NEWS RELEASE (TENNECO LOGO)
Contacts: Jim Spangler
Media Relations
847 482-5810
jspangler@tenneco.com
Leslie Hunziker
Investor Relations
847 482-5042
lhunziker@tenneco.com
TENNECO REPORTS FOURTH QUARTER AND FULL-YEAR 2006 RESULTS
- - 4Q NET INCOME OF $14 MILLION, OR 30-CENTS PER DILUTED SHARE
- - FULL YEAR NET INCOME OF $51 MILLION, OR $1.10 PER DILUTED SHARE
- - EUROPEAN SEGMENT 4Q EBIT IMPROVES 13% YEAR-OVER YEAR
- - COMPANY DELIVERS $132 MILLION IN 4Q CASH FLOW FROM OPERATIONS
- - COMPANY EXPECTS $1.1 BILLION IN ESTIMATED OE REVENUE GROWTH IN 2007;
ESTIMATES ADDITIONAL $300 MILLION IN 2008
LAKE FOREST, ILLINOIS, JANUARY 30, 2007 - Tenneco Inc. (NYSE: TEN) reported
fourth quarter 2006 net income of $14 million, or 30-cents per diluted share, up
from $8 million, or 18-cents per diluted share a year ago. Excluding the
adjustments below, net income was $3 million, or 6-cents per diluted share,
versus $13 million, or 28-cents per diluted share, in fourth quarter 2005 (the
attached tables reconcile GAAP results to Non-GAAP results).
EBIT (earnings before interest expense, taxes and minority interest) was $36
million, down from $38 million the prior year. On an adjusted basis, EBIT was
$40 million, compared with $53 million in fourth quarter 2005. EBITDA (EBIT
before depreciation and amortization) was $84 million versus $81 million a year
ago. On an adjusted basis, EBITDA was $88 million compared with $96 million.
Fourth quarter revenue was $1.2 billion, compared with $1.1 billion a year ago.
Favorable currency benefited revenue by $55 million and substrate sales
increased to $282 million from $173 million a year ago. Excluding the impact of
currency and substrate sales, revenue was $872 million, down from $891 million
in the fourth quarter of 2005.
Tenneco's fourth quarter results reflect the tough North American market
conditions facing all automotive suppliers. The company's revenues were
negatively impacted as the North American OEMs continued to cut production
schedules. However, the company's geographic balance - more than half of
Tenneco's revenue is generated outside North America - and diverse customer base
helped partially offset the impact of scaled back OE production volumes
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in North America. In addition, the company has a substantial global aftermarket
business, which posted solid results worldwide.
The company generated $132 million in cash flow from operations in the quarter
despite challenging North American market conditions and a $32 million inventory
build in preparation for significant North American OE platform launches
scheduled in 2007. This compares to $160 million in cash flow from operations in
fourth quarter 2005, which did not have the same level of launch activity.
At quarter-end, total debt was $1.378 billion, even with a year ago. Debt net of
cash balances was $1.176 billion, down from $1.237 billion at the end of fourth
quarter 2005. At quarter-end, the ratio of debt net of cash balances to annual
adjusted EBITDA was 2.9x.
"Tenneco's global footprint, diverse OE customer base and strong global
aftermarket business continued to help buffer the very soft market conditions we
and other suppliers faced in North America over the last year," said Gregg
Sherrill, Tenneco Chairman and CEO. "Once again, our European segment and
rapidly growing business in China, as well as our relentless focus on managing
costs, improving efficiency and flexing our operations, carried Tenneco in a
difficult quarter."
ADJUSTED FOURTH QUARTER 2006 AND 2005 RESULTS:
Q4 2006 Q4 2005
------------------------------- -------------------------------
Net Net
EBITDA EBIT Income Per Share EBITDA EBIT Income Per Share
------ ---- ------ --------- ------ ---- ------ ---------
Earnings Measures $84 $ 36 $14 $ 0.30 $ 81 $38 $ 8 $ 0.18
Adjustments (reflect non-GAAP measures):
Restructuring and restructuring related expenses 6 6 4 0.08 5 5 3 0.06
New aftermarket customer changeover costs -- -- -- -- 10 10 7 0.15
Pension replacement (7) (7) (5) (0.10) -- -- -- --
Tax adjustments -- -- (13) (0.28) -- -- (5) (0.11)
Reserve for receivables from former affiliate 3 3 2 0.04 -- -- -- --
Stock option adjustment 2 2 1 0.02 -- -- -- --
--- ---- --- ------ ------ --- ---- ------
Non-GAAP earnings measures $88 $ 40 $ 3 $ 0.06 $ 96 $53 $ 13 $ 0.28
=== ==== === ====== ====== === ==== ======
FOURTH QUARTER 2006 ADJUSTMENTS:
- - Restructuring related expenses of $6 million pre-tax, or 8-cents per
diluted share;
- - Expense of $2 million pre-tax, or 2-cents per diluted share, related to an
accounting charge for employee stock options;
- - A reserve of $3 million pre-tax, or 4-cents per diluted share for
receivables from a former affiliate;
- - Benefit of $7 million pre-tax, or 10-cents per diluted share, from
replacing the defined benefit pension plans in the U.S. with an enhanced
defined contribution plan;
- - Tax benefits of $13 million or 28-cents per diluted share, related to an
investment income tax credit in the Czech Republic and final adjustments
related to prior year income tax returns.
