TENNECO INC
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Table of Contents
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| þ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31,
2009
OR
| o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-12387
TENNECO INC.
(Exact name of registrant as
specified in its charter)
| Delaware | 76-0515284 | |
|
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
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500 North Field Drive
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60045 | |
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Lake Forest, IL
|
(Zip Code) | |
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(Address of principal executive
offices)
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Registrant’s telephone number, including area
code: (847) 482-5000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
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Name of each Exchange
|
||
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Title of each class
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on which registered
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7.45% Debentures due 2025;
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New York Stock Exchange | |
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8.125% Debentures due 2015;
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New York Stock Exchange | |
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9.20% Debentures due 2012;
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New York Stock Exchange | |
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Common Stock, par value $.01 per share
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New York and Chicago Stock Exchanges |
Securities registered pursuant to
Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities
Act. Yes
No
ü
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
ü
Note
—
Checking the box above will not relieve any registrant required
to file reports pursuant to Section 13 or 15(d) of the
Exchange Act from their obligations under those Sections.
Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
ü
No
Indicate
by check mark if disclosure of delinquent filers pursuant to
Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
ü
Indicate
by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes
No
Indicate
by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
| Large accelerated filer | Accelerated filer ü | Non-accelerated filer | Smaller reporting company |
(Do not check if a smaller
reporting company)
Indicate
by check mark whether the registrant is a shell company (as
defined in
Rule 12b-2
of the Exchange
Act). Yes
No
ü
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price
at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day
of the registrant’s most recently completed second fiscal
quarter.
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Class of Common Equity and Number of Shares
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held by Non-affiliates at June 30, 2009
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Market Value held by Non-affiliates*
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Common Stock, 45,373,857 shares
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$480,962,884 |
* Based upon the closing sale
price on the New York Stock Exchange Composite Tape for the
Common Stock on June 30, 2009.
INDICATE
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE
REGISTRANT’S CLASSES OF COMMON STOCK, AS OF THE LATEST
PRACTICABLE DATE. Common Stock, par value $.01 per share,
59,459,360 shares outstanding as of February 22, 2010.
Documents Incorporated by
Reference:
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Part of the Form 10-K
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||
|
Document
|
into which incorporated | |
| Portions of Tenneco Inc.’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 12, 2010 | Part III |
Table of Contents
CAUTIONARY
STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Annual Report contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995 concerning, among other things, our prospects and business
strategies. These forward-looking statements are included in
various sections of this report, including the section entitled
“Outlook” appearing in Item 7 of this report. The
words “may,” “will,” “believe,”
“should,” “could,” “plan,”
“expect,” “anticipate,”
“estimate,” and similar expressions (and variations
thereof), identify these forward-looking statements. Although we
believe that the expectations reflected in these forward-looking
statements are based on reasonable assumptions, these
expectations may not prove to be correct. Because these
forward-looking statements are also subject to risks and
uncertainties, actual results may differ materially from the
expectations expressed in the forward-looking statements.
Important factors that could cause actual results to differ
materially from the expectations reflected in the
forward-looking statements include:
| • | general economic, business and market conditions, including without limitation the ongoing financial difficulties facing a number of companies in the automotive industry as a result of the difficult global economic environment, including the potential impact thereof on labor unrest, supply chain disruptions, weakness in demand and the collectability of any accounts receivable due to us from such companies; | |
| • | changes in capital availability or costs, including increases in our cost of borrowing (i.e., interest rate increases), the amount of our debt, our ability to access capital markets at favorable rates, and the credit ratings of our debt; | |
| • | the impact of the recent global economic crisis on the credit markets, which continue to be volatile and more restricted than they were previously; | |
| • | our ability to source and procure needed materials, components and other products and services as the economy recovers from the recent global economic crisis; | |
| • | changes in consumer demand, prices and our ability to have our products included on top selling vehicles, such as the recent shift in consumer preferences from light trucks, which tend to be higher margin products for our customers and us, to other vehicles, and other factors impacting the cyclicality of automotive production and sales of automobiles which include our products, and the potential negative impact on our revenues and margins from such products; | |
| • | changes in automotive manufacturers’ production rates and their actual and forecasted requirements for our products, such as the significant production cuts during 2008 and 2009 by automotive manufacturers in response to difficult economic conditions; | |
| • | the overall highly competitive nature of the automotive parts industry, and our resultant inability to realize the sales represented by our awarded book of business (which is based on anticipated pricing for the applicable program over its life, and is subject to increases or decreases due to changes in customer requirements, customer and consumer preferences, and the number of vehicles actually produced by customers); | |
| • | 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; | |
| • | labor disruptions at our facilities or any labor or other economic disruptions at any of our significant customers or suppliers or any of our customers’ other suppliers (such as the 2008 strike at American Axle, which disrupted our supply of products for significant General Motors platforms); | |
| • | increases in the costs of raw materials, including our ability to successfully reduce the impact of any such cost increases through materials substitutions, cost reduction initiatives, low cost country sourcing, and price recovery efforts with aftermarket and OE customers; | |
| • | the cyclical nature of the global vehicle industry, including the performance of the global aftermarket sector and the longer product lives of automobile parts; |
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Table of Contents
| • | our continued success in cost reduction and cash management programs and our ability to execute restructuring and other cost reduction plans and to realize anticipated benefits from these plans; | |
| • | costs related to product warranties; | |
| • | the impact of consolidation among automotive parts suppliers and customers on our ability to compete; | |
| • | operating hazards associated with our business; | |
| • | changes in distribution channels or competitive conditions in the markets and countries where we operate, including the impact of changes in distribution channels for aftermarket products on our ability to increase or maintain aftermarket sales; | |
| • | the negative impact of higher fuel prices and overall market weakness on discretionary purchases of aftermarket products by consumers; | |
| • | the cost and outcome of existing and any future legal proceedings; | |
| • | economic, exchange rate and political conditions in the foreign countries where we operate or sell our products; | |
| • | customer acceptance of new products; | |
| • | new technologies that reduce the demand for certain of our products or otherwise render them obsolete; | |
| • | our ability to realize our business strategy of improving operating performance; | |
| • | our ability to successfully integrate any acquisitions that we complete; | |
| • | changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies; | |
| • | changes in accounting estimates and assumptions, including changes based on additional information; | |
| • | potential legislation, regulatory changes and other governmental actions, including the ability to receive regulatory approvals and the timing of such approvals; | |
| • | the impact of changes in and compliance with laws and regulations, including environmental laws and regulations, environmental liabilities in excess of the amount reserved, the adoption of the current mandated timelines for worldwide emission regulation and any changes to the timing of the funding requirements for our pension and other postretirement benefit liabilities; | |
| • | decisions by federal, state and local governments to provide (or discontinue) incentive programs related to automobile purchases; | |
| • | the potential impairment in the carrying value of our long-lived assets and goodwill or our deferred tax assets; | |
| • | potential volatility in our effective tax rate; | |
| • | acts of war and/or terrorism, including, but not limited to, the current military action in Iraq and Afghanistan, the current situation in North Korea, and the continuing war on terrorism, as well as actions taken or to be taken by the United States and other governments as a result of further acts or threats of terrorism, and the impact of these acts on economic, financial and social conditions in the countries where we operate; and | |
| • | the timing and occurrence (or non-occurrence) of other transactions, events and circumstances which may be beyond our control. |
The risks included here are not exhaustive. Refer to
“Part I, Item 1A — Risk Factors”
of this report for further discussion regarding our exposure to
risks. Additionally, new risk factors emerge from time to time
and it is not possible for us to predict all such risk factors,
nor to assess the impact such risk factors might have on our
business or the extent to which any factor or combination of
factors may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks
and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
ii
TABLE OF
CONTENTS
iii
Table of Contents
| ITEM 1. | BUSINESS. |
TENNECO
INC.
General
Our company, Tenneco Inc., is one of the world’s largest
producers of automotive emission control and ride control
products and systems. Our company serves both original equipment
vehicle manufacturers (“OEMs”) and the repair and
replacement markets, or aftermarket, worldwide. As used herein,
the term “Tenneco,” “we,” “us,”
“our,” or the “Company” refers to Tenneco
Inc. and its consolidated subsidiaries.
Tenneco was incorporated in Delaware in 1996. In 2005, we
changed our name from Tenneco Automotive Inc. back to Tenneco
Inc. The name Tenneco better represents the expanding number of
markets we serve through our commercial and specialty vehicle
businesses. Building a stronger presence in these markets
complements our core businesses of supplying ride control and
emission control products and systems for light vehicles to
automotive original equipment and aftermarket customers
worldwide. Our common stock is traded on the New York Stock
Exchange under the symbol “TEN.”
Corporate
Governance and Available Information
We have established a comprehensive corporate governance plan
for the purpose of defining responsibilities, setting high
standards of professional and personal conduct and assuring
compliance with such responsibilities and standards. As part of
its annual review process, the Board of Directors monitors
developments in the area of corporate governance. Listed below
are some of the key elements of our corporate governance plan.
For more information about these matters, see our definitive
Proxy Statement for the Annual Meeting of Stockholders to be
held on May 12, 2010.
Independence
of Directors
| • | Eight of our ten directors are independent under the New York Stock Exchange (“NYSE”) listing standards. | |
| • | Independent directors are scheduled to meet separately in executive session after every regularly scheduled Board of Directors meeting. | |
| • | We have a lead independent director, Mr. Paul T. Stecko. |
Audit
Committee
| • | All members meet the independence standards for audit committee membership under the NYSE listing standards and applicable Securities and Exchange Commission (“SEC”) rules. | |
| • | Two members of the Audit Committee, Messrs. Charles Cramb and Dennis Letham, have been designated by the Board as “audit committee financial experts,” as defined in the SEC rules, and the remaining members of the Audit Committee satisfy the NYSE’s financial literacy requirements. | |
| • | The Audit Committee operates under a written charter which governs its duties and responsibilities, including its sole authority to appoint, review, evaluate and replace our independent auditors. | |
| • | The Audit Committee has adopted policies and procedures governing the pre-approval of all audit, audit-related, tax and other services provided by our independent auditors. |
Compensation/Nominating/Governance
Committee
| • | All members meet the independence standards for compensation and nominating committee membership under the NYSE listing standards. |
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| • | The Compensation/Nominating/Governance Committee operates under a written charter that governs its duties and responsibilities, including the responsibility for executive compensation. | |
| • | We have an Executive Compensation Subcommittee which has the responsibility to consider and approve equity based compensation for our executive officers which is intended to qualify as “performance based compensation” under Section 162(m) of the Internal Revenue Code. |
Corporate
Governance Principles
| • | We have adopted Corporate Governance Principles, including qualification and independence standards for directors. |
Stock
Ownership Guidelines
| • | We have adopted Stock Ownership Guidelines to align the interests of our executives with the interests of stockholders and promote our commitment to sound corporate governance. | |
| • | The Stock Ownership Guidelines apply to the independent directors, the Chairman and Chief Executive Officer, all Executive Vice Presidents and all Senior Vice Presidents. |
Communication
with Directors
| • | The Audit Committee has established a process for confidential and anonymous submission by our employees, as well as submissions by other interested parties, regarding questionable accounting or auditing matters. | |
| • | Additionally, the Board of Directors has established a process for stockholders to communicate with the Board of Directors, as a whole, or any independent director. |
Codes of
Business Conduct and Ethics
| • | We have adopted a Code of Ethical Conduct for Financial Managers, which applies to our Chief Executive Officer, Chief Financial Officer, Controller and other key financial managers. This code is filed as Exhibit 14 to this report. | |
| • | We also operate under a Statement of Business Principles that applies to all directors, officers and employees and includes provisions ranging from restrictions on gifts to conflicts of interests. All salaried employees are required to affirm annually in writing their acceptance of, and compliance with, these principles. |
Related
Party Transactions Policy
| • | We have adopted a Policy and Procedure for Transactions With Related Persons, under which our Audit Committee must generally pre-approve transactions involving more than $120,000 with our directors, executive officers, five percent or greater stockholders and their immediate family members. |
Equity
Award Policy
| • | We have adopted a written policy to be followed for all issuances by our company of compensatory awards in the form of our common stock or any derivative of the common stock. |
Personal
Loans to Executive Officers and Directors
| • | We comply with and operate in a manner consistent with the legislation outlawing extensions of credit in the form of a personal loan to or for our directors or executive officers. |
Our Internet address is
www.tenneco.com.
We make our
proxy statements, annual report to stockholders, annual report
on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports, as filed with or furnished to
the SEC, available free of charge on our Internet website as
soon as
2
Table of Contents
reasonably practicable after submission to the SEC. Securities
ownership reports on Forms 3, 4 and 5 are also available
free of charge on our website as soon as reasonably practicable
after submission to the SEC. The contents of our website are
not, however, a part of this report.
Our Audit Committee, Compensation/Nominating/Governance
Committee and Executive Compensation Subcommittee Charters,
Corporate Governance Principles, Stock Ownership Guidelines,
Audit Committee policy regarding accounting complaints, Code of
Ethical Conduct for Financial Managers, Statement of Business
Principles, Policy and Procedures for Transactions with Related
Persons, Equity Award Policy, policy for communicating with the
Board of Directors and Audit Committee policy regarding the
pre-approval of audit, non-audit, tax and other services are
available free of charge on our website at
www.tenneco.com.
In addition, we will make a copy of any of these documents
available to any person, without charge, upon written request to
Tenneco Inc., 500 North Field Drive, Lake Forest, Illinois
60045, Attn: General Counsel. We intend to satisfy the
disclosure requirements under Item 5.05 of
Form 8-K
and applicable NYSE rules regarding amendments to, or waivers
of, our Code of Ethical Conduct for Financial Managers and
Statement of Business Principles by posting this information on
our website at
www.tenneco.com.
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Table of Contents
CONTRIBUTIONS
OF MAJOR BUSINESSES
For information concerning our operating segments, geographic
areas and major products or groups of products, see Note 11
to the consolidated financial statements of Tenneco Inc.
included in Item 8. The following tables summarize for each
of our reporting segments for the periods indicated:
(i) net sales and operating revenues; (ii) earnings
before interest expense, income taxes and noncontrolling
interests (“EBIT”); and (iii) expenditures for
plant, property and equipment. You should also read
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included in
Item 7 for information about certain costs and charges
included in our results.
Net Sales
and Operating Revenues:
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| (Dollar Amounts in Millions) | ||||||||||||||||||||||||
|
North America
|
$ | 2,099 | 45 | % | $ | 2,641 | 45 | % | $ | 2,910 | 47 | % | ||||||||||||
|
Europe, South America and India
|
2,209 | 48 | 2,983 | 50 | 3,135 | 51 | ||||||||||||||||||
|
Asia Pacific
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525 | 11 | 543 | 9 | 560 | 9 | ||||||||||||||||||
|
Intergroup sales
|
(184 | ) | (4 | ) | (251 | ) | (4 | ) | (421 | ) | (7 | ) | ||||||||||||
|
Total
|
$ | 4,649 | 100 | % | $ | 5,916 | 100 | % | $ | 6,184 | 100 | % | ||||||||||||
EBIT:
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| (Dollar Amounts in Millions) | ||||||||||||||||||||||||
|
North America
|
$ | 42 | 45 | % | $ | (107 | ) | NM | $ | 120 | 48 | % | ||||||||||||
|
Europe, South America and India
|
20 | 22 | 85 | NM | 99 | 39 | ||||||||||||||||||
|
Asia Pacific
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30 | 33 | 19 | NM | 33 | 13 | ||||||||||||||||||
|
Total
|
$ | 92 | 100 | % | $ | (3 | ) | $ | 252 | 100 | % | |||||||||||||
Expenditures
for plant, property and equipment:
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| (Dollar Amounts in Millions) | ||||||||||||||||||||||||
|
North America
|
$ | 45 | 38 | % | $ | 108 | 49 | % | $ | 106 | 54 | % | ||||||||||||
|
Europe, South America and India
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58 | 49 | 89 | 40 | 74 | 37 | ||||||||||||||||||
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Asia Pacific
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15 | 13 | 24 | 11 | 18 | 9 | ||||||||||||||||||
|
Total
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$ | 118 | 100 | % | $ | 221 | 100 | % | $ | 198 | 100 | % | ||||||||||||
Interest expense, income taxes, and noncontrolling interests
that were not allocated to our operating segments are:
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
Interest expense (net of interest capitalized)
|
$ | 133 | $ | 113 | $ | 164 | ||||||
|
Income tax expense
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13 | 289 | 83 | |||||||||
|
Noncontrolling interests
|
19 | 10 | 10 | |||||||||
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Table of Contents
DESCRIPTION
OF OUR BUSINESS
We design, manufacture and sell automotive emission control and
ride control systems and products, with 2009 revenues of
$4.6 billion. We serve both original equipment
manufacturers (OEMs) and replacement markets worldwide through
leading brands, including
Monroe
®
,
Rancho
®
,
Clevite
®
Elastomers, and Fric
Rot
tm
ride control products and
Walker
®
,
Fonos
tm
,
and
Gillet
tm
emission control products.
As a parts supplier, we produce individual component parts for
vehicles as well as groups of components that are combined as
modules or systems within vehicles. These parts, modules and
systems are sold globally to most leading OEMs and throughout
all aftermarket distribution channels.
Overview
of Automotive Parts Industry and Adjacent Markets
The automotive parts industry is generally separated into two
categories: (1) “original equipment” or
“OE” in which parts are sold in large quantities
directly for use by OEMs; and (2) “aftermarket”
in which replacement parts are sold in varying quantities to a
wide range of wholesalers, retailers and installers. In the OE
market, parts suppliers are generally divided into
tiers — “Tier 1” suppliers that provide
their products directly to OEMs, and “Tier 2” or
“Tier 3” suppliers that sell their products
principally to other suppliers for combination into the other
suppliers’ own product offerings.
Demand for automotive parts in the OE market is generally a
function of the number of new vehicles produced, which in turn
is a function of prevailing economic conditions and consumer
preferences. In 2009, the number of light vehicles produced was
8.6 million in North America, 24.6 million in Europe,
South America and India and 26.5 million in Asia Pacific.
The term “light vehicles” is comprised of two groups:
(1) passenger cars and (2) light trucks. When we refer
to “light trucks,” we are including sport-utility
vehicles (SUV), crossover vehicles (CUV),
pick-up
trucks, vans and multi-purpose passenger vehicles. Worldwide new
light vehicle production is forecasted to increase to
66.4 million units in 2010 from approximately
59.7 million units in 2009. Although OE demand is tied to
planned vehicle production, parts suppliers also have the
opportunity to grow through increasing their product content per
vehicle, by further expanding business with existing customers
and by serving new customers in existing or new markets.
Companies with global presence and advanced technology,
engineering, manufacturing and support capabilities, such as our
company, are better positioned to take advantage of these
opportunities.
These same competitive advantages have enabled suppliers such as
us to serve customers beyond the light vehicle market. Certain
automotive parts suppliers now find themselves being asked to
develop and produce components and integrated systems for the
commercial market of medium- and heavy-duty trucks, buses, and
non-road equipment as well as the recreational segment for
two-wheelers and all-terrain vehicles. Tenneco foresees this
market diversification as a source of future growth.
Demand for aftermarket products is driven by general economic
conditions, the number of vehicles in operation, the age and
distance driven of the vehicle fleet, and the average useful
life and quality of vehicle parts. Although more vehicles are on
the road than ever before, the aftermarket has experienced
longer replacement cycles due to the improved quality of OE
parts and increases in the average useful life of automotive
parts as a result of technological innovation. In addition, the
difficult global economic climate has negatively impacted
aftermarket sales. Suppliers are increasingly being required to
deliver innovative aftermarket products that upgrade the
performance or safety of a vehicle’s original components to
drive aftermarket demand.
Industry
Trends
Currently, we believe several significant existing and emerging
trends are dramatically impacting the automotive industry and
the other markets we serve. As the dynamics of the markets we
serve change, so do
5
Table of Contents
the roles, responsibilities and relationships of the
participants. Key trends that we believe are affecting parts
suppliers include:
General
Economic Factors and Production Levels
The recent global financial crisis materially and negatively
impacted the automotive industry and our customers’
businesses in the U.S. and elsewhere. Automakers around the
world experienced financial difficulties from a weakened
economy, tightening credit markets, low consumer confidence, and
reduced demand for their products. General Motors and Chrysler
reorganized under bankruptcy protection in 2009, and other OE
manufacturers took actions to improve profitability and remain
solvent. The automotive supply base in turn also faced severe
cash flow problems as a result of the significantly lower
production levels of light vehicles, increased costs of certain
raw material, commodity and energy costs, and restricted access
to additional liquidity through the capital markets. Consumers
facing a weak job market and inadequate financing options were
reluctant to purchase durable goods such as automobiles.
During 2008 and 2009, the North American market in particular
witnessed a shift away from higher-margin light trucks to more
fuel-efficient passenger cars, negatively impacting the sales
and profitability of suppliers such as us. These trends are
still impacting OE manufacturers and their suppliers.
Increasing
Environmental Standards
OE manufacturers and their parts suppliers are designing and
developing products to respond to increasingly stringent
environmental requirements, growth in the diesel markets and
increased demands for better fuel economy. Government
regulations adopted over the past decade require substantial
reductions in vehicle tailpipe emissions, longer warranties on
parts of a vehicle’s pollution control equipment and
additional equipment to control fuel vapor emissions.
Manufacturers are responding with new technologies for gasoline-
and diesel-fueled vehicles that minimize pollution and improve
fuel economy.
As a leading supplier of emission control systems with strong
technical capabilities, we believe we are well positioned to
benefit from the more rigorous environmental standards being
adopted around the world. To meet stricter air quality
regulations, we have developed and sold diesel particulate
filters for the Mercedes Benz Sprinter and BMW 1 and 3 series
passenger cars in Europe and for the GM Duramax engine
applications, the Ford Super Duty, the Dodge Ram and
International Truck and Engine Corporation’s medium-duty
trucks in North America. These particulate filters, coupled with
De-NOx converters, reduce emissions of particulate matter by up
to 90 percent and of nitrogen oxide by up to
85 percent. In addition, we have development and production
contracts for our selective catalytic reduction (SCR) systems
with light and medium-duty truck manufacturers in North America,
Europe and Asia. In China, we have development contracts for
complete turnkey SCR systems, including the
ELIM-NOx
tm
urea dosing technology which we acquired in 2007. Customers have
also purchased prototypes of our hydrocarbon injector, a product
acquired alongside the
ELIM-NOx
tm
technology, which is used to inject hydrocarbon directly into
the exhaust system to regenerate diesel particulate filters and
Lean NOx Traps. Lastly, for various non-road customers, we are
developing emission aftertreatment systems designed to meet
Tier 4 environmental regulations.
Increasing
Technologically Sophisticated Content
As consumers continue to demand vehicles with improved
performance, safety and functionality at competitive prices, the
components and systems in these vehicles become technologically
more advanced and sophisticated. Mechanical functions are
replaced with electronics; and mechanical and electronic devices
are integrated into single systems. More stringent emission and
other regulatory standards increase the complexity of the
systems as well.
To remain competitive as a parts and systems supplier, we invest
in engineering, research and development, spending
$97 million in 2009, $127 million in 2008 and
$114 million in 2007, net of customer reimbursements. In
addition, we build prototypes and incur other costs on behalf of
our customers to further our technological capabilities. Such
expenses reimbursed by our customers totaled $104 million
in 2009,
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$120 million in 2008, and $72 million in 2007. We also
fund and sponsor university research to advance our emission
control and ride control development.
By investing in technology, we can expand our product offerings
and penetrate new markets. We developed diesel particulate
filters (DPFs) which were first sold in Europe and then offered
in North America. We co-developed with Öhlins Racing AB a
computerized electronic suspension system (CES) now offered by
Volvo, Audi, Ford, VW and Mercedes Benz on their vehicles.
Enhanced
Vehicle Safety
Vehicle safety and handling continue to gain increased industry
attention and play a critical role in consumer purchasing
decisions. The U.S. made electronic stability control (ESC)
systems mandatory by 2012 with the adoption of the Federal Motor
Vehicle Safety Standard 126 (FMVSS-126). OEMs, to serve the
needs of their customers and meet government mandates, are
seeking parts suppliers that invest in new technologies,
capabilities and products that advance vehicle safety, such as
roll-over protection systems, smart airbags, braking
electronics, computerized electronic suspension and safer, more
durable materials. Those suppliers able to offer such innovative
products and technologies have a distinct competitive advantage.
Tenneco co-developed CES and offers
Kinetic
®
ride control technology to improve vehicle stability and
handling. We promoted the “Safety Triangle” of
Steering-Stopping-Stability to educate consumers about the
detrimental effect of worn shock absorbers on vehicle steering
and stopping distances. We introduced premium,
Monroe
®
branded brakes to the aftermarket.
Outsourcing
and Demand for Systems and Modules
OEMs have steadily outsourced more of the design and
manufacturing of vehicle parts and systems to simplify the
assembly process, lower costs and reduce development times.
Furthermore, they have demanded fully integrated, functional
systems made possible with the development of advanced
electronics in addition to innovative, individual vehicle
components and parts that may not readily interface together. As
a result, successful parts suppliers offer a variety of
component products individually as well as integrated modules
and systems:
| • | “Modules” are groups of component parts arranged in close physical proximity to each other within a vehicle. Modules are often assembled by the supplier and shipped to the OEM for installation in a vehicle as a unit. Integrated shock and spring units, seats, instrument panels, axles and door panels are examples. | |
| • | “Systems” are groups of component parts located throughout a vehicle which operate together to provide a specific vehicle functionality. Emission control systems, anti-lock braking systems, safety restraint systems, roll control systems and powertrain systems are examples. |
This shift towards fully integrated systems created the role of
the Tier 1 systems integrator, a supplier responsible for
executing a broad array of activities, including design,
development, engineering, and testing of component parts,
systems and modules. With more than a decade of experience as an
established Tier 1 supplier, we have produced modules and
systems for various vehicle platforms produced worldwide,
supplying ride control modules for the GM Chevy Silverado, GM
Sierra and the VW Transporter and emission control systems for
the Ford Super Duty, Toyota Tundra, Chrysler Dodge Ram, Ford
Focus, and the GM Acadia and Enclave. In addition, we continue
to design other modules and systems for platforms yet to be
introduced to the global marketplace.
Global
Reach of OE Customers
Changing market dynamics are driving OE manufacturers and their
parts suppliers to expand their global reach:
| • | Growing Importance of Developing Markets: Because the North American and Western European automotive markets are relatively mature, OEMs are increasingly focusing on developing markets for |
7
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| growth opportunities, particularly Brazil, Russia, India and China, collectively known as the BRIC economies, as well as Thailand. As OEMs have penetrated new regions, growth opportunities for suppliers have emerged. |
| • | Governmental Tariffs and Local Parts Requirements: Many governments around the world require vehicles sold within their country to contain specified percentages of locally produced parts. Additionally, some governments place high tariffs on imported parts. | |
| • | Location of Production Closer to End Markets: As OE manufacturers and parts suppliers have shifted production globally to be closer to their end markets, suppliers have expanded their reach, capturing sales in developing markets and taking advantage of relatively lower labor costs. |
Because of these trends, OE manufacturers are increasingly
seeking suppliers capable of supporting vehicle platforms being
introduced globally. They want suppliers like Tenneco with
design, production, engineering and logistics capabilities that
can be accessed not just in North America and Europe but also in
the developing markets.
Global
Rationalization of OE Vehicle Platforms
OE manufacturers continue to standardize on “global
platforms,” designing basic mechanical structures that are
each suited for a number of similar vehicle models and able to
accommodate different features for more than one region. Light
vehicle platforms of over one million units are expected to grow
from 36 percent to 52 percent of global OE production
from 2009 to 2014.
With such global platforms, OE manufacturers realize significant
economies of scale by limiting variations in items such as
steering columns, brake systems, transmissions, axles, exhaust
systems, support structures and power window and door lock
mechanisms. The shift towards standardization can also benefit
automotive parts suppliers. They can experience greater
economies of scale, lower material costs, and reduced investment
expenses for molds, dies and prototype development.
Extended
Product Life of Automotive Parts
The average useful life of automotive parts, both OE and
replacement, has been steadily increasing in recent years due to
technological innovations. As a result, although there are more
vehicles on the road than ever before, the global aftermarket
has not kept pace with that growth. Accordingly, aftermarket
suppliers have focused on reducing costs and providing product
differentiation through advanced technology and recognized brand
names. With our long history of technological innovation, brand
awareness and operational effectiveness, we believe we are well
positioned to leverage our products and technology.
Changing
Aftermarket Distribution Channels
From 1999 to 2009, the number of retail outlets supplying
aftermarket parts increased significantly while the number of
jobber stores declined 14 percent in the U.S. Major
aftermarket retailers, such as AutoZone and Advance Auto Parts,
attempted to expand their commercial sales by selling directly
to parts installers, which had historically purchased from their
local warehouse distributors and jobbers, as they continued to
market to individual retail consumers. Retailers now have the
option to offer premium brands which are often preferred by
their commercial customers in addition to standard products
which are often selected by their individual store buyers. We
believe we are well positioned to respond to this trend because
we continue to produce high-quality, premium brands and products.
Contracting
Supplier Base
Over the past few years, as OEMs expanded geographically,
pricing pressures grew and outsourcing increased, parts
suppliers fought to remain competitive through consolidation,
investing or restructuring to broaden their global reach,
offering integrated products and services and gaining economies
of scale. The recent economic crisis only exacerbated this
situation with 340 suppliers worldwide filing for insolvency in
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2009. We believe that a supplier’s viability in this
marketplace will depend, in part, on its ability to maintain and
increase operating efficiencies and provide value-added services.
Analysis
of Revenues
The table below provides, for each of the years 2007 through
2009, information relating to our net sales and operating
revenues, by primary product lines and customer categories.
|
Net Sales
|
||||||||||||
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
Emission Control Systems & Products
|
||||||||||||
|
Aftermarket
|
$ | 315 | $ | 358 | $ | 370 | ||||||
|
Original Equipment
|
||||||||||||
|
OE Value-add
|
1,638 | 2,128 | 2,288 | |||||||||
|
OE Substrate(1)
|
966 | 1,492 | 1,673 | |||||||||
| 2,604 | 3,620 | 3,961 | ||||||||||
| 2,919 | 3,978 | 4,331 | ||||||||||
|
Ride Control Systems & Products
|
||||||||||||
|
Aftermarket
|
721 | 761 | 734 | |||||||||
|
Original Equipment
|
1,009 | 1,177 | 1,119 | |||||||||
| 1,730 | 1,938 | 1,853 | ||||||||||
|
Total Revenues
|
$ | 4,649 | $ | 5,916 | $ | 6,184 | ||||||
| (1) | See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 for a discussion of substrate sales. |
Brands
In each of our operating segments, we manufacture and market
products with leading brand names.
Monroe
®
ride control products and
Walker
®
exhaust products are two of the most recognized brands in the
industry. We emphasize product value differentiation with brands
such as Monroe
Sensa-Trac
®
and
Reflex
®
(shock absorbers and struts),
Quiet-Flow
®
(mufflers),
DynoMax
®
(performance exhaust products),
Rancho
®
(ride control products for the high performance light truck
market),
Clevite
®
Elastomers (elastomeric vibration control components),
Marzocchi
tm
(forks and suspensions for the two-wheeler market) and Lukey
(performance exhaust and filters). In Europe, our
Gillet
tm
brand is recognized as a leader in highly engineered exhaust
systems for OE customers.
Customers
We have developed long-standing business relationships with our
customers around the world. In each of our operating segments,
we work together with our customers in all stages of production,
including design, development, component sourcing, quality
assurance, manufacturing and delivery. With a diverse mix of OE
and aftermarket products and facilities in major markets
worldwide, we believe we are well positioned to meet customer
needs. We believe we have a strong, established reputation with
customers for providing high-quality products at competitive
prices, as well as for timely delivery and customer service.
9
Table of Contents
Worldwide we serve more than 65 different OEMs, and our products
or systems are included on six of the top 10 passenger
models produced in Europe and eight of the top 10 light truck
models produced in North America for 2009. During 2009, our
OEM customers included:
| North America | Europe | Asia | ||
|
AM General
Caterpillar Chrysler Club Car Daimler AG Fiat Ford Motor General Motors Harley-Davidson Honda Motor John Deere Navistar International Nissan Motor Oshkosh Truck Paccar Toyota Motor Volkswagen Group Volvo Global Truck Australia Club Car Fiat Ford Motor General Motors Mazda Motor Toyota Motor |
BMW
Daimler AG Fiat Ford Motor General Motors Harley-Davidson Mazda Motor Nissan Motor Paccar Porsche PSA Peugeot Citroen Renault Suzuki Tata Motors Toyota Motor Volkswagen Group Volvo Global Truck South America Daimler AG Fiat Ford Motor General Motors Navistar International Nissan Motor PSA Peugeot Citroen Renault Toyota Motor Volkswagen Group |
BMW
Brilliance Automobile Changan Automotive Dongfeng Motor First Auto Works Ford Motor General Motors Great Wall Motor Co. Isuzu Motors Jiangling Motors Mazda Motor Nissan Motor PSA Peugeot Citroen SAIC Motor Corp. Toyota Motor Volkswagen Group India Club Car General Motors Mahindra & Mahindra Suzuki Tata Motors TVS Motors |
The following customers accounted for 10 percent or more of
our net sales in any of the last three years.
|
Customer
|
2009 | 2008 | 2007 | |||||||||
|
General Motors
|
16 | % | 20 | % | 20 | % | ||||||
|
Ford
|
14 | % | 11 | % | 13 | % | ||||||
During 2009, our aftermarket customers were comprised of
full-line and specialty warehouse distributors, retailers,
jobbers, installer chains and car dealers. These customers
included National Auto Parts Association (NAPA), Advance Auto
Parts, Uni-Select, Pep Boys and O’Reilly Automotive in
North America and Temot, Auto Distribution International, Group
Auto Union, Kwik-Fit and Mekonomen Grossist in Europe. We
believe our revenue mix is balanced, with our top 10 aftermarket
customers accounting for 45 percent of our net aftermarket
sales and our aftermarket sales representing 22 percent of
our total net sales in 2009.
Competition
We operate in highly competitive markets. Customer loyalty is a
key element of competition in these markets and is developed
through long-standing relationships, customer service, high
quality value-added products and timely delivery. Product
pricing and services provided are other important competitive
factors.
In both the OE market and aftermarket, we compete with the
vehicle manufacturers, some of which are also customers of ours,
and numerous independent suppliers. In the OE market, we believe
that we rank among the top two suppliers in the world for both
emission control and ride control products and systems for
10
Table of Contents
light vehicles. In the aftermarket, we believe that we are the
market share leader in the supply of both emission control and
ride control products for light vehicles in the markets we serve
throughout the world.
Seasonality
Our OE and aftermarket businesses are somewhat seasonal. OE
production is historically higher in the first half of the year
compared to the second half. It decreases in the third quarter
due to OE plant shutdowns; and softens in the fourth quarter due
to reduced consumer demand for new vehicles during the holiday
season and the winter months in North America and Europe
generally. Our aftermarket operations, also affected by
seasonality, experience relatively higher demand during the
Spring as vehicle owners prepare for the Summer driving season.
While seasonality does impact our business, actual results may
vary from the above trends due to global and local economic
dynamics as well as industry-specific platform launches and
other production-related events. For instance, in 2008 and 2009,
seasonal OE plant closures were longer and more pronounced than
normal due to the global recession.
Traditionally, during recessions, OE sales decline due to
reduced consumer demand for automobiles and other capital goods.
Aftermarket sales do not see the same impact as consumers forego
new vehicle purchases and keep their vehicles longer, choosing
to spend instead on repair and maintenance services. By
participating in both the OE and aftermarket segments, we
generally see a smaller revenue decline than the overall change
in OE production.
Emission
Control Systems
Vehicle emission control products and systems play a critical
role in safely conveying noxious exhaust gases away from the
passenger compartment and reducing the level of pollutants and
engine exhaust noise emitted to acceptable levels. Precise
engineering of the exhaust system — extending from the
manifold that connects an engine’s exhaust ports to an
exhaust pipe, to the catalytic converter that eliminates
pollutants from the exhaust, and to the muffler that modulates
noise and emissions — leads to a pleasant, tuned
engine sound, reduced pollutants and optimized engine
performance.
We design, manufacture and distribute a variety of products and
systems designed to reduce pollution and optimize engine
performance, acoustic tuning and weight, including the following:
| • | Catalytic converters and diesel oxidation catalysts — Devices consisting of a substrate coated with precious metals enclosed in a steel casing used to reduce harmful gaseous emissions, such as carbon monoxide; | |
| • | Diesel Particulate Filters (DPFs) — Devices to eliminate particulate matter emitted from diesel engines; | |
| • | Burner systems — Devices which actively combust fuel and air inside the exhaust system to create extra heat for DPF regeneration, or for improved efficiency of SCR systems; | |
| • | Hydrocarbon vaporizers and injectors — Devices to add fuel to a diesel exhaust system in order to regenerate diesel particulate filters or Lean NOx traps; | |
| • | Lean NOx traps — Devices which reduce Nitrogen Oxide (NOx) emissions from diesel powertrains using capture and store technology; | |
| • | Selective Catalytic Reduction (SCR) systems — Devices which reduce NOx emissions from diesel powertrains using injected reductants such as AdBLue tm or Diesel Exhaust Fuel (DEF); | |
| • | Mufflers and resonators — Devices to provide noise elimination and acoustic tuning; | |
| • | Exhaust manifolds — Components that collect gases from individual cylinders of a vehicle’s engine and direct them into a single exhaust pipe; |
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| • | Pipes — Utilized to connect various parts of both the hot and cold ends of an exhaust system; | |
| • | Hydroformed assemblies — Forms in various geometric shapes, such as Y-pipes or T-pipes, which provide optimization in both design and installation as compared to conventional pipes; and | |
| • | Hangers and isolators — Used for system installation and elimination of noise and vibration. |
For the catalytic converters we sell, we either buy completed
catalytic converters systems themselves or procure substrates
coated with precious metals which we incorporate into entire
systems. We obtain from third parties or directly from OE
manufacturers these components and systems, often at the
OEM’s discretion. See Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” for more information on our sales of these
products.
We entered the emission control market in 1967 with the
acquisition of Walker Manufacturing Company, which was founded
in 1888, and became one of Europe’s leading OE emission
control systems suppliers with the acquisition of Heinrich
Gillet GmbH & Co. in 1994. Throughout this document,
the term “Walker” refers to our subsidiaries and
affiliates that produce emission control products and systems.
We supply our emission control offerings to 40 vehicle makers
for use on over 200 vehicle models, including five of the top
10 passenger cars produced in Europe and six of the top 10
light truck models produced in North America for 2009. We also
delivered emission control products to heavy-duty truck and
specialty vehicle manufacturers including Harley-Davidson, BMW
Motorcycle, Daimler Trucks, and International Truck and Engine
Corporation (Navistar).
In the aftermarket, we manufacture, market and distribute
replacement mufflers for virtually all North American, European,
and Asian makes of light vehicles under brand names including
Quiet-Flow
®
,
TruFit
®
and Aluminox
Pro
tm
,
in addition to offering a variety of other related products such
as pipes and catalytic converters (Walker
Perfection
®
).
We also serve the specialty exhaust aftermarket with offerings
that include
Mega-Flow
tm
exhaust products for heavy-duty vehicle applications and
DynoMax
®
high performance exhaust products. We continue to emphasize
product-value differentiation with other aftermarket brands such
as
Thrush
®
and
Fonos
tm
.
The following table provides, for each of the years 2007 through
2009, information relating to our sales of emission control
products and systems for certain geographic areas:
|
Percentage of Net Sales
|
||||||||||||
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
United States
|
||||||||||||
|
Aftermarket
|
17 | % | 12 | % | 10 | % | ||||||
|
OE market
|
83 | 88 | 90 | |||||||||
| 100 | % | 100 | % | 100 | % | |||||||
|
Foreign Sales
|
||||||||||||
|
Aftermarket
|
8 | % | 8 | % | 8 | % | ||||||
|
OE market
|
92 | 92 | 92 | |||||||||
| 100 | % | 100 | % | 100 | % | |||||||
|
Total Sales by Geographic Area
|
||||||||||||
|
United States
|
31 | % | 32 | % | 34 | % | ||||||
|
Foreign
|
69 | 68 | 66 | |||||||||
| 100 | % | 100 | % | 100 | % | |||||||
Ride
Control Systems
Superior ride control is governed by a vehicle’s suspension
system, including its shock absorbers and struts. Shock
absorbers and struts serve to maintain the vertical loads placed
on the vehicle’s tires and thus, help keep the tires in
contact with the road. A vehicle’s ability to steer, brake,
accelerate and operate safely
12
Table of Contents
depends on the contact between the vehicle’s tires and the
road. Worn shocks and struts can allow excess transfer of the
vehicle’s weight — either from side to side which
is called “roll;” from front to rear which is called
“pitch;” or up and down, which is called
“bounce.” Shock absorbers are designed to control the
vertical loads placed on tires and thereby provide resistance to
vehicle roll, pitch and bounce. They not only function as safety
components but also provide a comfortable ride.
We design, manufacture and distribute a variety of ride control
products and systems. Our ride control offerings include:
| • | Shock absorbers — A broad range of mechanical shock absorbers and related components for light- and heavy-duty vehicles, including twin-tube and monotube shock absorbers; | |
| • | Struts — A complete line of struts and strut assemblies for light vehicles; | |
| • | Vibration control components (Clevite ® Elastomers) — Generally, rubber-to-metal bushings and mountings to reduce vibration between metal parts of a vehicle. Offerings include a broad range of suspension arms, rods and links for light- and heavy-duty vehicles; | |
| • | Kinetic ® Suspension Technology — A suite of roll-control and nearly equal wheel-loading systems ranging from simple mechanical systems to complex hydraulic ones featuring proprietary and patented technology. The Kinetic ® Suspension Technology was incorporated on the Citroën World Rally Car that was featured in the World Rally Championship 2003, 2004 and 2005. Additionally, the Kinetic ® Suspension Technology was offered on the Lexus GX 470 sport utility vehicle which resulted in our winning the PACE Award; | |
| • | Advanced suspension systems — Shock absorbers and suspension systems that electronically adjust a vehicle’s performance based on inputs such as steering and braking; and | |
| • | Other — We also offer other ride control products such as load assist products, springs, steering stabilizers, adjustable suspension systems, suspension kits and modular assemblies. |
We supply our ride control offerings to over 65 vehicle-makers
for use on over 210 vehicle models, including three of the top
10 passenger cars produced in Europe and 7 of the top 10
light truck models produced in North America for 2009. We also
supply OE ride control products and systems to a range of
heavy-duty and specialty vehicle manufacturers including Volvo
Truck, Scania, International Truck and Engine Corporation
(Navistar), and PACCAR.
In the ride control aftermarket, we manufacture, market and
distribute replacement shock absorbers for virtually all North
American, European and Asian makes of light vehicles under
several brand names including Gas
Matic
®
,
Sensa-Trac
®
,
Monroe
Reflex
®
and Monroe
Adventure
®
,
as well as
Clevite
®
Elastomers for elastomeric vibration control components. We also
sell ride control offerings for the heavy-duty, off-road and
specialty aftermarket, such as our
Gas-Magnum
®
shock absorbers for the North American heavy-duty category and
Marzocchi front forks for two wheelers.
We entered the ride control product line in 1977 with the
acquisition of Monroe Auto Equipment Company, which was founded
in 1916, and introduced the world’s first modern tubular
shock absorber in 1930. When the term “Monroe” is used
in this document it refers to our subsidiaries and affiliates
that produce ride control products and systems.
13
Table of Contents
The following table provides, for each of the years 2007 through
2009, information relating to our sales of ride control
equipment for certain geographic areas:
|
Percentage of Net Sales
|
||||||||||||
|
Year Ended
|
||||||||||||
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
United States
|
||||||||||||
|
Aftermarket
|
60 | % | 53 | % | 58 | % | ||||||
|
OE market
|
40 | 47 | 42 | |||||||||
| 100 | % | 100 | % | 100 | % | |||||||
|
Foreign Sales
|
||||||||||||
|
Aftermarket
|
32 | % | 32 | % | 31 | % | ||||||
|
OE market
|
68 | 68 | 69 | |||||||||
| 100 | % | 100 | % | 100 | % | |||||||
|
Total Sales by Geographic Area
|
||||||||||||
|
United States
|
36 | % | 34 | % | 32 | % | ||||||
|
Foreign
|
64 | 66 | 68 | |||||||||
| 100 | % | 100 | % | 100 | % | |||||||
Financial
Information About Geographic Areas
Refer to Note 11 of the consolidated financial statements
of Tenneco Inc. included in Item 8 of this report for
financial information about geographic areas.
Sales,
Marketing and Distribution
We have separate and distinct sales and marketing efforts for
our OE and aftermarket businesses.
For OE sales, our sales and marketing team is an integrated
group of professionals, including skilled engineers and program
managers, who are organized by customer and product type (e.g.,
ride control and emission control). Our sales and marketing team
provides the appropriate mix of operational and technical
expertise needed to interface successfully with the OEMs. Our
new business “capture process” involves working
closely with the OEM platform engineering and purchasing teams.
Bidding on OE automotive platforms typically encompasses many
months of engineering and business development activity.
Throughout the process, our sales team, program managers and
product engineers assist the OE customer in defining the
project’s technical and business requirements. A normal
part of the process includes our engineering and sales personnel
working on customers’ integrated product teams, and
assisting with the development of component/system
specifications and test procedures. Given that the OE business
involves long-term production contracts awarded on a
platform-by-platform
basis, our strategy is to leverage our engineering expertise and
strong customer relationships to obtain platform awards and
increase operating margins.
For aftermarket sales and marketing, our sales force is
generally organized by customer and region and covers multiple
product lines. We sell aftermarket products through four primary
channels of distribution: (1) the traditional three-step
distribution system of full-line warehouse distributors, jobbers
and installers; (2) the specialty two-step distribution
system of specialty warehouse distributors that carry only
specified automotive product groups and installers;
(3) direct sales to retailers; and (4) direct sales to
installer chains. Our aftermarket sales and marketing
representatives cover all levels of the distribution channel,
stimulating interest in our products and helping our products
move through the distribution system. Also, to generate demand
for our products from end-users, we run print and television
advertisements and offer pricing promotions. We were one of the
first parts manufacturers to offer
business-to-business
services to customers
14
Table of Contents
with TA-Direct, an on-line order entry and customer service
tool. In addition, we maintain detailed web sites for each of
Walker
®
,
Monroe
®
,
Rancho
®
,
DynoMax
®
,
Monroe brake brands and our heavy-duty products.
Manufacturing
and Engineering
We focus on achieving superior product quality at the lowest
operating costs possible and generally use
state-of-the-art
manufacturing processes to achieve that goal. Our manufacturing
strategy centers on a lean production system designed to reduce
overall costs, while maintaining quality standards and reducing
manufacturing cycle time. In addition, we have implemented Six
Sigma in our processes to minimize product defects and improve
operational efficiencies. We deploy new technology to
differentiate our products from our competitors’ and to
achieve higher quality and productivity. We continue to adapt
our capacity to customer demand, both expanding capabilities in
growth areas as well as reallocating capacity away from demand
segments in decline.
Emission
Control
Our consolidated businesses operate 11 emission control
manufacturing facilities in the U.S. and 43 emission
control manufacturing facilities outside of the U.S. We
operate 14 of these international manufacturing facilities
through joint ventures in which we hold a controlling interest.
We operate five emission control engineering and technical
facilities worldwide and share two other such facilities with
our ride control operations. In addition, three joint ventures
in which we hold a noncontrolling interest operate a total of
three manufacturing facilities outside the U.S.
Within each of our emission control manufacturing facilities,
operations are organized by component (e.g., muffler, catalytic
converter, pipe, resonator and manifold). Our manufacturing
systems incorporate cell-based designs, allowing
work-in-process
to move through the operation with greater speed and
flexibility. We continue to invest in plant and equipment to
stay competitive in the industry. For instance, in our
Smithville, Tennessee, OE manufacturing facility, we have
developed a muffler assembly cell that utilizes laser welding.
This allows for quicker change-over times in the process as well
as less material used and less weight for the product. There is
also a reduced cycle time compared to traditional joining and
increased manufacturing precision for superior durability and
performance. In 2007, we introduced the Measured and Matched
Converter technique in North America. This allows us to maintain
the optimum GBD (Gap Bulk Density) in our converter
manufacturing operations with Tenneco proprietary processing.
This process, coupled with cold spinning of the converter body,
versus traditional cone to can welding, allows for more
effective use of material through reduced welding, lower cost,
and better performance of the product.
To strengthen our position as a Tier-1 OE systems supplier, we
have developed some of our emission control manufacturing
operations into
“just-in-time”
or “JIT” systems. In this system, a JIT facility
located close to our OE customer’s manufacturing plant
receives product components from both our manufacturing
operations and independent suppliers, and then assembles and
ships products to the OEMs on an as-needed basis. To manage the
JIT functions and material flow, we have advanced computerized
material requirements planning systems linked with our
customers’ and supplier partners’ resource management
systems. We have three emission control JIT assembly facilities
in the United States and 23 throughout the rest of the world.
Our engineering capabilities include advanced predictive design
tools, advanced prototyping processes and
state-of-the-art
testing equipment. These technological capabilities make us a
“full system” integrator to the OEMs, supplying
complete emission control systems from the manifold to the
tailpipe, to provide full emission and noise control. We have
expanded our engineering capabilities with the acquisition of
Combustion Component Associates’s
ELIM-NOx
tm
mobile emission technology that includes urea and hydrocarbon
injection, and electronic controls and software for selective
catalytic reduction. We have also developed advanced predictive
engineering tools, including KBM&E (Knowledge Based
Manufacturing & Engineering). The innovation of our
KBM&E (which we call TEN-KBM&E) is a modular toolbox
set of CAD embedded applications for manufacturing and
engineering compliant design. The encapsulated TEN-KBM&E
content is driven by an analytical method which continuously
captures and updates the knowledge of our main manufacturing and
engineering processes.
15
Table of Contents
Ride
Control
Our consolidated businesses operate seven ride control
manufacturing facilities in the U.S. and 23 ride control
manufacturing facilities outside the U.S. We operate two of
these international facilities through joint ventures in which
we hold a controlling interest. We operate seven engineering and
technical facilities worldwide and share two other such
facilities with our emission control operations.
Within each of our ride control manufacturing facilities,
operations are organized by product (e.g., shocks, struts and
vibration control products) and include computer numerically
controlled and conventional machine centers; tube milling and
drawn-over-mandrel
manufacturing equipment; metal inert gas and resistance welding;
powdered metal pressing and sintering; chrome plating; stamping;
and assembly/test capabilities. Our manufacturing systems
incorporate cell-based designs, allowing
work-in-process
to move through the operation with greater speed and flexibility.
To strengthen our position as a Tier 1 OE module supplier,
we have developed some of our manufacturing operations into JIT
systems. We have three JIT ride control facilities outside the
U.S.
In designing our shock absorbers and struts, we use advanced
engineering and test capabilities to provide product
reliability, endurance and performance. Our engineering
capabilities feature advanced computer-aided design equipment
and testing facilities. Our dedication to innovative solutions
has led to such technological advances as:
| • | Adaptive damping systems — adapt to the vehicle’s motion to better control undesirable vehicle motions; | |
| • | Electronically adjustable suspensions — change suspension performance based on a variety of inputs such as steering, braking, vehicle height, and velocity; and | |
| • | Air leveling systems — manually or automatically adjust the height of the vehicle. |
Conventional shock absorbers and struts generally compromise
either ride comfort or vehicle control. Our innovative
grooved-tube, gas-charged shock absorbers and struts provide
both ride comfort and vehicle control, resulting in improved
handling, reduced vibration and a wider range of vehicle
control. This technology can be found in our premium quality
Sensa-Trac
®
shock absorbers. We further enhanced this technology by adding
the
SafeTech
tm
fluon banded piston, which improves shock absorber performance
and durability. We introduced the Monroe
Reflex
®
shock absorber, which incorporates our Impact
Sensor
tm
device. This technology permits the shock absorber to
automatically switch in milliseconds between firm and soft
compression damping when the vehicle encounters rough road
conditions, thus maintaining better
tire-to-road
contact and improving handling and safety. We have also
developed an innovative computerized electronic suspension
system, which features dampers developed by Tenneco and
electronic valves designed by öhlins Racing AB. The
continuously controlled electronic suspension (“CES”)
ride control system is featured on Audi, Volvo, Ford, VW and
Mercedes Benz vehicles.
Quality
Control
Quality control is an important part of our production process.
Our quality engineers establish performance and reliability
standards in the product’s design stage, and use prototypes
to confirm that the component/system can be manufactured to
specifications. Quality control is also integrated into the
manufacturing process, with shop operators being responsible for
quality control of their specific work product. In addition, our
inspectors test
work-in-progress
at various stages to ensure components are being fabricated to
meet customers’ requirements.
We believe our commitment to quality control and sound
management practices and policies is demonstrated by our
successful participation in the International Standards
Organization/Technical Specifications certification process
(“ISO/TS”). ISO/TS certifications are semi-annual or
annual audits that certify that a company’s facilities meet
stringent quality and business systems requirements. Without ISO
or TS certification, we would not be able to supply our products
for the aftermarket or the OE market, respectively, either
locally or globally. All of our manufacturing facilities where
we have determined that TS certification is required to
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serve our customers or would provide us with an advantage in
securing additional business, have achieved ISO/TS 16949
certification.
Business
Strategy
We strive to strengthen our global market position by designing,
manufacturing, delivering and marketing technologically
innovative emission control and ride control products and
systems for OEMs and the aftermarket. We work toward achieving a
balanced mix of products, markets and customers by capitalizing
on emerging trends, specific regional preferences and changing
customer requirements. We target both mature and developing
markets for not just light vehicles, but also for commercial and
specialty vehicles. We further enhance our operations by
focusing on operational excellence in all functional areas.
The key components of our business strategy are described below:
Develop
and Commercialize Advanced Technologies
We develop and commercialize technologies that allow us to
expand into new, fast-growing markets and serve our existing
customers. By anticipating customer needs and preferences, we
design advanced technologies that meet global market needs. For
example, to meet the increasingly stringent emissions
regulations being introduced around the world, we offer an
integrated Selective Catalytic Reduction (SCR) system that
incorporates our
ELIM-NOx
tm
technology.
