Tenneco Inc. (ticker: TEN, exchange: New York Stock Exchange) News Release

February 4, 2010

 
TENNECO REPORTS FOURTH QUARTER AND FULL-YEAR 2009 RESULTS

  • Fourth quarter earnings up significantly on operational improvements and 9% revenue gain
  • Strong cash flow and equity offering drive $272 million reduction in debt net of cash balances in 2009
  • Fourth quarter gross margin of 17.4%, up from 12.6% a year ago
  • Projects global OE revenues of $4.4 billion in 2010 and $5.7 billion in 2011, reflecting light vehicle volume recovery, increasing light vehicle content and significant commercial vehicle opportunities

Lake Forest, Illinois, February 4, 2010 – Tenneco Inc. (NYSE: TEN) reported net income of $17 million, or 32-cents per diluted share, in the fourth quarter, compared with a net loss of $298 million, or $6.40 per diluted share in fourth quarter 2008.

Adjusted for the items below, net income was $7 million, or 13-cents per diluted share, versus a net loss of $24 million, or 51-cents per diluted share a year ago. The tables in this press release reconcile GAAP results to non-GAAP results.

EBIT (earnings before interest, taxes and noncontrolling interests), which improved sequentially and year-over-year, was $53 million, an increase of $198 million, versus a loss of $145 million in fourth quarter 2008. Adjusted EBIT was $57 million, versus a loss of $7 million the prior year. The EBIT improvement was driven by operational improvements including restructuring and materials cost management; volume growth in markets such as China and South America and favorable currency. EBITDA including noncontrolling interests (EBIT before depreciation and amortization) was $112 million, up $203 million over a loss of $91 million a year ago. Adjusted EBITDA including noncontrolling interests was $114 million compared with $47 million in fourth quarter 2008.

"Our strong profit improvement this quarter, both sequentially and year-over-year, reflects the benefits from our restructuring initiatives, closely managing costs and Tenneco’s strong position in growth markets," said Gregg Sherrill, chairman and CEO, Tenneco. "Going forward, the cost structure changes and operational improvements we have institutionalized will help us leverage significant new business opportunities beginning later this year as well as a strengthening global production environment."
 
Adjusted fourth quarter 2009 and 2008 results:
 
    Q4 2009   Q4 2008
    EBITDA EBIT Net income attributable to Tenneco Inc. Per Share EBITDA EBIT Net loss attributable to Tenneco Inc. Per Share
Earnings Measures $ 112 $ 53 $ 17 $ 0.32   $ (91) $ (145) $ (298) $ (6.40)
Adjustments
(reflects non-GAAP measures):
     
  Restructuring/restructuring related expenses   2   4   3   0.04     24   24   16   0.34
  Goodwill impairment charge   -   -   -   -     114   114   114   2.44
  Net tax Adjustments   -   -   (13)   (0.23)     -   -   144   3.11
Non-GAAP earnings measures $ 114 $ 57 $ 7 $ 0.13   $ 47 $ (7) $ (24) $ (0.51)
 
Fourth quarter 2009 adjustments:
  • Restructuring and restructuring related expenses of $4 million pre-tax, or 4-cents per diluted share;
  • A $13 million, or 23-cents per diluted share, non-cash tax benefit primarily related to adjustments to valuation allowances for deferred tax assets net of the impact of not benefiting U.S. and foreign tax losses.
 
Fourth quarter 2008 adjustments:
  • Restructuring and restructuring related expenses of $24 million pre-tax, or 34-cents per diluted share;
  • Non-cash asset impairment charges of $114 million, or $2.44 per diluted share, related to goodwill for Tenneco’s 1996 acquisition of Clevite Industries;
  • Non-cash tax charges of $144 million, or $3.11 per diluted share, primarily related to valuation allowances against the company’s U.S. deferred tax assets, the impact of not benefiting U.S. and foreign tax losses, changes in foreign tax rates and other tax adjustments.
 
REVENUE
Fourth quarter revenue was $1.322 billion, up 9% from $1.208 billion a year ago. Excluding substrate sales and the positive currency impact of $87 million, revenue was $955 million, up 5% versus $911 million in fourth quarter 2008. The revenue increase was primarily driven by stronger OE production volumes in China and South America and higher North America aftermarket sales.

GROSS MARGIN AND SGA&E
Gross margin in the quarter increased to 17.4% from 12.6% a year ago, and was up from 16.8% in third quarter 2009. The improvement was driven by the benefits from 2008 restructuring actions, managing material costs and improving manufacturing efficiency.