-3-
FOURTH QUARTER 2005 ADJUSTMENTS:
- - Restructuring related expenses of $5 million pre-tax or 6-cents per diluted
share;
- - New aftermarket customer changeover costs of $10 million pre-tax, or
15-cents per diluted share;
- - Tax benefit of $5 million, or 11-cents per diluted share, related to the
favorable resolution of foreign tax contingencies.
Gross margin in the quarter was 15.6% versus 18.7% for fourth quarter 2005.
As expected, higher substrate sales, which typically carry lower margins,
continue to impact Tenneco's gross margin. Substrate sales were 25% of
total revenue in the quarter versus 16% a year ago, due to more diesel
aftertreatment and hot-end exhaust business. This mix shift accounted for
2.5 percentage points of the gross margin decline. In addition, higher
year-over-year steel costs of $8 million negatively impacted gross margin.
Tenneco's efforts to cut costs globally through tight spending controls and
the benefit from replacing the defined benefit pension plan in the U.S.,
announced in August 2006, significantly lowered SGA&E (selling, general,
administrative and engineering) expense to 8.9% of sales in the quarter
versus 11.0% of sales a year ago. The replacement of the defined benefit
pension plan accounted for 0.5 percentage points of the change. Last year's
SGA&E expense as a percent of sales included 1.0 percentage point related
to aftermarket changeover costs.
NORTH AMERICA
- - North American OE revenue was $363 million, versus $372 million a year ago.
Excluding substrate sales, revenue was down 10% from $304 million to $272
million, reflecting an industry production decline of 8% and a 13%
production decline among the domestic U.S. automakers. Revenue was impacted
by significant volume declines, particularly on key exhaust platforms like
the GM Trailblazer/Envoy and the Ford F-150 and Dodge Ram pick-up trucks.
- - North American aftermarket revenue increased to $115 million from $113
million, primarily driven by price increases to help offset higher material
costs in both product lines and higher ride control sales from previously
announced new customers, which more than offset lower exhaust product unit
sales.
- - EBIT for North American operations was down $3 million year-over-year to
$16 million. Adjusted for the items below, EBIT was $17 million versus $31
million the prior year. OE volume declines and higher material costs had a
significant negative impact on EBIT and more than offset the benefits from
cost reduction efforts.
- - Fourth quarter 2006 EBIT includes expenses of $3 million for restructuring,
$2 million for an accounting charge for employee stock options and a $3
million reserve for receivables from a former affiliate. It also included a
benefit of $7 million for the U.S. pension plan replacement. Fourth quarter
2005 EBIT includes expenses of $2 million for restructuring and $10 million
for new aftermarket customer changeover costs.
EUROPE, SOUTH AMERICA AND INDIA
- - European OE revenue was $452 million, compared with $352 million a year
ago. Excluding the benefit of stronger currency, revenue was $409 million.
The revenue increase was driven by the ramp-up of new emission control
platforms and stronger volumes overall in both the ride control and
emission control segments despite the production build-out on some key
exhaust platforms. Adjusting for currency and higher year-over-year
substrate sales, revenue was $257
-4-
million, versus $268 million in fourth quarter 2005, as the mix of emission
control business continues to move to hot-end exhaust and diesel
aftertreatment.
- - European aftermarket revenue increased to $90 million from $76 million a
year ago, driven by higher ride control and exhaust volumes. Excluding the
impact of currency, revenue increased to $82 million in the quarter.
- - South America and India revenue increased to $71 million, versus $61
million the previous year. Excluding the impact of currency and substrate
sales, revenue was up 7%, driven by strong OE and aftermarket volumes in
South America.
- - EBIT for Europe, South America and India improved 13% to $15 million from
$13 million a year ago. The fourth quarter EBIT improvement was driven by
operational improvements, especially in the company's OE emission control
business, and currency benefits, which more than offset the impact of
higher material costs.
- - Excluding $3 million in restructuring costs in both fourth quarter 2006 and
2005, EBIT was $18 million compared with $16 million a year ago.
ASIA PACIFIC
- - Asia revenue was $72 million compared with $41 million in fourth quarter
2005. Excluding substrate sales, revenue was up 50% from $31 million to $46
million. The increase was driven by stronger OE volumes in China including
business on strong selling GM, Ford and VW platforms.
- - Industry OE production declines continued to impact Australian revenue,
which was $46 million, down from $49 million the previous year. Excluding
currency and substrate sales, revenue was down 14%, from $44 million to $38
million.
- - Asia Pacific EBIT was $5 million compared with $6 million a year ago. The
decline in Australian OE volumes offset stronger volumes in Asia.
FULL YEAR 2006 RESULTS
Tenneco reported annual revenue of $4.7 billion in 2006, up from $4.4 billion in
2005, largely driven by new OE and aftermarket business, which helped offset
significant OE production volume declines in North America during the last half
of the year. Favorable currency benefited 2006 annual revenue by $71 million.
The company reported net income of $51 million, or $1.10 per diluted share,
compared with last year's net income of $58 million, or $1.29 per diluted share.
Full year EBIT was $196 million, versus $215 million last year. EBITDA declined
to $380 million from $392 million in 2005.
Adjusted for the items below, full year net income was $55 million, or $1.21 per
diluted share, compared with $69 million, or $1.52 per diluted share, in 2005.
Adjusted EBIT was $228 million, versus $237 million in 2005 and adjusted EBITDA
was $412 million compared with $414 million the prior year.
