Tenneco Automotive Inc. (ticker: TEN, exchange: New York Stock Exchange) News Release
July 22, 2003
TENNECO AUTOMOTIVE REPORTS IMPROVED RESULTS
- Company reports net income of $24 million and EPS of 58-cents per share
- Results reflect sixth consecutive quarter of year-over-year improvement in income, before the cumulative effect of the change in accounting for goodwill
- European original equipment emissions control business posts significant year-over-year profitability improvement
- Company achieves restructuring, SGA&E savings and Six Sigma improvement targets
- Significantly improves liquidity through successful bond offering
LAKE FOREST, ILLINOIS, JULY 22, 2003 - Tenneco Automotive (NYSE: TEN) announced today that the company reported net income of $24 million, or 58-cents per diluted share, in the second quarter of 2003, versus net income of $19 million, or 45-cents per diluted share for the second quarter of 2002. EBIT (income before interest, taxes and minority interest) was $67 million in the quarter compared with $71 million in second quarter 2002. EBIT before depreciation and amortization (EBITDA) was $108 million for the quarter, versus second quarter 2002 EBITDA of $106 million. See the table entitled, "Reconciliation of GAAP Results to non-GAAP Results," which is attachment 2 to this press release for more information about EBITDA and other non-GAAP results in this press release.
The company reported revenue of $998 million for the quarter versus $948 million in second quarter 2002. Excluding a $76 million benefit from favorable currency exchange rates during the quarter, second quarter 2003 revenue was $922 million. The decline in revenues, after excluding the currency benefit, was primarily driven by softer global aftermarket sales. Global original equipment (OE) revenue was down only 1 percent, after currency adjustments, stronger than the industry market performance.
"We are pleased with our ability to deliver our sixth consecutive quarter of year-over-year improvement, despite overall industry conditions that are average at best. This consistent performance reflects our commitment to growth and improving the fundamentals of our business, "said Mark P. Frissora, chairman and CEO, Tenneco Automotive. "We are particularly encouraged with our progress in Europe, where we believe our OE business is back on track now that the emissions control business has substantially recovered."
The company captured savings in the quarter through a continued intense focus on controlling costs. SGA&E (selling, general, administrative and engineering expense), as a percent of sales, was 11.0 percent, compared with 11.6 percent in the second quarter of 2002. Project Genesis, the company's restructuring program, generated $7 million in savings in the second quarter, bringing the year-to-date savings to $13 million. The company anticipates total annualized savings of $27 million from Project Genesis in 2003. The company also generated almost $7 million in savings from Six Sigma, $13 million in savings year-to-date, and is well on track to meet its goal of $20 million in Six Sigma savings for the year.
The second quarter 2003 results include a pre-tax restructuring related expense of $1 million, or 3-cents per diluted share, a pre-tax expense of $5 million, or 7-cents per diluted share, related to the write-off of debt issuance costs that were deferred on the senior debt the company paid down with the proceeds of a $350 million bond offering, and a tax benefit of $8 million, or 19-cents per diluted share, related to a favorable tax resolution. The second quarter 2002 results include a pre-tax benefit of $11 million, or 13-cents per diluted share, for the sale of the company's York, U.K. manufacturing facility and a pre-tax restructuring related expense of $2 million, or 2-cents per diluted share.
The company continues to win new business with global original equipment manufacturers. The company won 18 new OE business awards in the quarter estimated to add $147 million of incremental revenue over five years beginning in 2003, including being selected as the full service exhaust supplier for the Ford gas and diesel 2007 model year F-Series Super-Duty truck. On the aftermarket side, the company added new business worth an estimated $11 million in annualized revenue with new customers in Europe and North America.
"Our business units have a renewed emphasis on growth this year, and we delivered some strong results this quarter," Frissora said. "The shrinking exhaust aftermarket worldwide continues to have the greatest impact on our aftermarket results. We are offsetting some of this downturn by adding incremental business and not letting up on our efforts to do everything possible to take out costs, especially in distribution."