SGA&E (selling, general, administrative and engineering) expense in the quarter was $113 million, compared with $126 million a year ago. Fourth quarter 2008 SGA&E includes $16 million in restructuring and related costs. The benefits from restructuring actions and cost reductions in the quarter were offset by higher year-over-year compensation expense, including that related to stock-indexed long-term plans. SGA&E as a percent of sales improved year-over-year to 8.5% from 10.4% as the company leveraged higher year-over-year revenue in the quarter, while still supporting research and development.

CASH AND DEBT POSITION
Tenneco generated $133 million in cash flow from operations in the quarter, driven by earnings and $55 million in cash from working capital improvements. Cash flow from operations in fourth quarter 2008 was $126 million.

The company’s worldwide factored receivables were $137 million as of December 31, 2009, versus $179 million at the end of last year. Factored receivables in the quarter included $62 million in U.S. factored receivables, versus $101 million a year ago.

Tenneco can securitize up to $250 million in receivables under the terms of its debt agreements with the flexibility of using several sources globally to maintain the program. Tenneco expects to renew its $100 million U.S. receivable securitization program by the end of February 2010.

Capital expenditures incurred in the quarter were $47 million, up slightly from $45 million a year ago. Total capital expenditures in 2009 were $118 million, versus $221 million in 2008. By redeploying assets, using existing capacity and deferring discretionary projects, Tenneco reduced capital spending by 47% year-over-year while still making the necessary investments to support customer programs and new business opportunities.

At December 31, 2009, Tenneco’s leverage ratio under its senior credit facility was 3.43, below the maximum level of 6.60. The interest coverage ratio was 2.48, above the minimum of 1.60. At the end of the quarter, Tenneco had an EBITDA cushion of $113 million against its tightest covenant.

The company reduced net debt by $272 million during 2009. The debt reduction included positive cash flow generated during the year and $188 million in proceeds from the company’s common stock offering in the fourth quarter. Tenneco ended 2009 with no borrowings under its revolving credit facilities. The ratio of net debt to adjusted EBITDA including noncontrolling interests was 3.1 compared with 3.5 at the end of 2008.

 
($ millions) December 31
  2009   2008
       
Total Debt $ 1,220   $ 1,451
Cash Balances   167     126
       
Net Debt $ 1,053   $ 1,325
       
Unused Borrowing Capacity $ 630   $ 394

NORTH AMERICA
  • North America OE revenue was $457 million, down from $498 million in fourth quarter 2008. Excluding substrate sales and the impact of currency, revenue decreased 9% to $293 million, compared with $322 million a year ago. A decrease in year-over-year steel recovery due to lower steel costs accounted for more than half of the revenue decline. The decrease was also driven by lower production volumes on certain platforms, partially offset by increases on other platforms, including the Ford F-150, Ford SuperDuty and the Taurus. Industry light vehicle production increased 1% in the quarter.
  • Aftermarket revenue increased 7% to $120 million from $113 million a year ago. The increase was driven by higher ride control sales and pricing, which more than offset a decline in exhaust product sales.
  • EBIT for North America operations was $15 million, versus a loss of $131 million in fourth quarter 2008. Adjusted for the items below, EBIT was $18 million, up from a loss of $8 million the prior year.
  • The EBIT improvement was driven by manufacturing efficiencies, restructuring benefits, managing material costs and higher aftermarket sales, partially offset by lower OE production volumes on key Tenneco-supplied platforms. The year-over-year comparison also includes $13 million in currency, which reflects the unusually large negative impact of currency rate changes in the fourth quarter 2008 during the financial crisis, versus only a minor negative currency impact this year.
  • Fourth quarter 2009 EBIT includes $3 million in restructuring costs. Fourth quarter 2008 EBIT includes $9 million in restructuring costs and $114 million of goodwill impairment charges.

EUROPE, SOUTH AMERICA, INDIA
  • Europe OE revenue was $389 million, up from $352 million a year ago. Excluding substrate sales and the impact of currency, revenue was $261 million, relatively even with $262 million in fourth quarter 2008. After considering the negative impact of lower year-over-year alloy surcharge recovery due to lower alloy surcharge costs and production declines in the two-wheeler market, revenue was in line with the year-over-year industry production increase of 7%.
  • Europe aftermarket revenue increased to $78 million from $76 million a year ago. Excluding the impact of currency, revenue was $70 million, compared with $76 million, primarily driven by lower emission control sales.
  • South America and India revenue was $113 million, a 56% increase from $72 million in fourth quarter 2008. Excluding the impact of substrate sales and currency, revenue increased 36% to $90 million from $65 million a year ago, driven by strong OE production volumes in South America.
  • EBIT for Europe, South America and India was $21 million, versus a loss of $12 million the prior year. Adjusted for restructuring costs, EBIT was $22 million, compared with $3 million a year ago.
  • The EBIT improvement was driven by operational improvements including restructuring and materials cost management as well as higher South America OE production volumes. EBIT includes $3 million in positive currency.
  • Fourth quarter 2009 EBIT includes $1 million in restructuring costs and fourth quarter 2008 includes $15 million in restructuring costs.

