SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-12387
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TENNECO AUTOMOTIVE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0515284
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
500 NORTH FIELD DRIVE, LAKE FOREST, ILLINOIS 60045
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 482-5000
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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.
Common Stock, par value $.01 per share: 35,072,867 shares as of June 30, 2000.
TABLE OF CONTENTS
PAGE
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Tenneco Automotive Inc. and Consolidated Subsidiaries --
Report of Independent Public Accountants............... 4
Statements of Income (Loss)............................ 5
Balance Sheets......................................... 6
Statements of Cash Flows............................... 7
Statements of Changes in Shareholders' Equity.......... 8
Statements of Comprehensive Income (Loss).............. 9
Notes to Financial Statements.......................... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and
Results of Operations.................................. 25
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................ 39
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings................................. *
Item 2. Changes in Securities............................. 40
Item 3. Defaults Upon Senior Securities................... *
Item 4. Submission of Matters to a Vote of Security
Holders................................................ 40
Item 5. Other Information................................. 40
Item 6. Exhibits and Reports on Form 8-K.................. 40
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* No response to this item is included herein for the reason that it is inapplicable or the answer to such item is negative.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q contains forward-looking statements regarding, among other things, our prospects and business strategies. The words "will," "believes," "should," "plans," "expects," and "estimates," 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;
- the impact of consolidation among automotive parts suppliers and customers on our ability to compete;
- operating hazards associated with our business;
- changes in consumer demand and preferences for automobiles and automotive parts, as well as changes in automobile manufacturers' actual and forecasted requirements for our products;
- 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;
- cyclicality of automotive production and sales;
- material substitution;
- labor disruptions at our facilities or at any of our significant customers or suppliers;
- 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 integrate operations of acquired businesses quickly and in a cost effective manner;
- our ability to successfully transition as a stand-alone company;
- our ability to realize our business strategy of improving operating performance;
- capital availability or costs, including changes in interest rates, market perceptions of the industries in which we operate or ratings of securities;
- changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies;
- the impact of changes in and compliance with laws and regulations, including environmental laws and regulations, and environmental liabilities in excess of the amount reserved; and
- the occurrence or non-occurrence of circumstances beyond our control.
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Automotive Inc.:
We have reviewed the consolidated balance sheet of Tenneco Automotive Inc. and consolidated subsidiaries as of June 30, 2000, and the related consolidated statements of income and cash flows for the six-month period ended June 30, 2000. These financial statements are the responsibility of Tenneco Automotive Inc.'s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 24, 2000
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
REVENUES
Net sales and operating revenue........... $ 948 $ 868 $ 1,830 $ 1,657
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
shown below)........................... 712 627 1,384 1,212
Engineering, research, and development.... 15 16 30 27
Selling, general, and administrative...... 117 98 227 203
Depreciation and amortization............. 37 36 76 71
----------- ----------- ----------- -----------
881 777 1,717 1,513
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)...................... 1 6 2 8
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME
TAXES, AND MINORITY INTEREST.............. 68 97 115 152
Interest expense (net of interest
capitalized)........................... 48 23 93 42
Income tax expense (benefit).............. 5 30 4 44
Minority interest......................... -- 7 2 13
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS........... 15 37 16 53
Income (loss) from discontinued operations,
net of income tax......................... -- 55 -- (111)
----------- ----------- ----------- -----------
Income (loss) before extraordinary loss..... 15 92 16 (58)
Extraordinary loss, net of income tax....... -- -- -- (7)
----------- ----------- ----------- -----------
Income (loss) before cumulative effect of
change in accounting principle............ 15 92 16 (65)
Cumulative effect of change in accounting
principle, net of income tax.............. -- -- -- (134)
----------- ----------- ----------- -----------
NET INCOME (LOSS)........................... $ 15 $ 92 $ 16 $ (199)
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE...................
Average shares of common stock
outstanding --............................
Basic..................................... 34,358,776 33,423,897 34,064,491 33,387,472
Diluted................................... 34,561,073 33,500,376 34,267,133 33,463,882
Basic earnings (loss) per share of common
stock --
Continuing operations..................... $ 0.42 $ 1.07 $ 0.45 $ 1.54
Discontinued operations................... -- 1.67 -- (3.30)
Extraordinary loss........................ -- -- -- (0.20)
Cumulative effect of change in accounting
principle.............................. -- -- -- (4.00)
----------- ----------- ----------- -----------
$ 0.42 $ 2.74 $ 0.45 $ (5.96)
=========== =========== =========== ===========
Diluted earnings (loss) per share of common
stock --
Continuing operations..................... $ 0.42 $ 1.06 $ 0.45 $ 1.54
Discontinued operations................... -- 1.67 -- (3.30)
Extraordinary loss........................ -- -- -- (0.20)
Cumulative effect of change in accounting
principle.............................. -- -- -- (4.00)
----------- ----------- ----------- -----------
$ 0.42 $ 2.73 $ 0.45 $ (5.96)
=========== =========== =========== ===========
Cash dividends per share of common stock.... $ 0.05 $ 1.50 $ 0.10 $ 3.00
=========== =========== =========== ===========
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The accompanying notes to financial statements are an integral part of these statements of income (loss).
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(MILLIONS)
ASSETS
Current assets:
Cash and temporary cash investments....................... $ 51 $ 84
Receivables --
Customer notes and accounts, net....................... 640 557
Other.................................................. 44 14
Inventories --
Finished goods......................................... 197 215
Work in process........................................ 82 86
Raw materials.......................................... 74 73
Materials and supplies................................. 38 38
Deferred income taxes..................................... 77 59
Prepayments and other..................................... 81 75
------- -------
1,284 1,201
------- -------
Other assets:
Long-term notes receivable, net........................... 23 20
Goodwill and intangibles, net............................. 479 495
Deferred income taxes..................................... 17 13
Pension assets............................................ 35 31
Other..................................................... 146 146
------- -------
700 705
------- -------
Plant, property, and equipment, at cost..................... 1,877 1,923
Less -- Reserves for depreciation and amortization........ 873 886
------- -------
1,004 1,037
------- -------
$ 2,988 $ 2,943
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on long-term
debt).................................................. $ 43 $ 56
Accounts payable.......................................... 426 348
Accrued taxes............................................. 25 20
Accrued interest.......................................... 33 29
Accrued liabilities....................................... 137 149
Other..................................................... 61 61
------- -------
725 663
------- -------
Long-term debt.............................................. 1,570 1,578
------- -------
Deferred income taxes....................................... 108 108
------- -------
Postretirement benefits..................................... 135 125
------- -------
Deferred credits and other liabilities...................... 31 31
------- -------
Commitments and contingencies
Minority interest........................................... 18 16
------- -------
Shareholders' equity:
Common stock.............................................. -- --
Premium on common stock and other capital surplus......... 2,730 2,721
Accumulated other comprehensive income (loss)............. (221) (179)
Retained earnings (accumulated deficit)................... (1,868) (1,880)
------- -------
641 662
Less -- Shares held as treasury stock, at cost............ 240 240
------- -------
401 422
------- -------
$ 2,988 $ 2,943
======= =======
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The accompanying notes to financial statements are an integral part of these balance sheets.
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
----------------
2000 1999
----- -------
(MILLIONS)
OPERATING ACTIVITIES
Income from continuing operations........................... $ 16 $ 53
Adjustments to reconcile income from continuing operations
to cash provided
(used) by continuing operations --
Depreciation and amortization............................. 76 71
Deferred income taxes..................................... (2) (6)
(Gain) loss on sale of businesses and assets, net......... 1 3
Changes in components of working capital --
(Increase) decrease in receivables..................... (106) (112)
(Increase) decrease in inventories..................... 8 (9)
(Increase) decrease in prepayments and other current
assets................................................ (8) (11)
Increase (decrease) in accounts payable................ 95 26
Increase (decrease) in accrued taxes................... (14) (54)
Increase (decrease) in accrued interest................ 3 3
Increase (decrease) in other current liabilities....... (12) (38)
Other..................................................... (5) (14)
----- -------
Cash provided (used) by continuing operations............... 52 (88)
Cash provided (used) by discontinued operations............. -- (93)
----- -------
Net cash provided (used) by operating activities............ 52 (181)
----- -------
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations................................................ -- 334
Net proceeds from sale of assets............................ 5 8
Expenditures for plant, property, and equipment............. (67) (70)
Acquisitions of businesses.................................. -- (35)
Expenditures for plant, property, and equipment and business
acquisitions -- discontinued operations................... -- (1,206)
Investments and other....................................... (6) (7)
----- -------
Net cash provided (used) by investing activities............ (68) (976)
----- -------
NET CASH PROVIDED (USED) BEFORE FINANCING
ACTIVITIES -- CONTINUING OPERATIONS....................... (16) (192)
FINANCING ACTIVITIES
Issuance of common and treasury stock....................... 9 20
Proceeds from subsidiary equity issued...................... 1 --
Purchase of common stock.................................... -- (4)
Issuance of long-term debt.................................. 1 1,761
Retirement of long-term debt................................ (1) (29)
Net increase (decrease) in short-term debt excluding current
maturities on long-term debt.............................. (19) (478)
Dividends (common).......................................... (4) (100)
----- -------
Net cash provided (used) by financing activities............ (13) 1,170
----- -------
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ (4) (2)
----- -------
Increase (decrease) in cash and temporary cash
investments............................................... (33) 11
Cash and temporary cash investments, January 1.............. 84 29
----- -------
Cash and temporary cash investments, June 30 (Note)......... $ 51 $ 40
===== =======
Cash paid during the period for interest.................... $ 91 $ 126
Cash paid during the period for income taxes (net of
refunds).................................................. $ 24 $ 31
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common equity interest received related to the sale of
containerboard operations................................. -- 194
Principal amount of long-term debt assumed by buyers of
containerboard operations................................. -- (1,760)
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
---------------------------------------------
2000 1999
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
COMMON STOCK
Balance January 1.............................. 34,970,485 $ -- 34,734,039 $ --
Issued pursuant to benefit plans............. 1,400,880 66,963 --
---------- ------- ---------- ------
Balance June 30................................ 36,371,365 34,801,002 --
========== ------- ========== ------
PREMIUM ON COMMON STOCK AND OTHER CAPITAL
SURPLUS
Balance January 1.............................. 2,721 2,712
Premium on common stock issued pursuant to
benefit plans............................. 9 8
------- ------
Balance June 30................................ 2,730 2,720
------- ------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance January 1.............................. (179) (91)
Other comprehensive income (loss)............ (42) (103)
------- ------
Balance June 30................................ (221) (194)
------- ------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance January 1.............................. (1,880) 142
Net income (loss)............................ 16 (199)
Dividends on common stock.................... (4) (100)
------- ------
Balance June 30................................ (1,868) (157)
------- ------
LESS -- COMMON STOCK HELD AS TREASURY STOCK,
AT COST
Balance January 1.............................. 1,298,373 240 1,351,535 259
Shares acquired.............................. 125 -- 24,373 4
Shares issued pursuant to benefit and
dividend reinvestment plans............... -- -- (83,592) (16)
---------- ------- ---------- ------
Balance June 30................................ 1,298,498 240 1,292,316 247
========== ------- ========== ------
Total.......................................... $ 401 $2,122
======= ======
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The accompanying notes to financial statements are an integral part of these statements of changes in shareholders' equity.
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME
------------- ------------- ------------- -------------
(MILLIONS)
NET INCOME (LOSS).................... $ 15 $ 92
----- -----
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
CUMULATIVE TRANSLATION ADJUSTMENT
Balance April 1.................... $(204) $(159)
Translation of foreign currency
statements.................... (14) (14) (26) (26)
----- -----
Balance June 30.................... (218) (185)
----- -----
ADDITIONAL MINIMUM PENSION LIABILITY
ADJUSTMENT
Balance April 1.................... (3) (9)
Additional minimum pension
liability adjustments......... -- -- -- --
----- -----
Balance June 30.................... (3) (9)
----- -----
Balance June 30...................... $(221) $(194)
===== ----- ===== -----
Other comprehensive income (loss).... (14) (26)
----- -----
COMPREHENSIVE INCOME (LOSS).......... $ 1 $ 66
===== =====
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SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME
------------- ------------- ------------- -------------
(MILLIONS)
NET INCOME (LOSS).................... $ 16 $(199)
----- -----
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
CUMULATIVE TRANSLATION ADJUSTMENT
Balance January 1.................. $(176) $ (82)
Translation of foreign currency
statements.................... (42) (42) (103) (103)
----- -----
Balance June 30.................... (218) (185)
----- -----
ADDITIONAL MINIMUM PENSION LIABILITY
ADJUSTMENT
Balance January 1.................. (3) (9)
Additional minimum pension
liability adjustments......... -- -- -- --
----- -----
Balance June 30.................... (3) (9)
----- -----
Balance June 30...................... $(221) $(194)
===== ----- ===== -----
Other comprehensive income (loss).... (42) (103)
----- -----
COMPREHENSIVE INCOME (LOSS).......... $ (26) $(302)
===== =====
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The accompanying notes to financial statements are an integral part of these statements of comprehensive income (loss).
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) Tenneco Automotive Inc. was known as Tenneco Inc. before the spin-off, on November 4, 1999, of our packaging business, as described in Note 2. In these notes, when we discuss Tenneco we mean Tenneco Inc. and its consolidated subsidiaries before the spin-off and Tenneco Automotive Inc. and its consolidated subsidiaries after the spin-off.
In our opinion, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly Tenneco's financial position, results of operations, cash flows, changes in shareholders' equity, and comprehensive income for the periods indicated. We have prepared the unaudited interim consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles.
Our consolidated financial statements include all majority-owned subsidiaries. We carry investments in 20% to 50% owned companies where we have the ability to exert significant influence over operating and financial policies at cost plus equity in undistributed earnings and cumulative translation adjustments since date of acquisition. We have no investments in 20% to 50% owned companies where we do not carry the investment at cost plus equity in undistributed earnings.
We have reclassified prior year's financial statements where appropriate to conform to 2000 presentations.
In the first quarter of 2000 we changed how we record "pass through" sales of some catalytic converter components. "Pass through" sales occur when we purchase these components from suppliers, use the components in our manufacturing process and sell the components to our customers as part of the completed catalytic converter. In the past, we recorded "pass through" sales as a reduction of cost of sales. We now record them as part of net sales. Relationships with customers have begun to change where we now take title to these components in the manufacturing process. Additionally, we believe that our competitors in the automotive parts industry already follow this practice so this change is consistent with industry practice and will permit improved comparability with these companies. As a result of the change, our sales increased $52 million and $102 million in the three months and six months ended June 30, 2000, respectively, with no impact on our earnings before interest and taxes. Had these components been recorded on a comparable basis in the three months and six months ended June 30, 1999, net sales would have been $24 million and $42 million higher in those periods, respectively.
(2) In July 1998, the Board of Directors authorized management to develop a broad range of strategic alternatives to separate the automotive, paperboard packaging, and specialty packaging businesses. Subsequently, we completed the following actions:
- In January 1999, we announced an agreement to contribute the containerboard business to a new joint venture with an affiliate of Madison Dearborn Partners. The proceeds from the transaction, including debt assumed by the new joint venture, were approximately $2 billion. The transaction closed in April 1999. Tenneco retained a 43 percent interest in the joint venture.
- In April 1999, we announced an agreement to sell our folding carton operations to Caraustar Industries. This transaction closed in June 1999. The folding carton operations and the containerboard business together represented our paperboard packaging operating segment.
- On November 4, 1999, we completed the spin-off of the common stock of Tenneco Packaging Inc., now known as Pactiv Corporation, to our shareholders. Pactiv included all of the businesses that made up our specialty packaging segment, as well as our remaining interest in the containerboard joint venture and our administrative services operations.
As a result of this series of transactions, our former specialty and paperboard packaging operating segments are presented as discontinued operations in the accompanying financial statements.
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The morning following the spin-off, we completed a reverse stock split that had been approved by our shareholders in a special meeting held in October 1999. As a result, every five shares of our common stock were converted into one share of our new common stock.
(3) The results of operations for the three and six months ended June 30, 1999, for our discontinued specialty packaging business were:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
------------------ ------------------
(MILLIONS)
Net sales and operating revenues.................. $738 $1,404
==== ======
Income before income taxes and interest
allocation...................................... $ 99 $ 144
Income tax (expense) benefit...................... (32) (48)
---- ------
Income before interest allocation................. 67 96
Allocated interest expense, net of income tax..... (21) (44)
---- ------
Income from discontinued operations............... $ 46 $ 52
==== ======
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The results of operations for the three and six months ended June 30, 1999, for our discontinued paperboard packaging business were:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
------------------ ------------------
(MILLIONS)
Net sales and operating revenues.................. $ 53 $ 445
==== ======
Income (loss) before income taxes and interest
allocation
Operations...................................... $ 4 $ 22
Loss on containerboard sale..................... -- (293)
Gain on folding carton sale..................... 14 14
---- ------
18 (257)
Income tax (expense) benefit...................... (9) 99
---- ------
Income (loss) before interest allocation.......... 9 (158)
Allocated interest expense, net of income tax..... -- (5)
---- ------
Income (loss) from discontinued operations........ $ 9 $ (163)
==== ======
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Our practice is to incur indebtedness for our consolidated group at the parent company level or at a limited number of subsidiaries, rather than at the operating company level, and to centrally manage various cash functions. Consequently, our corporate debt was allocated to discontinued operations based upon the ratio of the discontinued operations' net assets to our consolidated net assets plus debt. We have allocated interest expense, net of tax, to our discontinued operations based on the same allocation methodology.
(4) We adopted plans to restructure portions of our operations in both 1998 and 1999. In the fourth quarter of 1998, our Board of Directors approved an extensive restructuring plan designed to reduce administrative and operational overhead costs. We recorded a pre-tax charge to income from continuing operations in that quarter of $53 million, $34 million after-tax, or $1.02 per diluted common share. Of the pre-tax charge, for operational restructuring plans, $36 million related to the consolidation of the manufacturing and distribution operations of our North American aftermarket business. A staff and related cost reduction plan, which covered employees in both the operating units and corporate operations, cost $17 million.
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Our aftermarket restructuring involved closing two plant locations and five distribution centers, resulting in eliminating 302 positions. Our staff and related cost reduction plan involved eliminating 454 administrative positions. We wrote down the fixed assets at the locations to be closed to their fair value, less costs to sell, in the fourth quarter of 1998. As a result of the single-purpose nature of the assets, we estimated fair value at scrap value less cost to dispose. We do not expect to receive any significant net cash proceeds from the ultimate disposal of these assets, which should be complete by the fourth quarter of 2000. The effect of suspending depreciation for these impaired assets is a reduction in depreciation and amortization of approximately $2 million on an annual basis.
As of June 30, 2000, we have completed the restructuring actions with respect to the 1998 plan, with the exception of the final disposal of certain assets. All positions expected to be eliminated as a result of the plan have been eliminated.
In the fourth quarter of 1999, our Board of Directors approved a restructuring plan designed to further reduce operational overhead costs. We recorded a pre-tax charge to income from continuing operations in that quarter of $55 million, $50 million after-tax, or $1.50 per diluted common share.
The charge includes $37 million recorded in Europe to close a ride control manufacturing facility and an exhaust just-in-time plant, close or downsize four aftermarket distribution centers, and reduce administrative overhead by reducing management employment; $15 million to close a North American exhaust manufacturing facility; and $3 million for employment reductions in South America and Asia. In total, the plan involves eliminating approximately 780 positions. We wrote down the fixed assets at the locations to be closed to their fair value, less costs to sell, in the fourth quarter of 1999. We estimated the fair value for buildings using external real estate valuations or a review of recent sales prices for like buildings in the area surrounding the plant to be closed. As a result of the single-purpose nature of the machinery and equipment to be disposed of, fair value was estimated at scrap value less cost to dispose in most cases. For certain machines which have value in the used equipment market, engineers estimated value based on recent sales of like machines. We expect to receive net cash proceeds of approximately $11 million when we dispose of these assets. The effect of suspending depreciation for these impaired assets is a reduction in depreciation and amortization expense of approximately $3 million on an annual basis. We expect to complete all restructuring activities by the middle of 2001.
As of June 30, 2000, approximately 650 employees have been terminated under the 1999 plan. These reductions happened primarily at the North American exhaust manufacturing facility which was closed during the first quarter, except for one production line which remains open at our customer's request. This line will be shut down during the third quarter of 2000. All restructuring actions are being completed in accordance with our initial restructuring plan.
Amounts related to the 1998 and 1999 restructuring plans are shown in the following table:
DECEMBER 31, 1999 2000 JUNE 30, 2000
RESTRUCTURING CASH RESTRUCTURING
RESERVE PAYMENTS RESERVE
----------------- -------- -------------
Severance........................................... $26 $12 $14
Facility exit costs................................. 2 1 1
--- --- ---
$28 $13 $15
=== === ===
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(5) We are party to various legal proceedings arising from our operations. We believe that the outcome of these proceedings, individually and in the aggregate, will have no material effect on our financial position or results of operations.
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(6) We are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. We have provided reserves for compliance with these laws and regulations where it is probable that a liability exists and where we can make a reasonable estimate of the liability. The estimated liabilities recorded are subject to change as more information becomes available regarding the magnitude of possible costs and the timing, varying costs, and effectiveness of alternative technologies.
We have also recently undertaken a third-party evaluation of estimated environmental remediation costs at two of our facilities. The evaluations were initiated as a result of testing that indicated the potential underground migration of some contaminants beyond our facility property. If the results of the evaluations, which are expected to be complete in the third or fourth quarter of 2000, indicate environmental contamination has occurred, we could be required to increase our reserves for these facilities in an amount which we cannot predict at this time. The reserves required could be material to our income statement in the period when we are required to adjust them. However, we believe that the costs associated with our current status as a potentially responsible party in the Superfund sites, or as a liable party at our current or former facilities, will not be material to our consolidated financial position.
(7) In the first quarter of 1999, we recognized an extraordinary loss for extinguishment of debt of $7 million (net of a $3 million income tax benefit), or $.20 per diluted common share. The loss related to early retirement of debt in connection with the sale of the containerboard assets.
(8) In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up Activities," which requires costs of start-up activities to be expensed as incurred. This statement was effective for fiscal years beginning after December 15, 1998. The statement requires previously capitalized costs related to start-up activities to be expensed as a cumulative effect of a change in accounting principle when the statement is adopted. Prior to January 1, 1999, we capitalized certain costs related to start-up activities, primarily pre-production design and development costs for new original equipment automobile platforms. We adopted SOP 98-5 on January 1, 1999, and recorded an after-tax charge for the cumulative effect of this change in accounting principle of $102 million (net of a $50 million tax benefit), or $3.05 per diluted common share.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new accounting and reporting standards requiring that all derivative instruments, including derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. This statement cannot be applied retroactively and is effective for all fiscal years beginning after June 15, 2000. We do not believe the adoption of this standard will have a significant impact on our financial position or results of operations, as it relates to the hedging of our foreign currency and interest rate risks; however, we have not finished evaluating the new standard and have not yet determined the total impact it will have on our financial position or results of operations.
Effective January 1, 1999, we changed our method of accounting for customer acquisition costs from a deferral method to an expense-as-incurred method. In connection with the decision to separate the automotive and specialty packaging businesses into independent public companies, we determined that a change to an expense-as-incurred method of accounting for automotive aftermarket customer acquisition costs was preferable in order to permit improved comparability of stand-alone financial results with our aftermarket
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
industry competitors. We recorded an after-tax charge for the cumulative effect of this change in accounting principle of $32 million (net of a $22 million tax benefit), or $.95 per diluted common share.
(9) Earnings (loss) per share of common stock outstanding were computed as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(MILLIONS EXCEPT SHARE AND
PER SHARE AMOUNTS)
Basic Earnings Per Share--
Income from continuing
operations........................ $ 15 $ 37 $ 16 $ 53
=========== =========== =========== ===========
Average shares of common stock
outstanding.................... 34,358,776 33,423,897 34,064,491 33,387,472
=========== =========== =========== ===========
Earnings from continuing
operations per average share of
common stock................... $ 0.42 $ 1.07 $ 0.45 $ 1.54
=========== =========== =========== ===========
Diluted Earnings Per Share--
Income from continuing
operations..................... $ 15 $ 37 $ 16 $ 53
=========== =========== =========== ===========
Average shares of common stock
outstanding.................... 34,358,776 33,423,897 34,064,491 33,387,472
Effect of dilutive securities:
Restricted stock............... 43,302 12,874 45,741 12,966
Stock options.................. -- -- -- --
Performance shares............. 158,995 63,605 156,901 63,444
----------- ----------- ----------- -----------
Average shares of common stock
outstanding including dilutive
securities..................... 34,561,073 33,500,376 34,267,133 33,463,882
=========== =========== =========== ===========
Earnings from continuing
operations per average share of
common stock................... $ 0.42 $ 1.06 $ 0.45 $ 1.54
=========== =========== =========== ===========
|
(10) We are a global manufacturer with two geographic reportable segments:
North America and Europe. 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 minority interest. Products are transferred between segments
and geographic areas on a basis intended to reflect as nearly as possible the
"market value" of the products.
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The following tables summarize certain Tenneco segment information:
SEGMENT
-------------------------------------------------------
RECLASS
NORTH AMERICA EUROPE OTHER & ELIMS CONSOLIDATED
------------- ------ ----- ------- ------------
(MILLIONS)
FOR THE THREE MONTHS ENDED JUNE 30, 2000
Revenues from external customers........... $ 539 $322 $ 87 $ -- $ 948
Intersegment revenues...................... 2 10 3 (15) --
Income before interest, income taxes, and
minority interest........................ 40 23 5 -- 68
FOR THE THREE MONTHS ENDED JUNE 30, 1999
Revenues from external customers........... $ 469 $326 $ 73 $ -- $ 868
Intersegment revenues...................... 2 11 3 (16) --
Income (loss) before interest, income
taxes, and minority interest............. 69 25 3 -- 97
Income (loss) from discontinued
operations............................... -- -- 55 -- 55
AT JUNE 30, 2000, AND FOR THE SIX MONTHS
THEN ENDED
Revenues from external customers........... $1,053 $616 $ 161 $ -- $1,830
Intersegment revenues...................... 5 19 6 (30) --
Income before interest, income taxes, and
minority interest........................ 74 34 7 -- 115
Total assets............................... 1,515 974 535 (36) 2,988
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Revenues from external customers........... $ 886 $638 $ 133 $ -- $1,657
Intersegment revenues...................... 3 19 6 (28) --
Income (loss) before interest, income
taxes, and minority interest............. 103 51 (2) -- 152
Income (loss) from discontinued
operations............................... -- -- (111) -- (111)
Extraordinary loss......................... -- -- (7) -- (7)
Cumulative effect of change in accounting
principle................................ (65) (32) (37) -- (134)
|
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(11) Supplemental guarantor condensed financial statements are presented below:
Basis of Presentation
We issued senior subordinated notes due 2009 as a component of a plan to realign our debt in connection with the spin-off. You should also read Note 2 for further discussion of the spin-off. All of our existing and future material domestic wholly-owned subsidiaries (the "Guarantor Subsidiaries") fully and unconditionally guarantee the notes on a joint and several basis. We believe separate financial statements and other disclosures concerning each of the Guarantor Subsidiaries would not provide additional information that is material to investors. Therefore, the Guarantor Subsidiaries are combined in the presentation below.
Included in the financial information of the Guarantor Subsidiaries for each period presented are the financial position and results of operations of a domestic subsidiary, Tenneco International Holding Corp., which had issued preferred stock to a third party. The preferred stock was redeemed in the fourth quarter of 1999.
These condensed 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. The balance sheet caption "Investment in affiliated companies" includes investments in continuing and discontinued subsidiaries. You should read the condensed consolidating financial statements of the Guarantor Subsidiaries in connection with our 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.
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
STATEMENT OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
REVENUES
Net sales and operating revenues --
External........................... $439 $509 $ -- $ -- $948
Affiliated companies............... 19 18 -- (37) --
---- ---- ---- ---- ----
458 527 -- (37) 948
---- ---- ---- ---- ----
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below).......... 349 400 -- (37) 712
Engineering, research, and
development........................ 6 9 -- -- 15
Selling, general, and
administrative..................... 68 49 -- -- 117
Depreciation and amortization........ 19 18 -- -- 37
---- ---- ---- ---- ----
442 476 -- (37) 881
---- ---- ---- ---- ----
OTHER INCOME, NET...................... (1) 2 -- -- 1
---- ---- ---- ---- ----
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INTEREST EXPENSE,
INCOME TAXES, MINORITY INTEREST, AND
EQUITY IN NET INCOME FROM CONTINUING
OPERATIONS OF AFFILIATED COMPANIES... 15 53 -- -- 68
Interest expense --
External (net of interest
capitalized)..................... 1 3 44 -- 48
Affiliated companies (net of
interest income)................. 26 3 (29) -- --
Income tax expense (benefit)......... 4 13 (8) (4) 5
Minority interest.................... -- -- -- -- --
---- ---- ---- ---- ----
(16) 34 (7) 4 15
Equity in net income (loss) from
continuing operations of affiliated
companies.......................... 18 -- 22 (40) --
---- ---- ---- ---- ----
INCOME (LOSS) FROM CONTINUING
OPERATIONS........................... 2 34 15 (36) 15
Income (loss) from discontinued
operations, net of income tax........ -- -- -- -- --
---- ---- ---- ---- ----
Income (loss) before extraordinary
loss................................. 2 34 15 (36) 15
Extraordinary loss, net of income
tax.................................. -- -- -- -- --
---- ---- ---- ---- ----
Income (loss) before cumulative effect
of change in accounting principle.... 2 34 15 (36) 15
Cumulative effect of change in
accounting principle, net of income
tax.................................. -- -- -- -- --
---- ---- ---- ---- ----
NET INCOME (LOSS)...................... 2 34 15 (36) 15
Preferred stock dividends.............. -- -- -- -- --
---- ---- ---- ---- ----
NET INCOME (LOSS) TO COMMON STOCK...... $ 2 $ 34 $ 15 $(36) $ 15
==== ==== ==== ==== ====
|
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
STATEMENT OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
REVENUES
Net sales and operating revenues --
External........................... $388 $480 $ -- $ -- $868
Affiliated companies............... 21 18 -- (39) --
---- ---- ---- ----- ----
409 498 -- (39) 868
---- ---- ---- ----- ----
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below).......... 284 382 -- (39) 627
Engineering, research, and
development........................ 7 9 -- -- 16
Selling, general, and
administrative..................... 53 44 1 -- 98
Depreciation and amortization........ 18 18 -- -- 36
---- ---- ---- ----- ----
362 453 1 (39) 777
---- ---- ---- ----- ----
OTHER INCOME, NET...................... 3 3 -- -- 6
---- ---- ---- ----- ----
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INTEREST EXPENSE,
INCOME TAXES, MINORITY INTEREST, AND
EQUITY IN NET INCOME FROM CONTINUING
OPERATIONS OF AFFILIATED COMPANIES... 50 48 (1) -- 97
Interest expense --
External (net of interest
capitalized)..................... -- 5 18 -- 23
Affiliated companies (net of
interest income)................. 17 1 (18) -- --
Income tax expense (benefit)......... 25 7 1 (3) 30
Minority interest.................... -- -- -- 7 7
---- ---- ---- ----- ----
8 35 (2) (4) 37
Equity in net income (loss) from
continuing operations of affiliated
companies.......................... 23 -- 39 (62) --
---- ---- ---- ----- ----
INCOME (LOSS) FROM CONTINUING
OPERATIONS........................... 31 35 37 (66) 37
Income (loss) from discontinued
operations, net of income tax........ 1 98 55 (99) 55
---- ---- ---- ----- ----
Income (loss) before extraordinary
loss................................. 32 133 92 (165) 92
Extraordinary loss, net of income
tax.................................. -- -- -- -- --
---- ---- ---- ----- ----
Income (loss) before cumulative effect
of change in accounting principle.... 32 133 92 (165) 92
Cumulative effect of change in
accounting principle, net of income
tax.................................. -- -- -- -- --
---- ---- ---- ----- ----
NET INCOME (LOSS)...................... 32 133 92 (165) 92
Preferred stock dividends.............. 7 -- -- (7) --
---- ---- ---- ----- ----
NET INCOME (LOSS) TO COMMON STOCK...... $ 25 $133 $ 92 $(158) $ 92
==== ==== ==== ===== ====
|
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
STATEMENT OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
REVENUES
Net sales and operating revenues --
External........................... $862 $ 968 $ -- $ -- $1,830
Affiliated companies............... 38 37 -- (75) --
---- ------ ---- ---- ------
900 1,005 -- (75) 1,830
---- ------ ---- ---- ------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below).......... 682 777 -- (75) 1,384
Engineering, research, and
development........................ 14 16 -- -- 30
Selling, general, and
administrative..................... 130 97 -- -- 227
Depreciation and amortization........ 39 37 -- -- 76
---- ------ ---- ---- ------
865 927 -- (75) 1,717
---- ------ ---- ---- ------
OTHER INCOME, NET...................... -- 2 -- -- 2
---- ------ ---- ---- ------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INTEREST EXPENSE,
INCOME TAXES, MINORITY INTEREST, AND
EQUITY IN NET INCOME FROM CONTINUING
OPERATIONS OF AFFILIATED COMPANIES... 35 80 -- -- 115
Interest expense --
External (net of interest
capitalized)..................... -- 6 87 -- 93
Affiliated companies (net of
interest income)................. 50 6 (56) -- --
Income tax expense (benefit)......... 1 21 (13) (5) 4
Minority interest.................... -- 2 -- -- 2
---- ------ ---- ---- ------
(16) 45 (18) 5 16
Equity in net income (loss) from
continuing operations of affiliated
companies.......................... 28 -- 34 (62) --
---- ------ ---- ---- ------
INCOME (LOSS) FROM CONTINUING
OPERATIONS........................... 12 45 16 (57) 16
Income (loss) from discontinued
operations, net of income tax........ -- -- -- -- --
---- ------ ---- ---- ------
Income (loss) before extraordinary
loss................................. 12 45 16 (57) 16
Extraordinary loss, net of income
tax.................................. -- -- -- -- --
---- ------ ---- ---- ------
Income (loss) before cumulative effect
of change in accounting principle.... 12 45 16 (57) 16
Cumulative effect of change in
accounting principle, net of income
tax.................................. -- -- -- -- --
---- ------ ---- ---- ------
NET INCOME (LOSS)...................... 12 45 16 (57) 16
Preferred stock dividends.............. -- -- -- -- --
---- ------ ---- ---- ------
NET INCOME (LOSS) TO COMMON STOCK...... $ 12 $ 45 $ 16 $(57) $ 16
==== ====== ==== ==== ======
|
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
STATEMENT OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC. RECLASS
GUARANTOR NONGUARANTOR (PARENT &
SUBSIDIARIES SUBSIDIARIES COMPANY) ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
REVENUES
Net sales and operating revenues --
External............................ $730 $927 $ -- $ -- $1,657
Affiliated companies................ 42 36 -- (78) --
---- ---- ----- ----- ------
772 963 -- (78) 1,657
---- ---- ----- ----- ------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)........... 550 740 -- (78) 1,212
Engineering, research, and
development......................... 13 14 -- -- 27
Selling, general, and
administrative...................... 104 98 1 -- 203
Depreciation and amortization......... 35 36 -- -- 71
---- ---- ----- ----- ------
702 888 1 (78) 1,513
---- ---- ----- ----- ------
OTHER INCOME, NET....................... 5 3 -- -- 8
---- ---- ----- ----- ------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE, INCOME TAXES,
MINORITY INTEREST, AND EQUITY IN NET
INCOME FROM CONTINUING OPERATIONS OF
AFFILIATED COMPANIES.................. 75 78 (1) -- 152
Interest expense --
External (net of interest
capitalized)...................... 1 10 31 -- 42
Affiliated companies (net of
interest income).................. 36 1 (37) -- --
Income tax expense (benefit).......... 27 14 10 (7) 44
Minority interest..................... -- -- -- 13 13
---- ---- ----- ----- ------
11 53 (5) (6) 53
Equity in net income (loss) from
continuing operations of affiliated
companies........................... 40 -- 58 (98) --
---- ---- ----- ----- ------
INCOME (LOSS) FROM CONTINUING
OPERATIONS............................ 51 53 53 (104) 53
Income (loss) from discontinued
operations, net of income tax......... 1 (30) (111) 29 (111)
---- ---- ----- ----- ------
Income (loss) before extraordinary
loss.................................. 52 23 (58) (75) (58)
Extraordinary loss, net of income tax... -- (7) (7) 7 (7)
---- ---- ----- ----- ------
Income (loss) before cumulative effect
of change in accounting principle..... 52 16 (65) (68) (65)
Cumulative effect of change in
accounting principle, net of income
tax................................... (64) (70) (134) 134 (134)
---- ---- ----- ----- ------
NET INCOME (LOSS)....................... (12) (54) (199) 66 (199)
Preferred stock dividends............... 13 -- -- (13) --
---- ---- ----- ----- ------
NET INCOME (LOSS) TO COMMON STOCK....... $(25) $(54) $(199) $ 79 $ (199)
==== ==== ===== ===== ======
|
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
BALANCE SHEET
JUNE 30, 2000
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
ASSETS
Current assets:
Cash and temporary cash
investments...................... $ 16 $ 35 $ -- $ -- $ 51
Receivables......................... 629 388 54 (387) 684
Inventories......................... 144 247 -- -- 391
Deferred income taxes............... 70 7 -- -- 77
Prepayments and other............... 36 45 -- -- 81
------ ------ ------ ------- ------
895 722 54 (387) 1,284
------ ------ ------ ------- ------
Other assets:
Investment in affiliated
companies........................ 323 -- 2,341 (2,664) --
Notes and advances receivable from
affiliates....................... 1,919 10 3,391 (5,320) --
Long-term notes receivable, net..... 8 15 -- -- 23
Goodwill and intangibles, net....... 325 154 -- -- 479
Deferred income taxes............... -- 17 -- -- 17
Pension assets...................... 18 17 -- -- 35
Other............................... 72 48 26 -- 146
------ ------ ------ ------- ------
2,665 261 5,758 (7,984) 700
------ ------ ------ ------- ------
Plant, property, and equipment, at
cost................................ 854 1,023 -- -- 1,877
Less -- Reserves for depreciation
and amortization............... 411 462 -- -- 873
------ ------ ------ ------- ------
443 561 -- -- 1,004
------ ------ ------ ------- ------
$4,003 $1,544 $5,812 $(8,371) $2,988
====== ====== ====== ======= ======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current
maturities on long-term debt).... 1 77 242 (277) 43
Trade payables...................... 157 325 5 (61) 426
Accrued taxes....................... 46 18 -- (39) 25
Other............................... 104 102 33 (8) 231
------ ------ ------ ------- ------
308 522 280 (385) 725
Long-term debt........................ 1,666 14 5,210 (5,320) 1,570
Deferred income taxes................. 117 63 (78) 6 108
Postretirement benefits and other
liabilities......................... 136 32 (1) (1) 166
Commitments and contingencies
Minority interest..................... -- 18 -- -- 18
Shareholders' equity.................. 1,776 895 401 (2,671) 401
------ ------ ------ ------- ------
$4,003 $1,544 $5,812 $(8,371) $2,988
====== ====== ====== ======= ======
|
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
BALANCE SHEET
DECEMBER 31, 1999
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
ASSETS
Current assets:
Cash and temporary cash
investments...................... $ 28 $ 56 $ -- $ -- $ 84
Receivables......................... 665 316 18 (428) 571
Inventories......................... 155 257 -- -- 412
Deferred income taxes............... 68 (9) -- -- 59
Prepayments and other............... 34 41 -- -- 75
------ ------ ------ ------- ------
950 661 18 (428) 1,201
------ ------ ------ ------- ------
Other assets:
Investment in affiliated
companies........................ 266 -- 2,365 (2,631) --
Notes and advances receivable from
affiliates....................... 1,809 -- 3,302 (5,111) --
Long-term notes receivable, net..... 3 17 -- -- 20
Goodwill and intangibles, net....... 331 164 -- -- 495
Deferred income taxes............... -- 13 -- -- 13
Pension assets...................... 21 10 -- -- 31
Other............................... 67 52 27 -- 146
------ ------ ------ ------- ------
2,497 256 5,694 (7,742) 705
------ ------ ------ ------- ------
Plant, property, and equipment, at
cost................................ 888 1,035 -- -- 1,923
Less -- Reserves for depreciation
and amortization................. 428 458 -- -- 886
------ ------ ------ ------- ------
460 577 -- -- 1,037
------ ------ ------ ------- ------
$3,907 $1,494 $5,712 $(8,170) $2,943
====== ====== ====== ======= ======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current
maturities on long-term debt).... $ 1 $ 176 $ 238 $ (359) $ 56
Trade payables...................... 138 268 6 (64) 348
Accrued taxes....................... 6 15 (1) -- 20
Other............................... 131 81 27 -- 239
------ ------ ------ ------- ------
276 540 270 (423) 663
Long-term debt........................ 1,580 10 5,098 (5,110) 1,578
Deferred income taxes................. 131 55 (78) -- 108
Postretirement benefits and other
liabilities......................... 130 26 -- -- 156
Commitments and contingencies
Minority interest..................... -- 16 -- -- 16
Shareholders' equity.................. 1,790 847 422 (2,637) 422
------ ------ ------ ------- ------
$3,907 $1,494 $5,712 $(8,170) $2,943
====== ====== ====== ======= ======
|
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
OPERATING ACTIVITIES
Net cash provided (used) by
operating activities.............. $ 72 $ 10 $(29) $(1) $ 52
---- ---- ---- --- ----
INVESTING ACTIVITIES
Net proceeds related to the sale of
discontinued operations........... -- -- -- -- --
Net proceeds from sale of businesses
and assets........................ 3 2 -- -- 5
Expenditures for plant, property,
and equipment..................... (20) (47) -- -- (67)
Acquisitions of businesses.......... -- -- -- -- --
Expenditures for plant, property,
and equipment and business
acquisitions -- discontinued
operations........................ -- -- -- -- --
Investments and other............... (8) 2 -- -- (6)
---- ---- ---- --- ----
Net cash provided (used) by
investing activities.............. (25) (43) -- -- (68)
---- ---- ---- --- ----
FINANCING ACTIVITIES
Issuance of common and treasury
stock............................. -- -- 9 -- 9
Proceeds from subsidiary equity
issued............................ -- 1 -- -- 1
Issuance of long-term debt.......... -- 1 -- -- 1
Retirement of long-term debt........ -- (1) -- -- (1)
Net increase (decrease) in
short-term debt excluding current
maturities on long-term debt...... -- (19) -- -- (19)
Intercompany dividends and net
increase (decrease) in
intercompany obligations.......... (59) 34 24 1 --
Dividends (common).................. -- -- (4) -- (4)
---- ---- ---- --- ----
Net cash provided (used) by
financing activities.............. (59) 16 29 1 (13)
---- ---- ---- --- ----
Effect of foreign exchange rate
changes on cash and temporary cash
investments....................... -- (4) -- -- (4)
---- ---- ---- --- ----
Increase (decrease) in cash and
temporary cash investments........ (12) (21) -- -- (33)
Cash and temporary cash investments,
January 1......................... 28 56 -- -- 84
---- ---- ---- --- ----
Cash and temporary cash investments,
June 30 (Note).................... $ 16 $ 35 $ -- $-- $ 51
==== ==== ==== === ====
|
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
OPERATING ACTIVITIES
Net cash provided (used) by
operating activities............ $ (64) $ 1 $ (105) $ (13) $ (181)
------ ------ ------ ------ ------
INVESTING ACTIVITIES
Net proceeds related to the sale
of discontinued operations...... -- 334 -- -- 334
Net proceeds from sale of
businesses and assets........... 7 1 -- -- 8
Expenditures for plant, property,
and equipment................... (29) (41) -- -- (70)
Acquisitions of businesses........ -- (35) -- -- (35)
Expenditures for plant, property,
and equipment and business
acquisitions -- discontinued
operations...................... -- (1,206) -- -- (1,206)
Investments and other............. (1) (8) 2 -- (7)
------ ------ ------ ------ ------
Net cash provided (used) by
investing activities............ (23) (955) 2 -- (976)
------ ------ ------ ------ ------
FINANCING ACTIVITIES
Issuance of common and treasury
stock........................... -- -- 20 -- 20
Purchase of common stock.......... -- -- (4) -- (4)
Issuance of long-term debt........ -- 1,761 -- -- 1,761
Retirement of long-term debt...... (1) (33) 5 -- (29)
Net increase (decrease) in
short-term debt excluding
current maturities on long-term
debt............................ -- 2 (480) -- (478)
Intercompany dividends and net
increase (decrease) in
intercompany obligations........ 102 (762) 660 -- --
Dividends (common)................ (13) -- (100) 13 (100)
------ ------ ------ ------ ------
Net cash provided (used) by
financing activities............ 88 968 101 13 1,170
------ ------ ------ ------ ------
Effect of foreign exchange rate
changes on cash and temporary
cash investments................ -- (2) -- -- (2)
------ ------ ------ ------ ------
Increase (decrease) in cash and
temporary cash investments...... 1 12 (2) -- 11
Cash and temporary cash
investments, January 1.......... 1 25 3 -- 29
------ ------ ------ ------ ------
Cash and temporary cash
investments, June 30 (Note)..... $ 2 $ 37 $ 1 $ -- $ 40
====== ====== ====== ====== ======
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(The preceding notes are an integral part of the foregoing financial statements.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
On November 4, 1999, Tenneco Inc. completed the spin-off of its packaging business to shareholders, leaving the automotive business as the sole remaining operating segment. Following the spin-off, Tenneco Inc. changed its name to Tenneco Automotive Inc. In this Management's Discussion and Analysis, when we discuss "Tenneco," "we," "us" or "our" we mean Tenneco Inc. and its consolidated subsidiaries before the spin-off and Tenneco Automotive Inc. and its consolidated subsidiaries after the spin-off.
As you read the following review of our financial condition and results of operations, you should also read our financial statements and related notes beginning on page 4.
BACKGROUND OF THE SPIN-OFF TRANSACTION
In July 1998, the Board of Directors authorized management to develop a broad range of strategic alternatives to separate the automotive, paperboard packaging, and specialty packaging businesses. Subsequently, we completed the following actions:
- In January 1999, we announced an agreement to contribute the containerboard business to a new joint venture with an affiliate of Madison Dearborn Partners. The proceeds from the transaction, including debt assumed by the new joint venture, were approximately $2 billion. The transaction closed in April 1999. Tenneco retained a 43 percent interest in the joint venture.
- In April 1999, we announced an agreement to sell our folding carton operations to Caraustar Industries. This transaction closed in June 1999. The folding carton operations and the containerboard business together represented our paperboard packaging operating segment.
- On November 4, 1999, we completed the spin-off of Tenneco Packaging Inc., now known as Pactiv Corporation, to our shareholders. Pactiv included all of the businesses that made up our specialty packaging segment as well as our remaining interest in the containerboard joint venture and our administrative services operations.
As a result of this series of transactions, our former specialty and paperboard packaging operating segments are presented as discontinued operations in the accompanying financial statements. Note 3 to the financial statements contains more information about our discontinued operations.
The morning following the spin-off, we completed a reverse stock split that had been approved by our shareholders in a special meeting held in October 1999. As a result, every five shares of our common stock were converted into one share of our new common stock. Per share amounts for periods before the reverse stock split have been adjusted to give effect to the reverse stock split.
Before the spin-off, we realigned substantially all of our existing debt through a combination of tender offers, exchange offers, and other refinancings. To finance the debt realignment we borrowed under new credit facilities and issued subordinated debt. Pactiv also borrowed under new credit facilities and issued new publicly traded Pactiv debt in exchange for certain series of our publicly traded debt that was outstanding before the debt realignment. The "Liquidity and Capital Resources" section of this Management's Discussion and Analysis contains more information about our debt and the debt realignment.
RESULTS FROM CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND
1999
Net Sales and Operating Revenues
THREE MONTHS
ENDED JUNE 30,
---------------
2000 1999 % CHANGE
------ ------ --------
(MILLIONS)
North America............................................... $539 $469 15%
Europe...................................................... 322 326 (1)
Rest of World............................................... 87 73 19
---- ----
$948 $868 9
==== ====
|
The increase in revenues from our North American operations is primarily due to the strong North American original equipment manufacturers' build rates and the change we made in the first quarter of 2000 with respect to how we record "pass through" catalytic converter sales.
In the first quarter of 2000 we changed how we record "pass through" sales of some catalytic converter components. "Pass through" sales occur when we purchase these components from suppliers, use the components in our manufacturing process and sell the components to our customers as part of the completed catalytic converter. In the past, we recorded "pass through" sales as a reduction of cost of sales. We now record them as part of net sales. Relationships with customers have begun to change where we now take title to these components in the manufacturing process. Additionally, we believe that our competitors in the automotive parts industry already follow this practice so this change is consistent with industry practice and will permit improved comparability with these companies. As a result of the change, our North American sales increased $52 million in the second quarter of 2000, with no impact on our earnings before interest and taxes. Had these components been recorded on a comparable basis in the second quarter of 1999, reported net sales would have been $24 million higher in that period.
Excluding this change, revenues from our North American original equipment market increased 6 percent from the second quarter of 1999 to the second quarter of 2000. This increase is due primarily to exceptionally strong original equipment manufacturer production levels combined with our position on many top-selling light truck platforms. Specifically, ride control unit volume sales to original equipment manufacturers increased $5 million and exhaust unit volume sales to original equipment manufacturers increased $23 million. The increase in North American revenues was partially offset by the build-out of customer platforms, a decline in heavy duty elastomer sales and price reductions on certain original equipment manufacturer platforms. Revenues from our North American aftermarket business were essentially unchanged in the second quarter of 2000 compared to the same period in 1999. Ride control sales to aftermarket customers increased 7 percent to $101 million primarily as a result of the introduction of our new premium Monroe Reflex(TM) shock, which we began selling in November, 1999, and the repositioning of our Sensatrac(R) branded products to the retail market. This increase was offset by a 10 percent decrease to $64 million in exhaust revenues to aftermarket customers due to the ongoing impact of declining replacement rates in the industry. We expect to experience continued weakness in aftermarket exhaust sales due to the predominant use of stainless steel in exhaust products sold to original equipment manufacturers, which increases average product life and decreases replacement rates. We also expect North American original equipment manufacturer build rates to moderate in future periods from current rates. A reduction in North American original equipment manufacturer build rates would likely reduce revenues from our original equipment operations in North America.
European revenues decreased $4 million from the second quarter of 1999 to the second quarter of 2000, primarily due to a decrease in the value of European currencies relative to the US dollar. If foreign exchange rates had been the same during the second quarter of 2000 as they were in the second quarter of 1999, then our European revenues would have increased 8 percent. Higher unit sales on existing platforms to European original equipment manufacturers increased exhaust and ride control revenues by $25 million and $7 million, respectively. Excluding the currency impact, revenues from our European aftermarket ride control operations
increased by $3 million and revenues from our European aftermarket exhaust operations decreased by $6 million in the second quarter of 2000 from the same period in 1999. Similar to the North American aftermarket, we expect to experience continued weakness in aftermarket exhaust sales due to declining replacement rates.
Revenues from our operations in the rest of the world increased 19 percent in the second quarter of 2000 from the same period in the prior year. Revenues from our South American operations increased $11 million from the second quarter of 1999 to the same period in 2000. New original equipment exhaust product launches and increased unit sales on existing original equipment exhaust programs contributed most of the increase in South American revenues. Revenues from our Asian operations increased $5 million from the second quarter of 1999 to the same period in 2000. This increase was primarily due to higher unit sales to both original equipment and aftermarket customers in the region. Revenues from our Australian operations decreased $1 million in the second quarter of 2000 in comparison to the same period in the prior year. If currency exchange rates between the Australian dollar and U.S. dollar been the same during the second quarter of 2000 as in the second quarter of 1999, revenues from our Australian operations would have been $5 million greater.
Income Before Interest Expense, Income Taxes, and Minority Interest ("EBIT")
We reported EBIT of $68 million in the second quarter of 2000 compared to $97 million in the same period in 1999. About 45 percent, or $13 million, of this decline resulted from stand-alone costs we are incurring in 2000. These costs include the addition of functions necessary for Tenneco Automotive to operate as an independent public company as well as administrative costs for information technology, payroll and accounts payable services. We currently estimate these stand-alone company expenses will be approximately $54 million annually. Of that amount, approximately $40 million relates to information technology services received under a contract with Pactiv entered into in connection with the spin-off. The contract extends for 24 months from the date of the spin-off. The remaining amount relates to payroll and accounts payable functions provided by a third party under a contract that extends for 36 months from the date of the spin-off. Before the November, 1999 spin-off, the costs for these services were incurred by Tenneco Inc. but were not fully allocated to its operating segments.
While these stand-alone expenses will be ongoing, we have provided the following table to separate the stand-alone expenses reflected in each of our segment's second quarter 2000 reported results to provide enhanced comparability with the reported results for each of these segments for the comparable 1999 period.
THREE MONTHS ENDED JUNE 30,
------------------------------------------
2000 1999
------------------------------- --------
STAND OPERATING
REPORTED ALONE UNITS REPORTED
RESULTS EXPENSES RESULTS RESULTS % CHANGE
-------- -------- --------- -------- --------
(MILLIONS)
North America........................ $40 $ 9 $49 $69 (29)%
Europe............................... 23 3 26 25 4
Rest of World........................ 5 1 6 5 20
Previously unallocated Tenneco Inc.
expenses........................... -- -- -- (2) NM
--- --- --- ---
$68 $13 $81 $97 (16)
=== === === ===
|
Our North American segment incurred $9 million in stand-alone expenses in the second quarter of 2000. Before considering these stand-alone expenses, our North American EBIT decreased by 29 percent to $49 million in the second quarter of 2000 compared to the same period in the prior year. Higher unit volume sales to North American original equipment manufacturers on existing platforms improved EBIT by $8 million. We also recorded higher aftermarket ride control unit sales in the second quarter of 2000 compared to the second quarter of 1999, which improved EBIT by $6 million, due primarily to the launch of our new premium Monroe Reflex(TM) product. Cost savings from prior restructuring initiatives and other cost reduction actions improved EBIT at our aftermarket operations by $7 million. These increases were offset by lower pricing and volumes in our aftermarket exhaust product lines and the repositioning of our Sensatrac(R) branded
products in the retail market, which combined, reduced EBIT by $9 million. We also incurred $7 million of higher changeover and promotional expenses associated with the repositioning of our aftermarket ride control product lines. The negative impact of price reductions to original equipment manufacturers on certain platforms and an unfavorable product mix change in our original equipment customer base reduced EBIT by $8 million. In the second quarter of 2000, we also recorded costs $6 million associated with the closing of our Culver, Indiana, OE exhaust plant. These costs included activities such as the relocation of equipment and employee training programs that we could not accrue as restructuring costs. Our North American original equipment operations incurred $6 million in higher selling, general and administrative expenses in the second quarter of 2000, including engineering expenses for advanced suspension technologies. Higher manufacturing and depreciation expenses contributed the remainder of the decrease in North American EBIT.
Our European segment incurred $3 million in stand-alone expenses in the second quarter of 2000. Before considering these stand-alone expenses, our European EBIT improved 4 percent to $26 million in the second quarter of 2000. Higher unit sales to original equipment manufacturers increased EBIT by $3 million. We also experienced a favorable mix shift selling a higher percentage of higher margin products in both the exhaust and ride control aftermarkets, which improved EBIT by $2 million. Better fixed cost absorption and higher exhaust tooling sales to European original equipment manufacturers improved EBIT by $4 million in the second quarter of 2000 compared to the same period in 1999. These increases were partially offset by currency weakness in Europe, which decreased EBIT by $2 million. The remainder of the EBIT difference between the second quarter of 2000 and the same period in 1999 is due primarily to higher steel and precious metal costs in our European operations.
In the rest of world, we incurred $1 million in stand-alone expenses in the second quarter of 2000. Before considering these stand-alone expenses, EBIT from our operations in South America, Australia and Asia improved in the second quarter of 2000 to $6 million compared to $5 million in the second quarter of 1999. If currency exchange rates between the Australian dollar and the U.S. dollar had been the same during the second quarter of 2000 as in the second quarter of 1999, EBIT (excluding stand-alone expenses) would have been $7 million. Higher unit sales in Asia, South America and Australia improved EBIT by $3 million. This increase was offset by unfavorable pricing actions, which reduced EBIT by $1 million. The impact of currency fluctuations in Asia and South America did not contribute materially to the EBIT difference between the second quarter of 2000 and the second quarter of 1999.
EBIT as a Percentage of Revenue
The following table shows EBIT as a percentage of revenue by segment. For the second quarter 2000, this percentage is based on "operating unit" EBIT (which as described above is our reported EBIT excluding the effects of the stand-alone expense).
THREE MONTHS
ENDED
JUNE 30,
---------------
2000 1999
---- ----
North America............................................... 9% 15%
Europe...................................................... 8% 8%
Rest of World............................................... 7% 7%
Total Tenneco Automotive.......................... 9% 11%
|
In North America, EBIT as a percentage of revenue decreased. Excluding the $52 million increase in revenues associated with the change in how we record pass-through catalytic converter sales, EBIT as a percentage of revenue would have been 10 percent in the second quarter of 2000. The decrease in EBIT margin from the second quarter of 1999 to the second quarter of 2000 is due primarily to a mix shift from higher margin OE product sales to lower margin OE product sales, the one-time costs associated with the closing of our Culver, Indiana exhaust plant and product repricings and unfavorable mix changes in both our ride control and exhaust aftermarkets. In Europe and in the rest of the world, EBIT as a percentage of revenue was relatively unchanged.
Interest Expense, Net of Interest Capitalized
We reported interest expense of $48 million during the second quarter of 2000, compared to $23 million during the same period in 1999. Interest expense allocated to discontinued operations was $30 million in the second quarter of 1999. The increase in our total interest expense is due primarily to the higher debt levels allocated to us as a result of the spin-off of Pactiv last year, higher interest rates due to our lower debt rating and recent interest rate increases. The new debt structure is explained in more detail in "Liquidity and Capital Resources" later in this Management's Discussion and Analysis.
Income Taxes
Our effective tax rate during the second quarter of 1999 was 41 percent. The effective tax rate of 25 percent in the second quarter of 2000 benefitted primarily from a strategic decision to consolidate all of our Mexican operations into one tax entity, allowing us to utilize additional tax losses. The consolidation was completed in June.
Earnings Per Share
Earnings from continuing operations per diluted common share were $.42 for the second quarter of 2000 compared to $1.06 per diluted common share in the prior period. In the second quarter of 1999, we recorded earnings of $1.67 per diluted common share from discontinued operations.
Option Purchase Offer
On May 8, 2000, we initiated an offer to purchase from our employees stock options covering approximately 7 million shares of our common stock. These old stock options were issued before the spin-off of Pactiv, primarily from 1996 to 1998, by the prior management of Tenneco Inc. By the time of the spin-off and the change in management of our company, the exercise prices of these options had become substantially lower than the market price of Tenneco Inc.'s common stock. Upon the spin-off, these options held by continuing employees of our automotive operations were adjusted to maintain their economic value after giving effect to that transaction. Accordingly, as a newly independent stand-alone public company we emerged with a substantial number of underwater stock options. In order to be in a position to more effectively manage our outstanding equity in the future, we initiated the purchase offer. Final responses were received from employees in July 2000. We will record a charge and make cash payments for the cost of this program in the third quarter. The total cost of the program will be approximately $13 million, before taxes.
RESTRUCTURING CHARGES
We adopted plans to restructure portions of our operations in both 1998 and 1999. In the fourth quarter of 1998, our Board of Directors approved an extensive restructuring plan designed to reduce administrative and operational overhead costs. We recorded a pre-tax charge to income from continuing operations in that quarter of $53 million, $34 million after-tax, or $1.02 per diluted common share. Of the pre-tax charge, for operational restructuring plans, $36 million related to the consolidation of the manufacturing and distribution operations of our North American aftermarket business. A staff and related cost reduction plan, which covered employees in both the operating units and corporate operations, cost $17 million.
Our aftermarket restructuring involved closing two plant locations and five distribution centers, resulting in eliminating 302 positions. Our staff and related cost reduction plan involved eliminating 454 administrative positions. We wrote down the fixed assets at the locations to be closed to their fair value, less costs to sell, in the fourth quarter of 1998. As a result of the single-purpose nature of the assets, we estimated fair value at scrap value less cost to dispose. We do not expect to receive any significant net cash proceeds from the ultimate disposal of these assets, which should be complete by the fourth quarter of 2000. The effect of suspending depreciation for these impaired assets is a reduction in depreciation and amortization of approximately $2 million on an annual basis.
As of June 30, 2000, we have completed the restructuring actions with respect to the 1998 plan, with the exception of the final disposal of certain assets. All positions expected to be eliminated as a result of the plan have been eliminated.
In the fourth quarter of 1999, our Board of Directors approved a restructuring plan designed to further reduce operational overhead costs. We recorded a pre-tax charge to income from continuing operations in that quarter of $55 million, $50 million after-tax, or $1.50 per diluted common share.
The charge includes $37 million recorded in Europe to close a ride control manufacturing facility and an exhaust just-in-time plant, close or downsize four aftermarket distribution centers, and reduce administrative overhead by reducing management employment; $15 million to close a North American exhaust manufacturing facility; and $3 million for employment reductions in South America and Asia. In total, the plan involves eliminating approximately 780 positions. We wrote down the fixed assets at the locations to be closed to their fair value, less costs to sell, in the fourth quarter of 1999. We estimated the fair value for buildings using external real estate valuations or a review of recent sales prices for like buildings in the area surrounding the plant to be closed. As a result of the single-purpose nature of the machinery and equipment to be disposed of, fair value was estimated at scrap value less cost to dispose in most cases. For certain machines which have value in the used equipment market, engineers estimated value based on recent sales of like machines. We expect to receive net cash proceeds of approximately $11 million when we dispose of these assets. The effect of suspending depreciation for these impaired assets is a reduction in depreciation and amortization expense of approximately $3 million on an annual basis. We expect to complete all restructuring activities by the middle of 2001.
As of June 30, 2000, approximately 650 employees have been terminated under the 1999 plan. These reductions happened primarily at the North American exhaust manufacturing facility which was closed during the first quarter, except for one production line which remains open at our customer's request. This line will be shut down during the third quarter of 2000. All restructuring actions are being completed in accordance with our initial restructuring plan.
Amounts related to the 1998 and 1999 restructuring plans are shown in the following table:
DECEMBER 31, 1999 2000 JUNE 30, 2000
RESTRUCTURING CASH RESTRUCTURING
RESERVE PAYMENTS RESERVE
----------------- -------- -------------
Severance........................................... $26 $12 $14
Facility exit costs................................. 2 1 1
--- --- ---
$28 $13 $15
=== === ===
|
We continue to evaluate our cost structure and manufacturing footprint in an effort to identify and evaluate other opportunities to improve our results. These efforts will likely result in developing further restructuring plans that, if implemented, would involve additional restructuring charges. Any such plans would require approval by our Board of Directors and could require a waiver of certain provisions of our debt covenants by our lenders. Consequently, we cannot predict whether or to what extent any such plans may be implemented or the potential impact of such plans.
CHANGES IN ACCOUNTING PRINCIPLES
In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up Activities," which requires costs of start-up activities to be expensed as incurred. This statement was effective for fiscal years beginning after December 15, 1998. The statement requires previously capitalized costs related to start-up activities to be expensed as a cumulative effect of a change in accounting principle when the statement is adopted. Prior to January 1, 1999, we capitalized certain costs related to start-up activities, primarily pre-production design and development costs for new original equipment automobile platforms. We adopted SOP 98-5 on January 1, 1999, and
recorded an after-tax charge for the cumulative effect of this change in accounting principle of $102 million (net of a $50 million tax benefit), or $3.05 per diluted common share.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new accounting and reporting standards requiring that all derivative instruments, including derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. This statement cannot be applied retroactively and is effective for all fiscal years beginning after June 15, 2000. We do not believe the adoption of this standard will have a significant impact on our financial position or results of operations, as it relates to the hedging of our foreign currency and interest rate risks; however, we have not finished evaluating the new standard and have not yet determined the total impact it will have on our financial position or results of operations.
Effective January 1, 1999, we changed our method of accounting for customer acquisition costs from a deferral method to an expense-as-incurred method. In connection with the decision to separate the automotive and specialty packaging businesses into independent public companies, we determined that a change to an expense-as-incurred method of accounting for automotive aftermarket customer acquisition costs was preferable in order to permit improved comparability of stand-alone financial results with our aftermarket industry competitors. We recorded an after-tax charge for the cumulative effect of this change in accounting principle of $32 million (net of a $22 million tax benefit), or $.95 per diluted common share.
RESULTS OF CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net Sales and Operating Revenues
SIX MONTHS ENDED
JUNE 30,
-----------------
2000 1999 % CHANGE
------- ------- --------
(MILLIONS)
North America............................................... $1,053 $ 886 19%
Europe...................................................... 616 638 (3)
Rest of World............................................... 161 133 21
------ ------
$1,830 $1,657 10
====== ======
|
The increase in revenues from our North American operations is primarily due to the strong North American original equipment manufacturers' build rates and the change we made in the first quarter of 2000 with respect to how we record "pass through" catalytic converter sales.
In the first quarter of 2000 we changed how we record "pass through" sales of some catalytic converter components. "Pass through" sales occur when we purchase these components from suppliers, use the components in our manufacturing process and sell the components to our customers as part of the completed catalytic converter. In the past, we recorded "pass through" sales as a reduction of cost of sales. We now record them as part of net sales. Relationships with customers have begun to change where we now take title to these components in the manufacturing process. Additionally, we believe that our competitors in the automotive parts industry already follow this practice so this change is consistent with industry practice and will permit improved comparability with these companies. As a result of the change, our North American sales increased $102 million in the six months ended June 30 of 2000, with no impact on our earnings before interest and taxes. Had these components been recorded on a comparable basis in the six months ended June 30 of 1999, reported net sales would have been $42 million higher in that period.
Excluding this change, revenues from our North American original equipment market increased 11 percent from the six months ended of 1999 to the six months ended of 2000. This increase is due primarily to exceptionally strong original equipment manufacturer production levels combined with our position on many top-selling light truck platforms. Specifically, ride control unit volume sales to original equipment manufacturers increased $16 million and exhaust unit volume sales to original equipment manufacturers increased $48 million. The increase in North American revenues was partially offset by the build-out of customer platforms, a decline in heavy duty elastomer sales and price reductions on certain original equipment manufacturer platforms. Revenues from our North American aftermarket business were essentially unchanged in the six months ended June 30, 2000 compared to the same period in 1999. Ride control sales to aftermarket customers increased $7 million primarily as a result of the introduction of our new premium Monroe Reflex(TM) shock, which we began selling in November, 1999, and the repricing of our Sensatrac(R) branded products to the retail market. This increase was offset by an 8 percent decrease to $64 million in exhaust revenues to aftermarket customers due to the ongoing impact of declining replacement rates in the industry. We expect to experience continued weakness in aftermarket exhaust sales due to the predominant use of stainless steel in exhaust products sold to original equipment manufacturers, which increases average product life and decreases replacement rates.
European revenues decreased $22 million from the six months ended June 30 of 1999 compared to the same period in 2000, primarily due to a decrease in the value of European currencies relative to the US dollar. If foreign exchange rates had been the same during the first half of 2000 as they were in the first half of 1999, then our European revenues would have increased 6 percent. Higher unit sales on existing platforms to European original equipment manufacturers increased exhaust and ride control revenues by $47 million and $8 million, respectively. Excluding the currency impact, revenues from our European aftermarket ride control operations increased by $2 million and revenues from our European aftermarket exhaust operations decreased by $12 million in the six months ended June 30 of 2000 from the same period in 1999. Similar to the North American aftermarket, we expect to experience continued weakness in aftermarket exhaust sales due to declining replacement rates.
Revenues from our operations in the rest of the world increased 21 percent in the six months ended June 30 of 2000 compared to the same period in the prior year. Revenues from our South American operations increased $22 million from the six months ended June 30 of 1999 to the same period in 2000. New original equipment exhaust product launches and increased unit sales on existing original equipment exhaust programs contributed most of the increase in South American revenues. Revenues from our Asian operations increased $9 million from the six months ended June 30 of 1999 to the same period in 2000. This increase was primarily due to higher unit sales to both original equipment and aftermarket customers in the region. Revenues from our Australian operations decreased $3 million in the six months ended June 30 of 2000 in comparison to the same period in the prior year. If currency exchange rates between the Australian dollar and U.S. dollar been the same during the first half of 2000 as in the first half of 1999, revenues from our Australian operations would have increased by $2 million.
Income Before Interest Expense, Income Taxes, and Minority Interest ("EBIT")
We reported EBIT of $115 million in the six months ended June 30 of 2000 compared to $152 million in the same period in 1999. Approximately 73 percent, or $27 million, of this decline resulted from stand-alone costs we are incurring in 2000. These costs include the addition of functions necessary for Tenneco Automotive to operate as an independent public company as well as administrative costs for information technology, payroll and accounts payable services. We currently estimate these stand-alone company expenses will be approximately $54 million annually. Of that amount, approximately $40 million relates to information technology services received under a contract with Pactiv entered into in connection with the spin-off. The contract extends for 24 months from date of the spin-off. The remaining amount relates to payroll and accounts payable functions provided by a third party. Accordingly, Pactiv's obligation to provide those services to our company was assigned to a third party under a contract that extends for 36 months from the date of the spin-off. Before the November, 1999 spin-off, the costs for these services were incurred by Tenneco Inc. but were not fully allocated to its operating segments.
While these stand-alone expenses will be ongoing, we have provided the following table to separate the stand-alone expenses reflected in each of our segments' reported results for the six months ending June 30, 2000 to provide enhanced comparability with the reported results for each of these segments for the 1999 period.
SIX MONTHS ENDED JUNE 30,
------------------------------------------
2000 1999
------------------------------- --------
STAND OPERATING
REPORTED ALONE UNITS REPORTED
RESULTS EXPENSES RESULTS RESULTS % CHANGE
-------- -------- --------- -------- --------
(MILLIONS)
|
North America. $ 74 $ 18 $ 92 $ 103 )% (11
Europe............................... 34 7 41 51 (20)
Rest of World........................ 7 2 9 2 350
Previously unallocated Tenneco Inc.
expenses........................... -- -- -- (4) NM
---- --- ---- ----
$115 $27 $142 $152 (7)
==== === ==== ====
|
Our North American segment incurred $18 million in stand-alone expenses in the six months ended June 30, 2000. Before considering these stand-alone expenses, our North American EBIT decreased by 11 percent to $92 million in the six months ended June 30, 2000 compared to the same period in the prior year. Higher unit volume sales to North American original equipment manufacturers on new and existing platforms improved EBIT by $10 million. We also recorded higher aftermarket ride control unit sales in the first half of 2000 compared to the first half of 1999, which improved EBIT by $12 million, due primarily to the launch of our new premium Monroe Reflex(TM) product. Cost savings from prior restructuring initiatives and other cost reduction actions improved EBIT at our aftermarket operations by $19 million. These increases were offset by lower pricing and volumes in our aftermarket exhaust product lines and the repositioning of our Sensatrac(R) branded products in the retail market, combined, which reduced EBIT by $17 million. We also incurred $13 million of higher changeover and promotional expenses associated with the repositioning of our aftermarket ride control product lines. The negative impact of price reductions to original equipment manufacturers on certain platforms and an unfavorable product mix change in our original equipment customer base reduced EBIT by $9 million. In the first half of 2000, we also recorded costs of $9 million associated with the closing of our Culver, Indiana, OE exhaust plant. These costs included activities such as the relocation of equipment and employee training programs that we could not accrue as restructuring costs. Our North American original equipment operations incurred $7 million in higher selling, general and administrative expenses in the first half of 2000, including engineering expenses for advanced suspension technologies. Higher manufacturing and depreciation expenses in our original equipment operations contributed the remainder of the decrease in North American EBIT.
Our European segment incurred $7 million in stand-alone expenses in the six months ended June 30, 2000. Before considering these stand-alone expenses, our European EBIT decreased 20 percent to $41 million in the six months ended June 30, 2000. The impact of higher unit volume sales to European original equipment manufacturers, which improved EBIT by $7 million during the six months ended June 30, 2000, was partially offset by the negative impact of price reductions to original equipment manufacturers on certain platforms, which reduced EBIT by $5 million during that period. Lower aftermarket unit sales for both exhaust and ride control products decreased EBIT by $10 million during the six months ended June 30, 2000. Currency weakness in Europe decreased EBIT by $4 million during the six months ended June 30, 2000. Higher steel costs in our European operations and a mix shift from higher margin products to lower margin products in our aftermarket operations was offset by fixed cost absorption during the six months ended June 30, 2000.
Our operations in the rest of the world incurred $2 million in stand-alone expenses in the second quarter of 2000. Before considering these stand-alone expenses, EBIT from our operations in South America, Australia and Asia improved in the six months ended June 30, 2000 to $9 million compared to $2 million in
the same period of 1999. If currency exchange rates between the Australian dollar and the U.S. dollar had been the same during the six months ended June 30, 2000 as in the same period of 1999, EBIT (excluding stand-alone expenses) would have been $10 million. Excluding the $4 million foreign currency transaction loss that we incurred during the first quarter of 1999 in our Brazilian operations, EBIT during the first six months of 2000 increased $3 million compared to the same period in 1999. Higher unit sales in Asia combined with cost reduction actions throughout South America, Asia and Australia contributed to the remainder of the EBIT improvement from the six months ended June 30, 1999 to the same period in 2000. The impact of currency fluctuations in Asia and South America on the translation of financial results did not contribute materially to the EBIT difference between the six months ended June 30, 2000 and the same period in 1999.
EBIT as a Percentage of Revenue
The following table shows EBIT as a percentage of revenue by segment. For the six months ended June 30, 2000, this percentage is based on "operating unit" EBIT (which as described above is our reported EBIT excluding the effects of the stand-alone expenses).
SIX MONTHS
ENDED
JUNE 30,
-----------
2000 1999
---- ----
North America............................................... 9% 12%
Europe...................................................... 7% 8%
Rest of World............................................... 6% 2%
Total Tenneco Automotive.......................... 8% 9%
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In North America, EBIT as a percentage of revenue decreased by 3 percent. Excluding the $102 million increase in revenues associated with the change in revenue recognition of pass-through catalytic converter sales, EBIT as a percentage of revenue would have been 10 percent in the six months ended June 30, 2000. The decrease in EBIT margin from the six months ended June 30, 1999 to the same period in 2000 is due primarily to a mix shift from higher margin OE product sales to lower margin OE product sales, the one-time costs associated with the closing of our Culver, Indiana exhaust plant and product repricings in both our ride control and exhaust aftermarkets. In Europe, EBIT as a percentage of revenue decreased by 1 percent from the six months ended June 30, 1999 to the same period in 2000 primarily due to lower aftermarket sales and unfavorable mix changes in both market channels. The increase in EBIT margin from our operations in the rest of the world was due primarily to our efforts to lower selling, general and administrative expenses in our South American and Asian operations.
Interest Expense, Net of Interest Capitalized
We reported interest expense of $93 million during the first six months of 2000, compared to $42 million during the same period in 1999. Interest expense allocated to discontinued operations was $74 million in 1999. The increase in our total interest expense is due primarily to the higher debt levels allocated to us as a result of the spin-off of Pactiv last year, higher interest rates due to our lower debt rating, and recent interest rate increases. The new debt structure is explained in more detail in "Liquidity and Capital Resources" later in this Management's Discussion and Analysis.
Income Taxes
Our effective tax rate during the six months ended June 30, 1999 was 40 percent. The effective tax rate of 18 percent in the six months ended June 30, 2000 benefitted primarily from a strategic decision to consolidate all of our Mexican operations into one tax entity, allowing us to utilize additional tax losses. The consolidation was completed in June.
Earnings Per Share
Earnings from continuing operations per diluted common share were $.45 for the six months ended June 30, 2000 compared to $1.54 per diluted common share in the prior period. In the six months ended June 30, 1999, we recorded a loss of $3.30 per diluted common share from discontinued operations. In the first quarter of 1999, we incurred an extraordinary loss of $.20 per diluted common share due to the retirement of debt in connection with the sale of the containerboard assets. We also recorded an after-tax charge of $4.00 per diluted common share due to the cumulative effect of the changes in accounting with respect to start-up activities and customer acquisition costs.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
JUNE 30, DECEMBER 31,
2000 1999 % CHANGE
-------- ------------ --------
Short term debt and current maturities...................... $ 43 $ 56 (23)%
Long term debt.............................................. 1,570 1,578 (1)
------ ------
Total debt.................................................. 1,613 1,634 (1)
------ ------
Total minority interest..................................... 18 16 13
Common shareholders' equity................................. 401 422 (5)
Total capitalization........................................ 2,032 2,072 (2)
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Our debt to capitalization ratio was unchanged at 79 percent at June 30, 2000 from December 31, 1999. The increase in the ratio was primarily attributable to the equity decline. The decline in equity resulted from adverse changes in the cumulative translation adjustment of $42 million and payment of common stock dividends of $4 million. This was partially offset by our net income of $16 million and issuance of $9 million of common stock for employee benefit and dividend reinvestment plans during the first six months of 2000.
At June 30, 2000, we had no borrowings outstanding under our revolving credit facility. Our short-term debt, which relates primarily to borrowings by foreign subsidiaries, decreased by $13 million during the first six months of 2000. This decrease was primarily due to the refinancing of $35 million of high interest rate short-term debt in our Brazilian subsidiary with equity from one of our US affiliates which in turn was funded with surplus cash balances. Our long-term debt balance consists of borrowings made under new credit agreements (described below) to facilitate the debt realignment, as well as approximately $21 million of debt that was not retired in the cash tender and exchange offers associated with the spin-off of Pactiv. The decrease in long-term debt was primarily due to the reclassification of long-term debt to short-term debt and current maturities. We believe that cash flows from operations, combined with available borrowing capacity described above and assuming that we maintain compliance with the requirements of our loan agreements, will generally be sufficient to meet our future capital requirements for the following year.
As part of the realignment of debt that was required in order to complete
the spin-off, on September 30, 1999, we entered into a $1.55 billion committed
senior secured financing arrangement with a syndicate of banks and other
financial institutions consisting of: (i) a $500 million, six-year revolving
credit facility; (ii) a $450 million six-year term loan; (iii) a $300 million
eight-year term loan and; (iv) a $300 million eight-and-one-half year term loan.
A portion of each term loan is payable in quarterly installments beginning
September 30, 2001. Borrowings under this facility bear interest at an annual
rate equal to, at the borrower's option, either (i) the London Interbank
Offering Rate plus a margin of 275 basis points for the six-year revolving
credit facility and the six-year term loan, 325 basis points for the eight-year
term loan and 350 basis points for the eight-and-one-half year term loan; or
(ii) a rate consisting of the greater of The Chase Manhattan Bank's prime rate
or the Federal Funds rate plus 50 basis points, plus a margin of 175 basis
points for the six-year revolving credit facility and the six-year term loan,
225 basis points for the eight-year term loan and 250 basis points for the
eight-and-one-half year term loan. Under the provisions of the senior credit
facility agreement, the interest margins for borrowings under the revolving
credit facility and the six year term loan may be adjusted based on the
consolidated leverage ratio (total debt divided by consolidated earnings
before interest, taxes, depreciation and amortization ("EBITDA") as defined in the senior credit facility agreement) measured at the end of each quarter starting with the fiscal quarter ending December 31, 2000.
The senior credit facility agreement requires that we initially maintain:
(i) a consolidated leverage ratio (consolidated indebtedness divided by
consolidated EBITDA) not greater than 4.75; (ii) a consolidated interest
coverage ratio (consolidated EBITDA divided by consolidated cash interest paid)
not less than 2.00; and (iii) a consolidated fixed charge coverage ratio
(consolidated EBITDA less consolidated capital expenditures, divided by
consolidated cash interest paid) not less than 1.00. Under the terms of the
senior credit facility agreement, the maximum permitted consolidated leverage
ratio will decrease beginning in the year 2001, the minimum permitted
consolidated interest coverage ratio will increase beginning in the year 2001
and the minimum permitted consolidated fixed charge coverage ratio will increase
beginning in the year 2002. The senior credit facility agreement also contains
restrictions on our operations that are customary for similar facilities,
including limitations on: (a) incurring additional liens; (b) sale and leaseback
transactions; (c) liquidations and dissolutions; (d) incurring additional
indebtedness or guarantees; (e) capital expenditures; (f) dividends; (g) mergers
and consolidations; and (h) prepayments and modifications of subordinated and
other debt instruments. 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. At June 30, 2000, we were in compliance with
these requirements. Since our debt-to-equity ratio is high, our ability to
maintain compliance with these requirements is very sensitive to earnings and
interest rate movements. If we do not maintain compliance with these
requirements or obtain waivers from our lenders, our ability to raise additional
future borrowings may be restricted.
On October 14, 1999, we issued $500 million of 11 5/8% Senior Subordinated Notes due 2009. The senior subordinated debt indenture requires that we, as a condition to incurring certain types of indebtedness not otherwise permitted, initially maintain an interest coverage ratio of not less than 2.00. Under the terms of the indenture, the minimum interest coverage ratio will increase beginning in 2001. The indenture also contains restrictions on our operations, including limitations on: (1) incurring additional indebtedness or liens; (2) dividends; (3) distributions and stock repurchases; (4) investments; and (5) mergers and consolidations.
Cash Flows
SIX MONTHS
ENDED JUNE 30,
---------------
2000 1999
----- -------
Cash provided (used) by:
Operating activities -- continuing operations............. $52 $ (88)
Investing activities -- continuing operations............. (68) (104)
Financing activities...................................... (13) 1,170
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Operating Activities
Cash provided by continuing operating activities increased by $140 million for the first six months of 2000 compared to the same period in the prior year. This improvement was driven primarily by our increased focus on working capital which increased by $34 million during the first six months of 2000 in comparison to an increase of $195 million during the same period last year. During the first six months of 2000, the balance of factored accounts receivable increased from $16 million to $28 million and during the first six months of 1999 the balance of factored accounts receivable decreased from $137 million to $86 million. We also increased our accounts payable from $348 million on December 31, 1999 to $426 million on June 30, 2000. During the second quarter of 2000, we took advantage of accounts payable terms versus discounts. Our accounts payable increased from $592 million on December 31, 1998 to $608 million on June 30, 1999. We also began to realize lower inventory benefits from our lean manufacturing initiatives in North America. While revenues from North America increased from $469 million during the first six months of 1999 to $539 million during the first six months of 2000, our inventory in North America decreased by $19 million during the first six months of
1999 in comparison to a $3 million decrease during the same period in 1999. The remainder of the change in operating cash flow is primarily due to the change in operating income and accrued income taxes.
Cash used by our discontinued specialty and paperboard packaging operations was $93 million in the second quarter of 1999.
Investing Activities
Cash used by investing activities for continuing operations was $36 million lower in the first six months of 2000 compared to the same period in 1999. Capital expenditures were relatively flat at $67 million in the first six months of 2000 compared to $70 million in 1999. During the first six months of 1999, we used $35 million to acquire businesses, primarily Kinetic Ltd, an Australian suspension engineering company.
Cash used by investments in discontinued operations were $872 million in the second quarter of 1999. During the second quarter of 1999, Tenneco acquired for approximately $1.1 billion certain assets previously used by the containerboard business under operating leases and timber cutting rights. This was required in order to complete the April, 1999 containerboard sale. We also received $306 million in proceeds related to the containerboard and folding carton sale transactions and $28 million in proceeds from disposal of assets in our specialty packaging business.
Financing Activities
Cash used by financing activities was $13 million in the first six months of 2000. This decrease was primarily due to improved operating cash flow which allowed us to pay down debt by $20 million. We also issued $9 million of common stock during the six month period for employee benefit and dividend reinvestment plans which was offset by $4 million of common stock dividend payments.
Cash provided by financing activities was $1.2 billion during the first six months of 1999. Excluding the borrowings required to complete the containerboard sale transaction, cash used by financing activities was $590 million for the first six months of 1999. This primarily reflected the use of the net proceeds of the containerboard sale transaction to reduce our short-term debt. Before the containerboard sale transaction, our Packaging division borrowed approximately $1.8 billion. These borrowings were used to acquire the assets used under operating leases and timber cutting rights described under "Investing Activities" above, and to purchase the containerboard business accounts receivable. Our Packaging division remitted the balance of the borrowings to us to retire short-term debt. Packaging contributed the containerboard business to the new joint venture subject to the approximately $1.8 billion in new debt. The debt reduction, which resulted from this contribution, is shown on the Statements of Cash Flows as a non-cash financing activity.
Interest Rate Risk
Following the realignment of our debt in connection with the spin-off of Pactiv, our financial instruments that are sensitive to market risk for changes in interest rates are our debt securities. We primarily use a revolving credit facility to finance our short-term capital requirements. We pay a current market rate of interest on these borrowings. We financed our long-term capital requirements with long-term debt with original maturity dates ranging from six to 10 years.
Under the terms of our senior credit facility agreement, we were required to hedge our exposure to floating interest rates within 180 days following the spin-off so that at least 50 percent of our long-term debt is fixed for a period of at least three years. In February 2000, we hedged $250 million of our floating rate long-term debt with three-year, floating to fixed interest rate swaps. In April 2000, we hedged an additional $50 million of our floating rate long-term debt with three-year, floating to fixed interest rate swaps. The hedges that we executed fully satisfy the interest rate hedging requirement of the senior credit facility agreement. Therefore, we have $821 million in long-term debt obligations that have fixed interest rates for the next three years and $749 million in long-term debt obligations that have variable interest rates based on a current market rate of interest.
We estimate that the fair value of our long-term debt at June 30, 2000 was about 95 percent of its book value. A one percent increase or decrease in interest rates would increase or decrease the interest expense we recognize in the income statement and the cash we pay for interest expense by about $5 million after tax.
EURO CONVERSION
The European Monetary Union resulted in the adoption of a common currency, the "euro," among eleven European nations. The euro is being adopted over a three-year transition period beginning January 1, 1999. In October 1997, we established a cross-functional Euro Committee, comprised of representatives of the Company's operational divisions as well as its corporate offices. That Committee had two principal objectives: (1) to determine the impact of the euro on our business operations, and (2) to recommend and facilitate implementation of those steps necessary to ensure that we would be fully prepared for the euro's introduction. As of January 1, 1999, we implemented those euro conversion procedures that it had determined to be necessary and prudent to adopt by that date, and is on track to becoming fully "euro ready" on or before the conclusion of the three-year euro transition period. We believe that the costs associated with transitioning to the euro will not be material to our consolidated financial position or the results of our operations.
ENVIRONMENTAL AND OTHER MATTERS
We and some of our subsidiaries and affiliates are parties to environmental proceedings. We expense or capitalize, as appropriate, expenditures for ongoing compliance with environmental regulations that relate to current operations. We expense expenditures that relate to an existing condition caused by past operations and 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 experience 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. We report these liabilities in the balance sheet 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 financial statements.
At June 30, 2000, we had been designated as a potentially responsible party in four Superfund sites. We have estimated our share of the remediation costs for these sites to be approximately $1 million in the aggregate. In addition to the Superfund sites, we may have the obligation to remediate current or former facilities, and we estimate our share of remediation costs at these facilities to be approximately $14 million. For both the Superfund sites and the current and former facilities, we have established reserves that we believe are adequate for these costs. 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. At some sites, we expect that other parties will contribute to the remediation costs. In addition, at the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides 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 has been considered, where appropriate, in our determination of our estimated liability.
We have also recently undertaken a third-party evaluation of estimated environmental remediation costs at two of our facilities. The evaluations were initiated as a result of testing that indicated the potential underground migration of some contaminants beyond our facility property. If the results of the evaluations, which are expected to be complete in the third or fourth quarter of 2000, indicate environmental contamination has occurred, we could be required to increase our reserves for these facilities in an amount which we cannot predict at this time. The reserves required could be material to our income statement in the period when we are required to adjust them. However, we believe that the costs associated with our current status as
a potentially responsible party in the Superfund sites, or as a liable party at our current or former facilities, will not be material to our consolidated financial position.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
The results of operations for the three and six months ended June 30, 1999, for our discontinued specialty packaging business are shown in note 3 to the financial statements.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
For information regarding our exposure to interest rate risk, see the caption entitled "Interest Rate Risk" in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," which is incorporated herein by reference.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Incorporated herein by reference to "Item 2. Changes in Securities and Use of Proceeds" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Incorporated herein by reference to "Item 5. Other Information" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
ITEM 5. OTHER INFORMATION.
As we previously announced, on July 11, 2000 Frank E. Macher and Dennis G. Severance were elected to our company's board of directors. Also on that date, Dana G. Mead retired from the board of directors. Frank Macher was president and CEO of ITT Automotive from June 1997 until January 1999. Prior to joining ITT, Mr. Macher had a 30-year career with the Ford Motor Company, serving most recently as vice president and general manager of the automotive components division until his retirement in 1996. Dennis Severance is the Andersen Consulting Professor of Computer and Information Systems at the University of Michigan Business School, where he has served as the chairman of the computer and information systems faculty. Prior to joining the University of Michigan faculty in 1978, Mr. Severance held associate and assistant professor positions at the University of Minnesota and Cornell University respectively. He also serves as an information systems consultant to large corporations.
On August 9, 2000, Timothy Jackson was appointed to the newly created position of Senior Vice President Global Technology, having previously served as our Senior Vice President and General Manager of North American Original Equipment. In his new role, Mr. Jackson will have global responsibility for designing products for ease of manufacture and for driving standardization in all engineering and manufacturing processes. Mr. Jackson will continue to manage the North American OE manufacturing and engineering functions. Mark P. Frissora, Chairman and CEO, will oversee the commercial and support functions for North American OE on an interim basis.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The exhibits filed with this report are listed on the Exhibit Index following the signature page of this report, which is incorporated herein by reference.
(b) Reports on Form 8-K. None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Tenneco Automotive Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
TENNECO AUTOMOTIVE INC.
Dated: August 11, 2000 By: /s/ MARK A. MCCOLLUM
----------------------------------------------------
Mark A. McCollum
Senior Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
TO
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 2000
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2 -- Distribution Agreement by and between the registrant and
Tenneco Packaging Inc. dated November 3, 1999 (incorporated
herein by reference to Exhibit 2 to the registrant's Current
Report on Form 8-K dated November 4, 1999, File No.
1-12387).
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).
3.2(a) -- By-laws of the registrant, as amended March 14, 2000
(incorporated herein by reference from Exhibit 3.2(a) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1999, 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).
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
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).
3.7 -- Amended and Restate 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) -- Rights Agreement dated as of September 8, 1998, by and
between the registrant and First Chicago Trust Company of
New York, as Rights Agent (incorporated herein by reference
from Exhibit 4.1 of the registrant's Current Report on Form
8-K dated September 24, 1998, File No. 1-12387).
4.1(b) -- Amendment No. 1 to Rights Agreement, dated March 14, 2000,
by and between the registrant and First Chicago Trust
Company of New York, as Rights Agent (incorporated herein by
reference from Exhibit 4.1(b) of the registrant's Annual
Report on Form 10-K for the year ended December 31, 1999,
File No. 1-12387).
4.2(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).
4.2(b) -- First Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between 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).
4.2(c) -- Second 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(c) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
4.2(d) -- 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).
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.2(e) -- 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).
4.2(f) -- Fifth 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(f) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
4.2(g) -- Sixth 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(g) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
4.2(h) -- Seventh 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(h) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
4.2(i) -- Eighth Supplemental Indenture, dated as of April 28, 1997,
to Indenture, dated as of November 1, 1996 between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.1 of the
registrant's Current Report on Form 8-K dated April 23,
1997, File No. 1-12387).
4.2(j) -- Ninth Supplemental Indenture, dated as of April 28, 1997, to
Indenture, dated as of November 1, 1996, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.2 of the
registrant's Current Report on Form 8-K dated April 23,
1997, File No. 1-12387).
4.2(k) -- Tenth Supplemental Indenture, dated as of July 16, 1997, to
Indenture, dated as of November 1, 1996, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.1 of the
registrant's Current Report on Form 8-K dated June 11, 1997,
File No. 1-12387).
4.2(l) -- 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).
4.3 -- Specimen stock certificate for Tenneco Automotive Inc.
common stock (incorporated herein by reference from Exhibit
4.3 of the registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, File No. 1-12387).
4.4(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).
4.4(b) -- Supplemental Indenture dated November 4, 1999 among Tenneco
Automotive Operating Subsidiary Inc. (formerly Tenneco
Automotive Inc.), Tenneco International Holding Corp.,
Tenneco Global Holdings Inc., the Pullman Company and
Clevite Industries 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).
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.4(c) -- Subsidiary Guarantee dated as of October 14, 1999 from
Tenneco Automotive Operating Subsidiary Inc. (formerly
Tenneco Automotive 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).
4.5(a) -- Credit Agreement, dated as of September 30, 1999, among the
registrant, the Lenders named therein, Commerzbank and Bank
of America, N.A., Citicorp USA, Inc. and The Chase Manhattan
Bank (incorporated herein by reference from Exhibit 4.5(a)
of the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-12387).
10.1 -- Distribution Agreement, dated November 1, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), 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. (formerly Tenneco Inc.), 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. (formerly
Tenneco Inc.), 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. (formerly Tenneco Inc.), 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).
10.5 -- Insurance Agreement, dated December 11, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), 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. (formerly Tenneco Inc.),
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.
(formerly Tenneco Inc.), the registrant 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 -- Tenneco Automotive Inc. Executive Incentive Compensation
Plan.
10.9 -- Tenneco Automotive Inc. 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).
10.10 -- Tenneco Automotive Inc. 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).
*10.11 -- Tenneco Automotive Inc. Key Executive Pension Plan.
*10.12 -- Tenneco Automotive Inc. Deferred Compensation Plan.
*10.13 -- Tenneco Automotive Inc. Supplemental Executive Retirement
Plan.
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.14 -- Release Agreement dated as of October 18, 1999 by and
between Dana G. Mead and Tenneco Management Company and
Modification of Release Agreement dated as of October 18,
1999 among Dana G. Mead, Tenneco Automotive Inc. and Tenneco
Management Company (incorporated herein by reference from
Exhibit 10.18 of the registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999, File No.
1-12387).
10.15 -- Release Agreement dated as of September 17, 1999 by and
between Robert T. Blakely and Tenneco Management Company and
Modification of Release Agreement dated as of September 17,
1999 among Robert T. Blakely, Tenneco Automotive Inc. and
Tenneco Management Company (incorporated herein by reference
from Exhibit 10.15 to the registrant's Annual Report on Form
10-K for the year ended December 31, 1999, File No.
1-12387).
10.16 -- Agreement, dated as of April 12, 1999, among the registrant,
Tenneco Management Company, Tenneco Packaging Inc. and Paul
T. Stecko (incorporated herein by reference from Exhibit
10.30 of the registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, File No. 1-12387).
10.17 -- Human Resources Agreement by and between Tenneco Automotive
Inc. 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).
10.18 -- Tax Sharing Agreement by and between Tenneco Automotive Inc.
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).
10.19 -- Amended and Restated Transition Services Agreement by and
between Tenneco Automotive Inc. 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).
10.20 -- Purchase Agreement among Salomon Smith Barney Inc., the
other Initial Purchasers as named therein and Tenneco Inc.
dated October 8, 1999 (incorporated herein by reference from
Exhibit 10.18 of the registrant's Registration Statement on
Form S-4, Reg. No. 333-93757).
10.21 -- Registration Rights Agreement among Tenneco Inc., the
Guarantors named therein, Salomon Smith Barney Inc. and the
other Initial Purchasers named therein dated October 14,
1999 (incorporated herein by reference from Exhibit 10.19 of
the registrant's Registration Statement on Form S-4, Reg.
No. 333-93757).
10.22 -- 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 10.20 of the registrant's
Registration Statement on Form S-4, Reg. No. 333-93757).
*10.23 -- Amendment No. 1 to Change in Control Severance Benefit Plan
for Key Executives.
*10.24 -- Letter Agreement dated July 27, 2000 between the registrant
and Mark P. Frissora.
*10.25 -- Letter Agreement dated July 27, 2000 between the registrant
and Mark A. McCollum.
*10.26 -- Letter Agreement dated July 27, 2000 between the registrant
and Richard P. Schneider.
*10.27 -- Letter Agreement dated July 27, 2000 between the registrant
and Timothy Jackson.
11 -- None.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
|
EXHIBIT NUMBER DESCRIPTION ------- ----------- *15 -- Letter Regarding Unaudited Interim Financial Information. 18 -- None. 19 -- None. 22 -- None. 23 -- None. 24 -- None. *27.1 -- Financial Data Schedule -- Period Ended June, 2000. *27.2 -- Financial Data Schedule -- Period June 30, 1999. 99 -- None. |
EXHIBIT 10.8
TENNECO AUTOMOTIVE INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
PLAN DOCUMENT
Effective: November 4, 1999
TENNECO AUTOMOTIVE INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
Section 1. Establishment and Purpose
1.1 Establishment of the Plan. Tenneco Inc., a Delaware corporation to be renamed Tenneco Automotive Inc., hereby establishes the "TENNECO AUTOMOTIVE INC. EXECUTIVE INCENTIVE COMPENSATION PLAN" (The "Plan"), set forth herein, effective immediately following completion of the spin-off of Tenneco Packaging Inc. (to be renamed Pactiv Corporation) to the stockholders of Tenneco Inc. on November 4, 1999 (the "Effective Date").
1.2 Purpose. The objectives of the Plan are to:
(a) Reinforce a results-oriented management culture with executive pay that varies according to corporate, division, and individual performance against aggressive goals.
(b) Provide incentives, in the form of substantial reward potential, for executives to remain employees of the Company.
(c) Focus on business results that include financial measures such as net income, cash flow, working capital, and economic value added (EVA) with improvement in quality, safety, environmental, risk management, effective leadership and equal employment opportunities performance.
(d) De-emphasize fixed compensation in the form of base salary and place greater emphasis on variable performance-based compensation.
(e) Provide key executives with competitive levels of total current compensation and incentive earning opportunities commensurate with the results achieved and individual performance.
(f) Provide plans that are simple and easy to describe and understand.
Section 2. Plan Definitions
(a) COMPANY means Tenneco Automotive Inc. and any successor employer which adopts the Plan and any subsidiary corporation designated by the Board as eligible to participate in the Plan; except that when used with reference to authority under this Plan, Company shall mean Tenneco Automotive Inc. exclusively.
(b) BOARD means the Board of Directors of the Company.
(c) COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE or COMMITTEE means those members of the Compensation/Nominating/Governance Committee of the Board who are not employees of the Company. This Committee is charged with the overall responsibility for this Plan.
(d) CORPORATE means the entity which is responsible for the overall management and staff support functions of the Company.
(e) DIVISION means each operating organizational entity which, through the conduct of its business, produces revenues for the Company.
(f) EXECUTIVE means a regular, full-time salaried employee of the Company who is in a position meeting the defined eligibility criteria for participation in the Plan.
(g) PARTICIPANT means an executive who has been approved for participation in the Plan.
(h) EFFECTIVE DATE has the meaning set forth in Section 1.1, above.
(i) PLAN YEAR means the calendar year.
(j) SALARY GRADE means the position classification assigned to the Participant in accordance with the position evaluation system adopted by Tenneco Automotive Inc. for Plan purposes.
(k) EICP Objectives means the "Target" (Budget) level of financial objectives (e.g., net income, cash flow, and economic value added (EVA) or other operating measurements for the Plan Year, assigned annually by the Company to each Strategic Business Unit (SBU). This represents the expected level of achievement for the Plan Year. The target goal (budget) for Corporate will be the Company's consolidated operating measurements.
(l) INDIVIDUAL INCENTIVE TARGET AWARD means the anticipated individual incentive award to be allocated to a Participant in the event EICP objectives are met and his/her individual performance is fully satisfactory. The schedule of individual incentive target awards applicable to the various salary grades shall be determined by the Company.
Section 3. Eligibility and Participation
3.1 Eligibility and Participation. Eligibility for participation in the Plan will be limited to those key executives who, by the nature and scope of their positions, regularly and directly make or influence policy decisions which significantly impact the overall results or success of the Company. The Company will receive recommendations for participation from SBU senior leadership and appropriate Corporate staff officers. Each such nominated executive shall become a Participant upon being approved by the Company. All such executives approved for participation shall be notified of their selection as soon as practical following approval.
3.2 Cessation of Participation. The Company may withdraw its approval of an existing position at any time during the Plan Year. Participants whose employment is terminated during the Plan Year for reasons other than disability, death, or retirement under a Company retirement plan shall forfeit participation in the Plan unless otherwise authorized by the Company. At the sole discretion of the Company, participation may be prorated for participants who become disabled, die, retire or are assigned to a non-eligible position during the Plan Year.
Section 4. Fund Generation
4.1 SBU/Corporate Incentive Amounts. Annually, the Company shall establish SBU and Corporate EICP Objectives (Target/Budget) applicable to each participating Division. In addition, the Company shall determine for each participating SBU a target incentive amount equal to the sum of individual incentive targets. The Company may adjust the target incentive amount during the Plan Year to accommodate the admission or elimination of Participants to the Plan and to incorporate adjustments to individual incentive targets of Participants whose salary grade changes during the Plan Year. SBU and Corporate incentive funds will be determined based on the budgeted financial objectives (e.g., net income, cash flow, and EVA) with each weighted to reflect appropriate emphasis.
The size of the incentive fund applicable to each Division will be determined as follows:
FINANCIAL OBJECTIVES
A preliminary fund will be established based on performance against financial objectives from the Annual Operating Plan (AOP).
- Performance on AOP will generate a fund equal to the sum of individual target awards.
- Performance below AOP will result in a pro-rated incentive fund as determined by Tenneco Automotive Inc. taking into consideration the reasons that AOP was not attained.
- Performance above AOP may result in a higher than target level fund as determined by Tenneco Automotive Inc. taking into consideration the reasons that AOP was exceeded.
NON-FINANCIAL OBJECTIVES
Quantitative Adjustments
Once the preliminary fund is established, the following quantitative adjustment factors will be applied to determine a final incentive fund:
- Working Capital Performance
- Environmental Performance
- Safety & Health Performance
- Quality Performance
- EEO Performance
Each of these quantitative adjustment factors will be applied a maximum of 5% for a total increase/decrease to the fund of as much as 25%.
Qualitative Adjustments
The following qualitative adjustment factors for overall leadership will also be applied:
- Global Market Development
- Customer Satisfaction
- Employee Satisfaction
- Leadership Development (Recruiting/Staffing/Training)
- Operational Considerations (Quality of Earnings)
These qualitative factors will be applied a maximum of 2% for a total increase/decrease to the fund as much as 10%.
4.2 Committee Authority. The Committee shall have the right at any time in its sole discretion to modify, eliminate or withdraw for such period or periods as it may determine, the incentive amounts, in part or in whole, to be made available under this Section 4 for payment of awards to any or all participating Corporate or SBU entities or any Participant or Participants hereunder.
Section 5. Determination of Individual Awards
5.1 Determination of Individual Awards. Annually, the Committee shall determine the Salary Grade applicable to the Chairman and CEO of the Company and the Company shall determine the Salary Grade applicable to all other Participants. Each Participant's individual incentive target award will be determined by the Company.
5.2 Determination of Individual Incentive Awards. Actual individual awards to be paid to Participants will vary above or below the assigned individual incentive target awards dependent upon each individual's performance in accordance with guidelines prescribed by the Company. The actual award to a Participant must be approved by both the Company and the Committee (or only the Committee for awards applicable to the Chairman and President of the Company) and shall not exceed 100% of the Participant's annual base salary without approval of the Committee.
Section 6. Form of Timing of Awards
The actual awards to be paid to Participants in accordance with Section 5.2 shall be paid in cash as soon as practical once final operating performance is available.
Section 7. Administration
This Plan shall be administered by the Company in accordance with rules that may be established from time to time by the Compensation/Nominating/Governance Committee. The determination of the Company as to any disputed question arising under this Plan, including any question of construction or interpretation, shall be final, binding, and conclusive upon all persons.
Section 8. Amendment and Termination
The Committee, in its absolute discretion and without notice, may at any time and from time to time modify or amend, in whole or in part, any or all of the provisions of this Plan, or suspend or terminate it entirely.
Section 9. Applicable Laws
This Plan shall be construed, administered and governed in all respects under and by the laws of the State of Illinois.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on its behalf by its respective officers thereunder duly authorized, on this day and year set forth below.
TENNECO INC.
(TO BE RENAMED
TENNECO AUTOMOTIVE INC.)
Date: November 4, 1999 /s/ Richard P. Schneider
-------------------------
By: Richard P. Schneider
|
Its: SVP-Global Administration
EXHIBIT 10.11
TENNECO AUTOMOTIVE INC.
KEY EXECUTIVE PENSION PLAN
PURPOSE
The Tenneco Automotive Inc. Key Executive Pension Plan (the "Plan") is maintained by Tenneco Inc., a Delaware corporation to be renamed Tenneco Automotive Inc. (the "Company"), as an unfunded plan for the purpose of providing retirement benefits with respect to certain employees. The benefits provided under the Plan are only available to a "select group of management or highly compensated employees" as determined by the Compensation/Nominating/Governance Committee of the Board of Directors of the Company (the "Committee"), and the Plan is intended to satisfy the exemption requirements of the Employee Retirement Income Security Act of 1974, as amended, for a plan limited to such a group.
THE PLAN
1. Effective Date
The Plan as set forth herein is effective immediately following completion of the spin-off of Tenneco Packaging Inc. (to be renamed Pactiv Corporation) to the Company's stockholders on November 4, 1999 (the "Effective Date").
2. Eligibility
The employees indicated in Appendix A, attached hereto, shall be eligible to participate in the Plan as of the Effective Date. After the Effective Date, the Committee, in its discretion, shall determine which other employees are eligible to participate in the Plan, provided that such employees also satisfy the eligibility and participation requirements of the Company's qualified defined benefit plan for salaried employees. All employees that are listed in Appendix A or that are selected by the Committee under this Section 2 shall be deemed "Participants" under the Plan.
3. Commencement & Amount of Benefit
The retirement benefit payable under this Plan, commencing at age 55 in the form of a single life annuity, shall be an annual benefit in an amount equal to the excess, if any, of (a) over (b), where
(a) is an amount equal to 4% of Compensation per year of participation in the Company's qualified defined benefit plan for salaried employees, including participation credited under the Tenneco Retirement Plan. In no event shall the amount determined under this paragraph (a) exceed 50% of the Participant's Compensation. "Compensation" shall mean the Participant's final three-year average base salary and bonus.
(b) is the total amount (if any) that is payable under the Tenneco Retirement Plan (or any successor thereto), the Company's qualified defined benefit plan for salaried employees and the Tenneco Automotive Inc. Supplemental Executive Retirement Plan, including any special supplemental benefit for the individual in question.
4. Form of Benefit
Any benefit under this Plan shall be paid in the same form and manner as the benefit payments made to, or with respect to, the Participant under the Company's qualified defined benefit plan for salaried employees. Notwithstanding the preceding sentence, no benefit is payable hereunder prior to 60 days after the Participant has separated from service, unless the Committee so determines. Prior to the commencement of benefits, but in no event later than 24 months after the Participant has separated from service, the Participant or beneficiary may elect, but only with the approval of the Committee, to receive payment of such benefit in the form of a lump sum or annuity, provided that in cases where a Participant has chosen a lump sum and the exact amount of a Participant's benefit cannot be determined by the date elected for payment, a preliminary lump sum shall be paid with respect to amounts that can be clearly ascertained then, with the remainder to be issued in a subsequent lump sum when that amount is exactly determined by the Committee or its delegatee. In addition, with respect to all Plan Participants, if the benefit payable from this Plan (expressed as an age 65 life annuity) would be less than $50 per month, the benefit payable from this Plan automatically shall be paid as a lump sum.
The actuarial factors set forth in the Company's qualified defined benefit plan for salaried employees shall be used to compute benefits hereunder, provided that, for purposes of any lump sum payment that may be payable under the Plan, the interest rate used shall be the annual rate of interest on 30-year Treasury securities as specified by the Internal Revenue Service (the "IRS") for the second calendar month preceding the first day of the Plan Year during which the annuity starting date occurs, and the applicable mortality table described in Rev. Rul. 95-6, 1995-1 C.B. 80, or in such other formal guidance as may be issued from time to time by the IRS.
5. Unfunded Plan
This Plan shall be maintained as an unfunded non-qualified deferred compensation plan. All benefits under this Plan shall be payable from the general assets of the Company. No benefit hereunder shall be paid from the funds of any qualified plan maintained by the Company.
6. No Assignment
No benefit under this Plan shall be assignable or alienable or subjected, by attachment or otherwise, to the claims of creditors of any person.
7. No Guarantee of Employment
This Plan shall not be construed to give any Participant the right to be retained in the employment of the Company or any of its affiliates.
8. Operation and Administration
This Plan shall be operated under the direction of and administered by the Committee.
The Committee's decision in all matters involving the interpretation and application of this Plan shall be final and binding. The Committee shall establish a claims procedure which is consistent with the claims procedure employed under the Company's qualified defined benefit plan for salaried employees.
9. Governing Law
To the extent not preempted by federal law, this Plan shall be construed, administered and enforced in accordance with the laws of the State of Illinois.
10. Amendment and Discontinuance
The Company reserves the right, by action of its chief executive officer, to amend or discontinue the Plan. However, no such amendment or discontinuance shall impair or adversely affect any benefits accrued under this Plan as of the date of such action.
IN WITNESS WHEREOF, the Tenneco Automotive Inc. Key Executive Pension Plan is adopted as of this 4th day of November, 1999.
TENNECO INC. (to be renamed
TENNECO AUTOMOTIVE INC.)
/s/ Richard P. Schneider ------------------------------- By: Richard P. Schneider |
Its: SVP-Global Administration
Appendix A
Participants
Mark P. Frissora
Richard P. Schneider
Mark A. McCollum
Timothy R. Donovan
Timothy E. Jackson
EXHIBIT 10.12
TENNECO AUTOMOTIVE INC. DEFERRED COMPENSATION PLAN
1. PURPOSE
The purpose of the Plan is to provide to directors and a select group of management or highly compensated employees of Tenneco Inc., a Delaware corporation to be renamed Tenneco Automotive Inc., and its subsidiaries and affiliates after giving effect to the "Spin-off" defined below (hereinafter collectively referred to as the "Company") an opportunity to defer compensation received by them from the Company in accordance with the terms and conditions set forth herein.
2. ADOPTION AND ADMINISTRATION
The Plan shall be administered by the Compensation / Nominating / Governance Committee of the Board of Directors of the Company (the "Committee"). The Committee shall have sole and complete authority and discretion to interpret the terms and provisions of the Plan and to adopt, alter and repeal such administrative rules, regulations and practices governing the operation of the Plan, and to determine facts under the Plan as it shall from time to time deem advisable.
3. ELIGIBILITY
Directors and U.S. paid participants in the Company's Executive Incentive Compensation Plan shall be eligible to participate in the Plan.
Any person who had an account balance in the Tenneco Inc. Deferred Compensation Plan (or the Deferred Compensation Plan for Directors of Tenneco Inc.) as of the date (the "Distribution Date") on which the stock of Tenneco Packaging Inc. was distributed to the shareholders of the Company and whose account balance was allocated to the Company under the Human Resources Agreement between the Company and Tenneco Packaging Inc. (the "Agreement") shall participate in this Plan.
Persons eligible to participate in the Plan shall be referred to as "Participant" or "Participants" as the case may be.
4. ELECTION TO DEFER
(a) A Participant may elect in writing to defer receipt of all or a
specified portion of his or her bonuses or incentive compensation
to be received during a calendar year ("Deferral Election");
provided, however, that any election by a Participant who is
subject to the reporting and short swing profits liability
provisions of Section 16 of the Securities and Exchange Act of
1934, as amended, including an election relating to the form of
distribution or to defer income into an "Automotive stock index
account" pursuant to Section 6 of the Plan, shall not be
effective until such election and the transactions contemplated
thereby shall have been specifically approved by the Committee to
the extent such approval is required to avoid liability under
Section 16 of the Securities and Exchange Act of 1934 and the
regulations thereunder. Amounts deferred under the Plan shall be
referred to as
the "Deferred Amounts." Once received by the Committee, a Deferral Election cannot be revoked.
(b) Directors who are not employees of the Company or its subsidiaries (hereinafter referred to as "Outside Directors") will receive as part of their compensation for service on the Company's Board of Directors sixty (60) percent of their annual retainer fee in the form of credits deferred subject to the terms of this Plan in the Automotive stock index account with stock settlement.
(c) Except as provided in this Section 4(c), a Deferral Election must be made prior to September 30 of the calendar year in which the bonus, incentive compensation or retainer fee will be awarded. A Participant must make a separate Deferral Election with respect to each calendar year of participation in the Plan. A new Participant in the Plan shall have 30 days following his or her notification by the Committee of his or her eligibility to participate in the Plan to make a Deferral Election with respect to bonus or incentive compensation to be awarded within that calendar year.
(d) As specified by the Participant in a Deferral Election, the period of deferral shall be until the Participant dies, terminates employment with the Company, or until a specific date selected by the Participant in the Deferral Election.
5. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNT
At the time of a Participant's initial Deferral Election, the Company shall establish a memorandum account (a "Deferred Compensation Account") for such Participant on its books. The Deferred Amount shall be credited to the Participant's Deferred Compensation Account as of the day on which the Participant would otherwise be entitled to receive the bonus or incentive compensation. Any required withholding for taxes (e.g. Social Security taxes) on the Deferred Amount shall be made from other compensation of the Participant. Adjustments as provided below, shall be made to the Participant's Deferred Compensation Account.
6. ADJUSTMENTS TO DEFERRED AMOUNTS
The Committee shall credit the balance of the Participant's Deferred Compensation Account with an earnings factor. The earnings factor will equal the amount the Participant's Deferred Compensation Account would have earned if it had been invested in the investment options listed below. The Participant is permitted to select the investment option used to determine the earnings factor and may change the selection at any time. The Participant may choose more than one investment option in increments of at least one (1) percent. The Company reserves the right to change or amend any of the investment options at any time.
The investment options used to determine the earnings factor are:
(a) The prime rate of interest as reported by The Chase Manhattan Bank at the first day of each calendar month.
(b) Automotive stock index account -- amount of deferral will be invested in Tenneco Automotive Inc. stock equivalent unit account. Any investment in this account will be measured solely by the performance of the Company's common stock (including dividends that will be reinvested). Cash settlement or stock settlement.
(c) The return for selected Mutual Funds currently offered in the Company's qualified thrift plan for salaried employees:
(1) Fidelity Growth Company Fund
(2) Barclays U.S. Debt Index Fund (Bond)
(3) Barclays Daily Equity Index Fund
The Company is under no obligation to acquire or provide any of the investments designated by a Participant, and any investments actually made by the Company will be made solely in its name and will remain its property.
The crediting of an earnings factor shall occur so long as there is a balance in the Participant's Deferred Compensation Account regardless of whether the Participant has terminated employment.
7. PAYMENT OF DEFERRED AMOUNTS
(a) Except as otherwise provided in subsection (b) or (c) below, a Participant's Deferred Amount shall be paid, or commence to be paid, to the Participant, or the Participant's beneficiary, as soon as practicable after:
(i) the Participant's death,
(ii) the termination of the Participant's employment or service as a director, or
(iii) the date specified in the applicable Deferral Election made by the Participant.
In the event of the Participant's death, payment of the balance in the Participant's Deferred Compensation Account shall be made, either (i) in a lump sum or (ii) in a number of annual installments, not to exceed five, as soon as administratively feasible to the Participant's designated beneficiary, or if none, to the Participant's estate.
(b) The Participant may elect to receive payment of the balance of his or her Deferred Compensation Account either (i) in a lump sum upon termination or (ii) in a single payment at a specified date prior to termination or (iii) in a number of post
termination annual installments, not to exceed five, as the Participant shall elect. The distribution election must be made at least one year before the Deferred Amount is payable and must be approved by the Committee. If no election is made, a lump sum payment will be made upon the Participant's termination.
(c) Anything contained in this Section 7 to the contrary notwithstanding, in the event a Participant incurs a severe financial hardship, the Committee, in its sole discretion and upon written application of such Participant, may direct immediate payment of all or a portion of the then current value of such Participant's Deferred Compensation Account; provided that such payment shall in no event exceed the amount necessary to alleviate such financial hardship; and provided further that in the case of such payment, the Participant's Deferred Compensation Account shall be reduced by 110% of the amount of such payment.
8. PARTICIPANT REPORTS
The Committee shall provide a statement to the Participant quarterly concerning the status of his or her Deferred Compensation Account.
9. TRANSFERABILITY OF INTERESTS
During the period of deferral, all Deferred Amounts shall be considered as general assets of the Company for use as it deems necessary and shall be subject to the claims of its creditors.
The rights and interests of a Participant during the period of deferral shall be those of a general unsecured creditor except that such Participant's rights and interests may not be reached by the creditors of the Participant or the Participant's beneficiary, or anticipated, assigned, pledged, transferred or otherwise encumbered except in the event of the death of the Participant, and then only by will or the laws of descent and distribution.
10. AMENDMENT, SUSPENSION AND TERMINATION
The Company at any time may amend, suspend or terminate the Plan or any portion thereof in such manner and to such extent as it may deem advisable and in its best interests. No amendment, suspension and termination shall reduce the amount then credited to a Participant's Deferred Compensation Account.
11. UNFUNDED OBLIGATION
The Plan shall not be funded; no trust, escrow or other provisions shall be established to secure payments due under the Plan; and the Plan shall be regarded as unfunded for purposes of the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code. A Participant shall be treated as a general, unsecured creditor at all times under the Plan, and shall have no rights to any specific assets of the Company. All amounts credited to the memorandum accounts of the Participants will remain general assets of the Company and shall be payable solely from the general assets of the Company.
12. NO RIGHT TO EMPLOYMENT OR OTHER BENEFITS
Nothing contained herein shall be construed as conferring upon any Participant the right to continue in the employ of the Company. Any compensation deferred and any payments made under this Plan shall not be included in creditable compensation in computing benefits under any employee benefit plan of the Company except to the extent expressly provided therein.
13. DISPUTE RESOLUTION
By participating in the Plan, the Participant agrees that any dispute arising under the Plan shall be resolved by binding arbitration in Lake Forest, Illinois under the rules of the American Arbitration Association and that there will be no remedy besides the disputed deferred compensation amount in issue.
14. EFFECTIVE DATE
The Plan shall be effective immediately following completion of the distribution of the stock of Tenneco Packaging Inc. (to be renamed Pactiv Corporation) to the Company's stockholders (the "Spin-off").
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on its behalf by its respective officers thereunder duly authorized, on this day and year set forth below.
TENNECO INC. (TO BE RENAMED
TENNECO AUTOMOTIVE INC.)
Date: November 4, 1999 /s/ Richard P. Schneider
-------------------------------
By: Richard P. Schneider
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Its: SVP-Global Administration
EXHIBIT 10.13
TENNECO AUTOMOTIVE INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PURPOSE
The Plan is maintained by Tenneco Inc., a Delaware corporation to be
renamed Tenneco Automotive Inc. (the "Company"), as an unfunded plan for the
purpose of providing retirement benefits with respect to certain employees that
are equal to retirement benefits lost under its qualified defined benefit
pension plan for salaried employees (the "Retirement Plan") as a result of the
imposition of the limitations contained in the Internal Revenue Code of 1986, as
amended (the "Code"). The portion of the Plan that provides for benefits limited
by Code Section 415 is maintained as an "excess benefit plan" as described in
Section 3(36) of the Employee Retirement Income Security Act of 1974 as amended
("ERISA"). The other benefits provided for under the Plan are only available to
a "select group of management or highly compensated employees" as determined by
the Compensation / Nominating / Governance Committee of the Board of Directors
of the Company (the "Committee"), and the portion of the Plan providing such
benefits is intended to satisfy the ERISA exemption requirements for a plan
limited to such a group. Capitalized terms not defined herein shall have the
meaning ascribed to such terms in the Retirement Plan.
THE PLAN
1. Effective Date
The Plan as set forth herein is effective immediately following completion of the distribution of the stock of Tenneco Packaging Inc., to be renamed Pactiv Corporation ("Packaging"), to the shareholders of the Company (the "Distribution Date"). The benefit entitlement, if any, under the Tenneco Inc. Supplemental Employee Retirement Plan (the "Former Plan") of any person who separated from service prior to that date shall be governed by the provisions of the Former Plan as it was in effect from time to time prior to that date, and liability for such benefit has been allocated under the Human Resources Agreement entered into between the Company and Packaging as of November 4, 1999.
2. Eligibility
An employee shall be a "Participant" in this Plan if the employee is a participant in the Retirement Plan or is provided a benefit under Section 11 hereof.
3. Amount of Benefit
The benefit payable under this Plan to a Participant, or to the Participant's Eligible Spouse, Eligible Child(ren), joint annuitant or other beneficiary(ies), all as determined under the provisions of the Retirement Plan, shall equal the excess, if any, of (a) over (b) where:
(a) is the benefit that would be paid under the Retirement Plan if the provisions of the Retirement Plan were administered without regard to the limitations imposed by the Code and, only with respect to Participants who, at any time, were
participants in the Company's Executive Incentive Compensation Plan (the "EICP"), if Final Average Compensation, as computed under the Retirement Plan, were determined on the basis of compensation paid during the three calendar years (of the five calendar year period ending no later than the calendar year immediately preceding his or her termination or retirement) for which such compensation is the highest, and increased by the quotient of (i) the total of the cash bonuses, as defined below, paid to the Participant in the three calendar years (during the same five calendar year period ending no later than the calendar year immediately preceding his or her termination or retirement) for which such total is the highest, divided by (ii) three or such lesser number of calendar years (included in such period) in which such bonuses were paid to the Participant; provided, that the calendar year including his or her termination or retirement shall be included if such event follows the payment of regular bonuses for that year; and provided, that bonuses and salary, respectively, deferred at the election of the Participant shall be counted only in the year that they would have been paid absent such election, and provided further, that the foregoing language shall be applied to count bonuses which relate to a calendar year as paid in that year, for example, 2000 bonuses will be counted in 2000 notwithstanding the fact that they are actually paid in 2001; and
(b) is the benefit that is payable under the Retirement Plan.
Notwithstanding the foregoing, if, except as otherwise provided in writing, an employee is granted credit for purposes of benefit accrual under the Retirement Plan for service rendered prior to the time that the employee became a participant in the Retirement Plan, such employee shall be credited with such service under this Plan only if and to the extent determined by the Committee. Unless otherwise provided in writing, no benefit shall be payable under the Plan unless a benefit also is payable under the Retirement Plan, except that benefits accrued hereunder as of the effective date are treated as fully vested and nonforfeitable to the extent provided in the HR Agreement.
Cash bonus means only cash bonuses paid under the EICP and other cash bonuses as the Committee determines.
4. Form of Benefit
Any benefit under this Plan shall be paid in the same form and manner as the benefit payments made to, or with respect to, the Participant under the Retirement Plan. Notwithstanding the preceding sentence, no benefit is payable hereunder prior to 60 days after the Participant has separated from service, unless the Committee so determines. Prior to the commencement of benefits but, in no event later than 24 months after the Participant has separated from service, and only with respect to a Participant who at any time was a participant in the EICP (or a beneficiary of such a Participant), such Participant or beneficiary may elect, but only with the approval of the Committee, to receive payment of such benefit in the form of a lump sum or annuity, provided that in cases where a Participant has chosen a lump sum and the exact amount of a Participant's benefit cannot be determined by the date elected for payment, a preliminary lump sum shall be paid with respect to amounts that can be clearly ascertained then,
with the remainder to be issued in a subsequent lump sum when that amount is exactly determined by the Committee or its delegee. In addition, with respect to all Plan Participants, if the benefit payable from this Plan (expressed as an age 65 life annuity) would be less than $50 per month, the benefit payable from this Plan automatically shall be paid as a lump sum.
The actuarial factors set forth in the Retirement Plan shall be used to compute benefits hereunder, provided that, for purposes of any lump sum payment that may be payable under the Plan, the interest rate used shall be the annual rate of interest on 30-year Treasury securities as specified by the IRS for the second calendar month preceding the first day of the Plan Year during which the annuity starting date occurs, and the applicable mortality table described in Rev. Rul. 95-6, 1995-1 C.B. (page 80), or in such other formal guidance as may be issued from time to time by the IRS.
5. Unfunded Plan
This Plan shall be maintained as an unfunded non-qualified deferred compensation plan. All benefits under this Plan shall be payable from the general assets of the Company. No person shall be entitled to receive any benefits under this Plan from the funds of the Retirement Plan.
6. No Assignment
No benefit under this Plan shall be assignable or alienable or subjected, by attachment or otherwise, to the claims of creditors of any person.
7. No Guarantee of Employment
This Plan shall not be construed to give any Participant the right to be retained in the employment of the Company or any of its affiliates.
8. Operation and Administration
This Plan shall be operated under the direction of and administered by the Committee.
The Committee's decision in all matters involving the interpretation and application of this Plan shall be final and binding. The Committee shall establish a claims procedure which is consistent with the claims procedure employed under the Retirement Plan.
9. Governing Law
To the extent not preempted by federal law, this Plan shall be construed, administered and enforced in accordance with the laws of the State of Illinois.
10. Amendment and Discontinuance
The Company reserves the right, by action of the Committee, to amend or discontinue the Plan. However, no such amendment or discontinuance shall impair or adversely affect any benefits accrued under this Plan as of the date of such action.
11. Special Appendix
The Company may from time to time determine to provide certain persons additional supplemental pension benefits, which may be reflected in a Special Appendix hereto or in such other document as the Company shall determine. References in a Special Appendix or such other document to the "Plan" are to this Plan.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on its behalf by its respective officers thereunder duly authorized, on this day and year set forth below.
TENNECO INC. (to be renamed
TENNECO AUTOMOTIVE INC.)
Date: November 4, 1999 /s/ Richard P. Schneider
------------------------------
By: Richard P. Schneider
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Its: SVP-Global Administration
Exhibit 10.23
AMENDMENT NO. 1
TO
TENNECO AUTOMOTIVE INC. CHANGE IN CONTROL
SEVERANCE BENEFIT PLAN FOR KEY EXECUTIVES
This Amendment No. 1 (the "Amendment") to the Tenneco Automotive Inc. Change in Control Severance Benefit Plan for Key Executives (the "Plan") is hereby adopted by Tenneco Automotive Inc. (the "Company") effective as of May 9, 2000. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the Plan.
1. AMENDMENT TO SECTION 3 OF THE PLAN.
Paragraph E. of Section 3 of the Plan is hereby amended in its entirety to read as follows:
"E. Intentionally omitted."
2. AMENDMENT TO SECTION 4 OF THE PLAN.
Section 4 of the Plan is hereby amended in its entirety to read as follows:
"4. OTHER BENEFITS. Upon a Change in Control, and without regard to the Key Executive's employment status following such Change in Control:
(i) All Stock Options granted under the Company's Stock Ownership Plan or any other similar plan maintained by the Company shall become immediately vested and remain exercisable for the lesser of 36 months or the remaining life of the option. The term "Stock Option" shall have the meaning ascribed thereto in the Company's Stock Ownership Plan.
(ii) The Key Executive shall be entitled to be paid in cash the total of the fair market value, determined immediately prior to the Change in Control, of any Restricted Stock, Stock Appreciation Rights, Performance Units, Stock Equivalent Units and Dividend Equivalents which he or she held immediately prior to such Change in Control. The terms "Restricted Stock," "Stock Appreciation Rights," "Performance Units," "Stock Equivalent Units" and "Dividend Equivalents" shall have the meanings ascribed to those terms in the Company's Stock Ownership Plan."
3. NO OTHER CHANGES.
Except to the extent expressly amended by the terms of this Amendment, all provisions of the Plan shall remain in full force and effect following the date hereof and shall not be modified by this Amendment.
IN WITNESS WHEREOF, the Company has caused the Plan to be amended as set forth herein by its respective officers thereunder duly authorized, effective as of May 9, 2000.
TENNECO AUTOMOTIVE INC.
By: /s/ Richard P. Schneider
----------------------------------------------
Name: Richard P. Schneider
Title: SVP - Global Administration
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Exhibit 10.24
Tenneco Automotive [TENNECO LOGO]
500 North Field Drive
Lake Forest, IL 60045
Tel 847-482-5000
Fax 847-482-5940
July 27, 2000
PERSONAL AND CONFIDENTIAL
Mr. Mark P. Frissora
1170 Elm Tree Road
Lake Forest, IL 60045
Dear Mr. Frissora:
On behalf of Tenneco Automotive Inc. (the "Company"), I am pleased to set forth and confirm the terms and conditions of your continued service as Chief Executive Officer of the Company:
1. COMMENCEMENT. Except as specifically provided herein, the terms and conditions hereof will be effective immediately upon the signing hereof. You will report to and serve at the pleasure of the Board of Directors of the Company (the Board ).
2. BASE SALARY. Effective on January 1, 2000, you will be paid a base salary of $640,000.00 per year, which will be subject to such increases as may from time to time be approved by the Board or such committee of the Board to which such power has been delegated (the "Committee"), payable according to the regular pay schedule for salaried employees.
3. ANNUAL BONUS. You will be eligible for an annual performance bonus. Commencing with calendar year 2000, your annual target bonus will be, at least, $590,000.00 subject to fulfillment of performance goals as determined by the Board or Committee.
Mr. Mark P. Frissora
July 27, 2000
4. PERFORMANCE UNITS, STOCK OPTIONS, RESTRICTED STOCK AND STOCK EQUIVALENT UNITS. At the time of the spin-off of Pactiv Corporation (formerly Tenneco Packaging Inc.) by the Company (the "Spin-off"), you were granted 75,000 performance units under the Company's Stock Ownership Plan (the Plan ), payable in shares of the Company's stock in January 2003, subject to fulfillment of performance goals as determined by the Committee and the other terms of the grant determined by the Committee. At the time of the Spin-off, you were granted under the Plan an option to purchase 375,000 shares of Company stock, subject to terms and conditions set by the Committee under the Plan. You have received a restricted stock grant of 68,385 shares and one-third of such restricted stock will vest on each of the first three anniversaries of the Spin-off if you continue to be employed by the Company on such anniversary. The number of shares set forth above with respect to the performance unit, restricted stock and stock option awards is after giving effect to the one-for-five reverse stock split completed in November 1999. In January 2000 (effective November 5, 1999), you were granted 150,000 stock equivalent units under the Plan for the one-year period ending December 31, 2000. This grant is payable in cash, subject to and in accordance with the terms and conditions of the grant determined by the Committee. The grants described herein are without prejudice to your receipt of additional grants as determined by the Board or the Committee under the Plan and/or any other similar benefit plan or compensation program or arrangement of the Company. The vesting terms and the other conditions, events and circumstances under which you will be entitled to receive the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units shall be the terms, conditions, events and circumstances set forth in your grant agreements for the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units as of the date of this letter.
5. EXECUTIVE BENEFIT PLANS. You will be eligible to participate in all employee benefit plans applicable to salaried employees generally and all executive compensation structures applicable to senior executives generally.
6. PERQUISITE ALLOWANCE. You will receive an annual perquisites allowance of $40,000.00 which you may receive in either cash, perquisites, or a combination at your election.
7. VACATION. You will receive four weeks vacation (with pay) per year.
8. KEY EXECUTIVE PENSION PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. You will be a participant in the Company's Key Executive Pension Plan and Supplemental Executive Retirement Plan (the "SERP"), which includes your SERP special benefit. The vesting terms and other conditions, events and circumstances under which you are entitled to receive benefits under the SERP, including your SERP special benefit, and the Key Executive Pension Plan shall be the terms, conditions, events and circumstances set forth in such plans as of the date of this letter.
Mr. Mark P. Frissora
July 27, 2000
9. CHANGE IN CONTROL. You will participate in the Company's Change in
Control Severance Benefit Plan for Key Executives (the "Change in Control
Plan"); provided, that your cash severance benefit under Section 3A or 3B,
as applicable, of the Change in Control Plan will be 3 times the total of
(i) your annual base salary in effect immediately prior to the Change in
Control (as defined in the Change in Control Plan), plus (ii) the higher of
(a) your highest target bonus over the last 3 years of your employment, and
(b) the average of your annual awards under any bonus plan of the Company
or its subsidiaries, including any special awards, for the last three years
of your employment (or such shorter period as you have been employed by the
Company or its subsidiaries); and provided further that all of your
outstanding awards under the Plan or any other similar benefit plan or
compensation arrangement or program of the Company or its subsidiaries will
be treated as exercisable, earned at target and vested, as the case may be,
immediately upon the Change in Control (as that term is currently defined
in the Change in Control Plan) and shall be paid to you or otherwise
treated in the manner currently specified in, and in accordance with the
current terms of, the Change in Control Plan.
10. SEVERANCE. Subject to the provisions of paragraph 9, if your employment is terminated other than by you voluntarily or for death, disability, or non-performance of your duties, subject to your execution of a general release and such other documents as the Company may reasonably request: (a) you will be paid a severance benefit in an amount equal to two times the total of your then current annual base salary plus your bonus for the immediately preceding year; (b) subject to Board and/or Committee approval, all your outstanding awards under the Plan (or any other similar benefit plan or compensation program or arrangement of the Company or its subsidiaries) may vest and/or become exercisable on the date of your termination; (c) vested stock options you hold will remain exercisable for a period of not less than 90 days from your termination; and (d) the Company will continue to provide to you, for one year following the date of the termination of your employment, health and welfare benefits amounting to no less than the amount of health and welfare benefits you receive at the time your employment commences. COBRA continuation coverage will begin following this one year period.
11. TAX GROSS-UP PAYMENT. If any portion of the payments described herein, and/or any other payments, shall be subject to the tax imposed by Section 4999 of the Internal Revenue Code (the portion of such payments which are subject to the Excise Tax being referred to herein as the "Payments"), the Company shall pay you, not later than the 30th day following the date you become subject to the Excise Tax, an additional amount (the "Gross-Up Payment") such that the net amount retained by you after deduction of the Excise Tax on such Payments and all federal, state, and local income tax, interest and penalties, and Excise Tax on the Gross-Up Payment, shall be equal to the amount which would have been retained by you had the payments not been subject to the Excise Tax.
Mr. Mark P. Frissora
July 27, 2000
12. GOVERNING LAW. This letter agreement shall be governed by, and shall be construed in accordance with, the internal laws (and not the laws of conflicts) of the State of Illinois.
13. EFFECT ON JANUARY 2000 AGREEMENT. This letter agreement supercedes the terms and provisions of the agreement dated January 11, 2000 between you and the Company.
Please acknowledge your agreement with these terms by executing a copy of this letter in the space provided below and returning it to me.
Sincerely,
TENNECO AUTOMOTIVE INC.
By: /s/ Roger Porter
-----------------------------------------
Its: Chairman - Compensation/Nominating/
Governance Committee
---------------------------------------
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ACKNOWLEDGED AND ACCEPTED
/s/ Mark P. Frissora Date:
Exhibit 10.25
Tenneco Automotive [TENNECO LOGO]
500 North Field Drive
Lake Forest, IL 60045
Tel 847-482-5000
Fax 847-482-5940
July 27, 2000
PERSONAL AND CONFIDENTIAL
Mr. Mark A. McCollum
411 South County Line Road
Hinsdale, IL 60521
Dear Mr. McCollum:
On behalf of Tenneco Automotive Inc. (the "Company"), I am pleased to set forth and confirm the terms and conditions of your continued service as Senior Vice President and Chief Financial Officer of the Company:
1. COMMENCEMENT. Except as specifically provided herein, the terms and conditions hereof will be effective immediately upon the signing hereof. You will report to and serve at the pleasure of the Board of Directors of the Company (the "Board").
2. BASE SALARY. Effective on January 1, 2000, you will be paid a base salary of $327,600.00 per year, which will be subject to such increases as may from time to time be approved by the Board or such committee of the Board to which such power has been delegated (the "Committee"), payable according to the regular pay schedule for salaried employees.
3. ANNUAL BONUS. You will be eligible for an annual performance bonus. Commencing with calendar year 2000, your annual target bonus will be, at least, $215,000.00 subject to fulfillment of performance goals as determined by the Board or Committee.
Mark A. McCollum
July 27, 2000
4. PERFORMANCE UNITS, STOCK OPTIONS, RESTRICTED STOCK AND STOCK EQUIVALENT UNITS. At the time of the spin-off of Pactiv Corporation (formerly Tenneco Packaging Inc.) by the Company (the "Spin-off"), you were granted 21,000 performance units under the Company's Stock Ownership Plan (the "Plan"), payable in shares of the Company's stock in January 2003, subject to fulfillment of performance goals as determined by the Committee and the other terms of the grant determined by the Committee. At the time of the Spin-off, you were granted under the Plan an option to purchase 120,000 shares of Company stock, subject to terms and conditions set by the Committee under the Plan. You have received a restricted stock grant of 29,308 shares and one-third of such restricted stock will vest on each of the first three anniversaries of the Spin-off if you continue to be employed by the Company on such anniversary. The number of shares set forth above with respect to the performance unit, restricted stock and stock option awards is after giving effect to the one-for-five reverse stock split completed in November 1999. In December, 1999 (effective November 5, 1999), you were granted 113,430 stock equivalent units under the Plan for the three-year period ending December 31, 2002. This grant is payable in cash in three annual installments, subject to and in accordance with the terms and conditions of the grant determined by the Committee. The grants described herein are without prejudice to your receipt of additional grants as determined by the Board or the Committee under the Plan and/or any other similar benefit plan or compensation program or arrangement of the Company. The vesting terms and the other conditions, events and circumstances under which you will be entitled to receive the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units shall be the terms, conditions, events and circumstances set forth in your grant agreements for the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units as of the date of this letter.
5. EXECUTIVE BENEFIT PLANS. You will be eligible to participate in all employee benefit plans applicable to salaried employees generally and all executive compensation structures applicable to senior executives generally.
6. PERQUISITE ALLOWANCE. You will receive an annual perquisites allowance of $30,000.00 which you may receive in either cash, perquisites, or a combination at your election.
7. VACATION. You will receive four weeks vacation (with pay) per year.
8. KEY EXECUTIVE PENSION PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. You will be a participant in the Company's Key Executive Pension Plan and Supplemental Executive Retirement Plan.
Mark A. McCollum
July 27, 2000
9. CHANGE IN CONTROL. You will participate in the Company's Change in
Control Severance Benefit Plan for Key Executives (the "Change in Control
Plan"); provided, that your cash severance benefit under Section 3A or 3B,
as applicable, of the Change in Control Plan will be 3 times the total of
(i) your annual base salary in effect immediately prior to the Change in
Control (as defined in the Change in Control Plan), plus (ii) the higher of
(a) your highest target bonus over the last 3 years of your employment, and
(b) the average of your annual awards under any bonus plan of the Company
or its subsidiaries, including any special awards, for the last three years
of your employment (or such shorter period as you have been employed by the
Company or its subsidiaries); and provided further that all of your
outstanding awards under the Plan or any other similar benefit plan or
compensation arrangement or program of the Company or its subsidiaries will
be treated as exercisable, earned at target and vested, as the case may be,
immediately upon the Change in Control as that term is currently defined in
the Change in Control Plan and shall be paid to you or otherwise treated in
the manner currently specified in, and in accordance with the current terms
of, the Change in Control Plan.
10. SEVERANCE. Subject to the provisions of paragraph 9, if your employment is terminated other than by you voluntarily or for death, disability, or non-performance of your duties, subject to your execution of a general release and such other documents as the Company may reasonably request: (a) you will be paid a severance benefit in an amount equal to two times the total of your then current base salary plus your bonus for the immediately preceding year; (b) subject to Board and/or Committee approval, all your outstanding awards under the Plan (or any other similar benefit plan or compensation program or arrangement of the Company or its subsidiaries) may vest and/or become exercisable on the date of your termination; (c) vested stock options you hold will remain exercisable for a period of not less than 90 days from your termination; and (d) the Company will continue to provide to you, for one year following the date of the termination of your employment, health and welfare benefits amounting to no less than the amount of health and welfare benefits you receive at the time your employment commences. COBRA continuation coverage will begin following this one year period.
11. TAX GROSS-UP PAYMENT. If any portion of the payments described
herein, and/or any other payments, shall be subject to the tax imposed by
Section 4999 of the Internal Revenue Code (the portion of such payments
which are subject to the Excise Tax being referred to herein as the
"Payments"), the Company shall pay you, not later than the 30th day
following the date you become subject to the Excise Tax, an additional
amount (the "Gross-Up Payment") such that the net amount retained by you
after deduction of the Excise Tax on such Payments and all federal, state,
and local income tax, interest and penalties, and Excise Tax on the
Gross-Up Payment, shall be equal to the amount which would have been
retained by you had the payments not been subject to the Excise Tax.
Mark A. McCollum
July 27, 2000
12. GOVERNING LAW. This letter agreement shall be governed by, and shall be construed in accordance with, the internal laws (and not the laws of conflicts) of the State of Illinois.
Please acknowledge your agreement with these terms by executing a copy of this letter in the space provided below and returning it to me.
Sincerely,
TENNECO AUTOMOTIVE INC.
By: /s/ Mark P. Frissora
-----------------------------------------
Its: Chairman, CEO and President
---------------------------------------
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ACKNOWLEDGED AND ACCEPTED
Exhibit 10.26
Tenneco Automotive [TENNECO LOGO]
500 North Field Drive
Lake Forest, IL 60045
Tel 847-482-5000
Fax 847-482-5940
July 27, 2000
PERSONAL AND CONFIDENTIAL
Mr. Richard P. Schneider
210 Margate Court
Lake Bluff, IL 60044
Dear Mr. Schneider:
On behalf of Tenneco Automotive Inc. (the "Company"), I am pleased to set forth and confirm the terms and conditions of your continued service as Senior Vice President-Global Administration of the Company:
1. COMMENCEMENT. Except as specifically provided herein, the terms and conditions hereof will be effective immediately upon the signing hereof. You will report to and serve at the pleasure of the Board of Directors of the Company (the "Board").
2. BASE SALARY. Effective on January 1, 2000, you will be paid a base salary of $327,600.00 per year, which will be subject to such increases as may from time to time be approved by the Board or such committee of the Board to which such power has been delegated (the "Committee"), payable according to the regular pay schedule for salaried employees.
3. ANNUAL BONUS. You will be eligible for an annual performance bonus. Commencing with calendar year 2000, your annual target bonus will be, at least, $155,000.00 subject to fulfillment of performance goals as determined by the Board or Committee.
Mr. Richard P. Schneider
July 27, 2000
4. PERFORMANCE UNITS, STOCK OPTIONS, RESTRICTED STOCK AND STOCK EQUIVALENT UNITS. At the time of the spin-off of Pactiv Corporation (formerly Tenneco Packaging Inc.) by the Company (the "Spin-off"), you were granted 16,500 performance units under the Company's Stock Ownership Plan (the "Plan"), payable in shares of the Company's stock in January 2003, subject to fulfillment of performance goals as determined by the Committee and the other terms of the grant determined by the Committee. At the time of the Spin-off, you were granted under the Plan an option to purchase 90,000 shares of Company stock, subject to terms and conditions set by the Committee under the Plan. You have received a restricted stock grant of 29,308 shares and one-third of such restricted stock will vest on each of the first three anniversaries of the Spin-off if you continue to be employed by the Company on such anniversary. The number of shares set forth above with respect to the performance unit, restricted stock and stock option awards is after giving effect to the one-for-five reverse stock split completed in November 1999. In December, 1999 (effective November 5,1999), you were granted 87,567 stock equivalent units under the Plan for the three-year period ending December 31, 2002. This grant is payable in cash in three annual installments, subject to and in accordance with the terms and conditions of the grant determined by the Committee. The grants described herein are without prejudice to your receipt of additional grants as determined by the Board or the Committee under the Plan and/or any other similar benefit plan or compensation program or arrangement of the Company. The vesting terms and the other conditions, events and circumstances under which you will be entitled to receive the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units shall be the terms, conditions, events and circumstances set forth in your grant agreements for the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units as of the date of this letter.
5. EXECUTIVE BENEFIT PLANS. You will be eligible to participate in all employee benefit plans applicable to salaried employees generally and all executive compensation structures applicable to senior executives generally.
6. PERQUISITE ALLOWANCE. You will receive an annual perquisites allowance of $30,000.00 which you may receive in either cash, perquisites, or a combination at your election.
7. VACATION. You will receive five weeks vacation (with pay) per year.
8. KEY EXECUTIVE PENSION PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. You will be a participant in the Company's Key Executive Pension Plan and Supplemental Executive Retirement Plan.
9. CHANGE IN CONTROL. You will participate in the Company's Change in Control Severance Benefit Plan for Key Executives (the "Change in Control Plan"); provided, that
Mr. Richard P. Schneider
July 27, 2000
your cash severance benefit under Section 3A or 3B, as applicable, of the Change in Control Plan will be 3 times the total of (i) your annual base salary in effect immediately prior to the Change in Control (as defined in the Change in Control Plan), plus (ii) the higher of (a) your highest target bonus over the last 3 years of your employment, and (b) the average of your annual awards under any bonus plan of the Company or its subsidiaries, including any special awards, for the last three years of your employment (or such shorter period as you have been employed by the Company or its subsidiaries); and provided further that all of your outstanding awards under the Plan or any other similar benefit plan or compensation arrangement or program of the Company or its subsidiaries will be treated as exercisable, earned at target and vested, as the case may be, immediately upon the Change in Control (as that term currently is defined in the Change in Control Plan) and shall be paid to you or otherwise treated in the manner currently specified in, and in accordance with the current terms of, the Change in Control Plan.
10. SEVERANCE. Subject to the provisions of paragraph 9, if your employment is terminated other than by you voluntarily or for death, disability, or non-performance of your duties, subject to your execution of a general release and such other documents as the Company may reasonably request: (a) you will be paid a severance benefit in an amount equal to two times the total of your then current annual base salary plus your bonus for the immediately preceding year; (b) subject to Board and/or Committee approval, all your outstanding awards under the Plan (or any other similar benefit plan or compensation program or arrangement of the Company or its subsidiaries) may vest and/or become exercisable on the date of your termination; (c) vested stock options you hold will remain exercisable for a period of not less than 90 days from your termination; and (d) the Company will continue to provide to you, for one year following the date of the termination of your employment, health and welfare benefits amounting to no less than the amount of health and welfare benefits you receive at the time your employment commences. COBRA continuation coverage will begin following this one year period.
11. TAX GROSS-UP PAYMENT. If any portion of the payments described
herein, and/or any other payments, shall be subject to the tax imposed by
Section 4999 of the Internal Revenue Code (the portion of such payments
which are subject to the Excise Tax being referred to herein as the
"Payments"), the Company shall pay you, not later than the 30th day
following the date you become subject to the Excise Tax, an additional
amount (the "Gross-Up Payment") such that the net amount retained by you
after deduction of the Excise Tax on such Payments and all federal, state,
and local income tax, interest and penalties, and Excise Tax on the
Gross-Up Payment, shall be equal to the amount which would have been
retained by you had the payments not been subject to the Excise Tax.
12. GOVERNING LAW. This letter agreement shall be governed by, and shall be construed in accordance with, the internal laws (and not the laws of conflicts) of the State of Illinois.
Mr. Richard P. Schneider
July 27, 2000
13. EFFECT ON DECEMBER 1996 AGREEMENT. This letter agreement supercedes the terms and provisions of the agreement dated December 12, 1996 between you and the Company.
Please acknowledge your agreement with these terms by executing a copy of this letter in the space provided below and returning it to me.
Sincerely,
TENNECO AUTOMOTIVE INC.
By: /s/ Mark P. Frissora
-----------------------------------------
Its: Chairman, CEO and President
---------------------------------------
|
ACKNOWLEDGED AND ACCEPTED
/s/ Richard P. Schneider Date:
Exhibit 10.27
Tenneco Automotive [TENNECO LOGO]
500 North Field Drive
Lake Forest, IL 60045
Tel 847-482-5000
Fax 847-482-5940
July 27, 2000
PERSONAL AND CONFIDENTIAL
Mr. Timothy E. Jackson
13694 Shady Lane
Monroe, MI 48161
Dear Mr. Jackson:
On behalf of Tenneco Automotive Inc. (the "Company"), I am pleased to set forth and confirm the terms and conditions of your continued service as Senior Vice President and General Manager - North American Original Equipment and Worldwide Program Management of the Company:
1. COMMENCEMENT. Except as specifically provided herein, the terms and conditions hereof will be effective immediately upon the signing hereof. You will report to and serve at the pleasure of the Board of Directors of the Company (the "Board").
2. BASE SALARY. Effective on January 1, 2000, you will be paid a base salary of $260,000.00 per year, which will be subject to such increases as may from time to time be approved by the Board or such committee of the Board to which such power has been delegated (the "Committee"), payable according to the regular pay schedule for salaried employees.
3. ANNUAL BONUS. You will be eligible for an annual performance bonus. Commencing with calendar year 2000, your annual target bonus will be, at least, $155,000.00 subject to fulfillment of performance goals as determined by the Board or Committee.
Mr. Timothy E. Jackson
July 27, 2000
4. PERFORMANCE UNITS, STOCK OPTIONS, RESTRICTED STOCK AND STOCK EQUIVALENT UNITS. At the time of the spin-off of Pactiv Corporation (formerly Tenneco Packaging Inc.) by the Company (the "Spin-off"), you were granted 16,500 performance units under the Company s Stock Ownership Plan (the "Plan"), payable in shares of the Company s stock in January 2003, subject to fulfillment of performance goals as determined by the Committee and the other terms of the grant determined by the Committee. At the time of the Spin-off, you were granted under the Plan an option to purchase 90,000 shares of Company stock, subject to terms and conditions set by the Committee under the Plan. You have received a restricted stock grant of 29,308 shares and one-third of such restricted stock will vest on each of the first three anniversaries of the Spin-off if you continue to be employed by the Company on such anniversary. The number of shares set forth above with respect to the performance unit, restricted stock and stock option awards is after giving effect to the one-for-five reverse stock split completed in November 1999. In December, 1999 (effective November 5, 1999), you were granted 87,567 stock equivalent units under the Plan for the three-year period ending December 31, 2002. This grant is payable in cash in three annual installments, subject to and in accordance with the terms and conditions of the grant determined by the Committee. The grants described herein are without prejudice to your receipt of additional grants as determined by the Board or the Committee under the Plan and/or any other similar benefit plan or compensation program or arrangement of the Company. The vesting terms and the other conditions, events and circumstances under which you will be entitled to receive the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units shall be the terms, conditions, events and circumstances set forth in your grant agreements for the Performance Units, Stock Options, Restricted Stock and Stock Equivalent Units as of the date of this letter.
5. EXECUTIVE BENEFIT PLANS. You will be eligible to participate in all employee benefit plans applicable to salaried employees generally and all executive compensation structures applicable to senior executives generally.
6. PERQUISITE ALLOWANCE. You will receive an annual perquisites allowance of $30,000.00 which you may receive in either cash, perquisites, or a combination at your election.
7. VACATION. You will receive four weeks vacation (with pay) per year.
8. KEY EXECUTIVE PENSION AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. You will be a participant in the Company's Key Executive Pension Plan and Supplemental Executive Retirement Plan.
9. CHANGE IN CONTROL. You will participate in the Company's Change in Control Severance Benefit Plan for Key Executives (the "Change in Control Plan"); provided, that
Mr. Timothy E. Jackson
July 27, 2000
your cash severance benefit under Section 3A or 3B, as applicable, of the Change in Control Plan will be 3 times the total of (i) your annual base salary in effect immediately prior to the Change in Control (as defined in the Change in Control Plan), plus (ii) the higher of (a) your highest target bonus over the last 3 years of your employment, and (b) the average of your annual awards under any bonus plan of the Company or its subsidiaries, including any special awards, for the last three years of your employment (or such shorter period as you have been employed by the Company or its subsidiaries); and provided further that all of your outstanding awards under the Plan or any other similar benefit plan or compensation arrangement or program of the Company or its subsidiaries will be treated as exercisable, earned at target and vested, as the case may be, immediately upon the Change in Control (as that term is currently defined in the Change in Control Plan) and shall be paid to you or otherwise treated in the manner currently specified in, and in accordance with the current terms of, the Change in Control Plan.
10. SEVERANCE. Subject to the provisions of paragraph 9, if your employment is terminated other than by you voluntarily or for death, disability, or non-performance of your duties, subject to your execution of a general release and such other documents as the Company may reasonably request: (a) you will be paid a severance benefit in an amount equal to two times the total of your then current annual base salary plus your bonus for the immediately preceding year; (b) subject to Board and/or Committee approval, all your outstanding awards under the Plan (or any other similar benefit plan or compensation program or arrangement of the Company or its subsidiaries) may vest and/or become exercisable on the date of your termination; (c) vested stock options you hold will remain exercisable for a period of not less than 90 days from your termination; and (d) the Company will continue to provide to you, for one year following the date of the termination of your employment, health and welfare benefits amounting to no less than the amount of health and welfare benefits you receive at the time your employment commences. COBRA continuation coverage will begin following this one year period.
11. TAX GROSS-UP PAYMENT. If any portion of the payments described
herein, and/or any other payments, shall be subject to the tax imposed by
Section 4999 of the Internal Revenue Code (the portion of such payments
which are subject to the Excise Tax being referred to herein as the
"Payments"), the Company shall pay you, not later than the 30th day
following the date you become subject to the Excise Tax, an additional
amount (the "Gross-Up Payment") such that the net amount retained by you
after deduction of the Excise Tax on such Payments and all federal, state,
and local income tax, interest and penalties, and Excise Tax on the
Gross-Up Payment, shall be equal to the amount which would have been
retained by you had the payments not been subject to the Excise Tax.
Mr. Timothy E. Jackson
July 27, 2000
12. GOVERNING LAW. This letter agreement shall be governed by, and shall be construed in accordance with, the internal laws (and not the laws of conflicts) of the State of Illinois.
Please acknowledge your agreement with these terms by executing a copy of this letter in the space provided below and returning it to me.
Sincerely,
TENNECO AUTOMOTIVE INC.
By: /s/ Mark P. Frissora
-----------------------------------------
Its: Chairman, CEO and President
---------------------------------------
|
ACKNOWLEDGED AND ACCEPTED
/s/ Timothy E. Jackson Date:
EXHIBIT 12
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
(UNAUDITED)
SIX MONTHS
ENDED
JUNE 30,
-------------
2000 1999
----- -----
Income from continuing operations........................... $ 16 $ 53
Add:
Interest expense.......................................... 93 42
Portion of rentals representative of the interest
factor................................................. 7 5
Preferred stock dividend requirements of majority-owned
subsidiaries........................................... -- 13
Income tax expense (benefit) and other taxes on income.... 4 44
Amortization of interest capitalized...................... -- --
Undistributed (earnings) losses of affiliated companies in
which less than a 50% voting interest is owned......... -- --
---- -----
Earnings as defined.................................. $120 $ 157
==== =====
Interest expense............................................ $ 93 $ 42
Interest capitalized........................................ 3 --
Portion of rentals representative of the interest factor.... 7 5
Preferred stock dividend requirements of majority-owned
subsidiaries on a pre-tax basis........................... -- 22
---- -----
Fixed charges as defined............................. $103 $ 69
==== =====
Ratio of earnings to fixed charges.......................... 1.17 2.28
==== =====
|
EXHIBIT 15
Tenneco Automotive Inc.
We are aware that Tenneco Automotive Inc. has incorporated by reference in the following Registration Statements its Form 10-Q for the quarter ended June 30, 2000, which includes our report dated July 24, 2000 covering the unaudited interim financial information contained therein. Pursuant to Regulations C of the Securities Act of 1933, that report is not considered a part of the Registration Statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act.
REGISTRATION NO. FORM ---------------- ---- 333-24291 ............................................... S-3 333-17485 ............................................... S-8 333-30933 ............................................... S-8 333-17487 ............................................... S-8 333-41535 ............................................... S-8 333-27279 ............................................... S-8 333-23249 ............................................... S-8 333-27281 ............................................... S-8 333-41537 ............................................... S-8 333-48777 ............................................... S-8 333-76261 ............................................... S-8 333-33442 ............................................... S-8 333-33934 ............................................... S-8 |
Very truly yours,
Arthur Andersen LLP
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 2000 |
| PERIOD START | JAN 01 2000 |
| PERIOD END | JUN 30 2000 |
| CASH | 51 |
| SECURITIES | 0 |
| RECEIVABLES | 640 |
| ALLOWANCES | 0 |
| INVENTORY | 391 |
| CURRENT ASSETS | 1,284 |
| PP&E | 1,877 |
| DEPRECIATION | 873 |
| TOTAL ASSETS | 2,988 |
| CURRENT LIABILITIES | 725 |
| BONDS | 1,570 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 401 |
| TOTAL LIABILITY AND EQUITY | 2,988 |
| SALES | 1,830 |
| TOTAL REVENUES | 1,830 |
| CGS | 1,414 |
| TOTAL COSTS | 1,414 |
| OTHER EXPENSES | 303 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 93 |
| INCOME PRETAX | 22 |
| INCOME TAX | 4 |
| INCOME CONTINUING | 16 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 16 |
| EPS BASIC | .45 |
| EPS DILUTED | .45 |
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD START | JAN 01 1999 |
| PERIOD END | JUN 30 1999 |
| CASH | 84 |
| SECURITIES | 0 |
| RECEIVABLES | 557 |
| ALLOWANCES | 0 |
| INVENTORY | 412 |
| CURRENT ASSETS | 1,201 |
| PP&E | 1,923 |
| DEPRECIATION | 886 |
| TOTAL ASSETS | 2,943 |
| CURRENT LIABILITIES | 663 |
| BONDS | 1,578 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 422 |
| TOTAL LIABILITY AND EQUITY | 2,943 |
| SALES | 1,657 |
| TOTAL REVENUES | 1,657 |
| CGS | 1,239 |
| TOTAL COSTS | 1,239 |
| OTHER EXPENSES | 274 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 42 |
| INCOME PRETAX | 110 |
| INCOME TAX | 44 |
| INCOME CONTINUING | 53 |
| DISCONTINUED | (111) |
| EXTRAORDINARY | (7) |
| CHANGES | (134) |
| NET INCOME | (199) |
| EPS BASIC | (5.96) |
| EPS DILUTED | (5.96) |