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    EXECUTION & DISCIPLINE DRIVE RESULTS Tenneco Automotive Inc. 2004 Annual Report 29% FIVE YEARS OF PROGRESS Increased Revenues by $953 Million 68% Increased Revenue Per Employee from $136,000 to $229,000 22% Reduced Debt Net of Cash by $344 Million 145% Increased Market Capitalization by $439 Million


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    Tenneco Automotive ORIGINAL EQUIPMENT Operations 2004 Sales Markets Served Products Brands Emission $2,287 million ■ Passenger cars ■ Complete exhaust systems Control ■ Light trucks ■ Fabricated manifolds ■ Commercial vehicles ■ Manifold-converter modules ■ Industrial applications ■ Catalytic converters ■ Motorbikes ■ Mufflers and resonators ■ Diesel particulate filter systems ■ NOx abatement systems ■ Exhaust heat exchangers ■ Exhaust isolators & hanging systems Ride Control $931 million ■ Passenger cars ■ Shocks & struts ■ Light trucks ■ Suspension bushings ■ Commercial vehicles ■ Coil, air & leaf springs ■ Golf carts ■ Torque rods ■ Off-road recreational ■ Engine/body mounts ■ Rail cars ■ Suspension modules/systems ■ Control arms/bars/links ■ Cabin dampers ■ Computerized electronic suspension ■ Anti-roll system AFTERMARKET Operations 2004 Sales Markets Served Products Brands Emission $365 million ■ Passenger cars ■ Manifolds Control ■ Light trucks ■ Mufflers ■ Commercial vehicles ■ Pipes ■ Performance vehicles ■ Tubing ■ Mounting components ■ Catalytic converters ■ Performance mufflers Ride Control $630 million ■ Passenger cars ■ Shocks ■ Light trucks ■ Struts ■ Commercial vehicles ■ Cartridges ■ Performance vehicles ■ Mounting kits ■ Trailers ■ Performance shocks, struts, filters and brakes ■ Torque rods ■ Suspension bushings ■ Engine mounts ■ Coil springs ■ Car-appearance products 2004 2003 2004 Sales 2004 EBIT* Revenues (millions) $4,213 $3,766 North America North America 47% 76% Emission Control/ Europe and Europe and Ride Control Balance† 63/37 63/37 South America South America 44% 13% Original Equipment/ Aftermarket Balance† 76/24 75/25 Asia Pacific Asia Pacific 9% 11% †percentage of sales *EBIT is earnings before interest expense, taxes, and minority interest.


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    Competitors Key Advantages Top Five Customers Top Five Platforms 2004 Market Opportunities ■ ArvinMeritor Emission & Ride Control ■ General Motors ■ GM Bravada, Envoy, Trailblazer ■ Additional content due ■ Faurecia ■ Advanced technologies ■ Ford ■ GM Escalade, Silverado, to emission regulations ■ Eberspächer ■ Experienced team ■ Volkswagen Suburban, Avalanche, Tahoe, ■ Diesel aftertreatment Sierra, Yukon Customized sound attenuation ■ Bosal ■ Product/process quality ■ PSA Peugeot/Citroen ■ ■ Dodge Ram Pickup Demand for diesel/ ■ Delphi ■ Global program ■ DaimlerChrysler ■ management ■ PSA Citroen C5, Peugeot 407, hybrid/fuel cell ■ Japanese alliances Peugeot 608 ■ Emerging markets ■ Joint ventures in China, ■ GM Opel Vectra, Saab 9-3, ■ Commercial vehicle segment Chevy Malibu, Pontiac G6 India, Thailand, and U.K. ■ Customer relationships ■ ZF Sachs ■ Broad product range ■ Ford ■ GM Escalade, Silverado, ■ Vehicle stability/ ■ Delphi ■ Volkswagen Suburban, Avalanche, Tahoe, safety requirements ■ Full service supplier Sierra, Yukon ■ ArvinMeritor ■ General Motors ■ Modular assembly ■ Just-In-Time (JIT) ■ Ford Focus, Mazda 323, ■ Kayaba ■ DaimlerChrysler ■ New technologies assembly Volvo S40 ■ Magneti Marelli ■ Nissan ■ Adjacent markets ■ VW Golf, New Caddy, Seat Altea ■ Electronic technologies ■ DaimlerChrysler Town & Country, Voyager, Caravan ■ VW Transporter Competitors Key Advantages Top Five Customers Leading Products Market Opportunities ■ ArvinMeritor Emission & Ride Control ■ NAPA ■ Quiet-Flow3® Mufflers/ ■ Growing number of vehicles ■ OE Service ■ Brand dominance ■ TEMOT Autoteile Assemblies on the road ■ Bosal ■ Relationships with ■ Automotive Distribution ■ Dynomax® Ultra-Flo Stainless/ ■ OE Service all major wholesale International (ADI) Welded Mufflers/Systems New technologies ■ Goerlich’s Exhaust ■ Systems distributors/retailers ■ Advance Auto Parts ■ DNX™ performance ■ Emission regulations ■ Global presence exhaust systems ■ Midas/IPC ■ Independent Motor Trade ■ Performance-product demand ■ Leading market shares Factors Association (IFA) ■ SoundFX™ mufflers ■ Product innovation ■ Clean Air™ catalytic converters ■ Product