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Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
Baird's 2008 Industrial Conference
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Baird's 2008 Industrial Conference

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  1. 4815-CORP-11/08 (1) 1
  2. SAFE HARBOR The foregoing presentation contains forward-looking statements that involve risks and uncertainties which could cause the company’s plans, actions and results to differ materially from its current expectations. Such risks and uncertainties include, but are not limited to, the following: (i) the general political, economic and competitive conditions in markets and countries where the company operates, including currency fluctuations; (ii) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals; (iii) changes in capital availability or costs, including increases in the company’s costs of borrowing, the amount of the company’s debt, the ability of the company to access capital markets and the credit ratings of the company’s debt; (iv) changes in automotive manufacturers’ production rates and their actual and forecasted requirements for the company’s products; (v) the overall highly competitive nature of the automotive parts industry; (vi) the company’s ability to realize the sales represented by its book of business which is based on a number of factors, including, but not limited to, the original equipment manufacturers’ programs that have been formally awarded as well as programs where the company is highly confident that it will be awarded business based on informal customer indications, the company’s status as a supplier on the existing program, and the relationship with the customer, and anticipated pricing for the applicable program over its life; (vii) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector; (viii) the cost and outcome of existing and any future legal proceedings, and compliance with changes in regulations; (ix) workforce factors such as strikes or labor interruptions; (x) material substitutions and increases in the costs of raw materials; (xi) the company’s continued success in cost reduction and cash management programs; (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 Financing Accounting Standards Board or other accounting regulatory bodies of 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; 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. 4815-CORP-11/08 (2) 2
  3. GLOBAL SUPPLIER OF EMISSION AND RIDE CONTROL SYSTEMS Revenues (Millions) $4,708 $4,619 Total Emission Control/ 68/32 70/30 Ride Control Balance Original Equipment/ 81/19 82/18 Aftermarket Balance “EBIT” is income before interest expense, taxes and minority interest. 4815-CORP-11/08 (3) 3
  4. LEADING MARKET POSITIONS – 2007 Regions/ Market Position * Product Category Key Competitors in market-share order North America #1 EMCON Technologies, Faurecia Original Equipment Emission Control Europe #1 Faurecia, Eberspächer, EMCON Technologies North America #1 Delphi, Hitachi, ZF Sachs Original Equipment Ride Control Europe #2 ZF Sachs, KYB, Delphi North America #1 IMCO, AP Exhaust Products Aftermarket Emission Control Europe** #1 Klarius Group, Bosal North America #1 KYB, ArvinMeritor Aftermarket Ride Control Europe ** #1 ZF Sachs, KYB * Tenneco Estimates ** Excludes OE Service 4815-CORP-11/08 (4) 4
  5. BALANCED CUSTOMER MIX Top Customers as a % of 2007 Total Revenues 4815-CORP-11/08 (5) 5
  6. PLATFORM MIX EC - Emission Control RC - Ride Control EL - Elastomers 4815-CORP-11/08 (6) 6
  7. FINANCIAL PERFORMANCE – YTD SEPTEMBER 30, 2008 $ Millions, Except as Noted YTD Sept. YTD Sept. % Change B/(W) 2008 2007 Value-added Revenue $3,513 $3,386 3.8% Substrate Sales $1,195 $1,233 (3.1%) Total Gross Margin $701 $750 (6.5%) Adjusted SGA&E (% of Total Sales) 8.1% 8.2% 1.2% Adjusted EBITDA* $333 $371 (10.2%) Adjusted EBIT $165 $221 (25.3%) Adjusted EPS ($) $0.92 $1.48 (37.8%) Cash Flow from Operations $34 ($41) NM Net Debt/Adjusted EBITDA* (LTM) 3.1 2.9 (6.9%) * Including minority interest. See reconciliation of GAAP adjustments beginning on slide 31. 4815-CORP-11/08 (7) 7
