-----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, DWa2uzSHW3CanD8MMM/LWsBnLOPhgtu5cDw1m3rj5XF5zcB7iAvzEHr8+pbgIyAi MWqODP7NkRg+E5rQha2WtQ== 0000950137-06-008155.txt : 20060727 0000950137-06-008155.hdr.sgml : 20060727 20060727085551 ACCESSION NUMBER: 0000950137-06-008155 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060727 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060727 DATE AS OF CHANGE: 20060727 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENNECO 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12387 FILM NUMBER: 06983038 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: TENNECO AUTOMOTIVE INC DATE OF NAME CHANGE: 19991112 FORMER COMPANY: FORMER CONFORMED NAME: NEW TENNECO INC DATE OF NAME CHANGE: 19961011 8-K 1 c07091e8vk.txt CURRENT REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- FORM 8-K Current Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 ---------------------------- Date of Report (Date of earliest event reported): July 27, 2006 TENNECO INC. (Exact Name of Registrant as Specified in Charter) Delaware 1-12387 76-0515284 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer of incorporation or organization) Incorporation Identification No.)
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 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION On July 27, 2006, Tenneco Inc. announced its second quarter 2006 results of operations. Exhibit 99.1 to this Current Report on Form 8-K presents the company's press release, including the company's consolidated statements of income, balance sheets and statements of cash flows for the periods ended June 30, 2005 and 2006, as released by the company on July 27, 2006, and such Exhibit is incorporated herein by reference. Exhibit 99.1 also includes information regarding the company's scheduled conference call to discuss the company's results of operations for the second quarter of 2006, as well as other matters that may impact the company's outlook. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
Exhibit No. Description - ----------- ---------------------------------- 99.1 Press release issued July 27, 2006
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. TENNECO INC. Date: July 27, 2006 By: /s/ Kenneth R. Trammell -------------------------------------------- Kenneth R. Trammell Office of the Chief Executive, Executive Vice President and Chief Financial Officer EX-99.1 2 c07091exv99w1.txt PRESS RELEASE EXHIBIT 99.1 news release [TENNECO LOGO] Contacts: Jane Ostrander Leslie Hunziker Media Relations Investor Relations 847 482-5607 847 482-5042 jostrander@tenneco.com lhunziker@tenneco.com TENNECO REPORTS SOLID SECOND QUARTER RESULTS - GLOBAL AFTERMARKET REVENUE INCREASES 7% - EUROPEAN SEGMENT EBIT UP 34% - GROSS MARGIN IMPROVES TO 20.5% Lake Forest, Illinois, July 27, 2006 - Tenneco Inc. (NYSE: TEN) reported second quarter 2006 net income of $24 million, or 53-cents per diluted share, versus $33 million, or 71-cents per diluted share one year ago. Adjusted for the items below, net income was $33 million, or 73-cents per diluted share, compared with $35 million, or 77-cents per diluted share in second quarter 2005 (see the attached tables, which reconcile GAAP results to non-GAAP results). EBIT (earnings before interest, taxes and minority interest) was $73 million, versus $83 million in second quarter 2005. On an adjusted basis, EBIT was $87 million, versus $85 million a year ago. EBITDA (EBIT before depreciation and amortization) was $120 million, compared with $127 million the previous year. Adjusted EBITDA was $134 million, compared with second quarter 2005 adjusted EBITDA of $129 million. Although adjusted EBIT and EBITDA were up year-over-year, adjusted net income declined with the impact of higher interest costs on the company's variable rate debt and increased minority interest expense due to growth in the company's China joint ventures. Tenneco said its strong geographic and market balance, and diverse customer base helped the company produce solid results in light of challenging original equipment market conditions in North America and Australia. The company's European segment, the global aftermarket and China operations delivered improved revenue and earnings performance, partially offsetting the impact of lower OE volumes in North America and higher material costs globally. The company was also aided in the quarter by ongoing efforts to improve operational efficiency through Lean manufacturing and Six Sigma programs, and tight control of discretionary spending. -More- -2- ADJUSTED SECOND QUARTER 2006 AND 2005 RESULTS:
Q2 2006 Q2 2005 ------------------------------------ ------------------------------ Net Net EBITDA EBIT Income Per Share EBITDA EBIT Income Per Share --------- ------ ------ ---------- ------ ------ ------ --------- Earnings Measures $ 120 $ 73 $ 24 $ 0.53 $ 127 $ 83 $ 33 $ 0.71 Adjustments (reflects non-GAAP measures): Restructuring and restructuring related expenses 8 8 5 0.12 2 2 1 0.03 New Aftermarket customer changeover costs 6 6 4 0.08 - - - - Tax adjustments - - - - - - 1 0.03 --------- ------ ------ ---------- ------ ------ ------ --------- Non-GAAP earnings measures $ 134 $ 87 $ 33 $ 0.73 $ 129 $ 85 $ 35 $ 0.77 --------- ------ ------ ---------- ------ ------ ------ ---------
SECOND QUARTER 2006 ADJUSTMENTS: - Restructuring and restructuring related expenses of $8 million pre-tax, or 12-cents per diluted share; - Aftermarket customer changeover costs of $6 million pre-tax, or 8-cents per diluted share. SECOND QUARTER 2005 ADJUSTMENTS: - Restructuring and restructuring related expenses of $2 million pre-tax, or 3-cents per diluted share; - Tax expense of $1 million, or 3-cents per diluted share, primarily related to adjusting state tax net operating loss carry forwards. Tenneco reported second quarter revenue of $1.22 billion, up from $1.18 billion a year ago. Favorable currency benefited revenue by $19 million. Excluding the impact of currency and substrate sales, revenue was down about 1%. Cash flow generated from operations in the quarter was $80 million, compared with $32 million in second quarter 2005 when the discontinuation of the General Motors Advanced Payment Program negatively impacted cash performance. This improved cash performance has allowed the company to make additional capital investments for significant growth expected in 2007. Debt net of cash was $1.246 billion, down from $1.346 billion a year ago. The ratio of debt net of cash balances to adjusted LTM (Last Twelve Months) EBITDA was 3.0, versus 3.3 for the same period last year. At quarter-end, total debt decreased to $1.369 billion from $1.412 billion a year ago. Tenneco's gross margin in the quarter was 20.5%, an improvement over 20.3% a year ago. Operational improvements and the impact of higher margin North American aftermarket ride