-----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, DkK/+vwTj97CpKpymJZ5oxjM5KD4miYHDEE2vOXjG3uMVjmuL46i0OeGCHPQRbvb yTSbQGSavehh6gMI4dWuyg== 0000950137-01-503080.txt : 20010815 0000950137-01-503080.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950137-01-503080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12387 FILM NUMBER: 1712063 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-Q 1 c64103e10-q.txt QUARTERLY REPORT 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2001 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 incorporation (I.R.S. Employer Identification No.) or organization) 500 NORTH FIELD DRIVE, LAKE FOREST, ILLINOIS 60045 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 482-5000 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 the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Common Stock, par value $.01 per share: 38,254,169 shares as of July 31, 2001. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I--FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Tenneco Automotive Inc. and Consolidated Subsidiaries-- Report of Independent Public Accountants............. 4 Statements of Income (Loss).......................... 5 Balance Sheets....................................... 6 Statements of Cash Flows............................. 7 Statements of Changes in Shareholders' Equity........ 8 Statements of Comprehensive Income (Loss)............ 9 Notes to Financial Statements........................ 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 38 PART II--OTHER INFORMATION Item 1. Legal Proceedings................................. * Item 2. Changes in Securities and Use of Proceeds......... * Item 3. Defaults Upon Senior Securities................... * Item 4. Submission of Matters to a Vote of Security Holders................................................ 39 Item 5. Other Information................................. * Item 6. Exhibits and Reports on Form 8-K.................. 39
- --------------- * No response to this item is included herein for the reason that it is inapplicable or the answer to such item is negative. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Quarterly Report on Form 10-Q contains forward-looking statements regarding, among other things, our prospects and business strategies. The words "will," "believes," "should," "plans," "expects," and "estimates," and similar expressions (and variations thereof), identify these forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, these expectations may not prove to be correct. Because these forward-looking statements are also subject to risks and uncertainties, actual results may differ materially from the expectations expressed in the forward-looking statements. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include: - general economic, business and market conditions; - the impact of consolidation among automotive parts suppliers and customers on our ability to compete; - operating hazards associated with our business; - changes in consumer demand and preferences for automobiles and automotive parts, as well as changes in automobile manufacturers' actual and forecasted requirements for our products; - changes in distribution channels or competitive conditions in the markets and countries where we operate, including the impact of changes in distribution channels for aftermarket products on our ability to increase or maintain aftermarket sales; - cyclicality of automotive production and sales; - material substitution; - labor disruptions at our facilities or at any of our significant customers or suppliers; 2 3 - economic, exchange rate and political conditions in the foreign countries where we operate or sell our products; - customer acceptance of new products; - new technologies that reduce the demand for certain of our products or otherwise render them obsolete; - our ability to realize our business strategy of improving operating performance; - capital availability or costs, including changes in interest rates, market perceptions of the industries in which we operate or ratings of securities; - changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies; - the impact of changes in and compliance with laws and regulations, including environmental laws and regulations, and environmental liabilities in excess of the amount reserved; and - the occurrence or non-occurrence of circumstances beyond our control. 3 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO TENNECO AUTOMOTIVE INC.: We have reviewed the consolidated balance sheet of Tenneco Automotive Inc. and consolidated subsidiaries as of June 30, 2001, and the related consolidated statements of income and cash flows for the three and six-month periods ended June 30, 2001. These financial statements are the responsibility of Tenneco Automotive Inc.'s management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Chicago, Illinois July 23, 2001 4 5 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- (MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS) REVENUES Net sales and operating revenues........ $ 925 $ 942 $ 1,789 $ 1,820 ----------- ----------- ----------- ----------- COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)......................... 732 712 1,438 1,384 Engineering, research, and development.......................... 12 15 25 30 Selling, general, and administrative.... 95 111 196 217 Depreciation and amortization........... 39 37 76 76 ----------- ----------- ----------- ----------- 878 875 1,735 1,707 ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE).................... -- 1 (1) 2 ----------- ----------- ----------- ----------- INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST............ 47 68 53 115 Interest expense (net of interest capitalized)......................... 43 48 90 93 Income tax expense (benefit)............ 1 5 (9) 4 Minority interest....................... 1 -- 1 2 ----------- ----------- ----------- ----------- NET INCOME (LOSS)......................... $ 2 $ 15 $ (29) $ 16 =========== =========== =========== =========== EARNINGS (LOSS) PER SHARE Average shares of common stock outstanding-- Basic................................... 37,396,712 34,358,776 36,994,973 34,064,491 Diluted................................. 37,556,085 34,561,073 37,154,129 34,267,133 Basic earnings (loss) per share of common stock................................... $ .06 $ .42 $ (.77) $ .45 Diluted earnings (loss) per share of common stock............................ $ .06 $ .42 $ (.77) $ .45 Cash dividends per share of common stock................................... $ -- $ .05 $ -- $ .10
The accompanying notes to financial statements are an integral part of these statements of income (loss). 5 6 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, 2001 2000 -------- ------------ (MILLIONS) ASSETS Current assets: Cash and temporary cash investments....................... $ 70 $ 35 Receivables-- Customer notes and accounts, net....................... 494 457 Other.................................................. 25 30 Inventories-- Finished goods......................................... 175 197 Work in process........................................ 84 83 Raw materials.......................................... 71 103 Materials and supplies................................. 39 39 Deferred income taxes..................................... 77 76 Prepayments and other..................................... 101 89 ------- ------- 1,136 1,109 Other assets: Long-term notes receivable, net........................... 25 24 Goodwill and intangibles, net............................. 447 463 Deferred income taxes..................................... 111 94 Pension assets............................................ 43 41 Other..................................................... 142 150 ------- ------- 768 772 ------- ------- Plant, property, and equipment, at cost..................... 1,797 1,852 Less--Reserves for depreciation and amortization.......... 856 847 ------- ------- 941 1,005 ------- ------- $ 2,845 $ 2,886 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt (including current maturities of long-term debt).................................................. $ 208 $ 92 Trade payables............................................ 462 464 Accrued taxes............................................. 16 16 Accrued interest.......................................... 31 35 Accrued liabilities....................................... 139 134 Other..................................................... 72 68 ------- ------- 928 809 ------- ------- Long-term debt.............................................. 1,382 1,435 ------- ------- Deferred income taxes....................................... 133 144 ------- ------- Postretirement benefits..................................... 128 128 ------- ------- Deferred credits and other liabilities...................... 30 26 ------- ------- Commitments and contingencies Minority interest........................................... 14 14 ------- ------- Shareholders' equity: Common stock.............................................. -- -- Premium on common stock and other capital surplus......... 2,743 2,738 Accumulated other comprehensive income (loss)............. (315) (239) Retained earnings (accumulated deficit)................... (1,958) (1,929) ------- ------- 470 570 Less--Shares held as treasury stock, at cost.............. 240 240 ------- ------- 230 330 ------- ------- $ 2,845 $ 2,886 ======= =======
The accompanying notes to financial statements are an integral part of these balance sheets. 6 7 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------- 2001 2000 ---- ---- (MILLIONS) OPERATING ACTIVITIES Net income (loss)........................................... $(29) $ 16 Adjustments to reconcile income to cash provided (used) by operating activities Depreciation and amortization............................. 76 76 Deferred income taxes..................................... (23) (2) (Gain) loss on sale of assets, net........................ 3 1 Changes in components of working capital-- (Increase) decrease in receivables..................... (61) (106) (Increase) decrease in inventories..................... 28 8 (Increase) decrease in prepayments and other current assets................................................ (20) (8) Increase (decrease) in payables........................ 15 95 Increase (decrease) in accrued taxes................... 1 (14) Increase (decrease) in accrued interest................ (4) 3 Increase (decrease) in other current liabilities....... 12 (12) Other..................................................... 8 (5) ---- ----- Net cash provided (used) by operating activities............ 6 52 ---- ----- INVESTING ACTIVITIES Net proceeds from sale of assets............................ 3 5 Expenditures for plant, property, and equipment............. (47) (67) Investments and other....................................... (4) (6) ---- ----- Net cash provided (used) by investing activities............ (48) (68) ---- ----- NET CASH PROVIDED (USED) BEFORE FINANCING ACTIVITIES........ (42) (16) FINANCING ACTIVITIES Issuance of common and treasury stock....................... 5 9 Proceeds from subsidiary equity issued...................... -- 1 Issuance of long-term debt.................................. -- 1 Retirement of long-term debt................................ (8) (1) Net increase (decrease) in short-term debt excluding current maturities of long-term debt.............................. 76 (19) Dividends (common).......................................... -- (4) ---- ----- Net cash provided (used) by financing activities............ 73 (13) ---- ----- Effect of foreign exchange rate changes on cash and temporary cash investments................................ 4 (4) ---- ----- Increase (decrease) in cash and temporary cash investments............................................... 35 (33) Cash and temporary cash investments, January 1.............. 35 84 ---- ----- Cash and temporary cash investments, June 30 (Note)......... $ 70 $ 51 ==== ===== Cash paid during the period for interest.................... $ 93 $ 91 Cash paid during the period for income taxes (net of refunds).................................................. $ 19 $ 24
