2. Safe Harbor Statement
Please see the safe harbor statement in
Tenneco’s fourth quarter and full-year
2008 financial results press release, which
is incorporated herein by reference.
3. Agenda
Gregg Sherrill,
Gregg
Chairman & CEO Sherrill
– Strategic overview
Ken Trammell,
Executive VP & CFO
– Fourth quarter 2008 results
Ken
Gregg Sherrill Trammell
– Outlook
Q&A
Please see the company’s February 5, 2009, press release for reconciliation and
explanation of all non-GAAP measures contained in this slide presentation
3
4. LV 4Q 2008 Production Change v. 4Q 2007
North America -24.1%
Europe -26.6%
- E. Europe -23.6%
- W. Europe -27.8%
China -10.8%
Australia - 8.3%
South America -29.7%
Source: Global Insights, January 30, 2009
4
5. Actions to address global crisis
Number 1 priority: Generating and Preserving Cash
• Global restructuring - $58mm savings when fully implemented by
end of 2009
– Eliminate 1,100 jobs; in addition to 1,150 already eliminated
– Close three NA plants; Australia engineering facility
– Suspend matching contributions to 401(k) programs
– Cut IT, sales & marketing spending
• Flexing operations
– Temporary hourly layoffs; salaried furloughs in NA
– Eliminated all temporary positions in Europe; working with works
councils to achieve other salary cost reductions
• Compensation
– Freeze 2009 salaries at 2008 levels; other salary control actions
– Cut compensation on average 60% for top 50 executives
• Reducing capital expenditures and engineering investments
• Generating cash flow through working capital improvements
• Eliminating all discretionary spending
5
6. New Business in 4Q’08
• Joint development agreement with General Electric
– Will expand TEN’s NOx reduction technology portfolio; further
strengthens position to grow in adjacent markets
– Will work will GE Transportation to further develop hydrocarbon SCR
aftertreatment technology into complete diesel aftertreatment systems
for locomotive and off-highway vehicle markets
– Complements TEN’s ELIM-NOx urea-based SCR aftertreatment
solutions
– Includes a development contract for locomotive projects; positioned to
become long-term strategic supplier of diesel aftertreatment solutions to
GE Transportation
• In 4Q 2008, won new or replacement contracts for 18 different
model vehicles with nine customers
• Launching product on 31 OE platforms globally in 1Q 2009
6
7. 4Q 2008 Financial Results
• Revenue was $1.208 billion, down from $1.565 billion
– Impacted by OE production and aftermarket volume declines and
$123mm in unfavorable currency
• EBIT was a loss of $145mm, vs. earnings of $43mm in 4Q’07
– Negatively impacted by goodwill impairment charge, lower OE volumes
globally, unfavorable vehicle mix, manufacturing fixed cost absorption,
lower aftermarket sales, higher restructuring costs and $21mm in
currency transaction and translation losses
• Adjusted EBIT was a loss of $7mm vs. earnings of $61mm in 4Q’07
• EBITDA including minority interest was a loss of $91mm vs.
earnings of $98mm in 4Q’07
• Adjusted EBITDA including minority interest was $47mm vs.
$116mm in 4Q’07
7
8. 4Q 2008 Adjustments
4Q 2007
• Restructuring expenses of $18 million pre-tax, or 26-cents per diluted share;
• A charge of $21million pre-tax, or 31-cents per diluted share for refinancing
a portion of the company’s debt;
• Net tax expenses of $64 million, or $1.34 per diluted share, including $66
million in non-cash expenses to realign the European ownership structure
and a net benefit of $2 million, primarily related to adjustments for prior year
income tax returns.
4Q 2008
• Restructuring expenses of $24 million pre-tax, or 34-cents per diluted share;
• Non-cash asset impairment charges of $114 million, or $2.44 per diluted
share, related to goodwill for 1996 Clevite Industries acquisition;
• Non-cash tax charges of $144 million, or $3.11 per diluted share, related to
a further increase in a valuation allowance against the company’s deferred
tax assets, the impact of not benefiting U.S. tax losses, changes in foreign
tax rates and other adjustments.
