500 North Field Drive

                              TENNECO AUTOMOTIVE INC.
Original Equipment
OPERATIONS               2003 SALES              MARKETS SERVED                 PROD...
2003                 2002                2001              2000
Financial Highlights    (dollars in millions except share ...
Mark P. Frissora
                                                       Chairman and
As we pursue the strategies that             unit to concentrate on heavy duty and      New Aftermarket Products
We are expanding our use of Six Sigma          by expanding more of our operations            The continued success of Ten...


We are a global company,       market-leading ride control   costs a...
2003’s hottest-selling vehicles incorporate our products, boosting our original
equipment revenues and offse...
tenneco annual reports 2003
tenneco annual reports 2003
tenneco annual reports 2003
tenneco annual reports 2003
tenneco annual reports 2003
tenneco annual reports 2003
tenneco annual reports 2003
tenneco annual reports 2003
tenneco annual reports 2003
tenneco annual reports 2003
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tenneco annual reports 2003

  1. 1. 500 North Field Drive TENNECO AUTOMOTIVE INC. THE POWER OF Lake Forest, Illinois 60045 tenneco-automotive.com NYSE:TEN TEN 2 0 0 3 A N N U A L R E P O RT Corporate Profile Mission Values TENNECO AUTOMOTIVE INC. 2 0 0 3 A N N U A L R E P O RT Teamwork Tenneco Automotive is Tenneco Automotive’s Seamless collaboration one of the world’s largest mission is to delight our Integrity designers, manufacturers customers as the number- Being honest, fair and never and marketers of emission one technology-driven, compromising our ethics control and ride control global manufacturer Trust products and systems for and marketer of value- Relying on and having faith in one another the automotive original differentiated ride control, equipment market and emission control and Passion and a Sense of Urgency A consuming desire to win now aftermarket. The company elastomer products and Balance became an independent systems. We will strengthen Promoting a balanced perspective in corporation in 1999, our leading position everything we do THE POWER OF TEN allowing singular focus through a shared-value Accountability on strategies to maximize culture of employee Accepting responsibility for our actions global results. involvement, where an Continuous Improvement intense focus on Relentless focus on achieving more with less Tenneco Automotive continued improvement markets its products princi- ED delivers shareholder value Execution and Discipline pally under the Monroe®, in everything we do. Walker®, Gillet®, and Clevite® Elastomer brand names. Leading manufac- Contents turers worldwide use our Gatefold Tenneco at a Glance products in their vehicles, 1 Financial Highlights attracted principally by our 2 Chairman’s Letter groundbreaking advanced 5 Operations Review technologies. We are one 6 North America of the top suppliers to the 10 Europe automotive aftermarket, offering exceptionally 13 Australia and South America strong brand recognition 14 Asia among consumers and 16 Board of Directors trade personnel. and Officers 17 10K Tenneco Automotive Back Investor Information employs approximately 19,200 people worldwide.
  2. 2. TENNECO AUTOMOTIVE Original Equipment OPERATIONS 2003 SALES MARKETS SERVED PRODUCTS BRANDS COMPETITORS KEY ADVANTAGES TOP FIVE CUSTOMERS TOP FIVE PLATFORMS 2003 MARKET OPPORTUNITIES GM Envoy/Bravada/Trailblazer Passenger cars Complete exhaust systems ArvinMeritor General Motors Additional content due I I I I I I Emission and Ride Control Emission Control $2,037 million GM Silverado/Suburban/ Light trucks Fabricated manifolds Faurecia Ford to emission regulations I I I I I Leading technologies I Investor Information Investor Inquiries Dividends Yukon XL/Escalade/Tahoe Commercial vehicles Manifold-converter modules Visteon Volkswagen Diesel aftertreatment I I I I I I Experienced team Securities analysts, portfolio managers The company expects that for the VW Bora/Golf/Leon/Jetta Industrial applications Catalytic converters Delphi DaimlerChrysler Customized sound attenuation I I I I I I I Product/process quality GM Opel Corsa/Chevrolet Corsa Motorbikes Mufflers and resonators Eberspächer PSA Peugeot/Citroen Demand for diesel/ I I I I I I I Global program and representatives of financial insti- foreseeable future it will follow a Corporate Headquarters Dodge Ram Pickup Diesel particulate filter systems hybrid/fuel cell I I management tutions seeking information about the policy of retaining earnings in order Tenneco Automotive Inc. NOx abatement systems Emerging markets I Japanese alliances I I company should contact the Investor to finance the continued development 500 North Field Drive Exhaust heat exchangers Commercial vehicle segment I I I Joint ventures in China, Relations department: 847.482.5042. of its