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. 7 8 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------------------------------------- 2001 2000 --------------------- --------------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ (MILLIONS EXCEPT SHARE AMOUNTS) COMMON STOCK Balance January 1.................................. 37,797,256 $ -- 34,970,485 $ -- Issued pursuant to benefit plans................. 1,586,742 -- 1,400,880 -- ---------- ------- ---------- ------- Balance June 30.................................... 39,383,998 -- 36,371,365 -- ========== ========== PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS Balance January 1.................................. 2,738 2,721 Premium on common stock issued pursuant to benefit plans................................. 5 9 ------- ------- Balance June 30.................................... 2,743 2,730 ------- ------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance January 1.................................. (239) (179) Other comprehensive income (loss)................ (76) (42) ------- ------- Balance June 30.................................... (315) (221) ------- ------- RETAINED EARNINGS (ACCUMULATED DEFICIT) Balance January 1.................................. (1,929) (1,880) Net income (loss)................................ (29) 16 Dividends on common stock........................ -- (4) ------- ------- Balance June 30.................................... (1,958) (1,868) ------- ------- LESS--COMMON STOCK HELD AS TREASURY STOCK, AT COST Balance January 1.................................. 1,298,498 240 1,298,373 240 Shares issued.................................... 5,670 -- -- -- Shares acquired.................................. -- -- 125 -- ---------- ------- ---------- ------- Balance June 30.................................... 1,292,828 240 1,298,498 240 ========== ------- ========== ------- Total.............................................. $ 230 $ 401 ======= =======
The accompanying notes to financial statements are an integral part of these statements of changes in shareholders' equity. 8 9 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, ------------------------------------------------------------- 2001 2000 ----------------------------- ----------------------------- ACCUMULATED ACCUMULATED OTHER OTHER COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE INCOME INCOME INCOME INCOME ------------- ------------- ------------- ------------- (MILLIONS) NET INCOME (LOSS)............................. $ 2 $ 15 ----- ---- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CUMULATIVE TRANSLATION ADJUSTMENT Balance April 1............................. $(291) $(204) Translation of foreign currency statements............................. (9) (9) (14) (14) ----- ----- Balance June 30............................. (300) (218) ----- ----- FAIR VALUE OF INTEREST RATE SWAPS............. (13) (13) -- -- ADDITIONAL MINIMUM PENSION LIABILITY ADJUSTMENT Balance April 1 and June 30................. (2) (3) ----- ----- Balance June 30............................... $(315) $(221) ===== ----- ===== ---- Other comprehensive income (loss)............. (22) (14) ----- ---- COMPREHENSIVE INCOME (LOSS)................... $ (20) $ 1 ===== ====
SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------- 2001 2000 ----------------------------- ----------------------------- ACCUMULATED ACCUMULATED OTHER OTHER COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE INCOME INCOME INCOME INCOME ------------- ------------- ------------- ------------- (MILLIONS) NET INCOME (LOSS)............................. $ (29) $ 16 ----- ---- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CUMULATIVE TRANSLATION ADJUSTMENT Balance January 1........................... $(237) $(176) Translation of foreign currency statements............................. (63) (63) (42) (42) ----- ----- Balance June 30............................. (300) (218) ----- ----- FAIR VALUE OF INTEREST RATE SWAPS............. (13) (13) -- -- ADDITIONAL MINIMUM PENSION LIABILITY ADJUSTMENT Balance January 1 and June 30............... (2) (3) ----- ----- Balance June 30............................... $(315) $(221) ===== ----- ===== ---- Other comprehensive income (loss)............. (76) (42) ----- ---- COMPREHENSIVE INCOME (LOSS)................... $(105) $(26) ===== ====
The accompanying notes to financial statements are an integral part of these statements of comprehensive income (loss). 9 10 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) In our opinion, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly Tenneco's financial position, results of operations, cash flows, changes in shareholders' equity, and comprehensive income for the periods indicated. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. Our consolidated financial statements include all majority-owned subsidiaries. We carry investments in 20 percent to 50 percent owned companies at cost plus equity in undistributed earnings and cumulative translation adjustments from date of acquisition since we have the ability to exert significant influence over operating and financial policies. We have reclassified prior year's financial statements where appropriate to conform to 2001 presentations. (2) Over the past several years we have adopted plans to restructure portions of our operations. These plans were approved by the Board of Directors and were designed to reduce operational and administrative overhead costs throughout the business. Charges to income related to these plans are recorded in the period in which the plans are finalized and approved, while actions necessary to affect these restructuring plans occur over future periods in accordance with established plans. We have substantially completed the restructuring actions related to the 1999 plan. The 1999 plan involved closing a ride control manufacturing facility and an exhaust plant in Europe, closing or downsizing four European aftermarket distribution centers, closing a North American exhaust manufacturing facility plus employee reductions of approximately 780. Over 750 employees have been terminated under the 1999 plan as of June 30, 2001. One European aftermarket distribution remains open. We will be substantially complete with these remaining restructuring activities by the end of 2001. In the fourth quarter of 2000, our Board of Directors approved a restructuring plan to further reduce administrative and operational overhead costs. We recorded a pre-tax charge related to the plan of $46 million, $32 million after tax, or $.92 per diluted common share. Within the statement of income, $13 million of the pre-tax charge is reflected in cost of sales, while $33 million is included in selling, general, and administrative expenses. 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 2000 plan involved closing a North American aftermarket exhaust distribution facility and ride control manufacturing plant in our Asian market, as well as the consolidation of some exhaust manufacturing facilities in Europe. In addition, the plan involves the elimination of up to 700 positions, including temporary employees. We wrote down the assets at the locations to be closed to their fair value, less costs to sell. We estimated the 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 cash proceeds on the sale of these assets will be significant. As of June 30, 2001, approximately 530 employees have been terminated under the 2000 plan primarily in North America and Europe in sales, engineering and salaried plant. Additionally, 57 temporary employees have been terminated. All restructuring actions are being completed in accordance with our established plan. We expect to complete all restructuring activities related to this plan by the end of the first quarter of 2002. Also in the fourth quarter of 2000, we recorded other charges of $15 million, $10 million after tax, or $.29 per diluted common 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. 10 11 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) In the first quarter of 2001, our Board of Directors approved a restructuring plan in response to increasingly difficult industry conditions. On January 31, 2001, we announced plans to eliminate up to 405 salaried positions worldwide. We recorded pre-tax charges related to the restructuring of $11 million, $8 million after tax, or $.21 per diluted common share. Within the statement of income, $2 million of the pre-tax charge is reflected in cost of sales, while $9 million is included in selling, general, and administrative expenses. These charges are comprised of $8 million for severance and related costs for salaried employment reductions worldwide and $3 million for costs related to closing a testing facility in North America. As of June 30, 2001, we have eliminated about 285 positions in connection with this plan. We also incurred $3 million for other restructuring related costs and expenses such as relocation and moving costs that could not be accrued as part of the restructuring reserve. We estimate that we will complete these restructuring activities no later than the first quarter 2002. All workforce reductions will be done in compliance with all legal and contractual requirements including obligations to consult with worker committees, union representatives and others. In the second quarter of 2001, our Board of Directors approved a separate restructuring plan related to closing a North American ride control production line. We recorded pre-tax charges related to the plan of $8 million, $6 million after tax, or $.16 per diluted common share. Within the statement of income, the $8 million charge is included in cost of sales. We wrote down assets to their fair market value, less costs to sell. 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 cash proceeds on the sale of these assets will be significant. We expect to complete all restructuring activities related to this plan by the end of 2001. Amounts related to activities that are part of the restructuring plans are as follows:
DECEMBER 31, 2000 2001 2001 CHARGED TO IMPACT OF JUNE 30, 2001 RESTRUCTURING RESTRUCTURING CASH ASSET EXCHANGE RESTRUCTURING RESERVE CHARGES PAYMENTS ACCOUNTS RATES RESERVE ----------------- ------------- -------- ---------- --------- ------------- Severance............... $23 $ 8 $(15) $ -- $ (3) $13 Asset Impairment........ -- 9 -- (8) -- 1 Facility exit costs..... 3 2 -- -- (1) 4 --- --- ---- ---- ---- --- $26 $19 $(15) $ (8) $ (4) $18 === === ==== ==== ==== ===
In addition to these announced actions, we continue to evaluate additional cost reduction initiatives for 2001 which would require review and approval by the Board of Directors and could result in additional restructuring charges. Also, we currently estimate that we will incur about $4 million of expense during the remainder of 2001 with respect to restructuring-related costs and expenses that could not be accrued as part of the restructuring reserve. (3) 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 adverse effect on our financial position or results of operations. An OE customer has cancelled a platform for which we had a contract to supply a ride control system. We are currently working with the customer to recover our investment in development costs and related equipment for this platform, as well as other related claims. We do not believe this will have a material adverse effect on our financial position or results of operations. (4) 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 operations and 11 12 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) 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 or reliably 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. As of June 30, 2001, we continue to be 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 be obligated to remediate current or former facilities, and we estimate our share of remediation costs at these facilities to be approximately $24 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 we previously disclosed, we undertook a third-party evaluation of estimated environmental remediation costs at one of our facilities beginning in 2000. The evaluation was initiated as a result of testing that indicated the potential underground migration of some contaminants beyond our facility property. We have completed and analyzed the results of our evaluation of off-site contamination migration from that facility and as a result we have increased the environmental remediation reserve we had for this facility by $5 million through a charge to income in the first quarter 2001. We also increased our estimate of environmental remediation reserves for three other locations by a total of $1 million in the first quarter of 2001. Additionally, in the first quarter of 2001, we reached an agreement with a third party to assume responsibility for remediation of a location at which we previously shared responsibility. In exchange, we received cash and a note for a total of $4 million, the estimate of the third party's share of the total remediation liability. We increased our environmental liability estimate for this location by $4 million as a result. These amounts are reflected in our estimation of remediation costs described above. 