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    500 North Field Drive THE POWER OF TENNECO AUTOMOTIVE INC. Lake Forest, Illinois 60045 tenneco-automotive.com NYSE:TEN TEN 2 0 0 3 A N N U A L R E P O RT TENNECO AUTOMOTIVE INC. Corporate Profile Mission Values 2 0 0 3 A N N U A L R E P O RT Teamwork Tenneco Automotive is Tenneco Automotive’s Seamless collaboration one of the world’s largest mission is to delight our Integrity designers, manufacturers customers as the number- Being honest, fair and never and marketers of emission one technology-driven, compromising our ethics control and ride control global manufacturer Trust products and systems for and marketer of value- Relying on and having faith in one another the automotive original differentiated ride control, equipment market and emission control and Passion and a Sense of Urgency A consuming desire to win now aftermarket. The company elastomer products and Balance became an independent systems. We will strengthen Promoting a balanced perspective in corporation in 1999, our leading position everything we do THE POWER OF TEN allowing singular focus through a shared-value Accountability on strategies to maximize culture of employee Accepting responsibility for our actions global results. involvement, where an Continuous Improvement intense focus on Relentless focus on achieving more Tenneco Automotive with less continued improvement markets its products princi- delivers shareholder value ED Execution and Discipline pally under the Monroe®, in everything we do. Walker®, Gillet®, and Clevite® Elastomer brand names. Leading manufac- Contents turers worldwide use our Gatefold Tenneco at a Glance products in their vehicles, 1 Financial Highlights attracted principally by our 2 Chairman’s Letter groundbreaking advanced 5 Operations Review technologies. We are one of the top suppliers to the 6 North America automotive aftermarket, 10 Europe offering exceptionally 13 Australia and South America strong brand recognition 14 Asia among consumers and 16 Board of Directors trade personnel. and Officers 17 10K Tenneco Automotive employs approximately Back Investor Information 19,200 people worldwide.