business. Additional information Exhaust isolators & hanging systems I India, Thailand, and U.K. Lake Forest, Illinois 60045 I Customer relationships on the company’s dividend policy and 847.482.5000 Ride Control GM Silverado/Suburban/ $800 million Passenger cars Shocks & struts ArvinMeritor Ford Vehicle stability/ I I I I I I I Broad product range restrictions on the payment of divi- Stockholder Inquiries Yukon XL/Escalade/Tahoe Light trucks Suspension bushings Delphi General Motors safety requirements I I I I I Full service supplier For stockholder services such as ex- dends can be found in Management’s Web Site DaimlerChrysler Town&Country/ Commercial vehicles Coil, air & leaf springs Tokico Volkswagen Modular assembly I I I I I I I Just In Time (JIT) change of certificates, issuance of Discussion and Analysis in the Annual Voyager/Caravan Golf carts Torque rods ZF Sachs DaimlerChrysler New technologies I I I I I assembly www.tenneco-automotive.com VW Golf/Toledo Off-road recreational Engine/body mounts Kayaba Nissan Adjacent markets I I I I I I certificates, lost certificates, change of Report on Form 10-K for the year DaimlerChrysler Sebring/Stratus Rail cars Suspension modules/systems Electronic technologies I I I I address, change in registered owner- ended December 31, 2003. Corporate Information Ford F-Series Super-Duty Control arms/bars/links I I ship or share balance, write, call or Individuals interested in receiving the e-mail the company’s transfer agent: Annual Meeting company’s latest quarterly earnings Aftermarket The Annual Meeting of Stockholders press release or other company Wachovia Bank, N.A. will be held at 10:00 a.m. Central Time literature should write the Investor OPERATIONS 2003 SALES MARKETS SERVED PRODUCTS BRANDS COMPETITORS KEY ADVANTAGES TOP FIVE CUSTOMERS LEADING PRODUCTS MARKET OPPORTUNITIES Equity Services Group on Tuesday, May 11, 2004, at Tenneco Relations Department at the corporate 1525 West W.T. Harris Blvd., 3C3 Automotive’s headquarters, 500 North headquarters address or call Quiet-Flow3® Mufflers/ Emission and Ride Control Emission Control $350 million Passenger cars Manifolds ArvinMeritor NAPA Growing number of I I I I I I Charlotte, NC 28288-1153 Field Drive, Lake Forest, Illinois. 847.482.5042. Brand dominance Assemblies I Light trucks Mufflers OE Service Automotive Distribution vehicles on the road I I I I Dynomax® Ultra-Flo Stainless/ 866.839.3259 Toll Free I Relationships with Commercial vehicles Pipes Bosal International (ADI) OE Service I I I I I all major wholesale Welded Mufflers/Systems Performance vehicles Tubing Faurecia TEMOT Autoteile New technologies I I I I I 704.427.2602 Information about Tenneco distributors/retailers DNX™ performance Mounting components Goerlich’s Exhaust Advance Auto Parts Emission regulations I I I I I Automotive is also available on the I Global presence exhaust systems Catalytic converters Systems Independent Motor Performance product demand I I I www.wachovia.com/shareholder- company’s web site.† I Leading market shares SoundFX™ mufflers Performance mufflers Trade Factors Association I I services I Product innovation Clean Air™ catalytic converters (IFA) I I Product quality Click on “Access Accounts” Stock Listing Reflex® shocks & struts Ride Control $579 million Passenger cars Shocks ArvinMeritor NAPA Growing number of I I I I I I I Extensive product and Click on “FirstLink Equity” Tenneco Automotive’s common stock Sensa-Trac® shocks & struts Light trucks Struts OE Service TEMOT Autoteile vehicles on the road I I I I I vehicle coverage Rancho® shocks, struts and Commercial vehicles Cartridges ZF Sachs Advance Auto Parts OE Service I I I I I I is listed under the ticker symbol TEN. I Targeted marketing suspension lift kits Trailers Mounting kits Kayaba O’Reilly Auto Parts New technologies I I I I I programs Gas-Magnum® shocks Performance shocks ADI Unperformed maintenance I I I I I Introduction of TEN is traded primarily on the DNX™ performance shocks Torque rods Premium mix expansion I I I service parts New York Stock Exchange and also and struts Suspension bushings Broader product coverage I I Monro-Matic Plus® shocks Engine mounts Heavy-duty truck penetration I I I on the following exchanges: Chicago, DuPont™ car care line Safety/installer education I I Pacific and London. Stock Price Data Testing/diagnostic equipment I 2004 2003 2002 As of February 23, 2004, there were Sales Prices Sales Prices Sales Prices approximately 48,841 holders of record 2003 2002 2003 Sales 2003 EBIT* Broad Product Line Mix Exhaust Management Suspension Management People: Approx. 19,200 High Low High Low High Low of the company’s common stock, par Emission Control Ride Control Elastomer Manufacturing & Revenues (millions) $3,766 $3,459 value $0.01 per share. Just-In-Time Facilities: 72 First Quarter* $14.88 $6.73 $ 4.32 $ 2.01 $ 4.10 $ 1.90 Emission Control/ Ride Control Balance† 63/37 65/35 Engineering Centers: 14 Second Quarter $ 4.65 $ 2.25 $ 6.75 $ 3.82 Countries Served: 130 Original Equipment/ Third Quarter $ 7.45 $ 3.61 $ 8.32 $ 3.50 Aftermarket Balance† 75/25 74/26 Fourth Quarter $ 7.32 $ 4.66 $ 5.97 $ 3.28 †percentage of sales * EBIT is income before interest North America 50% North America 74% Cold End 58% Shocks & Springs 61% Other Suspension Components 53% expense, taxes, and minority Europe 38% Europe 8% Hot End 42% Struts 32% * 2004 First Quarter through March 4, 2004 † interest. The information on our web site is not part Rest of World 12% Rest of World 18% Modules & Systems 7% Bushings 47% of this annual report