We expect available content per vehicle to continue to rise over
the next several years. Advanced aftertreatment exhaust systems
will be required to comply with emissions regulations that
affect light and commercial vehicles as well as locomotive and
stationary engines. In addition, vehicle manufacturers, we
believe, will offer greater comfort, handling and safety
features by offering products such as electronic suspension and
adjustable dampers. Our Continuously Controlled Electronic
Suspension (CES) shock absorbers are now sold to Volvo, Audi,
Mercedes, VW, and Ford, among others, and our engineered
elastomers to manufacturers with unique requirements.
We continue to focus on developing highly engineered systems and
complex assemblies and modules designed to provide value-added
solutions to customers and increase vehicle content generally.
Having many of our engineering and manufacturing facilities
integrated electronically, we believe, has helped our products
continue to be selected for inclusion in top-selling vehicles.
In addition, our
just-in-time
and in-line sequencing manufacturing processes and distribution
capabilities have enabled us to be more responsive to our
customers’ needs.
Penetrate
Adjacent Markets
We seek to penetrate a variety of adjacent markets and achieve
growth in higher-margin businesses by applying our existing
design, engineering and manufacturing capabilities. For example,
we are aggressively leveraging our technology and engineering
leadership in emission and ride control into adjacent markets
such as the heavy-duty market for trucks, buses, agricultural
equipment, construction machinery and other commercial vehicles.
We have expanded our presence into the global market for
off-road equipment by our newly formed relationship with
Caterpillar as their global diesel emission control system
integration supplier. We have added the ride control products
and technologies of Gruppo Marzocchi to our existing exhaust
systems for two-wheelers obtained from the Gabilan Manufacturing
acquisition. In addition, we are evaluating and selectively
pursuing retrofit opportunities which will allow us to penetrate
new markets or expand our products in existing markets.
Expand
in Developing Economies
We continue to adjust our global footprint to follow our
customers into growth regions around the world and capture our
fair share of new business. Recently, we opened a wholly-owned
elastomer manufacturing facility in Suzhou, China; built and
expanded several facilities in India; opened a second emissions
control facility in St. Petersburg, Russia; and opened a new
manufacturing plant in Korea. As OEMs have entered the
fast-growing economies of Brazil, Russia, India, China, and
Thailand, we have followed, building our capabilities to
engineer and produce locally cost-competitive and cutting-edge
products and capturing new business.
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Maintain
Our Aftermarket Leadership
We manufacture and market leading, brand-name products to a
diversified and global aftermarket customer base. Two of the
most recognized brand-name products in the automotive parts
industry are our
Monroe
®
ride control products and
Walker
®
emission control products, which have been offered to consumers
since the 1930s. We believe our brand equity in the aftermarket
is a key asset especially as customers consolidate and channels
of distribution converge.
We provide value differentiation by creating product extensions
bearing our various brands. For example, we offer Monroe
Reflex
®
and Monroe
Sensa-Trac
®
shock absorbers, Walker
Quiet-Flow
®
mufflers,
Rancho
®
ride control products,
DynoMax
®
exhaust products and Walker
Ultra
®
catalytic converters, and in European markets, Walker and
Aluminox
Pro
tm
mufflers. Further, we introduced Monroe
Springs
tm
and Monroe
Magnum
tm
(bus and truck shock line) in Europe and in 2006 Monroe
Dynamics
®
and Monroe
Ceramics
®
brake pads in the United States. We continue to explore other
opportunities for developing new product lines that bear our
existing, well-known brands.
We strive to gain market share in the aftermarket business by
adding new product offerings and increasing our market coverage
of existing brands and products. To this end, we now offer an
innovative, ride control product, the
Quick-Strut
®
,
that combines the spring and the upper mount into a single,
complete module and simplifies and shortens the installation
process, eliminating the need for the special tools and skills
required previously. We plan on adapting our products further
for use in Japanese and Korean vehicles. We benefited from the
consolidation of, and regional expansion by, our customers and
gained business lost by competitors that encountered financial
difficulties.
Our success in the aftermarket business strengthens our
competitive position with OEMs. We gain timely market and
product knowledge that can be used to modify and enhance our
original equipment offerings for greater customer acceptance.
Execute
Focused Transactions
In the past , we have successfully identified and capitalized on
strategic acquisitions and alliances to achieve growth. Through
these acquisitions and alliances, we have (1) expanded our
product portfolio with complementary technologies;
(2) realized incremental business from existing customers;
(3) gained access to new customers; and (4) achieved
leadership positions in geographic markets outside North America.
We developed a strategic alliance with Futaba, a leading exhaust
manufacturer in Japan. We also created an alliance with Hitachi
(as successor to Tokico Ltd. following its acquisition of
Tokico), a leading Japanese ride control manufacturer. These
alliances help us grow our business with Japan-based OEMs by
leveraging the geographical reach of each partner to serve
global vehicle platforms of these OEMs.
We positioned ourselves as a leading exhaust supplier in the
rapidly growing Chinese market through majority-owned joint
venture operations in Dalian and Shanghai. In June of 2009, we
formed a joint venture with Beijing Hainachuan Automotive Parts
Company Limited in Beijing that will produce emission-control
exhaust systems for Hyundai. In addition, we continue to serve
North American and European OEMs located in China; we supply
luxury cars produced by BMW and Audi through our joint venture
with Eberspächer International GmbH, and we supply various
Ford platforms through our joint venture with Chengdu Lingchuan
Mechanical Plant. We established a local engineering center in
Shanghai to develop automotive exhaust products when our joint
venture with Shanghai Tractor and Engine Company, a subsidiary
of Shanghai Automotive Industry Corp., was expanded. Also, we
increased our stake from 60 percent to 80 percent in
Tenneco Tongtai Exhaust Company Limited located in Dalian in
January 2010.
In September 2007, we bought the mobile emissions business of
Combustion Components Associates, Inc., a manufacturer of air
pollution control technologies. The acquisition augmented
Tenneco’s system integration capabilities and offerings
related to Selective Catalyst Reduction (SCR) technologies
designed to meet future, more stringent diesel emissions
regulations for passenger cars, trucks, and other vehicles.
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In May 2008, we acquired from Delphi Automotive System LLC
certain ride control assets at Delphi’s Kettering, Ohio
facility to allow us to grow our OE ride control business
globally. This acquisition allowed us to diversify our ride
control business in North America and elsewhere.
In September 2008, we purchased the suspension business of
Gruppo Marzocchi, an Italy-based worldwide supplier of
suspension technology for the two-wheeler market. This
acquisition helped to expand our business beyond light vehicles
and brings us strong brands, leading products and advanced
technology capabilities.
In February 2009, we signed a joint development agreement with
GE Transportation, a unit of General Electric Company, to
develop a proprietary SCR and aftertreatment technology designed
to reduce and control diesel engine emissions for various
transportation and other applications. We are collaborating with
GE Transportation on the development and production of GE’s
Hydrocarbon-Selective Catalytic Reduction catalyst technology
(HC-SCR), a diesel aftertreatment innovation aimed at reducing
harmful nitrogen oxide (NOx) emissions as effectively as
urea-based SCR systems. We are working with others on
alternative urea SCR technologies, such as solid SCR.
We signed exclusive licensing agreements for T.R.U.E.
Clean
tm
,
an exhaust aftertreatment technology used for automatic and
active regeneration of Diesel Particulate Filters (DPFs), with
Woodward Governor Company and for vaporizer technologies with
another company. These technologies, which complement our array
of existing emissions control products, allow us to provide
integrated exhaust aftertreatment systems to commercial vehicle
manufacturers and others.
We intend to continue to pursue strategic alliances, joint
ventures, acquisitions and other transactions that complement or
enhance our existing products, technology, systems development
efforts, customer base
and/or
global presence. We will align with companies that have proven
products, proprietary technology, advanced research
capabilities, broad geographic reach,
and/or
strong market positions to further strengthen our product
leadership, technological edge, international reach and customer
relationships.
Adapt
Cost Structure to Economic Realities
We aggressively respond to difficult economic environments,
aligning our operations to any resulting reductions in
production levels and replacement demand and executing
comprehensive restructuring and cost-reduction initiatives. In
the fourth quarter of 2008, we launched a global restructuring
program that is generating annual savings of about
$58 million since fully implemented at the end of 2009. The
restructuring program included actions to permanently reduce our
fixed cost base and flex our costs, such as:
| • | Permanently eliminating 1,100 jobs worldwide, which is in addition to 1,150 jobs previously eliminated in 2008; | |
| • | Closing three North American manufacturing plants and an engineering facility in Australia; | |
| • | Suspending matching contributions to employee 401(k) programs (which we reinstituted in 2010); and | |
| • | Cutting spending on information technology, sales and marketing programs. |
During 2009, we further flexed our operations to address the
market conditions, implementing temporary layoffs of hourly
workers at our plants worldwide that are impacted by
customers’ plant shutdowns. We announced the closing of
another manufacturing facility. In North America, where customer
production cuts were the greatest, we also initiated salaried
employee furloughs. In Europe, we eliminated all temporary
positions and negotiated with various works councils to pursue
similar cost reduction efforts including reduced work hours. We
instituted cuts in salaries of at least 10 percent for
salaried employees effective April 1, 2009, and implemented
other actions to control employee costs. As economic and
industry-wide conditions improved, we restored salaries to their
prior levels effective October 1, 2009, and reinstated the
employer matching contributions to the employee 401(k) plans for
the year 2010.
In addition, we strategically reduced capital expenditures and
engineering investments where possible without compromising our
long-term growth prospects. We eliminated or postponed regional
expansion projects, deferred spending tied to delayed customer
launches, redeployed assets where feasible, and eliminated all
discretionary capital spending. We focused on developing
technologies and capabilities tied to business launching within
the
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next two to three years, making exceptions in instances where
the customer agreed to pay upfront for engineering and advance
technology developments for programs launching in 2012 and
beyond. In this way, we were able to continue all programs
critical to our growth while limiting any near-term cash impact.
We are also focusing on generating cash flow through working
capital improvements, particularly by reducing inventories and
strengthening our management of payables and receivables.
Strengthen
Operational Excellence
We will continue to focus on operational excellence by
optimizing our manufacturing footprint, enhancing our Six Sigma
processes and Lean productivity tools, developing further our
engineering capabilities, managing the complexities of our
global supply chain to realize purchasing economies of scale
while satisfying diverse and global requirements, and supporting
our businesses with robust information technology systems. We
will make investments in our operations and infrastructure as
required to achieve our strategic goals. We will be mindful of
the changing market conditions that might necessitate
adjustments to our resources and manufacturing capacity around
the world. We will remain committed to protecting the
environment as well as the health and safety of our employees.
Environmental
Matters
We estimate that we and our subsidiaries will make expenditures
for plant, property and equipment for environmental matters of
approximately $3 million in 2010 and $2 million in
2011.
For additional information regarding environmental matters, see
Item 3, “Legal Proceedings,” Item 7,
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Environmental
and Other Matters,” Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Liquidity and Capital Resources” and
Note 12 to the consolidated financial statements of Tenneco
Inc. included in Item 8.
Employees
As of December 31, 2009, we had approximately
21,000 employees of which approximately 49 percent
were covered by collective bargaining agreements. European works
councils cover 21 percent of our total employees, a
majority of whom are also included under collective bargaining
agreements. Several of our existing labor agreements in the
United States and Mexico are scheduled for renegotiation in
2010. In addition, agreements are expiring in 2010 in Europe and
South America covering plants in Spain, Germany, Portugal and
Argentina. We regard our employee relations as satisfactory.
Other
The principal raw material that we use is steel. We obtain steel
from a number of sources pursuant to various contractual and
other arrangements. We believe that an adequate supply of steel
can presently be obtained from a number of different domestic
and foreign suppliers. From 2004 through 2008, we experienced
higher steel prices which we have addressed by evaluating
alternative materials and processes, reviewing material
substitution opportunities, increasing component and assembly
outsourcing to low cost countries and aggressively negotiating
with our customers to allow us to recover these higher costs
from them. While the recent global economic crisis has reduced
the pressure on raw material prices, market prices remain
volatile and we may face increased prices in the future.
We hold a number of domestic and foreign patents and trademarks
relating to our products and businesses. We manufacture and
distribute our products primarily under the
Walker
®
and
Monroe
®
brand names, which are well-recognized in the marketplace and
are registered trademarks. The patents, trademarks and other
intellectual property owned by or licensed to us are important
in the manufacturing, marketing and distribution of our products.
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Table of Contents
| ITEM 1A. | RISK FACTORS. |
The
recent global economic crisis severely and negatively affected
the automotive industry and our business, financial position and
liquidity and future deterioration or prolonged difficulty in
economic conditions could have a material adverse impact on our
business, financial position and liquidity.
The economic crisis in 2008 and 2009 arising out of the subprime
mortgage market collapse and the resulting worldwide financial
industry turmoil resulted in a severe and global tightening of
credit and a liquidity crisis. As a result, nearly every major
economy in the world faced a widespread reduction of business
activity,
seized-up
credit markets and rising unemployment. These conditions led to
a low consumer confidence, which resulted in delayed and reduced
purchases of durable consumer goods such as automobiles. As a
result, our OEM customers significantly reduced their production
schedules. Light vehicle production during 2009 decreased by
32 percent in North America and 20 percent in Europe
as compared to 2008. These unprecedented conditions had a severe
and negative impact on our business and financial position and
vehicle production remains at its lowest level in decades.
Although we believe that 2010 production in North America and
Europe will increase over 2009, we cannot assure you of this.
Accordingly, we remain cautious.
We face several risks relating to difficult economic conditions,
including the following:
Disruptions in the financial markets may adversely impact the
availability and cost of credit which could materially and
negatively affect our company.
The recent global
financial crisis materially and negatively impacted our business
and our customers’ businesses in the U.S. and
globally. Longer term disruptions in the capital and credit
markets could further adversely affect our customers’ and
our ability to access the liquidity that is necessary to fund
operations on terms that are acceptable to us or at all. The
recent global economic crisis also negatively impacted consumer
spending patterns in the automotive industry. During periods of
economic difficulty, purchases of our customers’ products
may be limited by their customers’ inability to obtain
adequate financing for such purchases. In addition, as our
customers and suppliers respond to rapidly changing consumer
preferences, they may require access to additional capital. If
that capital is not available or its cost is prohibitively high,
their businesses would be negatively impacted which could result
in further restructuring or even reorganization under bankruptcy
laws. Any such negative impact, in turn, could materially and
negatively affect our company either through loss of sales to
any of our customers so affected or through inability to meet
our commitments (or inability to meet them without excess
expense) because of loss of supplies from any of our suppliers
so affected.
Financial or other difficulties facing other automotive
companies may have a material and adverse impact on
us.
Over the last several years, a number of
companies in the automotive industry have been facing severe
financial difficulties. GM, Ford and Chrysler undertook
significant restructuring actions in an effort to improve
profitability and remain solvent. The North American automotive
manufacturers were burdened with substantial structural and
embedded costs, such as facility overhead as well as pension and
healthcare costs, that led GM and Chrysler to reorganize under
bankruptcy protection in 2009. Automakers in other markets in
the world also have been experiencing difficulties from a
weakened economy, tightening credit markets and reduced demand
for their products. The automotive supply base in turn has also
been faced with severe cash flow problems as a result of the
significantly lower production levels of light vehicles,
increases in certain costs and restricted access to additional
liquidity through the credit markets. Several suppliers have
filed for bankruptcy protection or ceased operations.
Severe financial or other difficulties, including bankruptcy, of
any automotive manufacturer or significant automotive supplier
could have a significant disruptive effect on the entire
automotive industry, leading to supply chain disruptions and
labor unrest, among other things. For example, if a parts
supplier were to cease operations, it could force the automotive
manufacturers to whom the supplier provides parts to shut down
their operations. This, in turn, could force other suppliers,
including us, to shut down production at plants that are
producing products for these automotive manufacturers. Severe
financial or other difficulties at any of our major suppliers
could have a material adverse effect on us if we are unable to
obtain on a timely basis on similar economic terms the quantity
and quality of components we require to produce our products.
While the difficulties facing our customers and suppliers over
the last two years have been primarily financial in nature,
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other difficulties, such as an inability to meet increased
demand as the economy recovers, could also result in supply
chain and other disruptions.
Financial or other difficulties at any of our major customers
could have a material adverse impact on us if such customer were
unable to pay for the products we provide or we experience a
loss of, or material reduction in, business from such customer.
In connection with the 2009 bankruptcies of GM and Chrysler, we
collected substantially all of our pre-petition receivables and
the reorganized GM and Chrysler assumed substantially all of the
pre-petition contracts we had with them. However, further
financial difficulties at any of our major customers (including
Chrysler or GM, as reorganized) could have a material adverse
impact on us, including as a result of lost revenues,
significant write offs of accounts receivable, significant
impairment charges or additional restructurings beyond our
current global plans. In addition, a bankruptcy filing by one of
our other large customers could result in a default under our
U.S. securitization agreement. Our inability to collect
receivables in a timely manner or to sell receivables under our
U.S. securitization program may have a material adverse
effect on our liquidity.
Our failure to comply with the covenants contained in our
senior credit facility or the indentures for our other debt
instruments, including as a result of events beyond our control,
could result in an event of default, which could materially and
adversely affect our operating results and our financial
condition.
Our senior credit facility and
receivables securitization program in the U.S. require us
to maintain certain financial ratios. Our senior credit facility
and our other debt instruments require us to comply with various
operational and other covenants. If there were an event of
default under any of our debt instruments that was not cured or
waived, the holders of the defaulted debt could cause all
amounts outstanding with respect to that debt to be due and
payable immediately. We cannot assure you that our assets or
cash flow would be sufficient to fully repay borrowings under
our outstanding debt instruments, either upon maturity or if
accelerated, upon an event of default, or that we would be able
to refinance or restructure the payments on those debt
instruments.
For example, in February 2009, we sought an amendment to our
senior credit facility to revise the financial ratios we are
required to maintain thereunder. The revised financial ratios
were based on a set of projections that we shared with our
lenders. If, in the future, we are required to obtain similar
amendments as a result of our inability to meet the financial
ratios in those projections, there can be no assurance that
those amendments will be available on commercially reasonable
terms or at all. If, as or when required, we are unable to
repay, refinance or restructure our indebtedness under our
senior credit facility, or amend the covenants contained
therein, the lenders under our senior credit facility could
elect to terminate their commitments thereunder, cease making
further loans and institute foreclosure proceedings against our
assets. Under such circumstances, we could be forced into
bankruptcy or liquidation. In addition, any event of default or
declaration of acceleration under one of our debt instruments
could also result in an event of default under one or more of
our other financing agreements, including our other debt
instruments
and/or
the
agreements under which we sell certain of our accounts
receivable. This would have a material adverse impact on our
liquidity, financial position and results of operations.
Our working capital requirements may negatively affect our
liquidity and capital resources.
Our working
capital requirements can vary significantly, depending in part
on the level, variability and timing of our customers’
worldwide vehicle production and the payment terms with our
customers and suppliers. Our liquidity could also be adversely
impacted if our suppliers were to suspend normal trade credit
terms and require payment in advance or payment on delivery of
purchases. If our working capital needs exceed our cash flows
from operations, we would look to our cash balances and
availability for borrowings under our borrowing arrangements to
satisfy those needs, as well as potential sources of additional
capital, which may not be available on satisfactory terms and in
adequate amounts, if at all.
Any further continuation of the global economic downturn or
other factors that reduce consumer demand for our products or
reduce prices could materially and adversely impact our
financial condition and results of
operations.
Demand for and pricing of our
products are subject to economic conditions and other factors
present in the various domestic and international markets where
the products are sold. Demand for our OE products is subject to
the level of consumer demand for new vehicles that are equipped
with our parts. The level of new light vehicle purchases is
cyclical, affected by such factors as general economic
conditions,
22
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interest rates, consumer confidence, patterns of consumer
spending, fuel cost and the automobile replacement cycle.
Consumer preferences also impact the level of new light vehicle
purchases. For example, if increasing consumer awareness of
climate change issues causes consumers to increasingly prefer
electric vehicles, demand for the vehicles equipped with our
products would decrease.
As described above, the recent unprecedented deterioration in
the global economy, global credit markets and the financial
services industry has negatively impacted our operations,
including by leading to a rapid decline in light vehicle
purchases. In 2009, North American light vehicle production
decreased 32 percent from 2008. During 2009, European
production declined 20 percent as compared to 2008. In
addition, significant increases in gasoline prices in the United
States, starting in the first half of 2008, accelerated the
shift in the North American market away from light trucks, which
tend to be higher margin products for OEMs and suppliers, to
more fuel-efficient passenger cars. During 2009, SUV and
pick-up
truck business accounted for 55 percent of our North
American OE revenues, relatively unchanged from 54 percent
in 2008. A further decline in automotive sales and production
would likely cause a decline in our sales to vehicle
manufacturers, and would likely result in a decline in our
results of operations and financial condition.
Demand for our aftermarket, or replacement, products varies
based upon such factors as general economic conditions, the
level of new vehicle purchases, which initially displaces demand
for aftermarket products, the severity of winter weather, which
increases the demand for certain aftermarket products, and other
factors, including the average useful life of parts and number
of miles driven.
The highly cyclical nature of the automotive industry presents a
risk that is outside our control and that cannot be accurately
predicted. For example, we cannot assure you that difficult
economic conditions will not continue into 2010 or that we would
be able to maintain or improve our results of operations in a
stagnant or extended recessionary economic environment. Further
decreases in demand for automobiles and automotive products
generally, or in the demand for our products in particular,
could materially and adversely impact our financial condition
and results of operations.
Our level of debt makes us more sensitive to the effects of
economic dowturns; our level of debt and provisions in our debt
agreements could limit our ability to react to changes in the
economy or our industry.
Our level of debt makes
us more vulnerable to changes in our results of operations
because a substantial portion of our cash flow from operations
is dedicated to servicing our debt and is not available for
other purposes. Our level of debt could have other negative
consequences to us, including the following:
| • | limiting our ability to borrow money or sell stock for our working capital, capital expenditures, debt service requirements or other general corporate purposes; | |
| • | limiting our flexibility in planning for, or reacting to, changes in our operations, our business or the industry in which we compete; | |
| • | our leverage may place us at a competitive disadvantage by limiting our ability to invest in the business or in further research and development; | |
| • | making us more vulnerable to downturns in our business or the economy; and | |
| • | there would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing, as needed. |
Our ability to make payments on our indebtedness depends on our
ability to generate cash in the future. If we do not generate
sufficient cash flow to meet our debt service and working
capital requirements, we may need to seek additional financing
or sell assets. This may make it more difficult for us to obtain
financing on terms that are acceptable to us, or at all. Without
any such financing, we could be forced to sell assets to make up
for any shortfall in our payment obligations under unfavorable
circumstances. During periods of economic difficulty, conditions
for asset sales may be very difficult due to tight credit
conditions and other factors. In addition, our debt agreements
contain covenants which limit our ability to sell assets and
also restrict the use of proceeds from any asset sale. Moreover,
our senior credit facility is secured on a first priority basis
by, among other things, substantially all of our and our
subsidiary guarantors’ tangible and
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intangible domestic assets. If necessary, we may not be able to
sell assets quickly enough or for sufficient amounts to enable
us to meet our obligations.
In addition, our senior credit facility and our other debt
agreements contain other restrictive covenants that limit our
flexibility in planning for or reacting to changes in our
business and our industry, including limitations on incurring
additional indebtedness, making investments, granting liens and
merging or consolidating with other companies. Our senior credit
facility also requires us to maintain certain financial ratios.
Complying with these restrictive covenants and financial ratios
may impair our ability to finance our future operations or
capital needs or to engage in other favorable business
activities.
We are
dependent on large customers for future revenue. The loss of any
of these customers or the loss of market share by these
customers could have a material adverse impact on
us.
We depend on major vehicle manufacturers for a substantial
portion of our net sales. For example, during fiscal year ended
December 31, 2009, GM and Ford accounted for
16 percent and 14 percent of our net sales,
respectively. The loss of all or a substantial portion of our
sales to any of our large-volume customers could have a material
adverse effect on our financial condition and results of
operations by reducing cash flows and our ability to spread
costs over a larger revenue base. We may make fewer sales to
these customers for a variety of reasons, including but not
limited to: (1) loss of awarded business; (2) reduced
or delayed customer requirements; (3) strikes or other work
stoppages affecting production by the customers; or
(4) reduced demand for our customers’ products. See
the risk factor “Financial difficulties facing other
automotive companies may have a material and adverse impact on
us”.
During the past several years, GM and Ford have lost market
share particularly in the United States, primarily to Asian
competitors. While we are actively targeting Japanese, Chinese
and Korean automakers, any further market share loss by these
North American-based and European-based automakers could, if we
are unable to achieve increased sales to the Asian OE
manufacturers, have a material adverse effect on our business.
We may
be unable to realize sales represented by our awarded business,
which could materially and adversely impact our financial
condition and results of operations.
The realization of future sales from awarded business is
inherently subject to a number of important risks and
uncertainties, including the number of vehicles that our OE
customers will actually produce, the timing of that production
and the mix of options that our OE customers and consumers may
choose. Prior to 2008, substantially all of our North American
vehicle manufacturing customers had slowed or maintained at
relatively flat levels new vehicle production for several years.
More recently, new vehicle production has decreased dramatically
as a result of the recent global economic crisis. In addition,
our customers generally have the right to replace us with
another supplier at any time for a variety of reasons and have
demanded price decreases over the life of awarded business.
Accordingly, we cannot assure you that we will in fact realize
any or all of the future sales represented by our awarded
business. Any failure to realize these sales could have a
material adverse effect on our financial condition, results of
operations, and liquidity.
In many cases, we must commit substantial resources in
preparation for production under awarded OE business well in
advance of the customer’s production start date. In certain
instances, the terms of our OE customer arrangements permit us
to recover these pre-production costs if the customer cancels
the business through no fault of our company. Although we have
been successful in recovering these costs under appropriate
circumstances in the past, we can give no assurance that our
results of operations will not be materially impacted in the
future if we are unable to recover these types of pre-production
costs related to OE cancellation of awarded business.
The
hourly workforce in the automotive industry is highly unionized
and our business could be adversely affected by labor
disruptions.
Although we consider our current relations with our employees to
be satisfactory, if major work disruptions were to occur, our
business could be adversely affected by, for instance, a loss of
revenues,
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increased costs or reduced profitability. We have not
experienced a material labor disruption in our workforce in the
last ten years, but there can be no assurance that we will not
experience a material labor disruption at one of our facilities
in the future in the course of renegotiation of our labor
arrangements or otherwise. In addition, substantially all of the
hourly employees of North American vehicle manufacturers and
many of their other suppliers are represented by the United
Automobile, Aerospace and Agricultural Implement Workers of
America under collective bargaining agreements. Vehicle
manufacturers and such suppliers and their employees in other
countries are also subject to labor agreements. A work stoppage
or strike at our production facilities, at those of a
significant customer, or at a significant supplier of ours or
any of our customers, such as the 2008 strike at American Axle
which resulted in 30 GM facilities in North America being idled
for several months, could have an adverse impact on us by
disrupting demand for our products
and/or
our
ability to manufacture our products.
In the
past, we have experienced significant increases in raw materials
pricing; and future changes in the prices of raw materials or
utilities could have a material adverse impact on
us.
Significant increases in the cost of certain raw materials used
in our products or the cost of utilities required to produce our
products, to the extent they are not timely reflected in the
price we charge our customers or are otherwise mitigated, could
materially and adversely impact our results. For example, from
2004 through 2008, we experienced significant increases in
processed metal and steel prices. We addressed these increases
by evaluating alternative materials and processes, reviewing
material substitution opportunities, increasing component and
assembly outsourcing to low cost countries and aggressively
negotiating with our customers to allow us to recover these
higher costs from them. In addition to these actions, we
continue to pursue productivity initiatives and review
opportunities to reduce costs through restructuring activities.
We cannot assure you that we will not face increased prices in
the future or, if we do, whether these actions will be effective
in containing margin pressures from any further raw material or
utility price increases.
We may
be unable to realize our business strategy of improving
operating performance, growing our business and generating
savings and improvements.
We regularly implement strategic and other initiatives designed
to improve our operating performance and grow our business. The
failure to achieve the goals of these initiatives could have a
material adverse effect on our business, particularly since we
rely on these initiatives to offset pricing pressures from our
suppliers and our customers, as described above, as well as to
manage the impacts of production cuts such as the significant
production decreases we are experiencing as a result of the
recent global economic crisis. Furthermore, the terms of our
senior credit facility may restrict the types of initiatives we
undertake, as these agreements restrict our uses of cash,
certain of these agreements require us to maintain financial
ratios and otherwise prohibit us from undertaking certain
activities. In the past we have been successful in obtaining the
consent of our senior lenders where appropriate in connection
with our initiatives. We cannot assure you, however, that we
will be able to pursue, successfully implement or realize the
expected benefits of any initiative or that we will be able to
sustain improvements made to date.
In addition, we believe that increasingly stringent
environmental standards for emissions have presented and will
continue to present an important opportunity for us to grow our
emissions control business. We cannot assure you, however, that
environmental standards for emissions will continue to become
more stringent or that the adoption of any new standards will
not be delayed beyond our expectations.
We may
incur material costs related to product warranties,
environmental and regulatory matters and other claims, which
could have a material adverse impact on our financial condition
and results of operations.
From time to time, we receive product warranty claims from our
customers, pursuant to which we may be required to bear costs of
repair or replacement of certain of our products. Vehicle
manufacturers are increasingly requiring their outside suppliers
to guarantee or warrant their products and to be responsible for
the operation of these component products in new vehicles sold
to consumers. Warranty claims may range from individual customer
claims to full recalls of all products in the field. We cannot
assure you that costs associated with providing product
warranties will not be material, or that those costs will not
exceed any
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amounts reserved in our consolidated financial statements. For a
description of our accounting policies regarding warranty
reserves, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Critical Accounting Policies” included in Item 7.
We are subject to extensive government regulations worldwide.
Foreign, Federal, state and local laws and regulations may
change from time to time and our compliance with new or amended
laws and regulations in the future may require a material
increase in our costs and could adversely affect our results of
operations and competitive position. For example, we are subject
to a variety of environmental and pollution control laws and
regulations in all jurisdictions in which we operate. Soil and
groundwater remediation activities are being conducted at
certain of our current and former real properties. We record
liabilities for these activities when environmental assessments
indicate that the remedial efforts are probable and the costs
can be reasonably estimated. On this basis, we have established
reserves that we believe are adequate for the remediation
activities at our current and former real properties for which
we could be held responsible. Although we believe our estimates
of remediation costs are reasonable and are based on the latest
available information, the cleanup costs are estimates and are
subject to revision as more information becomes available about
the extent of remediation required. In future periods, we could
be subject to cash or non-cash charges to earnings if we are
required to undertake material additional remediation efforts
based on the results of our ongoing analyses of the
environmental status of our properties, as more information
becomes available to us.
We also from time to time are involved in legal proceedings,
claims or investigations that are incidental to the conduct of
our business. Some of these proceedings allege damages against
us relating to environmental liabilities, intellectual property
matters, personal injury claims, taxes, employment matters or
commercial or contractual disputes. For example, we are subject
to a number of lawsuits initiated by a significant number of
claimants alleging health problems as a result of exposure to
asbestos. Many of these cases involve significant numbers of
individual claimants. Many of these cases also involve numerous
defendants, with the number of defendants in some cases
exceeding 100 defendants from a variety of industries. As major
asbestos manufacturers or other companies that used asbestos in
their manufacturing processes continue to go out of business, we
may experience an increased number of these claims.
We vigorously defend ourselves in connection with all of the
matters described above. We cannot, however, assure you that the
costs, charges and liabilities associated with these matters
will not be material, or that those costs, charges and
liabilities will not exceed any amounts reserved for them in our
consolidated financial statements. In future periods, we could
be subject to cash costs or non-cash charges to earnings if any
of these matters is resolved unfavorably to us. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Environmental
and Other Matters” included in Item 7.
We may
have difficulty competing favorably in the highly competitive
automotive parts industry.
The automotive parts industry is highly competitive. Although
the overall number of competitors has decreased due to ongoing
industry consolidation, we face significant competition within
each of our major product areas, including from new competitors
entering the markets which we serve. The principal competitive
factors include price, quality, service, product performance,
design and engineering capabilities, new product innovation,
global presence and timely delivery. As a result, many suppliers
have established or are establishing themselves in emerging,
low-cost markets to reduce their costs of production and be more
conveniently located for customers. Although we are also
pursuing a low-cost country production strategy and otherwise
continue to seek process improvements to reduce costs, we cannot
assure you that we will be able to continue to compete favorably
in this competitive market or that increased competition will
not have a material adverse effect on our business by reducing
our ability to increase or maintain sales or profit margins.
The
decreasing number of automotive parts customers and suppliers
could make it more difficult for us to compete
favorably.
Our financial condition and results of operations could be
adversely affected because the customer base for automotive
parts is decreasing in both the original equipment market and
aftermarket. As a result, we are competing for business from
fewer customers. Due to the cost focus of these major customers,
we have been,
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and expect to continue to be, requested to reduce prices as part
of our initial business quotations and over the life of vehicle
platforms we have been awarded. We cannot be certain that we
will be able to generate cost savings and operational
improvements in the future that are sufficient to offset price
reductions requested by existing customers and necessary to win
additional business.
Furthermore, the trend toward consolidation and bankruptcies
among automotive parts suppliers is resulting in fewer, larger
suppliers who benefit from purchasing and distribution economies
of scale. If we cannot achieve cost savings and operational
improvements sufficient to allow us to compete favorably in the
future with these larger companies, our financial condition and
results of operations could be adversely affected due to a
reduction of, or inability to increase, sales.
We may
not be able to successfully respond to the changing distribution
channels for aftermarket products.
Major automotive aftermarket retailers, such as AutoZone and
Advance Auto Parts, are attempting to increase their commercial
sales by selling directly to automotive parts installers in
addition to individual consumers. These installers have
historically purchased from their local warehouse distributors
and jobbers, who are our more traditional customers. We cannot
assure you that we will be able to maintain or increase
aftermarket sales through increasing our sales to retailers.
Furthermore, because of the cost focus of major retailers, we
have occasionally been requested to offer price concessions to
them. Our failure to maintain or increase aftermarket sales, or
to offset the impact of any reduced sales or pricing through
cost improvements, could have an adverse impact on our business
and operating results.
Longer
product lives of automotive parts are adversely affecting
aftermarket demand for some of our products.
The average useful life of automotive parts has steadily
increased in recent years due to innovations in products and
technologies. The longer product lives allow vehicle owners to
replace parts of their vehicles less often. As a result, a
portion of sales in the aftermarket has been displaced. This has
adversely impacted, and could continue to adversely impact, our
aftermarket sales. Also, any additional increases in the average
useful lives of automotive parts would further adversely affect
the demand for our aftermarket products. Recently, we have
experienced relative stabilization in our aftermarket business
due to our ability to win new customers and recover steel price
increases through selling price increases. However, there can be
no assurance that we will be able to maintain this
stabilization. Aftermarket sales represented approximately
22 percent and 19 percent of our net sales in the
fiscal years ended December 31, 2009 and 2008, respectively.
Assertions
against us or our customers relating to intellectual property
rights could materially impact our business.
We and others in our industry hold a number of patents and other
intellectual property rights that are critical to our respective
businesses. On occasion, third parties may assert claims against
us and our customers and distributors alleging our products or
technology infringe upon third-party intellectual property
rights. Similarly, we may assert claims against third-parties
who are taking actions that we believe are infringing on our
intellectual property rights. These claims, regardless of their
merit or resolution, are frequently costly to prosecute, defend
or settle and divert the efforts and attention of our management
and employees. Claims of this sort also could harm our
relationships with our customers and might deter future
customers from doing business with us. If any such claim were to
result in an adverse outcome, we could be required to take
actions which may include: cease the manufacture, use or sale of
the infringing products; pay substantial damages to third
parties, including to customers to compensate them for their
discontinued use or replace infringing technology with
non-infringing technology; or expend significant resources to
develop or license non-infringing products. Any of the foregoing
results could have a material adverse effect on our business,
financial condition and results of operations.
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Any
acquisitions we make could disrupt our business and seriously
harm our financial condition.
We may, from time to time, consider acquisitions of
complementary companies, products or technologies. Acquisitions
involve numerous risks, including difficulties in the
assimilation of the acquired businesses, the diversion of our
management’s attention from other business concerns and
potential adverse effects on existing business relationships
with current customers and suppliers. In addition, any
acquisitions could involve the incurrence of substantial
additional indebtedness. We cannot assure you that we will be
able to successfully integrate any acquisitions that we pursue
or that such acquisitions will perform as planned or prove to be
beneficial to our operations and cash flow. Any such failure
could seriously harm our business, financial condition and
results of operations.
We are
subject to risks related to our international
operations.
We have manufacturing and distribution facilities in many
regions and countries, including Australia, China, India, North
America, Europe and South America, and sell our products
worldwide. For the fiscal year ended December 31, 2009,
approximately 55 percent of our net sales were derived from
operations outside North America. International operations are
subject to various risks which could have a material adverse
effect on those operations or our business as a whole, including:
| • | exposure to local economic conditions; | |
| • | exposure to local political conditions, including the risk of seizure of assets by a foreign government; | |
| • | exposure to local social unrest, including any resultant acts of war, terrorism or similar events; | |
| • | exposure to local public health issues and the resultant impact on economic and political conditions; | |
| • | currency exchange rate fluctuations; | |
| • | hyperinflation in certain foreign countries; | |
| • | controls on the repatriation of cash, including imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries; and | |
| • | export and import restrictions. |
Exchange
rate fluctuations could cause a decline in our financial
condition and results of operations.
As a result of our international operations, we are subject to
increased risk because we generate a significant portion of our
net sales and incur a significant portion of our expenses in
currencies other than the U.S. dollar. For example, where
we have significantly more costs than revenues generated in a
foreign currency, we are subject to risk if the foreign currency
in which our costs are paid appreciates against the currency in
which we generate revenue because the appreciation effectively
increases our cost in that country.
The financial condition and results of operations of some of our
operating entities are reported in foreign currencies and then
translated into U.S. dollars at the applicable exchange
rate for inclusion in our consolidated financial statements. As
a result, appreciation of the U.S. dollar against these
foreign currencies generally will have a negative impact on our
reported revenues and operating profit while depreciation of the
U.S. dollar against these foreign currencies will generally
have a positive effect on reported revenues and operating
profit. For example, our European operations were positively
impacted in 2007 due to the strengthening of the Euro against
the U.S. dollar. However, in 2008, the dollar strengthened
against the Euro which had a negative effect on our results of
operations. Our South American operations were negatively
impacted by the devaluation in 2000 of the Brazilian currency as
well as by the devaluation of the Argentine currency in 2002. We
do not generally seek to mitigate this translation effect
through the use of derivative financial instruments. To the
extent we are unable to match revenues received in foreign
currencies with costs paid in the same currency, exchange rate
fluctuations in that currency could have a material adverse
effect on our business.
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Entering
new markets poses new competitive threats and commercial
risks.
As we have expanded into markets beyond light vehicles, we
expect to diversify our product sales by leveraging technologies
being developed for the light vehicle segment. Such
diversification requires investments and resources which may not
be available as needed. We cannot guarantee that we will be
successful in leveraging our capabilities into new markets and
thus, in meeting the needs of these new customers and competing
favorably in these new markets. If those customers experience
reduced demand for their products or financial difficulties, our
future prospects will be negatively affected as well.
Impairment
in the carrying value of long-lived assets and goodwill could
negatively affect our operating results.
We have a significant amount of long-lived assets and goodwill
on our consolidated balance sheet. Under generally accepted
accounting principles, long-lived assets, excluding goodwill,
are required to be reviewed for impairment whenever adverse
events or changes in circumstances indicate a possible
impairment. If business conditions or other factors cause
profitability and cash flows to decline, we may be required to
record non-cash impairment charges. Goodwill must be evaluated
for impairment annually or more frequently if events indicate it
is warranted. If the carrying value of our reporting units
exceeds their current fair value as determined based on the
discounted future cash flows of the related business, the
goodwill is considered impaired and is reduced to fair value by
a non-cash charge to earnings. Events and conditions that could
result in impairment in the value of our long-lived assets and
goodwill include changes in the industries in which we operate,
particularly the impact of the current downturn in the global
economy, as well as competition and advances in technology,
adverse changes in the regulatory environment, or other factors
leading to reduction in expected long-term sales or
profitability. For example, during the fiscal year ended
December 31, 2008, we were required to record a
$114 million asset impairment charge to write-off the
remaining goodwill related to our 1996 acquisition of Clevite
Industries.
The
value of our deferred tax assets could become impaired, which
could materially and adversely affect our operating
results.
As of December 31, 2009, we had approximately
$63 million in net deferred tax assets. These deferred tax
assets include net operating loss carryovers that can be used to
offset taxable income in future periods and reduce income taxes
payable in those future periods. We periodically determine the
probability of the realization of deferred tax assets, using
significant judgments and estimates with respect to, among other
things, historical operating results, expectations of future
earnings and tax planning strategies. For example, we were
required to record charges during the fiscal year ended
December 31, 2008 for a valuation allowance against our
U.S. deferred tax assets. These charges were attributable
to the significant decline in production which resulted from the
recent global economic crisis and the accounting requirement to
project that the current negative operating environment will
continue through the expiration of the net operating loss
carry-forward periods. If we determine in the future that there
is not sufficient positive evidence to support the valuation of
these assets, due to the risk factors described herein or other
factors, we may be required to further adjust the valuation
allowance to reduce our deferred tax assets. Such a reduction
could result in material non-cash expenses in the period in
which the valuation allowance is adjusted and could have a
material adverse effect on our results of operations.
Our
expected annual effective tax rate could be volatile and
materially change as a result of changes in mix of earnings and
other factors.
Our overall effective tax rate is equal to our total tax expense
as a percentage of our total profit or loss before tax. However,
tax expenses and benefits are determined separately for each tax
paying entity or group of entities that is consolidated for tax
purposes in each jurisdiction. Losses in certain jurisdictions
may provide no current financial statement tax benefit. As a
result, changes in the mix of projected profits and losses
between jurisdictions, among other factors, could have a
significant impact on our overall effective tax rate.
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| ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
None.
| ITEM 2. | PROPERTIES. |
We lease our principal executive offices, which are located at
500 North Field Drive, Lake Forest, Illinois, 60045.
Walker’s consolidated businesses operate 11 manufacturing
facilities in the U.S. and 43 manufacturing facilities
outside of the U.S., operate five engineering and technical
facilities worldwide and share two other such facilities with
Monroe. Twenty-six of these manufacturing plants are JIT
facilities. In addition, three joint ventures in which we hold a
noncontrolling interest operate a total of three manufacturing
facilities outside the U.S., two of which are JIT facilities.
Monroe’s consolidated businesses operate seven
manufacturing facilities in the U.S. and 23 manufacturing
facilities outside the U.S., operate seven engineering and
technical facilities worldwide and share two other such
facilities with Walker. Three of these manufacturing plants are
JIT facilities.
The above-described manufacturing locations outside of the
U.S. are located in Argentina, Australia, Belgium, Brazil,
Canada, China, the Czech Republic, France, Germany, India,
Italy, Korea, Mexico, New Zealand, Poland, Portugal,
Russia, Spain, South Africa, Sweden, Thailand and the United
Kingdom. We also have sales offices located in Algeria, Croatia,
Greece, Hungary, Japan, Lithuania, Singapore, Taiwan, Turkey and
the Ukraine.
We own approximately one-half of the properties described above
and lease the other half. We hold 16 of the above-described
international manufacturing facilities through seven joint
ventures in which we own a controlling interest. In addition,
three joint ventures in which we hold a noncontrolling interest
operate a total of three manufacturing facilities outside the
U.S. We also have distribution facilities at our
manufacturing sites and at a few offsite locations,
substantially all of which we lease.
We believe that substantially all of our plants and equipment
are, in general, well maintained and in good operating
condition. They are considered adequate for present needs and,
as supplemented by planned construction, are expected to remain
adequate for the near future.
We also believe that we have generally satisfactory title to the
properties owned and used in our respective businesses.
| ITEM 3. | LEGAL PROCEEDINGS. |
We are subject to a variety of environmental and pollution
control laws and regulations in all jurisdictions in which we
operate. We expense or capitalize, as appropriate, expenditures
for ongoing compliance with environmental regulations that
relate to current operations. We expense costs related to an
existing condition caused by past operations that do not
contribute to current or future revenue generation. We record
liabilities when environmental assessments indicate that
remedial efforts are probable and the costs can be reasonably
estimated. Estimates of the liability are based upon currently
available facts, existing technology, and presently enacted laws
and regulations taking into consideration the likely effects of
inflation and other societal and economic factors. We consider
all available evidence including prior experience in remediation
of contaminated sites, other companies’ cleanup experiences
and data released by the United States Environmental Protection
Agency or other organizations. These estimated liabilities are
subject to revision in future periods based on actual costs or
new information. Where future cash flows are fixed or reliably
determinable, we have discounted the liabilities. All other
environmental liabilities are recorded at their undiscounted
amounts. We evaluate recoveries separately from the liability
and, when they are assured, recoveries are recorded and reported
separately from the associated liability in our consolidated
financial statements.
As of December 31, 2009, we have the obligation to
remediate or contribute towards the remediation of certain
sites, including two existing Superfund sites. At
December 31, 2009, our estimated share of environmental
remediation costs at these sites was approximately
$16 million, on a discounted basis. The undiscounted value
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of the estimated remediation costs was $23 million. For
those locations in which the liability was discounted, the
weighted average discount rate used was 3.6 percent. Based on
information known to us, we have established reserves that we
believe are adequate for these costs. Although we believe these
estimates of remediation costs are reasonable and are based on
the latest available information, the costs are estimates and
are subject to revision as more information becomes available
about the extent of remediation required. At some sites, we
expect that other parties will contribute towards the
remediation costs. In addition, certain environmental statutes
provide that our liability could be joint and several, meaning
that we could be required to pay in excess of our share of
remediation costs. Our understanding of the financial strength
of other potentially responsible parties at these sites has been
considered, where appropriate, in our determination of our
estimated liability.
The $16 million noted above includes $5 million of
estimated environmental remediation costs that resulted from the
bankruptcy of Mark IV Industries in 2009. Prior to our 1996
acquisition of The Pullman Company, Pullman had sold certain
assets to Mark IV. As partial consideration for the purchase of
these assets, Mark IV agreed to assume Pullman’s and
its subsidiaries’ historical obligations to contribute to
the environmental remediation of certain sites. Mark IV has
filed a petition for insolvency under Chapter 11 of the
United States Bankruptcy Code and notified Pullman that it no
longer intends to continue to contribute toward the remediation
of those sites. We are conducting a thorough analysis and review
of these matters and it is possible that our estimate may change
as additional information becomes available to us.
We do not believe that any potential costs associated with our
current status as a potentially responsible party in the
Superfund sites, or as a liable party at the other locations
referenced herein, will be material to our consolidated results
of operations, financial position or cash flows.
We also from time to time are involved in legal proceedings,
claims or investigations that are incidental to the conduct of
our business. Some of these proceedings allege damages against
us relating to environmental liabilities (including toxic tort,
property damage and remediation), intellectual property matters
(including patent, trademark and copyright infringement, and
licensing disputes), personal injury claims (including injuries
due to product failure, design or warning issues, and other
product liability related matters), taxes, employment matters,
and commercial or contractual disputes, sometimes related to
acquisitions or divestitures. For example, one of our Argentine
subsidiaries is currently defending against a criminal complaint
alleging the failure to comply with laws requiring the proceeds
of export transactions to be collected, reported
and/or
converted to local currency within specified time periods. As
another example, we have recently become subject to an audit in
11 states of our practices with respect to the payment of
unclaimed property to those states. We have practices in place
designed to ensure that we pay unclaimed property as required.
We are in the early stages of this audit, which could cover over
20 years. We vigorously defend ourselves against all of
these claims. In future periods, we could be subject to cash
costs or non-cash charges to earnings if any of these matters is
resolved on unfavorable terms. However, although the ultimate
outcome of any legal matter cannot be predicted with certainty,
based on current information, including our assessment of the
merits of the particular claim, we do not expect that these
legal proceedings or claims will have any material adverse
impact on our future consolidated financial position, results of
operations or cash flows.
In addition, we are subject to a number of lawsuits initiated by
claimants alleging health problems as a result of exposure to
asbestos. In the early 2000’s we were named in nearly
20,000 complaints, most of which were filed in Mississippi state
court and the vast majority of which made no allegations of
exposure to asbestos from our product categories. Most of these
claims have been dismissed and our current docket of active and
inactive cases is less than 500 cases nationwide. A small number
of claims have been asserted by railroad workers alleging
exposure to asbestos products in railroad cars manufactured by
The Pullman Company, one of our subsidiaries. The balance of the
claims is related to alleged exposure to asbestos in our
automotive emission control products. Only a small percentage of
the claimants allege that they were automobile mechanics and a
significant number appear to involve workers in other industries
or otherwise do not include sufficient information to determine
whether there is any basis for a claim against us. We believe,
based on scientific and other evidence, it is unlikely that
mechanics were exposed to asbestos by our former muffler
products and that, in any event, they would not be at increased
risk of asbestos-related disease based on their work with these
products. Further, many of these cases involve numerous
defendants, with the number of each in some cases exceeding 100
defendants from a variety of industries. Additionally, the
plaintiffs either
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do not specify any, or specify the jurisdictional minimum,
dollar amount for damages. As major asbestos manufacturers
continue to go out of business or file for bankruptcy, we may
experience an increased number of these claims. We vigorously
defend ourselves against these claims as part of our ordinary
course of business. In future periods, we could be subject to
cash costs or non-cash charges to earnings if any of these
matters is resolved unfavorably to us. To date, with respect to
claims that have proceeded sufficiently through the judicial
process, we have regularly achieved favorable resolution.
Accordingly, we presently believe that these asbestos-related
claims will not have a material adverse impact on our future
consolidated financial condition, results of operations or cash
flows.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
No matters were submitted to the vote of security holders during
the fourth quarter of 2009.
| ITEM 4.1. | EXECUTIVE OFFICERS OF THE REGISTRANT. |
The following provides information concerning the persons who
serve as our executive officers as of February 26, 2010.
|
Name (and Age at
|
||
|
December 31, 2009)
|
Offices Held | |
|
Gregg M. Sherrill (56)
|
Chairman and Chief Executive Officer | |
|
Hari N. Nair (49)
|
Executive Vice President and President — International | |
|
Kenneth R. Trammell (49)
|
Executive Vice President and Chief Financial Officer | |
|
Neal A. Yanos (47)
|
Executive Vice President, North America | |
|
Brent J. Bauer (54)
|
Senior Vice President and General Manager — North American Original Equipment Emission Control | |
|
Michael J. Charlton (51)
|
Senior Vice President, Global Supply Chain Management and Manufacturing | |
|
James D. Harrington (48)
|
Senior Vice President, General Counsel and Corporate Secretary | |
|
Timothy E. Jackson (52)
|
Senior Vice President and Chief Technology Officer | |
|
Richard P. Schneider (62)
|
Senior Vice President — Global Administration | |
|
Paul D. Novas (51)
|
Vice President and Controller |
Gregg M. Sherrill
— Mr. Sherrill was named
the Chairman and Chief Executive Officer of Tenneco in January
2007. Mr. Sherrill joined us from Johnson Controls Inc.,
where he served since 1998, most recently as President, Power
Solutions. From 2002 to 2003, Mr. Sherrill served as the
Vice President and Managing Director of Europe, South Africa and
South America for Johnson Controls’ Automotive Systems
Group. Prior to joining Johnson Controls, Mr. Sherrill held
various engineering and manufacturing assignments over a
22-year
span
at Ford Motor Company, including Plant Manager of Ford’s
Dearborn, Michigan engine plant, Chief Engineer, Steering
Systems and Director of Supplier Technical Assistance.
Mr. Sherrill became a director of our company in January
2007.
Hari N. Nair
— Mr. Nair was named our
Executive Vice President and President — International
effective March 2007. Previously, Mr. Nair served as
Executive Vice President and Managing Director of our business
in Europe, South America and India. Before that, he was Senior
Vice President and Managing Director — International.
Prior to December 2000, Mr. Nair was the Vice President and
Managing Director — Emerging Markets. Previously,
Mr. Nair was the Managing Director for Tenneco Automotive
Asia, based in Singapore and responsible for all operations and
development projects in Asia. He began his career with the
former Tenneco Inc. in 1987, holding various positions in
strategic planning, marketing, business development, quality
control and finance. Prior to joining Tenneco, Mr. Nair was
a senior financial analyst at General Motors Corporation
focusing on European operations. Mr. Nair became a director
of our company in March 2009.
Kenneth R. Trammell
— Mr. Trammell has
served as our Executive Vice President and Chief Financial
Officer since January 2006. Mr. Trammell was named our
Senior Vice President and Chief Financial Officer in September
2003, having served as our Vice President and Controller since
September 1999. From April 1997
32
Table of Contents
to November 1999, he served as Corporate Controller of Tenneco
Inc. He joined Tenneco Inc. in May 1996 as Assistant Controller.
Before joining Tenneco Inc., Mr. Trammell spent
12 years with the international public accounting firm of
Arthur Andersen LLP, last serving as a senior manager.
Neal A. Yanos
— Mr. Yanos was named
Executive Vice President, North America in July 2008. Prior to
that, he served as our Senior Vice President and General
Manager — North American Original Equipment Ride
Control and North American Aftermarket since May 2003. He joined
our Monroe ride control division as a process engineer in 1988
and since that time has served in a broad range of assignments
including product engineering, strategic planning, business
development, finance, program management and marketing,
including Director of our North American original equipment
GM/VW business unit and most recently as our Vice President and
General Manager — North American Original Equipment
Ride Control from December 2000. Before joining our company,
Mr. Yanos was employed in various engineering positions by
Sheller Globe Inc. from 1985 to 1988.
Brent J. Bauer
— Mr. Bauer joined Tenneco
Automotive in August 1996 as a Plant Manager and was named Vice
President and General Manager — European Original
Equipment Emission Control in September 1999. Mr. Bauer was
named Vice President and General Manager — European
and North American Original Equipment Emission Control in July
2001. Currently, Mr. Bauer serves as the Senior Vice
President and General Manager — North American
Original Equipment Emission Control. Prior to joining Tenneco,
he was employed at AeroquipVickers Corporation for 20 years
in positions of increasing responsibility serving most recently
as Director of Operations.
Michael J. Charlton
— Mr. Charlton has
served as our Senior Vice President, Global Supply Chain
Management and Manufacturing since January 2010.
