Tenneco Inc. (ticker: TEN, exchange: New York Stock Exchange) News Release - Thursday, February 5, 2009

February 5, 2009

 
TENNECO REPORTS FOURTH QUARTER AND FULL-YEAR 2008 RESULTS
  • Revenue and EBIT declines reflect a rapid deterioration in global industry conditions in the fourth quarter
  • Fourth quarter loss includes $215 million in non-cash impairment charges for goodwill and deferred tax assets
  • Company benefiting from cost reduction and cash preservation actions

Lake Forest, Illinois, February 5, 2009 – Tenneco Inc. (NYSE: TEN) reported a fourth quarter net loss of $298 million, or $6.40 per diluted share, compared with a net loss of $72 million, or $1.57 per diluted share in fourth quarter 2007.

Adjusted for the items below, the net loss was $24 million, or 51-cents per diluted share, down from net income of $17 million, or 34-cents per diluted share, a year ago. The adjustments include the non-cash impairment charges for goodwill and deferred tax assets. The tables in this press release reconcile GAAP results to non-GAAP results.

EBIT (earnings before interest, taxes and minority interest) was a loss of $145 million, versus earnings of $43 million a year ago. EBIT was negatively impacted by the goodwill impairment charge, lower OE production volumes globally, lower aftermarket sales and higher restructuring costs, all of which were driven by the severe industry conditions. These factors more than offset the benefits of new OE business launches, reduced overhead spending, and cost savings from restructuring and operational flexing actions implemented worldwide. In addition, the global downturn drove unusual changes in currency exchange rates during the quarter, which reduced EBIT by $21 million due to currency transaction and translation losses. Adjusted EBIT was a loss of $7 million, compared with earnings of $61 million the prior year.

"EBITDA including minority interest (EBIT before depreciation and amortization) was a loss of $91 million versus earnings of $98 million in fourth quarter 2007. Adjusted EBITDA including minority interest was $47 million compared with $116 million.

"The fourth quarter saw further vehicle sales and OE production volumes declines in North America, compounded by the dramatic fall-off in Europe and rest of the world due to the global economic crisis and ongoing credit freeze, which has driven every major economy into recession. As with the entire automotive industry, Tenneco has been significantly impacted by these severe and unprecedented external conditions," said Gregg Sherrill, chairman and CEO, Tenneco. "In response, we have and will continue to take aggressive actions to reduce costs, re-size our operations and generate and preserve cash in order to weather this crisis."

In the fourth quarter 2008, the company announced a global restructuring program that is expected to generate $58 million in annualized savings once fully implemented by the end of 2009. The restructuring and other actions the company is taking include:
 
  • Eliminating 1,100 jobs worldwide;
  • Closing three manufacturing plants and one engineering facility;
  • Controlling compensation and benefits costs including:
    • Suspending matching contributions to employee 401(k) programs for 2009;
    • Eliminating 2008 performance bonuses for salaried employees;
    • Reducing total annual compensation for the top 50 executives on average by more than 60%; and
    • Eliminating employee annual salary increases and implementing other salary control actions.
  • Continuing to implement hourly layoffs at manufacturing plants worldwide and initiating unpaid furloughs and work hour reductions for some salaried employees to further adjust to declining production volumes;
  • Cutting spending on information technology, sales and marketing programs;
  • Accelerating working capital improvement opportunities; and
  • Reducing capital expenditures by eliminating all discretionary capital spending including eliminating or deferring regional expansion projects and cutting spending tied to delayed customer launches.
 
Adjusted second quarter 2008 and 2007 results:

    Q4 2008   Q4 2007
    EBITDA EBIT Net Income Per Share EBITDA EBIT Net Income Per Share
Earnings Measures $ (91) $ (145) $ (298) $ (6.40)   $ (98) $ 43 $ (72) $ (1.57)
Adjustments
(reflects non-GAAP measures):
     
  Restructuring/restructuring related expenses   24   24   16   0.34     18   18   11   0.26
  Goodwill impairment charge   114   114   114   2.44     -   -   -   -
  Charges related to refinancing   -   -   -   -     -   -   14   0.31
  Net tax Adjustments   -   -   144   3.11     -   -   64   1.34
Non-GAAP earnings measures $ 47 $ (7) $ (24) $ (0.51)   $ 116 $ 61 $ 17 $ 0.34

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, related to the $101 million valuation allowance against the company’s U.S. deferred tax assets, as well as $16 million for the impact of not benefiting U.S. tax losses, $11 million for changes in foreign tax rates, valuation allowances of $4 million in certain foreign countries and other tax adjustments.