  3. 3. 2003 2002 2001 2000 Financial Highlights (dollars in millions except share and per share data) Sales $ 3,766 $ 3,459 $ 3,364 $ 3,528 Earnings before interest and taxes $ 176 $ 169 $ 92 $ 120 Depreciation and amortization $ 163 $ 144 $ 153 $ 151 EBITDA* $ 339 $ 313 $ 245 $ 271 Net income (loss) before change in accounting principle $ 27 $ 31 $ (130) $ (42) Earnings (loss) per share before change in accounting principle $ 0.65 $ 0.74 $ (3.43) $ (1.20) Capital expenditures $ 130 $ 138 $ 127 $ 146 Average diluted shares outstanding 41,767,959 41,667,815 38,001,248 34,906,825 Total debt $ 1,430 $ 1,445 $ 1,515 $ 1,527 Cash and cash equivalents $ 145 $ 54 $ 53 $ 35 Debt, net of cash balances $ 1,285 $ 1,391 $ 1,462 $ 1,492 *EBITDA represents income from continuing operations before cumulative effect of change in accounting principle, 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 our performance, or as an alternative to operating cash flows as a measure of liquidity. We have reported EBITDA because we believe EBITDA is a measure commonly reported and widely used by investors and other interested parties as an indicator of a company’s performance. We believe EBITDA assists investors in compar- ing 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 in this document may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation. Cash Flow † SGA&E Expense†† Working Capital† $ in millions Percentage of sales Percentage of sales $315 17.0% $281 15.6% $253 14.0% 12.5% 12.1% $209 11.4% 10.1% $169 6.0% 3.6% 2.3% 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 †See 2003 Form 10K Item 6 for reconciliation to GAAP reporting measure. ††Selling, general and administrative expense plus engineering, research and development expense. 1
  4. 4. Mark P. Frissora Chairman and Chief Executive Officer For Tenneco Automotive, Adhering to this To Our Shareholders 2003 was the most strategic focus, in 2003 successful year since we achieved: becoming a stand-alone A new high in revenues of $3.8 I billion, up 9 percent over 2002. company. Revenue, The most new business booked I profitability, new business in a single year. and debt reduction were Our highest revenue per employee I all at record performance at $196,771. levels. This progress reflects A new low of 11.4 percent of sales I our continued focus on a for overhead expenses. Our highest operating income core strategy of generating I of $176 million, a 4 percent year-over- cash to pay down debt year increase. by strengthening business A two-phased debt refinancing that I relationships, controlling improved flexibility and liquidity. costs, lowering working Our lowest level of debt net of cash I capital and improving balances at $1.285 billion. gross margins. More than $154 million in cash flow I before financing activities due to a 16 percent improvement in cash flow from working capital. The highest increase in enterprise I value —the market value of our debt and equity—at 34 percent. 2
  5. 5. As we pursue the strategies that unit to concentrate on heavy duty and New Aftermarket Products We have a new aftermarket strategy generated this success, we are focusing other commercial vehicles worldwide, to introduce service parts to our on investments in proprietary technolo- which should allow us to capture an core offering of shocks, mufflers gies for growth markets, increasing expanded share of this growing and associated “hard parts.” Service the variability of our cost structure segment. parts are parts on a vehicle that are and improving our financial flexibility. serviced regularly—like windshield Number One in China Investments in Growth wipers, filters and brakes. Our early investments in China and the forging of effective joint ventures Higher Global Emission Standards In December, we signed an exclusive have made us the country’s leading Require Advanced Technology licensing agreement with DuPont OE emission control supplier. China’s Environmental regulators are tightening to market a line of premium car care economy leads the world in growth emission standards around the world, products in North America. The line, as passenger car production rose increasing the value of emission control including car washes and waxes, 55 percent in 2003 over the previous content per vehicle. We have invested capitalizes on DuPont’s valuable Teflon® year. Production is expected to increase in technologies that meet more brand name. Our investment in this about 10 percent annually through the stringent requirements such as our high-margin product line is minimal decade, which would make China the diesel particulate filter, DeNOx converter as we outsource manufacturing, while world’s second largest vehicle market in and lightweight fabricated manifolds. leveraging our distribution channels. 