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ADJUSTED FULL YEAR 2006 AND 2005 RESULTS:
YTD 20O6 YTD 2005
--------------------------------- --------------------------------
Net Net
EBITDA EBIT Income Per Share EBITDA EBIT Income Per Share
------ ----- ------ --------- ------ ----- ------ ---------
Earnings Measures $380 $196 $ 51 $ 1.10 $392 $215 $58 $ 1.29
Adjustments (reflect non-GAAP measures):
Restructuring and restructuring related expenses 27 27 17 0.39 12 12 8 0.17
New aftermarket customer changeover costs 6 6 4 0.08 10 10 7 0.15
Pension replacement (7) (7) (5) (0.10) -- -- -- --
Stock based compensation accounting change 1 1 1 0.02 -- -- -- --
Tax adjustments -- -- (16) (0.34) -- -- (4) (0.09)
Reserve for receivables from former affiliate 3 3 2 0.04 -- -- -- --
Stock option adjustment 2 2 1 0.02 -- -- -- --
---- ---- ---- ------ ---- ---- --- ------
Non-GAAP earnings measures $412 $228 $ 55 $ 1.21 $414 $237 $69 $ 1.52
==== ==== ==== ====== ==== ==== === ======
FULL-YEAR 2006 ADJUSTMENTS:
- - Restructuring related expenses of $27 million pre-tax, or 39-cents per
diluted share;
- - An expense of $2 million pre-tax, or 2-cents per diluted share, related to
an accounting charge for employee stock options;
- - A reserve of $3 million pre tax, or 4-cents per diluted share for
receivables from a former affiliate;
- - Aftermarket customer changeover costs of $6 million pre-tax, or 8-cents per
diluted share;
- - An expense of $1 million pre-tax, or 2-cents per diluted share, to adjust
for new stock-based compensation accounting standard;
- - Benefit of $7 million pre-tax, or 10-cents per diluted share, from
replacing the defined benefit pension plans in the U.S.;
- - Tax benefits of $16 million or 34-cents per diluted share primarily for an
investment tax credit in the Czech Republic, resolution of tax issues with
former affiliates, and final adjustments to prior year income tax returns.
FULL-YEAR 2005 ADJUSTMENTS:
- - Restructuring related expenses of $12 million pre-tax, or 17-cents per
diluted share;
- - Aftermarket changeover costs of $10 million pre-tax, or 15-cents per
diluted share;
- - Tax benefits of $4 million, or 9-cents per diluted share.
Gross margin for the year was 18.1% versus 19.3% in 2005. The decline in gross
margin was largely due to a higher percentage of substrate sales and higher
material costs during the year. Tenneco successfully controlled overhead costs
in 2006, bringing SGA&E expense down to 9.9% of sales versus 10.5% in 2005.
2007 OUTLOOK
Tenneco anticipates that 2007 will be another challenging year given current
predictions on OE production levels, especially during the first half of the
year when the North American OE market is expected to continue to be down. The
company anticipates stable market conditions in the global aftermarket. In
addition, Tenneco expects that the pricing environment for steel will increase
the company's costs by up to $100 million in 2007. Tenneco will work to offset
these increases through cost reductions, manufacturing efficiencies, material
substitutions, low-cost country sourcing and customer recovery.
-6-
"Although our industry continues to face significant challenges in 2007, Tenneco
is well-positioned given the new business we're launching that is expected to
add more than $1 billion in OE revenues this year," said Sherrill. "We remain
relentlessly focused on managing costs, strengthening margins and launching
programs flawlessly. We also expect to continue benefiting from our geographic
and customer balance and will pursue additional opportunities to leverage our
advanced technologies."
The company's goals for 2007 include maintaining SGA&E as a percent of sales at
9% of sales and achieving net debt/adjusted annual EBITDA of 2.7x.
Tenneco estimates that its global original equipment revenues will be
approximately $4.7 billion in 2007 and $5.0 billion in 2008. Adjusted for lower
margin substrate sales, the company's global original equipment revenues are
estimated to be approximately $3.1 billion in 2007 and $3.4 billion in 2008.
These revenue estimates are based on original equipment manufacturers' programs
that have been formally awarded to the company; programs where the company is
highly confident that it will be awarded business based on informal customer
indications consistent with past practices; Tenneco's status as supplier for the
existing program and its relationship with the customer; and the actual original
equipment revenues achieved by the company for each of the last several years
compared to the amount of those revenues that the company estimated it would
generate at the beginning of each year. These revenue estimates are also based
on anticipated vehicle production levels and pricing, including precious metals
pricing and certain actions to recover a portion of materials cost increases.
The revenue estimates assume that foreign currency exchange rates will remain
constant over the entire period.
Attachment 1:
Statements of Income - 3 Months
Statements of Income - 12 Months
Balance Sheet
Statements of Cash Flow - 3 Months
Statements of Cash Flow - 12 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 - 12 Months
Reconciliation of GAAP to Non-GAAP Earnings Measures - 12 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures - 3 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures - 12 Months
Reconciliation of Non-GAAP Measures - Ratio of Debt Net of Cash to Adjusted
EBITDA - 12 Months
CONFERENCE CALL
The company will host a conference call on Tuesday, January 30, 2007 at 10:30
a.m. EST. The dial-in number is 888-790-1408 (domestic) or
773-756-0157(international). The passcode
-7-
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 January 30, 2007. To
access this recording, dial 800-677-5211 (domestic) or 402-998-1032
(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.
