-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DXJsXCPmcR/QT1CEd/z9kRXTrfthEs+3N7vwE+/zycQ91XwpLqDsr3vPEvVuICR8 DcpBge3peMb2Fha6/7k5xw== 0000950137-01-500540.txt : 20010409 0000950137-01-500540.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950137-01-500540 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENNECO AUTOMOTIVE INC CENTRAL INDEX KEY: 0001024725 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 760515284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12387 FILM NUMBER: 1588494 BUSINESS ADDRESS: STREET 1: 500 NORTH FIELD DRIVE CITY: LAKE FOREST STATE: IL ZIP: 60045 BUSINESS PHONE: 847-482-50 MAIL ADDRESS: STREET 1: 500 N FIELD DR STREET 2: ROOM T 2560B CITY: LAKE FOREST STATE: IL ZIP: 60045 FORMER COMPANY: FORMER CONFORMED NAME: NEW TENNECO INC DATE OF NAME CHANGE: 19961011 10-K405 1 c59635e10-k405.txt ANNUAL REPORT 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-12387 TENNECO AUTOMOTIVE INC. (Exact name of registrant as specified in its charter) DELAWARE 76-0515284 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 NORTH FIELD DRIVE 60045 LAKE FOREST, IL (Zip Code) (Address of principal executive offices)
Registrant's telephone number, including area code: (847) 482-5000 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- 6.70% Notes due 2005; 7.45% Debentures due 2025; New York Stock Exchange 8.075% Notes due 2002; 9.20% Debentures due 2012; 10.75% Notes due 2001; 10.20% Debentures due 2008 Common Stock, par value $.01 per share New York, Chicago, Pacific and London Stock Exchanges Preferred Share Purchase Rights New York, Chicago, Pacific and London Stock Exchanges
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days prior to the date of filing.
CLASS OF COMMON EQUITY AND NUMBER OF SHARES HELD BY NON-AFFILIATES AT MARCH 1, 2001 MARKET VALUE HELD BY NON-AFFILIATES - ------------------------------------------- ----------------------------------- Common Stock, 36,695,886 shares $117,426,835
- ------------------------- * Based upon the closing sale price on the New York Stock Exchange Composite Tape for the Common Stock on March 1, 2001. INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Common Stock, par value $.01 per share, 37,036,247 shares outstanding as of March 1, 2001. DOCUMENTS INCORPORATED BY REFERENCE:
PART OF THE FORM 10-K DOCUMENT INTO WHICH INCORPORATED -------- ----------------------- Tenneco Automotive Inc.'s Definitive Proxy Statement for the Annual Meeting of Stockholders to be Held May 8, 2001 Part III
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, the prospects and developments of the Company (as defined) and business strategies for its operations, all of which are subject to risks and uncertainties. These forward-looking statements are included in various sections of this report, including the section entitled "Outlook" appearing in Item 7 of this report. These statements are identified as "forward-looking statements" or by their use of terms (and variations thereof) and phrases such as "will," "may," "anticipate," "intend," "continue," "estimate," "expect," "plan," "should," "outlook," "believe," and "seek" and similar terms (and variations thereof) and phrases. When a forward-looking statement includes a statement of the assumptions or bases underlying the forward-looking statement, we caution that, while we believe such assumptions or bases to be reasonable and make them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, we or our management expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include the following: Changes in consumer demand and prices could adversely impact our results. Demand for and pricing of our products are subject to economic conditions and other factors present in the various domestic and international markets where the products are sold. Demand for our original equipment ("OE") products is subject to the level of consumer demand for new vehicles that are equipped with our parts. The level of new car purchases is cyclical, affected by such factors as interest rates, consumer confidence, patterns of consumer spending and the automobile replacement cycle. Demand for our aftermarket products varies based upon such factors as the level of new vehicle purchases, which initially displaces demand for aftermarket products, the severity of winter weather, which increases the demand for certain aftermarket products, and other factors, including the average useful life of parts and number of miles driven. We may be unable to realize sales represented by our awarded business. The realization of future sales from awarded business is inherently subject to a number of important risks and uncertainties, including as to the number of vehicles that our OE customers will actually produce, the timing of that production and the mix of options that our OE customers and consumers may choose. For example, substantially all of our North American vehicle manufacturer customers have slowed new vehicle production in the fourth quarter of 2000 and first quarter of 2001. Accordingly, we expect the North American light vehicle build to be approximately 10 to 12 percent less in 2001 than it was in 2000. In addition, our customers generally have the right to replace us with another supplier at any time for a variety of reasons and have increasingly demanded price decreases over the life of awarded business. Accordingly, we cannot assure you that we will in fact realize any or all of the future sales represented by our awarded business. In many cases, we must commit substantial resources in preparation for production under awarded OE business well in advance of the customer's production start date. In certain instances, the terms of our OE customer arrangements permit us to recover these pre-production costs if the customer cancels the business through no fault of our company. Although we have been successful in recovering these costs under appropriate circumstances in the past, there can be no assurance that our results of operations will not be materially impacted in the future if we are unable to recover these type of pre-production costs related to OE cancellation of awarded business. The cyclicality of automotive production and sales could cause a decline in our financial condition and results. A decline in automotive sales and production would likely cause a decline in our sales to vehicle manufacturers, and could result in a decline in our results of operations and financial condition. i 3 The automotive industry has been characterized historically by periodic fluctuations in overall demand for vehicles due to, among other things, changes in general economic conditions and consumer preferences. These fluctuations generally result in corresponding fluctuations in demand for our products. The highly cyclical nature of the automotive industry presents a risk that is outside our control and that cannot be accurately predicted. Longer product lives of automotive parts are adversely affecting aftermarket demand for some of our products. The average useful life of automotive parts has been steadily increasing in recent years due to innovations in products and technologies. The longer product lives allow vehicle owners to replace parts of their vehicles less often. As a result, a portion of sales in the aftermarket has been displaced. Additional increases in the average useful lives of automotive parts are likely to adversely affect the demand for our aftermarket products. Aftermarket sales represented approximately 30% of our net sales for 2000. The hourly workforce in the automotive industry is highly unionized and our business could be adversely affected by labor disruptions. Substantially all of the hourly employees of North American vehicle manufacturers are represented by the United Automobile, Aerospace and Agricultural Implement Workers of America under collective bargaining agreements. In addition, vehicle manufacturers and their employees in other countries are also subject to labor agreements. A work stoppage or strike at the production facilities of a significant customer, at our facilities or at a significant supplier could have an adverse impact on us by disrupting demand for our products and/or our ability to manufacture our products. For example, the General Motors strike in 1998 reduced second and third quarter revenue and income growth of our original equipment business in that year. We may incur material product warranty costs. From time to time, we receive product warranty claims from our customers. Vehicle manufacturers are increasingly requiring their outside suppliers to guarantee or warrant their products and to bear the costs of repair and replacement of these products under new vehicle warranties. We cannot assure you that costs associated with providing product warranties will not be material. Consolidation among automotive parts customers and suppliers could make it more difficult for us to compete favorably. Our financial condition and results of operations could be adversely affected because the customer base for automotive parts is consolidating in both the original equipment market and aftermarket. As a result, we are competing for business from fewer customers. Due to the cost focus of these major customers, we have been, and expect to continue to be, required to reduce prices. We cannot be certain that we will be able to generate cost savings and operational improvements in the future that are sufficient to offset price reductions required by existing customers and necessary to win additional business. Furthermore, the trend towards consolidation among automotive parts suppliers is resulting in fewer, larger suppliers who benefit from purchasing and distribution economies of scale. If we cannot achieve cost savings and operational improvements sufficient to allow us to compete favorably in the future with these larger companies, our financial condition and results of operations could be adversely affected due to a reduction of, or inability to increase, sales. We are dependent on large customers for future revenues. We depend on major vehicle manufacturers for a substantial portion of our net sales. For example, during 2000, General Motors, Ford, and DaimlerChrysler accounted for 16.6%, 13.5%, and 11.5% of our net sales, respectively. The loss of all or a substantial portion of our sales to any of our large-volume customers could have a material adverse effect on our financial condition and results of operations by reducing cash flows and our ability to spread costs over a larger revenue base. We may make fewer sales to these customers for a variety of reasons, including: (1) loss of awarded business; (2) reduced or delayed customer requirements; or (3) strikes or other work stoppages affecting production by the customers. We may not be able to successfully respond to the changing distribution channels for aftermarket products. Major automotive aftermarket retailers, such as AutoZone and Advance Auto Parts, are attempting to increase their commercial sales by selling directly to automotive parts installers in addition ii 4 to individual consumers. These installers have historically purchased from their local warehouse distributors and jobbers, who are our more traditional customers. We cannot assure you that we will be able to maintain or increase aftermarket sales through increasing our sales to retailers. Furthermore, because of the cost focus of major retailers, we have been, and expect to continue to be, required to offer price concessions. Our failure to maintain or increase aftermarket sales, or to offset the impact of any reduced sales or pricing through cost improvements, could have an adverse impact on our business and operating results. We may be unable to compete favorably in the highly competitive automotive parts industry. The automotive parts industry is highly competitive. Although the overall number of competitors has decreased due to ongoing industry consolidation, we face significant competition within each of our major product areas. The principal competitive factors are price, quality, service, product performance, design and engineering capabilities, new product innovation and timely delivery. We cannot assure you that we will be able to continue to compete favorably in this competitive market or that increased competition will not have a material adverse effect on our business by reducing our ability to increase or maintain sales or profit margins. We may be unable to realize our business strategy of improving operating performance. We have either implemented or plan to implement several important strategic initiatives designed to improve our operating performance. The failure to achieve the goals of these initiatives could have a material adverse effect on our business, particularly since we rely on these initiatives to offset pricing pressures from our customers, as described above. We cannot assure you that we will be able to successfully implement or realize the expected benefits of any of these initiatives or that we will be able to sustain improvements made to date. We are subject to risks related to our international operations. We have manufacturing and distribution facilities in many countries, principally in North America, Europe and Latin America, and sell our products worldwide. For 2000, about 45% of our net sales were derived from operations outside North America. International operations are subject to various risks which could have a material adverse effect on those operations or our business as a whole, including: - exposure to local economic conditions; - exposure to local political conditions, including the risk of seizure of assets by foreign government; - currency exchange rate fluctuations; - hyperinflation in certain foreign countries; - controls on the repatriation of cash, including imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries; and - export and import restrictions. Exchange rate fluctuations could cause a decline in our financial condition and results of operations. As a result of our international operations, we generate a significant portion of our net sales and incur a significant portion of our expenses in currencies other than the U.S. dollar. To the extent we are unable to match revenues received in foreign currencies with costs paid in the same currency, exchange rate fluctuations in that currency could have a material adverse effect on our business. For example, where we have significantly more costs than revenues generated in a foreign currency, we are subject to risk if that foreign currency appreciates against the U.S. dollar because the appreciation effectively increases our cost in that country. From time to time, as and when we determine it is appropriate and advisable to do so, we will seek to mitigate the effect of exchange rate fluctuations through the use of derivative financial instruments. We cannot assure you, however, that we will continue this practice or be successful in these efforts. The financial condition and results of operations of some of our operating entities are reported in foreign currencies and then translated into U.S. dollars at the applicable exchange rate for inclusion in our iii 5 consolidated financial statements. As a result, appreciation of the U.S. dollar against these foreign currencies will have a negative impact on our reported revenues and operating profit while depreciation of the U.S. dollar against these foreign currencies will have a positive effect on reported revenues and operating profit. For example, our European operations were negatively impacted in 2000 due to the weakness of the euro against the U.S. dollar. We do not generally seek to mitigate this translation effect through the use of derivative financial instruments. Changes in Prices of Raw Materials. Significant increases in the cost of certain raw materials used in our products, to the extent they are not timely reflected in the price we charge our customers or mitigated through long-term supply contracts, could adversely impact our results. Other Factors. In addition to the factors described above, we may be impacted by a number of other matters and uncertainties, including: (i) potential legislation, regulatory changes and other governmental actions, including the ability to receive regulatory approvals and the timing of such approvals; (ii) material substitution; (iii) new technologies that reduce the demand for certain of our products or otherwise render them obsolete; (iv) our ability to integrate operations of acquired businesses quickly and in a cost effective manner; (v) changes in distribution channels or competitive conditions in the markets and countries where we operate; (vi) capital availability or costs, including changes in interest rates, market perceptions of the industries in which we operate or ratings of securities; (vii) increases in the cost of compliance with regulations, including environmental regulations, and environmental liabilities in excess of the amount reserved; (viii) changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies; and (ix) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond our control. iv 6 TABLE OF CONTENTS PART I Item 1. Business.................................................... 1 Tenneco Automotive Inc. .................................. 1 Contributions of Major Businesses......................... 2 Description of Our Business............................... 3 Environmental Matters..................................... 18 Item 2. Properties.................................................. 18 Item 3. Legal Proceedings........................................... 19 Item 4. Submission of Matters to a Vote of Security Holders......... 19 Item 4.1. Executive Officers of the Registrant........................ 20 PART II Item 5. Market for Registrant's Common Equity and Related 22 Stockholder Matters......................................... Item 6. Selected Financial Data..................................... 23 Item 7. Management's Discussion and Analysis of Financial Condition 26 and Results of Operations................................... Item 7A. Quantitative and Qualitative Disclosures About Market 46 Risk........................................................ Item 8. Financial Statements and Supplementary Data................. 47 Item 9. Changes in and Disagreements with Accountants on Accounting 92 and Financial Disclosure.................................... PART III Item 10. Directors and Executive Officers of the Registrant.......... 93 Item 11. Executive Compensation...................................... 93 Item 12. Security Ownership of Certain Beneficial Owners and 93 Management.................................................. Item 13. Certain Relationships and Related Transactions.............. 93 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 94 8-K.........................................................
v 7 PART I ITEM 1. BUSINESS. TENNECO AUTOMOTIVE INC. Our company, Tenneco Automotive Inc., is one of the world's leading manufacturers of automotive emissions control and ride control products and systems for both the original equipment market and the replacement market, or aftermarket. As used herein, the term "Tenneco" , "we", "us", "our", or the "Company" refers to Tenneco Automotive Inc. and its consolidated subsidiaries. Tenneco was incorporated in Delaware in 1996 under the name "New Tenneco Inc." ("New Tenneco") as a wholly owned subsidiary of the company then known as Tenneco Inc. ("Old Tenneco") At that time, Old Tenneco's major businesses were shipbuilding, energy, automotive and packaging. On December 11, 1996, Old Tenneco completed the transfer of its automotive and packaging businesses to us, and spun off our company to its public stockholders (the "1996 Spin-off"). In connection with the 1996 Spin-off, Old Tenneco also spun off its shipbuilding division to its public stockholders, the remaining energy company was acquired by El Paso Natural Gas Company and we changed our name from New Tenneco to Tenneco Inc. Unless the context otherwise requires, for periods prior to December 11, 1996, references to "Tenneco", "we", "us", "our" or the "Company" also refer to Old Tenneco. In a series of transactions commencing in January 1999 and culminating with the November 4, 1999 spin off to our shareholders of the common stock of Tenneco Packaging Inc., now known as Pactiv Corporation (the "1999 Spin-off"), we separated our packaging businesses from our automotive business. As a result of these 1999 transactions, our former specialty and paperboard packaging operating segments are presented as discontinued operations in the accompanying financial statements. You should read Note 3 to the financial statements for more information about our discontinued operations. In September 2000, we entered into an amendment to our senior credit facility to exclude from the calculation of our financial covenant ratios through 2001 the cash portion -- up to $80 million before taxes -- of our charges and expenses related to cost-reduction initiatives. The amendment also revised the financial covenant ratios beginning in the fourth quarter of 2000. In March 2001, we again amended our senior credit facility to further revise the financial covenant ratios for 2001 and make certain other changes. Note 4 to the financial statements included in Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 have more information about our debt and the amendments to the senior credit facility. 1 8 CONTRIBUTIONS OF MAJOR BUSINESSES For information concerning our operating segments, geographic areas and major products or groups of products, see Note 10 to the Financial Statements of Tenneco Automotive Inc. and Consolidated Subsidiaries included in Item 8. The following tables summarize for each of our operating segments for the periods indicated: (i) net sales and operating revenues from continuing operations; (ii) earnings before interest expense, income taxes and minority interest ("EBIT") from continuing operations; and (iii) capital expenditures for continuing operations. As a result of the 1999 Spin-off, our reportable segments changed. Information from prior periods has been restated to reflect this change. You should also read "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 for information about costs and charges included in our results. Those costs and charges relate to the 1999 Spin-off, restructuring actions, and other items. NET SALES AND OPERATING REVENUES FROM CONTINUING OPERATIONS:
2000 1999 1998 --------------- ------------- ------------- (DOLLAR AMOUNTS IN MILLIONS) North America.................................. $1,977 56% $1,768 54% $1,688 52% Europe......................................... 1,292 36 1,273 39 1,278 40 Other.......................................... 348 10 297 9 316 9 Intergroup sales............................... (68) (2) (59) (2) (45) (1) ------ --- ------ --- ------ --- Total..................................... $3,549 100% $3,279 100% $3,237 100% ====== === ====== === ====== ===
EBIT FROM CONTINUING OPERATIONS
2000 1999 1998 --------------- ------------- ------------- (DOLLAR AMOUNTS IN MILLIONS) North America.................................. $ 68 57% $ 166 112% $ 58 26% Europe......................................... 40 33 44 30 155 68 Other.......................................... 12 10 (62) (42) 14 6 ------ --- ------ --- ------ --- Total..................................... $ 120 100% $ 148 100% $ 227 100% ====== === ====== === ====== ===
CAPITAL EXPENDITURES FOR CONTINUING OPERATIONS:
2000 1999 1998 --------------- ------------- ------------- (DOLLAR AMOUNTS IN MILLIONS) North America.................................. $ 71 49% $ 71 46% $ 96 49% Europe......................................... 59 40 65 42 67 34 Other.......................................... 16 11 18 12 32 17 ------ --- ------ --- ------ --- Total..................................... $ 146 100% $ 154 100% $ 195 100% ====== === ====== === ====== ===
Interest expense, income taxes, and minority interest related to continuing operations that were not allocated to our operations are:
2000 1999 1998 ---- ---- ---- (MILLIONS) Interest expense (net of interest capitalized).............. $186 $106 $69 Income tax expense (benefit)................................ (27) 82 13 Minority interest........................................... 2 23 29
2 9 DESCRIPTION OF OUR BUSINESS With 2000 revenues of over $3.5 billion, we are one of the world's largest producers of automotive emissions control and ride control systems and products. We serve both original equipment manufacturers and replacement markets worldwide through leading brands, including Monroe(R) brand ride control and Walker(R) brand emissions control products. As an automotive parts supplier, we design, market and sell individual component parts for vehicles as well as groups of components that are combined as modules or systems within vehicles. These parts, modules and systems are sold globally to the vast majority of vehicle manufacturers and throughout all aftermarket distribution channels. OVERVIEW OF AUTOMOTIVE PARTS INDUSTRY The automotive parts industry is generally separated into two categories: (1) "original equipment" or "OE" sales, in which parts are sold in large quantities directly for use by original equipment vehicle manufacturers; and (2) "aftermarket" sales, in which parts are sold as replacement parts in varying quantities to a wide range of wholesalers, retailers and installers. In the OE market, parts suppliers are generally divided into tiers -- "Tier 1" suppliers, who provide their products directly to original equipment manufacturers, and "Tier 2" or "Tier 3" suppliers, who sell their products principally to other suppliers for combinations into the other suppliers' own product offerings. Demand for automotive parts in the OE market is driven by the number of new vehicle sales, which in turn is largely determined by prevailing economic conditions. Although OE demand is tied to planned vehicle production, parts suppliers also have the opportunity to grow through increasing product content and customer and market penetration. Companies with global presence in advanced technology, engineering, manufacturing and support capabilities, such as our company, are, we believe, in the best position to take advantage of these opportunities. Demand for aftermarket products is fundamentally driven by the quality of OE parts, the number of vehicles in operation, the average age of the vehicle fleet, vehicle usage and the average useful life of vehicle parts. Innovative aftermarket products that upgrade the performance or safety of an automobile's original parts, as several of our products do, can also drive aftermarket demand. INDUSTRY TRENDS Currently, we believe several significant existing and emerging trends are dramatically impacting the automotive industry. As the dynamics of the automotive industry change, so do the roles, responsibilities and relationships of its participants. Key trends that we believe are affecting automotive parts suppliers include: INCREASED OE OUTSOURCING AND DEMAND FOR FULL SYSTEM INTEGRATION BY SUPPLIERS OE manufacturers are moving towards outsourcing automotive parts and systems to simplify the vehicle assembly process, lower costs and reduce vehicle development time. Outsourcing allows OE manufacturers to take advantage of the lower cost structure of the automotive parts suppliers and to benefit from multiple suppliers engaging in simultaneous development efforts. Development of advanced electronics has enabled formerly independent vehicle components to become "interactive," leading to a shift in demand from individual parts to fully integrated systems. As a result, automotive parts suppliers offer OE manufacturers component products individually, as well as in a variety of integrated forms such as modules and systems: - "Modules" are groups of component parts arranged in close physical proximity to each other within a vehicle. Modules are often assembled by the supplier and shipped to the original equipment manufacturer for installation in a vehicle as a unit. Seats, instrument panels, axles and door panels are examples. 3 10 - "Systems" are groups of component parts located throughout a vehicle which operate together to provide a specific vehicle function. Anti-lock braking systems, safety restraint systems, roll control systems, emissions control and powertrain systems are examples. This shift in demand towards fully integrated systems has created the role of the Tier 1 systems integrator. These systems integrators will increasingly have the responsibility to execute a number of activities, such as design, product development, engineering, testing of component systems and purchasing from Tier 2 suppliers. We are an established Tier 1 supplier with ten years of product integration experience. We have modules or systems for 38 vehicle platforms in production worldwide and modules or systems for three additional platforms under development. For example, we supply ride control modules for the Chrysler JA Cirrus/Sebring/Stratus and the emissions control system for the Porsche Boxster. GLOBALIZATION OF THE AUTOMOTIVE INDUSTRY OE manufacturers are increasingly requiring suppliers to provide parts on a global basis. As the customer base of OE manufacturers changes, and emerging markets become more important to achieving growth, suppliers must be prepared to provide products any place in the world. This requires a worldwide approach to supply chain management, engineering, sales and distribution: - Growing Importance of Emerging Markets. Because the North American and Western European automotive markets are relatively mature, OE manufacturers are increasingly focusing on emerging markets for growth opportunities, particularly China, Eastern Europe, India and Latin America. This increased OE focus has, in turn, increased the growth opportunities in the aftermarkets in these regions. - Governmental Tariffs and Local Parts Requirements. Many governments around the world require that vehicles sold within their country contain specified percentages of locally produced parts. Additionally, some governments place high tariffs on imported parts. - Location of Production Closer to End Markets. OE manufacturers and parts suppliers have relocated production globally on an "onsite" basis that is closer to end markets. This international expansion allows suppliers to pursue sales in developing markets and take advantage of relatively lower labor costs. With facilities around the world, including the key regions of North America, South America, Europe and Asia, we can supply our customers on a global basis. GLOBAL RATIONALIZATION OF OE VEHICLE PLATFORMS OE manufacturers are increasingly designing "global" platforms. A "global" platform is a basic mechanical structure of a vehicle that can accommodate different features and is in production and/or development in more than one region. Thus, OE manufacturers can design one platform for a number of similar vehicle models. This allows manufacturers to realize significant economies of scale through limiting variations across items such as steering columns, brake systems, transmissions, axles, exhaust systems, support structures and power window and door lock mechanisms. We believe that this shift towards standardization will have a large impact on automotive parts suppliers, who should experience a reduction in production costs as OE manufacturers reduce variations in components. We also expect parts suppliers to experience higher production volumes per unit and greater economies of scale, as well as reduced total investment costs for molds, dies and prototype development. Light vehicle platforms of over one million units are expected to grow from 14% to 33% of global OE production from 1999 to 2004. INCREASING TECHNOLOGICALLY SOPHISTICATED CONTENT As consumers continue to demand competitively priced vehicles with increased performance and functionality, the number of sophisticated components utilized in vehicles is increasing. By replacing mechanical functions with electronics and by integrating mechanical and electronic functions within 4 11 a vehicle, OE manufacturers are achieving improved emissions control, improved safety and more sophisticated features at lower costs. In addition, automotive parts customers are increasingly demanding technological innovation from suppliers to address more stringent emissions and other regulatory standards and to improve vehicle performance. To develop innovative products, systems and modules, we have invested $95 million over the past three years into research and development and we continuously seek to take advantage of our technology investments and brand strength by extending our products into new markets and categories. For example, we have developed several adaptive damping systems which reduce undesirable vehicle motion. Also, we have developed the self-lubricating elastomer, which has the additional ability to reduce friction between moving components in a suspension system, thereby reducing noise and vibration. INCREASING ENVIRONMENTAL STANDARDS Automotive parts suppliers and OE manufacturers are designing products and developing materials to comply with increasingly stringent environmental requirements. Government regulations adopted over the past decade require substantial reductions in automobile tailpipe emissions, longer warranties on parts of an automobile's pollution control equipment and additional equipment to control fuel vapor emissions. Some of these regulations also mandate more frequent emissions and safety inspections for the existing fleet of vehicles. Manufacturers have responded by focusing their efforts towards technological development to minimize pollution. As a leading supplier of emissions control systems with strong technical capabilities, we are well positioned to benefit from more rigorous environmental standards. EXTENDED PRODUCT LIFE OF AUTOMOTIVE PARTS; DECLINING VEHICLE FLEET AGE The average useful life of automotive parts -- both OE and replacement -- has been steadily increasing in recent years due to innovations in products and technologies. The longer product lives allow vehicle owners to replace parts of their vehicles less often. As a result, although more vehicles are on the road than ever before, the aftermarket has experienced weakness. In addition, the average age of the vehicle fleet on the road has been declining in the last several years, further contributing to softness in the aftermarket. Accordingly, a supplier's future viability in the aftermarket will depend, in part, on its ability to reduce costs and leverage its advanced technology and recognized brand names to maintain or achieve additional sales. As a Tier 1 OE supplier, we believe we are well positioned to leverage our products and technology into the aftermarket. Furthermore, we believe some opportunity will exist by mid 2002 for replacement of certain parts to increase as the average age of vehicles on the road increases. GROWING RETAIL AFTERMARKET DISTRIBUTION During the last decade, the number of retail automotive parts chains, such as AutoZone and Advance Auto Parts, has been growing while the number of traditional automotive parts stores ("jobbers") that sell to installers has been declining. From 1990 to 1999, the number of retail automotive parts stores has increased from approximately 10,000 to approximately 14,000, while the number of jobbers has decreased from approximately 25,000 to approximately 21,000. As a result, the traditional three-step distribution channel (full-line warehouse, jobber, installer) is redefining itself through two-step distribution and continued formation of buying groups. In addition, since retailers are attempting to grow their commercial sales to automotive parts installers, they are increasingly adding premium brands to their product portfolios. This enables them to offer the option of a premium brand, which is often preferred by their commercial customers, or a standard product, which is often preferred by their retail customers. We believe we are well positioned to respond to this changing aftermarket situation because of our focus on cost reduction and high-quality, premium brands. CUSTOMER AND SUPPLIER CONSOLIDATION The customer base for automotive parts is consolidating in both the OE market and aftermarket. Because of recent business combinations among vehicle manufacturers -- such as the DaimlerChrysler 5 12 merger and Ford's acquisition of Volvo -- and in the aftermarket -- such as AutoZone's acquisition of Chief Auto Parts and CSK Auto's acquisition of Big Wheel/Rossi -- suppliers are competing for the business of fewer customers. The cost focus of these major customers is causing suppliers to reduce prices. Consolidation is also occurring among automotive parts suppliers, particularly those who supply vehicle makers. The number of Tier 1 suppliers is projected to decrease from approximately 800 to approximately 30 by 2010. The primary reasons for this consolidation include: (1) an increasing desire by OE manufacturers to work with fewer, larger suppliers that can provide fully integrated systems; and (2) the inability of smaller suppliers to compete on price with the larger companies who benefit from purchasing and distribution economies of scale. A supplier's viability in this consolidating market depends, in part, on its continuing ability to maintain and increase operating efficiencies by reducing costs and improving productivity. Also important is a supplier's ability to provide value-added services such as materials management, specialized engineering capabilities and integration of individual components into modules and systems. With our strong market positions in emissions control and ride control products and our demonstrated ability to integrate and deliver modules and systems, we believe we are well positioned to respond to increasing customer consolidation. ANALYSIS OF REVENUES The following table provides, for each of the years 1998 through 2000, information relating to our net sales from continuing operations, by primary product lines and customer categories:
NET SALES (MILLIONS) -------------------------- YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ---- ---- ---- EMISSIONS CONTROL SYSTEMS & PRODUCTS Aftermarket............................................... $ 449 $ 514 $ 590 OE market................................................. 1,758 1,401 1,224 ------ ------ ------ 2,207 1,915 1,814 ------ ------ ------ RIDE CONTROL SYSTEMS & PRODUCTS Aftermarket............................................... 627 634 685 OE market................................................. 715 730 738 ------ ------ ------ 1,342 1,364 1,423 ------ ------ ------ Total Automotive....................................... $3,549 $3,279 $3,237 ====== ====== ======
BRANDS In each of our operating segments, we manufacture and market leading brand names. Monroe(R) ride control products and Walker(R) exhaust products are two of the most recognized brand names in the automotive parts industry. As and when we acquire related product lines, we would anticipate that they would be incorporated within these existing Monroe(R) and Walker(R) brand name families. CUSTOMERS We have developed long-standing business relationships with our customers around the world. In each of our operating segments, we work together with our customers in all stages of production, including design, development, component sourcing, quality assurance, manufacturing and delivery. With a balanced mix of OE and aftermarket products and facilities in major markets worldwide, we believe we are well positioned to meet customer needs. We believe we have a strong, established reputation with customers for providing high-quality products at competitive prices, as well as for timely delivery and customer service. We serve more than 25 different original equipment manufacturers on a global basis, and our products or systems are included on six of the top 10 passenger car models produced in North America and 6 13 Western Europe and nine of the top 10 light truck models produced in North America for 2000. During 2000, our OE customers included: NORTH AMERICA EUROPE ASIA CAMI BMW Bajaj DaimlerChrysler DaimlerChrysler DaimlerChrysler Ford DAF Ford Freightliner Fiat General Motors General Motors Ford/Volvo/Jaguar Isuzu Honda Leyland Maruti Suzuki Mazda Mitsubishi Nissan Mitsubishi Nissan PSA-Citroen Navistar General Motors/Opel/Saab TELCO Nissan PSA-Peugeot/Citroen Toyota NUMMI Porsche Volkswagen Toyota Renault/Matra Volkswagen Toyota Volkswagen/Audi/SEAT/Skoda SOUTH AMERICA DaimlerChrysler AUSTRALIA Fiat Ford Ford General Motors/Holden General Motors Mitsubishi PSA Toyota Renault Scania Toyota Volkswagen
During 2000, our aftermarket customers were comprised of full-line and specialty warehouse distributors, retailers, jobbers, installer chains and car dealers. These customers included such wholesalers and retailers as National Auto Parts Association (NAPA), Monro Muffler Brake and Advance Auto Parts in North America and Temot, Auto Distribution International and KwikFit in Europe. We believe we have a balanced mix of aftermarket customers, with our top 10 aftermarket customers accounting for less than 6.4% of our total net sales from continuing operations for 2000. Ford accounted for approximately 12.8%, 13.8% and 13.5% of our net sales from continuing operations in 1998, 1999 and 2000, respectively, General Motors accounted for approximately 8.4%, 10.3% and 16.6% of our net sales from continuing operations in 1998, 1999 and 2000, respectively, and DaimlerChrysler accounted for approximately 13.7%, 13.6% and 11.5% of the our net sales from continuing operations in 1998, 1999 and 2000, respectively. No other customer accounted for more than 10% of our net sales from continuing operations for those years. COMPETITION In North America, Europe and the rest of the world, we operate in highly competitive markets. Customer loyalty is a key element of competition in these markets and is developed through long-standing relationships, customer service, value-added products and timely delivery. Product pricing and services provided are other important competitive factors. In both the OE market and aftermarket, we compete with the vehicle manufacturers, some of which are also customers of ours, and numerous independent suppliers. In the OE market, we believe that we are among the top four suppliers in the world for both emissions control and ride control products and systems. In the aftermarket, we believe that we are the market share leader in the supply of both emissions control and ride control products in the world. 7 14 EMISSIONS CONTROL SYSTEMS Vehicle emissions control products and systems play a critical role in safely conveying noxious exhaust gases away from the passenger compartment, reducing the level of pollutants and engine exhaust noise to an acceptable level. Precise engineering of the exhaust system--from the manifold that connects an engine's exhaust ports to an exhaust pipe, to the catalytic converter that eliminates pollutants from the exhaust, to the muffler -- leads to a pleasant, tuned engine sound, reduced pollutants and optimized engine performance. We design, manufacture and distribute a variety products and systems designed to optimize engine performance, acoustic tuning and weight, including the following: - Mufflers -- Devices to provide noise elimination and acoustic tuning; - Resonators -- Helps the muffler eliminate noise and provide acoustic tuning; - Catalytic converters -- Devices used to convert harmful gaseous emissions, such as carbon monoxide, from a vehicle's exhaust system into harmless components such as water vapor and carbon dioxide; - Exhaust manifolds -- Components made of sheet metal or tubes that collect gases from individual cylinders of a vehicle's engine and direct them into a single exhaust pipe; - Pipes -- Utilized to connect various parts of both the hot and cold ends of an exhaust system; - Hydroformed tubing -- Forms into various geometric shapes, such as Y-pipes or T-pipes, which provides optimization in both design and installation as compared to conventional pipes; - Electronic noise cancellation products -- Electronically eliminate noise and provide acoustic tuning with extremely low back pressure; and - Hangers and isolators -- Used for system installation and noise elimination. We entered this product line in 1967 with the acquisition of Walker Manufacturing Company, which was founded in 1888. When the term "Walker" is used in this document, it refers to our subsidiaries and affiliates that produce emissions control products and systems. Walker supplies its emissions control offerings to over 15 auto-makers for use on over 100 vehicle models, including four of the top 10 passenger cars produced in North America and Western Europe and five of the top 10 light trucks produced in North America in 2000. With the acquisition of Heinrich Gillet GmbH & Co. in 1994, Walker also became one of Europe's leading OE emissions control systems suppliers. In the aftermarket, we manufacture, market and distribute replacement mufflers for virtually all North American, European, and Asian makes of light vehicles under brand names including Quiet-Flow(R), TruFit(R) and Aluminox(TM), in addition to offering a variety of other related products such as pipes and catalytic converters (Walker(R) Perfection(TM)). We also serve the specialty exhaust aftermarket, where our key offerings include Mega-Flow(TM) exhaust products for heavy-duty vehicle applications and DynoMax(TM) high performance exhaust products. 8 15 The following table provides, for each of the years 1998 through 2000, information relating to our sales of emissions control products and systems for certain geographic areas:
