Tenneco Automotive Inc. (ticker: TEN, exchange: New York Stock Exchange) News Release
January 27, 2004
TENNECO AUTOMOTIVE SIGNIFICANTLY IMPROVES OPERATING RESULTS
- Fourth quarter EBIT up 27 percent - adjusted EBIT up 51 percent
- Full year net income before accounting change down 12 percent - adjusted full year net income up 184 percent
- Year-end debt net of cash balances at $1.285 billion
- Wins more than $900 million in new business in 2003
LAKE FOREST, ILLINOIS, JANUARY 27, 2004 - Tenneco Automotive (NYSE: TEN) announced today that the company reported a fourth quarter net loss of $2 million, or 4-cents per diluted share, compared with fourth quarter 2002 net income of $9 million, or 21-cents per diluted share. The company reported full year 2003 net income of $27 million, or 65-cents per diluted share, compared with net income before an accounting change in 2002 of $31 million, or 74-cents per diluted share.
"When you consider our quarter-over-quarter results on an operational basis, excluding certain items, our strong cash and earnings performance in the quarter helped us deliver our best operational year since becoming a stand-alone company," said Mark P. Frissora, chairman and CEO, Tenneco Automotive.
Adjusted for the items described below, fourth quarter 2003 net income was $2 million, or 6-cents per diluted share, versus a loss of $7 million, or 17-cents per diluted share, in the fourth quarter of 2002. Adjusted for the items described below, full year 2003 net income was $23 million, or 55-cents per diluted share, a 162 percent increase in earnings per share compared with net income of $8 million, or 21-cents per diluted share for full year 2002. See the tables that reconcile GAAP results to non-GAAP results, which are in attachment 2 to the press release.
Adjustments to reported fourth quarter 2003 results are:
- expenses of $9 million pre-tax, $6 million after-tax, or 13-cents per share, associated with refinancing of the company's senior debt;
- restructuring expenses of $1 million pre-tax, $1 million after-tax, or 2-cents per share;
- a benefit of $3 million, or 5-cents per share, related to a foreign tax adjustment.
Adjustments to reported fourth quarter 2002 results are:
- net benefits of $16 million after-tax, or 38-cents per share, for adjustments to restructuring costs and taxes.
Adjustments to reported full year 2003 results are:
- restructuring and related expenses of $8 million pre-tax, $5 million after-tax, or 13-cents per share;
- expenses of $12 million pre-tax, $8 million after-tax, or 18-cents per share, due to debt refinancing;
- a benefit of $17 million, or 41-cents per share, related to several tax adjustments.
Adjustments to reported full year 2002 results are:
- a net benefit of $23 million after-tax, or 53-cents per share, due to restructuring and related activities; costs associated with the amendment of the senior debt agreement; a gain on the sale of a facility; and a benefit related to several tax adjustments.
"We improved in every region and I am especially pleased with the turnaround in our European original equipment operations," said Frissora. "Europe also took the lead in winning significant new ride and emissions control business. We were awarded more than $900 million in new business in 2003 for OE platforms expected to begin production in 2004 through 2007. We are also encouraged by some strengthening in the North America aftermarket where revenue grew quarter-over-quarter for the first time since the second quarter of 2002."
FOURTH QUARTER PERFORMANCE
The company's fourth quarter 2003 results benefited from higher volumes, improved manufacturing efficiencies and favorable currency exchange rates. However, results were negatively impacted by $4 million in higher interest expense on the company's debt refinancing.
Fourth quarter revenue was $933 million, compared with $846 million in fourth quarter 2002, a 10 percent increase. Adjusted for $86 million in favorable currency, revenue was slightly up quarter-over-quarter.
The company's reported EBIT (earnings before interest, taxes, and minority interest) increased 27 percent to $40 million in the fourth quarter, compared with $31 million in fourth quarter 2002. Adjusted for certain items described above (see attachment 2), EBIT was $41 million, a 51 percent increase compared with fourth quarter 2002 adjusted EBIT of $27 million. The company generated $76 million in cash flow before financing activities during the quarter, largely driven by $68 million in cash from working capital improvements.
