net 1,037 1,004
Net Assets of Discontinued Operations - -
----------------- -------------
Total $ 2,943 $ 2,988
================= =============
Liabilities and Shareholders' Equity
Short-term Debt $ 56 $ 43
Other Current Liabilities 607 682
Long-term Debt 1,578 1,570
Deferred Income Taxes 108 108
Deferred Credits and Other Liabilities 156 166
Minority Interest 16 18
Shareholders' Equity 422 401
----------------- -------------
Total $ 2,943 $ 2,988
================= =============
Debt to Capitalization Ratio 78.9% 79.4%
================= =============