PERCENTAGE OF NET SALES YEAR ENDED DECEMBER 31, ------------------------ 2000 1999 1998 ---- ---- ---- UNITED STATES Aftermarket............................................... 26% 30% 37% OE market................................................. 74 70 63 --- --- --- 100% 100% 100% === === === FOREIGN SALES Aftermarket............................................... 16% 25% 30% OE market................................................. 84 75 70 --- --- --- 100% 100% 100% === === === TOTAL SALES BY GEOGRAPHIC AREA(a) United States............................................. 41% 40% 41% European Union............................................ 40 42 44 Canada.................................................... 9 8 7 Other areas............................................... 10 10 8 --- --- --- 100% 100% 100% === === ===
- --------------- (a) See Note 10 to our consolidated financial statements included under Item 8 for information about our foreign and domestic operations. RIDE CONTROL SYSTEMS Superior ride control is governed by a vehicle's suspension system, including its shock absorbers and struts. Shock absorbers and struts help maintain vertical loads placed on a vehicle's tires to help keep the tires in contact with the road. A vehicle's ability to steer, brake and accelerate depends on the contact between the vehicle's tires and the road. Worn shocks and struts can allow excess weight transfer from side to side, which is called "roll," from front to rear, which is called "pitch," and up and down, which is called "bounce." Variations in tire-to-road contact can affect a vehicle's handling and braking performance and the safe operation of a vehicle. Shock absorbers are designed to control vertical loads placed on tires by providing resistance to vehicle roll, pitch and bounce. Thus, by maintaining the tire to road contact, ride control products are designed to function as safety components of a vehicle, in addition to providing a comfortable ride. We design, manufacture and distribute a variety of ride control products and systems. Our ride control offerings include: - Shock absorbers -- A broad range of mechanical shock absorbers and related components for light-and heavy-duty vehicles. We supply both twin-tube and monotube shock absorbers to vehicle manufacturers and the aftermarket. - Struts -- A complete line of struts and strut assemblies for light vehicles. - Vibration control components (Clevite(TM)) -- Generally rubber-to-metal bushings and mountings to reduce vibration between metal parts of a vehicle. Our offerings include a broad range of suspension arms, rods and links for light- and heavy-duty vehicles. - Kinetic roll control -- A new suite of roll control systems ranging from simple mechanical systems to complex electronic systems featuring proprietary and patented technology. We have three active development contracts for Kinetic. - Advanced suspension systems -- Electronically adjustable shock absorbers and suspension systems that change performance based on vehicle inputs such as steering and braking. 9 16 - Other -- We also offer other ride control products such as load assist products, springs, steering stabilizers, adjustable suspension systems, suspension kits and modular assemblies. We supply our ride control offerings to over 25 vehicle-makers for use on around 200 vehicle models, including three of the top 10 passenger car models produced in North America and Western Europe and nine of the top 10 light truck models produced in North America for 2000. We also supply OE ride control products and systems to a range of heavy-duty and specialty vehicle manufacturers including BMW (motorcycles), Caterpillar, International Truck and Engine (Navistar), Freightliner, AM General and E-Z Go Car (golf carts). In the aftermarket, we manufacture, market and distribute replacement shock absorbers for virtually all North American, European, and Asian makes of light vehicles under several brand names including Rancho(R) and Reflex(TM), as well as Clevite(TM) for elastomeric vibration control components. We also sell ride control offerings for the heavy duty, off-road and specialty aftermarket, such as our Gas-Magnum(R) shock absorbers for the North American heavy-duty category. We entered the ride control product line in 1977 with the acquisition of Monroe Auto Equipment, which was founded in 1916 and introduced the world's first automotive shock absorber in 1926. When the term "Monroe" is used in this document it refers to our affiliates that produce ride control products and systems. The following table provides, for each of the years 1998 through 2000, information relating to our sales of ride control equipment for certain geographic areas:
PERCENTAGE OF NET SALES ------------------------ YEAR ENDED DECEMBER 31, ------------------------ 2000 1999 1998 ---- ---- ---- UNITED STATES Aftermarket............................................... 42% 41% 43% OE market................................................. 58 59 57 --- --- --- 100% 100% 100% === === === FOREIGN SALES Aftermarket............................................... 51% 52% 53% OE market................................................. 49 48 47 --- --- --- 100% 100% 100% === === === TOTAL SALES BY GEOGRAPHIC AREA(A) United States............................................. 49% 50% 47% European Union............................................ 27 27 32 Canada.................................................... 5 4 3 Other areas............................................... 19 19 18 --- --- --- 100% 100% 100% === === ===
- ------------------------- (a) See Note 10 to our consolidated financial statements included under Item 8 for information about our foreign and domestic operations. SALES AND MARKETING We sell directly to OE manufacturers. To maintain our customer focus, our OE sales and marketing efforts are organized primarily by customer and product type. Our application engineers work closely with OE customers on specific automobile platforms and assist in the design of their ride control and emissions control systems. Our OE sales teams service the OE manufacturers at a regional facility level, with global coordination and support from our headquarters. 10 17 In the aftermarket, we have traditionally maintained a single sales force that is organized primarily by customer and generally handles both ride control and emissions control products. Beginning in the first quarter 2001, our North American aftermarket sales group has been reorganized by brand, with a dedicated team for Monroe(R), Rancho(R) (high-performance ride control), and Walker(R). Our aftermarket teams provide extensive marketing support to aftermarket customers, including trade and consumer marketing, promotions and general advertising. We maintain an aftermarket customer order fill rate of 95%, which reflects the percentage of the average customer order we are able to fill from inventory. We sell our aftermarket products through five primary channels of distribution: (1) the traditional three-step distribution system: full line warehouse distributors, jobbers and installers; (2) the specialty two-step distribution system: specialty warehouse distributors that carry only specified automotive product groups and installers; (3) direct sales to retailers; (4) direct sales to installer chains; and (5) direct sales to car dealers. MANUFACTURING AND ENGINEERING We focus on achieving superior product quality at the lowest operating costs possible and generally use state-of-the-art manufacturing processes to achieve that goal. Our manufacturing strategy centers on a lean production system designed to reduce overall costs -- especially indirect costs -- while maintaining quality standards and reducing manufacturing cycle time. We deploy new technology where it makes sense to differentiate our processes from our competitors' or to achieve balance in one piece flowthrough production lines. EMISSIONS CONTROL Walker operates 10 manufacturing facilities in the U.S. and 33 manufacturing facilities outside of the U.S. Walker operates four of these facilities through four joint ventures in which it owns a controlling interest and operates four others through four joint ventures in which it owns a non-controlling interest. Walker operates six engineering and technical facilities worldwide and shares two other such facilities with Monroe. Walker attempts to locate original equipment manufacturing facilities close to its OE customers to provide products on demand, or "just-in-time" (JIT). Eleven of Walker's plants are JIT facilities. During the 1990's, Walker expanded its converter and emission system design, development, test and manufacturing capabilities. Walker's engineering capabilities now include advanced predictive design tools, advanced prototyping processes and state-of-the-art testing equipment. This expanded technological capability makes Walker a "full system" integrator, supplying complete emissions control systems from the manifold to the tailpipe, to provide full emission and noise control. It also allows Walker to provide JIT delivery and, when feasible, sequence delivery of emissions control systems to meet customer production requirements. RIDE CONTROL Monroe operates eight manufacturing facilities in the U.S. and 22 manufacturing facilities outside the U.S. Monroe operates five of these facilities through three joint ventures in which it owns a controlling interest. Monroe operates seven engineering and technical facilities worldwide and shares two other such facilities with Walker. Monroe attempts to locate original equipment manufacturing facilities close to customers to provide products on a JIT basis. Four of Monroe's plants are JIT facilities. In designing its shock absorbers and struts, Monroe uses advanced engineering and test capabilities to provide product reliability, endurance and performance. Monroe's engineering capabilities feature advanced computer aided design equipment and testing facilities. Monroe's dedication to innovative solutions has led to such technological advances as: - adaptive damping systems -- adapts to the vehicle's motion to better control undesirable vehicle motions; 11 18 - electronically adjustable suspensions -- changes suspension performance based on a variety of inputs such as steering, braking, vehicle height, and velocity; and - air leveling systems -- manually or automatically adjust the height of the vehicle. Conventional shock absorbers and struts generally compromise either ride comfort or vehicle control. Monroe's innovative grooved-tube, gas-charged shock absorbers and struts provide both ride comfort and vehicle control, resulting in improved handling, less roll, reduced vibration and a wider range of vehicle control. This technology can be found in Monroe's premium quality Sensa-Trac(R) shock absorbers. In late 1997, Monroe further enhanced this technology by adding the SafeTech(TM) fluon banded piston, which improves shock absorber performance and durability. In 1999, Monroe introduced the Monroe Reflex(TM) truck shock absorber which incorporates its Impact Sensor(TM) device. This new technology permits the shock absorber to automatically switch in milliseconds between firm and soft compression damping when the vehicle encounters rough road conditions, thus maintaining better tire-to-road contact and improving handling and safety. INTERNATIONAL OPERATIONS We operate facilities and sell products in countries throughout the world. As a result, we are subject to risks associated with selling and operating in foreign countries, including devaluations and fluctuations in currency exchange rates, imposition of limitations on conversion of foreign currencies into U.S. dollars or remittance of dividends and other payments by foreign subsidiaries, imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries, hyperinflation in foreign countries where we do business, and imposition or increase of investment and other restrictions by foreign governments. BUSINESS STRATEGY Our objective is to enhance profitability by leveraging our global position in the manufacture of emissions control and ride control products and systems. We intend to apply our competitive strengths and balanced mix of products, markets, customers and distribution channels to capitalize on many of the significant existing and emerging trends in the automotive industry. The key components of our business strategy are described below. CAPTURE ADDITIONAL OE BUSINESS BY INTEGRATING LEADING TECHNOLOGIES INTO MODULES AND SYSTEMS More and more, vehicle manufacturers are outsourcing design, engineering and manufacturing responsibility for automotive components to simplify vehicle assembly, lower costs and reduce vehicle development time. As a result, parts suppliers are increasingly being required to offer integrated modules and systems, rather than individual components. With over 10 years experience as an integrator of modules and systems, we continue to focus on enhancing our technical capabilities and design expertise to provide innovative, integrated solutions for our OE customers. "OWN" THE PRODUCT LIFE CYCLE Using our global engineering capabilities and our advanced technology position, we are pursuing opportunities to design unique, value-added products for vehicle manufacturers that yield higher margins in the OE market. We expect to take advantage of our OE technology investments by moving these differentiated products into the aftermarket, where they should continue to generate future revenue streams through the entire life of the vehicle. Innovative products such as Sensa-Trac(R) shocks, which provide balance between comfort and control, and Quiet-Flow(TM) mufflers, which reduce back pressure without sacrificing noise control, are examples of where we believe our market balance between OE and aftermarket sales allows us to leverage our cost structure over the entire product life cycle. 12 19 COMMERCIALIZE INNOVATIVE, VALUE-ADDED PRODUCTS To differentiate our offerings from those of our competitors, we focus on commercializing innovative, value-added products, both on our own and through strategic alliances, with emphasis on highly engineered systems and complex assemblies and modules. We seek to continually identify and target new, fast-growing niche markets and commercialize our new technologies for these, as well as our existing, markets. One example of our focus on innovation is our acquisition in early 1999 of Kinetic Ltd., an Australian suspension engineering company with advanced roll control technology. This technology also provides enhanced on-road handling while improving off road performance. In addition, in an effort to further enhance our electronic competencies we entered into an agreement with Siemens Automotive S.A. in late 1998 to cooperate in the development and commercialization of advanced electronically controlled ride control and suspension technologies. Also in late 1998, we reached an agreement with Ohlins Racing A.B. to jointly develop advanced, electronically controlled suspension damping systems which decrease spring movement. LEVERAGE AFTERMARKET BRAND NAMES We manufacture and market leading brand name products. Monroe(R) ride control products and Walker(R) emissions control products, which have been offered to consumers for over 50 years, are two of the most recognized brand name products in the automotive parts industry. We continue to emphasize product value differentiation with these brands and our other primary brands, including: - the Monroe Reflex(TM) truck shock absorber which features an Impact Sensor(TM) device to maintain better tire-to-road contact and improve handling and safety under rough road conditions; - the Monroe Sensa-Trac(R) line of shock absorbers, that has been enhanced by the SafeTech(TM) system technology which incorporates a fluon banded piston to improve performance and durability; - Walker's Quiet-Flow(R) muffler, which features an open flow design that increases exhaust flow, improves sound quality and significantly reduces exhaust back pressure when compared to other replacement mufflers; - Rancho(R) ride control products for the high-performance light truck market; - DynoMax(TM) high-performance emissions control systems; - Walker Perfection(TM) catalytic converters; - Clevite(TM) elastomeric vibration control components, which are primarily rubber products used to reduce vibration through "cushioning" a connection or contact point; and - in European markets, Walker(R) and Aluminox(TM) mufflers. We are capitalizing on our brand strength by incorporating newly acquired product lines within existing product families. We believe brand equity is a key asset in a time of customer consolidation and merging channels of distribution. EXPAND VEHICLE CONTENT With increasingly stricter emissions regulations forecasted, we believe that available emissions control content per light vehicle for all parts suppliers we will rise over the next several years as a result of the introduction of multiple catalytic converters per vehicle and heat exchangers. Further, we believe that consumers' greater emphasis on automotive safety could also allow available ride control content per light vehicle for all parts suppliers to rise over the next several years for luxury and performance vehicles featuring state-of-the-art ride control technologies, and that modular ride control assemblies also represent an opportunity to increase vehicle content. We plan to take advantage of these trends by leveraging our existing position on many top-selling vehicle platforms and by continuing to enhance our modular/systems capabilities. 13 20 DIVERSIFY END MARKETS One of our goals is to apply our existing design, marketing and manufacturing capabilities to produce products for a variety of adjacent markets. We believe that these capabilities could be used for heavy-duty vehicle and industrial applications, various recreational vehicles, scooters and bicycles. We expect that expanding into markets other than automotive parts will allow us to capitalize on our advanced technical and manufacturing infrastructure to achieve growth in higher-margin businesses. MAINTAIN OPERATING COST LEADERSHIP We intend to continue to reduce costs by: - standardizing products and processes throughout our operations; - further developing our global supply chain management capabilities; - improving our information technology; - increasing efficiency through employee training; - investing in more efficient machinery; and - enhancing the global coordination of costing and quoting procedures. Beginning in the fourth quarter of 1998, we have undertaken a series of steps designed to reduce administrative and operational overhead costs and improve cost management as follows: - In the fourth quarter of 1998, we began an operational and administrative restructuring which resulted in the closing of two plant locations and five distribution centers, and the elimination of a total of approximately 752 positions. This restructuring was completed in mid-2000. - In December 1999, we implemented a supplemental restructuring plan which involved: the closure in Europe of a ride control manufacturing facility and an exhaust just-in-time plant and the closure or downsizing of four aftermarket distribution centers; the closure in North America of an exhaust manufacturing facility; and the elimination of a total of approximately 780 positions worldwide. We expect to complete these restructuring activities by the middle of 2001. - In October 2000, we put in place an additional restructuring plan which called for the consolidation of our North American aftermarket exhaust production at one plant and the scrapping of certain North American aftermarket inventories. This restructuring also involved the immediate elimination of 285 salaried positions in North America as part of a total salaried workforce reduction of 700 positions worldwide. We plan to complete this restructuring by the end of 2001. - In December 2000, we realigned our North American original equipment business around its two major product areas -- ride control and emissions control -- and consolidated our program management resources to original equipment manufacturers under a single global team. We also realigned our Japanese original equipment business operations by integrating its former international vehicle and emerging market units into a new international group. - In January 2001, we undertook a separate initiative to eliminate an additional 405 salaried positions worldwide, 215 of which were taken immediately. This cost-reduction plan is expected to be fully completed by the end of the first quarter of 2002. For additional information concerning our restructuring efforts, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 to the Financial Statements of Tenneco Automotive Inc. and Consolidated Subsidiaries included under Item 8. We have also adopted Business Operating System (BOS) as a disciplined system to promote and manage continuous improvement. BOS focuses on the assembly and analysis of data for quick and effective problem resolution to create more efficient and profitable operations. We are also implementing 14 21 Six Sigma(TM), a methodology and approach designed to minimize product defects and improve operational efficiencies. In late 1999, we engaged Stern Stewart & Co. to assist us in implementing Economic Value Added, a financial tool that more effectively measures how well we employ our capital resources. We are linking the successful application of this management discipline to our incentive compensation program. TAKE ADVANTAGE OF OPPORTUNITIES OFFERED BY THE INTERNET As part of our overall effort to reduce costs, increase efficiencies and improve customer service, we are seeking to take advantage of the opportunities offered by the Internet. Our initiatives in this area include: - In January 2000 we launched our TAsupplier.com website which provides our North American vendors with on-line access to our supplier and quality manuals. Multi-language versions of our supplier manuals were put on-line for our European and South American vendors in July 2000. In 2000, we also upgraded our South American website to allow our vendors to view forecasts, shipment releases and report cards online. - In May 2000, we entered into an agreement with i2 Technologies, Inc. to assist in further developing our overall e-business strategy and evaluating specific opportunities for additional Internet transactions with customers and suppliers. - In May 2000, we launched one of the industry's first on-line aftermarket customer order management systems -- www.ta-direct.com -- that allows customers to place and track orders 24 hours a day. The new site streamlines purchasing by providing immediate order placement, pricing, stock and order status, and shipment tracking. - In September 2000, we acquired a minority interest in TecCom GmbH, a German e-commerce company founded by a consortium of 20 automotive parts suppliers. TecCom was formed to provide an on-line aftermarket customer order management system for the European market. We expect to enter into a services agreement with TecCom by the end of the first half of 2001 pursuant to which TecCom will make its system available to the Company. EXECUTE FOCUSED TRANSACTIONS In the past, we have been successful in identifying and capitalizing on strategic acquisitions and alliances to achieve growth. Through these acquisitions and alliances, we have: (1) expanded our product portfolio; (2) realized incremental business with existing customers; (3) gained access to new customers; and (4) achieved leadership positions within new geographic markets. Where appropriate, we intend to continue to pursue strategic alliances and transactions that complement our existing technology and systems development efforts and/or enhance our global presence. This focused strategy should assist us in aligning with strong local partners to penetrate international markets and with companies that have proven proprietary technology and recognized research capabilities necessary to help develop further leadership in systems integration. STRATEGIC ACQUISITIONS AND ALLIANCES Strategic acquisitions, joint ventures and alliances have been an important part of our growth. Through this strategy, we have expanded to meet customers' global requirements. This strategy has also allowed us to acquire or align with companies that possess proven technology and research capabilities, furthering, we believe, our leadership in systems integration. 15 22 EMISSIONS CONTROL - In 1996, we established a joint venture in Dalian, China to supply emissions control systems to the Northern Chinese automotive market, expanded our North American heavy-duty truck aftermarket business through the acquisition of Stemco Inc. and acquired Minuzzi, the second largest manufacturer of exhaust products in Argentina. - In 1997, we acquired Autocan, a Mexican catalytic converter and exhaust pipe assembly manufacturer. We also acquired the manufacturing operations of MICHEL, a privately owned, Polish-based manufacturer of replacement market emissions control systems for passenger cars in Eastern Europe. - In 1998, we established a joint venture in Shanghai, China to supply emissions control systems to the Central and Southern Chinese automotive markets. We also established a joint venture in Pune, India to supply emissions control systems to OE customers and the aftermarket. - In 1999, we began manufacturing emissions control systems at a new facility in Curitiba, Brazil to supply original equipment customers in this growing regional market. - In 2000, we entered into a strategic alliance agreement with Futaba Industrial Co., Ltd., a leading Japanese emissions control manufacturer. The purpose of the alliance is to pursue opportunities to design, manufacture and market emission control products and systems for automotive OE manufacturers -- Japan-based or North American or European-based customers in Japan -- whose global platforms require Japan-based engineering and/or manufacturing support. The goal of the alliance is to bring together our global manufacturing footprint and customer relationships with Futaba's expertise with Japanese OEs. In connection with the alliance, the two companies also formed a joint venture to develop and produce emission control components and stamped products at our former manufacturing facility in Burnley, England. - In February 2001, we entered into an agreement to form a joint venture with Yarnapund Ltd., a Thai emissions control system manufacturer, to produce emissions control systems for the Isuzu I-190 vehicle platform to be assembled in Thailand by Isuzu Motors Co. (Thailand) Ltd. We expect that the joint venture will be formed prior to the end of the first half of 2001. RIDE CONTROL - In July 1996, we acquired The Pullman Company and its Clevite products division. Clevite is a leading OE manufacturer of elastomeric vibration control components, including bushings, engine mounts and control arms, for the auto, light truck and heavy truck markets. These products connect major metal parts and help isolate noise, vibration and shock. With this acquisition, we expanded our capability to deliver ride control systems to original equipment manufacturers. The Clevite acquisition also complemented our interest in global growth opportunities, since both Clevite and Monroe have manufacturing operations in Mexico and Brazil. - In September 1996, we acquired full ownership of Monroe Amortisor Imalat ve Ticaret, a Turkish shock absorber manufacturer, in which we previously held a 16.7% ownership interest. - In December 1996, we acquired 94% of the voting stock of FricRot S.A.I.C., the leading producer and marketer of ride control products in Argentina. In 1997, we increased our interest in FricRot to more than 99% through the purchase of additional shares. - In 1996, we also expanded our presence in Australia's ride control product market with the acquisition of National Springs. - In 1997, we entered into a joint venture which resulted in our acquisition of majority ownership of Armstrong, a leading South African manufacturer of ride control products. In 2000, we increased our ownership interest in this joint venture to 74.9%. 16 23 - In early 1999, we completed the acquisition of Kinetic Ltd., an Australian suspension engineering company with advanced roll control technology. - In June 2000, we signed a memorandum of understanding with Tokico Ltd. regarding a strategic alliance through which the companies would jointly evaluate, bid on and obtain awards for OE supply of certain ride control products for use on "global" platforms requiring significant Japan-based engineering and/or manufacturing. Tokico is a leading Japanese ride control supplier, and the goal of the alliance is to bring together our global manufacturing footprint and customer relationships with Tokico's expertise with Japanese OEs. We expect a formal alliance agreement to be finalized in the first half of 2001. OTHER As of March 1, 2001, we had approximately 23,037 employees, approximately 56% of which were covered by collective bargaining agreements and approximately 34% of which are governed by European works councils. Twenty-two of our existing labor agreements, covering a total of 5,947 employees, are scheduled for renegotiation in 2001. We regard our employee relations as generally satisfactory. The principal raw material utilized by us is steel. We obtain steel from a number of sources pursuant to various contractual and other arrangements. We believe that an adequate supply of steel can presently be obtained from a number of different domestic and foreign suppliers. We hold a number of domestic and foreign patents and trademarks relating to our products and businesses. We manufacture and distribute our products primarily under the Walker(R) and Monroe(R) brand names, which are well-recognized in the marketplace and are registered trademarks. The patents, trademarks and other intellectual property owned by or licensed to us are important in the manufacturing, marketing and distribution of our products. 17 24 ENVIRONMENTAL MATTERS We estimate that we and our subsidiaries will make capital expenditures for environmental matters of approximately $6 million in 2001 and approximately $3 million in 2002. For additional information regarding environmental matters, see Item 3, "Legal Proceedings," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Note 11 to the Financial Statements of Tenneco Automotive Inc. and Consolidated Subsidiaries included under Item 8. ITEM 2. PROPERTIES. We lease our principal executive offices, which are located at 500 North Field Drive, Lake Forest, Illinois, 60045. Walker operates 10 manufacturing facilities in the U.S. and 33 manufacturing facilities outside of the U.S. Walker operates six engineering and technical facilities worldwide and shares two other such facilities with Monroe. Monroe operates eight manufacturing facilities in the U.S. and 22 manufacturing facilities outside the U.S. Monroe operates seven engineering and technical facilities worldwide and shares two other such facilities with Walker. The above described manufacturing locations outside of the U.S. are located in Canada, Mexico, Belgium, Spain, the United Kingdom, the Czech Republic, Turkey, South Africa, France, Denmark, Sweden, Germany, Poland, Portugal, Argentina, Brazil, Australia, New Zealand, China, and India. We also have sales offices located in Australia, Argentina, Canada, Italy, Japan, Poland, Russia, Singapore, and Sweden. We own approximately one half of the properties described above and lease the other half. We hold 9 of the above-described manufacturing facilities through seven joint ventures in which we own a controlling interest and hold four others through four joint ventures in which we own a non-controlling interest. We also have distribution facilities at our manufacturing sites and at a few offsite locations, substantially all of which we lease. We believe our commitment to sound management practices and policies is demonstrated by our successful participation in the International Standards Organization/Quality Systems certification process (ISO/QS). ISO/QS certifications are yearly audits that certify that a company's facilities meet stringent quality and business systems requirements. Without either ISO or QS certification, we would not be able to supply OE manufacturers locally or globally. Of those 79 manufacturing facilities where we have determined that ISO 9000 certification is required or would provide us with an advantage in securing additional business, 94% have achieved ISO 9000 certification and we are pursuing certification of the remaining six percent. Of those 74 manufacturing facilities where we have determined that QS certification is required to service our customers or would provide us with an advantage in securing additional business, 89% have achieved QS-9000 certification, and we are pursuing certification of the remaining 11%. We believe that substantially all of our plants and equipment are, in general, well maintained and in good operating condition. They are considered adequate for present needs and, as supplemented by planned construction, are expected to remain adequate for the near future. We also believe that we have generally satisfactory title to the properties owned and used in our respective businesses. 18 25 ITEM 3. LEGAL PROCEEDINGS. At December 31, 2000, we had been designated as a potentially responsible party in four Superfund sites. We estimate our share of the remediation costs for these sites to be approximately $1 million in the aggregate. In addition to the Superfund sites, we may have the obligation to remediate current or former facilities and we estimate our share of remediation costs at these facilities to be approximately $16 million. For both the Superfund sites and our current and former facilities, we have established reserves that we believe are adequate for these costs. Although we believe our estimates of remediation costs are reasonable and are based on the latest available information, the cleanup costs are estimates and are subject to revision as more information becomes available about the extent of remediation required. At some sites, we expect that other parties will contribute to the remediation costs. In addition, at the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides that our liability could be joint and several, meaning that we could be required to pay in excess of our share of remediation costs. In determining our estimated liability we have considered, where appropriate, our understanding of the financial strength of other potentially responsible parties. As previously disclosed, we undertook a third-party evaluation of estimated environmental remediation costs at one of our facilities in 2000. The evaluation was initiated as a result of testing that indicated the potential underground migration of some contaminants beyond our facility property. In the fourth quarter 2000, we completed the evaluation of on-site contamination and recorded a charge of $3 million in the fourth quarter of 2000 to increase our reserves for environmental remediation activities, which is reflected in our estimation of remediation costs described above. We are in the process of completing and analyzing the results of our evaluation of off-site contaminant migration from that facility and as a result we expect to increase our reserve for this facility in an amount that we estimate will be in the range of $4 million to $6 million in the first quarter 2001. The reserves required could be material to our income statement in the period when we are required to adjust them. However, we believe that these potential costs as well as the costs associated with our current status as a potentially responsible party in the Superfund sites, or as a liable party at our current or former facilities, will not be material to our consolidated financial position. For additional information concerning environmental matters, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the caption "Environmental Matters" under Note 11 to the Financial Statements of Tenneco Automotive Inc. and Consolidated Subsidiaries, included as Item 8. In May 1999, we, along with our former wholly-owned subsidiary, Tenneco Packaging Inc. (now known as Pactiv), and a number of containerboard manufacturers were named as defendants in a civil class action antitrust lawsuit pending in the United States District Court for the Eastern District of Pennsylvania. The lawsuit alleges that the defendants conspired to raise linerboard prices for corrugated containers and corrugated sheets, respectively, from October 1, 1993 through November 30, 1995, in violation of Section 1 of the Sherman Act. The lawsuit seeks treble damages in an unspecified amount, plus attorney fees. Under and in accordance with the distribution agreement we entered into with Pactiv before the 1999 Spin-off, as between us and Pactiv, Pactiv will be responsible for defending the claims and for any liability resulting from the action. Accordingly, we believe the outcome of this litigation will not have a material adverse effect on our financial position or results of operations. We are also party to various other legal proceedings arising from our operations. We believe that the outcome of these other proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to the vote of security holders during the fourth quarter of 2000. 19 26 ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT. The following provides information concerning the persons who serve as our executive officers as of March 1, 2001. Each of these individuals, other than Richard Sloan, Kenneth Trammell, Hari Nair, John Kitts and Neal Yanos, were named as executive officers of our company effective November 4, 1999, the day of the 1999 Spin-off, at which time our then-existing executive officers resigned. Messrs. Sloan and Trammell were made executive officers in December 1999. Messrs. Kitts and Yanos became executive officers in December 2000 and Mr. Nair was made an executive officer in January 2001. Prior to becoming our executive officers, many of these individuals had served in our automotive operations. Accordingly, for periods prior to November 4, 1999, references to service to "us" or "our company" reflect services to Tenneco's automotive operations.
NAME (AND AGE AT DECEMBER 31, 2000) OFFICES HELD ------------------ -------------------------------------------- Mark P. Frissora (45)................................... Director Chairman, President and Chief Executive Officer Richard J. Sloan (62)................................... Executive Vice President and Managing Director -- Europe Mark A. McCollum (41)................................... Senior Vice President and Chief Financial Officer Richard P. Schneider (53)............................... Senior Vice President -- Global Administration Timothy R. Donovan (45)................................. Senior Vice President and General Counsel Timothy E. Jackson (44)................................. Senior Vice President -- Global Technology David G. Gabriel (42)................................... Senior Vice President and General Manager -- North American Aftermarket Hari N. Nair (40)....................................... Senior Vice President and Managing Director -- International John Kitts (36)......................................... Vice President and General Manager -- North American Original Equipment Emissions Control Neal Yanos (38)......................................... Vice President and General Manager -- North American Original Equipment Ride Control Kenneth R. Trammell (40)................................ Vice President and Controller
MARK P. FRISSORA -- Mr. Frissora became our Chief Executive Officer in connection with the 1999 Spin-off and has been serving as President of the automotive operations since April 1999. In March 2000, he was also named our Chairman. From 1996 to April 1999, he held various positions within our automotive operations, including Senior Vice President and General Manager of the worldwide original equipment business. Mr. Frissora joined our company in 1996 from AeroquipVickers Corporation, where he served since 1991 as a Vice President. Previously, he spent 15 years with General Electric (10 years) and Philips Lighting Company in management roles focusing on product development and marketing. He is a member of The Business Roundtable and the World Economic Forum's Automotive Board of Governors. RICHARD J. SLOAN -- Mr. Sloan was named our Executive Vice President and Managing Director -- Europe in October 1999. Prior to joining us, Mr. Sloan spent 18 years with United Technologies Automotive ("UTA"). He served as President of UTA's Worldwide Interior Division from 1998 to October 1999 and President of UTA Europe from 1993 to 1998. MARK A. MCCOLLUM -- Mr. McCollum joined our automotive operations in April 1998. Prior to that he served as Tenneco Inc.'s Vice President, Corporate Development and was responsible for executing strategic transactions in both the automotive and packaging businesses. From January 1995 to April 1998, he served in various capacities for Tenneco Inc., including Vice President, Financial Analysis and Planning and Corporate Controller. Before that, Mr. McCollum spent 14 years with the international public accounting firm of Arthur Andersen LLP, serving as an audit and business advisory partner of the company's worldwide partnership from 1991 to December 1994. 20 27 RICHARD P. SCHNEIDER -- As our Senior Vice President -- Global Administration, Mr. Schneider is responsible for the development and implementation of human resources programs and policies and corporate communications activities for our worldwide operations. He joined us in 1994 from International Paper Company where, during his 20 year tenure, he held key positions in labor relations, management development, personnel administration and equal employment opportunity. TIMOTHY R. DONOVAN -- Mr. Donovan was named Senior Vice President and General Counsel of our company in August 1999. Mr. Donovan was a partner in the law firm of Jenner & Block from 1989 until his resignation in September 1999, and most recently served as the Chairman of the firm's Corporate and Securities Department and as a member of its Executive Committee. TIMOTHY E. JACKSON -- Mr. Jackson joined us as Senior Vice President and General Manager -- North American Original Equipment and Worldwide Program Management in June 1999. He served in this position until August 2000, at which time he was named Senior Vice President Global Technology. Mr. Jackson joined us from ITT Industries where he was President of that company's Fluid Handling Systems Division. With over 20 years of management experience, 14 within the automotive industry, he was also Chief Executive Officer for HiSAN, a joint venture between ITT Industries and Sanoh Industrial Company. Mr. Jackson has also served in senior management positions at BF Goodrich Aerospace and General Motors Corporation. DAVID G. GABRIEL -- Mr. Gabriel was named our Senior Vice President and General Manager -- North American Aftermarket in August 1999. From March to August 1999, Mr. Gabriel was the Vice President of Operations for our North American aftermarket business. From March 1997 to March 1999, he served as Vice President of Manufacturing for our North American aftermarket business. From February 1995 to March 1997, he served as Executive Director of Supplier Development for Tenneco Business Services. Before joining Tenneco Business Services in February 1995, Mr. Gabriel spent 15 years in various operating positions of increasing responsibility with the Pepsi Cola Company and Johnson & Johnson. HARI N. NAIR -- Mr. Nair was named our Senior Vice President and Managing Director -- International in January 2001. From 1992 to January 2001, he served in various capacities with the Company, including most recently as Vice President and Managing Director -- South America and Asia. From 1989 to 1992 he was employed by Case Corporation (at that time a Tenneco Inc. subsidiary) in its International Business Unit. He began his career with Tenneco Inc. in 1987 as manager of business planning, focusing on the company's early international expansion projects. Before joining our company, Mr. Nair was a senior financial analyst with General Motors and a plant manager with Illinois American Water Company. JOHN KITTS -- Mr. Kitts became our Vice President and General Manager -- North American Original Equipment Emission Control in December 2000. He joined our Walker exhaust operations in 1987 and has held a variety of positions in marketing, product training, and sales and engineering management with our company, including most recently Vice President, responsible for our North American original equipment Daimler Chrysler business unit. NEAL YANOS -- Mr. Yanos was named our Vice President and General Manager -- North American Original Equipment Ride Control in December 2000. He joined our Monroe ride control division as a process engineer in 1988 and since that time has served in a broad range of assignments including product engineering, strategic planning, business development, finance, program management and marketing, including most recently Director of our North American original equipment GM/VW business unit. Before joining our company, Mr. Yanos was employed in various engineering positions by Sheller Globe Inc. (now part of United Technologies) from 1985 to 1988. KENNETH R. TRAMMELL -- Mr. Trammell was named our Vice President and Controller in September 1999. From April 1997 to November 1999 he served as Corporate Controller of Tenneco Inc. He joined Tenneco Inc. in May 1996 as Assistant Controller. Before joining Tenneco Inc., Mr. Trammell spent 12 years with the international public accounting firm of Arthur Andersen LLP, last serving as a senior manager. 21 28 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our outstanding shares of common stock, par value $.01 per share, are listed on the New York, Chicago, Pacific and London Stock Exchanges. The following table sets forth, for the periods indicated, the high and low sales prices of our common stock on the New York Stock Exchange Composite Transactions Tape, and the dividends paid per share of common stock. On November 4, 1999, we completed the spin-off of Pactiv Corporation and the following morning effected a one-for-five reverse stock split. Accordingly, the high and low sales prices for periods following this date give effect to these transactions.