Mr. Charlton served as our Vice President, Global Supply
Chain Management and Manufacturing from November 2008 through
December 2009. Mr. Charlton served as Tenneco’s
Managing Director for India from January 2008 until November
2008. Prior to that, he served as the operations director for
the Company’s emission control business in Europe since
2005. Prior to joining Tenneco in 2005, Mr. Charlton held a
variety of positions of increasing responsibility at TRW
Automotive, the most recent being Lead Director, European
Purchasing and Operations for the United Kingdom.
James D. Harrington
— Mr. Harrington has
served as our Senior Vice President, General Counsel and
Corporate Secretary since June 2009 and is responsible for
managing our worldwide legal affairs including corporate
governance and compliance. Mr. Harrington joined us in
January 2005 as Corporate Counsel and was named Vice
President — Law in July 2007. Prior to joining
Tenneco, he worked at Mayer Brown LLP in the firm’s
corporate and securities practice.
Timothy E. Jackson
— Mr. Jackson joined us
as Senior Vice President and General Manager —
North American Original Equipment and Worldwide Program
Management in June 1999. He served in this position until August
2000, at which time he was named Senior Vice
President — Global Technology. From 2002 to 2005,
Mr. Jackson served as Senior Vice President —
Manufacturing, Engineering and Global Technology. In July 2005,
Mr. Jackson was named Senior Vice President —
Global Technology and General Manager, Asia Pacific. In March
2007, he was named our Chief Technology Officer.
Mr. Jackson joined us from ITT Industries where he was
President of that company’s Fluid Handling Systems
Division. With over 20 years of management experience, 14
within the automotive industry, he was also Chief Executive
Officer for HiSAN, a joint venture between ITT Industries and
Sanoh Industrial Company. Mr. Jackson has also served in
senior management positions at BF Goodrich Aerospace and General
Motors Corporation.
Richard P. Schneider
— Mr. Schneider was
named our Senior Vice President — Global
Administration in 1999 and is responsible for the development
and implementation of human resources programs and policies and
employee communications activities for our worldwide operations.
Prior to 1999, Mr. Schneider served as our Vice
President — Human Resources. He joined us in 1994 from
International Paper Company where, during his 20 year
tenure, he held key positions in labor relations, management
development, personnel administration and equal employment
opportunity.
Paul D. Novas
— Mr. Novas was named our
Vice President and Controller in July 2006. Mr. Novas
served as Vice President, Finance and Administration for Tenneco
Europe from January 2004 until July 2006 and as Vice President
and Treasurer of Tenneco from November 1999 until January 2004.
Mr. Novas joined Tenneco in
33
Table of Contents
1996 as assistant treasurer responsible for corporate finance
and North American treasury operations. Prior to joining
Tenneco, Mr. Novas worked in the treasurer’s office of
General Motors Corporation for ten years.
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Our outstanding shares of common stock, par value $.01 per
share, are listed on the New York and Chicago Stock Exchanges.
The following table sets forth, for the periods indicated, the
high and low sales prices of our common stock on the New York
Stock Exchange Composite Transactions Tape.
| Sales Prices | ||||||||
|
Quarter
|
High | Low | ||||||
|
2009
|
||||||||
|
1st
|
$ | 4.14 | $ | 0.67 | ||||
|
2nd
|
11.19 | 1.56 | ||||||
|
3rd
|
18.11 | 8.14 | ||||||
|
4th
|
19.78 | 11.35 | ||||||
|
2008
|
||||||||
|
1st
|
$ | 29.41 | $ | 20.18 | ||||
|
2nd
|
30.41 | 13.52 | ||||||
|
3rd
|
16.92 | 9.58 | ||||||
|
4th
|
10.63 | 1.31 | ||||||
As of February 22, 2010, there were approximately
21,015 holders of record of our common stock, including
brokers and other nominees.
The declaration of dividends on our common stock is at the
discretion of our Board of Directors. The Board has not adopted
a dividend policy as such; subject to legal and contractual
restrictions, its decisions regarding dividends are based on all
considerations that in its business judgment are relevant at the
time. These considerations may include past and projected
earnings, cash flows, economic, business and securities market
conditions and anticipated developments concerning our business
and operations.
We are highly leveraged and restricted with respect to the
payment of dividends under the terms of our financing
arrangements. On January 10, 2001, we announced that our
Board of Directors eliminated the regular quarterly dividend on
the Company’s common stock. The Board took this action in
response to then-current industry conditions, primarily greater
than anticipated production volume reductions by OEMs in
North America and continued softness in the global
aftermarket. We have not paid dividends on our common stock
since the fourth quarter of 2000. There are no current plans to
reinstate a dividend on our common stock, as the Board of
Directors intends to retain any earnings for use in our business
for the foreseeable future. For additional information
concerning our payment of dividends, see “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” included in Item 7.
See “Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters” included in
Item 12 for information regarding securities authorized for
issuance under our equity compensation plans.
Purchase
of equity securities by the issuer and affiliated
purchasers
We have not purchased any shares of our common stock in the
fourth quarter of 2009. We presently have no publicly announced
repurchase plan or program, but intend to continue to satisfy
statutory minimum tax withholding obligations in connection with
the vesting of outstanding restricted stock through the
withholding of shares.
Recent
Sales of Unregistered Securities
None.
34
Table of Contents
Share
Performance
The following graph shows a five year comparison of the
cumulative total stockholder return on Tenneco’s common
stock as compared to the cumulative total return of two other
indexes: a custom composite index (“Peer Group”) and
the Standard & Poor’s 500 Composite Stock Price
Index. The companies included in the Peer Group are:
ArvinMeritor Inc., American Axle & Manufacturing Co.,
Borg Warner Inc., Cummins Inc., Johnson Controls Inc., Lear
Corp., Magna International Inc. and TRW Automotive Holdings
Corp. (beginning in the second quarter of 2004). These
comparisons assume an initial investment of $100 and the
reinvestment of dividends.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Tenneco, Inc., The S&P 500 Index
And A Peer Group
| * |
$100 invested on 12/31/04 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31. |
Copyright
©
2010 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
| 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | |||||||||||||||||||||||||
|
Tenneco Inc
|
100.00 | 113.75 | 143.39 | 151.22 | 17.11 | 102.84 | ||||||||||||||||||||||||
|
S&P 500
|
100.00 | 104.91 | 121.48 | 128.16 | 80.74 | 102.11 | ||||||||||||||||||||||||
|
Peer Group
|
100.00 | 104.24 | 121.18 | 161.42 | 70.79 | 122.39 | ||||||||||||||||||||||||
The graph and other information furnished in the section titled
“Share Performance” under this Part II,
Item 5 of this
Form 10-K
shall not be deemed to be “soliciting” material or to
be “filed” with the Securities and Exchange Commission
or subject to Regulation 14A or 14C, or to the liabilities
of Section 18 of the Securities Exchange Act of 1934, as
amended.
35
Table of Contents
| ITEM 6. | SELECTED FINANCIAL DATA. |
TENNECO
INC. AND CONSOLIDATED SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
| Year Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005(a) | ||||||||||||||||
| (Millions Except Share and Per Share Amounts) | ||||||||||||||||||||
|
Statements of Income (Loss) Data:
|
||||||||||||||||||||
|
Net sales and operating revenues —
|
||||||||||||||||||||
|
North America
|
$ | 2,099 | $ | 2,641 | $ | 2,910 | $ | 1,963 | $ | 2,033 | ||||||||||
|
Europe, South America and India
|
2,209 | 2,983 | 3,135 | 2,387 | 2,110 | |||||||||||||||
|
Asia Pacific
|
525 | 543 | 560 | 436 | 371 | |||||||||||||||
|
Intergroup sales
|
(184 | ) | (251 | ) | (421 | ) | (104 | ) | (74 | ) | ||||||||||
| $ | 4,649 | $ | 5,916 | $ | 6,184 | $ | 4,682 | $ | 4,440 | |||||||||||
|
Income (loss) before interest expense, income taxes, and
noncontrolling interests
|
||||||||||||||||||||
|
North America
|
$ | 42 | $ | (107 | ) | $ | 120 | $ | 103 | $ | 148 | |||||||||
|
Europe, South America and India
|
20 | 85 | 99 | 81 | 53 | |||||||||||||||
|
Asia Pacific
|
30 | 19 | 33 | 12 | 16 | |||||||||||||||
|
Total
|
92 | (3 | ) | 252 | 196 | 217 | ||||||||||||||
|
Interest expense (net of interest capitalized)
|
133 | 113 | 164 | 136 | 133 | |||||||||||||||
|
Income tax expense
|
13 | 289 | 83 | 5 | 26 | |||||||||||||||
|
Net income (loss)
|
(54 | ) | (405 | ) | 5 | 55 | 58 | |||||||||||||
|
Less: Net income attributable to noncontrolling interests
|
19 | 10 | 10 | 6 | 2 | |||||||||||||||
|
Net income (loss) attributable to Tenneco, Inc.
|
$ | (73 | ) | $ | (415 | ) | $ | (5 | ) | $ | 49 | $ | 56 | |||||||
|
Weighted average shares of common stock outstanding —
|
||||||||||||||||||||
|
Basic
|
48,572,463 | 46,406,095 | 45,809,730 | 44,625,220 | 43,088,558 | |||||||||||||||
|
Diluted
|
48,572,463 | 46,406,095 | 45,809,730 | 46,755,573 | 45,321,225 | |||||||||||||||
|
Basic earnings (loss) per share of common stock
|
$ | (1.50 | ) | $ | (8.95 | ) | $ | (0.11 | ) | $ | 1.11 | $ | 1.30 | |||||||
|
Diluted earnings (loss) per share of common stock
|
$ | (1.50 | ) | $ | (8.95 | ) | $ | (0.11 | ) | $ | 1.05 | $ | 1.24 | |||||||
36
Table of Contents
| Years Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (Millions Except Ratio and Percent Amounts) | ||||||||||||||||||||
|
Balance Sheet Data (at year end):
|
||||||||||||||||||||
|
Total assets
|
$ | 2,841 | $ | 2,828 | $ | 3,590 | $ | 3,274 | $ | 2,945 | ||||||||||
|
Short-term debt
|
75 | 49 | 46 | 28 | 22 | |||||||||||||||
|
Long-term debt
|
1,145 | 1,402 | 1,328 | 1,357 | 1,361 | |||||||||||||||
|
Redeemable noncontrolling interests
|
7 | 7 | 6 | 4 | 3 | |||||||||||||||
|
Total Tenneco Inc. shareholders’ equity
|
(21 | ) | (251 | ) | 400 | 226 | 137 | |||||||||||||
|
Noncontrolling interests
|
32 | 24 | 25 | 24 | 21 | |||||||||||||||
|
Total equity
|
11 | (227 | ) | 425 | 250 | 158 | ||||||||||||||
|
Statement of Cash Flows Data:
|
||||||||||||||||||||
|
Net cash provided by operating activities
|
$ | 241 | $ | 160 | $ | 158 | $ | 203 | $ | 123 | ||||||||||
|
Net cash used by investing activities
|
(119 | ) | (261 | ) | (202 | ) | (172 | ) | (164 | ) | ||||||||||
|
Net cash provided (used) by financing activities
|
87 | 58 | (10 | ) | 12 | (28 | ) | |||||||||||||
|
Cash payments for plant, property and equipment
|
(120 | ) | (233 | ) | (177 | ) | (177 | ) | (140 | ) | ||||||||||
|
Other Data:
|
||||||||||||||||||||
|
EBITDA including noncontrolling interests(a)
|
$ | 313 | $ | 219 | $ | 457 | $ | 380 | $ | 394 | ||||||||||
|
Ratio of EBITDA including noncontrolling interests to interest
expense
|
2.35 | 1.94 | 2.79 | 2.79 | 2.96 | |||||||||||||||
|
Ratio of total debt to EBITDA including noncontrolling interests
|
3.90 | 6.63 | 3.01 | 3.64 | 3.51 | |||||||||||||||
|
Ratio of earnings to fixed charges(b)
|
— | — | 1.46 | 1.35 | 1.55 | |||||||||||||||
NOTE: Our consolidated financial statements for the three years
ended December 31, 2009, which are discussed in the
following notes, are included in this
Form 10-K
under Item 8.
| (a) | EBITDA including noncontrolling interests is a non-GAAP measure defined as net income before extraordinary items, cumulative effect of changes in accounting principle, interest expense, income taxes, depreciation and amortization and noncontrolling interests. We use EBITDA including noncontrolling interests, together with GAAP measures, to evaluate and compare our operating performance on a consistent basis between time periods and with other companies that compete in our markets but which may have different capital structures and tax positions, which can have an impact on the comparability of interest expense, noncontrolling interests and tax expense. We also believe that using this measure allows us to understand and compare operating performance both with and without depreciation expense, which can vary based on several factors. We believe EBITDA including noncontrolling interests is useful to our investors and other parties for these same reasons. | |
| EBITDA including noncontrolling interests should not be used as a substitute for net income or for net cash provided by operating activities prepared in accordance with GAAP. It should also be noted that EBITDA including noncontrolling interests may not be comparable to similarly titled measures used by other companies and, furthermore, that it excludes expenditures for debt financing, taxes and future capital requirements that are essential to our ongoing business operations. For these reasons, EBITDA including noncontrolling interests is of value to management and investors only as a supplement to, and not in lieu of, GAAP results. EBITDA including noncontrolling interests are derived from the statements of income (loss) as follows: |
| Year Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Net income (loss)
|
$ | (73 | ) | $ | (415 | ) | $ | (5 | ) | $ | 49 | $ | 56 | |||||||
|
Noncontrolling interests
|
19 | 10 | 10 | 6 | 2 | |||||||||||||||
|
Income tax expense
|
13 | 289 | 83 | 5 | 26 | |||||||||||||||
|
Interest expense, net of interest capitalized
|
133 | 113 | 164 | 136 | 133 | |||||||||||||||
|
Depreciation and amortization of other intangibles
|
221 | 222 | 205 | 184 | 177 | |||||||||||||||
|
Total EBITDA including noncontrolling interests
|
$ | 313 | $ | 219 | $ | 457 | $ | 380 | $ | 394 | ||||||||||
| (b) | For purposes of computing this ratio, earnings generally consist of income before income taxes and fixed charges excluding capitalized interest. Fixed charges consist of interest expense, the portion of rental expense considered representative of the interest factor and capitalized interest. Earnings were insufficient to cover fixed charges by $39 million and $121 million for the years ended December 31, 2009 and 2008, respectively. See Exhibit 12 to this Form 10-K for the calculation of this ratio. |
37
Table of Contents
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
As you read the following review of our financial condition and
results of operations, you should also read our consolidated
financial statements and related notes beginning on page 67.
Executive
Summary
We are one of the world’s leading manufacturers of
automotive emission control and ride control products and
systems. We serve both original equipment (OE) vehicle designers
and manufacturers and the repair and replacement markets, or
aftermarket, globally through leading brands, including
Monroe
®
,
Rancho
®
,
Clevite
®
Elastomers and Fric
Rot
tm
ride control products and
Walker
®
,
Fonos
tm
,
and
Gillet
tm
emission control products. Worldwide we serve more than 65
different original equipment manufacturers, and our products or
systems are included on six of the top 10 passenger models
produced in Europe and eight of the top 10 light truck models
produced in North America for 2009. Our aftermarket customers
are comprised of full-line and specialty warehouse distributors,
retailers, jobbers, installer chains and car dealers. As of
December 31, 2009, we operated 84 manufacturing facilities
worldwide and employed approximately 21,000 people to
service our customers’ demands.
Factors that continue to be critical to our success include
winning new business awards, managing our overall global
manufacturing footprint to ensure proper placement and workforce
levels in line with business needs, maintaining competitive
wages and benefits, maximizing efficiencies in manufacturing
processes and reducing overall costs. In addition, our ability
to adapt to key industry trends, such as a shift in consumer
preferences to other vehicles in response to higher fuel costs
and other economic and social factors, increasing
technologically sophisticated content, changing aftermarket
distribution channels, increasing environmental standards and
extended product life of automotive parts, also play a critical
role in our success. Other factors that are critical to our
success include adjusting to economic challenges such as
increases in the cost of raw materials and our ability to
successfully reduce the impact of any such cost increases
through material substitutions, cost reduction initiatives and
other methods.
The deterioration in the global economy and global credit
markets beginning in 2008 has negatively impacted global
business activity in general, and specifically the automotive
industry in which we operate. The market turmoil and tightening
of credit, as well as the dramatic decline in the housing market
in the United States and Western Europe, have led to a lack of
consumer confidence evidenced by a rapid decline in light
vehicle purchases in 2008 and the first six months of 2009.
Light vehicle production during the first six months of 2009
decreased by 50 percent in North America and
35 percent in Europe as compared to the first six months of
2008. OE production has stabilized and overall the production
environment strengthened in the third and fourth quarters
compared to the first half of the year as production began to
track more closely to vehicle sales after inventory corrections
in the first half of the year. In North America, light vehicle
production in the fourth quarter 2009 was up one percent
year-over-year.
In Europe, light vehicle production in the fourth quarter 2009
was up 14 percent
year-over-year.
In response to current economic conditions, some of our
customers have eliminated or are expected to eliminate certain
light vehicle models or brands. While we do not believe that
models eliminated to date will have a significant impact on us,
changes in the models produced by our customers or sales of
their brands may have an adverse effect on our market share.
Additional declines in consumer demand would have a further
adverse effect on the financial condition of our OE customers,
and on our future results of operations. Continued or further
financial difficulties at any of our major customers could have
an adverse impact on the level of our future revenues and
collection of our receivables from such customers.
Other than the impact from production shutdowns during the
second quarter, we incurred no other economic loss from the
bankruptcy filings of Chrysler or General Motors. We collected
substantially all of our pre-petition receivables from Chrysler
Group LLC and Chrysler Group LLC has assumed substantially all
of the contracts which we had with Chrysler LLC. We collected
substantially all of our pre-petition receivables from General
Motors Company and General Motors Company has assumed
substantially all of the contracts which we had with General
Motors Corporation.
38
Table of Contents
We have a substantial amount of indebtedness. As such, our
ability to generate cash — both to fund operations and
service our debt — is also a significant area of focus
for our company. As part of our strategic imperative to improve
financial flexibility, we completed a common stock offering of
12 million shares in November 2009. We used the net
proceeds of $188 million from the offering to pay down
debt. See “Liquidity and Capital Resources” below for
further discussion of cash flows and “Risk Factors”
included in Item 1A.
Total revenues for 2009 were $4.6 billion, a
21 percent decrease from $5.9 billion in 2008.
Excluding the impact of currency and substrate sales, revenue
was down $456 million, or 10 percent, driven primarily
by lower OE production in North America, Europe and Australia
and lower European aftermarket sales. Partially offsetting these
declines were increased North American aftermarket sales and
higher sales in South America and Asia.
Gross margin for 2009 was 16.6 percent, up
2.2 percentage points from 14.4 percent in 2008. The
gross margin improvement was driven by the benefits from our
restructuring activities in 2008, material cost management,
improved manufacturing efficiencies, lower year-over-year
restructuring and related expenses and currency gains. Lower OE
production volumes and the related fixed cost absorption
partially offset these improvements.
Selling, general and administrative expense was down
$48 million in 2009, to $344 million, including
$1 million in restructuring and related expense, compared
to $392 million in 2008 which included $22 million in
restructuring and related expense and $7 million in
aftermarket changeover costs. Cost reduction efforts, which
included restructuring savings, 401(k) match suspension,
temporary salary reductions and employee furloughs, drove the
improvement. Engineering expense was $97 million and
$127 million in 2009 and 2008, respectively. 2008
engineering expense included $1 million of restructuring
and related expenses. The reduction in engineering expense was
driven by engineering cost recoveries, employee furloughs and
temporary salary reductions. In total, we reported selling,
general, administrative and engineering expenses in 2009 at
9.5 percent of revenues, as compared to 8.8 percent of
revenues in 2008 due to a decline in
year-over-year
revenues which out paced the decrease in selling, general,
administrative and engineering costs.
Earnings before interest expense, taxes and noncontrolling
interests (“EBIT”) was $92 million for 2009, an
improvement of $95 million, when compared to a loss of
$3 million in 2008. This increase was driven by the savings
from prior restructuring activities, manufacturing efficiency
improvements, lower selling, general and administrative
spending, customer recovery of engineering costs, material cost
management actions, lower restructuring and related expenses,
reduced aftermarket changeover costs and lower goodwill
impairment charges. The negative impact of currency and lower OE
production and the related fixed cost absorption partially
offset the EBIT improvement.
Results
from Operations
Net
Sales and Operating Revenues for Years 2009 and
2008
The following tables reflect our revenues for 2009 and 2008. We
present these reconciliations of revenues in order to reflect
the trend in our sales in various product lines and geographic
regions separately from the effects of doing business in
currencies other than the U.S. dollar. We have not
reflected any currency impact in the 2008 table since this is
the base period for measuring the effects of currency during
2009 on our operations. We believe investors find this
information useful in understanding
period-to-period
comparisons in our revenues.
Additionally, we show the component of our revenue represented
by substrate sales in the following tables. While we generally
have primary design, engineering and manufacturing
responsibility for OE emission control systems, we do not
manufacture substrates. Substrates are porous ceramic filters
coated with a catalyst — precious metals such as
platinum, palladium and rhodium. These are supplied to us by
Tier 2 suppliers and directed by our OE customers. We
generally earn a small margin on these components of the system.
As the need for more sophisticated emission control solutions
increases to meet more stringent environmental regulations, and
as we capture more diesel aftertreatment business, these
substrate components have been increasing as a percentage of our
revenue. Changes in commodity prices as well as changes in the
39
Table of Contents
mix of vehicles produced by our customers as a result of the
economic crisis have recently reduced the percentage of our
revenue related to substrates. While these substrates dilute our
gross margin percentage, they are a necessary component of an
emission control system. We view the growth of substrates as a
key indicator that our value-add content in an emission control
system is moving toward the higher technology hot-end gas and
diesel business.
Our value-add content in an emission control system includes
designing the system to meet environmental regulations through
integration of the substrates into the system, maximizing use of
thermal energy to heat up the catalyst quickly, efficiently
managing airflow to reduce back pressure as the exhaust stream
moves past the catalyst, managing the expansion and contraction
of the emission control system components due to temperature
extremes experienced by an emission control system, using
advanced acoustic engineering tools to design the desired
exhaust sound, minimizing the opportunity for the fragile
components of the substrate to be damaged when we integrate it
into the emission control system and reducing unwanted noise,
vibration and harshness transmitted through the emission control
system.
We present these substrate sales separately in the following
table because we believe investors utilize this information to
understand the impact of this portion of our revenues on our
overall business and because it removes the impact of
potentially volatile precious metals pricing from our revenues.
While our original equipment customers generally assume the risk
of precious metals pricing volatility, it impacts our reported
revenues. Excluding “substrate” catalytic converter
and diesel particulate filter sales removes this impact.
| Year Ended December 31, 2009 | ||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||
|
Substrate
|
Excluding
|
|||||||||||||||||||
|
Revenues
|
Sales
|
Currency and
|
||||||||||||||||||
|
Currency
|
Excluding
|
Excluding
|
Substrate
|
|||||||||||||||||
| Revenues | Impact | Currency | Currency | Sales | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
North America Original Equipment
|
||||||||||||||||||||
|
Ride Control
|
$ | 382 | $ | (4 | ) | $ | 386 | $ | — | $ | 386 | |||||||||
|
Emission Control
|
1,154 | (2 | ) | 1,156 | 530 | 626 | ||||||||||||||
|
Total North America Original Equipment
|
1,536 | (6 | ) | 1,542 | 530 | 1,012 | ||||||||||||||
|
North America Aftermarket
|
||||||||||||||||||||
|
Ride Control
|
406 | (4 | ) | 410 | — | 410 | ||||||||||||||
|
Emission Control
|
150 | (2 | ) | 152 | — | 152 | ||||||||||||||
|
Total North America Aftermarket
|
556 | (6 | ) | 562 | — | 562 | ||||||||||||||
|
Total North America
|
2,092 | (12 | ) | 2,104 | 530 | 1,574 | ||||||||||||||
|
Europe Original Equipment
|
||||||||||||||||||||
|
Ride Control
|
421 | (25 | ) | 446 | — | 446 | ||||||||||||||
|
Emission Control
|
917 | (178 | ) | 1,095 | 305 | 790 | ||||||||||||||
|
Total Europe Original Equipment
|
1,338 | (203 | ) | 1,541 | 305 | 1,236 | ||||||||||||||
|
Europe Aftermarket
|
||||||||||||||||||||
|
Ride Control
|
181 | (14 | ) | 195 | — | 195 | ||||||||||||||
|
Emission Control
|
154 | (16 | ) | 170 | — | 170 | ||||||||||||||
|
Total Europe Aftermarket
|
335 | (30 | ) | 365 | — | 365 | ||||||||||||||
|
South America & India
|
374 | (40 | ) | 414 | 50 | 364 | ||||||||||||||
|
Total Europe, South America & India
|
2,047 | (273 | ) | 2,320 | 355 | 1,965 | ||||||||||||||
|
Asia
|
380 | 6 | 374 | 84 | 290 | |||||||||||||||
|
Australia
|
130 | (20 | ) | 150 | 11 | 139 | ||||||||||||||
|
Total Asia Pacific
|
510 | (14 | ) | 524 | 95 | 429 | ||||||||||||||
|
Total Tenneco
|
$ | 4,649 | $ | (299 | ) | $ | 4,948 | $ | 980 | $ | 3,968 | |||||||||
40
Table of Contents
| Year Ended December 31, 2008 | ||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||
|
Substrate
|
Excluding
|
|||||||||||||||||||
|
Revenues
|
Sales
|
Currency and
|
||||||||||||||||||
|
Currency
|
Excluding
|
Excluding
|
Substrate
|
|||||||||||||||||
| Revenues | Impact | Currency | Currency | Sales | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
North America Original Equipment
|
||||||||||||||||||||
|
Ride Control
|
$ | 493 | $ | — | $ | 493 | $ | — | $ | 493 | ||||||||||
|
Emission Control
|
1,591 | — | 1,591 | 773 | 818 | |||||||||||||||
|
Total North America Original Equipment
|
2,084 | — | 2,084 | 773 | 1,311 | |||||||||||||||
|
North America Aftermarket
|
||||||||||||||||||||
|
Ride Control
|
390 | — | 390 | — | 390 | |||||||||||||||
|
Emission Control
|
156 | — | 156 | — | 156 | |||||||||||||||
|
Total North America Aftermarket
|
546 | — | 546 | — | 546 | |||||||||||||||
|
Total North America
|
2,630 | — | 2,630 | 773 | 1,857 | |||||||||||||||
|
Europe Original Equipment
|
||||||||||||||||||||
|
Ride Control
|
479 | — | 479 | — | 479 | |||||||||||||||
|
Emission Control
|
1,487 | — | 1,487 | 539 | 948 | |||||||||||||||
|
Total Europe Original Equipment
|
1,966 | — | 1,966 | 539 | 1,427 | |||||||||||||||
|
Europe Aftermarket
|
||||||||||||||||||||
|
Ride Control
|
213 | — | 213 | — | 213 | |||||||||||||||
|
Emission Control
|
190 | — | 190 | — | 190 | |||||||||||||||
|
Total Europe Aftermarket
|
403 | — | 403 | — | 403 | |||||||||||||||
|
South America & India
|
389 | — | 389 | 55 | 334 | |||||||||||||||
|
Total Europe, South America & India
|
2,758 | — | 2,758 | 594 | 2,164 | |||||||||||||||
|
Asia
|
342 | — | 342 | 109 | 233 | |||||||||||||||
|
Australia
|
186 | — | 186 | 16 | 170 | |||||||||||||||
|
Total Asia Pacific
|
528 | — | 528 | 125 | 403 | |||||||||||||||
|
Total Tenneco
|
$ | 5,916 | $ | — | $ | 5,916 | $ | 1,492 | $ | 4,424 | ||||||||||
Revenues from our North American operations decreased
$538 million for 2009 compared to the same period last
year. Lower sales from both North American OE business units
were partially offset by higher aftermarket revenues. North
American OE emission control revenues were down
$437 million for 2009; excluding substrate sales and
currency, revenues were down $192 million compared to last
year. This decrease was mainly due to lower OE production
volumes
year-over-year
and a decrease in steel recovery due to lower steel costs. North
American OE ride control revenues for 2009 were down
$107 million from the prior year, excluding $4 million
of unfavorable currency. The decline was mainly driven by lower
OE production volumes. Our total North American OE revenues,
excluding substrate sales and currency, decreased
23 percent for 2009 compared to 2008. North American light
vehicle production decreased 32 percent in 2009 compared to
2008. Industry Class 8 commercial vehicle production was
down 38 percent and industry
Class 4-7
commercial vehicle production was down 39 percent in 2009
as compared to the previous year. Aftermarket revenues for North
America were $556 million for 2009, an increase of
$10 million compared to the prior year. Excluding
$6 million in unfavorable currency, aftermarket revenues
were up $16 million driven by stronger ride control volumes
and pricing, partially offset by lower emission control volumes.
Aftermarket ride control revenues, net of unfavorable currency,
increased five percent for 2009 while aftermarket emission
control revenues, net of unfavorable currency, decreased three
percent for 2009.
Our European, South American and Indian segment’s revenues
decreased $711 million, or 26 percent, in 2009
compared to 2008. Europe OE emission control revenues of
$917 million for 2009 were down 38 percent
41
Table of Contents
as compared to 2008. Excluding $178 million of unfavorable
currency and a reduction in substrate sales, Europe OE emission
control revenues decreased 17 percent from 2008 due to
lower OE production volumes and decreased
year-over-year
alloy surcharge recovery due to lower alloy surcharge costs.
Europe OE ride control revenues of $421 million in 2009
were down 12 percent year-over-year. Excluding unfavorable
currency, ride control revenues decreased by seven percent for
2009 due to lower production volumes, partially offset by new
ride control launches, including new CES business, and a
favorable vehicle mix weighted toward the A/B segment vehicles,
which have been better sellers under the recent government
incentive programs. Our total European OE revenues, excluding
substrate sales and currency, decreased 13 percent in 2009
compared to 2008. The 2009 total European light vehicle industry
production was down 20 percent when compared to 2008.
European aftermarket revenues decreased 17 percent or
$68 million for 2009 compared to last year. When adjusted
for unfavorable currency, aftermarket revenues were down nine
percent. Excluding the negative $14 million impact of
currency, ride control aftermarket revenues were down eight
percent while emission control aftermarket revenues were down
11 percent, excluding $16 million in unfavorable
currency. The decrease was driven by overall market declines but
particularly heavy duty ride control products and the ride
control market in Eastern Europe where economies have been more
severely impacted by the economic crisis. South American and
Indian revenues were $374 million during 2009, compared to
$389 million in the prior year. When unfavorable currency
and substrates are excluded, revenue was up $30 million
compared to last year. Our South American and Indian operations
benefited from improved OE production volumes and favorable
pricing.
Revenues from our Asia Pacific segment, which includes Australia
and Asia, decreased $18 million to $510 million in
2009 compared to last year. Excluding the impact of substrate
sales and currency, revenues increased $26 million from
$403 million in the prior year. Asian revenues for 2009
were $380 million, up 11 percent from last year.
Higher OE production volumes in China were the primary reason
for the increase. Excluding substrate sales and currency, Asian
revenue increased $57 million when compared with last year.
Full year 2009 revenues for Australia decreased 30 percent
to $130 million. Excluding lower substrate sales and
$20 million of unfavorable currency, Australian revenue
decreased 18 percent due to industry light vehicle
production declines.
42
Table of Contents
Net
Sales and Operating Revenues for Years 2008 and
2007
The following tables reflect our revenues for the years of 2008
and 2007. See “Net Sales and Operating Revenues for Years
2009 and 2008” for a description of why we present these
reconciliations of revenue.
| Year Ended December 31, 2008 | ||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||
|
Substrate
|
Excluding
|
|||||||||||||||||||
|
Revenues
|
Sales
|
Currency and
|
||||||||||||||||||
|
Currency
|
Excluding
|
Excluding
|
Substrate
|
|||||||||||||||||
| Revenues | Impact | Currency | Currency | Sales | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
North America Original Equipment
|
||||||||||||||||||||
|
Ride Control
|
$ | 493 | $ | (5 | ) | $ | 498 | $ | — | $ | 498 | |||||||||
|
Emission Control
|
1,591 | (2 | ) | 1,593 | 773 | 820 | ||||||||||||||
|
Total North America Original Equipment
|
2,084 | (7 | ) | 2,091 | 773 | 1,318 | ||||||||||||||
|
North America Aftermarket
|
||||||||||||||||||||
|
Ride Control
|
390 | — | 390 | — | 390 | |||||||||||||||
|
Emission Control
|
156 | — | 156 | — | 156 | |||||||||||||||
|
Total North America Aftermarket
|
546 | — | 546 | — | 546 | |||||||||||||||
|
Total North America
|
2,630 | (7 | ) | 2,637 | 773 | 1,864 | ||||||||||||||
|
Europe Original Equipment
|
||||||||||||||||||||
|
Ride Control
|
479 | 27 | 452 | — | 452 | |||||||||||||||
|
Emission Control
|
1,487 | 54 | 1,433 | 498 | 935 | |||||||||||||||
|
Total Europe Original Equipment
|
1,966 | 81 | 1,885 | 498 | 1,387 | |||||||||||||||
|
Europe Aftermarket
|
||||||||||||||||||||
|
Ride Control
|
213 | 10 | 203 | — | 203 | |||||||||||||||
|
Emission Control
|
190 | 7 | 183 | — | 183 | |||||||||||||||
|
Total Europe Aftermarket
|
403 | 17 | 386 | — | 386 | |||||||||||||||
|
South America & India
|
389 | 17 | 372 | 52 | 320 | |||||||||||||||
|
Total Europe, South America & India
|
2,758 | 115 | 2,643 | 550 | 2,093 | |||||||||||||||
|
Asia
|
342 | 29 | 313 | 101 | 212 | |||||||||||||||
|
Australia
|
186 | 6 | 180 | 15 | 165 | |||||||||||||||
|
Total Asia Pacific
|
528 | 35 | 493 | 116 | 377 | |||||||||||||||
|
Total Tenneco
|
$ | 5,916 | $ | 143 | $ | 5,773 | $ | 1,439 | $ | 4,334 | ||||||||||
43
Table of Contents
| Year Ended December 31, 2007 | ||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||
|
Substrate
|
Excluding
|
|||||||||||||||||||
|
Revenues
|
Sales
|
Currency and
|
||||||||||||||||||
|
Currency
|
Excluding
|
Excluding
|
Substrate
|
|||||||||||||||||
| Revenues | Impact | Currency | Currency | Sales | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
North America Original Equipment
|
||||||||||||||||||||
|
Ride Control
|
$ | 514 | $ | — | $ | 514 | $ | — | $ | 514 | ||||||||||
|
Emission Control
|
1,850 | — | 1,850 | 924 | 926 | |||||||||||||||
|
Total North America Original Equipment
|
2,364 | — | 2,364 | 924 | 1,440 | |||||||||||||||
|
North America Aftermarket
|
||||||||||||||||||||
|
Ride Control
|
385 | — | 385 | — | 385 | |||||||||||||||
|
Emission Control
|
152 | — | 152 | — | 152 | |||||||||||||||
|
Total North America Aftermarket
|
537 | — | 537 | — | 537 | |||||||||||||||
|
Total North America
|
2,901 | — | 2,901 | 924 | 1,977 | |||||||||||||||
|
Europe Original Equipment
|
||||||||||||||||||||
|
Ride Control
|
427 | — | 427 | — | 427 | |||||||||||||||
|
Emission Control
|
1,569 | — | 1,569 | 556 | 1,013 | |||||||||||||||
|
Total Europe Original Equipment
|
1,996 | — | 1,996 | 556 | 1,440 | |||||||||||||||
|
Europe Aftermarket
|
||||||||||||||||||||
|
Ride Control
|
201 | — | 201 | — | 201 | |||||||||||||||
|
Emission Control
|
207 | — | 207 | — | 207 | |||||||||||||||
|
Total Europe Aftermarket
|
408 | — | 408 | — | 408 | |||||||||||||||
|
South America & India
|
333 | — | 333 | 41 | 292 | |||||||||||||||
|
Total Europe, South America and India
|
2,737 | — | 2,737 | 597 | 2,140 | |||||||||||||||
|
Asia
|
352 | — | 352 | 125 | 227 | |||||||||||||||
|
Australia
|
194 | — | 194 | 27 | 167 | |||||||||||||||
|
Total Asia Pacific
|
546 | — | 546 | 152 | 394 | |||||||||||||||
|
Total Tenneco
|
$ | 6,184 | $ | — | $ | 6,184 | $ | 1,673 | $ | 4,511 | ||||||||||
Revenues from our North American operations decreased
$271 million in 2008 compared to 2007. Higher aftermarket
sales were more than offset by lower North American OE revenues.
North American OE emission control revenues were down
$259 million in 2008. Excluding substrate sales and
currency, revenues were down $106 million compared to 2007.
This decrease was primarily due to a 16%
year-over-year
decline in industry production volumes, including a temporary
stop of production on the Toyota Tundra, as well as significant
reduction in customer light truck production which included the
Ford Super Duty and F150, GMT 900 and the Chevrolet Trailblazer
and GMC Envoy. North American OE ride control revenues for 2008
were down $21 million from 2007 or down $16 million
excluding unfavorable currency. Revenues of $84 million
from our Kettering, Ohio ride-control operations which we
acquired in May 2008 helped offset the significantly lower
light truck production. Our total North American OE revenues,
excluding substrate sales and currency, decreased nine percent
in 2008 compared to 2007. The North American light truck
production rate decreased 25 percent while production rates
for passenger cars decreased three percent. Aftermarket revenues
for North America were $546 million in 2008, an increase of
$9 million compared to 2007, driven by higher volumes in
both product lines as well as higher pricing to offset material
cost increases. Aftermarket ride control revenues increased one
percent in 2008 while aftermarket emission control revenues
increased three percent in 2008.
Our European, South American and Indian segment’s revenues
increased $21 million or one percent in 2008 compared to
2007. Total Europe OE revenues were $1,966 million, down
one percent from 2007. Excluding favorable currency and
substrate sales, total European OE revenue was down four percent
while total light vehicle production for Europe was down five
percent. Europe OE emission control revenues decreased five
percent to $1,487 million from $1,569 million in 2007.
Excluding substrate sales and a favorable impact of
$54 million due to currency, Europe OE emission control
revenues decreased eight percent
44
Table of Contents
from 2007, primarily due to lower volumes on the Opel Astra and
Vectra, the BMW 3 Series and Volvo. Improved volumes on the BMW
1 series, VW Golf, the new Jaguar XF, and the Ford Mondea and
C-Max helped partially offset the emission control decrease.
Europe OE ride control revenues of $479 million in 2008
were up 12 percent
year-over-year.
Excluding currency, revenues increased by six percent in 2008
due to favorable volumes on the Suzuki Splash, VW Passat and
Transporter, Ford Focus, the new Mazda 2 and Mercedes C-class.
Also benefiting 2008 Europe OE ride control revenues were
$18 million from our recently acquired suspension business
of Gruppo Marzocchi. European aftermarket revenues decreased
$5 million in 2008 compared to 2007. When adjusted for
currency, aftermarket revenues were down $22 million
year-over-year.
Excluding the $10 million favorable impact of currency,
ride control aftermarket revenues were $2 million better
when compared to 2007. Emission control aftermarket revenues
were down $24 million, excluding $7 million in
currency benefit, due to overall market declines. South American
and Indian revenues were $389 million during 2008, compared
to $333 million in 2007. Stronger OE and aftermarket sales
and currency appreciation drove this increase.
Revenues from our Asia Pacific segment decreased
$18 million to $528 million in 2008 compared to
$546 million in 2007. Excluding the impact of substrate
sales and currency, revenues decreased to $377 million from
$394 million in 2007. Asian revenues for 2008 were
$342 million, down three percent from 2007. Although
overall China OE production was up slightly, GM, Volkswagen,
Ford and Brilliance, our largest customers in this region, all
took unplanned downtime during the year. Revenues for Australia
were down $8 million, to $186 million in 2008 compared
to $194 million in 2007. Excluding substrate sales and
favorable currency of $6 million, Australian revenue was
down $2 million versus 2007.
Earnings
before Interest Expense, Income Taxes and Noncontrolling
Interests (“EBIT”) for Years 2009 and
2008
|
Year Ended
|
||||||||||||
| December 31, | ||||||||||||
| 2009 | 2008 | Change | ||||||||||
| (Millions) | ||||||||||||
|
North America
|
$ | 42 | $ | (107 | ) | $ | 149 | |||||
|
Europe, South America and India
|
20 | 85 | (65 | ) | ||||||||
|
Asia Pacific
|
30 | 19 | 11 | |||||||||
| $ | 92 | $ | (3 | ) | $ | 95 | ||||||
The EBIT results shown in the preceding table include the
following items, discussed below under “Restructuring and
Other Charges” and “Liquidity and Capital
Resources — Capitalization”, which have an effect
on the comparability of EBIT results between periods:
|
Year Ended
|
||||||||
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (Millions) | ||||||||
|
North America
|
||||||||
|
Restructuring and related expenses
|
$ | 17 | $ | 16 | ||||
|
Environmental reserve(1)
|
5 | — | ||||||
|
New aftermarket customer changeover costs(2)
|
— | 7 | ||||||
|
Goodwill impairment charge(3)
|
— | 114 | ||||||
|
Europe, South America and India
|
||||||||
|
Restructuring and related expenses
|
4 | 22 | ||||||
|
Asia Pacific
|
||||||||
|
Restructuring and related expenses
|
— | 2 | ||||||
45
Table of Contents
| (1) | Represents a reserve related to environmental liabilities of a company Tenneco acquired in 1996, at locations never operated by Tenneco, and for which that acquired company had been indemnified by Mark IV Industries, which declared bankruptcy in the second quarter of 2009. | |
| (2) | Represents costs associated with changing new aftermarket customers from their prior suppliers to an inventory of our products. Although our aftermarket business regularly incurs changeover costs, we specifically identify in the table above those changeover costs that, based on the size or number of customers involved, we believe are of an unusual nature for the period in which they were incurred. | |
| (3) | Non-cash asset impairment charge related to goodwill for Tenneco’s 1996 acquisition of Clevite Industries. |
EBIT for North American operations was $42 million in 2009,
an increase of $149 million from a loss of
$107 million one year ago. The benefits to EBIT from new
platform launches, manufacturing efficiencies, reduced selling,
general, administrative and engineering spending, lower customer
changeover costs, restructuring savings, impairment charge and
customer recoveries were only partially offset by lower OE
production volumes and the related manufacturing fixed cost
absorption and increased restructuring and related expenses.
Currency had a $10 million favorable impact on North
American EBIT. Restructuring and related expenses of
$17 million and an environmental charge of $5 million
were included in 2009. Restructuring and related costs of
$16 million, a goodwill impairment charge of
$114 million and changeover costs for new aftermarket
customers of $7 million were included in 2008 EBIT.
Our European, South American and Indian segment’s EBIT was
$20 million for 2009, down $65 million from
$85 million in 2008. Significant OE production volume
declines, the related manufacturing fixed cost absorption and
lower aftermarket sales drove the decline in EBIT. Currency
further reduced EBIT by $14 million. These decreases were
partially offset by the impact of our new OE platform launches,
improved pricing, favorable material costs, savings from our
prior restructuring activities and reduced restructuring and
related expenses. EBIT for 2009 included $4 million of
restructuring and related expenses compared to $22 million
in 2008.
EBIT for our Asia Pacific segment, which includes Asia and
Australia, increased $11 million to $30 million in
2009 compared to $19 million in the prior year. Higher OE
production volumes in Asia, restructuring savings, manufacturing
cost improvements, material cost management and reduced
restructuring and related expenses drove the improvement. Lower
OE production volumes in Australia and the related manufacturing
fixed cost absorption partially offset these improvements.
Unfavorable currency of $3 million impacted Asia
Pacific’s 2009 EBIT. Included in Asia Pacific’s 2008
EBIT was $2 million in restructuring and related expenses.
Currency had a $7 million unfavorable impact on overall
company EBIT for 2009 as compared to the prior year.
EBIT
for Years 2008 and 2007
|
Year Ended
|
||||||||||||
| December 31, | ||||||||||||
| 2008 | 2007 | Change | ||||||||||
| (Millions) | ||||||||||||
|
North America
|
$ | (107 | ) | $ | 120 | $ | (227 | ) | ||||
|
Europe, South America and India
|
85 | 99 | (14 | ) | ||||||||
|
Asia Pacific
|
19 | 33 | (14 | ) | ||||||||
| $ | (3 | ) | $ | 252 | $ | (255 | ) | |||||
46
Table of Contents
The EBIT results shown in the preceding table include the
following items, discussed below under “Restructuring and
Other Charges” and “Liquidity and Capital
Resources — Capitalization”, which have an effect
on the comparability of EBIT results between periods:
|
Year Ended
|
||||||||
| December 31, | ||||||||
| 2008 | 2007 | |||||||
| (Millions) | ||||||||
|
North America
|
||||||||
|
Restructuring and related expenses
|
$ | 16 | $ | 3 | ||||
|
New aftermarket customer changeover costs(1)
|
7 | 5 | ||||||
|
Goodwill impairment charge(2)
|
114 | — | ||||||
|
Europe, South America and India
|
||||||||
|
Restructuring and related expenses
|
22 | 22 | ||||||
|
Asia Pacific
|
||||||||
|
Restructuring and related expenses
|
2 | — | ||||||
| (1) | Represents costs associated with changing new aftermarket customers from their prior suppliers to an inventory of our products. Although our aftermarket business regularly incurs changeover costs, we specifically identify in the table above those changeover costs that, based on the size or number of customers involved, we believe are of an unusual nature for the period in which they were incurred. | |
| (2) | Non-cash asset impairment charge related to goodwill for Tenneco’s 1996 acquisition of Clevite Industries. |
EBIT for North American operations was a loss of
$107 million in 2008, a decrease of $227 million from
$120 million of earnings in 2007. OE industry production
volume declines and unfavorable product mix from reduced sales
on light trucks negatively impacted EBIT by $89 million.
SUV and
pick-up
truck business accounted for 54 percent of 2008 revenues
compared to 72 percent of 2007 revenues. Lower
manufacturing cost absorption driven by significant downward
changes to customer production schedules reduced EBIT by an
additional $31 million. Higher depreciation expense related
to capital expenditures to support our sizeable 2007 emission
control platform launches further reduced EBIT. North
America’s 2008 EBIT was also negatively impacted by
$16 million in restructuring and related costs, goodwill
impairment charge of $114 million, changeover costs for new
aftermarket customers of $7 million and unfavorable
currency exchange of $20 million, related to the Mexican
Peso and Canadian dollar. These decreases were partially offset
by higher aftermarket volumes and new OE platform launches in
both emission and ride control business which combined to impact
EBIT favorably by $29 million as well as focused spending
reduction efforts to help counter the eroding North American
industry environment, mainly in lower selling, general and
administrative costs. Restructuring and related costs of
$3 million and changeover costs for new aftermarket
customers of $5 million were included in 2007 EBIT.
Our European, South American and Indian segment’s EBIT was
$85 million for 2008, down $14 million from
$99 million in 2007. OE production volume declines,
unfavorable vehicle mix, lower aftermarket sales volumes and
related manufacturing fixed cost absorption had a combined
$45 million unfavorable impact on 2008 EBIT. Currency
further reduced EBIT by $6 million. These decreases were
partially offset by the impact of our new OE platform launches,
improved pricing, restructuring savings, and reduced selling,
general and administrative spending due to discretionary
spending controls and overhead reduction efforts. Restructuring
and related expenses of $22 million were included in EBIT
for each of 2008 and 2007.
EBIT for our Asia Pacific segment, which includes Asia and
Australia, decreased $14 million to $19 million in
2008 compared to $33 million in 2007. Lower OE production
volumes and the related manufacturing fixed cost absorption
combined to reduce EBIT by $12 million. Favorable currency
of $4 million partially offset these declines. Included in
Asia Pacific’s 2008 EBIT were $2 million in
restructuring and related expenses.
Currency had a $22 million unfavorable impact on overall
company EBIT for 2008, as compared to 2007.
47
Table of Contents
EBIT
as a Percentage of Revenue for Years 2009, 2008 and
2007
|
Year Ended
|
||||||||||||
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
North America
|
2 | % | (4 | )% | 4 | % | ||||||
|
Europe, South America and India
|
1 | % | 3 | % | 4 | % | ||||||
|
Asia Pacific
|
6 | % | 4 | % | 6 | % | ||||||
|
Total Tenneco
|
2 | % | — | 4 | % | |||||||
In North America, EBIT as a percentage of revenue for 2009 was
up six percentage points from the prior year level. The benefits
to EBIT from new platform launches, manufacturing efficiencies,
reduced selling, general, administrative and engineering
spending, lower customer changeover costs and goodwill
impairment charges, favorable currency, restructuring savings
and customer recoveries were only partially offset by lower OE
production volumes, the related manufacturing fixed cost
absorption and an environmental reserve. During 2009, North
American results included higher restructuring and related
charges. In Europe, South America and India, EBIT margin for
2009 was down two percentage points from prior year. Lower OE
production volumes and the related manufacturing fixed cost
absorption, aftermarket sales declines and unfavorable currency
impact were partially offset by new platform launches, improved
pricing, favorable material costs and savings from our prior
restructuring activities. Restructuring and related expenses
were lower in Europe, South America and India’s 2009 EBIT
compared to prior year. EBIT as a percentage of revenue for our
Asia Pacific segment increased two percentage points in 2009
versus the prior year. Higher OE production volumes in Asia,
restructuring savings, manufacturing cost improvements, material
cost management and reduced restructuring and related expenses
drove the improvement which was partially offset by OE
production volume decreases in Australia and the related
manufacturing fixed cost absorption and unfavorable currency.
Asia Pacific 2009 results included lower restructuring and
related expenses over prior year.
In North America, EBIT as a percentage of revenue for 2008 was
down eight percentage points from 2007 levels. OE industry
production volume declines, unfavorable product mix, lower
manufacturing cost absorption driven by significant downward
changes to customer production schedules, goodwill impairment
charge, higher depreciation expense and unfavorable currency
impact drove the decrease. During 2008, North American
results included higher restructuring and related charges and
aftermarket changeover costs. In Europe, South America and
India, EBIT margin for 2008 was down one percentage point from
2007. Lower OE production volumes and the related manufacturing
fixed cost absorption, aftermarket sales declines, unfavorable
currency impact and increased investments in engineering were
partially offset by new platform launches. Restructuring and
related expenses were the same as 2007. EBIT as a percentage of
revenue for our Asia Pacific segment decreased two percentage
points in 2008 versus 2007. OE production volume decreases and
manufacturing fixed cost absorption, drove the decline.
Favorable currency partially offset the decline in EBIT margin.
Asia Pacific 2008 results included higher restructuring and
related expenses over 2007.
Interest
Expense, Net of Interest Capitalized
We reported interest expense for 2009 of $133 million net
of interest capitalized of $4 million ($130 million in
our U.S. operations and $3 million in our foreign
operations), up from $113 million net of interest
capitalized of $6 million ($111 million in our
U.S. operations and $2 million in our foreign
operations) a year ago primarily related to higher interest
rates due to the amendment of the senior credit facility in
February 2009. In addition, the requirement to mark to
market our interest rate swaps decreased interest expense by
$7 million in 2008.
We reported interest expense in 2008 of $113 million net of
interest capitalized of $6 million ($111 million in
our U.S. operations and $2 million in our foreign
operations), down from $164 million ($162 million in
our U.S. operations and $2 million in our foreign
operations) in 2007. The requirement to mark to market the
interest rate swaps decreased interest expense by
$7 million for 2008, versus a decrease to expense of
$6 million in 2007. Included in the 2007 results was
$5 million related to a charge to expense the unamortized
portion of debt issuance costs related to our amended and
restated senior credit facility in connection with our debt
refinancing in the first quarter of 2007 and $21 million
related to a net charge to expense the costs associated with the
tender premium and fees, the write-off of deferred debt issuance
costs and the write-off of
48
Table of Contents
previously recognized debt issuance premium in connection with
our November 2007 refinancing transaction. Interest expense
decreased in 2008 compared to 2007 as a result of a decrease in
our variable and fixed rate debt and lower rates on both our
variable rate debt and a portion of our fixed rate debt.
On December 31, 2009, we had $1.012 billion in
long-term debt obligations that have fixed interest rates. Of
that amount, $245 million is fixed through July 2013,
$500 million is fixed through November 2014,
$250 million is fixed through November 2015, and the
remainder is fixed from 2010 through 2025. We also have
$139 million in long-term debt obligations that are subject
to variable interest rates. For more detailed explanations on
our debt structure and senior credit facility refer to
“Liquidity and Capital Resources —
Capitalization” later in this Management’s Discussion
and Analysis.
Income
Taxes
In 2009, we recorded income tax expense of $13 million.
Computed using the U.S. Federal statutory income tax rate of
35 percent, income tax would be a benefit of
$14 million. The difference is due primarily to valuation
allowances against deferred tax assets generated by 2009 losses
in the U.S. and in certain foreign countries which we cannot
benefit, partially offset by adjustments to past valuation
allowances for deferred tax assets including a reversal of
$20 million of U.S. valuation allowance based on the change
in the fair value of a tax planning strategy. We reported income
tax expense of $289 million in 2008 which included
$244 million in tax charges primarily related to recording
a valuation allowance against our U.S. deferred tax assets,
repatriating cash from Brazil as a result of strong performance
in South America over the past several years and changes in
foreign tax rates. We reported $83 million of income tax
expense in 2007 which included $56 million in tax charges
primarily related to a $66 million non-cash tax charge to
realign the company’s European ownership structure,
partially offset by net tax benefits of $10 million related
to a reduction in foreign income tax rates and adjustments for
prior year income tax returns
Restructuring
and Other Charges
Over the past several years, we have adopted plans to
restructure portions of our operations. These plans were
approved by our Board of Directors and were designed to reduce
operational and administrative overhead costs throughout the
business. Our Board of Directors approved a restructuring
project in 2001, known as Project Genesis, which was designed to
lower our fixed costs, relocate capacity, reduce our work force,
improve efficiency and utilization, and better optimize our
global footprint. We have subsequently engaged in various other
restructuring projects related to Project Genesis. We incurred
$25 million in restructuring and related costs during 2007,
of which $22 million was recorded in cost of sales and
$3 million was recorded in selling, general, administrative
and engineering expense. We incurred $40 million in
restructuring and related costs during 2008, of which
$17 million was recorded in cost of sales and
$23 million was recorded in selling, general,
administrative and engineering expense. In 2009, we incurred
$21 million in restructuring and related costs, of which
$16 million was recorded in cost of sales, $1 million
was recorded in selling, general, administrative and engineering
expense and $4 million was recorded in depreciation and
amortization expense.