8
9. 4Q 2008 Tax Adjustments
(additional detail)
Tax adjustments of $144mm
• $101mm impairment in carrying value of U.S. deferred
tax asset –due to production decline and accounting
rules that do not consider economic recovery or give
weight to future business growth
• $11mm in adjustments in deferred tax liabilities for
changes in tax rates
• $20mm for impact of not recording a tax benefit for the
U.S. net tax operating loss and other jurisdictions where
TEN cannot record such a tax benefit
• Various tax adjustments for prior year income tax returns
9
10. 4Q 2008 North America Revenues
• OE Revenue down 16% at $498mm, down 4% excl. substrate sales
and currency
– Includes $32mm in revenue from Kettering, Ohio ride control operations;
passenger car business acquired in June 2008;
– Reflects 4Q industry production volume declines in NA where light
vehicle production fell 24% year-over-year; impacted ride control and
emission control businesses
– Volume declines on platforms like the Toyota Tundra, GM Duramax
pick-up trucks, GMT900 platform, Chevrolet Trailblazer/Envoy
• Tenneco unfavorable mix: SUVs and pick-ups = 49% of sales vs.
69% in 4Q ’07
– Full year 2008 SUVs and pick-ups = 54% vs. 72% in 2007
• Aftermarket revenue was $113mm, down 8% from $122mm in
4Q’07; down 6% adjusted for currency
– Softer sales volumes in both ride and exhaust products, partially offset
by price increases for steel recovery
10
11. 4Q 2008 North America EBIT
• EBIT was a loss of $131mm, compared with earnings of $16mm in
Q4:07
• Adjusted EBIT was a loss of $8mm vs. earnings of $18mm in Q4:07
– Adjusted for Q4:08 goodwill impairment charge of $114mm and $9mm
in restructuring expense; 4Q:07 included $2mm in restructuring
• $29mm of EBIT decline due to:
– Lower OE production volumes
– Manufacturing fixed cost absorption
– Vehicle mix
– Lower aftermarket sales
• Negative currency impact of $14mm related to Mexican Peso and
Canadian dollar
• EBIT benefited from:
– Lower SGA&E spending
– New OE business launches
11
12. 4Q 2008 Europe OE Revenues
• European OE revenues down 31% to $352mm
from $511mm in 4Q’07
– Industry light vehicle production fell 27% year-over-
year
– Excluding substrate sales and currency, revenue
down 12% to $329mm from $373mm
– Recently acquired suspension business of Gruppo
Marzocchi added $18mm in revenue
• Revenue decrease driven by decline in OE
emission control sales, down 19% excluding
substrate sales and currency
12
13. 4Q 2008 Europe Aftermarket
Revenues
• Europe aftermarket revenue was $76mm,
versus $96mm in 4Q’07
• Excluding currency, revenue was $89mm
• Decline driven by lower ride control and
exhaust sales volumes in most regions
• Partially offset by price increases for
higher material costs
13
14. 4Q 2008 South America and India
Revenues
• Revenue declined to $72mm vs. $96mm in
4Q:07
– Worsening industry conditions
– Primarily driven by OE production volume
declines in Brazil and Argentina
– Excluding substrate sales and currency,
revenue was down 4% to $80mm from
$84mm
14
15. 4Q 2008 EBIT for Europe, South
America and India
• Reported EBIT was a loss of $12mm vs. earnings of $19mm in
4Q’07
• Adjusted for restructuring ($15mm in 4Q’08 and $16mm in 4Q07),
EBIT was $3mm vs. $35mm in 4Q’07
• Negative EBIT drivers:
– OE production volume declines
– Unfavorable mix
– Lower aftermarket sales volumes
– Related manufacturing fixed cost absorption
• $7mm negative currency, primarily related to transaction losses on
Brazilian real and translation losses on the euro
• Partially offset by:
– Reduced overhead costs and cuts in discretionary spending
– Benefits from new OE business launches
15
16. 4Q 2008 Asia Pacific Results
• Revenue from Australia operations was $27mm, down
46% from $50mm in 4Q’07
• Asia revenue fell to $70mm vs. $98mm in 4Q’07
– Excluding substrate sales and currency, revenue was $46mm
vs. $62mm in 4Q’07
– Driven by China industry production down by 11% vs. double
digit growth in first half of ’08
– Volume declines on Tenneco supplied GM and VW platforms
• Asia Pacific EBIT was a loss of $2mm vs. earnings of
$8mm in Q4’07
– Lower OE production volumes in China and Australia and related
manufacturing fixed cost absorption drove the decline
16
17. 4Q 2008 Gross Margin/SGA&E
Gross Margin
• Reported 4Q gross margin decreased to 12.6% from 14.3% in Q4’07
• Includes restructuring costs of $8mm in 4Q’08 and $16mm in 4Q’07
• Impacted by:
– Decrease in OE volumes
– Vehicle mix
– Manufacturing fixed cost absorption
– Negative currency impact
SGA&E
• Before impact of higher year-over-year restructuring expense,
SGA&E expense down due to cuts in overhead costs and
discretionary spending
• 4Q:08 SGA&E expense was $126mm or 10.4% of sales vs.