SALE PRICES ---------------- DIVIDENDS QUARTER HIGH LOW PAID - ------- ---- --- --------- 2000 1st....................................................... $11 1/2 7 $.05 2nd....................................................... 9 1/2 5 1/4 .05 3rd....................................................... 7 5/8 4 13/16 .05 4th....................................................... 5 5/16 2 1/2 .05 1999 1st....................................................... $37 1/4 $27 1/2 $.30 2nd....................................................... 31 3/8 22 11/16 .30 3rd....................................................... 25 1/8 15 5/16 .30 4th (through 11/4)........................................ 17 9/16 13 13/16 -- 4th (after 11/4).......................................... 9 1/8 7 --
As of March 1, 2001, there were approximately 44,680 holders of record of our common stock, including brokers and other nominees. The declaration of dividends on our capital stock is at the discretion of our Board of Directors. The Board has not adopted a dividend policy as such; subject to legal and contractual restrictions, its decisions regarding dividends are based on all considerations that in its business judgment are relevant at the time. These considerations may include past and projected earnings, cash flows, economic, business and securities market conditions and anticipated developments concerning our business and operations. We are highly leveraged and restricted with respect to the payment of dividends under the terms of our financing arrangements. On January 10, 2001, we announced that our Board of Directors eliminated the regular quarterly dividend on the Company's common stock. The Board took this action in response to then-current industry conditions, primarily greater than anticipated production volume reductions by original equipment manufacturers in North America and continued softness in the global aftermarket. For additional information concerning our payment of dividends, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 22 29 ITEM 6. SELECTED FINANCIAL DATA. TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------ 2000(A) 1999(A) 1998(A) 1997 1996 ------- ------- ------- ---- ---- (MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS) STATEMENTS OF INCOME DATA(B): Net sales and operating revenues from continuing operations -- North America.......................... $ 1,977 $ 1,768 $ 1,688 $ 1,726 $ 1,550 Europe................................. 1,292 1,273 1,278 1,204 1,201 Other.................................. 348 297 316 351 279 Intergroup sales....................... (68) (59) (45) (55) (50) ---------- ---------- ---------- ---------- ---------- $ 3,549 $ 3,279 $ 3,237 $ 3,226 $ 2,980 ========== ========== ========== ========== ========== Income from continuing operations before interest expense, income taxes, and minority interest -- North America.......................... $ 68 $ 166 $ 58 $ 216 $ 128 Europe................................. 40 44 155 153 94 Other.................................. 12 (62) 14 26 20 ---------- ---------- ---------- ---------- ---------- Total............................. 120 148 227 395 242 Interest expense (net of interest capitalized)(c)........................ 186 106 69 58 60 Income tax expense....................... (27) 82 13 80 79 Minority interest........................ 2 23 29 23 21 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations............................. (41) (63) 116 234 82 Income (loss) from discontinued operations, net of income tax(d)....... -- (208) 139 127 564 Extraordinary loss, net of income tax(e)................................. (1) (18) -- -- (236) Cumulative effect of changes in accounting principles, net of income tax(f)................................. -- (134) -- (46) -- ---------- ---------- ---------- ---------- ---------- Net income (loss)........................ (42) (423) 255 315 410 Preferred stock dividends................ -- -- -- -- 12 ---------- ---------- ---------- ---------- ---------- Net income (loss) to common stock........ $ (42) $ (423) $ 255 $ 315 $ 398 ========== ========== ========== ========== ========== Average number of shares of common stock outstanding Basic.................................. 34,735,766 33,480,686 33,701,115 34,052,946 33,921,875 Diluted................................ 34,906,825 33,656,063 33,766,906 34,160,327 34,105,223 Earnings (loss) per average share of common stock -- Basic: Continuing operations................ $ (1.18) $ (1.87) 3.45 6.87 2.45 Discontinued operations(d)........... -- (6.23) 4.13 3.73 16.27 Extraordinary loss(e)................ (.02) (.55) -- -- (6.96) Cumulative effect of changes in accounting principles(f).......... -- (3.99) -- (1.35) -- ---------- ---------- ---------- ---------- ---------- $ (1.20) $ (12.64) $ 7.58 $ 9.25 $ 11.76 ========== ========== ========== ========== ========== Diluted: Continuing operations................ $ (1.18) $ (1.87) 3.44 6.85 2.43 Discontinued operations(d)........... -- (6.23) 4.12 3.72 16.18 Extraordinary loss(e)................ (.02) (.55) -- -- (6.96) Cumulative effect of changes in accounting principles(f).......... -- (3.99) -- (1.35) -- ---------- ---------- ---------- ---------- ---------- $ (1.20) $ (12.64) $ 7.56 $ 9.22 $ 11.65 ========== ========== ========== ========== ========== Cash dividends per common share.......... $ .20 $ 4.50 $ 6.00 $ 6.00 $ 9.00
23 30
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------ 2000(A) 1999(A) 1998(A) 1997 1996 ------- ------- ------- ---- ---- (MILLIONS EXCEPT SHARE, PER SHARE AND RATIO AMOUNTS) BALANCE SHEET DATA(B): Net assets of discontinued operations(d).......................... $ -- $ -- $ 1,739 $ 1,771 $ 1,883 Total assets............................. 2,886 2,943 4,759 4,682 4,653 Short-term debt(c)....................... 92 56 304 75 74 Long-term debt(c)........................ 1,435 1,578 671 713 639 Debt allocated to discontinued operations(c).......................... -- -- 2,456 2,123 1,590 Minority interest........................ 14 16 407 408 304 Shareholders' equity..................... 330 422 2,504 2,528 2,646 STATEMENT OF CASH FLOWS DATA(B): Net cash provided (used) by operating activities............................. $ 234 $ (254) $ 532 $ 519 $ 253 Net cash (used) by investing activities............................. (157) (1,188) (754) (887) (685) Net cash provided (used) by financing activities............................. (123) 1,495 216 354 147 Capital expenditures for continuing operations............................. 146 154 195 221 188 OTHER DATA: EBITDA(g)................................ $ 271 $ 292 $ 377 $ 505 $ 336 Ratio of earnings to fixed charges(h).... .6 1.0 2.2 4.8 2.3
- ------------------------- NOTE: Our financial statements which are discussed in the following notes are included in this Form 10-K. They cover the three years ended December 31, 2000. (a) For a discussion of the significant items affecting comparability of the financial information for the years ended 2000, 1999 and 1998, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." (b) During the periods presented, we completed numerous acquisitions. The most significant acquisition was our acquisition of Clevite for $328 million in July 1996. You should also read "Item 1. Business" included elsewhere in this Annual Report on Form 10-K. (c) Debt amounts for 1998, 1997 and 1996, and for 1999 through November 4, 1999, are net of allocations of corporate debt to the net assets of our discontinued specialty packaging and paperboard packaging segments. Interest expense for periods presented is net of interest expense allocated to income from discontinued operations. These allocations of debt and related interest expense are based on the ratio of our investment in the specialty packaging and paperboard packaging, energy, and shipbuilding segments' respective net assets to our consolidated net assets plus debt. You should also read Notes to the Financial Statements of Tenneco Automotive Inc. and Consolidated Subsidiaries for more information. (d) Discontinued operations reflected in the above periods consist of our (1) specialty packaging segment, which was discontinued in August 1999, (2) paperboard packaging segment, which was discontinued in June 1999, (3) energy and shipbuilding segments, which were discontinued in December 1996, and (4) farm and construction equipment segment, which was discontinued in March 1996. You should also read Notes to the Financial Statements of Tenneco Automotive Inc. and Consolidated Subsidiaries for more information. (e) Represents our costs related to prepayment of debt, including the 1996 loss recognized in the realignment of our debt preceding the 1996 corporate reorganization, the 1999 loss recognized in connection with the contribution of the containerboard assets to a new joint venture, and the 1999 loss recognized in the spin-off of Tenneco Packaging Inc. You should also read Notes to the Financial Statements of Tenneco Automotive Inc. and Consolidated Subsidiaries for more information. (f) In 1999, we implemented the American Institute of Certified Public Accountants Statement of Position 98-5, "Reporting on the Costs of Start-up Activities." In addition, effective January 1, 1999, we changed our method of accounting for customer acquisition costs from a deferred method to an expense-as-incurred method. In 1997, we implemented the Financial Accounting Standards Board's Emerging Issues Task Force Issue 97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract that Combines Business Process Reengineering and Information Technology Transformation." You should also read Notes to the Financial Statements of Tenneco Automotive Inc. and Consolidated Subsidiaries for additional information. (g) EBITDA represents income from continuing operations before interest expense, income taxes, minority interest and depreciation and amortization. EBITDA is not a calculation based upon generally accepted accounting principles. The amounts included in the EBITDA calculation, however, are derived from amounts included in the historical statements of income data. In addition, EBITDA should not be considered as an alternative to net income or operating income as an indicator of our operating performance, or as an alternative to operating cash 24 31 flows as a measure of liquidity. We have reported EBITDA because we believe EBITDA is a measure commonly reported and widely used by investors and other interested parties as an indicator of a company's ability to incur and service debt. We believe EBITDA assists investors in comparing a company's performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon accounting methods, particularly when acquisitions are involved, or nonoperating factors. However, the EBITDA measure presented in this document may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation. (h) For purposes of computing this ratio, earnings generally consist of income from continuing operations before income taxes and fixed charges excluding capitalized interest. Fixed charges consist of interest expense, the portion of rental expense considered representative of the interest factor and capitalized interest. For purposes of computing these ratios, preferred stock dividends have been included in the calculations on a pre-tax basis. 25 32 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. On November 4, 1999, Tenneco Inc. completed the spin-off of its packaging business to shareholders, leaving the automotive business as the sole remaining operating segment. Following the spin-off, Tenneco Inc. changed its name to Tenneco Automotive Inc. In this Management's Discussion and Analysis, when we discuss Tenneco we mean Tenneco Inc. and its consolidated subsidiaries before the spin-off and Tenneco Automotive Inc. and its consolidated subsidiaries after the spin-off. As you read the following review of our financial condition and results of operations, you should also read our financial statements and related notes beginning on page 49. BACKGROUND OF THE SPIN-OFF TRANSACTION In July 1998, the Board of Directors authorized management to develop a broad range of strategic alternatives to separate the automotive, paperboard packaging, and specialty packaging businesses. Subsequently, we completed the following actions: - In January 1999, we announced an agreement to contribute the containerboard business to a new joint venture with an affiliate of Madison Dearborn Partners. The proceeds from the transaction, including debt assumed by the new joint venture, were approximately $2 billion. The transaction closed in April 1999. We retained a 43 percent interest in the joint venture. - In April 1999, we announced an agreement to sell our folding carton operations to Caraustar Industries. This transaction closed in June 1999. The folding carton operations and the containerboard business together represented our paperboard packaging operating segment. - On November 4, 1999, we completed the spin-off of the common stock of Tenneco Packaging Inc., now known as Pactiv Corporation, to our shareholders. Pactiv included all of the businesses that made up our specialty packaging segment as well as our remaining interest in the containerboard joint venture and our administrative services operations. As a result of this series of transactions, our former specialty and paperboard packaging operating segments are presented as discontinued operations in the accompanying financial statements. You should read Note 3 to the financial statements for more information about our discontinued operations. The morning following the spin-off, we completed a reverse stock split that had been approved by our shareholders in a special meeting held in October 1999. As a result, every five shares of our common stock were converted into one share of our new common stock. Before the spin-off, we realigned substantially all of our existing debt through a combination of tender offers, exchange offers, and other refinancings. To finance the debt realignment, we borrowed under new credit facilities and issued subordinated debt. Pactiv also borrowed under new credit facilities and issued new publicly traded Pactiv debt in exchange for certain series of our publicly traded debt that were outstanding before the debt realignment. Note 4 to the financial statements and the section -- "Liquidity and Capital Resources" have more information about our debt and the debt realignment. 26 33 YEARS 2000 AND 1999 OPERATING UNITS RESULTS Net Sales and Operating Revenues
2000 1999 % CHANGE ------ ------ -------- (MILLIONS) North America............................................. $1,967 $1,760 12% Europe.................................................... 1,247 1,235 1 Rest of World............................................. 335 284 18 ------ ------ $3,549 $3,279 8 ====== ======
The increase in revenues from our North American operations is primarily due to the strong North American original equipment manufacturers' build rates and the change we made in the first quarter of 2000 with respect to how we record "pass through" catalytic converter sales. In the first quarter of 2000 we changed how we record "pass through" sales of some catalytic converter components. "Pass through" sales occur when we purchase these components from suppliers, use the components in our manufacturing process and sell the components to our customers as part of the completed catalytic converter. In the past, we recorded "pass through" sales as a reduction of cost of sales. We now record them as part of net sales. Relationships with customers have begun to change where we now take title to these components in the manufacturing process. Additionally, we believe that our competitors in the automotive parts industry already follow this practice so this change is consistent with industry practice and will permit improved comparability with these companies. As a result of the change, our North American sales increased $206 million for the year ended December 31, 2000, with no impact on our earnings before interest and taxes. Had these components been recorded on a comparable basis in the year ended December 31, 1999, reported net sales would have been $140 million higher in that period. Excluding this change, revenues from our North American operations were essentially unchanged for the year ended December 31, 2000, compared to the same period in 1999. Revenues from our North American original equipment business increased 1 percent before the "pass through" sales adjustment. This increase is due primarily to strong original equipment manufacturer production levels. Specifically, exhaust unit volume sales to original equipment manufacturers increased $25 million. The increase in North American exhaust revenues was partially offset by a decline of $10 million in ride control unit volume sales to original equipment manufacturers, as well as the build-out of customer platforms and an increasing decline in heavy duty elastomer sales. Revenues from our North American aftermarket business declined 3 percent in the year ended December 31, 2000, compared to the same period in 1999. Exhaust sales to aftermarket customers decreased $19 million due primarily to the ongoing impact of declining replacement rates in the industry. Ride control sales to aftermarket customers increased $6 million primarily as a result of the introduction of our new premium Monroe Reflex(TM )shock, which we began selling in November 1999, and the repositioning of our Sensa-Trac(R) branded products to the retail market. The ride control increase was partially offset by general aftermarket weakness. European revenues increased $12 million for the year ended December 31, 2000, compared to the same period in 1999. A decrease in the value of European currencies relative to the U.S. dollar reduced sales by $131 million. If foreign exchange rates had been the same during 2000 as they were in 1999, then our European revenues would have increased 12 percent. This increase is primarily due to higher sales to original equipment manufacturers. Specifically, before the change in currency exchange rates, original equipment exhaust and ride control sales increased $158 million and $20 million, respectively. Excluding the currency impact, unit sales from our European aftermarket ride control operations decreased by $14 million and unit sales from our European aftermarket exhaust operations decreased by $27 million in the year ended December 31, 2000 from the same period in 1999. Revenues from our operations in the rest of the world increased 18 percent in the year ended December 31, 2000, compared to the same period in the prior year. Excluding the impact of currency fluctuations, revenues from our South American operations increased $40 million in 2000 over 1999. 27 34 Revenues from new and existing original equipment exhaust programs and stronger aftermarket ride control operations contributed most of the increase in South American revenues. Revenues from our Asian operations increased $21 million from the year ended December 31, 1999 to the same period in 2000. This increase was primarily due to higher unit sales to original equipment manufacturers in the region. Revenues from Australian operations decreased $8 million in the year ended December 31, 2000 in comparison to the same period in the prior year. If currency exchange rates between the Australian dollar and U.S. dollar been the same during the year ended December 31, 2000 as in the same period in 1999, revenues from our Australian operations would have increased by $8 million. Income Before Interest Expense, Income Taxes, and Minority Interest ("EBIT") We reported EBIT of $120 million in 2000 compared to $148 million in 1999. Each year included costs and charges that have an effect on comparability of the results and are presented in the tables below. As shown below, these costs and charges consist of stand-alone costs, restructuring and other charges, one-time non-operational items, spin-off transaction costs and previously unallocated Tenneco Inc. expenses. Restructuring and other charges, spin-off transaction costs and previously unallocated Tenneco Inc. expenses are discussed in the sections following discussion of our automotive results. Stand-alone costs were $45 million in 2000 compared to $9 million in 1999. These costs include the addition of functions necessary for Tenneco Automotive to operate as an independent public company as well as administrative costs for information technology, payroll and accounts payable services. For 2000, approximately $30 million relates to information technology services received under a contract with Pactiv entered into in connection with the spin-off. The contract extends for 24 months from date of the spin-off. The remaining amount relates to payroll and accounts payable functions provided by a third party under a contract that extends for 36 months from the date of the spin-off and public company functions we added following the spin-off. Before the November, 1999 spin-off, the costs of these services were incurred by Tenneco Inc. but were not fully allocated to its operating segments. The increase in stand-alone costs is due to 1999 results including only two months of those costs compared to 12 months in 2000. While these stand-alone expenses will be ongoing, we have separated the stand-alone expenses reflected in each of our segment's 2000 reported results to provide enhanced comparability with the reported results for each of these segments for 1999.
YEAR ENDED DECEMBER 31, 2000 -------------------------------------------------- STAND OPERATING REPORTED ALONE RESTRUCTURING UNITS RESULTS EXPENSES AND OTHER RESULTS -------- -------- ------------- --------- (MILLIONS) North America......................................... $ 68 $30 $44 $142 Europe................................................ 40 12 13 65 Rest of World......................................... 16 3 4 23 Other................................................. (4) -- -- (4) ---- --- --- ---- $120 $45 $61 $226 ==== === === ====
In the preceding table, Other for 2000 includes a $13 million pre-tax charge for a stock option buy-back program and a $9 million reversal of a reserve for transaction costs related to the November 1999 spin-off of Pactiv. The combination of these two one-time, non-operational items reduced our EBIT by $4 million for the year ended December 31, 2000. Restructuring and other represents the $46 million 28 35 restructuring charge and $15 million in other charges that occurred during the fourth quarter of 2000. For a detailed description of these charges see the "Restructuring and Other Charges" discussion below.
YEAR ENDED DECEMBER 31, 1999 -------------------------------------------------- STAND OPERATING REPORTED ALONE RESTRUCTURING UNITS RESULTS EXPENSES AND OTHER RESULTS -------- -------- ------------- --------- (MILLIONS) North America......................................... $166 $-- $ 15 $181 Europe................................................ 44 -- 38 82 Rest of World......................................... 9 -- 3 12 Other................................................. (71) 13 58 -- ---- --- ---- ---- $148 $13 $114 $275 ==== === ==== ====
Stand alone expenses includes $4 million of previously unallocated Tenneco Inc. expenses. Restructuring and other includes a $55 million restructuring charge and $59 million of spin-off transaction expenses. For a detailed description of these charges, refer to the discussion of our operating results under "-- Years 1999 and 1998 Results for Continuing Operations". The following shows the amount and percentage change in operating units results before the restructuring and other charges and stand-alone expenses shown in the prior tables.
YEAR ENDED DECEMBER 31, ------------ 2000 1999 % CHANGE ---- ---- -------- (MILLIONS) North America............................................... $142 $181 (22)% Europe...................................................... 65 82 (21)% Rest of World............................................... 23 12 92% Other....................................................... (4) -- NM ---- ---- $226 $275 (18)% ==== ====
Our North American segment incurred $30 million in stand-alone expenses in the year ended December 31, 2000. Before considering these stand-alone expenses and restructuring and other charges, our North American EBIT decreased by 22 percent to $142 million in 2000, compared to the prior year. Higher unit volume sales to North American original equipment manufacturers on new and existing platforms improved EBIT by $2 million. The heavy duty elastomer market experienced declines that decreased EBIT by $5 million. We recorded higher aftermarket ride control unit sales in the first half of 2000 compared to the first half of 1999, which improved EBIT by $14 million, due primarily to the launch of our new premium Monroe Reflex(TM) product. However, we experienced a decline in aftermarket ride control volumes during the second half of the year, which decreased EBIT by $4 million. Cost savings from prior restructuring initiatives and other cost reduction actions improved EBIT at our aftermarket operations by $28 million. These increases were offset by lower pricing and volumes in our aftermarket exhaust product lines and the repositioning of our Sensa-Trac(R) branded products in the retail market, combined, which reduced EBIT by $29 million. We also incurred $14 million of higher customer acquisition and promotional expenses associated with the repositioning of our aftermarket ride control product lines. An unfavorable product mix change in our original equipment customer base reduced EBIT by $7 million. In the first half of 2000, we also recorded costs of $9 million associated with the closing of our Culver, Indiana, OE exhaust plant. Our North American original equipment operations incurred $4 million in higher selling, general and administrative expenses in the year ended December 31, 2000, including engineering expenses for advanced suspension technologies. This was partially offset by savings of $2 million generated from our fourth quarter 2000 restructuring program. Higher manufacturing and depreciation expenses in our original equipment operations contributed the majority of the remaining decrease in North American EBIT. 29 36 Our European segment incurred $12 million in stand-alone expenses in the year ended December 31, 2000. Before considering these stand-alone expenses and restructuring and other charges, our European EBIT decreased 21 percent to $65 million in 2000. The impact of higher unit volume sales to European original equipment manufacturers, which improved EBIT by $21 million during 2000, was partially offset by the negative impact of a change in platform mix, which reduced EBIT by $7 million during that period. Lower aftermarket unit sales of both exhaust and ride control products decreased EBIT by $23 million during 2000. Currency weakness in Europe decreased EBIT by $7 million during 2000. Environmental costs associated with anticipated remediation efforts decreased EBIT by $4 million in 2000. Our operations in the rest of the world incurred $3 million in stand-alone expenses in the second quarter of 2000. Before considering these stand-alone expenses and restructuring and other changes, EBIT from our operations in South America, Australia and Asia improved in 2000 to $23 million compared to $12 million in the same period of 1999. The weakening of the Australian dollar compared to the U.S. dollar during 2000 reduced EBIT by $4 million. Higher unit sales in Asia combined with cost reduction actions throughout South America, Asia and Australia offset this to drive the EBIT improvement. The impact of currency fluctuations in Asia and South America on the translation of financial results did not contribute materially to the EBIT difference between the year ended December 31, 2000, and the same period in 1999. EBIT as a Percentage of Revenue The following table shows EBIT as a percentage of revenue by segment. This percentage is based on "operating unit" EBIT (which as described above is our reported EBIT excluding the effects of the stand-alone expenses and restructuring and other charges).
YEAR ENDED DECEMBER 31, --------------- 2000 1999 ---- ---- North America............................................... 7% 10% Europe...................................................... 5% 7% Rest of World............................................... 7% 4% Total Tenneco Automotive.......................... 6% 8%
In North America, EBIT as a percentage of revenue decreased by 3 percent. Excluding the $206 million increase in revenues associated with the change in revenue recognition of pass-through catalytic converter sales, EBIT as a percentage of revenue would have been 8 percent for 2000. The decrease in EBIT margin from 1999 to 2000 was due primarily to a mix shift from higher margin OE product sales to lower margin OE product sales, the one-time costs associated with the closing of our Culver, Indiana exhaust plant and product repricings in both our ride control and exhaust aftermarkets. In Europe, EBIT as a percentage of revenue decreased by 2 percent from 1999 to 2000 primarily due to lower aftermarket sales and unfavorable mix changes in both our original equipment and aftermarket businesses. The increase in EBIT margin from our operations in the rest of the world was due primarily to the impact of foreign currency transaction losses experienced by our Brazilian operations during 1999 and our continued efforts to lower selling, general and administrative expenses in our South American and Asian operations. Restructuring and Other Charges In the fourth quarter of 2000, our Board of Directors approved a restructuring plan to reduce administrative and operational overhead costs. We recorded a pre-tax charge to income from continuing operations of $46 million, $32 million after tax, or $.92 per diluted share. The charge is comprised of $24 million of severance and related costs for salaried employment reductions worldwide and $22 million for the reduction of manufacturing and distribution capacity in response to long-term market trends. The manufacturing locations involved are located in Europe, North America and Asia. In total, the plan involves the elimination of about 700 positions. We wrote down the assets at the locations to be closed to their fair value, less costs to sell in the fourth quarter of 2000. We estimated the fair market value of 30 37 buildings using external real estate appraisals. As a result of the single purpose nature of the machinery and equipment disposed of, fair value was estimated to be scrap value less costs to dispose in most cases. We do not expect that cash proceeds on the sale of these assets will be significant. We expect to complete all restructuring activities related to this charge by the end of 2001. In addition to this restructuring charge, we also recorded other charges in the fourth quarter of $15 million, $10 million after tax, or $.29 per diluted share. These charges relate to a strategic decision to reduce some of the aftermarket parts we offer and to relocation expenses incurred associated with the restructuring plans. The aftermarket parts were written down to their estimated scrap value less costs to sell. Amounts related to our restructuring plans, including the plans we initiated in 1999 and 1998, are shown in the following table. For a discussion of our 1999 and 1998 restructuring plans, see "-- Years 1999 and 1998 -- Results from Continuing Operations -- Restructuring Charges".
DECEMBER 31, 1999 2000 2000 CHARGED TO DECEMBER 31, 2000 RESTRUCTURING RESTRUCTURING CASH ASSET RESTRUCTURING RESERVE CHARGE PAYMENTS ACCOUNTS RESERVE ----------------- ------------- -------- ---------- ----------------- Severance..................... $26 24 27 -- 23 Asset impairments............. -- 16 -- 16 -- Facility exit costs........... 2 6 5 -- 3 --- -- -- -- -- $28 46 32 16 26 === == == == ==
For the first quarter of 2001, our Board of Directors approved a restructuring plan to further reduce administrative and operational overhead costs. On January 31, 2001 we announced plans to eliminate up to an additional 405 salaried positions worldwide in response to increasingly difficult industry conditions. This reduction includes the immediate elimination of 215 positions. This action is in addition to the cost-reduction plans announced during the fourth quarter of 2000. We estimate that we will record pre-tax cash charges of up to $15 million in the first quarter of 2001 related to these actions. All work force reductions will be done in compliance with all legal and contractual requirements including obligations to consult with worker committees, union representatives and others. In addition to these announced actions, we are evaluating additional cost reduction initiatives for 2001 that could result in additional charges, which will require review and approval by our Board of Directors. Interest Expense, Net of Interest Capitalized We reported interest expense of $186 million during 2000, compared to $106 million during 1999. The increase in our total interest expense is due primarily to the higher debt levels allocated to us as a result of the spin-off of Pactiv last year, higher interest rates due to our lower debt rating, and interest rate increases during 2000. The new debt structure is explained in more detail in "Liquidity and Capital Resources" later in this Management's Discussion and Analysis. Income Taxes We recorded a tax benefit during 2000 of $27 million, for an effective tax rate of 41 percent. This benefit was higher than the statutory rate due to the consolidation of our Mexican entities into one tax entity, allowing us to recognize some previously unbenefited tax loss carryforwards in Mexico, and due to the adjustment of tax liabilities in some foreign jurisdictions based on tax returns filed in the third quarter. Our effective tax rate for 1999 was 195 percent. This high effective tax rate relates primarily to the spin-off transaction. In connection with the spin-off, we repatriated earnings from some foreign tax jurisdictions. Since our policy is to reinvest earnings from foreign operations rather than repatriate them to the U.S., this one-time action resulted in a tax charge in the fourth quarter of 1999. Finally the 1999 restructuring involves significant activity in Europe where many of the costs of restructuring will not be deductible for tax purposes. Consequently, we recognized no tax benefit for these non-deductible costs. 31 38 Earnings Per Share Losses from continuing operations per diluted common share were $1.18 for the year ended December 31, 2000 compared to $1.87 per diluted common share in the prior period. In the year ended December 31, 1999, we recorded a loss of $6.23 per diluted common share from discontinued operations. In the first quarter of 1999, we incurred an extraordinary loss of $.20 per diluted common share due to the retirement of debt in connection with the sale of the containerboard assets. We also recorded an after-tax charge of $4.00 per diluted common share due to the cumulative effect of the changes in accounting with respect to start-up activities and customer acquisition costs. In the third quarter of 2000, we recorded an extraordinary loss of $0.01 per diluted common share due to the early retirement of debt. Option Purchase Offer On May 8, 2000, we initiated an offer to purchase from our employees stock options covering approximately 6.8 million shares of our common stock. These old stock options were issued before the spin-off of Pactiv, primarily from 1996 to 1998, by the prior management of Tenneco Inc. By the time of the spin-off and the change in management of our company, the exercise prices of these options had become substantially lower than the market price of Tenneco Inc.'s common stock. Upon the spin-off, these options held by continuing employees of our automotive operations were adjusted to maintain their economic value after giving effect to that transaction. Accordingly, as a newly independent stand-alone public company we emerged with 6.8 million underwater stock options, a large number considering the size of our company and the number of outstanding shares. Further, we believed that in order to retain and attract talent in the future, more options would need to be issued. In order to be in a position to more effectively manage our outstanding equity in the future, we initiated the purchase offer. Final responses were received from employees in July 2000. A significant number of employees holding around 6 million options chose to participate. We recorded a charge and made cash payments for the cost of this program in the third quarter of 2000. The total cost of the program was $13 million, before taxes. CHANGES IN ACCOUNTING PRINCIPLES In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5. "Reporting on the Costs of Start-up Activities," which requires costs of start-up activities to be expensed as incurred. This statement was effective for fiscal years beginning after December 15, 1998. The statement requires previously capitalized costs related to start-up activities to be expensed as a cumulative effect of a change in accounting principle when the statement is adopted. Prior to January 1, 1999, we capitalized certain costs related to start-up activities, primarily pre-production design and development costs for new original equipment automobile platforms. We adopted SOP 98-5 on January 1, 1999, and recorded an after-tax charge for the cumulative effect of this change in accounting principle of $102 million (net of a $50 million tax benefit), or $3.05 per diluted common share. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133. "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new accounting and reporting standards requiring that all derivative instruments, including derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. This statement cannot be applied retroactively and is effective for all fiscal years beginning after June 15, 2000. We will begin applying the new standard in the first quarter of 2001. We have completed a review of our use of derivatives, including derivatives embedded in other contracts. The adoption of this standard will not have a significant impact on our financial position or results of operations. 32 39 Effective January 1, 1999, we changed our method of accounting for customer acquisition costs from a deferral method to an expense-as-incurred method. In connection with the decision to separate the automotive and specialty packaging businesses into independent public companies, we determined that a change to an expense-as-incurred method of accounting for automotive aftermarket customer acquisition costs was preferable in order to permit improved comparability of stand-alone financial results with our aftermarket industry competitors. We recorded an after-tax charge for the cumulative effect of this change in accounting principle of $32 million (net of a $22 million tax benefit), or $.95 per diluted common share. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". This SAB provides guidance on the recognition, presentation, and disclosure of revenue in the financial statements and is effective no later than the fourth quarter of fiscal years beginning after December 15, 1999. The SAB draws on the existing accounting rules and defines the basic criteria that must be met before we can record revenue. The impact of adopting SAB 101 will not have a significant effect on our results of operations or financial position. In May 2000, the FASB's Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-14, Accounting for Certain Sales Incentives. This issue addresses the recognition, measurement, and income statement classification of various types of sales incentives, including discounts, coupons, rebates, and free products. Beginning January 1, 2001, we will classify some incentives that were previously shown in selling, general and administrative expense as a reduction in revenues. If we had made this reclassification for 2000 and 1999, net sales would have been reduced by approximately $27 million and $21 million, respectively, with an offsetting reduction in selling, general, and administrative expenses. During 2000, the EITF also reached a consensus on Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs. This issue requires any amounts billed to customers for shipping and handling be classified as sales and precludes the recording of shipping and handling costs as deductions from sales. We record shipping and handling fees and costs in cost of goods sold. When we implemented this consensus, its impact was not material to our results of operations. LIQUIDITY AND CAPITAL RESOURCES Capitalization
DECEMBER 31, DECEMBER 31, 2000 1999 % CHANGE ------------ ------------ -------- Short term debt and current maturities.................... $ 92 $ 56 (64)% Long term debt............................................ 1,435 1,578 9 ------ ------ Total debt................................................ 1,527 1,634 7 ------ ------ Total minority interest................................... 14 16 13 Common shareholders' equity............................... 330 422 (22) Total capitalization...................................... $1,871 $2,072 (10)
Although total debt declined by $107 million from December 31, 1999, to year end 2000, our debt to capitalization ratio was 82 percent at December 31, 2000, slightly above the 79 percent level we had on December 31, 1999. The increase in the ratio was primarily attributable to the decline in shareholders' equity. The largest contributor to the decline in equity was the translation of foreign balance sheets into U.S. dollars, where the strength of the dollar resulted in translation adjustments of $61 million. Our net loss of $42 million and common stock dividends of $7 million also reduced equity. These were partially offset by $17 million in common stock (representing 2.8 million shares) we issued for employee benefit and dividend reinvestment plans. Our short-term debt, which includes the current portion of long-term debt, borrowings by foreign subsidiaries and our revolving credit facility, increased by $36 million during 2000. This increase was primarily attributable to the $53 million increase in the current portion of long-term debt. At December 31, 2000, our borrowings outstanding under our revolving credit facility increased by 33 40 $12 million. Our long-term debt balance consists of borrowings made under the new financing arrangements we entered into to facilitate the debt realignment described below, as well as approximately $20 million of debt that was not retired in the cash tender and exchange offers associated with the spin-off of Pactiv. During 2000, we pre-paid $103 million of long-term debt. The prepayment of long-term debt was primarily funded by the sale of $97 million of accounts receivable in the U.S. As part of the realignment of debt that was required in order to complete the spin-off, we entered into a $1.55 billion committed senior secured financing arrangement with a syndicate of banks and other financial institutions on September 30, 1999. We entered into an agreement to amend this facility on October 20, 2000 to (i) relax the financial covenant ratios beginning in the fourth quarter of 2000, (ii) exclude up to $80 million of cash charges and expenses related to cost reduction initiatives from the calculation of EBITDA for our financial ratios through 2001 and, (iii) make certain other technical changes. In exchange for these amendments, we agreed to certain interest rate increases, lowered our capital expenditure limits and paid an aggregate fee of about $3 million. As a result of significant reductions in North American vehicle production levels announced by our original equipment customers since late in the fourth quarter of last year and further weakening of the global aftermarket, a trend that accelerated late in the fourth quarter of last year, as well, we entered into a second amendment of our senior credit facility on March 22, 2001. The second amendment revised the financial covenant ratios we are required to maintain for each of the fiscal quarters ending in 2001. The second amendment also reduced the limitation on 2001 capital expenditures from $225 million to $150 million, and required that net cash proceeds from all significant, non-ordinary course asset sales be used to prepay the senior term loans. In exchange for these amendments, we agreed to a 25 basis point increase in interest rates on the senior term loans and our revolving credit facility and paid an aggregate fee of about $3 million to consenting lenders. We also expect to incur legal, advisory and other expenses related to the amendment process of about $2 million. The amendment also provides for the continued availability of the full amount of our $500 million revolving credit facility. At December 31, 2000, we had $454 million available for borrowing under the revolving credit facility. Based on our current projections, we believe that we will be able to meet these revised financial covenant ratios and capital expenditure requirements. Our ability to meet our financial covenants in 2001 and beyond depends upon a number of operational and economic factors, many of which are beyond our control. Factors that could impact our compliance with our financial covenants include the rate at which consumers continue to buy new vehicles and the rate at which they continue to repair vehicles already in service. Persistently lower North American vehicle production levels, further weakening in the global aftermarket beyond our expectation, or an unanticipated reduction in vehicle production levels in Europe, could impact our ability to meet our financial covenant ratios. In the event that we are unable to meet these revised financial covenants, we would consider several options to meet our cash flow needs. These options could include further renegotiations with our senior lenders, additional cost reduction or restructuring initiatives, sales of assets or capital stock, or other alternatives to enhance our financial and operating position. The remainder of this discussion describes the senior secured credit facility, as amended on March 22, 2001. The senior secured credit facility consists of: (i) a $500 million, revolving credit facility having a final maturity date of November 4, 2005; (ii) a $406 million term loan having a final maturity date of November 4, 2005; (iii) a $270 million term loan having a final maturity date of November 4, 2007 and; (iv) a $270 million term loan having a final maturity date of May 4, 2008. A portion of each term loan is payable in quarterly installments beginning September 30, 2001. Borrowings under the facility bear interest at an annual rate equal to, at the borrower's option, either (i) the London Interbank Offering Rate plus a margin of 325 basis points for the six-year revolving credit facility and the six-year term loan, 375 basis points for the eight-year term loan and 400 basis points for the eight-and-one-half year term loan; or (ii) a rate consisting of the greater of the JP Morgan Chase's prime rate or the Federal Funds rate plus 50 basis points, plus a margin of 225 basis points for the six-year revolving credit facility and the six-year term loan, 275 basis points for the eight-year term loan and 300 basis points for the eight-and-one-half year term loan. Under the provisions of the senior credit 34 41 facility agreement, the interest margins for borrowings under the revolving credit facility and the six year term loan may be adjusted based on the consolidated leverage ratio (consolidated indebtedness divided by consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") as defined in the senior credit facility agreement) measured at the end of each quarter. The amended senior credit facility requires that we maintain the following consolidated leverage ratios (consolidated indebtedness divided by consolidated EBITDA), consolidated interest coverage ratios (consolidated EBITDA divided by consolidated cash interest paid), and fixed charge coverage ratios (consolidated EBITDA less consolidated capital expenditures, divided by consolidated cash interest paid).