quality ■ ArvinMeritor ■ Extensive product and ■ NAPA ■ Reflex® shocks & struts ■ Growing number of vehicles ■ Kayaba vehicle coverage ■ Advance Auto Parts ■ Sensa-Trac® shocks & struts on the road ■ OE Service ■ Targeted marketing ■ O’Reilly Auto Parts ■ Rancho® shocks, struts and ■ OE Service ■ ZF Sachs programs ■ TEMOT Autoteile suspension lift kits ■ New technologies ■ Introduction of ■ Pep Boys ■ Quick Strut™ ■ Unperformed maintenance service parts ■ Gas-Magnum® shocks ■ Premium mix expansion ■ DNX™ performance shocks ■ Broader product coverage and struts ■ Heavy-duty truck penetration ■ Monro-Matic Plus® shocks ■ Safety/installer education ■ DuPont™ car-care line ■ Testing/diagnostic equipment Diverse Customer Base Top Customers as a % of Total 2004 Revenues Profile Largest OE Customers Largest AM Customers People: Approx. 18,400 17.9% General Motors 2.0% NAPA Manufacturing & 12.0% Ford Motor Co. 1.3% TEMOT Autoteile GmbH Just-In-Time Facilities: 71 10.5% Volkswagen 1.1% Advance Auto Parts 8.0% DaimlerChrysler 1.1% ADI (Automotive Distribution Int’l) Engineering Centers: 13 7.4% PSA Peugeot Citroen 0.6% O’Reilly Automotive Countries Served: 138 3.9% Toyota Motor Co. 0.5% Pep Boys 2.2% Nissan Motor Co. 0.4% KFE (Kwik-Fit Europe) As of 12.31.04 2.0% Honda Motor Co. 0.4% Uni-Select


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    >> VISION PIONEERING GLOBAL IDEAS FOR CLEANER, QUIETER AND SAFER TRANSPORTATION. CORPORATE PROFILE Tenneco Automotive is one of the world’s largest designers, manufacturers and marketers of emission control and ride control products and systems for the automotive original equipment market and aftermarket. The company became an independent corporation in 1999, allowing singular focus on strategies to maximize global results. Tenneco Automotive markets its products principally under the Monroe®, Walker®, Gillet®, and Clevite® Elastomer brand names. Leading manufacturers worldwide use our products in their vehicles, attracted principally by our groundbreaking advanced technologies. We are one of the top suppliers to the automotive aftermarket, offering exceptionally strong brand recognition among consumers and trade personnel. VALUES Teamwork Passion and a Sense of Urgency Continuous Improvement Seamless collaboration A consuming desire to win now Relentless focus on achieving more with less Integrity Balance Being honest, fair and never Promoting a balanced perspective ED compromising our ethics in everything we do Execution and Discipline Trust Accountability Relying on and having faith Accepting responsibility for in one another our actions EXECUTION AND DISCIPLINE Execution and Discipline drive results through detailed planning, follow-through and accountability. TABLE OF CONTENTS Gatefold 1 2-4 5 6-8 9-11 Tenneco Financial Chairman’s Operations North Europe & at a Glance Highlights Letter Review America South America 12-13 14 15 16 17+ Inside Back Cover Asia Pacific Commercial Technology Board of Directors 10K Investor Vehicle & Officers Information


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    Tenneco Automotive 2004 Annual Report FINANCIAL HIGHLIGHTS Execution and Discipline has driven notable progress in Tenneco Automotive’s business since we emerged as a separately traded public company five years ago. The table below summarizes our reported results, which include the costs of achieving this improvement— namely restructuring, refinancing and similar charges. Adjusting for these items, our operational improvements were even greater. You can read more information about the charges in Management’s Discussion and Analysis found in our Form 10-K included in this Annual Report. (dollars in millions except share and per share data) 2004 2003 2002 2001 2000 1999 Sales $4,213 $3,766 $3,459 $3,364 $3,528 $3,260 Earnings before interest and taxes $÷«171 $÷«176 $÷«169 $÷÷«92 $÷«120 $÷«148 Depreciation and amortization $÷«177 $÷«163 $÷«144 $÷«153 $÷«151 $÷«144 EBITDA* $÷«348 $÷«339 $÷«313 $÷«245 $÷«271 $÷«292 Net income (loss) before discontinued operations and changes in accounting principles $÷«÷13 $÷÷«27 $÷÷«31 $÷(130) $÷÷(42) $÷÷(81) Earnings (loss) per share before discontinued operations and changes in accounting principles $÷0.31 $÷0.65 $÷0.74 $«(3.43) $«(1.20) $«(2.42) Capital expenditures $÷«130 $÷«130 $÷«138 $÷«127 $÷«146 $÷«154 Average diluted shares outstanding 44,180,460 41,767,959 41,667,815 38,001,248 