Reported EBIT before depreciation and amortization expense (EBITDA) was $83 million for the quarter, an 18 percent increase compared with $71 million in fourth quarter 2002. Adjusted for certain items described above (see attachment 2), fourth quarter EBITDA was $84 million, a 28 percent increase versus adjusted fourth quarter 2002 EBITDA of $67 million.
The company decreased its SGA&E (selling, general, administrative and engineering) expense to 11.3 percent of sales in the quarter compared with 11.6 percent in fourth quarter 2002. The higher margin aftermarket continues to represent a smaller percentage of revenues and gross margin. Gross margin was 20.2 percent in the quarter, compared with 20.0 percent reported in fourth quarter 2002. Without the benefits of an income adjustment related to restructuring costs, fourth quarter 2002 gross margin would have been 19.7 percent.
The company operated well within the requirements of its bank debt covenants in the quarter. At December 31, the leverage ratio was 4.17, below the maximum limit of 5.00; the fixed charge coverage ratio was 1.87, exceeding the minimum required ratio of 1.00; and the interest coverage ratio was 3.04, exceeding the minimum required ratio of 1.95.
FULL YEAR PERFORMANCE
The company reported 2003 revenue of $3.8 billion, a 9 percent increase over 2002. Adjusted for the impact of favorable currency, revenue increased 1 percent.
Full year reported EBIT was $176 million, a 4 percent increase compared with 2002 EBIT of $169 million. Adjusted for certain items described above (see attachment 2), 2003 EBIT was $184 million, compared with adjusted 2002 EBIT of $162 million. For the full year, Tenneco Automotive reported net cash before financing activities of $154 million, up 90 percent from a year ago. The company strengthened its financial position in 2003, ending the year with cash balances of $145 million and total debt at $1.430 billion, or debt net of cash balances of $1.285 billion, the lowest level since becoming a stand-alone company.
Tenneco Automotive reported EBITDA for the full year of $339 million, an increase from $313 million reported in 2002. EBITDA was $347 million adjusted for certain items described above (see attachment 2), compared with 2002 adjusted EBITDA of $306 million.
The company reported SGA&E for the year of 11.4 percent of sales, meeting its 2003 goal of maintaining SGA&E expense at less than 12 percent of sales. Gross margin for 2003 was 20.5 percent versus 20.9 percent in 2002. The decline was driven by a lower percentage of sales generated by the higher margin aftermarket business. The company also achieved its Project Genesis restructuring goals for the year, generating $29 million in savings. Manufacturing improvements driven by the company's Six Sigma initiative generated an additional $27 million in savings in 2003.
FOURTH QUARTER - NORTH AMERICA
- North American original equipment revenue was $347 million for the quarter versus $338 million in fourth quarter 2002. Excluding the impact of lower pass-through catalytic converter sales, revenue was $270 million, up 2 percent versus a market decline of almost one percent. Higher ride control volumes drove the increase.
- North American aftermarket revenue was $99 million, up 12 percent versus fourth quarter 2002 revenue of $88 million. The increase was driven by an 11 percent increase in ride control sales and a 14 percent increase in emissions control sales.
- Reported EBIT for North American operations was $22 million compared with $21 million reported in the fourth quarter of 2002. Adjusted for $1 million in restructuring related expenses, EBIT in fourth quarter 2003 was $23 million, versus EBIT of $21 million in the same period one year ago. The EBIT improvement was driven by higher volumes, improved manufacturing efficiency and cost control measures.
FOURTH QUARTER - EUROPE
- European original equipment revenue increased to $290 million from $253 million in fourth quarter 2002. Before the impact of favorable currency and pass-through catalytic converter sales, revenue was $193 million, down less than one percent and even with the market decline. A 33 percent increase in OE ride control volumes offset a 12 percent decline in emissions control volumes, adjusted for currency and pass-through sales.