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    TENNECO AUTOMOTIVE Original Equipment OPERATIONS 2003 SALES MARKETS SERVED PRODUCTS BRANDS COMPETITORS KEY ADVANTAGES TOP FIVE CUSTOMERS TOP FIVE PLATFORMS 2003 MARKET OPPORTUNITIES ■ Passenger cars ■ Complete exhaust systems ■ ArvinMeritor Emission and Ride Control ■ General Motors ■ GM Envoy/Bravada/Trailblazer ■ Additional content due Emission Control $2,037 million ■ Light trucks ■ Fabricated manifolds ■ Faurecia ■ Leading technologies ■ Ford ■ GM Silverado/Suburban/ to emission regulations ■ ■ Commercial vehicles Industrial applications ■ ■ Manifold-converter modules Catalytic converters ■ ■ Visteon Delphi ■ Experienced team ■ Product/process quality ■ ■ Volkswagen DaimlerChrysler ■ Yukon XL/Escalade/Tahoe VW Bora/Golf/Leon/Jetta ■ ■ Diesel aftertreatment Customized sound attenuation Investor Information Investor Inquiries Securities analysts, portfolio managers Dividends The company expects that for the ■ Motorbikes ■ Mufflers and resonators ■ Eberspächer ■ Global program ■ PSA Peugeot/Citroen ■ GM Opel Corsa/Chevrolet Corsa ■ Demand for diesel/ and representatives of financial insti- foreseeable future it will follow a Dodge Ram Pickup Corporate Headquarters ■ Diesel particulate filter systems management ■ hybrid/fuel cell Tenneco Automotive Inc. tutions seeking information about the policy of retaining earnings in order ■ NOx abatement systems ■ Japanese alliances ■ Emerging markets ■ Exhaust heat exchangers ■ Joint ventures in China, ■ Commercial vehicle segment 500 North Field Drive company should contact the Investor to finance the continued development ■ Exhaust isolators & hanging systems India, Thailand, and U.K. Lake Forest, Illinois 60045 Relations department: 847.482.5042. of its business. Additional information ■ Customer relationships 847.482.5000 on the company’s dividend policy and Ride Control $800 million ■ Passenger cars ■ Shocks & struts ■ ArvinMeritor ■ Broad product range ■ Ford ■ GM Silverado/Suburban/ ■ Vehicle stability/ ■ Light trucks ■ Suspension bushings ■ Delphi ■ Full service supplier ■ General Motors Yukon XL/Escalade/Tahoe safety requirements Stockholder Inquiries restrictions on the payment of divi- ■ Commercial vehicles ■ Coil, air & leaf springs ■ Tokico ■ Just In Time (JIT) ■ Volkswagen ■ DaimlerChrysler Town&Country/ ■ Modular assembly Web Site For stockholder services such as ex- dends can be found in Management’s ■ Golf carts ■ Torque rods ■ ZF Sachs assembly ■ DaimlerChrysler Voyager/Caravan ■ New technologies www.tenneco-automotive.com change of certificates, issuance of Discussion and Analysis in the Annual ■ Off-road recreational ■ Engine/body mounts ■ Kayaba ■ Nissan ■ VW Golf/Toledo ■ Adjacent markets certificates, lost certificates, change of Report on Form 10-K for the year ■ Rail cars ■ Suspension modules/systems ■ DaimlerChrysler Sebring/Stratus ■ Electronic technologies ■ Control arms/bars/links ■ Ford F-Series Super-Duty Corporate Information address, change in registered owner- ended December 31, 2003. Individuals interested in receiving the ship or share balance, write, call or company’s latest quarterly earnings e-mail the company’s transfer agent: Annual Meeting Aftermarket press release or other company Wachovia Bank, N.A. The Annual Meeting of Stockholders will be held at 10:00 a.m. Central Time OPERATIONS 2003 SALES MARKETS SERVED PRODUCTS BRANDS COMPETITORS KEY ADVANTAGES TOP FIVE CUSTOMERS LEADING PRODUCTS MARKET OPPORTUNITIES literature should write the Investor Relations Department at the corporate Equity Services Group on Tuesday, May 11, 2004, at Tenneco Emission Control $350 million ■ Passenger cars ■ Manifolds ■ ArvinMeritor Emission and Ride Control ■ NAPA ■ Quiet-Flow3® Mufflers/ ■ Growing number of headquarters address or call 1525 West W.T. Harris Blvd., 3C3 Automotive’s headquarters, 500 North ■ Light trucks ■ Mufflers ■ OE Service ■ Brand dominance ■ Automotive Distribution Assemblies vehicles on the road 847.482.5042. Charlotte, NC 28288-1153 Field Drive, Lake Forest, Illinois. ■ Commercial vehicles ■ Pipes ■ Bosal ■ Relationships with International (ADI) ■ Dynomax® Ultra-Flo Stainless/ ■ OE Service 866.839.3259 Toll Free ■ Performance vehicles ■ Tubing ■ Faurecia all major wholesale ■ TEMOT Autoteile Welded Mufflers/Systems ■ New technologies 704.427.2602 ■ Mounting components ■ Goerlich’s Exhaust distributors/retailers ■ Advance Auto Parts ■ DNX™ performance ■ Emission regulations Information about Tenneco ■ Catalytic converters Systems ■ Global presence ■ Independent Motor exhaust systems ■ Performance product demand Automotive is also available on the ■ Performance mufflers ■ Leading market shares Trade Factors Association ■ SoundFX™ mufflers company’s web site.† www.wachovia.com/shareholder- ■ Product innovation (IFA) ■ Clean Air™ catalytic converters services ■ Product quality Ride Control $579 million ■ Passenger cars ■ Shocks ■ ArvinMeritor ■ Extensive product and ■ NAPA ■ Reflex® shocks & struts ■ Growing number of Stock Listing Click on “Access Accounts” ■ Light trucks ■ Struts ■ OE Service vehicle coverage ■ TEMOT Autoteile ■ Sensa-Trac® shocks & struts vehicles on the road Tenneco Automotive’s common stock Click on “FirstLink Equity” ■ Commercial vehicles ■ Cartridges ■ ZF Sachs ■ Targeted marketing ■ Advance Auto Parts ■ Rancho® shocks, struts and ■ OE Service is listed under the ticker symbol TEN. ■ Trailers ■ Mounting kits ■ Kayaba programs ■ O’Reilly Auto Parts suspension lift kits ■ New technologies ■ Performance shocks ■ Introduction of ■ ADI ■ Gas-Magnum® shocks ■ Unperformed maintenance ■ Torque rods service parts ■ DNX™ performance shocks ■ Premium mix expansion TEN is traded primarily on the ■ Suspension bushings and struts ■ Broader product coverage New York Stock Exchange and also ■ Engine mounts ■ Monro-Matic Plus® shocks ■ Heavy-duty truck penetration on the following exchanges: Chicago, ■ DuPont™ car care line ■ Safety/installer education ■ Testing/diagnostic equipment Pacific and London. Stock Price Data 2004 2003 2002 As of February 23, 2004, there were Sales Prices Sales Prices Sales Prices 2003 2002 2003 Sales 2003 EBIT* Broad Product Line Mix Exhaust Management Suspension Management People: Approx. 19,200 approximately 48,841 holders of record Emission Control Ride Control Elastomer of the company’s common stock, par High Low High Low High Low Revenues (millions) $3,766 $3,459 Manufacturing & Just-In-Time Facilities: 72 value $0.01 per share. First Quarter* $14.88 $6.73 $ 4.32 $ 2.01 $ 4.10 $ 1.90 Emission Control/ Ride Control Balance† 63/37 65/35 Engineering Centers: 14 Second Quarter $ 4.65 $ 2.25 $ 6.75 $ 3.82 Original Equipment/ Countries Served: 130 Third Quarter $ 7.45 $ 3.61 $ 8.32 $ 3.50 Aftermarket Balance† 75/25 74/26 Fourth Quarter $ 7.32 $ 4.66 $ 5.97 $ 3.28 †percentage of sales * EBIT is income before interest North America 50% North America 74% Cold End 58% Shocks & Springs 61% Other Suspension Europe 38% Europe 8% expense, taxes, and minority Hot End 42% Struts 32% Components 53% interest. † The information on our web site is not part * 2004 First Quarter through March 4, 2004 Rest of World 12% Rest of World 18% Modules & Systems 7% Bushings 47% of this annual report