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 or results of operations. (5) 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 their 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 effective- 12 13 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) ness 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 adopted this statement effective January 1, 2001, and it did not have a significant impact on our financial position or results of operations. 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. Consequently, beginning January 1, 2001, we classified some incentives that were previously shown in selling, general, and administrative expense as a reduction in revenues. As a result of the change, revenue was $7 million lower for the first six months of 2001, with an offsetting decline in selling, general, and administrative expenses. We have restated prior year results for comparability, resulting in a reduction in net sales of $10 million for the six months ended June 30, 2000, with an offsetting reduction in selling, general, and administrative expense. In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting for purchased goodwill from an amortization method to an impairment-only approach. Therefore amortization of all purchased goodwill, including amortization of goodwill recorded in past business combinations, will cease upon adoption of SFAS No. 142. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Early adoption of the SFAS No. 142 is not permitted nor is retroactive application to prior period (interim or annual) financial statements. We are currently evaluating the effect of this statement on our financial position and results of operations. In April 2001, the EITF reached a consensus on Issue No. 00-25, Accounting for Consideration from a Vendor to a Retailer in Connection with the Purchase or Promotion of the Vendor's Products. This consensus requires that consideration provided by a vendor to a purchaser of the vendor's products be recognized as a reduction of sales, except in those instances where an identifiable and measurable benefit is or will be received by the vendor from the purchaser. Issue No. 00-25 requires effective with the fourth quarter of 2001 that certain expenses that historically have been included in selling, general, and administrative costs be reclassified as deductions from sales. We do not believe adopting this statement will have a significant impact on our financial position or results of operations. (6) We entered into an agreement during the third quarter of 2000 to sell an interest in some of our trade accounts receivable to a third party. In 2001, we recognized a loss of $3 million in the first six months on these sales of trade accounts, 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. The average rate for the six months ended June 30, 2001, was 6 percent. 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 receivable pool, which approximated book value. 13 14 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) (7) Earnings (loss) per share of common stock outstanding were computed as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- (MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS) Basic Earnings Per Share-- Net income (loss)....................... $ 2 $ 15 $ (29) $ 16 =========== =========== =========== =========== Average shares of common stock outstanding.......................... 37,396,712 34,358,776 36,994,973 34,064,491 =========== =========== =========== =========== Earnings per average share of common stock................................ $ .06 $ .42 $ (.77) $ .45 =========== =========== =========== =========== Diluted Earnings Per Share-- Net income (loss)....................... $ 2 $ 15 $ (29) $ 16 =========== =========== =========== =========== Average shares of common stock outstanding.......................... 37,396,712 34,358,776 36,994,973 34,064,491 Effect of dilutive securities: Restricted stock................... -- 43,302 -- 45,741 Stock options...................... -- -- -- -- Performance shares................. 159,373 158,995 159,156 156,901 ----------- ----------- ----------- ----------- Average shares of common stock outstanding including dilutive securities........................... 37,556,085 34,561,073 37,154,129 34,267,133 =========== =========== =========== =========== Earnings (loss) per average share of common stock......................... $ .06 $ .42 $ (.77) $ .45 =========== =========== =========== ===========
(8) 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. 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. 14 15 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) The following table summarizes certain Tenneco segment information:
SEGMENT ----------------------------------------------------------- RECLASS NORTH AMERICA EUROPE OTHER & ELIMS CONSOLIDATED ------------- ------ ----- ------- ------------ (MILLIONS) FOR THE THREE MONTHS THEN ENDED JUNE 30, 2001 Revenues from external customers.............. $ 493 $347 $ 85 $ -- $ 925 Intersegment revenues......................... 2 12 2 (16) -- Income before interest, income taxes, and minority interest........................... 20 22 5 -- 47 FOR THE THREE MONTHS THEN ENDED JUNE 30, 2000 Revenues from external customers.............. $ 533 $322 $ 87 $ -- $ 942 Intersegment revenues......................... 2 10 3 (15) -- Income before interest, income taxes, and minority interest........................... 40 23 5 -- 68 AT JUNE 30, 2001, AND FOR THE SIX MONTHS THEN ENDED Revenues from external customers.............. $ 928 $696 $165 $ -- $1,789 Intersegment revenues......................... 5 23 4 (32) -- Income before interest, income taxes, and minority interest........................... 17 30 6 -- 53 Total Assets.................................. 1,145 955 690 55 2,845 AT JUNE 30, 2000, AND FOR THE SIX MONTHS THEN ENDED Revenues from external customers.............. $1,043 $616 $161 $ -- $1,820 Intersegment revenues......................... 5 19 6 (30) -- Income before interest, income taxes, and minority interest........................... 74 34 7 -- 115 Total Assets.................................. 1,515 974 535 (36) 2,988
(9) Supplemental guarantor condensed financial statements are presented below: Basis of Presentation We issued senior subordinated notes due 2009 as a component of a plan to realign our debt in connection with the 1999 spin-off of our packaging business. All of our existing and future material domestic wholly-owned subsidiaries (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. 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. 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. 15 16 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) STATEMENT OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 2001 -------------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) REVENUES Net sales and operating revenues-- External....................... $387 $538 $ -- $ -- $925 Affiliated companies........... 15 14 -- (29) -- ---- ---- ---- ---- ---- 402 552 -- (29) 925 ---- ---- ---- ---- ---- COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)...... 323 438 -- (29) 732 Engineering, research, and development.................... 6 6 -- -- 12 Selling, general, and administrative................. 48 47 -- -- 95 Depreciation and amortization..... 21 18 -- -- 39 ---- ---- ---- ---- ---- 398 509 -- (29) 878 ---- ---- ---- ---- ---- OTHER INCOME (EXPENSE).............. 14 (14) -- -- -- INCOME (LOSS) BEFORE INTEREST EXPENSE, INCOME TAXES, MINORITY INTEREST, AND EQUITY IN NET INCOME OF AFFILIATED COMPANIES........... 18 29 -- -- 47 Interest expense-- External (net of interest capitalized)................. (1) 2 42 -- 43 Affiliated companies (net of interest income)............. 27 1 (28) -- -- Income tax expense (benefit)...... (10) 11 (2) 2 1 Minority interest................. -- 1 -- -- 1 ---- ---- ---- ---- ---- 2 14 (12) (2) 2 Equity in net income (loss) of affiliated companies........... 15 -- 14 (29) -- ---- ---- ---- ---- ---- NET INCOME (LOSS)................... $ 17 $ 14 $ 2 $(31) $ 2 ==== ==== ==== ==== ====
16 17 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) STATEMENT OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 2000 ---------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) REVENUES Net sales and operating revenues-- External.......................... $433 $509 $ -- $ -- $942 Affiliated companies.............. 19 18 -- (37) -- ---- ---- ---- ---- ---- 452 527 -- (37) 942 ---- ---- ---- ---- ---- COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)......... 349 400 -- (37) 712 Engineering, research, and development....................... 6 9 -- -- 15 Selling, general, and administrative.................... 62 49 -- -- 111 Depreciation and amortization........ 19 18 -- -- 37 ---- ---- ---- ---- ---- 436 476 -- (37) 875 ---- ---- ---- ---- ---- OTHER INCOME (EXPENSE)................. (1) 2 -- -- 1 ---- ---- ---- ---- ---- INCOME (LOSS) BEFORE INTEREST EXPENSE, INCOME TAXES, MINORITY INTEREST, AND EQUITY IN NET INCOME OF AFFILIATED COMPANIES............................ 15 53 -- -- 68 Interest expense-- External (net of interest capitalized).................... 1 3 44 -- 48 Affiliated companies (net of interest income)................ 26 3 (29) -- -- Income tax expense (benefit)......... 4 13 (8) (4) 5 Minority interest.................... -- -- -- -- ---- ---- ---- ---- ---- (16) 34 (7) 4 15 Equity in net income (loss) of affiliated companies.............. 18 -- 22 (40) -- ---- ---- ---- ---- ---- NET INCOME (LOSS)...................... $ 2 $ 34 $ 15 $(36) $ 15 ==== ==== ==== ==== ====
17 18 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) STATEMENT OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2001 ---------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) REVENUES Net sales and operating revenues-- External.......................... $714 $1,075 $ -- $ -- $1,789 Affiliated companies.............. 33 28 -- (61) -- ---- ------ ---- ---- ------ 747 1,103 -- (61) 1,789 ---- ------ ---- ---- ------ COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)......... 609 890 -- (61) 1,438 Engineering, research, and development....................... 12 13 -- -- 25 Selling, general, and administrative.................... 109 87 -- -- 196 Depreciation and amortization........ 41 35 -- -- 76 ---- ------ ---- ---- ------ 771 1,025 -- (61) 1,735 ---- ------ ---- ---- ------ OTHER INCOME (EXPENSE)................. 20 (21) -- -- (1) ---- ------ ---- ---- ------ INCOME (LOSS) BEFORE INTEREST EXPENSE, INCOME TAXES, MINORITY INTEREST, AND EQUITY IN NET INCOME OF AFFILIATED COMPANIES............................ (4) 57 -- -- 53 Interest expense-- External (net of interest capitalized).................... (1) 5 86 -- 90 Affiliated companies (net of interest income)................ 59 2 (61) -- -- Income tax expense (benefit)......... (21) 21 (2) (7) (9) Minority interest.................... -- 1 -- -- 1 ---- ------ ---- ---- ------ (41) 28 (23) 7 (29) Equity in net income (loss) of affiliated companies.............. 23 -- (6) (17) -- ---- ------ ---- ---- ------ NET INCOME (LOSS)...................... $(18) $ 28 $(29) $(10) $ (29) ==== ====== ==== ==== ======
18 19 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) STATEMENT OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 ---------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) REVENUES Net sales and operating revenues-- External.......................... $852 $ 968 $ -- $ -- $1,820 Affiliated companies.............. 38 37 -- (75) -- ---- ------ ---- ---- ------ 890 1,005 -- (75) 1,820 ---- ------ ---- ---- ------ COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)......... 682 777 -- (75) 1,384 Engineering, research, and development....................... 14 16 -- -- 30 Selling, general, and administrative.................... 120 97 -- -- 217 Depreciation and amortization........ 39 37 -- -- 76 ---- ------ ---- ---- ------ 855 927 -- (75) 1,707 ---- ------ ---- ---- ------ OTHER INCOME (EXPENSE)................. -- 2 -- -- 2 ---- ------ ---- ---- ------ INCOME (LOSS) BEFORE INTEREST EXPENSE, INCOME TAXES, MINORITY INTEREST, AND EQUITY IN NET INCOME OF AFFILIATED COMPANIES............................ 35 80 -- -- 115 Interest expense-- External (net of interest capitalized).................... -- 6 87 -- 93 Affiliated companies (net of interest income)................ 50 6 (56) -- -- Income tax expense (benefit)......... 1 21 (13) (5) 4 Minority interest.................... -- 2 -- -- 2 ---- ------ ---- ---- ------ (16) 45 (18) 5 16 Equity in net income (loss) of affiliated companies.............. 28 -- 34 (62) -- ---- ------ ---- ---- ------ NET INCOME (LOSS)...................... $ 12 $ 45 $ 16 $(57) $ 16 ==== ====== ==== ==== ======
19 20 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) BALANCE SHEET
