Tenneco Automotive Announces Third Quarter Earnings
24 October 2000
Tenneco Automotive Announces Third Quarter Earnings; Accelerates Cost Reduction Initiative By Reducing North American Salaried Work Force
Company Earns 23 Cents Per Share Before One-Time Items; Pays Down $72 Million
In Debt; Announces Cost Reductions Aimed At Generating $45 Million
In Annual Savings
LAKE FOREST, Ill., Oct. 24 Tenneco Automotive
today reported third quarter 2000 income from continuing operations of
$6 million, or 16 cents per diluted share. These results include a
$13 million pre-tax charge for a stock option buyback program and a $9 million
reversal of a reserve for transaction costs related to the November 1999 spin-
off of Pactiv. The company also generated strong cash flow, reduced
outstanding debt by $72 million, and complied with all debt covenants for the
quarter. Further, the company announced today that it is immediately
eliminating 285 salaried positions in North America as part of a cost
reduction plan to eliminate up to 700 positions - or 16 percent -- from its
worldwide salaried work force.
Excluding the stock buyback program and reserve reversal, income from
continuing operations would have been $9 million, or 23 cents per diluted
share. Third quarter 1999 income from continuing operations was $27 million,
or 86 cents per share. If the company had incurred the same level of
stand-alone and interest costs in 1999 as it did in 2000, its income from
continuing operations and earnings per diluted share for the third quarter of
1999 would have been $8 million, or 24 cents per share.
The company has reduced its debt by approximately $175 million since
becoming an independent company. The $72 million in debt reduction during the
third quarter was financed, in part, by the sale of $62 million of receivables
in the United States.
Tenneco Automotive estimates it will realize $45 million in annual savings
as a result of this worldwide cost reduction plan, which it expects to
complete during the second quarter 2001. All work force reductions will be
completed in compliance with all legal and contractual requirements including
obligations to consult with worker committees, union representatives and
others. Year-to-date, the company has already reduced approximately 140
salaried positions globally, primarily through attrition, which will generate
an additional $15 million in annual savings. In addition, it has adjusted to
lower production volumes by eliminating, at minimal cost, approximately 310
hourly positions throughout North America in the past 60 days.
The company anticipates taking up to a $60 million charge in the fourth
quarter (of which up to $30 million could be cash) to cover many of these
reductions, and for other operational restructuring activities included in the
initiative. Those include consolidating its North American aftermarket
exhaust production at one plant, and scrapping certain North American
aftermarket inventories. The company is evaluating additional cost reduction
initiatives for 2001, which will require review and approval by the Board of
Directors.
"We regret the impact on our people; however, we must make these difficult
decisions in order to move our businesses forward and position them for
long-term growth," said Mark P. Frissora, chairman and CEO, Tenneco
Automotive. "Recent market conditions and our structural costs, which are
higher than the industry average, currently impact our ability to deliver
stronger financial results."
Third Quarter Results
The company reported third quarter revenue of $870 million, including
$48 million in pass through revenue from catalytic converter sales. Third
quarter 1999 revenue was $816 million, which did not include pass through
revenue from catalytic converter sales.
Reported EBITDA for the third quarter was $87 million. EBITDA would have
been $91 million, excluding the one-time non-operational items, a slight
decrease from third quarter 1999 EBITDA of $97 million adjusted to include the
same level of stand-alone costs incurred in 2000. The company reported EBIT
of $47 million. Excluding the one-time items, EBIT for the quarter was $51
million, lower than last year's third quarter of $58 million if the same
stand-alone costs were included in year ago results.
"The weakness in global currencies, the continuing softness in the global
aftermarket, and the significant downturn in the heavy-duty truck market have
negatively affected our results by at least $12 million in EBIT," said
Frissora. "Fortunately, our operational results helped to offset the impact
of many of these conditions. However, we're not satisfied with these results,
and recognize that we must bring more focus and efficiency to our operations,
lower our costs, and continue to reduce our debt."
As previously reported in its first and second quarter 10-Q filings, the
stock option buyback program was initiated to substantially lower the number
of old options issued by Tenneco Inc., primarily between 1996 and 1998. The
company believed that in order to keep and attract talent in the future, more
options would be needed. However, the company also felt there were too many
options outstanding and those options could be dilutive. Last May, employees
were given an opportunity to sell their options back to the company for a
price determined using the Black-Scholes financial model. As a result, the
company recovered more than 6 million options.
North America
The company saw a slight decline in revenue from its North American
original equipment business, primarily from a decrease in the heavy-duty
elastomer business as well as slowing light vehicle production. North
American original equipment revenue was $315 million, including $48 million in
pass through revenue from catalytic converter sales, compared with
$279 million in revenue for the third quarter of 1999.