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    2003 2002 2001 2000 Financial Highlights (dollars in millions except share and per share data) Sales $ 3,766 $ 3,459 $ 3,364 $ 3,528 Earnings before interest and taxes $ 176 $ 169 $ 92 $ 120 Depreciation and amortization $ 163 $ 144 $ 153 $ 151 EBITDA* $ 339 $ 313 $ 245 $ 271 Net income (loss) before change in accounting principle $ 27 $ 31 $ (130) $ (42) Earnings (loss) per share before change in accounting principle $ 0.65 $ 0.74 $ (3.43) $ (1.20) Capital expenditures $ 130 $ 138 $ 127 $ 146 Average diluted shares outstanding 41,767,959 41,667,815 38,001,248 34,906,825 Total debt $ 1,430 $ 1,445 $ 1,515 $ 1,527 Cash and cash equivalents $ 145 $ 54 $ 53 $ 35 Debt, net of cash balances $ 1,285 $ 1,391 $ 1,462 $ 1,492 *EBITDA represents income from continuing operations before cumulative effect of change in accounting principle, interest expense, income taxes, minority interest and depreciation and amortization. EBITDA is not a calculation based upon generally accepted accounting principles. The amounts included in the EBITDA calculation, however, are derived from amounts included in the historical statements of income data. In addition, EBITDA should not be considered as an alternative to net income or operating income as an indicator of our performance, or as an alternative to operating cash flows as a measure of liquidity. We have reported EBITDA because we believe EBITDA is a measure commonly reported and widely used by investors and other interested parties as an indicator of a company’s performance. We believe EBITDA assists investors in compar- ing a company’s performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon many factors. However, the EBITDA measure presented in this document may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation. Cash Flow † SGA&E Expense†† Working Capital† $ in millions Percentage of sales Percentage of sales $315 17.0% $281 15.6% $253 14.0% 12.5% $209 12.1% 11.4% 10.1% $169 6.0% 3.6% 2.3% 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 †See 2003 Form 10K Item 6 for reconciliation to GAAP reporting measure. ††Selling, general and administrative expense plus engineering, research and development expense. 1

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    Mark P. Frissora Chairman and Chief Executive Officer To Our Shareholders For Tenneco Automotive, Adhering to this 2003 was the most strategic focus, in 2003 successful year since we achieved: becoming a stand-alone ■ A new high in revenues of $3.8 billion, up 9 percent over 2002. company. Revenue, ■ The most new business booked profitability, new business in a single year. and debt reduction were ■ Our highest revenue per employee all at record performance at $196,771. levels. This progress reflects ■ A new low of 11.4 percent of sales our continued focus on a for overhead expenses. core strategy of generating ■ Our highest operating income of $176 million, a 4 percent year-over- cash to pay down debt year increase. by strengthening business ■ A two-phased debt refinancing that relationships, controlling improved flexibility and liquidity. costs, lowering working ■ Our lowest level of debt net of cash capital and improving balances at $1.285 billion. gross margins. ■ More than $154 million in cash flow before financing activities due to a 16 percent improvement in cash flow from working capital. ■ The highest increase in enterprise value —the market value of our debt and equity—at 34 percent. 2

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    As we pursue the strategies that unit to concentrate on heavy duty and New Aftermarket Products generated this success, we are focusing other commercial vehicles worldwide, We have a new aftermarket strategy on investments in proprietary technolo- which should allow us to capture an to introduce service parts to our gies for growth markets, increasing expanded share of this growing core offering of shocks, mufflers the variability of our cost structure segment. and associated “hard parts.” Service and improving our financial flexibility. parts are parts on a vehicle that are Number One in China serviced regularly—like windshield Investments in Growth Our early investments in China and wipers, filters and brakes. Higher Global Emission Standards the forging of effective joint ventures Require Advanced Technology have made us the country’s leading In December, we signed an exclusive Environmental regulators are tightening OE emission control supplier. China’s licensing agreement with DuPont emission standards around the world, economy leads the world in growth to market a line of premium car care increasing the value of emission control as passenger car production rose products in North America. The line, content per vehicle. We have invested 55 percent in 2003 over the previous including car washes and waxes, in technologies that meet more year. Production is expected to increase capitalizes on DuPont’s valuable Teflon® stringent requirements such as our about 10 percent annually through the brand name. Our investment in this diesel particulate filter, DeNOx converter decade, which would make China the high-margin product line is minimal and lightweight fabricated manifolds. world’s second largest vehicle market in as we outsource manufacturing, while These cutting-edge products, in demand 2010. Our revenues in China have leveraging our distribution channels. by PSA, Audi, Mercedes Benz and other increased at a compounded annual We expect to introduce additional automakers, command higher margins. growth rate of 60 percent since 1998. service parts in the next year in both North America and Europe. Commercial Truck Recovery Suits Targeting Japanese OEMs Established Capability Japanese original equipment manufac- Variable Cost Structure The estimated 25 percent increase in turers (OEMs) have sharply increased We are implementing a number commercial vehicle production projected their share of the North American auto- of measures to increase the variability for 2004 would mark a turnaround, motive market. Through alliances with of our cost structure, including driven by improvement in general Futaba and Tokico, leading Japanese outsourcing non-core production economic conditions and higher freight emission control and ride control processes and select services to volumes. Progressively tighter emission suppliers, we have strengthened our manufacturers or regions of the world regulations affecting heavy-duty trucks relationships with these producers. We that can render them most efficiently. will take effect throughout the decade, are the only North American supplier in These actions will give us the flexibility increasing the size of the global our business segments to work with all to respond faster and more effectively commercial truck exhaust market for of the Japanese Big Three —Toyota, to changes in the marketplace. the products we offer to an estimated Honda and Nissan — and have raised $2.3 billion in 2010 from $173 million the share of our North America OEM in 2003. Our technology investments, revenues from Japanese automakers developed for light trucks, are transfer- to 18 percent at 2003 year-end from able to the medium- and heavy-truck 14 percent at the close of 2002. market. We have formed a new business 3