QUARTER ENDING --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2001 2001 2001 2001 --------- -------- ------------- ------------ Leverage Ratio.................................. 6.00 6.25 6.00 5.50 Interest Coverage Ratio......................... 1.40 1.35 1.40 1.55 Fixed Charge Coverage Ratio..................... .60 .55 .65 .80
The senior credit facility agreement also contains restrictions on our operations that are customary for similar facilities, including limitations on: (a) incurring additional liens; (b) sale and leaseback transactions; (c) liquidations and dissolutions; (d) incurring additional indebtedness or guarantees; (e) capital expenditures; (f) dividends, (g) mergers and consolidations; and (h) prepayments and modifications of subordinated and other debt instruments. Compliance with these requirements and restrictions is a condition for any incremental borrowings under the senior credit facility agreement and failure to meet these requirements enables the lenders to require repayment of any outstanding loans. At December 31, 2000, we were in compliance with these requirements. On October 14, 1999, we issued $500 million of 11 5/8% Senior Subordinated Notes due 2009. The senior subordinated debt indenture requires that we, as a condition to incurring certain types of indebtedness not otherwise permitted, initially maintain an interest coverage ratio of not less than 2.00. Under the terms of the indenture, the minimum interest coverage ratio increases to 2.25 beginning on October 15, 2001. The indenture also contains restrictions on our operations, including limitations on: (1) incurring additional indebtedness or liens; (2) dividends, (3) distributions and stock repurchases; (4) investments; and (5) mergers and consolidations. All of our existing and future material domestic wholly owned subsidiaries fully and unconditionally guarantee these notes on a joint and several basis. There are no significant restrictions on the ability of the subsidiaries that have guaranteed these notes to make distributions to us. We estimate that expenditures of approximately $45 million will be required after December 31, 2000 to complete facilities and projects authorized at that date, and we have made substantial commitments in connection with these facilities and projects. We believe that cash flows from operations, combined with available borrowing capacity described above and assuming that we maintain compliance with the requirements of our loan agreement, will generally be sufficient to meet our future capital requirements for the following year. Dividends on Common Stock We paid a dividend of $.05 per share of common stock in each of the quarters in 2000 for a total of $7 million in dividend payments in 2000. On January 10, 2001, we announced that our board of directors eliminated the quarterly dividend on the company's common stock. The board took the action in response to current industry conditions, primarily greater than anticipated production volume reductions by original equipment manufacturers and continued softness in the global light vehicle aftermarket. 35 42 Cash Flows
YEAR ENDED DECEMBER 31 --------------- 2000 1999 ----- ------ (MILLIONS) Cash provided (used) by: Operating activities -- continuing operations............. $ 234 $ (1) Investing activities -- continuing operations............. (157) (227) Financing activities...................................... (123) 1,495
Operating Activities Cash provided by continuing operating activities increased by $234 million for the year ended December 31, 2000 compared to the prior year. This improvement was driven by our increased focus on working capital, which decreased by $157 million during 2000 in comparison to an increase of $175 million during the same period last year and by sales of receivables. During 2000, the balance of accounts receivable sold increased from $16 million to $139 million, while during 1999 the balance of accounts receivable sold decreased from $137 million to $16 million. The balance in accounts payable also increased from $348 million on December 31, 1999 to $464 million on December 31, 2000. During 2000, we began to take advantage of accounts payable terms versus discounts. Our accounts payable increased from $337 million on December 31, 1998 to $348 million on December 31, 1999. The remainder of the change in operating cash flow is primarily due to the change in operating income and accrued income taxes. Cash used by our discontinued specialty and paperboard packaging operations was $253 million in the year ended December 31, 1999. Investing Activities Cash used by investing activities for continuing operations was $70 million lower in the year ended December 31, 2000 compared to the same period in 1999. Capital expenditures were $8 million lower at $146 million in 2000 compared to $154 million in 1999. During 1999, we used $36 million to acquire businesses, primarily Kinetic Ltd, an Australian suspension engineering company. In 2000 we increased our ownership percentage in a South African joint venture for $4 million. We also received cash proceeds of $26 million during 2000, primarily related to the sale of an interest in our Burnley, U.K. exhaust facility to Futaba. We also invested $10 million in the new joint venture. Cash used by investments in discontinued operations was $961 million in the year ended December 31, 1999. During the second quarter of 1999, Tenneco acquired for approximately $1.1 billion certain assets previously used by the containerboard business under operating leases and timber cutting rights. This was required in order to complete the April, 1999 containerboard sale. We also received $306 million in proceeds related to the containerboard and folding carton sale transactions and $28 million in proceeds from disposal of assets in our specialty packaging business. Financing Activities Cash used by financing activities was $123 million in 2000. This decrease was primarily due to improved operating and investing cash flows that allowed us to pay down debt by $123 million. We also issued $17 million of common stock during the year for employee benefit and dividend reinvestment plans which was offset by $7 million of common stock dividend payments. During 2000, we also entered into a capital lease for a new facility in Spain, increasing debt by $17 million. Cash provided by financing activities was $1.5 billion during 1999. Excluding the borrowings required to complete the containerboard sale transaction, cash used by financing activities was $545 million for 1999. This primarily reflected the use of the net proceeds of the containerboard sale transaction to reduce our short-term debt. Before the containerboard sale transaction, our Packaging division borrowed 36 43 approximately $1.8 billion. These borrowings were used to acquire the assets used under operating leases and timber cutting rights described under "Investing Activities" above, and to purchase the containerboard business accounts receivable. Our Packaging division remitted the balance of the borrowings to us to retire short-term debt. Packaging contributed the containerboard business to the new joint venture subject to the approximately $1.8 billion in new debt. The debt reduction, which resulted from this contribution, is shown on the Statements of Cash Flows as a non-cash financing activity. OUTLOOK Late in the fourth quarter of 2000, several of our major North American original equipment customers began announcing significant reductions in scheduled vehicle production levels. Based on these reductions, we anticipate that the North American original equipment manufacturer build rate for light vehicles in 2001 will be down from 2000 levels in the range of 10 percent to 12 percent and that weaknesses in the heavy-duty truck market will continue through 2001. We also expect that the European original equipment manufacturer build rate will remain essentially flat with 2000 levels. The global aftermarket exhibited a further weakening of demand for replacement parts during the latter portion of the fourth quarter of last year. We anticipate that there will be further declines in 2001 in both the North American and European exhaust and ride control aftermarket businesses. Based on anticipated vehicle production levels, our global original equipment customer book of business currently is $2,298 million, $2,590 million, and $2,873 million for 2001, 2002, and 2003, respectively. When we refer to our book of business, we mean revenues for original equipment manufacturer programs that have been formally awarded to us as well as programs which we are highly confident will result in revenues based on either informal customer indications consistent with past practices and/or our status as supplier for the existing program and relationship with the customer. This book of business is subject to increase or decrease due to changes in customer requirements, customer and consumer preferences, and the number of vehicles actually produced by our customers. In addition, it is based on our anticipated pricing for the applicable program over its life. However, we are under continuing pricing pressures from our OE customers. See "Cautionary Statement for Purposes of the 'Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995." We expect that these trends, combined with macroeconomic data indicating that consumer confidence, particularly in the United States, has declined, will have a negative impact on our business in 2001 and reduce the revenue and EBITDA projections we had previously provided. We have taken several actions to counteract the impact of these recent business changes, including two reductions in salaried headcount and significant cost reduction programs. However, the uncertain operating conditions make further financial projections difficult. EURO CONVERSION The European Monetary Union resulted in the adoption of a common currency, the "euro," among eleven European nations. The euro is being adopted over a three-year transition period beginning January 1, 1999. In October 1997, we established a cross-functional Euro Committee, comprised of representatives of our operational divisions as well as our corporate offices. That Committee had two principal objectives: (1) to determine the impact of the euro on our business operations, and (2) to recommend and facilitate implementation of those steps necessary to ensure that we would be fully prepared for the euro's introduction. As of January 1, 1999, we implemented those euro conversion procedures that we had determined to be necessary and prudent to adopt by that date, and we are on track to becoming fully "euro ready" on or before the conclusion of the three-year euro transition period. We believe that the costs associated with transitioning to the euro will not be material to our consolidated financial position or the results of our operations. ENVIRONMENTAL AND OTHER MATTERS We and some of our subsidiaries and affiliates are parties to environmental proceedings. We expense or capitalize, as appropriate, expenditures for ongoing compliance with environmental regulations that relate to current operations. We expense expenditures that relate to an existing condition caused by past 37 44 operations and that do not contribute to current or future revenue generation. We record liabilities when environmental assessments indicate that remedial efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology, and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors. We consider all available evidence including prior experience in remediation of contaminated sites, other companies' cleanup experience and data released by the United States Environmental Protection Agency or other organizations. These estimated liabilities are subject to revision in future periods based on actual costs or new information. Where future cash flows are fixed and determinable, we have discounted the liabilities. All other environmental liabilities are recorded at their undiscounted amounts. We evaluate recoveries separately from the liability and, when they are assured, recoveries are recorded and reported separately from the associated liability in our financial statements. At December 31, 2000, we had been designated as a potentially responsible party in four Superfund sites. We have estimated our share of the remediation costs for these sites to be approximately $1 million in the aggregate. In addition to the Superfund sites, we may have the obligation to remediate current or former facilities, and we estimate our share of remediation costs at these facilities to be approximately $16 million. For both the Superfund sites and the current and former facilities, we have established reserves that we believe are adequate for these costs. Although we believe our estimates of remediation costs are reasonable and are based on the latest available information, the cleanup costs are estimates and are subject to revision as more information becomes available about the extent of remediation required. At some sites, we expect that other parties will contribute to the remediation costs. In addition, at the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides that our liability could be joint and several, meaning that we could be required to pay in excess of our share of remediation costs. Our understanding of the financial strength of other potentially responsible parties has been considered, where appropriate, in our determination of our estimated liability. As previously disclosed, we undertook a third-party evaluation of estimated environmental remediation costs at one of our facilities in 2000. The evaluation was initiated as a result of testing that indicated the potential underground migration of some contaminants beyond our facility property. In the fourth quarter 2000, we completed the evaluation of on-site contamination and recorded a charge of $3 million in the fourth quarter of 2000 to increase our reserve for remediation activities, which is reflected in our estimation of remediation costs described above. We are in the process of completing and analyzing the results of our evaluation of off-site contamination migration from that facility and as a result we expect to increase our reserve for this facility in an amount that we estimate will be in the range of $4 million to $6 million in the first quarter of 2001. The reserves required could be material to our income statement in the period when we are required to adjust them. However, we believe that these potential costs as well as the costs associated with our current status as a potentially responsible party in the Superfund sites, or as a liable party at our current or former facilities, will not be material to our consolidated financial position. EMPLOYEE STOCK OWNERSHIP PLANS We have established Employee Stock Ownership Plans for the benefit of our employees. Under the plans, participants may elect to defer up to 16 percent of their salary through contributions to the plan, which are invested in selected mutual funds or used to buy our common stock. Through December 31, 2000, we matched qualified contributions with a contribution of 100 percent of each employee's contribution up to 8 percent of the employee's salary. Beginning January 1, 2001 this match was reduced to 75 percent of each employee's contribution up to 8 percent of the employee's salary. These matching contributions are made in company stock and were approximately $16 million and $8 million for the years ended December 31, 2000 and 1999, respectively. All contributions vest immediately. DERIVATIVE FINANCIAL INSTRUMENTS FOREIGN CURRENCY EXCHANGE RATE RISK We use derivative financial instruments, principally foreign currency forward purchase and sale contracts with terms of less than one year, to hedge our exposure to changes in foreign currency exchange 38 45 rates. Our primary exposure to changes in foreign currency rates results from intercompany loans made between affiliates to minimize the need for borrowings from third parties. Additionally, we enter into foreign currency forward purchase and sale contracts to mitigate our exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. We have from time to time also entered into forward contracts to hedge our net investment in foreign subsidiaries. We do not currently enter into derivative financial instruments for speculative purposes. In managing our foreign currency exposures, we identify and aggregate existing offsetting positions and then hedge residual exposures through third-party derivative contracts. The following table summarizes by major currency the notional amounts, weighted average settlement rates, and fair value for foreign currency forward purchase and sale contracts as of December 31, 2000. All contracts in the following table mature in 2001.
DECEMBER 31, 2000 ----------------- NOTIONAL AMOUNT WEIGHTED AVERAGE FAIR VALUE IN FOREIGN CURRENCY SETTLEMENT RATES IN U.S. DOLLARS ------------------- ----------------- --------------- (MILLIONS EXCEPT SETTLEMENT RATES) Australian dollars................. -Purchase 11 .559 $ 6 -Sell (47) .559 (26) British pounds..................... -Purchase 105 1.493 157 -Sell (66) 1.493 (99) Canadian dollars................... -Purchase 18 .667 12 -Sell (64) .667 (43) Czech Republic koruna.............. -Purchase 42 .027 1 -Sell (284) .027 (8) Danish kroner...................... -Purchase 68 .126 9 -Sell (480) .126 (61) European euro...................... -Purchase 57 .942 54 -Sell (11) .942 (10) South African rand................. -Purchase 71 .132 9 -Sell (145) .132 (19) U.S. dollars....................... -Purchase 56 1.000 56 -Sell (37) 1.000 (37) Other.............................. -Purchase 45 .111 5 -Sell (65) .092 (6) ---- $ -- ====
INTEREST RATE RISK Following the realignment of our debt in connection with the spin-off of Pactiv, our financial instruments that are sensitive to market risk for changes in interest rates are our debt securities. We primarily use a revolving credit facility to finance our short-term capital requirements. We pay a current market rate of interest on these borrowings. We financed our long-term capital requirements with long-term debt with original maturity dates ranging from six to 10 years. Under the terms of our senior credit facility agreement, we were required to hedge our exposure to floating interest rates within 180 days following the spin-off so that at least 50 percent of our long-term debt is fixed for a period of at least three years. In February 2000, we hedged $250 million of our floating rate long-term debt with three-year, floating to fixed interest rate swaps. In April 2000, we hedged an additional $50 million of our floating rate long-term debt with three-year, floating to fixed interest rate swaps. The hedges that we executed fully satisfy the interest rate hedging requirement of the senior credit facility agreement. On December 31, 2000, we had $821 million in long-term debt obligations that have fixed interest rates until at least January 2003, and $614 million in long-term debt obligations that have variable interest rates based on a current market rate of interest. We estimate that the fair value of our long-term debt at December 31, 2000 was about 72 percent of its book value. A one percentage point increase or decrease in interest rates would increase or decrease the 39 46 annual interest expense we recognize in the income statement and the cash we pay for interest expense by about $5 million after tax. The statements and other information (including the tables) in this "Derivative Financial Instruments" section constitute "forward-looking statements." YEARS 1999 AND 1998 RESULTS FROM CONTINUING OPERATIONS The following tables aggregate and summarize our results from continuing operations:
1999 ------------------------------------------------------------- MINORITY INCOME FROM REVENUE EBIT INTEREST TAXES INTEREST CONTINUING OPS ------- ---- -------- ----- -------- -------------- (MILLIONS) Operating units results................ $3,279 $275 $ (96) $(67) $(23) $ 89 Restructuring charges.................. -- (55) -- 5 -- (50) Spin-off transaction costs and other expenses............................. -- (59) (10) (25) -- (94) "Stand-alone" company expenses......... -- (9) -- 3 -- (6) Previously unallocated Tenneco Inc. expenses............................. -- (4) -- 2 -- (2) ------ ---- ----- ---- ---- ---- Reported results....................... $3,279 $148 $(106) $(82) $(23) $(63) ====== ==== ===== ==== ==== ====
1998 ------------------------------------------------------------- MINORITY INCOME FROM REVENUE EBIT INTEREST TAXES INTEREST CONTINUING OPS ------- ---- -------- ----- -------- -------------- (MILLIONS) Operating units results................ $3,237 $301 $(69) $(40) $(29) $ 163 Restructuring charges.................. -- (53) -- 19 -- (34) Previously unallocated Tenneco Inc. expenses............................. -- (21) -- 8 -- (13) ------ ---- ---- ---- ---- ----- Reported results....................... $3,237 $227 $(69) $(13) $(29) $ 116 ====== ==== ==== ==== ==== =====
The reverse stock split we completed on the morning following the spin-off is reflected for all periods in this Management's Discussion and Analysis. You should read Note 7 to the financial statements for more information. OPERATING UNITS RESULTS Net Sales and Operating Revenues
1999 1998 % CHANGE ------ ------ -------- (MILLIONS) North America............................................. $1,760 $1,679 5 Europe.................................................... 1,235 1,252 (1) Rest of World............................................. 284 306 (7) ------ ------ $3,279 $3,237 1 ====== ======
Revenues from our North American original equipment market increased by 15 percent due primarily to higher volumes. Record-breaking light vehicle production in North America, which increased from about 15.6 million units in 1998 to about 17.0 million units in 1999, or 9 percent, combined with our solid position on many top-selling light truck platforms, were primarily responsible for our North American revenue growth. Revenues from our North American aftermarket business decreased by $70 million in 1999 from 1998. Lower aftermarket exhaust product volumes represented $59 million of the decrease, due 40 47 primarily to increased price competition and increasing average exhaust system product lives arising from the use of stainless steel by original equipment manufacturers. European revenues were essentially unchanged from 1998. Revenues from our European original equipment exhaust operations increased by $59 million due primarily to higher volumes from new original equipment exhaust program launches. The impact of currency devaluation in Europe on both original equipment and aftermarket operations reduced our revenues in Europe by $56 million. Increased price competition and private branded sales, as well as generally weaker aftermarket industry conditions, also contributed to the year-over-year change in revenues. Revenues from our operations in the rest of the world decreased 7 percent to $284 million compared to $306 million in the prior year. Difficult economic conditions in South America and currency devaluation in Brazil led to a $37 million decrease in revenues. This was partially offset by a 49 percent increase in Asian revenues due primarily to higher volumes. EBIT We reported EBIT of $148 million in 1999, compared to $227 million in 1998. Each year included costs and charges, shown in the table in the above section - --"Results from Continuing Operations," that have an effect on comparability of the results. These costs and charges are explained in more detail following the discussion of our automotive operating units results. Before considering these costs and charges, our automotive operating units reported EBIT of $275 million in 1999 compared to $301 million in 1998. Those results are shown by segment in the following table:
1999 1998 ---- ---- (MILLIONS) North America............................................... $181 $106 Europe...................................................... 82 159 Rest Of World............................................... 12 36 ---- ---- $275 $301 ==== ====
The increase in our North American EBIT was driven by improvements in both our original equipment market and our aftermarket. The North American aftermarket improved due to significantly reduced marketing and promotional expenses, lower operational costs due to our restructuring initiatives, and lower customer changeover expenses. These improvements were partially offset by the impact of lower sales. Our North American original equipment market improved due to the increase in sales volumes as well as realized operational cost savings initiatives. These improvements in our original equipment business were partially offset by the launch of some lower margin exhaust platforms. While European original equipment volumes were up in 1999, the EBIT impact of this revenue improvement was offset by lower profit margins from the new business and price reductions to original equipment manufacturers on existing exhaust programs. Lower sales of our premium ride control products in the aftermarket, combined with the introduction of private branded ride control products, caused a change in our product mix toward lower margin products. This, combined with higher product sales to original equipment dealer service departments rather than sales through our traditional aftermarket channels, accounted for most of the EBIT decrease in our European aftermarket. Finally, the required change in our accounting for start-up expenses and the impact of European currency devaluation were the other major factors causing the decline in EBIT from our European operations during 1999. EBIT from our operations in the rest of the world fell $24 million in 1999, resulting primarily from the currency devaluation and resulting economic instability in South America which reduced EBIT by $28 million. This was partially offset by stronger operating results in Australia from operational cost saving activities and improved original equipment exhaust product mix. 41 48 EBIT as a Percentage of Revenue The following table shows EBIT as a percentage of revenue by segment before the costs and charges described above:
1999 1998 ---- ---- North America............................................... 10.3% 6.3% Europe...................................................... 6.6 12.7 Rest of World............................................... 4.2 11.8 Total Tenneco Automotive.......................... 8.4% 9.3%
In North America, operating income as a percentage of revenue increased significantly due to proportionately lower aftermarket selling, general, and administrative expenses relative to the change in sales and improved overhead absorption due to higher original equipment volumes. European operating income as a percentage of revenue decreased primarily due to lower aftermarket sales and product mix changes from higher margin to lower margin business in both market channels. The decrease in EBIT margin in the rest of the world was caused primarily by difficult economic conditions and currency devaluation in Brazil, which was partially offset by increased margins in Australia. Restructuring Charges We adopted plans to restructure portions of our operations in both 1998 and 1999. In the fourth quarter of 1998, our Board of Directors approved an extensive restructuring plan designed to reduce administrative and operational overhead costs. We recorded a pre-tax charge to income from continuing operations of $53 million, $34 million after-tax, or $1.02 per diluted common share. Of the pre-tax charge, for operational restructuring plans, $36 million related to the consolidation of the manufacturing and distribution operations of our North American aftermarket business. A staff and related cost reduction plan, which covered employees in both the operating units and corporate operations, cost $17 million. Our aftermarket restructuring involved closing two plant locations and five distribution centers, resulting in eliminating 302 positions. Our staff and related cost reduction plan involved eliminating 454 administrative positions. We wrote down the fixed assets at the locations to be closed to their fair value, less costs to sell, in the fourth quarter of 1998. As a result of the single-purpose nature of the assets, we estimated fair value at scrap value less cost to dispose. The effect of suspending depreciation for these impaired assets is a reduction in depreciation and amortization of about $2 million on an annual basis. As of December 31, 1999, we had terminated approximately 670 employees and our North American aftermarket business had closed one plant location and four distribution centers under the 1998 plan. To address customer service and production transfer issues, we delayed closing one plant location and one distribution center until the first quarter of 2000. We have executed all other restructuring actions, with the exception of the final disposal of certain assets, according to our initial plan, and these actions were completed by year-end 1999. In the fourth quarter of 1999, our Board of Directors approved a second restructuring plan designed to further reduce operational overhead costs. We recorded a pre-tax charge to income from continuing operations of $55 million, $50 million after-tax, or $1.50 per diluted common share. The charge includes $37 million recorded in Europe to close a ride control manufacturing facility and an exhaust just-in-time plant, close or downsize four aftermarket distribution centers, and reduce administrative overhead by reducing management employment; $15 million to close a North American exhaust manufacturing facility; and $3 million for employment reductions in South America and Asia. In total, the plan involves eliminating approximately 780 positions. We wrote down the fixed assets at the locations to be closed to their fair value, less costs to sell, in the fourth quarter of 1999. We estimated the fair value for buildings using external real estate valuations or a review of recent sales prices for like buildings in the area surrounding the plant to be closed. As a result of the single-purpose nature of the machinery and equipment to be disposed of, fair value was estimated at scrap value less cost to dispose in 42 49 most cases. For certain machines that have value in the used equipment market, engineers estimated value based on recent sales of like machines. We expect to receive net cash proceeds of about $8 million when we dispose of these assets. The effect of suspending depreciation for these impaired assets is a reduction in depreciation and amortization expense of about $3 million on an annual basis. We expect to complete all restructuring activities by the middle of 2001. Amounts related to the restructuring plans are shown in the following table:
DECEMBER 31, 1998 1999 1999 CHARGED TO DECEMBER 31, 1999 RESTRUCTURING RESTRUCTURING CASH ASSET RESTRUCTURING RESERVE CHARGE PAYMENTS ACCOUNTS RESERVE ----------------- ------------- -------- ---------- ----------------- Severance................... $15 $21 $10 $-- $26 Asset impairments........... -- 31 -- 31 -- Facility exit costs......... 1 3 2 -- 2 --- --- --- --- --- $16 $55 $12 $31 $28 === === === === ===
Spin-off Transaction Costs and Other Expenses In the fourth quarter of 1999, we recorded costs and expenses to complete the series of actions necessary to separate Pactiv from the automotive business. These costs included fees for advisors, costs for accelerated vesting of restricted and performance shares of common stock granted to key employees by Tenneco since 1996, and other fees and expenses directly associated with the spin-off transaction. Also included in the total of $59 million in spin-off transaction costs and other expenses in the table presented earlier in the section "-- Results from Continuing Operations" is a $12 million charge to write down the value of a receivable from a former business that we sold in 1994. Deteriorating performance by that business, as well as a consolidation in its primary industry, has caused us to revise our estimate of the proceeds we will ultimately collect on the receivable. Previously Unallocated Tenneco Inc. Expenses Tenneco Inc. incurred costs at the corporate level that were not allocated to the business units. Some of those historical costs remained in our results due to the manner in which our former corporate operations were split between Pactiv and us. These costs related primarily to a receivables sale program operated by Tenneco Inc. prior to the spin-off. Tenneco Inc.'s receivables sale program was discontinued at the end of the third quarter of 1999. The total amount of expenses previously unallocated by Tenneco Inc. were $21 million in 1998 and $4 million in 1999. All of the 1999 previously unallocated Tenneco Inc. expenses were incurred in the first nine months of 1999. Interest Expense, net of interest capitalized We reported interest expense for our continuing operations of $186 million in 2000, compared to $106 million in 1999. Interest expense allocated to discontinued operations was $118 million in 1999 and $171 million in 1998. The decrease in our total interest expense is due primarily to our lower debt levels as a result of using the proceeds from the containerboard sale to pay down debt. This was partially offset by higher interest expense after the spin-off due to our higher cost of financing. As a result of the realignment of our debt before the spin-off, we borrowed approximately $1.7 billion under our new debt arrangements. The new debt structure is explained in more detail in "-- Years 2000 and 1999 -- Liquidity and Capital Resources" earlier in this Management's Discussion and Analysis and in Note 4 to our financial statements. We allocate interest expense to our discontinued operations based generally on the ratio of net assets of discontinued operations to our total net assets plus debt. We began taking certain debt and balance sheet realignment actions in October of 1999, before the spin-off. As a result of these actions, the ratio for allocating interest changed in October, requiring a reduction in interest allocated to discontinued 43 50 operations. This adjustment was $10 million, which we have attributed to part of the cost of the spin-off and debt realignment transactions. Income Taxes Our effective tax rate for 1999 was 195 percent. This high effective tax rate relates primarily to the spin-off transaction. In connection with the spin-off, we repatriated earnings from some foreign tax jurisdictions. Since our policy is to reinvest earnings from foreign operations rather than repatriate them to the U.S., this one-time action resulted in a charge to recognize the taxes due on the repatriation. Additionally, some tax benefits previously shared between the automotive and packaging businesses are no longer available to us following the spin-off and this resulted in a tax charge in the fourth quarter. Finally, the 1999 restructuring involves significant activity in Europe where many of the costs of restructuring will not be deductible for tax purposes. Consequently, we recognized no tax benefit for these non-deductible costs. Our effective tax rate for 1998 was 8 percent. This rate was lower than the statutory rate as a result of certain non-recurring foreign and state tax benefits, lower foreign tax rates, and a reduction in our estimated tax liabilities related to certain global tax audits. Minority Interest Minority interest is related primarily to dividends on the preferred stock of a U.S. subsidiary. We repurchased the preferred stock before the spin-off as part of the debt realignment. DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS Revenues and income for the paperboard packaging discontinued operations are shown in the following table:
YEAR ENDED DECEMBER 31 --------------- 1999 1998 ------ ------ Net sales and operating revenues....................... $ 445 $1,570 ====== ====== Income (loss) before income taxes and interest allocation Operations........................................... $ 32 $ 99 Loss on containerboard sale.......................... (343) -- Gain on sale of folding carton....................... 11 -- Gain on sale of joint venture with Caraustar......... -- 15 Gain on sale of non-strategic timberland............. -- 17 ------ ------ (300) 131 Income tax (expense) benefit........................... 120 (48) ------ ------ Income (loss) before interest allocation............... (180) 83 Allocated interest expense, net of income tax.......... (5) (26) ------ ------ Income (loss) from discontinued operations............. $ (185) $ 57 ====== ======
Fourth quarter 1998 results from discontinued operations for the paperboard packaging segment include a pretax charge of $14 million related to a restructuring plan to reduce administrative and operational overhead costs. The paperboard packaging restructuring plan involved closing four box plants and eliminating 78 manufacturing and 198 administrative positions. 44 51 Revenues and income for the discontinued specialty packaging business and administrative services operations are shown in the following table:
YEAR ENDED DECEMBER 31 --------------- 1999 1998 ------ ------ Net sales and operating revenues....................... $2,419 $2,791 ====== ====== Income before income taxes and interest allocation..... 87 280 Income tax (expense) benefit........................... (29) (113) ------ ------ Income before interest allocation...................... 58 167 Allocated interest expense, net of income tax.......... (81) (85) ------ ------ Income (loss) from discontinued operations............. $ (23) $ 82 ====== ======
Results from discontinued operations for the specialty packaging segment in 1999 include a pre-tax charge of $29 million relating to a plan to realign the headquarters functions. This plan involved severing approximately 40 employees and closing the Greenwich, Connecticut, headquarters facility. Our loss from discontinued operations in 1999 was $208 million, comprised principally of an after-tax loss on sale of the paperboard packaging business of $207 million. This loss on sale includes a $54 million net loss in the fourth quarter, reflecting events that occurred subsequent to the April 1999 sale related to the final settlement of working capital amounts, revisions to actuarially-determined estimates of pension plan effects, and changes in estimates regarding liabilities retained by Pactiv. Earnings per common diluted share from discontinued operations were $4.12 in 1998 compared to a loss per common diluted share of $6.23 in 1999. We recognized extraordinary losses related to the early retirement of debt during 1999. In the first quarter, we recognized an extraordinary loss of $7 million net of income tax, or $ .21 per common diluted share, related to debt retired in connection with the containerboard sale. In the fourth quarter, we recognized an extraordinary loss of $11 million net of income tax, or $.34 per common diluted share, for the cost of debt retired in connection with the debt realignment necessary to accomplish the spin-off. This extraordinary loss related to the debt securities that were retired in the cash tender offer. We did not recognize any gain or loss on the debt securities retired in the offer to exchange Pactiv debt securities for our debt securities since the terms of the Pactiv debt securities were not "substantially different" from the terms of our debt securities. DIVIDENDS ON COMMON STOCK In October 1999, our shareholders approved an amendment to the Certificate of Incorporation providing for a one-for-five reverse stock split of Tenneco's common stock. As a result, the reverse stock split is reflected in the historical dividends declared on our common shares. We declared dividends on our common shares of $1.50 per share for each quarter in 1998 and the first three quarters of 1999. During the fourth quarter of 1999, no cash dividends were paid. CASH FLOWS
1999 1998 ------ ----- (MILLIONS) Cash provided (used) by: Operating activities -- continuing operations............. $ (1) $ 63 Investing activities -- continuing operations............. (227) (278) Financing activities...................................... 1,495 216
45 52 Operating Activities Cash provided by continuing operating activities, including cash transaction related and stand-alone expenses, declined by $64 million for 1999 compared to 1998. Income from continuing operations, inclusive of transaction and stand-alone expenses, and restructuring and other charges, was $179 million lower, and investments in working capital were $70 million more in 1999 compared to 1998. The increase in working capital was attributable primarily to the $112 million increase in accounts receivable arising primarily from the termination of the domestic accounts receivable factoring program operated by Tenneco Inc. Net deferred income tax liabilities increased by $97 million in 1999. The majority of this increase is related to the spin-off transaction and reallocation of tax assets between us and our discontinued operations. Cash provided by our discontinued operations declined by $722 million in 1999 compared to 1998. The paperboard operations were responsible for $213 million, which is attributable primarily to the purchase of containerboard business accounts receivable in contemplation of the sale of the containerboard business in April. Transaction expenses related to the spin-off reduced discontinued operations cash flow by an additional $164 million. Additionally, containerboard results are reflected for the first four months in 1999 and for the full year in 1998 due to the sale of this business, and the specialty business results are reflected for the first 10 months in 1999 and for the full year in 1998 due to the spin-off. Investing Activities Cash used by investing activities for continuing operations was $51 million higher in 1999 compared to 1998. Capital expenditures were $41 million lower in 1999 compared to 1998 due to more effective capital management. This was offset by the acquisition of Kinetic Ltd., an Australian suspension engineering company, for $36 million in May 1999. Cash used by other investing activities was $45 million. Discontinued operations and adjustments related to the spin-off accounted for $24 million of this total and investments in other intangible assets accounted for most of the balance in other investing activities. Cash used by investments in discontinued operations increased by $476 million in 1999 compared to 1998. During the second quarter of 1999, Pactiv acquired for approximately $1.1 billion certain assets previously used by the containerboard business under operating leases and timber cutting rights. This was required in order to complete the April containerboard sale. The source of the funds for these capital expenditures was borrowings by Pactiv prior to the containerboard sale. See "Financing Activities" below. We also received approximately $300 million in proceeds related to the containerboard and folding carton sale transactions. Financing Activities Excluding financing activities required to complete the containerboard sale transaction and the spin-off of Pactiv, cash provided by financing activities was $545 million in 1999. This reflected primarily the impact of our debt realignment discussed earlier in the section "-- Years 2000 and 1999 -- Liquidity and Capital Resources." You should also read Note 1, "Summary of Accounting Policies -- Allocation of Corporate Debt and Interest Expense," for more information. Before the containerboard sale transaction, Pactiv borrowed approximately $1.8 billion. Pactiv used these borrowings to acquire the assets used under operating leases and timber cutting rights described under "Investing Activities" above, and to purchase the containerboard business accounts receivable described under "Operating Activities" above. Pactiv remitted the balance of the borrowings to us to retire short-term debt. Pactiv contributed the containerboard business to the new joint venture, including approximately $1.8 billion in new debt. The debt reduction that resulted from this contribution is shown on the Statements of Cash Flows as a non-cash financing activity. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The section entitled "Derivative Financial Instruments" in Item 7, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" is incorporated herein by reference. 46 53 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS OF TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
PAGE ---- Report of independent public accountants.................... 48 Statements of income (loss) for each of the three years in the period ended December 31, 2000........................ 49 Balance sheets -- December 31, 2000 and 1999................ 50 Statements of cash flows for each of the three years in the period ended December 31, 2000............................ 51 Statements of changes in shareholders' equity for each of the three years in the period ended December 31, 2000..... 52 Statements of comprehensive income (loss) for each of the three years in the period ended December 31, 2000......... 53 Notes to financial statements............................... 54
47 54 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Tenneco Automotive Inc.: We have audited the accompanying balance sheets of Tenneco Automotive Inc. (a Delaware corporation) and consolidated subsidiaries (see Note 1) as of December 31, 2000 and 1999, and the related statements of income, cash flows, changes in shareholders' equity and comprehensive income for each of the three years in the period ended December 31, 2000. These financial statements and the schedule referred to below are the responsibility of Tenneco Automotive Inc.'s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tenneco Automotive Inc. and consolidated subsidiaries as of December 31, 2000 and 1999, and the results of their operations and cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. As discussed in Note 1 to the financial statements, in 1999 Tenneco Automotive Inc. changed its methods of accounting for the costs of start-up activities and for customer acquisition costs. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of Tenneco Automotive Inc. and consolidated subsidiaries is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements of Tenneco Automotive Inc. and consolidated subsidiaries taken as a whole. ARTHUR ANDERSEN LLP Chicago, Illinois January 31, 2001 48 55 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, ----------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- (MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS) REVENUES Net sales and operating revenues........................ $ 3,549 $ 3,279 $ 3,237 ----------- ----------- ----------- COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)... 2,766 2,427 2,332 Engineering, research, and development.................. 58 52 31 Selling, general, and administrative.................... 459 521 472 Depreciation and amortization........................... 151 144 150 ----------- ----------- ----------- 3,434 3,144 2,985 ----------- ----------- ----------- OTHER INCOME (EXPENSE).................................... 5 13 (25) ----------- ----------- ----------- INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST................................................ 120 148 227 Interest expense (net of interest capitalized)........ 186 106 69 Income tax expense (benefit).......................... (27) 82 13 Minority interest..................................... 2 23 29 ----------- ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS.................. (41) (63) 116 Income (loss) from discontinued operations, net of income tax..................................................... -- (208) 139 ----------- ----------- ----------- Income (loss) before extraordinary loss................... (41) (271) 255 Extraordinary loss, net of income tax..................... (1) (18) -- ----------- ----------- ----------- Income (loss) before cumulative effect of changes in accounting principles................................... (42) (289) 255 Cumulative effect of changes in accounting principles, net of income tax........................................... -- (134) -- ----------- ----------- ----------- NET INCOME (LOSS)......................................... $ (42) $ (423) $ 255 =========== =========== =========== EARNINGS (LOSS) PER SHARE Average shares of common stock outstanding -- Basic................................................. 34,735,766 33,480,686 33,701,115 Diluted............................................... 34,906,825 33,656,063 33,766,906 Basic earnings (loss) per share of common stock -- Continuing operations................................. $ (1.18) $ (1.87) $ 3.45 Discontinued operations............................... -- (6.23) 4.13 Extraordinary loss.................................... (.02) (.55) -- Cumulative effect of changes in accounting principles......................................... -- (3.99) -- ----------- ----------- ----------- $ (1.20) $ (12.64) $ 7.58 =========== =========== =========== Diluted earnings (loss) per share of common stock -- Continuing operations................................. $ (1.18) $ (1.87) $ 3.44 Discontinued operations............................... -- (6.23) 4.12 Extraordinary loss.................................... (.02) (.55) -- Cumulative effect of changes in accounting principles......................................... -- (3.99) -- ----------- ----------- ----------- $ (1.20) $ (12.64) $ 7.56 =========== =========== =========== Cash dividends per share of common stock.................. $ .20 $ 4.50 $ 6.00 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements of income (loss). 49 56 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES BALANCE SHEETS