- European aftermarket revenue was $76 million compared with $70 million in fourth quarter 2002. Excluding the impact of favorable currency, revenue was $62 million. The revenue decline was the result of continued market softness in both ride and emissions control.
- Reported European EBIT was $7 million compared with reported fourth quarter 2002 EBIT of $3 million, or zero when adjusted for a net benefit of $3 million for a favorable adjustment in the estimate to complete Project Genesis restructuring, net of restructuring related expenses. Favorable currency, higher OE ride control volumes, improved manufacturing efficiencies and tight cost controls drove the EBIT improvement.
FOURTH QUARTER - REST OF WORLD
- The company's Australian operations increased revenue to $45 million from $33 million in fourth quarter 2002. Revenue increased 2 percent to $34 million, excluding the impact of favorable currency. The revenue gain was driven by higher OE volumes.
- Revenue from Asian operations increased to $43 million from $39 million in fourth quarter 2002, primarily driven by growing OE revenues in China.
- The company reported revenue from South American operations of $33 million, a 33 percent increase over fourth quarter 2002 revenue of $25 million.
Revenue was impacted by $5 million in favorable currency and higher OE volumes, primarily in Brazil.
- " Reported combined EBIT for Asia, South America and Australia was $11 million in the fourth quarter versus $7 million in the fourth quarter of 2002. The improvement in reported EBIT was due to manufacturing efficiencies, increased volumes and favorable currency exchange rates. Fourth quarter 2002 results include a net benefit of $1 million for an adjustment in the estimate to complete Project Genesis.
In 2004, the company will maintain its emphasis on aggressive cost management, top-line growth and cash generation to further reduce its debt. The company's long-term goals include reducing SGA&E expense to 10 percent of sales; improving gross margin to 22 percent of sales; and generating at least $100 million in new business annually. For 2004, the company also anticipates generating an additional $30 million in cash from working capital improvements.
"Our strategy is to capitalize on growth opportunities with advanced technologies and in new markets, such as China and Eastern Europe, while continuing our intense focus on cost management and manufacturing improvement initiatives," said Frissora. "In the aftermarket, we expect to grow with new products and in categories beyond our traditional product lines, while continuing to size our European aftermarket business to the market."
The company anticipates that its original equipment book of business in 2004 and 2005 will be about $75 million and $315 million higher, respectively, than the 2003 book of business. Before pass-through catalytic converter sales, the book of business is expected to be about $45 million and $270 million higher than 2003 in 2004 and 2005, respectively. 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.
Attachment 1 to this press release provides additional information on Tenneco Automotive's fourth quarter and full year 2003 results.
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CONFERENCE CALL INFORMATION
The company will host a conference call on January 27, 2004 at 10:30 a.m. EST. The dial-in number is 888 394-4822 domestic or 773 756-4631 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 is available on the financial and news sections of the Tenneco Automotive web site. A recording of this call will be available one hour following completion of the call on January 27, 2004 through February 3, 2004. To access this recording, dial 800 679-9662 domestic or 402 220-0283 international.
2004 ANNUAL MEETING
he Tenneco Automotive board of directors has scheduled the corporation's annual meeting of shareholders for Tuesday, May 11, 2004 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 19, 2004.
Tenneco Automotive is a $3.8 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 within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "will," "improving," "generating," "goals," "strategy," "continuing," "expect," "expected," "anticipates," "estimates," 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 the strength of other currencies relative to the U.S. dollar and 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), 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; (iv) 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 book of business, which is based on original equipment manufacturers' programs that have been formally awarded as well as programs where the company is highly confident that it will be awarded business based on informal customer indications, the company's status as a supplier on the existing program, and the relationship with the customer, and 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; (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 cost and outcome of existing and any future legal proceedings, and 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 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; (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 and the market; (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, 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 we operate 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 report on Form 10-K for the year ended December 31, 2002. Further information can be found on the company's web site at www.tenneco-automotive.com.
Tenneco Automotive, Media Relations
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Tenneco Automotive, Investor Relations