34,906,825 33,656,063 Total debt $1,420 $1,430 $1,445 $1,515 $1,527 $1,634 Cash and cash equivalents $÷«214 $÷«145 $÷÷«54 $÷÷«53 $÷÷«35 $÷÷«84 Debt net of cash balances $1,206 $1,285 $1,391 $1,462 $1,492 $1,550 *EBITDA represents income from continuing operations before cumulative effect of changes in accounting principles, 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 comparing 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. Revenue Per Employee Debt Net of Cash Balances Working Capital† $ in thousands $ in millions Percentage of Sales $229 $197 $1,550 $1,492 $1,462 15.6% $176 $1,391 $1,285 $153 $156 $1,206 $136 10.1% 6.0% 3.6% 2.1% 0.9% 1999 2000 2001 2002 2003 2004 1999 2000 2001 2002 2003 2004 1999 2000 2001 2002 2003 2004 † See 2004 Form 10-K Item 6 for reconciliation to GAAP reporting measure. 1


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    >> TO OUR SHAREHOLDERS Over the last five years, we’ve made • Revenues increased 12% in 2004 tremendous headway in improving our to $4.2 billion— our highest ever. financial position and enhancing operating • Operating income adjusted for results, and 2004 was no exception. certain items increased 21% over Our team of more than 18,000 employees 2003, representing three years has steadily transformed this company of consecutive improvements since from a struggling, highly leveraged becoming a stand-alone company. and newly independent operation to a profitable, high-tech auto supplier with • Adjusted earnings were our best ever leading market share positions in every at $1.18 per share, which is 115% higher region of the world and in each of our than the previous year. product lines. • Capital spending was unchanged from Enhanced Shareholder Value 2003 at $130 million despite the Since becoming a stand-alone company, impact of the higher Euro and the fact we’ve pursued the same goals of debt that in 2004 we more than doubled reduction and market expansion, the number of product or platform relying on stringent cost management, launches implemented. capitalizing on natural growth drivers • And debt less cash balances ended the and leveraging alliances and joint year at a historically low $1.206 billion, ventures to get us there. Staying the down 6% from 2003. course has continued to yield improving results. Even in 2004, against a difficult I’ve cited adjusted numbers so that industry backdrop, we remained you can see how our base operations disciplined in the execution of these are performing. Of course, an explanation strategies and ultimately delivered of these adjustments, including outstanding results. Let me put some restructuring and other items, can be numbers to my enthusiasm. found in the Management’s Discussion and Analysis of the attached Form 10-K. Additionally, a reconciliation of the results is detailed on the inside back cover of this report. 2


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    Tenneco Automotive 2004 Annual Report Mark P. Frissora Chairman, Chief Executive Officer and President April 2005 In 2004, our liquidity benefited from Positive change. Above all else, we’ve the successful refinancing of our become an extremely process-oriented most-expensive 11 5/8% bonds for new company. This is a priority for us and 8 5/8% bonds due 2014. As a result, I’m passionate about it. We’ve invested we will generate pre-tax interest expense in training for every manager in the savings of about $15 million annually. organization and are now moving that training down to the shop floor, so that The market’s view of our strong everyone is on the same page and equally operating performance and this accountable. Process tools like Lean favorable refinancing transaction was Manufacturing, Six Sigma, Business reflected in a 171% increase in the Operating Systems, 8D analysis— market capitalization of our stock last these are what give Tenneco its low- year. This led to two Automotive News cost advantage. They allow us to reduce Shareholder Value Awards, which our fixed costs, providing greater recognized Tenneco for delivering flexibility when we need it, while the highest shareholder return among continuing to be competitive for the automotive suppliers for 2004 and over benefit of our customers. the latest three-year period. Restructurings have been necessary and Shareholders also benefited from our effective. We’ve closed excess capacity, long-standing commitment to corporate