DECEMBER 31, ---------------- 2000 1999 ------ ------ (MILLIONS) ASSETS Current assets: Cash and temporary cash investments....................... $ 35 $ 84 Receivables -- Customer notes and accounts, net....................... 457 557 Other.................................................. 30 14 Inventories............................................... 422 412 Deferred income taxes..................................... 76 59 Prepayments and other..................................... 89 75 ------ ------ 1,109 1,201 ------ ------ Other assets: Long-term notes receivable, net........................... 24 20 Goodwill and intangibles, net............................. 463 495 Deferred income taxes..................................... 94 13 Pension assets............................................ 41 31 Other..................................................... 150... 146 ------ ------ 772 705 ------ ------ Plant, property, and equipment, at cost..................... 1,852 1,923 Less -- Reserves for depreciation and amortization........ 847 886 ------ ------ 1,005 1,037 ------ ------ $2,886 $2,943 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt (including current maturities on long-term debt).................................................. $ 92 $ 56 Trade payables............................................ 464 348 Accrued taxes............................................. 16 20 Accrued interest.......................................... 35 29 Accrued liabilities....................................... 134 149 Other..................................................... 68 61 ------ ------ 809 663 ------ ------ Long-term debt.............................................. 1,435 1,578 ------ ------ Deferred income taxes....................................... 144 108 ------ ------ Postretirement benefits..................................... 128 125 ------ ------ Deferred credits and other liabilities...................... 26 31 ------ ------ Commitments and contingencies Minority interest........................................... 14 16 ------ ------ Shareholders' equity: Common stock.............................................. -- -- Premium on common stock and other capital surplus......... 2,738 2,721 Accumulated other comprehensive income (loss)............. (239) (179) Retained earnings (accumulated deficit)................... (1,929) (1,880) ------ ------ 570 662 Less -- Shares held as treasury stock, at cost............ 240 240 ------ ------ 330 422 ------ ------ $2,886 $2,943 ====== ======
The accompanying notes to financial statements are an integral part of these balance sheets. 50 57 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------- 2000 1999 1998 ------- ------- ----- (MILLIONS) OPERATING ACTIVITIES Income (loss) from continuing operations.................... $ (41) $ (63) $ 116 Adjustments to reconcile income (loss) from continuing operations to cash provided (used) by continuing operations-- Depreciation and amortization........................... 151 144 150 Deferred income taxes................................... (43) 97 (76) (Gain) loss on sale of businesses and assets, net....... (2) 6 20 Changes in components of working capital-- (Increase) decrease in receivables.................... 61 (151) (88) (Increase) decrease in inventories.................... (29) (23) (32) (Increase) decrease in prepayments and other current assets............................................... (14) 14 26 Increase (decrease) in payables....................... 141 46 (12) Increase (decrease) in accrued taxes.................. (4) (43) (9) Increase (decrease) in accrued interest............... 6 (7) -- Increase (decrease) in other current liabilities...... (4) (11) 10 Other................................................... 12 (10) (42) ------- ------- ----- Cash provided (used) by continuing operations............... 234 (1) 63 Cash provided (used) by discontinued operations............. -- (253) 469 ------- ------- ----- Net cash provided (used) by operating activities............ 234 (254) 532 ------- ------- ----- INVESTING ACTIVITIES Net proceeds related to the sale of discontinued operations................................................ -- 303 22 Net proceeds from sale of businesses and assets............. 26 8 10 Expenditures for plant, property, and equipment............. (146) (154) (195) Acquisitions of businesses.................................. (5) (36) (3) Expenditures for plant, property, and equipment and business acquisitions--discontinued operations..................... -- (1,264) (498) Investments and other....................................... (32) (45) (90) ------- ------- ----- Net cash provided (used) by investing activities............ (157) (1,188) (754) ------- ------- ----- NET CASH PROVIDED (USED) BEFORE FINANCING ACTIVITIES -- CONTINUING OPERATIONS....................... 77 (228) (215) FINANCING ACTIVITIES Issuance of common and treasury shares...................... 17 41 50 Purchase of common stock.................................... -- (4) (154) Issuance of equity securities by a subsidiary............... 1 -- -- Redemption of equity securities by a subsidiary............. -- (408) -- Issuance of long-term debt.................................. 1 3,721 4 Retirement of long-term debt................................ (107) (1,410) (21) Net increase (decrease) in short-term debt excluding current maturities on long-term debt.............................. (16) (294) 540 Dividends (common).......................................... (7) (151) (203) Other....................................................... (12) -- -- ------- ------- ----- Net cash provided (used) by financing activities............ (123) 1,495 216 ------- ------- ----- Effect of foreign exchange rate changes on cash and temporary cash investments................................ (3) 2 6 ------- ------- ----- Increase (decrease) in cash and temporary cash investments............................................... (49) 55 -- Cash and temporary cash investments, January 1.............. 84 29 29 ------- ------- ----- Cash and temporary cash investments, December 31 (Note)..... $ 35 $ 84 $ 29 ======= ======= ===== Cash paid during the year for interest...................... $ 186 $ 260 $ 259 Cash paid during the year for income taxes (net of refunds).................................................. $ 18 $ 137 $ 80 NON-CASH INVESTING AND FINANCING ACTIVITIES Common equity interest received related to the sale of containerboard operations................................. -- 194 -- Principal amount of long-term debt assumed by buyers of containerboard operations................................. -- (1,760) -- Principal amount of long-term and short-term debt assumed by Specialty Packaging....................................... -- (2,118) -- Distribution of Specialty Packaging Business................ -- (1,448) -- Obligation for long-term capital lease...................... (17) -- --
- ------------------------- Note: Cash and temporary cash investments include highly liquid investments with a maturity of three months or less at the date of purchase. The accompanying notes to financial statements are an integral part of these statements of cash flows. 51 58 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------- 2000 1999 1998 --------------------- --------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------- ---------- ------- ---------- ------ (MILLIONS EXCEPT SHARE AMOUNTS) COMMON STOCK Balance January 1.................................. 34,970,485 $ -- 34,734,039 $ -- 34,513,977 $ -- Issued pursuant to benefit plans................. 2,826,771 -- 236,446 -- 220,062 -- ---------- ------- ---------- ------- ---------- ------ Balance December 31................................ 37,797,256 -- 34,970,485 -- 34,734,039 -- ========== ------- ========== ------- ========== ------ PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS Balance January 1.................................. 2,721 2,712 2,681 Premium on common stock issued pursuant to benefit plans.................................. 17 22 31 Redemption of equity securities by a subsidiary..................................... -- (13) -- ------- ------- ------ Balance December 31................................ 2,738 2,721 2,712 ------- ------- ------ ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance January 1.................................. (179) (91) (122) Other comprehensive income (loss)................ (60) (110) 31 Reclassification adjustment for disposition of investments.................................... -- 22 -- ------- ------- ------ Balance December 31................................ (239) (179) (91) ------- ------- ------ RETAINED EARNINGS (ACCUMULATED DEFICIT) Balance January 1.................................. (1,880) 142 89 Net income (loss)................................ (42) (423) 255 Dividends-- Common stock................................... (7) (151) (202) Distribution of Specialty Packaging Business... -- (1,448) -- ------- ------- ------ Balance December 31................................ (1,929) (1,880) 142 ------- ------- ------ LESS -- COMMON STOCK HELD AS TREASURY STOCK, AT COST Balance January 1.................................. 1,298,373 240 1,351,535 259 585,637 120 Shares acquired.................................. 125 -- 93,553 9 876,076 161 Shares issued pursuant to benefit and dividend reinvestment plans............................. -- -- (146,715) (28) (110,178) (22) ---------- ------- ---------- ------- ---------- ------ Balance December 31................................ 1,298,498 240 1,298,373 240 1,351,535 259 ========== ------- ========== ------- ========== ------ Total.......................................... $ 330 $ 422 $2,504 ======= ======= ======
The accompanying notes to financial statements are an integral part of these statements of changes in shareholders' equity. 52 59 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------------------------- 2000 1999 1998 ----------------------------- ----------------------------- ----------------------------- ACCUMULATED ACCUMULATED ACCUMULATED OTHER OTHER OTHER COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE INCOME INCOME INCOME INCOME INCOME INCOME ------------- ------------- ------------- ------------- ------------- ------------- (MILLIONS) NET INCOME (LOSS)............. $ (42) $(423) $255 ----- ----- ---- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CUMULATIVE TRANSLATION ADJUSTMENT Balance January 1........... $(176) $ (82) $(122) Translation of foreign currency statements..... (61) (61) (114) (114) 40 40 Reclassification adjustment for disposition of investments in foreign subsidiaries............ -- -- 20 -- -- -- ----- ----- ----- Balance December 31......... (237) (176) (82) ----- ----- ----- ADDITIONAL MINIMUM PENSION LIABILITY ADJUSTMENT Balance January 1........... (3) (9) -- Additional minimum pension liability adjustment.... 2 2 6 6 (15) (15) Income tax benefit (expense)............... (1) (1) (2) (2) 6 6 Reclassification adjustment for disposition of investments in subsidiaries............ -- 2 -- -- -- ----- ----- ----- Balance December 31......... (2) (3) (9) ----- ----- ----- Balance December 31........... $(239) $(179) $ (91) ===== ===== ===== ----- ----- ---- Other comprehensive income (loss)...................... (60) (110) 31 ----- ----- ---- COMPREHENSIVE INCOME (LOSS)... $(102) $(533) $286 ===== ===== ====
The accompanying notes to financial statements are an integral part of these statements of comprehensive income (loss). 53 60 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING POLICIES Consolidation and Presentation Tenneco Automotive Inc. was known as Tenneco Inc. before the spin-off on November 4, 1999, of our packaging business to our shareholders, as described in Note 3. In these notes, when we discuss Tenneco we mean Tenneco Inc. and its subsidiaries before the spin-off and Tenneco Automotive Inc. and its subsidiaries after the spin-off. Our financial statements include all majority-owned subsidiaries. We carry investments in 20% to 50% owned companies at cost plus equity in undistributed earnings since the date of acquisition and cumulative translation adjustments. We have eliminated all significant intercompany transactions. In the first quarter of 2000 we changed how we record "pass through" sales of some catalytic converter components. "Pass through" sales occur when we purchase these components from suppliers, use the components in our manufacturing process and sell the components to our customers as part of the completed catalytic converter. In the past, we recorded "pass through" sales as a reduction of cost of sales. We now record them as part of net sales. Relationships with customers have begun to change where we now take title to these components in the manufacturing process. Additionally, we believe that our competitors in the automotive parts industry already follow this practice so this change is consistent with industry practice and will permit improved comparability with these companies. As a result of the change, our sales increased $206 million in the twelve months ended December 31, 2000, with no impact on our earnings before interest and taxes. Had these components been recorded on a comparable basis in the twelve months ended December 31, 1999 and 1998, net sales would have been $140 million and $72 million higher, respectively. Sales of Accounts Receivable We entered into an agreement during 2000 to sell an interest in some of our trade accounts receivable to a third party. We recognized a loss of $1 million on these sales of trade accounts receivable during 2000, representing the discount from book values at which these receivables were sold to the third party. The discount rate varies based on funding cost incurred by the third party, and it averaged 7.5% during the time period in 2000 when we sold receivables. We retained ownership of the remaining interest in the pool of receivables not sold to the third party. We valued this retained interest based on the recoverable value of the receivables pool, which approximated book value. Inventories At December 31, 2000 and 1999, inventory by major classification was as follows:
2000 1999 ---- ---- (MILLIONS) Finished goods.............................................. $197 $215 Work in process............................................. 83 86 Raw materials............................................... 103 73 Materials and supplies...................................... 39 38 ---- ---- $422 $412 ==== ====
Our inventories are stated at the lower of cost or market value. A portion of total inventories (29% and 30% at December 31, 2000 and 1999, respectively) is valued using the last-in, first-out method. If we had used the first-in, first-out ("FIFO") method of accounting for these inventories, they would have been $16 million and $21 million higher at December 31, 2000 and 1999, respectively. We value all other inventories using the FIFO or average cost methods at the lower of cost or market value. 54 61 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Goodwill and Intangibles, net At December 31, 2000 and 1999, goodwill and intangibles, net of amortization, by major category were as follows:
2000 1999 ---- ---- (MILLIONS) Goodwill.................................................... $458 $485 Other intangible assets..................................... 5 10 ---- ---- $463 $495 ==== ====
Goodwill is being amortized on a straight-line basis over periods ranging from 15 to 40 years. Goodwill amortization amounted to $17 million in both 2000 and 1999, and $16 million in 1998, and is included in the statements of income caption "Depreciation and amortization." We have capitalized certain intangible assets, primarily trademarks and patents, based on their estimated fair value at the date we acquired them. We amortize these intangible assets on a straight-line basis over periods ranging from five to 30 years. Amortization of intangibles amounted to $3 million in both 2000 and 1999, and $2 million in 1998, and is included in the statements of income caption "Depreciation and amortization." Plant, Property, and Equipment, at Cost At December 31, 2000 and 1999, plant, property, and equipment, at cost, by major category were as follows:
2000 1999 ------ ------ (MILLIONS) Land, buildings, and improvements........................... $ 312 $ 365 Machinery and equipment..................................... 1,340 1,339 Other, including construction in progress................... 200 219 ------ ------ $1,852 $1,923 ====== ======
We depreciate these properties on a straight-line basis over the estimated useful lives of the assets. Useful lives range from 10 to 40 years for buildings and improvements and from three to 25 years for machinery and equipment. Notes Receivable and Allowance for Doubtful Accounts Short and long-term notes receivable outstanding were $34 million and $26 million at December 31, 2000 and 1999, respectively. At December 31, 2000 and 1999, the allowance for doubtful accounts on short- and long-term accounts and notes receivable was $24 million and $29 million, respectively. Other Long-Term Assets Beginning on January 1, 1999, we began expensing pre-production design and development costs as incurred unless we have a contractual guarantee for reimbursement from the original equipment customer. We had long-term receivables of $15 million and $10 million on the balance sheet at December 31, 2000 and 1999, respectively, for guaranteed pre-production design and development reimbursement arrangements with our customers. In addition, property, plant and equipment includes $41 million and $56 million at December 31, 2000 and 1999, respectively, for original equipment tools and dies that we own, and 55 62 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) prepayments and other includes $27 million and $25 million at December 31, 2000 and 1999, respectively, for in-process tools and dies that we are building for our original equipment customers. You should also read "Changes in Accounting Principles" later in this note for more information. We capitalize certain costs related to the purchase and development of software that we use in our business operations. We amortize the costs attributable to these software systems over their estimated useful lives, ranging from three to 12 years, based on various factors such as the effects of obsolescence, technology, and other economic factors. Capitalized software development costs, net of amortization, were $98 million and $73 million at December 31, 2000 and 1999, respectively. Income Taxes We utilize the liability method of accounting for income taxes whereby we recognize deferred tax assets and liabilities for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in our financial statements. We reduce deferred tax assets by a valuation allowance when, based upon our estimates, it is more likely than not that we will not realize a portion of the deferred tax assets in a future period. The estimates utilized in the recognition of deferred tax assets are subject to revision in future periods based on new facts or circumstances. We do not provide for U.S. income taxes on unremitted earnings of foreign subsidiaries as our present intention is to reinvest the unremitted earnings in our foreign operations. Unremitted earnings of foreign subsidiaries are approximately $520 million at December 31, 2000. It is not practicable to determine the amount of U.S. income taxes that would be payable upon remittance of the assets that represent those earnings. Earnings Per Share We compute basic earnings per share by dividing income available to common shareholders by the weighted-average number of common shares outstanding. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that we adjust the weighted-average number of shares outstanding to include estimates of additional shares that would be issued if potentially dilutive common shares had been issued. In addition, we adjust income available to common shareholders to include any changes in income or loss that would result from the assumed issuance of the dilutive common shares. Allocation of Corporate Debt and Interest Expense Our practice is to incur indebtedness for our consolidated group at the parent company level or at a limited number of subsidiaries, rather than at the operating company level, and to centrally manage various cash functions. Consequently, our corporate debt has been allocated to discontinued operations based upon the ratio of the discontinued operations' net assets to our consolidated net assets plus debt. We have allocated interest expense, net of tax, to our discontinued operations based on the same allocation methodology. You should also read Note 3, "Discontinued Operations and Extraordinary Loss," for more information. Research and Development We expense research and development costs as they are incurred. Research and development expenses were $33 million, $32 million, and $30 million for 2000, 1999, and 1998, respectively, and are included in the income statement caption "Engineering, research, and development expenses." 56 63 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Foreign Currency Translation We translate financial statements of international operations into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the weighted average exchange rate for each applicable period for revenues, expenses, and gains and losses. We reflect translation adjustments in the balance sheet caption "Accumulated other comprehensive income (loss)." Risk Management Activities We use derivative financial instruments, principally foreign currency forward purchase and sale contracts with terms of less than one year, to hedge our exposure to changes in foreign currency exchange rates, and interest rate swaps to hedge our exposure to changes in interest rates. Our primary exposure to changes in foreign currency rates results from intercompany loans made between affiliates to minimize the need for borrowings from third parties. Net gains or losses on these foreign currency exchange contracts that are designated as hedges are recognized in the income statement to offset the foreign currency gain or loss on the underlying transaction. Additionally, we enter into foreign currency forward purchase and sale contracts to mitigate our exposure to changes in exchange rates on some intercompany and third party trade receivables and payables. Since these anticipated transactions are not firm commitments, we mark these forward contracts to market each period and record any gain or loss in the income statement. From time to time we have also entered into forward contracts to hedge our net investment in foreign subsidiaries. We recognize the after-tax net gains or losses on these contracts on the accrual basis in the balance sheet caption "Accumulated other comprehensive income (loss)." In the statement of cash flows, cash receipts or payments related to these exchange contracts are classified consistent with the cash flows from the transaction being hedged. We do not currently enter into derivative financial instruments for speculative purposes. Changes in Accounting Principles In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which establishes new accounting and reporting standards for the costs of computer software developed or obtained for internal use. This statement required prospective application for fiscal years beginning after December 15, 1998. We adopted SOP 98-1 on January 1, 1999. The impact of this new standard did not have a significant effect on our financial position or results of operations. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities," which requires costs of start-up activities to be expensed as incurred. This statement was effective for fiscal years beginning after December 15, 1998. The statement requires previously capitalized costs related to start-up activities to be expensed as a cumulative effect of a change in accounting principle when the statement is adopted. Prior to January 1, 1999, we capitalized certain costs related to start-up activities, primarily pre-production design and development costs for new automobile original equipment platforms. We adopted SOP 98-5 on January 1, 1999, and recorded an after-tax charge for the cumulative effect of this change in accounting principle of $102 million (net of a $50 million tax benefit), or $3.04 per diluted common share. The change in accounting principle decreased income from continuing operations by $19 million (net of an $11 million tax benefit), or $.56 per diluted common share, for the year ended December 31, 1999. If the new accounting method had been applied retroactively, income from continuing operations for the year ended December 31, 1998 would have been lower by $19 million (net of a $12 million tax benefit), or $.57 per diluted common share. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging 57 64 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Activities." This statement establishes new accounting and reporting standards requiring that all derivative instruments, including derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. This statement cannot be applied retroactively and is effective for all fiscal years beginning after June 15, 2000. We will begin applying the new standard in the first quarter of 2001. We have completed a review of our use of derivatives, including derivatives embedded in other contracts. The adoption of this standard will not have a significant impact on our financial position or results of operations. Effective January 1, 1999, we changed our method of accounting for customer acquisition costs from a deferral method to an expense-as-incurred method. In connection with the decision to separate the automotive and specialty packaging businesses into independent public companies, we determined that a change to an expense-as-incurred method of accounting for automotive aftermarket customer acquisition costs was preferable in order to permit improved comparability of stand-alone financial results with our aftermarket industry competitors. We recorded an after-tax charge for the cumulative effect of this change in accounting principle of $32 million (net of a $22 million tax benefit), or $.95 per diluted common share. The change in accounting principle increased income from continuing operations by $10 million (net of $6 million in income tax expense), or $.30 per diluted common share, for the year ended December 31, 1999. If the new accounting principle had been applied retroactively, income from continuing operations for the year ended December 31, 1998 would have been lower by $4 million (net of a $3 million income tax benefit), or $.11 per diluted common share. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". This SAB provides guidance on the recognition, presentation, and disclosure of revenue in the financial statements and is effective no later than the fourth quarter of fiscal years beginning after December 15, 1999. The SAB draws on the existing accounting rules and defines the basic criteria that must be met before we can record revenue. The impact of adopting SAB 101 did not have a significant effect on our results of operations or financial position. In May 2000, the FASB's Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-14, Accounting for Certain Sales Incentives. This issue addresses the recognition, measurement, and income statement classification of various types of sales incentives, including discounts, coupons, rebates, and free products. Beginning January 1, 2001, we will classify some incentives that were previously shown in selling, general and administrative expense as a reduction in revenues. If we had made this reclassification for 2000 and 1999, net sales would have been reduced by approximately $27 million and $21 million, respectively, with an offsetting reduction in selling, general, and administrative expenses. During 2000, the EITF also reached a consensus on Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs. This issue requires any amounts billed to customers for shipping and handling be classified as sales and precludes the recording of shipping and handling costs as deductions from sales. We record shipping and handling fees and costs in cost of goods sold. When we implemented this consensus, its impact was not material to our results of operations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported 58 65 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Prior years' financial statements have been reclassified where appropriate to conform to 2000 presentations. 2. RESTRUCTURING CHARGES We adopted plans to restructure portions of our operations in 1998, 1999 and 2000. In the fourth quarter of 1998, our Board of Directors approved a restructuring plan designed to reduce administrative and operational overhead costs. We recorded a pre-tax charge to income from continuing operations of $53 million, $34 million after-tax, or $1.02 per diluted common share. Of the pre-tax charge, for operational restructuring plans, $36 million related to the consolidation of the manufacturing and distribution operations of our North American aftermarket business. A staff and related cost reduction plan, which covered employees in both the operating units and corporate operations, cost $17 million. Our aftermarket restructuring involved closing two plant locations and five distribution centers, resulting in eliminating 302 positions. Our staff and related cost reduction plan involved eliminating 454 administrative positions. We wrote down the fixed assets at the locations to be closed to their fair value, less costs to sell, in the fourth quarter of 1998. As a result of the single-purpose nature of the assets, we estimated fair value at scrap value less cost to dispose. We did not receive any significant net cash proceeds from the disposal of these assets. The effect of suspending depreciation for these impaired assets is a reduction in depreciation and amortization of approximately $2 million on an annual basis. We completed the 1998 restructuring actions in the third quarter of 2000. In the fourth quarter of 1999, our Board of Directors approved a restructuring plan designed to further reduce operational overhead costs. We recorded a pre-tax charge to income from continuing operations of $55 million, $50 million after-tax, or $1.50 per diluted common share. The charge includes $37 million recorded in Europe to close a ride control manufacturing facility and an exhaust just-in-time plant, close or downsize four aftermarket distribution centers, and reduce administrative overhead by reducing management employment; $15 million to close a North American exhaust manufacturing facility; and $3 million for employment reductions in South America and Asia. In total, the plan involves eliminating approximately 780 positions. We wrote down the fixed assets at the locations to be closed to their fair value, less costs to sell, in the fourth quarter of 1999. We estimated the fair value for buildings using external real estate valuations or a review of recent sales prices for like buildings in the area surrounding the plant to be closed. As a result of the single-purpose nature of the machinery and equipment to be disposed of, fair value was estimated at scrap value less cost to dispose in most cases. For certain machines that have value in the used equipment market, engineers estimated value based on recent sales of like machines. We expect to receive net cash proceeds of approximately $11 million when we dispose of these assets. The effect of suspending depreciation for these impaired assets is a reduction in depreciation and amortization expense of approximately $3 million on an annual basis. We expect to complete all restructuring activities for the 1999 plan by the middle of 2001. In the fourth quarter of 2000, our Board of Directors approved a restructuring plan to reduce administrative and operational overhead costs. We recorded a pre-tax charge to income from continuing operations of $46 million, $32 million after tax, or $.92 per diluted share. The charge is comprised of $24 million of severance and related costs for salaried employment reductions worldwide and $22 million for the reduction of manufacturing and distribution capacity in response to long term market trends. The manufacturing locations involved are located in Europe, North America, and Asia. In total, the plan involves the elimination of about 700 positions. We wrote down the assets at the locations to be closed to 59 66 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) their fair value, less costs to sell in the fourth quarter of 2000. We estimated the fair market value of buildings using external real estate appraisals. As a result of the single purpose nature of the machinery and equipment to be disposed of, fair value was estimated to be scrap value less costs to dispose in most cases. We do not expect that net cash proceeds on the sale of these assets will be significant. We expect to complete all restructuring activities related to the 2000 plan by the end of 2001. In addition to this restructuring charge, we also recorded other charges in the fourth quarter of $15 million, $10 million after tax, or $.29 per diluted share. These charges relate to a strategic decision to reduce some of the aftermarket parts we offer and to relocation expenses incurred associated with the restructuring plan. The aftermarket parts were written down to their estimated scrap value less costs to sell. Amounts related to our restructuring plans, including the plans we initiated in 1999 and 1998, are shown in the following table.
DECEMBER 31, 1999 2000 2000 CHARGED TO DECEMBER 31, 2000 RESTRUCTURING RESTRUCTURING CASH ASSET RESTRUCTURING RESERVE CHARGE PAYMENTS ACCOUNTS RESERVE ----------------- ------------- -------- ---------- ----------------- Severance..................... $26 24 27 -- 23 Asset impairments............. -- 16 -- 16 -- Facility exit costs........... 2 6 5 -- 3 --- -- -- -- -- $28 46 32 16 26 === == == == ==
3. DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS Background of the Spin-off Transaction In July 1998, the Board of Directors authorized management to develop a broad range of strategic alternatives to separate the automotive, paperboard packaging, and specialty packaging businesses. Subsequently, we completed the following actions: - In January 1999, we announced an agreement to contribute the containerboard business to a new joint venture with an affiliate of Madison Dearborn Partners. The proceeds from the transaction, including debt assumed by the new joint venture, were approximately $2 billion. The transaction closed in April 1999. We retained a 43 percent interest in the joint venture. - In April 1999, we announced an agreement to sell our folding carton operations to Caraustar Industries. This transaction closed in June 1999. The folding carton operations and the containerboard business together represented our paperboard packaging operating segment. - On November 4, 1999, we completed the spin-off of the common stock of Tenneco Packaging Inc., now known as Pactiv Corporation, to our shareholders. Pactiv included all of the businesses that made up our specialty packaging segment, as well as our remaining interest in the containerboard joint venture and our administrative services operations. As a result of this series of transactions, our former specialty and paperboard packaging operating segments are presented as discontinued operations in the accompanying financial statements. The morning following the spin-off, we completed a reverse stock split that had been approved by our shareholders in a special meeting held in October 1999. As a result, every five shares of our common stock were converted into one share of our new common stock. Before the spin-off, we realigned substantially all of our existing debt through a combination of tender offers, exchange offers, and other refinancings. You should also read Note 4, "Long-Term Debt, Short-Term Debt, and Financing Arrangements" for more information. 60 67 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Discontinued Operations Our loss from discontinued operations in 1999 was $208 million, comprised principally of an after-tax loss on sale of the paperboard packaging business of $207 million. This loss on sale includes a $54 million net loss in the fourth quarter, reflecting events that occurred subsequent to the April 1999 sale related to the final settlement of working capital amounts, revisions to actuarially-determined estimates of pension plan effects, and changes in estimates regarding liabilities retained by Pactiv. The Specialty Packaging Business Net assets as of December 31, 1998 and results of operations for the years ended December 31, 1999 and 1998, for the specialty packaging business were as follows:
1999 1998 ------ ------ (MILLIONS) Net assets at December 31................................... $ -- $1,373 ====== ====== Net sales and operating revenues............................ $2,419 $2,791 ====== ====== Income before income taxes and interest allocation.......... $ 87 $ 280 Income tax (expense) benefit................................ (29) (113) ------ ------ Income before interest allocation........................... 58 167 Allocated interest expense, net of income tax (Note)........ (81) (85) ------ ------ Income (loss) from discontinued operations.................. $ (23) $ 82 ====== ======
- --------------- Note: Reference is made to Note 1, "Summary of Accounting Policies -- Allocation of Corporate Debt and Interest Expense," for a discussion of the allocation of corporate debt and interest expense to discontinued operations. The Paperboard Packaging Business Net assets as of December 31, 1998 and results of operations for the years ended 1999 and 1998, for the paperboard packaging business were as follows:
1999 1998 ---- ---- (MILLIONS) Net assets at December 31................................... $ -- $ 366 ====== ====== Net sales and operating revenues............................ $ 445 $1,570 ====== ====== Income (loss) before income taxes and interest allocation Operations................................................ $ 32 $ 99 Loss on containerboard sale............................... (343) -- Gain on sale of folding carton............................ 11 -- Gain on sale of joint venture with Caraustar.............. -- 15 Gain on sale of non-strategic timberland.................. -- 17 ------ ------ (300) 131 Income tax (expense) benefit................................ 120 (48) ------ ------ Income (loss) before interest allocation.................... (180) 83 Allocated interest expense, net of income tax (Note)........ (5) (26) ------ ------ Income (loss) from discontinued operations.................. $ (185) $ 57 ====== ======
- ------------------------- Note: Reference is made to Note 1, "Summary of Accounting Policies -- Allocation of Corporate Debt and Interest Expense," for a discussion of the allocation of corporate debt and interest expense to discontinued operations. 61 68 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Extraordinary Loss During 2000, we recognized extraordinary losses of $1 million (net of a $1 million income tax benefit), or $.02 per diluted common share, related to the early retirement of a portion of our long-term debt. During 1999, an extraordinary loss of approximately $7 million (net of a $3 million income tax benefit), or $.21 per diluted common share, was recognized due to the early retirement of debt. As a result of the debt realignment prior to the spin-off, we recognized an extraordinary loss of approximately $11 million (net of a $7 million income tax benefit), or $.33 per diluted common share. This extraordinary loss consists principally of the fair value paid in the cash tender offers in excess of the historical carrying value for the debt tendered. 4. LONG-TERM DEBT, SHORT-TERM DEBT, AND FINANCING ARRANGEMENTS Long-Term Debt A summary of our long-term debt obligations at December 31, 2000 and 1999, is set forth in the following table:
2000 1999 ------ ------ (MILLIONS) Tenneco Automotive Inc. -- Senior Term Loans due 2001 through 2008, average effective interest rate 9.7% in 2000 and 9.3% in 1999............ $ 947 $1,050 11 5/8% Senior Subordinated Notes due 2009................ 500 500 Debentures due 2008 through 2025, average effective interest rate 9.3% in 2000 and 1999.................... 3 3 Notes due 2001 through 2007, average effective interest rate 8.5% in 2000 and 8.9% in 1999..................... 17 17 Other subsidiaries -- Notes due 2001 through 2011, average effective interest rate 6.9% in 2000 and 10.8% in 1999.................... 22 9 ------ ------ 1,489 1,579 Less -- current maturities.................................. 54 1 ------ ------ Total long-term debt........................................ $1,435 $1,578 ====== ======
The aggregate maturities and sinking fund requirements applicable to the issues outstanding at December 31, 2000, are $54 million, $109 million, $99 million, $97 million, and $98 million for 2001, 2002, 2003, 2004, and 2005, respectively. 62 69 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Short-Term Debt We principally use a revolving credit facility to finance our short-term capital requirements. Information regarding our short-term debt as of and for the years ended December 31, 2000 and 1999, is as follows:
2000 1999 ---- ---- (MILLIONS) Current maturities on long-term debt........................ $54 $ 1 Notes payable............................................... 38 55 --- --- Total short-term debt....................................... $92 $56 === ===
2000 1999 -------- ---------------------- NOTES COMMERCIAL NOTES PAYABLE* PAPER PAYABLE* -------- ---------- -------- (DOLLARS IN MILLIONS) Outstanding borrowings at end of year....................... $ 38 $ -- $ 55 Weighted average interest rate on outstanding borrowings at end of year............................................... 12.7% --% 17.7% Approximate maximum month-end outstanding borrowings during year...................................................... $ 122 $822 $ 287 Approximate average month-end outstanding borrowings during year...................................................... $ 73 $280 $ 143 Weighted average interest rate on approximate average month-end outstanding borrowings during year.............. 15.2% 5.3% 9.1%
- ------------------------- * Includes borrowings under both committed credit facilities and uncommitted lines of credit and similar arrangements. Financing Arrangements
COMMITTED CREDIT FACILITIES(A) ----------------------------------------------------------------- DECEMBER 31, 2000 ------------------------------------------------------ LETTERS OF TERM COMMITMENTS BORROWINGS CREDIT(B) AVAILABLE ------- ----------- ---------- ---------- --------- (MILLIONS) Tenneco Automotive Inc. revolving credit agreement............................... 2005 $500 $12 $34 $454 Subsidiaries' credit agreements........... Various 26 26 -- -- ---- --- --- ---- $526 $38 $34 $454 ==== === === ====
- ------------------------- (a) We generally are required to pay commitment fees on the unused portion of the total commitment and facility fees on the total commitment. (b) Letters of credit reduce the available borrowings under the revolving credit agreement. Prior to the spin-off, we realigned substantially all of our existing debt. To accomplish this, we initiated an offer to exchange Pactiv debt securities for some of our debt securities having a book value of $1,166 million. We also initiated a cash tender offer to purchase debt securities having a book value of $1,374 million and repaid substantially all of our short-term borrowings. Finally, we retired approximately $400 million of subsidiary preferred stock. These transactions were financed by borrowings under our new credit facility, senior subordinated debt that we issued, and borrowings by Pactiv under new credit facilities. The debt of Pactiv was rated investment grade and our debt was rated non-investment grade by debt rating agencies. 63 70 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) As part of the debt realignment, on September 30, 1999, we entered into a $1.55 billion committed senior secured financing arrangement with a syndicate of banks and other financial institutions. On October 20, 2000, we entered into an agreement to amend this facility to: (i) relax the financial covenant ratios beginning in the fourth quarter of 2000, (ii) exclude up to $80 million of cash charges and expenses related to cost reduction initiatives from the calculation of EBITDA for our financial ratios through 2001 and, (iii) make certain other technical changes. In exchange for these amendments, we agreed to certain interest rate increases, lowered our capital expenditure limits and paid an aggregate fee of about $3 million. The remainder of this discussion describes the senior secured credit facility, as amended. As a result of significant reductions in North American vehicle production levels announced by our original equipment customers since late in the fourth quarter of last year and further weakening of the global aftermarket, a trend that accelerated late in the fourth quarter of last year as well, we entered into a second amendment of our senior credit facility on March 22, 2001. The second amendment revised the financial covenant ratios we are required to maintain for each of the fiscal quarters ending in 2001. The second amendment also reduced the limitation on 2001 capital expenditures from $225 million to $150 million, and required that net cash proceeds from all significant, non-ordinary course asset sales be used to prepay the senior term loans. In exchange for these amendments, we agreed to a 25 basis point increase in interest rates on the senior term loans and our revolving credit facility and paid an aggregate fee of about $3 million to consenting lenders. The amendment also provides for the continued availability of the full amount of our $500 million revolving credit facility. At December 31, 2000, we had $454 million available for borrowing under the revolving credit facility. Based on our current projections, we believe that we will be able to meet these revised financial covenant ratios and capital expenditure requirements. Our ability to meet our financial covenants in 2001 and beyond depends upon a number of operational and economic factors, many of which are beyond our control. Factors that could impact our compliance with our financial covenants include the rate at which consumers continue to buy new vehicles and the rate at which they continue to repair vehicles already in service. Persistently lower North American vehicle production levels, further weakening in the global aftermarket beyond our expectation, or an unanticipated reduction in vehicle production levels in Europe, could impact our ability to meet our financial covenant ratios. In the event that we are unable to meet these revised financial covenants, we would consider several options to meet our cash flow needs. These options could include further renegotiations with our senior lenders, additional cost reduction or restructuring initiatives, sales of assets or capital stock, or other alternatives to enhance our financial and operating position. The remainder of this discussion describes the senior secured credit facility, as amended on March 22, 2001. The senior secured credit facility consists of: (i) a $500 million revolving credit facility having a final maturity date of November 4, 2005; (ii) a $406 million term loan having a final maturity date of November 4, 2005; (iii) a $270 million term loan having a final maturity date of November 4, 2007 and; (iv) a $270 million term loan having a final maturity date of May 4, 2008. A portion of each term loan is payable in quarterly installments beginning September 30, 2001. Borrowings under the facility bear interest at an annual rate equal to, at the borrower's option, either (i) the London Interbank Offering Rate plus a margin of 325 basis points for the six-year revolving credit facility and the six-year term loan, 375 basis points for the eight-year term loan and 400 basis points for the eight-and-one-half year term loan; or (ii) a rate consisting of the greater of JP Morgan Chase's prime rate or the Federal Funds rate plus 50 basis points, plus a margin of 225 basis points for the six-year revolving credit facility and the six-year term loan, 275 basis points for the eight-year term loan and 300 basis points for the eight-and-one-half year term loan. Under the provisions of the senior credit facility agreement, the interest margins for borrowings under the revolving credit facility and the six-year term loan may be adjusted based on our consolidated leverage ratio (total debt divided by consolidated earnings before interest, taxes, depreciation and 64 71 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) amortization ("EBITDA") as defined in the senior credit facility agreement) measured at the end of each quarter. The amended senior credit facility requires that we maintain the following consolidated leverage ratios (consolidated indebtedness divided by consolidated EBITDA), consolidated interest coverage ratios (consolidated EBITDA divided by consolidated cash interest paid), and fixed charge coverage ratios (consolidated EBITDA less consolidated capital expenditures, divided by consolidated cash interest paid).