2010. Our revenues in China have These cutting-edge products, in demand We expect to introduce additional increased at a compounded annual by PSA, Audi, Mercedes Benz and other service parts in the next year in both growth rate of 60 percent since 1998. automakers, command higher margins. North America and Europe. Targeting Japanese OEMs Commercial Truck Recovery Suits Variable Cost Structure Japanese original equipment manufac- Established Capability turers (OEMs) have sharply increased We are implementing a number The estimated 25 percent increase in their share of the North American auto- of measures to increase the variability commercial vehicle production projected motive market. Through alliances with of our cost structure, including for 2004 would mark a turnaround, Futaba and Tokico, leading Japanese outsourcing non-core production driven by improvement in general emission control and ride control processes and select services to economic conditions and higher freight suppliers, we have strengthened our manufacturers or regions of the world volumes. Progressively tighter emission relationships with these producers. We that can render them most efficiently. regulations affecting heavy-duty trucks are the only North American supplier in These actions will give us the flexibility will take effect throughout the decade, our business segments to work with all to respond faster and more effectively increasing the size of the global of the Japanese Big Three —Toyota, to changes in the marketplace. commercial truck exhaust market for Honda and Nissan — and have raised the products we offer to an estimated the share of our North America OEM $2.3 billion in 2010 from $173 million revenues from Japanese automakers in 2003. Our technology investments, to 18 percent at 2003 year-end from developed for light trucks, are transfer- 14 percent at the close of 2002. able to the medium- and heavy-truck market. We have formed a new business 3
  6. 6. We are expanding our use of Six Sigma by expanding more of our operations The continued success of Tenneco and employing Lean manufacturing and to Eastern Europe. We now operate Automotive ultimately will be driven other initiatives to improve our produc- six facilities in Poland, Russia and the by uncompromising integrity —in the tion capability, streamline operations and Czech Republic and these plants way we deal with our customers, reduce costs. were responsible for most of the 2003 manage our employees and report launches in Europe. to our stakeholders —and a corporate Six Sigma generated $27 million in I culture committed to world-class cost savings in 2003 by reducing Improved Financial performance through execution defects and waste. An additional and discipline. Flexibility $20 million in savings is expected this year. Last year, we executed a very successful At Tenneco Automotive, we believe two-phased debt refinancing transaction Our Lean manufacturing initiatives, I our people are our most valuable asset. that improved our flexibility in the appli- modeled on the Toyota Production They design our products, manufacture cation of our cash flow and created System, are reducing costs, inventories our products and sell our products. greater liquidity. The new agreements and lead times, while improving Recognizing this, we invest in a culture extended nearly all debt maturities out on-time delivery. that provides opportunities for employee to 2009 and beyond. Our Project Genesis restructuring I development, which results in greater program has improved capacity job satisfaction as exemplified by our When Tenneco Automotive became utilization by closing underutilized salaried-employee turnover rate, which a stand-alone company in 1999, our manufacturing facilities and improving we believe is well below the industry debt totaled approximately $1.7 billion. workflow at remaining plants. Genesis average. This distinguishes Tenneco We reduced this by nearly $300 million yielded $17 million in incremental Automotive and reflects a unique advan- and are further improving our capital savings in 2003 in addition to the tage, both in serving our customers and structure by debt reduction through $12 million saved in 2002. Now that in allowing us to retain and recruit the higher earnings and cash flow, as well the program is complete, we will best and brightest employees. as opportunistic debt management benefit from the full $30 million in an environment of low interest rates of cost reductions