ASIA PACIFIC
  • Asia revenue was $123 million, up from $70 million a year ago. Excluding substrate sales and the impact of currency, revenue was $92 million, up 93% from $48 million in fourth quarter 2008. The increase was driven by higher OE production volumes in China including on GM, VW, Great Wall and Brilliance platforms.
  • Australia revenue was $42 million, up from $27 million in fourth quarter 2008. Excluding substrate sales and currency, revenue was $30 million, versus $25 million the prior year. The increase was driven by a strengthening industry production environment toward the end of 2009.
  • Asia Pacific EBIT was $17 million, up from a loss of $2 million in fourth quarter 2008. The increase was the result of higher OE production volumes and improved manufacturing efficiencies. EBIT includes $1 million in positive currency.
 
FULL-YEAR 2009 RESULTS
Tenneco reported annual revenue of $4.649 billion, down 21% from $5.916 billion in 2008. Excluding substrate sales and currency, revenue was $3.968 billion, down 10% compared with $4.424 billion the year before. Tenneco’s 2009 annual revenue was significantly impacted by the global downturn in the automotive industry with light vehicle production down year-over-year in North America by 32% and in Europe by 22%. These production declines in Tenneco’s two largest regions of operations were partially offset by production volume increases in China.

The company reported a net loss of $73 million, or $1.50 per diluted share, compared with a net loss of $415 million, or $8.95 per diluted share in 2008. Adjusted for the items below, the net loss was $29 million, or 59-cents per diluted share, versus net income of $20 million, or 42-cents per diluted share a year ago.

Full-year EBIT was $92 million, an increase from a loss of $3 million in 2008. Adjusted EBIT was $118 million, compared with $158 million a year ago. 2009 EBIT includes a negative currency impact of $7 million. EBITDA including noncontrolling interests for full-year 2009 was $313 million, compared with $219 million in 2008. Adjusted EBITDA including noncontrolling interests was $335 million, down from $380 million a year ago.

Adjusted full-year 2009 and 2008 results:
 
    YTD 2009   YTD 2008
    EBITDA EBIT Net loss attrib. to Tenneco Inc. Per Share EBITDA EBIT Net income (loss) attrib. to Tenneco Inc. Per Share
Earnings Measures $ 313 $ 92 $ (73) $ (1.50)   $ 219 $ (3) $ (415) $ (8.95)
Adjustments
(reflects non-GAAP measures):
     
  Restructuring/restructuring related expenses   17   21   14   0.27     40   40   27   0.58
  Environmental reserve   5   5   3   0.07     -   -   -   -
  New aftermarket customer changeover costs   -   -   -   -     7   7   4   0.09
  Goodwill impairment charge   -   -   -   -     114   114   114   2.45
  Net tax Adjustments   -   -   27   0.57     -   -   290   6.25
Non-GAAP earnings measures $ 335 $ 118 $ (29) $ (0.59)   $ 380 $ 158 $ 20 $ 0.42
 


OUTLOOK
Global Insight forecasts that the 2010 OE light vehicle production environment will continue to strengthen in North America to about 10.6 million units during the year. Europe production will be up slightly at 17.6 million units but with an improving mix for Tenneco. Production is expected to increase on larger-sized vehicles, offset by declines in the smaller segment vehicles, which benefited from government incentive programs in 2009. Production in faster growing automotive markets such as China and South America will continue to expand. Light vehicle production in China is estimated to be 13.4 million units. In the Class 4-8 on-road commercial vehicle segment, 2010 production is expected to increase globally to about 255,000 units in North America, 359,000 units in Europe and 947,000 units in China.

"Although we are just in the early stages of a global industry recovery and 2010 production forecasts for North America and Europe remain low relative to historical levels, Tenneco is well-positioned to deliver revenue and earnings growth this year as we launch new business, take advantage of volume increases and continue to benefit from permanent cost reductions and operational improvements," said Sherrill.