Cash flow before financing activity was a negative $35 million during the second quarter 2003. Negative cash flow during the quarter was driven by increased working capital and higher tax settlement costs. Due to the seasonality of its business, cash use is typically higher in the second quarter as the company moves into the spring and summer selling seasons in the aftermarket. While working capital increased overall, the company made substantial progress toward its inventory reduction goals, generating $36 million in cash flow from reduced inventories. Total borrowings increased $54 million during the quarter, which included $12 million in fees paid in connection with the $350 million senior secured note offering. Tenneco Automotive's total bank and bond debt was $1.497 billion at the end of the second quarter 2003.
Tenneco Automotive again significantly outperformed the requirements of its bank debt covenants. At June 30, the leverage ratio was 4.56, below the maximum limit of 5.50; the fixed charge coverage ratio was 1.32, exceeding the minimum required ratio of 0.90; and the interest coverage ratio was 2.33, exceeding the minimum required ratio of 1.75.
- Softer OE production during the quarter contributed to a 7 percent decrease in North American original equipment revenue to $365 million versus second quarter 2002 revenue of $391 million. The decline was driven in part by lower precious metal prices on pass-through catalytic converter sales. The company's continued strong position on top-selling platforms helped offset the even larger overall industry decline in sales.
- North American aftermarket revenue was $136 million versus $148 million one year ago. The 8 percent decline was primarily the result of a 17 percent decline in the aftermarket exhaust business.
- EBIT for North American operations was $49 million compared with $53 million in the second quarter of 2002, which included $1 million in restructuring related expenses. EBIT was impacted by the continued decline in the exhaust aftermarket and, to a lesser extent, lower OE volumes. Improved manufacturing efficiency and continued emphasis on controlling costs helped partially offset these factors.
- European original equipment revenue increased to $286 million in the quarter versus $231 million in second quarter 2002. Before catalytic converter pass-through sales and the impact of favorable currency exchange rates, revenue was still up 5 percent, versus an estimated industry decline of 4 percent. The revenue increase was driven by the company's position on top-selling vehicles and the launch of several high-volume platforms.
- European aftermarket revenue was $102 million compared with $90 million in the second quarter of 2002. Excluding the impact of favorable currency, second quarter 2003 revenue was $84 million. The decrease was driven by the industry decline in the exhaust segment.
- European EBIT was $11 million, flat year-over-year. EBIT for the quarter includes $1 million of restructuring related expense and $4 million of favorable currency effects. Second quarter 2002 EBIT includes an $11 million gain on the sale of the York, U.K. facility and restructuring related expenses of $1 million.
- Before these items, EBIT improved significantly, primarily driven by improved operational efficiencies throughout the European operations, particularly in the original equipment emissions control business, where gross margin increased almost 5 percentage points from the prior year. Project Genesis savings added $4 million to earnings but were substantially offset by the impact of lower aftermarket sales.
REST OF WORLD
- Revenue from Asian operations increased 36 percent to $40 million in the quarter. New business and strong OE volumes in China continue to drive the growth.
- In South America, the company reported revenue of $29 million, an increase over $28 million in second quarter 2002. Currency devaluations in both Brazil and Argentina had a $2 million negative impact on revenues.
- The company's Australian operations reported revenues of $40 million compared with $31 million in second quarter 2002, a 32 percent increase. Strong volumes on key platforms and a favorable currency exchange rate of $7 million impacted revenues.
- Combined EBIT for Asia, South America and Australia was $7 million, flat with the previous year. Weak economic conditions in key South American markets offset higher revenues and EBIT gains in China.
Tenneco Automotive closed on its bond offering of $350,000,000 of 10.25 percent senior secured notes in the quarter, which provides liquidity and greater financial flexibility going forward. The company used proceeds from the notes to pay off $87 million of borrowings under its revolving credit facility and to repay $251 million in senior term loans that were amortizing at the rate of $94 million annually through 2005. The company incurred $12 million in costs to complete the offering and expects to incur up to $19 million in higher annual interest expense. The notes are senior secured obligations of Tenneco Automotive and those subsidiaries that guarantee the notes, and will mature on July 15, 2013 with interest payable semi-annually beginning on January 15, 2004.
