Company Reports Quarterly Loss Due to Restructuring and Refinancing Cost
- Record fourth quarter revenue of $1.1 billion, up 15%
- Fourth quarter EBIT $18 million; adjusted EBIT $46 million, up 12%
- Record full year revenue of $4.2 billion, up 12%
- Record low year-end debt net of cash balances of $1.206 billion
- Awarded $1.2 billion in future annualized new business in 2004
LAKE FOREST, ILLINOIS, JANUARY 25, 2005 - Tenneco Automotive (NYSE: TEN) reported a fourth quarter loss of $21 million, or 49-cents per diluted share, versus a net loss of $2 million, or 4-cents per diluted share, in fourth quarter 2003. Adjusted for the items below, fourth quarter net income increased to $8 million, or 17-cents per diluted share, compared with net income of $2 million, or 6-cents per diluted share a year ago.
EBIT (earnings before interest, taxes and minority interest) was $18 million, compared with $40 million in fourth quarter 2003. EBITDA (EBIT before depreciation and amortization) was $64 million versus $83 million a year ago. With fourth quarter adjustments, the company delivered its 12th consecutive quarter of EBIT and EBITDA improvement with adjusted EBIT of $46 million and EBITDA of $92 million, up 12% and 10% respectively. See the tables in attachment 2 to the press release, which reconcile GAAP results to non-GAAP results.
Adjusted fourth quarter 2004 and 2003 results:
|Q4 2004||Q4 2004|
|EBITDA||EBIT||Net Income||Per Share||EBITDA||EBIT||Net Income||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||28||28||17||0.40||1||1||1||0.02|
|Cost related to refinancing||-||-||27||0.60||-||-||6||0.13|
|Non-GAAP earnings measures||$||92||$||46||$||8||$||0.17||$||84||$||41||$||2||$||0.06|
Download and print this summary table (PDF): Adjusted fourth quarter 2004 and 2003 results
Fourth quarter 2004 adjustments:
- Restructuring and related expenses of $28 million pre-tax, or 40-cents per diluted share, primarily to implement a reduction in force announced in the quarter to save $20 million annually;
- Tax benefits of $15 million, or 34-cents per diluted share, primarily to recognize benefits related to previous tax losses in foreign operations;
- Expenses of $42 million pre-tax, or 60-cents per diluted share, for refinancing the company's 11.625% subordinated debt to 8.625%, expected to save $15 million annually in interest expense.
Fourth quarter 2003 adjustments:
- Restructuring expenses of $1 million pre-tax, or 2-cents per diluted share;
- A benefit of $3 million, or 5-cents per diluted share, related to a foreign tax adjustment;
- Expenses of $9 million pre-tax, or 13-cents per diluted share, associated with refinancing the company's senior debt.
Tenneco Automotive's strong cash performance in the quarter resulted in cash balances of $214 million at quarter-end, up from $203 million at the end of third quarter 2004, and record low net debt of $1.206 billion compared with $1.285 at year-end 2003. Total debt was $1.420 billion at year-end 2004 versus $1.430 billion a year ago.
"Our ability to generate cash and improve earnings delivered another excellent quarter with strong financial results despite facing industry-wide challenges including escalating steel costs," said Mark P. Frissora, chairman and CEO, Tenneco Automotive. "We are working aggressively to offset the impact of higher steel costs with price recovery from our customers, and by continuing to lower our costs and improve manufacturing efficiency through Lean and Six Sigma programs."
Tenneco Automotive again posted quarterly record revenue of $1.1 billion, up 15 percent over fourth quarter 2003 revenue of $933 million. Favorable currency exchange rates impacted revenue by $52 million. The company continues to benefit from having products on better-selling vehicles in North America and Europe and from stronger North American aftermarket sales.
The company's gross margin in the quarter was 18.5% compared with 20.2% a year ago. Gross margin was negatively impacted by 1.0 percentage point due to restructuring costs in the quarter and 1.4 percentage points due to the impact of $15 million in higher steel costs. These costs offset strong volumes, aftermarket price increases and the benefits from cost reduction activities.
Fourth quarter SGA&E expense was 12.6% of sales, or 10.9% excluding the impact of restructuring costs, versus 11.3% a year ago. Restructuring activities in the quarter delivered $4 million in savings and Six Sigma quality programs generated $7 million.
The company outperformed its bank debt covenants in the quarter. At December 31, the leverage ratio was 3.60, below the maximum limit of 4.75; the fixed charge ratio was 1.78, exceeding the required ratio of 1.10; and the interest coverage ratio was 2.67, exceeding the minimum coverage ratio of 2.00.