Fourth quarter 2007 adjustments:
  • Restructuring and restructuring related expenses of $18 million pre-tax, or 26-cents per diluted share;
  • A charge of $21 million pre-tax, or 31-cents per diluted share, for refinancing a portion of the company’s debt;
  • Net tax expenses of $64 million, or $1.34 per diluted share, including $66 million in non-cash expenses to realign the European ownership structure and a net benefit of $2 million primarily related to adjustments for prior year income tax returns.

Fourth quarter revenue was $1.208 billion, down from $1.565 billion in fourth quarter 2007. The impact of unfavorable currency in the quarter was $123 million. Excluding currency and substrate sales, revenue was $1.025 billion versus $1.125 billion a year ago. The decline was driven by falling production volumes, particularly in the North America and Europe emission control businesses and in China.

Gross margin in the quarter was 12.6%, down from 14.3% a year ago, the result of significant production volume declines, manufacturing fixed cost absorption and the negative impact of currency. Gross margin in fourth quarter 2008 included $8 million in restructuring related expenses and fourth quarter 2007 included $16 million.

Steel costs in the quarter were $13 million higher year-over-year, driven by higher year-over-year base prices and surcharges for chrome purchased in North America. The company addressed these costs with cost reductions, aftermarket price increases and OE customer recoveries.

SGA&E expense was $126 million (10.4% of sales) in fourth quarter 2008, compared with $127 million (8.1% of sales) in fourth quarter 2007. Restructuring costs were $14 million higher in fourth quarter 2008 versus the prior year. Before the impact of higher restructuring costs, SGA&E expense was down year-over-year due to the company’s progress in reducing overhead costs and discretionary spending.

Tenneco generated $126 million in cash flow from operations in fourth quarter 2008, driven by $115 million in cash from working capital, primarily from accounts receivable collections and inventory reductions. The company generated $199 million in cash flow from operations in the fourth quarter 2007. The year-over-year decline in cash flow from operations was due to the significantly lower production environment.

At December 31, 2008, the company’s leverage ratio was 3.66, below the maximum level of 4.25. The interest coverage ratio was 3.64, above the minimum of 2.10. The leverage ratio is the company’s tightest senior credit facility debt-compliance ratio. In December 2008, the company amended the leverage ratio, increasing it for the fourth quarter from 4.0x to 4.25x as a precautionary step during a very volatile quarter.

Tenneco has initiated the process – which it first announced in December – to achieve a longer-term amendment to its senior secured credit facility in anticipation of continued difficult economic and industry conditions globally. The company expects to complete the amendment by the end of February.

Additionally, Tenneco extended its $120 million U.S. receivable securitization facility through March 2, 2009. The revised terms of the facility reduced the percentage of Tenneco’s U.S. accounts receivable that the sponsors purchase. Tenneco estimates that the sponsors will purchase between $10 million and $30 million less of its receivables than in the past. Also, the cost of the facility will increase about $4 million annually. Prior to the expiration date and concurrent with completion of the senior secured credit facility amendment, the company expects to renew the facility for an additional 364 days.

At quarter-end, total debt was $1.451 billion, compared with $1.374 billion a year ago. Cash balances were $126 million versus $188 million the prior year and debt net of cash balances was $1.325 billion, compared with $1.186 billion at December 31, 2007.