In 2009, Tenneco generated $3.6 billion in global original equipment revenues. Adjusted for substrate sales, global original equipment value-added revenues were $2.6 billion. Tenneco estimates that its global original equipment revenues will be approximately $4.4 billion in 2010 and $5.7 billion in 2011. Adjusted for substrate sales, original equipment value-added revenues are estimated to be approximately $3.2 billion in 2010 and $4.0 billion in 2011.

Between fourth quarter 2009 and fourth quarter 2011, Tenneco is launching multiple programs with 11 different commercial vehicle customers - truck and engine manufacturers – to help customers meet new emissions regulations for on and off-road commercial vehicles. The company began launching some of these programs in China at the end of last year with China National Heavy Truck Company, Shanghai Diesel Engine Company and Weichai Power. Programs in North America, Europe and South America primarily begin launching in the back half of 2010. The company’s commercial vehicle emission control customers also include Caterpillar, Navistar and Deutz as well as five customers who will be announced as programs launch. Tenneco will also supply diesel aftertreatment systems, including selective catalytic reduction, for next generation heavy-duty pick-up trucks in North America.

Tenneco projects it will achieve a five-year average compounded annual OE revenue growth rate of 18% to 20% through 2014. The growth is primarily driven by increasingly stringent and broader emissions regulations that are being implemented globally, which will accelerate growth in the on-road and off-road commercial vehicle markets. The company’s estimates of its future OE revenue growth is also based on unit volume projections by Global Insight that global light vehicle production will grow at an annual compounded growth rate of 7% through 2014 and on-road commercial vehicle production will grow at an annual compounded growth rate of 12%. [see additional revenue assumptions below]

Tenneco continues to execute on its growth strategies including capitalizing on regulatory-driven growth opportunities in the commercial vehicle segment. Based on current light and commercial vehicle production forecasts, the company projects that about 15% of its global OE revenues in 2011 will be generated by commercial vehicle business, up from 7% in 2009. In line with previous projections, the commercial vehicle business is expected to account for between 25% and 30% of Tenneco’s global OE revenues in 2012.

Tenneco is also providing the following guidance for 2010:
  • Capital expenditures will be approximately $160 to $170 million;
  • Depreciation & amortization will be about $225 million;
  • Annual interest expense will be about $125 million; and
  • Cash taxes will be approximately $50 to $60 million.


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REVENUE ASSUMPTIONS
Revenue estimates in this release are based on OE manufacturers’ programs that have been formally awarded to the company; programs where Tenneco 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 the impact of material cost changes. The revenue estimates assume that foreign currency exchange rates will remain constant over the entire period.

CONFERENCE CALL
The company will host a conference call on Thursday, February 4, 2010 at 10:30 a.m. EST. The dial-in number is 888-950-5930 (domestic) or 630-395-0176 (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 February 4, 2010 through March 4, 2010. To access this recording, dial 866-499-4575 (domestic) or 203-369-1809 (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.

2010 ANNUAL MEETING
The Tenneco Board of Directors has scheduled the corporation’s annual meeting of shareholders for Wednesday, May 12, 2010 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 15, 2010.

Tenneco is a $4.6 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 21,000 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®, Walker®, Gillet™ and Clevite®Elastomer brand names.

This press release contains forward-looking statements. Words such as "may," "expects," "anticipate," "projects," "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 such as recent and significant production cuts by automotive manufacturers in response to difficult economic conditions;
(ii) 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;
(iii) 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;
(iv) 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;
(v) 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;
(vi) 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;
(vii) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals;
(viii) 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 at favorable rates, and the credit ratings of the company’s debt;
(ix) the cost and outcome of existing and any future legal proceedings, and the impact of changes in and compliance with laws and regulations, including environmental laws and regulations and the adoption of the current mandated timelines for worldwide emissions regulations;
(x) workforce factors such as strikes or labor interruptions;
(xi) 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;
(xii) further changes in the distribution channels for the company's aftermarket products, further consolidations among automotive parts customers and suppliers, and product warranty costs;
(xiii) changes by the Financial Accounting Standards Board or other accounting regulatory bodies to authoritative generally accepted accounting principles or policies;
(xiv) changes in accounting estimates and assumptions, including changes based on additional information;
(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, 2008.
 


CONTACT:
Jane Ostrander
Investor Inquiries
(1) 847 482-5607
jostrander@tenneco.com

Jim Spangler
Media Inquiries
(1) 847 482-5810
jspangler@tenneco.com
 
 

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