- North American original equipment revenue increased to $358 million versus $347 million in 2003. Catalytic converter pass-through sales were flat year-over-year at $77 million. Revenues outpaced industry production due to the company's position on top-selling platforms and stronger year-over-year heavy duty volumes.
- North American aftermarket revenue was $110 million, up from $99 million in fourth quarter 2003 due to higher aftermarket ride control sales to new and existing customers.
- EBIT for North American operations was $19 million, compared with $22 million a year ago. Adjusting for $8 million in restructuring costs, fourth quarter 2004 EBIT was $27 million. Higher material costs of $11 million in the OE ride control and the aftermarket businesses offset increased profit from OE and aftermarket revenues.
EUROPE AND SOUTH AMERICA
- European original equipment revenue was $385 million, including $89 million in catalytic converter pass-through sales and $39 million in favorable currency, versus $290 million a year ago with $60 million in pass-through sales. Higher OE emission control volumes drove the increase, outpacing a 2% decline in industry production.
- European aftermarket revenue was $82 million, including $7 million in favorable currency, versus $76 million a year ago. Improving emission control sales from market share gains were more than offset by lower ride control sales.
- South American operations generated $44 million in revenue, up from $33 million a year ago, due to higher OE volumes in Brazil and Argentina. As previously announced the company changed its management structure and operating segments in the fourth quarter. Year-over-year result comparisons have been adjusted to report South American EBIT with the company's European results.
- EBIT for European and South American operations was a loss of $5 million versus income of $10 million in fourth quarter 2003. Adjusted for $17 million in restructuring costs, Europe and South America EBIT was $12 million in the quarter versus $10 million in fourth quarter 2003. EBIT improved due to strong OE volumes and manufacturing efficiencies despite higher material costs of $4 million.
Fourth quarter 2004 results have been adjusted to reflect the change in operating segments, which created the Asia Pacific strategic business unit with the company's Asian and Australian operations. Previously, the company reported combined EBIT for Asia, Australia and South America.
- Revenue from Asian operations was $37 million, versus $43 million in fourth quarter 2003. The decrease was primarily the result of slowing OE sales in China.
- Australian revenue was $55 million including $3 million in favorable currency compared with $45 million a year ago. Strong OE volumes drove the increase.
- EBIT for the company's Asia Pacific operations was $4 million versus $8 million in fourth quarter 2003. Excluding restructuring costs of $3 million, fourth quarter 2004 EBIT was $7 million. The decline was largely the result of lower OE volumes in China.
FULL-YEAR 2004 PERFORMANCE
In 2004, Tenneco Automotive generated its highest ever annual revenue of $4.2 billion, driven by its strong position on top-selling platforms worldwide and strengthening aftermarket sales in some sectors. The company reported full-year net income of $13 million, or 31-cents per diluted share, versus $27 million, or 65-cents per diluted share, in 2003. EBIT was $171 million, versus $176 million a year ago and EBITDA was $348 million compared with $339 million for full year 2003.
Adjusted for the items below, full year net income was $52 million, or $1.18 per diluted share, compared with $23 million, or 55-cents per diluted share, in 2003. Adjusted EBIT increased 21% to $223 million and adjusted EBITDA was up 15% to $400 million.
Adjusted full year 2004 and 2003 results:
|YTD 2004||YTD 2003|
|EBITDA||EBIT||Net Income||Per Share||EBITDA||EBIT||Net Income||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||40||40||25||0.56||8||8||5||0.13|
|New Aftermarket customer changeover costs||8||8||5||0.12||-||-||-||-|
|Consulting fees indexed to stock price||4||4||3||0.06||-||-||-||-|
|Cost related to refinancing||-||-||27||0.60||-||-||8||0.18|
|Non-GAAP earnings measures||$||400||$||223||$||52||$||1.18||$||347||$||184||$||23||$||0.55|
Download and print this summary table (PDF): Full year results
Full-year 2004 adjustments:
- Restructuring and related expenses of $40 million pre-tax, or 56-cents per share, to improve manufacturing efficiency and reduce costs;
- Expenses of $8 million, or 12-cents per diluted share, associated with changeover costs for a new aftermarket customer;
- Expenses of $4 million pre-tax, or 6-cents per diluted share, for consulting fees indexed to the stock price based on a 1999 agreement for implementing EVA®;
- Tax benefits of $21 million or 47-cents per diluted share;
- Expenses of $42 million pre-tax, or 60-cents per diluted share for refinancing the company's subordinated debt.