  8. RESPONSE TO CURRENT ECONOMIC CONDITIONS Restructuring actions – Eliminating 1,100 jobs worldwide (600 hourly; 500 salaried), closing four NA plants and restructuring another – Latest initiatives will generate about $64 million in annual savings; payback period less than one year – $40 million in Q4:08 of which $35 million is cash – $20 million in charges throughout 2009, $9 million cash YTD global workforce reduced by about 10%, including 1,150 employees laid off earlier in 2008 Lower production levels reducing cash required for receivables and inventories; focused on efficiency through DSO, DOH, DPO Strategies being employed to minimize capital spending 4815-CORP-11/08 (8) 8
  9. STRATEGIC INITIATIVES • Emissions technologies for environmental mandates • Adjacent markets for new revenue opportunities • Advanced technology for ride-control performance and safety • Asia for rapid growth • Growth OEMs for enhanced customer mix • Aftermarket service products for incremental sales • Low-cost country strategy • Shrink asset base with Lean/Six Sigma • Optimize global footprint • Target net debt / adjusted EBITDA* ratio of 2.0x • Capitalize on EVA discipline * Including minority interest. 4815-CORP-11/08 (9) 9
  10. GLOBAL OE REVENUE PROJECTION • Global light-vehicle production CAGR of 3% • Market share expansion • Emissions technologies for environmental mandates • Adjacent markets for new revenue opportunities • Advanced technology for ride-control performance and safety • Asia for rapid growth • Growth OEMs for enhanced customer mix 4815-CORP-11/08 (10) 10
  11. MARKET DRIVEN GROWTH OPPORTUNITIES Emissions Technologies for Environmental Mandates CVS - Commercial Vehicle Systems * Phased in LVS - Light Vehicle Systems ** Estimated date 4815-CORP-11/08 (11) 11
  12. MARKET DRIVEN GROWTH OPPORTUNITIES Capitalizing on Stricter LVS/CVS Emission Regulations; Data Excludes Off-Road Vehicles • MECA chart represents total engine-based and aftertreatment emission content • Aftertreatment represents approximately 70% of the growth generated over the 15-year period • Aftertreatment estimated CAGR of 7.2% and 8.2% for the base and alternative scenarios, respectively • MECA’s alternative diesel scenario driven by volatile oil prices and global warming concerns 4815-CORP-11/08 (12) 12
  13. NON-ROAD DIESEL EQUIPMENT OEMs – ElectroMotive Division, Two major markets GE, Cummins, MAN, Caterpillar, Penta - Construction - Agriculture, Forestry, Mining Competitors: No aftertreatment Construction OEMs – Caterpillar, incumbents Komatsu, Volvo, Hitachi, CNH, Terex, 2008 – 1st legislation to require retrofit Deere, Liebherr-International, Kobe to existing engines – DPF – Tiers 0-2 Steel, Ingersoll-Rand, and JCB 2013 – California; 2015 – Tier 4 Federal AG OEMs – Deere & Company, CNH Global, AGCO, Kubota, Yanmar, CLAAS, Without regulations, L&M vessels Iseki, Same Deutz-Fahr, and Caterpillar would account for about 35% of mobile pollution by 2020 Competitors: No OE aftertreatment incumbents, only niche retrofit suppliers Regulations: 2011-2014 for U.S., Japan, Europe 4815-CORP-11/08 (13) 13
  14. EMISSION CONTROL PRODUCT PIPELINE Active Woven Metal Urea SCR Turnkey SCR Off-road Next- Multiwrap Burner DPF DPF System Catalytic generation Converter Converter Manifold Ultra and DPF Integrated Retrofit NOx Lightweight Gasoline Urea Manifold/ After- Mufflers Off-road Particulate Injection & treatment Turbocharger Diesel Filters Dosing Fuel Housing (Production Oxidation Module Vaporizer CVS DPF Ready) Catalyst Hydrocarbon SCR After- Active Lean Hydrocarbon Low Back- treatment NOx Trap Injector pressure ECU Valve Muffler 4815-CORP-11/08 (14) 14
  15. ADVANCED TECHNOLOGY FOR SAFETY RATINGS Full Suite of Ride Control Technologies “One Stop Shop” • Silent block bushings • Shock Absorbers • Struts • Torque Rods • CES - Computerized Electronic • Spring Eye bushings Suspension • Coil and Leaf Springs • Gripper stabilizer bar assemblies • Cab shock absorbers • Engine mounts • Seat shock absorbers • Self-Lubricated elastomers • Heavy Duty Truck & Train Shocks • Top mounts • Power steering isolators • Spring and shock/strut modules • Fluid-damped elastomers • Corner modules • Suspension links • Axle modules • Performance Aftermarket Suspension • Suspension bushings • Kinetic passive stability systems 4815-CORP-11/08 (15) 15
