Tenneco Inc. (Tenneco) has reported net sales and operating revenues of $5.9 billion for the year-end 2008, compared with the net sales and operating revenues of $6.184 billion in the previous year-end. It has also reported a net loss of $415 million, or $8.95 per diluted share, for the year-end 2008, compared with the net loss $5 million, or $0.11 per diluted share, in the previous year-end.
Tenneco has fourth quarter net loss of $298 million, or $6.40 per diluted share, compared with a net loss of $72 million, or $1.57 per diluted share in fourth quarter 2007.
Adjusted for the items below, the net loss was $24 million, or 51-cents per diluted share, down from net income of $17 million, or 34-cents per diluted share, a year ago. The adjustments include the non-cash impairment charges for goodwill and deferred tax assets. The tables in this press release reconcile GAAP results to non-GAAP results.
EBIT (earnings before interest, taxes and minority interest) was a loss of $145 million, versus earnings of $43 million a year ago. EBIT was negatively impacted by the goodwill impairment charge, lower OE production volumes globally, lower aftermarket sales and higher restructuring costs, all of which were driven by the severe industry conditions. These factors more than offset the benefits of new OE business launches, reduced overhead spending, and cost savings from restructuring and operational flexing actions implemented worldwide. In addition, the global downturn drove unusual changes in currency exchange rates during the quarter, which reduced EBIT by $21 million due to currency transaction and translation losses. Adjusted EBIT was a loss of $7 million, compared with earnings of $61 million the prior year.
EBITDA including minority interest (EBIT before depreciation and amortization) was a loss of $91 million versus earnings of $98 million in fourth quarter 2007. Adjusted EBITDA including minority interest was $47 million compared with $116 million.
The fourth quarter saw further vehicle sales and OE production volumes declines in North America, compounded by the dramatic fall-off in Europe and rest of the world due to the global economic crisis and ongoing credit freeze, which has driven every major economy into recession. As with the entire automotive industry, Tenneco has been significantly impacted by these severe and unprecedented external conditions, said Gregg Sherrill, chairman and CEO, Tenneco. In response, we have and will continue to take aggressive actions to reduce costs, re-size our operations and generate and preserve cash in order to weather this crisis.
In the fourth quarter 2008, the company announced a global restructuring program that is expected to generate $58 million in annualized savings once fully implemented by the end of 2009. The restructuring and other actions the company is taking include:
Eliminating 1,100 jobs worldwide;
Closing three manufacturing plants and one engineering facility;
Controlling compensation and benefits costs including:
Suspending matching contributions to employee 401(k) programs for 2009;
Eliminating 2008 performance bonuses for salaried employees;
Reducing total annual compensation for the top 50 executives on average by more than 60%; and
Eliminating employee annual salary increases and implementing other salary control actions.
Continuing to implement hourly layoffs at manufacturing plants worldwide and initiating unpaid furloughs and work hour reductions for some salaried employees to further adjust to declining production volumes;
Cutting spending on information technology, sales and marketing programs;
Accelerating working capital improvement opportunities; and
Reducing capital expenditures by eliminating all discretionary capital spending including eliminating or deferring regional expansion projects and cutting spending tied to delayed customer launches.
Fourth quarter 2008 adjustments:
Restructuring and restructuring related 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 Tenneco’s 1996 acquisition of Clevite Industries;
Non-cash tax charges of $144 million, or $3.11 per diluted share, related to the $101 million valuation allowance against the company’s US deferred tax assets, as well as $16 million for the impact of not benefiting US tax losses, $11 million for changes in foreign tax rates, valuation allowances of $4 million in certain foreign countries and other tax adjustments.
Fourth quarter 2007 adjustments:
Restructuring and restructuring related expenses of $18 million pre-tax, or 26-cents per diluted share;
A charge of $21 million 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.
Fourth quarter revenue was $1.208 billion, down from $1.565 billion in fourth quarter 2007. The impact of unfavorable currency in the quarter was $123 million. Excluding currency and substrate sales, revenue was $1.025 billion versus $1.125 billion a year ago. The decline was driven by falling production volumes, particularly in the North America and Europe emission control businesses and in China.
Gross margin in the quarter was 12.6%, down from 14.3% a year ago, the result of significant production volume declines, manufacturing fixed cost absorption and the negative impact of currency. Gross margin in fourth quarter 2008 included $8 million in restructuring related expenses and fourth quarter 2007 included $16 million.
Steel costs in the quarter were $13 million higher year-over-year, driven by higher year-over-year base prices and surcharges for chrome purchased in North America. The company addressed these costs with cost reductions, aftermarket price increases and OE customer recoveries.
SGA&E expense was $126 million (10.4% of sales) in fourth quarter 2008, compared with $127 million (8.1% of sales) in fourth quarter 2007. Restructuring costs were $14 million higher in fourth quarter 2008 versus the prior year. Before the impact of higher restructuring costs, SGA&E expense was down year-over-year due to the company’s progress in reducing overhead costs and discretionary spending.
Tenneco generated $126 million in cash flow from operations in fourth quarter 2008, driven by $115 million in cash from working capital, primarily from accounts receivable collections and inventory reductions. The company generated $199 million in cash flow from operations in the fourth quarter 2007. The year-over-year decline in cash flow from operations was due to the significantly lower production environment.
At December 31, 2008, the company’s leverage ratio was 3.66, below the maximum level of 4.25. The interest coverage ratio was 3.64, above the minimum of 2.10. The leverage ratio is the company’s tightest senior credit facility debt-compliance ratio. In December 2008, the company amended the leverage ratio, increasing it for the fourth quarter from 4.0x to 4.25x as a precautionary step during a very volatile quarter.
Tenneco has initiated the process – which it first announced in December – to achieve a longer-term amendment to its senior secured credit facility in anticipation of continued difficult economic and industry conditions globally. The company expects to complete the amendment by the end of February.
Additionally, Tenneco extended its $120 million US receivable securitization facility through March 2, 2009. The revised terms of the facility reduced the percentage of Tenneco’s US accounts receivable that the sponsors purchase. Tenneco estimates that the sponsors will purchase between $10 million and $30 million less of its receivables than in the past. Also, the cost of the facility will increase about $4 million annually. Prior to the expiration date and concurrent with completion of the senior secured credit facility amendment, the company expects to renew the facility for an additional 364 days.