Tenneco Reports Third Quarter Financial Results

Tenneco Reports Third Quarter Financial Results

• Record third quarter revenue of $1.8 billion

• Record third quarter EBIT of $111 million

• Cash from operations up 48% year-over-year to $118 million

LAKE FOREST, Ill.--(BUSINESS WIRE)-- Tenneco Inc. (NYS: TEN) reported third quarter net income of $125 million, or $2.05 per diluted share, which includes a benefit of $74 million, or $1.22 per diluted share, primarily related to the reversal of a U.S. tax valuation allowance. On an adjusted basis, net income rose to $52 million, or 85-cents per diluted share, compared with $42 million, or 67-cents per diluted share, a year ago.

Third quarter 2012 adjustments:

• Restructuring and related expenses of $7 million pre-tax, or 7-cents per diluted share;

• EBIT benefit of $5 million, or 5-cents per diluted share, from property recoveries related to transactions originated by The Pullman Company before being acquired by Tenneco in 1996;

• Net tax benefit of $74 million, or $1.22 per diluted share, primarily related to the reversal of the tax valuation allowance on the company's U.S. net operating loss position and recording a tax valuation allowance in Spain for tax credits that may not be utilized due to tax losses there.

Third quarter 2011 adjustments:

• Restructuring and related expenses of $4 million pre-tax, or 5-cents per diluted share;

• Non-cash goodwill impairment charge of $11 million pre-tax, or 11-cents per diluted share, related to the Australian operations;

• Net tax charges of $2 million or 2-cents per diluted share, primarily related to tax adjustments based on filed tax returns.

Revenue

Total revenue in the quarter was $1.778 billion, compared with $1.773 billion in third quarter 2011. Revenue excluding substrate sales and currency increased 6% to $1.462 billion, versus $1.373 billion a year ago. The revenue increase was driven primarily by strong OE light vehicle production volumes in North America and China and incremental commercial vehicle revenue. In the third quarter, total OE commercial and specialty vehicle revenue increased 8% year-over-year to $184 million, and represented approximately 10% of total revenue.

EBIT and EBIT Margin

EBIT (earnings before interest, taxes and noncontrolling interests) increased 32% to $111 million compared with $84 million in third quarter 2011. Adjusted EBIT was $113 million versus $99 million, a 14% increase. EBIT includes a negative currency impact of $2 million. The improved EBIT results were driven by stronger light vehicle volumes in North America and China, incremental commercial vehicle revenue and effective operational cost control.

The company reported the following EBIT as a percent of revenue and EBIT as a percent of value-add revenue (revenue excluding substrate sales).

Cash

Cash generated from operations was $118 million in the quarter, a 48% year-over-year improvement from $80 million. The strong performance was driven by higher earnings and effective working capital management, particularly in inventories.

Tenneco continues to strategically invest in growth with capital expenditures in the quarter of $65 million, up from $50 million the prior year. The majority of spending was to support OE light and commercial vehicle program launches and new customer growth.

Debt

Tenneco's net debt at September 30, 2012 was $1.138 billion, versus $1.141 billion the prior year. The leverage ratio (net debt to adjusted LTM EBITDA including noncontrolling interests) improved to 1.8x, versus 1.9x a year ago.

"Our North America and China operations drove revenue growth this quarter as we successfully capitalized on stronger light vehicle production volumes and benefited from higher global commercial vehicle revenue versus a year ago," said Gregg Sherrill, chairman and CEO, Tenneco. "We delivered higher earnings and very good margins despite facing economic headwinds in Europe and South America. We also had a strong cash quarter on the strength of our earnings and working capital improvements."

THIRD QUARTER REPORTING SEGMENTS

North America EBIT increased to $77 million from $46 million one year ago. On an adjusted basis, EBIT was $72 million versus $46 million, a 57% increase. EBIT includes a favorable currency impact of $8 million year-over-year. EBIT performance was driven primarily by significant operational improvement in the North America OE ride control business, leveraging higher light vehicle volumes in both OE businesses and incremental commercial vehicle revenue.

Declining Europe aftermarket sales, lower volumes in the Europe OE ride control business and South America and a negative currency impact of $9 million, primarily in Brazil, contributed to a decrease in EBIT for Europe, South America and India. EBIT for the segment was $13 million compared with $36 million a year ago. On an adjusted basis, EBIT was $20 million versus $37 million.

Asia Pacific EBIT rose to $21 million compared with $2 million last year. The year-over-year comparison reflects a goodwill impairment charge of $11 million and restructuring charge of $3 million taken in third quarter 2011. On an adjusted basis, EBIT was $21 million versus $16 million, a 31% improvement. The EBIT increase was driven by strong volumes in China on current and new platforms, and the benefit from restructuring and operating improvements in Australia. Currency had a $1 million negative impact on Asia Pacific segment EBIT.

OUTLOOK

According to IHS Automotive forecasts, fourth quarter industry light vehicle production in the markets where Tenneco operates will be essentially flat year-over-year. Industry production in North America and China is forecasted to strengthen in the fourth quarter versus last year while Europe is expected to decline.

