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

January 30, 2007

 
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 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
    EBITDA EBIT Net Income Per Share EBITDA EBIT Net Income Per Share
Earnings Measures $ 84 $ 36 $ 14 $ 0.30   $ 81 $ 38 $ 8 $ 0.18
Adjustments
(reflects non-GAAP measures):
     
  Restructuring/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

Download and print this summary table (PDF): Adjusted fourth quarter 2006 and 2005 results


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.

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, 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 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.

Adjusted full year 2006 and 2005 results:

 
    YTD 2006   YTD 2005
    EBITDA EBIT Net Income Per Share EBITDA EBIT Net Income Per Share
Earnings Measures $ 380 $ 196 $ 51 $ 1.10   $ 392 $ 215 $ 58 $ 1.29
Adjustments
(reflects non-GAAP measures):
     
  Restructuring/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

Download and print this summary table (PDF): Adjusted full year 2006 and 2005 results

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.

"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.

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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 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®, Walker®, Gillet® and Clevite®Elastomer brand names. Among its products are Sensa-Trac® and Monroe Reflex® shocks and struts, Rancho® shock absorbers, Walker® Quiet-Flow® mufflers, Dynomax® performance exhaust products, and Clevite®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;
(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.



CONTACT:
Tenneco Media Relations
Jim Spangler
(1) 847 482 5810
jspangler@tenneco.com

Tenneco Investor Relations
Leslie Hunziker
(1) 847 482 5042
lhunziker@tenneco.com 

 
 

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