2007 ANNUAL MEETING
The Tenneco board of directors has scheduled the corporation's annual meeting of
shareholders for Tuesday, May 8, 2007 at 10:00 a.m. CDT. The meeting will be
held at the corporate headquarters, 500 North Field Drive, Lake Forest,
Illinois. The record date for shareholders to vote at the meeting is March 13,
2007.
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(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" "scheduled" 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 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;
-8-
(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 www.tenneco.com.
-9-
###
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
Unaudited
THREE MONTHS ENDED DECEMBER 31,
(Millions except per share amounts)
2006 2005
------ ------
Net sales and operating revenues $1,209 $1,064
====== ======
Costs and Expenses
Cost of Sales (exclusive of depreciation shown below) 1,021(a) 865(f)
Engineering, Research and Development 20 19
Selling, General and Administrative 87 (a)(b)(c)(d) 98(f)(g)
Depreciation and Amortization of Other Intangibles 48 43
------ ------
Total Costs and Expenses 1,176 1,025
====== ======
Loss on sale of receivables (2) (1)
Equity Income 2 1
Other Income 3 (1)
------ ------
Total Other Income / (Expense) 3 (1)
------ ------
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 16 (a)(b)(c)(d) 19(f)(g)
Europe, South America & India 15 (a) 13(f)
Asia Pacific 5 6
------ ------
36 38
Less:
Interest expense (net of
interest capitalized) 35 33
Income tax (benefit) (15)(e) (4)(h)
Minority interest 2 1
------ ------
Net Income 14 8
------ ------
Average common shares outstanding:
Basic 45.1 43.5
====== ======
Diluted 47.2 45.6
====== ======
Earnings per share of common stock:
Basic $ 0.31 $ 0.19
====== ======
Diluted $ 0.30 $ 0.18
====== ======
(a) Includes restructuring and restructuring related charges of $6 million
pre-tax, $4 million after tax or $0.08 per share. Of the adjustment $4
million is recorded in cost of sales and $2 million is recorded in SG&A.
Geographically, $3 million is recorded in North America and $3 million in
Europe, South America and India.
(b) Includes pension replacement benefit of $7 million pre-tax, $5 million
after tax or $0.10 per share. The entire $7 million adjustment is recorded
in SG&A and geographically in North America.
(c) Includes Stock option expense adjustment of $2 million pre-tax and $1
million after tax or $0.02 per share. The entire $2 million adjustment is
recorded in SG&A and geographically in North America.
(d) Includes reserve for receivables from former affiliate adjustment of $3
million pre-tax and $2 million after tax or $0.04 per share. The entire $3
million adjustment is recorded in SG&A and geographically in North America.
(e) Includes a $13 million or $0.28 per share tax benefit primarily related to
FAS 109 adjustment, prior year true-up and Czech investment tax credit.
(f) Includes restructuring and restructuring related charges of $5 million
pre-tax, $3 million after-tax or $0.06 per share. Of the adjustment $4
million is recorded in cost of sales and the remaining $1 million is in
SG&A. Geographically, $3 million is recorded in Europe, South America and
India and $2 million in North America.
(g) Includes changeover costs for new aftermarket customers of $10 million
pre-tax, $7 million after-tax or $0.15 per share. The adjustment is
recorded in SG&A. Geographically, the entire amount is recorded in North
America.
(h) Includes a $5 million or $0.11 per share tax benefit primarily related to
favorable resolution of foreign tax contingencies.
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
Unaudited
TWELVE MONTHS ENDED DECEMBER 31,
(Millions except per share amounts)
2006 2005
------ ------
Net sales and operating revenues $4,685 $4,441
====== ======
Costs and Expenses
Cost of Sales (exclusive of depreciation shown below) 3,838(a) 3,583(h)
Engineering, Research and Development 88 83
Selling, General and Administrative 377(a)(b)(c)(d)(e)(f) 385(h)(i)
Depreciation and Amortization of Other Intangibles 184 177
------ ------
Total Costs and Expenses 4,487 4,228
====== ======
Loss on sale of receivables (6) (3)
Equity Income 3 1
Other Income 1 4
------ ------
Total Other Income / (Expense) (2) 2
------ ------
Income before Interest Expense,
Income Taxes, and Minority Interest
North America 103(a)(b)(c)(d)(e)(f) 145(h)(i)
Europe, South America & India 81(a) 54(h)
Asia Pacific 12(a) 16
------ ------
196 215
Less:
Interest expense (net of
interest capitalized) 136 130
Income tax expense 3(g) 25(j)
Minority interest 6 2
------ ------
Net Income 51 58
------ ------
Average common shares outstanding:
Basic 44.6 43.1
====== ======
Diluted 46.8(b) 45.3
====== ======
Earnings per share of common stock:
Basic $ 1.15 $ 1.35
====== ======
Diluted $ 1.10(b) $ 1.29
====== ======
(a) Includes restructuring and restructuring related charges of $27 million
pre-tax, $17 million after tax or $0.39 per share, of which $23 million is
recorded in cost of sales and $4 million is recorded in SG&A.
Geographically, $13 million is recorded in North America, $8 million in
Europe, South America and India and $6 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 .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 $0.08 per share.
(d) Includes pension replacement benefit of $7 million pre-tax, $5 million
after tax or $0.10 per share. The entire $7 million adjustment is recorded
in SG&A and geographically in North America.