right-sized our workforce and reorganized governance best practices including our plants for optimal workflow. This independence, transparency and has been an extensive undertaking, accountability. We will continue to incor- but the results have made it worthwhile. porate the same high standards and We’re benefiting from higher capacity integrity in every aspect of our business. utilization, improved manufacturing The Foundation of Our Success efficiencies and lower overhead costs. As I think about the exciting opportunities Today we’re a leaner, more streamlined ahead for Tenneco, I realize that we and more efficient business. There’s still wouldn’t be in a position to take advan- work to do of course, but we’re much tage of many of them were it not for the better positioned to capitalize on the significant amount of change that’s many growth opportunities that are now taken place over several tough years. ours for the taking. 3


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    Strategic Framework rates in each of the last eight quarters. But for all the progress that we’ve made, On this front, our strategic plan has two Continuing to diversify our business will we’re really just getting started. We have primary objectives. First, we’re targeting better insulate us during challenging a distinctive mix of leading brands, growth markets where we can take automotive cycles. growing channels and strong positions advantage of external trends. around the world. We will continue to Our priority is to grow organically. focus on areas of high potential, relying Examples include: We’ve come a long way in improving our on our global workforce of talented, financial position and have no intention • emerging automotive regions like experienced and motivated people to of stepping backwards. Where value China and Eastern Europe; lead us through Execution and Discipline. can be added through acquisitions, we’ll • legislation-driven regulations be opportunistic. However, our criteria for emissions and consumer safety are stringent. Any acquisition must be concerns— each offer greater accretive and credit neutral. That was prospects for technology-driven the case with our early-2005 $10 million companies; acquisition that brought us all of the exhaust business for Harley-Davidson • frequently replaced service parts, motorcycles. This profitable business Mark P. Frissora like brakes and filters, in the generated 2004 revenues of $38 million Chairman, Chief Executive Officer aftermarket; and and supports our diversification strategy and President • new and existing customers with while leveraging our technology April 2005 positive growth trajectories, like the strength. Any future acquisitions must Japanese and Korean automakers. offer a low-risk way to grow revenues by Second, we’re focused on further enhancing our technical capability in diversifying our revenue stream areas like electronics and software for through entry into counter-cyclical ride control, and air-flow management adjacent markets like commercial and or fuel management for emission control. specialty vehicles. For 2005, our goal is to continue to Diversity of platforms, geography, pursue opportunities that will make customers, markets and product lines Tenneco a stronger company going has been the key to our revenues out- forward, building on the considerable performing global market production progress achieved over the last five years. Our improved performance is a sign that we’re on the right track. 4


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    Tenneco Automotive 2004 Annual Report >> EXECUTION & DISCIPLINE Tenneco Automotive has created a culture based on Execution and Discipline, encouraging behaviors and practices that drive value creation. This culture is rooted in its people, processes and strategies. In the following pages, several of Tenneco’s senior leaders talk about the energy, initiative and commitment that have enabled the company to make sustained progress through Execution and Discipline. Neal Yanos Brent Bauer Hari Nair Ulrich Mehlmann Josep Fornos Timothy Donovan Lois Boyd Timothy Jackson Senior Vice Senior Vice Executive Vice Vice President and Vice President and Executive Vice Vice President and Senior Vice President and President and President, General Manager, General Manager, President and General Manager, President, Global General Manager, General Manager, Managing