control sales more than offset higher restructuring costs; the impact of increased European substrate sales on high volume platforms; and $8 million related to higher gross material costs. Sales, General, Administrative and Engineering (SGA&E) expense in the quarter was 10.6% of sales versus 9.4% in second quarter 2005. SGA&E expense for the quarter as a percentage of LTM sales was 10.8%, an improvement from 11.1% for the same period a year ago. SGA&E in the quarter was impacted by restructuring and aftermarket customer changeover costs. -3- NORTH AMERICA - North America OE revenue was $367 million, down from revenue of $390 million a year ago. Excluding the impact of currency, revenue was $365 million (the attached tables reconcile GAAP revenues to revenues adjusted for substrate sales and currency.) The decrease was primarily the result of lower exhaust volumes due to OE production declines and the build out on several key exhaust platforms, which more than offset stronger heavy duty ride control volumes and the ramp-up of a major ride control platform. - North America aftermarket revenue increased 8% to $157 million, versus $146 million a year ago. The increase was driven by higher ride control volumes and price increases in both the ride control and exhaust product lines. Business from previously announced new customers generated $3 million of the revenue increase. - EBIT for North American operations was $37 million, compared with $52 million in second quarter 2005. Second quarter 2006 EBIT includes $4 million in restructuring costs and $6 million for aftermarket customer changeover costs. - In addition to the negative impact of restructuring and aftermarket customer changeover costs, EBIT was impacted by lower OE exhaust volumes and higher material costs, which more than offset manufacturing efficiency improvements and cost reduction efforts. EUROPE, SOUTH AMERICA AND INDIA - Europe OE revenue was $412 million, up from $382 million a year ago. Excluding the impact of currency, revenue was up almost 5%. Substrate sales as a percentage of revenue increased to 37% of total Europe OE emission control revenue from 31% a year ago due to an increase in diesel aftertreatment and hot-end exhaust business. - Europe aftermarket revenue was $118 million, up 9% from $109 million in second quarter 2005 and up 7% excluding the impact of currency. The increase was driven by stronger ride control volumes and price increases and market share gains in the exhaust business. - South America and India revenue was $66 million, up from $59 million the previous year. Higher volumes in South America and India and a $4 million positive currency impact in South America drove the increase. - EBIT for Europe, South America and India was $34 million, a 34% increase over $27 million a year ago. EBIT benefited from $1 million in currency. - EBIT included $3 million in restructuring costs compared with $2 million in second quarter 2005. - The significant EBIT improvement, despite a higher percentage of substrate sales, was primarily driven by better manufacturing performance, particularly in the European OE emission control business; higher aftermarket sales; and tight spending controls. ASIA PACIFIC - Asia revenue was $58 million, a 60% increase over $35 million a year ago, mainly driven by higher OE exhaust sales in China including new platform launches. Excluding substrate sales, revenue was up 51% year-over-year. - Australia revenue was $44 million, down 26% from $59 million in second quarter 2005, primarily driven by a sharp decline in OE volumes with domestic industry production down almost 25% compared with the previous year. Lower aftermarket sales also negatively impacted revenue. - Asia Pacific EBIT was $2 million, versus $4 million a year ago. Second quarter 2006 EBIT included $1 million in restructuring costs. -4- - The EBIT decline was the result of lower OE volumes in Australia and higher workers compensation costs in Australia, which more than offset operational improvements in Asia OE operations and the benefit from new business launches in China. YEAR-TO-DATE RESULTS Like other auto suppliers, Tenneco has faced a difficult environment through the first half of 2006. The company's strong global manufacturing and distribution footprint; presence in a variety of markets; and diverse customer base have helped mitigate market pressures, particularly in North America and Australia. In addition, the company has benefited from its focus on consistent strategies for improving cash performance, optimizing operations, and controlling costs, while preparing for a significant growth year in 2007. Through the first half of 2006, Tenneco reported net income of $31 million, or 67-cents per diluted share, versus net income of $40 million, or 88-cents per diluted share for the first six months of 2005. On an adjusted basis, year-to-date net income was $42 million, or 94-cents per diluted share, compared with $44 million, or 97-cents per diluted share a year ago. Year-to-date EBIT was $115 million compared with EBIT of $127 million for the first half of 2005. Adjusted year-to-date EBIT was $136 million compared with $132 million the previous year. EBITDA was $206 million, versus $217 million a year ago. Adjusted EBITDA was $227 million for the first half of 2006, versus $222 million for the same period a year ago. OUTLOOK Tenneco anticipates that the North American and Australian OE markets will continue to be challenging with revenue and earnings pressure from lower OE production rates through the remainder of the year. The company hopes to counter the impact of market downturns with its European segment and China operations. The company also intends to stay focused on factors within its control - intensely managing costs; continuously improving manufacturing efficiency; and leveraging global supply chain spending. Tenneco remains committed to its goal of de-leveraging by reducing net debt to adjusted EBITDA to 2.8X by the end of the year. ATTACHMENT 1 Statements of Income - 3 Months Statements of Income - 6 Months Balance Sheets Statements of Cash Flows - 6 Months ATTACHMENT 2 Reconciliation of GAAP Net Income to EBITDA - 3 Months Reconciliation of GAAP to Non-GAAP Earnings Measures - 3 Months Reconciliation of GAAP Net Income to EBITDA - 6 Months Reconciliation of GAAP to Non-GAAP Earnings Measures - 6 Months Reconciliation of GAAP Revenues to Non-GAAP Revenues - 3 Months Reconciliation of GAAP Revenues to Non-GAAP Revenues - 6 Months Reconciliation of Non-GAAP Measures - Ratio of Debt Net of Cash to Adjusted EBITDA - LTM Reconciliation of Non-GAAP Measures - SGA&E as Percent of Sales - LTM -5- CONFERENCE CALL The company will host a conference call on Thursday, July 27, 2006 at 10:30 a.m. EDT. The dial-in number is 888-790-1408 (domestic) or 773-756-0157(international). The passcode is