Under the terms of our amended and restated senior credit
agreement that took effect on February 23, 2009, we are
allowed to exclude $40 million of cash charges and
expenses, before taxes, related to cost reduction initiatives
incurred after February 23, 2009 from the calculation of
the financial covenant ratios required under our senior credit
facility. As of December 31, 2009, we have excluded
$16 million in allowable charges relating to restructuring
initiatives against the $40 million available under the
terms of the February 2009 amended and restated senior credit
facility.
On September 22, 2009, we announced that we will be closing
our original equipment ride control plant in Cozad, Nebraska as
we continue to restructure our operations. We now estimate this
closing will generate $8 million in annualized cost savings
once completed, incremental to the $58 million of savings
related to our October 2008 announcement. We expect the
elimination of 500 positions at the Cozad plant and expect to
record up to $20 million in restructuring and related
expenses, of which approximately $14 million represents
cash expenditures, with all expenses recorded by third quarter
2010. We plan to hire at other facilities as we move the
production from Cozad to those facilities, resulting in a net
decrease of approximately 60 positions. During 2009 we recorded
$11 million of restructuring and related expenses related
to this initiative.
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Table of Contents
As originally announced in October 2008 and revised in January
2009, we eliminated 1,100 positions and recorded
$31 million in charges, of which approximately
$25 million represented cash expenditures. We recorded
$24 million of these charges in 2008 and $7 million in
2009. We generated approximately $58 million in annual
savings beginning in 2009 related to this restructuring program.
Earnings
(Loss) Per Share
We reported a net loss of $73 million or $1.50 per diluted
common share for 2009, as compared to a net loss of
$415 million or $8.95 per diluted common share for 2008.
Included in the results for 2009 were negative impacts from
expenses related to our restructuring activities, an
environmental reserve and tax adjustments. The net impact of
these items decreased earnings per diluted share by $0.91.
Included in the results for 2008 were negative impacts from
expenses related to our restructuring activities, new
aftermarket customer changeover costs, a goodwill impairment
charge and tax adjustments. The net impact of these items
decreased earnings per diluted share by $9.37.
We reported a net loss of $415 million or $8.95 per diluted
common share for 2008, as compared to a net loss of
$5 million or $0.11 per diluted common share for 2007.
Included in the results for 2008 were negative impacts from
expenses related to our restructuring activities, new
aftermarket customer changeover costs, a goodwill impairment
charge and tax adjustments. The net impact of these items
decreased earnings per diluted share by $9.37. Included in the
results for 2007 were negative impacts from expenses related to
our restructuring activities, new aftermarket customer
changeover costs, charges relating to refinancing activities and
tax adjustments. The net impact of these items decreased
earnings per diluted share by $1.93.
Dividends
on Common Stock
On January 10, 2001, our Board of Directors eliminated the
quarterly dividend on our common stock. There are no current
plans to reinstate a dividend on our common stock.
Cash
Flows for 2009 and 2008
|
Year Ended
|
||||||||
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (Millions) | ||||||||
|
Cash provided (used) by:
|
||||||||
|
Operating activities
|
$ | 241 | $ | 160 | ||||
|
Investing activities
|
(119 | ) | (261 | ) | ||||
|
Financing activities
|
(87 | ) | 58 | |||||
Operating
Activities
In 2009, operating activities provided $241 million in cash
compared to $160 million in cash provided during last year.
In 2009, working capital provided cash of $65 million
versus a cash use of $31 million in 2008. Receivables were
a use of cash of $8 million compared to cash provided by
receivables of $126 million in the prior year. This
decrease in cash flow from receivables was attributable to the
revenue decline in the fourth quarter 2008 as compared to the
revenue increase in the fourth quarter 2009 combined with
reduced cash flow from factored receivables which decreased
receivable collections by $42 million in 2009 compared to
$22 million in increased collections of receivables for
last year. Inventory cash flow improved by $82 million as a
result of our inventory management efforts. Accounts payable
used cash of $2 million compared to $181 million last
year, an improvement of $179 million. Cash taxes were
$38 million for 2009, compared to $62 million in the
prior year, reflecting lower 2009 taxable income in
jurisdictions where we were taxpayers.
50
Table of Contents
One of our European subsidiaries receives payment from one of
its OE customers whereby the accounts receivable are satisfied
through the delivery of negotiable financial instruments. We may
collect these financial instruments before their maturity date
by either selling them at a discount or using them to satisfy
accounts receivable that have previously been sold to a European
bank. Any of these financial instruments which are not sold are
classified as other current assets as they do not meet our
definition of cash equivalents. The amount of these financial
instruments that was collected before their maturity date and
sold at a discount totaled $5 million as of
December 31, 2009, compared with $23 million at
December 31, 2008. No negotiable financial instruments were
held by our European subsidiary as of December 31, 2009 or
2008, respectively.
In certain instances several of our Chinese subsidiaries receive
payment from OE customers and satisfy vendor payments through
the receipt and delivery of negotiable financial instruments.
Financial instruments used to satisfy vendor payables and not
redeemed totaled $15 million and $6 million at
December 31, 2009 and 2008, respectively, and were
classified as notes payable. Financial instruments received from
OE customers and not redeemed totaled $15 million and
$6 million at December 31, 2009 and 2008,
respectively, and were classified as other current assets. Some
of our Chinese subsidiaries that issue their own negotiable
financial instruments to pay vendors are required to maintain a
cash balance if they exceed certain credit limits with the
financial institution that guarantees those financial
instruments. A restricted cash balance was not required at those
Chinese subsidiaries at December 31, 2009 and 2008,
respectively.
The negotiable financial instruments received by one of our
European subsidiaries and some of our Chinese subsidiaries are
checks drawn by our OE customers and guaranteed by their banks
that are payable at a future date. The use of these instruments
for payment follows local commercial practice. Because
negotiable financial instruments are financial obligations of
our customers and are guaranteed by our customers’ banks,
we believe they represent a lower financial risk than the
outstanding accounts receivable that they satisfy which are not
guaranteed by a bank.
Investing
Activities
Cash used for investing activities was $142 million lower
in 2009 compared to a year ago. Cash payments for plant,
property and equipment were $120 million in 2009 versus
payments of $233 million in 2008, a reduction of
$113 million. This reduction was due to deferring
discretionary projects, redeploying assets and using existing
capacity while continuing to make the investments needed for new
business launches, technology development and future growth
opportunities. Cash of $19 million was used to acquire ride
control assets at Delphi’s Kettering, Ohio location during
2008. Also in 2008, we acquired Gruppo Marzocchi which resulted
in a $3 million cash inflow ($(1) million cash
consideration paid, net of $4 million cash acquired). Cash
payments for software-related intangible assets were
$6 million in 2009 compared to $15 million in 2008.
Financing
Activities
Cash flow from financing activities was an outflow of
$87 million in 2009 compared to an inflow of
$58 million in 2008. We used the $188 million in net
proceeds from our common stock offering in the fourth quarter of
2009 to pay down debt, primarily borrowings against our
revolving credit facility. We ended 2009 with no borrowings
under our revolving credit facility.
Cash
Flows for 2008 and 2007
|
Year Ended
|
||||||||
| December 31, | ||||||||
| 2008 | 2007 | |||||||
| (Millions) | ||||||||
|
Cash provided (used) by:
|
||||||||
|
Operating activities
|
$ | 160 | $ | 158 | ||||
|
Investing activities
|
(261 | ) | (202 | ) | ||||
|
Financing activities
|
58 | (10 | ) | |||||
51
Table of Contents
Operating
Activities
For 2008, operating activities provided $160 million in
cash compared to $158 million in cash from 2007. Cash used
for working capital during 2008 was $31 million versus
$83 million in 2007. Receivables provided cash of
$126 million compared to a use of cash of $116 million
in 2007. The cash provided by receivables reflects an increase
of $22 million in securitized accounts receivable.
Inventory cash flow represented a cash inflow of
$19 million during 2008 versus a cash outflow of
$66 million in 2007. The improvement was primarily due to a
significant decrease in cash used for inventories of catalytic
converters sourced from South Africa. Accounts payable used cash
of $181 million compared to 2007’s cash inflow of
$100 million driven by the rapid decline in global
production. Cash taxes were $62 million for 2008, compared
to $60 million in 2007.
One of our European subsidiaries receives payment from one of
its OE customers whereby the accounts receivable are satisfied
through the delivery of negotiable financial instruments. We may
collect these financial instruments before their maturity date
by either selling them at a discount or using them to satisfy
accounts receivable that have previously been sold to a European
bank. Any of these financial instruments which are not sold are
classified as other current assets as they do not meet our
definition of cash equivalents. The amount of these financial
instruments that was collected before their maturity date and
sold at a discount totaled $23 million as of
December 31, 2008, compared with $15 million at the
same date in 2007. No negotiable financial instruments were held
by our European subsidiary as of December 31, 2008 or
December 31, 2007.
In certain instances several of our Chinese subsidiaries receive
payment from OE customers and satisfy vendor payments through
the receipt and delivery of negotiable financial instruments.
Financial instruments used to satisfy vendor payables and not
redeemed totaled $6 million and $23 million at
December 31, 2008 and 2007, respectively, and were
classified as notes payable. Financial instruments received from
OE customers and not redeemed totaled $6 million and
$8 million at December 31, 2008 and 2007,
respectively, and were classified as other current assets. One
of our Chinese subsidiaries that issues its own negotiable
financial instruments to pay its vendors is required to maintain
a cash balance if they exceed certain credit limits with the
financial institution that guarantees those financial
instruments. A restricted cash balance was not required at that
Chinese subsidiary as of December 31, 2008 and 2007.
The negotiable financial instruments received by one of our
European subsidiaries and some of our Chinese subsidiaries are
checks drawn by our OE customers and guaranteed by their banks
that are payable at a future date. The use of these instruments
for payment follows local commercial practice. Because
negotiable financial instruments are financial obligations of
our customers and are guaranteed by our customers’ banks,
we believe they represent a lower financial risk than the
outstanding accounts receivable that they satisfy which are not
guaranteed by a bank.
Investing
Activities
Cash used for investing activities was $59 million higher
in 2008 compared to 2007. Cash payments for plant, property and
equipment were $233 million in 2008 versus payments of
$177 million in 2007. The increase of $56 million in
cash payments for plant, property and equipment was to support
new business that has been awarded for 2010 and 2011. Cash of
$19 million was used to acquire ride control assets at
Delphi’s Kettering, Ohio location during 2008. Also in
2008, we acquired Gruppo Marzocchi which resulted in a
$3 million cash inflow ($(1) million cash
consideration paid, net of $4 million cash acquired). Cash
of $16 million was used to acquire Combustion Components
Associates’
ELIM-NOx
tm
technology during 2007. Cash payments for software-related
intangible assets were $15 million in 2008 compared to
$19 million in 2007.
Financing
Activities
Cash flow from financing activities was a $58 million
inflow in 2008 compared to an outflow of $10 million in
2007. The increase was mainly due to higher borrowings under our
revolving credit facility.
52
Table of Contents
Outlook
In 2010, OE production schedules are projected to increase over
2009’s record low levels. According to Global Insight,
North American light vehicle production levels are expected to
increase an estimated 24 percent in 2010 compared to 2009,
with passenger car production levels expected to increase by
22 percent and light trucks projected to increase by
26 percent. Light vehicle production for 2010 in Europe is
projected by Global Insight to improve by four percent compared
to 2009, with estimated production increases of three percent
for passenger cars and 19 percent for light trucks.
Compared to 2009, Global Insight projects production to rise in
South America by eight percent, and 20 percent in India in
2010. Global Insight also projects that China’s 2010 light
vehicle production will increase by eight percent over 2009. For
the
Class 4-8
on-road commercial vehicle segment, Global Insight projects that
OE production schedules will increase 18 percent in
North America, 36 percent in Europe and eight percent
in China. We anticipate that the global aftermarket for 2010
will be stable. We will continue to support our strong brands
and aggressively pursue new customers, actions that we hope will
help expand our market share globally.
We are well positioned to deliver revenue and earnings growth in
2010 as we launch new business and take advantage of volume
increases while continuing to benefit from cost reductions and
operational improvements. Tenneco estimates that our global
original equipment revenues will be approximately
$4.4 billion in 2010 and $5.7 billion in 2011.
Adjusted for substrate sales, the company’s global original
equipment value-added revenues are estimated to be approximately
$3.2 billion in 2010 and $4.0 billion in 2011. Our
estimates are based on 2010 light vehicle production forecasts
of 10.6 million units in North America, 17.6 million
units in Europe and 13.4 million units in China. In 2011,
light vehicle production is forecasted to be 12.3 million
in North America, 18.3 million in Europe and
14.8 million in China.
In addition, we project we will achieve a five year average
compounded annual OE revenue growth rate of 18 percent to
20 percent through 2014. The growth is primarily driven by
increasingly stringent and broader emissions regulations that
are being implemented globally, which will accelerate growth in
the on-road and off-road commercial vehicle markets. Our
estimates of our future OE revenue growth is also based on unit
volume projections by Global Insight that global light vehicle
production will grow at an annual compounded growth rate of
seven percent through 2014 and on-road commercial vehicle
production will grow at an annual compounded growth rate of
12 percent through 2014. We assume non-road commercial
vehicle production will grow at slightly lower growth rates than
on-road commercial vehicles.
Between fourth quarter 2009 and fourth quarter 2011, we are
launching multiple programs with eleven different commercial
vehicle customers, both truck and engine manufacturers, to help
customers meet new emissions regulations for on and off-road
commercial vehicles. We began launching some of these programs
in China at the end of last year with China National Heavy Truck
Company, Shanghai Diesel Engine Company and Weichai Power.
Programs in North America, Europe and South America primarily
begin launching in the second half of 2010. Our commercial
vehicle emission control customers also include Caterpillar,
Navistar and Deutz as well as five customers who will be
announced as programs launch. We will also supply diesel
aftertreatment systems, including selective catalytic reduction,
for next generation heavy-duty
pick-up
trucks in North America. Based on current light and commercial
vehicle production forecasts, we project that 15 percent of
our global OE revenues for 2011 and between 25 percent and
30 percent of our global OE revenues for 2012 will be
generated by commercial vehicle business.
The revenue estimates presented in this “Outlook” are
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. Our revenue estimates are subject to increase or
decrease due to changes in customer requirements, customer and
consumer preferences, and the number of vehicles actually
produced by our customers. We update these estimates annually.
In the interim we do not intend to otherwise update the
estimates to reflect future changes in these assumptions. In
addition, our revenue estimate is based on our anticipated
pricing for each applicable
53
Table of Contents
program over its life. However, we are under continuing pricing
pressures from our OE customers. We do not intend to update the
amounts shown above for any price changes. Finally, for our
foreign operations, our revenue estimate assumes a fixed foreign
currency value. This value is used to translate foreign business
to the U.S. dollar. Currency in our foreign operations is
subject to fluctuation based on the economic conditions in each
of our foreign operations. We do not intend to update the
amounts shown above due to these fluctuations. See
“Cautionary Statement for Purposes of the ‘Safe
Harbor’ Provisions of the Private Securities Litigation
Reform Act of 1995” and Item 1A, “Risk
Factors.”
We expect our capital expenditures for 2010 to be approximately
$160 million to $170 million. Depreciation and
amortization for 2010 will be approximately $225 million.
We expect our interest expense to be about $125 million and
our cash taxes to range between $50 million and
$60 million.
Liquidity
and Capital Resources
Capitalization
|
Year Ended
|
||||||||||||
| December 31, | ||||||||||||
| 2009 | 2008 | % Change | ||||||||||
| (Millions) | ||||||||||||
|
Short-term debt and maturities classified as current
|
$ | 75 | $ | 49 | 53 | % | ||||||
|
Long-term debt
|
1,145 | 1,402 | (18 | ) | ||||||||
|
Total debt
|
1,220 | 1,451 | (16 | ) | ||||||||
|
Total redeemable noncontrolling interests
|
7 | 7 | — | |||||||||
|
Total noncontrolling interests
|
32 | 24 | 33 | |||||||||
|
Tenneco Inc. Shareholders’ equity
|
(21 | ) | (251 | ) | 92 | |||||||
|
Total equity
|
11 | (227 | ) | 105 | ||||||||
|
Total capitalization
|
$ | 1,238 | $ | 1,231 | 1 | |||||||
General.
Short-term debt, which includes
maturities classified as current and borrowings by foreign
subsidiaries, was $75 million and $49 million as of
December 31, 2009 and 2008, respectively. Borrowings under
our revolving credit facilities, which are classified as
long-term debt, were $0 million and $239 million as of
December 31, 2009 and December 31, 2008, respectively.
The 2009 increase in total equity resulted primarily from a
$188 million increase in common stock due to the November
2009 public offering of 12 million shares of common stock
at a price of $16.50 per share, a $79 million increase from
translation of foreign balances into U.S. dollars, a
$27 million increase in additional liability for pension
and postretirement benefits offset by a net loss attributable to
Tenneco Inc. of $73 million. While our shareholders’
equity balance was negative at December 31, 2009 and 2008,
it had no effect on our business operations. We have no debt
covenants that are based upon our book equity, and there are no
other agreements that are adversely impacted by our negative
book equity.
Overview.
Our financing arrangements are
primarily provided by a committed senior secured financing
arrangement with a syndicate of banks and other financial
institutions. The arrangement is secured by substantially all
our domestic assets and pledges of up to 66 percent of the
stock of certain first-tier foreign subsidiaries, as well as
guarantees by our material domestic subsidiaries. As of
December 31, 2009, the senior credit facility consisted of
a five-year, $133 million term loan A maturing in March
2012, a five-year, $550 million revolving credit facility
maturing in March 2012, and a seven-year $130 million
tranche B-1
letter of credit/revolving loan facility maturing in March 2014.
Our outstanding debt also includes $245 million of
10
1
/
4
percent senior secured notes due July 15, 2013,
$250 million of
8
1
/
8
percent
senior notes due November 15, 2015 and $500 million of
8
5
/
8
percent
senior subordinated notes due November 15, 2014. At
December 31, 2009 we had unused borrowing capacity of
$630 million under our $680 million revolving credit
facilities with $50 million in letters of credit
outstanding and no borrowings.
54
Table of Contents
The term loan A facility is payable in twelve consecutive
quarterly installments, commencing June 30, 2009 as
follows: $6 million due each of June 30,
September 30, December 31, 2009 and March 31,
2010, $15 million due each of June 30,
September 30, December 31, 2010 and March 31,
2011, and $17 million due each of June 30,
September 30, December 31, 2011 and March 16,
2012. Over the next twelve months we plan to repay
$51 million of the senior term loan due 2012 by increasing
our revolver borrowings which are classified as long-term debt.
Accordingly, we have classified the $51 million repayment
as long-term debt. The revolving credit facility requires that
any amounts drawn be repaid by March 2012. Prior to that date,
funds may be borrowed, repaid and re-borrowed under the
revolving credit facility without premium or penalty. Letters of
credit may be issued under the revolving credit facility.
The
tranche B-1
letter of credit/revolving loan facility requires repayment by
March 2014. We can borrow revolving loans and issue letters of
credit under the $130 million
tranche B-1
letter of credit/revolving loan facility. The
tranche B-1
letter of credit/revolving loan facility is reflected as debt on
our balance sheet only if we borrow money under this facility or
if we use the facility to make payments for letters of credit.
There is no additional cost to us for issuing letters of credit
under the
tranche B-1
letter of credit/revolving loan facility. However, outstanding
letters of credit reduce our availability to borrow revolving
loans under this portion of the facility. We pay the
tranche B-1
lenders interest equal to LIBOR plus a margin, which is offset
by the return on the funds deposited with the administrative
agent by the lenders which earn interest at an annual rate
approximately equal to LIBOR less 25 basis points.
Outstanding revolving loans reduce the funds on deposit with the
administrative agent which in turn reduce the earnings of those
deposits.
On February 23, 2009, in light of the then challenging
macroeconomic environment and auto production outlook, we
amended our senior credit facility to increase the allowable
consolidated net leverage ratio (consolidated indebtedness net
of cash divided by consolidated EBITDA as defined in the senior
credit facility agreement) and reduce the allowable consolidated
interest coverage ratio (consolidated EBITDA divided by
consolidated interest expense as defined in the senior credit
facility agreement). These changes are detailed in
“Management’s Discussion and Analysis of Financial
Conditions and Operations — Liquidity and Capital
Resources — Senior Credit Facility — Other
Terms and Conditions.”
Beginning February 23, 2009, and following each fiscal
quarter thereafter, the margin we pay on borrowings under our
term loan A and revolving credit facility incurred interest at
an annual rate equal to, at our option, either (i) the
London Interbank Offered Rate plus a margin of 550 basis
points, or (ii) a rate consisting of the greater of
(a) the JPMorgan Chase prime rate plus a margin of
450 basis points, and (b) the Federal Funds rate plus
50 basis points plus a margin of 450 basis points. The
margin we pay on these borrowings will be reduced by
50 basis points following each fiscal quarter for which our
consolidated net leverage ratio is less than 5.0, and will be
further reduced by an additional 50 basis points following
each fiscal quarter for which the consolidated net leverage
ratio is less than 4.0.
Also beginning February 23, 2009, and following each fiscal
quarter thereafter, the margin we pay on borrowings under our
tranche B-1
facility incurred interest at an annual rate equal to, at our
option, either (i) the London Interbank Offered Rate plus a
margin of 550 basis points, or (ii) a rate consisting
of the greater of (a) the JPMorgan Chase prime rate plus a
margin of 450 basis points, and (b) the Federal Funds
rate plus 50 basis points plus a margin of 450 basis
points. The margin we pay on these borrowings will be reduced by
50 basis points following each fiscal quarter for which our
consolidated net leverage ratio is less than 5.0.
The February 23, 2009, amendment to our senior credit
facility also placed further restrictions on our operations
including limitations on: (i) debt incurrence,
(ii) incremental loan extensions, (iii) liens,
(iv) restricted payments, (v) optional prepayments of
junior debt, (vi) investments, (vii) acquisitions, and
(viii) mandatory prepayments. The definition of EBIDTA was
amended to allow for $40 million of cash restructuring
charges taken after the date of the amendment and
$4 million annually in aftermarket changeover costs. We
agreed to pay each consenting lender a fee. The lender fee plus
amendment costs were paid in February 2009 and approximated
$8 million.
On December 23, 2008, we amended our senior secured credit
facility leverage covenant effective for the fourth quarter of
2008 which increased the consolidated net leverage ratio
(consolidated indebtedness net of cash divided by consolidated
EBITDA, as defined in the senior credit facility agreement) by
increasing the
55
Table of Contents
maximum ratio to 4.25 from 4.0. We also agreed to increase the
margin we pay on the borrowings from 1.50 percent to
3.00 percent on revolver loans, term loan A and
tranche B-1
loans; from 0.50 percent to 2.00 percent on prime
based loans; from 1.00 percent to 2.50 percent on
Federal Funds based loans and from 0.35 percent to
0.50 percent on the commitment fee associated with the
facility. In addition, we agreed to pay each consenting lender a
fee. The lender fee plus amendment costs were approximately
$3 million and were paid in December 2008.
In December 2008, we terminated the
fixed-to-floating
interest rate swaps we entered into in April 2004. The change in
the market value of these swaps was recorded as part of interest
expense with an offset to other long-term assets or liabilities.
Senior Credit Facility — Interest Rates and
Fees.
Borrowings and letters of credit issued
under the senior credit facility bear interest at an annual rate
equal to, at our option, either (i) the London Interbank
Offered Rate plus a margin as set forth in the table below; or
(ii) a rate consisting of the greater of the JPMorgan Chase
prime rate or the Federal Funds rate, plus a margin as set forth
in the table below:
| For the Period | ||||||||||||||||||||||||||||
|
4/3/2006
|
3/16/2007
|
12/24/2008
|
2/23/2009
|
3/2/2009
|
5/15/2009
|
|||||||||||||||||||||||
|
thru
|
thru
|
thru
|
thru
|
thru
|
thru
|
Beginning
|
||||||||||||||||||||||
| 3/15/2007 | 12/23/2008 | 2/22/2009 | 3/1/2009 | 5/14/2009 | 8/13/2009 | 8/14/2009 | ||||||||||||||||||||||
|
Applicable Margin over LIBOR for Revolving Loans
|
2.75 | % | 1.50 | % | 3.00 | % | 5.50 | % | 4.50 | % | 5.00 | % | 5.50 | % | ||||||||||||||
|
Applicable Margin over LIBOR for Term Loan B Loans
|
2.00 | % | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||
|
Applicable Margin over LIBOR for Term Loan A Loans
|
N/A | 1.50 | % | 3.00 | % | 5.50 | % | 4.50 | % | 5.00 | % | 5.50 | % | |||||||||||||||
|
Applicable Margin over LIBOR for
Tranche B-1
Loans
|
2.00 | % | 1.50 | % | 3.00 | % | 5.50 | % | 5.00 | % | 5.00 | % | 5.50 | % | ||||||||||||||
|
Applicable Margin for Prime-based Loans
|
1.75 | % | 0.50 | % | 2.00 | % | 4.50 | % | 3.50 | % | 4.00 | % | 4.50 | % | ||||||||||||||
|
Applicable Margin for Federal Funds based Loans
|
2.125 | % | 1.00 | % | 2.50 | % | 5.00 | % | 4.00 | % | 4.50 | % | 5.00 | % | ||||||||||||||
|
Commitment Fee
|
0.375 | % | 0.35 | % | 0.50 | % | 0.75 | % | 0.50 | % | 0.50 | % | 0.75 | % | ||||||||||||||
Senior Credit Facility — Other Terms and
Conditions.
As described above, we are highly
leveraged. Our senior credit facility requires that we maintain
financial ratios equal to or better than the following
consolidated net leverage ratio (consolidated indebtedness net
of cash divided by consolidated EBITDA, as defined in the senior
credit facility agreement), and consolidated interest coverage
ratio (consolidated EBITDA divided by consolidated interest
expense, as defined under the senior credit facility agreement)
at the end of each period indicated. Failure to maintain these
ratios will result in a default under our senior credit
facility. The financial ratios required under the amended and
restated senior credit facility and, the actual ratios we
achieved for four quarters of 2009, are as follows:
| Quarter Ended | ||||||||||||||||||||||||||||||||
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
|||||||||||||||||||||||||||||
| 2009 | 2009 | 2009 | 2009 | |||||||||||||||||||||||||||||
| Req. | Act. | Req. | Act. | Req. | Act. | Req. | Act. | |||||||||||||||||||||||||
|
Leverage Ratio (maximum)
|
5.50 | 4.72 | 7.35 | 5.77 | 7.90 | 5.16 | 6.60 | 3.43 | ||||||||||||||||||||||||
|
Interest Coverage Ratio (minimum)
|
2.25 | 2.91 | 1.85 | 2.21 | 1.55 | 2.17 | 1.60 | 2.48 | ||||||||||||||||||||||||
56
Table of Contents
The financial ratios required under the senior credit facility
for 2010 and beyond are set forth below.
|
Interest
|
||||||||
|
Leverage
|
Coverage
|
|||||||
|
Period Ending
|
Ratio | Ratio | ||||||
|
March 31, 2010
|
5.50 | 2.00 | ||||||
|
June 30, 2010
|
5.00 | 2.25 | ||||||
|
September 30, 2010
|
4.75 | 2.30 | ||||||
|
December 31, 2010
|
4.50 | 2.35 | ||||||
|
March 31, 2011
|
4.00 | 2.55 | ||||||
|
June 30, 2011
|
3.75 | 2.55 | ||||||
|
September 30, 2011
|
3.50 | 2.55 | ||||||
|
December 31, 2011
|
3.50 | 2.55 | ||||||
|
Each quarter thereafter
|
3.50 | 2.75 | ||||||
The senior credit facility agreement provides the ability to
refinance our senior subordinated notes
and/or
our
senior secured notes (i) in exchange for permitted
refinancing indebtedness (as defined in the senior credit
facility agreement); (ii) in exchange for shares of common
stock; or (iii) in an amount equal to the sum of
(A) the net cash proceeds of equity issued after
March 16, 2007, plus (B) the portion of annual excess
cash flow (as defined in the senior credit facility agreement)
that is not required to be applied to the payment of the credit
facilities and which is not used for other purposes, provided
that the amount of the subordinated notes and the aggregate
amount of the senior secured notes and the subordinated notes
that may be refinanced is capped based upon the pro forma
consolidated leverage ratio after giving effect to such
refinancing as shown in the following table:
|
Senior Subordinated
|
||||||||
|
Notes and Senior
|
||||||||
|
Senior Subordinated
|
Secured Notes
|
|||||||
|
Notes Aggregate
|
Aggregate
|
|||||||
|
Proforma Consolidated Leverage Ratio
|
Maximum Amount | Maximum Amount | ||||||
| (Millions) | ||||||||
|
Greater than or equal to 3.0x
|
$ | 0 | $ | 10 | ||||
|
Greater than or equal to 2.5x
|
$ | 100 | $ | 300 | ||||
|
Less than 2.5x
|
$ | 125 | $ | 375 | ||||
In addition, the senior secured notes may be refinanced with
(i) the net cash proceeds of incremental facilities and
permitted refinancing indebtedness (as defined in the senior
credit facility agreement), (ii) shares of common stock,
(iii) the net cash proceeds of any new senior or
subordinated unsecured indebtedness, (iv) proceeds of
revolving credit loans (as defined in the senior credit facility
agreement), (v) up to €200 million of unsecured
indebtedness of the company’s foreign subsidiaries and
(vi) cash generated by the company’s operations
provided that the amount of the senior secured notes that may be
refinanced is capped based upon the pro forma consolidated
leverage ratio after giving effect to such refinancing as shown
in the following table:
|
Aggregate Senior and
|
||||
|
Subordinate Note
|
||||
|
Proforma Consolidated Leverage Ratio
|
Maximum Amount | |||
| (Millions) | ||||
|
Greater than or equal to 3.0x
|
$ | 10 | ||
|
Greater than or equal to 2.5x
|
$ | 300 | ||
|
Less than 2.5x
|
$ | 375 | ||
The senior credit facility agreement also contains restrictions
on our operations that are customary for similar facilities,
including limitations on: (i) incurring additional liens;
(ii) sale and leaseback transactions (except for the
permitted transactions as described in the amended and restated
agreement); (iii) liquidations and dissolutions;
(iv) incurring additional indebtedness or guarantees;
(v) investments and acquisitions; (vi) dividends and
share repurchases; (vii) mergers and consolidations; and
(viii) refinancing of subordinated and
10
1
/
4
percent senior secured notes. Compliance with these requirements
and restrictions is a condition for
57
Table of Contents
any incremental borrowings under the senior credit facility
agreement and failure to meet these requirements enables the
lenders to require repayment of any outstanding loans. As of
December 31, 2009, we were in compliance with all the
financial covenants and operational restrictions of the
facility. Our senior credit facility does not contain any terms
that could accelerate payment of the facility or affect pricing
under the facility as a result of a credit rating agency
downgrade.
Senior Secured, Senior and Subordinated
Notes.
As of December 31, 2009, our
outstanding debt includes $245 million of
10
1
/
4
percent senior secured notes due July 15, 2013,
$250 million of
8
1
/
8
percent
senior notes due November 15, 2015, and $500 million
of
8
5
/
8
percent senior subordinated notes due November 15, 2014. We
can redeem some or all of the notes at any time after
July 15, 2008 in the case of the senior secured notes,
November 15, 2009 in the case of the senior subordinated
notes and November 15, 2011 in the case of the senior
notes. If we sell certain of our assets or experience specified
kinds of changes in control, we must offer to repurchase the
notes. We are permitted to redeem up to 35 percent of the
senior notes with the proceeds of certain equity offerings
completed before November 15, 2010.
Our senior secured, senior and senior subordinated notes require
that, as a condition precedent to incurring certain types of
indebtedness not otherwise permitted, our consolidated fixed
charge coverage ratio, as calculated on a pro forma basis, be
greater than 2.00. We have not incurred any of the types of
indebtedness not otherwise permitted by the indentures. The
indentures also contain restrictions on our operations,
including limitations on: (i) incurring additional
indebtedness or liens; (ii) dividends;
(iii) distributions and stock repurchases;
(iv) investments; (v) asset sales and
(vi) mergers and consolidations. Subject to limited
exceptions, all of our existing and future material domestic
wholly owned subsidiaries fully and unconditionally guarantee
these notes on a joint and several basis. In addition, the
senior secured notes and related guarantees are secured by
second priority liens, subject to specified exceptions, on all
of our and our subsidiary guarantors’ assets that secure
obligations under our senior credit facility, except that only a
portion of the capital stock of our subsidiary guarantors’
domestic subsidiaries is provided as collateral and no assets or
capital stock of our direct or indirect foreign subsidiaries
secure the notes or guarantees. There are no significant
restrictions on the ability of the subsidiaries that have
guaranteed these notes to make distributions to us. The senior
subordinated notes rank junior in right of payment to our senior
credit facility and any future senior debt incurred. As of
December 31, 2009, we were in compliance with the covenants
and restrictions of these indentures.
Accounts Receivable Securitization.
In
addition to our senior credit facility, senior secured notes,
senior notes and senior subordinated notes, we also sell some of
our accounts receivable on a nonrecourse basis in North America
and Europe. In North America, we have an accounts receivable
securitization program with two commercial banks. We sell
original equipment and aftermarket receivables on a daily basis
under the bank program. We had sold accounts receivable under
the bank program of $62 million and $101 million at
December 31, 2009 and 2008, respectively. This program is
subject to cancellation prior to its maturity date if we
(i) fail to pay interest or principal payments on an amount
of indebtedness exceeding $50 million, (ii) default on
the financial covenant ratios under the senior credit facility,
or (iii) fail to maintain certain financial ratios in
connection with the accounts receivable securitization program.
In February 2010, the U.S. program was amended and extended
to February 18, 2011 at a facility size of
$100 million. As part of the renewal, the margin we pay the
banks decreased. We also sell some receivables in our European
operations to regional banks in Europe. At December 31,
2009, we had sold $75 million of accounts receivable in
Europe down from $78 million at December 31, 2008. The
arrangements to sell receivables in Europe are provided under
seven separate arrangements, by various financial institutions
in each of the foreign jurisdictions. The commitments for these
arrangements are generally for one year but some may be
cancelled with 90 day notice prior to renewal. In some
instances, the arrangement provides for cancellation by
financial institution at any time upon 15 days, or less,
notification. If we were not able to sell receivables under
either the North American or European securitization programs,
our borrowings under our revolving credit agreements may
increase. These accounts receivable securitization programs
provide us with access to cash at costs that are generally
favorable to alternative sources of financing, and allow us to
reduce borrowings under our revolving credit agreements.
58
Table of Contents
Capital Requirements.
We believe that cash
flow from operations, combined with available borrowing capacity
described above, assuming that we maintain compliance with the
financial covenants and other requirements of our loan
agreement, will be sufficient to meet our future capital
requirements for the following year. Our ability to meet the
financial covenants depends upon a number of operational and
economic factors, many of which are beyond our control. Factors
that could impact our ability to comply with the financial
covenants include the rate at which consumers continue to buy
new vehicles and the rate at which they continue to repair
vehicles already in service, as well as our ability to
successfully implement our restructuring plans and operate at
historically low production rates. Further deterioration in
North American vehicle production levels, weakening in the
global aftermarket, or a further reduction in vehicle production
levels in Europe, beyond our expectations, could impact our
ability to meet our financial covenant ratios. In the event that
we are unable to meet these financial covenants, we would
consider several options to meet our cash flow needs. Such
actions include additional restructuring initiatives and other
cost reductions, sales of assets, reductions to working capital
and capital spending, issuance of equity and other alternatives
to enhance our financial and operating position. Should we be
required to implement any of these actions to meet our cash flow
needs, we believe we can do so in a reasonable time frame.
Contractual
Obligations.
Our remaining required debt principal amortization and payment
obligations under lease and certain other financial commitments
as of December 31, 2009 are shown in the following table:
| Payments due in: | ||||||||||||||||||||||||||||
|
Beyond
|
||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2014 | Total | ||||||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||||||
|
Obligations:
|
||||||||||||||||||||||||||||
|
Revolver borrowings
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
Senior term loans
|
50 | 66 | 17 | — | — | — | 133 | |||||||||||||||||||||
|
Senior secured notes
|
— | — | 1 | 245 | — | — | 246 | |||||||||||||||||||||
|
Senior subordinated notes
|
— | — | — | — | 500 | — | 500 | |||||||||||||||||||||
|
Senior notes
|
— | — | — | — | — | 250 | 250 | |||||||||||||||||||||
|
Customer notes
|
2 | 1 | 1 | 2 | — | — | 6 | |||||||||||||||||||||
|
Capital leases
|
4 | — | — | — | — | — | 4 | |||||||||||||||||||||
|
Other subsidiary debt
|
1 | 1 | 1 | 1 | 1 | 3 | 8 | |||||||||||||||||||||
|
Short-term debt
|
69 | — | — | — | — | — | 69 | |||||||||||||||||||||
|
Debt and capital lease obligations
|
126 | 68 | 20 | 248 | 501 | 253 | 1,216 | |||||||||||||||||||||
|
Operating leases
|
19 | 15 | 11 | 6 | 3 | 13 | 67 | |||||||||||||||||||||
|
Interest payments
|
107 | 104 | 97 | 84 | 60 | 20 | 472 | |||||||||||||||||||||
|
Capital commitments
|
36 | — | — | — | — | — | 36 | |||||||||||||||||||||
|
Total Payments
|
$ | 288 | $ | 187 | $ | 128 | $ | 338 | $ | 564 | $ | 286 | $ | 1,791 | ||||||||||||||
If we do not maintain compliance with the terms of our senior
credit facility, senior secured notes indenture, senior notes
indenture and senior subordinated notes indenture described
above, all amounts under those arrangements could, automatically
or at the option of the lenders or other debt holders, become
due. Additionally, each of those facilities contains provisions
that certain events of default under one facility will
constitute a default under the other facility, allowing the
acceleration of all amounts due. We currently expect to maintain
compliance with terms of all of our various credit agreements
for the foreseeable future.
Included in our contractual obligations is the amount of
interest to be paid on our long-term debt. As our debt structure
contains both fixed and variable rate obligations, we have made
assumptions in calculating the amount of future interest
payments. Interest on our senior secured notes, senior
subordinated notes, and senior notes is calculated using the
fixed rates of
10
1
/
4
percent,
8
5
/
8
percent, and
8
1
/
8
percent respectively. Interest on
59
Table of Contents
our variable rate debt is calculated as LIBOR plus the
applicable margin in effect at December 31, 2009 for the
Eurodollar, term loan A and
tranche B-1
loans and prime plus the applicable margin in effect on
December 31, 2009 on the prime-based loans. We have assumed
that both LIBOR and the prime rate will remain unchanged for the
outlying years. See “— Capitalization.”
We have also included an estimate of expenditures required after
December 31, 2009 to complete the projects authorized at
December 31, 2009, in which we have made substantial
commitments in connection with purchasing plant, property and
equipment for our operations. For 2010, we expect our capital
expenditures to be about $160 million to $170 million.
We have not included purchase obligations as part of our
contractual obligations as we generally do not enter into
long-term agreements with our suppliers. In addition, the
agreements we currently have do not specify the volumes we are
required to purchase. If any commitment is provided, in many
cases the agreements state only the minimum percentage of our
purchase requirements we must buy from the supplier. As a
result, these purchase obligations fluctuate from
year-to-year
and we are not able to quantify the amount of our future
obligation.
We have not included material cash requirements for unrecognized
tax benefits or taxes as we are a taxpayer in certain foreign
jurisdictions but not in the U.S. Additionally, it is
difficult to estimate taxes to be paid as changes in where we
generate income can have a significant impact on future tax
payments. We have also not included cash requirements for
funding pension and postretirement benefit costs. Based upon
current estimates, we believe we will be required to make
contributions of approximately $64 million to those plans
in 2010. Pension and postretirement contributions beyond 2010
will be required but those amounts will vary based upon many
factors, including the performance of our pension fund
investments during 2010. In addition, we have not included cash
requirements for environmental remediation. Based upon current
estimates we believe we will be required to spend approximately
$23 million over the next 20 to 30 years. However, due
to possible modifications in remediation processes and other
factors, it is difficult to determine the actual timing of the
payments. See “— Environmental and Other
Matters.”
We occasionally provide guarantees that could require us to make
future payments in the event that the third party primary
obligor does not make its required payments. We have not
recorded a liability for any of these guarantees.
Additionally, we have from time to time issued guarantees for
the performance of obligations by some of our subsidiaries, and
some of our subsidiaries have guaranteed our debt. All of our
existing and future material domestic wholly-owned subsidiaries
fully and unconditionally guarantee our senior credit facility,
our senior secured notes, our senior notes and our senior
subordinated notes on a joint and several basis. The arrangement
for the senior credit facility is also secured by first-priority
liens on substantially all our domestic assets and pledges of up
to 66 percent of the stock of certain first-tier foreign
subsidiaries. Our $245 million senior secured notes are
also secured by second-priority liens on substantially all our
domestic assets, excluding some of the stock of our domestic
subsidiaries. No assets or capital stock of our direct or
indirect foreign subsidiaries secure these notes. You should
also read Note 14 of the consolidated financial statements
of Tenneco Inc., where we present the Supplemental Guarantor
Condensed Consolidating Financial Statements.
We have issued guarantees through letters of credit in
connection with some obligations of our affiliates. As of
December 31, 2009, we have $50 million in letters of
credit to support some of our subsidiaries’ insurance
arrangements, foreign employee benefit programs, environmental
remediation activities and cash management and capital
requirements.
Critical
Accounting Policies
We prepare our consolidated financial statements in accordance
with accounting principles generally accepted in the United
States of America. Preparing our consolidated financial
statements in accordance with generally accepted accounting
principles requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the
60
Table of Contents
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. The following
paragraphs include a discussion of some critical areas where
estimates are required.
Revenue
Recognition
We recognize revenue for sales to our original equipment and
aftermarket customers when title and risk of loss passes to the
customers under the terms of our arrangements with those
customers, which is usually at the time of shipment from our
plants or distribution centers. In connection with the sale of
exhaust systems to certain original equipment manufacturers, we
purchase catalytic converters and diesel particulate filters or
components thereof including precious metals
(“substrates”) on behalf of our customers which are
used in the assembled system. These substrates are included in
our inventory and “passed through” to the customer at
our cost, plus a small margin, since we take title to the
inventory and are responsible for both the delivery and quality
of the finished product. Revenues recognized for substrate sales
were $966 million, $1,492 million and
$1,673 million for 2009, 2008, and 2007 respectively. For
our aftermarket customers, we provide for promotional incentives
and returns at the time of sale. Estimates are based upon the
terms of the incentives and historical experience with returns.
Certain taxes assessed by governmental authorities on revenue
producing transactions, such as value added taxes, are excluded
from revenue and recorded on a net basis. Shipping and handling
costs billed to customers are included in revenues and the
related costs are included in cost of sales in our Statements of
Income (Loss).
Warranty
Reserves
Where we have offered product warranty, we also provide for
warranty costs. Those estimates are based upon historical
experience and upon specific warranty issues as they arise.
While we have not experienced any material differences between
these estimates and our actual costs, it is reasonably possible
that future warranty issues could arise that could have a
significant impact on our consolidated financial statements.
Engineering,
Research and Development
We expense engineering, research, and development costs as they
are incurred. Engineering, research, and development expenses
were $97 million for 2009, $127 million for 2008 and
$114 million for 2007, net of reimbursements from our
customers. Of these amounts, $10 million in 2009,
$18 million in 2008 and $20 million in 2007 relate to
research and development, which includes the research, design,
and development of a new unproven product or process.
Additionally, $61 million, $80 million and
$62 million of engineering, research, and development
expense for 2009, 2008, and 2007, respectively, relates to
engineering costs we incurred for application of existing
products and processes to vehicle platforms. The remainder of
the expenses in each year relate to improvements and
enhancements to existing products and processes.
Reclassifications have been made to prior year amounts in each
engineering cost category to be consistent with current year
classification. Further, our customers reimburse us for
engineering, research, and development costs on some platforms
when we prepare prototypes and incur costs before platform
awards. Our engineering, research, and development expense for
2009, 2008, and 2007 has been reduced by $104 million,
$120 million and $72 million, respectively, for these
reimbursements.
Pre-production
Design and Development and Tooling Assets
We expense pre-production design and development costs as
incurred unless we have a contractual guarantee for
reimbursement from the original equipment customer. Unbilled
pre-production design and development costs recorded in
prepayments and other and long-term receivables was
$14 million and $12 million on December 31, 2009
and 2008, respectively. In addition, plant, property and
equipment included $49 million and $53 million at
December 31, 2009 and 2008, respectively, for original
equipment tools and dies that we own, and prepayments and other
included $50 million and $22 million at
December 31, 2009 and 2008, respectively, for in-process
tools and dies that we are building for our original equipment
customers.
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Income
Taxes
We evaluate our deferred income taxes quarterly to determine if
valuation allowances are required or should be adjusted.
U.S. GAAP requires that companies assess whether valuation
allowances should be established against their deferred tax
assets based on consideration of all available evidence, both
positive and negative, using a “more likely than not”
standard. This assessment considers, among other matters, the
nature, frequency and amount of recent losses, the duration of
statutory carryforward periods, and tax planning strategies. In
making such judgments, significant weight is given to evidence
that can be objectively verified.
Valuation allowances have been established for deferred tax
assets based on a “more likely than not” threshold.
The ability to realize deferred tax assets depends on our
ability to generate sufficient taxable income within the
carryforward periods provided for in the tax law for each tax
jurisdiction. We have considered the following possible sources
of taxable income when assessing the realization of our deferred
tax assets:
| • | Future reversals of existing taxable temporary differences; | |
| • | Taxable income or loss, based on recent results, exclusive of reversing temporary differences and carryforwards; and | |
| • | Tax-planning strategies. |
In 2009, we recorded income tax expense of $13 million.
Computed using the U.S. Federal statutory income tax rate of
35 percent, income tax would be a benefit of
$14 million. The difference is due primarily to valuation
allowances against deferred tax assets generated by 2009 losses
in the U.S. and in certain foreign countries which we cannot
benefit, partially offset by adjustments to past valuation
allowances for deferred tax assets including a reversal of
$20 million of U.S. valuation allowance based on the change
in the fair value of a tax planning strategy. In evaluating the
requirements to record a valuation allowance, accounting
standards do not permit us to consider an economic recovery in
the U.S. or new business we have won in the commercial vehicle
segment. Consequently, beginning in 2008, given our historical
losses, we concluded that our ability to fully utilize our NOLs
was limited due to projecting the continuation of the negative
economic environment and the impact of the negative operating
environment on our tax planning strategies. As a result of the
tax planning strategy which has not yet been implemented but
which we plan to implement and which does not depend upon
generating future taxable income, we carry deferred tax assets
in the U.S. of $90 million relating to the expected
utilization of those NOLs. The federal NOLs expire beginning in
2020 through 2029. The state NOLs expire in various years
through 2029.
If our operating performance improves on a sustained basis, our
conclusion regarding the need for a valuation allowance could
change, resulting in the reversal of some or all of the
valuation allowance in the future. The charge to establish the
U.S. valuation allowance also includes items related to the
losses allocable to certain state jurisdictions where it was
determined that tax attributes related to those jurisdictions
were potentially not realizable.
We are required to record a valuation allowance against deferred
tax assets generated by taxable losses in each period in the
U.S. as well as in other foreign countries. Our future
provision for income taxes will include no tax benefit with
respect to losses incurred and no tax expense with respect to
income generated in these jurisdictions until the respective
valuation allowance is eliminated. This will cause variability
in our effective tax rate.
Goodwill,
net
We evaluate goodwill for impairment in the fourth quarter of
each year, or more frequently if events indicate it is
warranted. We compare the estimated fair value of our reporting
units with goodwill to the carrying value of the unit’s
assets and liabilities to determine if impairment exists within
the recorded balance of goodwill. We estimate the fair value of
each reporting unit using the income approach which is based on
the present value of estimated future cash flows. The income
approach is dependent on a number of factors, including
estimates of market trends, forecasted revenues and expenses,
capital expenditures, weighted average
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cost of capital and other variables. These estimates are based
on assumptions that we believe to be reasonable, but which are
inherently uncertain.
In the fourth quarter of 2009, estimated fair value of each of
our reporting units significantly exceeded the carrying value of
its assets and liabilities. In the fourth quarter of 2008, the
fair value also exceeded the carrying value for all of our
reporting units with the exception of our North America Original
Equipment Ride Control reporting unit whose carrying value
exceeded the estimated fair value. We were required to calculate
the implied fair value of goodwill of the North America Original
Equipment Ride Control reporting unit by allocating the
estimated fair value to the assets and liabilities of this
reporting unit as if the reporting unit had been acquired in a
business combination and the fair value of the reporting unit
was the acquisition price. As a result of this testing, we
determined that the remaining amount of goodwill related to our
elastomer business acquired in 1996 was impaired due to the
significant decline in light vehicle production in 2008 and
anticipated in future periods. Accordingly, we recorded an
impairment charge of $114 million during the fourth quarter
of 2008.
Pension
and Other Postretirement Benefits
We have various defined benefit pension plans that cover some of
our employees. We also have postretirement health care and life
insurance plans that cover some of our domestic employees. Our
pension and postretirement health care and life insurance
expenses and valuations are dependent on assumptions used by our
actuaries in calculating those amounts. These assumptions
include discount rates, health care cost trend rates, long-term
return on plan assets, retirement rates, mortality rates and
other factors. Health care cost trend rate assumptions are
developed based on historical cost data and an assessment of
likely long-term trends. Retirement rates are based primarily on
actual plan experience while mortality rates are based upon the
general population experience which is not expected to differ
materially from our experience.
Our approach to establishing the discount rate assumption for
both our domestic and foreign plans starts with high-quality
investment-grade bonds adjusted for an incremental yield based
on actual historical performance. This incremental yield
adjustment is the result of selecting securities whose yields
are higher than the “normal” bonds that comprise the
index. Based on this approach, we lowered the weighted average
discount rate for all of our pension plans to 6.0 percent
in 2009 from 6.2 percent in 2008. The discount rate for our
postretirement benefits was also lowered to 6.1 percent for
2009 from 6.2 percent in 2008.
Our approach to determining expected return on plan asset
assumptions evaluates both historical returns as well as
estimates of future returns, and is adjusted for any expected
changes in the long-term outlook for the equity and fixed income
markets. As a result, our estimate of the weighted average
long-term rate of return on plan assets for all of our pension
plans was lowered to 7.8 percent for 2009 from
7.9 percent for 2008.
Except in the U.K., our pension plans generally do not require
employee contributions. Our policy is to fund our pension plans
in accordance with applicable U.S. and foreign government
regulations and to make additional payments as funds are
available to achieve full funding of the accumulated benefit
obligation. At December 31, 2009 and 2008, all legal
funding requirements had been met. Other postretirement benefit
obligations, such as retiree medical, and certain foreign
pension plans are funded as the obligations become due.
Recent
Accounting Pronouncements
Footnote 1 to the consolidated financial statements of Tenneco
Inc. located in Item 8 — Financial Statements and
Supplemental Data are incorporated herein by reference.
Derivative
Financial Instruments
Foreign
Currency Exchange Rate Risk
We use derivative financial instruments, principally foreign
currency forward purchase and sale contracts with terms of less
than one year, to hedge our exposure to changes in foreign
currency exchange rates. Our primary exposure to changes in
foreign currency rates results from intercompany loans made
between affiliates to minimize the need for borrowings from
third parties. Additionally, we enter into foreign currency
forward
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purchase and sale contracts to mitigate our exposure to changes
in exchange rates on certain intercompany and third-party trade
receivables and payables. We manage counter-party credit risk by
entering into derivative financial instruments with major
financial institutions that can be expected to fully perform
under the terms of such agreements. We do not enter into
derivative financial instruments for speculative purposes.
In managing our foreign currency exposures, we identify and
aggregate existing offsetting positions and then hedge residual
exposures through third-party derivative contracts. The
following table summarizes by major currency the notional
amounts, weighted-average settlement rates, and fair value for
foreign currency forward purchase and sale contracts as of
December 31, 2009. The fair value of our foreign currency
forward contracts is based on an internally developed model
which incorporates observable inputs including quoted spot
rates, forward exchange rates and discounted future expected
cash flows utilizing market interest rates with similar quality
and maturity characteristics. All contracts in the following
table mature in 2010.
| December 31, 2009 | ||||||||||||||||
|
Notional Amount
|
Weighted Average
|
Fair Value in
|
||||||||||||||
| in Foreign Currency | Settlement Rates | U.S. Dollars | ||||||||||||||
| (Millions Except Settlement Rates) | ||||||||||||||||
|
Australian dollars
|
—Purchase | 82 | .898 | $ | 73 | |||||||||||
| —Sell | (39 | ) | .898 | (35 | ) | |||||||||||
|
British pounds
|
—Purchase | 10 | 1.598 | 16 | ||||||||||||
| —Sell | (10 | ) | 1.598 | (16 | ) | |||||||||||
|
European euro
|
—Purchase | — | — | — | ||||||||||||
| —Sell | (18 | ) | 1.432 | (26 | ) | |||||||||||
|
South African rand
|
—Purchase | 329 | 0.135 | 44 | ||||||||||||
| —Sell | (63 | ) | 0.135 | (8 | ) | |||||||||||
|
U.S. dollars
|
—Purchase | 41 | 1.000 | 41 | ||||||||||||
| —Sell | (98 | ) | 1.000 | (98 | ) | |||||||||||
|
Other
|
—Purchase | 752 | 0.016 | 12 | ||||||||||||
| —Sell | (1 | ) | 0.951 | (1 | ) | |||||||||||
| $ | 2 | |||||||||||||||
Interest
Rate Risk
Our financial instruments that are sensitive to market risk for
changes in interest rates are primarily our debt securities. We
use our revolving credit facilities to finance our short-term
and long-term capital requirements. We pay a current market rate
of interest on these borrowings. Our long-term capital
requirements have been financed with long-term debt with
original maturity dates ranging from five to ten years. On
December 31, 2009, we had $1.012 billion in long-term
debt obligations that have fixed interest rates. Of that amount,
$245 million is fixed through July 2013, $500 million
is fixed through November 2014, $250 million is fixed
through November 2015, and the remainder is fixed from 2010
through 2025. We also have $139 million in long-term debt
obligations that are subject to variable interest rates. For
more detailed explanations on our debt structure and senior
credit facility refer to “Liquidity and Capital
Resources — Capitalization” earlier in this
Management’s Discussion and Analysis.