Third quarter revenue for the North American aftermarket was $154 million,
compared with third quarter 1999 results of $155 million. Despite continuing
softness in the aftermarket, results were nearly even as a result of
successful repositioning of the company's ride control and exhaust products,
and gains in market share for both product lines.
The third quarter EBIT for North American operations was $36 million,
compared with $40 million in the previous year. In the original equipment
business, the decrease was largely due to lower heavy-duty volume and higher
start-up expenses on new exhaust platforms. On the aftermarket side, higher
promotional expense and lower pipe pricing impacted profitability.
Europe
The company reported third quarter 2000 revenue for the European original
equipment business of $216 million, a 16 percent increase compared with third
quarter 1999 revenue of $187 million. Revenue would have increased by 34
percent if exchange rates had been the same in the third quarter 2000 as in
the third quarter of 1999. The increase was driven by strong volume in the
original equipment business, particularly in the exhaust side of the business.
Revenue from the European aftermarket business was $95 million, compared
with $120 million in the third quarter of 1999. Had exchange rates been the
same in the third quarter of 1999 as in 2000, revenue would have declined
eight percent. The decrease was primarily due to continued weakness in the
broad market for both product lines.
European EBIT was $16 million, compared with $23 million in the same
quarter last year. The stronger OE volumes were more than offset by lower
aftermarket volumes, higher aftermarket manufacturing costs due to increased
steel prices, and the currency impact.
Tenneco Automotive reported third quarter results in other geographical
areas as follows:
Region Revenue Growth (Decline) - year over year
South America $42 million 45 percent
Australia $33 million (6 percent)
Asia $15 million 50 percent
Total $90 million 22 percent
Combined EBIT for South America, Australia, and Asia in the third quarter
was $8 million, up 100 percent compared with the $4 million recorded in third
quarter 1999.
The company also announced, in a separate news release issued today, that
it has agreed with its senior lenders to amend certain terms under its senior
credit facility. These amendments primarily allow the company to begin to
implement the cost reduction initiatives and relax the financial covenant
ratios beginning in the fourth quarter of 2000.
Looking forward, based on a continuation of third-quarter market
conditions, the company expects EBITDA from operations before restructuring
charges and other non-operating items for the year to be between $355 million
and $365 million. This forecast assumes a $5 million fourth quarter benefit
for the restructuring actions.
Attached are exhibits that provide additional information on Tenneco
Automotive's 2000 and 1999 operating results.
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
INCOME STATEMENT
THREE MONTHS ENDED SEPTEMBER 30,
Unaudited
2000 1999
Net sales and operating revenues: $870 $816
Operating income (loss):
North America $29 $40
Europe 14 23
Rest of World 8 4
Other (4) -
47 67
Less:
Interest expense (net of
interest capitalized) 46 16
Income tax expense (benefit) (5) 16
Minority interest - 8
Income (loss) from continuing
operations 6 27
Income (loss) from discontinued
operations, net of income tax - 12
Extraordinary loss, net of income
tax (1)(a) -
Cumulative effect of change in
accounting principle, net of
income tax - -
Net income (loss) $5 $39
Average common shares outstanding:
Basic 35.1 33.5
Diluted 35.2 33.5
Earnings (loss) per share of common
stock:
Basic-
Continuing operations $0.17 $0.86
Discontinued operations - 0.32
Extraordinary loss (0.01)(a) -
Cumulative effect of change
in accounting principle - -
$0.16 $1.18
Diluted-
Continuing operations $0.16 $0.86
Discontinued operations - 0.32
Extraordinary loss (0.01)(a) -
Cumulative effect of change
in accounting principle - -
$0.15 $1.18
(a) Loss on early retirement of debt.
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30,
Unaudited
2000 1999
Net sales and operating revenues: $2,700 $2,473
Operating income (loss):
North America $103 $143
Europe 48 74
Rest of World 15 2
Other (4) -
162 219
Less:
Interest expense (net of
interest capitalized) 139 58
Income tax expense (benefit) (1) 60
Minority interest 2 21
Income (loss) from continuing
operations 22 80
Income (loss) from discontinued
operations, net of income tax - (99)
Extraordinary loss, net of income
tax (1)(a) (7)(b)
Cumulative effect of change in
accounting principle, net of
income tax - (134)(c)
Net income (loss) $21 $(160)
Average common shares outstanding:
Basic 34.4 33.4
Diluted 34.6 33.5
Earnings (loss) per share of common
stock:
Basic-
Continuing operations $0.62 $2.40
Discontinued operations - (2.98)
Extraordinary loss (0.01)(a) (0.20)(b)
Cumulative effect of change
in accounting principle - (4.00)(c)
$0.61 $(4.78)
Diluted-
Continuing operations $0.61 $2.40
Discontinued operations - (2.98)
Extraordinary loss (0.01)(a) (0.20)(b)
Cumulative effect of change
in accounting principle - (4.00)(c)
$0.60 $(4.78)
(a) Loss on early retirement of debt.