TENNECO. The call and accompanying slides will be available on the financial section of the Tenneco web site at www.tenneco.com. A recording of the call will be available one hour following completion of the call on July 27, 2006. To access this recording, dial 800-262-5125 (domestic) or 402-220-9716 (international). The purpose of the call is to discuss the company's operations for the quarter, as well as other matters that may impact the company's outlook. A copy of the press release is available on the financial and news sections of the Tenneco web site. Tenneco is a $4.4 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 19,000 employees worldwide. Tenneco is one of the world's largest designers, manufacturers and marketers of emission control and ride control products and systems for the automotive original equipment market and the aftermarket. Tenneco markets its products principally under the Monroe(R), Walker(R), Gillet(R) and Clevite(R)Elastomer brand names. Among its products are Sensa-Trac(R) and Monroe Reflex(R) shocks and struts, Rancho(R) shock absorbers, Walker(R) Quiet-Flow(R) mufflers, Dynomax(R) performance exhaust products, and Clevite(R)Elastomer noise, vibration and harshness control components. This press release contains forward-looking statements. Words such as "hopes," "estimates," "continue," "will," "plans," "outlook" and "goal" and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of the company (including its subsidiaries). Because these forward-looking statements involve risks and uncertainties, the company's plans, actions and actual results could differ materially. Among the factors that could cause these plans, actions and results to differ materially from current expectations are: (i) changes in automotive manufacturers' production rates and their actual and forecasted requirements for the company's products; (ii) the overall highly competitive nature of the automotive parts industry, including pricing pressure from the company's OE customers and the loss of any awards of business, or the failure to obtain new awards of business, from our large customers, on which we are dependent for a substantial portion of our revenues; for example, Ford, from whom the company derived 12% of its 2005 net sales, recently announced a plan to significantly reduce the number of its global suppliers. While the company currently believes that its relationship with Ford will not be impacted by this plan, any significant reduction in sales to Ford could have a material adverse effect on the company; (iii) the company's resultant inability to realize the sales represented by its awarded book of business which is based on anticipated pricing for the applicable program over its life, and is subject to increases or decreases due to changes in customer requirements, customer and consumer preferences, and the number of vehicles actually produced by customers; (iv) increases in the costs of raw materials, including the company's ability to successfully reduce the impact of any such cost increases through materials substitutions, cost reduction initiatives, customer recovery and other methods; (v) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector, and changes in consumer demand and prices, including longer product lives of automobile parts and the cyclicality of automotive production and sales of automobiles which include the company's products, and the potential negative impact on the company's revenues and margins from such products; (vi) the company's continued success in cost reduction and cash management programs and its ability to execute restructuring and other cost reduction plans and to realize anticipated benefits from these plans; -6- (vii) the general political, economic and competitive conditions in markets and countries where the company and its subsidiaries operate, including the strength of other currencies relative to the U.S. dollar and currency fluctuations and other risks associated with operating in foreign countries; (viii) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals; (ix) changes in capital availability or costs, including increases in the company's costs of borrowing (i.e., interest rate increases), the amount of the company's debt, the ability of the company to access capital markets and the credit ratings of the company's debt; (x) the cost and outcome of existing and any future legal proceedings, and compliance with changes in regulations, including environmental regulations; (xi) workforce factors such as strikes or labor interruptions; (xii) the company's ability to develop and profitably commercialize new products and technologies, and the acceptance of such new products and technologies by the company's customers and the market; (xiii) further changes in the distribution channels for the company's aftermarket products, further consolidations among automotive parts customers and suppliers, and product warranty costs; (xiv) changes by the Financial Accounting Standards Board or other accounting regulatory bodies to authoritative generally accepted accounting principles or policies; (xv) acts of war, riots or terrorism, including, but not limited to the events taking place in the Middle East, the current military action in Iraq and the continuing war on terrorism, as well as actions taken or to be taken by the United States or other governments as a result of further acts or threats of terrorism, and the impact of these acts on economic, financial and social conditions in the countries where the company operates; and (xvi) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the control of the company and its subsidiaries. The company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release. Additional information regarding these risk factors and uncertainties is detailed from time to time in the company's SEC filings, including but not limited to its report on Form 10-K for the year ended December 31, 2005. Further information can be found on the company's web site at www.tenneco.com. ### ATTACHMENT 1 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF INCOME Unaudited --------- THREE MONTHS ENDED JUNE 30, (Millions except per share amounts)
2006 2005 ------- ------- Net sales and operating revenues $ 1,222 $ 1,180 ======= ======= Costs and Expenses Cost of Sales (exclusive of depreciation shown below) 972(a) 941(c) Engineering, Research and Development 22 18 Selling, General and Administrative 107(a)(b) 93 Depreciation and Amortization of Other Intangibles 47 44 ------- ------- Total Costs and Expenses 1,148 1,096 ======= ======= Loss on sale of receivables (1) (1) Other Loss - - ------- ------- Total Other Loss (1) (1) ------- ------- Income before Interest Expense, Income Taxes, and Minority Interest North America 37(a)(b) 52 Europe & South America 34(a) 27(c) Asia Pacific 2(a) 4 ------- ------- 73 83 Less: Interest expense (net of interest capitalized) 33 32 Income tax expense 15 18(d) Minority interest 1 - ------- ------- Net Income 24 33 ------- ------- Average common shares outstanding: Basic 44.5 43.0 ======= ======= Diluted 47.2 45.1 ======= ======= Earnings per share of common stock: Basic $ 0.56 $ 0.75 ======= ======= Diluted $ 0.53 $ 0.71 ======= =======