We estimate that the fair value of our long-term debt at
December 31, 2009 was about 101 percent of its book
value. A one percentage point increase or decrease in interest
rates would increase or decrease the annual interest expense we
recognize in the income statement and the cash we pay for
interest expense by about $2 million.
Environmental
and Other Matters
We are subject to a variety of environmental and pollution
control laws and regulations in all jurisdictions in which we
operate. We expense or capitalize, as appropriate, expenditures
for ongoing compliance with
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environmental regulations that relate to current operations. We
expense costs related to an existing condition caused by past
operations that do not contribute to current or future revenue
generation. We record liabilities when environmental assessments
indicate that remedial efforts are probable and the costs can be
reasonably estimated. Estimates of the liability are based upon
currently available facts, existing technology, and presently
enacted laws and regulations taking into consideration the
likely effects of inflation and other societal and economic
factors. We consider all available evidence including prior
experience in remediation of contaminated sites, other
companies’ cleanup experiences and data released by the
United States Environmental Protection Agency or other
organizations. These estimated liabilities are subject to
revision in future periods based on actual costs or new
information. Where future cash flows are fixed or reliably
determinable, we have discounted the liabilities. All other
environmental liabilities are recorded at their undiscounted
amounts. We evaluate recoveries separately from the liability
and, when they are assured, recoveries are recorded and reported
separately from the associated liability in our consolidated
financial statements.
As of December 31, 2009, we have the obligation to
remediate or contribute towards the remediation of certain
sites, including two existing Superfund sites. At
December 31, our estimated share of environmental
remediation costs at these sites was approximately
$16 million, on a discounted basis. The undiscounted value
of the estimated remediation costs was $23 million. For
those locations in which the liability was discounted, the
weighted average discount rate used was 3.6 percent. Based on
information known to us, we have established reserves that we
believe are adequate for these costs. Although we believe these
estimates of remediation costs are reasonable and are based on
the latest available information, the costs are estimates and
are subject to revision as more information becomes available
about the extent of remediation required. At some sites, we
expect that other parties will contribute towards the
remediation costs. In addition, certain environmental statutes
provide that our liability could be joint and several, meaning
that we could be required to pay in excess of our share of
remediation costs. Our understanding of the financial strength
of other potentially responsible parties at these sites has been
considered, where appropriate, in our determination of our
estimated liability.
The $16 million noted above includes $5 million of
estimated environmental remediation costs that result from the
bankruptcy of Mark IV Industries in 2009. Prior to our 1996
acquisition of The Pullman Company, Pullman had sold certain
assets to Mark IV. As partial consideration for the purchase of
these assets, Mark IV agreed to assume Pullman’s and
its subsidiaries’ historical obligations to contribute to
the environmental remediation of certain sites. Mark IV has
filed a petition for insolvency under Chapter 11 of the
United States Bankruptcy Code and notified Pullman that it no
longer intends to continue to contribute toward the remediation
of those sites. We are conducting a thorough analysis and review
of these matters and it is possible that our estimate may change
as additional information becomes available to us.
We do not believe that any potential costs associated with our
current status as a potentially responsible party in the
Superfund sites, or as a liable party at the other locations
referenced herein, will be material to our consolidated results
of operations, financial position or cash flows.
We also from time to time are involved in legal proceedings,
claims or investigations that are incidental to the conduct of
our business. Some of these proceedings allege damages against
us relating to environmental liabilities (including toxic tort,
property damage and remediation), intellectual property matters
(including patent, trademark and copyright infringement, and
licensing disputes), personal injury claims (including injuries
due to product failure, design or warning issues, and other
product liability related matters), taxes, employment matters,
and commercial or contractual disputes, sometimes related to
acquisitions or divestitures. For example, one of our Argentine
subsidiaries is currently defending against a criminal complaint
alleging the failure to comply with laws requiring the proceeds
of export transactions to be collected, reported
and/or
converted to local currency within specified time periods. As
another example, we have recently become subject to an audit in
11 states of our practices with respect to the payment of
unclaimed property to those states. We have practices in place
designed to ensure that we pay unclaimed property as required.
We are in the early stages of this audit, which could cover over
20 years. We vigorously defend ourselves against all of
these claims. In future periods, we could be subject to cash
costs or non-cash charges to earnings if any of these matters is
resolved on unfavorable terms. However, although the ultimate
outcome of any legal matter cannot be predicted with certainty,
based on current information, including our assessment of the
merits of the
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particular claim, we do not expect that these legal proceedings
or claims will have any material adverse impact on our future
consolidated financial position, results of operations or cash
flows.
In addition, we are subject to a number of lawsuits initiated by
claimants alleging health problems as a result of exposure to
asbestos. In the early 2000’s we were named in nearly
20,000 complaints, most of which were filed in Mississippi state
court and the vast majority of which made no allegations of
exposure to asbestos from our product categories. Most of these
claims have been dismissed and our current docket of active and
inactive cases is less than 500 cases nationwide. A small number
of claims have been asserted by railroad workers alleging
exposure to asbestos products in railroad cars manufactured by
The Pullman Company, one of our subsidiaries. The balance of the
claims is related to alleged exposure to asbestos in our
automotive emission control products. Only a small percentage of
the claimants allege that they were automobile mechanics and a
significant number appear to involve workers in other industries
or otherwise do not include sufficient information to determine
whether there is any basis for a claim against us. We believe,
based on scientific and other evidence, it is unlikely that
mechanics were exposed to asbestos by our former muffler
products and that, in any event, they would not be at increased
risk of asbestos-related disease based on their work with these
products. Further, many of these cases involve numerous
defendants, with the number of each in some cases exceeding 100
defendants from a variety of industries. Additionally, the
plaintiffs either do not specify any, or specify the
jurisdictional minimum, dollar amount for damages. As major
asbestos manufacturers continue to go out of business or file
for bankruptcy, we may experience an increased number of these
claims. We vigorously defend ourselves against these claims as
part of our ordinary course of business. In future periods, we
could be subject to cash costs or non-cash charges to earnings
if any of these matters is resolved unfavorably to us. To date,
with respect to claims that have proceeded sufficiently through
the judicial process, we have regularly achieved favorable
resolution. Accordingly, we presently believe that these
asbestos-related claims will not have a material adverse impact
on our future consolidated financial condition, results of
operations or cash flows.
Employee
Stock Ownership Plans
We have established Employee Stock Ownership Plans for the
benefit of our domestic employees. Under the plans, subject to
limitations in the Internal Revenue Code, participants may elect
to defer up to 75 percent of their salary through
contributions to the plan, which are invested in selected mutual
funds or used to buy our common stock. We match in cash
50 percent of each employee’s contribution up to eight
percent of the employee’s salary. In 2009, we temporarily
discontinued these matching contributions as a result of the
recent global economic downturn. We restored the matching
contributions to salaried and non-union hourly
U.S. employees beginning on January 1, 2010. In
connection with freezing the defined benefit pension plans for
nearly all U.S. based salaried and non-union hourly
employees effective December 31, 2006, and the related
replacement of those defined benefit plans with defined
contribution plans, we are making additional contributions to
the Employee Stock Ownership Plans. We recorded expense for
these contributions of $10 million, $18 million, and
$17 million in 2009, 2008 and 2007 respectively. Matching
contributions vest immediately. Defined benefit replacement
contributions fully vest on the employee’s third
anniversary of employment.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
The section entitled “Derivative Financial
Instruments” in Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” is incorporated herein by reference.
66
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
INDEX TO
FINANCIAL STATEMENTS OF TENNECO INC.
AND CONSOLIDATED SUBSIDIARIES
AND CONSOLIDATED SUBSIDIARIES
| Page | ||||
| 68 | ||||
| 69 | ||||
| 71 | ||||
| 72 | ||||
| 73 | ||||
| 74 | ||||
| 75 | ||||
| 78 | ||||
| 131 | ||||
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MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Tenneco Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting
(as defined in
Rule 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934). Management’s
internal control system is designed to provide reasonable
assurance regarding the preparation and fair presentation of
published financial statements. All internal control systems, no
matter how well designed, have inherent limitations, including
the possibility of human error or circumvention or overriding of
controls. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to
financial statement preparation and presentation and may not
prevent or detect misstatements in financial reporting. Further,
due to changing conditions and adherence to established policies
and controls, internal control effectiveness may vary over time.
Management assessed the company’s effectiveness of internal
controls over financial reporting. In making this assessment, it
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in
Internal Control-Integrated Framework.
Based on our assessment we have concluded that the
company’s internal control over financial reporting was
effective as of December 31, 2009.
Our internal control over financial reporting as of
December 31, 2009 has been audited by Deloitte &
Touche LLP, our independent registered public accounting firm,
as stated in their report, which is included herein.
February 26, 2010
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Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Tenneco Inc.:
We have audited the internal control over financial reporting of
Tenneco Inc. and subsidiaries (the “Company”) as of
December 31, 2009, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management Report on Internal Controls Over Financial Reporting.
Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of the Company as of
December 31, 2009, and the related consolidated statements
of income (loss), cash flows, changes in shareholders’
equity and comprehensive income (loss), and financial statement
schedule for the year ended December 31, 2009, and our
report dated February 26, 2010, expressed an unqualified
opinion on those financial statements and financial statement
schedule and included an explanatory paragraph regarding the
Company’s adoption of the new measurement date provisions
for defined benefit pension and other postretirement plans,
effective January 1, 2007.
Deloitte &
Touche llp
Chicago, Illinois
February 26, 2010
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Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Tenneco Inc.:
We have audited the accompanying consolidated balance sheets of
Tenneco Inc. and subsidiaries (the “Company”) as of
December 31, 2009 and 2008, and the related consolidated
statements of income (loss), cash flows, changes in
shareholders’ equity, and comprehensive income (loss) for
each of the three years in the period ended December 31,
2009. Our audits also included the financial statement schedule
listed in the Index at Item 8. These financial statements
and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company and subsidiaries as of December 31, 2009 and 2008,
and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2009, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
As discussed in Note 10, effective January 1, 2007,
the Company adopted the new measurement date provisions for
defined benefit pension and other postretirement plans.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2010 expressed
an unqualified opinion on the Company’s internal control
over financial reporting.
Deloitte &
Touche llp
Chicago, Illinois
February 26, 2010
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TENNECO
INC.
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Millions Except Share and Per Share Amounts) | ||||||||||||
|
Revenues
|
||||||||||||
|
Net sales and operating revenues
|
$ | 4,649 | $ | 5,916 | $ | 6,184 | ||||||
|
Costs and expenses
|
||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
below)
|
3,875 | 5,063 | 5,210 | |||||||||
|
Goodwill impairment charge
|
— | 114 | — | |||||||||
|
Engineering, research, and development
|
97 | 127 | 114 | |||||||||
|
Selling, general, and administrative
|
344 | 392 | 399 | |||||||||
|
Depreciation and amortization of intangibles
|
221 | 222 | 205 | |||||||||
| 4,537 | 5,918 | 5,928 | ||||||||||
|
Other income (expense)
|
||||||||||||
|
Loss on sale of receivables
|
(9 | ) | (10 | ) | (10 | ) | ||||||
|
Other income (expense)
|
(11 | ) | 9 | 6 | ||||||||
| (20 | ) | (1 | ) | (4 | ) | |||||||
|
Income (loss) before interest expense, income taxes, and
noncontrolling interests
|
92 | (3 | ) | 252 | ||||||||
|
Interest expense (net of interest capitalized of
$4 million, $6 million and $6 million,
respectively)
|
133 | 113 | 164 | |||||||||
|
Income tax expense
|
13 | 289 | 83 | |||||||||
|
Net income (loss)
|
(54 | ) | (405 | ) | 5 | |||||||
|
Less: Net income attributable to noncontrolling interests
|
19 | 10 | 10 | |||||||||
|
Net loss attributable to Tenneco, Inc.
|
$ | (73 | ) | $ | (415 | ) | $ | (5 | ) | |||
|
Earnings (loss) per share
|
||||||||||||
|
Weighted average shares of common stock outstanding —
|
||||||||||||
|
Basic
|
48,572,463 | 46,406,095 | 45,809,730 | |||||||||
|
Diluted
|
48,572,463 | 46,406,095 | 45,809,730 | |||||||||
|
Basic loss per share of common stock
|
$ | (1.50 | ) | $ | (8.95 | ) | $ | (0.11 | ) | |||
|
Diluted loss per share of common stock
|
$ | (1.50 | ) | $ | (8.95 | ) | $ | (0.11 | ) | |||
The accompanying notes to consolidated financial statements are
an integral
part of these statements of income (loss).
part of these statements of income (loss).
71
Table of Contents
TENNECO
INC.
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (Millions) | ||||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 167 | $ | 126 | ||||
|
Receivables —
|
||||||||
|
Customer notes and accounts, net
|
572 | 529 | ||||||
|
Other
|
24 | 45 | ||||||
|
Inventories
|
428 | 513 | ||||||
|
Deferred income taxes
|
35 | 18 | ||||||
|
Prepayments and other
|
167 | 107 | ||||||
|
Total Current Assets
|
1,393 | 1,338 | ||||||
|
Other assets:
|
||||||||
|
Long-term receivables, net
|
8 | 11 | ||||||
|
Goodwill
|
89 | 95 | ||||||
|
Intangibles, net
|
30 | 26 | ||||||
|
Deferred income taxes
|
100 | 88 | ||||||
|
Other
|
111 | 125 | ||||||
| 338 | 345 | |||||||
|
Plant, property, and equipment, at cost
|
3,099 | 2,960 | ||||||
|
Less — Accumulated depreciation and amortization
|
(1,989 | ) | (1,815 | ) | ||||
| 1,110 | 1,145 | |||||||
| $ | 2,841 | $ | 2,828 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
|
Current liabilities:
|
||||||||
|
Short-term debt (including current maturities of long-term debt)
|
$ | 75 | $ | 49 | ||||
|
Trade payables
|
766 | 790 | ||||||
|
Accrued taxes
|
36 | 30 | ||||||
|
Accrued interest
|
22 | 22 | ||||||
|
Accrued liabilities
|
257 | 201 | ||||||
|
Other
|
45 | 65 | ||||||
|
Total current liabilities
|
1,201 | 1,157 | ||||||
|
Long-term debt
|
1,145 | 1,402 | ||||||
|
Deferred income taxes
|
66 | 51 | ||||||
|
Postretirement benefits
|
331 | 377 | ||||||
|
Deferred credits and other liabilities
|
80 | 61 | ||||||
|
Commitments and contingencies
|
||||||||
|
Total liabilities
|
2,823 | 3,048 | ||||||
|
Redeemable noncontrolling interests
|
7 | 7 | ||||||
|
Tenneco Inc. Shareholders’ equity:
|
||||||||
|
Common stock
|
1 | — | ||||||
|
Premium on common stock and other capital surplus
|
3,005 | 2,809 | ||||||
|
Accumulated other comprehensive loss
|
(212 | ) | (318 | ) | ||||
|
Retained earnings (accumulated deficit)
|
(2,575 | ) | (2,502 | ) | ||||
| 219 | (11 | ) | ||||||
|
Less — Shares held as treasury stock, at cost
|
240 | 240 | ||||||
|
Total Tenneco Inc. shareholders’ equity
|
(21 | ) | (251 | ) | ||||
|
Noncontrolling interests
|
32 | 24 | ||||||
|
Total equity
|
11 | (227 | ) | |||||
|
Total liabilities, redeemable noncontrolling interests and equity
|
$ | 2,841 | $ | 2,828 | ||||
The accompanying notes to consolidated financial statements are
an integral
part of these balance sheets.
part of these balance sheets.
72
Table of Contents
TENNECO
INC.
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
Operating Activities
|
||||||||||||
|
Net income (loss)
|
$ | (54 | ) | $ | (405 | ) | $ | 5 | ||||
|
Adjustments to reconcile net income (loss) to cash provided by
operating activities —
|
||||||||||||
|
Depreciation and amortization of other intangibles
|
221 | 222 | 205 | |||||||||
|
Goodwill impairment charge
|
— | 114 | — | |||||||||
|
Deferred income taxes
|
(24 | ) | 204 | 25 | ||||||||
|
Stock-based compensation
|
7 | 10 | 9 | |||||||||
|
Loss on sale of assets
|
9 | 10 | 8 | |||||||||
|
Changes in components of working capital —
|
||||||||||||
|
(Increase) decrease in receivables
|
(8 | ) | 126 | (116 | ) | |||||||
|
(Increase) decrease in inventories
|
101 | 19 | (66 | ) | ||||||||
|
(Increase) decrease in prepayments and other current assets
|
(55 | ) | 1 | 15 | ||||||||
|
Increase (decrease) in payables
|
(2 | ) | (181 | ) | 100 | |||||||
|
Increase (decrease) in accrued taxes
|
10 | 4 | (25 | ) | ||||||||
|
Increase (decrease) in accrued interest
|
(1 | ) | — | (10 | ) | |||||||
|
Increase (decrease) in other current liabilities
|
20 | — | 19 | |||||||||
|
Change in long-term assets
|
10 | 16 | 6 | |||||||||
|
Change in long-term liabilities
|
2 | 19 | (13 | ) | ||||||||
|
Other
|
5 | 1 | (4 | ) | ||||||||
|
Net cash provided by operating activities
|
241 | 160 | 158 | |||||||||
|
Investing Activities
|
||||||||||||
|
Proceeds from sale of assets
|
5 | 3 | 10 | |||||||||
|
Cash payments for plant, property, and equipment
|
(120 | ) | (233 | ) | (177 | ) | ||||||
|
Cash payments for software related intangible assets
|
(6 | ) | (15 | ) | (19 | ) | ||||||
|
Cash payment for net assets purchased
|
— | — | (16 | ) | ||||||||
|
Acquisition of businesses (net of cash acquired)
|
1 | (16 | ) | — | ||||||||
|
Investments and other
|
1 | — | — | |||||||||
|
Net cash used by investing activities
|
(119 | ) | (261 | ) | (202 | ) | ||||||
|
Financing Activities
|
||||||||||||
|
Issuance of common shares
|
188 | 2 | 8 | |||||||||
|
Issuance of long-term debt
|
6 | 1 | 400 | |||||||||
|
Debt issuance costs on long-term debt
|
(8 | ) | (2 | ) | (11 | ) | ||||||
|
Increase (decrease) in bank overdrafts
|
(23 | ) | (1 | ) | 7 | |||||||
|
Retirement of long-term debt
|
(22 | ) | (6 | ) | (591 | ) | ||||||
|
Net increase (decrease) in revolver borrowings and short-term
debt excluding current maturities of long-term debt
|
(218 | ) | 77 | 183 | ||||||||
|
Distribution to noncontrolling interests partners
|
(10 | ) | (13 | ) | (6 | ) | ||||||
|
Net cash provided (used) by financing activities
|
(87 | ) | 58 | (10 | ) | |||||||
|
Effect of foreign exchange rate changes on cash and cash
equivalents
|
6 | (19 | ) | 40 | ||||||||
|
Increase (decrease) in cash and cash equivalents
|
41 | (62 | ) | (14 | ) | |||||||
|
Cash and cash equivalents, January 1
|
126 | 188 | 202 | |||||||||
|
Cash and cash equivalents, December 31 (Note)
|
$ | 167 | $ | 126 | $ | 188 | ||||||
|
Supplemental Cash Flow Information
|
||||||||||||
|
Cash paid during the year for interest
|
$ | 131 | $ | 117 | $ | 177 | ||||||
|
Cash paid during the year for income taxes (net of refunds)
|
38 | 62 | 60 | |||||||||
|
Non-cash Investing and Financing Activities
|
||||||||||||
|
Period ended balance of payables for plant, property, and
equipment
|
$ | 26 | $ | 28 | $ | 40 | ||||||
|
Assumption of debt from business acquisition
|
— | 10 | — | |||||||||
| Note: | Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase. |
The accompanying notes to consolidated financial statements are
an integral
part of these statements of cash flows.
part of these statements of cash flows.
73
Table of Contents
TENNECO
INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| Year Ended December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| (Millions Except Share Amounts) | ||||||||||||||||||||||||
|
Common Stock
|
||||||||||||||||||||||||
|
Balance January 1
|
48,314,490 | $ | — | 47,892,532 | $ | — | 47,085,274 | $ | — | |||||||||||||||
|
Issued
|
12,000,000 | 1 | — | — | — | — | ||||||||||||||||||
|
Issued (Reacquired) pursuant to benefit plans
|
283,195 | — | 238,982 | — | 209,558 | — | ||||||||||||||||||
|
Stock options exercised
|
192,054 | — | 182,976 | — | 597,700 | — | ||||||||||||||||||
|
Balance December 31
|
60,789,739 | 1 | 48,314,490 | — | 47,892,532 | — | ||||||||||||||||||
|
Premium on Common Stock and Other Capital Surplus
|
||||||||||||||||||||||||
|
Balance January 1
|
2,809 | 2,800 | 2,790 | |||||||||||||||||||||
|
Premium on common stock issued
|
188 | — | — | |||||||||||||||||||||
|
Premium on common stock issued pursuant to benefit plans
|
8 | 9 | 10 | |||||||||||||||||||||
|
Balance December 31
|
3,005 | 2,809 | 2,800 | |||||||||||||||||||||
|
Accumulated Other Comprehensive Loss
|
||||||||||||||||||||||||
|
Balance January 1
|
(318 | ) | (73 | ) | (252 | ) | ||||||||||||||||||
|
Measurement date implementation of Statement of Accounting
Standards Codification (ASC) 715, net of tax of $7 million
|
— | — | 14 | |||||||||||||||||||||
|
Other comprehensive income (loss)
|
106 | (245 | ) | 165 | ||||||||||||||||||||
|
Balance December 31
|
(212 | ) | (318 | ) | (73 | ) | ||||||||||||||||||
|
Retained Earnings (Accumulated Deficit)
|
||||||||||||||||||||||||
|
Balance January 1
|
(2,502 | ) | (2,087 | ) | (2,072 | ) | ||||||||||||||||||
|
Net income (loss) attributable to Tenneco Inc.
|
(73 | ) | (415 | ) | (5 | ) | ||||||||||||||||||
|
Measurement date implementation ASC 715, net of tax of
$2 million
|
— | — | (8 | ) | ||||||||||||||||||||
|
Other
|
— | — | (2 | ) | ||||||||||||||||||||
|
Balance December 31
|
(2,575 | ) | (2,502 | ) | (2,087 | ) | ||||||||||||||||||
|
Less — Common Stock Held as Treasury Stock, at
Cost
|
||||||||||||||||||||||||
|
Balance January 1 and December 31
|
1,294,692 | 240 | 1,294,692 | 240 | 1,294,692 | 240 | ||||||||||||||||||
|
Total Tenneco Inc. shareholders’ equity
|
$ | (21 | ) | $ | (251 | ) | $ | 400 | ||||||||||||||||
|
Noncontrolling interests:
|
||||||||||||||||||||||||
|
Balance January 1
|
24 | 25 | 24 | |||||||||||||||||||||
|
Net income attributable to noncontrolling interests
|
13 | 6 | 7 | |||||||||||||||||||||
|
Dividends declared
|
(5 | ) | (7 | ) | (6 | ) | ||||||||||||||||||
|
Balance December 31
|
$ | 32 | $ | 24 | $ | 25 | ||||||||||||||||||
|
Total equity
|
$ | 11 | $ | (227 | ) | $ | 425 | |||||||||||||||||
The accompanying notes to consolidated financial statements are
an integral
part of these statements of changes in shareholders’ equity.
part of these statements of changes in shareholders’ equity.
74
Table of Contents
TENNECO
INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31, 2009 | ||||||||||||||||||||||||
| Tenneco Inc. | Noncontrolling interests | Total | ||||||||||||||||||||||
|
Accumulated
|
Accumulated
|
Accumulated
|
||||||||||||||||||||||
|
Other
|
Other
|
Other
|
||||||||||||||||||||||
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
|||||||||||||||||||
|
Income
|
Income
|
Income
|
Income
|
Income
|
Income
|
|||||||||||||||||||
| (Loss) | (Loss) | (Loss) | (Loss) | (Loss) | (Loss) | |||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||
|
Net Income (Loss)
|
$ | (73 | ) | $ | 19 | $ | (54 | ) | ||||||||||||||||
|
Accumulated Other Comprehensive Income (Loss)
|
||||||||||||||||||||||||
|
Cumulative Translation Adjustment
|
||||||||||||||||||||||||
|
Balance January 1
|
$ | (42 | ) | $ | — | $ | (42 | ) | ||||||||||||||||
|
Translation of foreign currency statements
|
79 | 79 | — | — | 79 | 79 | ||||||||||||||||||
|
Balance December 31
|
37 | — | 37 | |||||||||||||||||||||
|
Additional Liability for Pension Benefits
|
||||||||||||||||||||||||
|
Balance January 1
|
(276 | ) | — | (276 | ) | |||||||||||||||||||
|
Additional liability for pension and postretirement benefits,
net of tax of $1 million
|
27 | 27 | 27 | 27 | ||||||||||||||||||||
|
Balance December 31
|
(249 | ) | (249 | ) | ||||||||||||||||||||
|
Balance December 31
|
$ | (212 | ) | $ | — | $ | (212 | ) | ||||||||||||||||
|
Other comprehensive income (loss)
|
106 | — | 106 | |||||||||||||||||||||
|
Comprehensive Income (Loss)
|
$ | 33 | $ | 19 | $ | 52 | ||||||||||||||||||
The accompanying notes to consolidated financial statements are
an integral
part of these statements of comprehensive income (loss).
part of these statements of comprehensive income (loss).
75
Table of Contents
TENNECO
INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31, 2008 | ||||||||||||||||||||||||
| Tenneco Inc. | Noncontrolling interests | Total | ||||||||||||||||||||||
|
Accumulated
|
Accumulated
|
Accumulated
|
||||||||||||||||||||||
|
Other
|
Other
|
Other
|
||||||||||||||||||||||
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
|||||||||||||||||||
|
Income
|
Income
|
Income
|
Income
|
Income
|
Income
|
|||||||||||||||||||
| (Loss) | (Loss) | (Loss) | (Loss) | (Loss) | (Loss) | |||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||
|
Net Income (Loss)
|
$ | (415 | ) | $ | 10 | $ | (405 | ) | ||||||||||||||||
|
Accumulated Other Comprehensive Income (Loss)
|
||||||||||||||||||||||||
|
Cumulative Translation Adjustment
|
||||||||||||||||||||||||
|
Balance January 1
|
$ | 85 | $ | — | $ | 85 | ||||||||||||||||||
|
Translation of foreign currency statements
|
(127 | ) | (127 | ) | — | (127 | ) | (127 | ) | |||||||||||||||
|
Balance December 31
|
(42 | ) | — | (42 | ) | |||||||||||||||||||
|
Additional Liability for Pension Benefits
|
||||||||||||||||||||||||
|
Balance January 1
|
(158 | ) | — | (158 | ) | |||||||||||||||||||
|
Additional liability for pension and postretirement benefits,
net of tax of $9 million
|
(118 | ) | (118 | ) | (118 | ) | (118 | ) | ||||||||||||||||
|
Balance December 31
|
(276 | ) | (276 | ) | ||||||||||||||||||||
|
Balance December 31
|
$ | (318 | ) | $ | — | $ | (318 | ) | ||||||||||||||||
|
Other comprehensive income (loss)
|
(245 | ) | — | (245 | ) | |||||||||||||||||||
|
Comprehensive Income (Loss)
|
$ | (660 | ) | $ | 10 | $ | (650 | ) | ||||||||||||||||
The accompanying notes to consolidated financial statements are
an integral
part of these statements of comprehensive income (loss).
part of these statements of comprehensive income (loss).
76
Table of Contents
TENNECO
INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31, 2007 | ||||||||||||||||||||||||
| Tenneco Inc. | Noncontrolling interests | Total | ||||||||||||||||||||||
|
Accumulated
|
Accumulated
|
Accumulated
|
||||||||||||||||||||||
|
Other
|
Other
|
Other
|
||||||||||||||||||||||
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
Comprehensive
|
|||||||||||||||||||
|
Income
|
Income
|
Income
|
Income
|
Income
|
Income
|
|||||||||||||||||||
| (Loss) | (Loss) | (Loss) | (Loss) | (Loss) | (Loss) | |||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||
|
Net Income (Loss)
|
$ | (5 | ) | $ | 10 | $ | 5 | |||||||||||||||||
|
Accumulated Other Comprehensive Income (Loss)
|
||||||||||||||||||||||||
|
Cumulative Translation Adjustment
|
||||||||||||||||||||||||
|
Balance January 1
|
$ | (53 | ) | $ | — | $ | (53 | ) | ||||||||||||||||
|
Translation of foreign currency statements
|
138 | 138 | — | 138 | 138 | |||||||||||||||||||
|
Balance December 31
|
85 | — | 85 | |||||||||||||||||||||
|
Additional Liability for Pension Benefits
|
||||||||||||||||||||||||
|
Balance January 1
|
(199 | ) | — | (199 | ) | |||||||||||||||||||
|
Additional liability for pension and postretirement benefits,
net of tax of $(15) million
|
27 | 27 | 27 | 27 | ||||||||||||||||||||
|
Measurement date implementation of ASC 715, net of tax of
$7 million
|
14 | — | 14 | — | ||||||||||||||||||||
|
Balance December 31
|
(158 | ) | — | (158 | ) | |||||||||||||||||||
|
Balance December 31
|
$ | (73 | ) | $ | — | $ | (73 | ) | ||||||||||||||||
|
Other comprehensive income (loss)
|
165 | — | 165 | |||||||||||||||||||||
|
Comprehensive Income (Loss)
|
$ | 160 | $ | 10 | $ | 170 | ||||||||||||||||||
The accompanying notes to consolidated financial statements are
an integral
part of these statements of comprehensive income (loss).
part of these statements of comprehensive income (loss).
77
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Summary of Accounting Policies |
Consolidation
and Presentation
Our consolidated financial statements include all majority-owned
subsidiaries. We carry investments in 20 percent to
50 percent owned companies as an equity method investment,
at cost plus equity in undistributed earnings since the date of
acquisition and cumulative translation adjustments. We have
eliminated intercompany transactions. We have evaluated all
subsequent events through the date our financial statements were
issued.
On January 1, 2009, we adopted new accounting guidance on
the presentation and disclosure of noncontrolling interests in
our consolidated financial statements, which required us to
reclassify retrospectively for all periods presented,
noncontrolling ownership interests (formerly called minority
interests) from the mezzanine section of the balance sheet
between liabilities and equity to the equity section of the
balance sheet, and to change our presentation of net income
(loss) in the consolidated statements of cash flows to include
the portion of net income (loss) attributable to noncontrolling
ownership interests. We have noncontrolling interests in two
joint ventures with redemption features that could require us to
purchase the noncontrolling interests at fair value in the event
of a change in control of Tenneco Inc. Additionally, a
noncontrolling interest in a third joint venture requires us to
purchase the noncontrolling interest at fair value in the event
of default or under certain other circumstances. We do not
believe that it is probable that the redemption features in any
of these joint venture agreements will be triggered. However,
the redemption of these shares is not solely within our control.
Accordingly, the related noncontrolling interests are presented
as “Redeemable noncontrolling interests” in the
mezzanine section of our consolidated balance sheets. We have
also expanded our financial statement presentation and
disclosure of noncontrolling ownership interests on our
consolidated statements of income (loss), consolidated
statements of comprehensive income (loss) and consolidated
statements of changes in shareholders’ equity in accordance
with these new disclosure requirements.
The following is a rollforward of activity in our redeemable
noncontrolling interests for the years ending December 31,
2009, 2008 and 2007, respectively:
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
Redeemable noncontrolling interests:
|
||||||||||||
|
Balance January 1
|
$ | 7 | $ | 6 | $ | 4 | ||||||
|
Net income attributable to redeemable noncontrolling interests
|
5 | 4 | 3 | |||||||||
|
Dividends declared
|
(5 | ) | (3 | ) | (1 | ) | ||||||
|
Balance December 31
|
$ | 7 | $ | 7 | $ | 6 | ||||||
Sales of
Accounts Receivable
We have an agreement to sell an interest in some of our
U.S. trade accounts receivable to a third party.
Receivables become eligible for the program on a daily basis, at
which time the receivables are sold to the third party without
recourse, net of a discount, through a wholly-owned subsidiary.
Under this agreement, as well as individual agreements with
third parties in Europe, we have accounts receivable of
$137 million and $179 million at December 31,
2009 and 2008, respectively. We recognized a loss of
$9 million, $10 million, and $10 million during
2009, 2008, and 2007 respectively, on these sales of trade
accounts, representing the discount from book values at which
these receivables were sold to the third party. The discount
rate varies based on funding cost incurred by the third party,
which has averaged approximately five percent during 2009. In
the U.S. securitization program, we retain ownership of the
remaining interest in the pool of receivables not sold to the
third party. The retained interest represents a credit
enhancement for the program. We record the retained interest
based upon the amount we expect to collect from our customers,
which approximates book
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
value. In February 2010, the U.S. program was amended and
extended to February 18, 2011 at a facility size of
$100 million. As part of the renewal, the margin we pay the
banks decreased.
Inventories
At December 31, 2009 and 2008, inventory by major
classification was as follows:
| 2009 | 2008 | |||||||
| (Millions) | ||||||||
|
Finished goods
|
$ | 175 | $ | 211 | ||||
|
Work in process
|
116 | 143 | ||||||
|
Raw materials
|
95 | 114 | ||||||
|
Materials and supplies
|
42 | 45 | ||||||
| $ | 428 | $ | 513 | |||||
Our inventories are stated at the lower of cost or market value
using the
first-in,
first-out (“FIFO”) or average cost methods.
Goodwill
and Intangibles, net
We evaluate goodwill for impairment in the fourth quarter of
each year, or more frequently if events indicate it is
warranted. We compare the estimated fair value of our reporting
units with goodwill to the carrying value of the unit’s
assets and liabilities to determine if impairment exists within
the recorded balance of goodwill. We estimate the fair value of
each reporting unit using the income approach which is based on
the present value of estimated future cash flows. The income
approach is dependent on a number of factors, including
estimates of market trends, forecasted revenues and expenses,
capital expenditures, weighted average cost of capital and other
variables. These estimates are based on assumptions that we
believe to be reasonable, but which are inherently uncertain.
In the fourth quarter of 2009, estimated fair value of each of
our reporting units significantly exceeded the carrying value of
its assets and liabilities. In the fourth quarter of 2008, the
fair value also exceeded the carrying value for all of our
reporting units with the exception of our North America Original
Equipment Ride Control reporting unit whose carrying value
exceeded the estimated fair value. We were required to calculate
the implied fair value of goodwill of the North America Original
Equipment Ride Control reporting unit by allocating the
estimated fair value to the assets and liabilities of this
reporting unit as if the reporting unit had been acquired in a
business combination and the fair value of the reporting unit
was the acquisition price. As a result of this testing, we
determined that the remaining amount of goodwill related to our
elastomer business acquired in 1996 was impaired due to the
significant decline in light vehicle production in 2008 and
anticipated in future periods. Accordingly, we recorded an
impairment charge of $114 million during the fourth quarter
of 2008.
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The changes in the net carrying amount of goodwill for the
twelve months ended December 31, 2009 and 2008 were as
follows:
| Year Ended December 31, 2009 | ||||||||||||||||
|
Europe,
|
||||||||||||||||
|
South
|
||||||||||||||||
|
North
|
America
|
Asia
|
||||||||||||||
| America | and India | Pacific | Total | |||||||||||||
| (Millions) | ||||||||||||||||
|
Balance as January 1
|
||||||||||||||||
|
Goodwill
|
$ | 330 | $ | 95 | $ | 8 | $ | 433 | ||||||||
|
Accumulated impairment losses
|
(306 | ) | (32 | ) | — | (338 | ) | |||||||||
| 24 | 63 | 8 | 95 | |||||||||||||
|
Acquisition of business opening balance sheet adjustments
|
— | (10 | ) | — | (10 | ) | ||||||||||
|
Translation adjustments
|
— | 2 | 2 | 4 | ||||||||||||
|
Balance at December 31
|
||||||||||||||||
|
Goodwill
|
330 | 87 | 10 | 427 | ||||||||||||
|
Accumulated impairment losses
|
(306 | ) | (32 | ) | — | (338 | ) | |||||||||
| $ | 24 | $ | 55 | $ | 10 | $ | 89 | |||||||||
| Year Ended December 31, 2008 | ||||||||||||||||
|
Europe,
|
||||||||||||||||
|
South
|
||||||||||||||||
|
North
|
America
|
Asia
|
||||||||||||||
| America | and India | Pacific | Total | |||||||||||||
| (Millions) | ||||||||||||||||
|
Balance as January 1
|
||||||||||||||||
|
Goodwill
|
$ | 330 | $ | 92 | $ | 10 | $ | 432 | ||||||||
|
Accumulated impairment losses
|
(192 | ) | (32 | ) | — | (224 | ) | |||||||||
| 138 | 60 | 10 | 208 | |||||||||||||
|
Acquisition of business
|
— | 10 | — | 10 | ||||||||||||
|
Goodwill impairment write-off
|
(114 | ) | — | — | (114 | ) | ||||||||||
|
Translation adjustments
|
— | (7 | ) | (2 | ) | (9 | ) | |||||||||
|
Balance at December 31
|
||||||||||||||||
|
Goodwill
|
330 | 95 | 8 | 433 | ||||||||||||
|
Accumulated impairment losses
|
(306 | ) | (32 | ) | — | (338 | ) | |||||||||
| $ | 24 | $ | 63 | $ | 8 | $ | 95 | |||||||||
We have capitalized certain intangible assets, primarily
technology rights, trademarks and patents, based on their
estimated fair value at the date we acquired them. We amortize
our finite useful life intangible assets on a straight-line
basis over periods ranging from 5 to 30 years. Amortization
of intangibles amounted to $2 million in 2009,
$3 million in 2008 and $1 million in 2007, and is
included in the statements of income
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
caption “Depreciation and amortization of
intangibles.” The carrying amount and accumulated
amortization of our finite useful life intangible assets were as
follows:
| December 31, 2009 | December 31, 2008 | |||||||||||||||
|
Gross Carrying
|
Accumulated
|
Gross Carrying
|
Accumulated
|
|||||||||||||
| Value | Amortization | Value | Amortization | |||||||||||||
| (Millions) | (Millions) | |||||||||||||||
|
Customer contract
|
$ | 8 | $ | (2 | ) | $ | 8 | $ | (2 | ) | ||||||
|
Patents
|
4 | (3 | ) | 3 | (3 | ) | ||||||||||
|
Technology rights
|
22 | (5 | ) | 23 | (3 | ) | ||||||||||
|
Other
|
2 | — | — | — | ||||||||||||
|
Total
|
$ | 36 | $ | (10 | ) | $ | 34 | $ | (8 | ) | ||||||
Estimated amortization of intangible assets over the next five
years is expected to be $2 million in 2010 through 2012 and
$4 million in 2013 through 2014. We have capitalized
indefinite life intangibles of $4 million relating to
purchased trademarks from our Marzocchi acquisition in 2007.
Plant,
Property, and Equipment, at Cost
At December 31, 2009 and 2008, plant, property, and
equipment, at cost, by major category were as follows:
| 2009 | 2008 | |||||||
| (Millions) | ||||||||
|
Land, buildings, and improvements
|
$ | 516 | $ | 490 | ||||
|
Machinery and equipment
|
2,431 | 2,282 | ||||||
|
Other, including construction in progress
|
152 | 188 | ||||||
| $ | 3,099 | $ | 2,960 | |||||
We depreciate these properties excluding land on a straight-line
basis over the estimated useful lives of the assets. Useful
lives range from 10 to 50 years for buildings and
improvements and from three to 25 years for machinery and
equipment.
Notes and
Accounts Receivable and Allowance for Doubtful
Accounts
Short and long-term notes receivable outstanding were
$3 million at both December 31, 2009 and 2008. The
allowance for doubtful accounts on short-term and long-term
notes receivable was approximately $3 million at both
December 31, 2009 and 2008.
Short and long-term accounts receivable outstanding were
$602 million and $561 million at December 31,
2009 and 2008, respectively. The allowance for doubtful accounts
on short-term and long-term accounts receivable was
$22 million and $21 million, at December 31, 2009
and 2008, respectively.
Pre-production
Design and Development and Tooling Assets
We expense pre-production design and development costs as
incurred unless we have a contractual guarantee for
reimbursement from the original equipment customer. Unbilled
pre-production design and development costs recorded in
prepayments and other and long-term receivables was
$14 million and $12 million on December 31, 2009
and 2008, respectively. In addition, plant, property and
equipment included $49 million and $53 million at
December 31, 2009 and 2008, respectively, for original
equipment tools and dies that we own, and prepayments and other
included $50 million and $22 million at
December 31, 2009 and 2008, respectively, for in-process
tools and dies that we are building for our original equipment
customers.
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Internal
Use Software Assets
We capitalize certain costs related to the purchase and
development of software that we use in our business operations.
We amortize the costs attributable to these software systems
over their estimated useful lives, ranging from three to
15 years, based on various factors such as the effects of
obsolescence, technology, and other economic factors.
Capitalized software development costs, net of amortization,
were $60 million and $74 million at December 31,
2009 and 2008 respectively, and are recorded in other long-term
assets. Amortization of software development costs was
approximately $22 million, $24 million and
$21 million for the years ended December 31, 2009,
2008 and 2007, respectively, and is included in the statements
of income (loss) caption “Depreciation and amortization of
intangibles.” Additions to capitalized software development
costs, including payroll and payroll-related costs for those
employees directly associated with developing and obtaining the
internal use software, are classified as investing activities in
the statements of cash flows.
Income
Taxes
We evaluate our deferred income taxes quarterly to determine if
valuation allowances are required or should be adjusted.
U.S. GAAP requires that companies assess whether valuation
allowances should be established against their deferred tax
assets based on consideration of all available evidence, both
positive and negative, using a “more likely than not”
standard. This assessment considers, among other matters, the
nature, frequency and amount of recent losses, the duration of
statutory carryforward periods, and tax planning strategies. In
making such judgments, significant weight is given to evidence
that can be objectively verified.
Valuation allowances have been established for deferred tax
assets based on a “more likely than not” threshold.
The ability to realize deferred tax assets depends on our
ability to generate sufficient taxable income within the
carryforward periods provided for in the tax law for each tax
jurisdiction. We have considered the following possible sources
of taxable income when assessing the realization of our deferred
tax assets:
| • | Future reversals of existing taxable temporary differences; | |
| • | Taxable income or loss, based on recent results, exclusive of reversing temporary differences and carryforwards; and | |
| • | Tax-planning strategies. |
In 2009, we recorded income tax expense of $13 million.
Computed using the U.S. Federal statutory income tax rate
of 35 percent, income tax would be a benefit of
$14 million. The difference is due primarily to valuation
allowances against deferred tax assets generated by 2009 losses
in the U.S. and in certain foreign countries which we cannot
benefit, partially offset by adjustments to past valuation
allowances for deferred tax assets including a reversal of
$20 million of U.S. valuation allowance based on the
change in the fair value of a tax planning strategy. In
evaluating the requirements to record a valuation allowance,
accounting standards do not permit us to consider an economic
recovery in the U.S. or new business we have won in the
commercial vehicle segment. Consequently, beginning in 2008,
given our historical losses, we concluded that our ability to
fully utilize our NOLs was limited due to projecting the
continuation of the negative economic environment and the impact
of the negative operating environment on our tax planning
strategies. As a result of the tax planning strategy which has
not yet been implemented but which we plan to implement and
which does not depend upon generating future taxable income, we
carry deferred tax assets in the U.S. of $90 million
relating to the expected utilization of those NOLs. The federal
NOLs expire beginning in 2020 through 2029. The state NOLs
expire in various years through 2029.
If our operating performance improves on a sustained basis, our
conclusion regarding the need for a valuation allowance could
change, resulting in the reversal of some or all of the
valuation allowance in the future. The charge to establish the
U.S. valuation allowance also includes items related to the
losses allocable
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
to certain state jurisdictions where it was determined that tax
attributes related to those jurisdictions were potentially not
realizable.
We are required to record a valuation allowance against deferred
tax assets generated by taxable losses in each period in the
U.S. as well as in other foreign countries. Our future
provision for income taxes will include no tax benefit with
respect to losses incurred and no tax expense with respect to
income generated in these jurisdictions until the respective
valuation allowance is eliminated. This will cause variability
in our effective tax rate.
Revenue
Recognition
We recognize revenue for sales to our original equipment and
aftermarket customers when title and risk of loss passes to the
customers under the terms of our arrangements with those
customers, which is usually at the time of shipment from our
plants or distribution centers. In connection with the sale of
exhaust systems to certain original equipment manufacturers, we
purchase catalytic converters and diesel particulate filters or
components thereof including precious metals
(“substrates”) on behalf of our customers which are
used in the assembled system. These substrates are included in
our inventory and “passed through” to the customer at
our cost, plus a small margin, since we take title to the
inventory and are responsible for both the delivery and quality
of the finished product. Revenues recognized for substrate sales
were $966 million, $1,492 million and
$1,673 million in 2009 and 2008 and 2007 respectively. For
our aftermarket customers, we provide for promotional incentives
and returns at the time of sale. Estimates are based upon the
terms of the incentives and historical experience with returns.
Certain taxes assessed by governmental authorities on revenue
producing transactions, such as value added taxes, are excluded
from revenue and recorded on a net basis. Shipping and handling
costs billed to customers are included in revenues and the
related costs are included in cost of sales in our Statements of
Income (Loss).
Warranty
Reserves
Where we have offered product warranty, we also provide for
warranty costs. Those estimates are based upon historical
experience and upon specific warranty issues as they arise.
While we have not experienced any material differences between
these estimates and our actual costs, it is reasonably possible
that future warranty issues could arise that could have a
significant impact on our consolidated financial statements.
Earnings
Per Share
We compute basic earnings per share by dividing income available
to common shareholders by the weighted-average number of common
shares outstanding. The computation of diluted earnings per
share is similar to the computation of basic earnings per share,
except that we adjust the weighted-average number of shares
outstanding to include estimates of additional shares that would
be issued if potentially dilutive common shares had been issued.
In addition, we adjust income available to common shareholders
to include any changes in income or loss that would result from
the assumed issuance of the dilutive common shares. Due to the
net losses for the years ended December 31, 2009, 2008 and
2007, respectively, the calculation of diluted earnings per
share does not include the dilutive effect from shares of
restricted stock and stock options. See Note 2 to the
consolidated financial statements of Tenneco Inc.
Engineering,
Research and Development
We expense engineering, research, and development costs as they
are incurred. Engineering, research, and development expenses
were $97 million for 2009, $127 million for 2008 and
$114 million for 2007, net of reimbursements from our
customers. Our customers reimburse us for engineering, research,
and development costs on some platforms when we prepare
prototypes and incur costs before platform awards. Our
engineering,
83
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
research, and development expense for 2009, 2008, and 2007 has
been reduced by $104 million, $120 million and
$72 million, respectively, for these reimbursements.
Foreign
Currency Translation
We translate the consolidated financial statements of foreign
subsidiaries into U.S. dollars using the exchange rate at
each balance sheet date for assets and liabilities and a
weighted-average exchange rate for revenues and expenses in each
period. We record translation adjustments for those subsidiaries
whose local currency is their functional currency as a component
of accumulated other comprehensive loss in shareholders’
equity. We recognize transaction gains and losses arising from
fluctuations in currency exchange rates on transactions
denominated in currencies other than the functional currency in
earnings as incurred, except for those transactions which hedge
purchase commitments and for those intercompany balances which
are designated as long-term investments. Our results include
foreign currency transaction gains of $4 million in 2009,
$11 million in foreign currency transaction losses in 2008
and $15 million in foreign currency transaction gains 2007.
Risk
Management Activities
We use foreign exchange forward purchase and sales contracts
with terms of less than one year to hedge our exposure to
changes in foreign currency exchange rates. Our primary exposure
to changes in foreign currency rates results from intercompany
loans made between affiliates to minimize the need for
borrowings from third parties. Additionally, we enter into
foreign currency forward purchase and sale contracts to mitigate
our exposure to changes in exchange rates on certain
intercompany and third-party trade receivables and payables. We
do not enter into derivative financial instruments for
speculative purposes. The fair value of our foreign exchange
forward contracts is based on a model which incorporates
observable inputs including quoted spot rates, forward exchange
rates and discounted future expected cash flows utilizing market
interest rates with similar quality and maturity
characteristics. We record the change in fair value of these
foreign exchange forward contracts as part of currency gains
(losses) within cost of sales in the consolidated statements of
income (loss). The fair value of foreign exchange forward
contracts are recorded in prepayments and other current assets
or other current liabilities in the consolidated balance sheet.
We do not enter into derivative financial instruments for
speculative purposes.
Recent
Accounting Pronouncements
In August 2009, the Financial Accounting Standards Board (FASB)
issued new accounting guidance relating to the fair value
measurement for liabilities in which a quoted price in an active
market for the identical liability is not available. The new
accounting guidance requires the use of a valuation technique
that uses a quoted price of either an identical liability or
similar liability when traded as an asset or another valuation
technique based on the amount an entity would either pay to
transfer the identical liability or would receive to enter into
an identical liability. This new guidance is effective for the
first reporting period (including interim periods) beginning
after issuance, which is October 1, 2009 for the Company.
The adoption of this new accounting guidance did not have a
material impact on our consolidated financial statements.
In June 2009, the FASB issued new accounting guidance which
changes the criterion relating to the consolidation of variable
interest entities (VIE) and amends the guidance governing the
determination of whether an enterprise is the primary
beneficiary of a VIE by requiring a qualitative rather than
quantitative analysis. The new accounting guidance also requires
continuous reassessments of whether an enterprise is the primary
beneficiary of a VIE and enhanced disclosures about an
entity’s involvement with a VIE. The new accounting
guidance is effective for a reporting entity’s first annual
reporting period that begins after November 15, 2009, and
for interim and annual reporting periods thereafter. We do not
believe the adoption of this new accounting guidance on
January 1, 2010 will have a material impact on our
consolidated financial
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
statements. Additional disclosure relating to this new
accounting guidance will be added to the notes to our
consolidated financial statements.
In May 2009, the FASB issued new accounting guidance on
subsequent events which were further amended in February 2010 to
require SEC filers to evaluate subsequent events through the
date the financial statements were issued. The new accounting
guidance for subsequent events is effective for interim or
annual reporting periods ending after June 15, 2009. The
adoption of this accounting guidance did not have a material
impact on our notes or consolidated financial statements.
In April 2009, the FASB issued new accounting guidance which
requires public companies to disclose information relating to
fair value of financial instruments for interim and annual
reporting periods. Additional disclosure is required for all
financial instruments for which it is practicable to estimate
fair value, including the fair value and carrying value and the
significant assumptions used to estimate the fair value of these
financial instruments. This new accounting guidance is effective
for interim reporting periods ending after June 15, 2009 on
a prospective basis with comparative disclosures only for
periods after initial adoption. We have incorporated these new
disclosure requirements within footnote 6 of our notes to
consolidated financial statements.
In December 2008, the FASB issued new accounting guidance on
employers’ disclosure about postretirement benefit plan
assets which requires disclosure of plan asset investment
policies and strategies, the fair value of each major category
of plan assets, information about inputs and valuation
techniques used to develop fair value measurements of plan
assets, and additional disclosure about significant
concentrations of risk in plan assets for an employer’s
pension and other postretirement plans. These additional
disclosure requirements for postretirement benefit plan assets
is effective for fiscal years ending after December 15,
2009. The adoption of this new accounting guidance did not have
a material impact on our consolidated financial statements. We
have added disclosure in footnote 10 to consolidated financial
statements to meet these new disclosure requirements.
In March 2008, the FASB issued new accounting guidance on the
disclosures about derivative instruments and hedging activities
which requires enhanced disclosures about an entity’s
derivative and hedging activities including how and why an
entity uses derivative instruments, how an entity accounts for
derivatives and hedges and how derivative instruments and
related hedged items affect an entity’s financial position,
financial performance and cash flows. This new accounting
guidance is effective for financial statements issued for fiscal
years and interim periods beginning after November 15,
2008. We adopted these new guidelines on a prospective basis on
January 1, 2009 and have incorporated the disclosure
requirements within footnote 6 of our notes to consolidated
financial statements.
In December 2007, the FASB issued new accounting guidance on
noncontrolling interests in consolidated financial statements to
establish accounting and reporting standards for the
noncontrolling (minority) interest in a subsidiary and for the
deconsolidation of a subsidiary. The new accounting guidance
clarified that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements,
establishes a single method of accounting for changes in a
parent’s ownership interest in a subsidiary that does not
result in deconsolidation and provides for expanded disclosure
in the consolidated financial statements relating to the
interests of the parent’s owners and the interests of the
noncontrolling owners of the subsidiary. The new accounting
guidance applies prospectively (except for the presentation and
disclosure requirements) for fiscal years and interim periods
within those fiscal years beginning on or after
December 15, 2008. The presentation and disclosure
requirements will be applied retrospectively for all periods
presented. The adoption of this new accounting guidance has
changed the presentation of our consolidated financial
statements based on the new disclosure requirements for
noncontrolling interests.
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In September 2006, the FASB issued new accounting guidance on
fair value measurements which defines fair value, establishes a
fair value hierarchy for measuring fair value under generally
accepted accounting principles and expands disclosures about
fair value measurements. This new guidance is effective for
financial statements issued for fiscal years beginning after
November 15, 2007. The FASB issued in February 2008 a delay
in the effective date of this new guidance for nonfinancial
assets and nonfinancial liabilities to fiscal years beginning
after November 15, 2008 and interim periods within those
fiscal years. We have adopted the measurement and disclosure
provisions of this new guidance relating to our financial assets
and financial liabilities which are measured on a recurring
basis (at least annually) effective January 1, 2008. For
our nonfinancial assets and liabilities, we have adopted the
measurement and disclosure provisions of this new guidance on
January 1, 2009. We have added additional disclosures in
footnote 6 of our notes to consolidated financial statements,
relating to the fair value of our financial and nonfinancial
assets and liabilities.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. These
estimates include, among others allowances for doubtful
receivables, promotional and product returns, pension and
post-retirement benefit plans, income taxes, and contingencies.