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    We are expanding our use of Six Sigma by expanding more of our operations The continued success of Tenneco and employing Lean manufacturing and to Eastern Europe. We now operate Automotive ultimately will be driven other initiatives to improve our produc- six facilities in Poland, Russia and the by uncompromising integrity —in the tion capability, streamline operations and Czech Republic and these plants way we deal with our customers, reduce costs. were responsible for most of the 2003 manage our employees and report ■ Six Sigma generated $27 million in launches in Europe. to our stakeholders —and a corporate cost savings in 2003 by reducing culture committed to world-class defects and waste. An additional Improved Financial performance through execution and discipline. $20 million in savings is expected Flexibility this year. Last year, we executed a very successful At Tenneco Automotive, we believe ■ Our Lean manufacturing initiatives, two-phased debt refinancing transaction our people are our most valuable asset. modeled on the Toyota Production that improved our flexibility in the appli- They design our products, manufacture System, are reducing costs, inventories cation of our cash flow and created our products and sell our products. and lead times, while improving greater liquidity. The new agreements Recognizing this, we invest in a culture on-time delivery. extended nearly all debt maturities out that provides opportunities for employee to 2009 and beyond. ■ Our Project Genesis restructuring development, which results in greater program has improved capacity job satisfaction as exemplified by our When Tenneco Automotive became utilization by closing underutilized salaried-employee turnover rate, which a stand-alone company in 1999, our manufacturing facilities and improving we believe is well below the industry debt totaled approximately $1.7 billion. workflow at remaining plants. Genesis average. This distinguishes Tenneco We reduced this by nearly $300 million yielded $17 million in incremental Automotive and reflects a unique advan- and are further improving our capital savings in 2003 in addition to the tage, both in serving our customers and structure by debt reduction through $12 million saved in 2002. Now that in allowing us to retain and recruit the higher earnings and cash flow, as well the program is complete, we will best and brightest employees. as opportunistic debt management benefit from the full $30 million in an environment of low interest rates of cost reductions that have been In the end, our overall objective is and strong capital markets. achieved over the past two years. clear and unchanging. We are deter- Additionally, we are among our mined to build on the fundamentals ■ Looking Ahead industry’s best-in-class in plant safety that enable our business to succeed We will continue to strive toward performance, which further enhances and will continue to invest in opportuni- improved performance, focusing on our global manufacturing position. ties that strengthen our position in additional cost and capacity reductions, Safety performance is based on a total key growth areas. greater flexibility and investments in tech- case rate measure, which is calculated nology that fuel new business growth. by the number of injuries per 100 employees. Our total case rate was Our book of new business is at a peak 3.5 last year, which is 65 percent with revenues from OEMs in 2004 lower than the industry average. estimated to climb 3 percent over 2003. In 2005, we expect our OEM Go East Mark P. Frissora book of business to increase 11 percent Chairman and In Europe, we are more closely aligning over 2003, with strong potential for Chief Executive Officer with our customers and lowering costs additional growth. April 2004 4

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    TH E PO W E R OF We are a global company, operating from established markets in North America to areas of explosive growth TEN market-leading ride control and emission control products, and our varied customer base. costs and maximizing financial flexibility. However, the diversity of our geo- graphic coverage, products, such as China. markets, businesses and From this foundation, we customers requires strategies These distinct markets grow revenues by investing tailored to specific needs. provide strength, as does in technologies for expand- the balance between our ing markets, and reduce Diversity combined original equipment and debt by increasing the with unity of purpose: aftermarket businesses, variable structure of our the Power of TEN. LiteningRod Computerized Electronic Shock Semi-Active Muffler 5

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    NORTH AMERICA 2003’s hottest-selling vehicles incorporate our products, boosting our original equipment revenues and offsetting declines in overall automotive production. We are countering adversity in the aftermarket business by broadening our customer base, extending our product lines and entering new product categories. Our Results North American Vehicle Production 2003 Tenneco North American OE Light Vehicle Sales North American consumers maintained a preference for SUVs, minivans and light trucks over passenger cars in 2003. Our significant presence on these top-selling vehicle platforms was benefi- cial as we generated revenues that outpaced overall production rates. Our original equipment (OE) revenues in North America increased 1 percent last year compared with a 3 percent decline Light Truck 53% Light Truck 78% in industry production. Sales of new Passenger Car 47% Passenger Car 22% autos and light trucks, while about 1 Source: Automotive News percent lower than 2002 levels at 16.8 million units, marked the fifth best year total North American OE revenue at vehicle. Our team executed a virtually in the history of the industry. year-end 2003 from just 14 percent flawless launch —a performance that one year earlier. Our products are on Toyota referred to as a benchmark in Competition intensified for domestic strong-selling platforms and new delivering Lexus quality. Our high marks vehicle manufacturers as Japan-based launches including Honda’s Accord, Pilot, for production processes and efficiency automakers increased their market share Odyssey and Acura MDX; Nissan’s Titan, were underscored when we received in North America. Our global alliances Frontier, Pathfinder, Armada, Xterra, Toyota’s Excellence Award for Lexus with Tokico and Futaba, leading Japanese Infiniti, and Altima; and Toyota’s Sienna, Launch as well as an Excellence Award ride control and emission control Sequoia and Lexus RX 330. for Value Improvement, reflecting our suppliers, provided us with a competitive overall support to Toyota in 2003. We advantage and helped to further expand The North American launch of the Lexus will continue to build our relationships our business with Japanese original RX 330 was especially noteworthy in with the Japanese OEMs, pursuing more equipment manufacturers. Revenue 2003. This was the first launch of a Lexus of their business in North America, generated from these manufacturers vehicle outside of Japan. Tenneco is which represents a strong growth increased to about 18 percent of our supplying the exhaust system on this opportunity for us. We successfully launched the exhaust system on Toyota’s Lexus RX 330, the first Lexus vehicle to be sourced in North America. World Headquarters Emission Control Manufacturing Ride Control Manufacturing Emission Control Engineering Center 6 Ride Control Engineering Center

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    Tenneco Automotive has THE POWER OF TEN one or more prod- ucts on each of Top Ten 2003 North American Light Trucks the top 10 light vehicles produced in North America 1 GM Chevy Silverado 6 GM Chevy Trailblazer in 2003. 2 Ford F-Series Truck 7 DaimlerChrysler Dodge Caravan We supply emis- sion control and 3 DaimlerChrysler Dodge Ram Pickup 8 GM GMC Sierra elastomer products for the Ford F150 pickup, one of 4 Ford Explorer 9 DaimlerChrysler Jeep Liberty the best-selling light trucks in 5 Ford F-Series Super-Duty 10 GM Chevy Tahoe North America. 7

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    THE POWER OF TEN exhaust isolator, which is a product using our elastomeric rubber compounds that Ten Key Improvements in Lean—Smithville, TN Plant provides more design flexibility and Measurement 1999 Pre-Lean 2003 Post-Lean % Improvement better performance in reducing noise, 1 Revenue $82mm $99mm 21% vibration and harshness in the exhaust 2 Process capability 50% 95% 90% system assembly. 3 Inventory $13mm $8mm 37% 4 Productivity 37% 58% 58% Overall, our superior technology, 5 Headcount 511 304 41% business relationships and high-quality 6 Scrap percent 2.5% 1.2% 52% manufacturing combined in 2003 to 7 Revenue/floor space $390,000 $695,700 78% attract more than $575 million in total 8 Travel distance (ft.) 2,100 675 67% 9 Revenue/employee $161,000 $325,000 101% North American new business, expected 10 Open floor space (sq. ft.) 0 70,000 30% to launch between 2004 and 2008. In the aftermarket, we maintained We are also targeting the commercial powerful tool to leverage our advanced our leading market share positions and specialty vehicle markets by intro- engineering capabilities. For example, in emission and ride control products. ducing innovative products such as our our Semi-Active Muffler, which uses This was despite a prolonged decline in LiteningRod torque rod, Magnum FS unique valve technology, was developed the traditional “hard-parts” sectors, shock line, integrated muffler/converter in Europe but is finding potential driven by a longer product replacement technology and diesel particulate filters applications for more fuel-efficient cycle, especially for stainless steel for heavy-duty trucks. These markets engines in North America. We are also exhaust systems. We added new cus- represent additional growth opportuni- applying our technology to help our tomers in both product segments to ties as new emission standards take customers differentiate their vehicles offset persistent weakness in the overall effect and demand increases for with consumers. Our acoustics expertise market. We also continued our efforts to improved vehicle handling and ride helped General Motors engineers comfort. We formed a new business duplicate the sound quality of the 1960- unit in 2004 to capture these opportuni- era Pontiac GTO muscle car in a 2004 We are targeting control and ties, leveraging our diesel emission version, while incorporating a more growth opportuni- enhanced safety. ties in the heavy- These opportuni- control technologies and value-added sophisticated emission control system duty truck and ties will expand ride control product offerings. to meet today’s stiffer environmental specialty vehicle as the scheduled requirements. Similarly, our exhaust markets by invest- tightening of Our ability to transfer technology and elastomer engineering teams collab- ing in technologies environmental that provide more requirements across our global organization is a orated to develop an award-winning effective emission take effect. 8

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    generate increased replacement sales by educating consumers through our Safety Triangle campaign about the importance of inspecting shock absorbers as regularly as brakes and other equipment. In addi- tion, we added new products by launch- ing DNX, a new brand of niche exhaust and ride control products for the tuner market —where car owners modify their vehicles, typically small, imported pas- senger cars, for sound and appearance. We are extending beyond our tradi- tional “hard-parts” product lines with the introduction of a DuPont-branded line of car care products. Recently we signed an exclusive licensing agreement with DuPont to develop, manufacture and market appearance, performance, maintenance and accessory products. The initial customer response has been overwhelmingly positive. We are shipping these products to more than 10,000 retail outlets throughout the U.S. and Canada for customers including Advance Auto Parts, NAPA and O’Reilly Auto Parts. Outlook The economic recovery appears to be gaining strength in North America, Regardless of market conditions, we will We are uncover- Under an exclusive continue to create our own opportuni- ing growth licensing agree- which would help improve new vehicle opportunities in ment, we are sales. Besides targeting passenger cars ties in the aftermarket by expanding our the aftermarket marketing waxes, and light trucks —our traditional areas customer base, introducing new prod- by extending car washes and of strength —we are stepping up efforts ucts and extending our product lines traditional product other products into new service parts areas. lines with new under the DuPont to increase our share of the heavy-duty offerings, such as label through more truck and specialty vehicle markets. the DuPont line of than 10,000 retail In addition to increasing sales, we will car care products. outlets in the U.S. There are also signs that the exhaust continue to emphasize stringent cost and Canada. aftermarket’s deterioration may be management and quality improvement ending. And the average number of in all our operations through our Lean vehicles on the road is increasing. manufacturing and Six Sigma initiatives. With the early- 2004 addition of Pep Boys, which becomes our fifth largest aftermarket customer in North America, we now do business with four of the top five automotive aftermarket retail chains, as well as all of the nation’s leading wholesale distributors. 9

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    EUROPE Our state-of-the-art technology is attracting techno-savvy consumers, while our shift of production to low-cost countries is increasing efficiency and lowering costs. On the horizon: higher vehicle content due to stricter vehicle emission standards, the continuing success of diesel powertrains in Europe and rising consumer demands for advanced suspension systems. Our Results THE POWER OF TEN A record number of launches in our original equipment ride control business Tenneco Automotive’s Top Ten 2004 European Launches contributed to increased OE revenues in 2003, despite a weak year for Western 1 VW Altea 6 Porsche Boxster Europe light vehicle production. The concentration of OE launches in Eastern 2 Mercedes Benz E-Class 7 Opel Astra Europe demonstrated the success of our “Go East” manufacturing strategy, with 3 Ford Focus 8 VW Golf OEMs such as Ford, General Motors, Volkswagen, Fiat and Renault awarding 4 Audi A6 9 VW Octavia major new platforms to our plants in 5 Porsche 911 10 Paccar Heavy-duty truck Poland and the Czech Republic. Measures taken over the last two years to improve our OE emission control business showed results with year-over- for our advanced Computerized our annual production of diesel particu- year improvement in profitability, despite Electronic Suspension technology, which late filters will double to 600,000 units lower volumes. Moreover, our presence sells at a significant premium to a by 2006. In 2003, we also started on popular PSA, BMW, DaimlerChrysler, standard set of shocks. And our position production of our Semi-Active Muffler Audi and Ford platforms boosted our as a leading supplier of diesel particulate technology, and sound-engineered the performance over the industry trends. filters was reinforced by an agreement exhaust for one of Europe’s most with Audi to supply filters for its four- exciting new launches in 2004. Tenneco’s growing reputation for cylinder A4 and A6 passenger cars. advanced design, superior technology, Besides Audi, we also won contracts to Original equipment manufacturers quality and flexible delivery helped supply filters for Mercedes Benz six- continue to demand that suppliers attract more than $167 million in total cylinder C-Class and E-Class vehicles as deliver high-quality products on time, new business contracts in 2003 that are well as the new-generation Citroen C5 while holding the line on costs. We expected to launch between 2004 and and Peugeot 407 passenger cars. Based made significant operational improve- 2008. This new business included orders on booked business, we anticipate that ments, including implementing Lean manufacturing techniques and expanding the Six Sigma program. Our Our reach in Europe greater efficiency facilitated our record extends to Russia, and in 2003 we number of successful new product opened an exhaust launches, 13 in emission control and manufacturing 17 in ride control, during 2003. plant in Togliatti, located in the country’s automo- Our strategy of shifting more manufac- tive heartland. turing to low-cost countries —to locate near our customers and to take advan- tage of lower labor costs —is also Emission Control Manufacturing Ride Control Manufacturing improving our efficiency. We increased Emission Control Engineering Center production by 230 percent at our Ride Control Engineering Center 10

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    Gliwice, Poland and Hodkovice, Czech Tenneco This CAD model Republic, ride control plants during the Automotive’s of a diesel use of Computer particulate filter year as a result of new launches. We Aided Design for Audi passenger gained first entrant advantage in Russia (CAD) technology cars is done at as the first global supplier to open an cuts time and our worldwide exhaust facility, which will supply the costs from design emission control to finished engineering center Chevrolet Niva, manufactured by a product. CAD in Edenkoben, General Motors/AvtoVAZ joint venture. technology Germany. This operation will grow as more OEMs increases the move to the region, and as we leverage speed, accuracy and repeatability our presence in Russia to expand our of production. ride control business further east. A new Inline Sequence (ILS) plant was opened in Poznan, Poland, to supply Volkswagen’s new Golf. A second ILS plant was commissioned in Ingolstadt, Germany, to supply the new Audi A3. European aftermarket sales for exhaust products declined during the year due to reduced demand industry-wide. We partially countered this market softness by increasing sales of catalytic converters by 47 percent over 2002, as increased emission regulations improved the replacement cycle. This growth included about $4 million of sales to a leading OEM for its original equipment service business. We were also able to grow our share of the ride control market with new customers including Kwik-Fit in the United Kingdom. Besides signing new aftermarket customers, we entered an important adjacent market by winning Wabco’s heavy-duty shock business that enabled us to add new heavy-duty distributors in the United Kingdom. Brand awareness for Monroe ride control products was further increased through our Safety Triangle campaign. Our Gliwice, Poland ride control plant is an exam- ple of our growing presence in Eastern Europe. We now operate six plants in the region to cost effectively serve growing markets. Gliwice reached record production in 2003 for such customers as Ford, Fiat and Renault.

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    On the cost side, we are streamlining We will also apply our strong brands, Well Positioned for Vehicle Production our aftermarket emission control superior service and innovative Growth in Eastern Europe Units in millions 4.5 manufacturing capacity to bring marketing and distribution strategies 4.3 it in line with market demand. to continue to attract additional after- 4.0 3.7 During 2003, we announced that market business. We will overcome 3.5 3.2 we will close our Birmingham, England some of the aftermarket weakness by exhaust plant, which, by shifting launching product extensions including production to remaining plants, will Monroe cabin shocks and steering parts, help increase efficiency. and entering new categories. The DNX range of branded performance exhaust, Outlook brake, suspension, ignition and filter Forecasts call for no more than a modest products that target the European youth increase in European automotive produc- market will be contract manufactured 2003 2004 2005 2006 2007 2008 tion in 2004 with some strengthening to maximize the profitability of this Source: Global Insight Dec. 2003 in the second half of the year. We will exciting new line. continue to streamline our operations Our investments The filter helps and improve efficiency in preparation Our emphasis on further improving in high-technology meet more stringent operating efficiency will increase as growth products are environmental for the significant platform launches we attracting customers requirements and have slated for 2005. we elevate our efforts to enhance our such as PSA, which the SAM uses inno- European performance and reputation, selected our newest- vative valve designs At the same time, we will be aggres- and position ourselves to take greater generation additive to economically advantage of the opportunities offered diesel particulate provide sound sively seeking new business, based filter and exclusive silencing at low on our technological leadership, by manufacturing in low-cost areas of Semi-Active Muffler engine speeds, particularly through our diesel emission the region. (SAM) for this while minimizing control products and electronic suspen- Peugeot 407. backpressure at higher engine RPMs. sion systems. 12

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    A U S T R A L I A and SOUTH AMERICA We are Australia’s leading original equipment emission control and ride control supplier and Monroe is the country’s leading aftermarket brand. In South America, manufacturing operations are among the most efficient in our global organization, opening opportunities for increased inter- company and export sales. Our Results Australia As a result, we have maintained prof- We have achieved the leading market itability despite challenging economic share for both OEM sales of emission conditions in recent years. During 2003, control and ride control products, economies in the region generally serving all four of the Australian manu- showed improvement, and we were facturers: Ford, Toyota, General Motors able to increase OEM sales year-over-year and Mitsubishi. Our expanding presence due to new incremental business. on export platforms allows us to generate revenue growth. And, we We are benefiting from a strong expect the introduction of vehicles with Emission Control Manufacturing aftermarket, resulting from longer higher value content, such as the V-8 Ride Control Manufacturing vehicle ownership with a greater need Emission Control Engineering Center Pontiac coupe, requiring a split exhaust Ride Control Engineering Center for replacement parts. High brand system with two catalytic converters recognition for Monroe and our and more rigorous noise control, to elastomer brand, Axios, coupled with contribute as well to higher revenues. our status as a low-cost producer, have In the aftermarket, the strength of our made this aftermarket operation Monroe brand name, along with the a steady source of increasing revenue 2003 introduction of our premium and growing profitability. Reflex shock absorber helped maintain our market share in replacement parts. Outlook South America The improving economic conditions We’ve overcome competitive pressures in in South America aided by incremental Australia with our strong customer base OEM business awarded in 2003 and product offerings, and by applying Six provide a basis for revenue growth. Sigma and Lean manufacturing processes Combined with our low-cost to control costs and boost efficiency. manufacturing facilities and leading Emission Control Manufacturing brands, this will help us achieve greater Ride Control Manufacturing profitability, while serving as a spring- Outlook Australia Ride/Emission Control Engineering Center board for higher export sales. Australia’s economy remains strong, which helped boost the nation’s currency by more than 34 percent in 2003 versus THE POWER OF TEN the U.S. Its automotive production is expected to grow 13 percent by 2006. Top Ten 2003 Achievements Australia Increasing export sales, particularly to 1 Increased revenues 34 percent in 2003 the Middle East, U.S. and Asia, a strong 2 Improved operating income 33 percent market position and efficient operations 3 Awarded major contract for 2006 General Motors Holden VE Commodore will help us capture a significant portion 4 Introduced new premium Reflex shock absorber to aftermarket of this growth. 5 Won Automotive Aftermarket Association’s Excellence in Marketing Award South America Our Results South America 1 Generated $20 million of new incremental OEM business during 2003 2 Named first domestic ride control supplier to Toyota in Argentina In South America, we operate some of 3 Reduced salaried headcount by 15 percent the most efficient manufacturing facilities 4 Reduced inventory Days on Hand by 25 percent in the Tenneco Automotive organization. 5 Achieved all-time record for cash flow generated 13