(a) Includes restructuring and restructuring related charges of $8 million pre-tax, $5 million after tax or $0.12 per share. Of the adjustment $7 million is recorded in cost of sales and $1 million is recorded in SG&A. Geographically, $4 million is recorded in North America, $3 million in Europe and South America and $1 million is recorded in Asia Pacific. (b) Includes customer changeover costs of $6 million pre-tax, $4 million after-tax or $0.08 per share. (c) Includes restructuring and restructuring related charges of $2 million pre-tax, $1 million after tax or $0.03 per share. The entire $2 million adjustment is recorded in cost of sales and geographically in Europe and South America. (d) Includes a $1 million or $0.03 per share tax expense primarily related to adjusting state tax net operating loss carry forwards. ATTACHMENT 1 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF INCOME Unaudited --------- SIX MONTHS ENDED JUNE 30, (Millions except per share amounts)
2006 2005 ------- ------ Net sales and operating revenues $ 2,354 $ 2,281 ======= ======= Costs and Expenses Cost of Sales (exclusive of depreciation shown below) 1,893(a) 1,829(e) Engineering, Research and Development 44 42 Selling, General and Administrative 208(a)(b)(c) 191(e) Depreciation and Amortization of Other Intangibles 91 90 ------- ------- Total Costs and Expenses 2,236 2,152 ------- ------- Loss on sale of receivables (2) (1) Other Loss (1) (1) ------- ------- Total Other Loss (3) (2) ------- ------- Income before Interest Expense, Income Taxes, and Minority Interest North America 71(a)(b)(c) 89(e) Europe & South America 42(a) 32(e) Asia Pacific 2(a) 6 ------- ------- 115 127 Less: Interest expense (net of interest capitalized) 67 64 Income tax expense 15(d) 22(f) Minority interest 2 1 ------- ------- Net Income 31 40 ------- ------- Average common shares outstanding: Basic 44.2 42.8 ======= ======= Diluted 46.9(b) 45.0 ======= ======= Earnings per share of common stock: Basic $ 0.71 $ 0.92 ======= ======= Diluted $ 0.67(b) $ 0.88 ======= =======
(a) Includes restructuring and restructuring related charges of $14 million pre-tax, $9 million after tax or $0.21 per share, of which $13 million is recorded in cost of sales and $1 million is recorded in SG&A. Geographically, $7 million is recorded in North America, $4 million in Europe and South America and $3 million in Asia Pacific. (b) Includes $1 million pre-tax and after tax increase in stock compensation expense associated with the adoption of FAS 123R. Adoption of this accounting standard also increased the calculated number of diluted shares by 0.6 million for a combined impact of $0.03 per share. (c) Includes customer changeover costs of $6 million pre-tax, $4 million after-tax or $0.09 per share. (d) Includes a $3 million or $0.06 per share tax benefit, primarily related to resolution of tax issues. (e) Includes restructuring and restructuring related charges of $5 million pre-tax, $3 million after tax or $0.07 per share. Of the charges, $4 million is recorded in cost of sales and the remaining $1 million is in SG&A. Geographically, $2 million is recorded in North America and $3 million in Europe and South America. (f) Includes a $1 million or $0.02 per share tax expense primarily related to adjusting state tax net operating loss carry forwards. ATTACHMENT 1 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES BALANCE SHEETS (Unaudited) (Millions)
June 30, 2006 December 31, 2005 --------------- ----------------- Assets Cash and Cash Equivalents $ 123 $ 141 Receivables, Net 659 (a) 543 (a) Inventories 414 360 Other Current Assets 178 153 Investments and Other Assets 707 700 Plant, Property, and Equipment, Net 1,084 1,043 -------------- --------- Total Assets $ 3,165 $ 2,940 ============== ========= Liabilities and Shareholders' Equity Short-Term Debt $ 20 $ 22 Accounts Payable 769 651 Accrued Taxes 50 31 Accrued Interest 39 38 Other Current Liabilities 235 237 Long-Term Debt 1,349 (b) 1,356 (b) Deferred Income Taxes 80 86 Deferred Credits and Other Liabilities 378 366 Minority Interest 26 24 Total Shareholders' Equity 219 129 -------------- --------- Total Liabilities and Shareholders' Equity $ 3,165 $ 2,940 ============== =========
June 30, 2006 December 31, 2005 --------------- ----------------- (a) Accounts receivable securitization programs $ 148 $ 129
(b) Long term debt composed of: June 30, 2006 December 31, 2005 --------------- ----------------- Term loan B (Due 2010) $ 356 $ 356 10.25% senior notes (Due 2013) 488 489 8.625% subordinated notes (Due 2014) 500 500 Other long term debt 5 11 -------------- --------- $ 1,349 $ 1,356 ============== =========
ATTACHMENT 1 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED) (Millions)
SIX MONTHS ENDED JUNE 30, ---------------------------------------- 2006 2005 ------------------- ------------------ Operating activities: Net income $ 31 $ 40 Adjustments to reconcile net income to net cash provided (used) by operating activities - Depreciation and amortization of other intangibles 91 90 Stock option expense 2 - Deferred income taxes 8 (5) Loss on sale of assets, net 2 1 Changes in components of working capital (net of acquisition)- (Inc.)/dec. in receivables (102) (200) (Inc.)/dec. in inventories (40) (33) (Inc.)/dec. in prepayments and other current assets (27) (19) Inc./(dec.) in payables 90 64 Inc./(dec.) in taxes accrued - 19 Inc./(dec.) in interest accrued 1 2 Inc./(dec.) in other current liabilities (4) (10) Other 5 (13) ------------------- ------------------ Net cash provided (used) by operating activities 57 (64) Investing activities: Net proceeds from sale of assets 2 3 Expenditures for plant, property & equipment (87) (63) Acquisition of business - (7) Expenditures for software-related intangibles (6) (11) Investments and other 1 2 ------------------- ------------------ Net cash (used) by investing activities (90) (76) ------------------- ------------------ Financing activities: Issuance of common shares 10 4 Retirement of long-term debt (2) (42) Net inc./(dec.) in short-term debt excluding current maturities on long-term debt (3) 34 Other 2 - ------------------- ------------------ Net cash provided (used) by financing activities 7 (4) ------------------- ------------------ Effect of foreign exchange rate changes on cash and cash equivalents 8 (4) ------------------- ------------------ Decrease in cash and cash equivalents (18) (148) Cash and cash equivalents, January 1 141 214 ------------------- ------------------ Cash and cash equivalents, June 30 $ 123 $ 66 =================== ================== Cash paid during the period for interest $ 67 $ 61 Cash paid during the period for income taxes 7 $ 11