These items are covered in more detail elsewhere in Note 1,
Note 7, Note 10, and Note 12 of the consolidated
financial statements of Tenneco Inc. Actual results could differ
from those estimates.
| 2. | Earnings (Loss) Per Share |
Earnings (loss) per share of common stock outstanding were
computed as follows:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Millions Except Share and Per Share Amounts) | ||||||||||||
|
Basic loss per share —
|
||||||||||||
|
Net loss attributable to Tenneco Inc.
|
$ | (73 | ) | $ | (415 | ) | $ | (5 | ) | |||
|
Average shares of common stock outstanding
|
48,572,463 | 46,406,095 | 45,809,730 | |||||||||
|
Earnings (loss) per average share of common stock
|
$ | (1.50 | ) | $ | (8.95 | ) | $ | (0.11 | ) | |||
|
Diluted loss per share —
|
||||||||||||
|
Net loss attributable to Tenneco Inc.
|
$ | (73 | ) | $ | (415 | ) | $ | (5 | ) | |||
|
Average shares of common stock outstanding
|
48,572,463 | 46,406,095 | 45,809,730 | |||||||||
|
Effect of dilutive securities:
|
||||||||||||
|
Restricted stock
|
— | — | — | |||||||||
|
Stock options
|
— | — | — | |||||||||
|
Average shares of common stock outstanding including dilutive
securities
|
48,572,463 | 46,406,095 | 45,809,730 | |||||||||
|
Earnings (loss) per average share of common stock
|
$ | (1.50 | ) | $ | (8.95 | ) | $ | (0.11 | ) | |||
As a result of the net loss in 2009, 2008, and 2007, the
calculation of diluted loss per share does not include the
dilutive effect of 1,026,955 and 955,072 and 1,509,462 stock
options, respectively. The calculation also does not include the
dilutive effect of 174,545, 8,915 and 206,960 shares of
restricted stock, respectively.
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In addition, options to purchase 2,403,502, 2,194,304 and
1,311,427 shares of common stock and 469,507, 426,553 and
262,434 shares of restricted stock were outstanding,
respectively, but not included in the computation of diluted
loss per share because the options were anti-dilutive.
| 3. | Acquisitions |
On September 1, 2008, we acquired the suspension business
of Gruppo Marzocchi, an Italian based worldwide leader in
supplying suspension technology in the two wheeler market. The
consideration paid for the Marzocchi acquisition included cash
of approximately $1 million, plus the assumption of
Marzocchi’s net debt (debt less cash acquired) of about
$5 million. In February 2009, we recorded an opening
balance sheet adjustment of $1 million to cash, as a result
of an expected post-closing purchase price settlement with
Marzocchi, which resulted in a corresponding decrease to
goodwill. We finalized the purchase price allocation during the
third quarter of 2009. Adjustments to the opening balance sheet
decreased goodwill to zero and included the capitalization of
intangible assets, including $4 million for trademarks and
$2 million for patents, the capitalization of
$2 million of fixed assets, and the release of
$1 million in a restructuring accrual. The calculated fair
value of these intangible and tangible purchased assets included
Level 2 observable inputs and Level 3 unobservable
inputs that utilized our own assumptions. The fair value of
fixed assets purchased was calculated based on a current cost to
replace valuation methodology adjusted for various factors
including physical deterioration and functional and economic
obsolescence. The fair value of the intangible assets purchased
was calculated using a market-based model to calculate the
discounted after-tax royalty savings based on the Company’s
weighted average cost of capital. This market-based model
utilized inputs such as similar market transactions in the
marketplace and the Company’s historic and projected
revenue growth trends. The acquisition of the Gruppo Marzocchi
suspension business includes a manufacturing facility in
Bologna, Italy, associated engineering and intellectual
property, the Marzocchi brand name, sales, marketing and
customer service operations in the United States and Canada, and
purchasing and sales operations in Taiwan.
On May 30, 2008, we acquired from Delphi Automotive Systems
LLC certain ride control assets and inventory at Delphi’s
Kettering, Ohio facility for a cash payment of $19 million.
We are utilizing a portion of the purchased assets in other
locations to grow our OE ride control business globally. We
finalized the purchase price allocation during the second
quarter of 2009. Adjustments recorded to the opening balance
sheet were not significant. The calculated fair value of the
purchased assets included Level 2 observable inputs and
Level 3 unobservable inputs that utilized our own
assumptions. The fair value of the inventory items was
calculated at current replacement cost while the fair value of
the machinery and equipment purchased was based on values
existing in the used-asset market. In conjunction with the
purchase agreement, we entered into an agreement to lease a
portion of the Kettering facility from Delphi and we have
entered into a long-term supply agreement with General Motors
Corporation to continue supplying passenger car shocks and
struts to General Motors from the Kettering facility. The
agreement has been assumed by the new General Motors Company.
| 4. | Restructuring and Other Charges |
Over the past several years, we have adopted plans to
restructure portions of our operations. These plans were
approved by our Board of Directors and were designed to reduce
operational and administrative overhead costs throughout the
business. Our Board of Directors approved a restructuring
project in 2001, known as Project Genesis, which was designed to
lower our fixed costs, relocate capacity, reduce our work force,
improve efficiency and utilization, and better optimize our
global footprint. We have subsequently engaged in various other
restructuring projects related to Project Genesis. We incurred
$25 million in restructuring and related costs during 2007,
of which $22 million was recorded in cost of sales and
$3 million was recorded in selling, general, administrative
and engineering expense. We incurred $40 million in
restructuring and related costs during 2008, of which
$17 million was recorded in cost of sales and
$23 million was recorded in selling,
87
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
general, administrative and engineering expense. In 2009, we
incurred $21 million in restructuring and related costs, of
which $16 million was recorded in cost of sales,
$1 million was recorded in selling, general, administrative
and engineering expense and $4 million was recorded in
depreciation and amortization expense.
Under the terms of our amended and restated senior credit
agreement that took effect on February 23, 2009, we are
allowed to exclude $40 million of cash charges and
expenses, before taxes, related to cost reduction initiatives
incurred after February 23, 2009 from the calculation of
the financial covenant ratios required under our senior credit
facility. As of December 31, 2009, we have excluded
$16 million in allowable charges relating to restructuring
initiatives against the $40 million available under the
terms of the February 2009 amended and restated senior credit
facility.
On September 22, 2009, we announced that we will be closing
our original equipment ride control plant in Cozad, Nebraska as
we continue to restructure our operations. We expect the
elimination of 500 positions at the Cozad plant and expect to
record up to $20 million in restructuring and related
expenses, of which approximately $14 million represents
cash expenditures, with all expenses recorded by third quarter
2010. We plan to hire at other facilities as we move the
production from Cozad to those facilities, resulting in a net
decrease of approximately 60 positions.
As originally announced in October 2008 and revised in January
2009, we eliminated 1,100 positions and recorded
$31 million in charges, of which approximately
$25 million represented cash expenditures. We recorded
$24 million of these charges in 2008 and $7 million in
2009. We generated approximately $58 million in annual
savings beginning in 2009 related to this restructuring program.
88
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 5. |
|
Long-Term
Debt
A summary of our long-term debt obligations at December 31,
2009 and 2008, is set forth in the following table:
| 2009 | 2008 | |||||||
| (Millions) | ||||||||
|
Tenneco Inc. —
|
||||||||
|
Revolver borrowings due 2012 and 2014, average effective
interest rate 5.6% in 2009 and 4.4% in 2008
|
$ | — | $ | 239 | ||||
|
Senior Term Loans due 2012, average effective interest rate 5.7%
in 2009 and 4.8% in 2008
|
133 | 150 | ||||||
|
10
1
/
4
% Senior
Secured Notes due 2013, including unamortized premium
|
249 | 250 | ||||||
|
8
5
/
8
% Senior
Subordinated Notes due 2014
|
500 | 500 | ||||||
|
8
1
/
8
% Senior
Notes due 2015
|
250 | 250 | ||||||
|
Debentures due 2012 through 2025, average effective interest
rate 8.4% in 2009 and 2008
|
1 | 1 | ||||||
|
Customer Notes due 2013, average effective interest rate 8.0% in
2009
|
6 | — | ||||||
|
Other subsidiaries —
|
||||||||
|
Notes due 2010 through 2017, average effective interest rate
4.0% in 2009 and 4.8% in 2008
|
12 | 17 | ||||||
| 1,151 | 1,407 | |||||||
|
Less — maturities classified as current
|
6 | 5 | ||||||
|
Total long-term debt
|
$ | 1,145 | $ | 1,402 | ||||
The aggregate maturities and sinking fund requirements
applicable to the long-term debt outstanding at
December 31, 2009, are $57 million, $68 million,
$20 million, $248 million, and $501 million for
2010, 2011, 2012, 2013 and 2014, respectively.
Short-Term
Debt
Our short-term debt includes the current portion of long-term
obligations and borrowing by foreign subsidiaries. Information
regarding our short-term debt as of and for the years ended
December 31, 2009 and 2008 is as follows:
| 2009 | 2008 | |||||||
| (Millions) | ||||||||
|
Maturities classified as current
|
$ | 6 | $ | 5 | ||||
|
Notes payable
|
69 | 44 | ||||||
|
Total short-term debt
|
$ | 75 | $ | 49 | ||||
89
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2009 | 2008 | |||||||
| Notes Payable(a) | Notes Payable(a) | |||||||
| (Dollars in Millions) | ||||||||
|
Outstanding borrowings at end of year
|
$ | 69 | $ | 44 | ||||
|
Weighted average interest rate on outstanding borrowings at end
of year(b)
|
6.9 | % | 10.5 | % | ||||
|
Approximate maximum month-end outstanding borrowings during year
|
$ | 71 | $ | 49 | ||||
|
Approximate average month-end outstanding borrowings during year
|
$ | 60 | $ | 43 | ||||
|
Weighted average interest rate on approximate average month-end
outstanding borrowings during year(b)
|
7.8 | % | 7.1 | % | ||||
| (a) | Includes borrowings under both committed credit facilities and uncommitted lines of credit and similar arrangements. | |
| (b) | This calculation does not include the commitment fees to be paid on the unused revolving credit facility balances which are recorded as interest expense for accounting purposes. |
Financing
Arrangements
| Committed Credit Facilities(a) as of December 31, 2009 | ||||||||||||||||||||
|
Letters of
|
||||||||||||||||||||
| Term | Commitments | Borrowings | Credit(b) | Available | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Tenneco Inc. revolving credit agreement
|
2012 | $ | 550 | $ | — | $ | 50 | $ | 500 | |||||||||||
|
Tenneco Inc. tranche B-1 letter of credit/revolving loan
agreement
|
2014 | 130 | — | — | 130 | |||||||||||||||
|
Tenneco Inc. Senior Term Loans
|
2012 | 133 | 133 | — | — | |||||||||||||||
|
Subsidiaries’ credit agreements
|
2010-2017 | 80 | 77 | — | 3 | |||||||||||||||
| $ | 893 | $ | 210 | $ | 50 | $ | 633 | |||||||||||||
| (a) | We generally are required to pay commitment fees on the unused portion of the total commitment. | |
| (b) | Letters of credit reduce the available borrowings under the tranche B-1 letter of credit/revolving loan agreement. |
Overview.
Our financing arrangements are
primarily provided by a committed senior secured financing
arrangement with a syndicate of banks and other financial
institutions. The arrangement is secured by substantially all
our domestic assets and pledges of up to 66 percent of the
stock of certain first-tier foreign subsidiaries, as well as
guarantees by our material domestic subsidiaries. As of
December 31, 2009, the senior credit facility consisted of
a five-year, $133 million term loan A maturing in March
2012, a five-year, $550 million revolving credit facility
maturing in March 2012, and a seven-year $130 million
tranche B-1
letter of credit/revolving loan facility maturing in March 2014.
Our outstanding debt also includes $245 million of
10
1
/
4
percent senior secured notes due July 15, 2013,
$250 million of
8
1
/
8
percent
senior notes due November 15, 2015 and $500 million of
8
5
/
8
percent
senior subordinated notes due November 15, 2014. At
December 31, 2009 we had unused borrowing capacity of
$630 million under our $680 million revolving credit
facilities with $50 million in letters of credit
outstanding and no borrowings.
The term loan A facility is payable in twelve consecutive
quarterly installments, commencing June 30, 2009 as
follows: $6 million due each of June 30,
September 30, December 31, 2009 and March 31,
2010,
90
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
$15 million due each of June 30, September 30,
December 31, 2010 and March 31, 2011, and
$17 million due each of June 30, September 30,
December 31, 2011 and March 16, 2012. Over the next
twelve months we plan to repay $51 million of the senior
term loan due 2012 by increasing our revolver borrowings which
are classified as long-term debt. Accordingly, we have
classified the $51 million repayment as long-term debt. The
revolving credit facility requires that any amounts drawn be
repaid by March 2012. Prior to that date, funds may be borrowed,
repaid and re-borrowed under the revolving credit facility
without premium or penalty. Letters of credit may be issued
under the revolving credit facility.
The
tranche B-1
letter of credit/revolving loan facility requires repayment by
March 2014. We can borrow revolving loans and issue letters of
credit under the $130 million
tranche B-1
letter of credit/revolving loan facility. The
tranche B-1
letter of credit/revolving loan facility is reflected as debt on
our balance sheet only if we borrow money under this facility or
if we use the facility to make payments for letters of credit.
There is no additional cost to us for issuing letters of credit
under the
tranche B-1
letter of credit/revolving loan facility. However, outstanding
letters of credit reduce our availability to borrow revolving
loans under this portion of the facility. We pay the
tranche B-1
lenders interest equal to LIBOR plus a margin, which is offset
by the return on the funds deposited with the administrative
agent by the lenders which earn interest at an annual rate
approximately equal to LIBOR less 25 basis points.
Outstanding revolving loans reduce the funds on deposit with the
administrative agent which in turn reduce the earnings of those
deposits.
On February 23, 2009, in light of the then challenging
macroeconomic environment and auto production outlook, we
amended our senior credit facility to increase the allowable
consolidated net leverage ratio (consolidated indebtedness net
of cash divided by consolidated EBITDA as defined in the senior
credit facility agreement) and reduced the allowable
consolidated interest coverage ratio (consolidated EBITDA
divided by consolidated interest expense as defined in the
senior credit facility agreement). These changes are detailed in
“Management’s Discussion and Analysis of Financial
Conditions and Operations — Liquidity and Capital
Resources — Senior Credit Facility — Other
Terms and Conditions.”
Beginning February 23, 2009, and following each fiscal
quarter thereafter, the margin we pay on borrowings under our
term loan A and revolving credit facility incurred interest at
an annual rate equal to, at our option, either (i) the
London Interbank Offered Rate plus a margin of 550 basis
points, or (ii) a rate consisting of the greater of
(a) the JPMorgan Chase prime rate plus a margin of
450 basis points, and (b) the Federal Funds rate plus
50 basis points plus a margin of 450 basis points. The
margin we pay on these borrowings will be reduced by
50 basis points following each fiscal quarter for which our
consolidated net leverage ratio is less than 5.0, and will be
further reduced by an additional 50 basis points following
each fiscal quarter for which the consolidated net leverage
ratio is less than 4.0.
Also beginning February 23, 2009, and following each fiscal
quarter thereafter, the margin we pay on borrowings under our
tranche B-1
facility incurred interest at an annual rate equal to, at our
option, either (i) the London Interbank Offered Rate plus a
margin of 550 basis points, or (ii) a rate consisting
of the greater of (a) the JPMorgan Chase prime rate plus a
margin of 450 basis points, and (b) the Federal Funds
rate plus 50 basis points plus a margin of 450 basis
points. The margin we pay on these borrowings will be reduced by
50 basis points following each fiscal quarter for which our
consolidated net leverage ratio is less than 5.0.
The February 23, 2009, amendment to our senior credit
facility also placed further restrictions on our operations
including limitations on: (i) debt incurrence,
(ii) incremental loan extensions, (iii) liens,
(iv) restricted payments, (v) optional prepayments of
junior debt, (vi) investments, (vii) acquisitions, and
(viii) mandatory prepayments. The definition of EBIDTA was
amended to allow for $40 million of cash restructuring
charges taken after the date of the amendment and
$4 million annually in aftermarket changeover costs. We
agreed to pay each consenting lender a fee. The lender fee plus
amendment costs were paid in February 2009 and approximated
$8 million.
91
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On December 23, 2008, we amended our senior secured credit
facility leverage covenant effective for the fourth quarter of
2008 which increased the consolidated net leverage ratio
(consolidated indebtedness net of cash divided by consolidated
EBITDA, as defined in the senior credit facility agreement) by
increasing the maximum ratio to 4.25 from 4.0. We also agreed to
increase the margin we pay on the borrowings from
1.50 percent to 3.00 percent on revolver loans, term
loan A and
tranche B-1
loans; from 0.50 percent to 2.00 percent on prime
based loans; from 1.00 percent to 2.50 percent on
Federal Funds based loans and from 0.35 percent to
0.50 percent on the commitment fee associated with the
facility. In addition, we agreed to pay each consenting lender a
fee. The lender fee plus amendment costs were approximately
$3 million and were paid in December 2008.
In December 2008, we terminated the
fixed-to-floating
interest rate swaps we entered into in April 2004. The change in
the market value of these swaps was recorded as part of interest
expense with an offset to other long-term assets or liabilities.
Senior Credit Facility — Interest Rates and
Fees.
Borrowings and letters of credit issued
under the senior credit facility bear interest at an annual rate
equal to, at our option, either (i) the London Interbank
Offered Rate plus a margin as set forth in the table below; or
(ii) a rate consisting of the greater of the JPMorgan Chase
prime rate or the Federal Funds rate, plus a margin as set forth
in the table below:
| For the Period | ||||||||||||||||||||||||||||
|
4/3/2006
|
3/16/2007
|
12/24/2008
|
2/23/2009
|
3/2/2009
|
5/15/2009
|
|||||||||||||||||||||||
|
thru
|
thru
|
thru
|
thru
|
thru
|
thru
|
Beginning
|
||||||||||||||||||||||
| 3/15/2007 | 12/23/2008 | 2/22/2009 | 3/1/2009 | 5/14/2009 | 8/13/2009 | 8/14/2009 | ||||||||||||||||||||||
|
Applicable Margin over LIBOR for Revolving Loans
|
2.75 | % | 1.50 | % | 3.00 | % | 5.50 | % | 4.50 | % | 5.00 | % | 5.50 | % | ||||||||||||||
|
Applicable Margin over LIBOR for Term Loan B Loans
|
2.00 | % | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||
|
Applicable Margin over LIBOR for Term Loan A Loans
|
N/A | 1.50 | % | 3.00 | % | 5.50 | % | 4.50 | % | 5.00 | % | 5.50 | % | |||||||||||||||
|
Applicable Margin over LIBOR for
Tranche B-1
Loans
|
2.00 | % | 1.50 | % | 3.00 | % | 5.50 | % | 5.00 | % | 5.00 | % | 5.50 | % | ||||||||||||||
|
Applicable Margin for Prime-based Loans
|
1.75 | % | 0.50 | % | 2.00 | % | 4.50 | % | 3.50 | % | 4.00 | % | 4.50 | % | ||||||||||||||
|
Applicable Margin for Federal Funds based Loans
|
2.125 | % | 1.00 | % | 2.50 | % | 5.00 | % | 4.00 | % | 4.50 | % | 5.00 | % | ||||||||||||||
|
Commitment Fee
|
0.375 | % | 0.35 | % | 0.50 | % | 0.75 | % | 0.50 | % | 0.50 | % | 0.75 | % | ||||||||||||||
Senior Credit Facility — Other Terms and
Conditions.
As described above, we are highly
leveraged. Our senior credit facility requires that we maintain
financial ratios equal to or better than the following
consolidated net leverage ratio (consolidated indebtedness net
of cash divided by consolidated EBITDA, as defined in the senior
credit facility agreement), and consolidated interest coverage
ratio (consolidated EBITDA divided by consolidated interest
expense, as defined under the senior credit facility agreement)
at the end of each period indicated. Failure to maintain these
ratios will result in a default under our senior credit
facility. The financial ratios required under the amended and
restated senior credit facility and, the actual ratios we
achieved for four quarters of 2009, are as follows:
| Quarter Ended | ||||||||||||||||||||||||||||||||
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
|||||||||||||||||||||||||||||
| 2009 | 2009 | 2009 | 2009 | |||||||||||||||||||||||||||||
| Req. | Act. | Req. | Act. | Req. | Act. | Req. | Act. | |||||||||||||||||||||||||
|
Leverage Ratio (maximum)
|
5.50 | 4.72 | 7.35 | 5.77 | 7.90 | 5.16 | 6.60 | 3.43 | ||||||||||||||||||||||||
|
Interest Coverage Ratio (minimum)
|
2.25 | 2.91 | 1.85 | 2.21 | 1.55 | 2.17 | 1.60 | 2.48 | ||||||||||||||||||||||||
92
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The financial ratios required under the senior credit facility
for 2010 and beyond are set forth below.
|
Interest
|
||||||||
|
Leverage
|
Coverage
|
|||||||
|
Period Ending
|
Ratio | Ratio | ||||||
|
March 31, 2010
|
5.50 | 2.00 | ||||||
|
June 30, 2010
|
5.00 | 2.25 | ||||||
|
September 30, 2010
|
4.75 | 2.30 | ||||||
|
December 31, 2010
|
4.50 | 2.35 | ||||||
|
March 31, 2011
|
4.00 | 2.55 | ||||||
|
June 30, 2011
|
3.75 | 2.55 | ||||||
|
September 30, 2011
|
3.50 | 2.55 | ||||||
|
December 31, 2011
|
3.50 | 2.55 | ||||||
|
Each quarter thereafter
|
3.50 | 2.75 | ||||||
The senior credit facility agreement provides the ability to
refinance our senior subordinated notes
and/or
our
senior secured notes (i) in exchange for permitted
refinancing indebtedness (as defined in the senior credit
facility agreement); (ii) in exchange for shares of common
stock; or (iii) in an amount equal to the sum of
(A) the net cash proceeds of equity issued after
March 16, 2007, plus (B) the portion of annual excess
cash flow (as defined in the senior credit facility agreement)
that is not required to be applied to the payment of the credit
facilities and which is not used for other purposes, provided
that the amount of the subordinated notes and the aggregate
amount of the senior secured notes and the subordinated notes
that may be refinanced is capped based upon the pro forma
consolidated leverage ratio after giving effect to such
refinancing as shown in the following table:
|
Senior Subordinated
|
||||||||
|
Notes and Senior
|
||||||||
|
Senior Subordinated
|
Secured Notes
|
|||||||
|
Proforma Consolidated
|
Notes Aggregate
|
Aggregate
|
||||||
|
Leverage Ratio
|
Maximum Amount | Maximum Amount | ||||||
| (Millions) | ||||||||
|
Greater than or equal to 3.0x
|
$ | 0 | $ | 10 | ||||
|
Greater than or equal to 2.5x
|
$ | 100 | $ | 300 | ||||
|
Less than 2.5x
|
$ | 125 | $ | 375 | ||||
In addition, the senior secured notes may be refinanced with
(i) the net cash proceeds of incremental facilities and
permitted refinancing indebtedness (as defined in the senior
credit facility agreement), (ii) shares of common stock,
(iii) the net cash proceeds of any new senior or
subordinated unsecured indebtedness, (iv) proceeds of
revolving credit loans (as defined in the senior credit facility
agreement), (v) up to €200 million of unsecured
indebtedness of the company’s foreign subsidiaries and
(vi) cash generated by the company’s operations
provided that the amount of the senior secured notes that may be
refinanced is capped based upon the pro forma consolidated
leverage ratio after giving effect to such refinancing as shown
in the following table:
|
Aggregate Senior and
|
||||
|
Proforma Consolidated
|
Subordinate Note
|
|||
|
Leverage Ratio
|
Maximum Amount | |||
| (Millions) | ||||
|
Greater than or equal to 3.0x
|
$ | 10 | ||
|
Greater than or equal to 2.5x
|
$ | 300 | ||
|
Less than 2.5x
|
$ | 375 | ||
93
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The senior credit facility agreement also contains restrictions
on our operations that are customary for similar facilities,
including limitations on: (i) incurring additional liens;
(ii) sale and leaseback transactions (except for the
permitted transactions as described in the amended and restated
agreement); (iii) liquidations and dissolutions;
(iv) incurring additional indebtedness or guarantees;
(v) investments and acquisitions; (vi) dividends and
share repurchases; (vii) mergers and consolidations; and
(viii) refinancing of subordinated and
10
1
/
4
percent senior secured notes. Compliance with these requirements
and restrictions is a condition for any incremental borrowings
under the senior credit facility agreement and failure to meet
these requirements enables the lenders to require repayment of
any outstanding loans. As of December 31, 2009, we were in
compliance with all the financial covenants and operational
restrictions of the facility. Our senior credit facility does
not contain any terms that could accelerate payment of the
facility or affect pricing under the facility as a result of a
credit rating agency downgrade.
Senior Secured, Senior and Subordinated
Notes.
As of December 31, 2009, our
outstanding debt includes $245 million of
10
1
/
4
percent senior secured notes due July 15, 2013,
$250 million of
8
1
/
8
percent
senior notes due November 15, 2015, and $500 million
of
8
5
/
8
percent
senior subordinated notes due November 15, 2014. We can
redeem some or all of the notes at any time after July 15,
2008 in the case of the senior secured notes, November 15,
2009 in the case of the senior subordinated notes and
November 15, 2011 in the case of the senior notes. If we
sell certain of our assets or experience specified kinds of
changes in control, we must offer to repurchase the notes. We
are permitted to redeem up to 35 percent of the senior
notes with the proceeds of certain equity offerings completed
before November 15, 2010.
Our senior secured, senior and senior subordinated notes require
that, as a condition precedent to incurring certain types of
indebtedness not otherwise permitted, our consolidated fixed
charge coverage ratio, as calculated on a pro forma basis, be
greater than 2.00. We have not incurred any of the types of
indebtedness not otherwise permitted by the indentures. The
indentures also contain restrictions on our operations,
including limitations on: (i) incurring additional
indebtedness or liens; (ii) dividends;
(iii) distributions and stock repurchases;
(iv) investments; (v) asset sales and
(vi) mergers and consolidations. Subject to limited
exceptions, all of our existing and future material domestic
wholly owned subsidiaries fully and unconditionally guarantee
these notes on a joint and several basis. In addition, the
senior secured notes and related guarantees are secured by
second priority liens, subject to specified exceptions, on all
of our and our subsidiary guarantors’ assets that secure
obligations under our senior credit facility, except that only a
portion of the capital stock of our subsidiary guarantors’
domestic subsidiaries is provided as collateral and no assets or
capital stock of our direct or indirect foreign subsidiaries
secure the notes or guarantees. There are no significant
restrictions on the ability of the subsidiaries that have
guaranteed these notes to make distributions to us. The senior
subordinated notes rank junior in right of payment to our senior
credit facility and any future senior debt incurred. As of
December 31, 2009, we were in compliance with the covenants
and restrictions of these indentures.
Accounts Receivable Securitization.
In
addition to our senior credit facility, senior secured notes,
senior notes and senior subordinated notes, we also sell some of
our accounts receivable on a nonrecourse basis in North America
and Europe. In North America, we have an accounts receivable
securitization program with two commercial banks. We sell
original equipment and aftermarket receivables on a daily basis
under the bank program. We had sold accounts receivable under
the bank program of $62 million and $101 million at
December 31, 2009 and 2008, respectively. This program is
subject to cancellation prior to its maturity date if we
(i) fail to pay interest or principal payments on an amount
of indebtedness exceeding $50 million, (ii) default on
the financial covenant ratios under the senior credit facility,
or (iii) fail to maintain certain financial ratios in
connection with the accounts receivable securitization program.
In February 2010, the U.S. program was amended and extended
to February 18, 2011 at a facility size of
$100 million. As part of the renewal, the margin we pay the
banks decreased. We also sell some receivables in our European
operations to regional banks in Europe. At December 31,
2009, we had sold $75 million of accounts receivable in
Europe down from $78 million at December 31, 2008. The
arrangements to sell receivables in Europe are provided
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
under seven separate arrangements, by various financial
institutions in each of the foreign jurisdictions. The
commitments for these arrangements are generally for one year
but some may be cancelled with 90 day notice prior to
renewal. In some instances, the arrangement provides for
cancellation by financial institution at any time upon
15 days, or less, notification. If we were not able to sell
receivables under either the North American or European
securitization programs, our borrowings under our revolving
credit agreements may increase. These accounts receivable
securitization programs provide us with access to cash at costs
that are generally favorable to alternative sources of
financing, and allow us to reduce borrowings under our revolving
credit agreements.
| 6. | Financial Instruments |
We adopted new accounting guidance on fair value measurements
and disclosures relating to our financial assets and liabilities
which were measured on a recurring basis on January 1,
2008, and on January 1, 2009, for those financial assets
and liabilities which are measured on non-recurring basis. The
adoption of the new fair value accounting guidance did not have
a material impact on our fair value measurements. The new
guidance defines fair value as the price that would be received
for an asset or paid to transfer a liability (an exit price) in
the principal most advantageous market for the asset or
liability in an orderly transaction between market participants.
A fair value hierarchy has been defined, which prioritizes the
inputs used in measuring fair value into the following levels:
| Level 1 — | Quoted prices in active markets for identical assets or liabilities. | |
| Level 2 — | Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. | |
| Level 3 — | Unobservable inputs based on our own assumptions. |
The carrying and estimated fair values of our financial
instruments by class at December 31, 2009 and 2008 were as
follows:
| December 31, 2009 | December 31, 2008 | |||||||||||||||
|
Carrying
|
Carrying
|
|||||||||||||||
| Amount | Fair Value | Amount | Fair Value | |||||||||||||
| (Millions) | ||||||||||||||||
| Asset (Liabilities) | ||||||||||||||||
|
Long-term debt (including current maturities)
|
$ | 1,151 | $ | 1,168 | $ | 1,407 | $ | 713 | ||||||||
|
Instruments with off-balance sheet risk:
|
||||||||||||||||
|
Foreign exchange forward contracts
|
— | 2 | — | 2 | ||||||||||||
Asset and Liability Instruments
— The fair
value of cash and cash equivalents, short and long-term
receivables, accounts payable, and short-term debt was
considered to be the same as or was not determined to be
materially different from the carrying amount.
Long-term Debt
— The fair value of our public
fixed rate senior secured, senior and senior subordinated notes
is based on quoted market prices. The fair value of our private
borrowings under our senior credit facility and other long-term
debt instruments is based on the market value of debt with
similar maturities, interest rates and risk characteristics.
Instruments
With Off-Balance Sheet Risk
Foreign Exchange Forward Contracts
—
Note 1 of the consolidated financial statements of Tenneco
Inc. and Consolidated Subsidiaries, “Summary of Accounting
Policies — Risk Management Activities” describes
our use of and accounting for foreign currency exchange
contracts.
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summaries by major currency the contractual
amounts of currency we utilize:
| Notional Amount | ||||||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||||
| 2009 | 2008 | |||||||||||||||
| Purchase | Sell | Purchase | Sell | |||||||||||||
| (Millions) | ||||||||||||||||
|
Foreign currency contracts (in U.S.$):
|
||||||||||||||||
|
Australian dollars
|
$ | 73 | $ | 35 | $ | 23 | $ | 5 | ||||||||
|
British pounds
|
16 | 16 | 20 | 17 | ||||||||||||
|
European euro
|
— | 26 | — | 13 | ||||||||||||
|
South Africa rand
|
44 | 8 | 30 | 5 | ||||||||||||
|
U.S. dollars
|
41 | 98 | 9 | 46 | ||||||||||||
|
Other
|
12 | 1 | 7 | 1 | ||||||||||||
| $ | 186 | $ | 184 | $ | 89 | $ | 87 | |||||||||
We manage our foreign currency risk by entering into derivative
financial instruments with major financial institutions that can
be expected to fully perform under the terms of such agreements.
Based on exchange rates at December 31, 2009 and 2008, the
cost of replacing these contracts in the event of
non-performance by the counterparties would not have been
material. The fair value of these instruments is recorded in
other current assets or liabilities.
The fair value of our foreign exchange forward contracts,
presented on a gross basis by derivative contract at
December 31, 2009 was as follows:
| Fair Value of Derivative Instruments | ||||||||||||
|
Asset
|
Liability
|
|||||||||||
| Derivatives | Derivatives | Total | ||||||||||
|
Foreign exchange forward contracts
|
$ | 3 | $ | 1 | $ | 2 | ||||||
The fair value of our recurring financial assets and liabilities
at December 31, 2009 are as follows:
|
Level 1
|
Level 2
|
Level 3
|
||||||||||
| (Millions) | ||||||||||||
|
Financial Assets:
|
||||||||||||
|
Foreign exchange forward contracts
|
n/a | $ | 2 | n/a | ||||||||
Financial Guarantees
— We have from time to
time issued guarantees for the performance of obligations by
some of our subsidiaries, and some of our subsidiaries have
guaranteed our debt. All of our existing and future material
domestic wholly-owned subsidiaries fully and unconditionally
guarantee our senior credit facility, our senior secured notes,
our senior notes and our senior subordinated notes on a joint
and several basis. The arrangement for the senior credit
facility is also secured by first-priority liens on
substantially all our domestic assets and pledges of up to
66 percent of the stock of certain first-tier foreign
subsidiaries. The $245 million senior secured notes is also
secured by second-priority liens on substantially all our
domestic assets, excluding some of the stock of our domestic
subsidiaries. No assets or capital stock of our direct or
indirect foreign subsidiaries secure these notes. For additional
information, refer to Note 13 of the consolidated financial
statements of Tenneco Inc., where we present the Supplemental
Guarantor Condensed Consolidating Financial Statements.
We have issued guarantees through letters of credit in
connection with some obligations of our affiliates. As of
December 31, 2009, we have guaranteed $50 million in
letters of credit to support some of our subsidiaries’
insurance arrangements, foreign employee benefit programs,
environmental remediation activities and cash management and
capital requirements.
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Interest Rate Swaps
— In December 2008, we
elected to terminate our
fixed-to-floating
interest rate swap contracts covering $150 million of our
fixed interest rate debt. The change in market value of these
swaps was recorded as part of interest expense and other
long-term assets or liabilities prior to their termination. We
received $6 million in consideration with respect to the
termination of the interest rate swaps.
Negotiable Financial Instruments
— One of our
European subsidiaries receives payment from one of its OE
customers whereby the accounts receivable are satisfied through
the delivery of negotiable financial instruments. We may collect
these financial instruments before their maturity date by either
selling them at a discount or using them to satisfy accounts
receivable that have previously been sold to a European bank.
Any of these financial instruments which are not sold are
classified as other current assets as they do not meet our
definition of cash equivalents. The amount of these financial
instruments that was collected before their maturity date and
sold at a discount totaled $5 million as of
December 31, 2009, compared with $23 million at
December 31, 2008. No negotiable financial instruments were
held by our European subsidiary as of December 31, 2009 or
2008, respectively.
In certain instances several of our Chinese subsidiaries receive
payment from OE customers and satisfy vendor payments through
the receipt and delivery of negotiable financial instruments.
Financial instruments used to satisfy vendor payables and not
redeemed totaled $15 million and $6 million at
December 31, 2009 and 2008, respectively, and were
classified as notes payable. Financial instruments received from
OE customers and not redeemed totaled $15 million and
$6 million at December 31, 2009 and 2008,
respectively, and were classified as other current assets. Some
of our Chinese subsidiaries that issue their own negotiable
financial instruments to pay vendors are required to maintain a
cash balance if they exceed certain credit limits with the
financial institution that guarantees those financial
instruments. A restricted cash balance was not required at those
Chinese subsidiaries at December 31, 2009 and 2008,
respectively.
The negotiable financial instruments received by one of our
European subsidiaries and some of our Chinese subsidiaries are
checks drawn by our OE customers and guaranteed by their banks
that are payable at a future date. The use of these instruments
for payment follows local commercial practice. Because
negotiable financial instruments are financial obligations of
our customers and are guaranteed by our customers’ banks,
we believe they represent a lower financial risk than the
outstanding accounts receivable that they satisfy which are not
guaranteed by a bank.
| 7. | Income Taxes |
The domestic and foreign components of our income before income
taxes and noncontrolling interests are as follows:
|
Year Ended
|
||||||||||||
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
U.S. loss before income taxes
|
$ | (118 | ) | $ | (257 | ) | $ | (99 | ) | |||
|
Foreign income before income taxes
|
77 | 141 | 187 | |||||||||
|
Income (loss) before income taxes and noncontrolling interests
|
$ | (41 | ) | $ | (116 | ) | $ | 88 | ||||
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Following is a comparative analysis of the components of income
tax expense:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
Current —
|
||||||||||||
|
U.S.
|
$ | (2 | ) | $ | 42 | $ | — | |||||
|
State and local
|
4 | — | — | |||||||||
|
Foreign
|
35 | 12 | 58 | |||||||||
| 37 | 54 | 58 | ||||||||||
|
Deferred —
|
||||||||||||
|
U.S.
|
(18 | ) | 190 | 38 | ||||||||
|
State and local
|
(3 | ) | 45 | 5 | ||||||||
|
Foreign
|
(3 | ) | — | (18 | ) | |||||||
| (24 | ) | 235 | 25 | |||||||||
|
Income tax expense
|
$ | 13 | $ | 289 | $ | 83 | ||||||
Following is a reconciliation of income taxes computed at the
statutory U.S. federal income tax rate (35 percent for
all years presented) to the income tax expense reflected in the
statements of income (loss):
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
Income tax expense (benefit) computed at the statutory U.S.
federal income tax rate
|
$ | (14 | ) | $ | (41 | ) | $ | 31 | ||||
|
Increases (reductions) in income tax expense resulting from:
|
||||||||||||
|
Foreign income taxed at different rates and foreign losses with
no tax benefit
|
14 | (6 | ) | (3 | ) | |||||||
|
Taxes on repatriation of dividends
|
4 | 15 | 1 | |||||||||
|
State and local taxes on income, net of U.S. federal income tax
benefit
|
2 | 2 | (1 | ) | ||||||||
|
Changes in valuation allowance for tax loss carryforwards and
credits
|
5 | 233 | 6 | |||||||||
|
Amortization of tax goodwill
|
— | (6 | ) | (2 | ) | |||||||
|
Foreign tax holidays
|
(3 | ) | — | (5 | ) | |||||||
|
Investment and R&D tax credits
|
(5 | ) | (1 | ) | (1 | ) | ||||||
|
European ownership structure realignment
|
— | — | 66 | |||||||||
|
Foreign earnings subject to U.S. federal income tax
|
3 | 3 | 4 | |||||||||
|
Adjustment of prior years taxes
|
— | (2 | ) | (9 | ) | |||||||
|
Impact of foreign tax law changes
|
2 | 10 | (7 | ) | ||||||||
|
Tax contingencies
|
6 | 40 | 6 | |||||||||
|
Goodwill impairment
|
— | 40 | — | |||||||||
|
Other
|
(1 | ) | 2 | (3 | ) | |||||||
|
Income tax expense
|
$ | 13 | $ | 289 | $ | 83 | ||||||
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The components of our net deferred tax asset were as follows:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (Millions) | ||||||||
|
Deferred tax assets —
|
||||||||
|
Tax loss carryforwards:
|
||||||||
|
U.S.
|
$ | 218 | $ | 165 | ||||
|
State
|
61 | 56 | ||||||
|
Foreign
|
55 | 44 | ||||||
|
Investment tax credit benefits
|
44 | 46 | ||||||
|
Postretirement benefits other than pensions
|
54 | 48 | ||||||
|
Pensions
|
69 | 81 | ||||||
|
Bad debts
|
3 | 2 | ||||||
|
Sales allowances
|
5 | 5 | ||||||
|
Other
|
91 | 107 | ||||||
|
Valuation allowance
|
(378 | ) | (336 | ) | ||||
|
Total deferred tax assets
|
222 | 218 | ||||||
|
Deferred tax liabilities —
|
||||||||
|
Tax over book depreciation
|
89 | 92 | ||||||
|
Other
|
70 | 81 | ||||||
|
Total deferred tax liabilities
|
159 | 173 | ||||||
|
Net deferred tax assets
|
$ | 63 | $ | 45 | ||||
Following is a reconciliation of deferred taxes to the deferred
taxes shown in the balance sheet:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (Millions) | ||||||||
|
Balance Sheet:
|
||||||||
|
Current portion — deferred tax asset
|
$ | 35 | $ | 18 | ||||
|
Non-current portion — deferred tax asset
|
100 | 88 | ||||||
|
Current portion — deferred tax liability shown in
other current liabilities
|
(6 | ) | (10 | ) | ||||
|
Non-current portion — deferred tax liability
|
(66 | ) | (51 | ) | ||||
|
Net deferred tax assets
|
$ | 63 | $ | 45 | ||||
We had potential tax assets of $378 million and
$336 million at December 31, 2009 and 2008,
respectively, that were not recognized on our balance sheet as a
result of the valuation allowance recorded. These unrecognized
tax assets resulted primarily from U.S. tax loss
carryforwards, foreign tax loss carryforwards, foreign
investment tax credits and U.S. state net operating losses
that are available to reduce future U.S., U.S. state and
foreign tax liabilities.
We evaluate our deferred income taxes quarterly to determine if
valuation allowances are required or should be adjusted.
U.S. GAAP requires that companies assess whether valuation
allowances should be established against their deferred tax
assets based on consideration of all available evidence, both
positive and negative, using a “more likely than not”
standard. This assessment considers, among other matters, the
nature,
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
frequency and amount of recent losses, the duration of statutory
carryforward periods, and tax planning strategies. In making
such judgments, significant weight is given to evidence that can
be objectively verified.
Valuation allowances have been established for deferred tax
assets based on a “more likely than not” threshold.
The ability to realize deferred tax assets depends on our
ability to generate sufficient taxable income within the
carryforward periods provided for in the tax law for each tax
jurisdiction. We have considered the following possible sources
of taxable income when assessing the realization of our deferred
tax assets:
| • | Future reversals of existing taxable temporary differences; | |
| • | Taxable income or loss, based on recent results, exclusive of reversing temporary differences and carryforwards; and | |
| • | Tax-planning strategies. |
In 2009, we recorded income tax expense of $13 million.
Computed using the U.S. Federal statutory income tax rate
of 35 percent, income tax would be a benefit of
$14 million. The difference is due primarily to valuation
allowances against deferred tax assets generated by 2009 losses
in the U.S. and in certain foreign countries which we cannot
benefit, partially offset by adjustments to past valuation
allowances for deferred tax assets including a reversal of
$20 million of U.S. valuation allowance based on the
change in the fair value of a tax planning strategy. In
evaluating the requirements to record a valuation allowance,
accounting standards do not permit us to consider an economic
recovery in the U.S. or new business we have won in the
commercial vehicle segment. Consequently, beginning in 2008,
given our historical losses, we concluded that our ability to
fully utilize our NOLs was limited due to projecting the
continuation of the negative economic environment and the impact
of the negative operating environment on our tax planning
strategies. As a result of the tax planning strategy which has
not yet been implemented but which we plan to implement and
which does not depend upon generating future taxable income, we
carry deferred tax assets in the U.S. of $90 million
relating to the expected utilization of those NOLs. The federal
NOLs expire beginning in 2020 through 2029. The state NOLs
expire in various years through 2029.
If our operating performance improves on a sustained basis, our
conclusion regarding the need for a valuation allowance could
change, resulting in the reversal of some or all of the
valuation allowance in the future. The charge to establish the
U.S. valuation allowance also includes items related to the
losses allocable to certain state jurisdictions where it was
determined that tax attributes related to those jurisdictions
were potentially not realizable.
We are required to record a valuation allowance against deferred
tax assets generated by taxable losses in each period in the
U.S. as well as in other foreign countries. Our future
provision for income taxes will include no tax benefit with
respect to losses incurred and no tax expense with respect to
income generated in these jurisdictions until the respective
valuation allowance is eliminated. This will cause variability
in our effective tax rate.
We do not provide for U.S. income taxes on unremitted
earnings of foreign subsidiaries, except for the earnings of our
Brazilian operations and certain of our China operations, as our
present intention is to reinvest the unremitted earnings in our
foreign operations. Unremitted earnings of foreign subsidiaries
were approximately $604 million at December 31, 2009.
We estimated that the amount of U.S. and foreign income
taxes that would be accrued or paid upon remittance of the
assets that represent those unremitted earnings was
$111 million.
We have tax sharing agreements with our former affiliates that
allocate tax liabilities for prior periods and establish
indemnity rights on certain tax issues.
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
U.S. GAAP provides that a tax benefit from an uncertain tax
position may be recognized when it is “more likely than
not” that the position will be sustained upon examination,
including resolutions of any related appeals or litigation
processes, based on the technical merits.
A reconciliation of our uncertain tax positions is as follows:
| 2009 | 2008 | 2007 | ||||||||||
|
Uncertain tax positions —
|
||||||||||||
|
Balance January 1
|
$ | 83 | $ | 44 | $ | 42 | ||||||
|
Gross increases in tax positions in current period
|
17 | 16 | 3 | |||||||||
|
Gross increases in tax positions in prior period
|
16 | 56 | 6 | |||||||||
|
Gross decreases in tax positions in prior period
|
— | (12 | ) | (5 | ) | |||||||
|
Gross decreases — settlements
|
(17 | ) | (8 | ) | (1 | ) | ||||||
|
Gross decreases — statute of limitations expired
|
(3 | ) | (13 | ) | (1 | ) | ||||||
|
Balance December 31
|
$ | 96 | $ | 83 | $ | 44 | ||||||
Included in the balance of uncertain tax positions at
December 31, 2009, 2008 and 2007 were $28 million,
$75 million and $41 million, respectively, of tax
benefits, that, if recognized, would affect the effective tax
rate. We recognize accrued interest and penalties related to
unrecognized tax benefits as income tax expense. Related to the
uncertain tax positions noted above, we accrued penalties of
$2 million in 2009. No penalties were accrued in 2008 and
penalties of $1 million were accrued in 2007. Additionally,
no interest was accrued in 2009 and $2 million and
$3 million of interest related to uncertain tax positions
was accrued in 2008 and 2007, respectively. Our liability for
penalties was $3 million, $1 million and
$2 million at December 31, 2009, 2008 and 2007,
respectively, and our liability for interest was
$4 million, $7 million and $5 million at
December 31, 2009, 2008 and 2007, respectively.
Our uncertain tax position at December 31, 2009 and 2008
included foreign exposures relating to the disallowance of
deductions, global transfer pricing and various other issues. We
believe it is reasonably possible that a decrease of up to
$2 million in unrecognized tax benefits related to the
expiration of foreign statute of limitations and the conclusion
of foreign income tax examinations may occur within the coming
year.
We are subject to taxation in the U.S. and various state
and foreign jurisdictions. As of December 31, 2009, our tax
years open to examination in primary jurisdictions are as
follows:
|
Open To Tax
|
||||
| Year | ||||
|
United States — due to NOL
|
1998 | |||
|
Germany
|
2006 | |||
|
Belgium
|
2007 | |||
|
Canada
|
2005 | |||
|
United Kingdom
|
2008 | |||
|
Spain
|
2003 | |||
| 8. | Common Stock |
We have authorized 135 million shares ($0.01 par
value) of common stock, of which 60,789,739 shares and
48,314,490 shares were issued at December 31, 2009 and
2008, respectively. We held 1,294,692 shares of treasury
stock at both December 31, 2009 and 2008.
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Equity Plans
— In December 1996, we adopted the
1996 Stock Ownership Plan, which permitted the granting of a
variety of awards, including common stock, restricted stock,
performance units, stock equivalent units, stock appreciation
rights (“SARs”) and stock options to our directors,
officers, employees and consultants. The 1996 plan, which
terminated as to new awards on December 31, 2001, was
renamed the “Stock Ownership Plan.” In December 1999,
we adopted the Supplemental Stock Ownership Plan, which
permitted the granting of a variety of similar awards to our
directors, officers, employees and consultants. We were
authorized to deliver up to about 1.1 million treasury
shares of common stock under the Supplemental Stock Ownership
Plan, which also terminated as to new awards on
December 31, 2001. In March 2002, we adopted the 2002
Long-Term Incentive Plan which permitted the granting of a
variety of similar awards to our officers, directors, employees
and consultants. Up to 4 million shares of our common stock
were authorized for delivery under the 2002 Long-Term Incentive
Plan. In March 2006, we adopted the 2006 Long-Term Incentive
Plan which replaced the 2002 Long-Term Incentive Plan and
permits the granting of a variety of similar awards to
directors, officers, employees and consultants. On May 13,
2009, our stockholders approved an amendment to the Tenneco Inc.
2006 Long-Term Incentive Plan to increase the shares of common
stock available thereunder by 2.3 million. Each share
underlying an award generally counts as one share against the
total plan availability. Each share underlying a full value
award (e.g. restricted stock), however, counts as
1.25 shares against the total plan availability. As of
December 31, 2009, up to 2,551,620 shares of our
common stock remain authorized for delivery under the 2006
Long-Term Incentive Plan. Our nonqualified stock options have 7
to 20 year terms and vest equally over a three-year service
period from the date of the grant.
We have granted restricted common stock to our directors and
certain key employees. These awards generally require, among
other things, that the award holder remain in service to our
company during the restriction period, which is currently
3 years, with a portion of the award vesting equally each
year. We also have granted stock equivalent units and long-term
performance units to certain key employees that are payable in
cash. At December 31, 2009, the long-term performance units
outstanding included a three year grant for
2007-2009
payable in the first quarter of 2010 and a three-year grant for
2008-2010
payable in the first quarter of 2011. Payment is based on the
attainment of specified performance goals. The grant value is
indexed to the stock price. In addition, we have granted SARs to
certain key employees in our Asian and Indian operations that
are payable in cash after a three-year service period. The grant
value is indexed to the stock price.
In November 2009, we successfully completed the public offering
of 12 million shares of common stock at a price of $16.50
per share. We received $198 million in gross proceeds and
approximately $188 million in net proceeds, after expenses
from the sales of our common stock. We used the proceeds to
repay outstanding borrowings under our revolving credit facility
and for general corporate purpose.
Accounting Methods
— The impact of recognizing
compensation expense related to nonqualified stock options is
contained in the table below.
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
Selling, general and administrative
|
$ | 3 | $ | 4 | $ | 4 | ||||||
|
Loss before interest expense, income taxes and noncontrolling
interests
|
(3 | ) | (4 | ) | (4 | ) | ||||||
|
Income tax benefit
|
— | — | (1 | ) | ||||||||
|
Net loss
|
$ | (3 | ) | $ | (4 | ) | $ | (3 | ) | |||
|
Decrease in basic earnings per share
|
$ | (0.06 | ) | $ | (0.09 | ) | $ | (0.06 | ) | |||
|
Decrease in diluted earnings per share
|
$ | (0.06 | ) | $ | (0.09 | ) | $ | (0.06 | ) | |||
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
We immediately expense stock options awarded to employees who
are eligible to retire. When employees become eligible to retire
during the vesting period, we recognize the remaining expense
associated with their stock options.
As of December 31, 2009, there was approximately
$4 million of unrecognized compensation costs related to
these stock-based awards that we expect to recognize over a
weighted average period of 1.0 year.
Compensation expense for restricted stock, long-term performance
units and SARs, was $5 million for each of the years ended
December 31, 2009, 2008 and 2007 respectively, and was
recorded in selling, general, and administrative expense on the
statement of income (loss).
Cash received from stock option exercises for the year ended
December 31, 2009 and 2008 was $1 million and
$2 million, respectively. Stock option exercises in 2009
and 2008 would have generated an excess tax benefit of
$1 million in each period, respectively. We did not record
the excess tax benefit as we have federal and state net
operating losses which are not currently being utilized.
Assumptions
— We calculated the fair values of
stock option awards using the Black-Scholes option pricing model
with the weighted average assumptions listed below. The fair
value of share-based awards is determined at the time the awards
are granted which is generally in January of each year, and
requires judgment in estimating employee and market behavior. If
actual results differ significantly from these estimates,
stock-based compensation expense and our results of operations
could be materially impacted.
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Stock Options Granted
|
||||||||||||
|
Weighted average grant date fair value, per share
|
$ | 1.34 | $ | 8.03 | $ | 9.93 | ||||||
|
Weighted average assumptions used:
|
||||||||||||
|
Expected volatility
|
82.6 | % | 37.7 | % | 38.4 | % | ||||||
|
Expected lives
|
4.5 | 4.1 | 4.1 | |||||||||
|
Risk-free interest rates
|
1.48 | % | 2.8 | % | 4.7 | % | ||||||
|
Dividends yields
|
0.00 | % | 0.0 | % | 0.0 | % | ||||||
Expected lives of options are based upon the historical and
expected time to post-vesting forfeiture and exercise. We
believe this method is the best estimate of the future exercise
patterns currently available.
The risk-free interest rates are based upon the Constant
Maturity Rates provided by the U.S. Treasury. For our
valuations, we used the continuous rate with a term equal to the
expected life of the options.