  16. ADVANCED TECHNOLOGY FOR SAFETY RATINGS Computerized Electronic Suspension • Awarded models: - Volvo S60, V70, XC70, S80; Damping Response Response to - Audi A6, Allroad; Range Time (avg) Electronic Failure Cost - Ford S-Max, Galaxy, Mondeo 10 Tenneco High Tuneable 100% - Mercedes C-Class milliseconds CES - Volkswagen Passat 15 ZF-Sachs - Three additional European OEM Medium Tuneable 100% milliseconds CDC platforms Bilstein 30 Medium Fixed – Hard 100% • Selling price about $90 vs. $12 milliseconds DampTronic for standard shock Delphi 6 High No 150% milliseconds MagneRide • Goal: expand Tenneco market share four times by 2011 4815-CORP-11/08 (16) 16
  17. EMERGING BRIC ECONOMIES: A SIGNIFICANT LONG-TERM OPPORTUNITY * CAGR Source: Global Insight, World Car Industry Production Forecast, Sept. 2008 4815-CORP-11/08 (17) 17
  18. TARGET GROWING OEMs Growth OEMs Enhance Customer Mix Expanding presence with Japanese OEMs - Won $200MM in annualized new business in 2007 • Platforms launching between 2008-2010 - 20% of new business in BRIC countries Japanese OEMs = 17% of 2007 NAOE revenues; 11% of global OE revenues Strong platforms and new launches are driving growth 4815-CORP-11/08 (18) 18
  19. GLOBAL OE REVENUE PROJECTION 11-13% CAGR 2007-2012 Growth plan reflects: Oct. ‘08 global production forecast * for 2012 LVS & CVS virtually unchanged from Jan. ‘08 forecast – Assumes economic recovery prior to 2011 Adjacent markets for new revenue opportunities – Commercial Vehicle on-highway and off-road more than 50% of projected growth – Driven by global diesel emission regulations – Global off-road business with Caterpillar and other OEMs • Off-road = construction, agriculture, mining, forestry New customers and vehicle-fleet growth in BRIC economies Advanced technology and added content to meet emission regulations New platforms for electronic shocks Expanded business with growth OEMs * Global Insight 4815-CORP-11/08 (19) 19
  20. INTRODUCE NEW AFTERMARKET PRODUCTS Aftermarket Delivers Excellent Profitability and Cash Generation Leadership in the replacement-parts market reflects strong global brands, new product lines and efficient distribution capabilities - Key to this segment’s growth: • Capitalizing on OE/aftermarket synergies • Standardizing components to consolidate manufacturing • Introducing premium replacement parts from products developed for the OE market • Increasing our value with the automakers by using aftermarket intelligence to develop improved original-equipment products Adding more frequently replaced service parts, like Monroe brake pads, to portfolio 4815-CORP-11/08 (20) 20
  21. SHRINK ASSET BASE Reducing Waste and Improving Quality Litchfield, MI Edenkoben, Germany 2000 2007 2004 2007 Measurement Pre-Lean With Lean % B/(W) Measurement Pre-Lean With Lean % B/(W) Quality (ppm) Quality (ppm) 49 7 86% 1,250 219 82% Inventory DOH 15.7 10.3 34% Inventory DOH 24 16.9 30% Productivity 43.5% 52.2% 20% Productivity 49.8% 59.8% 20% Headcount 796 390 51% Headcount 941 844 10% Scrap % 3.1% 1.0% 69% Scrap % 1.7% 0.3% 83% Travel distance (ft.) 2,628 1,371 48% Travel distance (ft.) 5,526 1,360 75% Revenue/employee $168,300 $337,560 101% Revenue/employee $376,500 $957,000 154% 4815-CORP-11/08 (21) 21
  22. LOW-COST COUNTRY STRATEGY Manufacturing • Low-cost countries - China - S. America - Thailand • Eastern Europe – - India - E. Europe - Mexico - Taiwan Poland, Czech Republic, Russia • Low-cost sourcing: direct materials, indirect materials, capital, tooling • Asia Pacific – • Low-cost sourcing introduced for China, India, Thailand, S. Korea global programs • Global sourcing teams embedded in low-cost countries • North America – Mexico Engineering • Poland (2) • China 4815-CORP-11/08 (22) 22
  23. TARGET INVESTMENT-GRADE NET DEBT/ADJUSTED EBITDA* RATIO OF 2.0X $ in Millions See reconciliation of GAAP adjustments beginning on slide 31. * Including minority interest. 4815-CORP- 11/08 (23) 23
  24. CONSERVATIVE DEBT PROFILE Substantial room on debt covenant ratios Nov. 2007: expanded cap on factoring receivables to $250 million Sept. 2008: expanded global capacity of securitized receivables to $310 million First significant debt maturity 2010 of $54 million (Term Loan A amortization payment) 4815-CORP-11/08 (24) 24
  25. DEBT MATURITY PROFILE ($ Millions) 4815-CORP-11/08 (25) 25
  26. DEBT COVENANT COMPLIANCE – SEPT. 30, 2008 Leverage ratio (tightest covenant) – Result: 3.27x – Test: no more than 4.00x Interest coverage ratio – Result: 4.08x – Test: maintain above 2.10x Cushions against tightest covenants: – EBITDA (including minority interest) is $79mm – Debt is $318mm No ratings triggers or net worth tests in covenants 4815-CORP-11/08 (26) 26