(b) Loss on early retirement of debt used to finance a Containerboard
facility.
(c) 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 98-05 and change in accounting principle
related to costs to acquire new aftermarket customer contracts of $32
million or $.95 per share.
Tenneco Automotive
Analysis of Operating Units Results
Quarter Ended September 30, 2000
(Millions Except Per Share Amounts)
Operating Stand Alone One-Time
Units Company Non-Operational Reported
Results Expense Items Income
EBIT
North America 36 (7) - 29
Europe 16 (2) - 14
Rest of World 8 - - 8
Other - - (4) (4)
Total 60 (9) (4) 47
Tenneco Automotive
Analysis of Operating Units Results
Nine Months Ended September 30, 2000
(Millions Except Per Share Amounts)
Operating Stand Alone One-Time
Units Company Non-Operational Reported
Results Expense Items Income
EBIT
North America 128 (25) - 103
Europe 57 (9) - 48
Rest of World 17 (2) - 15
Other - - (4) (4)
Total 202 (36) (4) 162
External Basis
Tenneco Automotive Inc. and Consolidated Subsidiaries
Statement of Cash Flows
Unaudited
(Millions)
Nine Months Ended
September 30,
2000 1999
Operating activities:
Income (loss) from continuing operations $22 $80
Adjustments to reconcile income (loss)
from continuing operations to net cash
provided (used) by operating activities -
Depreciation and amortization 116 110
Deferred income taxes 20 44
(Gain)/loss on sale of businesses
and assets, net 1 5
Changes in components of working capital -
(Inc.)/dec. in receivables (44) (244)
(Inc.)/dec. in inventories (11) (7)
(Inc.)/dec. in prepayments and
other current assets (15) 15
Inc./(dec.) in payables 123 44
Inc./(dec.) in taxes accrued (28) (74)
Inc./(dec.) in interest accrued 20 39
Inc./(dec.) in other current liabilities (5) (62)
Other 4 (50)
Cash provided (used) by continuing operations 203 (100)
Cash provided (used) by discontinued operations - (66)
Net cash provided (used) by operating activities 203 (166)
Investing activities:
Net proceeds from sale of discontinued operations - 342
Net proceeds from sale of assets 7 8
Expenditures for plant, property & equipment (108) (104)
Acquisition of businesses (5) (36)
Expenditures for plant, property &
equipment-discontinued operations - (1,249)
Investments and other (15) (29)
Net cash provided (used) by investing
activities (121) (1,068)
Net Cash provided (used) before financing activities
- continuing operations 82 (261)
Financing activities:
Issuance of common and treasury shares 13 28
Proceeds from subsidiary equity issuance 1 -
Purchase of common stock - (4)
Issuance of long-term debt 1 1,761
Retirement of long-term debt (67) (30)
Net inc./(dec.) in short-term debt
excluding current maturities on long-term
debt (25) (360)
Dividends (common) (5) (151)
Other (11) -
Net cash provided (used) by financing activities (93) 1,244
Effect of foreign exchange rate changes on cash and
temporary cash investments (5) 3
Inc./(dec.) in cash and temporary cash investments (16) 13
Cash and temporary cash investments, January 1 84 29
Cash and temporary cash investments, September 30 $68 $42
Tenneco Automotive Inc. and Consolidated Subsidiaries
Balance Sheets
(Unaudited)
(Millions)
September 2000 December 1999
Actual Actual
ASSETS
RECEIVABLES, Net 625 571
INVENTORIES 395 412
OTHER CURRENT ASSETS 228 218
INVESTMENTS AND OTHER ASSETS 686 705
PLANT, PROPERTY, AND EQUIPMENT, NET 984 1,037
TOTAL ASSETS $2,918 $2,943
LIABILITIES AND SHAREOWNERS' EQUITY
SHORT-TERM DEBT $35 $56
ACCOUNTS PAYABLE 436 348
OTHER CURRENT LIABILITIES 275 259
LONG-TERM DEBT 1,505 1,578
DEFERRED INCOME TAXES 129 108
DEFERRED CREDITS AND OTHER LIABILITIES 160 156
MINORITY INTEREST 15 16
TOTAL SHAREOWNERS' EQUITY 363 422
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $2,918 $2,943
DEBT TO CAPITALIZATION RATIO 80.3% 78.9%