JUNE 30, 2001 ---------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) ASSETS Current assets: Cash and temporary cash investments...................... $ 9 $ 61 $ -- $ -- $ 70 Receivables......................... 225 397 20 (123) 519 Inventories......................... 136 233 -- -- 369 Deferred income taxes............... 73 4 116 (116) 77 Prepayments and other............... 39 62 -- -- 101 ------ ------ ------ ------- ------ 482 757 136 (239) 1,136 ------ ------ ------ ------- ------ Other assets: Investment in affiliated companies........................ 315 -- 2,198 (2,513) -- Notes and advances receivable from affiliates....................... 2,373 30 3,378 (5,781) -- Long-term notes receivable, net..... 14 11 -- -- 25 Goodwill and intangibles, net....... 316 131 -- -- 447 Deferred income taxes............... 104 7 22 (22) 111 Pension assets...................... 23 20 -- -- 43 Other............................... 58 56 28 -- 142 ------ ------ ------ ------- ------ 3,203 255 5,626 (8,316) 768 ------ ------ ------ ------- ------ Plant, property, and equipment, at cost................................ 847 950 -- -- 1,797 Less--Reserves for depreciation and amortization..................... 442 414 -- -- 856 ------ ------ ------ ------- ------ 405 536 -- -- 941 ------ ------ ------ ------- ------ $4,090 $1,548 $5,762 $(8,555) $2,845 ====== ====== ====== ======= ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt (including current maturities of long-term debt): Short-term debt--non-affiliated........ $ -- $ 25 $ 183 $ -- $ 208 Short-term debt--affiliated.... 26 -- 10 (36) -- Trade payables...................... 149 399 -- (86) 462 Accrued taxes....................... 53 31 -- (68) 16 Other............................... 118 95 42 (13) 242 ------ ------ ------ ------- ------ 346 550 235 (203) 928 Long-term debt--non-affiliated........ -- 15 1,367 -- 1,382 Long-term debt--affiliated............ 1,836 13 3,931 (5,780) -- Deferred income taxes................. 153 50 0 (70) 133 Postretirement benefits and other liabilities......................... 129 12 (1) 18 158 Commitments and contingencies Minority interest..................... -- 14 -- -- 14 Shareholders' equity.................. 1,626 894 230 (2,520) 230 ------ ------ ------ ------- ------ $4,090 $1,548 $5,762 $(8,555) $2,845 ====== ====== ====== ======= ======
20 21 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) 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 ------ ------ ------ ------- ------ $4,066 $1,566 $5,843 $(8,589) $2,886 ====== ====== ====== ======= ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt (including current maturities of long-term debt): Short-term debt--non-affiliated......... $ -- $ 28 $ 64 $ -- 92 Short-term debt--affiliated..... -- 1 10 (11) -- Trade payables....................... 179 393 1 (109) 464 Accrued taxes........................ 26 12 -- (22) 16 Other................................ 109 104 33 (9) 237 ------ ------ ------ ------- ------ 314 538 108 (151) 809 Long-term debt--non-affiliated......... -- 20 1,415 -- 1,435 Long-term debt--affiliated............. 1,753 4 4,069 (5,826) -- Deferred income taxes.................. 159 63 (78) -- 144 Postretirement benefits and other liabilities.......................... 126 6 (1) 23 154 Commitments and contingencies Minority interest...................... -- 14 -- -- 14 Shareholders' equity................... 1,714 921 330 (2,635) 330 ------ ------ ------ ------- ------ $4,066 $1,566 $5,843 $(8,589) $2,886 ====== ====== ====== ======= ======
21 22 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 ---------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) OPERATING ACTIVITIES Net cash provided (used) by operating activities........................... $(104) $114 $ (4) $ -- $ 6 ----- ---- ---- ------- ---- INVESTING ACTIVITIES Net proceeds from sale of assets....... 2 1 -- -- 3 Expenditures for plant, property, and equipment............................ (12) (35) -- -- (47) Investments and other.................. (3) (1) -- -- (4) ----- ---- ---- ------- ---- Net cash provided (used) by investing activities........................... (13) (35) -- -- (48) ----- ---- ---- ------- ---- FINANCING ACTIVITIES Issuance of common and treasury stock................................ -- -- 5 -- 5 Retirement of long-term debt........... -- (3) (5) -- (8) Net increase (decrease) in short-term debt excluding current maturities of long-term debt....................... -- -- 76 -- 76 Intercompany dividends and net increase (decrease) in intercompany obligations.......................... 118 (46) (72) -- -- Dividends (common)..................... -- -- -- -- -- ----- ---- ---- ------- ---- Net cash provided (used) by financing activities........................... 118 (49) 4 -- 73 ----- ---- ---- ------- ---- Effect of foreign exchange rate changes on cash and temporary cash investments.......................... -- 4 -- -- 4 ----- ---- ---- ------- ---- Increase (decrease) in cash and temporary cash investments........... 1 34 -- -- 35 Cash and temporary cash investments, January 1............................ 8 27 -- -- 35 ----- ---- ---- ------- ---- Cash and temporary cash investments, June 30 (Note)....................... $ 9 $ 61 $ -- $ -- $ 70 ===== ==== ==== ======= ====
NOTE: Cash and temporary cash investments include highly liquid investments with a maturity of three months or less at the date of purchase. 22 23 TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 -------------------------------------------------------------------------- TENNECO AUTOMOTIVE INC. GUARANTOR NONGUARANTOR (PARENT RECLASS SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED ------------ ------------ --------------- ------- ------------ (MILLIONS) OPERATING ACTIVITIES Net cash provided (used) by operating activities.............. $ 72 $ 10 $(29) $(1) $ 52 ---- ---- ---- --- ---- INVESTING ACTIVITIES Net proceeds from sale of assets.... 3 2 -- -- 5 Expenditures for plant, property, and equipment..................... (20) (47) -- -- (67) Investments and other............... (8) 2 -- -- (6) ---- ---- ---- --- ---- Net cash provided (used) by investing activities.............. (25) (43) -- -- (68) ---- ---- ---- --- ---- FINANCING ACTIVITIES Issuance of common and treasury stock............................. -- -- 9 -- 9 Proceeds from subsidiary equity issue............................. -- 1 -- -- 1 Issuance of long-term debt.......... -- 1 -- -- 1 Retirement of long-term debt........ -- (1) -- -- (1) Net increase (decrease) in short-term debt excluding current maturities of long-term debt...... -- (19) -- -- (19) Intercompany dividends and net increase (decrease) in intercompany obligations.......... (59) 34 24 1 -- Dividends (common).................. -- -- (4) -- (4) ---- ---- ---- --- ---- Net cash provided (used) by financing activities.............. (59) 16 29 1 (13) ---- ---- ---- --- ---- Effect of foreign exchange rate changes on cash and temporary cash investments....................... -- (4) -- -- (4) ---- ---- ---- --- ---- Increase (decrease) in cash and temporary cash investments........ (12) (21) -- -- (33) Cash and temporary cash investments, January 1......................... 28 56 -- -- 84 ---- ---- ---- --- ---- Cash and temporary cash investments, June 30 (Note).................... $ 16 $ 35 $ -- $-- $ 51 ==== ==== ==== === ====
NOTE:Cash and temporary cash investments include highly liquid investments with a maturity of three months or less at the date of purchase. (The preceding notes are an integral part of the foregoing financial statements.) 23 24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000 NET SALES AND OPERATING REVENUES
THREE MONTHS ENDED JUNE 30, ------------ 2001 2000 CHANGE ---- ---- ------ (MILLIONS) North America............................................... $493 $533 (8)% Europe...................................................... 347 322 8% Rest of World............................................... 85 87 (2)% ---- ---- $925 $942 (2)% ==== ====
Results for 2000 have been reclassified for comparability to reflect the reclassification of certain sales incentives. This reclassification is made in accordance with the provisions of the FASB's Emerging Issues Task Force May 2000 consensus on Issue No. 00-14, Accounting for Certain Sales Incentives. Effective January 1, 2001, we changed the way we classify some sales incentives in accordance with the consensus reached by the EITF. The impact of this reclassification on second quarter 2000 results was a reduction in net sales of $6 million with an offsetting reduction in selling, general, and administrative expense. Our North American revenues decreased $40 million in the second quarter of 2001 compared to last year's second quarter reflecting lower sales generated from both the original equipment and aftermarket businesses. OE revenues declined 6 percent to $350 million in the second quarter of this year due to significant OE production cut backs in both the light and heavy-duty vehicle segments as vehicle manufacturers adjusted production levels in the face of a slowing economy. OE ride control revenues were down 15 percent for the quarter. OE exhaust revenues declined 2 percent which is attributable to a $26 million decline in volume partially offset by a $21 million increase in catalytic converter revenues due to increased cost of precious metals that are passed through to our customers. Lower ride control volumes, especially in our heavy-duty elastomer business, resulted in the decline in OE ride control revenues. Aftermarket revenues for North America were $143 million in the second quarter of 2001, representing a decline of 10 percent compared to the same period in the prior year. The North American aftermarket continued to be severely depressed, affecting industry volumes. Aftermarket exhaust revenues declined 11 percent in the quarter, while our aftermarket ride control revenues dropped nearly 9 percent compared to a year ago. The volume decline was partially offset by price increases implemented in the first quarter and early second quarter. Our European segment's revenues increased $25 million in the second quarter of 2001 compared to last year due primarily to a 22 percent increase in OE revenues, which were $259 million for the quarter. Contributing to the OE revenue increase were stronger exhaust volumes in both our new and existing programs, which added $69 million of additional revenue in the quarter. Of that increase, $39 million came as a result of rising precious metal prices that we have passed through to our OE customers. The devaluation of European currencies compared to the U.S. dollar resulted in a reduction in OE revenues of $22 million in the second quarter of this year. Excluding these currency impacts, European OE revenues would have increased 32 percent in the second quarter of 2001 compared to the second quarter of 2000. European aftermarket sales were $88 million in the quarter compared to $109 million in the prior year. This 19 percent decline resulted from the continued softness of the aftermarket industry combined with declining exhaust replacement rates due primarily to the increasing use of longer lasting stainless steel on OE vehicles. Price increases that relate to our global aftermarket pricing strategy continued to show favorable results in the second quarter of 2001 contributing some positive revenue growth and helping to partially offset the impact from lower volumes. Negatively impacting European aftermarket revenue was the depreciation of European currencies, which reduced revenues by $4 million. Revenues from our operations in the rest of the world, specifically South America, Australia and Asia, decreased $2 million in the quarter primarily due to $10 million of negative foreign currency adjustments 24 25 impacting the quarter's results. Excluding these currency impacts, total revenues for the rest of the world would have increased 9 percent compared to the same quarter last year. The impact of foreign currency was $6 million in South America and $4 million in Australia. This was offset by strong volume growth in South America and Asia. The South America volume growth is attributable to several new OE programs. In Asia, OE volumes increased for the quarter due to new platforms in production at our exhaust manufacturing facility in Shanghai. EARNINGS BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST ("EBIT") We reported EBIT of $47 million for the second quarter of 2001, compared to $68 million for the same quarter last year. Reported results for 2001 include restructuring and other charges that have an effect on comparability of EBIT results between the years. To provide enhanced comparability, we have separately identified these costs and charges by segment in the following table, and will discuss our results in the following section using a comparison of "2001 Operating Units Results" to the "2000 Reported Results" for each segment.