$127mm or 8.1% in Q4’07
• Full-year 2008 SGA&E was 8.8% vs. 8.3% in 2007
– Increase due to lower revenue and higher restructuring in 2008
17
18. Depreciation and Amortization
• D&A was $54mm in 4Q’08, relatively even
with $55mm in 4Q’07
• Full-year 2008 D&A was $222mm, vs.
$205mm in 2007
• For full-year 2009, anticipate depreciation
and amortization at about same level as
2008
18
19. Interest Expense
• Q4’08 interest expense was $25mm
– Included $6mm benefit from fixed to floating
interest rate swaps
– Terminated swaps in fourth quarter
– Collected $6mm in cash from swap counter
parties
• Full-year 2008 interest expense was
$113mm
19
20. Taxes
• Recorded $126mm tax expense in Q4’08
• Cash taxes for Q4’08 were $12mm vs.
$15mm in 4Q’07
• Full-year 2008 cash taxes were $62mm
vs. $60mm in 2007
• For full-year 2009, expect cash taxes
between $40mm-$45mm
20
21. Cash and Debt Position at
December 31, 2008
• Consolidated debt at $1.451 billion
($1.374 billion at 12/31/07)
• Cash balances of $126 million ($188
million at 12/31/07)
• Debt net of cash balances at $1.325 billion
($1.186 billion at 12/31/07)
21
22. Cash Generated by Operating
Activities
• Cash flow from operations was $126mm in
4Q’08 v. $199mm in 4Q’07
• Year-over-year decline driven by lower
production environment
• 4Q’08 cash flow of $126mm includes
$115mm in cash from working capital,
primarily accounts receivable collections
and inventory reductions
22
23. Working Capital
• Rapid decline in global production impacted
working capital metrics in the quarter
• Days sales outstanding, excluding the impact of
factoring, was 56 days at 12/31/08 vs. 53 days
at 12/31/07; improved from 64 days at 9/30/08
• Inventory days on hand were 44 days vs. 36
days last year; driven by rapid production
decline
• Days payable outstanding was 67 days at
12/31/08, virtually unchanged from 66 days at
year-end ‘07
23
24. Debt Compliance
See Tenneco’s Form 10-K, Note 5 for year ended December 31, 2007, for a discussion of
the significance of the company’s senior credit facility and compliance with these
covenants (page 91).
• Leverage ratio (tightest covenant)
– Result: 3.66x
– Test: no more than 4.25x
• Interest coverage ratio
– Result: 3.64x
– Test: maintain above 2.10x
• Launched the process to amend senior secured credit
facility in light of difficult economic and industry
conditions
– Meeting with banking group later today
• Expect to complete amendment by the end of February
2009
24
25. Factored Receivables
• Extended $120mm U.S. receivable securitization
facility through March 2, 2009
– Revised terms:
• Annual cost increased by about $4 million
• Reduced percentage of Tenneco’s U.S. accounts receivable
that the sponsors will purchase
– TEN estimates between $10 million and $30 million less
– Tenneco expects to renew for another 364 days,
concurrent with completion of the senior secured credit
facility amendment
• Worldwide factored receivables:
– Maximum factoring allowed $250mm
– $179mm as of 12/31/08
– $157mm at 12/31/07
25
26. Capital Expenditures
• Capital spending was $45mm in 4Q:08 vs.
$77mm in 4Q’07
• Full-year 2008 capital spending was
$221mm, up from $198mm in 2007
– Preparing for new business launches and
projects in expanding markets like China,
India, Russia
• Expect FY2009 capital spending to be
about $160mm
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