In North America, the company expects to leverage stronger industry light vehicle production volumes to drive year-over-year revenue growth. North America aftermarket revenue is expected to be in line with a strong fourth quarter a year ago.

Tenneco's operations in China will drive results for the Asia Pacific region as the company expects fourth quarter revenue to increase versus last year. Tenneco's strong position with market-leading OE customers in China and a forecasted rise in industry light vehicle production will drive the increase.

In the Europe, South America and India segment, Tenneco expects sustained economic weakness in Europe to negatively impact the segment results. According to IHS Automotive, Europe industry light vehicle production is forecasted to decline 10% in the fourth quarter. While Tenneco enjoys a strong customer and platform position, the company anticipates lower year-over-year revenue in both OE businesses due to the industry decline. Economic weakness throughout the region will also continue to impact the Europe aftermarket. In light of this weak industry environment, the company announced in the third quarter its intention to close an aftermarket manufacturing facility in Vittaryd, Sweden, which would eliminate 122 positions. This is a first step in Tenneco's plans to further reduce fixed costs and better align its operations with the market in response to the ongoing economic challenges in Europe.

As the company has previously indicated, commercial vehicle markets around the world continue to be softer than anticipated and this weakness is expected to continue. For the fourth quarter, Tenneco estimates that revenue from its commercial and specialty vehicle business will be about even with the third quarter, which would result in approximately a 25% year-over-year increase in commercial vehicle revenue for the full year.

Tenneco is launching a strong book of business with leading commercial vehicle customers worldwide, which positions the company to capitalize on stronger volumes when industry production recovers. In the third quarter, the company further strengthened its position with the opening of its first manufacturing facility in Japan to supply diesel aftertreatment systems to Kubota, a leading global manufacturer of commercial vehicle engines and equipment. Tenneco also announced that it will supply Scania with Euro VI on-road diesel aftertreatment systems in Europe and diesel aftertreatment in South America.

CONFERENCE CALL

The company will host a conference call on Thursday, October 25, 2012 at 9:00 a.m. ET. The dial-in number is 888-790-1831 (domestic) or 312-470-0022 (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 October 25, 2012 through November 25, 2012. To access this recording, dial 888-566-0494 (domestic) or 402-998-0655 (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 $7.2 billion global manufacturing company with headquarters in Lake Forest, Illinois and approximately 24,000 employees worldwide. Tenneco is one of the world's largest designers, manufacturers and marketers of emission control and ride control products and systems for automotive and commercial vehicle original equipment markets and the aftermarket. Tenneco markets its products principally under the Monroe®, Walker® and Clevite®Elastomer brand names.

This press release contains forward-looking statements.Words such as "may," "expects," "anticipate," "projects," "will," and "outlook" 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) general economic, business and market conditions;

(ii) the company's ability to source and procure needed materials, components and other products and services in accordance with customer demand and at competitive prices;

(iii) changes in capital availability or costs, including increases in the company's costs of borrowing (i.e., interest rate increases), the amount of the company's debt, the ability of the company to access capital markets at favorable rates, and the credit ratings of the company's debt;

(iv) changes in consumer demand, prices and the company's ability to have our products included on top selling vehicles, including any shifts in consumer preferences to lower margin vehicles, for which we may or may not have supply arrangements;

(v) changes in automotive and commercial vehicle manufacturers' production rates and their actual and forecasted requirements for the company's products such as the significant production cuts during recent years by automotive manufacturers in response to difficult economic conditions;

(vi) the overall highly competitive nature of the automobile and commercial vehicle parts industries, and any resultant inability to realize the sales represented by the company's awarded book of business which is based on anticipated pricing and volumes over the life of the applicable program;

(vii) the loss of any of our large original equipment manufacturer ("OEM") customers (on whom we depend for a substantial portion of our revenues), or the loss of market shares by these customers if we are unable to achieve increased sales to other OEMs or any change in customer demand due to delays in the adoption or enforcement of worldwide emissions regulations;

(viii) workforce factors such as strikes or labor interruptions;

(ix)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;

(x) the negative impact of higher fuel prices on transportation and logistics costs, raw material costs and discretionary purchases of vehicles or aftermarket products;

(xi) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector and longer product lives of automobile parts;

(xii) 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;

(xiii) product warranty costs;

(xiv) the cost and outcome of existing and any future legal proceedings;

(xv) economic, exchange rate and political conditions in the countries where we operate or sell our products;

(xvi) 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;

(xvii) changes by the Financial Accounting Standards Board or other accounting regulatory bodies to authoritative generally accepted accounting principles or policies;

(xviii) changes in accounting estimates and assumptions, including changes based on additional information;

(xix) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals, as well as the impact of the enforcement of, changes to or compliance with laws and regulations, including those pertaining to environmental concerns, pensions or other regulated activities;

(xx) natural disasters, acts of war and/or terrorism and the impact of these occurrences or acts on economic, financial, industrialand social condition, including, without limitation, with respect to supply chains and customer demand in the countries where the company operates; and

(xxi) 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, 2011.