THREE MONTHS ENDED JUNE 30, -------------------------------------------------- 2001 2000 -------------------------------------- -------- RESTRUCTURING OPERATING REPORTED AND OTHER UNITS REPORTED RESULTS CHARGES RESULTS RESULTS CHANGE -------- ------------- --------- -------- ------ (MILLIONS) North America................................. $20 $10 $30 $40 (25)% Europe........................................ 22 -- 22 23 (4)% Rest of World................................. 5 -- 5 5 --% --- --- --- --- $47 $10 $57 $68 (16)% === === === ===
In the preceding table, amounts reported as restructuring and other charges for 2001 include $8 million related to the second quarter 2001 restructuring plan and $2 million for other restructuring related costs and expenses such as relocation and moving costs that could not be accrued as part of the restructuring reserve. For further details of these costs see the sections entitled "Restructuring Charges," and "Liquidity and Capital Resources--Capitalization" later in this Management's Discussion and Analysis. EBIT for North American operations declined to $30 million in the second quarter 2001 from $40 million one year ago as weaker sales volumes in our OE segment impacted earnings in the second quarter. A drop in both the light and heavy-duty vehicle production volumes and a decline in the higher margin elastomer business combined to reduce EBIT for the North American OE business by $6 million. Further contributing to the decline in EBIT in North American OE operations were unfavorable pricing impacts and volume related operating inefficiencies. North American aftermarket EBIT was even year over year. Our aftermarket business was impacted by aftermarket industry weaknesses, which resulted in lower volumes and reduced EBIT by $7 million. Lower selling, general, and administrative expenses; cost savings generated from our restructuring efforts; and price increases offset the negative impacts on aftermarket EBIT in the quarter. Our European segment's EBIT was essentially flat in the second quarter of 2001 versus the prior year. Improved performance in the European OE exhaust business offset a marginal decline in the OE ride control operations. The OE exhaust business benefited from higher volumes and lower manufacturing costs. Our European aftermarket operations had mixed results despite continued weaknesses in the overall industry, as the aftermarket exhaust business had improved EBIT this quarter while ride control EBIT declined consistent with the trends in the industry. Lower selling, general and administrative expenses, cost savings generated from our restructuring efforts and price increases helped offset the industry weakness. Foreign currency movements in Europe impacted EBIT by $2 million in the quarter. EBIT for the company's operations in the rest of the world was even in the second quarter of 2001 compared to the same quarter one year ago, despite the impact of foreign currencies devaluation. The foreign currency impact of $1 million, primarily in our Australian operations, was offset by stronger volumes in our Asia operations largely due to OE exhaust operations in Shanghai. 25 26 EBIT AS A PERCENTAGE OF REVENUE The following table shows EBIT as a percentage of revenue by segment. The EBIT percentage for the three months ended June 30, 2001 is calculated after excluding the "restructuring and other charges" described previously.
THREE MONTHS ENDED JUNE 30, -------------------- 2001 2000 ---- ---- North America............................................... 6% 8% Europe...................................................... 6% 7% Rest of World............................................... 6% 6% Total Tenneco Automotive............................. 6% 7%
In North America, EBIT as a percentage of revenue decreased by 2 percent. Production cuts by vehicle manufacturers, declines in higher margin elastomer sales and pricing pressure from vehicle manufacturers contributed to the lower margins. Volume related operating inefficiencies and lower aftermarket volumes added to the decline, despite improvements in selling, general, and administrative expenses and other costs in our North American operations. In Europe, EBIT margins declined in the second quarter primarily due to lower margins in our OE exhaust operations. OE exhaust margins are being impacted by increased precious metals prices that are passed through to our customers. The impact of precious metals on sales for the quarter was $39 million. Excluding the impact of precious metals pricing, Europe's EBIT as a percentage of revenues would have been flat. Our European aftermarket operations had improved margins due to price increases, lower selling, general and administrative expenses, and cost savings generated from our restructuring efforts. EBIT as a percentage of revenue for the rest of the world was even with the prior year. Excluding the currency impacts, EBIT margin for the rest of the world would have increased to 8 percent in the second quarter 2001. Stronger volumes and improved mix contributed to these better margins. INTEREST EXPENSE, NET OF INTEREST CAPITALIZED We reported interest expense of $43 million for the quarter ended June 30, 2001, compared to $48 million during the same period in 2000. The decrease in total interest expense is primarily due to lower interest rates on our variable rate debt. See more detailed explanations on our debt structure in "Liquidity and Capital Resources--Capitalization" later in this Management's Discussion and Analysis. INCOME TAXES Income taxes were a $1 million for the quarter ended June 30, 2001, compared to $5 million for the quarter ended June 30, 2000. The effective tax rate was 25 percent for each of the second quarters of 2001 and 2000. EARNINGS PER SHARE We reported earnings per diluted common share of $.06 for the quarter ended June 30, 2001, compared to $.42 per diluted common share for the same period in the prior year. Included in results for the second quarter 2001 is the impact of a restructuring charge and other restructuring related costs. The negative effect of these costs on earnings per diluted common share was a reduction of $.20. You should also read Note 7 in the "Notes to Financial Statements" for more detailed information on earnings per share. RESTRUCTURING CHARGES Over the past several years we have adopted plans to restructure portions of our operations. These plans were approved by the Board of Directors and were designed to reduce operational and administrative overhead costs throughout the business. Charges to income related to these plans are recorded in the period in which the plans are finalized and approved, while actions necessary to affect these restructuring plans occur over future periods in accordance with established plans. 26 27 We have substantially completed the restructuring actions related to the 1999 plan. The 1999 plan involved closing a ride control manufacturing facility and an exhaust plant in Europe, closing or downsizing four European aftermarket distribution centers, closing a North American exhaust manufacturing facility plus employee reductions of approximately 780. Over 750 employees have been terminated under the 1999 plan as of June 30, 2001. One European aftermarket distribution remains open. We will be substantially complete with these remaining restructuring activities by the end of 2001. In the fourth quarter of 2000, our Board of Directors approved a restructuring plan to further reduce administrative and operational overhead costs. We recorded a pre-tax charge related to the plan of $46 million, $32 million after tax, or $.92 per diluted common share. Within the statement of income, $13 million of the pre-tax charge is reflected in cost of sales, while $33 million is included in selling, general, and administrative expenses. 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 2000 plan involved closing a North American aftermarket exhaust distribution facility and ride control manufacturing plant in our Asian market, as well as the consolidation of some exhaust manufacturing facilities in Europe. In addition, the plan involves the elimination of up to 700 positions, including temporary employees. We wrote down the assets at the locations to be closed to their fair value, less costs to sell. We estimated the 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 cash proceeds on the sale of these assets will be significant. As of June 30, 2001, approximately 530 employees have been terminated under the 2000 plan primarily in North America and Europe in sales, engineering and salaried plant. Additionally, 57 temporary employees have been terminated. All restructuring actions are being completed in accordance with our established plan. We expect to complete all restructuring activities related to this plan by the end of the first quarter of 2002. Also in the fourth quarter of 2000, we recorded other charges of $15 million, $10 million after tax, or $.29 per diluted common 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. In the first quarter of 2001, our Board of Directors approved a restructuring plan in response to increasingly difficult industry conditions. On January 31, 2001, we announced plans to eliminate up to 405 salaried positions worldwide. We recorded pre-tax charges related to the restructuring of $11 million, $8 million after tax, or $.21 per diluted common share. Within the statement of income, $2 million of the pre-tax charge is reflected in cost of sales, while $9 million is included in selling, general, and administrative expenses. These charges are comprised of $8 million for severance and related costs for salaried employment reductions worldwide and $3 million for costs related to closing a testing facility in North America. As of June 30, 2001, we have eliminated about 285 positions in connection with the 2001 plan. We also incurred $3 million for other restructuring related costs and expenses such as relocation and moving costs that could not be accrued as part of the restructuring reserve. We estimate that we will complete these restructuring activities no later than the first quarter 2002. All workforce reductions will be done in compliance with all legal and contractual requirements including obligations to consult with worker committees, union representatives and others. In the second quarter of 2001, our Board of Directors approved a separate restructuring plan related to closing a North American ride control production line. We recorded pre-tax charges related to the plan of $8 million, $6 million after tax, or $.16 per diluted common share. Within the statement of income, the $8 million charge is included in cost of sales. We wrote down assets to their fair market value, less costs to sell. 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 cash proceeds on the sale of these assets will be significant. We expect to complete all restructuring activities related to this plan by the end of 2001. 27 28 Amounts related to activities that are part of the restructuring plans are as follows:
DECEMBER 31, 2000 2001 2001 CHARGED TO IMPACT OF JUNE 30, 2001 RESTRUCTURING RESTRUCTURING CASH ASSET EXCHANGE RESTRUCTURING RESERVE CHARGES PAYMENTS ACCOUNTS RATES RESERVE ----------------- ------------- -------- ---------- --------- -------------- Severance.............. $23 $ 8 $(15) $-- $(3) $13 Asset Impairment....... -- 9 -- (8) -- 1 Facility exit costs.... 3 2 -- -- (1) 4 --- --- ---- --- --- --- $26 $19 $(15) $(8) $(4) $18 === === ==== === === ===