103
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Stock Options
— The following table reflects
the status and activity for all options to purchase common stock
for the period indicated:
| Year Ended December 31, 2009 | ||||||||||||||||
|
Weighted Avg.
|
||||||||||||||||
|
Shares
|
Weighted Avg.
|
Remaining
|
Aggregate
|
|||||||||||||
|
Under
|
Exercise
|
Life in
|
Intrinsic
|
|||||||||||||
| Option | Prices | Years | Value | |||||||||||||
| (Millions) | ||||||||||||||||
|
Outstanding Stock Options
|
||||||||||||||||
|
Outstanding, January 1, 2009
|
3,149,376 | $ | 15.16 | 4.1 | $ | 1 | ||||||||||
|
Granted
|
697,600 | 1.99 | ||||||||||||||
|
Cancelled
|
— | — | ||||||||||||||
|
Forfeited
|
(12,994 | ) | 19.41 | |||||||||||||
|
Exercised
|
— | — | $ | — | ||||||||||||
|
Outstanding, March 31, 2009
|
3,833,982 | $ | 12.75 | 5.0 | $ | — | ||||||||||
|
Granted
|
12,159 | 6.61 | ||||||||||||||
|
Cancelled
|
— | — | ||||||||||||||
|
Forfeited
|
(25,841 | ) | 26.31 | |||||||||||||
|
Exercised
|
(41,460 | ) | 2.29 | $ | — | |||||||||||
|
Outstanding, June 30, 2009
|
3,778,840 | $ | 12.75 | 4.7 | $ | 5 | ||||||||||
|
Granted
|
— | — | ||||||||||||||
|
Cancelled
|
— | — | ||||||||||||||
|
Forfeited
|
(8,775 | ) | 14.36 | |||||||||||||
|
Exercised
|
(90,144 | ) | 7.59 | $ | 1 | |||||||||||
|
Outstanding, September 30, 2009
|
3,679,921 | $ | 12.87 | 4.6 | $ | 19 | ||||||||||
|
Granted
|
3,123 | 11.72 | ||||||||||||||
|
Cancelled
|
(186,804 | ) | 8.56 | |||||||||||||
|
Forfeited
|
(5,633 | ) | 23.47 | |||||||||||||
|
Exercised
|
(65,150 | ) | 6.31 | $ | 1 | |||||||||||
|
Outstanding, December 31, 2009
|
3,425,457 | $ | 13.21 | 4.6 | $ | 20 | ||||||||||
|
Vested or Expected to Vest, December 31, 2009
|
3,300,800 | $ | 13.37 | 4.6 | $ | 19 | ||||||||||
|
Exercisable, December 31, 2009
|
2,235,424 | $ | 13.81 | 4.5 | $ | 11 | ||||||||||
104
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Restricted Stock
— The following table reflects
the status for all nonvested restricted shares for the period
indicated:
|
Year Ended
|
||||||||
| December 31, 2009 | ||||||||
|
Weighted Avg.
|
||||||||
|
Grant Date
|
||||||||
| Shares | Fair Value | |||||||
|
Nonvested balance at January 1, 2009
|
435,468 | $ | 24.58 | |||||
|
Granted
|
431,975 | 1.96 | ||||||
|
Vested
|
(204,965 | ) | 24.17 | |||||
|
Forfeited
|
— | — | ||||||
|
Nonvested balance at March 31, 2009
|
662,478 | $ | 9.92 | |||||
|
Granted
|
5,622 | 6.61 | ||||||
|
Vested
|
(19,569 | ) | 12.75 | |||||
|
Forfeited
|
— | — | ||||||
|
Nonvested balance at June 30, 2009
|
648,531 | $ | 9.81 | |||||
|
Granted
|
— | — | ||||||
|
Vested
|
(2,277 | ) | 14.58 | |||||
|
Forfeited
|
(741 | ) | 1.84 | |||||
|
Nonvested balance at September 30, 2009
|
645,513 | $ | 9.84 | |||||
|
Granted
|
— | — | ||||||
|
Vested
|
— | — | ||||||
|
Forfeited
|
(1,461 | ) | 1.86 | |||||
|
Nonvested balance at December 31, 2009
|
644,052 | $ | 9.85 | |||||
The fair value of restricted stock grants is equal to the
average market price of our stock at the date of grant. As of
December 31, 2009, approximately $2 million of total
unrecognized compensation costs related to restricted stock
awards is expected to be recognized over a weighted-average
period of approximately 1.3 years.
Long-Term Performance Units and SARs
—
Long-term performance units and SARs are paid in cash and
recognized as a liability based upon their fair value. As of
December 31, 2009, less than $1 million of total
unrecognized compensation costs is expected to be recognized
over a weighted-average period of approximately 1.3 years.
Rights
Plan
On September 9, 1998, we adopted a Rights Plan and
established an independent Board committee to review it every
three years. The Rights Plan was adopted to deter coercive
takeover tactics and to prevent a potential acquirer from
gaining control of us in a transaction that is not in the best
interests of our shareholders. Generally, under the Rights Plan,
if a person became the beneficial owner of 15 percent or
more of our outstanding common stock, each right entitled its
holder to purchase, at the right’s exercise price, a number
of shares of our common stock or, under certain circumstances,
of the acquiring person’s common stock, having a market
value of twice the right’s exercise price. Rights held by
the 15 percent or more holders would become void and will
not be exercisable. The Rights Plan expired in September 2008.
105
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 9. | Preferred Stock |
We had 50 million shares of preferred stock ($0.01 par
value) authorized at December 31, 2009 and 2008,
respectively. No shares of preferred stock were outstanding at
those dates.
| 10. | Pension Plans, Postretirement and Other Employee Benefits |
We have various defined benefit pension plans that cover some of
our employees. On January 1, 2007, we changed the
measurement date used to determine the measurement of our
pension plan assets and benefit obligations from
September 30th to December 31st in 2007 for
both our domestic and foreign plans.
The changes in plan assets and benefit obligations recognized in
accumulated other comprehensive loss as a result of our adoption
of the measurement date provision of Financial Accounting
Standards Codification (“ASC”) Section 715,
Compensation-Retirement Plans consisted of the following
components:
| 2007 | ||||||||||||
| US | Foreign | Total | ||||||||||
| (Millions) | ||||||||||||
|
Net actuarial gain
|
$ | (18 | ) | $ | (23 | ) | $ | (41 | ) | |||
|
Recognized actuarial loss
|
(2 | ) | (6 | ) | (8 | ) | ||||||
|
Currency translation adjustment
|
— | 9 | 9 | |||||||||
|
Recognition of prior service cost
|
(1 | ) | (2 | ) | (3 | ) | ||||||
|
Total recognized in other comprehensive loss before tax effects
|
$ | (21 | ) | $ | (22 | ) | $ | (43 | ) | |||
Amounts recognized in accumulated other comprehensive loss for
pension benefits consist of the following components:
| 2007 | ||||||||
| US | Foreign | |||||||
| (Millions) | ||||||||
|
Net actuarial loss
|
$ | 81 | $ | 101 | ||||
|
Prior service cost
|
3 | 14 | ||||||
| $ | 84 | $ | 115 | |||||
As a result of the change in measurement date, on
January 1, 2007, the following adjustments were made to
retained earnings (accumulated deficit) and other comprehensive
income (both net of tax effects) for our defined benefit pension
plans:
| US | Foreign | |||||||
| (Millions) | ||||||||
|
Retained earnings (accumulated deficit), net of tax
|
$ | (3 | ) | $ | (2 | ) | ||
|
Accumulated other comprehensive income, net of tax
|
8 | 6 | ||||||
Pension benefits are based on years of service and, for most
salaried employees, on average compensation. Our funding policy
is to contribute to the plans amounts necessary to satisfy the
funding requirement of applicable federal or foreign laws and
regulations. Of our $674 million benefit obligation at
December 31, 2009, approximately $597 million required
funding under applicable federal and foreign laws. At
December 31, 2009, we had approximately $461 million
in assets to fund that obligation. The balance of our benefit
106
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
obligation, $77 million, did not require funding under
applicable federal or foreign laws and regulations. Pension plan
assets were invested in the following classes of securities:
| Percentage of Fair Market Value | ||||||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||||
| 2009 | 2008 | |||||||||||||||
| US | Foreign | US | Foreign | |||||||||||||
|
Equity Securities
|
71 | % | 55 | % | 59 | % | 51 | % | ||||||||
|
Debt Securities
|
29 | % | 38 | % | 41 | % | 37 | % | ||||||||
|
Real Estate
|
— | 2 | % | — | 3 | % | ||||||||||
|
Other
|
— | 5 | % | — | 9 | % | ||||||||||
The assets of some of our pension plans are invested in trusts
that permit commingling of the assets of more than one employee
benefit plan for investment and administrative purposes. Each of
the plans participating in the trust has interests in the net
assets of the underlying investment pools of the trusts. The
investments for all our pension plans are recorded at estimated
fair value, in compliance with the recent accounting guidance on
fair value measurement.
107
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents our plan assets using the fair
value hierarchy as of December 31, 2009. The fair value
hierarchy has three levels based on the methods used to
determine the fair value. Level 1 assets refer to those
asset values based on quoted market in active markets for
identical assets at the measurement date. Level 2 assets
refer to assets with values determined using significant other
observable inputs, and Level 3 assets include values
determined with non-observable inputs.
| Fair Value Level as of December 31, 2009 | ||||||||||||||||||||||||
| US | Foreign | |||||||||||||||||||||||
|
Asset Category
|
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||
|
Equity securities:
|
||||||||||||||||||||||||
|
U.S. large cap
|
$ | 14 | $ | 89 | $ | — | $ | 4 | $ | 24 | $ | — | ||||||||||||
|
U.S. mid cap
|
— | 3 | — | — | — | — | ||||||||||||||||||
|
U.S. Small Cap
|
— | 16 | — | — | — | — | ||||||||||||||||||
|
Non-U.S.
large cap
|
— | 15 | — | 35 | 60 | — | ||||||||||||||||||
|
Non-U.S.
mid
cap
|
— | — | — | — | 17 | — | ||||||||||||||||||
|
Non-U.S.
small cap
|
— | — | — | — | — | — | ||||||||||||||||||
|
Emerging markets
|
5 | — | — | — | 6 | — | ||||||||||||||||||
|
Debt securities:
|
||||||||||||||||||||||||
|
U.S. treasuries/government bonds
|
13 | 3 | — | — | — | — | ||||||||||||||||||
|
U.S. corporate bonds
|
— | 14 | — | — | — | — | ||||||||||||||||||
|
U.S. mortgage backed securities
|
— | 20 | — | — | — | — | ||||||||||||||||||
|
U.S. municipal obligations
|
— | — | — | — | — | — | ||||||||||||||||||
|
U.S. asset backed securities
|
— | 3 | — | — | — | — | ||||||||||||||||||
|
U.S. other fixed income
|
— | 4 | — | — | — | — | ||||||||||||||||||
|
Non-U.S.
treasuries / government bonds
|
— | — | — | 33 | 22 | — | ||||||||||||||||||
|
Non-U.S.
corporate bonds
|
— | — | — | 7 | 31 | — | ||||||||||||||||||
|
Non-U.S.
mortgage backed securities
|
— | — | — | — | — | — | ||||||||||||||||||
|
Non-U.S.
municipal obligations
|
— | — | — | — | 1 | — | ||||||||||||||||||
|
Non-U.S.
asset backed securities
|
— | — | — | — | — | — | ||||||||||||||||||
|
Non-U.S.
other fixed income
|
— | — | — | — | — | 6 | ||||||||||||||||||
|
Real Estate:
|
||||||||||||||||||||||||
|
U.S. real estate
|
— | — | — | — | — | — | ||||||||||||||||||
|
Non-U.S.
real estate
|
— | — | — | — | 5 | — | ||||||||||||||||||
|
Other:
|
||||||||||||||||||||||||
|
Hedge funds
|
— | — | — | — | — | — | ||||||||||||||||||
|
Insurance contracts
|
— | — | — | — | 7 | — | ||||||||||||||||||
|
Other alternative
|
— | — | — | — | — | — | ||||||||||||||||||
|
Cash held in bank accounts
|
— | — | — | 4 | — | — | ||||||||||||||||||
|
Total
|
$ | 32 | $ | 167 | $ | — | $ | 83 | $ | 173 | $ | 6 | ||||||||||||
Level 1 assets were valued using market prices based on
daily net asset value (NAV) or prices available through a public
stock exchange. Level 2 assets were valued primarily using
market prices, sometimes net of estimated realization expenses,
and based on broker/dealer markets or in commingled funds where
NAV is not available publicly. For insurance contracts, the
estimated surrender value of the policy was used to estimate
108
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
fair market value. Level 3 assets were valued using the net
present value of the future cash flows based on certain
assumptions such as discount rate and estimated redemptions.
The table below summarizes the changes in the fair value of the
Level 3 assets for the year ended December 31, 2009:
| Level 3 Assets | ||||||||
| US | Foreign | |||||||
| (Millions) | ||||||||
|
Balance at December 31 of the previous year
|
$ | — | $ | 4 | ||||
|
Actual return on plan assets:
|
||||||||
|
Relating to assets still held at the reporting date
|
— | 2 | ||||||
|
Relating to assets sold during the period
|
— | — | ||||||
|
Purchases, sales and settlements
|
— | — | ||||||
|
Transfers in and/or out of level 3
|
— | — | ||||||
|
Currency translation adjustment
|
— | — | ||||||
|
Ending Balance at December 31
|
$ | — | $ | 6 | ||||
The following table contains information about significant
concentrations of risk, including all individual assets that
make up more than 5% of the total assets and any direct
investments in Tenneco stock:
|
Percentage of
|
||||||||||||
|
Asset Category
|
Fair Value Level | Value | Total Assets | |||||||||
| (Millions) | ||||||||||||
|
Tenneco Stock
|
1 | $ | 14 | 7.3 | % | |||||||
Our investment policy for both our domestic and foreign plans is
to invest more heavily in equity securities than debt
securities. Targeted pension plan allocations are
70 percent in equity securities and 30 percent in debt
securities, with acceptable tolerance levels of plus or minus
five percent within each category for our domestic plans. Our
foreign plans are individually managed to different target
levels depending on the investing environment in each country.
Our approach to determining expected return on plan asset
assumptions evaluates both historical returns as well as
estimates of future returns, and adjusts for any expected
changes in the long-term outlook for the equity and fixed income
markets for both our domestic and foreign plans.
109
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A summary of the change in benefit obligation, the change in
plan assets, the development of net amount recognized, and the
amounts recognized in the balance sheets for the pension plans
and postretirement benefit plan follows:
| Pension | Postretirement | |||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||
| US | Foreign | US | Foreign | US | US | |||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||
|
Change in benefit obligation:
|
||||||||||||||||||||||||
|
Benefit obligation at December 31 of the previous year
|
$ | 334 | $ | 276 | $ | 313 | $ | 364 | $ | 143 | $ | 152 | ||||||||||||
|
Adjustment to benefit obligation
|
— | — | — | 17 | — | — | ||||||||||||||||||
|
Currency rate conversion
|
— | 31 | — | (73 | ) | — | — | |||||||||||||||||
|
Settlement
|
— | (1 | ) | — | (2 | ) | — | — | ||||||||||||||||
|
Curtailment
|
— | — | — | — | — | — | ||||||||||||||||||
|
Service cost
|
1 | 3 | 1 | 5 | 1 | 2 | ||||||||||||||||||
|
Interest cost
|
20 | 18 | 20 | 20 | 8 | 9 | ||||||||||||||||||
|
Plan amendments
|
— | — | — | — | — | (10 | ) | |||||||||||||||||
|
Acquisition
|
— | — | — | 3 | — | — | ||||||||||||||||||
|
Actuarial (gain)/loss
|
4 | 17 | 14 | (45 | ) | (2 | ) | (2 | ) | |||||||||||||||
|
Benefits paid
|
(18 | ) | (13 | ) | (14 | ) | (17 | ) | (9 | ) | (8 | ) | ||||||||||||
|
Participants’ contributions
|
— | 2 | — | 4 | — | — | ||||||||||||||||||
|
Benefit obligation at December 31
|
$ | 341 | $ | 333 | $ | 334 | $ | 276 | $ | 141 | $ | 143 | ||||||||||||
|
Change in plan assets:
|
||||||||||||||||||||||||
|
Fair value at December 31 of the previous year
|
$ | 165 | $ | 196 | $ | 249 | $ | 282 | $ | — | $ | — | ||||||||||||
|
Adjustment to plan assets
|
— | — | — | 17 | — | — | ||||||||||||||||||
|
Currency rate conversion
|
— | 25 | — | (57 | ) | — | — | |||||||||||||||||
|
Settlement
|
— | (1 | ) | — | (2 | ) | — | — | ||||||||||||||||
|
Actual return on plan assets
|
43 | 35 | (78 | ) | (50 | ) | — | — | ||||||||||||||||
|
Employer contributions
|
9 | 18 | 8 | 19 | 9 | 9 | ||||||||||||||||||
|
Participants’ contributions
|
— | 2 | — | 4 | — | — | ||||||||||||||||||
|
Benefits paid
|
(18 | ) | (13 | ) | (14 | ) | (17 | ) | (9 | ) | (9 | ) | ||||||||||||
|
Fair value at December 31
|
$ | 199 | $ | 262 | $ | 165 | $ | 196 | $ | — | $ | — | ||||||||||||
|
Development of net amount recognized:
|
||||||||||||||||||||||||
|
Unfunded status at December 31
|
$ | (142 | ) | $ | (71 | ) | $ | (169 | ) | $ | (80 | ) | $ | (141 | ) | $ | (143 | ) | ||||||
|
Unrecognized cost:
|
||||||||||||||||||||||||
|
Actuarial loss
|
171 | 104 | 192 | 95 | 74 | 80 | ||||||||||||||||||
|
Prior service cost
|
2 | 11 | 3 | 11 | (41 | ) | (46 | ) | ||||||||||||||||
|
Net amount recognized at December 31
|
$ | 31 | $ | 44 | $ | 26 | $ | 26 | $ | (108 | ) | $ | (109 | ) | ||||||||||
|
Amounts recognized in the balance sheets as of December 31
|
||||||||||||||||||||||||
|
Noncurrent assets
|
$ | — | $ | 2 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
Current liabilities
|
(17 | ) | (2 | ) | (7 | ) | (2 | ) | (10 | ) | (9 | ) | ||||||||||||
|
Noncurrent liabilities
|
(125 | ) | (71 | ) | (162 | ) | (78 | ) | (131 | ) | (134 | ) | ||||||||||||
|
Net amount recognized
|
$ | (142 | ) | $ | (71 | ) | $ | (169 | ) | $ | (80 | ) | $ | (141 | ) | $ | (143 | ) | ||||||
110
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Assets of one plan may not be utilized to pay benefits of other
plans. Additionally, the prepaid (accrued) pension cost has been
recorded based upon certain actuarial estimates as described
below. Those estimates are subject to revision in future periods
given new facts or circumstances.
Net periodic pension costs (income) for the years 2009, 2008,
and 2007, consist of the following components:
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| US | Foreign | US | Foreign | US | Foreign | |||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||
|
Service cost — benefits earned during the year
|
$ | 1 | $ | 4 | $ | 1 | $ | 5 | $ | 1 | $ | 5 | ||||||||||||
|
Interest on prior year’s projected benefit obligation
|
20 | 18 | 20 | 20 | 19 | 19 | ||||||||||||||||||
|
Expected return on plan assets
|
(22 | ) | (19 | ) | (23 | ) | (21 | ) | (21 | ) | (20 | ) | ||||||||||||
|
Curtailment loss
|
1 | — | — | — | — | — | ||||||||||||||||||
|
Settlement loss
|
2 | — | — | 1 | — | — | ||||||||||||||||||
|
Recognition of:
|
||||||||||||||||||||||||
|
Actuarial loss
|
2 | 2 | 3 | 4 | 2 | 6 | ||||||||||||||||||
|
Prior service cost
|
1 | 2 | 1 | 1 | 1 | 2 | ||||||||||||||||||
|
Net pension costs
|
$ | 5 | $ | 7 | $ | 2 | $ | 10 | $ | 2 | $ | 12 | ||||||||||||
|
Other comprehensive loss
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Amounts recognized in accumulated other comprehensive loss for
pension benefits consist of the following components:
| 2009 | 2008 | |||||||||||||||
| US | Foreign | US | Foreign | |||||||||||||
| (Millions) | ||||||||||||||||
|
Net actuarial loss
|
$ | 171 | $ | 104 | $ | 192 | $ | 95 | ||||||||
|
Prior service cost
|
2 | 11 | 3 | 11 | ||||||||||||
| $ | 173 | $ | 115 | $ | 195 | $ | 106 | |||||||||
In 2010, we expect to recognize the following amounts, which are
currently reflected in accumulated other comprehensive income,
as components of net periodic benefit cost:
| 2010 | ||||||||
| US | Foreign | |||||||
| (Millions) | ||||||||
|
Net actuarial loss
|
$ | 3 | $ | 4 | ||||
|
Prior service cost
|
— | 2 | ||||||
| $ | 3 | $ | 6 | |||||
111
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for all pension plans with
accumulated benefit obligations in excess of plan assets at
December 31, 2009 and 2008 were as follows:
|
December 31,
|
December 31,
|
|||||||||||||||
| 2009 | 2008 | |||||||||||||||
| US | Foreign | US | Foreign | |||||||||||||
| (Millions) | ||||||||||||||||
|
Projected Benefit Obligation
|
$ | 341 | $ | 302 | $ | 334 | $ | 271 | ||||||||
|
Accumulated Benefit Obligation
|
339 | 297 | 333 | 266 | ||||||||||||
|
Fair Value of Plan Assets
|
199 | 229 | 165 | 191 | ||||||||||||
The following estimated benefit payments are payable from the
pension plans to participants:
|
Year
|
US | Foreign | ||||||
| (Millions) | ||||||||
|
2010
|
$ | 32 | $ | 14 | ||||
|
2011
|
17 | 18 | ||||||
|
2012
|
18 | 15 | ||||||
|
2013
|
19 | 16 | ||||||
|
2014
|
20 | 17 | ||||||
|
2015-2018
|
113 | 98 | ||||||
The following assumptions were used in the accounting for the
pension plans for the years of 2009, 2008, and 2007:
| 2009 | 2008 | |||||||||||||||
| US | Foreign | US | Foreign | |||||||||||||
|
Weighted-average assumptions used to determine benefit
obligations
|
||||||||||||||||
|
Discount rate
|
6.1 | % | 6.0 | % | 6.2 | % | 6.3 | % | ||||||||
|
Rate of compensation increase
|
N/A | 3.5 | % | N/A | 3.1 | % | ||||||||||
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| US | Foreign | US | Foreign | US | Foreign | |||||||||||||||||||
|
Weighted-average assumptions used to determine net periodic
benefit cost
|
||||||||||||||||||||||||
|
Discount rate
|
6.2 | % | 6.3 | % | 6.2 | % | 5.6 | % | 6.0 | % | 5.0 | % | ||||||||||||
|
Expected long-term return on plan assets
|
8.8 | % | 7.3 | % | 8.8 | % | 7.7 | % | 8.8 | % | 7.6 | % | ||||||||||||
|
Rate of compensation increase
|
N/A | 3.1 | % | N/A | 4.4 | % | N/A | 4.3 | % | |||||||||||||||
We made contributions of $27 million to our pension plans
during 2009. Based on current actuarial estimates, we believe we
will be required to make contributions of $54 million to
those plans during 2010. Pension contributions beyond 2010 will
be required, but those amounts will vary based upon many
factors, including the performance of our pension fund
investments during 2010.
The pension results for the year ended December 31, 2008
include amounts relating to our acquisition of Gruppo Marzocchi
on September 1, 2008. In addition, during the year 2008,
the Company adjusted the beginning balance of both the foreign
pension benefit obligation and related plan assets by
$17 million to include a cash balance plan relating to a
foreign subsidiary.
112
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Tenneco Pension Plan for Hourly Employees, Tenneco Clevite
Division Retirement Plan, Tenneco Angola Hourly Bargaining
Pension Plan and Tenneco Local 878 (UAW) Retirement Income Plan
pension plans were merged into the Tenneco Retirement Plan for
Salaried Employees effective December 31, 2008. The plans
were merged to reduce the cost of plan administration. There
were no changes to the terms of the plans or to the benefits
provided.
Effective December 31, 2006, we froze future accruals under
our defined benefit plans for substantially all
U.S. salaried and non-union hourly employees and replaced
these benefits with additional contributions under defined
contribution plans. These changes reduced expense in 2007 by
approximately $11 million. As of December 31, 2008, we
froze future accruals for the formerly unionized employees at
Grass Lake, Michigan participating in the Tenneco Pension Plan
for Hourly Employees defined benefit plan.
We have life insurance plans which provided benefit to a
majority of our U.S. employees. We also have postretirement
plans for our U.S. employees hired before January 1,
2001. The plans cover salaried employees retiring on or after
attaining age 55 who have at least 10 years of service
with us after attaining age 45. For hourly employees, the
postretirement benefit plans generally cover employees who
retire according to one of our hourly employee retirement plans.
All of these benefits may be subject to deductibles, co-payment
provisions and other limitations, and we have reserved the right
to change these benefits. For those employees hired after
January 1, 2001, we do not provide any postretirement
benefits. Our postretirement healthcare and life insurance plans
are not funded. The measurement date used to determine
postretirement benefit obligations is December 31st.
On September 1, 2003, we changed our retiree medical
benefits program to provide participating retirees with
continued access to group health coverage while reducing our
subsidization of the program. This negative plan amendment is
being amortized over the average remaining service life to
retirement eligibility of active plan participants as a
reduction of service cost beginning September 1, 2003.
In July 2004, we entered into a settlement with a group of the
retirees which were a part of the September 2003 change
mentioned above. This settlement provided the group with
increased coverage, and as a result, a portion of the negative
plan amendment was reversed and a positive plan amendment put in
place. The effect of the settlement increased our 2004
postretirement benefit expense by approximately $1 million
and increased our accumulated postretirement benefit obligation
by approximately $13 million.
Net periodic postretirement benefit cost for the years 2009,
2008, and 2007, consists of the following components:
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
Service cost — benefits earned during the year
|
$ | 1 | $ | 2 | $ | 2 | ||||||
|
Interest on accumulated postretirement benefit obligation
|
8 | 8 | 9 | |||||||||
|
Recognition of:
|
||||||||||||
|
Actuarial loss
|
5 | 5 | 6 | |||||||||
|
Prior service cost
|
(6 | ) | (5 | ) | (5 | ) | ||||||
|
Net periodic pension cost
|
$ | 8 | $ | 10 | $ | 12 | ||||||
113
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In 2010, we expect to recognize the following amounts, which are
currently reflected in accumulated other comprehensive income,
as components of net periodic benefit cost:
| 2010 | ||||
|
Net actuarial loss
|
$ | 5 | ||
|
Prior service cost
|
(6 | ) | ||
| $ | (1 | ) | ||
The following estimated postretirement benefit payments are
payable from the plan to participants:
|
Postretirement
|
||||
|
Year
|
Benefits | |||
| (Millions) | ||||
|
2010
|
$ | 10 | ||
|
2011
|
11 | |||
|
2012
|
11 | |||
|
2013
|
11 | |||
|
2014
|
11 | |||
|
2015-2018
|
54 | |||
The following estimated subsidies under the Medicare
Prescription Drug, Improvement, and Modernization Act are
expected to be received :
|
Postretirement
|
||||
|
Year
|
Benefits | |||
| (Millions) | ||||
|
2010
|
$ | 1 | ||
|
2011
|
1 | |||
|
2012
|
1 | |||
|
2013
|
1 | |||
|
2014
|
1 | |||
|
2015-2018
|
4 | |||
The weighted average assumed health care cost trend rate used in
determining the 2009 accumulated postretirement benefit
obligation was 8.3 percent, declining to 5 percent by
2014. The healthcare cost trend rate was 9 percent for both
2008 and 2007, declining to 5 percent over succeeding
periods.
The following assumptions were used in the accounting for
postretirement cost for the years of 2009, 2008 and 2007:
| 2009 | 2008 | |||||||
|
Weighted-average assumptions used to determine benefit
obligations
|
||||||||
|
Discount rate
|
6.1 | % | 6.2 | % | ||||
|
Rate of compensation increase
|
N/A | 4.0 | % | |||||
| 2009 | 2008 | 2007 | ||||||||||
|
Weighted-average assumptions used to determine net periodic
benefit cost
|
||||||||||||
|
Discount rate
|
6.2 | % | 6.2 | % | 6.0 | % | ||||||
|
Rate of compensation increase
|
4.0 | % | 4.0 | % | 4.0 | % | ||||||
114
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The effect of a one-percentage-point increase or decrease in the
2009 assumed health care cost trend rates on total service cost
and interest and the postretirement benefit obligation are as
follows:
|
One-Percentage
|
One-Percentage
|
|||||||
| Point Increase | Point Decrease | |||||||
| (Millions) | ||||||||
|
Effect on total of service cost and interest cost
|
$ | 1 | $ | (1 | ) | |||
|
Effect on postretirement benefit obligation
|
11 | (9 | ) | |||||
Based on current actuarial estimates, we believe we will be
required to make postretirement contributions of approximately
$10 million during 2010.
We have established Employee Stock Ownership Plans for the
benefit of our domestic employees. Under the plans, subject to
limitations in the Internal Revenue Code, participants may elect
to defer up to 75 percent of their salary through
contributions to the plan, which are invested in selected mutual
funds or used to buy our common stock. We match in cash
50 percent of each employee’s contribution up to eight
percent of the employee’s salary. In 2009, we temporarily
discontinued these matching contributions as a result of the
recent global economic downturn. We restored the matching
contributions to salaried and non-union hourly
U.S. employees beginning on January 1, 2010. In
connection with freezing the defined benefit pension plans for
nearly all U.S. based salaried and non-union hourly
employees effective December 31, 2006, and the related
replacement of those defined benefit plans with defined
contribution plans, we are making additional contributions to
the Employee Stock Ownership Plans. We recorded expense for
these contributions of $10 million, $18 million, and
$17 million in 2009, 2008 and 2007 respectively. Matching
contributions vest immediately. Defined benefit replacement
contributions fully vest on the employee’s third
anniversary of employment.
| 11. | Segment and Geographic Area Information |
We are a global manufacturer with three geographic reportable
segments: (1) North America, (2) Europe, South America
and India (“Europe”), and (3) Asia Pacific. Each
segment manufactures and distributes ride control and emission
control products primarily for the automotive industry. We have
not aggregated individual operating segments within these
reportable segments. We evaluate segment performance based
primarily on income before interest expense, income taxes, and
noncontrolling interests. Products are transferred between
segments and geographic areas on a basis intended to reflect as
nearly as possible the “market value” of the products.
115
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Segment results for 2009, 2008, and 2007 are as follows:
| Segment | ||||||||||||||||||||
|
North
|
Asia
|
Reclass &
|
||||||||||||||||||
| America | Europe | Pacific | Elims | Consolidated | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
At December 31, 2009, and for the Year Then Ended
|
||||||||||||||||||||
|
Revenues from external customers
|
$ | 2,092 | $ | 2,047 | $ | 510 | $ | — | $ | 4,649 | ||||||||||
|
Intersegment revenues
|
7 | 162 | 15 | (184 | ) | — | ||||||||||||||
|
Interest income
|
— | 3 | 1 | — | 4 | |||||||||||||||
|
Depreciation and amortization of intangibles
|
113 | 89 | 19 | — | 221 | |||||||||||||||
|
Income before interest expense, income taxes, and noncontrolling
interests
|
42 | 20 | 30 | — | 92 | |||||||||||||||
|
Total assets
|
1,102 | 1,338 | 391 | 10 | 2,841 | |||||||||||||||
|
Investment in affiliated companies
|
— | 12 | — | — | 12 | |||||||||||||||
|
Expenditures for plant, property and equipment
|
45 | 58 | 15 | — | 118 | |||||||||||||||
|
Noncash items other than depreciation and amortization
|
8 | (1 | ) | 1 | — | 8 | ||||||||||||||
|
At December 31, 2008, and for the Year Then Ended
|
||||||||||||||||||||
|
Revenues from external customers
|
$ | 2,630 | $ | 2,758 | $ | 528 | $ | — | $ | 5,916 | ||||||||||
|
Intersegment revenues
|
11 | 225 | 15 | (251 | ) | — | ||||||||||||||
|
Interest income
|
— | 10 | 1 | — | 11 | |||||||||||||||
|
Depreciation and amortization of intangibles
|
108 | 97 | 17 | — | 222 | |||||||||||||||
|
Income before interest expense, income taxes, and noncontrolling
interests
|
(107 | ) | 85 | 19 | — | (3 | ) | |||||||||||||
|
Total assets
|
1,120 | 1,352 | 322 | 34 | 2,828 | |||||||||||||||
|
Investment in affiliated companies
|
— | 14 | — | — | 14 | |||||||||||||||
|
Expenditures for plant, property and equipment
|
108 | 89 | 24 | — | 221 | |||||||||||||||
|
Noncash items other than depreciation and amortization
|
(122 | ) | (11 | ) | — | — | (133 | ) | ||||||||||||
|
At December 31, 2007, and for the Year Then Ended
|
||||||||||||||||||||
|
Revenues from external customers
|
$ | 2,901 | $ | 2,737 | $ | 546 | $ | — | $ | 6,184 | ||||||||||
|
Intersegment revenues
|
9 | 398 | 14 | (421 | ) | — | ||||||||||||||
|
Interest income
|
— | 12 | — | — | 12 | |||||||||||||||
|
Depreciation and amortization of intangibles
|
103 | 86 | 16 | — | 205 | |||||||||||||||
|
Income before interest expense, income taxes, and noncontrolling
interests
|
120 | 99 | 33 | — | 252 | |||||||||||||||
|
Total assets
|
1,555 | 1,605 | 368 | 62 | 3,590 | |||||||||||||||
|
Investment in affiliated companies
|
— | 10 | — | — | 10 | |||||||||||||||
|
Expenditures for plant, property and equipment
|
106 | 74 | 18 | — | 198 | |||||||||||||||
|
Noncash items other than depreciation and amortization
|
(18 | ) | (1 | ) | 1 | — | (18 | ) | ||||||||||||
116
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table shows information relating to our external
customer revenues for each product or each group of similar
products:
|
Net Sales
|
||||||||||||
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
Emission Control Systems & Products
|
||||||||||||
|
Aftermarket
|
$ | 315 | $ | 358 | $ | 370 | ||||||
|
Original Equipment
|
||||||||||||
|
OE Value-add
|
1,638 | 2,128 | 2,288 | |||||||||
|
OE Substrate
|
966 | 1,492 | 1,673 | |||||||||
| 2,604 | 3,620 | 3,961 | ||||||||||
| 2,919 | 3,978 | 4,331 | ||||||||||
|
Ride Control Systems & Products
|
||||||||||||
|
Aftermarket
|
721 | 761 | 734 | |||||||||
|
Original Equipment
|
1,009 | 1,177 | 1,119 | |||||||||
| 1,730 | 1,938 | 1,853 | ||||||||||
|
Total Revenues
|
$ | 4,649 | $ | 5,916 | $ | 6,184 | ||||||
The following customers accounted for 10 percent or more of
our net sales in any of the last three years.
|
Customer
|
2009 | 2008 | 2007 | |||||||||
|
General Motors
|
16 | % | 20 | % | 20 | % | ||||||
|
Ford
|
14 | % | 11 | % | 13 | % | ||||||
| Geographic Area | ||||||||||||||||||||||||||||
|
United
|
Other
|
Reclass &
|
||||||||||||||||||||||||||
| States | Germany | Canada | China | Foreign(a) | Elims | Consolidated | ||||||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||||||
|
At December 31, 2009, and for the Year Then Ended
|
||||||||||||||||||||||||||||
|
Revenues from external customers(b)
|
$ | 1,531 | $ | 559 | $ | 416 | $ | 361 | $ | 1,782 | $ | — | $ | 4,649 | ||||||||||||||
|
Long-lived assets(c)
|
373 | 116 | 75 | 61 | 604 | — | 1,229 | |||||||||||||||||||||
|
Total assets
|
984 | 409 | 125 | 249 | 1,153 | (79 | ) | 2,841 | ||||||||||||||||||||
|
At December 31, 2008, and for the Year Then Ended
|
||||||||||||||||||||||||||||
|
Revenues from external customers(b)
|
$ | 1,954 | $ | 898 | $ | 483 | $ | 309 | $ | 2,272 | $ | — | $ | 5,916 | ||||||||||||||
|
Long-lived assets(c)
|
421 | 130 | 74 | 57 | 599 | — | 1,281 | |||||||||||||||||||||
|
Total assets
|
1,066 | 429 | 112 | 186 | 1,149 | (114 | ) | 2,828 | ||||||||||||||||||||
|
At December 31, 2007, and for the Year Then Ended
|
||||||||||||||||||||||||||||
|
Revenues from external customers(b)
|
$ | 2,121 | $ | 1,036 | $ | 590 | $ | 320 | $ | 2,117 | $ | — | $ | 6,184 | ||||||||||||||
|
Long-lived assets(c)
|
410 | 151 | 89 | 46 | 649 | — | 1,345 | |||||||||||||||||||||
|
Total assets
|
1,476 | 477 | 150 | 198 | 1,423 | (134 | ) | 3,590 | ||||||||||||||||||||
| Note: | (a) Revenues from external customers and long-lived assets for individual foreign countries other than Germany, Canada, and China are not material. |
| (b) | Revenues are attributed to countries based on location of the shipper. | |
| (c) | Long-lived assets include all long-term assets except goodwill, intangibles and deferred tax assets. |
117
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 12. | Commitments and Contingencies |
Capital
Commitments
We estimate that expenditures aggregating approximately
$36 million will be required after December 31, 2009
to complete facilities and projects authorized at such date, and
we have made substantial commitments in connection with these
facilities and projects.
Lease
Commitments
We have long-term leases for certain facilities, equipment and
other assets. The minimum lease payments under non-cancelable
leases with lease terms in excess of one year are:
|
Subsequent
|
||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | Years | |||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||
|
Operating Leases
|
$ | 19 | $ | 15 | $ | 11 | $ | 6 | $ | 3 | $ | 13 | ||||||||||||
|
Capital Leases
|
4 | — | — | — | — | — | ||||||||||||||||||
Total rental expense for the year 2009, 2008 and 2007 was
$43 million, $46 million and $40 million,
respectively.
Risk
Related to the Automotive Industry and Concentration of Credit
Risk
The deterioration in the global economy and global credit
markets beginning in 2008 has negatively impacted global
business activity in general, and specifically the automotive
industry in which we operate. The market turmoil and tightening
of credit, as well as the dramatic decline in the housing market
in the United States and Western Europe, have led to a lack of
consumer confidence evidenced by a rapid decline in light
vehicle purchases in 2008 and the first six months of 2009.
Light vehicle production during the first six months of 2009
decreased by 50 percent in North America and
35 percent in Europe as compared to the first six months of
2008. OE production has stabilized and overall the production
environment strengthened in the third and fourth quarters
compared to the first half of the year as production began to
track more closely to vehicle sales after inventory corrections
in the first half of the year. In North America, light vehicle
production in the fourth quarter 2009 was up one percent
year-over-year.
In Europe, light vehicle production in the fourth quarter 2009
was up 14 percent
year-over-year.
In response to current economic conditions, some of our
customers have eliminated or are expected to eliminate certain
light vehicle models or brands. While we do not believe that
models eliminated to date will have a significant impact on us,
changes in the models produced by our customers or sales of
their brands may have an adverse effect on our market share.
Additional declines in consumer demand would have a further
adverse effect on the financial condition of our OE customers,
and on our future results of operations. Continued or further
financial difficulties at any of our major customers could have
an adverse impact on the level of our future revenues and
collection of our receivables from such customers.
Other than the impact from production shutdowns during the
second quarter, we incurred no other economic loss from the
bankruptcy filings of Chrysler or General Motors. We collected
substantially all of our pre-petition receivables from Chrysler
Group LLC and Chrysler Group LLC has assumed substantially all
of the contracts which we had with Chrysler LLC. We collected
substantially all of our pre-petition receivables from General
Motors Company and General Motors Company has assumed
substantially all of the contracts which we had with General
Motors Corporation.
118
Table of Contents
TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Litigation
We also from time to time are involved in legal proceedings,
claims or investigations that are incidental to the conduct of
our business. Some of these proceedings allege damages against
us relating to environmental liabilities (including toxic tort,
property damage and remediation), intellectual property matters
(including patent, trademark and copyright infringement, and
licensing disputes), personal injury claims (including injuries
due to product failure, design or warning issues, and other
product liability related matters), taxes, employment matters,
and commercial or contractual disputes, sometimes related to
acquisitions or divestitures. For example, one of our Argentine
subsidiaries is currently defending against a criminal complaint
alleging the failure to comply with laws requiring the proceeds
of export transactions to be collected, reported
and/or
converted to local currency within specified time periods. As
another example, we have recently become subject to an audit in
11 states of our practices with respect to the payment of
unclaimed property to those states. We have practices in place
designed to ensure that we pay unclaimed property as required.
We are in the early stages of this audit, which could cover over
20 years. We vigorously defend ourselves against all of
these claims. In future periods, we could be subject to cash
costs or non-cash charges to earnings if any of these matters is
resolved on unfavorable terms. However, although the ultimate
outcome of any legal matter cannot be predicted with certainty,
based on current information, including our assessment of the
merits of the particular claim, we do not expect that these
legal proceedings or claims will have any material adverse
impact on our future consolidated financial position, results of
operations or cash flows.
In addition, we are subject to a number of lawsuits initiated by
claimants alleging health problems as a result of exposure to
asbestos. In the early 2000’s we were named in nearly
20,000 complaints, most of which were filed in Mississippi state
court and the vast majority of which made no allegations of
exposure to asbestos from our product categories. Most of these
claims have been dismissed and our current docket of active and
inactive cases is less than 500 cases nationwide. A small number
of claims have been asserted by railroad workers alleging
exposure to asbestos products in railroad cars manufactured by
The Pullman Company, one of our subsidiaries. The balance of the
claims is related to alleged exposure to asbestos in our
automotive emission control products. Only a small percentage of
the claimants allege that they were automobile mechanics and a
significant number appear to involve workers in other industries
or otherwise do not include sufficient information to determine
whether there is any basis for a claim against us. We believe,
based on scientific and other evidence, it is unlikely that
mechanics were exposed to asbestos by our former muffler
products and that, in any event, they would not be at increased
risk of asbestos-related disease based on their work with these
products. Further, many of these cases involve numerous
defendants, with the number of each in some cases exceeding 100
defendants from a variety of industries. Additionally, the
plaintiffs either do not specify any, or specify the
jurisdictional minimum, dollar amount for damages. As major
asbestos manufacturers continue to go out of business or file
for bankruptcy, we may experience an increased number of these
claims. We vigorously defend ourselves against these claims as
part of our ordinary course of business. In future periods, we
could be subject to cash costs or non-cash charges to earnings
if any of these matters is resolved unfavorably to us. To date,
with respect to claims that have proceeded sufficiently through
the judicial process, we have regularly achieved favorable
resolution. Accordingly, we presently believe that these
asbestos-related claims will not have a material adverse impact
on our future consolidated financial condition, results of
operations or cash flows.
Product
Warranties
We provide warranties on some of our products. The warranty
terms vary but range from one year up to limited lifetime
warranties on some of our premium aftermarket products.
Provisions for estimated expenses related to product warranty
are made at the time products are sold or when specific warranty
issues are identified on OE products. These estimates are
established using historical information about the nature,
frequency, and average cost of warranty claims. We actively
study trends of our warranty claims and take action to improve
product quality and minimize warranty claims. We believe that
the warranty reserve is
119
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
appropriate; however, actual claims incurred could differ from
the original estimates, requiring adjustments to the reserve.
The reserve is included in both current and long-term
liabilities on the balance sheet.
Below is a table that shows the activity in the warranty accrual
accounts:
|
Year Ended
|
||||||||||||
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Millions) | ||||||||||||
|
Beginning Balance
|
$ | 27 | $ | 25 | $ | 25 | ||||||
|
Accruals related to product warranties
|
18 | 17 | 12 | |||||||||
|
Reductions for payments made
|
(13 | ) | (15 | ) | (12 | ) | ||||||
|
Ending Balance
|
$ | 32 | $ | 27 | $ | 25 | ||||||
Environmental
Matters
We are subject to a variety of environmental and pollution
control laws and regulations in all jurisdictions in which we
operate. We expense or capitalize, as appropriate, expenditures
for ongoing compliance with environmental regulations that
relate to current operations. We expense costs related to an
existing condition caused by past operations that do not
contribute to current or future revenue generation. We record
liabilities when environmental assessments indicate that
remedial efforts are probable and the costs can be reasonably
estimated. Estimates of the liability are based upon currently
available facts, existing technology, and presently enacted laws
and regulations taking into consideration the likely effects of
inflation and other societal and economic factors. We consider
all available evidence including prior experience in remediation
of contaminated sites, other companies’ cleanup experiences
and data released by the United States Environmental Protection
Agency or other organizations. These estimated liabilities are
subject to revision in future periods based on actual costs or
new information. Where future cash flows are fixed or reliably
determinable, we have discounted the liabilities. All other
environmental liabilities are recorded at their undiscounted
amounts. We evaluate recoveries separately from the liability
and, when they are assured, recoveries are recorded and reported
separately from the associated liability in our condensed
consolidated financial statements.
As of December 31, 2009, we have the obligation to
remediate or contribute towards the remediation of certain
sites, including two existing Superfund sites. At
December 31, 2009, our estimated share of environmental
remediation costs at these sites was approximately
$16 million on a discounted basis. The undiscounted value
of the estimated remediation costs was $23 million. For
those locations in which the liability was discounted, the
weighted average discount rate used was 3.6 percent. Based on
information known to us, we have established reserves that we
believe are adequate for these costs. Although we believe these
estimates of remediation costs are reasonable and are based on
the latest available information, the costs are estimates and
are subject to revision as more information becomes available
about the extent of remediation required. At some sites, we
expect that other parties will contribute towards the
remediation costs. In addition, certain environmental statutes
provide that our liability could be joint and several, meaning
that we could be required to pay in excess of our share of
remediation costs. Our understanding of the financial strength
of other potentially responsible parties at these sites has been
considered, where appropriate, in our determination of our
estimated liability.
The $16 million noted above includes $5 million of
estimated environmental remediation costs that result from the
bankruptcy of Mark IV Industries in 2009. Prior to our 1996
acquisition of The Pullman Company, Pullman had sold certain
assets to Mark IV. As partial consideration for the purchase of
these assets, Mark IV agreed to assume Pullman’s and
its subsidiaries’ historical obligations to contribute to
the environmental remediation of certain sites. Mark IV has
filed a petition for insolvency under Chapter 11 of the
United States Bankruptcy Code and notified Pullman that it no
longer intends to continue to contribute toward the
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TENNECO
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
remediation of those sites. We are conducting a thorough
analysis and review of these matters and it is possible that our
estimate may change as additional information becomes available
to us.
We do not believe that any potential costs associated with our
current status as a potentially responsible party in the
Superfund sites, or as a liable party at the other locations
referenced herein, will be material to our condensed
consolidated results of operations, financial position or cash
flows.
| 13. | Supplemental Guarantor Condensed Consolidating Financial Statements |
Basis of
Presentation
Subject to limited exceptions, all of our existing and future
material domestic 100 percent owned subsidiaries (which are
referred to as the Guarantor Subsidiaries) fully and
unconditionally guarantee our senior subordinated notes due in
2014, our senior notes due in 2015 and our senior secured notes
due 2013 on a joint and several basis. We have not presented
separate financial statements and other disclosures concerning
each of the Guarantor Subsidiaries because management has
determined that such information is not material to the holders
of the notes. Therefore, the Guarantor Subsidiaries are combined
in the presentation below.
These consolidating financial statements are presented on the
equity method. Under this method, our investments are recorded
at cost and adjusted for our ownership share of a
subsidiary’s cumulative results of operations, capital
contributions and distributions, and other equity changes. You
should read the consolidating financial information of the
Guarantor Subsidiaries in connection with our condensed
consolidated financial statements and related notes of which
this note is an integral part.
Distributions
There are no significant restrictions on the ability of the
Guarantor Subsidiaries to make distributions to us.
121
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TENNECO
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
STATEMENT
OF INCOME (LOSS)
| For the Year Ended December 31, 2009 | ||||||||||||||||||||
|
Tenneco Inc.
|
||||||||||||||||||||
|
Guarantor
|
Nonguarantor
|
(Parent
|
Reclass
|
|||||||||||||||||
| Subsidiaries | Subsidiaries | Company) | & Elims | Consolidated | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||
|
Net sales and operating revenues —
|
||||||||||||||||||||
|
External
|
$ | 1,915 | $ | 2,734 | $ | — | $ | — | $ | 4,649 | ||||||||||
|
Affiliated companies
|
92 | 399 | — | (491 | ) | — | ||||||||||||||
| 2,007 | 3,133 | — | (491 | ) | 4,649 | |||||||||||||||
|
Costs and expenses
|
||||||||||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
below)
|
1,836 | 2,530 | — | (491 | ) | 3,875 | ||||||||||||||
|
Engineering, research, and development
|
36 | 61 | — | — | 97 | |||||||||||||||
|
Selling, general, and administrative
|
105 | 236 | 3 | — | 344 | |||||||||||||||
|
Depreciation and amortization of intangibles
|
91 | 130 | — | — | 221 | |||||||||||||||
| 2,068 | 2,957 | 3 | (491 | ) | 4,537 | |||||||||||||||
|
Other income (expense)
|
||||||||||||||||||||
|
Loss on sale of receivables
|
— | (9 | ) | — | — | (9 | ) | |||||||||||||
|
Other income (expense)
|
(2 | ) | 4 | — | (13 | ) | (11 | ) | ||||||||||||
| (2 | ) | (5 | ) | — | (13 | ) | (20 | ) | ||||||||||||
|
Income (loss) before interest expense, income taxes,
noncontrolling interests and equity in net income from
affiliated companies
|
(63 | ) | 171 | (3 | ) | (13 | ) | 92 | ||||||||||||
|
Interest expense —
|
||||||||||||||||||||
|
External (net of interest capitalized)
|
(1 | ) | 4 | 130 | — | 133 | ||||||||||||||
|
Affiliated companies (net of interest income)
|
140 | (15 | ) | (125 | ) | — | — | |||||||||||||
|
Income tax expense (benefit)
|
(1 | ) | 33 | (19 | ) | — | 13 | |||||||||||||
|
Equity in net income (loss) from affiliated companies
|
124 | — | (84 | ) | (40 | ) | — | |||||||||||||
|
Net income (loss)
|
(77 | ) | 149 | (73 | ) | (53 | ) | (54 | ) | |||||||||||
|
Less: Net income attributable to noncontrolling interests
|
— | 19 | — | — | 19 | |||||||||||||||
|
Net income (loss) attributable to Tenneco Inc.
|
$ | (77 | ) | $ | 130 | $ | (73 | ) | $ | (53 | ) | $ | (73 | ) | ||||||
122
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TENNECO
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
STATEMENT
OF INCOME (LOSS)
| For the Year Ended December 31, 2008 | ||||||||||||||||||||
|
Tenneco Inc.
|
||||||||||||||||||||
|
Guarantor
|
Nonguarantor
|
(Parent
|
Reclass
|
|||||||||||||||||
| Subsidiaries | Subsidiaries | Company) | & Elims | Consolidated | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||
|
Net sales and operating revenues —
|
||||||||||||||||||||
|
External
|
$ | 2,392 | $ | 3,524 | $ | — | $ | — | $ | 5,916 | ||||||||||
|
Affiliated companies
|
66 | 476 | — | (542 | ) | — | ||||||||||||||
| 2,458 | 4,000 | — | (542 | ) | 5,916 | |||||||||||||||
|
Costs and expenses
|
||||||||||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
below)
|
2,058 | 3,547 | — | (542 | ) | 5,063 | ||||||||||||||
|
Goodwill impairment charge
|
114 | — | — | — | 114 | |||||||||||||||
|
Engineering, research, and development
|
52 | 75 | — | — | 127 | |||||||||||||||
|
Selling, general, and administrative
|
124 | 264 | 4 | — | 392 | |||||||||||||||
|
Depreciation and amortization of intangibles
|
86 | 136 | — | — | 222 | |||||||||||||||
| 2,434 | 4,022 | 4 | (542 | ) | 5,918 | |||||||||||||||
|
Other income (expense)
|
||||||||||||||||||||
|
Loss on sale of receivables
|
— | (10 | ) | — | — | (10 | ) | |||||||||||||
|
Other income (expense)
|
63 | (1 | ) | (1 | ) | (52 | ) | 9 | ||||||||||||
| 63 | (11 | ) | (1 | ) | (52 | ) | (1 | ) | ||||||||||||
|
Income (loss) before interest expense, income taxes,
noncontrolling interests, and equity in net income from
affiliated companies
|
87 | (33 | ) | (5 | ) | (52 | ) | (3 | ) | |||||||||||
|
Interest expense —
|
||||||||||||||||||||
|
External (net of interest capitalized)
|
(3 | ) | 3 | 113 | — | 113 | ||||||||||||||
|
Affiliated companies (net of interest income)
|
124 | (10 | ) | (114 | ) | — | — | |||||||||||||
|
Income tax expense (benefit)
|
20 | 89 | 185 | (5 | ) | 289 | ||||||||||||||
|
Equity in net income (loss) from affiliated companies
|
(138 | ) | — | (226 | ) | 364 | — | |||||||||||||
|
Net income (loss)
|
(192 | ) | (115 | ) | (415 | ) | 317 | (405 | ) | |||||||||||
|
Less: Net income attributable to noncontrolling interests
|
— | 10 | — | — | 10 | |||||||||||||||
|
Net income (loss) attributable to Tenneco Inc.
|
$ | (192 | ) | $ | (125 | ) | $ | (415 | ) | $ | 317 | $ | (415 | ) | ||||||
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TENNECO
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
STATEMENT
OF INCOME (LOSS)
| For the Year Ended December 31, 2007 | ||||||||||||||||||||
|
Tenneco Inc.
|
||||||||||||||||||||
|
Guarantor
|
Nonguarantor
|
(Parent
|
Reclass
|
|||||||||||||||||
| Subsidiaries | Subsidiaries | Company) | & Elims | Consolidated | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||
|
Net sales and operating revenues —
|
||||||||||||||||||||
|
External
|
$ | 2,827 | $ | 3,357 | $ | — | $ | — | $ | 6,184 | ||||||||||
|
Affiliated companies
|
95 | 895 | — | (990 | ) | — | ||||||||||||||
| 2,922 | 4,252 | — | (990 | ) | 6,184 | |||||||||||||||
|
Costs and expenses
|
||||||||||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
below)
|
2,619 | 3,582 | (1 | ) | (990 | ) | 5,210 | |||||||||||||
|
Engineering, research, and development
|
55 | 59 | — | — | 114 | |||||||||||||||
|
Selling, general, and administrative
|
145 | 249 | 4 | 1 | 399 | |||||||||||||||
|
Depreciation and amortization of intangibles
|
80 | 125 | — | — | 205 | |||||||||||||||
| 2,899 | 4,015 | 3 | (989 | ) | 5,928 | |||||||||||||||
|
Other income (expense)
|
||||||||||||||||||||
|
Loss on sale of receivables
|
— | (10 | ) | — | — | (10 | ) | |||||||||||||
|
Other income (expense)
|
13 | 3 | — | (10 | ) | 6 | ||||||||||||||
| 13 | (7 | ) | — | (10 | ) | (4 | ) | |||||||||||||
|
Income (loss) before interest expense, income taxes,
noncontrolling interests, and equity in net income from
affiliated companies
|
36 | 230 | (3 | ) | (11 | ) | 252 | |||||||||||||
|
Interest expense —
|
||||||||||||||||||||
|
External (net of interest capitalized)
|
(2 | ) | 2 | 164 | — | 164 | ||||||||||||||
|
Affiliated companies (net of interest income)
|
185 | (16 | ) | (169 | ) | — | — | |||||||||||||
|
Income tax expense (benefit)
|
(42 | ) | 78 | 57 | (10 | ) | 83 | |||||||||||||
|
Equity in net income (loss) from affiliated companies
|
135 | — | 50 | (185 | ) | — | ||||||||||||||
|
Net income (loss)
|
30 | 166 | (5 | ) | 186 | 5 | ||||||||||||||
|
Less: Net income attributable to noncontrolling interests
|
— | 10 | — | — | 10 | |||||||||||||||
|
Net income (loss) attributable to Tenneco Inc.