QUARTER ENDING --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2001 2001 2001 2001 --------- -------- ------------- ------------ Leverage Ratio.................................. 6.00 6.25 6.00 5.50 Interest Coverage Ratio......................... 1.40 1.35 1.40 1.55 Fixed Charge Coverage Ratio..................... .60 .55 .65 .80
The senior credit facility agreement also contains restrictions on our operations that are customary for similar facilities, including limitations on: (a) incurring additional liens; (b) sale and leaseback transactions; (c) liquidations and dissolutions; (d) incurring additional indebtedness or guarantees; (e) capital expenditures; (f) dividends, (g) mergers and consolidations; and (h) prepayments and modifications of subordinated and other debt instruments. Compliance with these requirements and restrictions is a condition for any incremental borrowings under the senior credit facility agreement and failure to meet these requirements enables the lenders to require repayment of any outstanding loans. At December 31, 2000, we were in compliance with these requirements. On October 14, 1999, we issued $500 million of 11 5/8% Senior Subordinated Notes due 2009. The senior subordinated debt indenture requires that we, as a condition to incurring certain types of indebtedness not otherwise permitted, initially maintain an interest coverage ratio of not less than 2.00. Under the terms of the indenture, the minimum interest coverage ratio increases to 2.25 beginning on October 15, 2001. The indenture also contains restrictions on our operations, including limitations on: (1) incurring additional indebtedness or liens; (2) dividends, (3) distributions and stock repurchases; (4) investments; and (5) mergers and consolidations. All of our existing and future material domestic wholly owned subsidiaries fully and unconditionally guarantee these notes on a joint and several basis. There are no significant restrictions on the ability of the subsidiaries that have guaranteed these notes to make distributions to us. 5. FINANCIAL INSTRUMENTS The carrying and estimated fair values of our financial instruments by class at December 31, 2000 and 1999, were as follows:
2000 1999 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------- -------- ------- (MILLIONS) ASSETS (LIABILITIES) Long-term debt (including current maturities)........... $(1,489) $(1,066) $(1,579) $(1,588) Instruments with off-balance-sheet risk Foreign currency contracts............................ -- -- -- -- Financial guarantees.................................. -- (9) -- (38) Interest rate swaps................................... -- (8) -- --
65 72 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Asset and Liability Instruments The fair value of cash and temporary cash investments, short and long-term receivables, accounts payable, and short-term debt was considered to be the same as or was not determined to be materially different from the carrying amount. Long-term debt -- The fair value of fixed rate long-term debt was based on the market value of debt with similar maturities and interest rates. Instruments With Off-Balance-Sheet Risk Foreign Currency Contracts -- Note 1, "Summary of Accounting Policies -- Risk Management Activities" describes our use of and accounting for foreign currency exchange contracts. The following table summarizes by major currency the contractual amounts of foreign currency contracts we utilize:
NOTIONAL AMOUNT ------------------------------------ DECEMBER 31, DECEMBER 31, 2000 1999 ---------------- ---------------- PURCHASE SELL PURCHASE SELL -------- ---- -------- ---- (MILLIONS) Foreign currency contracts (in U.S.$): Australian dollars........................................ $ 6 $ 26 $ 5 $ 40 British pounds............................................ 157 99 175 149 Canadian dollars.......................................... 12 43 12 67 Czech Republic koruna..................................... 1 8 1 15 Danish kroner............................................. 9 61 -- 46 European euro............................................. 54 10 38 26 South African rand........................................ 9 19 -- -- U.S. dollars.............................................. 56 37 153 35 Other..................................................... 6 7 6 12 ---- ---- ---- ---- $310 $310 $390 $390 ==== ==== ==== ====
Based on exchange rates at December 31, 2000 and 1999, the cost of replacing these contracts in the event of non-performance by the counterparties would not have been material. Guarantees -- We had guaranteed payment and performance of approximately $9 million and $38 million at December 31, 2000 and 1999, respectively, primarily with respect to letters of credit and other guarantees supporting various financing and operating activities. As of the spin-off, all of our then existing and future material domestic wholly owned subsidiaries fully and unconditionally guaranteed the senior secured credit facility and the senior subordinated notes on a joint and several basis. You should also read Note 13 where we present the Supplemental Guarantor Condensed Consolidating Financial Statements. Interest Rate Swaps -- Under the terms of our senior credit facility agreement, we hedged our exposure to floating interest rates by entering into floating to fixed interest rate swaps covering $300 million of our floating rate debt. The cost of replacing these contracts in the event of non-performance by the counterparties would not be material. 66 73 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. INCOME TAXES The domestic and foreign components of our income from continuing operations before income taxes are as follows:
YEARS ENDED DECEMBER 31, ----------------------- 2000 1999 1998 ----- ----- ----- (MILLIONS) U.S. income (loss) before income taxes...................... $(192) $ (42) $ (65) Foreign income before income taxes.......................... 126 84 223 ----- ----- ----- Income before income taxes.................................. $ (66) $ 42 $ 158 ===== ===== =====
Following is a comparative analysis of the components of income tax expense applicable to continuing operations:
YEARS ENDED DECEMBER 31, ----------------------- 2000 1999 1998 ----- ----- ----- (MILLIONS) Current -- U.S. ..................................................... $ (10) $ (44) $ 72 State and local........................................... 1 (4) (21) Foreign................................................... 25 33 38 ----- ----- ----- 16 (15) 89 ----- ----- ----- Deferred -- U.S. ..................................................... (56) 62 (109) Foreign, state, and other................................. 13 35 33 ----- ----- ----- (43) 97 (76) ----- ----- ----- Income tax expense.......................................... $ (27) $ 82 $ 13 ===== ===== =====
Following is a reconciliation of income taxes computed at the statutory U.S. federal income tax rate (35% for all years presented) to the income tax expense reflected in the statements of income:
YEARS ENDED DECEMBER 31, -------------------- 2000 1999 1998 ---- ---- ---- (MILLIONS) Tax expense computed at the statutory U.S. federal income tax rate.................................................. $(23) $15 $ 55 Increases (reductions) in income tax expense resulting from: Foreign income taxed at different rates and foreign losses with no tax benefit.................................... (2) (2) (12) Taxes on repatriation dividends........................... -- 33 -- State and local taxes on income, net of U.S. federal income tax benefit..................................... (4) (2) (8) Recognition of previously unbenefited loss carryforwards.......................................... (6) (4) (5) Amortization of nondeductible goodwill.................... 3 3 3 Tax effect of intercompany allocation..................... -- 18 -- Nondeductible restructuring expenses...................... 1 15 -- Other..................................................... 4 6 (20) ---- --- ---- Income tax expense.......................................... $(27) $82 $ 13 ==== === ====
67 74 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The components of our net deferred tax liability were as follows:
DECEMBER 31, ------------ 2000 1999 ---- ---- (MILLIONS) Deferred tax assets -- Tax loss carryforwards: U.S. .................................................. $154 $ 78 State.................................................. 10 2 Foreign................................................ 54 49 Postretirement benefits other than pensions............... 36 31 Other..................................................... 14 28 Valuation allowance....................................... (30) (25) ---- ---- Net deferred tax asset............................... 238 163 ---- ---- Deferred tax liabilities -- Tax over book depreciation................................ 149 132 Pensions.................................................. 8 13 Other..................................................... 70 54 ---- ---- Total deferred tax liability......................... 227 199 ---- ---- Net deferred tax asset (liability).......................... $ 11 $(36) ==== ====
As shown by the valuation allowance in the table above, we had potential tax benefits of $30 million and $25 million at December 31, 2000 and 1999, respectively, that we did not recognize in the statements of income when they were generated. These unrecognized tax benefits resulted primarily from foreign tax loss carryforwards that are available to reduce future foreign tax liabilities. The $440 million of U.S. tax loss carryforwards that exist at December 31, 2000, expire beginning in 2019. The $220 million of state tax loss carryforwards that exist at December 31, 2000, will expire in varying amounts over the period from 2001 to 2020. Of the $185 million of foreign tax loss carryforwards that exist at December 31, 2000, $163 million do not expire and the remainder expires in varying amounts over the period from 2001 to 2010. We have tax sharing agreements with our former affiliates that allocate tax liabilities for prior periods. 7. COMMON STOCK On October 25, 1999, our shareholders approved a reverse stock split whereby every five shares of our common stock were converted into one share of our new common stock on the day following the spin-off of Pactiv. In addition, the stock options outstanding on the date of the spin-off were adjusted such that employees received options only in the company for which they worked. The number of shares subject to these options, as well as their exercise prices, were adjusted so that the options immediately after the spin-off had equivalent economic terms to the options immediately before the spin-off. Also, on the date of the spin-off, all restricted stock and units and all performance shares then outstanding were fully vested. All share prices and amounts, prior to November 5, 1999, in this note, with the exception of the earnings per share table, are presented before the effect of the spin-off and reverse stock split. We have authorized 135 million shares ($.01 par value) of common stock, of which 37,797,256 shares and 34,970,485 shares were issued at December 31, 2000 and 1999, respectively. We held 1,298,498 shares of treasury stock at December 31, 2000 and 1,298,373 shares at December 31, 1999. 68 75 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reserved The total number of shares of our common stock reserved at December 31, 2000 and 1999, were as follows:
DECEMBER 31, --------------------- ORIGINAL ISSUE SHARES 2000 1999 --------------------- --------- --------- Employee Stock Ownership Plans (401(k) plans)............ 3,100,000 380,000 Tenneco Automotive Inc. Stock Ownership Plan (stock award plan).................................................. 2,497,413 8,603,344 Employee Stock Purchase Plan............................. -- 232,052 --------- --------- 5,597,413 9,215,396 ========= ========= TREASURY STOCK - --------------------------------------------------------- Tenneco Automotive Inc. Supplemental Stock Ownership Plan (stock award plan)..................................... 1,052,794 1,119,500 --------- --------- 1,052,794 1,119,500 ========= =========
Stock Plans Tenneco Automotive Inc. Stock Ownership Plan -- In December 1996, we adopted the 1996 Stock Ownership Plan, which permits the granting of a variety of awards, including common stock, restricted stock, performance units, stock appreciation rights ("SARs"), and stock options to our directors, officers, and employees. The plan, which will terminate December 31, 2001, was renamed the "Tenneco Automotive Inc. Stock Ownership Plan" in connection with the spin-off. We can issue up to 9.4 million shares of common stock under the Stock Ownership Plan after adjusting for the spin-off and reverse stock split. In December 1999, we adopted the Tenneco Automotive Inc. Supplemental Stock Ownership Plan, which permits the granting of a variety of similar awards to our directors, officers and employees. We can issue up to about 1.1 million treasury shares under the Supplemental Stock Ownership Plan. Restricted Stock/Units, Performance Units, and Stock Equivalent Units -- We have granted restricted stock and restricted units to certain key employees. These awards generally require, among other things, that the employee remains our employee during the restriction period. We have also granted performance units to certain key employees that are payable in common stock at the end of three years after the date of grant based on the attainment of specified performance goals for the three years. We have also granted stock equivalent units to certain key employees that are payable in cash annually at the then current market price of our common stock based on the attainment of specified performance goals. During 2000, 1999, and 1998, we granted 2,735,174, 2,705,107, and 640,810 shares and units, respectively, with a weighted average fair value based on the price of our common stock on the grant date of $8.46, $8.56, and $38.03 per share, respectively. At December 31, 2000, 283,770 restricted shares at an average price of $8.33 per share, 467,416 performance units at an average price of $8.48 per share, 39,076 restricted units at an average price of $8.56 per unit, and 1,944,912 stock equivalent units at an average price of $8.48 per unit were outstanding. Under the Stock Ownership Plan, we have granted restricted stock and performance units to each member of the Board of Directors who is not also an officer. During 2000, 1,000 performance units per non-employee director were issued under this plan at the weighted average fair value of our stock on the grant date of $5.75 per share. During 1999 and 1998, 6,000 and 1,700 restricted shares and units, respectively, were issued under this plan at a weighted average fair value of our stock on the grant date of $8.56 and $37.31 per share, respectively. At December 31, 2000, no restricted shares and 7,000 performance units at an average price of $8.16 per unit were outstanding under this plan. 69 76 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Employee Stock Ownership Plans (401(k) Plans) -- We have established Employee Stock Ownership Plans for the benefit of our employees. Under the plans participants may elect to defer up to 16% of their salary through contributions to the plan, which are invested in selected mutual funds or used to buy our common stock. Through December 31, 2000, we matched qualified contributions with a contribution of 100% of each employee's contribution up to 8% of the employee's salary. Beginning January 1, 2001, this match was reduced to 75% of each employee's contribution up to 8% of the employee's salary. These matching contributions are made in company stock and approximated $16 million and $8 million (representing 1.6 million and .8 million common shares, respectively), for the years ended December 31, 2000 and 1999, respectively. All contributions vest immediately. Employee Stock Purchase Plan -- Effective April 1, 1997, we adopted an Employee Stock Purchase Plan ("ESPP") that allowed U.S. and Canadian employees to purchase our common stock at a 15% discount. Each year employees participating in the ESPP were able purchase shares with a discounted value not to exceed $21,250. Under the ESPP, we sold 281,056, and 613,195 shares to employees in 1999 and 1998, respectively. The weighted average fair value of the employee purchase right, which was estimated using the Black-Scholes option pricing model and the assumptions described below except that the average life of each purchase right was assumed to be 90 days, was $4.29 and $6.31, in 1999 and 1998, respectively. The ESPP was suspended in June 1999, in connection with the reorganization transactions, and terminated during 2000. Stock Options -- The following table reflects the status and activity for all stock options we have issued for the periods indicated:
2000 1999 1998 --------------------- --------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED SHARES AVG. SHARES AVG. SHARES AVG. UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE STOCK OPTIONS OPTION PRICES OPTION PRICES OPTION PRICES ------------- ---------- -------- ---------- -------- ---------- -------- Outstanding, beginning of year.... 9,966,147 $19.83 12,423,304 $42.58 11,924,072 $43.42 Granted before the reverse stock split........................ -- -- 1,763,700 39.04 1,745,480 37.30 Cancelled before the reverse stock split.................. -- -- (9,968,074) 41.86 (1,123,639) 43.53 Adjustment for reverse stock split and spin-off........... -- -- 3,702,596 20.04 -- -- Granted after the reverse stock split........................ 72,083 8.82 2,047,500 8.56 -- -- Cancelled after the reverse stock split.................. (1,268,310) 21.90 (2,879) 20.32 -- -- Stock option buyback............ (6,016,975) 22.57 -- -- -- -- Exercised....................... -- -- -- -- (122,609) 38.58 ---------- ---------- ---------- Outstanding, end of year.......... 2,752,945 12.59 9,966,147 19.83 12,423,304 42.58 ========== ========== ========== Options exercisable at end of year............................ 1,433,520 16.34 5,574,049 23.15 7,522,654 42.84 Weighted average fair value of options granted during the year............................ $ 5.64 $ 3.03 $ 10.82
The fair value of each option granted during 2000, 1999, and 1998 is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions for grants in 2000, 1999, and 1998, respectively: (i) risk-free interest rates of 6.3%, 5.9%, and 5.7%; (ii) expected lives of 10.0, 5.7, and 9.9 years; (iii) expected volatility 40.7%, 26.9%, and 25.6%; and (iv) dividend yield of 0.0%, 2.6%, and 3.2%. 70 77 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following table reflects summarized information about stock options outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------- ---------------------- WEIGHTED AVG. WEIGHTED WEIGHTED NUMBER REMAINING AVG. NUMBER AVG. OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE RANGE OF EXERCISE PRICE AT 12/31/00 LIFE PRICE AT 12/31/00 PRICE ----------------------- ----------- ------------- -------- ----------- -------- $ 8.00 - $14.00........................... 1,970,508 8.9 years 8.53 651,083 8.56 $14.00 - $21.00........................... 142,932 13.5 years 17.36 142,932 17.36 $21.00 - $27.00........................... 639,505 6.3 years 24.03 639,505 24.03 ---------- --------- 2,752,945 1,433,520 ========== =========
We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," to account for our stock-based compensation plans. We recognized after-tax stock-based compensation expense in 2000 of $10 million, in 1999 of $11 million, and in 1998 of $3 million, of which $8 million in 1999 and $3 million in 1998, related to restricted stock and performance shares awarded to employees of our discontinued operations. Had compensation costs for our stock-based compensation plans been determined in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," based on the fair value at the grant dates for the awards under those plans, our pro forma net income and earnings per diluted share of common stock for the years ended December 31, 2000, 1999 and 1998, would have been lower by $4 million or $.11 per diluted common share, $13 million or $.39 per diluted common share, and $33 million or $.19 per diluted common share, of which $8 million in 1999, and $20 million in 1998 related to employees of our discontinued operations. Grantor Trust In August 1998, we established a grantor trust and issued approximately 1.9 million shares of common stock to the trust. This grantor trust was a so-called "rabbi trust" designed to assure the payment of deferred compensation and supplemental pension benefits. The trust was consolidated in our financial statements and the shares were reflected in our financial statements as treasury stock. Consequently, the shares of common stock issued to the trust were not considered to be outstanding in the computation of earnings per share. The grantor trust was terminated at the time of the spin-off. Rights Plan On September 9, 1998, we adopted a Rights Plan and established an independent Board committee to review it every three years. The Rights Plan was adopted to deter coercive takeover tactics and to prevent a potential acquiror from gaining control of us in a transaction that is not in the best interests of our shareholders. Generally, under the Rights Plan, as it has been amended, if a person becomes the beneficial owner of 15 percent or more of our outstanding common stock, each right will entitle its holder to purchase, at the right's exercise price, a number of shares of our common stock or, under certain circumstances, of the acquiring person's common stock, having a market value of twice the right's exercise price. Rights held by the 15 percent or more holder will become void and will not be exercisable. In March 2000, we amended the Rights Plan to (i) reduce from 20 percent to 15 percent the level of beneficial ownership at which the rights became exercisable, as described above, and (ii) eliminate the "qualified offer" terms of the plan. These terms provided that the rights would not become exercisable in connection with a "qualified offer," which was defined as an all-cash tender offer for all outstanding common stock that was fully financed, remained open for a period of at least 60 business days, resulted in 71 78 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) the offeror owning at least 85% of our common stock after consummation of the offer, assured a prompt second-step acquisition of shares not purchased in the initial offer, at the same price as the initial offer, and met certain other requirements. In connection with the adoption of the Rights Plan, our Board of Directors also adopted a three-year independent director evaluation ("TIDE") mechanism. Under the TIDE mechanism, an independent Board committee will review, on an ongoing basis, the Rights Plan and developments in rights plans generally, and, if it deems appropriate, recommend modification or termination of the Rights Plan. The independent committee will report to our Board at least every three years as to whether the Rights Plan continues to be in the best interests of our shareholders. Dividend Reinvestment and Stock Purchase Plan Under the Tenneco Automotive Inc. Dividend Reinvestment and Stock Purchase Plan, holders of our common stock may apply cash dividends and optional cash investments to the purchase of additional shares of our common stock. Stock Repurchase Plans During 1997, we initiated a common stock repurchase program to acquire up to 8.5 million shares. Approximately 7.5 million shares were acquired under this program at a total cost of approximately $289 million. All purchases that we executed through this program were in the open market or negotiated purchases. No shares have been repurchased subsequent to the spin-off. Earnings Per Share Earnings (loss) per share of common stock outstanding were computed as follows:
YEARS ENDED DECEMBER 31, ----------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- (MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS) Basic earnings (loss) per share -- Income (loss) from continuing operations............ $ (41) $ (63) $ 116 =========== =========== =========== Average shares of common stock outstanding.......... 34,735,766 33,480,686 33,701,115 =========== =========== =========== Earnings (loss) from continuing operations per average share of common stock.................... $ (1.18) $ (1.87) $ 3.45 =========== =========== =========== Diluted earnings (loss) per share -- Income (loss) from continuing operations............ $ (41) $ (63) $ 116 =========== =========== =========== Average shares of common stock outstanding.......... 34,735,766 33,480,686 33,701,115 Effect of dilutive securities: Restricted stock............................... 13,650 18,545 10,586 Stock options.................................. 438 8,055 17,647 Performance shares............................. 156,971 148,777 37,558 ----------- ----------- ----------- Average shares of common stock outstanding including dilutive securities.............................. 34,906,825 33,656,063 33,766,906 =========== =========== =========== Earnings (loss) from continuing operations per average share of common stock.................... $ (1.18) $ (1.87) $ 3.44 =========== =========== ===========
8. PREFERRED STOCK We had 50 million shares of preferred stock ($.01 par value) authorized at December 31, 2000 and 1999. No shares of preferred stock were outstanding at those dates. We have designated and reserved 2 million shares of the preferred stock as junior preferred stock for the Rights Plan. 72 79 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 9. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS We have various defined benefit pension plans that cover substantially all of our employees. Benefits are based on years of service and, for most salaried employees, on final average compensation. Our funding policy is to contribute to the plans amounts necessary to satisfy the funding requirement of applicable federal or foreign laws and regulations. Plan assets consist principally of listed equity and fixed income securities. We have postretirement health care and life insurance plans that cover a majority of our domestic employees. For salaried employees, the plans cover our employees retiring on or after attaining age 55 who have had at least 10 years of service with us after attaining age 45. For hourly employees, the postretirement benefit plans generally cover employees who retire according to one of our hourly employee retirement plans. All of these benefits may be subject to deductibles, copayment provisions, and other limitations, and we have reserved the right to change these benefits. Our postretirement benefit plans are not funded. 73 80 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A summary of the change in benefit obligation, the change in plan assets, the development of net amount recognized, and the amounts recognized in the balance sheets for the pension plans and postretirement benefit plans follows:
PENSION POSTRETIREMENT ------------ --------------- 2000 1999 2000 1999 ----- ---- ------ ------ (MILLIONS) Change in benefit obligation: Benefit obligation at September 30 of the previous year... $ 282 $552 $ 122 $ 115 Spin-off of Pactiv........................................ -- (285) -- -- Currency rate conversion.................................. (8) (4) -- -- Curtailment............................................... 1 -- (2) -- Service cost.............................................. 14 8 4 4 Interest cost............................................. 21 17 9 8 Plan amendments/new salaried plan......................... 30 5 (18) -- Actuarial loss (gain)..................................... (8) 4 (5) 4 Benefits paid............................................. (16) (15) (9) (9) ----- ---- ----- ----- Benefit obligation at September 30........................ $ 316 $282 $ 101 $ 122 ===== ==== ===== ===== Change in plan assets: Fair value at September 30 of the previous year........... $ 274 $583 $ -- $ -- Spin-off of Pactiv........................................ -- (338) -- -- Currency rate conversion.................................. (6) -- -- -- Actual return on plan assets.............................. 33 35 -- -- Employer contributions.................................... 8 8 9 9 Participants' contributions............................... 1 1 -- -- Benefits paid............................................. (16) (15) (9) (9) ----- ---- ----- ----- Fair value at September 30................................ $ 294 $274 $ -- $ -- ===== ==== ===== ===== Development of net amount recognized: Funded status at September 30............................. $ (22) $ (8) $(101) $(122) Contributions during the fourth quarter................... 2 2 2 2 Unrecognized cost: Actuarial loss (gain).................................. (16) 5 23 30 Prior service cost..................................... 40 15 (19) (1) Transition liability (asset)........................... (2) (3) -- -- ----- ---- ----- ----- Net amount recognized at December 31...................... $ 2 $ 11 $ (95) $ (91) ===== ==== ===== ===== Amounts recognized in the balance sheets: Prepaid benefit cost...................................... $ 31 $ 37 $ -- $ -- Accrued benefit cost...................................... (34) (35) (95) (91) Intangible asset.......................................... 2 4 -- -- Accumulated other comprehensive income.................... 3 5 -- -- ----- ---- ----- ----- Net amount recognized..................................... $ 2 $ 11 $ (95) $ (91) ===== ==== ===== =====
- ------------------------- Notes: Assets of one plan may not be utilized to pay benefits of other plans. Additionally, the prepaid (accrued) benefit cost has been recorded based upon certain actuarial estimates as described below. Those estimates are subject to revision in future periods given new facts or circumstances. 74 81 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Net periodic pension costs from continuing operations for the years 2000, 1999, and 1998, consist of the following components:
2000 1999 1998 ---- ---- ---- (MILLIONS) Service cost -- benefits earned during the year............. $ 14 $ 8 $ 13 Interest on prior year's projected benefit obligation....... 21 17 36 Expected return on plan assets.............................. (24) (22) (48) Curtailment gain............................................ (2) -- -- Net amortization: Actuarial loss............................................ -- -- 1 Prior service cost........................................ 3 1 1 Transition asset.......................................... -- -- (2) ---- ---- ---- Net pension costs........................................... $ 12 $ 4 $ 1 ==== ==== ==== Other comprehensive income.................................. $ (1) $ (7) $(11) ==== ==== ====
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for all pension plans with accumulated benefit obligations in excess of plan assets were $44 million, $40 million, and $7 million, respectively, as of September 30, 2000, and $50 million, $48 million, and $13 million, respectively, as of September 30, 1999. An additional expense of $1 million was recorded in 1999 related to our December adoption of the Tenneco Automotive Retirement Plan. The weighted average discount rates (which are based on long-term market rates) used in determining the 2000, 1999, and 1998 actuarial present value of the benefit obligations were 7.3%, 6.9%, and 6.9%, respectively. The rate of increase in future compensation was 4.3%, 4.3%, and 4.7%, for 2000, 1999, and 1998, respectively. The weighted average expected long-term rate of return on plan assets for 2000, 1999, and 1998 was 9.4%, 9.4%, and 9.8%, respectively. Net periodic postretirement benefit cost from continuing operations for the years 2000, 1999, and 1998, consist of the following components:
2000 1999 1998 ---- ---- ---- (MILLIONS) Service cost -- benefits earned during the year............. $ 4 $ 4 $ 2 Interest on accumulated postretirement benefit obligation... 9 8 8 Net amortization of actuarial loss.......................... 1 1 1 Curtailment gain............................................ (1) -- -- --- --- --- Net periodic postretirement benefit cost.................... $13 $13 $11 === === ===
The weighted average assumed health care cost trend rate used in determining the accumulated postretirement benefit obligation was 5% for all periods. Increasing the assumed health care cost trend rate by one percentage point in each year would increase the 2000, 1999, and 1998, accumulated postretirement benefit obligations by approximately $11 million, $13 million, and $13 million, respectively, and would increase the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost by approximately $2 million each year for 2000, 1999, and 1998. Decreasing the assumed health care cost trend rate by one percentage point in each year would decrease the 2000 accumulated postretirement benefit obligation by approximately $10 million and would 75 82 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) decrease the aggregate of service cost and interest cost components of the net periodic postretirement benefit cost by $1 million. The discount rates (which are based on long-term market rates) used in determining the 2000, 1999, and 1998 accumulated postretirement benefit obligations were 8.0%, 7.50%, and 7.00 respectively. 10. SEGMENT AND GEOGRAPHIC AREA INFORMATION We are a global manufacturer with two geographic reportable segments: North America and Europe. Each segment manufactures and distributes ride control and emission control products primarily for the automotive industry. We have not aggregated individual operating segments within these reportable segments. The accounting policies of the segments are the same as described in Note 1, "Summary of Accounting Policies." We evaluate segment performance based primarily on income before interest expense, income taxes, and minority interest. Products are transferred between segments and geographic areas on a basis intended to reflect as nearly as possible the "market value" of the products. Segment results for 2000, 1999, and 1998 are as follows:
SEGMENT -------------------------------------------------- RECLASS NORTH & AMERICA EUROPE OTHER ELIMS CONSOLIDATED ------- ------ ------ ------- ------------ (MILLIONS) AT DECEMBER 31, 2000, AND FOR THE YEAR THEN ENDED Revenues from external customers............................ 1,967 1,247 335 -- 3,549 Intersegment revenues....................................... 10 45 13 (68) -- Interest income............................................. -- 1 2 -- 3 Depreciation and amortization............................... 85 42 24 -- 151 Income before interest, income taxes, and minority interest.................................................. 68 40 12 -- 120 Extraordinary loss.......................................... -- -- (1) -- (1) Total assets................................................ 1,213 980 664 (29) 2,886 Investment in affiliated companies.......................... -- 11 -- -- 11 Capital expenditures for continuing operations.............. 71 59 16 -- 146 Noncash items other than depreciation and amortization...... 11 (6) (3) -- 2 AT DECEMBER 31, 1999, AND FOR THE YEAR THEN ENDED Revenues from external customers............................ $1,760 $1,235 $ 284 $ -- $3,279 Intersegment revenues....................................... 8 38 13 (59) -- Interest income............................................. -- -- 7 -- 7 Depreciation and amortization............................... 69 44 31 -- 144 Income before interest, income taxes, and minority interest.................................................. 166 44 (62) -- 148 Income (loss) from discontinued operations.................. -- -- (208) -- (208) Extraordinary loss.......................................... -- -- (18) -- (18) Cumulative effect of change in accounting principle......... (65) (32) (37) -- (134) Total assets (Note)......................................... 1,193 944 840 (34) 2,943 Investment in affiliated companies.......................... -- 1 -- -- 1 Capital expenditures for continuing operations.............. 71 65 18 -- 154 Noncash items other than depreciation and amortization...... 8 23 (4) -- 27
76 83 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT -------------------------------------------------- RECLASS NORTH & AMERICA EUROPE OTHER ELIMS CONSOLIDATED ------- ------ ------ ------- ------------ (MILLIONS) AT DECEMBER 31, 1998, AND FOR THE YEAR THEN ENDED Revenues from external customers............................ $1,679 $1,252 $ 306 $ -- $3,237 Intersegment revenues....................................... 9 26 10 (45) -- Interest income............................................. -- -- 6 -- 6 Depreciation and amortization............................... 72 51 27 -- 150 Income before interest, income taxes, and minority interest.................................................. 58 155 14 -- 227 Income (loss) from discontinued operations.................. -- -- 139 -- 139 Total assets (Note)......................................... 1,062 1,046 2,703 (52) 4,759 Net assets of discontinued operations....................... -- -- 1,739 -- 1,739 Investment in affiliated companies.......................... -- 1 -- -- 1 Capital expenditures for continuing operations.............. 96 67 32 -- 195 Noncash items other than depreciation and amortization...... 3 5 (1) -- 7
- ------------------------- Note: The Other segment's total assets include the net assets of discontinued operations. The following table shows information relating to our external customer revenues for each product or each group of similar products:
NET SALES AND OPERATING REVENUES YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ (MILLIONS) EMISSIONS CONTROL SYSTEMS & PRODUCTS Aftermarket............................................... $ 449 $ 514 $ 590 Original equipment market................................. 1,758 1,401 1,224 ------ ------ ------ 2,207 1,915 1,814 ------ ------ ------ RIDE CONTROL SYSTEMS & PRODUCTS Aftermarket............................................... $ 627 $ 634 $ 685 Original equipment market................................. 715 730 738 ------ ------ ------ 1,342 1,364 1,423 ------ ------ ------ Total............................................. $3,549 $3,279 $3,237 ====== ====== ======
During 2000, sales to three major customers comprised approximately 16.6%, 13.5%, and 11.5% of consolidated net sales and operating revenues. During 1999, sales to three major customers comprised approximately 13.8%, 13.6%, and 10.3% of consolidated net sales and operating revenues. During 1998, sales to two major customers comprised 12.8% and 13.7% of consolidated net sales and operating revenues. 77 84 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC AREA ----------------------------- UNITED OTHER RECLASS & STATES GERMANY FOREIGN(A) ELIMS CONSOLIDATED ------ ------- ---------- --------- ------------ (MILLIONS) AT DECEMBER 31, 2000, AND FOR THE YEAR THEN ENDED Revenues from external customers(b)........... $1,587 $415 $1,547 $ -- $3,549 Long-lived assets(c).......................... 556 82 566 -- 1,204 Total assets.................................. 1,436 223 1,333 (106) 2,886 AT DECEMBER 31, 1999, AND FOR THE YEAR THEN ENDED Revenues from external customers(b)........... $1,460 $355 $1,464 $ -- $3,279 Long-lived assets(c).......................... 578 88 568 -- 1,234 Total assets.................................. 1,497 205 1,309 (68) 2,943 AT DECEMBER 31, 1998, AND FOR THE YEAR THEN ENDED Revenues from external customers(b)........... $1,432 $321 $1,484 $ -- $3,237 Long-lived assets(c).......................... 648 116 654 -- 1,418 Total assets(d)............................... 2,733 444 1,646 (64) 4,759
- ------------------------- Notes: (a) Revenues from external customers and long-lived assets for individual foreign countries other than Germany are not material. (b) Revenues are attributed to countries based on location of the seller. (c) Long-lived assets include all long-term assets except net assets from discontinued operations, goodwill, intangibles, and deferred tax assets. (d) Total assets include net assets from discontinued operations. 11. COMMITMENTS AND CONTINGENCIES Capital Commitments We estimate that expenditures aggregating approximately $45 million will be required after December 31, 2000, to complete facilities and projects authorized at such date, and we have made substantial commitments in connection with these facilities and projects. Lease Commitments We have long-term leases for certain facilities, equipment, and other assets. The minimum lease payments under non-cancelable leases with lease terms in excess of one year are:
SUBSEQUENT 2001 2002 2003 2004 2005 YEARS ---- ---- ---- ---- ---- ---------- (MILLIONS) Operating Leases....................... $13 $12 $12 $11 $ 8 $21 Capital Leases......................... $ 2 $ 2 $ 2 $ 2 $ 2 $14
Total rental expense for continuing operations for the year 2000, 1999, and 1998 was $36 million, $34 million, and $31 million respectively. Litigation We are party to various legal proceedings arising from our operations. We believe that the outcome of these proceedings, individually and in the aggregate, will have no material effect on our financial position or results of operations. 78 85 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Environmental Matters We are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. We expense or capitalize, as appropriate, expenditures for ongoing compliance with environmental regulations that relate to current operations. We expense expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation. We record liabilities when environmental assessments indicate that remedial efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology, and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors. We consider all available evidence including prior experience in remediation of contaminated sites, other companies' cleanup experience and data released by the United States Environmental Protection Agency or other organizations. These estimated liabilities are subject to revision in future periods based on actual costs or new information. Where future cash flows are fixed and determinable, we have discounted the liabilities. All other environmental liabilities are recorded at their undiscounted amounts. We evaluate recoveries separately from the liability and, when they are assured, recoveries are recorded and reported separately from the associated liability in our financial statements. At December 31, 2000, we had been designated as a potentially responsible party in four Superfund sites. We have estimated our share of the remediation costs for these sites to be approximately $1 million in the aggregate. In addition to the Superfund sites, we may have the obligation to remediate current or former facilities, and we estimate our share of remediation costs at these facilities to be approximately $16 million. For both the Superfund sites and the current and former facilities, we have established reserves that we believe are adequate for these costs. Although we believe our estimates of remediation costs are reasonable and are based on the latest available information, the cleanup costs are estimates and are subject to revision as more information becomes available about the extent of remediation required. At some sites, we expect that other parties will contribute to the remediation costs. In addition, at the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides that our liability could be joint and several, meaning that we could be required to pay in excess of our share of remediation costs. Our understanding of the financial strength of other potentially responsible parties has been considered, where appropriate, in our determination of our estimated liability. As previously disclosed, we undertook a third-party evaluation of estimated environmental remediation costs at one of our facilities in 2000. The evaluation was initiated as a result of testing that indicated the potential underground migration of some contaminants beyond our facility property. In the fourth quarter 2000, we completed the evaluation of on-site contamination and recorded a charge of $3 million in the fourth quarter of 2000 to increase our reserve for remediation activities, which is reflected in our estimation of remediation costs described above. We are in the process of completing and analyzing the results of our evaluation of off-site contamination migration from that facility and as a result we expect to increase our reserve for this facility in an amount that we estimate will be in the range of $4 million to $6 million in the first quarter of 2001. The reserves required could be material to our income statement in the period when we are required to adjust them. However, we believe that these potential costs as well as the costs associated with our current status as a potentially responsible party in the Superfund sites, or as a liable party at our current or former facilities, will not be material to our consolidated financial position. 79 86 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 12. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Basis of Presentation We issued senior subordinated notes due 2009 as a component of a plan to realign our debt prior to the spin-off. You should also read Note 3, "Discontinued Operations and Extraordinary Loss" for further discussion of the spin-off and debt realignment and Note 5, "Financial Instruments" for further discussion of the notes and related guarantee. All of our existing and future material domestic wholly owned subsidiaries (which comprise the Guarantor Subsidiaries) fully and unconditionally guarantee the notes on a joint and several basis. We have not presented separate financial statements and other disclosures concerning each of the Guarantor Subsidiaries because management has determined that such information is not material to the holders of the notes. Therefore, the Guarantor Subsidiaries are combined in the presentation below. Included in the financial information of the Guarantor Subsidiaries for each period presented are the financial position and results of operations of a domestic subsidiary, Tenneco International Holding Corp., which had issued preferred stock to a third party. These condensed consolidating financial statements are presented on the equity method. Under this method, our investments are recorded at cost and adjusted for our ownership share of a subsidiary's cumulative results of operations, capital contributions and distributions, and other equity changes. The balance sheet caption "Investment in affiliated companies" includes investments in continuing and discontinued subsidiaries. You should read the condensed consolidating financial statements of the Guarantor Subsidiaries in connection with our consolidated financial statements and related notes of which this note is an integral part. Distributions There are no significant restrictions on the ability of the Guarantor Subsidiaries to make distributions to us. 80 87 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000 -------------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) REVENUES Net sales and operating revenues -- External.......................... $1,587 $1,962 $ -- $ -- $3,549 Affiliated companies.............. 73 71 -- (144) -- ------ ------ ----- ----- ------ 1,660 2,033 -- (144) 3,549 ------ ------ ----- ----- ------ COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)......... 1,296 1,614 -- (144) 2,766 Engineering, research, and development....................... 28 30 -- -- 58 Selling, general, and administrative.................... 276 183 -- -- 459 Depreciation and amortization........ 78 73 -- -- 151 ------ ------ ----- ----- ------ 1,678 1,900 -- (144) 3,434 ------ ------ ----- ----- ------ OTHER INCOME (EXPENSE)................. 5 -- -- -- 5 ------ ------ ----- ----- ------ INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE, INCOME TAXES, MINORITY INTEREST, AND EQUITY IN NET INCOME FROM CONTINUING OPERATIONS OF AFFILIATED COMPANIES... (13) 133 -- -- 120 Interest expense -- External (net of interest capitalized)........ (1) 11 176 -- 186 Affiliated companies (net of interest income)............. 108 9 (117) -- -- Income tax expense (benefit)...... (35) 29 (21) -- (27) Minority interest................. -- 2 -- -- 2 ------ ------ ----- ----- ------ (85) 82 (38) -- (41) Equity in net income from continuing operations of affiliated companies............ 73 -- (3) (70) -- ------ ------ ----- ----- ------ INCOME FROM CONTINUING OPERATIONS...... (12) 82 (41) (70) (41) Income from discontinued operations, net of income tax.................... -- -- -- -- -- ------ ------ ----- ----- ------ Income before extraordinary loss....... (12) 82 (41) (70) (41) Extraordinary loss, net of income tax.................................. -- -- (1) -- (1) ------ ------ ----- ----- ------ Income before cumulative effect of change in accounting principle....... (12) 82 (42) (70) (42) Cumulative effect of change in accounting principle, net of income tax.................................. -- -- -- -- -- ------ ------ ----- ----- ------ NET INCOME............................. (12) 82 (42) (70) (42) Preferred stock dividends.............. -- -- -- -- -- ------ ------ ----- ----- ------ NET INCOME TO COMMON STOCK............. $ (12) $ 82 $ (42) $ (70) $ (42) ====== ====== ===== ===== ======