(e) Includes Stock option expense adjustment of $2 million pre-tax and $1
million after tax or $0.02 per share. The entire $2 million adjustment is
recorded in SG&A and geographically in North America.
(f) Includes reserve for receivables from former affiliate adjustment of $3
million pre-tax and $2 million after tax or $0.04 per share. The entire $3
million adjustment is recorded in SG&A and geographically in North America.
(g) Includes a $16 million or $0.34 per share tax benefit primarily related to
FAS 109 adjustment, prior year true-up, Czech investment tax credit and
resolution of tax issues with former affiliates.
(h) Includes restructuring and restructuring related charges of $12 million
pre-tax, $8 million after tax or $0.17 per share. Of the adjustment $10
million is recorded in cost of sales and $2 million is in SG&A.
Geographically, $4 million is recorded in North America and $8 million in
Europe, South America and India.
(i) Includes changeover costs for new aftermarket customers of $10 million
pre-tax, $7 million after-tax or $0.15 per share. The adjustment is
recorded in SG&A. Geographically, the entire amount is recorded in North
America.
(j) Includes a $4 million or $0.09 per share tax benefit primarily related to
favorable resolution of foreign tax contingencies.
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(Unaudited)
(Millions)
December 31, 2006 December 31, 2005
----------------- -----------------
Assets
Cash and Cash Equivalents $ 202 $ 141
Receivables, Net 604(a) 543(a)
Inventories 439 360
Other Current Assets 177 153
Investments and Other Assets 748 700
Plant, Property, and Equipment, Net 1,093 1,043
------ ------
Total Assets $3,263 $2,940
====== ======
Liabilities and Shareholders' Equity
Short-Term Debt $ 28 $ 22
Accounts Payable 782 651
Accrued Taxes 49 31
Accrued Interest 40 38
Other Current Liabilities 234 237
Long-Term Debt 1,350(b) 1,356(b)
Deferred Income Taxes 107 86
Deferred Credits and Other Liabilities 424 366
Minority Interest 28 24
Total Shareholders' Equity 221 129
------ ------
Total Liabilities and Shareholders' Equity $3,263 $2,940
====== ======
December 31, 2006 December 31, 2005
----------------- -----------------
(a) Accounts Receivables net of:
Accounts receivables securitization programs $133 $129
December 31, 2006 December 31, 2005
----------------- -----------------
(b) Long term debt composed of:
Term loan B (Due 2010) $ 356 $ 356
10.25% senior notes (Due 2013) 487 489
8.625% subordinated notes (Due 2014) 500 500
Other long term debt 7 11
------ ------
$1,350 $1,356
====== ======
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Millions)
THREE MONTHS
ENDED
DECEMBER 31,
------------
2006 2005
----- ----
Operating activities:
Net income $ 14 $ 8
Adjustments to reconcile net income
to net cash provided (used) by operating activities -
Depreciation and amortization of other intangibles 48 43
Stock option expense 2 --
Deferred income taxes (52) (3)
Loss on sale of assets, net 1 1
Changes in components of working capital (net of acquisition)-
(Inc.)/dec. in receivables 56 115
(Inc.)/dec. in inventories (9) 29
(Inc.)/dec. in prepayments and other current assets 20 28
Inc./(dec.) in payables 36 (51)
Inc./(dec.) in taxes accrued 23 2
Inc./(dec.) in interest accrued 6 6
Inc./(dec.) in other current liabilities (6) (21)
Other (7) 3
---- ----
Net cash provided by operating activities 132 160
Investing activities:
Net proceeds from sale of assets 11 --
Expenditures for plant, property & equipment (40) (44)
Acquisition of business -- (3)
Expenditures for software-related intangibles (4) (2)
Investments and other 2 --
---- ----
Net cash used by investing activities (31) (49)
---- ----
Financing activities:
Issuance of common shares 4 1
Issuance of long-term debt -- --
Retirement of long-term debt (1) (2)
Net inc. in short-term debt excluding current
maturities on long-term debt (26) (55)
Other (2) (1)
---- ----
Net cash used by financing activities (25) (57)
---- ----
Effect of foreign exchange rate changes on cash and
cash equivalents 10 (2)
---- ----
Increase in cash and cash equivalents 86 52
Cash and cash equivalents, October 1 116 89
---- ----
Cash and cash equivalents, December 31 $202 $141
==== ====
Cash paid during the period for interest $ 34 $ 32
Cash paid during the period for income taxes 8 $ 7
Non-cash Investing and Financing Activities
Retirement of obligation and exchange of property -- (2)
ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Millions)
TWELVE MONTHS ENDED
DECEMBER 31,
-------------------
2006 2005
----- -----
Operating activities:
Net income $ 51 $ 58
Adjustments to reconcile net income to net cash provided (used)
by operating activities -
Depreciation and amortization of other intangibles 184 177
Stock option expense 5 --
Deferred income taxes (43) --
Loss on sale of assets, net 3 3
Changes in components of working capital (net of acquisition)-
(Inc.)/dec. in receivables (29) (94)
(Inc.)/dec. in inventories (56) 7
(Inc.)/dec. in prepayments and other current assets (14) 5
Inc./(dec.) in payables 87 1
Inc./(dec.) in taxes accrued 15 13
Inc./(dec.) in interest accrued 2 4
Inc./(dec.) in other current liabilities (6) (16)
Other (7) (24)
----- -----
Net cash provided by operating activities 192 134
Investing activities:
Net proceeds from sale of assets 17 4
Expenditures for plant, property & equipment (170) (144)
Acquisition of business -- (14)
Expenditures for software-related intangibles (13) (14)
Investments and other 1 1
----- -----
Net cash used by investing activities (165) (167)
----- -----
Financing activities:
Issuance of common shares 17 7