Director, Europe Europe General Counsel & Commercial Vehicle Manufacturing and North America North America Europe and South Original Equipment Original Equipment Managing Director, Systems and Engineering Ride Control and Original Equipment America Emission Control Ride Control Asia Pacific Global Program Aftermarket Emission Control Management 21 years in the 20 years in the 21 years in the 22 years in the 6 years in the auto industry 20 years in the 21 years in the auto industry auto industry auto industry auto industry 24 years in the auto industry auto industry auto industry Joined Tenneco Joined Tenneco Joined Tenneco Joined Tenneco Joined Tenneco Automotive in 1999 Joined Tenneco Joined Tenneco Automotive in 1987 Automotive in 2003 Automotive in 2000 Automotive in 1999 Joined Tenneco Automotive in 1988 Automotive in 1996 Automotive in 1997 5


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    World Headquarters Emission Control Manufacturing Ride Control Manufacturing Emission Control Engineering Center Ride Control Engineering Center >> NORTH AMERICA How have North American In terms of culture, our people have operations changed in the last the attitude that it’s their company, five years? and they’re running it to win. We hold Brent Bauer, Senior Vice President ourselves accountable for the targets and General Manager, North we set and expect to achieve them. America Original Equipment That’s different from having lots of good Emission Control: We have much ideas, but no accountability for the better process disciplines. We have execution of those ideas. put in place things like Business Brent: That’s right. That discipline Operating Systems, where each area of and accountability is part of what’s the business regularly tracks the vital driven our strong performance over few metrics they need to drive progress. the last five years. Additionally, we Today, we employ Lean Manufacturing have outstanding technical resources and Six Sigma methods to identify and engineering expertise, which gives opportunities to take waste out of the us a competitive edge. And we’re system and to increase quality and seeing tremendous leverage today speed. Processes like these have really as revenues grow and we continue become ingrained in the business. to reduce fixed costs. Additionally, the savings we’re getting by sourcing components from low-cost How are the new environmental countries and working with suppliers mandates impacting your business? on cost reductions are making us more Brent: It’s hard to find a competitor competitive and more profitable. that stacks up better than Tenneco Neal Yanos, Senior Vice President on technology. Our customers know and General Manager, North that we have the products and America Ride Control and capabilities to help them meet the Aftermarket: Our focus has been stricter mandates. In North America, very strategic. We don’t expend legislation like ULEV, SULEV and Tier II a lot of resources where the likelihood is driving increased exhaust content on of profitability is low. gas-engine vehicles. And as diesel engines grow in importance over the next several years, there will be 6


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    Tenneco Automotive 2004 Annual Report “ Tenneco is efficient. We provide services and products with fewer people and resources than most other big suppliers. And still, our OE revenues continue to outperform market production rates.” Neal Yanos pollution-control regulations in place relationships to continue to expand. for that segment too. In 2004, we For example, our award-winning launch Execution & Discipline leveraged the diesel technology of the Lexus RX330 played a big part Pep Boys Case History developed for our European operations in our winning the Toyota Tundra truck Success is the product of many years to win three new light-duty diesel platform in 2004, which is scheduled of hard work. That was the case with platforms in North America for the to be a high-volume platform that’s the North American Aftermarket team, 2007 model year. They’re the largest launching in 2006. who pursued Pep Boys for two years, platforms we’ve ever won— and we won convincing them of the value of the them because we had a better technical Why is the aftermarket a good Monroe, Rancho and DNX lines of shocks, business to be in, and what are your struts and exhaust products. Ultimately, solution than our