  • Page 16

    ASIA As an early entrant, our five majority-owned joint ventures give us a solid foothold in China, whose economic growth continues to lead the world. We are also well positioned to serve other Asian markets through our established production in Thailand and operations in India. Our Results Changan Ford Ltd, and another with China’s economy is maintaining its German-based Eberspächer International robust growth, with increases in auto- GmbH to provide similar products to motive production that place it on BMW and Audi in China. We also have course to become the world’s second exhaust joint ventures in Shanghai and largest producer within a decade. The Dalian, and a ride control joint venture in government is encouraging consolida- Beijing, which brings the total to five tion among the roughly 100 OEMs and since beginning operations in China in several thousand automotive suppliers, 1995. Our joint venture strategy allows with the survivors being those with us to minimize our capital investment, the strongest customer relationships, while still keeping pace with the tremen- manufacturing capabilities, technologies dous growth. Today, we are the largest and product quality. In addition to OE exhaust supplier in China. Emission Control Manufacturing consolidation, the Chinese government Ride Control Manufacturing continues to put regulations in place We continue to expand our customer Ride/Emission Control Engineering Center to grow the domestic auto market base and win significant new business including encouraging technology from existing customers like Nissan, developing markets of Malaysia and transfers, increasing the availability of Volkswagen, Ford, BMW and General Indonesia, among others. During 2003, credit to consumers and reducing the Motors. Our product launches in 2004 we took sole ownership of our exhaust reliance on imported components. include exhaust systems for the production facility in India. Additionally, Volkswagen Santana, China’s best-selling our ride control business in India During 2003, we expanded operations vehicle with annual production of expanded during the year to export to keep pace with the booming between 80,000 and 100,000 units. shock absorbers for specialty markets automotive market by entering into in North America. agreements for two new joint ventures In Thailand, our joint venture is in China, one with Chengdu Lingchuan supplying emission control products for Outlook Mechanical Plant to provide emission the Isuzu I-190 global platform. This We will continue to grow in China, control products and systems to JV represents a potential entry into the possibly adding new joint ventures to expand geographically, add new customers and increase our ride control THE POWER OF TEN capacity. We also plan to establish an engineering center in China within two Tenneco Automotive’s Top Ten Vehicle Platforms in China years. In addition, we are evaluating the start-up of an elastomer operation to serve that country’s light truck and 1 VW Bora and Golf 6 GM J200 passenger car market, and potentially 2 VW Passat 7 VW Touran its large heavy-duty market. Another longer-term opportunity may be 3 VW Santana 8 Audi A4 exporting from our operations in Thailand, as well as expanding our 4 PSA Citroen ZX 9 Toyota Hiace existing exports from India and extending our programs to increase 5 Isuzu D-Max 10 Nissan Blue Bird operational efficiency in the region.

  • Page 17

    Expected Light Vehicle Production Leveraging JVs to capitalize We now have five Audi A4. This adds in China 3.6 on growth in China— joint ventures in to our rapidly $120 Units in millions 60% Annual Growth China. The latest, expanding busi- 3.3 Revenue in millions with partner ness in China that 3.0 Eberspächer also includes 2.7 International Volkswagen, Ford, $80 GmbH, will provide General Motors 2.4 2.3 2.2 emission control and Nissan. 2.1 systems for the $30 1.2 $11 .8 2001 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 2010 1998 2000 2002 2003 15 Source: Global Insight & Analysis & News

  • Page 18

    Board of Directors Roger B. Porter2,3 IBM Professor of Business and Government Paul T. Stecko2,3 Chairman and Chief Executive Officer Harvard University Packaging Corporation of America Seated, left to right: David B. Price, Jr.2,3 Mark P. Frissora Sir David Plastow2 Consultant, Former President Chairman and Chief Executive Officer Retired Chairman and Chief Executive Officer BF Goodrich Performance Materials Tenneco Automotive Inc. Vickers plc Charles W. Cramb1 Dennis G. Severance1 Not pictured: Senior Vice President and Accenture Professor of Computer Timothy R. Donovan Chief Financial Officer and Information Systems Executive Vice President and General Counsel The Gillette Company University of Michigan Business School Managing Director, International Group M. Kathryn Eickhoff1,3 Tenneco Automotive Inc. Standing, left to right: Frank E. Macher1 President and Chief Executive Officer 1 Audit Committee Retired Chairman and Chief Executive Officer Eickhoff Economics, Inc. 2 Compensation/Nominating/Governance Committee 3 Three-Year Independent Director Evaluation Committee Federal-Mogul Corporation Red numbers indicate the committee chair Officers Brent J. Bauer Senior Vice President and General Manager Don Miller Vice President and General Manager North America Original Equipment Europe Aftermarket Mark P. Frissora Emission Control Chairman and Chief Executive Officer William M. Churchill Neal A. Yanos Vice President, Global Engineering Timothy R. Donovan Senior Vice President and General Manager Ride Control Executive Vice President and General Counsel North America Ride Control and Managing Director, International Group Aftermarket Herman Weltens Vice President, Global Engineering Hari N. Nair Lois Boyd Emission Control Executive Vice President and Managing Vice President and General Manager Director, Europe Commercial Vehicle Segment and Global Theo Bonneu Program Management Vice President and Controller, Europe Kenneth R. Trammell H. William Haser Senior Vice President and Chief Financial Alex Drysdale Vice President and Managing Director Vice President and Chief Information Officer Officer Australia and New Zealand John E. Kunz Richard P. Schneider Vice President and Treasurer Senior Vice President, Global Administration Josep Fornos Vice President and General Manager Paul D. Novas Timothy E. Jackson Europe Original Equipment Ride Control Vice President, Finance and Administration, Senior Vice President, Global Manufacturing Ulrich Mehlmann Europe and Engineering Vice President and General Manager James Perkins Paul Schultz Europe Original Equipment Vice President and Controller Senior Vice President Emission Control Global Supply Chain Management James K. Spangler Vice President, Global Communications 16

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