In addition to these announced actions, we continue to evaluate additional cost reduction initiatives for 2001 which would require review and approval by the Board of Directors and could result in additional restructuring charges. Also, we currently estimate that we will incur about $4 million of expense during the remainder of 2001 with respect to restructuring-related costs and expenses that could not be accrued as part of the restructuring reserve. CHANGES IN ACCOUNTING PRINCIPLES 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 adopted this statement effective January 1, 2001 and it did not have a significant impact on our financial position or results of operations. 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. Consequently, beginning January 1, 2001, we classified some incentives that were previously shown in selling, general, and administrative expense as a reduction in revenues. As a result of the change, revenue was $6 million lower for the first six months of 2001, with an offsetting decline in selling, general, and administrative expenses. We have restated prior year results for comparability, resulting in a reduction in net sales of $10 million for the six months ended June 30, 2000, with an offsetting reduction in selling, general, and administrative expense. In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting for purchased goodwill from an amortization method to an impairment-only approach. Therefore amortization of all purchased goodwill, including amortization of goodwill recorded in past business combinations, will cease upon adoption of SFAS No. 142. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Early adoption of the SFAS No. 142 is not permitted nor is retroactive application to prior period 28 29 (interim or annual) financial statements. We are currently evaluating the effect of this statement on our financial position and results of operations. In April 2001, the EITF reached a consensus on Issue No. 00-25, Accounting for Consideration from a Vendor to a Retailer in Connection with the Purchase or Promotion of the Vendor's Products. This consensus requires that consideration provided by a vendor to a purchaser of the vendor's products be recognized as a reduction of sales, except in those instances where an identifiable and measurable benefit is or will be received by the vendor from the purchaser. Issue No. 00-25 requires effective with the fourth quarter of 2001 that certain expenses that historically have been included in selling, general and administrative costs be reclassified as deductions from sales. We do not believe adopting this statement will have a significant impact on our financial position or results of operations. RESULTS FROM OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 NET SALES AND OPERATING REVENUES
SIX MONTHS ENDED JUNE 30, ---------------- 2001 2000 CHANGE ---- ---- ------ (MILLIONS) North America............................................... $ 928 $1,043 (11)% Europe...................................................... 696 616 13% Rest of World............................................... 165 161 2% ------ ------ $1,789 $1,820 (2)% ====== ======
Results for 2000 have been reclassified for comparability to reflect the reclassification of certain sales incentives. This reclassification is made in accordance with the provisions of the FASB's Emerging Issues Task Force May 2000 consensus on Issue No. 00-14, Accounting for Certain Sales Incentives. Effective January 1, 2001, we changed the way we classify some sales incentives in accordance with the consensus reached by the EITF. The impact of this reclassification on second quarter 2000 results was a reduction in net sales of $10 million with an offsetting reduction in selling, general, and administrative expense. Our North American revenues decreased $115 million in the first six months of 2001 compared to the same period in the prior year reflecting lower sales generated from both our original equipment and aftermarket businesses. OE revenues declined 11 percent to $674 million in the current year due to significant OE production cut backs in both the light and heavy-duty vehicle segments as vehicle manufacturers adjusted production levels in the face of a slowing economy. OE ride control revenues were down 20% for the first half of 2001. OE exhaust revenues declined 7% which is attributable to the $64 million decline in volume partially offset by the $35 million increase in catalytic converter revenues due to increased cost of precious metals that are passed through to our customers. Lower ride control volumes, especially in our heavy-duty elastomer business, resulted in the decline in OE ride control revenues. Aftermarket revenues for North America were $254 million in the first six months of 2001, representing a decline of 12 percent compared to the same period in the prior year. The North American aftermarket continued to be severely depressed, affecting industry volumes. Aftermarket exhaust revenues declined 13 percent in the first six months, while our aftermarket ride control revenues dropped 11 percent compared to a year ago. Lower volumes accounted for $27 million of the reduction in aftermarket revenues, while negative price adjustments that were initiated during 2000 contributed the majority of the rest of the decline in revenues. We have implemented price increases on some products in North America that are beginning to offset the impact of price reductions implemented in 2000. Our European segment's revenues increased $80 million in the first six months of 2001 compared to last year due primarily to a 29 percent increase in OE revenues, which were $415 million for the six months. Contributing to the OE revenue increase were stronger exhaust volumes in both our new and existing programs, which added $153 million of additional revenue in the half. Of that increase, $71 million came as a result of rising precious metal prices that we have passed through to our OE exhaust customers. The devaluation of European currencies compared to the U.S. dollar resulted in a reduction in OE revenues of 29 30 $38 million in the first half of this year. Excluding these currency impacts, European OE revenues would have increased 38 percent in the first half of 2001 compared to the first half of 2000. European aftermarket sales were $162 million in the six months of this year compared to $201 million in the prior year. This 19 percent decline resulted from the continued softness of the aftermarket industry combined with declining exhaust replacement rates due primarily to the increasing use of longer lasting stainless steel. Price increases that relate to our global aftermarket pricing strategy provided favorable results in the first half of 2001 contributing some positive revenue growth and helping to partially offset the impact from lower volumes. Negatively impacting European aftermarket revenue growth was the depreciation of European currencies, which reduced revenues by $10 million. Revenues from our operations in the rest of the world, specifically South America, Australia and Asia, decreased $4 million in the quarter primarily due to $19 million of negative foreign currency adjustments impacting the results for the first six months. Excluding these currency impacts, total revenues for the rest of the world would have increased 14 percent compared to the same period last year. The impact of foreign currency was $10 million in South America and $9 million in Australia. This was offset by strong volume growth in South America and Asia. The South America volume growth is attributable to several new OE programs. In Asia, OE volumes increased for the first six months due to the new platforms in production at our exhaust manufacturing facility in Shanghai. EARNINGS BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST ("EBIT") We reported EBIT of $53 million for the first six months of 2001, compared to $115 million for the same period last year. Reported results for 2001 include restructuring and other charges that have an effect on comparability of EBIT results between the years. To provide enhanced comparability, we have separately identified these costs and charges by segment in the following table, and will discuss our results in the following section using a comparison of "2001 Operating Units Results" to the "2000 Reported Results" for each segment.
SIX MONTHS ENDED JUNE 30, -------------------------------------------------- 2001 2000 -------------------------------------- -------- RESTRUCTURING OPERATING REPORTED AND OTHER UNITS REPORTED RESULTS CHARGES RESULTS RESULTS CHANGE -------- ------------- --------- -------- ------ (MILLIONS) North America................................. $17 $19 $36 $ 74 (51)% Europe........................................ 30 8 38 34 12% Rest of World................................. 6 3 9 7 29% --- --- --- ---- $53 $30 $83 $115 (28)% === === === ====
In the preceding table, amounts reported as restructuring and other charges for 2001 include: $19 million related to the 2001 restructuring plans; $3 million for other restructuring related costs and expenses such as relocation and moving costs that could not be accrued as part of the restructuring reserve; $6 million for environmental remediation activity, principally in Europe; and $2 million related to costs associated with the amendment of certain terms of our senior credit facility. For further details of these costs see the sections entitled "Restructuring Charges," and "Liquidity and Capital Resources--Capitalization" later in this Management's Discussion and Analysis. EBIT for North American operations declined to $36 million in the first six months of 2001 from $74 million one year ago as weaker sales volumes in both our OE and aftermarket segments impacted our earnings in the first half of 2001. A drop in both the light and heavy-duty vehicle production volumes and a decline in the higher margin elastomer business combined to reduce EBIT for the North American OE business by over $15 million. Further contributing to the decline in EBIT in North American OE operations were unfavorable pricing impacts, volume related operating inefficiencies, inventory shrinkage, and foreign currency impacts. The decline in North American aftermarket EBIT was due to aftermarket industry weaknesses, which affected volumes and bad debt. Lower volumes resulted in reduced EBIT of $12 million. 30 31 Lower selling, general, and administrative expenses and cost savings generated from our restructuring efforts of $15 million partially offset the negative impacts on aftermarket EBIT in the quarter. Our European segment's EBIT improved 12 percent to $38 million during the first six months of 2001 versus the prior year. Improved performance in the European OE exhaust business was the primary driver of these results. The OE exhaust business benefited from higher volumes, lower manufacturing costs and savings from restructuring initiatives. Our European aftermarket operations had mixed results despite continued weaknesses in the overall industry, as the aftermarket exhaust business had improved EBIT while ride control EBIT declined consistent with the trends in the industry. Lower selling, general and administrative expenses, cost savings generated from our restructuring efforts and price increases helped offset the industry weakness. Foreign currency movements in Europe impacted EBIT by $3 million in the first six months. EBIT for the company's operations in the rest of the world increased by $2 million in the first half of 2001 compared to the same period one year ago, despite the impact from the devaluation of foreign currencies of $1 million principally in Australia. The improvement was driven by our Asia and South America operations. In Asia the improvement in EBIT for the first 6 months was primarily due to stronger volumes in our OE exhaust operations in Shanghai, while South American operations improvement was driven by increased volumes in our aftermarket ride control business. EBIT AS A PERCENTAGE OF REVENUE The following table shows EBIT as a percentage of revenue by segment. The EBIT percentage for the six months ended June 30, 2001 is calculated after excluding the "restructuring and other charges" described previously.