NORTH AMERICA
  • OE revenue was $498 million, down 16% year-over-year from $592 million. Excluding currency and substrate sales, revenue was down 4% to $331 million from $345 million. Fourth quarter 2008 revenues included $32 million from the Kettering, Ohio ride control operations, which the company acquired earlier in 2008. A 24% drop in industry light vehicle production drove the decline, including substantial volume declines across all Tenneco’s customers.
  • Aftermarket revenue was $113 million, versus $122 million the prior year, driven by lower ride control and exhaust sales, partially offset by price increases for higher material costs. Excluding the impact of currency, revenue was $116 million.
  • EBIT for North America operations was a loss of $131 million, driven by the goodwill impairment charge and volume declines, versus earnings of $16 million a year ago. Adjusted for the items below, EBIT was a loss of $8 million, compared with earnings of $18 million the prior year.
  • Fourth quarter 2008 EBIT included $9 million in restructuring costs and $114 million of goodwill impairment charges. Fourth quarter 2007 EBIT included $2 million in restructuring costs.
  • The benefits to adjusted EBIT from lower SGA&E spending and new OE business partially offset the impact from negative EBIT drivers including:
    • Lower OE production volumes, unfavorable vehicle mix and related manufacturing fixed cost absorption as well as aftermarket sales volume declines that together reduced EBIT by $29 million;
    • Unfavorable currency related to translation and transaction losses on the Canadian dollar and Mexican peso, which reduced EBIT by $14 million.

EUROPE, SOUTH AMERICA, INDIA
  • Europe OE revenue was $352 million, down 31% year-over-year from $511 million. Excluding currency and substrate sales, revenue was down 12% to $329 million from $373 million. Fourth quarter 2008 revenues included $18 million from the recently acquired suspension business of Gruppo Marzocchi. The decline was due to sharply falling production volumes, which accelerated in the second half of the quarter, primarily with emission control customers. Industry light vehicle production was down 27% year-over-year.
  • Europe aftermarket revenue was $76 million, versus $96 million the prior year, driven by lower ride control and exhaust sales volumes, partially offset by price increases for higher material costs. Excluding the negative impact of currency, revenue was $89 million.
  • South America and India revenue was $72 million, down from $96 million in fourth quarter 2007. Excluding the impact of currency and substrate sales, revenue was down 4% to $80 million from $84 million. The decline was largely driven by OE production declines in Brazil and Argentina.
  • EBIT for Europe, South America and India was a loss of $12 million, compared with earnings of $19 million a year ago. Adjusted for the items below, EBIT was $3 million, versus $35 million in fourth quarter 2007.
  • Fourth quarter 2008 EBIT included $15 million in restructuring costs and fourth quarter 2007 EBIT included $16 million in restructuring costs.
  • The benefits to adjusted EBIT from lower SGA&E spending, new OE business and lower alloy surcharges partially offset the impact from negative EBIT drivers including:
    • To Lower OE production volumes, unfavorable vehicle mix and related manufacturing fixed cost absorption, as well as aftermarket sales volume declines that together decreased EBIT by $29 million;
    • Unfavorable currency related to translation and transaction losses, primarily on the euro and Brazilian real, which reduced EBIT by $7 million.

ASIA PACIFIC
  • Asia revenue was $70 million, down 28% from $98 million the prior year, driven by sharp OE production volume declines in China. Excluding currency and substrate sales, revenue was $46 million, compared with $62 million.
  • Australia revenue was $27 million, down 46% from $50 million in fourth quarter 2007. Excluding currency and substrate sales, revenue was $34 million, versus $43 million. The decline was primarily driven by lower OE production volumes.
  • Asia Pacific EBIT was a loss of $2 million, compared with earnings of $8 million a year ago.
  • Lower OE production volumes, primarily in China and Australia, and related manufacturing fixed cost absorption accounted for the EBIT decline.
 
Adjusted full-year 2008 and 2007 results:

    Q4 2008   Q4 2007
    EBITDA EBIT Net Income Per Share EBITDA EBIT Net Income Per Share
Earnings Measures $ 219 $ (3) $ (415) $ (8.95)   $ 457 $ 252 $ (5) $ ((0.11)
Adjustments
(reflects non-GAAP measures):
     
  Restructuring/restructuring related expenses   40   40   27   0.58     25   25   16   0.35
  New aftermarket customer changeover costs   7   7   4   0.09     5   5   3   0.06
  Goodwill impairment charge   114   114   114   2.45     -   -   -   -
  Charges related to refinancing   -   -   -   -     -   -   18   0.37
  Net tax Adjustments   -   -   290   6.25     -   -   56   1.15
Non-GAAP earnings measures $ 380 $ 158 $ 20 $ 0.42   $ 487 $ 282 $ 88 $ 1.82

SGA&E costs as a percent of sales for 2008 was 8.8% compared with 8.3% in 2007, primarily driven by the revenue decline and higher restructuring costs.