  27. GENERATING CASH FLOW Minimizing capital spending Prioritizing engineering projects Optimizing operations for near- and long-term outlook – Flex operations to lower production levels – Reduce variable and fixed costs – Reduce SG&A expenses – Focus on working capital efficiency 4815-CORP-11/08 (27) 27
  28. INVESTMENT HIGHLIGHTS Advanced technology leadership Well positioned for technology-driven growth Balanced mix of customers, geographies, markets, products, platforms Leading Tier 1 OE supplier positioned on top selling platforms No. 1 aftermarket supplier driven by leading brands Demonstrated commitment to balance sheet strength and financial stability Experienced management team 4815-CORP-11/08 (28) 28
  29. GLOBAL OE REVENUE ESTIMATE Tenneco’s global OE revenue estimate is based on original equipment manufacturers’ programs that have been formally awarded to the company; programs where the company is highly confident that it will be awarded business based on informal customer indications consistent with past practices, Tenneco’s status as supplier for the existing program and its relationship with the customer; and the actual original equipment revenues achieved by the company for each of the last several years compared to the amount of those revenues that the company estimated it would generate at the beginning of each year. The company’s revenue estimate is subject to increase or decrease due to changes in customer requirements, customer and consumer preferences, and the number of vehicles actually produced by the company’s customers. The company’s revenue estimate is as of January 2008 and the company does not intend to update the estimate due to these changes. In addition, the company’s revenue estimate is based on its anticipated pricing for each applicable program over its life. However, the company is under continuing pricing pressures from its OE customers. The company does not intend to update the amounts shown above for any price changes. Finally, for the company’s foreign operations, its revenue estimate assumes a fixed foreign currency value. This value is used to translate foreign business to the US dollar. Currency in the company’s foreign operations is subject to fluctuation based on the economic conditions in each of its foreign operations. The company does not intend to update its revenue estimate due to these fluctuations. See “Cautionary Statement for Purposes of the ‘Safe Harbor’ Provisions of the Private Securities Litigation Reform Act of 1995” and “Risk Factors” in the company’s Annual Report on Form 10-K for the year ended December 31, 2007 for additional information regarding the company’s revenue estimate. 4815-CORP-11/08 (29) 29
  30. FINANCIAL RESULTS DISCLAIMER • Use of Non-GAAP Financial Information In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included in this presentation, the company has provided information regarding certain non-GAAP financial measures. These measures include Income Before Interest Expense, Income Taxes, Minority Interest and Depreciation and Amortization (“EBITDA*”), Working Capital, Net Debt, Adjusted EBITDA*, Adjusted Selling, General, Administrative and Engineering Expense (“Adjusted SGA&E”), Adjusted Income Before Interest Expense, Income Taxes and Minority Interest (“Adjusted EBIT”), Adjusted Net Income and Adjusted Earnings Per Share. Reconciliations of these non-GAAP financial measures to the comparable GAAP measure are included in this presentation. * Including minority interest. 4815-CORP-11/08 (30) 30
  31. RECONCILIATION OF NON-GAAP RESULTS EBITDA* Sept. Sept. YTD 08 YTD 07 2007 2006 2005 2004 2003 2002 2001 2000 Net income (loss) $ (117) $ 67 $ (5) $ 49 $ 56 $ 9 $ 25 $(189 ) $ (131) $ (41) Cumulative effect of change - - - - - - - 218 - - in accounting principle, net of income tax Minority interest 8 8 10 6 2 4 6 4 1 2 Income tax expense (benefit) 163 22 83 5 26 (21) (6) (6) 50 (27) Interest expense (net of interest capitalized) 88 112 164 136 133 178 146 140 170 188 EBIT, income before interest expense, income taxes & minority interest (GAAP measure) 142 209 252 196 217 170 171 167 90 122 Depreciation & amortization of other intangibles 168 150 205 184 177 177 163 144 153 151 Total EBITDA* $ 310 $ 359 $ 457 $ 380 $ 394 $ 347 $ 334 $ 311 $ 243 $ 273 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. 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 that its security holders utilize and analyze its 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. * Including minority interest. 4815-CORP-11/08 (31) 31