ATTACHMENT 2 TENNECO INC. RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA Unaudited
Q2 2006 --------------------------------------------- North Europe Asia America & SA Pacific Total ---------- -------- --------- ------------ Net income $ 24 Minority interest 1 Income tax expense 15 Interest expense (net of interest capitalized) 33 ------------ EBIT, Income before interest expense, income taxes and minority interest (GAAP measure) $ 37 $ 34 $ 2 73 Depreciation and amortization of other intangibles 24 20 3 47 ---------- -------- --------- ------------ Total EBITDA(2) $ 61 $ 54 $ 5 $ 120 ========== ======== ========= ============
Q2 2005 --------------------------------------------- North Europe Asia America & SA Pacific Total ---------- -------- --------- ------------ Net income $ 33 Income tax expense 18 Interest expense (net of interest capitalized) 32 ------------ EBIT, Income before interest expense, income taxes and minority interest (GAAP measure) $ 52 $ 27 $ 4 83 Depreciation and amortization of other intangibles 23 18 3 44 ---------- -------- --------- ------------ Total EBITDA(2) $ 75 $ 45 $ 7 $ 127 ========== ======== ========= ============
(1) Generally Accepted Accounting Principles (2)EBITDA represents income before interest expense, income taxes, minority interest and depreciation and amortization. EBITDA is not a calculation based upon generally accepted accounting principles. The amounts included in the EBITDA calculation, however, are derived from amounts included in the historical statements of income data. In addition, EBITDA should not be considered as an alternative to net income or operating income as an indicator of the company's operating performance, or as an alternative to operating cash flows as a measure of liquidity. Tenneco has presented EBITDA because it regularly reviews EBITDA as a measure of the company's performance. In addition, Tenneco believes its debt holders utilize and analyze our EBITDA for similar purposes. Tenneco also believes EBITDA assists investors in comparing a company's performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon many factors. However, the EBITDA measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation. ATTACHMENT 2 TENNECO INC. RECONCILIATION OF GAAP(1) TO NON-GAAP EARNINGS MEASURES(2) Unaudited
Q2 2006 Q2 2005 ------------------------------------ ------------------------------------ EBITDA (3) EBIT Net Income Per Share EBITDA (3) EBIT Net Income Per Share ---------- ---- ---------- --------- ---------- ---- ---------- --------- Earnings Measures $ 120 $ 73 $ 24 $0.53 $ 127 $ 83 $ 33 $0.71 Adjustments (reflects non-GAAP measures): Restructuring and restructuring related expenses 8 8 5 0.12 2 2 1 0.03 New Aftermarket customer changeover costs (4) 6 6 4 0.08 - - - - Tax adjustments - - - - - - 1 0.03 ------ ---- ------ ----- ------ ---- ------ ----- Non-GAAP earnings measures $ 134 $ 87 $ 33 $0.73 $ 129 $ 85 $ 35 $0.77 ====== ==== ====== ===== ====== ==== ====== =====
Q2 2006 ---------------------------------- North Europe Asia America & SA Pacific Total ------- ------ ------- ----- EBIT $37 $ 34 $ 2 $73 Restructuring and restructuring related expenses 4 3 1 8 New Aftermarket customer changeover costs (4) 6 6 --- ---- --- --- Adjusted EBIT $47 $ 37 $ 3 $87 === ==== === ===
Q2 2005 ---------------------------------- North Europe Asia America & SA Pacific Total ------- ------ ------- ----- EBIT $52 27 $ 4 $83 Restructuring and restructuring related expenses - 2 - 2 --- ---- --- --- Adjusted EBIT $52 $ 29 $ 4 $85 === ==== === ===
(1) Generally Accepted Accounting Principles (2) Tenneco presents the above reconciliation of GAAP to non-GAAP earnings measures primarily to reflect the results for the second quarters of 2006 and 2005 in a manner that allows a better understanding of the results of operational activities separate from the financial impact of decisions made for the long-term benefit of the company. Adjustments similar to the ones reflected above have been recorded in earlier periods, and similar types of adjustments can reasonably be expected to be recorded in future periods. Using only the non-GAAP earnings measures to analyze earnings would have material limitations because its calculation is based on the subjective determinations of management regarding the nature and classification of events and circumstances that investors may find material. Management compensates for these limitations by utilizing both GAAP and non-GAAP earnings measures reflected above to understand and analyze the results of the business. The company believes investors find the non-GAAP information helpful in understanding the ongoing performance of operations separate from items that may have a disproportionate positive or negative impact on the company's financial results in any particular period. (3)EBITDA represents income before interest expense, income taxes, minority interest and depreciation and amortization. EBITDA is not a calculation based upon generally accepted accounting principles. The amounts included in the EBITDA calculation, however, are derived from amounts included in the historical statements of income data. In addition, EBITDA should not be considered as an alternative to net income or operating income as an indicator of the company's operating performance, or as an alternative to operating cash flows as a measure of liquidity. Tenneco has presented EBITDA because it regularly reviews EBITDA as a measure of the company's performance. In addition, Tenneco believes its debt holders utilize and analyze our EBITDA for similar purposes. Tenneco also believes EBITDA assists investors in comparing a company's performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon many factors. However, the EBITDA measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation. (4) Represents costs associated with changing new aftermarket customers from their prior suppliers to an inventory of our products. Although our aftermarket business regularly incurs changeover costs, we specifically identify in the table above the changeover costs that, based on the size or number of customers involved, we believe are of an unusual nature for the quarter in which they were incurred. ATTACHMENT 2 TENNECO INC. RECONCILIATION OF GAAP(1) NET INCOME TO EBITDA Unaudited
YTD 2006 ---------------------------------- North Europe Asia America & SA Pacific Total ------- ------ ------- ----- Net income $ 31 Minority interest 2 Income tax expense 15 Interest expense (net of interest capitalized) 67 ----- EBIT, Income before interest expense, income taxes and minority interest (GAAP measure) $ 71 $ 42 $ 2 115 Depreciation and amortization of other intangibles 46 39 6 91 ----- ---- ----- ----- Total EBITDA(2) $ 117 $ 81 $ 8 $ 206 ===== ==== ===== =====