SIX MONTHS ENDED JUNE 30, -------------------- 2001 2000 ---- ---- North America............................................... 4% 7% Europe...................................................... 5% 6% Rest of World............................................... 5% 4% Total Tenneco Automotive............................. 5% 6%
In North America, EBIT as a percentage of revenue decreased by 3 percent. Production cuts by vehicle manufacturers, declines in higher margin elastomer sales and pricing pressure from vehicle manufacturers contributed to the lower margins. Volume related operating inefficiencies and lower aftermarket volumes added to the decline, despite improvements in selling, general, and administrative expenses and other costs in our North American operations. In Europe, EBIT margins declined in the first six months primarily due to lower margins in our OE exhaust operations. OE exhaust margins are being impacted by increased precious metals prices that are passed through to our customers with marginal EBIT associated. The impact of precious metals on sales for the first half of this year was $71 million. Excluding the impact of precious metals pricing, Europe's EBIT as a percentage of revenues would have been flat. Significant improvements in OE exhaust operations were offset by costs associated with the Polish ride control plant start-up, reserves for bad debt, currency impacts and lower aftermarket volumes. EBIT as a percentage of revenue for the rest of the world grew in the first half of 2001 despite the impact of foreign currency devaluation. Excluding the currency impacts, EBIT margin for the rest of the world would have increased to 6 percent. Stronger volumes and improved mix contributed to these better margins. INTEREST EXPENSE, NET OF INTEREST CAPITALIZED We reported interest expense of $90 million during the six months ended June 30, 2001, compared to $93 million during the same period in 2000. The decrease in total interest expense is primarily due to lower interest rates on our variable rate debt. See more detailed explanations on our debt structure in "Liquidity and Capital Resources--Capitalization" later in this Management's Discussion and Analysis. 31 32 INCOME TAXES Income taxes were a $9 million benefit at June 30, 2001. For the same period in 2000, income taxes were $4 million. The effective tax during the six months ended June 30, 2001 was 25 percent compared to 18 percent for the same period in 2000. The prior year effective rate benefitted from a strategic decision to consolidate all of our Mexican operations into one tax entity, allowing us to utilize additional tax losses. EARNINGS PER SHARE We reported a loss in earnings per diluted common share of $.77 for the six months ended June 30, 2001 compared to a loss of $.84 per diluted common share for March 31, 2001. In the six months ended June 30, 2000 earnings per diluted common share were positive at $.45. Included in results for the first half of 2001 are the impacts from charges related to our restructuring plans, environmental remediation activities and the costs related to the amendment of certain terms of the senior credit facility. The cumulative negative effect of these items on earnings per diluted common share was a reduction of $.60 for the first half of this year. The majority of the impact was comprised of the restructuring charges taken in the first and second quarters of 2001 and the environmental costs which negatively impacted earnings per share by $.44 and $.12, respectively. You should also read Note 7 in the "Notes to Financial Statements" for more detailed information on earnings per share. LIQUIDITY AND CAPITAL RESOURCES CAPITALIZATION
JUNE 30, DECEMBER 31, 2001 2000 -------- ------------ Short-term debt and current portion of long-term debt....... $ 208 $ 92 Long-term debt.............................................. 1,382 1,435 ------ ------ Total debt.................................................. 1,590 1,527 ------ ------ Total minority interest..................................... 14 14 Common shareholders' equity................................. 230 330 ------ ------ Total capitalization........................................ $1,834 $1,871 ====== ======
The company's debt to capitalization ratio was 86 percent at June 30, 2001 and 82 percent as of December 31, 2000. The increase in the ratio was attributable to higher short-term debt outstanding as well as a decline in shareholders' equity. The year-to-date decline in shareholders' equity results from both the translation of foreign balance sheets into U.S. dollars, where the strength of the dollar resulted in translation adjustments of $63 million, and our recorded net loss of $29 million. Short-term debt, which includes the current portion of long-term obligations and borrowings by foreign subsidiaries as well as our revolving credit facility, increased by $116 million during the first six months of 2001. This increase resulted from higher borrowings of $75 million during the first two quarters under our revolving credit facility and a $41 million increase in the amount of long-term debt that will mature in one year or less. Total borrowings outstanding under our revolving credit facility were $87 million as of June 30, 2001, and $12 million as of December 31, 2000. Long-term debt includes borrowings under financing arrangements entered into to facilitate the debt realignment described below, approximately $16 million of debt that was not retired in the cash tender and exchange offers associated with the 1999 spin-off of our packaging business and other long term obligations such as capitalized leases. As part of the realignment of debt that was required in order to complete the spin-off of the packaging business in 1999, we entered into a $1.55 billion committed senior secured financing arrangement with a syndicate of banks and other financial institutions. The company 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 consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") for our financial ratios through 2001 and (iii) make certain other technical changes. In exchange for these 32 33 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 the fourth quarter of last year, as well as an accelerated weakening of the global aftermarket, 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 incurred legal, advisory and other costs related to the amendment process of approximately $2 million. The amendment also provides for the continued availability of the full amount of the $500 million revolving credit facility. Excluding the $87 million of outstanding borrowings and $55 million of letters of credit, we had $358 million available for borrowing under the revolving credit facility at June 30, 2001. Based on our current projections for 2001, we believe that we will be able to meet the revised financial covenant ratios and adhere to the limitation on capital expenditures. The senior secured credit facility, as amended on March 22, 2001, consists of: (i) a $500 million revolving credit facility with a final maturity date of November 4, 2005; (ii) a $406 million term loan with a final maturity date of November 4, 2005; (iii) a $270 million term loan with a final maturity date of November 4, 2007; and (iv) a $270 million term loan with 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 revolving credit facility and the term loan maturing November 4, 2005, 375 basis points for the term loan maturing November 4, 2007 and 400 basis points for the term loan maturing May 4, 2008; or (ii) a rate consisting of the greater of the JP Morgan Chase prime rate or the Federal Funds rate plus 50 basis points, plus a margin of 225 basis points for the revolving credit facility and the term loan maturing November 4, 2005, 275 basis points for the term loan maturing November 4, 2007 and 300 basis points for the term loan maturing May 4, 2008. Under the provisions of the senior credit facility agreement, the interest margins for borrowings under the revolving credit facility and the term loan maturing November 4, 2005 may be adjusted based on the consolidated leverage ratio (consolidated indebtedness divided by consolidated EBITDA as defined in the senior credit facility agreement) measured at the end of each quarter. The amended senior credit facility agreement requires that the company maintain: (i) a consolidated leverage ratio (consolidated indebtedness divided by consolidated EBITDA) not greater than 6.00 at the end of the first quarter of 2001 and not greater than 6.25, 6.00 and 5.50 at the end of the second, third and fourth quarters of 2001, respectively: (ii) a consolidated interest coverage ratio (consolidated EBITDA divided by consolidated cash interest paid) of at least 1.40 for the first quarter of 2001 and at least 1.35, 1.40 and 1.55 for the second, third and fourth quarters of 2001, respectively; and (iii) a fixed charge coverage ratio (consolidated EBITDA less consolidated capital expenditures, divided by consolidated cash interest paid) greater than .60 for the first quarter of 2001 and greater than .55, .65 and .80 for the second, third and fourth quarters of 2001, respectively. As of June 30, 2001 we were in compliance with the financial covenant ratios required under the amended senior credit facility. 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. As of June 30, 2001, we were in compliance with these requirements. 33 34 The company's outstanding debt also includes $500 million of 11 5/8 percent 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 believe that cash flows from operations, combined with available borrowing capacity described above and assuming that we maintain compliance with the financial covenants and other requirements of our loan agreement, will generally be sufficient to meet our future capital requirements for the following year. Our ability to meet the 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 the 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 credit lenders, additional cost reduction or restructuring initiatives, sales of assets or capital stock, or other alternatives to enhance our financial and operating position. In order to maintain compliance with financial covenants in our loan agreements, we currently believe it will be necessary to further amend them beyond 2001. Should we be required to do so, we believe we can negotiate these amendments at a reasonable cost. DIVIDENDS ON COMMON STOCK During 2000, the company paid quarterly dividends of $.05 per common share. These dividend payments totaled $3 million for the six months ended June 30, 2000, and $7 million for the entire year. On January 10, 2001, the Company announced that the Board of Directors had eliminated the quarterly regular dividend on the company's common stock. The board took the action in response to current industry conditions, significantly greater than anticipated production volume reductions by original equipment manufacturers and continued softness in the global light vehicle aftermarket. CASH FLOWS
SIX MONTHS ENDED JUNE 30, -------------------- 2001 2000 ---- ---- Cash provided (used) by: Operating activities...................................... $ 6 $52 Investing activities...................................... (48) (68) Financing activities...................................... 73 (13)