competitors. plans for growth? we signed a long-term contract to supply Business with the Japanese Neal: The aftermarket’s a great Pep Boys stores across the United States automakers in North America and Puerto Rico. Persistence, hard work business for us. We employ a premium is another targeted growth area and customer focus paid off. product strategy, which drives better for Tenneco. What are you doing margins; and, we have strong brand to improve your position with these original equipment equity with Monroe and Walker. North American Revenues manufacturers (OEMs)? Additionally, we’ve been improving Outperform Market Production profitability as we capitalize on favor- Brent: The Japanese automakers are able manufacturing synergies across % change rapidly gaining share in North America, our product lines. We’re also benefiting 4% and we certainly want to be a part of from a stronger top line as sales to 3% 3% their growth. As a result of a long-term existing customers expand, the exhaust 2% focus on building relationships with market stabilizes, and we add new these customers, we’ve been success- 1% customers like Pep Boys for ride control fully winning new business. In 2004, products, and Wal-Mart and Target for 0% Japanese OEM business represented our niche DuPont-branded car-care line. 19% of our total North American original -1% In addition to our leading market shares, equipment (OE) revenues. That’s up our sales force, customer support areas, -2% from 16% a year earlier. By delivering Q1 Q2 Q3 Q4 and engineering and marketing savvy the highest levels of quality, responsive- give us a clear competitive advantage 2004 Tenneco North American ness and execution, we expect these that we can leverage by bringing OE Revenues 2004 North American Light new, non-core products through our Vehicle Production distribution channel. 7


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    “ Emission regulations dictate the kind of product solutions that customers are looking for. Based on our expertise and capabilities, in 2004 we won all of the domestic OEMs’ light-duty diesel business— our largest platforms ever.” Brent Bauer How has the rising cost of steel the leverage we get from adding higher- Execution & Discipline affected your business? margin revenues on top of our efforts Cambridge Case History to continuously lower our fixed costs is Neal: In ride control, we use a lot of For Toyota, the first launch of a Lexus significant. Over the long-term, we think carbon steel for our shocks and struts made in North America was vitally there’s a lot of opportunity, especially as so the substantially higher costs could important. Our Lexus team of emission- we expand the implementation of Lean really impact our margins. But our global control engineers in Canada worked side Manufacturing throughout our plants. supply chain team has done a great job by side and used extensive bench- working with steel suppliers to secure North American auto production marking with Japanese counterparts capacity and negotiate the best prices is expected to be flat this year. to find ways to reduce costs, improve performance and reach quality levels based on our global purchasing power. Will you continue to outperform that exceeded Toyota’s world-class And we’re working with all of our cus- the market? standards. For that, Toyota bestowed tomers to get price recovery. We’re also Neal: It’s all about the diversity of our its prestigious Excellence Level Award continuing our focus on cost reduction. platforms and the markets we serve, and on our team in Cambridge. Brent: On the exhaust side, we’re going the strength of the new platforms that to feel some pressure this year. However, we’re launching. Today, we’re favorably we’re also negotiating for customer positioned on a large number of the top- price recovery, and our supply chain selling vehicles. It’s been an advantage. team has been very strategic, focusing Brent: The diversity of our customer on materials substitution, low-cost base is another advantage. Having country sourcing and optimizing the sale Toyota, Honda and Nissan among our of our global scrap volumes. top six customers in North America What is the North American is really paying off. operation doing to help improve margins over time? Brent: We have a pretty good track record of improving gross margin in North America. The formula is simple. Having differentiated technology allows us to capture a better return. Moreover, 8