YTD 2005 ---------------------------------- North Europe Asia America & SA Pacific Total ------- ------ ------- ----- Net income $ 40 Minority interest 1 Income tax expense 22 Interest expense (net of interest capitalized) 64 ----- EBIT, Income before interest expense, income taxes and minority interest (GAAP measure) $ 89 $ 32 $ 6 127 Depreciation and amortization of other intangibles 46 38 6 90 ----- ---- ----- ----- Total EBITDA(2) $ 135 $ 70 $ 12 $ 217 ===== ==== ===== =====
(1) Generally Accepted Accounting Principles (2)EBITDA represents income before interest expense, income taxes, minority interest and depreciation and amortization. EBITDA is not a calculation based upon generally accepted accounting principles. The amounts included in the EBITDA calculation, however, are derived from amounts included in the historical statements of income data. In addition, EBITDA should not be considered as an alternative to net income or operating income as an indicator of the company's operating performance, or as an alternative to operating cash flows as a measure of liquidity. Tenneco has presented EBITDA because it regularly reviews EBITDA as a measure of the company's performance. In addition, Tenneco believes its debt holders utilize and analyze our EBITDA for similar purposes. Tenneco also believes EBITDA assists investors in comparing a company's performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon many factors. However, the EBITDA measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation. ATTACHMENT 2 TENNECO INC. RECONCILIATION OF GAAP(1) TO NON-GAAP EARNINGS MEASURES(2) Unaudited
YTD 2006 YTD 2005 ------------------------------------ ------------------------------------ EBITDA (3) EBIT Net Income Per Share EBITDA (3) EBIT Net Income Per Share ---------- ---- ---------- --------- ---------- ---- ---------- --------- Earnings Measures $ 206 $115 $ 31 $ 0.67 $ 217 $127 $ 40 $ 0.88 Adjustments (reflects non-GAAP measures): Restructuring and restructuring related expenses 14 14 9 0.21 5 5 3 0.07 New Aftermarket customer changeover costs (4) 6 6 4 0.09 - - - - Stock based compensation accounting change 1 1 1 0.03 - - - - Tax adjustments - - (3) (0.06) - - 1 0.02 ------ ---- ----- ------- ------ ---- ------ ------ Non-GAAP earnings measures $ 227 $136 $ 42 $ 0.94 $ 222 $132 $ 44 $ 0.97 ====== ==== ===== ======= ====== ==== ====== ======
YTD 2006 ---------------------------------- North Europe Asia America & SA Pacific Total ------- ------ ------- ----- EBIT $ 71 $ 42 $ 2 $ 115 Restructuring and restructuring related expenses 7 4 3 14 New Aftermarket customer changeover costs (4) 6 - - 6 Stock based compensation accounting change 1 - - 1 ----- ---- ----- ----- Adjusted EBIT $ 85 $ 46 $ 5 $ 136 ===== ==== ===== =====
YTD 2005 ---------------------------------- North Europe Asia America & SA Pacific Total ------- ------ ------- ----- EBIT $ 89 32 $ 6 $ 127 Restructuring and restructuring related expenses 2 3 - 5 ----- ---- ----- ----- Adjusted EBIT $ 91 $ 35 $ 6 $ 132 ===== ==== ===== =====
(1) Generally Accepted Accounting Principles (2) Tenneco presents the above reconciliation of GAAP to non-GAAP earnings measures primarily to reflect the results for the first six months of 2006 and 2005 in a manner that allows a better understanding of the results of operational activities separate from the financial impact of decisions made for the long-term benefit of the company. Adjustments similar to the ones reflected above have been recorded in earlier periods, and similar types of adjustments can reasonably be expected to be recorded in future periods. Using only the non-GAAP earnings measures to analyze earnings would have material limitations because its calculation is based on the subjective determinations of management regarding the nature and classification of events and circumstances that investors may find material. Management compensates for these limitations by utilizing both GAAP and non-GAAP earnings measures reflected above to understand and analyze the results of the business. The company believes investors find the non-GAAP information helpful in understanding the ongoing performance of operations separate from items that may have a disproportionate positive or negative impact on the company's financial results in any particular period. In addition, 2006 includes adjustments to eliminate the additional stock based compensation expense and the impact on the diluted shares calculation associated with FAS 123R, which the company adopted in 2006. The company plans to continue making this adjustment for the remainder of 2006 to enhance investors' understanding of the comparability between 2006 and 2005 results. See also Attachment I, Statements of Income footnote (b for the six months ended June 30. (3)EBITDA represents income before interest expense, income taxes, minority interest and depreciation and amortization. EBITDA is not a calculation based upon generally accepted accounting principles. The amounts included in the EBITDA calculation, however, are derived from amounts included in the historical statements of income data. In addition, EBITDA should not be considered as an alternative to net income or operating income as an indicator of the company's operating performance, or as an alternative to operating cash flows as a measure of liquidity. Tenneco has presented EBITDA because it regularly reviews EBITDA as a measure of the company's performance. In addition, Tenneco believes its debt holders utilize and analyze our EBITDA for similar purposes. Tenneco also believes EBITDA assists investors in comparing a company's performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon many factors. However, the EBITDA measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation. (4) Represents costs associated with changing new aftermarket customers from their prior suppliers to an inventory of our products. Although our aftermarket business regularly incurs changeover costs, we specifically identify in the table above the changeover costs that, based on the size or number of customers involved, we believe are of an unusual nature for the time period in which they were incurred. ATTACHMENT 2 TENNECO INC. RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES Unaudited