"We are very pleased with the successful completion of our bond offering and the positive response from the financial community. We believe the success of this offering contributed in part to the 59 percent rise in our stock price and the significant rise in trading value of our other debt instruments during the quarter," said Frissora. "This refinancing transaction provides Tenneco Automotive with long-term financial flexibility to address our primary goal of total debt reduction. At the same time, the $87 million revolver pay down and the deferral of debt amortization payments of over $210 million through 2005 strengthens the company's near-term liquidity, giving us sufficient resources to adjust to market uncertainties as we continue to implement strategies to grow the top line of our business and improve our operating performance."
The company also announced today a change to its retiree medical benefits program, which will provide participating retirees with continued access to group health coverage while reducing Tenneco Automotive's subsidization of the program. Based on current estimates, the company anticipates that this change will increase its net income by approximately $7 million annually, beginning in the third quarter of 2003.
Attachment 1 to this press release provides additional information on Tenneco Automotive's second quarter 2003 results:
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CONFERENCE CALL INFORMATION
The company will host a conference call on July 22, 2003 at 10:30 a.m. Eastern time. The dial-in number is 888-709-9420 domestic or 210-234-8312 international. The passcode is Tenneco Auto. The call will be available on the financial section of the Tenneco Automotive web site at www.tenneco-automotive.com. A copy of this press release, which includes in the attachments financial information to be discussed on this call, is also available on the financial and news sections of the Tenneco Automotive web site at www.tenneco-automotive.com. A recording of this call will be available one hour following the completion of the call on July 22 through July 29, 2003. To access this recording, dial 800-396-1242 domestic or 402 220-9833 international and enter passcode 8400.
Tenneco Automotive is a $3.5 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 19,600 employees worldwide. Tenneco Automotive is one of the world's largest producers and marketers of ride control and exhaust systems and products, which are sold under the Monroe® and Walker® global brand names. Among its products are Sensa-Trac® and Monroe Reflex® shocks and struts, Rancho® shock absorbers, Walker® Quiet-Flow® mufflers and DynoMax® performance exhaust products, and Monroe® Clevite® vibration control components.
This press release contains forward-looking statements. Words such as "taking", "focused", "goal", "expect", "anticipate", "should", "believe", "plan", "remain", "confident", "continue," "will", "may", "can", "intend", "continue", "estimate" and "seek" 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) the general political, economic and competitive conditions in markets and countries where the company and its subsidiaries operate, including currency fluctuations and other risks associated with operating in foreign countries; (ii) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals; (iii) changes in capital availability or costs, including increases in the company's costs of borrowing (i.e., interest rate increases); (iv) changes in automotive manufacturers' production rates and their actual and forecasted requirements for the company's products, including the company's resultant inability to realize the sales represented by its awarded book of business and the overall highly competitive nature of the automotive parts industry; (v) 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 cost of compliance with changes in regulations, including environmental regulations; (vii) workforce factors such as strikes or labor interruptions; (viii) material substitutions and increases in the costs of raw materials; (ix) the company's ability to execute restructuring and other cost reduction plans and to realize anticipated benefits from these plans; (x) 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; (xi) further changes in the distribution channels for the company's aftermarket products, further consolidations among automotive parts customers and suppliers, and product warranty costs; (xii) changes by the Financing Accounting Standards Board or other accounting regulatory bodies of authoritative generally accepted accounting principles or policies; (xiii) acts of war, riots or terrorism as well as actions taken or to be taken by the United States or other governments as a result of 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 (xiv) 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 annual report on Form 10-K for the year ended December 31, 2002
Tenneco Automotive, Media Relations
(1) 847 482 5607
Tenneco Automotive, Investor Relations
(1) 847 482 5042