Capital spending in 2008 was $221 million, versus $198 million in 2007. The increase reflects higher year-over-year spending in the first half of 2008 in preparation for new business launches and new programs in faster-growing markets like China, India and Russia.

OUTLOOK
Tenneco will continue to address the impact from the global economic crisis with its cost reduction and cash generation actions including:
  • Aggressive global restructuring initiatives;
  • Continuing reduced compensation and benefits actions;
  • Ongoing discretionary spending cuts;
  • Generating additional cash from all components of working capital, especially through continued inventory reductions globally, and
  • Reducing capital expenditures to about $160 million, a 28% reduction over 2008.

"Cash preservation and generation remains our top priority and we continue to implement actions at all levels of our operations to improve cash flow and help ensure that we meet our liquidity requirements through our existing credit facilities," Sherrill said.

Tenneco also announced it is not providing any OE revenue guidance at this time due to the extreme volatility in global automotive production and overall uncertainty in the ultimate depth and length of the global economic crisis. The company will re-evaluate providing OE revenue and long-term growth guidance as markets stabilize and some measure of predictability returns.

"Future global OE production projections are just too unreliable at this time for us to provide guidance regarding OE revenue," said Sherrill. "However, what has not changed is the fact that Tenneco continues to benefit from new stricter emissions regulations. Tenneco’s highly competitive technology is driving content growth and new business in traditional as well as adjacent markets, including on and non-road commercial vehicles and locomotives, over the next five years."

Tenneco continues to win new business globally. Earlier this week, Tenneco announced a joint development agreement with GE Transportation, a unit of General Electric, to develop a proprietary selective catalytic reduction aftertreatment technology for various transportation and other applications. As part of the agreement, Tenneco has been awarded a development contract for locomotive projects and is positioned to become a long-term strategic supplier of diesel aftertreatment solutions to GE Transportation.

Tenneco currently has a number of production or development contracts with 11 on-road commercial vehicle customers, which are expected to generate new revenues starting in 2010 in the United States, Europe, China and South America. The company has similar contracts with six off-road commercial vehicle and two locomotive customers, with incremental revenue expected to begin in 2011 in the United States, Europe and Japan.

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CONFERENCE CALL
The company will host a conference call on Thursday, February 5, 2009 at 10:30 a.m. EST. The dial-in number is 800-369-1826 (domestic) or 212-547-0478 (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 5, 2009 through March 5, 2009. To access this recording, dial 866-419-2879 (domestic) or 203-369-0761 (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.

2009 ANNUAL MEETING
The Tenneco Board of Directors has scheduled the corporation’s annual meeting of shareholders for Wednesday, May 13, 2009 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 16, 2009.

Tenneco is a $5.9 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 "hopes," "may," "expects," "anticipate," "will," and "outlook" and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of the company (including its subsidiaries). Because these forward-looking statements involve risks and uncertainties, the company's plans, actions and actual results could differ materially. Among the factors that could cause these plans, actions and results to differ materially from current expectations are:
(i) changes in automotive manufacturers' production rates and their actual and forecasted requirements for the company's products 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 particularly in light of the current global financial and liquidity crisis, the ability of the company to successfully amend its senior secured credit facility and the credit ratings of the company’s debt;
(ix) )the recent volatility in the credit markets, the losses which may be sustained by our lenders due to their lending and other financial relationships and the general instability of financial institutions due to a weakening economy;
(x) 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;
(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, 2007.
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, 2007. Please see "Outlook" under "Management’s Discussion and Analysis of Financial Conditions and Results of Operations" included in the company’s form 10-K for the year ended December 31, 2007 for information regarding the company’s revenue projection. Further information can be found on the company's web site at www.tenneco.com.

 


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

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

Margie Pazikas
Media Inquiries
+32 2 706 9025
mpazikas@tenneco.com
 

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