OPERATING ACTIVITIES For the six months ended June 30, 2001 and June 30, 2000 cash provided from operating activities represented $6 million and $52 million, respectively. Lower earnings in the first half of 2001 was a key driver of the decreased cash provided. This was partially offset by our continued focus on working capital that allowed us to use $5 million less cash on working capital during the first six months of 2001 compared with the same period in the prior year. Reduced accounts receivable and inventory balances plus better management of our payables made a favorable impact on cash flows in the current period compared to last year. Working capital, adjusted for receivables that were sold as of June 30, 2001, was $84 million lower than it was as of 34 35 June 30, 2000. During the first six months of this year, we increased the size of the U.S. receivables securitization program by $3 million and our European program by $8 million. INVESTING ACTIVITIES Cash used for investing activities was $20 million lower for the six months ended June 30, 2001, compared to the same period a year ago due to lower expenditures for property, plant and equipment. Capital expenditures were $47 million for the six months ended June 30, 2001, down from $67 million in the first six months of last year. FINANCING ACTIVITIES Cash provided by financing activities was $73 million for the first six months of 2001 compared to $13 million of cash used for the first six months of 2000. The increase in the first half of this year is attributable to greater short-term borrowings during the period of $76 million. The first half of 2000 includes a $19 million decrease in short-term debt and $4 million of dividend payments to our common shareholders. INTEREST RATE RISK Our financial instruments that are sensitive to market risk for changes in interest rates are its debt securities. We primarily uses a revolving credit facility to finance its short-term capital requirements and pay a current market rate of interest on these borrowings. Longer-term capital requirements were financed with long-term obligations with original maturity dates ranging from six to ten years. Under the terms of the senior credit facility agreement, we were required to hedge its exposure to floating interest rates within 180 days following the 1999 spin-off of the packaging business so that at least 50 percent of the long-term debt would be fixed for a period of at least three years. In February 2000, $250 million of floating rate long-term debt was hedged with three-year, floating to fixed interest rate swaps. In April 2000, an additional $50 million of floating rate long-term debt was hedged with three-year, floating to fixed interest rate swaps. The hedges that were executed fully satisfied the interest rate-hedging requirement of the senior credit facility agreement. These swaps are accounted for as cash flow hedges, with changes in value recorded as a component of accumulated comprehensive income on the balance sheet. As of June 30, 2001, $13 million of deferred net losses on derivative instruments has been accumulated in other comprehensive income. At June 30, 2001, we had approximately $816 million in long-term debt obligations that have fixed interest rates and approximately $566 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 the company's long-term debt at June 30, 2001 was about 71 percent of its book value. A one percentage point increase or decrease in interest rates would increase or decrease the annual interest expense that is recognized in the income statement and the cash that is paid for interest costs by about $9 million, or approximately $5 million on an after-tax basis. OUTLOOK In late fourth quarter 2000, several of the company's 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 and into 2002. While we originally expected that the European original equipment build rate would be approximately 20 million units, expected weakness in Europe during the second half of 2001 could lower that build rate. The global aftermarket exhibited a further weakening of demand for replacement parts during the latter portion of last year. We anticipate that there will be further declines in the global aftermarket industry in the range of 6 percent to 10 percent in 2001. In addition, we anticipate continuing negative impacts due in 2001 to the uncertain economic outlook in South America and currency translation in Europe and Australia. 35 36 Based on anticipated vehicle production levels our global original equipment customer book of business has not changed substantially from the amounts disclosed in our Form 10-Q for the quarter ended March 31, 2001. 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 pressure from our OE customers. See "Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995". 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 the Company's operational divisions as well as its 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 the company 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 financial position or results of 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 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 or reliably 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. As of June 30, 2001, the company continues to be 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 $24 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 36 37 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 we previously disclosed, we undertook a third-party evaluation of estimated environmental remediation costs at one of our facilities beginning in 2000. The evaluation was initiated as a result of testing that indicated the potential underground migration of some contaminants beyond our facility property. We have completed and analyzed the results of our evaluation of off-site contamination migration from that facility and as a result we have increased the environmental remediation reserve we had for this facility by $5 million through a charge to income in the first quarter 2001. We also increased our estimate of environmental remediation reserves for three other locations by a total of $1 million in the first quarter of 2001. Additionally, in the first quarter of 2001 we reached an agreement with a third party to assume responsibility for remediation of a location at which we previously shared responsibility. In exchange, we received cash and a note for a total of $4 million, the estimate of the third party's share of the total remediation liability. We increased our environmental liability estimate for this location by $4 million as a result. These amounts are reflected in our estimation of remediation costs described above. 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 or results of operations. EMPLOYEE STOCK OWNERSHIP PLANS We have established Employee Stock Ownership Plans (401(k) 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, the company matched qualified employee contributions of up to 8 percent of the employee's salary with a contribution matching 100 percent of each employee's contribution. 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 common stock and vest immediately. We incurred costs for these matching contributions of approximately $5 million and $7 million for the six months ended June 30, 2001 and 2000, respectively. 37 38 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information regarding our exposure to interest rate risk, see the caption entitled "Interest Rate Risk" in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," which is incorporated herein by reference. 38 39 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Incorporated herein by reference to "Item 5. Other Information" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The exhibits filed with this report are listed on the Exhibit Index following the signature page of this report, which is incorporated herein by reference. (b) Reports on Form 8-K. We filed the following Current Reports on Form 8-K during the quarter ended June 30, 2001: Current Report on Form 8-K dated April 24, 2001, including pursuant to Item 5 certain information pertaining to the results of our operations for the first quarter 2001. Current Report on Form 8-K dated May 7, 2001, including pursuant to Item 5 certain information pertaining to the company's expectations regarding the second quarter 2001 results and its outstanding debt. Current Report on Form 8-K dated May 15, 2001, reporting pursuant to Item 5 certain information regarding changes in the company's key executive officers. 39 40 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, Tenneco Automotive Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. TENNECO AUTOMOTIVE INC. By: /s/ MARK A. MCCOLLUM ------------------------------------ Mark A. McCollum Senior Vice President and Chief Financial Officer Dated: August 14, 2001 40 41 INDEX TO EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q FOR QUARTER ENDED JUNE 30, 2001
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2 -- None. 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). 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).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 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(c) -- 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). 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).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 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 Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-12387). 4.3 -- Specimen stock certificate for Tenneco Automotive Inc. common stock (incorporated herein by reference from Exhibit 4.3 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 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).
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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). 4.5(c) -- Second Amendment to Credit Agreement, dated as of 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).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.8 -- Tenneco Automotive Inc. Executive Incentive Compensation Plan (incorporated herein by reference from Exhibit 10.8 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 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). 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). 10.11 -- Tenneco Automotive Inc. Key Executive Pension Plan (incorporated herein by reference from Exhibit 10.15 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 10.12 -- Tenneco Automotive Inc. Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.16 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 10.13 -- Tenneco Automotive Inc. Supplemental Executive Retirement Plan (incorporated herein by reference from Exhibit 10.17 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). 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). 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). 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). 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).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 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). 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). 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). 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). 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). 10.27 -- Letter Agreement dated July 27, 2000 between the registrant and Richard P. Sloan (incorporated herein by reference from Exhibit 10.27 to the registrant's report on Form 10-K for the year ended December 31, 2000, File No. 1-12387). 10.28 -- Letter Agreement dated July 27, 2000 between the registrant and Timothy R. Donovan (incorporated herein by reference from Exhibit 10.28 to the registrant's report on Form 10-K for the year ended December 31, 2000, File No. 1-12387). 10.29 -- 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). 11 -- None. *12 -- Computation of Ratio of Earnings to Fixed Charges. *15 -- Letter Regarding Unaudited Interim Financial Information. 18 -- None. 19 -- None. 22 -- None. 23 -- None. 24 -- None. 99 -- None.
- ------------------------ * Filed herewith 46 EX-12 3 c64103ex12.txt COMPUTATION 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 (DOLLARS IN MILLIONS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------- 2001 2000 ---- ---- Net income (loss)........................................... $(29) $ 16 Add: Interest expense.......................................... 90 93 Portion of rentals representative of the interest factor................................................. 5 7 Preferred stock dividend requirements of majority-owned subsidiaries........................................... -- -- Income tax benefit and other taxes on income.............. (9) 4 Amortization of interest capitalized...................... 2 -- Undistributed (earnings) losses of affiliated companies in which less than a 50% voting interest is owned......... -- -- ---- ---- Earnings as defined.................................... $ 59 $120 ==== ==== Interest expense............................................ $ 90 $ 93 Interest capitalized........................................ 2 3 Portion of rentals representative of the interest factor.... 5 7 Preferred stock dividend requirements of majority-owned subsidiaries on a pre-tax basis........................... -- -- ---- ---- Fixed charges as defined............................... $ 97 $103 ==== ==== Ratio of earnings to fixed charges.......................... .61 1.17 ==== ====
NOTE: Earnings were inadequate to cover fixed charges by $38 million for the six months ended June 30, 2001. EX-15 4 c64103ex15.txt LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFO. 1 EXHIBIT 15 Tenneco Automotive Inc. August 14, 2001 We are aware that Tenneco Automotive Inc. has incorporated by reference in the following Registration Statements its Form 10-Q for the quarter ended June 30, 2001, which includes our report dated July 23, 2001, covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the Registration Statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act.
REGISTRATION NO. FORM - ---------------- ---- 333-24291................................................... S-3 333-17485................................................... S-8 333-30933................................................... S-8 333-17487................................................... S-8 333-41535................................................... S-8 333-27279................................................... S-8 333-23249................................................... S-8 333-27281................................................... S-8 333-41537................................................... S-8 333-48777................................................... S-8 333-76261................................................... S-8 333-33442................................................... S-8 333-33934................................................... S-8 333-58056................................................... S-8
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