|
$ | 30 | $ | 156 | $ | (5 | ) | $ | (186 | ) | $ | (5 | ) | |||||||
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TENNECO
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
BALANCE
SHEET
| December 31, 2009 | ||||||||||||||||||||
|
Tenneco Inc.
|
||||||||||||||||||||
|
Guarantor
|
Nonguarantor
|
(Parent
|
Reclass
|
|||||||||||||||||
| Subsidiaries | Subsidiaries | Company) | & Elims | Consolidated | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 20 | $ | 147 | $ | — | $ | — | $ | 167 | ||||||||||
|
Receivables, net
|
289 | 936 | 39 | (668 | ) | 596 | ||||||||||||||
|
Inventories
|
161 | 267 | — | — | 428 | |||||||||||||||
|
Deferred income taxes
|
— | 69 | — | (34 | ) | 35 | ||||||||||||||
|
Prepayments and other
|
43 | 124 | — | — | 167 | |||||||||||||||
|
Total current assets
|
513 | 1,543 | 39 | (702 | ) | 1,393 | ||||||||||||||
|
Other assets:
|
||||||||||||||||||||
|
Investment in affiliated companies
|
591 | — | 632 | (1,223 | ) | — | ||||||||||||||
|
Notes and advances receivable from affiliates
|
3,872 | 308 | 5,818 | (9,998 | ) | — | ||||||||||||||
|
Long-term receivables, net
|
3 | 5 | — | — | 8 | |||||||||||||||
|
Goodwill
|
22 | 67 | — | — | 89 | |||||||||||||||
|
Intangibles, net
|
16 | 14 | — | — | 30 | |||||||||||||||
|
Deferred income taxes
|
75 | 25 | 15 | (15 | ) | 100 | ||||||||||||||
|
Other
|
28 | 58 | 25 | — | 111 | |||||||||||||||
| 4,607 | 477 | 6,490 | (11,236 | ) | 338 | |||||||||||||||
|
Plant, property, and equipment, at cost
|
1,005 | 2,094 | — | — | 3,099 | |||||||||||||||
|
Less — Accumulated depreciation and amortization
|
(696 | ) | (1,293 | ) | — | — | (1,989 | ) | ||||||||||||
| 309 | 801 | — | — | 1,110 | ||||||||||||||||
|
Total assets
|
$ | 5,429 | $ | 2,821 | $ | 6,529 | $ | (11,938 | ) | $ | 2,841 | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Short-term debt (including current maturities of long-term debt)
|
||||||||||||||||||||
|
Short-term debt — non-affiliated
|
$ | — | $ | 74 | $ | 1 | $ | — | $ | 75 | ||||||||||
|
Short-term debt — affiliated
|
302 | 229 | 10 | (541 | ) | — | ||||||||||||||
|
Trade payables
|
270 | 609 | — | (113 | ) | 766 | ||||||||||||||
|
Accrued taxes
|
6 | 30 | — | — | 36 | |||||||||||||||
|
Other
|
167 | 166 | 39 | (48 | ) | 324 | ||||||||||||||
|
Total current liabilities
|
745 | 1,108 | 50 | (702 | ) | 1,201 | ||||||||||||||
|
Long-term debt — non-affiliated
|
— | 8 | 1,137 | — | 1,145 | |||||||||||||||
|
Long-term debt — affiliated
|
4,374 | 261 | 5,363 | (9,998 | ) | — | ||||||||||||||
|
Deferred income taxes
|
15 | 66 | — | (15 | ) | 66 | ||||||||||||||
|
Postretirement benefits and other liabilities
|
326 | 81 | — | 4 | 411 | |||||||||||||||
|
Commitments and contingencies
|
||||||||||||||||||||
|
Total liabilities
|
5,460 | 1,524 | 6,550 | (10,711 | ) | 2,823 | ||||||||||||||
|
Redeemable noncontrolling interests
|
— | 7 | — | — | 7 | |||||||||||||||
|
Tenneco Inc. Shareholders’ equity
|
(31 | ) | 1,258 | (21 | ) | (1,227 | ) | (21 | ) | |||||||||||
|
Noncontrolling interests
|
— | 32 | — | — | 32 | |||||||||||||||
|
Total equity
|
(31 | ) | 1,290 | (21 | ) | (1,227 | ) | 11 | ||||||||||||
|
Total liabilities, redeemable noncontrolling interests and equity
|
$ | 5,429 | $ | 2,821 | $ | 6,529 | $ | (11,938 | ) | $ | 2,841 | |||||||||
125
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TENNECO
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
BALANCE
SHEET
| December 31, 2008 | ||||||||||||||||||||
|
Tenneco Inc.
|
||||||||||||||||||||
|
Guarantor
|
Nonguarantor
|
(Parent
|
Reclass
|
|||||||||||||||||
| Subsidiaries | Subsidiaries | Company) | & Elims | Consolidated | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 16 | $ | 110 | $ | — | $ | — | $ | 126 | ||||||||||
|
Receivables, net
|
461 | 792 | 33 | (712 | ) | 574 | ||||||||||||||
|
Inventories
|
193 | 320 | — | — | 513 | |||||||||||||||
|
Deferred income taxes
|
58 | — | — | (40 | ) | 18 | ||||||||||||||
|
Prepayments and other
|
24 | 83 | — | — | 107 | |||||||||||||||
|
Total current assets
|
752 | 1,305 | 33 | (752 | ) | 1,338 | ||||||||||||||
|
Other assets:
|
||||||||||||||||||||
|
Investment in affiliated companies
|
399 | — | 614 | (1,013 | ) | — | ||||||||||||||
|
Notes and advances receivable from affiliates
|
3,641 | 234 | 5,605 | (9,480 | ) | — | ||||||||||||||
|
Long-term receivables, net
|
1 | 10 | — | — | 11 | |||||||||||||||
|
Goodwill
|
22 | 73 | — | — | 95 | |||||||||||||||
|
Intangibles, net
|
17 | 9 | — | — | 26 | |||||||||||||||
|
Deferred income taxes
|
64 | 24 | 46 | (46 | ) | 88 | ||||||||||||||
|
Other
|
36 | 66 | 23 | — | 125 | |||||||||||||||
| 4,180 | 416 | 6,288 | (10,539 | ) | 345 | |||||||||||||||
|
Plant, property, and equipment, at cost
|
1,039 | 1,921 | — | — | 2,960 | |||||||||||||||
|
Less — Accumulated depreciation and amortization
|
(687 | ) | (1,128 | ) | — | — | (1,815 | ) | ||||||||||||
| 352 | 793 | — | — | 1,145 | ||||||||||||||||
|
Total assets
|
$ | 5,284 | $ | 2,514 | $ | 6,321 | $ | (11,291 | ) | $ | 2,828 | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Short-term debt (including current maturities of long-term debt)
|
||||||||||||||||||||
|
Short-term debt — non-affiliated
|
$ | — | $ | 49 | $ | — | $ | — | $ | 49 | ||||||||||
|
Short-term debt — affiliated
|
174 | 371 | 10 | (555 | ) | — | ||||||||||||||
|
Trade payables
|
332 | 594 | — | (136 | ) | 790 | ||||||||||||||
|
Accrued taxes
|
12 | 18 | — | — | 30 | |||||||||||||||
|
Other
|
132 | 169 | 48 | (61 | ) | 288 | ||||||||||||||
|
Total current liabilities
|
650 | 1,201 | 58 | (752 | ) | 1,157 | ||||||||||||||
|
Long-term debt — non-affiliated
|
— | 12 | 1,390 | — | 1,402 | |||||||||||||||
|
Long-term debt — affiliated
|
4,229 | 127 | 5,124 | (9,480 | ) | — | ||||||||||||||
|
Deferred income taxes
|
43 | 54 | — | (46 | ) | 51 | ||||||||||||||
|
Postretirement benefits and other liabilities
|
345 | 89 | — | 4 | 438 | |||||||||||||||
|
Commitments and contingencies
|
||||||||||||||||||||
|
Total liabilities
|
5,267 | 1,483 | 6,572 | (10,274 | ) | 3,048 | ||||||||||||||
|
Redeemable noncontrolling interests
|
— | 7 | — | — | 7 | |||||||||||||||
|
Tenneco Inc. Shareholders’ equity
|
17 | 1,000 | (251 | ) | (1,017 | ) | (251 | ) | ||||||||||||
|
Noncontrolling interests
|
— | 24 | — | — | 24 | |||||||||||||||
|
Total equity
|
17 | 1,024 | (251 | ) | (1,017 | ) | (227 | ) | ||||||||||||
|
Total liabilities, redeemable noncontrolling interests and equity
|
$ | 5,284 | $ | 2,514 | $ | 6,321 | $ | (11,291 | ) | $ | 2,828 | |||||||||
126
Table of Contents
TENNECO
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
STATEMENT
OF CASH FLOWS
| Year Ended December 31, 2009 | ||||||||||||||||||||
|
Tenneco Inc.
|
||||||||||||||||||||
|
Guarantor
|
Nonguarantor
|
(Parent
|
Reclass
|
|||||||||||||||||
| Subsidiaries | Subsidiaries | Company) | & Elims | Consolidated | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Operating Activities
|
||||||||||||||||||||
|
Net cash provided (used) by operating activities
|
$ | 347 | $ | 160 | $ | (266 | ) | $ | — | $ | 241 | |||||||||
|
Investing Activities
|
||||||||||||||||||||
|
Proceeds from sale of assets
|
— | 5 | — | — | 5 | |||||||||||||||
|
Cash payments for plant, property, and equipment
|
(42 | ) | (78 | ) | — | — | (120 | ) | ||||||||||||
|
Acquisition of business (net of cash acquired)
|
— | 1 | — | — | 1 | |||||||||||||||
|
Cash payments for software related intangible assets
|
(2 | ) | (4 | ) | — | — | (6 | ) | ||||||||||||
|
Investments and other
|
— | 1 | — | — | 1 | |||||||||||||||
|
Net cash used by investing activities
|
(44 | ) | (75 | ) | — | — | (119 | ) | ||||||||||||
|
Financing Activities
|
||||||||||||||||||||
|
Issuance of common shares
|
— | — | 188 | — | 188 | |||||||||||||||
|
Issuance of long-term debt
|
— | — | 6 | — | 6 | |||||||||||||||
|
Retirement of long-term debt
|
— | (5 | ) | (17 | ) | — | (22 | ) | ||||||||||||
|
Debt issuance cost on long-term debt
|
— | — | (8 | ) | — | (8 | ) | |||||||||||||
|
Increase (decrease) in bank overdrafts
|
— | (23 | ) | — | — | (23 | ) | |||||||||||||
|
Net increase (decrease) in revolver borrowings and short-term
debt excluding current maturities of long-term debt
|
— | 21 | (239 | ) | — | (218 | ) | |||||||||||||
|
Intercompany dividends and net increase (decrease) in
intercompany obligations
|
(299 | ) | (37 | ) | 336 | — | — | |||||||||||||
|
Distribution to noncontrolling interests partners
|
— | (10 | ) | — | — | (10 | ) | |||||||||||||
|
Net cash provided (used) by financing activities
|
(299 | ) | (54 | ) | 266 | — | (87 | ) | ||||||||||||
|
Effect of foreign exchange rate changes on cash and cash
equivalents
|
— | 6 | — | — | 6 | |||||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
4 | 37 | — | — | 41 | |||||||||||||||
|
Cash and cash equivalents, January 1
|
16 | 110 | — | — | 126 | |||||||||||||||
|
Cash and cash equivalents, December 31 (Note)
|
$ | 20 | $ | 147 | $ | — | $ | — | $ | 167 | ||||||||||
| Note: | Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase. |
127
Table of Contents
TENNECO
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
STATEMENT
OF CASH FLOWS
| Year Ended December 31, 2008 | ||||||||||||||||||||
|
Tenneco Inc.
|
||||||||||||||||||||
|
Guarantor
|
Nonguarantor
|
(Parent
|
Reclass
|
|||||||||||||||||
| Subsidiaries | Subsidiaries | Company) | & Elims | Consolidated | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Operating Activities
|
||||||||||||||||||||
|
Net cash provided (used) by operating activities
|
$ | 167 | $ | 130 | $ | (137 | ) | $ | — | $ | 160 | |||||||||
|
Investing Activities
|
||||||||||||||||||||
|
Proceeds from sale of assets
|
— | 3 | — | — | 3 | |||||||||||||||
|
Cash payments for plant, property, and equipment
|
(90 | ) | (143 | ) | — | — | (233 | ) | ||||||||||||
|
Acquisition of business (net of cash acquired)
|
(19 | ) | 3 | — | — | (16 | ) | |||||||||||||
|
Cash payments for software related intangible assets
|
(9 | ) | (6 | ) | — | — | (15 | ) | ||||||||||||
|
Investments and other
|
— | — | — | — | — | |||||||||||||||
|
Net cash used by investing activities
|
(118 | ) | (143 | ) | — | — | (261 | ) | ||||||||||||
|
Financing Activities
|
||||||||||||||||||||
|
Issuance of common shares
|
— | — | 2 | — | 2 | |||||||||||||||
|
Issuance of long-term debt
|
— | 1 | — | — | 1 | |||||||||||||||
|
Retirement of long-term debt
|
— | (4 | ) | (2 | ) | — | (6 | ) | ||||||||||||
|
Debit issuance cost on long-term debt
|
— | — | (2 | ) | — | (2 | ) | |||||||||||||
|
Increase (decrease) in bank overdrafts
|
— | (1 | ) | — | — | (1 | ) | |||||||||||||
|
Net increase (decrease) in revolver borrowings and short-term
debt excluding current maturities of long-term debt
|
— | 7 | 70 | — | 77 | |||||||||||||||
|
Intercompany dividends and net increase (decrease) in
intercompany obligations
|
(39 | ) | (30 | ) | 69 | — | — | |||||||||||||
|
Distribution to noncontrolling interests partners
|
— | (13 | ) | — | — | (13 | ) | |||||||||||||
|
Net cash provided (used) by financing activities
|
(39 | ) | (40 | ) | 137 | — | 58 | |||||||||||||
|
Effect of foreign exchange rate changes on cash and cash
equivalents
|
— | (19 | ) | — | — | (19 | ) | |||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
10 | (72 | ) | — | — | (62 | ) | |||||||||||||
|
Cash and cash equivalents, January 1
|
6 | 182 | — | — | 188 | |||||||||||||||
|
Cash and cash equivalents, December 31 (Note)
|
$ | 16 | $ | 110 | $ | — | $ | — | $ | 126 | ||||||||||
| Note: | Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase. |
128
Table of Contents
TENNECO
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
STATEMENT
OF CASH FLOWS
| Year Ended December 31, 2007 | ||||||||||||||||||||
|
Tenneco Inc.
|
||||||||||||||||||||
|
Guarantor
|
Nonguarantor
|
(Parent
|
Reclass
|
|||||||||||||||||
| Subsidiaries | Subsidiaries | Company) | & Elims | Consolidated | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Operating Activities
|
||||||||||||||||||||
|
Net cash provided (used) by operating activities
|
$ | 380 | $ | 302 | $ | (524 | ) | $ | — | $ | 158 | |||||||||
|
Investing Activities
|
||||||||||||||||||||
|
Proceeds from sale of assets
|
1 | 9 | — | — | 10 | |||||||||||||||
|
Cash payments for plant, property, and equipment
|
(59 | ) | (118 | ) | — | — | (177 | ) | ||||||||||||
|
Cash payment for net assets purchased
|
(16 | ) | — | — | — | (16 | ) | |||||||||||||
|
Cash payments for software related intangible assets
|
(13 | ) | (6 | ) | — | — | (19 | ) | ||||||||||||
|
Investments and other
|
— | (250 | ) | 250 | — | — | ||||||||||||||
|
Net cash provided (used) by investing activities
|
(87 | ) | (365 | ) | 250 | — | (202 | ) | ||||||||||||
|
Financing Activities
|
||||||||||||||||||||
|
Issuance of common shares
|
— | — | 8 | — | 8 | |||||||||||||||
|
Issuance of subsidiary equity
|
41 | (41 | ) | — | — | — | ||||||||||||||
|
Issuance of long-term debt
|
— | — | 400 | — | 400 | |||||||||||||||
|
Retirement of long-term debt
|
— | (3 | ) | (588 | ) | — | (591 | ) | ||||||||||||
|
Debt issuance cost on long-term debt
|
— | — | (11 | ) | — | (11 | ) | |||||||||||||
|
Increase (decrease) in bank overdrafts
|
— | 7 | — | — | 7 | |||||||||||||||
|
Net increase (decrease) in revolver borrowings and short-term
debt excluding current maturities of long-term debt
|
— | 16 | 167 | — | 183 | |||||||||||||||
|
Intercompany dividends and net increase (decrease) in
intercompany obligations
|
(384 | ) | 86 | 298 | — | — | ||||||||||||||
|
Distribution to noncontrolling interests partners
|
— | (6 | ) | — | — | (6 | ) | |||||||||||||
|
Net cash provided (used) by financing activities
|
(343 | ) | 59 | 274 | — | (10 | ) | |||||||||||||
|
Effect of foreign exchange rate changes on cash and cash
equivalents
|
— | 40 | — | — | 40 | |||||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
(50 | ) | 36 | — | — | (14 | ) | |||||||||||||
|
Cash and cash equivalents, January 1
|
56 | 146 | — | — | 202 | |||||||||||||||
|
Cash and cash equivalents, December 31 (Note)
|
$ | 6 | $ | 182 | $ | — | $ | — | $ | 188 | ||||||||||
| Note: | Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase. |
129
Table of Contents
TENNECO
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 14. | Quarterly Financial Data (Unaudited) |
|
Income Before
|
||||||||||||||||
|
Net Sales
|
Cost of Sales
|
Interest Expense,
|
||||||||||||||
|
and
|
(Excluding
|
Income Taxes
|
||||||||||||||
|
Operating
|
Depreciation and
|
and Noncontrolling
|
Net
|
|||||||||||||
|
Quarter
|
Revenues | Amortization) | Interests | Income (Loss) | ||||||||||||
| (Millions) | ||||||||||||||||
|
2009
|
||||||||||||||||
|
1st
|
$ | 967 | $ | 827 | $ | (13 | ) | $ | (49 | ) | ||||||
|
2nd
|
1,106 | 913 | 17 | (33 | ) | |||||||||||
|
3rd
|
1,254 | 1,043 | 35 | (8 | ) | |||||||||||
|
4th
|
1,322 | 1,092 | 53 | 17 | ||||||||||||
| $ | 4,649 | $ | 3,875 | $ | 92 | $ | (73 | ) | ||||||||
|
2008
|
||||||||||||||||
|
1st
|
$ | 1,560 | $ | 1,326 | $ | 39 | $ | 6 | ||||||||
|
2nd
|
1,651 | 1,383 | 75 | 13 | ||||||||||||
|
3rd
|
1,497 | 1,298 | 28 | (136 | ) | |||||||||||
|
4th
|
1,208 | 1,056 | (145 | ) | (298 | ) | ||||||||||
| $ | 5,916 | $ | 5,063 | $ | (3 | ) | $ | (415 | ) | |||||||
|
Basic
|
Diluted
|
|||||||
|
Earnings (Loss)
|
Earnings (Loss)
|
|||||||
|
per Share of
|
per Share of
|
|||||||
|
Quarter
|
Common Stock | Common Stock | ||||||
|
2009
|
||||||||
|
1st
|
$ | (1.05 | ) | $ | (1.05 | ) | ||
|
2nd
|
(0.72 | ) | (0.72 | ) | ||||
|
3rd
|
(0.17 | ) | (0.17 | ) | ||||
|
4th
|
0.33 | 0.32 | ||||||
|
Full Year
|
(1.50 | ) | (1.50 | ) | ||||
|
2008
|
||||||||
|
1st
|
$ | 0.14 | $ | 0.13 | ||||
|
2nd
|
0.26 | 0.26 | ||||||
|
3rd
|
(2.92 | ) | (2.92 | ) | ||||
|
4th
|
(6.40 | ) | (6.40 | ) | ||||
|
Full Year
|
(8.95 | ) | (8.95 | ) | ||||
| Note: | The sum of the quarters may not equal the total of the respective year’s earnings per share on either a basic or diluted basis due to changes in the weighted average shares outstanding throughout the year. |
(The
preceding notes are an integral part of the foregoing
consolidated financial statements.)
130
Table of Contents
SCHEDULE II
TENNECO
INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II —
VALUATION AND QUALIFYING ACCOUNTS
|
Column A
|
Column B | Column C | Column D | Column E | ||||||||||||||||
| Additions | ||||||||||||||||||||
|
Balance
|
Charged
|
Charged
|
||||||||||||||||||
|
at
|
to
|
to
|
Balance
|
|||||||||||||||||
|
Beginning
|
Costs and
|
Other
|
at End
|
|||||||||||||||||
|
Description
|
of Year | Expenses | Accounts | Deductions | of Year | |||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Allowance for Doubtful Accounts and Notes Deducted from Assets
to Which it Applies:
|
||||||||||||||||||||
|
Year Ended December 31, 2009
|
$ | 24 | $ | 5 | $ | — | $ | 4 | $ | 25 | ||||||||||
|
Year Ended December 31, 2008
|
$ | 25 | $ | 3 | $ | 2 | $ | 6 | $ | 24 | ||||||||||
|
Year Ended December 31, 2007
|
$ | 23 | $ | 3 | $ | 2 | $ | 3 | $ | 25 | ||||||||||
131
Table of Contents
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES. |
Evaluation
of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in
Rule 13a-15(e)
and
Rule 15d-15(e)
under the Securities Exchange Act of 1934) as of the end of
the year covered by this report. Based on their evaluation, our
Chief Executive Officer and Chief Financial Officer have
concluded that the company’s disclosure controls and
procedures are effective to ensure that information required to
be disclosed by our company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and
Exchange Commission rules and forms and such information is
accumulated and communicated to management as appropriate to
allow timely decisions regarding required disclosures.
See Item 8, “Financial Statements and Supplementary
Data” for management’s report on internal control over
financial reporting and the report of our independent registered
public accounting firm thereon.
Changes
in Internal Control over Financial Reporting
There have been no changes in our internal control over
financial reporting during the quarter ended December 31,
2009, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION. |
None
132
Table of Contents
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The sections entitled “Election of Directors” and
“Corporate Governance” in our definitive Proxy
Statement for the Annual Meeting of Stockholders to be held
May 12, 2010 are incorporated herein by reference. In
addition, Item 4.1 of this Annual Report on
Form 10-K,
which appears at the end of Part I, is incorporated herein
by reference.
A copy of our Code of Ethical Conduct for Financial Managers,
which applies to our Chief Executive Officer, Chief Financial
Officer, Controller and other key financial managers, is filed
as Exhibit 14 to this
Form 10-K.
We have posted a copy of the Code of Ethical Conduct for
Financial Managers on our Internet website at
www.tenneco.com
. We will make a copy of this code
available to any person, without charge, upon written request to
Tenneco Inc., 500 North Field Drive, Lake Forest, Illinois
60045, Attn: General Counsel. We intend to satisfy the
disclosure requirement under Item 5.05 of
Form 8-K
and applicable NYSE rules regarding amendments to or waivers of
our Code of Ethical Conduct by posting this information on our
Internet website at
www.tenneco.com
.
| ITEM 11. | EXECUTIVE COMPENSATION. |
The section entitled “Executive Compensation” in our
definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 12, 2010 is incorporated
herein by reference.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The section entitled “Ownership of Common Stock” in
our definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 12, 2010 is incorporated
herein by reference.
Securities
Authorized for Issuance under Equity Compensation
Plans
The following table shows, as of December 31, 2009,
information regarding outstanding awards available under our
compensation plans (including individual compensation
arrangements) under which our equity securities may be delivered:
|
(a)
|
(c)
|
|||||||||||
|
Number of
|
(b)
|
Number of
|
||||||||||
|
securities to be
|
Weighted-
|
securities
|
||||||||||
|
issued upon
|
average exercise
|
available for
|
||||||||||
|
exercise of
|
price of
|
future
|
||||||||||
|
outstanding
|
outstanding
|
issuance
|
||||||||||
|
options,
|
options,
|
(excluding
|
||||||||||
|
warrants and
|
warrants and
|
shares in
|
||||||||||
| Plan category | rights(1) | rights | column (a))(1) | |||||||||
|
Equity compensation plans approved by security holders:
|
||||||||||||
|
Stock Ownership Plan(2)
|
535,728 | $ | 5.65 | — | ||||||||
|
2002 Long-Term Incentive Plan (as amended)(3)
|
1,156,746 | $ | 12.58 | — | ||||||||
|
2006 Long-Term Incentive Plan(4)
|
1,732,983 | $ | 15.98 | 2,551,620 | ||||||||
| (1) | Reflects the number of shares of the Company’s common stock. Does not include 335,513 shares that may be issued in settlement of common stock equivalent units that were credited to outside directors as payment for their retainer and other fees. In general, these units are settled in cash. At the option of the Company, however, the units may be settled in shares of the Company’s common stock. | |
| (2) | This plan terminated as to new awards on December 31, 2001 (except awards pursuant to commitments outstanding at that date). | |
| (3) | This plan terminated as to new awards upon adoption of our 2006 Long-term Incentive Plan (except awards pursuant to commitments outstanding on that date). |
133
Table of Contents
| (4) | Does not include 644,052 shares subject to outstanding restricted stock (vest over time) as of December 31, 2009 that were issued at a weighted average exercise price of $9.85. Under this plan, as of December 31, 2009, a maximum of 2,041,296 shares remained available for delivery under full value awards (i.e., bonus stock, stock equivalent units, performance units, restricted stock and restricted stock units). |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
The subsections entitled “The Board of Directors and its
Committees — General” and “Transactions with
Related Persons” under the section entitled “Corporate
Governance” in our definitive Proxy Statement for the
annual meeting of Stockholders to be held on May 12, 2010
are incorporated herein by reference.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
The sections entitled “Ratify Appointment of Independent
Public Accountants — Audit, Audit-Related, Tax and All
Other Fees” and “Ratify Appointment of Independent
Public Accountants — Pre-Approval Policy” in our
definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 12, 2010 are incorporated
herein by reference.
134
Table of Contents
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
CONSOLIDATED
FINANCIAL STATEMENTS INCLUDED IN ITEM 8
See “Index to Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries” set forth in Item 8,
“Financial Statements and Supplementary Data” for a
list of financial statements filed as part of this Report.
INDEX TO
SCHEDULE INCLUDED IN ITEM 8
| Page | ||||
| 131 | ||||
SCHEDULES
OMITTED AS NOT REQUIRED OR INAPPLICABLE
Schedule I — Condensed financial information of
registrant
Schedule III — Real estate and accumulated
depreciation
Schedule IV — Mortgage loans on real estate
Schedule V — Supplemental information concerning
property — casualty insurance operations
135
Table of Contents
EXHIBITS
The following exhibits are filed with this Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009, or
incorporated herein by reference (exhibits designated by an
asterisk are filed with the report; all other exhibits are
incorporated by reference):
INDEX TO
EXHIBITS
|
Exhibit
|
||||||
|
Number
|
Description
|
|||||
| 2 | — | None. | ||||
| 3 | .1(a) | — | Restated Certificate of Incorporation of the registrant dated December 11, 1996 (incorporated herein by reference from Exhibit 3.1(a) of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). | |||
| 3 | .1(b) | — | Certificate of Amendment, dated December 11, 1996 (incorporated herein by reference from Exhibit 3.1(c) of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). | |||
| 3 | .1(c) | — | Certificate of Ownership and Merger, dated July 8, 1997 (incorporated herein by reference from Exhibit 3.1(d) of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). | |||
| 3 | .1(d) | — | Certificate of Designation of Series B Junior Participating Preferred Stock dated September 9, 1998 (incorporated herein by reference from Exhibit 3.1(d) of the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-12387). | |||
| 3 | .1(e) | — | Certificate of Elimination of the Series A Participating Junior Preferred Stock of the registrant dated September 11, 1998 (incorporated herein by reference from Exhibit 3.1(e) of the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-12387). | |||
| 3 | .1(f) | — | Certificate of Amendment to Restated Certificate of Incorporation of the registrant dated November 5, 1999 (incorporated herein by reference from Exhibit 3.1(f) of the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). | |||
| 3 | .1(g) | — | Certificate of Amendment to Restated Certificate of Incorporation of the registrant dated November 5, 1999 (incorporated herein by reference from Exhibit 3.1(g) of the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). | |||
| 3 | .1(h) | — | Certificate of Ownership and Merger merging Tenneco Automotive Merger Sub Inc. with and into the registrant, dated November 5, 1999 (incorporated herein by reference from Exhibit 3.1(h) of the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). | |||
| 3 | .1(i) | — | Certificate of Amendment to Restated Certificate of Incorporation of the registrant dated May 9, 2000 (incorporated herein by reference from Exhibit 3.1(i) of the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, File No. 1-12387). | |||
| 3 | .1(j) | — | Certificate of Ownership and Merger merging Tenneco Inc. with and into the registrant, dated October 27, 2005 (incorporated herein by reference from Exhibit 99.1 of the registrant’s Current Report on Form 8-K dated October 28, 2005, File No. 1-12387). | |||
| 3 | .2 | — | By-laws of the registrant, as amended March 4, 2008 (incorporated herein by reference from Exhibit 99.1 of the registrant’s Current Report on Form 8-K event date March 4, 2008, File No. 1-12387). | |||
| 3 | .3 | — | Certificate of Incorporation of Tenneco Global Holdings Inc. (“Global”), as amended (incorporated herein by reference to Exhibit 3.3 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 3 | .4 | — | By-laws of Global (incorporated herein by reference to Exhibit 3.4 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 3 | .5 | — | Certificate of Incorporation of TMC Texas Inc. (“TMC”) (incorporated herein by reference to Exhibit 3.5 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 3 | .6 | — | By-laws of TMC (incorporated herein by reference to Exhibit 3.6 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
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| 3 | .7 | — | Amended and Restated Certificate of Incorporation of Tenneco International Holding Corp. (“TIHC”) (incorporated herein by reference to Exhibit 3.7 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 3 | .8 | — | Amended and Restated By-laws of TIHC (incorporated herein by reference to Exhibit 3.8 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 3 | .9 | — | Certificate of Incorporation of Clevite Industries Inc. (“Clevite”), as amended (incorporated herein by reference to Exhibit 3.9 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 3 | .10 | — | By-laws of Clevite (incorporated herein by reference to Exhibit 3.10 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 3 | .11 | — | Amended and Restated Certificate of Incorporation of The Pullman Company (“Pullman”) (incorporated herein by reference to Exhibit 3.11 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 3 | .12 | — | By-laws of Pullman (incorporated herein by reference to Exhibit 3.12 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 3 | .13 | — | Certificate of Incorporation of Tenneco Automotive Operating Company Inc. (“Operating”) (incorporated herein by reference to Exhibit 3.13 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 3 | .14 | — | By-laws of Operating (incorporated herein by reference to Exhibit 3.14 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 4 | .1(a) | — | Indenture, dated as of November 1, 1996, between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.1 of the registrant’s Registration Statement on Form S-4, Registration No. 333-14003). | |||
| 4 | .1(b) | — | First Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(b) of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). | |||
| 4 | .1(c) | — | Third Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(d) of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). | |||
| 4 | .1(d) | — | Fourth Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between the registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(e) of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). | |||
| 4 | .1(e) | — | Eleventh Supplemental Indenture, dated October 21, 1999, to Indenture dated November 1, 1996 between The Chase Manhattan Bank, as Trustee, and the registrant (incorporated herein by reference from Exhibit 4.2(l) of the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). | |||
| 4 | .2 | — | Specimen stock certificate for Tenneco Inc. common stock (incorporated herein by reference from Exhibit 4.3 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, File No. 1-12387). | |||
| 4 | .3(a) | — | Indenture dated October 14, 1999 by and between the registrant and The Bank of New York, as trustee (incorporated herein by reference from Exhibit 4.4(a) of the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). | |||
| 4 | .3(b) | — | Supplemental Indenture dated November 4, 1999 among Tenneco Automotive Operating Company Inc., Tenneco International Holding Corp., Tenneco Global Holdings Inc., The Pullman Company, Clevite Industries Inc. and TMC Texas Inc. in favor of The Bank of New York, as trustee (incorporated herein by reference from Exhibit 4.4(b) of the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). | |||
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| 4 | .3(c) | — | Subsidiary Guarantee dated as of October 14, 1999 from Tenneco Automotive Operating Company Inc., Tenneco International Holding Corp., Tenneco Global Holdings Inc., The Pullman Company, Clevite Industries Inc. and TMC Texas Inc. in favor of The Bank of New York, as trustee (incorporated herein by reference to Exhibit 4.4(c) to the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| 4 | .4(a) | — | Second Amended and Restated Credit Agreement, dated as of March 16, 2007, among Tenneco Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto (incorporated herein by reference from Exhibit 99.1 of the registrant’s Current Report on Form 8-K dated March 16, 2007). | |||
| 4 | .4(b) | — | Guarantee and Collateral Agreement, dated as of March 16, 2007 (amending and restating the Guarantee and Collateral Agreement dated as of November 4, 1999, as previously amended and amended and restated), among Tenneco Inc., various of its subsidiaries and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference from Exhibit 99.2 of the registrant’s Current Report on Form 8-K dated March 16, 2007). | |||
| 4 | .4(c) | — | Waiver, dated July 23, 2007, to Second Amended and Restated Credit Agreement, dated as March 16, 2007, by and among the registrant, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto (incorporated herein by reference from Exhibit 4.5(c) to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 1-12387). | |||
| 4 | .4(d) | — | Second Amendment, dated November 26, 2007, to Second Amended and Restated Credit Agreement, dated as March 16, 2007, by and among the registrant, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto (incorporated herein by reference from Exhibit 4.5(d) to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 1-12387). | |||
| 4 | .4(e) | — | Third Amendment, dated as of December 23, 2008, to Second Amended and Restated Credit Agreement, dated as of March 16, 2007, by and among the registrant, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto (incorporated herein by reference from Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated December 23, 2008). | |||
| 4 | .4(f) | — | Fourth Amendment, dated as of February 23, 2009, to Second Amended and Restated Credit Agreement, dated as of March 16, 2007, by and among the registrant, JP Morgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto (incorporated herein by reference from Exhibit 4.1 to the registrant’s Current Report on Form 8-K dated February 23, 2009). | |||
| 4 | .5(a) | — | Indenture, dated as of June 19, 2003, among the registrant, the subsidiary guarantors named therein and Wachovia Bank, National Association (incorporated herein by reference from Exhibit 4.6(a) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 1-12387). | |||
| 4 | .5(b) | — | Collateral Agreement, dated as of June 19, 2003, by the registrant and the subsidiary guarantors named therein in favor of Wachovia Bank, National Association (incorporated herein by reference from Exhibit 4.6(b) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 1-12387). | |||
| 4 | .5(c) | — | Registration Rights Agreement, dated as of June 19, 2003, among the registrant, the subsidiary guarantors named therein, and the initial purchasers named therein, for whom JPMorgan Securities Inc. acted as representative (incorporated herein by reference from Exhibit 4.6(c) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 1-12387). | |||
| 4 | .5(d) | — | Supplemental Indenture, dated as of December 12, 2003, among the registrant, the subsidiary guarantors named therein and Wachovia Bank, National Association (incorporated herein by reference to Exhibit 4.6(d) to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, File No. 1-12387). | |||
| 4 | .5(e) | — | Registration Rights Agreement, dated as of December 12, 2003, among the registrant, the subsidiary guarantors named therein, and the initial purchasers named therein, for whom Banc of America Securities LLC acted as representative agent (incorporated herein by reference to Exhibit 4.5(a) to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, File No. 1-12387). | |||
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| 4 | .5(f) | — | Second Supplemental Indenture, dated as of October 28, 2005, among the registrant, the subsidiary guarantors named therein and Wachovia Bank, National Association (incorporated herein by reference from Exhibit 4.6(f) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, File No. 1-12387). | |||
| 4 | .5(g) | — | Third Supplemental Indenture, dated as of November 14, 2007, by and among the registrant, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated herein by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K, dated November 14, 2007). | |||
| 4 | .6 | — | Intercreditor Agreement, dated as of June 19, 2003, among JPMorgan Chase Bank, as Credit Agent, Wachovia Bank, National Association, as Trustee and Collateral Agent, and the registrant (incorporated herein by reference from Exhibit 4.7 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 1-12387). | |||
| 4 | .7(a) | — | Indenture, dated as of November 19, 2004, among the registrant, the subsidiary guarantors named therein and The Bank of New York Trust Company, N.A. (incorporated herein by reference from Exhibit 99.1 of the registrant’s Current Report on Form 8-K dated November 19, 2004, File No. 1-12387). | |||
| 4 | .7(b) | — | Supplemental Indenture, dated as of March 28, 2005, among the registrant, the guarantors party thereto and the Bank of New York Trust Company, N.A., as trustee (incorporated herein by reference from Exhibit 4.3 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-123752). | |||
| 4 | .7(c) | — | Registration Rights Agreement, dated as of November 19, 2004, among the registrant, the guarantors party thereto and the initial purchasers party thereto (incorporated herein by reference from Exhibit 4.2 to the registrant’s Registration Statement on Form S-4, Reg. No. 333-123752). | |||
| 4 | .7(d) | — | Second Supplemental Indenture, dated as of October 27, 2005, among the registrant, the guarantors party thereto and the Bank of New York Trust Company, N.A., as trustee (incorporated herein by reference from Exhibit 4.8(d) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, File No. 1-12387). | |||
| 4 | .8(a) | — | Indenture, dated as of November 19, 2007, by and among the registrant, the subsidiary guarantors party thereto and Wells Fargo Bank, N.A., as trustee (incorporated herein by reference from Exhibit 4.9(a) to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 1-12387). | |||
| 4 | .8(b) | — | Registration Rights Agreement, dated November 19, 2007, by and among the registrant, the subsidiary guarantors party thereto and the initial purchasers party thereto (incorporated herein by reference from Exhibit 4.9(b) to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 1-12387). | |||
| 4 | .8(c) | — | Agreement of Resignation, Appointment and Acceptance between Tenneco Inc., Wells Fargo Bank, National Association and Bank of New York Mellon Trust Company, N. A. (incorporated herein by reference from Exhibit 10.1 of the registrant’s Quarterly report on form 10-Q for the quarter ended September 30, 2009, File No. 1-12387). | |||
| 9 | — | None. | ||||
| 10 | .1 | Distribution Agreement, dated November 1, 1996, by and among El Paso Tennessee Pipeline Co., the registrant, and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 2 of the registrant’s Form 10, File No. 1-12387). | ||||
| 10 | .2 | — | Amendment No. 1 to Distribution Agreement, dated as of December 11, 1996, by and among El Paso Tennessee Pipeline Co., the registrant, and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.2 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). | |||
| 10 | .3 | — | Debt and Cash Allocation Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. , the registrant, and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.3 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). | |||
| 10 | .4 | — | Benefits Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co., the registrant, and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.4 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). | |||
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| 10 | .5 | — | Insurance Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co., the registrant, and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.5 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). | |||
| 10 | .6 | — | Tax Sharing Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co., Newport News Shipbuilding Inc., the registrant, and El Paso Natural Gas Company (incorporated herein by reference from Exhibit 10.6 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). | |||
| 10 | .7 | — | First Amendment to Tax Sharing Agreement, dated as of December 11, 1996, among El Paso Tennessee Pipeline Co., the registrant, El Paso Natural Gas Company and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.7 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). | |||
| +10 | .8 | — | Change of Control Severance Benefits Plan for Key Executives (incorporated herein by reference from Exhibit 10.13 of the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). | |||
| +10 | .9 | — | Stock Ownership Plan (incorporated herein by reference from Exhibit 10.10 of the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| +10 | .10 | — | Key Executive Pension Plan (incorporated herein by reference from Exhibit 10.11 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387). | |||
| +10 | .11 | — | Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.12 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387). | |||
| +10 | .12 | — | Supplemental Executive Retirement Plan (incorporated herein by reference from Exhibit 10.13 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387). | |||
| 10 | .13 | — | Human Resources Agreement by and between the registrant and Tenneco Packaging Inc. dated November 4, 1999 (incorporated herein by reference to Exhibit 99.1 to the registrant’s Current Report on Form 8-K dated November 4, 1999, File No. 1-12387). | |||
| 10 | .14 | — | Tax Sharing Agreement by and between the registrant and Tenneco Packaging Inc. dated November 3, 1999 (incorporated herein by reference to Exhibit 99.2 to the registrant’s Current Report on Form 8-K dated November 4, 1999, File No. 1-12387). | |||
| 10 | .15 | — | Amended and Restated Transition Services Agreement by and between the registrant and Tenneco Packaging Inc. dated as of November 4, 1999 (incorporated herein by reference from Exhibit 10.21 of the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-12387). | |||
| 10 | .16 | — | Assumption Agreement among Tenneco Automotive Operating Company Inc., Tenneco International Holding Corp., Tenneco Global Holdings Inc., The Pullman Company, Clevite Industries Inc., TMC Texas Inc., Salomon Smith Barney Inc. and the other Initial Purchasers listed in the Purchase Agreement dated as of November 4, 1999 (incorporated herein by reference from Exhibit 10.24 of the registrant’s Registration Statement on Form S-4, Reg. No. 333-93757). | |||
| +10 | .17 | — | Amendment No. 1 to Change in Control Severance Benefits Plan for Key Executives (incorporated herein by reference from Exhibit 10.23 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387). | |||
| +10 | .18 | — | Form of Indemnity Agreement entered into between the registrant and the following directors of the registrant: Paul Stecko, M. Kathryn Eickhoff and Dennis Severance (incorporated herein by reference from Exhibit 10.29 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, File No. 1-12387). | |||
| +10 | .19 | — | Letter Agreement dated July 27, 2000 between the registrant and Timothy E. Jackson (incorporated herein by reference from Exhibit 10.27 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-12387). | |||
| +10 | .20 | — | Letter Agreement dated as of June 1, 2001 between the registrant and Hari Nair (incorporated herein by reference from Exhibit 10.28 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, File No. 1-12387). | |||
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| +10 | .21 | — | 2002 Long-Term Incentive Plan (As Amended and Restated Effective March 11, 2003) (incorporated herein by reference from Exhibit 10.26 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 1-12387). | |||
| +10 | .22 | — | Amendment No. 1 to Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.27 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-12387). | |||
| +10 | .23 | — | Supplemental Stock Ownership Plan (incorporated herein by reference from Exhibit 10.28 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-12387). | |||
| +10 | .24 | — | Form of Stock Option Agreement for employees under the 2002 Long-Term Incentive Plan, as amended (providing for a ten year option term) (incorporated herein by reference from Exhibit 99.2 of the registrant’s Current Report on Form 8-K dated January 13, 2005, File No. 1-12387). | |||
| +10 | .25 | — | Form of Stock Option Agreement for non-employee directors under the 2002 Long-Term Incentive Plan, as amended (providing for a ten year option term) (incorporated herein by reference from Exhibit 99.3 of the registrant’s Current Report on Form 8-K dated January 13, 2005, File No. 1-12387). | |||
| +10 | .26 | — | Form of Stock Option Agreement for employees under the 2002 Long-Term Incentive Plan, as amended (providing for a seven year option term) (incorporated herein by reference from Exhibit 99.2 of the registrant’s Current Report on Form 8-K dated January 17, 2005, File No. 1-12387). | |||
| +10 | .27 | — | Form of Stock Option Agreement for non-employee directors under the 2002 Long-Term Incentive Plan, as amended (providing for a seven year option term) (incorporated herein by reference from Exhibit 99.3 of the registrant’s Current Report on Form 8-K dated January 17, 2005, File No. 1-12387). | |||
| +10 | .28 | — | Amendment No. 1 to the Key Executive Pension Plan (incorporated herein by reference from Exhibit 10.39 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, File No. 1-12387). | |||
| +10 | .29 | — | Amendment No. 1 to the Supplemental Executive Retirement Plan (incorporated herein by reference from Exhibit 10.40 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, File No. 1-12387). | |||
| +10 | .30 | — | Second Amendment to the Key Executive Pension Plan (incorporated herein by reference from Exhibit 10.41 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, File No. 1-12387). | |||
| +10 | .31 | — | Amendment No. 2 to the Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.42 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, File No. 1-12387). | |||
| +10 | .32 | — | Supplemental Retirement Plan (incorporated herein by reference from Exhibit 10.43 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, File No. 1-12387). | |||
| +10 | .33 | — | Supplemental Pension Plan for Management (incorporated herein by reference from Exhibit 10.45 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, File No. 1-12387). | |||
| +10 | .34 | — | Intentionally omitted. | |||
| +10 | .35 | — | Amended and Restated Value Added (“TAVA”) Incentive Compensation Plan, effective January 1, 2006 (incorporated herein by reference from Exhibit 10.47 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2005, File No. 1-12387). | |||
| +10 | .36 | — | Tenneco Inc. 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 to the registrant’s Current Report on Form 8-K, dated May 9, 2006). | |||
| +10 | .37 | — | Form of Restricted Stock Award Agreement for non-employee directors under the Tenneco Inc. 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 to the registrant’s Current Report on Form 8-K, dated May 9, 2006). | |||
| +10 | .38 | — | Form of Stock Option Agreement for employees under the Tenneco Inc. 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.3 to the registrant’s Current Report on Form 8-K, dated May 9, 2006). | |||
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| +10 | .39 | — | Form of Restricted Stock Award Agreement for employees under the Tenneco Inc. 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.4 to the registrant’s Current Report on Form 8-K, dated May 9, 2006). | |||
| +10 | .40 | — | Form of First Amendment to the Tenneco Inc. Supplemental Pension Plan for Management (incorporated herein by reference from Exhibit 10.56 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, File No. 1-12387). | |||
| +10 | .41 | — | Form of First Amendment to the Tenneco Inc. Supplemental Retirement Plan (incorporated herein by reference from Exhibit 10.57 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, File No. 1-12387). | |||
| +10 | .42 | — | Letter Agreement dated January 5, 2007 between the registrant and Hari N. Nair (incorporated herein by reference from Exhibit 10.60 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, File No. 1-12387). | |||
| +10 | .43 | — | Letter Agreement between Tenneco Inc. and Gregg Sherrill (incorporated herein by reference from Exhibit 99.2 of the registrant’s Current Report on Form 8-K dated as of January 5, 2007, File No. 1-12387). | |||
| +10 | .44 | — | Letter Agreement between Tenneco Inc. and Gregg Sherrill, dated as of January 15, 2007 (incorporated herein by reference from Exhibit 99.1 of the registrant’s Current Report on Form 8-K dated as of January 15, 2007, File No. 1-12387). | |||
| +10 | .45 | — | Form of Restricted Stock Agreement between Tenneco Inc. and Gregg M. Sherrill (incorporated by reference to Exhibit 10.63 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, File No. 1-12387). | |||
| +10 | .46 | — | Form of Long-Term Performance Unit Award Under the 2006 Long-Term Incentive Plan (stub period award for 2007) (incorporated herein by reference from Exhibit 10.64 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, File No. 1-12387). | |||
| +10 | .47 | — | Form of Long-Term Performance Unit Award Under the 2006 Long-Term Incentive Plan (three-year award for 2007-2009 period) (incorporated herein by reference from Exhibit 10.65 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, File No. 1-12387). | |||
| *+10 | .48 | — | Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives, as Amended and Restated effective December 12, 2007 (incorporated herein by reference from Exhibit 10.61 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008, File No. 1-12387). | |||
| +10 | .49 | — | Form of Long-Term Performance Unit Award Under the 2006 Long-Term Incentive Plan (stub period award for 2008) (incorporated herein by reference from Exhibit 10.67 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 1-12387). | |||
| +10 | .50 | — | Form of Long-Term Performance Unit Award Under the 2006 Long-Term Incentive Plan (three-year award for periods commencing with 2008) (incorporated herein by reference from Exhibit 10.68 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 1-12387). | |||
| +10 | .51 | — | Letter Agreement dated January 5, 2007 between the registrant and Timothy E. Jackson (incorporated herein by reference from Exhibit 10.69 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 1-12387). | |||
| +10 | .52 | — | Excess Benefit Plan, including Supplements for Gregg M. Sherrill and Kenneth R. Trammell (incorporated by reference to Exhibit 10.65 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| +10 | .53 | — | Amendment No. 2 to Change in Control Severance Benefit Plan for Key Executives (incorporated by reference to Exhibit 10.66 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| +10 | .54 | — | Incentive Deferral Plan, as Amended and Restated Effective as of January 1, 2008 (incorporated by reference to Exhibit 10.67 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| +10 | .55 | — | Code Section 409A Amendment to 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.68 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
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| +10 | .56 | — | Code Section 409A Amendment to 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.69 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| +10 | .57 | — | Code Section 409A to Excess Benefit Plan (incorporated by reference to Exhibit 10.70 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| +10 | .58 | — | Code Section 409A Amendment to Supplemental Retirement Plan (incorporated by reference to Exhibit 10.71 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| +10 | .59 | — | Code Section 409A Amendment to Supplemental Pension Plan for Management (incorporated by reference to Exhibit 10.72 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| +10 | .60 | — | Code Section 409A Amendment to Amended and Restated Value Added (“TAVA”) Incentive Compensation Plan (incorporated by reference to Exhibit 10.73 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| +10 | .61 | — | Code Section 409A Amendment to Letter Agreement between the registrant and Gregg M. Sherrill (incorporated by reference to Exhibit 10.74 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| +10 | .62 | — | Code Section 409A Amendment to Letter Agreement between the registrant and Hari N. Nair (incorporated by reference to Exhibit 10.75 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| +10 | .63 | — | Code Section 409A Amendment to Letter Agreement between the registrant and Timothy E. Jackson (incorporated by reference to Exhibit 10.76 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-12387). | |||
| 10 | .64 | — | Second Amended and Restated Receivables Purchase Agreement, dated as of May 4, 2005, among the registrant, as Servicer, Tenneco Automotive RSA Company, as Seller, Jupiter Securitization Corporation and Liberty Street Funding Corp., as Conduits The Bank of Nova Scotia, JP Morgan Chase Bank, N.A. and the Committed Purchasers from time to time party thereto, and Amendments 1 through 10 thereto (incorporated herein by reference from Exhibit 10.77 of the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008, File No. 1-12387). | |||
| 10 | .65 | — | Amendment No. 11, dated as of April 29, 2009, to Second Amended and Restated Receivable Purchase Agreement (incorporated herein by reference from Exhibit 10.1 of the registrant’s Quarterly report on form 10-Q for the quarter ended March 31, 2009, File No. 1-12387). | |||
| +10 | .66 | — | Tenneco Inc. 2006 Long-Term Incentive Plan (as amended and restated effective March 11, 2009) (incorporated herein by reference to Appendix A of the registrant’s proxy statement on Schedule 14A, filed with the Securities and Exchange Commission on March 31, 2009, File No. 1-12387). | |||
| 10 | .67 | — | Amendment No. 12, dated as of June 25, 2009, to Second Amended and Restated Receivable Purchase Agreement (incorporated herein by reference from Exhibit 10.1 of the registrant’s Quarterly report on form 10-Q for the quarter ended June 30, 2009, File No. 1-12387). | |||
| 10 | .68 | — | Amendment No. 13, dated as of July 31, 2009, to Second Amended and Restated Receivable Purchase Agreement (incorporated herein by reference from Exhibit 10.2 of the registrant’s Quarterly report on form 10-Q for the quarter ended June 30, 2009, File No. 1-12387). | |||
| 10 | .69 | — | Underwriting Agreement, dated November 18, 2009, between Tenneco Inc. and the underwriters named therein (incorporated by reference to Exhibit 1.1 of the registrant’s Current Report on Form 8-K filed November 19, 2009, File No. 1-12387). | |||
| *+10 | .70 | — | Amendment, effective January 15, 2010, to Amended and Restated Tenneco Value Added Incentive Compensation Plan. | |||
| *+10 | .71 | — | Amendment dated December 18, 2009, to Tenneco Inc. Incentive Deferral Plan. | |||
| *+10 | .72 | — | Form of Amendment to Long-Term Performance Unit Award under the 2006 Long-Term Incentive Plan (three year award for 2007-2009 period). | |||
| *+10 | .73 | — | Form of Amendment to Long-Term Performance Unit Award under the 2006 Long-Term Incentive Plan (three year award for 2008-2010 period). | |||
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|
Exhibit
|
||||||
|
Number
|
Description
|
|||||
| *10 | .74 | — | Amendment No. 14, dated February 19, 2010, to Second Amended and Restated Receivable Purchase Agreement. | |||
| 11 | — | None. | ||||
| *12 | — | Computation of Ratio of Earnings to Fixed Charges. | ||||
| 13 | — | None. | ||||
| 14 | — | Tenneco Inc. Code of Ethical Conduct for Financial Managers (incorporated herein by reference from Exhibit 99.3 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-12387). | ||||
| 16 | — | Letter from Deloitte & Touche LLP to the Securities and Exchange Commission dated August 6, 2009 (incorporated herein by reference from Exhibit 10.1 of the registrants’ current report on form 8-K dated August 6, 2009, File No. 1-12387). | ||||
| 18 | — | None. | ||||
| *21 | — | List of Subsidiaries of Tenneco Inc. | ||||
| 22 | — | None. | ||||
| *23 | — | Consent of Independent Registered Public Accounting Firm. | ||||
| *24 | — | Powers of Attorney. | ||||
| *31 | .1 | — | Certification of Gregg M. Sherrill under Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| *31 | .2 | — | Certification of Kenneth R. Trammell under Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| *32 | .1 | — | Certification of Gregg M. Sherrill and Kenneth R. Trammell under Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| 33 | — | None. | ||||
| 34 | — | None. | ||||
| 35 | — | None. | ||||
| 99 | — | None. | ||||
| 100 | — | None. | ||||
| 101 | — | None. | ||||
| * | Filed herewith. | |
| + | Indicates a management contract or compensatory plan or arrangement. |
144
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TENNECO INC.
| By |
*
|
Gregg M. Sherrill
Chairman and Chief Executive Officer
Date: February 26, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934 this report has been signed by the following persons in the
capacities indicated on February 26, 2010.
|
Signature
|
Title
|
|||
|
*
|
Chairman, President and Chief Executive Officer and Director (principal executive officer) | |||
|
/s/
Kenneth
R. Trammell
|
Executive Vice President and Chief Financial Officer (principal financial officer) | |||
|
*
|
Vice President and Controller (principal accounting officer) | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*By:
/s/
Kenneth R. Trammell
Attorney in fact |
||||
145
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersItem 4. 1. Executive Officers Of The RegistrantPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters, and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules