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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12387
TENNECO AUTOMOTIVE INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 76-0515284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 NORTH FIELD DRIVE 60045
LAKE FOREST, IL (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (847) 482-5000
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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6.70% Notes due 2005; 7.45% Debentures due 2025; New York Stock Exchange
8.075% Notes due 2002; 9.20% Debentures due
2012;
10.75% Notes due 2001; 10.20% Debentures due
2008
Common Stock, par value $.01 per share New York, Chicago, Pacific and
London Stock Exchanges
Preferred Share Purchase Rights New York, Chicago, Pacific and
London Stock Exchanges
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Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing.
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CLASS OF COMMON EQUITY AND NUMBER OF SHARES
HELD BY NON-AFFILIATES AT MARCH 1, 2000 MARKET VALUE HELD BY NON-AFFILIATES
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Common Stock, 33,654,463 shares $250,305,609*
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* Based upon the closing sale price on the Composite Tape for the Common Stock
on March 1, 2000.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Common Stock, par
value $.01 per share, 33,978,773 shares outstanding as of March 1, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
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<CAPTION>
PART OF THE FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
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Tenneco Automotive Inc.'s Definitive Proxy Statement for
the Annual Meeting of Stockholders to be Held May 9,
2000 Part III
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CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report contains forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 concerning, among other
things, the prospects and developments of the Company (as defined) and business
strategies for its operations, all of which are subject to risks and
uncertainties. These forward looking statements are identified as "forward
looking statements" or by their use of terms (and variations thereof) and
phrases such as "will," "may," "anticipates," "intend," "goal," "continued,"
"estimate," "expects," "project," "potential," "forecast," "plans," "should,"
"designed to," "foreseeable future," "outlook," "believe," and "scheduled" and
similar terms (and variations thereof) and phrases.
When a forward looking statement includes a statement of the assumptions or
bases underlying the forward looking statement, we caution that, while we
believe such assumptions or bases to be reasonable and make them in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward looking statement, we or
our management expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished.
Our actual results may differ significantly from the results discussed in
the forward looking statements. Factors that might cause such a difference
include the following:
Changes in Consumer Demand and Prices. Demand for our original equipment
products is subject to the level of consumer demand for new vehicles that are
equipped with our parts. The level of new car purchases is cyclical, affected by
such factors as interest rates, consumer confidence, patterns of consumer
spending and the automobile replacement cycle. Demand for our aftermarket
products varies based upon such factors as the level of new vehicle purchases,
which initially displaces demand for aftermarket products, the severity of
winter weather, which increases the demand for certain aftermarket products, and
other factors, including the average useful life of parts and number of miles
driven.
Demand for and pricing of our products are subject to economic conditions
and other factors present in the various domestic and international markets
where the products are sold.
Consolidation among automotive parts customers and suppliers could make it
more difficult for us to compete favorably. Our financial condition and results
of operations could be adversely affected because the customer base for
automotive parts is consolidating in both the original equipment market and
aftermarket. As a result, we are competing for business from fewer customers.
Due to the cost focus of these major customers, we have been, and expect to
continue to be, required to reduce prices. We cannot be certain that we will be
able to generate cost savings and operational improvements in the future that
are sufficient to offset price reductions required by existing customers and
necessary to win additional business.
Furthermore, the trend towards consolidation among automotive parts
suppliers is resulting in fewer, larger suppliers who benefit from purchasing
and distribution economies of scale. If we cannot achieve cost savings and
operational improvements sufficient to allow us to compete favorably in the
future with these larger companies, our financial condition and results of
operations could be adversely affected due to a reduction of, or inability to
increase, sales.
We are dependent on large customers for future revenues. We depend on major
vehicle manufacturers for a substantial portion of our net sales. For example,
during 1999 Ford, DaimlerChrysler and General Motors accounted for 13.8%, 13.6%
and 10.3% of our net sales from continuing operations, respectively. The loss of
all or a substantial portion of our sales to any of our large-volume customers
could have a material adverse effect on our financial condition and results of
operations by reducing cash flows and our ability to spread costs over a larger
revenue base. We may make fewer sales to these customers for a
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variety of reasons, including: (1) loss of awarded business; (2) reduced or
delayed customer requirements; or (3) strikes or other work stoppages affecting
production by the customers.
We may not be able to successfully respond to the changing distribution
channels for aftermarket products. Major automotive aftermarket retailers, such
as AutoZone and Advance Auto Parts, are attempting to increase their commercial
sales by selling directly to automotive parts installers in addition to
individual consumers. These installers have historically purchased from their
local warehouse distributors and jobbers, who are our more traditional
customers. We cannot assure you that we will be able to maintain or increase
aftermarket sales through increasing our sales to retailers. Furthermore,
because of the cost focus of major retailers, we have been, and expect to
continue to be, required to offer price concessions. Our failure to maintain or
increase aftermarket sales, or to offset the impact of any reduced sales or
pricing through cost improvements, could have an adverse impact on our business
and operating results.
We may be unable to compete favorably in the highly competitive automotive
parts industry. The automotive parts industry is highly competitive. Although
the overall number of competitors has decreased due to ongoing industry
consolidation, we face significant competition within each of our major product
areas. The principal competitive factors are price, quality, service, product
performance, design and engineering capabilities, new product innovation and
timely delivery. We cannot assure you that we will be able to continue to
compete favorably in this competitive market or that increased competition will
not have a material adverse effect on our business by reducing our ability to
increase or maintain sales or profit margins.
We may be unable to realize our business strategy of improving operating
performance. We have either implemented or plan to implement several important
strategic initiatives designed to improve our operating performance. The failure
to achieve the goals of these initiatives could have a material adverse effect
on our business, particularly since we rely on these initiatives to offset
pricing pressures from our customers, as described above. We cannot assure you
that we will be able to successfully implement or realize the expected benefits
of any of these initiatives or that we will be able to sustain improvements made
to date.
We are subject to risks related to our international operations. We have
manufacturing and distribution facilities in many countries, principally in
North America, Europe and Latin America, and sell our products worldwide. For
1999, about 46% of our net sales from continuing operations were derived from
operations outside North America. International operations are subject to
various risks which could have a material adverse effect on those operations or
our business as a whole, including:
- exposure to local economic conditions;
- exposure to local political conditions, including the risk of seizure of
assets by foreign government;
- currency exchange rate fluctuations;
- hyperinflation in certain foreign countries;
- controls on the repatriation of cash, including imposition or increase of
withholding and other taxes on remittances and other payments by foreign
subsidiaries; and
- export and import restrictions.
We may be unable to realize sales represented by our awarded business. The
realization of future sales from awarded business is inherently subject to a
number of important risks and uncertainties, including as to the number of
vehicles that our OE customers will actually produce, the timing of that
production and the mix of options that our OE customers and consumers may
choose. In addition, our customers generally have the right to replace us with
another supplier at any time for a variety of reasons. Accordingly, we cannot
assure you that we will in fact realize any or all of the future sales
represented by our awarded business.
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Exchange rate fluctuations could cause a decline in our financial condition
and results of operations. As a result of our international operations, we
generate a significant portion of our net sales and incur a significant portion
of our expenses in currencies other than the U.S. dollar. To the extent we are
unable to match revenues received in foreign currencies with costs paid in the
same currency, exchange rate fluctuations in that currency could have a material
adverse effect on our business. For example, where we have significantly more
costs than revenues generated in a foreign currency, we are subject to risk if
that foreign currency appreciates against the U.S. dollar because the
appreciation effectively increases our cost in that country. We generally seek
to mitigate the effect of exchange rate fluctuations from time to time through
the use of derivative financial instruments, but cannot assure you that we will
continue this practice or be successful in these efforts.
The financial condition and results of operations of some of our operating
entities are reported in foreign currencies and then translated into U.S.
dollars at the applicable exchange rate for inclusion in our consolidated
financial statements. As a result, appreciation of the U.S. dollar against these
foreign currencies will have a negative impact on our reported revenues and
operating profit while depreciation of the U.S. dollar against these foreign
currencies will have a positive effect on reported revenues and operating
profit. We do not generally seek to mitigate this translation effect through the
use of derivative financial instruments.
The cyclicality of automotive production and sales could cause a decline in
our financial condition and results. A decline in automotive sales and
production would likely cause a decline in our sales to vehicle manufacturers,
and could result in a decline in our results of operations and financial
condition. The automotive industry has been characterized historically by
periodic fluctuations in overall demand for vehicles due to, among other things,
changes in general economic conditions and consumer preferences. These
fluctuations generally result in corresponding fluctuations in demand for our
products. The highly cyclical nature of the automotive industry presents a risk
that is outside our control and that cannot be accurately predicted.
Longer product lives of automotive parts are adversely affecting
aftermarket demand for some of our products. The average useful life of
automotive parts has been steadily increasing in recent years due to innovations
in products and technologies. The longer product lives allow vehicle owners to
replace parts of their vehicles less often. As a result, a portion of sales in
the aftermarket has been displaced. Additional increases in the average useful
lives of automotive parts are likely to adversely affect the demand for our
aftermarket products. Aftermarket sales represented approximately 35% of our net
sales from continuing operations for 1999.
The hourly workforce in the automotive industry is highly unionized and our
business could be adversely affected by labor disruptions. Substantially all of
the hourly employees of North American vehicle manufacturers are represented by
the United Automobile, Aerospace and Agricultural Implement Workers of America
under collective bargaining agreements. In addition, vehicle manufacturers and
their employees in other countries are also subject to labor agreements. A work
stoppage or strike at the production facilities of a significant customer, at
our facilities or at a significant supplier could have an adverse impact on us
by disrupting demand for our products and/or our ability to manufacture our
products. For example, the General Motors strike in 1998 reduced second and
third quarter revenue and income growth of our original equipment business in
that year.
We may incur material product warranty costs. From time to time, we receive
product warranty claims from our customers. Vehicle manufacturers are
increasingly requiring their outside suppliers to guarantee or warrant their
products and to bear the costs of repair and replacement of these products under
new vehicle warranties. We cannot assure you that costs associated with
providing product warranties will not be material.
We cannot assure you that we will be able to successfully transition to an
independent public company. Prior to November 4, 1999, we never operated as a
stand-alone company and had historically been able to rely, to some degree, on
the earnings, assets and cash flow of our former packaging businesses for
capital requirements and some administrative services. Accordingly, our
consolidated financial
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statements included in this document may not necessarily reflect the results of
operations and financial condition that would have been achieved if we had
operated independently of our packaging businesses during the periods presented.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Changes in Prices of Raw Materials. Significant increases in the cost of
certain raw materials used in our products, to the extent they are not timely
reflected in the price we charge our customers or mitigated through long-term
supply contracts, could adversely impact our results.
Other Factors. In addition to the factors described above, we may be
impacted by a number of other matters and uncertainties, including: (i)
potential legislation, regulatory changes and other governmental actions,
including the ability to receive regulatory approvals and the timing of such
approvals; (ii) material substitution; (iii) new technologies that reduce the
demand for certain of our products or otherwise render them obsolete; (iv) our
ability to integrate operations of acquired businesses quickly and in a cost
effective manner; (v) changes in distribution channels or competitive conditions
in the markets and countries where we operate; (vi) capital availability or
costs, including changes in interest rates, market perceptions of the industries
in which we operate or ratings of securities; (vii) increases in the cost of
compliance with regulations, including environmental regulations, and
environmental liabilities in excess of the amount reserved; (viii) changes by
the Financial Accounting Standards Board or the Securities and Exchange
Commission of authoritative generally accepted accounting principles or
policies; and (ix) the timing and occurrence (or nonoccurrence) of transactions
and events which may be subject to circumstances beyond our control.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Tenneco Automotive Inc. .................................. 1
Contributions of Major Businesses......................... 2
Description of Our Business............................... 4
Environmental Matters..................................... 16
Certain Reorganization Agreements......................... 17
Item 2. Properties.................................................. 17
Item 3. Legal Proceedings........................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 4.1. Executive Officers of the Registrant........................ 19
PART II
Item 5. Market for Registrant's Common Equity and Related 21
Stockholder Matters.........................................
Item 6. Selected Financial Data..................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition 25
and Results of Operations...................................
Item 7A. Quantitative and Qualitative Disclosures About Market 41
Risk........................................................
Item 8. Financial Statements and Supplementary Data................. 42
Item 9. Changes in and Disagreements with Accountants on Accounting 85
and Financial Disclosure....................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 86
Item 11. Executive Compensation...................................... 86
Item 12. Security Ownership of Certain Beneficial Owners and 86
Management..................................................
Item 13. Certain Relationships and Related Transactions.............. 86
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 87
8-K.........................................................
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PART I
ITEM 1. BUSINESS.
TENNECO AUTOMOTIVE INC.
Our company, Tenneco Automotive Inc., is one of the world's leading
manufacturers of automotive emissions control and ride control products and
systems for both the original equipment market and the replacement market, or
aftermarket. As used herein, the term "Tenneco" , "we", "us", "our", or the
"Company" refers to Tenneco Automotive Inc. and its consolidated subsidiaries.
Tenneco was incorporated in Delaware in 1996 under the name "New Tenneco
Inc." ("New Tenneco") as a wholly owned subsidiary of the company then known as
Tenneco Inc. ("Old Tenneco") At that time, Old Tenneco's major businesses were
shipbuilding, energy, automotive and packaging. On December 11, 1996, Old
Tenneco completed the transfer of its automotive and packaging businesses to us,
and spun off our company to its public stockholders (the "1996 Spin-off"). In
connection with the 1996 Spin-off, Old Tenneco also spun off its shipbuilding
division to its public stockholders, the remaining energy company was acquired
by El Paso Natural Gas Company and we changed our name from New Tenneco to
Tenneco Inc. Unless the context otherwise requires, for periods prior to
December 11, 1996, references to "Tenneco", "we", "us", "our" or the "Company"
also refer to Old Tenneco.
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. We 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 (the "1999 Spin-off"). 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. You should read Note 2 to the
financial statements for more information about our discontinued operations.
The morning following the 1999 Spin-off, we completed a reverse stock split
that had been approved by our shareholders at 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.
Before the 1999 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 a new credit
facility 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 were outstanding before the debt
realignment. Note 4 to the financial statements included in Item 8 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 have more information about our debt and the debt
realignment.
In March 2000, our Board of Directors amended our stockholders rights plan.
The amendments were considered in light of the 1999 Spin-off of Pactiv. The
amendments were not made in response to any
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specific proposal to acquire the company, and the Board believes that the
amendments will help ensure that the rights plan remains effective in preserving
long-term value for our stockholders.
The amendments decrease the exercise price under the rights plan from
$130.00, which was the price established when the plan was adopted in 1998 and
each share of our common stock carried one right, to an aggregate exercise price
of $44.00 for the five rights that attach to each share of our common stock
after giving effect to the one-for-five reverse stock split. As amended, each
right will entitle our stockholders to purchase one one-thousandth share of
Series B Junior Participating Preferred Stock at a price of $8.80, subject to
further adjustment from time to time in accordance with the rights plan. Each
share of our common stock carries five rights, for an aggregate exercise price
of $44.00. The amendments also decrease the stock ownership level at which the
rights become exercisable from 20% or more of our outstanding common stock to
15% or more of our outstanding common stock. The qualified offer exception has
been eliminated and certain other technical changes were also made. An
independent Board committee will continue to review the plan at least every
three years and report to the full Board regarding whether it continues to be in
the stockholders' best interests.
Under the amended rights plan, the rights will become exercisable if a
person or group acquires beneficial ownership of 15% or more of our outstanding
common stock or commences a tender offer for 15% or more of our outstanding
common stock. Rights held by the 15% or greater beneficial owner will become
void and not be exercisable.
CONTRIBUTIONS OF MAJOR BUSINESSES
For information concerning our operating segments, geographic areas and
major products or groups of products, see Note 11 to the Financial Statements of
Tenneco Automotive Inc. and Consolidated Subsidiaries included in Item 8. The
following tables summarize for each of our operating segments for the periods
indicated: (i) net sales and operating revenues from continuing operations; (ii)
earnings before interest expense, income taxes and minority interest ("EBIT")
from continuing operations; and (iii) capital expenditures for continuing
operations. As a result of the 1999 Spin-off, our reportable segments have
changed. Information from prior periods has been restated to reflect this
change. You should also read "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Item 7 for information about
costs and charges included in our results. Those costs and charges relate to the
1999 Spin-off, restructuring actions, and other items.
NET SALES AND OPERATING REVENUES FROM CONTINUING OPERATIONS:
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1999 1998 1997
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(DOLLAR AMOUNTS IN MILLIONS)
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North America.................................. $1,768 54% $1,688 52% $1,726 54%
Europe......................................... 1,273 39 1,278 40 1,204 37
Other.......................................... 297 9 316 9 351 11
Intergroup sales............................... (59) (2) (45) (1) (55) (2)
------ --- ------ --- ------ ---
Total..................................... $3,279 100% $3,237 100% $3,226 100%
====== === ====== === ====== ===
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EBIT FROM CONTINUING OPERATIONS
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1999 1998 1997
--------------- -------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
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North America................................. $ 166 112% $ 58 26% $ 216 55%
Europe........................................ 44 30 155 68 153 39
Other......................................... (62) (42) 14 6 26 6
------ --- ------ ---- ------ ---
Total.................................... $ 148 100% $ 227 100% $ 395 100%
====== === ====== ==== ====== ===
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CAPITAL EXPENDITURES FOR CONTINUING OPERATIONS:
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1999 1998 1997
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(DOLLAR AMOUNTS IN MILLIONS)
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North America.................................. $ 71 46% $ 96 49% $ 95 43%
Europe......................................... 65 42 67 34 84 38
Other.......................................... 18 12 32 17 42 19
------ --- ------ --- ------ ---
Total..................................... $ 154 100% $ 195 100% $ 221 100%
====== === ====== === ====== ===
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Interest expense, income taxes, and minority interest related to continuing
operations that were not allocated to our automotive operations are:
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1999 1998 1997
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(MILLIONS)
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Interest expense (net of interest capitalized).............. $106 $69 $ 58
Income tax expense.......................................... 82 13 80
Minority interest........................................... 23 29 23
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DESCRIPTION OF OUR BUSINESS
With 1999 revenues from continuing operations of over $3.2 billion, we are
one of the world's largest producers of automotive emissions control and ride
control systems and products. We serve both original equipment manufacturers and
replacement markets worldwide through leading brands, including Monroe(R) brand
ride control and Walker(R) brand emissions control products.
As an automotive parts supplier, we design, market and sell individual
component parts for vehicles as well as groups of components that are combined
as modules or systems within vehicles. These parts, modules and systems are sold
globally to the vast majority of vehicle manufacturers and throughout all
aftermarket distribution channels.
OVERVIEW OF AUTOMOTIVE PARTS INDUSTRY
The automotive parts industry is generally separated into two categories:
(1) "original equipment" or "OE" sales, in which parts are sold in large
quantities directly to original equipment vehicle manufacturers; and (2)
"aftermarket" sales, in which parts are sold as replacement parts in varying
quantities to a wide range of wholesalers, retailers and installers. In the OE
market, parts suppliers are generally divided into tiers -- "Tier 1" suppliers,
who provide their products directly to original equipment manufacturers, and
"Tier 2" or "Tier 3" suppliers, who sell their products principally to other
suppliers for combinations into the other suppliers' own product offerings.
Demand for automotive parts in the OE market is driven by the number of new
vehicle sales, which in turn is largely determined by prevailing economic
conditions. Although OE demand is tied to planned vehicle production, parts
suppliers also have the opportunity to grow through increasing product content
and customer and market penetration. Companies with global presence in advanced
technology, engineering, manufacturing and support capabilities, such as our
company, are, we believe, in the best position to take advantage of these
opportunities.
Demand for aftermarket products is fundamentally driven by the quality of
OE parts, the number of vehicles in operation, the average age of the vehicle
fleet, vehicle usage and the average useful life of vehicle parts. Innovative
aftermarket products that upgrade the performance or safety of an automobile's
original parts, as several of our products do, can also drive aftermarket
demand.
INDUSTRY TRENDS
Currently, several significant existing and emerging trends are
dramatically reshaping the automotive industry. As the dynamics of the
automotive industry change, so do the roles, responsibilities and relationships
of its participants. Key trends that we believe are affecting automotive parts
suppliers include:
CUSTOMER AND SUPPLIER CONSOLIDATION
The customer base for automotive parts is consolidating in both the OE
market and aftermarket. Because of recent business combinations among vehicle
manufacturers -- such as the DaimlerChrysler merger and Ford's acquisition of
Volvo -- and in the aftermarket -- such as AutoZone's acquisition of Chief Auto
Parts and CSK Auto's acquisition of Big Wheel/Rossi -- suppliers are competing
for the business of fewer customers. The cost focus of these major customers is
causing suppliers to reduce prices.
Consolidation is also occurring among automotive parts suppliers,
particularly those who supply vehicle makers. The number of Tier 1 suppliers is
projected to decrease from approximately 1,500 to approximately 600 between 1998
and 2005. The primary reasons for this consolidation include: (1) an increasing
desire by OE manufacturers to work with fewer, larger suppliers that can provide
fully integrated systems; and (2) the inability of smaller suppliers to compete
on price with the larger companies who benefit from purchasing and distribution
economies of scale. A supplier's viability in this consolidating market depends,
in part, on its continuing ability to maintain and increase operating
efficiencies by reducing costs and improving productivity. Also important is a
supplier's ability to provide value-added services such as materials management,
specialized engineering capabilities and integration of
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individual components into modules and systems. With our strong market positions
in emissions control and ride control products and our demonstrated ability to
integrate and deliver modules and systems, we believe we are well positioned to
respond to increasing customer consolidation.
INCREASED OE OUTSOURCING AND DEMAND FOR FULL SYSTEM INTEGRATION BY
SUPPLIERS
OE manufacturers are moving towards outsourcing automotive parts and
systems to simplify the vehicle assembly process, lower costs and reduce vehicle
development time. Outsourcing allows OE manufacturers to take advantage of the
lower cost structure of the automotive parts suppliers and to benefit from
multiple suppliers engaging in simultaneous development efforts. Development of
advanced electronics has enabled formerly independent vehicle components to
become "interactive," leading to a shift in demand from individual parts to
fully integrated systems. As a result, automotive parts suppliers offer OE
manufacturers component products individually, as well as in a variety of
integrated forms such as modules and systems:
- "Modules" are groups of component parts arranged in close physical
proximity to each other within a vehicle. Modules are often assembled by
the supplier and shipped to the original equipment manufacturer for
installation in a vehicle as a unit. Seats, instrument panels, axles and
door panels are examples.
- "Systems" are groups of component parts located throughout a vehicle
which operate together to provide a specific vehicle function. Anti-lock
braking systems, safety restraint systems, roll control systems,
emissions control and powertrain systems are examples.
This shift in demand towards fully integrated systems has created the role of
the Tier 1 systems integrator. These systems integrators will increasingly have
the responsibility to execute a number of activities, such as design, product
development, engineering, testing of component systems and purchasing from Tier
2 suppliers. We are an established Tier 1 supplier with ten years of product
integration experience. We have modules or systems for 25 vehicle platforms in
production worldwide and modules or systems for three additional platforms under
development. For example, we supply ride control modules for the Chrysler JA
Cirrus/Stratus/Breeze and the emissions control system for the Porsche Boxster.
GLOBALIZATION OF THE AUTOMOTIVE INDUSTRY
OE manufacturers are increasingly requiring suppliers to provide parts on a
global basis. As the customer base of OE manufacturers changes, and emerging
markets become more important to achieving growth, suppliers must be prepared to
provide products any place in the world. This requires a worldwide approach to
supply chain management, engineering, sales and distribution:
- Growing Importance of Emerging Markets. Because the North American and
Western European automotive markets are relatively mature, OE
manufacturers are increasingly focusing on emerging markets for growth
opportunities, particularly China, Eastern Europe, India and Latin
America. This increased OE focus has, in turn, increased the growth
opportunities in the aftermarkets in these regions.
- Governmental Tariffs and Local Parts Requirements. Many governments
around the world require that vehicles sold within their country contain
specified percentages of locally produced parts. Additionally, some
governments place high tariffs on imported parts.
- Location of Production Closer to End Markets. OE manufacturers and parts
suppliers have relocated production globally on an "onsite" basis that is
closer to end markets. This international expansion allows suppliers to
pursue sales in developing markets and take advantage of relatively lower
labor costs.
With facilities around the world, including the key regions of North America,
South America, Europe and Asia, we can supply our customers on a global basis.
5
<PAGE> 12
GLOBAL RATIONALIZATION OF OE VEHICLE PLATFORMS
OE manufacturers are increasingly designing "global" platforms. A "global"
platform is a basic mechanical structure of a vehicle that can accommodate
different features and is in production and/or development in more than one
region. Thus, OE manufacturers can design one platform for a number of similar
vehicle models. This allows manufacturers to realize significant economies of
scale through limiting variations across items such as steering columns, brake
systems, transmissions, axles, exhaust systems, support structures and power
window and door lock mechanisms. We believe that this shift towards
standardization will have a large impact on automotive parts suppliers, who
should experience a reduction in production costs as OE manufacturers reduce
variations in components. We also expect parts suppliers to experience higher
production volumes per unit and greater economies of scale, as well as reduced
total investment costs for molds, dies and prototype development. As of the end
of 1999, we were working with OE manufacturers on more than 30 "global"
platforms.
INCREASING ELECTRONIC COMPONENTS AND TECHNOLOGICAL INNOVATION
As consumers continue to demand competitively priced vehicles with
increased performance and functionality, the number of electronic components
utilized in vehicles is increasing. By replacing mechanical functions with
electronics and by integrating mechanical and electronic functions within a
vehicle, OE manufacturers are achieving improved emissions control, improved
safety and more sophisticated features at lower costs.
In addition, automotive parts customers are increasingly demanding
technological innovation from suppliers to address more stringent emissions and
other regulatory standards and to improve vehicle performance. To continue
developing innovative products, systems and modules, we maintain 16 research and
development facilities and have entered into several strategic alliances focused
on advanced technology designs. For example, we have developed several adaptive
damping systems which reduce undesirable vehicle motion. Also, we have developed
the self-lubricating elastomer, which has the additional ability to reduce
friction between moving components in a suspension system, thereby reducing
noise and vibration.
INCREASING ENVIRONMENTAL STANDARDS
Automotive parts suppliers and OE manufacturers are designing products and
developing materials to comply with increasingly stringent environmental
requirements. Government regulations adopted over the past decade require
substantial reductions in automobile tailpipe emissions, longer warranties on
parts of an automobile's pollution control equipment and additional equipment to
control fuel vapor emissions. Some of these regulations also mandate more
frequent emissions and safety inspections for the existing fleet of vehicles.
Manufacturers have responded by focusing their efforts towards technological
development to minimize pollution. As a leading supplier of emissions control
systems with strong technical capabilities, we are well positioned to benefit
from more rigorous environmental standards.
EXTENDED PRODUCT LIFE OF AUTOMOTIVE PARTS
The average useful life of automotive parts -- both OE and
replacement -- has been steadily increasing in recent years due to innovations
in products and technologies. The longer product lives allow vehicle owners to
replace parts of their vehicles less often. As a result, a portion of sales in
the aftermarket has been displaced. Accordingly, a supplier's future viability
in the aftermarket will depend, in part, on its ability to reduce costs and
leverage its advanced technology and recognized brand names to maintain or
achieve additional sales. As a Tier 1 OE supplier, we believe we are well
positioned to leverage our products and technology into the aftermarket.
Furthermore, we believe an opportunity exists for replacement of certain parts
to increase as the average age of vehicles on the road increases. For example,
from 1990 to 1997 the average age of cars in the U.S. increased from 7.8 to 8.7
years.
6
<PAGE> 13
GROWING RETAIL AFTERMARKET DISTRIBUTION
During the last decade, the number of retail automotive parts chains, such
as AutoZone and Advance Auto Parts, has been growing while the number of
traditional automotive parts stores ("jobbers") that sell to installers has been
declining. Since 1990, the number of retail automotive parts stores has
increased from approximately 10,000 to approximately 14,000, while the number of
jobbers has decreased from approximately 25,000 to approximately 21,000. In
addition, since retailers are attempting to grow their commercial sales to
automotive parts installers, they are increasingly adding premium brands to
their product portfolios. This enables them to offer the option of a premium
brand, which is often preferred by their commercial customers, or a standard
product, which is often preferred by their retail customers. We believe we are
well positioned to respond to this changing aftermarket situation because of our
focus on cost reduction and high quality, premium brands.
ANALYSIS OF REVENUES
The following table provides, for each of the years 1997 through 1999,
information relating to our net sales, by primary product lines and markets:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
--------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
EMISSIONS CONTROL SYSTEMS & PRODUCTS
Aftermarket............................................... $ 514 $ 590 $ 686
OE market................................................. 1,401 1,224 1,067
------ ------ ------
1,915 1,814 1,753
------ ------ ------
RIDE CONTROL SYSTEMS & PRODUCTS
Aftermarket............................................... 634 685 782
OE market................................................. 730 738 691
------ ------ ------
1,364 1,423 1,473
------ ------ ------
Total Automotive....................................... $3,279 $3,237 $3,226
====== ====== ======
</TABLE>
Brands
In each of our operating segments, we manufacture and market leading brand
names. Monroe(R) ride control products and systems and Walker(R) exhaust
products and systems are two of the most recognized brand names in the
automotive parts industry. As we acquire related product lines, we would
anticipate that they would be incorporated within these existing Monroe(R) and
Walker(R) brand name families.
Customers
We have developed long-standing business relationships with our customers
around the world. In each of our operating segments, we work together with our
customers in all stages of production, including design, development, component
sourcing, quality assurance, manufacturing and delivery. With a balanced mix of
OE and aftermarket products and facilities in major markets worldwide, we
believe we are well positioned to meet customer needs. We believe we have a
strong, established reputation with customers for providing high-quality
products at competitive prices, as well as for timely delivery and customer
service.
7
<PAGE> 14
We serve more than 25 different original equipment manufacturers on a
global basis, and our products or systems are included on six of the top 10
passenger car models and eight of the top 10 light truck models produced
globally for 1998. During 1999, our OE customers included:
<TABLE>
<S> <C> <C>
NORTH AMERICA EUROPE ASIA
CAMI BMW/Rover Bajaj
DaimlerChrysler DaimlerChrysler DaimlerChrysler
Ford DAF Ford
Freightliner Fiat General Motors
General Motors Ford/Volvo/Jaguar Isuzu
Honda Leyland Maruti Suzuki
Mazda Mitsubishi Mazda
Mitsubishi Nissan PSA-Citroen
Navistar General Motors/Opel/Saab Suzuki
Nissan PSA-Peugeot/Citroen TELCO
NUMMI Porsche Toyota
Toyota Renault/Matra Volkswagen
Volkswagen Toyota
Volkswagen/Audi/SEAT/Skoda
SOUTH AMERICA
DaimlerChrysler AUSTRALIA
Fiat Ford
Ford General Motors/Holden
General Motors Mitsubishi
Honda Toyota
Renault
Toyota
Volkswagen
</TABLE>
During 1999, our aftermarket customers were comprised of full line and
specialty warehouse distributors, retailers, jobbers, installer chains and car
dealers. These customers included such wholesalers and retailers as National
Auto Parts Association (NAPA), Monro Muffler Brake and Advance Auto Parts in
North America and Temot, Auto Distribution International and KwikFit in Europe.
We believe we have a balanced mix of aftermarket customers, with our top 10
aftermarket customers accounting for less than 11% of our total net sales from
continuing operations for 1999.
For each of the last three years, fewer than five customers individually
accounted for 5% or more of the Company's net sales from continuing operations.
For example, Ford accounted for approximately 13.2%, 12.8% and 13.8% of our net
sales from continuing operations in 1997, 1998 and 1999, respectively, General
Motors accounted for approximately 8.6%, 8.4%, and 10.3% of our net sales from
continuing operations in 1997, 1998, and 1999, respectively, and DaimlerChrysler
accounted for approximately 8.9%, 13.7% and 13.6% of the our net sales from
continuing operations in 1997, 1998 and 1999, respectively. No other customer
accounted for more than 10% of our net sales from continuing operations for
those years.
Competition
In North America, Europe and the rest of the world, we operate in highly
competitive markets. Customer loyalty is a key element of competition in these
markets and is developed through long standing relationships, customer service,
value added products and timely delivery. Product pricing and services provided
are other important competitive factors.
In both the OE market and aftermarket, we compete with the vehicle
manufacturers, some of which are also customers of ours, and numerous
independent suppliers. In the OE market, we believe that we are among the top
four suppliers in the world for both emissions control and ride control products
and
8
<PAGE> 15
systems. In the aftermarket, we believe that we are the market share leader in
the supply of both emissions control and ride control products in the world.
EMISSIONS CONTROL SYSTEMS
Vehicle emissions control products and systems play a critical role in
safely conveying noxious exhaust gases away from the passenger compartment,
reducing the level of pollutants and engine exhaust noise to an acceptable
level. Precise engineering of the exhaust system -- from the manifold that
connects an engine's exhaust ports to an exhaust pipe, to the catalytic
converter that eliminates pollutants from the exhaust, to the muffler -- leads
to a pleasant, tuned engine sound, reduced pollutants and optimized engine
performance.
We design, manufacture and distribute a variety of automotive emissions
control systems, which include components such as:
- mufflers;
- resonators -- help the muffler eliminate noise;
- catalytic converters -- devices used to convert harmful gaseous
emissions, such as carbon monoxide, from a vehicle's exhaust system into
harmless components such as water vapor and carbon dioxide;
- fabricated exhaust manifolds -- made of sheet metal or tubes and collect
gases from individual cylinders of a vehicle's engine and direct them
into a single exhaust pipe;
- pipes -- connect various parts of an exhaust system;
- hydroformed tubing -- forms into various geometric shapes, such as
Y-pipes or T-pipes, and provide flexibility in design; and
- electronic noise cancellation products.
We entered this product line in 1967 with the acquisition of Walker
Manufacturing Company, which was founded in 1888. When the term "Walker" is used
in this document, it refers to our affiliates that produce emissions control
products and systems.
Walker supplies emissions control products used in six of the 10 top
passenger car models and five of the 10 top light truck models produced globally
for 1998. With the acquisition of Heinrich Gillet GmbH & Co. in 1994, Walker
also became one of Europe's leading OE emissions control systems suppliers.
9
<PAGE> 16
The following table provides, for each of the years 1997 through 1999,
information relating to our sales of emissions control systems for certain
geographic areas:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
UNITED STATES MARKET
Aftermarket............................................... 30% 37% 43%
OE market................................................. 70 63 57
--- --- ---
100% 100% 100%
=== === ===
FOREIGN SALES
Aftermarket............................................... 25% 30% 36%
OE market................................................. 75 70 64
--- --- ---
100% 100% 100%
=== === ===
TOTAL SALES BY GEOGRAPHIC AREA (a)
United States............................................. 40% 41% 44%
European Union............................................ 42 44 41
Canada.................................................... 8 7 7
Other areas............................................... 10 8 8
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
- -------------------------
(a) See Note 11 to our consolidated financial statements included under Item 8
for information about our foreign and domestic operations.
RIDE CONTROL SYSTEMS
Superior ride control is governed by a vehicle's suspension system,
including its shock absorbers and struts. Shock absorbers and struts help
maintain vertical loads placed on a vehicle's tires to help keep the tires in
contact with the road. A vehicle's ability to steer, brake and accelerate
depends on the contact between the vehicle's tires and the road. Worn shocks and
struts can allow excess weight transfer from side to side, which is called
"roll," from front to rear, which is called "pitch," and up and down, which is
called "bounce." Variations in tire to road contact can affect a vehicle's
handling and braking performance and the safe operation of a vehicle. Shock
absorbers are designed to control vertical loads placed on tires by providing
resistance to vehicle roll, pitch and bounce. Thus, by maintaining the tire to
road contact, ride control products are designed to function as safety
components of a vehicle, in addition to providing a comfortable ride.
We design, manufacture and distribute a variety of ride control products
and systems. Our ride control offerings include:
- shock absorbers;
- struts;
- electronically adjustable suspension systems that change performance
based on inputs like steering and braking;
- vibration control components, including rubber-like bushings and
mountings that reduce vibration between metal parts of a vehicle;
- springs; and
- modular assemblies, which are combinations of parts that are provided to
customers as a unit.
We manufacture and market replacement shock absorbers for virtually all
North American, European and Asian makes of automobiles. In addition, we
manufacture and market shock absorbers and struts for use on passenger cars and
trucks, as well as for other uses such as exercise and recreational equipment.
10
<PAGE> 17
Monroe supplies ride control products used in three of the top 10 passenger car
models and seven of the 10 top light truck models produced globally for 1998. We
entered the ride control product line in 1977 with the acquisition of Monroe
Auto Equipment, which was founded in 1916 and introduced the world's first
automotive shock absorber in 1926. When the term "Monroe" is used in this
document it refers to our affiliates that produce ride control products and
systems.
The following table provides, for each of the years 1997 through 1999,
information relating to our sales of ride control equipment for certain
geographic areas:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
UNITED STATES MARKET
Aftermarket............................................... 41% 43% 50%
OE market................................................. 59 57 50
--- --- ---
100% 100% 100%
=== === ===
FOREIGN SALES
Aftermarket............................................... 52% 53% 56%
OE market................................................. 48 47 44
--- --- ---
100% 100% 100%
=== === ===
TOTAL SALES BY GEOGRAPHIC AREA(A)
United States............................................. 50% 47% 48%
European Union............................................ 27 32 27
Canada.................................................... 4 3 3
Other areas............................................... 19 18 22
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
- -------------------------
(a) See Note 11 to our consolidated financial statements included under Item 8
for information about our foreign and domestic operations.
SALES AND MARKETING
We sell directly to OE manufacturers. To maintain its customer focus, our
OE sales force is organized into customer dedicated teams. These sales teams
service the OE manufacturers at a regional facility level, with global
coordination and support from our headquarters.
For the aftermarket, we use a dedicated sales force and consumer brand
marketing professionals to sell and market our products. This group provides
extensive marketing support to aftermarket customers, including trade and
consumer marketing, promotions and general advertising. We maintain an
aftermarket customer order fill rate of 95%, which reflects the percentage of
the average customer order we are able to fill from inventory. We sell our
aftermarket products through five primary channels of distribution: (1) the
traditional three-step distribution system: full line warehouse distributors,
jobbers and installers; (2) the specialty two-step distribution system:
specialty warehouse distributors that carry only specified automotive product
groups and installers; (3) direct sales to retailers; (4) direct sales to
installer chains; and (5) direct sales to car dealers.
MANUFACTURING AND ENGINEERING
We use state-of-the-art manufacturing and focus on achieving superior
product quality at the lowest operating costs possible. Our manufacturing
strategy centers on a lean production system designed to reduce overall
costs -- especially indirect costs -- while maintaining quality standards and
reducing manufacturing cycle time. We deploy new technology where it makes sense
to differentiate our processes from our competitors' or to achieve balance in
one piece flowthrough production lines.
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<PAGE> 18
Emissions Control
Walker operates 11 manufacturing facilities in the U.S. and 32
manufacturing facilities outside of the U.S. Two of these facilities, located at
Aberdeen MS and Culver, IN, are scheduled to close by March 31, 2000. Walker
operates three of these facilities through three joint ventures in which it owns
a controlling interest and operates three others through three joint ventures in
which it owns a non-controlling interest. Walker operates six engineering and
technical facilities worldwide and shares two other such facilities with Monroe.
Walker attempts to locate original equipment manufacturing facilities close
to its OE customers to provide products on demand, or "just-in-time (JIT)."
Eleven of Walker's plants are JIT facilities.
During the 1990's, Walker expanded its converter and emission system
design, development, test and manufacturing capabilities. Walker's engineering
capabilities now include advanced predictive design tools, advanced prototyping
processes and state-of-the-art testing equipment. This expanded technological
capability makes Walker a "full system" integrator, supplying complete emissions
control systems from the manifold to the tailpipe, to provide full emission and
noise control. It also allows Walker to provide JIT delivery and, when feasible,
sequence delivery of emissions control systems to meet customer production
requirements.
Ride Control
Monroe operates nine manufacturing facilities in the U.S. and 18
manufacturing facilities outside the U.S. Monroe operates six of these
facilities through three joint ventures in which it owns a controlling interest.
Monroe operates eight engineering and technical facilities worldwide and shares
two other such facilities with Walker. Monroe attempts to locate original
equipment manufacturing facilities close to customers to provide products on
demand, or "just-in-time (JIT)." Four of Monroe's plants are JIT facilities.
In designing its shock absorbers and struts, Monroe uses advanced
engineering and test capabilities to provide product reliability, endurance and
performance. Monroe's engineering capabilities feature advanced computer aided
design equipment and testing facilities. Monroe's dedication to innovative
solutions has led to such technological advances as:
- adaptive damping systems -- adapts to the vehicle's motion to better
control undesirable vehicle motions;
- electronically adjustable suspensions -- changes suspension performance
based on a variety of inputs such as steering, braking, vehicle height,
and velocity; and
- air leveling systems -- manually or automatically adjust the height of
the vehicle.
Conventional shock absorbers and struts generally compromise either ride comfort
or vehicle control. Monroe's innovative grooved tube, gas charged shock
absorbers and struts provide both ride comfort and vehicle control, resulting in
improved handling, less roll, reduced vibration and a wider range of vehicle
control. This technology can be found in Monroe's premium quality Sensa-Trac(R)
shock absorbers. In late 1997, Monroe further enhanced this technology by adding
the SafeTech(R) fluon banded piston, which improves shock absorber performance
and durability. In 1999, Monroe introduced the Monroe Reflex(TM) truck shock
absorber which incorporates its Impact Sensor(TM) device. This new technology
permits the shock absorber to automatically switch in milliseconds between firm
and soft compression damping when the vehicle encounters rough road conditions,
thus maintaining better tire-to-road contact and improving handling and safety.
INTERNATIONAL OPERATIONS
We operate facilities and sell products in countries throughout the world.
As a result, we are subject to risks associated with selling and operating in
foreign countries, including devaluations and fluctuations in currency exchange
rates, imposition of limitations on conversion of foreign currencies into U.S.
dollars or
12
<PAGE> 19
remittance of dividends and other payments by foreign subsidiaries, imposition
or increase of withholding and other taxes on remittances and other payments by
foreign subsidiaries, hyperinflation in foreign countries where we do business,
and imposition or increase of investment and other restrictions by foreign
governments.
BUSINESS STRATEGY
Our objective is to enhance profitability by leveraging our global position
in the manufacture of emissions control and ride control products and systems.
We intend to apply our competitive strengths and balanced mix of products,
markets, customers and distribution channels to capitalize on many of the
significant existing and emerging trends in the automotive industry. The key
components of our business strategy are described below.
"Own" the Product Life Cycle
Using our global engineering capabilities and our advanced technology
position, we are pursuing opportunities to design unique, value added products
for vehicle manufacturers that yield higher margins in the OE market. We expect
to take advantage of our OE technology investments by moving these
differentiated products into the aftermarket, where they should continue to
generate future revenue streams through the entire life of the vehicle.
Innovative products such as Sensa-Trac(R) shocks and Quiet-Flow(TM) mufflers are
examples of where we believe our market balance between OE and aftermarket sales
allows us to leverage our cost structure over the entire product life cycle.
Develop and Commercialize Innovative, Value Added Products
We intend to continue to focus on the development of highly engineered
systems and complex assemblies and modules which are designed to provide value
added solutions to customers and generally carry higher profit margins than
individualized components. Furthermore, we intend to expand our product lines by
continuing to identify and fill new fast growing niche markets, by developing
new products for existing markets, by acquiring companies with product
portfolios that complement the products currently supplied by us and by
establishing strategic alliances with other suppliers.
One example of our focus on innovation is our acquisition in early 1999 of
Kinetic Ltd., an Australian suspension engineering company with advanced roll
control technology. This technology also provides enhanced on-road handling
while improving off road performance. In addition, in an effort to further
enhance our electronic competencies we entered into an agreement with Siemens
Automotive S.A. in late 1998 to cooperate in the development and
commercialization of advanced electronically controlled ride control and
suspension technologies. Also in late 1998, we reached an agreement with Ohlins
Racing A.B. to jointly develop advanced, electronically controlled suspension
damping systems which decrease spring movement.
Leverage Aftermarket Brand Names
We manufacture and market leading brand name products. Monroe(R) ride
control products and Walker(R) emissions control products, which have been
offered to consumers for over 50 years, are two of the most recognized brand
name products in the automotive parts industry. We continue to emphasize product
value differentiation with these brands and its other primary brands, including:
- the Monroe Reflex(TM) truck shock absorber which features an Impact
Sensor(TM) device to maintain better tire-to-road contact and improve
handling and safety under rough road conditions;
- the Monroe Sensa-Trac(R) line of shock absorbers, that has been enhanced
by the SafeTech(TM) system technology which incorporates a fluon banded
piston to improve performance and durability;
- Walker's Quiet-Flow(TM) muffler, which features an open flow design that
increases exhaust flow, improves sound quality and significantly reduces
exhaust back pressure when compared to other replacement mufflers;
13
<PAGE> 20
- Rancho(R) ride control products for the high performance light truck
market;
- DynoMax(R) high-performance emissions control systems;
- Walker Perfection(TM) catalytic converters;
- Clevite(TM) elastomeric vibration control components, which are primarily
rubber products used to reduce vibration through "cushioning" a
connection or contact point; and
- in European markets, Walker(R) and Aluminox(TM) mufflers.
We are capitalizing on our brand strength by incorporating newly acquired
product lines within existing product families. We believe brand equity is a key
asset in a time of customer consolidation and merging channels of distribution.
Diversify End Markets
One of our goals is to apply our existing design, marketing and
manufacturing capabilities to produce products for a variety of adjacent
markets. We believe that these capabilities could be used for heavy duty vehicle
and industrial applications, various recreational vehicles, scooters and
bicycles. We expect that expanding into markets other than automotive parts will
allow us to capitalize on our advanced technical and manufacturing
infrastructure to achieve growth in higher margin businesses.
Expand Full System Capabilities
The automotive parts industry is encountering a consolidation of parts
suppliers, as OE manufacturers require suppliers to provide design assistance
and innovation and full system capabilities rather than just specific parts. In
response to this trend, we have developed integrated, electronically linked
global engineering and manufacturing facilities to maintain our presence on top
selling vehicles. We have over 10 years of experience as an integrator of
systems and modules. We currently supply modules or systems for 25 vehicle
platforms worldwide and have modules or systems for three additional platforms
under development. We also plan to continue to dedicate more resources towards
strengthening technical capability and design expertise and to pursue
appropriate strategic acquisitions, joint ventures, strategic alliances and
cooperative development agreements to increase our ability to deliver full
system capabilities.
Maintain Operating Cost Leadership
We intend to continue to reduce costs by:
- standardizing products and processes throughout our operations;
- further developing our global supply chain management capabilities;
- improving our information technology;
- increasing efficiency through employee training;
- investing in more efficient machinery; and
- enhancing the global coordination of costing and quoting procedures.
In the fourth quarter of 1998, we began a restructuring designed to reduce
administrative and operational overhead costs. The largest part of the $53
million pre-tax restructuring charge we recorded in income from continuing
operations related to the restructuring of our North American aftermarket
operations. The operational restructuring, designed to better match our capacity
to market demand, involves closing two plant locations and five distribution
centers, with the elimination of 302 positions at those locations. We expect to
complete this by mid 2000. The administrative restructuring involves the
reduction of approximately 450 administrative staff positions. We completed this
in 1999. We are also implementing a supplemental restructuring plan which we
began in the fourth quarter of 1999. See
14
<PAGE> 21
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included as Item 7.
We have also adopted Business Operating System (BOS) as a disciplined
system to promote and manage continuous improvement. BOS focuses on the assembly
and analysis of data for quick and effective problem resolution to create more
efficient and profitable operations.
In late 1999, we engaged Stern Stewart & Co. to assist us in implementing
Economic Value Added, a financial tool that more effectively measures how well
we employ our capital resources. We are planning to link the successful
application of this management discipline to our incentive compensation program.
Execute Focused Acquisitions and Alliances
In the past, we have been successful in identifying and capitalizing on
strategic acquisitions and alliances to achieve growth. Through these
acquisitions and alliances, we have: (1) expanded our product portfolio; (2)
realized incremental business with existing customers; (3) gained access to new
customers; and (4) achieved leadership positions within new geographic markets.
Where appropriate, we intend to continue to pursue strategic acquisitions
that complement our existing technology and systems development efforts. This
focused strategy should assist us in identifying and, if appropriate, acquiring
smaller scale companies with proven proprietary technology and recognized
research capabilities necessary to help develop further leadership in systems
integration. Any potential acquisition will be expected to meet strict financial
criteria to ensure it increases economic value. We also plan to continue to
pursue joint venture and alliance opportunities to achieve our objectives and
enhance profitability.
STRATEGIC ACQUISITIONS AND ALLIANCES
Strategic acquisitions, joint ventures and alliances have been an important
part of our growth. Through this strategy, we have expanded to meet customers'
global requirements. This strategy has also allowed us to acquire or align with
companies that possess proven technology and research capabilities, furthering,
we believe, our leadership in systems integration.
Emissions Control
- In 1996, we established a joint venture in Dalian, China to supply
emissions control systems to the Northern Chinese automotive market,
expanded our North American heavy duty truck aftermarket business through
the acquisition of Stemco Inc. and acquired Minuzzi, the second largest
manufacturer of exhaust products in Argentina.
- In 1997, we acquired Autocan, a Mexican catalytic converter and exhaust
pipe assembly manufacturer. We also acquired the manufacturing operations
of MICHEL, a privately owned, Polish-based manufacturer of replacement
market emissions control systems for passenger cars in Eastern Europe.
- In 1998, we established a joint venture in Shanghai, China to supply
emissions control systems to the Central and Southern Chinese automotive
markets. We also established a joint venture in Pune, India to supply
emissions control systems to OE customers and the aftermarket.
- In 1999, we began manufacturing emissions control systems at a new
facility in Curitiba, Brazil to supply original equipment customers in
this growing regional market.
Ride Control
- In 1995, we acquired a 51% interest in a joint venture that has three
ride control manufacturing facilities in India and acquired a 51%
interest in a joint venture that has one ride control manufacturing
facility in China.
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<PAGE> 22
- In July 1996, we acquired The Pullman Company and its Clevite products
division. Clevite is a leading OE manufacturer of elastomeric vibration
control components, including bushings, engine mounts and control arms,
for the auto, light truck and heavy truck markets. These products connect
major metal parts and help isolate noise, vibration and shock. With this
acquisition, we expanded our capability to deliver ride control systems
to original equipment manufacturers. The Clevite acquisition also
complemented our interest in global growth opportunities, since both
Clevite and Monroe have manufacturing operations in Mexico and Brazil.
- In September 1996, we acquired full ownership of Monroe Amortisor Imalat
ve Ticaret, a Turkish shock absorber manufacturer, in which we previously
held a 16.7% ownership interest.
- In December 1996, we acquired 94% of the voting stock of FricRot
S.A.I.C., the leading producer and marketer of ride control products in
Argentina. In 1997, we increased our interest in FricRot to more than 99%
through the purchase of additional shares.
- In 1996, we also expanded our presence in Australia's ride control
product market with the acquisition of National Springs.
- In 1997, we entered into a joint venture which resulted in our
acquisition of majority ownership of Armstrong, a leading South African
manufacturer of ride control products.
- In early 1999, we completed the acquisition of Kinetic Ltd., an
Australian suspension engineering company with advanced roll control
technology.
- In 1999, we licensed elastomer technology and equipment from Draftex, a
French company. We intend to apply this technology to manufacturing
engine mounts and ride control products for sale in Mexico, Central
America and South America. In addition, in 1999 we also entered into a
strategic cooperation agreement with Draftex to jointly develop
elastomer-based products for sale primarily in Europe.
OTHER
As of March 1, 2000, we had approximately 23,200 employees, approximately
56% of which were covered by collective bargaining agreements and approximately
32% of which are governed by European works councils. Forty-seven of our
existing labor agreements, covering a total of 6,712 employees, are scheduled
for renegotiation in 2000. We regard our employee relations as generally
satisfactory.
The principal raw material utilized by us is steel. We believe that an
adequate supply of steel can presently be obtained from a number of different
domestic and foreign suppliers.
We hold a number of domestic and foreign patents and trademarks relating to
our products and businesses. We manufacture and distribute our products
primarily under the Walker(R) and Monroe(R) brand names, which are well
recognized in the marketplace and are registered trademarks. The patents,
trademarks and other intellectual property owned by or licensed to us are
important in the manufacturing, marketing and distribution of our products.
ENVIRONMENTAL MATTERS
We estimate that we and our subsidiaries will make capital expenditures for
environmental matters of approximately $3 million in 2000 and approximately $4
million in 2001.
For additional information regarding environmental matters, see Item 3,
"Legal Proceedings," Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Note 12 to the Financial Statements of
Tenneco Automotive Inc. and Consolidated Subsidiaries included under Item 8.
16
<PAGE> 23
CERTAIN REORGANIZATION AGREEMENTS
In connection with the 1999 Spin-off, described above, we entered into
various agreements with Pactiv governing our relationship following the 1999
Spin-off and providing for the allocation of tax and certain other liabilities
and obligations arising from periods prior to the 1999 Spin-off. These
agreements are described below.
We entered into a Distribution Agreement with Pactiv, dated November 3,
1999 (the "Distribution Agreement"), pursuant to which the 1999 Spin-off and
certain corporate transactions required to effect the 1999 Spin-off were
accomplished. The Distribution Agreement provides for, among other things, the
assumption of liabilities and cross indemnities designed to allocate generally,
effective as of the date of the 1999 Spin-off, financial responsibility for the
liabilities arising out of or in connection with the operation of the packaging
and administrative services businesses prior to the 1999 Spin-off.
In addition, as contemplated by the Distribution Agreement, we entered into
certain ancillary agreements (collectively, the "Ancillary Agreements") with
Pactiv prior to the consummation of the 1999 Spin-off which further effectuated
the restructuring necessary to accomplish the 1999 Spin-off and govern various
aspects of the relationship between the parties after the 1999 Spin-off.
The Ancillary Agreements include: (i) the Human Resources Agreement, which
provides for allocations of responsibilities between us and Pactiv with respect
to employee compensation, benefits and labor matters; (ii) the Tax Sharing
Agreement, pursuant to which we and Pactiv will allocate liabilities for taxes
arising prior to, as a result of, and subsequent to the 1999 Spin-off; (iii) the
Transition Services Agreement, pursuant to which Pactiv will provide specified
administrative services to us; (iv) the Insurance Agreement, which provides for
our and Pactiv's continuing rights and obligations with respect to various
pre-1999 Spin-off insurance programs; and (v) the Trademark Transition License
Agreement, allowing Pactiv to use certain of our trademarks and tradenames for
certain specified periods of time for certain purposes.
ITEM 2. PROPERTIES.
We lease our principal offices, which are located at 500 North Field Drive,
Lake Forest, Illinois, 60045.
Walker operates 11 manufacturing facilities in the U.S. and 32
manufacturing facilities outside of the U.S. Two of these facilities, located at
Aberdeen MS and Culver, IN, are scheduled to close by March 31, 2000. Walker
operates six engineering and technical facilities worldwide and shares two other
such facilities with Monroe.
Monroe operates nine manufacturing facilities in the U.S. and 18
manufacturing facilities outside the U.S. Monroe operates seven engineering and
technical facilities worldwide and shares two other such facilities with Walker.
The above described manufacturing locations outside of the U.S. are located
in Canada, Mexico, Belgium, Spain, the United Kingdom, the Czech Republic,
Turkey, South Africa, France, Denmark, Sweden, Germany, Poland, Portugal,
Argentina, Brazil, Australia, New Zealand, China, and India. We also have sales
offices located in Australia, Argentina, Canada, Italy, Japan, Poland, Russia,
Singapore, and Sweden.
We own approximately one half of the properties described above and lease
the other half. We hold nine of the above-described manufacturing facilities
through six joint ventures in which we own a controlling interest and hold three
others through three joint ventures in which we own a non-controlling interest.
We also have distribution facilities at our manufacturing sites and at a few
offsite locations, substantially all of which we lease.
We believe our commitment to sound management practices and policies is
demonstrated by our successful participation in the International Standards
Organization/Quality Systems certification process (ISO/QS). ISO/QS
certifications are yearly audits that certify that a company's facilities meet
stringent
17
<PAGE> 24
quality and business systems requirements. Without either ISO or QS
certification, we would not be able to supply OE manufacturers locally or
globally. Over 90% of our manufacturing facilities have achieved ISO 9000
certification, excluding facilities held in joint ventures. Of those 64
manufacturing facilities where we have determined that QS certification is
required to service our customers or would provide us with an advantage in
securing additional business, 89% have achieved QS 9000 certification, and we
are pursuing certification of the remaining 11%.
We believe that substantially all of our plants and equipment are, in
general, well maintained and in good operating condition. They are considered
adequate for present needs and, as supplemented by planned construction, are
expected to remain adequate for the near future.
We also believe that we have generally satisfactory title to the properties
owned and used in our respective businesses.
ITEM 3. LEGAL PROCEEDINGS.
At December 31, 1999, we had been designated as a potentially responsible
party in four Superfund sites. We estimate our share of the remediation costs
for these sites to be approximately $1 million in the aggregate and have
established reserves that we believe are adequate for such costs. 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 $15 million. For both the Superfund sites and our 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. In determining our
estimated liability we have considered, where appropriate, our understanding of
the financial strength of other potentially responsible parties. We believe that
the costs associated with our current status as a potentially responsible party
in the Superfund sites referenced above, or as a liable party at our current or
former facilities, will not be material to our consolidated financial position
or results of operations. For additional information concerning environmental
matters, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the caption "Environmental Matters"
under Note 12 to the Financial Statements of Tenneco Automotive Inc. and
Consolidated Subsidiaries, included as Item 8.
In May 1999, we, along with our former wholly-owned subsidiary, Tenneco
Packaging Inc. (now known as Pactiv), and a number of containerboard
manufacturers were named as defendants in a civil class action antitrust lawsuit
pending in the United States District Court for the Eastern District of
Pennsylvania. The lawsuit alleges that the defendants conspired to raise
linerboard prices for corrugated containers and corrugated sheets, respectively,
from October 1, 1993 through November 30, 1995, in violation of Section 1 of the
Sherman Act. The lawsuit seeks treble damages in an unspecified amount, plus
attorney fees. Under and in accordance with the distribution agreement we
entered into with Pactiv before the 1999 Spin-off, as between us and Pactiv,
Pactiv will be responsible for defending the claims and for any liability
resulting from the action. Accordingly, we believe the outcome of this
litigation will not have a material adverse effect on our financial position or
results of operations.
We are also party to various other legal proceedings arising from our
operations. We believe that the outcome of these other proceedings, individually
and in the aggregate, will not have a material adverse effect on our financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held a special stockholders' meeting on October 25, 1999 to consider and
vote on two separate proposals: (i) a proposal to amend our certificate of
incorporation to phase-out our existing three-class
18
<PAGE> 25
staggered Board of Directors system, and provide instead for the annual election
of directors (the "Elimination of Staggered Board Proposal") and (ii) a proposal
to amend our certificate of incorporation whereby every five shares of our
then-issued common stock would be converted automatically into one share of our
new common stock (the "Reverse Stock Split Proposal"). The meeting proceeded and
both the Elimination of Staggered Board Proposal and Reverse Stock Split
Proposal were approved by holders of a majority of the our outstanding common
stock. The following sets forth the number of votes cast for, against and
abstain with respect to these proposals at the meeting:
ELIMINATION OF STAGGERED BOARD PROPOSAL
<TABLE>
<CAPTION>
VOTES VOTES
VOTES FOR AGAINST ABSTAIN
- ----------- ------------- -------------
<S> <C> <C>
127,396,690 2,378,548 1,051,113
</TABLE>
REVERSE STOCK SPLIT PROPOSAL
<TABLE>
<CAPTION>
VOTES VOTES
VOTES FOR AGAINST ABSTAIN
- ----------- ------------- -------------
<S> <C> <C>
138,533,392 8,254,821 1,175,919
</TABLE>
ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following provides information concerning the persons who serve as our
executive officers as of March 1, 2000. Each of these individuals, other than
Richard Sloan and Kenneth Trammell, were named as our company's executive
officers effective November 4, 1999, the day of the 1999 Spin-off, at which time
our then-existing executive officers resigned. Messrs. Sloan and Trammell were
made our executive officers in December 1999. Prior to becoming our executive
officers, many of these individuals had served in our automotive operations.
Accordingly, for periods prior to November 4, 1999, references to service to
"us" or "our company" reflect services to Tenneco's automotive operations.
<TABLE>
<CAPTION>
NAME (AND AGE AT
DECEMBER 31, 1999) OFFICES HELD
------------------ -------------------------------------------------
<S> <C>
Mark P. Frissora (44)......................... Director
Chairman, President and Chief Executive Officer
Richard J. Sloan (61)......................... Executive Vice President and Managing
Director -- Europe
Mark A. McCollum (40)......................... Senior Vice President and Chief Financial Officer
Richard P. Schneider (52)..................... Senior Vice President -- Global Administration
Timothy R. Donovan (44)....................... Senior Vice President and General Counsel
Timothy E. Jackson (43)....................... Senior Vice President and General Manager --
North American Original Equipment and Worldwide
Program Management
David G. Gabriel (41)......................... Senior Vice President and General Manager --
North American Aftermarket
Kenneth R. Trammell (39)...................... Vice President and Controller
</TABLE>
MARK P. FRISSORA -- Mr. Frissora became our Chief Executive Officer in
connection with the Spin-off and has been serving as President of the automotive
operations since April 1999. In March 2000, he was also named our Chairman. From
1996 to April 1999, he held various positions within our automotive operations,
including Senior Vice President and General Manager of the worldwide original
equipment business. Mr. Frissora joined our company in 1996 from AeroquipVickers
Corporation, where he served since 1991 as a Vice President. Previously, he
spent 15 years with both General Electric (10 years) and Philips Lighting
Company in management roles focusing on product development and marketing. He is
a member of both The Business Roundtable and the World Economic Forum's
Automotive Board of Governors.
19
<PAGE> 26
RICHARD J. SLOAN -- Mr. Sloan was named our Executive Vice President and
Managing Director -- Europe in October 1999. Prior to joining us, Mr. Sloan
spent 18 years with United Technologies Automotive ("UTA"). He served as
President of UTA's Worldwide Interior Division from 1998 to October 1999 and
President of UTA Europe from 1993 to 1998.
MARK A. MCCOLLUM -- Mr. McCollum joined our automotive operations in April
1998. Prior to that he served as Tenneco Inc.'s Vice President, Corporate
Development and was responsible for executing strategic transactions in both the
automotive and packaging businesses. From January 1995 to April 1998, he served
in various capacities for Tenneco Inc., including Vice President, Financial
Analysis and Planning and Corporate Controller. Before that, Mr. McCollum spent
14 years with the international public accounting firm of Arthur Andersen LLP,
serving as an audit and business advisory partner of the company's worldwide
partnership from 1991 to December 1994.
RICHARD P. SCHNEIDER -- As our Senior Vice President -- Global
Administration, Mr. Schneider is responsible for the development and
implementation of human resources programs and policies and corporate
communications activities for our worldwide operations. He joined us in 1994
from International Paper Company where, during his 20 year tenure, he held key
positions in labor relations, management development, personnel administration
and equal employment opportunity.
TIMOTHY R. DONOVAN -- Mr. Donovan was named Senior Vice President and
General Counsel of our company in August 1999. Mr. Donovan was a partner in the
law firm of Jenner & Block from 1989 until his resignation in September 1999,
and most recently served as the Chairman of the firm's Corporate and Securities
Department and as a member of its Executive Committee.
TIMOTHY E. JACKSON -- Mr. Jackson joined us as Senior Vice President and
General Manager -- North American Original Equipment and Worldwide Program
Management in June 1999. Mr. Jackson joined us from ITT Industries where he was
President of that company's Fluid Handling Systems Division. With over 20 years
of management experience, 14 within the automotive industry, he was also Chief
Executive Officer for HiSAN, a joint venture between ITT Industries and Sanoh
Industrial Company. Mr. Jackson has also served in senior management positions
at BF Goodrich Aerospace and General Motors Corporation.
DAVID G. GABRIEL -- Mr. Gabriel was named our Senior Vice President and
General Manager -- North American Aftermarket in August 1999. From March to
August 1999, Mr. Gabriel was the Vice President of Operations for our North
American aftermarket business. From March 1997 to March 1999, he served as Vice
President of Manufacturing for our North American aftermarket business. From
February 1995 to March 1997, he served as Executive Director of Supplier
Development for Tenneco Business Services. Before joining Tenneco Business
Services in February 1995, Mr. Gabriel spent 15 years in various operating
positions of increasing responsibility with the Pepsi Cola Company and Johnson
and Johnson. From 1993 to February 1995, Mr. Gabriel was Director of Supplier
Development at the Pepsi Cola Company.
KENNETH R. TRAMMELL -- Mr. Trammell was named our Vice President and
Controller in September 1999. From April 1997 to November 1999 he served as
Corporate Controller of Tenneco Inc. He joined Tenneco Inc. in May 1996 as
Assistant Controller. Before joining Tenneco Inc., Mr. Trammell spent 12 years
with the international public accounting firm of Arthur Andersen LLP, last
serving as a senior manager.
20
<PAGE> 27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our outstanding shares of common stock, par value $.01 per share, are
listed on the New York, Chicago, Pacific and London Stock Exchanges.
Our common stock began "regular way" trading on the New York Stock Exchange
on December 12, 1996 (the business day immediately following the 1996 Spin-off).
See "Business -- Tenneco Automotive Inc." included in Item 1. The following
table sets forth, for the periods indicated, the high and low sales prices of
our common stock on the New York Stock Exchange Composite Transactions Tape, and
the dividends paid per share of common stock.
On November 4, 1999, we completed the spin-off of Pactiv Corporation and
the following morning effected a one-for-five reverse stock split. Accordingly,
the high and low sales prices for periods following this date give effect to
these transactions.
<TABLE>
<CAPTION>
SALE PRICES
---------------------------------- DIVIDENDS
QUARTER HIGH LOW PAID
------- ---- --- ---------
<S> <C> <C> <C> <C> <C>
1999
1st....................................................... $37 1/4 $27 1/2 $.30
2nd....................................................... 31 3/8 22 11/16 .30
3rd....................................................... 25 1/8 15 5/16 .30
4th (through 11/4)........................................ 17 9/16 13 13/16 --
4th (after 11/4).......................................... 9 1/8 7 --
1998
1st....................................................... $45 $36 $.30
2nd....................................................... 47 1/2 37 .30
3rd....................................................... 38 7/8 30 7/8 .30
4th....................................................... 37 7/16 29 1/2 .30
</TABLE>
As of March 1, 2000, there were approximately 45,200 holders of record of
our common stock, including brokers and other nominees.
The declaration of dividends on our capital stock is at the discretion of
our Board of Directors. The Board has not adopted a dividend policy as such;
subject to legal and contractual restrictions, its decisions regarding dividends
are based on all considerations that in its business judgment are relevant at
the time. These considerations may include past and projected earnings, cash
flows, economic, business and securities market conditions and anticipated
developments concerning our business and operations. For additional information
concerning our payment of dividends, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Now that the 1999 Spin-off is complete, we are highly leveraged and
restricted with respect to the payment of dividends under the terms of our
financing arrangements. On January 12, 2000, we announced that our board of
directors declared a first quarter dividend of five cents per share payable on
March 14, 2000, to shareholders of record at the close of business on February
25, 2000.
21
<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA.
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1999(A) 1998(A) 1997(A) 1996 1995
------- ------- ------- ---- ----
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA(B):
Net sales and operating revenues from
continuing operations --
North America.......................... $ 1,768 $ 1,688 $ 1,726 $ 1,550 $ 1,270
Europe................................. 1,273 1,278 1,204 1,201 1,050
Other.................................. 297 316 351 279 214
Intergroup sales....................... (59) (45) (55) (50) (55)
---------- ---------- ---------- ---------- ----------
$ 3,279 $ 3,237 $ 3,226 $ 2,980 $ 2,479
========== ========== ========== ========== ==========
Income from continuing operations before
interest expense, income taxes, and
minority interest --
North America.......................... $ 166 $ 58 $ 216 $ 128 $ 133
Europe................................. 44 155 153 94 81
Other.................................. (62) 14 26 20 34
---------- ---------- ---------- ---------- ----------
Total............................. 148 227 395 242 248
Interest expense (net of interest
capitalized)(c)........................ 106 69 58 60 44
Income tax expense....................... 82 13 80 79 91
Minority interest........................ 23 29 23 21 23
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations............................. (63) 116 234 82 90
Income (loss) from discontinued
operations, net of income tax(d)....... (208) 139 127 564 645
Extraordinary loss, net of income
tax(e)................................. (18) -- -- (236) --
Cumulative effect of changes in
accounting principles, net of income
tax(f)................................. (134) -- (46) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)........................ (423) 255 315 410 735
Preferred stock dividends................ -- -- -- 12 12
---------- ---------- ---------- ---------- ----------
Net income (loss) to common stock........ $ (423) $ 255 $ 315 $ 398 $ 723
========== ========== ========== ========== ==========
Average number of shares of common stock
outstanding
Basic.................................. 33,480,686 33,701,115 34,052,946 33,921,875 34,552,840
Diluted................................ 33,656,063 33,766,906 34,160,327 34,105,223 34,702,331
Earnings (loss) per average share of
common stock --
Basic:
Continuing operations................ $ (1.87) 3.45 6.87 2.45 2.60
Discontinued operations(d)........... (6.23) 4.13 3.73 16.27 18.32
Extraordinary loss(e)................ (.55) -- -- (6.96) --
Cumulative effect of changes in
accounting principles(f).......... (3.99) -- (1.35) -- --
---------- ---------- ---------- ---------- ----------
$ (12.64) $ 7.58 $ 9.25 $ 11.76 $ 20.92
========== ========== ========== ========== ==========
Diluted:
Continuing operations................ $ (1.87) 3.44 6.85 2.43 2.59
Discontinued operations(d)........... (6.23) 4.12 3.72 16.18 18.24
Extraordinary loss(e)................ (.55) -- -- (6.96) --
Cumulative effect of changes in
accounting principles(f).......... (3.99) -- (1.35) -- --
---------- ---------- ---------- ---------- ----------
$ (12.64) $ 7.56 $ 9.22 $ 11.65 $ 20.83
========== ========== ========== ========== ==========
Cash dividends per common share.......... $ 4.50 $ 6.00 $ 6.00 $ 9.00 $ 8.00
</TABLE>
22
<PAGE> 29
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1999(A) 1998(A) 1997(A) 1996 1995
------- ------- ------- ---- ----
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(B):
Net assets of discontinued
operations(d).......................... $ -- $ 1,739 $ 1,771 $ 1,883 $ 1,469
Total assets............................. 2,943 4,759 4,682 4,653 3,635
Short-term debt(c)....................... 56 304 75 74 109
Long-term debt(c)........................ 1,578 671 713 639 469
Debt allocated to discontinued
operations(c).......................... -- 2,456 2,123 1,590 1,454
Minority interest........................ 16 407 408 304 301
Shareholders' equity..................... 422 2,504 2,528 2,646 3,148
STATEMENT OF CASH FLOWS DATA(B):
Net cash provided (used) by operating
activities............................. $ (254) $ 532 $ 519 $ 253 $ 1,443
Net cash (used) by investing
activities............................. (1,188) (754) (887) (685) (1,162)
Net cash provided (used) by financing
activities............................. 1,495 216 354 147 (356)
Capital expenditures for continuing
operations............................. 154 195 221 188 208
OTHER DATA:
EBITDA(g)................................ $ 292 $ 377 $ 505 $ 336 $ 331
Ratio of earnings to fixed charges(h).... 1.0 2.2 4.8 2.3 2.6
</TABLE>
- -------------------------
NOTE: Our financial statements which are discussed in the following notes are
included in this Form 10-K. They cover the three years ended December 31, 1999.
(a) For a discussion of the significant items affecting comparability of the
financial information for the years ended 1999, 1998 and 1997, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(b) During the periods presented, we completed numerous acquisitions. The most
significant acquisition was our acquisition of Clevite for $328 million in
July 1996. You should also read "Item 1. Business" included elsewhere in
this Annual Report on Form 10-K.
(c) Debt amounts for 1998, 1997 and 1996, and for 1999 through November 4, 1999,
are net of allocations of corporate debt to the net assets of our
discontinued specialty packaging and paperboard packaging segments. Debt
amounts for 1995 are net of allocations of corporate debt to the net assets
of our discontinued specialty packaging, paperboard packaging, energy, and
shipbuilding segments. Interest expense for periods presented is net of
interest expense allocated to income from discontinued operations. These
allocations of debt and related interest expense are based on the ratio of
our investment in the specialty packaging, paperboard packaging, energy, and
shipbuilding segments' respective net assets to our consolidated net assets
plus debt. You should also read Notes to the Financial Statements of Tenneco
Automotive Inc. and Consolidated Subsidiaries for more information.
(d) Discontinued operations reflected in the above periods consist of our (1)
specialty packaging segment, which was discontinued in August 1999, (2)
paperboard packaging segment, which was discontinued in June 1999, (3)
energy and shipbuilding segments, which were discontinued in December 1996,
and (4) farm and construction equipment segment, which was discontinued in
March 1996. You should also read Notes to the Financial Statements of
Tenneco Automotive Inc. and Consolidated Subsidiaries for more information.
(e) Represents our costs related to prepayment of debt, including the 1996 loss
recognized in the realignment of our debt preceding the 1996 corporate
reorganization, the 1999 loss recognized in connection with the contribution
of the containerboard assets to a new joint venture, and the 1999 loss
recognized in the spin-off of Tenneco Packaging Inc. You should also read
Notes to the Financial Statements of Tenneco Automotive Inc. and
Consolidated Subsidiaries for more information.
(f) In 1999, we implemented the American Institute of Certified Public
Accountants Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities." In addition, effective January 1, 1999, we changed our method
of accounting for customer acquisition costs from a deferred method to an
expense-as-incurred method. In 1997, we implemented the Financial Accounting
Standards Board's Emerging Issues Task Force Issue 97-13, "Accounting for
Costs Incurred in Connection with a Consulting Contract that Combines
Business Process Reengineering and Information Technology Transformation."
In 1994, we adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits." You should also read
Notes to the Financial Statements of Tenneco Automotive Inc. and
Consolidated Subsidiaries for additional information.
(g) EBITDA represents income from continuing operations before interest expense,
income taxes, minority interest and depreciation and amortization. EBITDA is
not a calculation based upon generally accepted accounting principles. The
amounts included in the EBITDA calculation, however, are derived from
amounts included in the historical statements of income data. In addition,
EBITDA should not be considered as an alternative to net
23
<PAGE> 30
income or operating income as an indicator of our operating performance, or
as an alternative to operating cash flows as a measure of liquidity. We have
reported EBITDA because we believe EBITDA is a measure commonly reported and
widely used by investors and other interested parties as an indicator of a
company's ability to incur and service debt. We believe EBITDA assists
investors in comparing a company's performance on a consistent basis without
regard to depreciation and amortization, which can vary significantly
depending upon accounting methods, particularly when acquisitions are
involved, or nonoperating factors. However, the EBITDA measure presented in
this document may not always be comparable to similarly titled measures
reported by other companies due to differences in the components of the
calculation.
(h) For purposes of computing this ratio, earnings generally consist of income
from continuing operations before income taxes and fixed charges excluding
capitalized interest. Fixed charges consist of interest expense, the portion
of rental expense considered representative of the interest factor and
capitalized interest. For purposes of computing these ratios, preferred
stock dividends have been included in the calculations on a pre-tax basis.
24
<PAGE> 31
ITEM 7. 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 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 F-1.
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. We 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. You should read Note 2 to the
financial statements for 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.
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. Note 4 to
the financial statements and the section -- "Liquidity and Capital Resources"
have more information about our debt and the debt realignment.
25
<PAGE> 32
YEARS 1999 AND 1998
RESULTS FROM CONTINUING OPERATIONS
The following tables aggregate and summarize our results from continuing
operations:
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------
MINORITY INCOME FROM
REVENUE EBIT INTEREST TAXES INTEREST CONTINUING OPS
------- ---- -------- ----- -------- --------------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Operating units results................ $3,279 $275 $ (96) $(67) $(23) $ 89
Restructuring charges.................. -- (55) -- 5 -- (50)
Spin-off transaction costs and other
expenses............................. -- (59) (10) (25) -- (94)
"Stand-alone" company expenses......... -- (9) -- 3 -- (6)
Previously unallocated Tenneco Inc.
expenses............................. -- (4) -- 2 -- (2)
------ ---- ----- ---- ---- ----
Reported results....................... $3,279 $148 $(106) $(82) $(23) $(63)
====== ==== ===== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------
MINORITY INCOME FROM
REVENUE EBIT INTEREST TAXES INTEREST CONTINUING OPS
------- ---- -------- ----- -------- --------------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Operating units results................ $3,237 $301 $(69) $(40) $(29) $ 163
Restructuring charges.................. -- (53) -- 19 -- (34)
Previously unallocated Tenneco Inc.
expenses............................. -- (21) -- 8 -- (13)
------ ---- ---- ---- ---- -----
Reported results....................... $3,237 $227 $(69) $(13) $(29) $ 116
====== ==== ==== ==== ==== =====
</TABLE>
Earnings from continuing operations per diluted common share were $3.44 in
1998 compared to a loss of $1.87 in 1999. The following table shows the impact
on earnings per diluted common share of the costs and charges reflected in the
tables above:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Operating units results..................................... $ 2.65 $ 4.83
Restructuring charges....................................... (1.50) (1.02)
Spin-off transaction costs and other expenses............... (2.80) --
"Stand-alone" company expenses.............................. (.17) --
Previously unallocated Tenneco Inc. expenses................ (.05) (.37)
------ ------
Reported earnings per diluted common share from continuing
operations................................................ $(1.87) $ 3.44
====== ======
</TABLE>
The reverse stock split we completed on the morning following the spin-off
is reflected for all periods in this Management's Discussion and Analysis. You
should read Note 7 to the financial statements for more information.
OPERATING UNITS RESULTS
Net Sales and Operating Revenues
<TABLE>
<CAPTION>
1999 1998 % CHANGE
------ ------ --------
(MILLIONS)
<S> <C> <C> <C>
North America............................................. $1,760 $1,679 5
Europe.................................................... 1,235 1,252 (1)
Rest of World............................................. 284 306 (7)
------ ------
$3,279 $3,237 1
====== ======
</TABLE>
26
<PAGE> 33
Revenues from our North American original equipment market increased by 15
percent due primarily to higher volumes. Record-breaking light vehicle
production in North America, which increased from about 15.6 million units in
1998 to about 17.0 million units in 1999, or 9 percent, combined with our solid
position on many top-selling light truck platforms, were primarily responsible
for our North American revenue growth. Revenues from our North American
aftermarket business decreased by $70 million in 1999 from 1998. Lower
aftermarket exhaust product volumes represented $59 million of the decrease, due
primarily to increased price competition and increasing average exhaust system
product lives arising from the use of stainless steel by original equipment
manufacturers.
European revenues were essentially unchanged from 1998. Revenues from our
European original equipment exhaust operations increased by $59 million due
primarily to higher volumes from new original equipment exhaust program
launches. The impact of currency devaluation in Europe on both original
equipment and aftermarket operations reduced our revenues in Europe by $56
million. Increased price competition and private branded sales, as well as
generally weaker aftermarket industry conditions, also contributed to the
year-over-year change in revenues.
Revenues from our operations in the rest of the world decreased 7 percent
to $284 million compared to $306 million in the prior year. Difficult economic
conditions in South America and currency devaluation in Brazil led to a $37
million decrease in revenues. This was partially offset by a 49 percent increase
in Asian revenues due primarily to higher volumes.
Income Before Interest Expense, Income Taxes, and Minority Interest
("EBIT")
We reported EBIT of $148 million in 1999, compared to $227 million in 1998.
Each year included costs and charges, shown in the table in the above section
- --"Results from Continuing Operations," that have an effect on comparability of
the results. These costs and charges are explained in more detail following the
discussion of our automotive operating units results. Before considering these
costs and charges, our automotive operating units reported EBIT of $275 million
in 1999 compared to $301 million in 1998. Those results are shown by segment in
the following table:
<TABLE>
<CAPTION>
1999 1998
---- ----
(MILLIONS)
<S> <C> <C>
North America............................................... $181 $106
Europe...................................................... 82 159
Rest Of World............................................... 12 36
---- ----
$275 $301
==== ====
</TABLE>
The increase in our North American EBIT was driven by improvements in both
our original equipment market and our aftermarket. The North American
aftermarket improved due to significantly reduced marketing and promotional
expenses, lower operational costs due to our restructuring initiatives, and
lower customer changeover expenses. These improvements were partially offset by
the impact of lower sales. Our North American original equipment market improved
due to the increase in sales volumes as well as realized operational cost
savings initiatives. These improvements in our original equipment business were
partially offset by the launch of some lower margin exhaust platforms.
While European original equipment volumes were up in 1999, the EBIT impact
of this revenue improvement was offset by lower profit margins from the new
business and price reductions to original equipment manufacturers on existing
exhaust programs. Lower sales of our premium ride control products in the
aftermarket, combined with the introduction of private branded ride control
products, caused a change in our product mix toward lower margin products. This,
combined with higher product sales to original equipment dealer service
departments rather than sales through our traditional aftermarket channels,
accounted for most of the EBIT decrease in our European aftermarket. Finally,
the required change in our accounting for start-up expenses and the impact of
European currency devaluation were the other major factors causing the decline
in EBIT from our European operations during 1999.
27
<PAGE> 34
EBIT from our operations in the rest of the world fell $24 million in 1999,
resulting primarily from the currency devaluation and resulting economic
instability in South America which reduced EBIT by $28 million. This was
partially offset by stronger operating results in Australia from operational
cost saving activities and improved original equipment exhaust product mix.
EBIT as a Percentage of Revenue
The following table shows EBIT as a percentage of revenue by segment before
the costs and charges described above:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
North America............................................... 10.3% 6.3%
Europe...................................................... 6.6 12.7
Rest of World............................................... 4.2 11.8
Total Tenneco Automotive.......................... 8.4% 9.3%
</TABLE>
In North America, operating income as a percentage of revenue increased
significantly due to proportionately lower aftermarket selling, general, and
administrative expenses relative to the change in sales and improved overhead
absorption due to higher original equipment volumes. European operating income
as a percentage of revenue decreased primarily due to lower aftermarket sales
and product mix changes from higher margin to lower margin business in both
market channels. The decrease in EBIT margin in the rest of the world was caused
primarily by difficult economic conditions and currency devaluation in Brazil,
which was partially offset by increased margins in Australia.
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 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 our 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 about $2 million on an
annual basis.
As of December 31, 1999, we have terminated approximately 670 employees and
our North American aftermarket business has closed one plant location and four
distribution centers under the 1998 plan. To address customer service and
production transfer issues, we have delayed closing one plant location and one
distribution center until the first quarter of 2000. We have executed all other
restructuring actions, with the exception of the final disposal of certain
assets, according to our initial plan, and these actions were completed by
year-end 1999.
In the fourth quarter of 1999, our Board of Directors approved a second
restructuring plan designed to further reduce operational overhead costs. We
recorded a pre-tax charge to income from continuing operations 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
28
<PAGE> 35
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 that 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 about $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 about
$3 million on an annual basis. We expect to complete all restructuring
activities by the middle of 2001.
Amounts related to the restructuring plans are shown in the following
table:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1999 1999 CHARGED TO DECEMBER 31, 1999
RESTRUCTURING RESTRUCTURING CASH ASSET RESTRUCTURING
RESERVE CHARGE PAYMENTS ACCOUNTS RESERVE
----------------- ------------- -------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Severance................... $15 $21 $10 $-- $26
Asset impairments........... -- 31 -- 31 --
Facility exit costs......... 1 3 2 -- 2
--- --- --- --- ---
$16 $55 $12 $31 $28
=== === === === ===
</TABLE>
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 could result in developing further restructuring plans that would
involve additional restructuring charges.
Spin-off Transaction Costs and Other Expenses
In the fourth quarter of 1999, we recorded costs and expenses to complete
the series of actions necessary to separate Pactiv from the automotive business.
These costs included fees for advisors, costs for accelerated vesting of
restricted and performance shares of common stock granted to key employees by
Tenneco since 1996, and other fees and expenses directly associated with the
spin-off transaction. Also included in the total of $59 million in spin-off
transaction costs and other expenses in the table presented earlier in the
section "-- Results from Continuing Operations" is a $12 million charge to write
down the value of a receivable from a former business that we sold in 1994.
Deteriorating performance by that business, as well as a consolidation in its
primary industry, has caused us to revise our estimate of the proceeds we will
ultimately collect on the receivable.
"Stand-Alone" Company Expenses
These costs were incurred after the November 4 spin-off transaction date
and include the addition of functions necessary for us to operate as a public
company as well as administrative costs for information technology and payroll
and accounts payable services. We receive these information technology and
payroll and accounts payable services from Pactiv under a contractual agreement
entered into in connection with the spin-off of Pactiv. We have identified and
explained these costs separately to improve comparability since they did not
exist in 1998. These costs will, however, continue in future periods.
We currently estimate these stand-alone company expenses will be
approximately $54 million annually. Of that amount, approximately $40 million
relates to the services received under the contract with Pactiv. The contract
extends for 24 months from the date of the spin-off. Subsequent to year-end,
Pactiv sold the payroll and accounts payable functions to a third party who will
continue to provide those services under terms similar to the Pactiv
arrangements, except that the term has been extended for an additional year for
a total of three years from the date of the spin-off.
29
<PAGE> 36
Previously Unallocated Tenneco Inc. Expenses
Tenneco Inc. incurred costs at the corporate level that were not allocated
to the business units. Some of those historical costs remained in our results
due to the manner in which our former corporate operations were split between
Pactiv and us. These costs related primarily to a receivables sale program
operated by Tenneco Inc. prior to the spin-off. Tenneco Inc.'s receivables sale
program was discontinued at the end of the third quarter of 1999. The total
amount of expenses previously unallocated by Tenneco Inc. were $21 million in
1998 and $4 million in 1999. All of the 1999 previously unallocated Tenneco Inc.
expenses were incurred in the first nine months of 1999.
Interest Expense, net of interest capitalized
We reported interest expense for our continuing operations of $106 million
in 1999, compared to $69 million in 1998. Interest expense allocated to
discontinued operations was $118 million in 1999 and $171 million in 1998. The
decrease in our total interest expense is due primarily to our lower debt levels
as a result of using the proceeds from the containerboard sale to pay down debt.
This was partially offset by higher interest expense after the spin-off due to
our higher cost of financing.
As a result of the realignment of our debt before the spin-off, we borrowed
approximately $1.7 billion under our new debt arrangements. The new debt
structure is explained in more detail in "-- Liquidity and Capital Resources"
later in this Management's Discussion and Analysis and in Note 4 to our
financial statements.
We allocate interest expense to our discontinued operations based generally
on the ratio of net assets of discontinued operations to our total net assets
plus debt. We began taking certain debt and balance sheet realignment actions in
October of 1999, before the spin-off. As a result of these actions, the ratio
for allocating interest changed in October, requiring a reduction in interest
allocated to discontinued operations. This adjustment was $10 million, which we
have attributed to part of the cost of the spin-off and debt realignment
transactions.
Income Taxes
Our effective tax rate for 1999 was 195 percent. This high effective tax
rate relates primarily to the spin-off transaction. In connection with the
spin-off, we repatriated earnings from some foreign tax jurisdictions. Since our
policy is to reinvest earnings from foreign operations rather than repatriate
them to the U.S., this one-time action resulted in a charge to recognize the
taxes due on the repatriation. Additionally, some tax benefits previously shared
between the automotive and packaging businesses are no longer available to us
following the spin-off and this resulted in a tax charge in the fourth quarter.
Finally, the 1999 restructuring involves significant activity in Europe where
many of the costs of restructuring will not be deductible for tax purposes.
Consequently, we recognized no tax benefit for these non-deductible costs.
Our effective tax rate for 1998 was 8 percent. This rate was lower than the
statutory rate as a result of certain non-recurring foreign and state tax
benefits, lower foreign tax rates, and a reduction in our estimated tax
liabilities related to certain global tax audits.
Minority Interest
Minority interest is related primarily to dividends on the preferred stock
of a U.S. subsidiary. We repurchased the preferred stock before the spin-off as
part of the debt realignment.
30
<PAGE> 37
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
Revenues and income for the paperboard packaging discontinued operations
are shown in the following table:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------
1999 1998
------ ------
<S> <C> <C>
Net sales and operating revenues....................... $ 445 $1,570
====== ======
Income (loss) before income taxes and interest
allocation
Operations........................................... $ 32 $ 99
Loss on containerboard sale.......................... (343) --
Gain on sale of folding carton....................... 11 --
Gain on sale of joint venture with Caraustar......... -- 15
Gain on sale of non-strategic timberland............. -- 17
------ ------
(300) 131
Income tax (expense) benefit........................... 120 (48)
------ ------
Income (loss) before interest allocation............... (180) 83
Allocated interest expense, net of income tax.......... (5) (26)
------ ------
Income (loss) from discontinued operations............. $ (185) $ 57
====== ======
</TABLE>
Fourth quarter 1998 results from discontinued operations for the paperboard
packaging segment include a pretax charge of $14 million related to a
restructuring plan to reduce administrative and operational overhead costs. The
paperboard packaging restructuring plan involved closing four box plants and
eliminating 78 manufacturing and 198 administrative positions.
Revenues and income for the discontinued specialty packaging business and
administrative services operations are shown in the following table:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------
1999 1998
------ ------
<S> <C> <C>
Net sales and operating revenues....................... $2,419 $2,791
====== ======
Income before income taxes and interest allocation..... 87 280
Income tax (expense) benefit........................... (29) (113)
------ ------
Income before interest allocation...................... 58 167
Allocated interest expense, net of income tax.......... (81) (85)
------ ------
Income (loss) from discontinued operations............. $ (23) $ 82
====== ======
</TABLE>
Results from discontinued operations for the specialty packaging segment in
1999 include a pre-tax charge of $29 million relating to a plan to realign the
headquarters functions. This plan involved severing approximately 40 employees
and closing the Greenwich, Connecticut, headquarters facility.
Our loss from discontinued operations in 1999 was $208 million, comprised
principally of an after-tax loss on sale of the paperboard packaging business of
$207 million. This loss on sale includes a $54 million net loss in the fourth
quarter, reflecting events that occurred subsequent to the April 1999 sale
related to the final settlement of working capital amounts, revisions to
actuarially-determined estimates of pension plan effects, and changes in
estimates regarding liabilities retained by Pactiv.
Earnings per common diluted share from discontinued operations were $4.12
in 1998 compared to a loss per common diluted share of $6.23 in 1999.
We recognized extraordinary losses related to the early retirement of debt
during 1999. In the first quarter, we recognized an extraordinary loss of $7
million net of income tax, or $ .21 per common diluted
31
<PAGE> 38
share, related to debt retired in connection with the containerboard sale. In
the fourth quarter, we recognized an extraordinary loss of $11 million net of
income tax, or $.34 per common diluted share, for the cost of debt retired in
connection with the debt realignment necessary to accomplish the spin-off. This
extraordinary loss related to the debt securities that were retired in the cash
tender offer. We did not recognize any gain or loss on the debt securities
retired in the offer to exchange Pactiv debt securities for our debt securities
since the terms of the Pactiv debt securities were not "substantially different"
from the terms of our debt securities.
CHANGES IN ACCOUNTING PRINCIPLES
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement required prospective
application for fiscal years beginning after December 15, 1998. We adopted SOP
98-1 on January 1, 1999. The impact of this new standard did not have a
significant effect on our financial position or results of operations.
In April 1998, the AICPA issued 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 some costs related to start-up activities, primarily pre-production
design and development costs for new automobile original equipment 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 $3.04 per diluted common share. The change in
accounting principle decreased income from continuing operations by $19 million
(net of a $11 million tax benefit), or $.56 per diluted common share, for the
year ended December 31, 1999. If the new accounting method had been applied
retroactively, income from continuing operations for the years ended December
31, 1998 and 1997, would have been lower by $19 million (net of a $12 million
tax benefit), or $.57 per diluted common share, and $18 million (net of a $12
million tax benefit), or $.54 per diluted common share, respectively.
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 are currently evaluating the new standard and have not yet
determined the 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. The change in accounting principle increased income
from continuing operations by $10 million (net of $6 million in income tax
expense), or $.30 per diluted common share, for the year ended December 31,
1999. If the new accounting principle had been applied retroactively, income
from
32
<PAGE> 39
continuing operations for the years ended December 31, 1998 and 1997, would have
been lower by $4 million (net of a $3 million income tax benefit), or $.11 per
diluted common share, and $12 million (net of a $8 million income tax benefit),
or $.35 per diluted common share, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Short term debt and current maturities...................... $ 56 $ 304
Long term debt.............................................. 1,578 671
Debt allocated to discontinued operations................... -- 2,456
------ ------
Total debt.................................................. 1,634 3,431
------ ------
Minority interest of continuing operations.................. 16 407
Minority interest allocated to discontinued operations...... -- 14
------ ------
Total minority interest..................................... 16 421
------ ------
Common shareholders' equity................................. 422 2,504
------ ------
Total capitalization........................................ $2,072 $6,356
====== ======
</TABLE>
Our debt and equity balances at December 31, 1999, reflect the impact of
the debt realignment and spin-off transactions. At December 31, 1999, we had no
borrowings under our revolving credit facility. Our short-term debt relates
primarily to borrowings by foreign subsidiaries. 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 public
debt that was not retired in the cash tender and exchange offers.
Our equity at December 31, 1999, reflects the effect of the spin-off of
Pactiv to our shareholders. This transaction resulted in a $1,448 million
reduction to common equity. Equity was also reduced during 1999 by cumulative
translation adjustments resulting from the strong U.S. dollar, by the loss
recognized primarily as a result of the spin-off transaction, and dividends of
$151 million issued for the first three quarters of 1999.
Prior to the spin-off, we realigned substantially all of our existing debt.
To accomplish this, we initiated an offer to exchange Pactiv debt securities for
some of our debt securities having a book value of $1,166 million. We also
initiated a cash tender offer to purchase debt securities having a book value of
$1,374 million and repaid substantially all of our short-term borrowings.
Finally, we retired approximately $400 million of subsidiary preferred stock.
These transactions were financed by borrowings under our new credit facility,
senior subordinated debt that we issued, and borrowings by Pactiv under new
credit facilities. The debt of Pactiv was rated investment grade and our debt
was rated noninvestment grade by debt rating agencies.
As part of the debt realignment, 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. This financing is secured by substantially
all of our tangible and intangible U.S. assets, the capital stock of our
material U.S. subsidiaries and up to 66 percent of the capital stock of our
first-tier foreign subsidiaries. It is also guaranteed by our material U.S.
subsidiaries. We will pay a portion of each term loan in quarterly installments
beginning September 30, 2001. Borrowings under this facility bear interest at an
annual rate equal to, at our 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
33
<PAGE> 40
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
our 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 interest expense)
not less than 2.00; and (iii) a consolidated fixed charge coverage ratio
(consolidated EBITDA less consolidated capital expenditures, divided by
consolidated interest expense) 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
us to repay any outstanding loans.
On October 14, 1999, we issued $500 million of 11 5/8 percent senior
subordinated notes due in 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.
Capital Commitments
We estimate that expenditures of approximately $81 million will be required
after December 31, 1999, to complete facilities and projects authorized at that
date, and we have made substantial commitments in connection with these
facilities and projects.
Dividends on Common Stock
In October 1999, our shareholders approved an amendment to the Certificate
of Incorporation providing for a one-for-five reverse stock split of Tenneco's
common stock. As a result, the reverse stock split is reflected in the
historical dividends declared on our common shares. We declared dividends on our
common shares of $1.50 per share for each quarter in 1998 and the first three
quarters of 1999. During the fourth quarter of 1999, no cash dividends were
paid.
Now that the spin-off of Pactiv is complete, we are highly leveraged and
restricted with respect to paying dividends by the terms of our financing
arrangements. On January 12, 2000, we announced that our Board of Directors
declared a first quarter dividend of 5 cents per share payable on March 14,
2000, to shareholders of record at the close of business on February 25, 2000.
34
<PAGE> 41
Cash Flows
<TABLE>
<CAPTION>
1999 1998
------ -----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities -- continuing operations............. $ (1) $ 63
Investing activities -- continuing operations............. (227) (278)
Financing activities...................................... 1,495 216
</TABLE>
Operating Activities
Cash provided by continuing operating activities, including cash
transaction related and stand-alone expenses, declined by $64 million for 1999
compared to 1998. Income from continuing operations, inclusive of transaction
and stand-alone expenses, and restructuring and other charges, was $179 million
lower, and investments in working capital were $70 million more in 1999 compared
to 1998. The increase in working capital was attributable primarily to the $112
million increase in accounts receivable arising primarily from the termination
of the domestic accounts receivable factoring program operated by Tenneco Inc.
Net deferred income tax liabilities increased by $97 million in 1999. The
majority of this increase is related to the spin-off transaction and
reallocation of tax assets between us and our discontinued operations.
Cash provided by our discontinued operations declined by $722 million in
1999 compared to 1998. The paperboard operations were responsible for $213
million, which is attributable primarily to the purchase of containerboard
business accounts receivable in contemplation of the sale of the containerboard
business in April. Transaction expenses related to the spin-off reduced
discontinued operations cash flow by an additional $164 million. Additionally,
containerboard results are reflected for the first four months in 1999 and for
the full year in 1998 due to the sale of this business, and the specialty
business results are reflected for the first 10 months in 1999 and for the full
year in 1998 due to the spin-off.
Investing Activities
Cash used by investing activities for continuing operations was $51 million
higher in 1999 compared to 1998. Capital expenditures were $41 million lower in
1999 compared to 1998 due to more effective capital management. This was offset
by the acquisition of Kinetic Ltd., an Australian suspension engineering
company, for $36 million in May 1999. Cash used by other investing activities
was $45 million. Discontinued operations and adjustments related to the spin-off
accounted for $24 million of this total and investments in other intangible
assets accounted for most of the balance in other investing activities.
Cash used by investments in discontinued operations increased by $476
million in 1999 compared to 1998. During the second quarter of 1999, Pactiv
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 containerboard sale. The source of
the funds for these capital expenditures was borrowings by Pactiv prior to the
containerboard sale. See "Financing Activities" below. We also received
approximately $300 million in proceeds related to the containerboard and folding
carton sale transactions.
Financing Activities
Excluding financing activities required to complete the containerboard sale
transaction and the spin-off of Pactiv, cash provided by financing activities
was $545 million in 1999. This reflected primarily the impact of our debt
realignment discussed earlier in the section -- "Liquidity and Capital
Resources" You should also read Note 1, "Summary of Accounting
Policies -- Allocation of Corporate Debt and Interest Expense," for more
information.
35
<PAGE> 42
Before the containerboard sale transaction, Pactiv borrowed approximately
$1.8 billion. Pactiv used these borrowings 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 described under "Operating Activities" above. Pactiv remitted the
balance of the borrowings to us to retire short-term debt. Pactiv contributed
the containerboard business to the new joint venture, including approximately
$1.8 billion in new debt. The debt reduction that resulted from this
contribution is shown on the Statements of Cash Flows as a non-cash financing
activity.
YEAR 2000
We completed all Year 2000 remediation efforts by December 31, 1999. No
material Year 2000 issues were identified at significant vendors, at customers
or at any of our locations. Our total cost to address the Year 2000 issues was
about $16 million.
EURO CONVERSION
The European Monetary Union resulted in the adoption of a common currency,
the "euro," among 11 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
our operational divisions as well as our 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 we determined were necessary and prudent to adopt by that date,
and we are 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 results of operations.
ENVIRONMENTAL AND OTHER MATTERS
We and certain 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 December 31, 1999, 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 $15 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
36
<PAGE> 43
parties has been considered, where appropriate, in our determination of our
estimated liability. 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 or results of operations.
We estimate that our capital expenditures for environmental matters will be
$3 million and $4 million for 2000 and 2001, respectively.
We are a party to various other legal proceedings arising from our
operations. We believe that the outcome of these other proceedings, individually
and in the aggregate, will not have a material adverse effect on our financial
position or results of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
FOREIGN CURRENCY EXCHANGE RATE RISK
We use derivative financial instruments, principally foreign currency
forward purchase and sale contracts with terms of less than one year, to hedge
our exposure to changes in foreign currency exchange rates. Our primary exposure
to changes in foreign currency rates results from intercompany loans made
between affiliates to minimize the need for borrowings from third parties.
Additionally, we enter into foreign currency forward purchase and sale contracts
to mitigate our exposure to changes in exchange rates on certain intercompany
and third-party trade receivables and payables. We have from time to time also
entered into forward contracts to hedge our net investment in foreign
subsidiaries. We do not currently enter into derivative financial instruments
for speculative purposes.
In managing our foreign currency exposures, we identify and aggregate
existing offsetting positions and then hedge residual exposures through
third-party derivative contracts. The following table summarizes by major
currency the notional amounts, weighted average settlement rates, and fair value
for foreign currency forward purchase and sale contracts as of December 31,
1999. All contracts in the following table mature in 2000.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
NOTIONAL AMOUNT WEIGHTED AVERAGE FAIR VALUE
IN FOREIGN CURRENCY SETTLEMENT RATES IN U.S. DOLLARS
------------------- ----------------- ---------------
(MILLIONS EXCEPT
SETTLEMENT RATES)
<S> <C> <C> <C> <C>
Australian dollars................. -Purchase 8 0.656 $ 5
-Sell (61) 0.656 (40)
British pounds..................... -Purchase 108 1.615 175
-Sell (92) 1.615 (149)
Canadian dollars................... -Purchase 18 0.692 12
-Sell (97) 0.692 (67)
Czech Republic koruna.............. -Purchase 32 0.028 1
-Sell (551) 0.028 (15)
Danish kroner...................... -Purchase -- 0.135 --
-Sell (340) 0.135 (46)
European euro...................... -Purchase 38 1.007 38
-Sell (26) 1.007 (26)
U.S. dollars....................... -Purchase 153 1.000 153
-Sell (35) 1.000 (35)
Other.............................. -Purchase 43 0.143 6
-Sell (150) 0.079 (12)
-----
$ --
=====
</TABLE>
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
37
<PAGE> 44
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. We have $500 million of long-term
debt obligations that have fixed interest rates and $1.05 billion of long-term
debt obligations that have variable interest rates based on a current market
rate of interest. If we were to redeem our fixed rate, long-term debt securities
prior to their stated maturity, we would generally incur costs based on the fair
value of the debt at that time plus any applicable early payment premiums.
Under the terms of our senior credit facility agreement, we are 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. We must hedge about $50 million more of our long-term, floating rate debt
to satisfy the interest rate hedging requirement of the senior credit facility
agreement.
We estimate that the fair value of our long-term debt at December 31, 1999,
was about the same as its book value. The fair value of the floating rate
portion of our long-term debt does not change as interest rates change. 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 $6 million after tax. The interest rate swaps we
entered into after the end of the year would have reduced the effect of a one
percent change in interest rates by about $1 million after tax.
The statements and other information (including the tables) in this
"Derivative Financial Instruments" section constitute "forward-looking
statements."
YEARS 1998 AND 1997
RESULTS OF CONTINUING OPERATIONS
We reported income from continuing operations of $116 million for the year
ended December 31, 1998, compared to $234 million for the same period in 1997.
The 1998 figure includes a $34 million after tax charge to restructure the
automotive aftermarket business and to reduce overhead and manufacturing costs
throughout every part of the business. Excluding the restructuring charge, our
income from continuing operations for the 1998 period was $150 million compared
to $234 million for the year ended December 31, 1997. While our operating income
declined, we also experienced higher interest expense and minority interest.
Net Sales and Operating Revenues
<TABLE>
<CAPTION>
1998 1997 % CHANGE
------ ------ --------
(MILLIONS)
<S> <C> <C> <C>
North America............................................. $1,679 $1,719 (2)
Europe.................................................... 1,252 1,173 7
Rest of World............................................. 306 334 (8)
------ ------
$3,237 $3,226 --
====== ======
</TABLE>
Our revenue for 1998 was essentially flat with 1997 as increases in
original equipment revenue in North America and Europe of $215 million were
offset by a $165 million decline in aftermarket revenues throughout the world
and a $54 million reduction due to the adverse impact of a strong U.S. dollar,
with the remaining change due to the mix of products sold. Original equipment
revenue increased as we continued to place our ride control and exhaust products
on many of the world's bestselling vehicles. Lower aftermarket demand was driven
by customer consolidations that temporarily increased field inventory levels in
North America and Europe; milder than normal winter weather; and continuing soft
Asian and South American replacement markets. Additionally, we began reducing
our quarterly promotional programs in an effort to better balance supply and
demand going into 1999.
38
<PAGE> 45
Income Before Interest Expense, Income Taxes, and Minority Interest
("EBIT")
The following table presents EBIT for the years 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
North America............................................... $ 58 $216 (73)
Europe...................................................... 155 153 1
Rest of World............................................... 35 38 (8)
---- ----
Automotive.................................................. 248 407 (39)
Previously unallocated Tenneco Inc. expenses................ (21) (12) NM
---- ----
$227 $395 (43)
==== ====
</TABLE>
Excluding restructuring charges, a comparison of our 1998 and 1997 EBIT is
as follows:
<TABLE>
<CAPTION>
1998 1997 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
North America............................................... $106 $216 (51)
Europe...................................................... 159 153 4
Rest of World............................................... 36 38 (5)
---- ----
Automotive.................................................. 301 407 (26)
Previously unallocated Tenneco Inc. expenses................ (21) (12) NM
---- ----
$280 $395 (29)
==== ====
</TABLE>
Our EBIT in 1998 reflected strong volume growth in the original equipment
business that was more than offset by lower volumes in the aftermarket. The net
impact of volume was a decline in EBIT of $43 million. Adverse currency
movements caused a further deterioration of $14 million. The 1997 EBIT included
$10 million related to the favorable resolution of a legal action and a net
reduction of $4 million in certain reserves, related primarily to ongoing
reorganization initiatives that had proceeded more rapidly and efficiently than
planned, allowing us to adjust our cost estimate for completing the initiatives.
Charges in 1998 for bad debts, a higher level of costs related to customer
acquisition activity and marketing, and pricing adjustments in the original
equipment business produced the balance of the earnings decline.
The previously unallocated Tenneco Inc. expenses in both 1998 and 1997
related primarily to the loss from the sale of accounts receivable.
EBIT as a Percentage of Revenue
Excluding the fourth quarter 1998 restructuring charge described
previously, EBIT as a percentage of revenue for 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
North America............................................... 6.3% 12.6%
Europe...................................................... 12.7% 13.0%
Rest of World............................................... 11.8% 11.4%
Automotive.................................................. 9.3% 12.6%
Total....................................................... 8.7% 12.2%
</TABLE>
Interest Expense, net of interest capitalized
We incurred interest expense of $69 million, a $11 million increase over
1997. For the year 1998, we allocated $171 million of interest expense to
discontinued operations compared with $158 million during 1997. Adjusting for
the allocation, interest expense increased by $24 million. This increase was
attributable to higher average debt levels in 1998 resulting from our
acquisition of the protective and flexible packaging
39
<PAGE> 46
business of KNP BT in late April 1997 for the specialty packaging segment, a
higher level of working capital to support higher revenue levels, and common
share repurchase activity.
Income Taxes
Our effective tax rate for 1998 was 8 percent, compared to 24 percent for
1997. The 1998 effective tax rate was lower than the statutory rate as a result
of certain nonrecurring foreign and state tax benefits, lower foreign tax rates,
and a reduction in our estimated tax liabilities related to certain global tax
audits. The 1997 effective tax rate benefitted from the nonrecurring impact of
certain foreign tax benefits and the benefit of previously unrecognized deferred
tax assets.
Minority Interest
Minority interest was $29 million in 1998, compared to $23 million in 1997.
This represents primarily dividends on the preferred stock of a U.S. subsidiary.
In December 1997, this subsidiary issued additional preferred stock. You should
read Note 9 to the financial statements for additional information.
DISCONTINUED OPERATIONS
Read Note 2 to the financial statements for information regarding the
results of our discontinued operations.
CHANGE IN ACCOUNTING PRINCIPLE
As required by the FASB's Emerging Issues Task Force Issue 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation," we recorded an aftertax charge of $46 million, or $1.35 per
diluted common share, in the fourth quarter of 1997, which was reported as a
cumulative effect of a change in accounting principle.
EARNINGS PER SHARE
Income from continuing operations was $3.44 per diluted common share for
1998, compared to $6.85 per diluted common share in 1997. Discontinued
operations contributed $4.12 per diluted common share for 1998 compared to $3.72
per diluted common share for 1997. For 1997, we also recorded a charge for the
cumulative effect of a change in accounting principle noted above of $1.35 per
diluted common share, resulting in net income of $9.22 per diluted common share
compared to $7.56 per diluted common share for 1998.
CASH FLOWS
<TABLE>
<CAPTION>
1998 1997
----- -----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities -- continuing operations............. $ 63 $ 211
Investing activities -- continuing operations............. (278) (289)
Financing activities...................................... 216 354
</TABLE>
Operating Activities
Cash flow provided by operating activities was $148 million lower in 1998
than in 1997. Income from continuing operations was $118 million lower than in
1997, largely as a result of higher interest expense and the restructuring
charge taken during the fourth quarter of 1998, for which the bulk of the cash
outflows occurred during 1999. Noncash charges for deferred income taxes were
higher in 1997 than in 1998, primarily as a result of tax benefits derived from
the 1996 reorganization and debt realignment and a 1996 tax net operating loss
that was carried back to earlier years.
40
<PAGE> 47
Investing Activities
Investing activities used $11 million less cash in 1998 than in 1997.
Capital expenditures for continuing operations declined by $26 million in 1998.
Cash used for acquisitions decreased by $26 million in 1998 compared to 1997. In
1998, we acquired the minority interest of a Brazilian subsidiary for $3
million.
Capital expenditures and acquisitions for discontinued operations decreased
in 1998 by $124 million, as lower acquisitions in 1998 were partially offset by
higher capital spending. During 1998, the most significant acquisitions were
Richter Manufacturing, a North American protective packaging business, and the
Belvidere, Illinois dual ovenable paperboard tray manufacturing facility of
Champion International. Acquisition activity in 1997 related primarily to the
purchase of KNP BT's protective and flexible packaging business. The higher
capital expenditures were primarily a result of $84 million spent to acquire
certain leased timberlands in contemplation of the separation of the
containerboard assets from our other businesses.
Financing Activities
Financing activities in 1998 generated $138 million less cash than in 1997.
During 1997, a subsidiary issued preferred stock for net proceeds of $99
million. During 1998, we repurchased $22 million more of our common stock than
in 1997. During 1997, we refinanced a portion of our short-term debt by issuing
$600 million of long-term debt. The net proceeds of these debt offerings was
$593 million. During 1998, our short-term debt (excluding current maturities on
long-term debt) increased by $540 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The section entitled "Derivative Financial Instruments" in Item 7,
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" is incorporated herein by reference.
41
<PAGE> 48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS OF TENNECO AUTOMOTIVE INC.
AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent public accountants.................... 43
Statements of income (loss) for each of the three years in
the period ended December 31, 1999........................ 44
Balance sheets -- December 31, 1999 and 1998................ 45
Statements of cash flows for each of the three years in the
period ended December 31, 1999............................ 46
Statements of changes in shareholders' equity for each of
the three years in the period ended December 31, 1999..... 47
Statements of comprehensive income (loss) for each of the
three years in the period ended December 31, 1999......... 48
Notes to financial statements............................... 49
</TABLE>
42
<PAGE> 49
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Automotive Inc.:
We have audited the accompanying balance sheets of Tenneco Automotive Inc.
(a Delaware corporation) and consolidated subsidiaries (see Note 1) as of
December 31, 1999 and 1998, and the related statements of income, cash flows,
changes in shareholders' equity and comprehensive income for each of the three
years in the period ended December 31, 1999. These financial statements and the
schedule referred to below are the responsibility of Tenneco Automotive Inc.'s
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tenneco Automotive Inc. and
consolidated subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1999 Tenneco
Automotive Inc. changed its methods of accounting for the costs of start-up
activities and for customer acquisition costs, and in 1997 changed its method of
accounting for certain costs incurred in connection with information technology
transformation projects.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of Tenneco
Automotive Inc. and consolidated subsidiaries is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The supplemental schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
of Tenneco Automotive Inc. and consolidated subsidiaries taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 24, 2000
43
<PAGE> 50
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Net sales and operating revenues........................ $ 3,279 $ 3,237 $ 3,226
Other income, net....................................... 13 (25) 37
----------- ----------- -----------
3,292 3,212 3,263
----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation shown below)... 2,427 2,332 2,303
Engineering, research, and development.................. 52 31 34
Selling, general, and administrative.................... 521 472 421
Depreciation and amortization........................... 144 150 110
----------- ----------- -----------
3,144 2,985 2,868
----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY
INTEREST................................................ 148 227 395
Interest expense (net of interest capitalized)........ 106 69 58
Income tax expense.................................... 82 13 80
Minority interest..................................... 23 29 23
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS.................. (63) 116 234
Income (loss) from discontinued operations, net of income
tax..................................................... (208) 139 127
----------- ----------- -----------
Income (loss) before extraordinary loss................... (271) 255 361
Extraordinary loss, net of income tax..................... (18) -- --
----------- ----------- -----------
Income (loss) before cumulative effect of changes in
accounting principles................................... (289) 255 361
Cumulative effect of changes in accounting principles, net
of income tax........................................... (134) -- (46)
----------- ----------- -----------
NET INCOME (LOSS)......................................... $ (423) $ 255 $ 315
=========== =========== ===========
EARNINGS (LOSS) PER SHARE
Average shares of common stock outstanding --
Basic................................................. 33,480,686 33,701,115 34,052,946
Diluted............................................... 33,656,063 33,766,906 34,160,327
Basic earnings (loss) per share of common stock --
Continuing operations................................. $ (1.87) $ 3.45 $ 6.87
Discontinued operations............................... (6.23) 4.13 3.73
Extraordinary loss.................................... (.55) -- --
Cumulative effect of changes in accounting
principles......................................... (3.99) -- (1.35)
----------- ----------- -----------
$ (12.64) $ 7.58 $ 9.25
=========== =========== ===========
Diluted earnings (loss) per share of common stock --
Continuing operations................................. $ (1.87) $ 3.44 $ 6.85
Discontinued operations............................... (6.23) 4.12 3.72
Extraordinary loss.................................... (.55) -- --
Cumulative effect of changes in accounting
principles......................................... (3.99) -- (1.35)
----------- ----------- -----------
$ (12.64) $ 7.56 $ 9.22
=========== =========== ===========
Cash dividends per share of common stock.................. $ 4.50 $ 6.00 $ 6.00
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of income (loss).
44
<PAGE> 51
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
(MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments....................... $ 84 $ 29
Receivables --
Customer notes and accounts, net....................... 557 430
Other.................................................. 14 13
Inventories............................................... 412 414
Deferred income taxes..................................... 59 39
Prepayments and other..................................... 75 139
------ ------
1,201 1,064
------ ------
Other assets:
Long-term notes receivable, net........................... 20 23
Goodwill and intangibles, net............................. 495 499
Deferred income taxes..................................... 13 39
Pension assets............................................ 31 101
Other..................................................... 146 201
------ ------
705 863
------ ------
Plant, property, and equipment, at cost..................... 1,923 1,944
Less -- Reserves for depreciation and amortization........ 886 851
------ ------
1,037 1,093
------ ------
Net assets of discontinued operations....................... -- 1,739
------ ------
$2,943 $4,759
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on long-term
debt).................................................. $ 56 $ 304
Trade payables............................................ 348 337
Accrued taxes............................................. 20 31
Accrued interest.......................................... 29 37
Accrued liabilities....................................... 149 124
Other..................................................... 61 76
------ ------
663 909
------ ------
Long-term debt.............................................. 1,578 671
------ ------
Deferred income taxes....................................... 108 98
------ ------
Postretirement benefits..................................... 125 139
------ ------
Deferred credits and other liabilities...................... 31 31
------ ------
Commitments and contingencies
Minority interest........................................... 16 407
------ ------
Shareholders' equity:
Common stock.............................................. -- --
Premium on common stock and other capital surplus......... 2,721 2,712
Accumulated other comprehensive income (loss)............. (179) (91)
Retained earnings (accumulated deficit)................... (1,880) 142
------ ------
662 2,763
Less -- Shares held as treasury stock, at cost............ 240 259
------ ------
422 2,504
------ ------
$2,943 $4,759
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
45
<PAGE> 52
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ----- -------
(MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations.................... $ (63) $ 116 $ 234
Adjustments to reconcile income (loss) from continuing
operations to cash provided (used) by continuing
operations--
Depreciation and amortization........................... 144 150 110
Deferred income taxes................................... 97 (76) 31
(Gain) loss on sale of businesses and assets, net....... 6 20 20
Changes in components of working capital--
(Increase) decrease in receivables.................... (151) (88) (25)
(Increase) decrease in inventories.................... (23) (32) (12)
(Increase) decrease in prepayments and other current
assets............................................... 14 26 (79)
Increase (decrease) in payables....................... 46 (12) 107
Increase (decrease) in accrued taxes.................. (43) (9) (8)
Increase (decrease) in accrued interest............... (7) -- 30
Increase (decrease) in other current liabilities...... (11) 10 (108)
Other................................................... (10) (42) (89)
------- ----- -------
Cash provided (used) by continuing operations............... (1) 63 211
Cash provided (used) by discontinued operations............. (253) 469 308
------- ----- -------
Net cash provided (used) by operating activities............ (254) 532 519
------- ----- -------
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations................................................ 303 22 24
Net proceeds from sale of businesses and assets............. 8 10 5
Expenditures for plant, property, and equipment............. (154) (195) (221)
Acquisitions of businesses.................................. (36) (3) (29)
Expenditures for plant, property, and equipment and business
acquisitions--discontinued operations..................... (1,264) (498) (622)
Investments and other....................................... (45) (90) (44)
------- ----- -------
Net cash provided (used) by investing activities............ (1,188) (754) (887)
------- ----- -------
FINANCING ACTIVITIES
Issuance of common and treasury shares...................... 41 50 48
Purchase of common stock.................................... (4) (154) (132)
Issuance of equity securities by a subsidiary............... -- -- 99
Redemption of equity securities by a subsidiary............. (408) -- --
Issuance of long-term debt.................................. 3,721 4 597
Retirement of long-term debt................................ (1,410) (21) (23)
Net increase (decrease) in short-term debt excluding current
maturities on long-term debt.............................. (294) 540 (31)
Dividends (common).......................................... (151) (203) (204)
------- ----- -------
Net cash provided (used) by financing activities............ 1,495 216 354
------- ----- -------
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ 2 6 3
------- ----- -------
Increase (decrease) in cash and temporary cash
investments............................................... 55 -- (11)
Cash and temporary cash investments, January 1.............. 29 29 40
------- ----- -------
Cash and temporary cash investments, December 31 (Note)..... $ 84 $ 29 $ 29
======= ===== =======
Cash paid during the year for interest...................... $ 260 $ 259 $ 206
Cash paid during the year for income taxes (net of
refunds).................................................. $ 137 $ 80 $ (145)
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) -- --
Principal amount of long-term and short-term debt assumed by
Specialty Packaging....................................... (2,118) -- --
Distribution of Specialty Packaging Business................ (1,448) -- --
</TABLE>
- -------------------------
Note: Cash and temporary cash investments include highly liquid investments with
a maturity of three months or less at the date of purchase.
The accompanying notes to financial statements are an integral part of these
statements of cash flows.
46
<PAGE> 53
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997
--------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------ ---------- ------ ---------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Balance January 1.................................. 34,734,039 $ -- 34,513,977 $ -- 34,313,531 $ --
Issued pursuant to benefit plans................. 236,446 -- 220,062 -- 200,446 --
----------- ------ ---------- ------ ---------- ------
Balance December 31................................ 34,970,485 -- 34,734,039 -- 34,513,977 --
=========== ------ ========== ------ ========== ------
PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS
Balance January 1.................................. 2,712 2,681 2,644
Premium on common stock issued pursuant to
benefit plans.................................. 22 31 37
Redemption of equity securities by a
subsidiary..................................... (13) -- --
------ ------ ------
Balance December 31................................ 2,721 2,712 2,681
------ ------ ------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance January 1.................................. (91) (122) 23
Other comprehensive income (loss)................ (110) 31 (145)
Reclassification adjustment for disposition of
investments.................................... 22 -- --
------ ------ ------
Balance December 31................................ (179) (91) (122)
------ ------ ------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance January 1.................................. 142 89 (21)
Net income (loss)................................ (423) 255 315
Dividends--
Common stock................................... (151) (202) (205)
Distribution of Specialty Packaging Business... (1,448) -- --
------ ------ ------
Balance December 31................................ (1,880) 142 89
------ ------ ------
LESS -- COMMON STOCK HELD AS TREASURY STOCK, AT
COST
Balance January 1.................................. 1,351,535 259 585,637 120 -- --
Shares acquired.................................. 93,553 9 876,076 161 656,151 134
Shares issued pursuant to benefit and dividend
reinvestment plans............................. (146,715) (28) (110,178) (22) (70,514) (14)
----------- ------ ---------- ------ ---------- ------
Balance December 31................................ 1,298,373 240 1,351,535 259 585,637 120
=========== ------ ========== ------ ========== ------
Total.......................................... $ 422 $2,504 $2,528
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of changes in shareholders' equity.
47
<PAGE> 54
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
ACCUMULATED ACCUMULATED ACCUMULATED
OTHER OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME INCOME INCOME
------------- ------------- ------------- ------------- ------------- -------------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS)................. $ (423) $ 255 $ 315
----------- ----------- -----------
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
CUMULATIVE TRANSLATION
ADJUSTMENT
Balance January 1............... $ (82) $ (122) $ 23
Translation of foreign
currency statements......... (114) (114) 40 40 (160) (160)
Hedges of net investment in
foreign subsidiaries........ -- -- -- -- 23 23
Income tax benefit
(expense)................... -- -- -- -- (8) (8)
Reclassification adjustment
for disposition of
investments in foreign
subsidiaries................ 20 -- -- -- -- --
----------- ----------- -----------
Balance December 31............. (176) (82) (122)
----------- ----------- -----------
ADDITIONAL MINIMUM PENSION
LIABILITY ADJUSTMENT
Balance January 1............... (9) -- --
Additional minimum pension
liability adjustment........ 6 6 (15) (15) -- --
Income tax benefit
(expense)................... (2) (2) 6 6 -- --
Reclassification adjustment
for disposition of
investments in
subsidiaries................ 2 -- -- -- -- --
----------- ----------- -----------
Balance December 31............. (3) (9) --
----------- ----------- -----------
Balance December 31............... $ (179) $ (91) $ (122)
============= ============= =============
----------- ----------- -----------
Other comprehensive income
(loss).......................... (110) 31 (145)
----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS)....... $ (533) $ 286 $ 170
============= ============= =============
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements of comprehensive income (loss).
48
<PAGE> 55
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Consolidation and Presentation
Tenneco Automotive Inc. was known as Tenneco Inc. before the spin-off on
November 4, 1999, of our packaging business to our shareholders, as described in
Note 2. In these notes, when we discuss Tenneco we mean Tenneco Inc. and its
subsidiaries before the spin-off and Tenneco Automotive Inc. and its
subsidiaries after the spin-off.
Our financial statements include all majority-owned subsidiaries. We carry
investments in 20% to 50% owned companies at cost plus equity in undistributed
earnings since the date of acquisition and cumulative translation adjustments.
We have eliminated all significant intercompany transactions.
Inventories
At December 31, 1999 and 1998, inventory by major classification was as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(MILLIONS)
<S> <C> <C>
Finished goods.............................................. $215 $221
Work in process............................................. 86 79
Raw materials............................................... 73 73
Materials and supplies...................................... 38 41
---- ----
$412 $414
==== ====
</TABLE>
Our inventories are stated at the lower of cost or market. A portion of
total inventories (30% and 28% at December 31, 1999 and 1998, respectively) is
valued using the last-in, first-out method. If we had used the first-in,
first-out ("FIFO") method of accounting for these inventories, they would have
been $21 million and $15 million higher at December 31, 1999 and 1998,
respectively. We value all other inventories using the FIFO or average cost
methods at the lower of cost or market value.
Goodwill and Intangibles, net
At December 31, 1999 and 1998, goodwill and intangibles, net of
amortization, by major category were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(MILLIONS)
<S> <C> <C>
Goodwill.................................................... $485 $487
Other intangible assets..................................... 10 12
---- ----
$495 $499
==== ====
</TABLE>
Goodwill is being amortized on a straight-line basis over periods ranging
from 15 to 40 years. Goodwill amortization amounted to $17 million, $16 million,
and $14 million for 1999, 1998, and 1997, respectively, and is included in the
statements of income caption "Depreciation and amortization."
We have capitalized certain intangible assets, primarily trademarks and
patents, based on their estimated fair value at the date we acquired them. We
amortize these intangible assets on a straight-line basis over periods ranging
from five to 30 years. Amortization of intangibles amounted to $3 million, $2
million, and $6 million in 1999, 1998, and 1997, respectively, and is included
in the statements of income caption "Depreciation and amortization."
49
<PAGE> 56
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Plant, Property, and Equipment, at Cost
At December 31, 1999 and 1998, plant, property, and equipment, at cost, by
major category were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(MILLIONS)
<S> <C> <C>
Land, buildings, and improvements........................... $ 365 $ 341
Machinery and equipment..................................... 1,339 1,395
Other, including construction in progress................... 219 208
------ ------
$1,923 $1,944
====== ======
</TABLE>
We depreciate these properties on a straight-line basis over the estimated
useful lives of the assets. Useful lives range from 10 to 40 years for buildings
and improvements and from three to 25 years for machinery and equipment.
Notes Receivable and Allowance for Doubtful Accounts
Short and long-term notes receivable outstanding were $26 million and $36
million at December 31, 1999 and 1998, respectively.
At December 31, 1999 and 1998, the allowance for doubtful accounts on short
and long-term accounts and notes receivable was $29 million and $39 million,
respectively.
Other Long-Term Assets
Prior to January 1, 1999, we capitalized certain costs we incurred in
connection with the acquisition of new customer contracts to sell our
aftermarket products. These new customer acquisition costs were incurred in
exchange for contracts in which the aftermarket customer agreed to purchase our
aftermarket products exclusively for periods of time ranging up to three years.
We amortized these costs over the initial contract period. At December 31, 1998,
the net capitalized costs related to these activities were $54 million. You
should also read "Changes in Accounting Principles" later in this note for more
information.
Before January 1, 1999, we capitalized certain costs related to start-up
activities, primarily pre-production design and development costs for new
automobile original equipment platforms, which are included in the 1998 balance
sheet caption "Other assets -- Other." We amortized the pre-production design
and development costs over the life of the underlying supply agreements and
other start-up costs over the periods benefited, generally two years. Start-up
costs capitalized, net of amortization, at December 31, 1998, were $111 million
for continuing operations and $41 million for discontinued operations. You
should also read "Changes in Accounting Principles" later in this note for more
information.
Beginning on January 1, 1999, we began expensing pre-production design and
development costs as incurred unless we have a contractual guarantee for
reimbursement from the original equipment customer. At December 31, 1999 we had
long-term receivables of $10 million on the balance sheet for guaranteed
pre-production design and development reimbursement arrangements with our
customers. In addition, property, plant and equipment includes $56 million and
$63 million at December 31, 1999 and 1998, respectively, for original equipment
tools and dies that we own, and prepayments and other includes $25 million and
$24 million at December 31, 1999 and 1998, respectively, for in-process tools
and dies that we are building for our original equipment customers.
We capitalize certain costs related to the purchase and development of
software that we use in our business operations. We amortize the costs
attributable to these software systems over their estimated
50
<PAGE> 57
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
useful lives, ranging from three to 12 years, based on various factors such as
the effects of obsolescence, technology and other economic factors. Capitalized
software development costs, net of amortization, were $73 million at December
31, 1999 and were $67 million for continuing operations and $140 million for
discontinued operations at December 31, 1998. You should also read "Changes in
Accounting Principles" later in this note for more information.
Income Taxes
We utilize the liability method of accounting for income taxes whereby we
recognize deferred tax assets and liabilities for the future tax consequences of
temporary differences between the tax basis of assets and liabilities and their
reported amounts in our financial statements. We reduce deferred tax assets by a
valuation allowance when, based upon our estimates, it is more likely than not
that we will not realize a portion of the deferred tax assets in a future
period. The estimates utilized in the recognition of deferred tax assets are
subject to revision in future periods based on new facts or circumstances.
We do not provide for U.S. income taxes on unremitted earnings of foreign
subsidiaries as our present intention is to reinvest the unremitted earnings in
our foreign operations. Unremitted earnings of foreign subsidiaries are
approximately $410 million at December 31, 1999. It is not practicable to
determine the amount of U.S. income taxes that would be payable upon remittance
of the assets that represent those earnings.
Earnings Per Share
We compute basic earnings per share by dividing income available to common
shareholders by the weighted-average number of common shares outstanding. The
computation of diluted earnings per share is similar to the computation of basic
earnings per share, except that the weighted-average number of shares
outstanding is adjusted to include estimates of additional shares that would be
issued if potentially dilutive common shares had been issued. In addition,
income available to common shareholders is adjusted to include any changes in
income or loss that would result from the assumed issuance of the dilutive
common shares.
Allocation of Corporate Debt and Interest Expense
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 has been 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.
You should also read Note 2, "Discontinued Operations and Extraordinary Loss,"
for more information.
Research and Development
We expense research and development costs as they are incurred. Research
and development expenses were $32 million, $30 million, and $19 million for
1999, 1998, and 1997, respectively, and are included in the income statement
caption "Engineering, research, and development expenses."
Foreign Currency Translation
Financial statements of international operations are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and the weighted average exchange rate for each
51
<PAGE> 58
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
applicable period for revenues, expenses, and gains and losses. Translation
adjustments are reflected in the balance sheet caption "Accumulated other
comprehensive income (loss)."
Risk Management Activities
We use derivative financial instruments, principally foreign currency
forward purchase and sale contracts with terms of less than one year, to hedge
our exposure to changes in foreign currency exchange rates, and interest rate
swaps to hedge our exposure to changes in interest rates. Our primary exposure
to changes in foreign currency rates results from intercompany loans made
between affiliates to minimize the need for borrowings from third parties. Net
gains or losses on these foreign currency exchange contracts that are designated
as hedges are recognized in the income statement to offset the foreign currency
gain or loss on the underlying transaction. Additionally, we enter into foreign
currency forward purchase and sale contracts to mitigate our exposure to changes
in exchange rates on some intercompany and third party trade receivables and
payables. Since these anticipated transactions are not firm commitments, we mark
these forward contracts to market each period and record any gain or loss in the
income statement. From time to time we have also entered into forward contracts
to hedge our net investment in foreign subsidiaries. We recognize the after-tax
net gains or losses on these contracts on the accrual basis in the balance sheet
caption "Accumulated other comprehensive income (loss)." In the statement of
cash flows, cash receipts or payments related to these exchange contracts are
classified consistent with the cash flows from the transaction being hedged.
We do not currently enter into derivative financial instruments for
speculative purposes.
Changes in Accounting Principles
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement required prospective
application for fiscal years beginning after December 15, 1998. We adopted SOP
98-1 on January 1, 1999. The impact of this new standard did not have a
significant effect on our financial position or results of operations.
In April 1998, the AICPA issued 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 automobile original
equipment 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 $3.04 per
diluted common share. The change in accounting principle decreased income from
continuing operations by $19 million (net of an $11 million tax benefit), or
$.56 per diluted common share, for the year ended December 31, 1999. If the new
accounting method had been applied retroactively, income from continuing
operations for the years ended December 31, 1998 and 1997, would have been lower
by $19 million (net of a $12 million tax benefit), or $.57 per diluted common
share, and $18 million (net of a $12 million tax benefit), or $.54 per diluted
common share, respectively.
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
52
<PAGE> 59
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 are currently
evaluating the new standard and have not yet determined the 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. The change in accounting principle increased income
from continuing operations by $10 million (net of $6 million in income tax
expense), or $.30 per diluted common share, for the year ended December 31,
1999. If the new accounting principle had been applied retroactively, income
from continuing operations for the years ended December 31, 1998 and 1997, would
have been lower by $4 million (net of a $3 million income tax benefit), or $.11
per diluted common share, and $12 million (net of a $8 million income tax
benefit), or $.35 per diluted common share, respectively.
As required by the FASB's Emerging Issues Task Force ("EITF") Issue 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation," we recorded an after-tax charge of $46 million ($1.35 per
diluted common share), net of a tax benefit of $28 million, in the fourth
quarter of 1997. EITF 97-13 establishes the accounting treatment and an
allocation methodology for certain consulting and other costs incurred in
connection with information technology transformation efforts. This charge was
reported as a cumulative effect of a change in accounting principle.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Prior years' financial statements have been reclassified where appropriate
to conform to 1999 presentations.
2. DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
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,
53
<PAGE> 60
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
including debt assumed by the new joint venture, were approximately $2
billion. The transaction closed in April 1999. We 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.
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.
Before the spin-off, we realigned substantially all of our existing debt
through a combination of tender offers, exchange offers, and other refinancings.
You should also read Note 4, "Long-Term Debt, Short-Term Debt, and Financing
Arrangements" for more information.
Discontinued Operations
Our loss from discontinued operations in 1999 was $208 million, comprised
principally of an after-tax loss on sale of the paperboard packaging business of
$207 million. This loss on sale includes a $54 million net loss in the fourth
quarter, reflecting events that occurred subsequent to the April 1999 sale
related to the final settlement of working capital amounts, revisions to
actuarially-determined estimates of pension plan effects, and changes in
estimates regarding liabilities retained by Pactiv.
The Specialty Packaging Business
Net assets as of December 31, 1998 and 1997, and results of operations for
the years ended December 31, 1999, 1998, and 1997, for the specialty packaging
business were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Net assets at December 31................................... $ -- $1,373 $1,348
====== ====== ======
Net sales and operating revenues............................ $2,419 $2,791 $2,563
====== ====== ======
Income before income taxes and interest allocation.......... $ 87 $ 280 $ 302
Income tax (expense) benefit................................ (29) (113) (118)
------ ------ ------
Income before interest allocation........................... 58 167 184
Allocated interest expense, net of income tax (Note)........ (81) (85) (78)
------ ------ ------
Income (loss) from discontinued operations.................. $ (23) $ 82 $ 106
====== ====== ======
</TABLE>
- ---------------
Note: Reference is made to Note 1, "Summary of Accounting Policies -- Allocation
of Corporate Debt and Interest Expense," for a discussion of the
allocation of corporate debt and interest expense to discontinued
operations.
54
<PAGE> 61
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Paperboard Packaging Business
Net assets as of December 31, 1998 and 1997, and results of operations for
the years ended 1999, 1998, and 1997, for the paperboard packaging business were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Net assets at December 31................................... $ -- $ 366 $ 423
===== ====== ======
Net sales and operating revenues............................ $ 445 $1,570 $1,431
===== ====== ======
Income (loss) before income taxes and interest allocation
Operations................................................ $ 32 $ 99 $ 63
Loss on containerboard sale............................... (343) -- --
Gain on sale of folding carton............................ 11 -- --
Gain on sale of joint venture with Caraustar.............. -- 15 --
Gain on sale of non-strategic timberland.................. -- 17 --
----- ------ ------
(300) 131 63
Income tax (expense) benefit................................ 120 (48) (19)
----- ------ ------
Income (loss) before interest allocation.................... (180) 83 44
Allocated interest expense, net of income tax (Note)........ (5) (26) (23)
----- ------ ------
Income (loss) from discontinued operations.................. $(185) $ 57 $ 21
===== ====== ======
</TABLE>
- -------------------------
Note: Reference is made to Note 1, "Summary of Accounting Policies -- Allocation
of Corporate Debt and Interest Expense," for a discussion of the
allocation of corporate debt and interest expense to discontinued
operations.
Extraordinary Loss
In connection with the sale of the containerboard assets, an extraordinary
loss of approximately $7 million, net of an income tax benefit of $3 million,
was recognized due to the early retirement of debt. As a result of the debt
realignment prior to the spin-off, we recognized an extraordinary loss of
approximately $11 million, net of an income tax benefit of $7 million. This
extraordinary loss consists principally of the fair value paid in the cash
tender offers in excess of the historical carrying value for the debt tendered.
3. 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 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
55
<PAGE> 62
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 December 31, 1999, we have terminated approximately 670 employees and
our North American aftermarket business has closed one plant location and four
distribution centers under the 1998 plan. To address customer service and
production transfer issues, we have delayed closing one plant location and one
distribution center until the first quarter of 2000. We have executed all other
restructuring actions, with the exception of the final disposal of certain
assets, according to our initial plan, and those actions were completed by
year-end 1999.
In the fourth quarter of 1999, our Board of Directors approved a second
restructuring plan designed to further reduce operational overhead costs. We
recorded a pre-tax charge to income from continuing operations 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 that 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.
Amounts related to the restructuring plans are shown in the following
table:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1999 1999 CHARGED TO DECEMBER 31, 1999
RESTRUCTURING RESTRUCTURING CASH ASSET RESTRUCTURING
RESERVE CHARGE PAYMENTS ACCOUNTS RESERVE
----------------- ------------- -------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Severance..................... $15 $21 $10 $-- $26
Asset impairments............. -- 31 -- 31 --
Facility exit costs........... 1 3 2 -- 2
--- --- --- --- ---
$16 $55 $12 $31 $28
=== === === === ===
</TABLE>
56
<PAGE> 63
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT, SHORT-TERM DEBT, AND FINANCING ARRANGEMENTS
Long-Term Debt
A summary of our long-term debt obligations at December 31, 1999 and 1998,
is set forth in the following table:
<TABLE>
<CAPTION>
1999 1998
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Automotive Inc. --
Senior Term Loans due 2001 through 2008, average effective
interest rate 9.3% in 1999............................. $1,050 --
11 5/8% Senior Subordinated Notes due 2009................ 500 --
Debentures due 2008 through 2025, average effective
interest rate 9.3% in 1999 and 7.5% in 1998 (net of
none in 1999 and $64 million in 1998 of unamortized
premium)............................................... 3 1,213
Notes due 2001 through 2007, average effective interest
rate 8.9% in 1999 and 6.7% in 1998 (net of none in 1999
and $33 million in 1998 of unamortized premium)........ 17 1,344
Other subsidiaries --
Notes due 2000 through 2005, average effective interest
rate 10.8% in 1999 and 10.7% in 1998 (net of none in
1999 and $22 million in 1998 of unamortized
discount).............................................. 9 53
------ ------
1,579 2,610
Less -- current maturities.................................. 1 250
------ ------
Total long-term debt........................................ 1,578 2,360
Less -- long-term corporate debt allocated to net assets of
discontinued operations................................... -- 1,689
------ ------
Total long-term debt, net of allocation to net assets of
discontinued operations................................... $1,578 $ 671
====== ======
</TABLE>
The aggregate maturities and sinking fund requirements applicable to the
issues outstanding at December 31, 1999, are $1 million, $61 million, $118
million, $108 million, and $106 million for 2000, 2001, 2002, 2003, and 2004,
respectively.
Short-Term Debt
We principally use a revolving credit facility to finance our short-term
capital requirements. Information regarding our short-term debt as of and for
the years ended December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
COMMERCIAL NOTES COMMERCIAL NOTES
PAPER PAYABLE* PAPER PAYABLE*
---------- -------- ---------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Outstanding borrowings at end of year................ $ -- $ 55 $576 $245
Weighted average interest rate on outstanding
borrowings at end of year.......................... --% 17.7% 5.8% 6.3%
Approximate maximum month-end outstanding borrowings
during year........................................ $822 $287 $576 $245
Approximate average month-end outstanding borrowings
during year........................................ $280 $143 $447 $157
Weighted average interest rate on approximate average
month-end outstanding borrowings during year....... 5.3% 9.1% 5.8% 6.9%
</TABLE>
- -------------------------
* Includes borrowings under both committed credit facilities and uncommitted
lines of credit and similar arrangements.
57
<PAGE> 64
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Short-Term Corporate Debt Allocation
<TABLE>
<CAPTION>
1999 1998
------ ------
(MILLIONS)
<S> <C> <C>
Current maturities on long-term debt........................ $ 1 $ 250
Commercial paper............................................ -- 576
Notes payable............................................... 55 245
------ ------
Total short-term debt....................................... 56 1,071
Less -- short-term corporate debt allocated to net assets of
discontinued operations................................... -- 767
------ ------
Total short-term debt, net of allocation to discontinued
operations................................................ $ 56 $ 304
====== ======
</TABLE>
Financing Arrangements
<TABLE>
<CAPTION>
COMMITTED CREDIT FACILITIES(A)
-------------------------------------------------
TERM COMMITMENTS UTILIZED AVAILABLE
------- ----------- -------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Tenneco Automotive Inc. revolving credit agreement... 2005 $ 500 $ -- $500
Subsidiaries' credit agreements...................... Various 12 12 --
------ ------ ----
$ 512 $ 12 $500
====== ====== ====
</TABLE>
- -------------------------
(a) We generally are required to pay commitment fees on the unused portion of
the total commitment and facility fees on the total commitment.
Prior to the spin-off, we realigned substantially all of our existing debt.
To accomplish this, we initiated an offer to exchange Pactiv debt securities for
some of our debt securities having a book value of $1,166 million. We also
initiated a cash tender offer to purchase debt securities having a book value of
$1,374 million and repaid substantially all of our short-term borrowings.
Finally, we retired approximately $400 million of subsidiary preferred stock.
These transactions were financed by borrowings under our new credit facility,
senior subordinated debt that we issued, and borrowings by Pactiv under new
credit facilities. The debt of Pactiv was rated investment grade and our debt
was rated non-investment grade by debt rating agencies.
As part of the debt realignment, 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. We will pay a portion of each term loan in
quarterly installments beginning September 30, 2001. Borrowings under this
facility bear interest at an annual rate equal to, at our 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.
58
<PAGE> 65
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 interest expense)
not less than 2.00; and (iii) a consolidated fixed charge coverage ratio
(consolidated EBITDA less consolidated capital expenditures, divided by
consolidated interest expense) 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
us to repay any outstanding loans.
On October 14, 1999, we issued $500 million of 11 5/8 percent senior
subordinated notes due in 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.
5. FINANCIAL INSTRUMENTS
The carrying and estimated fair values of our financial instruments by
class at December 31, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(MILLIONS)
ASSETS (LIABILITIES)
<S> <C> <C> <C> <C>
Long-term debt (including current maturities) (Note).... $(1,579) $(1,588) $(2,610) $(2,606)
Instruments with off-balance-sheet risk
Foreign currency contracts............................ -- -- 1 1
Financial guarantees.................................. -- (38) -- (13)
</TABLE>
- -------------------------
Note: The carrying amounts and estimated fair value of long-term debt are before
allocation of corporate debt to discontinued operations. Reference is made
to Note 1 for information concerning corporate debt allocated to
discontinued operations.
Under the terms of our senior credit facility agreement, we are required to
hedge our exposure to floating interest rates within 180 days following the date
of 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
long-term, floating rate debt with three-year, floating to fixed interest rate
swaps. We must hedge approximately $50 million more of our long-term, floating
rate debt to satisfy the interest rate hedging requirement of the senior credit
facility agreement.
59
<PAGE> 66
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Asset and Liability Instruments
The fair value of cash and temporary cash investments, short and long-term
receivables, accounts payable, and short-term debt was considered to be the same
as or was not determined to be materially different from the carrying amount.
Long-term debt -- The fair value of fixed rate long-term debt was based on
the market value of debt with similar maturities and interest rates.
Instruments With Off-Balance-Sheet Risk
Foreign Currency Contracts -- Note 1, "Summary of Accounting Policies --
Risk Management Activities" describes our use of and accounting for foreign
currency exchange contracts. The following table summarizes by major currency
the contractual amounts of foreign currency contracts we utilize:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
------------------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
---------------- ----------------
PURCHASE SELL PURCHASE SELL
-------- ---- -------- ----
(MILLIONS)
<S> <C> <C> <C> <C>
Foreign currency contracts (in U.S.$):
Australian dollars........................................ $ 5 $ 40 $ 3 $ 2
Belgian francs............................................ -- -- 17 19
British pounds............................................ 175 149 163 252
Canadian dollars.......................................... 12 67 73 115
Czech Republic koruna..................................... 1 15 -- 19
Danish kroner............................................. -- 46 12 --
European euro............................................. 38 26 -- --
French francs............................................. -- -- 89 17
German marks.............................................. -- -- 2 33
Spanish pesetas........................................... -- -- 32 2
U.S. dollars.............................................. 153 35 105 33
Other..................................................... 6 12 25 28
---- ---- ---- ----
$390 $390 $521 $520
==== ==== ==== ====
</TABLE>
Based on exchange rates at December 31, 1999 and 1998, the cost of
replacing these contracts in the event of non-performance by the counterparties
would not have been material.
Guarantees -- We had guaranteed payment and performance of approximately
$38 million and $13 million at December 31, 1999 and 1998, respectively,
primarily with respect to letters of credit and other guarantees supporting
various financing and operating activities.
As of the spin-off, all of our then existing and future material domestic
wholly owned subsidiaries fully and unconditionally guaranteed the senior
secured credit facility and the senior subordinated notes on a joint and several
basis. You should also read Note 13 where we present the Supplemental Guarantor
Condensed Consolidating Financial Statements.
60
<PAGE> 67
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The domestic and foreign components of our income from continuing
operations before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
U.S. income (loss) before income taxes...................... $ (42) $ (65) $ 91
Foreign income before income taxes.......................... 84 223 246
----- ----- -----
Income before income taxes.................................. $ 42 $ 158 $ 337
===== ===== =====
</TABLE>
Following is a comparative analysis of the components of income tax expense
applicable to continuing operations:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
Current --
U.S. ..................................................... $ (44) $ 72 $ (5)
State and local........................................... (4) (21) --
Foreign................................................... 33 38 54
----- ----- -----
(15) 89 49
----- ----- -----
Deferred --
U.S. ..................................................... 62 (109) 13
Foreign, state, and other................................. 35 33 18
----- ----- -----
97 (76) 31
----- ----- -----
Income tax expense.......................................... $ 82 $ 13 $ 80
===== ===== =====
</TABLE>
Following is a reconciliation of income taxes computed at the statutory
U.S. federal income tax rate (35% for all years presented) to the income tax
expense reflected in the statements of income:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
Tax expense computed at the statutory U.S. federal income
tax rate.................................................. $ 15 $ 55 $ 118
Increases (reductions) in income tax expense resulting from:
Foreign income taxed at different rates and foreign losses
with no tax benefit.................................... (2) (12) (25)
Taxes on repatriation dividends........................... 33 -- --
State and local taxes on income, net of U.S. federal
income tax benefit..................................... (2) (8) 4
Recognition of previously unbenefited loss
carryforwards.......................................... (4) (5) (11)
Amortization of nondeductible goodwill.................... 3 3 2
Tax effect of intercompany allocation..................... 18 -- --
Nondeductible restructuring expenses...................... 15 -- --
Other..................................................... 6 (20) (8)
----- ----- -----
Income tax expense.......................................... $ 82 $ 13 $ 80
===== ===== =====
</TABLE>
61
<PAGE> 68
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of our net deferred tax liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
(MILLIONS)
<S> <C> <C>
Deferred tax assets --
Tax loss carryforwards:
U.S. .................................................. $ 78 $104
State.................................................. 2 7
Foreign................................................ 49 58
Postretirement benefits other than pensions............... 31 32
Other..................................................... 28 26
Valuation allowance....................................... (25) (30)
---- ----
Net deferred tax asset............................... 163 197
---- ----
Deferred tax liabilities --
Tax over book depreciation................................ 132 113
Pensions.................................................. 13 27
Other..................................................... 54 77
---- ----
Total deferred tax liability......................... 199 217
---- ----
Net deferred tax liability.................................. $ 36 $ 20
==== ====
</TABLE>
As shown by the valuation allowance in the table above, we had potential
tax benefits of $25 million and $30 million at December 31, 1999 and 1998,
respectively, that we did not recognize in the statements of income when they
were generated. These unrecognized tax benefits resulted primarily from foreign
tax loss carryforwards that are available to reduce future foreign tax
liabilities.
The $223 million of U.S. tax loss carryforwards that exist at December 31,
1999, expire in 2018. The $29 million of state tax loss carryforwards that exist
at December 31, 1999, will expire in varying amounts over the period from 2000
to 2012. Of the $165 million of foreign tax loss carryforwards that exist at
December 31, 1999, $145 million do not expire and the remainder expires in
varying amounts over the period from 2000 to 2009.
We have tax sharing agreements with our former affiliates that allocate tax
liabilities for prior periods.
7. COMMON STOCK
On October 25, 1999, our shareholders approved a reverse stock split
whereby every five shares of our common stock were converted into one share of
our new common stock on the day following the spin-off of Pactiv. In addition,
the stock options outstanding on the date of the spin-off were adjusted such
that employees received options only in the company for which they worked. The
number of shares subject to these options, as well as their exercise prices,
were adjusted so that the options immediately after the spin-off had equivalent
economic terms to the options immediately before the spin-off. Also, on the date
of the spin-off, all restricted stock and units and all performance shares then
outstanding were fully vested. All share prices and amounts, prior to November
5, 1999, in this note, with the exception of the earnings per share table, are
presented before the effect of the spin-off and reverse stock split. We have
authorized 350 million shares ($.01 par value) of common stock, of which
34,970,485 shares and 173,670,197 shares were issued at December 31, 1999 and
1998, respectively. We held 1,298,373 shares and 6,757,678 shares of treasury
stock at December 31, 1999 and 1998, respectively.
62
<PAGE> 69
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock Repurchase Plans
During 1997, we initiated a common stock repurchase program to acquire up
to 8.5 million shares. Approximately 7.5 million shares have been acquired under
this program at a total cost of approximately $289 million. All purchases that
we executed through this program were in the open market or negotiated
purchases.
Reserved
The total number of shares of our common stock reserved at December 31,
1999 and 1998, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
ORIGINAL ISSUE SHARES 1999 1998
--------------------- --------- ----------
<S> <C> <C>
Thrift Plan............................................. 380,000 74,576
Stock Ownership Plan.................................... 8,603,344 16,199,114
Employee Stock Purchase Plan............................ 232,052 1,642,037
--------- ----------
9,215,396 17,915,727
========= ==========
TREASURY STOCK
------------------
Employee Stock Award Plan............................... 1,119,500 --
Thrift Plan............................................. -- 201,541
--------- ----------
1,119,500 201,541
========= ==========
</TABLE>
Stock Plans
Tenneco Automotive Inc. Stock Ownership Plan -- In December 1996, we
adopted the 1996 Stock Ownership Plan, which permits the granting of a variety
of awards, including common stock, restricted stock, performance units, stock
appreciation rights ("SARs"), and stock options to our directors, officers, and
employees. The plan, which will terminate December 31, 2001, was renamed the
"Tenneco Automotive Inc. Stock Ownership Plan" in connection with the spin-off.
We can issue up to 9.4 million shares of common stock under the Stock Ownership
Plan after adjusting for the spin-off and reverse stock split.
Restricted Stock/Units, Performance Units, and Stock Equivalent Units -- We
have granted restricted stock and restricted units under the Stock Ownership
Plan to certain key employees. These awards generally require, among other
things, that the employee remains our employee during the restriction period. We
have also granted performance units to certain key employees that will vest over
three years from the date of grant based on the attainment of specified
performance goals in each of the three years. During 1999, 1998, and 1997, we
granted 2,705,107, 640,810, and 494,350 shares and units, respectively, with a
weighted average fair value based on the price of our stock on the grant date of
$8.56, $38.03, and $43.08 per share, respectively. At December 31, 1999, 263,770
restricted shares at an average price of $8.40 per share, 465,000 performance
units at an average price of $8.56 per share, 39,076 restricted units at an
average price of $8.56 per unit, and 1,935,261 stock equivalent units at an
average price of $8.56 per unit were outstanding under this plan.
In December 1996, we adopted a restricted stock and unit plan and
performance unit plan for each member of the Board of Directors who is not also
an officer. During 1999, 6,000 performance units were issued under this plan at
the weighted average fair value of our stock on the grant date of $8.56 per
share. During 1998 and 1997, 1,700 and 5,040 restricted shares and units,
respectively, were issued under this plan at the weighted average fair value of
our stock on the grant date of $37.31, and $45.19 per share,
63
<PAGE> 70
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively. At December 31, 1999, no restricted shares or restricted units and
6,000 performance units at an average price of $8.56 per unit were outstanding
under the plan.
Employee Stock Purchase Plan -- Effective April 1, 1997, we adopted an
Employee Stock Purchase Plan ("ESPP") that allows U.S. and Canadian employees to
purchase our common stock at a 15% discount. Each year employees participating
in the ESPP may purchase shares with a discounted value not to exceed $21,250.
Under the ESPP, we sold 281,056, 613,195, and 244,768 shares to employees in
1999, 1998, and 1997, respectively. The weighted average fair value of the
employee purchase right, which was estimated using the Black-Scholes option
pricing model and the assumptions described below except that the average life
of each purchase right was assumed to be 90 days, was $4.29, $6.31, and $11.16
in 1999, 1998, and 1997, respectively. The ESPP was suspended in June 1999, in
connection with the reorganization transactions.
Stock Options -- The following table reflects the status and activity for
all stock options we have issued, including those outside the option plans
discussed above, for the periods indicated:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVG. AVG. AVG.
UNDER EXERCISE SHARES UNDER EXERCISE SHARES UNDER EXERCISE
STOCK OPTIONS OPTION PRICES OPTION PRICES OPTION PRICES
------------- ---------- -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year.......................... 12,423,304 $42.58 11,924,072 $43.42 10,877,758 $43.41
Granted before the reverse
stock split................ 1,763,700 39.04 1,745,480 37.30 2,928,669 42.91
Cancelled before the reverse
stock split................ (9,968,074) 41.86 (1,123,639) 43.53 (1,569,376) 43.19
Adjustment for reverse stock
split and spin-off......... 3,702,596 20.04 -- -- -- --
Granted after the reverse
stock split................ 2,047,500 8.56 -- -- -- --
Cancelled after the reverse
stock split................ (2,879) 20.32 -- -- -- --
Exercised..................... -- -- (122,609) 38.58 (312,979) 39.64
---------- ----------- -----------
Outstanding, end of year........ 9,966,147 19.83 12,423,304 42.58 11,924,072 43.42
========== =========== ===========
Options exercisable at end of
year.......................... 5,574,049 23.15 7,522,654 42.84 2,703,948 40.84
Weighted average fair value of
options granted during the
year.......................... $ 3.03 $ 10.82 $ 12.62
</TABLE>
The fair value of each option granted during 1999, 1998, and 1997 is
estimated on the date of grant using the Black-Scholes option pricing model
using the following weighted-average assumptions for grants in 1999, 1998, and
1997, respectively: (i) risk-free interest rates of 5.9%, 5.7%, and 6.6%; (ii)
expected lives of 5.7, 9.9, and 7.5 years; (iii) expected volatility 26.9%,
25.6%, and 25.6%; and (iv) dividend yield of 2.6%, 3.2%, and 2.8%.
64
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects summarized information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED AVG. WEIGHTED WEIGHTED
NUMBER REMAINING AVG. NUMBER AVG.
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICE AT 12/31/99 LIFE PRICE AT 12/31/99 PRICE
----------------------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 8.00 - $14.00........................... 2,047,500 9.8 years $ 8.56 -- $ --
$14.00 - $21.00........................... 1,682,212 15.4 years 19.49 664,521 19.64
$21.00 - $27.00........................... 6,236,435 9.8 years 23.62 4,909,528 23.63
---------- ---------
9,966,147 5,574,049
========== =========
</TABLE>
We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," to account for our stock-based compensation plans. We
recognized after-tax stock-based compensation expense in 1999 of $11 million, in
1998 of $3 million, and in 1997 of $5 million, of which $8 million, $3 million,
and $4 million, respectively, related to restricted stock and performance shares
awarded to employees of our discontinued operations. Had compensation costs for
our stock-based compensation plans been determined in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation," based on the fair value at the
grant dates for the awards under those plans, our pro forma net income and
earnings per diluted share of common stock for the years ended December 31,
1999, 1998, and 1997, would have been lower by $13 million or $.39 per diluted
common share, $33 million or $.19 per diluted common share, and $34 million or
$.20 per diluted common share, respectively of which $8 million, $20 million,
and $22 million related to employees of our discontinued operations,
respectively.
Grantor Trust
In August 1998, we established a grantor trust and issued approximately 1.9
million shares of common stock to the trust. This grantor trust was a so-called
"rabbi trust" designed to assure the payment of deferred compensation and
supplemental pension benefits. The trust was consolidated in our financial
statements and the shares were reflected in our financial statements as treasury
stock. Consequently, the shares of common stock issued to the trust were not
considered to be outstanding in the computation of earnings per share.
The grantor trust was terminated at the time of the spin-off.
Rights Plan
On September 9, 1998, we adopted a Rights Plan and established an
independent Board committee to review it every three years. The Rights Plan was
adopted to deter coercive takeover tactics and to prevent a potential acquiror
from gaining control of us in a transaction that is not in the best interests of
our shareholders. Generally, under the Rights Plan, as it has been amended, if a
person becomes the beneficial owner of 15 percent or more of our outstanding
common stock, each right will entitle its holder to purchase, at the right's
exercise price, a number of shares of our common stock or, under certain
circumstances, of the acquiring person's common stock, having a market value of
twice the right's exercise price. Rights held by the 15 percent or more holder
will become void and will not be exercisable.
In March 2000, we amended the Rights Plan to (i) reduce from 20 percent to
15 percent the level of beneficial ownership at which the rights became
exercisable, as described above, and (ii) eliminate the "qualified offer" terms
of the plan. These terms provided that the rights would not become exercisable
in connection with a "qualified offer," which was defined as an all-cash tender
offer for all outstanding common stock that was fully financed, remained open
for a period of at least 60 business days, resulted in
65
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the offeror owning at least 85% of our common stock after consummation of the
offer, assured a prompt second-step acquisition of shares not purchased in the
initial offer, at the same price as the initial offer, and met certain other
requirements.
In connection with the adoption of the Rights Plan, our Board of Directors
also adopted a three-year independent director evaluation ("TIDE") mechanism.
Under the TIDE mechanism, an independent Board committee will review, on an
ongoing basis, the Rights Plan and developments in rights plans generally, and,
if it deems appropriate, recommend modification or termination of the Rights
Plan. The independent committee will report to our Board at least every three
years as to whether the Rights Plan continues to be in the best interests of our
shareholders.
Dividend Reinvestment and Stock Purchase Plan
Under the Tenneco Automotive Inc. Dividend Reinvestment and Stock Purchase
Plan, holders of our common stock may apply their cash dividends and optional
cash investments to the purchase of additional shares of our common stock.
Earnings Per Share
Earnings (loss) per share of common stock outstanding were computed as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Basic earnings (loss) per share --
Income (loss) from continuing operations............ $ (63) $ 116 $ 234
=========== =========== ===========
Average shares of common stock outstanding.......... 33,480,686 33,701,115 34,052,946
=========== =========== ===========
Earnings (loss) from continuing operations per
average share of common stock.................... $ (1.87) $ 3.45 $ 6.87
=========== =========== ===========
Diluted earnings (loss) per share --
Income (loss) from continuing operations............ $ (63) $ 116 $ 234
=========== =========== ===========
Average shares of common stock outstanding.......... 33,480,686 33,701,115 34,052,946
Effect of dilutive securities:
Restricted stock............................... 18,545 10,586 --
Stock options.................................. 8,055 17,647 90,573
Performance shares............................. 148,777 37,558 16,808
----------- ----------- -----------
Average shares of common stock outstanding including
dilutive securities.............................. 33,656,063 33,766,906 34,160,327
=========== =========== ===========
Earnings (loss) from continuing operations per
average share of common stock.................... $ (1.87) $ 3.44 $ 6.85
=========== =========== ===========
</TABLE>
8. PREFERRED STOCK
We had 50 million shares of preferred stock ($.01 par value) authorized at
December 31, 1999 and 1998. No shares of preferred stock were outstanding at
those dates. We have designated and reserved 2 million shares of the preferred
stock as junior preferred stock for the Qualified Offer Rights Plan.
9. MINORITY INTEREST
At December 31, 1998, we reported minority interest in the balance sheet of
$407 million, of which $394 million resulted from the December 1994 and December
1997 sales of preferred stock ($300 million and $100 million, respectively) of
Tenneco International Holding Corp. ("TIHC") to a financial investor.
66
<PAGE> 73
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to each sale, the investor had approximately a 25% interest in TIHC,
consisting of 100% of the issued and outstanding variable rate voting preferred
stock of TIHC. We and some of our subsidiaries held 100% of the issued and
outstanding $8.00 junior preferred stock and common stock of TIHC. For financial
reporting purposes, the assets, liabilities, and earnings of TIHC and its
subsidiaries are consolidated in our financial statements, and the investor's
preferred stock interest was recorded as "Minority interest" in the 1998 balance
sheet. In connection with the spin-off, we purchased the preferred stock from
the investor and the related minority interest was eliminated from our balance
sheet.
At December 31, 1998 there is $14 million of minority interest included as
part of the net assets of discontinued operations.
10. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
We have various defined benefit pension plans that cover substantially all
of our employees. Benefits are based on years of service and, for most salaried
employees, on final average compensation. Our funding policy is to contribute to
the plans amounts necessary to satisfy the funding requirement of applicable
federal or foreign laws and regulations. Plan assets consist principally of
listed equity and fixed income securities. Some of our employees participated in
the Tenneco Retirement Plan ("TRP"). For information regarding the TRP, see the
notes to the table below.
We have postretirement health care and life insurance plans that cover a
majority of our domestic employees. For salaried employees, the plans cover our
employees retiring on or after attaining age 55 who have had at least 10 years
of service with us after attaining age 45. For hourly employees, the
postretirement benefit plans generally cover employees who retire according to
one of our hourly employee retirement plans. All of these benefits may be
subject to deductibles, copayment provisions, and other limitations, and we have
reserved the right to change these benefits. Our postretirement benefit plans
are not funded.
67
<PAGE> 74
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the change in benefit obligation, the change in plan assets,
the development of net amount recognized, and the amounts recognized in the
balance sheets for the pension plans and postretirement benefit plans follows:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
------------ ---------------
1999 1998 1999 1998
----- ---- ------ ------
(MILLIONS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at September 30 of the previous year... $ 552 $491 $ 115 $ 105
Spin-off of Pactiv........................................ (285) -- -- --
Currency rate conversion.................................. (4) -- -- --
Service cost.............................................. 8 13 4 3
Interest cost............................................. 17 36 8 8
Plan amendments........................................... 5 1 -- --
Actuarial loss (gain)..................................... 4 41 4 7
Benefits paid............................................. (15) (30) (9) (8)
----- ---- ----- -----
Benefit obligation at September 30........................ $ 282 $552 $ 122 $ 115
===== ==== ===== =====
Change in plan assets:
Fair value at September 30 of the previous year........... $ 583 $593 $ -- $ --
Spin-off of Pactiv........................................ (338) -- -- --
Currency rate conversion.................................. -- (1) -- --
Actual return on plan assets.............................. 35 13 -- --
Employer contributions.................................... 8 7 9 8
Participants' contributions............................... 1 1 -- --
Benefits paid............................................. (15) (30) (9) (8)
----- ---- ----- -----
Fair value at September 30................................ $ 274 $583 $ -- $ --
===== ==== ===== =====
Development of net amount recognized:
Funded status at September 30............................. $ (8) $ 31 $(122) $(115)
Contributions during the fourth quarter................... 2 1 2 2
Unrecognized cost:
Actuarial loss (gain).................................. 5 20 30 27
Prior service cost..................................... 15 12 (1) (1)
Transition liability (asset)........................... (3) (7) -- --
----- ---- ----- -----
Net amount recognized at December 31...................... $ 11 $ 57 $ (91) $ (87)
===== ==== ===== =====
Amounts recognized in the balance sheets:
Prepaid benefit cost...................................... $ 37 $ 81 $ -- $ --
Accrued benefit cost...................................... (35) (39) (91) (87)
Intangible asset.......................................... 4 4 -- --
Accumulated other comprehensive income.................... 5 11 -- --
----- ---- ----- -----
Net amount recognized..................................... $ 11 $ 57 $ (91) $ (87)
===== ==== ===== =====
</TABLE>
- -------------------------
Notes: Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the prepaid (accrued) benefit cost has been recorded based
upon certain actuarial estimates as described below. Those estimates are
subject to revision in future periods given new facts or circumstances.
Amounts included in the above table for 1998 reflect the participation of
our employees in the TRP; however, our employees will not accrue
additional benefits under the TRP following the spin-off. The sponsorship
and the prepaid pension costs related to the TRP were transferred to
Pactiv in connection with the corporate restructuring transactions. We
have established a new defined benefit plan for our employees called the
Tenneco Automotive Retirement Plan with provisions similar to the TRP.
68
<PAGE> 75
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Amounts in the table are for continuing operations only. Amounts
recognized in the balance sheets for discontinued operations include the
following:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
----------- ---------------
1999 1998 1999 1998
---- ---- ------ ------
<S> <C> <C> <C> <C>
Net assets of discontinued operations....................... $ -- $630 $ -- $(61)
Accumulated other comprehensive income...................... -- 4 -- --
---- ---- ---- ----
$ -- $634 $ -- $(61)
==== ==== ==== ====
</TABLE>
Net periodic pension costs (income) from continuing operations for the
years 1999, 1998, and 1997, consist of the following components:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 8 $ 13 $ 12
Interest on prior year's projected benefit obligation....... 17 36 33
Expected return on plan assets.............................. (22) (48) (45)
Net amortization:
Actuarial loss............................................ -- 1 --
Prior service cost........................................ 1 1 1
Transition asset.......................................... -- (2) (2)
---- ---- ----
Net pension costs (income).................................. $ 4 $ 1 $ (1)
==== ==== ====
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for all pension plans with accumulated benefit obligations
in excess of plan assets were $50 million, $48 million, and $13 million,
respectively, as of September 30, 1999, and $114 million, $108 million, and $68
million, respectively, as of September 30, 1998. An additional expense of $1
million was recorded in 1999 related to our December adoption of the Tenneco
Automotive Retirement Plan.
The weighted average discount rates (which are based on long-term market
rates) used in determining the 1999, 1998, and 1997 actuarial present value of
the benefit obligations were 6.9%, 6.9%, and 7.6%, respectively. The rate of
increase in future compensation was 4.3%, 4.7%, and 5.0%, for 1999, 1998, and
1997, respectively. The weighted average expected long-term rate of return on
plan assets for 1999, 1998, and 1997 was 9.4%, 9.8%, and 9.9%, respectively.
Net periodic postretirement benefit cost from continuing operations for the
years 1999, 1998, and 1997 consist of the following components:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 4 $ 2 $ 4
Interest on accumulated postretirement benefit obligation... 8 8 7
Net amortization of actuarial loss.......................... 1 1 --
--- --- ---
Net periodic postretirement benefit cost.................... $13 $11 $11
=== === ===
</TABLE>
The weighted average assumed health care cost trend rate used in
determining the accumulated postretirement benefit obligation was 5% for all
periods.
Increasing the assumed health care cost trend rate by one percentage point
in each year would increase the 1999, 1998, and 1997 accumulated postretirement
benefit obligations by approximately $13 million, $13 million, and $12 million,
respectively, and would increase the aggregate of the service cost
69
<PAGE> 76
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and interest cost components of the net periodic postretirement benefit cost by
approximately $2 million each year for 1999, 1998, and 1997.
Decreasing the assumed health care cost trend rate by one percentage point
in each year would decrease the 1999 accumulated postretirement benefit
obligation by approximately $11 million and would decrease the aggregate of
service cost and interest cost components of the net periodic postretirement
benefit cost by $2 million.
The discount rates (which are based on long-term market rates) used in
determining the 1999, 1998, and 1997 accumulated postretirement benefit
obligations were 7.50%, 7.00%, and 7.75%, respectively.
11. SEGMENT AND GEOGRAPHIC AREA INFORMATION
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
aggregrated individual operating segments within these reportable segments. The
accounting policies of the segments are the same as described in Note 1,
"Summary of Accounting Policies." 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. Segment results for 1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
SEGMENT
--------------------------------------------------
RECLASS
NORTH &
AMERICA EUROPE OTHER ELIMS CONSOLIDATED
------- ------ ------ ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1999, AND FOR THE YEAR THEN ENDED
Revenues from external customers............................ $1,760 $1,235 $ 284 $ -- $3,279
Intersegment revenues....................................... 8 38 13 (59) --
Interest income............................................. -- -- 7 -- 7
Depreciation and amortization............................... 69 44 31 -- 144
Income before interest, income taxes, and minority
interest.................................................. 166 44 (62) -- 148
Income (loss) from discontinued operations.................. -- -- (208) -- (208)
Extraordinary loss.......................................... -- -- (18) -- (18)
Cumulative effect of change in accounting principle......... (65) (32) (37) -- (134)
Total assets................................................ 1,193 944 840 (34) 2,943
Investment in affiliated companies.......................... -- 1 -- -- 1
Capital expenditures for continuing operations.............. 71 65 18 -- 154
Noncash items other than depreciation and amortization...... 8 23 (4) -- 27
AT DECEMBER 31, 1998, AND FOR THE YEAR THEN ENDED
Revenues from external customers............................ $1,679 $1,252 $ 306 $ -- $3,237
Intersegment revenues....................................... 9 26 10 (45) --
Interest income............................................. -- -- 6 -- 6
Depreciation and amortization............................... 72 51 27 -- 150
Income before interest, income taxes, and minority
interest.................................................. 58 155 14 -- 227
Income (loss) from discontinued operations.................. -- -- 139 -- 139
Total assets (Note)......................................... 1,062 1,046 2,703 (52) 4,759
Net assets of discontinued operations....................... -- -- 1,739 -- 1,739
Investment in affiliated companies.......................... -- 1 -- -- 1
Capital expenditures for continuing operations.............. 96 67 32 -- 195
Noncash items other than depreciation and amortization...... 3 5 (1) -- 7
</TABLE>
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEGMENT
--------------------------------------------------
RECLASS
NORTH &
AMERICA EUROPE OTHER ELIMS CONSOLIDATED
------- ------ ------ ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1997, AND FOR THE YEAR THEN ENDED
Revenues from external customers............................ $1,719 $1,173 $ 334 $ -- $3,226
Intersegment revenues....................................... 7 31 17 (55) --
Interest income............................................. -- 1 3 -- 4
Depreciation and amortization............................... 59 28 23 -- 110
Income before interest, income taxes, and minority
interest.................................................. 216 153 26 -- 395
Income (loss) from discontinued operations.................. -- -- 127 -- 127
Cumulative effect of change in accounting principle......... -- (3) (43) -- (46)
Total assets (Note)......................................... 1,096 946 2,718 (78) 4,682
Net assets of discontinued operations....................... -- -- 1,771 -- 1,771
Investment in affiliated companies.......................... -- 2 -- -- 2
Capital expenditures for continuing operations.............. 95 84 42 -- 221
Noncash items other than depreciation and amortization...... (5) (5) 4 -- (6)
</TABLE>
- -------------------------
Note: The Other segment's total assets include the net assets of discontinued
operations.
The following table shows information relating to our external customer
revenues for each product or each group of similar products:
<TABLE>
<CAPTION>
NET SALES AND
OPERATING REVENUES
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
EMISSIONS CONTROL SYSTEMS & PRODUCTS
Aftermarket............................................... $ 514 $ 590 $ 686
Original equipment market................................. 1,401 1,224 1,067
------ ------ ------
1,915 1,814 1,753
------ ------ ------
RIDE CONTROL SYSTEMS & PRODUCTS
Aftermarket............................................... $ 634 $ 685 $ 782
Original equipment market................................. 730 738 691
------ ------ ------
1,364 1,423 1,473
------ ------ ------
Total............................................. $3,279 $3,237 $3,226
====== ====== ======
</TABLE>
During 1999, sales to three major customers comprised approximately 13.8%,
13.6%, and 10.3% of consolidated net sales and operating revenues. During 1998,
sales to two major customers comprised 12.8% and 13.7% of consolidated net sales
and operating revenues. During 1997, sales to one major customer comprised
approximately 13.2% of consolidated net sales and operating revenues.
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA
-----------------------------
UNITED OTHER RECLASS &
STATES GERMANY FOREIGN(A) ELIMS CONSOLIDATED
------ ------- ---------- --------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1999, AND FOR THE YEAR THEN
ENDED
Revenues from external customers(b)........... $1,460 $355 $1,464 $ -- $3,279
Long-lived assets(c).......................... 578 88 568 -- 1,234
Total assets.................................. 1,497 205 1,309 (68) 2,943
AT DECEMBER 31, 1998, AND FOR THE YEAR THEN
ENDED
Revenues from external customers(b)........... $1,432 $321 $1,484 $ -- $3,237
Long-lived assets(c).......................... 648 116 654 -- 1,418
Total assets(d)............................... 2,733 444 1,646 (64) 4,759
AT DECEMBER 31, 1997, AND FOR THE YEAR THEN
ENDED
Revenues from external customers(b)........... $1,502 $273 $1,451 $ -- $3,226
Long-lived assets(c).......................... 634 99 568 -- 1,301
Total assets(d)............................... 2,982 242 1,512 (54) 4,682
</TABLE>
- -------------------------
Notes: (a) Revenues from external customers and long-lived assets for individual
foreign countries other than Germany are not material.
(b) Revenues are attributed to countries based on location of the seller.
(c) Long-lived assets include all long-term assets except net assets from
discontinued operations, goodwill, intangibles, and deferred tax
assets.
(d) Total assets include net assets from discontinued operations.
12. COMMITMENTS AND CONTINGENCIES
Capital Commitments
We estimate that expenditures aggregating approximately $81 million will be
required after December 31, 1999, to complete facilities and projects authorized
at such date, and we have made substantial commitments in connection with these
facilities and projects.
Lease Commitments
We have long-term leases for certain facilities, equipment, and other
assets. The minimum lease payments under non-cancelable operating leases with
lease terms in excess of one year are $16 million, $15 million, $12 million, $11
million, and $11 million for the years 2000, 2001, 2002, 2003, and 2004,
respectively, and $25 million for subsequent years.
Our commitments under capital leases were not significant to the
accompanying financial statements. Total rental expense for continuing
operations for the years 1999, 1998, and 1997 was $34 million, $31 million, and
$30 million, respectively, including minimum rentals under non-cancelable
operating leases of $18 million, $16 million, and $29 million for the
corresponding periods.
Litigation
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.
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Environmental Matters
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. However, we
believe that any additional costs that may arise as more information becomes
available will not have a material effect on our financial condition or results
of operations.
13. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Basis of Presentation
We issued senior subordinated notes due 2009 as a component of a plan to
realign our debt prior to the spin-off. You should also read Note 2,
"Discontinued Operations and Extraordinary Loss" for further discussion of the
spin-off and debt realignment and Note 5, "Financial Instruments" for further
discussion of the notes and related guarantee. 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 (See Note 9, "Minority Interest").
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.
73
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF INCOME (LOSS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues --
External.......................... $1,460 $1,819 $ -- $ -- $3,279
Affiliated companies.............. 77 68 -- (145) --
Other income, net................... 12 (1) 2 -- 13
------ ------ ----- ----- ------
1,549 1,886 2 (145) 3,292
------ ------ ----- ----- ------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)......... 1,101 1,469 2 (145) 2,427
Engineering, research, and
development....................... 28 24 -- -- 52
Selling, general, and
administrative.................... 295 225 1 -- 521
Depreciation and amortization....... 75 69 -- -- 144
------ ------ ----- ----- ------
1,499 1,787 3 (145) 3,144
------ ------ ----- ----- ------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INTEREST EXPENSE,
INCOME TAXES, MINORITY INTEREST, AND
EQUITY IN NET INCOME FROM CONTINUING
OPERATIONS OF AFFILIATED
COMPANIES........................... 50 99 (1) -- 148
Interest expense --
External (net of interest
capitalized)................. 2 16 87 1 106
Affiliated companies (net of
interest income)............. 74 10 (84) -- --
Income tax expense................ 43 38 1 -- 82
Minority interest................. -- 1 -- 22 23
------ ------ ----- ----- ------
(69) 34 (5) (23) (63)
Equity in net income (loss) from
continuing operations of
affiliated companies........... 36 -- (58) 22 --
------ ------ ----- ----- ------
INCOME (LOSS) FROM CONTINUING
OPERATIONS.......................... (33) 34 (63) (1) (63)
Income (loss) from discontinued
operations,
net of income tax................... 1 (95) (208) 94 (208)
------ ------ ----- ----- ------
Income (loss) before extraordinary
loss................................ (32) (61) (271) 93 (271)
Extraordinary loss, net of income
tax................................. -- (7) (18) 7 (18)
------ ------ ----- ----- ------
Income (loss) before cumulative effect
of change in accounting principle... (32) (68) (289) 100 (289)
Cumulative effect of change in
accounting principle, net of income
tax................................. (64) (70) (134) 134 (134)
------ ------ ----- ----- ------
NET INCOME (LOSS)..................... (96) (138) (423) 234 (423)
Preferred stock dividends............. 22 -- -- (22) --
------ ------ ----- ----- ------
NET INCOME (LOSS) TO COMMON STOCK..... $ (118) $ (138) $(423) $ 256 $ (423)
====== ====== ===== ===== ======
</TABLE>
74
<PAGE> 81
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues
--
External....................... $1,429 $1,804 $ 4 $ -- $3,237
Affiliated companies........... 90 74 -- (164) --
Other income, net................. (25) (1) 1 -- (25)
------ ------ ------ ------ ------
1,494 1,877 5 (164) 3,212
------ ------ ------ ------ ------
COSTS AND EXPENSES
Costs of sales (exclusive of
depreciation shown below)...... 1,086 1,408 2 (164) 2,332
Engineering, research,
and development................ 19 12 -- -- 31
Selling, general, and
administrative................. 276 195 1 -- 472
Depreciation and amortization..... 79 71 -- -- 150
------ ------ ------ ------ ------
1,460 1,686 3 (164) 2,985
------ ------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE, INCOME
TAXES, MINORITY INTEREST, AND
EQUITY IN NET INCOME FROM
CONTINUING OPERATIONS OF
AFFILIATED COMPANIES.............. 34 191 2 -- 227
Interest expense --
External (net of interest
capitalized)................. 2 17 50 -- 69
Affiliated companies (net of
interest income).......... 58 4 (62) -- --
Income tax expense (benefit)... (35) 50 (2) -- 13
Minority interest.............. -- 1 -- 28 29
------ ------ ------ ------ ------
9 119 16 (28) 116
Equity in net income from
continuing operations of
affiliated companies......... 97 -- 100 (197) --
------ ------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS... 106 119 116 (225) 116
Income from discontinued operations,
net of income tax................. 24 269 139 (293) 139
------ ------ ------ ------ ------
Income before extraordinary loss.... 130 388 255 (518) 255
Extraordinary loss, net of income
tax............................... -- -- -- -- --
------ ------ ------ ------ ------
Income before cumulative effect of
change in accounting principle.... 130 388 255 (518) 255
Cumulative effect of change in
accounting principle, net of
income tax........................ -- -- -- -- --
------ ------ ------ ------ ------
NET INCOME.......................... 130 388 255 (518) 255
Preferred stock dividends........... 28 -- -- (28) --
------ ------ ------ ------ ------
NET INCOME TO COMMON STOCK.......... $ 102 $ 388 $ 255 $ (490) $ 255
====== ====== ====== ====== ======
</TABLE>
75
<PAGE> 82
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues --
External.......................... $1,492 $1,723 $ 11 $ -- $3,226
Affiliated companies.............. 97 97 -- (194) --
Other income, net.................... 7 30 -- -- 37
------ ------ ----- ----- ------
1,596 1,850 11 (194) 3,263
------ ------ ----- ----- ------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)......... 1,130 1,359 8 (194) 2,303
Engineering, research, and
development....................... 19 15 -- -- 34
Selling, general, and
administrative.................... 226 194 1 -- 421
Depreciation and amortization........ 64 46 -- -- 110
------ ------ ----- ----- ------
1,439 1,614 9 (194) 2,868
------ ------ ----- ----- ------
INCOME FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE, INCOME
TAXES, MINORITY INTEREST, AND EQUITY
IN NET INCOME FROM CONTINUING
OPERATIONS OF AFFILIATED COMPANIES... 157 236 2 -- 395
Interest expense -- External (net
of interest capitalized)........ (3) 14 47 -- 58
Affiliated companies (net of
interest income)............. (31) (10) 41 -- --
Income tax expense (benefit)...... 65 58 (43) -- 80
Minority interest................. -- 2 -- 21 23
------ ------ ----- ----- ------
126 172 (43) (21) 234
Equity in net income from
continuing operations of
affiliated companies............ 100 -- 277 (377) --
------ ------ ----- ----- ------
INCOME FROM CONTINUING OPERATIONS...... 226 172 234 (398) 234
Income from discontinued operations,
net of income tax.................... 16 229 127 (245) 127
------ ------ ----- ----- ------
Income before extraordinary loss....... 242 401 361 (643) 361
Extraordinary loss, net of income
tax.................................. -- -- -- -- --
------ ------ ----- ----- ------
Income before cumulative effect of
change in accounting principle....... 242 401 361 (643) 361
Cumulative effect of change in
accounting principle, net of income
tax.................................. (7) (41) (46) 48 (46)
------ ------ ----- ----- ------
NET INCOME............................. 235 360 315 (595) 315
Preferred stock dividends.............. 21 -- -- (21) --
------ ------ ----- ----- ------
NET INCOME TO COMMON STOCK............. $ 214 $ 360 $ 315 $(574) $ 315
====== ====== ===== ===== ======
</TABLE>
76
<PAGE> 83
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
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
Taxes accrued......................... 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
====== ====== ======= ======= ======
</TABLE>
77
<PAGE> 84
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments............ $ 1 $ 25 $ 3 $ -- $ 29
Receivables.................................... 277 307 32 (173) 443
Inventories.................................... 149 265 -- -- 414
Deferred income taxes.......................... 48 (9) -- -- 39
Prepayments and other.......................... 94 45 -- -- 139
------ ------ ------- ------- ------
569 633 35 (173) 1,064
------ ------ ------- ------- ------
Other assets:
Investment in affiliated companies............. 733 -- 5,387 (6,120) --
Notes and advances receivable from
affiliates................................... 635 -- 2,772 (3,407) --
Long-term notes receivable, net................ 12 9 2 -- 23
Goodwill and intangibles, net.................. 348 151 -- -- 499
Deferred income taxes.......................... -- 39 -- -- 39
Pension assets................................. 83 18 -- -- 101
Other.......................................... 89 106 6 -- 201
------ ------ ------- ------- ------
1,900 323 8,167 (9,527) 863
------ ------ ------- ------- ------
Plant, property, and equipment, at cost.......... 875 1,069 -- -- 1,944
Less -- Reserves for depreciation and
amortization................................. 419 432 -- -- 851
------ ------ ------- ------- ------
456 637 -- -- 1,093
------ ------ ------- ------- ------
Net assets of discontinued operations............ 1,649 3,119 (3,029) -- 1,739
------ ------ ------- ------- ------
$4,574 $4,712 $ 5,173 $(9,700) $4,759
====== ====== ======= ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current maturities
on long-term debt)........................... $ 26 $ 124 $ 229 $ (75) $ 304
Trade payables................................. 148 258 10 (79) 337
Taxes accrued.................................. (3) 34 -- -- 31
Other.......................................... 130 71 36 -- 237
------ ------ ------- ------- ------
301 487 275 (154) 909
Long-term debt................................... 1,571 25 2,480 (3,405) 671
Deferred income taxes............................ 137 47 (86) -- 98
Postretirement benefits and other liabilities.... 126 44 -- -- 170
Commitments and contingencies
Minority interest................................ -- 13 -- 394 407
Preferred stock with mandatory redemption
provisions..................................... 394 -- -- (394) --
Shareholders' equity............................. 2,045 4,096 2,504 (6,141) 2,504
------ ------ ------- ------- ------
$4,574 $4,712 $ 5,173 $(9,700) $4,759
====== ====== ======= ======= ======
</TABLE>
78
<PAGE> 85
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net cash provided (used) by operating activities........ $ (92) $ (25) $ (115) $(22) $ (254)
----- ------- ------- ---- -------
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations............................................ -- 303 -- -- 303
Net proceeds from sale of businesses and assets......... 6 2 -- -- 8
Expenditures for plant, property, and equipment......... (51) (103) -- -- (154)
Acquisitions of businesses.............................. (2) (34) -- -- (36)
Expenditures for plant, property, and equipment and
business acquisitions -- discontinued operations...... -- (1,264) -- -- (1,264)
Investments and other................................... (8) (37) -- -- (45)
----- ------- ------- ---- -------
Net cash provided (used) by investing activities........ (55) (1,133) -- -- (1,188)
----- ------- ------- ---- -------
FINANCING ACTIVITIES
Issuance of common and treasury shares.................. -- -- 41 -- 41
Purchase of common stock................................ -- -- (4) -- (4)
Redemption of equity securities by a subsidiary......... (408) -- -- -- (408)
Issuance of long-term debt.............................. -- 2,200 1,521 -- 3,721
Retirement of long-term debt............................ (1) (35) (1,374) -- (1,410)
Net increase (decrease) in short-term debt excluding
current maturities on long-term debt.................. (25) 392 (661) -- (294)
Intercompany dividends and net increase (decrease) in
intercompany obligations.............................. 630 (1,370) 740 -- --
Dividends (common)...................................... (22) -- (151) 22 (151)
----- ------- ------- ---- -------
Net cash provided (used) by financing activities........ 174 1,187 112 22 1,495
----- ------- ------- ---- -------
Effect of foreign exchange rate changes on cash and
temporary cash investments............................ -- 2 -- -- 2
----- ------- ------- ---- -------
Increase (decrease) in cash and temporary cash
investments........................................... 27 31 (3) -- 55
Cash and temporary cash investments, January 1.......... 1 25 3 -- 29
----- ------- ------- ---- -------
Cash and temporary cash investments, December 31
(Note)................................................ $ 28 $ 56 $ -- $ -- $ 84
===== ======= ======= ==== =======
</TABLE>
- ---------------
Note: Cash and temporary cash investments include highly liquid investments with
a maturity of three months at the date of purchase.
79
<PAGE> 86
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net cash provided (used) by operating activities.... $ 238 $ 577 $(255) $ (28) $ 532
----- ----- ----- ----- -----
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations........................................ -- 22 -- -- 22
Net proceeds from sale of businesses and assets..... 7 3 -- -- 10
Expenditures for plant, property, and equipment..... (82) (113) -- -- (195)
Acquisitions of businesses.......................... -- (3) -- -- (3)
Expenditures for plant, property, and equipment and
businesses acquisitions -- discontinued
operations........................................ -- (498) -- -- (498)
Investments and other............................... (49) (43) 2 -- (90)
----- ----- ----- ----- -----
Net cash provided (used) by investing activities.... (124) (632) 2 -- (754)
----- ----- ----- ----- -----
FINANCING ACTIVITIES
Issuance of common and treasury shares.............. -- -- 50 -- 50
Purchase of common stock............................ -- -- (154) -- (154)
Issuance of long-term debt.......................... -- 4 -- -- 4
Retirement of long-term debt........................ (1) (20) -- -- (21)
Net increase (decrease) in short-term debt excluding
current maturities on long-term debt.............. -- 115 425 -- 540
Intercompany dividends and net increase (decrease)
in intercompany obligations....................... (87) (51) 138 -- --
Dividends (common).................................. (28) -- (203) 28 (203)
----- ----- ----- ----- -----
Net cash provided (used) by financing activities.... (116) 48 256 28 216
----- ----- ----- ----- -----
Effect of foreign exchange rate changes on cash and
temporary cash investments........................ -- 6 -- -- 6
----- ----- ----- ----- -----
Increase (decrease) in cash and temporary cash
investments....................................... (2) (1) 3 -- --
Cash and temporary cash investments, January 1...... 3 26 -- -- 29
----- ----- ----- ----- -----
Cash and temporary cash investments, December 31
(Note)............................................ $ 1 $ 25 $ 3 $ -- $ 29
===== ===== ===== ===== =====
</TABLE>
- ---------------
Note: Cash and temporary cash investments include highly liquid investments with
a maturity of three months or less at the date of purchase.
80
<PAGE> 87
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net cash provided (used) by operating activities... $ 22 $ 552 $ (34) $ (21) $ 519
----- ----- ----- ----- -----
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations....................................... -- 24 -- -- 24
Net proceeds from the sale of businesses and
assets........................................... -- 5 -- -- 5
Expenditures for plant, property, and equipment.... (69) (152) -- -- (221)
Acquisitions of businesses......................... (7) (22) -- -- (29)
Expenditures for plant, property, and equipment and
business acquisitions -- discontinued
operations....................................... -- (622) -- -- (622)
Investments and other.............................. (11) (51) 18 -- (44)
----- ----- ----- ----- -----
Net cash provided (used) by investing activities... (87) (818) 18 -- (887)
----- ----- ----- ----- -----
FINANCING ACTIVITIES
Issuance of common and treasury shares............. -- -- 48 -- 48
Purchase of common stock........................... -- -- (132) -- (132)
Issuance of equity securities by a subsidiary...... 99 -- -- -- 99
Issuance of long-term debt......................... -- 7 590 -- 597
Retirement of long-term debt....................... (1) (22) -- -- (23)
Net increase (decrease) in short-term debt
excluding current maturities on long-term debt... 25 (74) 18 -- (31)
Intercompany dividends and net increase (decrease)
in intercompany obligations...................... (40) 344 (304) -- --
Dividends (common)................................. (21) -- (204) 21 (204)
----- ----- ----- ----- -----
Net cash provided (used) by financing activities... 62 255 16 21 354
----- ----- ----- ----- -----
Effect of foreign exchange rate changes on cash and
temporary cash investments....................... -- 3 -- -- 3
----- ----- ----- ----- -----
Increase (decrease) in cash and temporary cash
investments...................................... (3) (8) -- -- (11)
Cash and temporary cash investments, January 1..... 6 34 -- -- 40
----- ----- ----- ----- -----
Cash and temporary cash investments, December 31
(Note)........................................... $ 3 $ 26 $ -- $ -- $ 29
===== ===== ===== ===== =====
</TABLE>
- ---------------
Note: Cash and temporary cash investments include highly liquid investments with
a maturity of three months or less at the date of purchase.
81
<PAGE> 88
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
INCOME (LOSS) BEFORE
NET SALES INTEREST EXPENSE, INCOME (LOSS) INCOME (LOSS) INCOME (LOSS)
AND INCOME TAXES, FROM FROM BEFORE
OPERATING AND MINORITY CONTINUING DISCONTINUED EXTRAORDINARY EXTRAORDINARY
QUARTER REVENUES INTEREST OPERATIONS OPERATIONS LOSS LOSS
- ------- --------- -------------------- ------------- ------------- ------------- -------------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
1999
1st................ $ 789 $ 55 $ 16 $(166) $(150) $ (7)
2nd................ 868 97 37 55 92 --
3rd................ 816 67 27 12 39 --
4th................ 806 (71) (143) (109) (252) (11)
------ ---- ---- ----- ----- ----
$3,279 $148 $(63) $(208) $(271) $(18)
====== ==== ==== ===== ===== ====
1998
1st................ $ 800 $ 83 $ 43 $ 32 $ 75 $ --
2nd................ 864 124 63 74 137 --
3rd................ 804 81 63 40 103 --
4th................ 769 (61) (53) (7) (60) --
------ ---- ---- ----- ----- ----
$3,237 $227 $116 $ 139 $ 255 $ --
====== ==== ==== ===== ===== ====
<CAPTION>
INCOME (LOSS)
BEFORE CUMULATIVE
CUMULATIVE EFFECT OF
EFFECT OF CHANGE CHANGE IN
IN ACCOUNTING ACCOUNTING NET INCOME
QUARTER PRINCIPLE PRINCIPLE (LOSS)
- ------- ---------------- ---------- ----------
(MILLIONS)
<S> <C> <C> <C>
1999
1st................ $(157) $(134) $(291)
2nd................ 92 -- 92
3rd................ 39 -- 39
4th................ (263) -- (263)
----- ----- -----
$(289) $(134) $(423)
===== ===== =====
1998
1st................ $ 75 $ -- $ 75
2nd................ 137 -- 137
3rd................ 103 -- 103
4th................ (60) -- (60)
----- ----- -----
$ 255 $ -- $ 255
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK
------------------------------------------------------------------------------------------------------
BEFORE CUMULATIVE
CUMULATIVE EFFECT OF
FROM FROM BEFORE EFFECT OF CHANGE CHANGE IN
CONTINUING DISCONTINUED EXTRAORDINARY EXTRAORDINARY IN ACCOUNTING ACCOUNTING NET INCOME
QUARTER OPERATIONS OPERATIONS LOSS LOSS PRINCIPLE PRINCIPLE (LOSS)
- ------- ---------- ------------ ------------- ------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
1st................ $ .47 $(4.99) $(4.52) $(.20) $(4.72) $(4.00) $ (8.72)
2nd................ 1.07 1.67 2.74 -- 2.74 -- 2.74
3rd................ .86 .32 1.18 -- 1.18 -- 1.18
4th................ (4.25) (3.24) (7.49) (.34) (7.83) -- (7.83)
------ ------ ------ ----- ------ ------ -------
$(1.87) $(6.23) $(8.10) $(.55) $(8.65) $(3.99) $(12.64)
====== ====== ====== ===== ====== ====== =======
1998
1st................ $ 1.26 $ .95 $ 2.21 $ -- $ 2.21 $ -- $ 2.21
2nd................ 1.88 2.16 4.04 -- 4.04 -- 4.04
3rd................ 1.85 1.24 3.09 -- 3.09 -- 3.09
4th................ (1.57) (.23) (1.80) -- (1.80) -- (1.80)
------ ------ ------ ----- ------ ------ -------
$ 3.45 $ 4.13 $ 7.58 $ -- $ 7.58 $ -- $ 7.58
====== ====== ====== ===== ====== ====== =======
</TABLE>
82
<PAGE> 89
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK
------------------------------------------------------------
FROM FROM BEFORE
CONTINUING DISCONTINUED EXTRAORDINARY EXTRAORDINARY
QUARTER OPERATIONS OPERATIONS LOSS LOSS
------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
1999
1st................ $ .47 $(4.99) $(4.52) $(.20)
2nd................ 1.06 1.67 2.73 --
3rd................ .86 .32 1.18 --
4th................ (4.25) (3.24) (7.49) (.34)
------ ------ ------ -----
$(1.87) $(6.23) $(8.10) $(.55)
====== ====== ====== =====
1998
1st................ $ 1.26 $ .94 $ 2.20 $ --
2nd................ 1.88 2.15 4.03 --
3rd................ 1.84 1.24 3.08 --
4th................ (1.57) (.23) (1.80) --
------ ------ ------ -----
$ 3.44 $ 4.12 $ 7.56 $ --
====== ====== ====== =====
<CAPTION>
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK
-------------------------------------------------
BEFORE CUMULATIVE
CUMULATIVE EFFECT EFFECT OF
OF CHANGE CHANGE IN
IN ACCOUNTING ACCOUNTING NET INCOME
QUARTER PRINCIPLE PRINCIPLE (LOSS)
------- ----------------- ---------- ----------
<S> <C> <C> <C>
1999
1st................ $(4.72) $(4.00) $ (8.72)
2nd................ 2.73 -- 2.73
3rd................ 1.18 -- 1.18
4th................ (7.83) -- (7.83)
------ ------ -------
$(8.65) $(3.99) $(12.64)
====== ====== =======
1998
1st................ $ 2.20 $ -- $ 2.20
2nd................ 4.03 -- 4.03
3rd................ 3.08 -- 3.08
4th................ (1.80) -- (1.80)
------ ------ -------
$ 7.56 $ -- $ 7.56
====== ====== =======
</TABLE>
- -------------------------
Note: You should read Notes 1, 2, 3 and 7 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for items
affecting quarterly results. The sum of the quarters may not equal the
total of the respective year's earnings per share on either a basic or
diluted basis due to changes in the weighted average shares outstanding
throughout the year.
(The preceding notes are an integral part of the foregoing financial
statements.)
83
<PAGE> 90
SCHEDULE II
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- --------- -------------------- ---------- --------
ADDITIONS
--------------------
BALANCE CHARGED CHARGED
AT TO TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ----------- --------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts and Notes
Deducted from Assets to Which it Applies:
Year Ended December 31, 1999............ $39 $21 $(2) $29 $29
=== === === === ===
Year Ended December 31, 1998............ $20 $20 $ 5 $ 6 $39
=== === === === ===
Year Ended December 31, 1997............ $10 $ 6 $ 4 $-- $20
=== === === === ===
</TABLE>
84
<PAGE> 91
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
85
<PAGE> 92
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The section entitled "Election of Directors" in our definitive Proxy
Statement for the Annual Meeting of Stockholders to be held May 9, 2000 is
incorporated herein by reference. In addition, Item 4.1 of this Annual Report on
Form 10-K, which appears at the end of Part I, is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The sections entitled "Executive Compensation" and "Election of
Directors--Compensation of Directors" in our definitive Proxy Statement for the
Annual Meeting of Stockholders to be held May 9, 2000 are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The section entitled "Ownership of Common Stock" in our definitive Proxy
Statement for the Annual Meeting of Stockholders to be held May 9, 2000 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section entitled "Election of Directors--Transactions with Management
and Others" in our definitive Proxy Statement for the Annual Meeting of
Stockholders to be held May 9, 2000 is incorporated herein by reference.
86
<PAGE> 93
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS INCLUDED IN ITEM 8
See "Index to Financial Statements of Tenneco Automotive Inc. and
Consolidated Subsidiaries" set forth in Item 8, "Financial Statements and
Supplementary Data" for a list of financial statements filed as part of this
report.
INDEX TO SCHEDULE INCLUDED IN ITEM 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedules of Tenneco Automotive Inc. and Consolidated
Subsidiaries -- Schedule II -- Valuation and qualifying
accounts -- three years ended December 31, 1999........... 84
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE
Schedule I -- Condensed financial information of registrant
Schedule III -- Real estate and accumulated depreciation
Schedule IV -- Mortgage loans on real estate
Schedule V -- Supplemental information concerning
property -- casualty insurance operations
</TABLE>
REPORTS ON FORM 8-K
We filed the following Current Reports on Form 8-K during the quarter ended
December 31, 1999:
- Current Report on Form 8-K dated October 4, 1999, as amended, including
pursuant to Item 5 certain financial information;
- Current Report on Form 8-K dated October 4, 1999, including pursuant to
Item 5 certain information regarding Pactiv Corporation;
- Current Report on Form 8-K dated October 7, 1999, including pursuant to
Item 5 certain financial information and certain information regarding
our offering of senior subordinated notes;
- Current Report on Form 8-K dated October 12, 1999, including pursuant to
Item 5 certain information regarding the spin-off of Pactiv Corporation
and certain information regarding our offering of senior subordinated
notes;
- Current Report on Form 8-K dated October 25, 1999, including pursuant to
Item 5 certain information regarding our special stockholders' meeting
held on October 25, 1999, certain information regarding Pactiv
Corporation and certain financial information; and
- Current Report on Form 8-K dated November 4, 1999, including pursuant to
Items 2 and 7 financial and other information regarding the spin-off of
Pactiv Corporation (including our Unaudited pro Forma Consolidated
Balance Sheet at June 30, 1999 and our Unaudited Pro Forma Consolidated
Statements of Income for the six months ended June 30, 1999 and the year
ended December 31, 1998).
87
<PAGE> 94
EXHIBITS
The following exhibits are filed with this Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, or incorporated herein by reference
(exhibits designated by an asterisk are filed with the Report; all other
exhibits are incorporated by reference):
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
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).
*3.2(a) -- By-laws of the registrant, as amended March 14, 2000.
3.3 -- Certificate of Incorporation of Tenneco Global Holdings Inc.
("Global"), as amended (incorporated herein by reference to
Exhibit 3.3 to the registrant's Registration Statement on
Form S-4, Reg. No. 333-93757).
3.4 -- By-laws of Global (incorporated herein by reference to
Exhibit 3.4 to the registrant's Registration Statement on
Form S-4, Reg. No. 333-93757).
3.5 -- Certificate of Incorporation of TMC Texas Inc. ("TMC")
(incorporated herein by reference to Exhibit 3.5 to the
registrant's Registration Statement on Form S-4, Reg. No.
333-93757).
3.6 -- By-laws of TMC (incorporated herein by reference to Exhibit
3.6 to the registrant's Registration Statement on Form S-4,
Reg. No. 333-93757).
</TABLE>
88
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
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.
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 Form S-4 Registration No. 33314003).
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).
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).
</TABLE>
89
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
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).
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).
</TABLE>
90
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
9 -- None.
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 (incorporated herein by reference from Exhibit 10.8 of
the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-12387).(1)
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).(1)
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).(1)
10.11 -- Tenneco Automotive Inc. Key Executive Pension Plan
(incorporated herein by reference from Exhibit 10.15 of the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-12387).(1)
10.12 -- Tenneco Automotive Inc. Deferred Compensation Plan
(incorporated herein by reference from Exhibit 10.16 of the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-12387).(1)
10.13 -- Tenneco Automotive Inc. Supplemental Executive Retirement
Plan (incorporated herein by reference from Exhibit 10.17 of
the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-12387).(1)
</TABLE>
91
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
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).(1)
*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.(1)
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).(1)
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 -- Letter Agreement between Tenneco Automotive Inc. and Richard
P. Schneider dated as of December 12, 1996.(1)
*10.24 -- Letter Agreement between Tenneco Automotive Inc. and Mark P.
Frissora dated as of January 11, 2000.(1)
</TABLE>
92
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
11 -- None.
*12 -- Statement of Ratio of Earnings to Fixed Charges -- December
31, 1999, 1998, 1997, 1996 and 1995.
13 -- None.
16 -- None.
18 -- None.
*21 -- List of subsidiaries of the registrant.
22 -- None.
*23 -- Consent of Arthur Andersen LLP.
*24 -- Power of Attorney of Mark P. Frissora, Mark A. McCollum,
Kenneth R. Trammell, Dana G. Mead, Sir David Plastow, M.
Kathryn Eickhoff, Mark Andrews, Roger B. Porter, Paul T.
Stecko and David B. Price, Jr.
26 -- None.
*27.1 -- Financial Data Schedule -- Fiscal Year Ended December 31,
1999.
*27.2 -- Financial Data Schedule -- Fiscal Year Ended December 31,
1998.
*27.3 -- Financial Data Schedule -- Fiscal Year Ended December 31,
1997.
99 -- None.
</TABLE>
- -------------------------
(1) Indicates a management contract or compensatory plan or arrangement.
* Filed herewith.
93
<PAGE> 100
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TENNECO AUTOMOTIVE INC.
By /s/ MARK P. FRISSORA*
------------------------------------
Mark P. Frissora
Chairman and Chief Executive Officer
Date: March 23, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed by the following persons in the capacities indicated on
March 23, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C> <S>
/s/ MARK P. FRISSORA* Chairman and Chief Executive Officer and
- -------------------------------------------------------- Director (principal executive officer)
Mark P. Frissora
/s/ MARK A. MCCOLLUM* Senior Vice President and Chief Financial
- -------------------------------------------------------- Officer (principal financial officer)
Mark A. McCollum
/s/ KENNETH R. TRAMMELL* Vice President and Controller (principal
- -------------------------------------------------------- accounting officer)
Kenneth R. Trammell
/s/ DANA G. MEAD* Director
- --------------------------------------------------------
Dana G. Mead
/s/ SIR DAVID PLASTOW* Director
- --------------------------------------------------------
Sir David Plastow
/s/ M. KATHRYN EICKHOFF* Director
- --------------------------------------------------------
M. Kathryn Eickhoff
/s/ MARK ANDREWS* Director
- --------------------------------------------------------
Mark Andrews
/s/ ROGER B. PORTER* Director
- --------------------------------------------------------
Roger B. Porter
/s/ PAUL T. STECKO* Director
- --------------------------------------------------------
Paul T. Stecko
/s/ DAVID B. PRICE, JR.* Director
- --------------------------------------------------------
David B. Price, Jr.
*By: /s/ TIMOTHY R. DONOVAN
----------------------------------------------
Timothy R. Donovan
Attorney in fact
</TABLE>
94
<PAGE> 1
EXHIBIT 3.2(a)
BY-LAWS
OF
TENNECO AUTOMOTIVE INC.
AS AMENDED MARCH 14, 2000
ARTICLE I
PLACE OF STOCKHOLDER MEETINGS
Section 1. All meetings of the stockholders of the corporation shall be
held at such place or places, within or without the State of Delaware, as may
from time to time be fixed by the Board of Directors of the corporation (the
"Board"), or as shall be specified or fixed in the respective notices or waivers
of notice thereof.
ANNUAL MEETING
Section 2. The Annual Meeting of Stockholders shall be held on such
date and at such time as may be fixed by the Board and stated in the notice
thereof, for the purposes of electing directors and for the transaction of only
such other business as is properly brought before the meeting in accordance with
these By-Laws.
SPECIAL MEETING
Section 3. Subject to the rights of the holders of any series of
preferred stock, par value $.01 per share, of the corporation (the "Preferred
Stock") to elect additional directors under specified circumstances, special
meetings of the stockholders shall be called by the Board. The business
transacted at a special meeting shall be confined to the purposes specified in
the notice thereof. Special meetings shall be held at such date and at such time
as the Board may designate.
NOTICE OF MEETING
Section 4. Written notice of each meeting of stockholders, stating the
place, date and hour of the meeting, and the purpose or purposes thereof, shall
be mailed not less than ten nor more than sixty days before the date of such
meeting to each stockholder entitled to vote thereat.
QUORUM
Section 5. Unless otherwise provided by statute, the holders of shares
of stock entitled to cast a majority of votes at a meeting, present either in
person or by proxy, shall constitute a quorum at such meeting. The Secretary of
the corporation or in his absence an Assistant Secretary or an appointee of the
presiding officer of the meeting, shall act as the Secretary of the meeting.
VOTING
Section 6. Except as otherwise provided by law or the Restated
Certificate of Incorporation, each stockholder entitled to vote at any meeting
shall be entitled to one vote, in person or by proxy, for each share held of
record on the record date fixed as provided in Section 4 of Article V of these
By-Laws for determining the stockholder entitled to vote at such meeting. At all
meetings of stockholders for the election of directors, a plurality of the votes
cast shall be sufficient to elect. All other elections and questions shall,
unless otherwise provided by the Restated Certificate of Incorporation, these
By-Laws, the rules or regulations of any stock exchange applicable to the
corporation, or applicable law or pursuant to any regulation applicable to the
corporation or its securities, be decided by the affirmative vote of the holders
of a majority in voting power of the shares of stock of the corporation which
are present in person or by proxy and entitled to vote thereon.
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Elections of directors need not be by written ballot; provided,
however, that by resolution duly adopted, a vote by written ballot may be
required.
PROXIES
Section 7. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument revoking the proxy or by
delivering a proxy in accordance with applicable law bearing a later date to the
Secretary of the corporation. In order to be exercised at a meeting of
stockholders, proxies shall be delivered to the Secretary of the corporation or
his representative at or before the time of such meeting.
INSPECTORS
Section 8. At each meeting of the stockholders the polls shall be
opened and closed; the proxies and ballots shall be received and be taken in
charge, and all questions touching the qualification of voters and the validity
of proxies and the acceptance or rejection of votes shall be decided by three
Inspectors, two of whom shall have power to make a decision. Such Inspectors
shall be appointed by the Board before the meeting, or in default thereof by the
presiding officer at the meeting, and shall be sworn to the faithful performance
of their duties. If any of the Inspectors previously appointed shall fail to
attend or refuse or be unable to serve, substitutes shall be appointed by the
presiding officer.
CONDUCT OF MEETINGS
Section 9. The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting by the chairman of the meeting. The Board may adopt
by resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board, the chairman of any
meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the meeting. Such
rules, regulations or procedures, whether adopted by the Board or prescribed by
the chairman of the meeting, may include, without limitation, the following: (i)
the establishment of an agenda or order of business for the meeting, (ii) rules
and procedures for maintaining order at the meeting and the safety of those
present, (iii) limitations on attendance at or participation in the meeting to
stockholders of record of the corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof, and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with the rules of parliamentary procedure.
ADVANCE NOTICE
Section 10. (A) (1) Nominations of persons for election to the Board
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders only (a) pursuant to the corporation's notice
of meeting (or any supplement thereto), (b) by or at the direction of the Board
or (c) by any stockholder of the corporation who was a stockholder of record of
the corporation at the time the notice provided for in this Section 10 is
delivered to the Secretary of the corporation, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section
10.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 10, the stockholder must
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have given timely notice thereof in writing to the Secretary of the corporation
and any such proposed business other than the nominations of persons for
election to the Board must constitute a proper matter for stockholder action. To
be timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the ninetieth day nor earlier than the close of business on the one
hundred twentieth day prior to the first anniversary of the preceding year's
annual meeting (provided, however, that in the event that the date of the annual
meeting is more than thirty days before or more than seventy days after such
anniversary date, notice by the stockholder must be so delivered not earlier
than the close of business on the one hundred twentieth day prior to such annual
meeting and not later than the close of business on the later of the ninetieth
day prior to such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made by the
corporation). In no event shall the public announcement of an adjournment or
postponement of an annual meeting commence a new time period (or extend any time
period) for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth: (a) as to each person whom the
stockholders proposes to nominate for election as a director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder (and
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the text of the proposal or
business (including the text of any resolutions proposed for consideration and
in the event that such business includes a proposal to amend the By-Laws of the
corporation, the language of the proposed amendment), the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of capital stock of
the corporation which are owned beneficially and of record by such stockholder
and such beneficial owner, (iii) a representation that the stockholder is a
holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to propose such
business or nomination, and (iv) a representation whether the stockholder or the
beneficial owner, if any, intends or is part of a group which intends (a) to
deliver a proxy statement and/or form of proxy to holders of at least the
percentage of the corporation's outstanding capital stock required to approve or
adopt the proposal or elect the nominee and/or (b) otherwise to solicit proxies
from stockholders in support of such proposal or nomination. The corporation may
require any proposed nominee to furnish such other information as it may
reasonably require to determine the eligibility of such proposed nominee to
serve as a director of the corporation.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 10 to the contrary, in the event that the number of
directors to be elected to the Board of the corporation at an annual meeting is
increased and there is no public announcement by the corporation naming the
nominees for the additional directorships at least one hundred days prior to the
first anniversary of the preceding year's annual meeting, a stockholder's notice
required by this Section 10 shall also be considered timely, but only with
respect to nominees for the additional directorships, if it shall be delivered
to the Secretary at the principal executive offices of the corporation not later
than the close of business on the tenth day following the day on which such
public announcement is first made by the corporation.
(B) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
corporation's notice of meeting. Nominations of persons for election to the
Board may be made at a special meeting of stockholders at which directors are to
be elected pursuant to the corporation's notice of meeting (1) by or at the
direction of the Board or (2) provided that the Board has determined that
directors shall be elected at such meeting, by any stockholder of the
corporation who is a stockholder of record at the time the notice provided for
in this Section 10 is delivered to the Secretary of the corporation, who is
entitled to vote at the meeting and upon such election and who complies with the
notice procedures set forth in this Section 10. In the event the corporation
calls a special meeting of stockholders for the purpose of electing one or more
directors to the Board, any such stockholder entitled to vote in such election
of directors may nominate a person or persons (as the case may
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be) for election to such position(s) as specified in the corporation's notice of
meeting, if the stockholder's notice required by paragraph (A)(2) of this
Section 10 shall be delivered to the Secretary at the principal executive
offices of the corporation not earlier than the close of business on the one
hundred twentieth day prior to such special meeting and not later than the close
of business on the later of the ninetieth day prior to such special meeting or
the tenth day following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the Board to be
elected at such meeting. In no event shall the public announcement of an
adjournment or postponement of a special meeting commence a new time period (or
extend any time period) for the giving of a stockholder's notice as described
above.
(C) (1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 10 shall be eligible to be elected an
annual or special meeting of stockholders of the corporation to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 10. Except as otherwise provided by law, the chairman
of the meeting shall have the power and duty (a) to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 10 (including whether the stockholder or beneficial owner, if any,
on whose behalf the nomination or proposal is made solicited (or is part of a
group which solicited) or did not so solicit, as the case may be, proxies in
support of such stockholder's nominee or proposal in compliance with such
stockholder's representation as required by clause (A)(2)(c)(iv) of this Section
10) and (b) if any proposed nomination or business was not made or proposed in
compliance with this Section 10, to declare that such nomination shall be
disregarded or that such proposed business shall not be transacted.
Notwithstanding the foregoing provisions of this Section 10, if the stockholder
(or a qualified representative of the stockholder) does not appear at the annual
or special meeting of stockholders of the corporation to present a nomination or
business, such nomination shall be disregarded and such proposed business shall
not be transacted, notwithstanding that proxies in respect of such vote may have
been received by the corporation.
(2) For purposes of this Section 10, "public announcement"
shall include disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section
10, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 10. Nothing in this Section 10 shall be deemed
to affect any rights (a) of stockholders to request inclusion of proposals in
the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act
or (b) of the holders of any series of Preferred Stock to elect directors
pursuant to any applicable provisions of the Restated Certificate of
Incorporation.
ARTICLE II
BOARD OF DIRECTORS
NUMBERS; METHOD OF ELECTION;
TERMS OF OFFICE AND QUALIFICATION
Section 1. The business and affairs of the corporation shall be managed
under the direction of the Board. The number of directors which shall constitute
the entire Board shall not be less than eight nor more than sixteen and shall be
determined from time to time by resolution adopted by a majority of the entire
Board.
Except as may otherwise be determined in the good faith judgement of
the Board with respect to any particular person, after due consideration of all
relevant factors (including, but not limited to, the particular individual at
issue and the background and experience of the individual), no person who shall
have attained the age of 72 shall be eligible for election or reelection, as the
case may be, as a director of the corporation.
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MEETINGS
Section 2. The Board may hold its meetings and have an office in such
place or places within or without the State or Delaware as the Board by
resolution from time to time may determine.
The Board may in its discretion provide for regular or stated meetings
of the Board. Notice of regular or stated meetings need not be given. Special
meetings of the Board shall be held whenever called by direction of the Chief
Executive Officer, the President or any two of the directors.
Notice of any special meeting shall be given by the Secretary to each
director either by mail or by telegram, facsimile, telephone or other electronic
communication or transmission. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least three days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph corporation at least twenty-four hours before such meeting. If by
facsimile, telephone, or other electronic communication or transmission, such
notice shall be transmitted at least twenty-four hours before such meeting.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Except as otherwise provided by applicable law, at any meeting at which
every director shall be present, even though without notice, any business may be
transacted. No notice of any adjourned meeting need be given.
The Board shall meet immediately after election, following the Annual
Meeting of Stockholders, for the purpose of organizing, for the election of
corporate officers as hereinafter specified, and for the transaction of any
other business which may come before it. No notice of such meeting shall be
necessary.
QUORUM
Section 3. Except as otherwise expressly required by these By-Laws or
by statute, a majority of the directors then in office (but not less than
one-third of the total number of directors constituting the entire Board) shall
be present at any meeting of the Board in order to constitute a quorum for the
transaction of business at such meeting, and the vote of a majority of the
directors present at any such meeting at which quorum is present shall be
necessary for the passage of any resolution or for an act to be the act of the
Board. In the absence of a quorum, a majority of the directors present may
adjourn such meeting from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given.
COMPENSATION OF BOARD OF DIRECTORS
Section 4. Each director (other than a director who is a salaried
officer of the corporation or of any subsidiary of the corporation), in
consideration of his serving as such, shall be entitled to receive from the
corporation such amount per annum and such fees for attendance at meetings of
the Board or of any committee of the Board (a "Committee"), or both, as the
Board shall from time to time determine. The Board may likewise provide that the
corporation shall reimburse each director or member of a Committee for any
expenses incurred by him on account of his attendance at any such meeting.
Nothing contained in this Section shall be construed to preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
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ARTICLE III
COMMITTEES OF THE BOARD
COMMITTEES
Section 1. The Board shall elect from the directors an Audit Committee
and any other Committee which the Board may be resolution prescribe. Any such
other Committee shall be comprised of such persons and shall possess such
authority as shall be set forth in such resolution.
PROCEDURE
Section 2. (1) Each Committee shall fix its own rules of procedure and
shall meet where and as provided by such rules. Unless otherwise stated in these
By-Laws, a majority of a Committee shall constitute a quorum.
(2) In the absence or disqualification of a member of any Committee,
the members of such Committee present at any meeting, and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Fees in connection with such appointments shall be
established by the Board.
REPORTS TO THE BOARD
Section 3. All completed actions by the Audit Committee shall be
reported to the Board at the next succeeding Board meeting and shall be subject
to revision or alteration by the Board, provided, that no acts or rights of
third parties shall be affected by any such revision or alteration.
AUDIT COMMITTEE
Section 4. The Board shall elect from among its members an Audit
Committee consisting of at least three members. The Board shall appoint a
chairman of said Committee who shall be one of its members. The Audit Committee
shall have such authority and duties as the Board by resolution shall prescribe.
In no event shall a director who is also an officer or employee of the
corporation of any of its subsidiary companies serve as a member of such
Committee. The Chief Executive Officer shall have the right to attend (but not
vote at) each meeting of such Committee.
ARTICLE IV
OFFICERS
GENERAL PROVISIONS
Section 1. The corporate officers of the corporation shall consist of a
Chief Executive Officer, a Secretary and a Treasurer and such other officers as
the Board may from time to time designate, including but not limited to the
following: a Chairman who shall be chosen from the Board; one or more Vice
Chairmen who shall be chosen from the Board; a President; one or more Executive
Vice Presidents, Senior Vice Presidents, Vice Presidents and Assistant Vice
Presidents; a General Counsel; and one or more Assistant Secretaries, one or
more Assistant Treasurers, and/or a Controller. Insofar as permitted by statute,
the same person may hold two or more offices. All officers chosen by the Board
shall each have such powers and duties as generally pertain to their respective
offices, subject to the specific provisions of this Article IV.
The Chief Executive Officer, the Secretary, the Treasurer and any other
officers of the corporation shall be elected by the Board. Each such officer
shall hold office until his successor is elected or appointed and qualified or
until his earlier death, resignation or removal.
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Any officer may be removed, with or without cause, at any time by the
Board.
A vacancy in any office may be filled for the unexpired portion of the
term in the same manner as provided in these By-Laws for election or appointment
to such office.
POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER
Section 2. The Chief Executive Officer shall have general charge and
management of the affairs, property and business of the corporation, subject to
the Board and the provisions of these By-Laws. The Chief Executive Officer or in
his absence such other individual as the Board may select, shall preside at all
meetings of the stockholders. He shall also preside at meetings of the Board and
in his absence the Board shall appoint one of their number to preside.
The Chief Executive Officer shall perform all duties assigned to him in
these By-Laws and such other duties as may from time to time be assigned to him
by the Board. He shall have the power to appoint and remove, with or without
cause, such officers, other than those elected by the Board as provided for in
these By-Laws, as in his judgment may be necessary or proper for the transaction
of the business of the corporation, and shall determine their duties, all
subject to ratification by the Board.
POWERS AND DUTIES OF OTHER OFFICERS
Section 3. The Chairman, if any, shall perform such duties as may from
time to time be assigned to him by the Board or the Chief Executive Officer.
Section 4. Each Vice Chairman, if any, shall perform such duties as may
from time to time be assigned to him by the Board or the Chief Executive
Officer.
Section 5. The President, if any, shall perform such duties as may from
time to time be assigned to him by the Board or the Chief Executive Officer.
Section 6. Each Executive Vice President shall perform such duties as
may from time to time be assigned to him by the Board or the Chief Executive
Officer.
Section 7. Each Senior Vice President shall perform such duties as may
from time to time be assigned to him by the Board or the Chief Executive
Officer.
Section 8. Each Vice President and Assistant Vice President shall
perform such duties as may from time to time be assigned to him by the Board or
the Chief Executive Officer or any Senior Vice President.
Section 9. The General Counsel shall have general supervision and
control of all of the corporation's legal business. He shall perform such duties
as may from time to time be assigned to him by the Board or the Chief Executive
Officer.
Section 10. The Secretary or an Assistant Secretary shall record the
proceedings of all meetings of the Board and the stockholders, in books kept for
that purpose. The Secretary shall be the custodian of the corporate seal, and he
or an Assistant Secretary shall affix the same to and countersign papers
requiring such acts; and he and the Assistant Secretaries shall perform such
other duties as may be required by the Board or the Chief Executive Officer.
Section 11. The Treasurer and Assistant Treasurers shall have care and
custody of all funds of the corporation and disburse and administer the same
under the direction of the Board or the Chief Executive Officer and shall
perform such other duties as the Board or the Chief Executive Officer shall
assign to them.
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Section 12. The Controller shall maintain adequate records of all
assets, liabilities and transactions of the corporation and see that audits
thereof are currently and regularly made, and he shall perform such other duties
as may be required by the Board or the Chief Executive Officer.
SALARIES AND APPOINTMENTS
Section 13. The salaries of corporate officers shall be fixed by the
Board or by any Committee of the Board to which the Board delegates such
authority, except that the fixing of salaries below certain levels, determinable
from time to time by the Board or any such Committee, may in the discretion of
the Board or any such Committee be delegated to the Chief Executive Officer,
subject to the approval of the Board or any such Committee.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14. (1) The corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person (an "Indemnittee") who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
appeals (a "proceeding"), by reason of the fact that he, or a person for whom he
is the legal representative, is or was a director or officer of the corporation
or, while a director of officer of the corporation is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Indemnitee. Notwithstanding the preceding sentence, except as
otherwise provided in paragraph (3) of this Section 14, the corporation shall be
required to indemnify an Indemnitee in connection with a proceeding (or part
thereof) commenced by such Indemnitee only if the commencement of such
proceeding (or part thereof) by the Indemnitee was authorized by the Board.
(2) The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its final
disposition, provided, however, that, to the extent required by law, such
payment of expenses in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Indemnitee to repay all
amounts advanced if it should be ultimately determined that the Indemnitee is
not entitled to be indemnified under this Section 14 or otherwise.
(3) If a claim for indemnification or payment of expenses under this
Section 14 is not paid in full within thirty days after a written claim therefor
by the Indemnittee has been received by the corporation, the Indemnitee may file
suit to recover the unpaid amount of such claim and, if successful in whole or
in part, shall be entitled to be paid the expense of prosecuting such claim. In
any such action the corporation shall have the burden of proving that the
Indemnitee is not entitled to the requested indemnification or payment of
expenses under applicable law.
(4) The rights conferred on any Indemnitee by this Section 14 shall not
be exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the Restated Certificate of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
(5) The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by an amount such
Indemnitee may collect as indemnification or advancement of expenses from such
other corporation, partnership, joint venture, trust enterprise or nonprofit
enterprise.
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(6) Any repeal or modification of the foregoing provisions of this
Section 14 shall not adversely affect any right or protection hereunder of any
Indemnitee in respect of any act or omission occurring prior to the time of such
repeal or modification.
(7) This Section 14 shall not limit the right of the corporation, to
the extent and in the manner permitted by law, to indemnify and to advance
expenses to persons other than Indemnitees when as authorized by appropriate
corporate action.
ARTICLE V
CAPITAL STOCK
CERTIFICATES OF STOCK
Section 1. Certificates of stock certifying the number of shares owned
shall be issued to each stockholder in such form not inconsistent with the
Restated Certificate of Incorporation as shall be approved by the Board. Such
certificates of stock shall be numbered and registered in the order in which
they are issued and shall be signed by the Chief Executive Officer or any of the
Chairman or the President or any Vice President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary. Any and all of
the signatures on the certificates may be a facsimile.
TRANSFER OF SHARES
Section 2. Transfers of shares shall be made only upon the books of the
corporation by the holder, in person, or by power of attorney duly executed and
filed with the Secretary of the corporation, and on the surrender of the
certificate or certificates of such shares, properly assigned. The corporation
may, if and whenever the Board shall so determine, maintain one or more offices
or agencies, each in charge of an agent designated by the Board, where the
shares of the capital stock of the corporation shall be transferred and/or
registered. The Board may also make such additional rules and regulations as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 3. The corporation may issue a new certificate of capital stock
of the corporation in place of any certificate theretofore issued by the
corporation, alleged to have been lost, stolen or destroyed, and the corporation
may, but shall not be obligated to, require the owner of the alleged lost,
stolen or destroyed certificate, or his legal representatives, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate, as the officers of the
corporation may, in their discretion, require.
FIXING OF RECORD DATE
Section 4. In order that the corporation may determine the stockholders
entitled to notice of or to vote at the meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting or entitled to receive payment of any dividend or other
distribution of allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more then ten days from the date upon
which the resolution fixing the record date is adopted by the Board; and (3) in
the case of any other action, shall not be more than sixty days prior to such
other action. If no record date is fixed by the Board: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meetings is held; (2) the
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record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting shall be determined in accordance
with Article VI of these By-Laws; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
ARTICLE VI
CONSENTS TO CORPORATE ACTION
RECORD DATE
Section 1. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting shall be as
fixed by the Board or as otherwise established under this Section. Any person
seeking to have the stockholders authorize or take corporate action by written
consent without a meeting shall by written notice addressed to the Secretary and
delivered to the corporation, request that a record date be fixed for such
purpose. The Board may fix a record date for such purpose which shall be no more
than 10 days after the date upon which the resolution is adopted. If the Board
fails within 10 days after the corporation receives such notice to fix a record
date for such purpose, the record date shall be the day on which the first
written consent is delivered to the corporation in the manner described in
Section 2 below unless prior action by the Board is required under the General
Corporation Law of Delaware, in which event the record date shall be at the
close of business on the day on which the Board adopts the resolution taking
such prior action.
PROCEDURES
Section 2. Every written consent purporting to take or authorizing the
taking of corporate action and/or related revocations (each such written consent
and related revocation is referred to in this Article VI as a "Consent") shall
bear the date of signature of each stockholder who signs the Consent, and no
Consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the earliest dated Consent delivered in the manner
required by this Section 2, Consents signed by a sufficient number of
stockholders to take such action are delivered to the corporation.
A Consent shall be delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery to the
corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
In the event of the delivery of the corporation of a Consent, the
Secretary of the corporation shall provide for the safe-keeping of such Consent
and shall promptly conduct such ministerial review of the sufficiency of the
Consents and of the validity of the action to be taken by shareholder consent as
he deems necessary or appropriate, including, without limitation, whether the
holders of a number of shares having the requisite voting power to authorize or
take the action specified in the Consent have given consent; provided, however,
that if the corporate action to which the Consent relates is the removal or
replacement of one or more members of the Board, the Secretary of the
corporation shall promptly designate two persons, who shall not be members of
the Board, to serve as Inspectors with respect to such Consent and such
Inspectors shall discharge the functions of the Secretary of the corporation
under this Section 2. If after such investigation the Secretary or the
Inspectors (as the case may be) shall determine that the Consent is valid and
that the action therein specified has been validly authorized, that fact shall
forthwith be certified on the records of the corporation kept for the purpose of
recording the proceedings of meetings or stockholders, and the Consent shall be
filed in such records, at which time the Consent shall become effective as
stockholder action. In conducting the investigation required by this Section 2,
the Secretary or the Inspectors (as the case may be) may, at the expense of the
corporation, retain special legal counsel and any other necessary or appropriate
professional advisors, and such other personnel as they may deem necessary or
appropriate to assist them, and shall be fully protected in relying in good
faith upon the opinion of such counsel of advisors.
10
<PAGE> 11
ARTICLE VII
MISCELLANEOUS
DIVIDENDS AND RESERVES
Section 1. Dividends upon the capital stock of the corporation may be
declared as permitted by law by the Board at any regular or special meeting.
Before payment of any dividend or making any distribution of profits, there may
be set aside out of the surplus or net profits of the corporation such sum or
sums as the Board, from time to time, in their absolute discretion, think proper
as a reserve fund to meet contingencies, or for such other purposes as the Board
shall think conducive to the interests of the corporation, and any reserve so
established may be abolished and restored to the surplus account by like action
of the Board.
SEAL
Section 2. The seal of the corporation shall bear the corporate name of
the corporation, the year of its incorporation and the words "Corporate Seal,
Delaware".
WAIVER
Section 3. Whenever any notice whatever is required to be given by
statute or under the provisions of the Restated Certificate of Incorporation or
these By-Laws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the stockholders or the Board, as
the case may be, need be specified in any waiver of notice of such meeting.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall begin with January
first and end with December thirty-first.
CONTRACTS
Section 5. Except as otherwise required by law, the Restated
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
corporation by such officer or officers of the corporation as the Board may from
time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chief Executive Officer or any of the
Chairman or the President and any Vice President may execute bonds, contracts,
deeds, leases and other instruments to be made or executed for or on behalf of
the corporation. Subject to any restrictions imposed by the Board, the Chief
Executive Officer or any of the Chairman or the President or any Vice President
of the corporation may delegate contractual powers to others under his
jurisdiction, it being understood, however, that any such delegation of power
shall not relieve such officer of responsibility with respect to the exercise of
such delegated power.
PROXIES
Section 6. Unless otherwise provided by resolution adopted by the
Board, the Chief Executive Officer or any of the Chairman or the President and
any Vice President may from time to time appoint an attorney or attorneys or
agent or agents of the corporation, in the name and on behalf of the
corporation, to cast the votes which the corporation may be entitled to cast as
the holder of stock or other securities in any other corporation or other
entity, any of whose stock or other securities may be held by the corporation,
at meetings of the holders of the stock or other securities of such other
corporation or other entity, or to consent in writing, in the name of the
corporation as such holder, to any action by such other corporation or other
entity, and may instruct the person or persons so appointed as to the manner of
casting such votes or
11
<PAGE> 12
giving such consent, and may execute or cause to be executed in the name and on
behalf of the corporation and under its corporate seal or otherwise, all such
written proxies or other instruments as he may deem necessary or proper in the
premises.
AMENDMENTS
Section 7. The Board from time to time shall have the power to make,
alter, amend or repeal any and all of these By-Laws, but any By-Laws so made
altered or repealed by the board may be amended, altered or repealed by the
stockholders.
12
<PAGE> 1
EXHIBIT 4.3
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO RIGHTS AGREEMENT (this "Amendment"), dated as of
March 14, 2000, is between Tenneco Automotive Inc. (formerly known as Tenneco
Inc.), a Delaware corporation (the "Company"), and First Chicago Trust Company
of New York (the "Rights Agent").
WHEREAS, the Company and the Rights Agent are parties to a Rights
Agreement dated as of September 9, 1998 (the "Rights Agreement"); and
WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company and
the Rights Agent desire to amend the Rights Agreement as set forth below;
NOW, THEREFORE, the Rights Agreement is hereby amended as follows:
1. Amendment of the Title of the Rights Agreement.
(a) The title set forth on the cover page of the Rights Agreement
is amended in its entirety as follows:
-------------------------------------
TENNECO AUTOMOTIVE INC.
(formerly known as TENNECO INC.)
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK, as Rights Agent
-------------------------------------
RIGHTS AGREEMENT
Dated as of September 9, 1998, as amended
on March 14, 2000
(b) The first paragraph on page 1 of the Rights Agreement is amended
to read in its entirety as follows:
RIGHTS AGREEMENT
Rights Agreement, dated as of September 9, 1998, as
amended on March 14, 2000 ("Agreement"), between Tenneco
Automotive Inc., a Delaware corporation, formerly known as
Tenneco Inc. (the "Company"), and First Chicago Trust Company
of New York, as Rights Agent (the "Rights Agent").
<PAGE> 2
2. Amendment of Section 1(a).
Section 1(a) of the Rights Agreement is amended to read in its
entirety as follows:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which shall be the Beneficial Owner
(as such term is hereinafter defined) of 15% or more of the shares of
Common Stock then outstanding, but shall not include an Exempt Person
(as such term is hereinafter defined); provided, however, that (i) if
the Board of Directors of the Company determines in good faith that a
Person who would otherwise be an "Acquiring Person" became the
Beneficial Owner of a number of shares of Common Stock such that the
Person would otherwise qualify as an "Acquiring Person" inadvertently
(including, without limitation, because (A) such Person was unaware
that it beneficially owned a percentage of Common Stock that would
otherwise cause such Person to be an "Acquiring Person" or (B) such
Person was aware of the extent of its Beneficial Ownership of Common
Stock but had no actual knowledge of the consequences of such
Beneficial Ownership under this Agreement) and without any intention of
changing or influencing control of the Company, then such Person shall
not be deemed to be or to have become an "Acquiring Person" for any
purposes of this Agreement unless and until such Person shall have
failed to divest itself, as soon as practicable (as determined, in good
faith, by the Board of Directors of the Company), of Beneficial
Ownership of a sufficient number of shares of Common Stock so that such
Person would no longer otherwise qualify as an "Acquiring Person"; (ii)
if, as of the date hereof or prior to the first public announcement of
the adoption of this Agreement, any Person is or becomes the Beneficial
Owner of 15% or more of the shares of Common Stock outstanding, such
Person shall not be deemed to be or to become an "Acquiring Person"
unless and until such time as such Person shall, after the first public
announcement of the adoption of this Agreement, become the Beneficial
Owner of additional shares of Common Stock (other than pursuant to a
dividend or distribution paid or made by the Company on the outstanding
Common Stock or pursuant to a split or subdivision of the outstanding
Common Stock), unless, upon becoming the Beneficial Owner of such
additional shares of Common Stock, such Person is not then the
Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding; (iii) no Person shall become an "Acquiring Person" as the
result of an acquisition of shares of Common Stock by the Company
which, by reducing the number of shares outstanding, increases the
proportionate number of shares of Common Stock
2
<PAGE> 3
beneficially owned by such Person to 15% or more of the shares of
Common Stock then outstanding, provided, however, that if a Person
shall become the Beneficial Owner of 15% or more of the shares of
Common Stock then outstanding by reason of such share acquisitions by
the Company and shall thereafter become the Beneficial Owner of any
additional shares of Common Stock (other than pursuant to a dividend or
distribution paid or made by the Company on the outstanding Common
Stock or pursuant to a split or subdivision of the outstanding Common
Stock), then such Person shall be deemed to be an "Acquiring Person"
unless upon becoming the Beneficial Owner of such additional shares of
Common Stock such Person does not beneficially own 15% or more of the
shares of Common Stock then outstanding; and (iv) if, as of the date of
the adoption of Amendment No. 1 to this Agreement or prior to the first
public announcement thereof, any Person is or becomes the Beneficial
Owner of 15% or more, but in all events less than 20%, of the shares of
Common Stock outstanding, such Person shall not be deemed to be or to
become an "Acquiring Person" unless and until such time as such Person
shall, after the first public announcement of the adoption of Amendment
No. 1 to this Agreement, become the Beneficial Owner of additional
shares of Common Stock (other than pursuant to a dividend or
distribution paid or made by the Company on the outstanding Common
Stock or pursuant to a split or subdivision of the outstanding Common
Stock), unless, upon becoming the Beneficial Owner of such additional
shares of Common Stock, such Person is not then the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding. For all
purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes
of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial Owner, shall be made
in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the
General Rules and Regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as in effect on the date hereof.
3. Amendment of Section 1(t).
Section 1(t) of the Rights Agreement is amended to read in its
entirety as follows:
(t) Intentionally omitted.
3
<PAGE> 4
4. Amendment of Section 3(a).
Section 3(a) of the Rights Agreement is amended to read in its
entirety as follows:
(a) Until the Close of Business on the earlier of (i)
the tenth day after the Stock Acquisition Date or (ii) the tenth
Business Day (or such later date as may be determined by action of the
Board of Directors prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement by any Person
(other than an Exempt Person) of, or of the first public announcement
of the intention of such Person (other than an Exempt Person) to
commence, a tender or exchange offer the consummation of which would
result in any Person (other than an Exempt Person) becoming the
Beneficial Owner of shares of Common Stock aggregating 15% or more of
the Common Stock then outstanding (the earlier of such dates being
herein referred to as the "Distribution Date", provided, however, that
if either of such dates occurs after the date of this Agreement and on
or prior to the Record Date, then the Distribution Date shall be the
Record Date), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Stock
registered in the names of the holders thereof and not by separate
Right Certificates, and (y) the Rights will be transferable only in
connection with the transfer of Common Stock. As soon as practicable
after the Distribution Date, the Company will prepare and execute, the
Rights Agent will countersign and the Company will send or cause to be
sent (and the Rights Agent will, if requested, send) by first-class,
insured, postage-prepaid mail, to each record holder of Common Stock as
of the close of business on the Distribution Date (other than any
Acquiring Person or any Associate or Affiliate of an Acquiring Person),
at the address of such holder shown on the records of the Company, a
Right Certificate, in substantially the form of Exhibit B hereto (a
"Right Certificate"), evidencing one Right (subject to adjustment as
provided herein) for each share of Common Stock so held. As of the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
5. Amendment of Section 3(c).
The legend set forth in Section 3(c) of the Rights Agreement is amended
to read in its entirety as follows:
4
<PAGE> 5
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Tenneco
Automotive Inc., formerly known as Tenneco Inc. (the "Company"), and
First Chicago Trust Company of New York, as Rights Agent, dated as of
September 9, 1998 and as amended from time to time (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive
offices of the Company. Under certain circumstances, as set forth in
the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Company will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights
Agreement, Rights owned by or transferred to any Person who is or
becomes an Acquiring Person (as defined in the Rights Agreement) and
certain transferees thereof will become null and void and will no
longer be transferable.
6. Amendment of Section 7(b).
Section 7(b) of the Rights Agreement is amended to read in its
entirety as follows:
(b) The Purchase Price shall be initially $8.80 for each one
one-thousandth of a share of Preferred Stock purchasable upon
the exercise of a Right. The Purchase Price and the number of one
one-thousandths of a share of Preferred Stock or other securities or
property to be acquired upon exercise of a Right shall be subject to
adjustment from time to time as provided in Sections 11 and 13 hereof
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) of this Section 7.
7. Amendment of Section 13(f).
Section 13(f) of the Rights Agreement is amended to read in its
entirety as follows:
(f) Intentionally omitted.
8. Amendment of Section 26.
The notice provision in respect of the Company set forth in Section 26
of the Rights Agreement is amended to read in its entirety as follows:
Tenneco Automotive Inc.
500 North Field Drive
Lake Forest, IL 60045
Attention: General Counsel
5
<PAGE> 6
9. Amendment of Section 30(a).
Section 30(a) of the Rights Agreement is amended to read in its
entirety as follows:
(a) The Board of Directors of the Company shall have
the exclusive power and authority to administer this
Agreement and to exercise the rights and powers specifically
granted to the Board of Directors of the Company or to the
Company, or as may be necessary or advisable in the
administration of this Agreement, including, without
limitation, the right and power to (i) interpret the
provisions of this Agreement and (ii) make all determinations
deemed necessary or advisable for the administration of this
Agreement (including, without limitation, a determination
whether: to exchange the outstanding Rights for Common Stock
pursuant to Section 24; to redeem or not redeem the Rights;
or to amend or not to amend this Agreement). All such
actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions
with respect to the foregoing) that are done or made by the
Board of Directors of the Company in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights
Agent, the holders of the Rights, as such, and all other
parties, and (y) not subject the Board of Directors to any
liability to the holders of the Rights.
10. Amendment of Section 30(b).
Section 30(b) of the Rights Agreement is amended to read in its
entirety as follows:
6
<PAGE> 7
(b) Nothing contained in this Agreement shall be deemed to
be in derogation of the obligation of the Board of Directors of
the Company to exercise its fiduciary duty. Without limiting the
foregoing, nothing contained herein shall be construed to suggest
or imply that the Board of Directors shall not be entitled to
reject any tender offer or other acquisition proposal, or to
recommend that holders of Common Stock reject any tender offer or
other acquisition proposal, or to take any other action
(including, without limitation, the commencement, prosecution,
defense or settlement of any litigation and the submission of
additional or alternative offers or other proposals) with respect
to any tender offer or other acquisition proposal that the Board
of Directors believes is necessary or appropriate in the exercise
of such fiduciary duty.
7
<PAGE> 8
11. Amendment of Form of Rights Certificate.
(a) The first paragraph of the form of rights certificate attached as
Exhibit B to the Rights Agreement is amended to read in its entirety as follows:
RIGHTS CERTIFICATE
TENNECO AUTOMOTIVE INC.
This certifies that ____________________________ or registered
assigns, is the registered owner of the number of Rights set forth
above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement, dated as of
September 9, 1998, as the same may be amended from time to time (the
"Rights Agreement"), between Tenneco Automotive Inc., a Delaware
corporation (the "Company"), and First Chicago Trust Company of New
York, as Rights Agent (the "Rights Agent"), to purchase from the
Company at any time after the Distribution Date (as such term is
defined in the Rights Agreement) and prior to 5:00 P.M., New York City
time, on September 9, 2008 at the office or agency of the Rights Agent
designated for such purpose, or of its successor as Rights Agent, one
one-thousandth of a fully paid non-assessable share of Series B Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred
Stock"), of the Company at a purchase price of $8.80 per one
one-thousandth of a share of Preferred Stock (the "Purchase Price"),
upon presentation and surrender of this Right Certificate with the Form
of Election to Purchase duly executed. The number of Rights evidenced
by this Rights Certificate (and the number of one one-thousandths of a
share of Preferred Stock which may be purchased upon exercise hereof)
set forth above, and the Purchase Price set forth above, are the number
and Purchase Price as of March 14, 2000, based on the Preferred Stock
as constituted at such date. As provided in the Rights Agreement, the
Purchase Price, the number of one one-thousandths of a share of
Preferred Stock (or other securities or property) which may be
purchased upon the exercise of the Rights and the number of Rights
evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.
8
<PAGE> 9
(b) The signature block of the Company set forth on the form of rights
certificate attached as Exhibit B to the Rights Agreement is amended to read in
its entirety as follows:
TENNECO AUTOMOTIVE INC.
By:_______________________________________
Chairman, President and Chief Executive
Officer
(c) The addressee on the Form of Election to Purchase set forth as an
attachment to the form of rights certificate attached as Exhibit B to the Rights
Agreement is amended to read in its entirety as follows:
To TENNECO AUTOMOTIVE INC.:
12. Effectiveness.
This Amendment shall be deemed effective as of March 14, 2000. Except as
amended hereby, the Rights Agreement shall remain in full force and effect and
shall be otherwise unaffected hereby.
13. Miscellaneous.
This Amendment shall be deemed to be a contract made under the laws of
the State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such state applicable to contracts to be made and
performed entirely within such state. This Amendment may be executed in any
number of counterparts, each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument. If any term, provision, covenant or restriction
of this Amendment is held by a court of competent jurisdiction or other
authority to be invalid, illegal, or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Amendment shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date set forth above.
TENNECO AUTOMOTIVE INC.
By: /s/ Timothy R. Donovan
---------------------------------
Name: Timothy R. Donovan
Title: Senior Vice President and
General Counsel
FIRST CHICAGO TRUST COMPANY OF
NEW YORK
By: /s/ Charles Keryc
---------------------------------
Name: Charles Keryc
Title: Managing Director
10
<PAGE> 1
EXHIBIT 10.15
September 17, 1999
Robert T. Blakely
89 Valley Drive
Greenwich, CT 06831
Re: Release Agreement
-----------------
Dear Bob:
This Release Agreement ("Agreement") entered into as of the date at the end
hereof is by and between Robert T. Blakely ("Employee") and the employer,
Tenneco Management Company ("Employer" or "Company"), (collectively, the
"Parties").
The Parties named above agree as follows:
1. Your employment with Employer will terminate on or before December 31,
1999 (the "Termination Date"). Effective as of the Termination Date,
you will resign all positions which you hold with Tenneco Inc. and its
subsidiaries and affiliates, except for your position as a trustee of
the Tenneco Rabbi Trust which you will continue to hold after your
Termination Date.
2. You will be entitled to the following consideration upon the later of
the Termination Date or the end of the seven-day revocation period
defined in Paragraph 28, assuming you execute this Agreement, fail to
revoke it during the seven-day period referred to in Paragraph 28,
remain in compliance with all of the terms and conditions of this
Agreement, and further assuming that your spouse executes a separate
spousal waiver agreement to be tendered to your spouse ("Effective
Date"):
- PAYMENT - You will receive a lump sum payment of $1,266,000.48,
less applicable tax withholdings and any amounts due the
Employer, as soon as administratively feasible after the
Effective Date. This payment shall be in lieu of any other
payments, wages and benefits including without limitation any
severance-type payment, except as expressly provided in this
Agreement. If you fail to execute this Agreement by November 5,
1999, or revoke or cancel this Agreement during the seven-day
period referred to
<PAGE> 2
Robert T. Blakely
Page 2
in Paragraph 28, Employer shall not be obligated to make this
lump sum payment to you. If you revoke or cancel the Agreement
after Employer has made the lump sum payment, you shall be
obligated to return to Employer all benefits and payments
provided to you under this Agreement, including but not limited
to the lump sum payment.
- RELOCATION LOAN MODIFICATION - The Employer and you and your
spouse are parties to a June 13, 1996 Balloon Note (Fixed Rate)
(the "Note"), which has a current outstanding principal balance
of $400,000.00. The Employer hereby forgives the full principal
balance of the Note, and all accrued interest under the Note.
Accordingly, the Note is hereby canceled. The Employer shall
deliver to you a release of the mortgage, given by you to the
Employer securing the Note.
- BUSINESS EXPENSES - You will receive a payment for reimbursement
for any business expenses incurred by you on behalf of the
Employer that have been submitted for reimbursement in accordance
with the Employer's normal expense account procedures.
- EXECUTIVE INCENTIVE COMPENSATION PLAN - Should the Company
achieve the performance goals for Executive Incentive
Compensation Plan ("EICP") payouts, you will receive an adjusted
EICP Award prorated through the Termination Date. No future
payments will be made under this Plan.
- DEFERRED COMPENSATION - The balance of your Deferred Compensation
Account will be distributed, as soon as administratively feasible
after the Effective Date, in accordance with your election under
the terms of the Plan.
- RETIREMENT PLAN VESTING - Since you are a participant in the
Tenneco Retirement Plan and have completed five years of service
on the Termination Date, you are 100% vested in your accrued
benefit under the Tenneco Retirement Plan. For information
regarding your retirement benefit, call the Benefits Center at
1-800-444-5578.
- EXECUTIVE INCENTIVE COMPENSATION PLAN RETIREMENT BENEFIT - Since
you are a participant in both the Tenneco Retirement Plan and the
Executive Incentive Compensation Plan, you are eligible for
retirement benefits under the Tenneco Inc. Supplemental Executive
Retirement Plan. For information
<PAGE> 3
Robert T. Blakely
Page 3
regarding these supplemental retirement benefits, call the
Benefits Center at 1-800-444-5578.
- ADDITIONAL SERP - Notwithstanding any other provision hereof,
Employee shall be entitled to the benefits described in the
document entitled "Blakely Special Appendix to the Tenneco Inc.
Supplemental Executive Retirement Plan", including without
limitation, deemed credit for 25 years of service and
participation.
- TENNECO INC. STOCK OPTION PLAN - You can exercise all currently
exercisable options during the remainder of your employment in
accordance with provisions of the Plan. Remaining options will
become exercisable as of the Effective Date. Since you are
eligible for retirement, your options will remain active for a
period of ten (10) years following the termination of your
employment (or the remaining term of the option, if less.) You
will not be awarded any reload stock options upon the exercise of
any such options. Except as modified herein, your stock options
will continue to be subject to the rules of the 1996 Tenneco Inc.
Stock Ownership Plan as amended from time to time, including
without limitation, the provisions regarding adjustment and
amendment of outstanding options which may result in the
replacement of these options with options on the stock of Tenneco
Packaging Inc.
- TENNECO INC. PERFORMANCE SHARES - Subject to any generally
applicable earlier earn-out, at the Effective Date, all
outstanding performance shares awarded under the Stock Ownership
Plan shall be deemed to have been earned at target and shall be
paid out in Tenneco Inc. common stock.
- TENNECO INC. RESTRICTED STOCK - Subject to any generally
applicable earlier vesting, your restricted shares awarded under
the Stock Ownership Plan will vest on the Effective Date and all
applicable restrictions will lapse. A stock certificate for the
appropriate number of shares will be delivered to you as soon as
administratively feasible.
- THRIFT PLAN - You are a participant in the Tenneco Thrift Plan
and contributions to the Tenneco Thrift Plan cease upon the
termination of your employment. You may then elect to receive a
final settlement of your account balance, usually within four to
six weeks following the receipt of
<PAGE> 4
Robert T. Blakely
Page 4
your properly completed election forms. You are 100% vested in
the account. You should contact the Benefits Center for
information about your Thrift Plan account, including any
outstanding Thrift Plan loans, and the tax consequences of the
distribution.
- MEDICAL COVERAGE CONTINUATION - If enrolled in the Tenneco
medical plan at the Termination Date, continued coverage under
the Tenneco medical plan as it may be amended from time to time
will be offered to you and your eligible dependents on an
optional basis with your sharing the cost (after-tax basis) for
up to twelve (12) months from the Termination Date. You remain
responsible for any employee contribution required by your
medical coverage choice. In the event you enroll in a group
medical plan of a new employer before the end of your
continuation period, your new coverage will be primary and
Tenneco medical coverage will be secondary as provided in the
medical plan.
Under the regular provisions of the Tenneco medical plan, if at
the time your Tenneco employment terminates, you have attained
age 5 5 and 10 years of service after age 45, you will be
entitled to retiree medical coverage. For information regarding
your Medical Benefits, call the Benefits Center at
1-800-444-5578.
- DENTAL COVERAGE CONTINUATION - If enrolled in the Tenneco dental
plan at the Termination Date, coverage under the Tenneco dental
plan as it may be amended from time to time (or the DMO option
you have elected) will be offered to you and your eligible
dependents on an optional basis with your sharing the cost
(after-tax basis) for up to twelve (12) months from the
Termination Date. You remain responsible for any employee
contribution required by your dental coverage choice. In the
event you enroll in a group dental plan of a new employer before
the end of your continuation period, your new coverage will be
primary and Tenneco dental coverage will be secondary as provided
in the dental plan.
Under the regular provisions of the Tenneco medical plan, if at
the time your Tenneco employment terminates, you have attained
age 55 and 10 years of service after age 45, you will be entitled
to retiree medical coverage. For information regarding your
Medical Benefits, call the Benefits Center at 1-800-444-5578.
<PAGE> 5
Robert T. Blakely
Page 5
- HEALTH CARE FLEXIBLE SPENDING ACCOUNT - If enrolled in the
Tenneco health care flexible spending account at the Termination
Date, you may, under COBRA, continue your coverage choice as it
may be amended from time to time, completely at your own expense
(after-tax basis), for eighteen (18) months from the Termination
Date.
- LIFE INSURANCE CONTINUATION - Under the Tenneco basic group life
insurance plan as it may be amended from time to time, your basic
life and accidental death and dismemberment (AD&D) coverage will
continue at Company expense for twelve (12) months from the
Termination Date. An individual life insurance conversion policy
may be available following termination of Tenneco life insurance
coverage. You may not continue your supplemental or dependent
coverage past the Termination Date.
Under the regular provisions of the Tenneco basic group life
insurance plan, if at the time your Tenneco employment
terminates, you are eligible for an immediately payable
retirement benefit under the Tenneco Inc. Supplemental Executive
Retirement Plan, you may be entitled to retiree insurance
coverage. For information regarding retiree life insurance, call
the Benefits Center at 1-800-444-5578.
- DISABILITY AND ACCIDENT INSURANCE - Your participation in the
Tenneco Inc. Long Term Disability and Travel Accident Insurance
Plans ceases upon your termination of employment.
- BENEFIT PLANS - Except as set out in this Agreement, the
provisions of the policies or plan documents will control.
- VACATION - If applicable, employer will pay you an amount equal
to earned and unused vacation for 1999, subject to withholding of
taxes.
- COMPUTER/OFFICE EQUIPMENT - Employer will transfer to you, upon
your payment of $500.00, ownership of the office equipment as
identified on Exhibit C, however, no license or other right to
use any computer software is granted to you by virtue of this
transfer. Further, no property identified in Exhibit C that is
leased by the Employer will transfer to you under this Agreement.
<PAGE> 6
Robert T. Blakely
Page 6
3. You acknowledge that the aggregate of all benefits set forth in
Paragraph 2 of this Agreement is greater than the aggregate to which
you are already entitled. IN ADDITION TO THE OTHER RESTRICTIONS AND
CONDITIONS SET FORTH IN THIS AGREEMENT AND IN NO WAY IN LIMIT OF THOSE
OTHER RESTRICTIONS AND CONDITIONS, YOU SHALL NOT BE ENTITLED TO ANY
RETENTION, SEVERANCE, OR OTHER NON-VESTED BENEFITS SET FORTH IN THIS
AGREEMENT IN THE EVENT YOU RESIGN YOUR EMPLOYMENT PRIOR TO THE
TERMINATION DATE. FURTHERMORE, IN THE EVENT THAT YOU TRANSFER TO
ANOTHER TENNECO COMPANY OR ONE OF ITS AFFILIATES OR SUCCESSORS AS
DEFINED IN PARAGRAPH 4, YOU SHALL FORFEIT ALL RIGHTS TO ANY RETENTION,
SEVERANCE OR OTHER NON-VESTED BENEFITS SET FORTH IN THIS AGREEMENT.
4. You acknowledge that your employment shall terminate with Employer,
its direct or indirect subsidiaries, affiliates, parents, and related
companies or entities, regardless of its or their form of business
organization, including without limitation the plans described in
Paragraph 7 (all collectively the "Employer Entities"), on or before
the Termination Date.
5. In exchange for the compensation and benefits described in Paragraph
2, you release and discharge any and all Employer Entities as defined
in Paragraph 4 and any and all of their past and present subsidiaries,
affiliates, parents, related companies, persons and entities,
directors, employees, officers, agents, partners, insurers, attorneys,
trustees, administrators and fiduciaries (all collectively the
"Released Parties") from any and all claims, demands, and causes- of
action, whether arising in contract, tort or any other theory of
action, whether arising in law or equity, whether known or unknown,
accrued or unaccrued, asserted or unasserted, from the effective date
of this Agreement, except for those obligations created by or arising
out of this Agreement. You expressly waive the benefit of any statute
or rule of law which, if applied to this Agreement, would otherwise
exclude from its binding effect any claim against any Released Party
not now known by you to exist. Except as necessary for you to enforce
this Agreement, this Agreement is intended to be a general release
that extinguishes all claims by you against any Employer Entity.
Without limiting the generality of this Paragraph, if you commence or
continue any claim in violation of this Agreement, the Released Party
shall be entitled to assert this Agreement as a bar to such action or
proceeding.
<PAGE> 7
Robert T. Blakely
Page 7
6. Without in any way limiting the generality of the foregoing, this
Agreement constitutes a full release and disclaimer of any and all
claims arising or accruing up to the effective date of this Agreement,
including but not limited to any claims arising out of or in any way
connected with or relating to the termination of your employment and
any claims arising out of or in any way connected with or related to
your employment with Employer or any other Employer Entity up to the
effective date of this Agreement. The scope of this waiver includes
but is not limited to claims arising under 29 U.S.C. (s) 1981, the
Age Discrimination in Employment Act of 1967 as amended (29 U.S.C. (s)
621), Title VII of the Civil Rights Act of 1964 as amended, (42
U.S.C.ss.2000e), the Americans With Disabilities Act (42 U.S.C.
ss.1210 1), the Worker Adjustment Retraining and Notification Act (29
U.S.C.ss. 2101), the Family and Medical Leave Act of 1993 (29
U.S.C.ss.2601), the Connecticut Human Rights and Opportunities Act,
the Connecticut Family and Medical Leave laws (Conn. Gen. Stat. 31-5 1
cc to 31-51 gg and Ct. Legis. 96-140, effective January 1, 1997), the
Texas Human Rights Act, (Tex. Rev. Civ. Stat. Art. 5221k), the
Illinois Human Rights Act, the Wisconsin Fair Employment Act, the New
York Human Rights Law, the New York Equal Pay Law, the New York Rights
of Persons with a Disability Law, the New York Equal Rights Law, the
National Labor Relations Act, any claims for breach of contract,
wrongful or retaliatory discharge, tortious action, inaction or
interference of any sort, and any claim under any other state, local
or federal statute, regulation or ordinance, or common law cause of
action.
7. It is expressly agreed that the payments described in Paragraph 2 of
this Agreement are in full and complete satisfaction of any and all
liabilities or obligations which any Employer Entity, including any
plan, fund or program sponsored, maintained or contributed to by any
Employer Entity, has or may have to you under or with respect to any
employee benefit plan described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), any
payment or other item excluded from the definition of "employee
welfare benefit plan", "employee pension benefit plan" or "employee
benefit plan" under the rules of 29 C.F.R. Section 2510.3-1, 2510.3-2
or 2510.3-3, as the case may be, and any employee benefit plan
described in Section 4 of ERISA. It is further agreed that the
payments described in this Agreement exceed in value anything to which
you may be already entitled.
<PAGE> 8
Robert T. Blakely
Page 8
8. You represent that you have not assigned or transferred, or purported
to assign or transfer, to any person or entity, any claim or any
portion thereof or interest therein against a Released Party.
9. You represent that as of the Termination Date, you will have turned
over to Employer all originals and copies of expense reports, notes,
memoranda, records, documents, Employer manuals, credit cards, pass
keys, computers, computer diskettes, office equipment, sales records
and data, and all other information or property, no matter how
produced, reproduced or maintained, which you have in your possession
and pertain to the business of any Employer Entity, including but not
limited to lists of customers, prices, marketing plans, strategies,
documents relating to the legal rights and obligations of any Employer
Entity, the work product of any attorney employed or retained by any
Employer Entity, and other confidential materials or information
obtained by you in the course of your employment.
10. You acknowledge that the business and services of all Employer
Entities are highly specialized and that the following information is
not generally known, is highly confidential and constitutes trade
secrets: proprietary technical and business information relating to
any Employer Entity's plans, analysis or strategies concerning
international or domestic acquisitions, possible acquisitions or new
ventures; development plans or introduction plans for products or
services; unannounced products or services; operation costs; pricing
of products or services; research and development; personnel
information; manufacturing processes; installation, service and
distribution procedures and processes; customer lists; any know-how
relating to the design, manufacture, and marketing of any Employer
Entity's services and products, including components and parts
thereof, non-public information acquired by you concerning the
requirements and specifications of any Employer Entity's agents,
vendors, contractors, customers and potential customers; non-public
financial information, business and marketing plans, pricing and price
lists; non-public matters relating to employee benefit plans;
quotations or proposals given to agents or customers or received from
suppliers; documents relating to any Employer Entity's legal rights
and obligations; the work product of any attorney employed by or
retained by any Employer Entity; and any other information which is
sufficiently secret to derive economic value from not being generally
known.
11. You shall maintain in the strictest confidence and will not, directly
or indirectly, use, intentionally or inadvertently, publish or
otherwise disclose to any person or entity whatever, any trade
secrets, or any confidential, proprietary or other non-public
<PAGE> 9
Robert T. Blakely
Page 9
information of or belonging to any Employer Entity -or any agent,
joint venturer, contractor, customer, vendor or supplier of any
Employer Entity (collectively, the "Confidential Information"),
regardless of its form without the prior written explicit consent of
Employer. You shall take reasonable precautions to protect the
inadvertent disclosure of Confidential Information. Your obligations
under this Agreement with respect to Confidential Information shall
extend for the period that such information is not generally known
outside of the relevant Employer Entity for reasons other than
disclosure or disclosures made by you or on your behalf. All duties
and obligations set forth in this Agreement shall be in addition to
those which exist under statute and at common law and shall not negate
but shall be in addition to or coextensive with those obligations
arising under any agreements or documents executed by you during your
employment with Employer. Should you be served with legal process
seeking to compel disclosure of any such information, you shall notify
the General Counsel of Employer immediately.
12. Paragraphs 10 - 11 hereof shall be deemed to consist of a series of
separate covenants. Should a determination be made by a court of
competent jurisdiction that the character, duration, or geographical
scope of those provisions are unreasonable in light of the
circumstances as they then exist, then it is the intention and the
agreement of the Parties that these shall be construed by the court in
such a manner as to impose only those restrictions on your conduct
which are reasonable in light of the circumstances as they then exist
and as are necessary to assure the relevant Employer Entity of their
intended benefit. If, in any judicial proceeding, a court shall refuse
to enforce all of the separate covenants because, taken together, they
are more extensive than necessary to assure the relevant Employer
Entity of the intended benefit, then it is expressly understood and
agreed that those of such covenants which, if modified or eliminated,
would permit the remaining separate covenants to be enforced in such
proceeding, shall, for the purpose of such proceeding, be deemed
modified or eliminated in order to enforce the remaining provisions.
13. In expansion and not in limitation of Paragraphs 9, 10, and 11,
hereof, it is specifically provided that among the communications,
publications and disclosures forbidden or restricted by such
Paragraphs, are any such communications, publications or disclosures
by means of electronic, computer, print or other media, including
without limitation, any use of the Internet, chat rooms, bulletin
boards web sites, etc.
<PAGE> 10
Robert T. Blakely
Page 10
You hereby agree that Employer would suffer significant damages, which
would be difficult to completely quantify in the event you or any
Affiliate breached the provisions of Paragraphs 9, 10, or 11 of this
Agreement. You acknowledge that any violation of any such Paragraphs
by you or by an Affiliate shall be treated as a material breach and
that you shall pay to Employer either $50,000 in total liquidated
damages, or, alternatively, the actual damages suffered by Employer as
a result of the breach if Employer is able to adequately establish
that actual total damages exceeded $50,000. You hereby acknowledge and
agree that as of the September 17, 1999, $50,000 represents a
reasonable estimate of the minimum damages that Employer can be
expected to incur as a result of any such breach.
14. Nothing in this Agreement shall be construed as an admission of any
wrongdoing by any person or entity.
15. The Parties agree to cooperate fully and to execute any and all
supplementary documents and to take all additional actions that may be
necessary or appropriate to give full force to the terms and intent of
this Agreement that are not inconsistent with its terms.
16. You shall provide thorough and accurate information and testimony
voluntarily to or on behalf of any Employer Entity, regarding any
investigation or court case initiated by or against any Employer
Entity or by any government agency, but you agree not to disclose or
to discuss with anyone who is not directing or assisting in any
Employer Entity investigation or case, other than your attorney, the
fact of or the subject matter of any investigation, except as required
by law. You will cooperate with the Employer Entity and promptly
provide such information. If the Employer Entity requests information,
it will attempt to work with you to arrange times that reasonably
accommodate you, and will reimburse you for commuting, parking or
other similar expenses and, to the extent permitted by law, will
reasonably compensate you for any significant imposition on your time
by the request.
17. You acknowledge that any employment or contractual relationship
between you and any and all Employer Entities, including but not
limited to the Employer, will terminate by virtue of this Agreement on
or before the Termination Date. In consideration of this Agreement,
you waive any and all employment rights that you now have with any
Employer Entity, except as otherwise expressly provided in this
Agreement. You agree not to seek reinstatement, reemployment, or
future employment as a new employee, and no Employer Entity has an
obligation,
<PAGE> 11
Robert T. Blakely
Page 11
contractual or otherwise, to employ or reemploy, hire or rehire, or
recall or reinstate you in the future.
18. You agree to keep confidential the terms, conditions, and amounts set
forth in this Agreement and not to disclose any information relating
to this Agreement to any employee or former employee of any Employer
Entity except as required by law, or a court of competent
jurisdiction.
19. It is further agreed that if any provision of this Agreement
contravenes the law of any state or jurisdiction where this Agreement
is to be performed or enforced, such provision shall be deemed not to
be a part of this Agreement, and the other provisions of this
Agreement, shall remain in full force and effect.
20. The failure of the Employer to exercise any rights under this
Agreement upon any breach or threatened breach by you shall not
constitute a waiver of any rights arising by reason of other or
similar breaches.
21. You shall have no right of assignment or transfer of any rights herein
or any sums that may accrue to you hereunder, nor shall any creditor
or other claimant have any right to assert any interest in or right to
receive such sums either by voluntary or involuntary act on their
part, by any writ or garnishment or attachment or otherwise.
22. The rights and obligations of the Parties shall be construed and
enforced in accordance with, and governed by, the laws of the State of
Connecticut without regard to that or any other state's rules
regarding conflict of laws. The language of all parts of this
Agreement shall in all cases be construed as a whole, according to its
fair meaning and not strictly for or against any of the Parties.
23. This Agreement shall be binding upon and inure to the benefit of the
respective successors, heirs, assigns, administrators, executors and
legal representatives of the Parties and other entities described in
this Agreement.
24. You warrant that no promise or inducement to enter into this Agreement
has been offered or made except as set forth in this Agreement, that
you are entering into this Agreement without any threat or coercion
and without reliance on any statement or representation made on behalf
of any Employer Entity or by any person employed by or representing
any Employer Entity, except for the written provisions and promises
contained in this Agreement.
<PAGE> 12
Robert T. Blakely
Page 12
25. This Agreement constitutes the entire agreement and understanding
between the Parties with regard to all matters, including but not
limited to your employment, the cessation of your employment from
Employer, payments owed to you, and the other subject matters
addressed in this Agreement. This Agreement supersedes and replaces
all prior commitments, negotiations and all agreements proposed or
otherwise, whether written or oral, concerning the subject matters
contained in this Agreement. This Agreement is an integrated document
and the consideration stated herein is the sole consideration for this
Agreement.
26. This Agreement is being delivered to you on September 17, 1999. You
shall have fifty days, or until November 5, 1999, to decide whether to
sign the Agreement and be bound by its terms.
27. Employer informs you of the following:
a) In order to be eligible for the benefits. contained in this
Release Agreement, you must: (i) have worked in the Finance
Department on January 1, 1999 and, (ii) terminate your
employment on or before your Termination Date, and (iii)
agree on or before November 5, 1999 to terminate your
employment under the terms of a valid separation agreement,
by executing this Agreement.
b) This severance program covers the following class, unit or
group of individuals: employees in Tenneco Management
Company terminated pursuant to a reduction-in-force.
c) Attached at Exhibit A, this Agreement contains the job
titles and ages of all individuals in the Company eligible
or selected for the program.
d) Attached at Exhibit B, this Agreement contains the job
titles and ages of all individuals in the Company who are
not eligible or selected for the program.
28. In addition, the Parties agree that even after signing the Agreement,
you shall have the right to revoke or cancel it only within seven days
after signing it. This cancellation or revocation can be accomplished
by delivery of a written notification if you wish to revoke the
Agreement to the Vice President of Human Resources. In the event that
this Agreement is canceled or revoked by you, Employer shall have no
obligation to meet any of the commitments described in this Agreement.
<PAGE> 13
Robert T. Blakely
Page 13
29. You acknowledge that you have been advised and encouraged by Employer
to consult your own attorney prior to signing this Agreement, and that
you execute this Agreement voluntarily.
30. You acknowledge that you have read this Agreement and that you
understand that the Agreement will have the effect of waiving any
action or recovery you might pursue, including breach of contract,
personal injury, discrimination on the basis of race, age, sex,
national origin, citizenship, religion, veteran status, handicap, or
disability and any other claims arising prior to the date of the
Agreement.
Please return the executed original of this letter to Stephen J. Smith,
Vice President Human Resources, 1275 King Street, Greenwich, Connecticut
06831.
Sincerely,
/s/ Stephen J. Smith
Stephen J. Smith
Vice President Human Resources
Tenneco Inc.
/s/ Dana G. Mead
-------------------------------------
Dana G. Mead
Chairman and Chief Executive Officer
AGREED AND ACCEPTED:
/s/ Robert T. Blakely Date: November 3, 1999
------------------------------------- ----------------------
Robert T. Blakely
<PAGE> 14
MODIFICATION OF RELEASE AGREEMENT
The parties hereto have entered into the Release Agreement, dated
September 17, 1999 (the "Release Agreement").
This Modification supersedes and amends the Release Agreement as and
to the extent set forth herein.
Notwithstanding any provision of the Release agreement to the
contrary, Robert T. Blakely ("Officer") shall not be deemed to have waived any
rights to indemnification, contribution or reimbursement to which Officer is or
would otherwise be entitled by contract, operation of law or otherwise,
including without limitation, under and pursuant to the Delaware General
Corporation Law, the certificate of incorporation of Tenneco Inc., the By-Laws
of Tenneco Inc., any contract, the Tenneco Rabbi Trust or any insurance policy
or other similar arrangement at any time maintained by Tenneco Inc. or any of
its subsidiaries or any right in respect or resulting from any legal,
accounting, financial or other advice provided to Tenneco Inc. or any of its
subsidiaries or Officer by any legal counsel, accountant, financial advisor,
engineer, consultant or other similar person, firm or corporation in the
discharge of such Officer's employment as an officer, director or employee of
Tenneco Inc. or any of it subsidiaries or as a representative of Tenneco Inc. or
any of its subsidiaries. Neither Tenneco Inc. nor any of its subsidiaries will,
for a period of ten years from the date of the spin-off described below, amend
or modify or terminate any such certificate of incorporation, by-law, contract,
insurance policy or other arrangement if the effect thereof could be to
eliminate or diminish the protection afforded the Officer thereby in any
material respect.
Officer shall also retain, without cost to Officer, the benefit of all
the liability insurance coverage maintained by Tenneco Inc., Tenneco Packaging
Inc., Tenneco Automotive Inc. or otherwise, including, without limitation, the
Tenneco Inc. Director and Officer and Fiduciary "run-off" insurance policies to
be purchased in connection with the Tenneco Packaging Inc. spin-off. Tenneco
Inc. and Tenneco Management Company each further agrees jointly and severally to
purchase and keep in force, at their sole expense, such coverage for its full
term and to deliver proof of such coverage to Officer.
<PAGE> 15
Nothing contained herein or in the Release Agreement shall be deemed
to be a waiver or discharge of any right which the Officer has or may have if
the effect of any such waiver or discharge would be to abrogate or diminish any
right the Officer or Tenneco Inc. or any of its subsidiaries has or may have
under any insurance policy or other similar arrangement.
Dated: November 3, 1999
--------------------------
/s/ Robert T. Blakely
- --------------------------------
Robert T. Blakely
TENNECO INC.
By: /s/ Dana G. Mead
-------------------------------------
Dana G. Mead
Chairman and Chief Executive Officer
TENNECO MANAGEMENT COMPANY
By: /s/ Stephen J. Smith
-------------------------------------
Stephen J. Smith
Vice President Human Resources
-2-
<PAGE> 1
EXHIBIT 10.23
December 12, 1996
PERSONAL AND CONFIDENTIAL
Mr. Richard P. Schneider
210 Margate Court
Lake Bluff, IL 60044
Dear Mike:
On behalf of Tenneco Inc. (the "Company" or "Tenneco"), I am pleased
to set forth the terms and conditions of your employment:
1. You are employed as Vice President, Human Resources, Tenneco Automotive and
shall in the future hold such positions as the Company may determine from
time to time. While employed, you will abide by all policies of the
Company.
2. You will be paid a base salary of $200,000 a year, which shall be subject
to such adjustments as may from time to time be approved by the
Compensation and Benefits Committee of the Board of Directors of Tenneco,
payable according to the regular pay schedule for salaried employees.
3. You will be a participant in the Tenneco Executive Incentive Compensation
Plan ("EICP"). The amount distributed to you under the EICP for 1996 will
be $130,000, which includes a special award amount of $40,000 reflecting
your special contribution to Tenneco during this transition year. In the
future, you will be eligible for EICP distributions based on your
performance at the discretion of the Compensation and Benefits Committee of
the Board of Directors.
4. You will be awarded 40,000 non-qualified stock options under the Tenneco
stock ownership plan. The number of shares you will receive represents a
front-loaded grant of three years' worth of stock options. Two-thirds of
this award will be granted to you on December 12, 1996 with the option
price based on the fair market value of Tenneco stock on that date. The
remaining one-third will be granted and priced in 1997 at a date to be
determined by the Compensation and Benefits Committee. In January, 1997 you
will be awarded 4,000 performance shares under Tenneco Stock Ownership
Plan. In the future, you will be eligible to receive awards under that plan
at the discretion of the Compensation and Benefits Committee of the Board
of Directors. You will also receive a one-time grant of 3,000 shares of
restricted stock, which will vest only upon retirement or other mutually
satisfactory separation from service.
<PAGE> 2
5. You will receive annual perquisite compensation of $20,000, according to
the new plan we are putting in place.
6. You will receive non-cash compensation and personal benefits comparable to
those currently provided to Tenneco executives under Tenneco's policy in
effect at the time hereof, including Health Care, Thrift Plan, Long-Term
Disability, and Life Insurance (the plan provides for coverage for one and
one-half times your salary paid for by the Company, with the option to
purchase at your expense up to five times your salary.)
7. The aggregate monthly pension benefits to which you and your surviving
spouse shall be entitled hereunder, shall be equal to the additional
benefits you and your surviving spouse would be entitled to under the
Tenneco qualified and non-qualified defined benefit pension plans EXCEPT
that the compensation used to compute your monthly pension shall include
your EICP bonus for the year earned (regardless of when paid) and EXCEPT
that final average compensation for the purpose of this supplement will be
determined over a three year rather than a five year period. You will
qualify for the additional benefits provided under this Section only if you
render five years of service with the Company in the period commencing
January 1, 1997.
8. If your employment is terminated other than 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 specify: (a) you will
be paid a severance benefit in an amount equal to one and one-half times
the total of your then-current base salary plus your bonus for the
immediately preceding year; (b) subject to Board approval, all outstanding
awards under the Tenneco Stock Ownership Plan may vest and/or become
exercisable on the date of your termination; and (e) vested stock options
you hold will remain exercisable for a period of not less than 90 days from
your termination.
9. If you resign voluntarily at any time you will not be entitled to any
benefits described in section 8 hereof.
Sincerely,
/s/ Barry R. Schuman
Barry R. Schuman
Senior Vice President, Human Resources
ACKNOWLEDGED AND ACCEPTED:
/s/ Richard P. Schneider
- -----------------------------------
On this 16th day of December, 1996.
<PAGE> 1
EXHIBIT 10.24
January 11, 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 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.
<PAGE> 2
Page 2
4. Performance Shares, Stock Options, Restricted Stock and Stock
Equivalent Units. At the time of Spin-off, you will be granted 75,000
performance shares under the Company's Stock Ownership Plan (the "Plan"),
subject to fulfillment of performance goals as determined by the Committee.
At the time of the Spin-off, you will be 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 become employed by the Company on such anniversary. The
grants described herein are without prejudice to your receipt of additional
grants as determined by the Board or the Committee under the Plan. The
number of shares set forth above with respect to the performance share and
stock option awards is after giving effect to the proposed one-for-five
reverse stock split. You are granted 150,000 stock equivalent units for the
year 2000. This grant is payable in January 2001.
5. Executive Benefit Plans. You will be a participant in all
employee benefit plans applicable to salaried employees generally and all
executive compensation structures applicable to senior executives.
6. Perquisite Allowance. You will receive an annual perquisites
allowance of $40,000 which you may receive in either cash, perquisites, or
a combination at your election.
7. Vacation. You will receive four weeks vacation per year.
8. Key Employee Pension Plan. You will retain your special benefit
under the Company's Supplemental Executive Retirement Plan (the "SERP").
You will be a participant in the Company's Key Employee Pension 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 your cash severance benefit under the Change
in Control Plan will be 3) times the total of your then base salary plus
your highest target bonus over the last 3 years of your employment and
provided further that all of your outstanding awards under the Plan,
referred to in Section 4 above, 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 defined in the Change in Control Plan.
<PAGE> 3
Page 3
10. Severance. If your employment is terminated other than 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 approval, all your
outstanding awards under the Company's Stock Ownership Plan 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.
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.
Please acknowledge your agreement of 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 B. Porter
------------------------------------
Its: Chairman - Compensation Committee
-----------------------------------
ACKNOWLEDGED AND ACCEPTED
/s/ Mark P. Frissora Date: 3/13/00
- ----------------------------- -----------------------------------
<PAGE> 1
EXHIBIT 12
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations.................. $(63) $116 $234 $ 82 $ 90
Add:
Interest................................................ 106 69 58 60 44
Portion of rentals representative of interest factor.... 11 10 10 12 11
Preferred stock dividend requirements of majority-owned
subsidiaries......................................... 22 27 21 21 23
Income tax expense and other taxes on income............ 82 13 80 79 91
Amortization of interest capitalized.................... -- -- -- -- --
Undistributed (earnings) losses of affiliated companies
in which less than a 50% voting interest is owned.... -- -- -- -- --
---- ---- ---- ---- ----
Earnings as defined............................. $158 $235 $403 $254 $259
==== ==== ==== ==== ====
Interest.................................................. $106 $ 69 $ 58 $ 60 $ 44
Interest capitalized...................................... -- -- -- -- --
Portion of rentals representative of interest factor...... 11 10 10 12 11
Preferred stock dividend requirements of majority-owned
subsidiaries on a pre-tax basis......................... 35 30 16 37 44
---- ---- ---- ---- ----
Fixed charges as defined........................ $152 $109 $ 84 $109 $ 99
==== ==== ==== ==== ====
Ratio of earnings to fixed charges........................ 1.04 2.16 4.80 2.33 2.62
==== ==== ==== ==== ====
</TABLE>
<PAGE> 1
EXHIBIT 21
TENNECO AUTOMOTIVE INC.
SUBSIDIARIES AND AFFILIATES
<TABLE>
<S> <C>
TENNECO AUTOMOTIVE INC. (DELAWARE)
Tenneco Automotive Operating Company Inc. ................................... 100%
Beijing Monroe Automobile Shock Absorber Company Ltd. (Peoples
Republic of China) ..................................................... 51
(Tenneco Automotive Operating Company Inc. owns 51%; and Beijing
Automotive Industry Corporation, an unaffiliated company, owns 49%)
Dalian Walker-Gillet Muffler Co. Ltd. (Peoples Republic of China) ........ 55
(Tenneco Automotive Operating Company Inc. owns 55%; and
non-affiliates own 45%)
McPherson Strut Company Inc. (Delaware) .................................. 100
Precision Modular Assembly Corp. (Delaware) .............................. 100
Shanghai Walker Exhaust Company, Ltd. (Peoples Republic of China) ........ 55
(Tenneco Automotive Operating Company Inc. owns 55%; and Shanghai
Tractor and Internal Combustion Engine Company, Ltd., an
unaffiliated company, owns 45%)
Tenneco Asheville Inc. (Delaware) ........................................ 100
Tenneco Asia Inc. (Delaware) ............................................. 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica) ........... 100
Tenneco Automotive Japan Ltd. (Japan) .................................... 100
Tenneco Automotive Nederlands BV. (Netherlands) .......................... 100
Tenneco Automotive RSA Company (Delaware) ................................ 100
Tenneco Automotive Trading Company (Delaware) ............................ 100
Tenneco Brake, Inc. (Delaware) ........................................... 100
Tenneco Europe Limited (Delaware) ........................................ 100
Wimetal S.A. (France) .................................................. <1
(Tenneco Europe Limited owns 1 share; Walker Limited owns 1
share; Walker France S.A. owns 99% and each of David Zerhusen,
Howard van Schoyck, Daniel Barth, Daniel Bellanger, Herman
Weltens and Theo Bonneu, affiliated persons, owns 1 share)
Tenneco International Finance Limited (United Kingdom) ................... 100
Tenneco International Holding Corp. (Delaware) ........................... 100
Monroe Australia Pty. Limited (Australia) .............................. 100
Monroe Springs (Australia) Pty. Ltd. (Australia) ..................... 100
Monroe Superannuation Pty. Ltd. (Australia) .......................... 100
Walker Australia Pty. Limited (Australia) ............................ 100
Tenneco Automotive Europe N.V. (Belgium) ............................... 100
Monroe Amortisor Imalat Ve Ticaret A.S. (Turkey) ..................... 99.85
(Tenneco Automotive Europe N.V. owns 99.85%; and various
unaffiliated individual stockholders own 0.15%)
Monroe Packaging N.V. (Belgium) ...................................... 99.9
(Tenneco Automotive Europe N.V. owns 99.9%; and Tenneco
Automotive France S.A. owns 0.1%)
Tenneco Automotive Europe Coordination Center N.V. (Belgium) ......... 99.9
(Tenneco Automotive Europe N.V. owns 99.9%; and Tenneco
Automotive France S.A. owns 0.1%)
</TABLE>
1
<PAGE> 2
TENNECO AUTOMOTIVE INC.
SUBSIDIARIES AND AFFILIATES
<TABLE>
<S> <C>
Subsidiaries of Tenneco Automotive Inc. (Delaware)
Subsidiaries of Tenneco Automotive Operating Company Inc. (Delaware)
Subsidiaries of Tenneco International Holding Corp. (Delaware)
Tenneco Automotive Italia Srl. (Italy) ......................................... 85 %
(Tenneco International Holding Corp. owns 85%; and Tenneco
Automotive France, S.A. owns 15%)
Tenneco Automotive Polska Sp. z.O.O. (Poland) .................................. 1
(Tenneco International Holding Corp. owns 1%; and Tenneco Global Holdings
Inc. owns 99%)
Tenneco Romania Srl (Romania) ................................................. 0.14
(Tenneco International Holding Corp. owns 0.14%; and Tenneco Global
Holdings Inc. owns 99.86%)
Tenneco Automotive Sverige A.B. (Sweden) ....................................... 100
Tenneco Canada Inc. (Ontario) .................................................. 100
Tenneco Global Holdings Inc. (Delaware) ........................................ 100
Fric-Rot S.A.I.C. (Argentina) ................................................ 55
(Tenneco Global Holdings Inc. owns 55%; Maco Inversiones S.A ...............
owns 44.85%; and unaffiliated parties own .15%)
Maco Inversiones S.A. (Argentina) ............................................ 100
Fric-Rot S.A.I.C. (Argentina) .............................................. 44.85
(Maco Inversiones S.A. owns 44.85%; Tenneco Global Holdings
Inc. owns 55%; and unaffiliated parties own .15%)
Monroe Springs (New Zealand) Pty. Ltd. (New Zealand) ......................... 100
Monroe Czechia s.r.o. (Czech Republic) ....................................... 100
Tenneco Automotive Iberica, S.A. (Spain) ..................................... 100
Tenneco Automotive Polska Sp. z.O.O. (Poland) ................................ 99
(Tenneco Global Holding's Inc. owns 99%; and Tenneco International
Holding Corp. owns 1%)
Tenneco Romania Srl (Romania) ................................................ 99.86
(Tenneco Global Holdings Inc. owns 99.86%; and Tenneco International
Holding Corp. owns 0.14%)
Tenneco Mauritius Limited (Mauritius) ........................................ 100
Hydraulics Limited (India) ................................................. 51
(Tenneco Mauritius Limited owns 51% and Bangalore Union
Services Limited, an unaffiliated company, owns 49%) Renowned
Automotive Products Manufacturers Ltd. (India) ........................... 83
(Hydraulics Limited owns 83%; and non-affiliates own 17%)
Tenneco Automotive India Private Limited (India) ........................... 100
Walker Exhaust India Private Limited (India) ............................. <100
(Tenneco Automotive India Private Limited owns less than
100%; and an unaffiliated party owns the balance)
Tenneco Holdings Danmark A/S (Denmark) ......................................... 100
Gillet Exhaust Technologie (Proprietary) Limited (South Africa) .............. 100
Gillet Lazne Belohrad, s.r.o. (Czech Republic) ............................... 100
</TABLE>
<PAGE> 3
TENNECO AUTOMOTIVE INC.
SUBSIDIARIES AND AFFILIATES
<TABLE>
<S> <C>
SUBSIDIARIES OF TENNECO AUTOMOTIVE INC. (DELAWARE)
SUBSIDIARIES OF TENNECO AUTOMOTIVE OPERATING COMPANY INC. (DELAWARE)
SUBSIDIARIES OF TENNECO INTERNATIONAL HOLDING CORP. (DELAWARE)
SUBSIDIARIES OF TENNECO HOLDINGS DANMARK A/S (DENMARK)
Kinetic Ltd. (Australia)............................................. >99 %
(Tenneco Holdings Danmark A/S owns 99%+; and unaffiliated
entities own less than 1%) ........................................ 51
Tenneco Automotive Holdings South Africa Pty. Ltd. (South Africa)
(Tenneco Holdings Danmark A/S owns 51%; and an unaffiliated
party owns 49%)
Armstrong Hydraulics South Africa (Pty.) Ltd. (South Africa) ...... 100
Armstrong Properties (Pty.) Ltd. (South Africa) ................... 100
Monroe Manufacturing (Pty.) Ltd. (South Africa) ................... 100
Smiths Industrial (SWA) (Pty.) Ltd. (South Africa) ................ 100
Tenneco Automotive Port Elizabeth (Proprietary) Limited
(South Africa) .................................................... 100
Tenneco Automotive Portugal-Componentes para Automovel, S.A.
(Portugal) ........................................................ 100
Walker Danmark A/S (Denmark) ........................................ 100
Tenneco Automotive France S.A. (France) ............................... 100
(Tenneco International Holding Corp. owns 470,371 shares; Daniel
Bellanger owns 16 shares; Robert Bellanger owns 8 shares; and each
of Walker Europe, Inc., Alain Bellanger, Theodore Bonneu, Roy
Kolotylo and David Zerhusen owns 1 share)
Gillet Tubes Technologies G.T.T. (France) .......... ................ 100
Monroe Packaging N.V. (Belgium) ..................................... 0.1
(Tenneco Automotive Europe N.V. owns 99.9%; and Tenneco
Automotive France S.A. owns 0.1%)
Tenneco Automotive Europe Coordination Center N.V. (Belgium) ........ 0.1
(Tenneco Automotive Europe N.V. owns 99.9%; and Tenneco
Automotive France S.A owns 0.1%)
Tenneco Automotive Italia S.r.l. (Italy) . .......................... 15
(Tenneco International Holding Corp. owns 85%; and Tenneco
Automotive France S.A. owns 15%)
Walker France Constructeurs S.A.R.L. (France) ....................... 100
Wimetal S.A. (France) ............................................... 99
(Tenneco Automotive France S.A. owns 99%; Tenneco Europe
Limited owns 1 share, Walker Limited owns 1 share; and each
of David Zerhusen, Howard van Schoyck, Daniel Barth, Daniel
Bellanger, Herman Weltens and Theo Bonneu, affiliated persons,
owns 1 share)
The Pullman Company (Delaware) ........................................... 100
Autopartes Walker S.A. de C.V. (Mexico) ................................ 100
Consorcio Terranova S.A. de C.V. (Mexico) ............................ 99.99
(Autopartes Walker S.A. de C.V, owns 99.99%; and Josan
Latinamericana S.A. de C.V., an unaffiliated company, owns 0.01%)
</TABLE>
<PAGE> 4
TENNECO AUTOMOTIVE INC.
SUBSIDIARIES AND AFFILIATES
<TABLE>
<S> <C>
SUBSIDIARIES OF TENNECO AUTOMOTIVE INC. (DELAWARE)
SUBSIDIARIES OF TENNECO AUTOMOTIVE OPERATING COMPANY INC. (DELAWARE)
SUBSIDIARIES OF THE PULLMAN COMPANY (DELAWARE)
SUBSIDIARIES OF AUTOPARTES WALKER S.A. DE C. V. (MEXICO)
Monroe-Mexico S.A. de C.V. (Mexico) .......................................... 100%
Tenneco Automotive Servicios de Mexico, S.A. de C.V. (Mexico) .............. 0.01
(Monroe-Mexico, S.A. de C.V. owns 1 share; and Proveedora
Walker S. de R.L. de C.V, owns 49,999 shares)
Proveedora Walker S. de R.L. de C.V. (Mexico) ................................ 99.99
(Autopartes Walker S.A. de C.V. owns 99.99%; and Pullmex S. de
R.L. de C.V. owns .01%)
Pullmex S. de R.L. de C.V. (Mexico) ........................................ 0.01
(Proveedora Walker S. de R.L. de C.V. owns 0.01% and
Autopartes Walker S.A. de C.V. owns 99.99%)
Tenneco Automotive Servicios de Mexico, S.A. de C.V. (Mexico) .............. 99.99
(Proveedora Walker S. de R.L. de C.V. owns 49,999 shares, and
Monroe-Mexico, S.A. de C.V. owns 1 share)
Pullmex S. de R.L. de C.V. (Mexico) .......................................... 99.99
(Autopartes Walker S.A. de C.V. owns 99.9%; and Proveedora
Walker S. de R.L. de C.V. owns 0.1%)
Proveedora Walker S. de R.L. de C.V. (Mexico) .............................. 0.01
(Pullmex S. de R.L. de C.V. owns 0.01%; and Autopartes
Walker S.A. de C.V. owns 99.99%)
Clevite Industries Inc. (Delaware) ............................................. 100
Peabody International Corporation (Delaware) ................................... 100
Barasset Corporation (Ohio) ....... .......................................... 100
Peabody Galion Corporation (Delaware) ........................................ 100
Peabody Gordon-Piatt, Inc. (Delaware) ........................................ 100
Peabody N.E., Inc. (Delaware) ................................................ 100
Peabody World Trade Corporation (Delaware) ................................... 100
Peabody-Myers Corporation (Illinois) ............ ............................ 100
Pullman Canada Ltd. (Canada) ....... ......................................... 61
(Peabody International Corporation owns 61%; and The Pullman
Company owns 39%)
Pullman Canada Ltd. (Canada) ................................................... 39
(The Pullman Company owns 39%; and Peabody International
Corporation owns 61%)
Pullman Standard Inc. (Delaware) ............................................... 100
Tenneco Brazil Ltda. (Brazil) .................................................. 100
Tenneco Automotive Brasil Ltda. (Brazil) ..................................... 100
Thompson and Stammers Dunmow (Number 6) Limited (United Kingdom) ................. 100
Thompson and Stammers Dunmow (Number 7) Limited (United Kingdom) ................. 100
TMC Texas Inc. (Delaware) ........................................................ 100
Walker Electronic Silencing Inc. (Delaware) ...................................... 100
Walker Europe, Inc. (Delaware) ................................................... 100
</TABLE>
<PAGE> 5
TENNECO AUTOMOTIVE INC.
SUBSIDIARIES AND AFFILIATES
<TABLE>
<S> <C>
Subsidiaries of Tenneco Automotive Inc. (Delaware)
Subsidiaries of Tenneco Automotive Operating Company Inc. (Delaware)
Subsidiaries of Walker Europe, Inc, (Delaware)
Tenneco Automotive France S.A. (France) ........................................ <1 %
(Tenneco International Holding Corp. owns 470,371 shares; Daniel
Bellenger owns 16 shares; Robert Bellanger owns 8 shares; and
each of Walker Europe, Inc., Alain Bellanger, Theodore Bonneu, Roy
Kolotylo and David Zerhusen owns 1 share)
Walker Limited (United Kingdom) .................................................. 100
Gillet Torsmaskiner UK Limited (United Kingdom) ................................ 50
(Walker Limited owns 100 A Ordinary Shares, 50% of total equity; and
AB Torsmaskiner, an unaffiliated company, owns 100 B Ordinary Shares,
50% of total equity)
Exhaust Systems Technology Limited (United Kingdom) .......................... 99.99
(Gillet Torsmaskiner UK Limited owns 99.99%; and Heinrich
Gillet GmbH & Co. owns .01%)
Tenneco Automotive UK Limited (United Kingdom) ................................. 100
Gillet Exhaust Manufacturing Limited (United Kingdom) ........................ 100
Gillet Pressings Cardiff Limited (United Kingdom) ............................ 100
Walker (UK) Limited (United Kingdom) ......................................... 100
J.W. Hartley (Motor Trade) Limited (United Kingdom) ........................ 100
Tenneco - Walker (U.K.) Ltd. (United Kingdom) .............................. 100
Tenneco Management (Europe) Limited (United Kingdom) ........................... 100
Wimetal S. A. (France) ......................................................... <1
(Walker Limited owns 1 share; Tenneco Europe Limited owns 1 share;
Tenneco Automotive France S.A. owns 99%; and each of David Zerhusen,
Howard van Schoyck, Daniel Barth, Daniel Bellanger, Herman Weltens
and Theo Bonneu, affiliated persons, owns 1 share)
Walker Manufacturing Company (Delaware) .......................................... 100
Ced's Inc. (Illinois) .......................................................... 100
Walker Norge A/S (Norway) ........................................................ 100
Tenneco Deutschland Holdinggesellschaft mbH (Germany) .............................. 99.97
(Tenneco Automotive Inc. owns 99.97%; and Atlas Vermoegensverwaltung, an
unaffiliated company, owns 0.03%)
GILLET Unternehmesverwaltungs GmbH (Germany) ..................................... 100
Heinrich Gillet GmbH & Co. KG (Germany) ........................................ 0.1
(GILLET Unternehmesverwaltungs GmbH owns 0.1% and Tenneco
Deutschland Holdinggesellschaft mbH owns 99.9%. The subsidiaries of
Heinrich Gillet GmbH & Co. KG are listed below.)
Heinrich Gillet GmbH & Co. KG (Germany) .......................................... 99.9
(Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%; and
GILLET Unternehemesverwaltungs GmbH owns 0.1%)
ELGIRA Montagebetrieb fur Abgasanlagen Rastatt GmbH (Germany) .................. 50
(Heinrich Gillet GmbH & Co. KG owns 50%; and an unaffiliated
party owns 50%)
</TABLE>
<PAGE> 6
TENNECO AUTOMOTIVE INC.
SUBSIDIARIES AND AFFILIATES
<TABLE>
<S> <C>
Subsidiaries of Tenneco Automotive Inc., (Delaware)
Subsidiaries of Tenneco Deutschland Holdinggesellschaft mbH (Germany)
Subsidiaries of Heinrich Gillet GmbH & Co. KG (Germany)
Exhaust Systems Technology Limited (United Kingdom) ................................. 0.01%
(Heinrich Gillet GmbH & Co. KG owns 0.01%; and Gillet Torsmaskiner
UK Limited owns 99.99%)
Gillet-Abgassysteme Zickau Gmbh (Germany) ........................................... 100
Elagest AB (Sweden) .... .......................................................... 50
(Gillet-Abgassysteme Zickau GmbH owns 50%; and an
unaffiliated party owns 50%)
Mastra-Gillet Industria e Comercio Ltda. (Brazil) ................................... 50
(Heinrich Gillet GmbH & Co. KG owns 50%; and Mastra Industria e
Comercio Ltda., an unaffiliated company, owns 50%)
Montagewerk Abgastechnik Emden GmbH (Germany ........................................ 50
(Heinrich Gillet GmbH & Co. KG owns 50%; and an unaffiliated
party owns 50%)
Tenneco Automotive Deutschland GmbH (Germany) ......................................... 100
WALKER GILLET (Europe) GmbH (Germany) ................................................. 100
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 24, 2000, included in the Annual Report on
Form 10-K of Tenneco Automotive Inc., formerly known as Tenneco Inc.
("Tenneco"), for the year ended December 31, 1999, into the following
Registration Statements previously filed with the Securities and Exchange
Commission:
<TABLE>
<CAPTION>
REGISTRATION NO. FORM SECURITIES REGISTERED
---------------- ---- ---------------------
<S> <C> <C>
333-24291 S-3 $700,000,000 Tenneco debt securities of which
$100,000,000 remains available for issuance.
333-17485 S-8 17,000,000 shares of Common Stock, par value $.01 per
share of Tenneco ("Common Stock") issuable under the 1996
Tenneco Inc. Stock Ownership Plan (now known as the Tenneco
Automotive Inc. Stock Ownership Plan).
333-30933 S-8 5,000 shares of Common Stock issuable under the Tenneco
Thrift Plan for Hourly Employees ("Hourly Thrift Plan")
and the Tenneco Thrift Plan ("Salaried Thrift Plan").
333-17487 S-8 462,000 shares of Common Stock issuable under the Hourly
Thrift Plan and the Salaried Thrift Plan.
333-41535 S-8 33,796 shares of Common Stock issuable under the 1996
Tenneco Inc. Stock Ownership Plan (now known as the Tenneco
Automotive Inc. Stock Ownership Plan).
333-27279 S-8 64,000 shares of Common Stock issuable under the Hourly
Thrift Plan.
333-23249 S-8 2,500,000 shares of Common Stock issuable under the 1997
Employee Stock Purchase Plan.
333-27281 S-8 395,000 shares of Common Stock issuable under the Hourly
Thrift Plan and Salaried Thrift Plan.
333-41537 S-8 2,100 shares of Common Stock issuable under the Hourly
Thrift Plan.
333-48777 S-8 710,000 shares of Common Stock issuable under the Hourly
Thrift Plan and the Salaried Thrift Plan.
333-76261 S-8 740,000 shares of Common Stock issuable under the Hourly
Thrift Plan and the Salaried Thrift Plan.
</TABLE>
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 22, 2000
<PAGE> 1
EXHIBIT 24
TENNECO AUTOMOTIVE INC.
POWER OF ATTORNEY
The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum
and Kenneth R. Trammell, and each of them, with full power to act alone, as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the Annual Report on Form 10-K for the year ended
December 31, 1999 of Tenneco Automotive Inc. ("Tenneco"), including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purchases as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any one of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument this
16th day of March, 2000.
/s/ DAVID B. PRICE, JR.
--------------------------------------
Name: David B. Price, Jr.
<PAGE> 2
TENNECO AUTOMOTIVE INC.
POWER OF ATTORNEY
The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum
and Kenneth R. Trammell, and each of them, with full power to act alone, as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the Annual Report on Form 10-K for the year ended
December 31, 1999 of Tenneco Automotive Inc. ("Tenneco"), including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purchases as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any one of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument this
16th day of March, 2000.
/s/ DANA G. MEAD
--------------------------------------
Name: Dana G. Mead
<PAGE> 3
TENNECO AUTOMOTIVE INC.
POWER OF ATTORNEY
The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum
and Kenneth R. Trammell, and each of them, with full power to act alone, as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the Annual Report on Form 10-K for the year ended
December 31, 1999 of Tenneco Automotive Inc. ("Tenneco"), including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purchases as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any one of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument this
16th day of March, 2000.
/s/ MARK P. FRISSORA
--------------------------------------
Name: Mark P. Frissora
<PAGE> 4
TENNECO AUTOMOTIVE INC.
POWER OF ATTORNEY
The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum
and Kenneth R. Trammell, and each of them, with full power to act alone, as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the Annual Report on Form 10-K for the year ended
December 31, 1999 of Tenneco Automotive Inc. ("Tenneco"), including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purchases as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any one of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument this
16th day of March, 2000.
/s/ M. KATHRYN EICKHOFF
--------------------------------------
Name: M. Kathryn Eickhoff
<PAGE> 5
TENNECO AUTOMOTIVE INC.
POWER OF ATTORNEY
The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum
and Kenneth R. Trammell, and each of them, with full power to act alone, as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the Annual Report on Form 10-K for the year ended
December 31, 1999 of Tenneco Automotive Inc. ("Tenneco"), including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purchases as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any one of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument this
16th day of March, 2000.
/s/ ROGER B. PORTER
--------------------------------------
Name: Roger B. Porter
<PAGE> 6
TENNECO AUTOMOTIVE INC.
POWER OF ATTORNEY
The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum
and Kenneth R. Trammell, and each of them, with full power to act alone, as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the Annual Report on Form 10-K for the year ended
December 31, 1999 of Tenneco Automotive Inc. ("Tenneco"), including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purchases as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any one of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument this
16th day of March, 2000.
/s/ DAVID PLASTOW
--------------------------------------
Name: Sir David Plastow
<PAGE> 7
TENNECO AUTOMOTIVE INC.
POWER OF ATTORNEY
The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum
and Kenneth R. Trammell, and each of them, with full power to act alone, as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the Annual Report on Form 10-K for the year ended
December 31, 1999 of Tenneco Automotive Inc. ("Tenneco"), including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purchases as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any one of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument this
15th day of March, 2000.
/s/ PAUL T. STECKO
--------------------------------------
Name: Paul T. Stecko
<PAGE> 8
TENNECO AUTOMOTIVE INC.
POWER OF ATTORNEY
The undersigned does hereby appoint Timothy R. Donovan, Mark A. McCollum
and Kenneth R. Trammell, and each of them, with full power to act alone, as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the Annual Report on Form 10-K for the year ended
December 31, 1999 of Tenneco Automotive Inc. ("Tenneco"), including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purchases as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any one of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument this
16th day of March, 2000.
/s/ MARK ANDREWS
--------------------------------------
Name: Mark Andrews
<PAGE> 9
TENNECO AUTOMOTIVE INC.
POWER OF ATTORNEY
The undersigned does hereby appoint Timothy R. Donovan and Mark A.
McCollum, and each of them, with full power to act alone, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the Annual Report on Form 10-K for the year ended
December 31, 1999 of Tenneco Automotive Inc. ("Tenneco"), including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purchases as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any one of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument this
16th day of March, 2000.
/s/ KENNETH R. TRAMMELL
--------------------------------------
Name: Kenneth R. Trammell
<PAGE> 10
TENNECO AUTOMOTIVE INC.
POWER OF ATTORNEY
The undersigned does hereby appoint Timothy R. Donovan and Kenneth R.
Trammell, and each of them, with full power to act alone, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the Annual Report on Form 10-K for the year ended
December 31, 1999 of Tenneco Automotive Inc. ("Tenneco"), including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purchases as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any one of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument this
16th day of March, 2000.
/s/ MARK A. MCCOLLUM
--------------------------------------
Name: Mark A. McCollum
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TENNECO
AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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
</LEGEND>
<MULTIPLIER> 1,000,000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 29
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<ALLOWANCES> 0
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<TABLE> <S> <C>
<ARTICLE> 5 <LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TENNECO
AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 29
<SECURITIES> 0
<RECEIVABLES> 402
<ALLOWANCES> 0
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<BONDS> 713
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<TOTAL-COSTS> 2,337
<OTHER-EXPENSES> 531
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
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