81 88 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1999 -------------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) REVENUES Net sales and operating revenues -- External............................ $1,460 $1,819 $ -- $ -- $3,279 Affiliated companies................ 77 68 -- (145) -- ------ ------ ----- ----- ------ 1,537 1,887 -- (145) 3,279 ------ ------ ----- ----- ------ COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)........... 1,101 1,469 2 (145) 2,427 Engineering, research, and development......................... 28 24 -- -- 52 Selling, general, and administrative...................... 295 225 1 -- 521 Depreciation and amortization......... 75 69 -- -- 144 ------ ------ ----- ----- ------ 1,499 1,787 3 (145) 3,144 ------ ------ ----- ----- ------ OTHER INCOME (EXPENSE).................. 12 (1) 2 -- 13 ------ ------ ----- ----- ------ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE, INCOME TAXES, MINORITY INTEREST, AND EQUITY IN NET INCOME FROM CONTINUING OPERATIONS OF AFFILIATED COMPANIES.................. 50 99 (1) -- 148 Interest expense -- External (net of interest capitalized)................... 2 16 87 1 106 Affiliated companies (net of interest income)............... 74 10 (84) -- -- Income tax expense.................. 43 38 1 -- 82 Minority interest................... -- 1 -- 22 23 ------ ------ ----- ----- ------ (69) 34 (5) (23) (63) Equity in net income (loss) from continuing operations of affiliated companies.............. 36 -- (58) 22 -- ------ ------ ----- ----- ------ INCOME (LOSS) FROM CONTINUING OPERATIONS............................ (33) 34 (63) (1) (63) Income (loss) from discontinued operations, net of income tax..................... 1 (95) (208) 94 (208) ------ ------ ----- ----- ------ Income (loss) before extraordinary loss.................................. (32) (61) (271) 93 (271) Extraordinary loss, net of income tax... -- (7) (18) 7 (18) ------ ------ ----- ----- ------ Income (loss) before cumulative effect of change in accounting principle..... (32) (68) (289) 100 (289) Cumulative effect of change in accounting principle, net of income tax................................... (64) (70) (134) 134 (134) ------ ------ ----- ----- ------ NET INCOME (LOSS)....................... (96) (138) (423) 234 (423) Preferred stock dividends............... 22 -- -- (22) -- ------ ------ ----- ----- ------ NET INCOME (LOSS) TO COMMON STOCK....... $ (118) $ (138) $(423) $ 256 $ (423) ====== ====== ===== ===== ======
82 89 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998 -------------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) REVENUES Net sales and operating revenues -- External............................ $1,429 $1,804 $ 4 $ -- $3,237 Affiliated companies................ 90 74 -- (164) -- ------ ------ ------ ------ ------ 1,519 1,878 4 (164) 3,237 ------ ------ ------ ------ ------ COSTS AND EXPENSES Costs of sales (exclusive of depreciation shown below)........... 1,086 1,408 2 (164) 2,332 Engineering, research, and development..................... 19 12 -- -- 31 Selling, general, and administrative...................... 276 195 1 -- 472 Depreciation and amortization......... 79 71 -- -- 150 ------ ------ ------ ------ ------ 1,460 1,686 3 (164) 2,985 ------ ------ ------ ------ ------ OTHER INCOME (EXPENSE).................. (25) (1) 1 -- (25) ------ ------ ------ ------ ------ INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE, INCOME TAXES, MINORITY INTEREST, AND EQUITY IN NET INCOME FROM CONTINUING OPERATIONS OF AFFILIATED COMPANIES.................. 34 191 2 -- 227 Interest expense -- External (net of interest capitalized)...................... 2 17 50 -- 69 Affiliated companies (net of interest income)............... 58 4 (62) -- -- Income tax expense (benefit)........ (35) 50 (2) -- 13 Minority interest................... -- 1 -- 28 29 ------ ------ ------ ------ ------ 9 119 16 (28) 116 Equity in net income from continuing operations of affiliated companies......................... 97 -- 100 (197) -- ------ ------ ------ ------ ------ INCOME FROM CONTINUING OPERATIONS....... 106 119 116 (225) 116 Income from discontinued operations, net of income tax......................... 24 269 139 (293) 139 ------ ------ ------ ------ ------ Income before extraordinary loss........ 130 388 255 (518) 255 Extraordinary loss, net of income tax... -- -- -- -- -- ------ ------ ------ ------ ------ Income before cumulative effect of change in accounting principle........ 130 388 255 (518) 255 Cumulative effect of change in accounting principle, net of income tax................................... -- -- -- -- -- ------ ------ ------ ------ ------ NET INCOME.............................. 130 388 255 (518) 255 Preferred stock dividends............... 28 -- -- (28) -- ------ ------ ------ ------ ------ NET INCOME TO COMMON STOCK.............. $ 102 $ 388 $ 255 $ (490) $ 255 ====== ====== ====== ====== ======
83 90 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) BALANCE SHEET
DECEMBER 31, 2000 ---------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) ASSETS Current assets: Cash and temporary cash investments......... $ 8 $ 27 $ -- $ -- $ 35 Receivables................................. 199 379 21 (112) 487 Inventories................................. 158 264 -- -- 422 Deferred income taxes....................... 73 3 -- -- 76 Prepayments and other....................... 36 53 -- -- 89 ------ ------ ------- ------- ------ 474 726 21 (112) 1,109 ------ ------ ------- ------- ------ Other assets: Investment in affiliated companies.......... 324 -- 2,306 (2,630) -- Notes and advances receivable from affiliates................................ 2,343 14 3,469 (5,826) -- Long-term notes receivable, net............. 11 13 -- -- 24 Goodwill and intangibles, net............... 321 142 -- -- 463 Deferred income taxes....................... 75 18 22 (21) 94 Pension assets.............................. 22 19 -- -- 41 Other....................................... 65 60 25 -- 150 ------ ------ ------- ------- ------ 3,161 266 5,822 (8,477) 772 ------ ------ ------- ------- ------ Plant, property, and equipment, at cost....... 854 998 -- -- 1,852 Less -- Reserves for depreciation and amortization.............................. 423 424 -- -- 847 ------ ------ ------- ------- ------ 431 574 -- -- 1,005 ------ ------ ------- ------- ------ Net assets of discontinued operations......... $4,066 $1,566 $ 5,843 $(8,589) $2,886 ====== ====== ======= ======= ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt (including current maturities on long-term debt)............. $ -- $ 29 $ 74 $ (11) $ 92 Trade payables.............................. 179 393 1 (109) 464 Taxes accrued............................... 26 12 -- (22) 16 Other....................................... 109 104 33 (9) 237 ------ ------ ------- ------- ------ 362 538 60 (151) 809 Long-term debt-outside........................ -- 20 1,415 -- 1,435 Long-term debt-affiliated..................... 1,753 4 4,069 (5,826) 0 Deferred income taxes......................... 159 63 (78) -- 144 Postretirement benefits and other liabilities................................. 126 6 (1) 23 154 Commitments and contingencies Minority interest............................. -- 14 -- -- 14 Preferred stock with mandatory redemption provisions.................................. -- -- -- -- -- Shareholders' equity.......................... 1,714 921 330 (2,635) 330 ------ ------ ------- ------- ------ $4,066 $1,566 $ 5,843 $(8,589) $2,886 ====== ====== ======= ======= ======
84 91 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) BALANCE SHEET
DECEMBER 31, 1999 ---------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) ASSETS Current assets: Cash and temporary cash investments......... $ 28 $ 56 $ -- $ -- $ 84 Receivables................................. 665 316 18 (428) 571 Inventories................................. 155 257 -- -- 412 Deferred income taxes....................... 68 (9) -- -- 59 Prepayments and other....................... 34 41 -- -- 75 ------ ------ ------- ------- ------ 950 661 18 (428) 1,201 ------ ------ ------- ------- ------ Other assets: Investment in affiliated companies.......... 266 -- 2,366 (2,632) -- Notes and advances receivable from affiliates........................... 1,809 -- 3,301 (5,110) -- Long-term notes receivable, net............. 3 17 -- -- 20 Goodwill and intangibles, net............... 331 164 -- -- 495 Deferred income taxes....................... -- 13 -- -- 13 Pension assets.............................. 21 10 -- -- 31 Other....................................... 67 52 27 -- 146 ------ ------ ------- ------- ------ 2,497 256 5,694 (7,742) 705 ------ ------ ------- ------- ------ Plant, property, and equipment, at cost....... 888 1,035 -- -- 1,923 Less -- Reserves for depreciation and amortization.............................. 428 458 -- -- 886 ------ ------ ------- ------- ------ 460 577 -- -- 1,037 ------ ------ ------- ------- ------ $3,907 $1,494 $ 5,712 $(8,170) $2,943 ====== ====== ======= ======= ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt (including current maturities on long-term debt)............. $ 1 $ 176 $ 238 $ (359) $ 56 Trade payables.............................. 138 268 6 (64) 348 Taxes accrued............................... 6 15 (1) -- 20 Other....................................... 131 81 27 -- 239 ------ ------ ------- ------- ------ 276 540 270 (423) 663 Long-term debt-outside........................ -- 7 1,571 -- 1,578 Long-term debt-affiliated..................... 1,580 3 3,527 (5,110) 0 Deferred income taxes......................... 131 55 (78) -- 108 Postretirement benefits and other liabilities................................. 130 26 -- -- 156 Commitments and contingencies Minority interest............................. -- 16 -- -- 16 Shareholders' equity.......................... 1,790 847 422 (2,637) 422 ------ ------ ------- ------- ------ $3,907 $1,494 $ 5,712 $(8,170) $2,943 ====== ====== ======= ======= ======
85 92 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000 ---------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) OPERATING ACTIVITIES Net cash provided (used) by operating activities............................... $ 482 $ 45 $(293) $ -- $ 234 ----- ----- ----- ----- ----- INVESTING ACTIVITIES Net proceeds related to the sale of discontinued operations.................. -- -- -- -- -- Net proceeds from the sale of businesses and assets............................... 5 21 -- -- 26 Expenditures for plant, property, and equipment................................ (51) (95) -- -- (146) Acquisitions of businesses................. (1) (4) -- -- (5) Expenditures for plant, property, and equipment and business acquisitions -- discontinued operations.................. -- -- -- -- -- Investments and other...................... (18) (14) -- -- (32) ----- ----- ----- ----- ----- Net cash provided (used) by investing activities............................... (65) (92) -- -- (157) ----- ----- ----- ----- ----- FINANCING ACTIVITIES Issuance of common and treasury shares..... -- -- 17 -- 17 Purchase of common stock................... -- -- -- -- -- Issuance of equity securities by a subsidiary............................... -- 1 -- -- 1 Issuance of long-term debt................. -- 1 -- -- 1 Retirement of long-term debt............... (1) (3) (103) -- (107) Net increase (decrease) in short-term debt excluding current maturities on long-term debt..................................... -- (28) 12 -- (16) Intercompany dividends and net increase (decrease) in intercompany obligations... (425) 50 375 -- -- Dividends (common)......................... -- -- (7) -- (7) Other...................................... (11) -- (1) -- (12) ----- ----- ----- ----- ----- Net cash provided (used) by financing activities............................... (437) 21 293 -- (123) ----- ----- ----- ----- ----- Effect of foreign exchange rate changes on cash and temporary cash investments...... -- (3) -- -- (3) ----- ----- ----- ----- ----- Increase (decrease) in cash and temporary cash investments......................... (20) (29) -- -- (49) Cash and temporary cash investments, January 1................................ 28 56 -- -- 84 ----- ----- ----- ----- ----- Cash and temporary cash investments, December 31 (Note)....................... $ 8 $ 27 $ -- $ -- $ 35 ===== ===== ===== ===== =====
- --------------- Note: Cash and temporary cash investments include highly liquid investments with a maturity of three months or less at the date of purchase. 86 93 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999 ---------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) OPERATING ACTIVITIES Net cash provided (used) by operating activities................................ $ (92) $ (25) $ (115) $(22) $ (254) ----- ------- ------- ---- ------- INVESTING ACTIVITIES Net proceeds related to the sale of discontinued operations................................ -- 303 -- -- 303 Net proceeds from sale of businesses and assets.................................... 6 2 -- -- 8 Expenditures for plant, property, and equipment................................. (51) (103) -- -- (154) Acquisitions of businesses.................. (2) (34) -- -- (36) Expenditures for plant, property, and equipment and business acquisitions -- discontinued operations... -- (1,264) -- -- (1,264) Investments and other....................... (8) (37) -- -- (45) ----- ------- ------- ---- ------- Net cash provided (used) by investing activities................................ (55) (1,133) -- -- (1,188) ----- ------- ------- ---- ------- FINANCING ACTIVITIES Issuance of common and treasury shares...... -- -- 41 -- 41 Purchase of common stock.................... -- -- (4) -- (4) Redemption of equity securities by a subsidiary................................ (408) -- -- -- (408) Issuance of long-term debt.................. -- 2,200 1,521 -- 3,721 Retirement of long-term debt................ (1) (35) (1,374) -- (1,410) Net increase (decrease) in short-term debt excluding current maturities on long-term debt...................................... (25) 392 (661) -- (294) Intercompany dividends and net increase (decrease) in intercompany obligations.... 630 (1,370) 740 -- -- Dividends (common).......................... (22) -- (151) 22 (151) ----- ------- ------- ---- ------- Net cash provided (used) by financing activities................................ 174 1,187 112 22 1,495 ----- ------- ------- ---- ------- Effect of foreign exchange rate changes on cash and temporary cash investments....... -- 2 -- -- 2 ----- ------- ------- ---- ------- Increase (decrease) in cash and temporary cash investments.......................... 27 31 (3) -- 55 Cash and temporary cash investments, January 1......................................... 1 25 3 -- 29 ----- ------- ------- ---- ------- Cash and temporary cash investments, December 31 (Note)........................ $ 28 $ 56 $ -- $ -- $ 84 ===== ======= ======= ==== =======
- --------------- Note: Cash and temporary cash investments include highly liquid investments with a maturity of three months at the date of purchase. 87 94 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998 ---------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) OPERATING ACTIVITIES Net cash provided (used) by operating activities................................ $ 238 $ 577 $(255) $ (28) $ 532 ----- ----- ----- ----- ----- INVESTING ACTIVITIES Net proceeds related to the sale of discontinued operations................... -- 22 -- -- 22 Net proceeds from sale of businesses and assets.................................... 7 3 -- -- 10 Expenditures for plant, property, and equipment................................. (82) (113) -- -- (195) Acquisitions of businesses.................. -- (3) -- -- (3) Expenditures for plant, property, and equipment and businesses acquisitions -- discontinued operations... -- (498) -- -- (498) Investments and other....................... (49) (43) 2 -- (90) ----- ----- ----- ----- ----- Net cash provided (used) by investing activities................................ (124) (632) 2 -- (754) ----- ----- ----- ----- ----- FINANCING ACTIVITIES Issuance of common and treasury shares...... -- -- 50 -- 50 Purchase of common stock.................... -- -- (154) -- (154) Issuance of long-term debt.................. -- 4 -- -- 4 Retirement of long-term debt................ (1) (20) -- -- (21) Net increase (decrease) in short-term debt excluding current maturities on long-term debt...................................... -- 115 425 -- 540 Intercompany dividends and net increase (decrease) in intercompany obligations.... (87) (51) 138 -- -- Dividends (common).......................... (28) -- (203) 28 (203) ----- ----- ----- ----- ----- Net cash provided (used) by financing activities................................ (116) 48 256 28 216 ----- ----- ----- ----- ----- Effect of foreign exchange rate changes on cash and temporary cash investments....... -- 6 -- -- 6 ----- ----- ----- ----- ----- Increase (decrease) in cash and temporary cash investments.......................... (2) (1) 3 -- -- Cash and temporary cash investments, January 1......................................... 3 26 -- -- 29 ----- ----- ----- ----- ----- Cash and temporary cash investments, December 31 (Note)........................ $ 1 $ 25 $ 3 $ -- $ 29 ===== ===== ===== ===== =====
- --------------- Note: Cash and temporary cash investments include highly liquid investments with a maturity of three months or less at the date of purchase. 88 95 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 13. QUARTERLY FINANCIAL DATA (UNAUDITED)
INCOME (LOSS) BEFORE NET SALES INTEREST EXPENSE, INCOME (LOSS) INCOME (LOSS) INCOME (LOSS) AND INCOME TAXES, FROM FROM BEFORE OPERATING AND MINORITY CONTINUING DISCONTINUED EXTRAORDINARY EXTRAORDINARY QUARTER REVENUES INTEREST OPERATIONS OPERATIONS LOSS LOSS - ------- --------- -------------------- ------------- ------------- ------------- ------------- (MILLIONS) 2000 1st................ $ 882 $ 47 $ 1 $ -- $ 1 $ -- 2nd................ 948 68 15 -- 15 -- 3rd................ 870 47 6 -- 6 (1) 4th................ 849 (42) (63) -- (63) -- ------ ---- ---- ----- ----- ---- $3,549 $120 $(41) $ -- $ (41) $ (1) ====== ==== ==== ===== ===== ==== 1999 1st................ $ 789 $ 55 $ 16 $(166) $(150) $ (7) 2nd................ 868 97 37 55 92 -- 3rd................ 816 67 27 12 39 -- 4th................ 806 (71) (143) (109) (252) (11) ------ ---- ---- ----- ----- ---- $3,279 $148 $(63) $(208) $(271) $(18) ====== ==== ==== ===== ===== ==== INCOME (LOSS) BEFORE CUMULATIVE CUMULATIVE EFFECT OF EFFECT OF CHANGE CHANGE IN IN ACCOUNTING ACCOUNTING NET INCOME QUARTER PRINCIPLE PRINCIPLE (LOSS) - ------- ---------------- ---------- ---------- (MILLIONS) 2000 1st................ $ 1 $ -- $ 1 2nd................ 15 -- 15 3rd................ 5 -- 5 4th................ (63) -- (63) ----- ----- ----- $ (42) $ -- $ (42) ===== ===== ===== 1999 1st................ $(157) $(134) $(291) 2nd................ 92 -- 92 3rd................ 39 -- 39 4th................ (263) -- (263) ----- ----- ----- $(289) $(134) $(423) ===== ===== =====
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK ------------------------------------------------------------------------------------------------------ BEFORE CUMULATIVE CUMULATIVE EFFECT OF FROM FROM BEFORE EFFECT OF CHANGE CHANGE IN CONTINUING DISCONTINUED EXTRAORDINARY EXTRAORDINARY IN ACCOUNTING ACCOUNTING NET INCOME QUARTER OPERATIONS OPERATIONS LOSS LOSS PRINCIPLE PRINCIPLE (LOSS) - ------- ---------- ------------ ------------- ------------- ---------------- ---------- ---------- 2000 1st................ $ .03 $ -- $ .03 $ -- $ .03 $ -- $ .03 2nd................ .42 -- .42 -- .42 -- .42 3rd................ .17 -- .17 (.01) .16 -- .16 4th................ (1.74) -- (1.74) -- (1.74) -- (1.74) ------ ------ ------ ----- ------ ------ ------- $(1.18) $ -- $(1.18) $(.02) $(1.20) $ -- $ (1.20) ====== ====== ====== ===== ====== ====== ======= 1999 1st................ $ .47 $(4.99) $(4.52) $(.20) $(4.72) $(4.00) $ (8.72) 2nd................ 1.07 1.67 2.74 -- 2.74 -- 2.74 3rd................ .86 .32 1.18 -- 1.18 -- 1.18 4th................ (4.25) (3.24) (7.49) (.34) (7.83) -- (7.83) ------ ------ ------ ----- ------ ------ ------- $(1.87) $(6.23) $(8.10) $(.55) $(8.65) $(3.99) $(12.64) ====== ====== ====== ===== ====== ====== =======
89 96 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK ------------------------------------------------------------ FROM FROM BEFORE CONTINUING DISCONTINUED EXTRAORDINARY EXTRAORDINARY QUARTER OPERATIONS OPERATIONS LOSS LOSS ------- ---------- ------------ ------------- ------------- 2000 1st................ $ .03 $ -- $ .03 $ -- 2nd................ .42 -- .42 -- 3rd................ .16 -- .16 (.01) 4th................ (1.74) -- (1.74) -- ------ ------ ------ ----- $(1.18) $ -- $(1.18) $(.02) ====== ====== ====== ===== 1999 1st................ $ .47 $(4.99) $(4.52) $(.20) 2nd................ 1.06 1.67 2.73 -- 3rd................ .86 .32 1.18 -- 4th................ (4.25) (3.24) (7.49) (.34) ------ ------ ------ ----- $(1.87) $(6.23) $(8.10) $(.55) ====== ====== ====== ===== DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK --------------------------------------------- BEFORE CUMULATIVE CUMULATIVE EFFECT EFFECT OF OF CHANGE CHANGE IN IN ACCOUNTING ACCOUNTING NET INCOME QUARTER PRINCIPLE PRINCIPLE (LOSS) ------- ----------------- ---------- ---------- 2000 1st................ $ .03 $ -- $ .03 2nd................ .42 -- .42 3rd................ .15 -- .15 4th................ (1.74) -- (1.74) ------ ------ ------- $(1.20) $ -- $ (1.20) ====== ====== ======= 1999 1st................ $(4.72) $(4.00) $ (8.72) 2nd................ 2.73 -- 2.73 3rd................ 1.18 -- 1.18 4th................ (7.83) -- (7.83) ------ ------ ------- $(8.65) $(3.99) $(12.64) ====== ====== =======
- ------------------------- Note: You should read Notes 1, 2, 3 and 7 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for items affecting quarterly results. The sum of the quarters may not equal the total of the respective year's earnings per share on either a basic or diluted basis due to changes in the weighted average shares outstanding throughout the year. (The preceding notes are an integral part of the foregoing financial statements.) 90 97 SCHEDULE II TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- --------- -------------------- ---------- -------- ADDITIONS -------------------- BALANCE CHARGED CHARGED AT TO TO BALANCE BEGINNING COSTS AND OTHER AT END DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR - ----------- --------- --------- -------- ---------- -------- Allowance for Doubtful Accounts and Notes Deducted from Assets to Which it Applies: Year Ended December 31, 2000............ $29 $ 3 -- $ 8 $24 === === === === === Year Ended December 31, 1999............ $39 $21 $(2) $29 $29 === === === === === Year Ended December 31, 1998............ $20 $20 $ 5 $ 6 $39 === === === === ===
91 98 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 92 99 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The section entitled "Election of Directors" in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 8, 2001 is incorporated herein by reference. In addition, Item 4.1 of this Annual Report on Form 10-K, which appears at the end of Part I, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The sections entitled "Executive Compensation," "Election of Directors--Compensation of Directors" and "Election of Directors--2000 Option Repurchase" in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 8, 2001 are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The section entitled "Ownership of Common Stock" in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 8, 2001 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The section entitled "Election of Directors--Transactions with Management and Others" in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 8, 2001 is incorporated herein by reference. 93 100 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. FINANCIAL STATEMENTS INCLUDED IN ITEM 8 See "Index to Financial Statements of Tenneco Automotive Inc. and Consolidated Subsidiaries" set forth in Item 8, "Financial Statements and Supplementary Data" for a list of financial statements filed as part of this Report. INDEX TO SCHEDULE INCLUDED IN ITEM 8
PAGE ---- Schedules of Tenneco Automotive Inc. and Consolidated Subsidiaries -- Schedule II -- Valuation and qualifying accounts -- three years ended December 31, 2000......................................... 91
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE Schedule I -- Condensed financial information of registrant Schedule III -- Real estate and accumulated depreciation Schedule IV -- Mortgage loans on real estate Schedule V -- Supplemental information concerning property -- casualty insurance operations REPORTS ON FORM 8-K We filed the following Current Report on Form 8-K during the quarter ended December 31, 2000: - Current Report on Form 8-K dated October 24, 2000, including pursuant to Item 5 certain information regarding the amendment of our senior credit facility, certain information regarding cost reduction initiatives and certain information regarding our results of operations for the third quarter of 2000. 94 101 EXHIBITS The following exhibits are filed with this Annual Report on Form 10-K for the fiscal year ended December 31, 2000, or incorporated herein by reference (exhibits designated by an asterisk are filed with the Report; all other exhibits are incorporated by reference): INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2 -- Distribution Agreement by and between the registrant and Tenneco Packaging Inc. dated November 3, 1999 (incorporated herein by reference to Exhibit 2 to the registrant's Current Report on Form 8-K dated November 4, 1999, File No. 1-12387). 3.1(a) -- Restated Certificate of Incorporation of the registrant dated December 11, 1996 (incorporated herein by reference from Exhibit 3.1(a) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). 3.1(b) -- Certificate of Amendment, dated December 11, 1996 (incorporated herein by reference from Exhibit 3.1(c) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). 3.1(c) -- Certificate of Ownership and Merger, dated July 8, 1997 (incorporated herein by reference from Exhibit 3.1(d) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1- 12387). 3.1(d) -- Certificate of Designation of Series B Junior Participating Preferred Stock dated September 9, 1998 (incorporated herein by reference from Exhibit 3.1(d) of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-12387). 3.1(e) -- Certificate of Elimination of the Series A Participating Junior Preferred Stock of the registrant dated September 11, 1998 (incorporated herein by reference from Exhibit 3.1(e) of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-12387). 3.1(f) -- Certificate of Amendment to Restated Certificate of Incorporation of the registrant dated November 5, 1999 (incorporated herein by reference from Exhibit 3.1(f) of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 3.1(g) -- Certificate of Amendment to Restated Certificate of Incorporation of the registrant dated November 5, 1999 (incorporated herein by reference from Exhibit 3.1(g) of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 3.1(h) -- Certificate of Ownership and Merger merging Tenneco Automotive Merger Sub Inc. with and into the registrant, dated November 5, 1999 (incorporated herein by reference from Exhibit 3.1(h) of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 3.1(i) -- Certificate of Amendment to Restated Certificate of Incorporation of the registrant dated May 9, 2000 (incorporated herein by reference from Exhibit 3.1(i) of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, File No. 1-12387). 3.2(a) -- By-laws of the registrant, as amended March 14, 2000 (incorporated herein by reference from Exhibit 3.2(a) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-12387). 3.3 -- Certificate of Incorporation of Tenneco Global Holdings Inc. ("Global"), as amended (incorporated herein by reference to Exhibit 3.3 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 3.4 -- By-laws of Global (incorporated herein by reference to Exhibit 3.4 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757).
95 102
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.5 -- Certificate of Incorporation of TMC Texas Inc. ("TMC") (incorporated herein by reference to Exhibit 3.5 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 3.6 -- By-laws of TMC (incorporated herein by reference to Exhibit 3.6 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 3.7 -- Amended and Restate Certificate of Incorporation of Tenneco International Holding Corp. ("TIHC") (incorporated herein by reference to Exhibit 3.7 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 3.8 -- Amended and Restated By-laws of TIHC (incorporated herein by reference to Exhibit 3.8 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 3.9 -- Certificate of Incorporation of Clevite Industries Inc. ("Clevite"), as amended (incorporated herein by reference to Exhibit 3.9 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 3.10 -- By-laws of Clevite (incorporated herein by reference to Exhibit 3.10 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 3.11 -- Amended and Restated Certificate of Incorporation of the Pullman Company ("Pullman") (incorporated herein by reference to Exhibit 3.11 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 3.12 -- By-laws of Pullman (incorporated herein by reference to Exhibit 3.12 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 3.13 -- Certificate of Incorporation of Tenneco Automotive Operating Company Inc. ("Operating") (incorporated herein by reference to Exhibit 3.13 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 3.14 -- By-laws of Operating (incorporated herein by reference to Exhibit 3.14 to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 4.1(a) -- Rights Agreement dated as of September 8, 1998, by and between the registrant and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference from Exhibit 4.1 of the registrant's Current Report on Form 8-K dated September 24, 1998, File No. 1-12387). 4.1(b) -- Amendment No. 1 to Rights Agreement, dated March 14, 2000, by and between the registrant and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference from Exhibit 4.1(b) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-12387). 4.1(b) -- Amendment No. 2 to Rights Agreement, dated February 5, 2001, by and between the registrant and First Union National Bank, as Rights Agent (incorporated herein by reference from Exhibit 4.1(b) of the registrant's Post-Effective Amendment No. 3, dated February 26, 2001, to its Registration Statement on Form 8-A dated September 17, 1998.) 4.2(a) -- Indenture, dated as of November 1, 1996, between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.1 of the registrant's Registration Statement on Form S-4, Registration No. 333-14003). 4.2(b) -- First Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(b) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.2(c) -- Second Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(c) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387).
96 103
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.2(d) -- Third Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(d) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.2(e) -- Fourth Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(e) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.2(f) -- Fifth Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(f) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.2(g) -- Sixth Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(g) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.2(h) -- Seventh Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(h) of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.2(i) -- Eighth Supplemental Indenture, dated as of April 28, 1997, to Indenture, dated as of November 1, 1996 between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.1 of the registrant's Current Report on Form 8-K dated April 23, 1997, File No. 1-12387). 4.2(j) -- Ninth Supplemental Indenture, dated as of April 28, 1997, to Indenture, dated as of November 1, 1996, between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.2 of the registrant's Current Report on Form 8-K dated April 23, 1997, File No. 1-12387). 4.2(k) -- Tenth Supplemental Indenture, dated as of July 16, 1997, to Indenture, dated as of November 1, 1996, between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.1 of the registrant's Current Report on Form 8-K dated June 11, 1997, File No. 1-12387). 4.2(l) -- Eleventh Supplemental Indenture, dated October 21, 1999, to Indenture dated November 1, 1996 between The Chase Manhattan Bank, as Trustee, and the registrant (incorporated herein by reference from Exhibit 4.2(l) of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). *4.3 -- Specimen stock certificate for Tenneco Automotive Inc. common stock. 4.4(a) -- Indenture dated October 14, 1999 by and between the registrant and The Bank of New York, as trustee (incorporated herein by reference from Exhibit 4.4(a) of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 4.4(b) -- Supplemental Indenture dated November 4, 1999 among Tenneco Automotive Operating Subsidiary Inc. (formerly Tenneco Automotive Inc.), Tenneco International Holding Corp., Tenneco Global Holdings Inc., the Pullman Company and Clevite Industries Inc. in favor of The Bank of New York, as trustee (incorporated herein by reference from Exhibit 4.4(b) of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387).
97 104
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.4(c) -- Subsidiary Guarantee dated as of October 14, 1999 from Tenneco Automotive Operating Subsidiary Inc. (formerly Tenneco Automotive Inc.), Tenneco International Holding Corp., Tenneco Global Holdings Inc., the Pullman Company, Clevite Industries Inc. and TMC Texas Inc. in favor of The Bank of New York, as trustee (incorporated herein by reference to Exhibit 4.4(c) to the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 4.5(a) -- Credit Agreement, dated as of September 30, 1999, among the registrant, the Lenders named therein, Commerzbank and Bank of America, N.A., Citicorp USA, Inc. and The Chase Manhattan Bank (incorporated herein by reference from Exhibit 4.5(a) of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 4.5(b) -- First Amendment to the Credit Agreement, dated October 20, 2000, among the registrant, The Chase Manhattan Bank and Citicorp USA, Inc. (incorporated herein by reference from Exhibit 4.1 to the registrant's Current Report on Form 8-K dated October 24, 2000, File No. 1-12387). 4.6(c) -- Second Amendment to Credit Agreement, dated March 22, 2001, among the registrant, the lenders party thereto and The Chase Manhattan Bank (incorporated by reference to Exhibit 4.1 to the registrant's Current Report on Form 8-K dated March 22, 2001, File No. 1-12387). 9 -- None. 10.1 -- Distribution Agreement, dated November 1, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), the registrant, and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 2 of the registrant's Form 10, File No. 1-12387). 10.2 -- Amendment No. 1 to Distribution Agreement, dated as of December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), the registrant, and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.2 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.3 -- Debt and Cash Allocation Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), the registrant, and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.3 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.4 -- Benefits Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), the registrant, and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.4 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.5 -- Insurance Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), the registrant, and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.5 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.6 -- Tax Sharing Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Newport News Shipbuilding Inc., the registrant, and El Paso Natural Gas Company (incorporated herein by reference from Exhibit 10.6 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.7 -- First Amendment to Tax Sharing Agreement, dated as of December 11, 1996, among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), the registrant and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.7 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.8 -- Tenneco Automotive Inc. Executive Incentive Compensation Plan (incorporated herein by reference from Exhibit 10.8 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387).(1)
98 105
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.9 -- Tenneco Automotive Inc. Change of Control Severance Benefits Plan for Key Executives (incorporated herein by reference from Exhibit 10.13 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387).(1) 10.10 -- Tenneco Automotive Inc. Stock Ownership Plan (incorporated herein by reference from Exhibit 10.10 of the registrant's Registration Statement on Form S-4, Reg. No. 333-93757).(1) 10.11 -- Tenneco Automotive Inc. Key Executive Pension Plan (incorporated herein by reference from Exhibit 10.11 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387).(1) 10.12 -- Tenneco Automotive Inc. Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.12 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387).(1) 10.13 -- Tenneco Automotive Inc. Supplemental Executive Retirement Plan (incorporated herein by reference from Exhibit 10.13 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387).(1) 10.14 -- Release Agreement dated as of October 18, 1999 by and between Dana G. Mead and Tenneco Management Company and Modification of Release Agreement dated as of October 18, 1999 among Dana G. Mead, Tenneco Automotive Inc. and Tenneco Management Company (incorporated herein by reference from Exhibit 10.18 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387).(1) 10.15 -- Release Agreement dated as of September 17, 1999 by and between Robert T. Blakely and Tenneco Management Company and Modification of Release Agreement dated as of September 17, 1999 among Robert T. Blakely, Tenneco Automotive Inc. and Tenneco Management Company (incorporated herein by reference from Exhibit 10.15 to the registrant's Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-12387).(1) 10.16 -- Agreement, dated as of April 12, 1999, among the registrant, Tenneco Management Company, Tenneco Packaging Inc. and Paul T. Stecko (incorporated herein by reference from Exhibit 10.30 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 1-12387).(1) 10.17 -- Human Resources Agreement by and between Tenneco Automotive Inc. and Tenneco Packaging Inc. dated November 4, 1999 (incorporated herein by reference to Exhibit 99.1 to the registrant's Current Report on Form 8-K dated November 4, 1999, File No. 1-12387). 10.18 -- Tax Sharing Agreement by and between Tenneco Automotive Inc. and Tenneco Packaging Inc. dated November 3, 1999 (incorporated herein by reference to Exhibit 99.2 to the registrant's Current Report on Form 8-K dated November 4, 1999, File No. 1-12387). 10.19 -- Amended and Restated Transition Services Agreement by and between Tenneco Automotive Inc. and Tenneco Packaging Inc. dated as of November 4, 1999 (incorporated herein by reference from Exhibit 10.21 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 10.20 -- Purchase Agreement among Salomon Smith Barney Inc., the other Initial Purchasers as named therein and Tenneco Inc. dated October 8, 1999 (incorporated herein by reference from Exhibit 10.18 of the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 10.21 -- Registration Rights Agreement among Tenneco Inc., the Guarantors named therein, Salomon Smith Barney Inc. and the other Initial Purchasers named therein dated October 14, 1999 (incorporated herein by reference from Exhibit 10.19 of the registrant's Registration Statement on Form S-4, Reg. No. 333-93757).
99 106
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.22 -- Assumption Agreement among Tenneco Automotive Operating Company Inc., Tenneco International Holding Corp., Tenneco Global Holdings Inc., The Pullman Company, Clevite Industries Inc., TMC Texas Inc., Salomon Smith Barney Inc. and the other Initial Purchasers listed in the Purchase Agreement dated as of November 4, 1999 (incorporated herein by reference from Exhibit 10.20 of the registrant's Registration Statement on Form S-4, Reg. No. 333-93757). 10.23 -- Amendment No. 1 to Change in Control Severance Benefits Plan for Key Executives (incorporated herein by reference from Exhibit 10.23 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387).(1) 10.24 -- Letter Agreement dated July 27, 2000 between the registrant and Mark P. Frissora (incorporated herein by reference from Exhibit 10.24 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387)(1). 10.25 -- Letter Agreement dated July 27, 2000 between the registrant and Mark A. McCollum (incorporated herein by reference from Exhibit 10.25 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387)(1). 10.26 -- Letter Agreement dated July 27, 2000 between the registrant and Richard P. Schneider (incorporated herein by reference from Exhibit 10.26 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387)(1). *10.27 -- Letter Agreement dated July 27, 2000 between the registrant and Richard P. Sloan.(1) *10.28 -- Letter Agreement dated July 27, 2000 between the registrant and Timothy R. Donovan.(1) 10.29 -- Form of Indemnity Agreement entered into between the registrant and the following directors of the registrant: Paul Stecko, M. Kathryn Eickhoff, Mark Andrews and Dennis Severance (incorporated herein by reference from Exhibit 10.26 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, File No. 1-12387). *10.30 -- Mark P. Frissora Special Appendix under Tenneco Automotive Inc. Supplemental Executive Retirement Plan.(1) 11 -- None. *12 -- Statement of Ratio of Earnings to Fixed Charges -- December 31, 2000, 1999, 1998, 1997 and 1996. 13 -- None. 16 -- None. 18 -- None. *21 -- List of subsidiaries of the registrant. 22 -- None. *23 -- Consent of Arthur Andersen LLP. *24 -- Power of Attorney of Mark P. Frissora, Mark A. McCollum, Kenneth R. Trammell, Sir David Plastow, M. Kathryn Eickhoff, Mark Andrews, Roger B. Porter, Paul T. Stecko, David B. Price, Jr., Frank E. Macher and Dennis G. Severance. 99 -- None.
- --------------- (1) Indicates a management contract or compensatory plan or arrangement. * Filed herewith. 100 107 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TENNECO AUTOMOTIVE INC. By /s/ MARK P. FRISSORA* ------------------------------------ Mark P. Frissora Chairman and Chief Executive Officer Date: March 30, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed by the following persons in the capacities indicated on March 30, 2001.