Q2 2006 ----------------------------------------------------------- Substrate Revenues Sales Excluding Revenues Excluding Currency Currency Excluding Currency and Substrate Revenues Impact Currency Impact Sales -------- -------- --------- --------- ------------- North America Original Equipment Ride Control $ 131 $ - $ 131 $ - $ 131 Exhaust 236 2 234 61 173 ------ ----- ------- ------- -------- Total North America Original Equipment 367 2 365 61 304 North America Aftermarket Ride Control 112 - 112 - 112 Exhaust 45 - 45 - 45 ------ ----- ------- ------- -------- Total North America Aftermarket 157 - 157 - 157 Total North America 524 2 522 61 461 Europe Original Equipment Ride Control 98 5 93 - 93 Exhaust 314 7 307 117 190 ------ ----- ------- ------- -------- Total Europe Original Equipment 412 12 400 117 283 Europe Aftermarket Ride Control 54 1 53 - 53 Exhaust 64 1 63 - 63 ------ ----- ------- ------- -------- Total Europe Aftermarket 118 2 116 - 116 South America & India 66 4 62 8 54 Total Europe, South America & India 596 18 578 125 453 Asia 58 - 58 19 39 Australia 44 (1) 45 5 40 ------ ----- ------- ------- -------- Total Asia Pacific 102 (1) 103 24 79 Total Tenneco Inc. $1,222 $ 19 $ 1,203 $ 210 $ 993 ====== ===== ======= ====== ========
Q2 2005 ----------------------------------------------------------- Substrate Revenues Sales Excluding Revenues Excluding Currency Currency Excluding Currency and Substrate Revenues Impact Currency Impact Sales -------- -------- --------- --------- ------------- North America Original Equipment Ride Control $ 131 $ - $ 131 $ - $ 131 Exhaust 259 - 259 68 191 ------ ----- ------- ------- -------- Total North America Original Equipment 390 - 390 68 322 North America Aftermarket Ride Control 103 - 103 - 103 Exhaust 43 - 43 - 43 ------ ----- ------- ------- -------- Total North America Aftermarket 146 - 146 - 146 Total North America 536 - 536 68 468 Europe Original Equipment Ride Control 98 - 98 - 98 Exhaust 284 - 284 87 197 ------ ----- ------- ------- -------- Total Europe Original Equipment 382 - 382 87 295 Europe Aftermarket Ride Control 51 - 51 - 51 Exhaust 58 - 58 - 58 ------ ----- ------- ------- -------- Total Europe Aftermarket 109 - 109 - 109 South America & India 59 - 59 5 54 Total Europe, South America & India 550 - 550 92 458 Asia 35 - 35 10 25 Australia 59 - 59 5 54 ------ ----- ------- ------- -------- Total Asia Pacific 94 - 94 15 79 Total Tenneco Inc. $1,180 $ - $ 1,180 $ 175 $ 1,005 ====== ===== ======= ====== ========
Tenneco presents the above reconciliation of revenues in order to reflect the trend in the company's sales, in various product lines and geographical regions, separately from the effects of doing business in currencies other than the U.S. dollar. Additionally, substrate sales which the company previously referred to as pass-through sales include precious metals pricing, which may be volatile. Substrate sales occur when, at the direction of its OE customers, Tenneco purchases catalytic converters or components thereof from suppliers, uses them in its manufacturing processes and sells them as part of the completed system. While Tenneco original equipment customers assume the risk of this volatility, it impacts reported revenue. Excluding substrate sales removes this impact. Tenneco uses this information to analyze the trend in revenues before these factors. Tenneco believes investors find this information useful in understanding period to period comparisons in the company's revenues. ATTACHMENT 2 TENNECO INC. RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE MEASURES Unaudited
YTD 2006 -------------------------------------------------------------- Substrate Revenues Sales Excluding Revenues Excluding Currency Currency Excluding Currency and Substrate Revenues Impact Currency Impact Sales --------- -------- --------- --------- ------------- North America Original Equipment Ride Control $ 262 $ - $ 262 $ - $ 262 Exhaust 479 5 474 127 347 --------- -------- --------- --------- ------------- Total North America Original Equipment 741 5 736 127 609 North America Aftermarket Ride Control 213 - 213 - 213 Exhaust 85 - 85 - 85 --------- -------- --------- --------- ------------- Total North America Aftermarket 298 - 298 - 298 Total North America 1,039 5 1,034 127 907 Europe Original Equipment Ride Control 193(a) (1) 194 - 194(a) Exhaust 606 (12) 618 228 390 --------- -------- --------- --------- ------------- Total Europe Original Equipment 799 (13) 812 228 584 Europe Aftermarket Ride Control 90 (1) 91 - 91 Exhaust 103 (3) 106 - 106 --------- -------- --------- --------- ------------- Total Europe Aftermarket 193 (4) 197 - 197 South America & India 131 10 121 15 106 Total Europe, South America & India 1,123 (7) 1,130 243 887 Asia 108 - 108 36 72 Australia 84 (3) 87 9 78 --------- -------- --------- --------- ------------- Total Asia Pacific 192 (3) 195 45 150 Total Tenneco Inc. $2,354 $ (5) $ 2,359 $ 415 $ 1,944 ========= ======== ========= ========= =============
YTD 2005 -------------------------------------------------------------- Substrate Revenues Sales Excluding Revenues Excluding Currency Currency Excluding Currency and Substrate Revenues Impact Currency Impact Sales -------- -------- --------- --------- ------------- North America Original Equipment Ride Control $ 258 $ - $ 258 $ - $ 258 Exhaust 507 - 507 135 372 -------- -------- --------- --------- ------------- Total North America Original Equipment 765 - 765 135 630 North America Aftermarket Ride Control 194 - 194 - 194 Exhaust 82 - 82 - 82 -------- -------- --------- --------- ------------- Total North America Aftermarket 276 - 276 - 276 Total North America 1,041 - 1,041 135 906 Europe Original Equipment Ride Control 207(a) - 207 - 207 Exhaust 556 - 556 166 390 -------- -------- --------- --------- ------------- Total Europe Original Equipment 763 - 763 166 597 Europe Aftermarket Ride Control 88 - 88 - 88 Exhaust 103 - 103 - 103 -------- -------- --------- --------- ------------- Total Europe Aftermarket 191 - 191 - 191 South America & India 110 - 110 9 101 Total Europe, South America & India 1,064 - 1,064 175 889 Asia 70 - 70 23 47 Australia 106 - 106 9 97 -------- -------- --------- --------- ------------- Total Asia Pacific 176 - 176 32 144 Total Tenneco Inc. $ 2,281 $ - $ 2,281 $ 342 $ 1,939 ======== ======== ========= ========= =============
Tenneco presents the above reconciliation of revenues in order to reflect the trend in the company's sales, in various product lines and geographical regions, separately from the effects of doing business in currencies other than the U.S. dollar. Additionally, substrate sales which the company previously referred to as pass-through sales include precious metals pricing, which may be volatile. Substrate sales occur when, at the direction of its OE customers, Tenneco purchases catalytic converters or components thereof from suppliers, uses them in its manufacturing processes and sells them as part of the completed system. While Tenneco original equipment customers assume the risk of this volatility, it impacts reported revenue. Excluding substrate sales removes this impact. Tenneco uses this information to analyze the trend in revenues before these factors. Tenneco believes investors find this information useful in understanding period to period comparisons in the company's revenues. (a) Beginning in the second quarter of 2005, Tenneco changed its accounting for a customer contract in its European OE Ride Control unit. The cost of sales for this contract are now netted against the revenues, reducing reported revenues and cost of sales. In the first quarter of 2005, Tenneco recorded $15 million in revenues for this contract. ATTACHMENT 2 TENNECO INC. RECONCILIATION OF NON-GAAP MEASURES Debt net of cash / Adjusted EBITDA - LTM