Full-year 2003 adjustments:
- Restructuring and related expenses of $8 million pre-tax, or 13-cents per diluted share;
- Tax benefits of $17 million, or 41-cents per diluted share;
- Expenses of $12 million, or 18-cents per diluted share, for debt refinancing.
The company reported SGA&E for the year of 11.7% of sales, or 11.0% excluding the impact of restructuring costs, aftermarket customer changeover costs and the consulting fees indexed to the stock price, compared with 11.4% in 2003. Gross margin for the year was 20% versus 20.5% a year ago. The decline was driven by higher material costs (0.6 percentage points negative impact), restructuring expenses (0.2 percentage points) and a lower percentage of sales generated by higher margin aftermarket business (0.2 percentage points). The company's Six Sigma programs generated $26 million in savings in 2004 and restructuring actions resulted in savings of $13 million.
The company continued to win new business in 2004 with $1.2 billion in annualized new OE contracts for platforms launching between 2004 and 2007.
In 2005, Tenneco Automotive plans to continue to aggressively manage costs, adjust its businesses to the market and grow revenues by expanding in new markets and winning new business with its advanced technology offerings. The company's goals include maintaining SGA&E expense at less than 11 percent of sales; achieving a ratio of net debt to EBITDA of 2.8x; and generating at least $300 million in new business annually.
Tenneco Automotive expects that vehicle mix will continue to be a key revenue driver in 2005 and the company will benefit from its strong position on better-selling platforms helping to counter industry production volatility in North America and Europe.
The company anticipates that its original equipment book of business in 2005 and 2006 will be approximately $3.5 billion and $3.6 billion, or about $270 million and $420 million higher, respectively, than the 2004 book of business. Before catalytic converter pass-through sales, the book of business is expected to be about $2.7 billion and $2.8 billion in 2005 and 2006, or about $210 million higher in 2005 and $280 million higher in 2006. These revenue estimates are based on original equipment manufacturers' programs that have been formally awarded to the company as well as programs where the company is highly confident that it will be awarded business based on informal customer indications, Tenneco Automotive's status as a supplier on the existing program, and the relationship with the customer. The book of business is also based on anticipated vehicle production levels, as well as the company's pricing and currency assumptions.
Tenneco Automotive is actively addressing higher steel costs, expected to continue through 2005. The company anticipates that steel costs increases, net of other expected material cost savings and recovery from customers, will be between $30 million and $50 million for 2005. The company is intensely focused on mitigating the impact of higher costs by implementing a restructuring initiative announced in the fourth quarter, which is expected to generate $20 million in annual savings; improving manufacturing efficiency with Lean; generating at least $20 million in Six Sigma savings; and capitalizing on the projected $270 million increase in the 2005 OE book of business. Lower interest expense as a result of the company's debt refinancing in the fourth quarter will also help offset the impact.
Attachment 1 to this press release provides additional information on Tenneco Automotive's fourth quarter and full year 2004 results.
- Statements of Income - 3 Months
- Statements of Income - 12 Months
- Balance Sheet
- Statements of Cash Flow
- 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 Revenues to Non-GAAP Revenue Measures - 3 months
- Reconciliation of GAAP Revenues to Non-GAAP Revenue Measures - 12 months
The company will host a conference call on January 25, 2005 at 10:30 a.m. EST. The dial-in number is 866-556-1093 domestic or 1 630-395-0047 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 recording of the call will be available one hour following completion of the call on January 25, 2005 through February 1, 2005. To access this recording, dial 866-475-1455 domestic or 203-369-1503 international. The purpose of the call is to discuss the company's results of operations for the last fiscal 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 Automotive web site.
2005 ANNUAL MEETING
The Tenneco Automotive board of directors has scheduled the corporation's annual meeting of shareholders for Tuesday, May 10, 2005 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, 2005.
Tenneco Automotive is a $4.2 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 18,800 employees worldwide. Tenneco Automotive 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 Automotive 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 "continue," "goal," "anticipate," "will," "estimate" 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, including the overall highly competitive nature of the automotive parts industry, and 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; (ii) 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 and other methods; (iii) 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; (iv) 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; (v) 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; (vi) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals; (vii) 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; (viii) the cost and outcome of existing and any future legal proceedings, and compliance with changes in regulations, including environmental regulations; (ix) 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; (x) further changes in the distribution channels for the company's aftermarket products, further consolidations among automotive parts customers and suppliers, and product warranty costs; (xi) changes by the Financing Accounting Standards Board or other accounting regulatory bodies of authoritative generally accepted accounting principles or policies; (xii) 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 (xiii) 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, 2003. Further information can be found on the company's web site at www.tenneco-automotive.com.
Tenneco Automotive Media Relations
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