SIGNATURE TITLE --------- ----- /s/ MARK P. FRISSORA* Chairman, President and Chief Executive - -------------------------------------------------------- Officer and Director (principal executive Mark P. Frissora officer) /s/ MARK A. MCCOLLUM* Senior Vice President and Chief Financial - -------------------------------------------------------- Officer (principal financial officer) Mark A. McCollum /s/ KENNETH R. TRAMMELL* Vice President and Controller (principal - -------------------------------------------------------- accounting officer) Kenneth R. Trammell /s/ SIR DAVID PLASTOW* Director - -------------------------------------------------------- Sir David Plastow /s/ M. KATHRYN EICKHOFF* Director - -------------------------------------------------------- M. Kathryn Eickhoff /s/ MARK ANDREWS* Director - -------------------------------------------------------- Mark Andrews /s/ ROGER B. PORTER* Director - -------------------------------------------------------- Roger B. Porter /s/ PAUL T. STECKO* Director - -------------------------------------------------------- Paul T. Stecko /s/ DAVID B. PRICE, JR.* Director - -------------------------------------------------------- David B. Price, Jr. /s/ FRANK E. MACHER* Director - -------------------------------------------------------- Frank E. Macher /s/ DENNIS G. SEVERANCE* Director - -------------------------------------------------------- Dennis G. Severance *By: /s/ TIMOTHY R. DONOVAN --------------------------------------------------- Timothy R. Donovan Attorney in fact
101 EX-4.3 2 c59635ex4-3.txt STOCK CERTIFICATE 1 EXHIBIT 4.3 INCORPORATED UNDER THE LAWS COMMON STOCK OF THE STATE OF DELAWARE PAR VALUE $.01 EACH [NUMBER] [DRAWING] [SHARES] [C ] [ ] THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 880349 10 5 NEW YORK, NEW YORK AND SEE REVERSE FOR CERTAIN RESTRICTIONS ON CHARLOTTE, NORTH CAROLINA PREEMPTIVE, TRANSFER AND OTHER RIGHTS TENNECO AUTOMOTIVE INC. THIS IS TO CERTIFY THAT ------------- [TENNECO AUTOMOTIVE LOGO] IS THE OWNER OF ------------- FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF Tenneco Automotive Inc. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and Registered by the Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. /s/ Mark P. Frissora Dated: CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED FIRST UNION NATIONAL BANK [SEAL] TRANSFER AGENT AND REGISTRAR /s/ K. A. Stewart By: CORPORATE SECRETARY AUTHORIZED SIGNATURE
2 TENNECO AUTOMOTIVE INC. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian ------------- ----------- TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act in common ------------------ (State)
Additional abbreviations may also be used though not in the above list THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, THE DESIGNATIONS POWERS, PREFERENCES AND RELATIVE PARTICIPATING OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCE AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE TRANSFER AGENT. For value received, _____________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [ ] - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ________________________________________________________________________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ___________________________________________ ______________________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated: ---------------------- ---------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between Tenneco Automotive Inc., formerly known as Tenneco Inc. (the "Company") and First Union National Bank, as Rights Agent (as successor to First Chicago Trust Company of New York), dated as of September 9, 1998 as amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights owned by or transferred to any Person who is or becomes an Acquiring Person (as defined in the Rights Agreement) and certain transfers thereof will become null and void and will no longer be transferable. EX-10.27 3 c59635ex10-27.txt RICHARD P. SCHNEIDER LETTER AGREEMENT DTD 7/27/00 1 EXHIBIT 10.27 [TENNECO AUTOMOTIVE LETTERHEAD] July 27, 2000 PERSONAL AND CONFIDENTIAL Mr. Richard Sloan Avenue du Vert Chasseur 14 1180 Brussels Belgium Dear Mr. Sloan: On behalf of Tenneco Automotive Inc. (the "Company"), I am pleased To set forth and confirm the terms and conditions of your continued service as Executive Vice President and Managing Director - Europe of the Company: 1. COMMENCEMENT. Except as specifically provided herein, the terms and conditions hereof will be effective immediately upon the signing hereof. You will report to and serve at the pleasure of the Board of Directors of the Company (the "Board"). 2. BASE SALARY. Effective on January 1, 2000, you will be paid a base salary of $357,000.00 per year, which will be subject to such increases as may from time to time be approved by The Board or such committee of the Board to which such power has been delegated (the "Committee"), payable according to the regular pay schedule for salaried employees. 3. ANNUAL BONUS You will be eligible for an annual performance bonus. Commencing with calendar year 2000, your annual Target bonus will be, at least, $264,000.00 subject to fulfillment of performance goals as determined by The Board or Committee. 2 Mr. Richard Sloan July 27, 2000 Page 2 4. PERFORMANCE UNITS, STOCK OPTIONS, RESTRICTED STOCK AND STOCK EQUIVALENT UNITS. At the time of the spin-off of Pactiv Corporation (formerly Tenneco Packaging Inc.) by the Company (the "Spin-off"), you were granted 30,000 performance units under the Company's Stock Ownership Plan (the "Plan"), payable in shares of the Company's stock in January 2003, subject to fulfillment of performance goals as determined by the Committee and the other terms of the grant determined by the Committee. At the time of the Spin-off, you were granted under the Plan an option to purchase 165,000 shares of Company stock, subject to terms and conditions set by the Committee under the Plan. You have received a restricted stock grant of 39,077 shares and one-third of such restricted stock will vest on each of the first three anniversaries of the Spin-off if you continue to be employed by The Company on such anniversary. The number of shares set forth above with respect to the performance unit, restricted stock and stock option awards is after giving effect to the one-for-five reverse stock split completed in November 1999. In December, 1999 (executive November 5, 1999), you were granted 162,114 stock equivalent units under the Plan for the three-year period ending December 31, 2002. This grant is payable in cash in three annual installments, subject to and in accordance with the Terms and conditions of the grant determined by the Committee. The grants described herein are without prejudice to your receipt of additional grants as determined by the Board or the Committee under the Plan and/or any other similar benefit plan or compensation program or arrangement of the Company. The vesting terms and the other conditions, events and circumstances under which you will be entitled to receive the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units shall be the terms, conditions, events and circumstances set forth in your grant agreements for the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units as of the date of this letter. 5. EXECUTIVE BENEFIT PLANS. You will be eligible to participate in all employee benefit plans applicable to salaried employees generally and all executive compensation structures applicable to senior executives generally, including the Company's Supplemental Executive Retirement Plan (the "SERP"). The Company shall not terminate, amend or modify The SERP after the date hereof in any manner which is adverse to you. 6. VACATION. You will receive four weeks vacation (with pay) per year. 7. CHANGE IN CONTROL. You will participate in the Company's Change in Control Severance Benefit Plan for Key Executives (the "Change in Control Plan"); provided, that your cash severance benefit under Section 3A or 3B. as applicable, of the Change in Control Plan will be 3 times the total of (i) your annual base salary in effect immediately prior to the Change in Control (as defined in the Change in Control Plan), plus (ii) the higher of (a) your highest target bonus over the last 3 years of your employment, and (b) the average of your annual awards under any bonus plan of the Company or its subsidiaries, including any special awards, for the last three years of your employment (or such shorter period as you have been employed by the Company or it subsidiaries); and 3 Mr. Richard Sloan July 27, 2000 Page 3 provided further that all of your outstanding awards under the Plan or any other similar benefit plan or compensation arrangement or program of the Company or its subsidiaries will be treated as exercisable, earned at target and vested, as the case may be, immediately upon the Change in Control (as that term is currently defined in the Change in Control Plan) and shall be paid to you or otherwise treated in the manner currently specified in, and in accordance with the current terms of, the Change in Control Plan. 8. SEVERANCE. Subject to the provisions of paragraph 7, if your employment is terminated other than by you voluntarily or for death, disability, or non-performance of your duties, subject to your execution of a general release and such other documents as the Company may reasonably request: (a) you will be paid a severance benefit in an amount equal to two times the total of your then current base salary plus your bonus for the immediately preceding year; (b) subject to Board and/or Committee approval, all your outstanding awards under the Plan (or any other similar benefit plan or compensation program or arrangement of the Company or its subsidiaries) may vest and/or become exercisable on the date of your termination; (c) vested stock options you hold will remain exercisable for a period of not less than 90 days from your termination; and (d) the Company will continue to provide to you, for one year following the date of the termination of your employment, health and welfare benefits amounting to no less than the amount of health and welfare benefits you receive at the time your employment commences. COBRA continuation coverage will begin following this one year period. 9. TAX GROSS-UP PAYMENT. If any portion of the payments described herein, and/or any other payments, shall be subject to the tax imposed by Section 4999 of the Internal Revenue Code (the portion of such payments which are subject to the Excise Tax being referred to herein as the "Payments"), the Company shall pay you, not later than the 30th day following the date you become subject to the Excise Tax, an additional amount (the "Gross-Up Payment") such that the net amount retained by you after deduction of the Excise Tax on such Payments and all federal, state, and local income tax, interest and penalties, and Excise Tax on the Gross-Up Payment, shall be equal to the amount which would have been retained by you had the payments not been subject to the Excise Tax. 10. GOVERNING LAW. This letter agreement shall be governed by, and shall be construed in accordance with, the internal laws (and not the laws of conflicts) of the State of Illinois. 4 Mr. Richard Sloan July 27, 2000 Page 4 Please acknowledge your agreement with these terms by executing a copy of this letter in the space provided below and returning it to me. Sincerely, TENNECO AUTOMOTIVE INC. By: /s/ Mark P. Frissora ----------------------------- Its: Chairman, CEO and President ---------------------------- ACKNOWLEDGED AND ACCEPTED /s/ Richard Sloan Date: July 27, 2000 - ------------------------------- --------------------------- EX-10.28 4 c59635ex10-28.txt TIMOTHY R. DONOVAN LETTER AGREEMENT DTD 7/27/00 1 EXHIBIT 10.28 [TENNECO AUTOMOTIVE LETTERHEAD] July 11, 2000 PERSONAL AND CONFIDENTIAL Mr. Timothy R. Donovan 1310 Longmeadow Lane Lake Forest, IL 60045 Dear Mr. Donovan: On behalf of Tenneco Automotive Inc. (the "Company"), I am pleased to set forth and confirm the terms and conditions of your continued service as Senior Vice President and General Counsel of the Company: 1. COMMENCEMENT. Except as specifically provided herein, the terms and conditions hereof will be effective immediately upon the signing hereof. You will report to and serve at the pleasure of The Board of Directors of the Company (the "Board"). 2. BASE SALARY. Effective on January 1, 2000, you will be paid a base salary of $301,600.00 per year, which will be subject to such increases as may from time to time be approved by the Board or such committee of the Board to which such power has been delegated (the "Committee"), payable according to the regular pay schedule for salaried employees. 3. ANNUAL BONUS. You will be eligible for an annual performance bonus. Commencing with calendar year 2000, your annual target bonus will be, at least, $155,000.00 subject to fulfillment of performance goals as determined by the Board or Committee. 2 Mr. Timothy R. Donovan July 11, 2000 Page 2 4. PERFORMANCE UNITS, STOCK OPTIONS, RESTRICTED STOCK AND STOCK EQUIVALENT UNITS. At the time of the spin-off of Pactiv Corporation (formerly Tenneco Packaging Inc.) by the Company (the "Spin-off"), you were granted 16,500 performance units under the Company's Stock Ownership Plan (the "Plan"), payable in shares of the Company's stock in January 2003, subject to fulfillment of performance goals as determined by the Committee and the other terms of the grant determined by the Committee. At the time of the Spin-off, you were granted under the Plan an option to purchase 90,000 shares of Company stock, subject to terms and conditions set by the Committee under the Plan. You have received a restricted stock grant of 29,308 shares and one-third of such restricted stock will vest on each of the first three anniversaries of the Spin-off if you continue to be employed by the Company on such anniversary. The number of shares set forth above with respect to the performance unit, restricted stock and stock option awards is after giving effect to the one-for-five reverse stock split completed in November 1999. In December, 1999 (effective November 5. 1999), you were granted 87,567 stock equivalent units under the Plan for the three-year period ending December 31, 2002. This grant is payable in cash in three annual installments, subject to and in accordance with the terms and conditions of the grant determined by the Committee. The grants described herein are without prejudice to your receipt of additional grants as determined by the Board or the Committee under the Plan and/or any other similar benefit plan or compensation program or arrangement of the Company. The vesting terms and the other conditions, events and circumstances under which you will be entitled to receive the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units shall be the terms, conditions, events and circumstances set forth in your grant agreements for the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units as of the date of this letter. 5. EXECUTIVE BENEFIT PLANS. You will be eligible to participate in all employee benefit plans applicable to salaried employees generally and all executive compensation structures applicable to senior executives generally. 6. PERQUISITE ALLOWANCE. You will receive an annual perquisites allowance of $30,000.00 which you may receive in either cash, perquisites, or a combination at your election. 7. VACATION. You will receive four weeks vacation (with pay) per year. 8. KEY EXECUTIVE PENSION PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. You will be a participant in the Company's Key Executive Pension Plan and Supplemental Executive Retirement Plan. The vesting terms and other conditions, events and circumstances under which you are entitled to receive benefits under the SERP, including your SERP special benefit, and the Key Executive Pension Plan shall be the 3 Mr. Timothy R. Donovan July 11, 2000 Page 3 terms, conditions, events and circumstances set forth in such plans as of the date of this letter. 9. CHANGE IN CONTROL. You will participate in the Company's Change in Control Severance Benefit Plan for Key Executives (the "Change in Control Plan"); provided that your cash severance benefit under Section 3A or 3B, as applicable, of the Change in Control Plan will be 3 times the total of (i) your annual base salary in effect immediately prior to the Change in Control (as defined in the Change in Control Plan), plus (ii) the higher of (a) your highest target bonus over the last 3 years of your employment and (b) the average of your annual awards under any bonus plan of the Company or its subsidiaries, including any special awards, for the last three years of your employment (or such shorter period as you have been employed by the Company or its subsidiaries); and provided further that all of your outstanding awards under the Plan or any other similar benefit plan or compensation arrangement or program of the Company or its subsidiaries will be treated as exercisable, earned at target and vested, as the case may be, immediately upon the Change in Control (as that term is currently defined in the Change in Control Plan) and shall be paid to you or otherwise treated in the manner currently specified in, and in accordance with the current terms of, the Change in Control Plan. 10. SEVERANCE. Subject to the provisions of paragraph 9, if your employment is terminated other than by you voluntarily or for death, disability, or non-performance of your duties, subject to your execution of a general release and such other documents as the Company may reasonably request: (a) you will be paid a severance benefit in an amount equal to two times the total of your then current base salary plus your bonus for the immediately preceding year; (b) subject to Board and/or Committee approval, all your outstanding awards under the Plan (or any other similar benefit plan or compensation program or arrangement of the Company or its subsidiaries) may vest and/or become exercisable on the date of your termination; (c) vested stock options you hold will remain exercisable for a period of not less than 90 days from your termination; and (d) the Company will continue to provide to you, for one year following the date of the termination of your employment, health and welfare benefits amounting to no less than the amount of health and welfare benefits you receive at the time your employment commences. COBRA continuation coverage will begin following this one year period. 4 Mr. Timothy R. Donovan July 11, 2000 Page 4 11. TAX GROSS-UP PAYMENT. If any portion of the payments described herein, and/or any other payments, shall be subject to the tax imposed by Section 4999 of the Internal Revenue Code (the portion of such payments which we subject to the Excise Tax being referred to herein as the "Payments"), the Company shall pay you, not later than the 30th day following the date you become subject to the Excise Tax, an additional amount (the "Gross-Up Payment") such that the net amount retained by you after deduction of the Excise Tax on such Payments and all federal, state, and local income tax, interest and penalties, and Excise Tax on the Gross-Up Payment, shall be equal to the amount which would have been retained by you had the payments not been subject to the Excise Tax. 12. GOVERNING LAW. This letter agreement shall be governed by, and shall be construed in accordance with, the internal laws (and not the laws of conflicts) of the State of Illinois. Please acknowledge your agreement with these terms by executing a copy of this letter in the space provided below and returning it to me. Sincerely, TENNECO AUTOMOTIVE INC. By: /s/ Mark P. Frissora ----------------------------- Its: Chairman, CEO and President ---------------------------- ACKNOWLEDGED AND ACCEPTED /s/ Timothy R. Donovan Date: July 11, 2000 - ------------------------------------ --------------------------- EX-10.30 5 c59635ex10-30.txt SPECIAL APPEND UNDER SUPP. EXEC. RETIREMENT PLAN 1 EXHIBIT 10.30 MARK FRISSORA BENEFITS UNDER THE TENNECO AUTOMOTIVE INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN") The benefits of Mark Frissora ("Frissora") under the Plan will be adjusted as follows: The annual pension benefits to which Frissora shall be entitled under all defined benefit plans (qualified and nonqualified), including this Plan, commencing at age 55 or his separation from service, if later, will, at a minimum, be equal to the product of (x) and (y), where (x) is the average of his total base compensation plus bonus for the three calendar years immediately preceding his separation from service and (y) is the total of 40% plus 2% for each full year of service with Tenneco Inc. and Tenneco Automotive Inc. earned in the period commencing with Frissora's 55th birthday, for a maximum total of 50%. Notwithstanding the foregoing, the provisions set forth herein shall be applicable only if Frissora completes ten years of service with Tenneco Inc. and Tenneco Automotive Inc. during the period commencing January 1, 1999. EX-12 6 c59635ex12.txt STATEMENT OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Income (loss) from continuing operations.................. $(41) $(63) $116 $234 $ 82 Add: Interest................................................ 186 106 69 58 60 Portion of rentals representative of interest factor.... 13 11 10 10 12 Preferred stock dividend requirements of majority-owned subsidiaries......................................... -- 22 27 21 21 Income tax expense and other taxes on income............ (27) 82 13 80 79 Amortization of interest capitalized.................... -- -- -- -- -- Undistributed (earnings) losses of affiliated companies in which less than a 50% voting interest is owned.... -- -- -- -- -- ---- ---- ---- ---- ---- Earnings as defined............................. 131 $158 $235 $403 $254 ==== ==== ==== ==== ==== Interest.................................................. $186 $106 $ 69 $ 58 $ 60 Interest capitalized...................................... 6 -- -- -- -- Portion of rentals representative of interest factor...... 13 11 10 10 12 Preferred stock dividend requirements of majority-owned subsidiaries on a pre-tax basis......................... -- 35 30 16 37 ---- ---- ---- ---- ---- Fixed charges as defined........................ 205 $152 $109 $ 84 $109 ==== ==== ==== ==== ==== Ratio of earnings to fixed charges........................ .64 1.04 2.16 4.80 2.33 ==== ==== ==== ==== ====
- --------------- Note: For the year ended December 31, 2000, earnings were inadequate to cover fixed charges by $74 million. EX-21 7 c59635ex21.txt LIST OF SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 TENNECO AUTOMOTIVE INC. SUBSIDIARIES AND AFFILIATES TENNECO AUTOMOTIVE INC. (DELAWARE) Tenneco Automotive Inc. (Nevada)..................................................................100 % Tenneco Automotive Operating Company Inc..........................................................100 % Beijing Monroe Automobile Shock Absorber Company Ltd. (Peoples Republic of China)........................................................................51 (Tenneco Automotive Operating Company Inc. owns 51% and Beijing Automotive Industry Corporation, an unaffiliated company, owns 49%) Dalian Walker-Gillet Muffler Co. Ltd. (Peoples Republic of China)..............................55 (Tenneco Automotive Operating Company Inc. owns 55% and non-affiliates own 45%) McPherson Strut Company Inc. (Delaware).......................................................100 Precision Modular Assembly Corp. (Delaware)...................................................100 Shanghai Walker Exhaust Company, Ltd. (Peoples Republic of China)..............................55 (Tenneco Automotive Operating Company Inc. owns 55% and Shanghai Tractor and Internal Combustion Engine Company, Ltd., an unaffiliated company, owns 45%) Tenneco Asheville Inc. (Delaware).............................................................100 Tenneco Asia Inc. (Delaware)..................................................................100 Tenneco Automotive Foreign Sales Corporation Limited (Jamaica)................................100 Tenneco Automotive Japan Ltd. (Japan).........................................................100 Tenneco Automotive Nederlands B.V. (Netherlands)..............................................100 Tenneco Automotive RSA Company (Delaware).....................................................100 Tenneco Automotive Trading Company (Delaware).................................................100 Tenneco Automotive (Thailand) Co. Ltd. (Thailand) ............................................100 Walker Exhaust (Thailand) Co. Ltd. (Thailand) ...........................................100 Tenneco Brake, Inc. (Delaware)................................................................100 Tenneco Europe Limited (Delaware).............................................................100 Wimetal S. A. (France)...................................................................less than 1 (Tenneco Europe Limited owns 1 share; Walker Limited owns 1 share; Walker France S.A. owns 99% and 7 affiliated persons own 1 share each) Tenneco International Finance Limited (United Kingdom)........................................100 Tenneco International Holding Corp. (Delaware)................................................100 Monroe Australia Pty. Limited (Australia)................................................100 Monroe Springs (Australia) Pty. Ltd. (Australia).....................................100 Monroe Superannuation Pty. Ltd. (Australia)..........................................100 Walker Australia Pty. Limited (Australia)............................................100 Tenneco Automotive Europe N.V. (Belgium).................................................100 Monroe Amortisor Imalat Ve Ticaret A.S. (Turkey)......................................99.85 (Tenneco Automotive Europe N.V. owns 99.85% and various unaffiliated individual stockholders own 0.15%) Monroe Packaging N.V. (Belgium).......................................................99.9 (Tenneco Automotive Europe N.V. owns 99.9% and Tenneco Automotive France S.A. owns 0.1%) Tenneco Automotive Europe Coordination Center B.V.B.A. (Belgium)......................99.9 (Tenneco Automotive Europe N.V. owns 99.9% and Tenneco Automotive France S.A. owns 0.1%)
2 TENNECO AUTOMOTIVE INC. SUBSIDIARIES AND AFFILIATES SUBSIDIARIES OF TENNECO AUTOMOTIVE INC. (DELAWARE) SUBSIDIARIES OF TENNECO AUTOMOTIVE OPERATING COMPANY INC. (DELAWARE) SUBSIDIARIES OF TENNECO INTERNATIONAL HOLDING CORP. (DELAWARE) Tenneco Automotive Italia S.r.l. (Italy)..................................................85 % (Tenneco International Holding Corp. owns 85% and Tenneco Automotive France, S.A. owns 15%) Tenneco Automotive Polska Sp. z.O.O. (Poland)..............................................1 (Tenneco International Holding Corp. owns 1% and Tenneco Global Holdings Inc. owns 99%) Tenneco Romania Srl (Romania)..............................................................0.14 (Tenneco International Holding Corp. owns 0.14% and Tenneco Global Holdings Inc. owns 99.86%) Tenneco Automotive Services SAS (France).................................................100 Tenneco Automotive Sverige A.B. (Sweden).................................................100 Tenneco Canada Inc. (Ontario)............................................................100 Tenneco Global Holdings Inc. (Delaware)..................................................100 Fric-Rot S.A.I.C. (Argentina).........................................................55 (Tenneco Global Holdings Inc. owns 55%; Maco Inversiones S.A. owns 44.85% and unaffiliated parties own .15%) Maco Inversiones S.A. (Argentina)....................................................100 Fric-Rot S.A.I.C. (Argentina).....................................................44.85 (Maco Inversiones S.A. owns 44.85%; Tenneco Global Holdings Inc. owns 55% and unaffiliated parties own .15%) Monroe Springs (New Zealand) Pty. Ltd. (New Zealand).................................100 Monroe Czechia s.r.o. (Czech Republic)...............................................100 Tenneco Automotive Iberica, S.A. (Spain).............................................100 Tenneco Automotive Polska Sp. z.O.O. (Poland).........................................99 (Tenneco Global Holdings Inc. owns 99% and Tenneco International Holding Corp. owns 1%) Tenneco Romania Srl (Romania).........................................................99.86 (Tenneco Global Holdings Inc. owns 99.86% and Tenneco International Holding Corp. owns 0.14%) Tenneco Mauritius Limited (Mauritius)................................................100 Hydraulics Limited (India)............................................................51 (Tenneco Mauritius Limited owns 51% and Bangalore Union Services Limited, an unaffiliated company, owns 49%) Renowned Automotive Products Manufacturers Ltd. (India)...........................99 (Hydraulics Limited owns 99+% and non-affiliates own less than 1%) Tenneco Mauritius Holdings Limited...................................................100 % Tenneco Automotive India Private Limited (India).....................................100 Walker Exhaust India Private Limited (India).................................90 (Tenneco Automotive India Private Limited owns less than 90% and an unaffiliated party owns 10%) Tenneco Holdings Danmark A/S (Denmark)...................................................100 Gillet Exhaust Technologie (Proprietary) Limited (South Africa)......................100 Gillet Lazne Belohrad, s.r.o. (Czech Republic)..................................... 100
3 TENNECO AUTOMOTIVE INC. SUBSIDIARIES AND AFFILIATES SUBSIDIARIES OF TENNECO AUTOMOTIVE INC. (DELAWARE) SUBSIDIARIES OF TENNECO AUTOMOTIVE OPERATING COMPANY INC. (DELAWARE) SUBSIDIARIES OF TENNECO INTERNATIONAL HOLDING CORP. (DELAWARE) SUBSIDIARIES OF TENNECO HOLDINGS DANMARK A/S (DENMARK) Kinetic Pty. Ltd. (Australia).........................................................100 % Tenneco Automotive Holdings South Africa Pty. Ltd. (South Africa).....................74.9 (Tenneco Holdings Danmark A/S owns 74.9% and Metair Investments Ltd., an unaffiliated entity, owns 25.1%) Armstrong Hydraulics South Africa (Pty.) Ltd. (South Africa).....................100 Armstrong Properties (Pty.) Ltd. (South Africa)..................................100 Monroe Manufacturing (Pty.) Ltd. (South Africa)..................................100 Smiths Industrial (SWA) (Pty.) Ltd. (South Africa)...............................100 Tenneco Automotive Port Elizabeth (Proprietary) Limited (South Africa)...................................................................100 Tenneco Automotive Portugal - Componentes para Automovel, S.A. (Portugal).......................................................................100 Walker Danmark A/S (Denmark).........................................................100 Tenneco Automotive Eastern Europe S.p. z.O.O. (Poland)...............................100 Tenneco Automotive France S.A. (France)..................................................100 (Tenneco International Holding Corp. owns 470,371 shares; Walker Europe, Inc owns 1 share and 8 affiliated persons own an aggregate of 28 shares) Gillet Tubes Technologies G.T.T. (France)............................................100 Monroe Packaging N.V. (Belgium)........................................................0.1 (Tenneco Automotive Europe N.V. owns 99.9% and Tenneco Automotive France S.A. owns 0.1%) Tenneco Automotive Europe Coordination Center B.V.B.A. (Belgium).......................0.1 (Tenneco Automotive Europe N.V. owns 99.9% and Tenneco Automotive France S.A. owns 0.1%) Tenneco Automotive Italia S.r.l. (Italy)..............................................15 (Tenneco International Holding Corp. owns 85%; and Tenneco Automotive France S.A. owns 15%) Walker France Constructeurs S.A.R.L. (France)........................................100 Wimetal S.A. (France).................................................................99 (Tenneco Automotive France S.A. owns 99%; Tenneco Europe Limited owns 1 share; Walker Limited owns 1 share and 6 affiliated persons own 1 share each) The Pullman Company (Delaware)................................................................100 Autopartes Walker S.A. de C.V. (Mexico).................................................100 Consorcio Terranova S.A. de C.V. (Mexico).............................................99.99 (Autopartes Walker S.A. de C.V. owns 99.99%; and Josan Latinamericana S.A. de C.V., an unaffiliated company, owns 0.01%)
4 TENNECO AUTOMOTIVE INC. SUBSIDIARIES AND AFFILIATES SUBSIDIARIES OF TENNECO AUTOMOTIVE INC. (DELAWARE) SUBSIDIARIES OF TENNECO AUTOMOTIVE OPERATING COMPANY INC. (DELAWARE) SUBSIDIARIES OF THE PULLMAN COMPANY (DELAWARE) SUBSIDIARIES OF AUTOPARTES WALKER S.A. DE C.V. (MEXICO) Monroe-Mexico S.A. de C.V. (Mexico)..................................................100 % Tenneco Automotive Servicios de Mexico, S.A. de C.V. (Mexico)......................0.01 (Monroe-Mexico, S.A. de C.V. owns 1 share and Proveedora Walker S. de R.L. de C.V. owns 49,999 shares) Proveedora Walker S. de R.L. de C.V. (Mexico) ........................................99.99 (Autopartes Walker S.A. de C.V. owns 99.99% and Pullmex S. de R.L. de C.V. owns .01%) Pullmex S. de R.L. de C.V. (Mexico)................................................0.01 (Proveedora Walker S. de R.L. de C.V. owns 0.01% and Autopartes Walker S.A. de C.V. owns 99.99%) Tenneco Automotive Servicios de Mexico, S.A. de C.V. (Mexico).....................99.99 (Proveedora Walker S. de R.L. de C.V. owns 49,999 shares and Monroe-Mexico, S.A. de C.V. owns 1 share) Pullmex S. de R.L. de C.V. (Mexico)...................................................99.99 (Autopartes Walker S.A. de C.V. owns 99.9% and Proveedora Walker S. de R.L. de C.V. owns 0.1%) Proveedora Walker S. de R.L. de C.V. (Mexico) .....................................0.01 (Pullmex S. de R.L. de C.V. owns 0.01% and Autopartes Walker S.A. de C.V. owns 99.99%) Clevite Industries Inc. (Delaware).......................................................100 Peabody International Corporation (Delaware).............................................100 Barasset Corporation (Ohio)..........................................................100 Peabody Galion Corporation (Delaware)................................................100 Peabody Gordon-Piatt, Inc. (Delaware)................................................100 Peabody N.E., Inc. (Delaware)........................................................100 Tenneco Automotive China Inc. (Delaware).............................................100 Peabody-Myers Corporation (Illinois).................................................100 Pullman Canada Ltd. (Canada)..........................................................61 (Peabody International Corporation owns 61% and The Pullman Company owns 39%) Pullman Canada Ltd. (Canada)..............................................................39 (The Pullman Company owns 39% and Peabody International Corporation owns 61%) Pullman Standard Inc. (Delaware).........................................................100 Tenneco Brazil Ltda. (Brazil)............................................................100 Tenneco Automotive Brasil Ltda. (Brazil).............................................100 Thompson and Stammers Dunmow (Number 6) Limited (United Kingdom)..............................100 Thompson and Stammers Dunmow (Number 7) Limited (United Kingdom)..............................100 TMC Texas Inc. (Delaware).....................................................................100 Walker Electronic Silencing Inc. (Delaware)...................................................100 Walker Europe, Inc. (Delaware)................................................................100
5 TENNECO AUTOMOTIVE INC. SUBSIDIARIES AND AFFILIATES SUBSIDIARIES OF TENNECO AUTOMOTIVE INC. (DELAWARE) SUBSIDIARIES OF TENNECO AUTOMOTIVE OPERATING COMPANY INC. (DELAWARE) SUBSIDIARIES OF WALKER EUROPE, INC. (DELAWARE) Tenneco Automotive France S.A. (France)..................................................less than 1% (Tenneco International Holding Corp. owns 470,371 shares and 7 affiliated persons own an aggregate of 28 shares) Walker Limited (United Kingdom)...............................................................100 Gillet Torsmaskiner UK Limited (United Kingdom).......................................50 (Walker Limited owns 100 A Ordinary Shares, 50% of total equity; and AB Torsmaskiner, an unaffiliated company, owns 100 B Ordinary Shares, 50% of total equity) Exhaust Systems Technology Limited (United Kingdom)...................................99.99 (Gillet Torsmaskiner UK Limited owns 99.99% and Heinrich Gillet GmbH & Co. owns .01%) Tenneco Automotive UK Limited (United Kingdom)...........................................100 Gillet Exhaust Manufacturing Limited (United Kingdom)................................100 Gillet Pressings Cardiff Limited (United Kingdom)....................................100 Walker (UK) Limited (United Kingdom).................................................100 J.W. Hartley (Motor Trade) Limited (United Kingdom)..............................100 Tenneco - Walker (U.K.) Ltd. (United Kingdom)....................................100 Tenneco Management (Europe) Limited (United Kingdom).....................................100 Wimetal S. A. (France)...................................................................less than 1% (Walker Limited owns 1 share; Tenneco Europe Limited owns 1 share; Tenneco Automotive France S.A. owns 99% and 6 affiliated persons own 1 share each) Walker Manufacturing Company (Delaware).......................................................100 Ced's Inc. (Illinois)....................................................................100 Walker Norge A/S (Norway).....................................................................100 Tenneco Deutschland Holdinggesellschaft mbH (Germany)..............................................99.97 (Tenneco Automotive Inc. owns 99.97% and Atlas Vermoegensverwaltung, an unaffiliated company, owns 0.03%) GILLET Unternehmesverwaltungs GmbH (Germany)..................................................100 Heinrich Gillet GmbH & Co. KG (Germany)....................................................0.1 (GILLET Unternehmesverwaltungs GmbH owns 0.1% and Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%. The subsidiaries of Heinrich Gillet GmbH & Co. KG are listed below.) Heinrich Gillet GmbH & Co. KG (Germany)........................................................99.9 (Tenneco Deutschland Holdinggesellschaft mbH owns 99.9% and GILLET Unternehmesverwaltungs GmbH owns 0.1%) ELGIRA Montagebetrieb fur Abgasanlagen Rastatt GmbH (Germany).............................50 (Heinrich Gillet GmbH & Co. KG owns 50% and an unaffiliated party owns 50%)
6 TENNECO AUTOMOTIVE INC. SUBSIDIARIES AND AFFILIATES SUBSIDIARIES OF TENNECO AUTOMOTIVE INC. (DELAWARE) SUBSIDIARIES OF TENNECO DEUTSCHLAND HOLDINGGESELLSCHAFT MBH (GERMANY) SUBSIDIARIES OF HEINRICH GILLET GMBH & CO. KG (GERMANY) Exhaust Systems Technology Limited (United Kingdom)........................................0.01 % (Heinrich Gillet GmbH & Co. KG owns 0.01% and Gillet Torsmaskiner UK Limited owns 99.99%) Gillet-Abgassysteme Zickau Gmbh (Germany)................................................100 Elagest AB (Sweden)...................................................................50 (Gillet-Abgassysteme Zickau GmbH owns 50% and an unaffiliated party owns 50%) Mastra-Gillet Industria e Comercio Ltda. (Brazil).........................................50 (Heinrich Gillet GmbH & Co. KG owns 50% and Mastra Industria e Comercio Ltda., an unaffiliated company, owns 50%) Montagewerk Abgastechnik Emden GmbH (Germany).............................................50 (Heinrich Gillet GmbH & Co. KG owns 50% and an unaffiliated party owns 50%) Tenneco Automotive Deutschland GmbH (Germany).................................................100 Walker Gillet (Europe) GmbH (Germany).........................................................100
EX-23 8 c59635ex23.txt CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated January 31, 2001, included in the Annual Report on Form 10-K of Tenneco Automotive Inc., formerly known as Tenneco Inc. ("Tenneco"), for the year ended December 31, 2000, into the following Registration Statements previously filed with the Securities and Exchange Commission:
REGISTRATION NO. FORM SECURITIES REGISTERED ---------------- ---- --------------------- 333-24291 S-3 $700,000,000 Tenneco debt securities of which $100,000,000 remains available for issuance. 333-17485 S-8 17,000,000 shares of Common Stock, par value $.01 per share of Tenneco ("Common Stock") issuable under the 1996 Tenneco Inc. Stock Ownership Plan (now known as the Tenneco Automotive Inc. Stock Ownership Plan). 333-30933 S-8 5,000 shares of Common Stock issuable under the Tenneco Thrift Plan for Hourly Employees ("Hourly Thrift Plan") and the Tenneco Thrift Plan ("Salaried Thrift Plan"). 333-17487 S-8 462,000 shares of Common Stock issuable under the Hourly Thrift Plan and the Salaried Thrift Plan. 333-41535 S-8 33,796 shares of Common Stock issuable under the 1996 Tenneco Inc. Stock Ownership Plan (now known as the Tenneco Automotive Inc. Stock Ownership Plan). 333-27279 S-8 64,000 shares of Common Stock issuable under the Hourly Thrift Plan. 333-23249 S-8 2,500,000 shares of Common Stock issuable under the 1997 Employee Stock Purchase Plan. 333-27281 S-8 395,000 shares of Common Stock issuable under the Hourly Thrift Plan and Salaried Thrift Plan. 333-41537 S-8 2,100 shares of Common Stock issuable under the Hourly Thrift Plan. 333-48777 S-8 710,000 shares of Common Stock issuable under the Hourly Thrift Plan and the Salaried Thrift Plan. 333-76261 S-8 740,000 shares of Common Stock issuable under the Hourly Thrift Plan and the Salaried Thrift Plan. 333-33442 S-8 1,880,000 shares Common Stock issuable under The Tenneco Automotive Employee Stock Ownership Plan for Hourly Employees and The Tenneco Automotive Employee Stock Ownership Plan for Salaried Employees. 333-33934 S-8 1,500,000 Shares Common Stock issuable under the Tenneco Automotive Inc. Supplemental Stock Ownership Plan.
ARTHUR ANDERSEN LLP Chicago, Illinois March 30, 2001 EX-24 9 c59635ex24.txt POWER OF ATTORNEY 1 EXHIBIT 24 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum and Kenneth R. Trammell, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ MARK P. FRISSORA -------------------------------------- Name: Mark P. Frissora 2 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan and Kenneth R. Trammell, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ MARK A. MCCOLLUM -------------------------------------- Name: Mark A. McCollum 3 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan and Mark A. McCollum, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ KENNETH R. TRAMMELL -------------------------------------- Name: Kenneth R. Trammell 4 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum and Kenneth R. Trammell, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ SIR DAVID PLASTOW -------------------------------------- Name: Sir David Plastow 5 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum and Kenneth R. Trammell, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ M. KATHRYN EICKHOFF -------------------------------------- Name: M. Kathryn Eickhoff 6 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum and Kenneth R. Trammell, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ MARK ANDREWS -------------------------------------- Name: Mark Andrews 7 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum and Kenneth R. Trammell, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ ROGER B. PORTER -------------------------------------- Name: Roger B. Porter 8 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum and Kenneth R. Trammell, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ PAUL T. STECKO -------------------------------------- Name: Paul T. Stecko 9 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum and Kenneth R. Trammell, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ DAVID B. PRICE, JR. -------------------------------------- Name: David B. Price, Jr. 10 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum and Kenneth R. Trammell, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ FRANK E. MACHER -------------------------------------- Name: Frank E. Macher 11 EXHIBIT 24 TENNECO AUTOMOTIVE INC. POWER OF ATTORNEY The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum and Kenneth R. Trammell, and each of them, with full power to act alone, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute the Annual Report on Form 10-K for the year ended December 31, 2000 of Tenneco Automotive Inc., including any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 13th day of March, 2001. /s/ DENNIS G. SEVERANCE -------------------------------------- Name: Dennis G. Severance -----END PRIVACY-ENHANCED MESSAGE-----