  32. FINANCIAL ACCOMPLISHMENTS – RECONCILIATION OF NON-GAAP RESULTS $ Millions Total Revenue, Unaudited Sept. YTD Sept. YTD 2008 2007 2007 2006 Total Revenue $ 4,708 $ 4,619 $ 6,184 $ 4,682 Substrate Sales $ 1,195 $ 1,233 $ 1,673 $ 927 Value-added Revenue $ 3,513 $ 3,386 $ 4,511 $ 3,755 (1) Generally Accepted Accounting Principles (2) Tenneco presents the above reconciliation of GAAP to non-GAAP revenue measures primarily to reflect the results for the full years 2006 and 2007 in a manner that allows a better understanding of our operational results compared to our value-added revenue by excluding the impact of substrate sales, which generally carry lower margins. 4815-CORP-11/08 (32) 32
  33. FINANCIAL ACCOMPLISHMENTS – YTD SEPTEMBER 30, 2008 RECONCILIATION OF NON-GAAP RESULTS $ Millions, EBITDA* EPS SGA&E EBIT Net Income Unaudited Sept. YTD Sept. YTD Sept. YTD Sept. YTD Sept. YTD Sept. YTD Sept. YTD Sept. YTD Sept. YTD Sept. YTD 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 Financial Measures $393 $386 $310 $359 $142 $209 $(117) $67 $(2.53) $1.42 Adjustments (reflect non-GAAP (1) measures): Restructuring and restructuring related expenses (7) (1) 16 7 16 7 11 5 0.23 0.11 Aftermarket changeover costs (7) (5) 7 5 7 5 4 3 0.09 0.06 Charges related to refinancing activities – – – – – – – 4 – 0.07 Tax adjustments – – – – – – 146 (8) 3.13 (0.18) Non-GAAP financial $379 $380 $333 $371 $165 $221 $44 $71 $0.92 $1.48 measures(2) (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 nine months of 2008 and 2007 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. The company plans to continue making this adjustment for the remainder of 2008 to enhance investors’ understanding of the comparability between 2008 and 2007 results. * Including minority interest. 4815-CORP-11/08 (33) 33
  34. ADJUSTED EBITDA* RECONCILIATION OF NON-GAAP RESULTS Sept. Sept. $ Millions, Unaudited YTD 08 YTD 07 2007 2006 2005 2004 2003 2002 2001 2000 Financial measures $ 310 $ 359 $ 457 $ 380 $ 394 $ 347 $ 334 $ 311 $ 243 $ 273 Adjustments (reflect non-GAAP(1) measures): Restructuring & restructuring related expenses 16 7 25 27 12 40 8 2 51 61 New aftermarket customer changeover costs 7 5 5 6 10 8 - - - - Reserve for receivables from former affiliate - - - 3 - - - - - - Change to defined contribution pension plan - - - (7 ) - - - - - - Consulting fees indexed to stock price - - - - - 4 - - - - Gain on sale of York - - - - - - - (11) - - Other non-operational items - - - - - - - 2 4 4 Non-GAAP financial measures (2) $ 333 $ 371 $ 487 $ 409 $ 416 $ 399 $ 342 $ 304 $ 298 $ 338 (1) Generally Accepted Accounting Principles (2) Tenneco presents the above reconciliation of non-GAAP results in order to reflect the results for full years 2000, 2001, 2002, 2003, 2004, 2005, 2006 and 2007, and first nine months of 2008 and 2007 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 measure 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. * Including minority interest. 4815-CORP-11/08 (34) 34
  35. NET DEBT / ADJUSTED EBITDA* RECONCILIATION OF NON-GAAP RESULTS $ Millions, Unaudited Sept. Sept. YTD 08 YTD 07 2007 2006 2005 2004 2003 2002 2001 2000 Total debt $1,524 $1,536 $1,374 $1,385 $1,383 $1,421 $1,430 $1,445 $1,515 $1,527 Cash and cash equivalents 127 203 188 202 141 214 145 54 53 35 Debt net of cash balances 1,397 1,333 1,186 1,183 1,242 1,207 1,285 1,391 1,462 1,492 Adjusted EBITDA* $ 449(1) $ 460(1) $ 487 $ 409 $ 416 $ 399 $ 342 $ 304 $ 298 $ 338 Ratio of net debt to adjusted EBITDA* 3.1x (1) 2.9x (1) 2.4x 2.9x 3.0x 3.0x 3.8x 4.6x 4.9x 4.4x Note: We present debt net of cash balances because management believes it is a useful measure of our credit position and progress toward reducing leverage. The calculation is limited in that we may not always be able to use cash to repay debt on a dollar-for-dollar basis. (1) Last-twelve-months calculated. * Including minority interest. 4815-CORP-11/08 (35) 35
  36. 4815-CORP-11/08 (36) 36

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