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    Tenneco Automotive 2004 Annual Report Europe South Africa Emission Control Manufacturing Ride Control Manufacturing Elastomer Manufacturing Emission Control Eng. Center Ride Control Engineering Center Ride/Emission Control Eng. Center South America >> EUROPE & SOUTH AMERICA How have you transformed European to the #1 position in the European operations in recent years? market this year. Hari Nair, Executive Vice Hari: Besides operational improve- President, Managing Director, ments, we’ve completely transformed the Europe and South America: Over culture of the organization. The concept the past five years, we’ve adjusted to of Execution and Discipline is embedded changes in the marketplace by modifying in the way our people work. It’s about our profile in terms of manufacturing making people accountable. Employees capacity and location, customer mix must feel that they can contribute to the and market share. This was the result best of their abilities. Recognition and of careful planning and determined celebration of success are key to this. execution, and leaves us well positioned to benefit from market opportunities. The improvement in the OE operation has been significant. Ulrich Mehlmann, Vice President How much opportunity is left? and General Manager, Europe Ulrich: Quite a bit. On the top line, our Original Equipment Emission technological leadership in developing Control: Also, we’ve made our opera- diesel products that provide a cost- tions more process-oriented, improving effective means for meeting stricter efficiency and reducing our costs. Equally emission standards results in greater important, our innovative technologies customer satisfaction. That means more are driving new business growth in opportunity for Tenneco. In addition, we emission control as well as our expanded are looking at adjacent markets, like presence in the luxury segment. commercial trucks and specialty vehi- Josep Fornos, Vice President cles, to generate increased revenues. and General Manager, Europe Our focus is more pointed than simple Original Equipment Ride Control: revenue generation. We are driving for The European OE ride control business profitable growth. has benefited from a renewed focus. Based on the incremental new contracts we’ve won, we should move closer 9


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    “ Customers recognize us as a contributor to their success and not merely a commodity supplier. We can manage the entire development spectrum. Advanced engineering and technology is what sets us apart.” Hari Nair market growth and lower costs in manufactured by AvtoVAZ, and we’ll Execution & Discipline Eastern Europe. begin supplying exhaust parts for GM’s Valencia Case History Opel Astra in Poland this year. What percent of manufacturing Execution and Discipline was critical is in Eastern Europe? What was your most important to meeting the simultaneous challenges launch in 2004? of serving new customers, handling Hari: Approximately 22% of our multiple launches and executing a plant European OE ride control manufacturing Hari: We had 37 well-executed OE redesign at our emission-control facility capacity is in the east today versus product or platform launches in Europe in Valencia, Spain in 2004. Launching a low single-digit percentage just last year and all of them were important. four new platforms—each for a a few years ago. We are continuing These successes helped increase our different customer—while moving 80% to migrate our emission control capacity OE ride control market share in Europe of the equipment to improve workflow to Eastern Europe as well. from the #4 position as recently as was accomplished successfully without 2001 to challenging the leading the need for additional resources and Josep: We have been aggressive in competitor for the top position in 2005. without disrupting any production for developing opportunities in Eastern At the same time, we maintained our #1 existing customers. Europe. In 2004, we launched the high- position* in the European OE emission volume Ford Focus, a compelling example control business. Josep: I agree. Our advanced of our “Go East” strategy. We would Computerized Electronic Suspension never have won this ride control Ulrich: We also made great strides product provides vehicle handling and business