Quarter Ended June 30 --------------------- 2006 2005 ------- ------- Total debt $ 1,369 $ 1,412 Cash and cash equivalents 123 66 Debt net of cash balances (1) 1,246 1,346 Adjusted LTM EBITDA 419 405 Ratio of net debt to adjusted LTM EBITDA (2) 3x 3.3x
Q3 05 Q4 05 Q1 06 Q2 06 Q2 06 LTM ------ ------ ----- ----- --------- Net income 10 8 7 24 49 Minority interest - 1 1 1 3 Income tax expense 7 (4) - 15 18 Interest expense (net of interest capitalized) 33 33 34 33 133 EBIT, Income before interest expense, income taxes and minority interest (GAAP measure) 50 38 42 73 203 Depreciation and amortization of other intangibles 44 43 44 47 178 Total EBITDA(3) 94 81 86 120 381 Restructuring and restructuring related expenses 2 5 6 8 21 Stock based compensation accounting change - - 1 - 1 New Aftermarket customer changeover costs - 10 - 6 16 ------ ------- ------ ------ ------ Total Adjusted EBITDA (4) 96 96 93 134 419 ====== ======= ====== ====== ======
Q3 04 Q4 04 Q1 05 Q2 05 Q2 05 LTM ----- ----- ----- ----- --------- Net income 6 (19) 7 33 27 Minority interest 1 - 1 - 2 Income tax expense 2 (35) 4 18 (11) Interest expense (net of interest capitalized) 35 75 32 32 174 EBIT, Income before interest expense, income taxes and minority interest (GAAP measure) 44 21 44 83 192 Depreciation and amortization of other intangibles 42 46 46 44 178 Total EBITDA(3) 86 67 90 127 370 Restructuring and restructuring related expenses 2 28 3 2 35 ---- ----- ---- ---- ---- Total adjusted EBITDA(4) 88 95 93 129 405 ==== ===== ==== ==== ====
(1)Tenneco presents debt net of cash balances because management believes it is a useful measure of Tenneco's credit position and progress toward reducing leverage. The calculation is limited in that the company may not always be able to use cash to repay debt on a dollar-for- dollar basis. (2)Tenneco presents the above reconciliation of the ratio debt net of cash to the last twelve months (LTM) of adjusted EBITDA to show trends that investors may find useful in understanding the company's ability to service its debt. For purposes of this calculation, adjusted LTM EBITDA is used as an indicator of the company's performance over the most recent twelve months and debt net of cash is presented as an indicator of our credit position and progress toward reducing our financial leverage. LTM adjusted EBITDA is used to reflect annual values and remove seasonal fluctuations. This reconciliation is provided as supplemental information and not intended to replace the company's existing covenant ratios or any other financial measures that investors may find useful in describing the company's financial position. See notes (1), (3) and (4) for a description of the limitations of using debt net of cash, EBITDA and adjusted EBITDA. (3)EBITDA represents income before interest expense, income taxes, minority interest and depreciation and amortization. EBITDA is not a calculation based upon generally accepted accounting principles. The amounts included in the EBITDA calculation, however, are derived from amounts included in the historical statements of income data. In addition, EBITDA should not be considered as an alternative to net income or operating income as an indicator of the company's operating performance, or as an alternative to operating cash flows as a measure of liquidity. Tenneco Inc. has presented EBITDA because it regularly reviews EBITDA as a measure of the company's performance. In addition, Tenneco believes its debt holders utilize and analyze our EBITDA for similar purposes. Tenneco also believes EBITDA assists investors in comparing a company's performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon many factors. However, the EBITDA measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation. (4)Adjusted EBITDA is presented in order to reflect the results in a manner that allows a better understanding of operational activities separate from the financial impact of decisions made for the long term benefit of the company and other items impacting comparability between the periods. Adjustments similar to the ones reflected above have been recorded in earlier periods, and similar types of adjustments can reasonably be expected to be recorded in future periods. The company believes investors find the non-GAAP information helpful in understanding the ongoing performance of operations separate from items that may have a disproportionate positive or negative impact on the company's financial results in any particular period. In addition, 2006 includes adjustments to eliminate the additional stock based compensation expense and the impact on the diluted shares calculation associated with FAS 123R, which the company adopted in 2006. The company plans to continue making this adjustment for the remainder of 2006 to enhance investors' understanding of the comparability between 2006 and 2005 results. See also Attachment I, Statements of Income footnote (b) for the six months ended June 30. ATTACHMENT 2 TENNECO INC. RECONCILIATION OF NON-GAAP MEASURES SGA&E as Percent of Sales - LTM
Q3 05 Q4 05 Q1 06 Q2 06 Q2 06 LTM ----- ----- ----- ----- --------- Revenues 1,096 1,064 1,132 1,222 4,514 Engineering, research, and development 22 19 22 22 85 Selling, general, and administrative 96 98 101 107 402 ----- ----- ----- ----- ------- Total SGA&E 118 117 123 129 487 ------- SGA&E as Percent of Sales 10.8% =======
Q3 04 Q4 04 Q1 05 Q2 05 Q2 05 LTM ----- ------ ------ ------ --------- Revenues 996 1,071 1,101 1,180 4,348 Engineering, research, and development 20 20 24 18 82 Selling, general, and administrative 93 115 98 93 399 ----- ----- ----- ----- ----- Total SGA&E 113 135 122 111 481 ----- SGA&E as Percent of Sales 11.1% =====
Tenneco presents the above reconciliation of the last twelve months (LTM) of selling, general, administrative and engineering (SGA&E) expenses as a percentage of revenues to provide information investors may find useful in measuring the company's progress toward its goals to lower selected operating expenses supported by existing revenues. LTM values are used to highlight annual trends and remove seasonal fluctuations. This reconciliation is provided as supplemental information and not as a replacement for any other financial ratios that investors may find useful for measuring the company's operating performance. -----END PRIVACY-ENHANCED MESSAGE-----