Issuance of long-term debt -- 1
Retirement of long-term debt (4) (45)
Net inc. in short-term debt excluding current
maturities on long-term debt 3 1
Other -- --
----- -----
Net cash provided (used) by financing activities 16 (36)
----- -----
Effect of foreign exchange rate changes on cash and
cash equivalents 18 (4)
----- -----
Increase (Decrease) in cash and cash equivalents 61 (73)
Cash and cash equivalents, January 1 141 214
----- -----
Cash and cash equivalents, December 31 $ 202 $ 141
===== =====
Cash paid during the period for interest $ 137 $ 126
Cash paid during the period for income taxes 26 $ 23
Non-cash Investing and Financing Activities
Retirement of obligation and exchange of property -- (2)
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
Q4 2006
----------------------------------
North Europe Asia
America & SA Pacific Total
------- ------ ------- -----
Net income $ 14
Minority interest 2
Income tax benefit (15)
Interest expense (net of interest capitalized) 35
----
EBIT, Income before interest expense, income
taxes and minority interest (GAAP measure) $16 $15 $5 36
Depreciation and amortization of other intangibles 24 20 4 48
--- --- --- ----
Total EBITDA(2) $40 $35 $9 $ 84
=== === === ====
Q4 2005
----------------------------------
North Europe Asia
America & SA Pacific Total
------- ------ ------- -----
Net income $ 8
Minority interest 1
Income tax benefit (4)
Interest expense (net of interest capitalized) 33
---
EBIT, Income before interest expense, income taxes
and minority interest (GAAP measure) $19 $13 $6 38
Depreciation and amortization of other intangibles 23 18 2 43
--- --- --- ---
Total EBITDA(2) $42 $31 $8 $81
=== === === ===
(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
Q4 2006 Q4 2005
------------------------------------------ -------------------------------------------
EBITDA (3) EBIT Net Income Per Share EBITDA (3) EBIT Net Income Per Share
---------- ---- ---------- --------- ---------- ---- ---------- ---------
Earnings Measures $84 $36 $ 14 $ 0.30 $81 $38 $ 8 $ 0.18
Adjustments (reflect non-GAAP measures):
Restructuring and restructuring
related expenses 6 6 4 0.08 5 5 3 0.06
New aftermarket customer changeover
costs (4) -- -- -- -- 10 10 7 0.15
Pension replacement (7) (7) (5) (0.10) -- -- -- --
Tax adjustments -- -- (13) (0.28) -- -- (5) (0.11)
Reserve for receivables from former
affiliate 3 3 2 0.04
Stock option adjustment 2 2 1 0.02 -- -- -- --
--- --- ---- ------ --- --- --- ------
Non-GAAP earnings measures $88 $40 $ 3 $ 0.06 $96 $53 $13 $ 0.28
=== === ==== ====== === === === ======
Q4 2006
----------------------------------
North Europe Asia
America & SA Pacific Total
------- ------ ------- -----
EBIT $ 16 $ 15 $ 5 $36
Restructuring and restructuring related expenses 3 3 -- 6
Pension replacement (7) -- -- (7)
Reserve for receivables from former affiliate 3 -- -- 3
Stock option adjustment 2 -- -- 2
---- ---- --- ---
Adjusted EBIT $ 17 $ 18 $ 5 $40
==== ==== === ===
Q4 2005
----------------------------------
North Europe Asia
America & SA Pacific Total
------- ------ ------- -----
EBIT $19 13 $ 6 $38
Restructuring and restructuring related expenses 2 3 -- 5
New aftermarket customer changeover costs 10 -- -- 10
--- --- --- ---
Adjusted EBIT $31 $16 $ 6 $53
=== === === ===
(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 fourth quarters of 2006
and 2005 in a manner that allows a better understanding of the results of
operational activities separate from the financial impact of decisions made
for the long-term benefit of the company. Adjustments similar to the ones
reflected above have been recorded in earlier periods, and similar types of
adjustments can reasonably be expected to be recorded in future periods.
Using only the non-GAAP earnings measures to analyze earnings would have
material limitations because its calculation is based on the subjective
determinations of management regarding the nature and classification of
events and circumstances that investors may find material. Management
compensates for these limitations by utilizing both GAAP and non-GAAP
earnings measures reflected above to understand and analyze the results of
the business. The company believes investors find the non-GAAP information
helpful in understanding the ongoing performance of operations separate
from items that may have a disproportionate positive or negative impact on
the company's financial results in any particular period.
(3) EBITDA represents income before interest expense, income taxes, minority
interest and depreciation and amortization. EBITDA is not a calculation
based upon generally accepted accounting principles. The amounts included
in the EBITDA calculation, however, are derived from amounts included in
the historical statements of income data. In addition, EBITDA should not be
considered as an alternative to net income or operating income as an
indicator of the company's operating performance, or as an alternative to
operating cash flows as a measure of liquidity. Tenneco has presented
EBITDA because it regularly reviews EBITDA as a measure of the company's
performance. In addition, Tenneco believes its debt holders utilize and
analyze our EBITDA for similar purposes. Tenneco also believes EBITDA
assists investors in comparing a company's performance on a consistent
basis without regard to depreciation and amortization, which can vary
significantly depending upon many factors. However, the EBITDA measure
presented may not always be comparable to similarly titled measures
reported by other companies due to differences in the components of the
calculation.