that have been In the end, our overall objective is and strong capital markets. achieved over the past two years. clear and unchanging. We are deter- mined to build on the fundamentals Additionally, we are among our I Looking Ahead that enable our business to succeed industry’s best-in-class in plant safety We will continue to strive toward and will continue to invest in opportuni- performance, which further enhances improved performance, focusing on ties that strengthen our position in our global manufacturing position. additional cost and capacity reductions, key growth areas. Safety performance is based on a total greater flexibility and investments in tech- case rate measure, which is calculated nology that fuel new business growth. by the number of injuries per 100 employees. Our total case rate was Our book of new business is at a peak 3.5 last year, which is 65 percent with revenues from OEMs in 2004 lower than the industry average. estimated to climb 3 percent over 2003. In 2005, we expect our OEM Mark P. Frissora Go East book of business to increase 11 percent Chairman and In Europe, we are more closely aligning over 2003, with strong potential for Chief Executive Officer with our customers and lowering costs additional growth. April 2004 4
  7. 7. TH E PO W E R TEN OF We are a global company, market-leading ride control costs and maximizing operating from established and emission control financial flexibility. However, markets in North America products, and our varied the diversity of our geo- to areas of explosive growth customer base. graphic coverage, products, such as China. markets, businesses and From this foundation, we customers requires strategies These distinct markets grow revenues by investing tailored to specific needs. provide strength, as does in technologies for expand- the balance between our ing markets, and reduce Diversity combined original equipment and debt by increasing the with unity of purpose: aftermarket businesses, variable structure of our the Power of TEN. Computerized Electronic Shock LiteningRod Semi-Active Muffler 5
  8. 8. NORTH AMERICA 2003’s hottest-selling vehicles incorporate our products, boosting our original equipment revenues and offsetting declines in overall automotive production. We are countering adversity in the aftermarket business by broadening our customer base, extending our product lines and entering new product categories. Our Results North American Tenneco North American Vehicle Production 2003 OE Light Vehicle Sales North American consumers maintained a preference for SUVs, minivans and light trucks over passenger cars in 2003. Our significant presence on these top-selling vehicle platforms was benefi- cial as we generated revenues that outpaced overall production rates. Our original equipment (OE) revenues in North America increased 1 percent last year compared with a 3 percent decline Light Truck 78% Light Truck 53% Passenger Car 22% Passenger Car 47% in industry production. Sales of new autos and light trucks, while about 1 Source: Automotive News percent lower than 2002 levels at 16.8 million units, marked the fifth best year total North American OE revenue at vehicle. Our team executed a virtually in the history of the industry. year-end 2003 from just 14 percent flawless launch —a performance that one year earlier. Our products are on Toyota referred to as a benchmark in Competition intensified for domestic strong-selling platforms and new delivering Lexus quality. Our high marks vehicle manufacturers as Japan-based launches including Honda’s Accord, Pilot, for production processes and efficiency automakers increased their market share Odyssey and Acura MDX; Nissan’s Titan, were underscored when we received in North America. Our global alliances Frontier, Pathfinder, Armada, Xterra, Toyota’s Excellence Award for Lexus with Tokico and Futaba, leading Japanese Infiniti, and Altima; and Toyota’s Sienna, Launch as well as an Excellence Award ride control and emission control Sequoia and Lexus RX 330. for Value Improvement, reflecting our suppliers, provided us with a competitive overall support to Toyota in 2003. We advantage and helped to further expand The North American launch of the Lexus will continue to build our relationships our business with Japanese original RX 330 was especially noteworthy in with the Japanese OEMs, pursuing more equipment manufacturers. Revenue 2003. This was the first launch of a Lexus of their business in North America, generated from these manufacturers vehicle outside of Japan. Tenneco is which represents a strong growth increased to about 18 percent of our supplying the exhaust system on this opportunity for us. We successfully launched the exhaust system on Toyota’s Lexus RX 330, the first Lexus vehicle to be sourced in North America. World Headquarters Emission Control Manufacturing Ride Control Manufacturing Emission Control Engineering Center 6 Ride Control Engineering Center