(4) Represents costs associated with changing new aftermarket customers from
their prior suppliers to an inventory of our products. Although our
aftermarket business regularly incurs changeover costs, we specifically
identify in the table above the changeover costs that, based on the size or
number of customers involved, we believe are of an unusual nature for the
quarter in which they were incurred.
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA
Unaudited
YTD 2006
----------------------------------
North Europe Asia
America & SA Pacific Total
------- ------ ------- -----
Net income $ 51
Minority interest 6
Income tax expense 3
Interest expense (net of interest capitalized) 136
----
EBIT, Income before interest expense, income
taxes and minority interest (GAAP measure) $103 $ 81 $12 196
Depreciation and amortization of other intangibles 92 79 13 184
---- ---- --- ----
Total EBITDA(2) $195 $160 $25 $380
==== ==== === ====
YTD 2005
----------------------------------
North Europe Asia
America & SA Pacific Total
------- ------ ------- -----
Net income $ 58
Minority interest 2
Income tax expense 25
Interest expense (net of interest capitalized) 130
----
EBIT, Income before interest expense, income taxes
and minority interest (GAAP measure) $145 $ 54 $16 215
Depreciation and amortization of other intangibles 91 75 11 177
---- ---- --- ----
Total EBITDA(2) $236 $129 $27 $392
==== ==== === ====
(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 (3) EBIT Net Income Per Share EBITDA (3) EBIT Net Income Per Share
---------- ---- ---------- --------- ---------- ---- ---------- ----------
Earnings Measures $380 $196 $ 51 $ 1.10 $392 $215 $58 $ 1.29
Adjustments (reflect non-GAAP measures):
Restructuring and restructuring related
expenses 27 27 17 0.39 12 12 8 0.17
New aftermarket customer changeover costs (4) 6 6 4 0.08 10 10 7 0.15
Pension replacement (7) (7) (5) (0.10) -- -- -- --
Stock based compensation accounting change (5) 1 1 1 0.02 -- -- -- --
Tax adjustments -- -- (16) (0.34) -- -- (4) (0.09)
Reserve for receivables from former affiliate 3 3 2 0.04 -- -- -- --
Stock option adjustment 2 2 1 0.02 -- -- -- --
---- ---- ---- ------ ---- ---- --- ------
Non-GAAP earnings measures $412 $228 $ 55 $ 1.21 $414 $237 $69 $ 1.52
==== ==== ==== ====== ==== ==== === ======
YTD 2006
----------------------------------
North Europe Asia
America & SA Pacific Total
------- ------ ------- -----
EBIT $103 $81 $12 $196
Restructuring and restructuring related
expenses 13 8 6 27
New aftermarket customer changeover costs (4) 6 -- -- 6
Pension replacement (7) (7)
Stock based compensation accounting change (5) 1 -- -- 1
Reserve for receivables from former affiliate 3 -- -- 3
Stock option adjustment 2 2
---- --- --- ----
Adjusted EBIT $121 $89 $18 $228
==== === === ====
YTD 2005
----------------------------------
North Europe Asia
America & SA Pacific Total
------- ------ ------- -----
EBIT $145 54 $16 $215
Restructuring and restructuring related expenses 4 8 -- 12
New aftermarket customer changeover costs 10 -- -- 10
---- --- --- ----
Adjusted EBIT $159 $62 $16 $237
==== === === ====
(1) Generally Accepted Accounting Principles
(2) Tenneco presents the above reconciliation of GAAP to non-GAAP earnings
measures primarily to reflect the results for 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. See also
Attachment I, Statements of Income footnote (b for the twelve months ended
December 31).
ATTACHMENT 2
TENNECO INC.
RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES
Unaudited
Q4 2006
-------------------------------------------------------
Revenues
Substrate Excluding
Sales Currency
Revenues Excluding and
Currency Excluding Currency Substrate
Revenues Impact Currency Impact Sales
------- -------- --------- --------- ---------
North America Original Equipment
Ride Control $ 112 $-- $ 112 $ -- $112
Exhaust 251 -- 251 91 160
------ --- ------ ---- ----
Total North America Original
Equipment 363 -- 363 91 272
North America Aftermarket
Ride Control 81 -- 81 -- 81
Exhaust 34 -- 34 -- 34
------ --- ------ ---- ----
Total North America Aftermarket 115 -- 115 -- 115
Total North America 478 -- 478 91 387
Europe Original Equipment
Ride Control 100 9 91 -- 91
Exhaust 352 34 318 152 166
------ --- ------ ---- ----
Total Europe Original Equipment 452 43 409 152 257
Europe Aftermarket
Ride Control 40 3 37 -- 37
Exhaust 50 5 45 -- 45
------ --- ------ ---- ----
Total Europe Aftermarket 90 8 82 -- 82
South America & India 71 1 70 8 62
Total Europe, South America
& India 613 52 561 160 401
Asia 72 -- 72 26 46
Australia 46 3 43 5 38
------ --- ------ ---- ----
Total Asia Pacific 118 3 115 31 84
Total Tenneco Inc. $1,209 $55 $1,154 $282 $872
====== === ====== ==== ====
Q4 2005
-------------------------------------------------------
Revenues
Substrate Excluding
Sales Currency
Revenues Excluding and
Currency Excluding Currency Substrate
Revenues Impact Currency Impact Sales
-------- -------- --------- --------- ---------
North America Original Equipment
Ride Control $ 117 $-- $ 117 $ -- $117
Exhaust 255 -- 255 68 187
------ --- ------ ---- ----
Total North America Original
Equipment 372 -- 372 68 304
North America Aftermarket
Ride Control 77 -- 77 -- 77
Exhaust 36 -- 36 -- 36
------ --- ------ ---- ----
Total North America Aftermarket 113 -- 113 -- 113
Total North America 485 -- 485 68 417
Europe Original Equipment
Ride Control 87 -- 87 -- 87
Exhaust 265 -- 265 84 181
------ --- ------ ---- ----
Total Europe Original Equipment 352 -- 352 84 268
Europe Aftermarket
Ride Control 35 -- 35 -- 35
Exhaust 41 -- 41 -- 41
------ --- ------ ---- ----
Total Europe Aftermarket 76 -- 76 -- 76
South America & India 61 -- 61 6 55
Total Europe, South America
& India 489 -- 489 90 399
Asia 41 -- 41 10 31
Australia 49 -- 49 5 44
------ --- ------ ---- ----
Total Asia Pacific 90 -- 90 15 75
Total Tenneco Inc. $1,064 $-- $1,064 $173 $891
====== === ====== ==== ====
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
Substrate Excluding
Sales Currency
Revenues Excluding and
Currency Excluding Currency Substrate
Revenues Impact Currency Impact Sales
-------- -------- --------- --------- ---------
North America Original Equipment
Ride Control $ 483 $ -- $ 483 $ -- $ 483
Exhaust 928 6 922 272 650
------ ---- ------ ---- ------
Total North America Original
Equipment 1,411 6 1,405 272 1,133
North America Aftermarket
Ride Control 385 -- 385 -- 385
Exhaust 163 -- 163 -- 163
------ ---- ------ ---- ------
Total North America Aftermarket 548 -- 548 -- 548
Total North America 1,959 6 1,953 272 1,681
Europe Original Equipment
Ride Control 380(a) 10 370 -- 370(a)
Exhaust 1,264 34 1,230 504 726
------ ---- ------ ---- ------
Total Europe Original Equipment 1,644 44 1,600 504 1,096
Europe Aftermarket
Ride Control 178 3 175 -- 175
Exhaust 211 5 206 -- 206
------ ---- ------ ---- ------
Total Europe Aftermarket 389 8 381 -- 381
South America & India 272 14 258 32 226
Total Europe, South America
& India 2,305 66 2,239 536 1,703
Asia 246 -- 246 85 161
Australia 175 (1) 176 19 157
------ ---- ------ ---- ------
Total Asia Pacific 421 (1) 422 104 318
Total Tenneco Inc. $4,685 $ 71 $4,614 $912 $3,702
====== ==== ====== ==== ======
YTD 2005
--------------------------------------------------------
Revenues
Substrate Excluding
Sales Currency
Revenues Excluding and
Currency Excluding Currency Substrate
Revenues Impact Currency Impact Sales
-------- -------- --------- --------- ---------
North America Original Equipment
Ride Control $ 495 $-- $ 495 $ -- $ 495
Exhaust 1,011 -- 1,011 272 739
------ --- ------ ---- ------
Total North America Original
Equipment 1,506 -- 1,506 272 1,234
North America Aftermarket
Ride Control 361 -- 361 -- 361
Exhaust 161 -- 161 -- 161
------ --- ------ ---- ------
Total North America Aftermarket 522 -- 522 -- 522
Total North America 2,028 -- 2,028 272 1,756
Europe Original Equipment
Ride Control 378(a) -- 378 -- 378(a)
Exhaust 1,078 -- 1,078 327 751
------ --- ------ ---- ------
Total Europe Original Equipment 1,456 -- 1,456 327 1,129
Europe Aftermarket
Ride Control 169 -- 169 -- 169
Exhaust 195 -- 195 -- 195
------ --- ------ ---- ------
Total Europe Aftermarket 364 -- 364 -- 364
South America & India 233 -- 233 20 213
Total Europe, South America
& India 2,053 -- 2,053 347 1,706
Asia 149 -- 149 43 106
Australia 211 -- 211 19 192
------ --- ------ ---- ------
Total Asia Pacific 360 -- 360 62 298
Total Tenneco Inc. $4,441 $-- $4,441 $681 $3,760
====== === ====== ==== ======
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 - 12 months
Year Ended
December 31
---------------
2006 2005
------ ------
Total debt $1,378 $1,378
Cash and cash equivalents 202 141
Debt net of cash balances (1) 1,176 1,237
Adjusted EBITDA (2) (3) 412 414
Ratio of net debt to adjusted EBITDA (4) 2.9x 3.0x
(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) 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.
(3) 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.
Similar adjustments to EBITDA 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.
(4) Tenneco presents the above reconciliation of the ratio debt net of cash to
annual 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, annual adjusted EBITDA is used as an indicator of the
company's performance and debt net of cash is presented as an indicator of
our credit position and progress toward reducing our financial leverage.
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), (2) and (3) for a description
of the limitations of using debt net of cash, EBITDA and adjusted EBITDA.