without our capacity in Poland in increasing customer satisfaction last safety improvements that customers and the Czech Republic. year by implementing detailed plans for are willing to pay for. At the same time, meeting and exceeding expectations. As Ulrich: Moreover, we now have full we are reducing costs by increasing a result, we had a number of successful engineering and design capabilities purchases from low-cost countries, out- launches including the BMW 1-Series, for exhaust systems in Eastern Europe. sourcing non-core processes, further which represents our move into the We believe this differentiates us from reducing inventories and standardizing higher-volume small-vehicle segment, most automotive suppliers. And, while more of our products and processes. and Porsche’s Boxster and 911, which Western European automotive produc- demonstrate our continuing relationship Hari: The improving South American tion is expected to be flat this year, with this prestigious nameplate. economy and our efficient operations we see positive projections in the east there also present opportunities for and are well positioned to capitalize *Market share data in this annual report is based on 2004 estimated revenues and are compiled growth. Additionally, we’ll continue to on that expansion. For example, we are from our knowledge of our relative position look at ways to fine-tune our manufac- building relationships in Russia with in the market and industry sources. These data are prepared in accordance with what Tenneco turing footprint to take advantage of our exhaust contract for the Lada Riva, believes to be standard industry practice. 10


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    Tenneco Automotive 2004 Annual Report Ulrich Mehlmann Josep Fornos What will drive future revenue growth? introduction of longer-lasting stainless steel by the OEMs. We’ve also streamlined European Revenues Outperform Josep: New ride control technologies Market Production Rates manufacturing operations to reduce that address comfort and safety such as costs, including integrating aftermarket % change CES, our electronic shock, and Kinetic, and OE production to more efficiently our anti-roll system offering improved 16% utilize capacity. 14% vehicle stability. Also, leveraging our 13% North American relationships with the 10% Why are European operating margins Japanese automakers and developing lower than North America’s? 3% new relationships with Korean OEMs 2% Hari: Complexity. The total number as both have expanded their European of countries we serve exceeds 90. -1% market shares. -2% That means doing business with multiple Q1 Q2 Q3 Q4 Ulrich: Stricter environmental legal entities, currencies and languages, requirements will also drive growth. We and producing a greater number of 2004 Tenneco European OE Revenues anticipate increased value for emission- 2004 W. Europe Lt. Vehicle Production models and engine variants to meet control content in both the passenger consumer preferences, which vary by car and commercial vehicle markets. region. But more than anything else, superior quality. And these are not my Western European labor costs are signif- words. The most frequent feedback from What have you done to improve icantly higher, in part resulting from a our customers is that we flex where European aftermarket results? more stringent regulatory environment. others don’t— whether it be in opera- Hari: We have been making steady tions, design, engineering or logistics, Ulrich: But we are making progress improvements, including signing roughly and when a customer faces an issue, as revenues increase and ongoing $20 million in incremental business in our reaction speed is second to none. restructuring initiatives bear fruit. 2004 with customers like Van Heck & Co., New OE programs that we’ve launched Ulrich: We place the highest a major wholesale distributor in the in lower-cost Eastern Europe are helping importance on providing solutions that Netherlands. In addition, we adjusted continue this progress. are tailored to individual customers. our product mix by eliminating weak- selling parts. And new products being How does Tenneco stack up Hari: By providing solutions and rolled out in 2005, like high-perform- against the competition? What delivering on our promises, we are ance brakes and filters under our DNX differentiates you? building credibility, trust and a win-win brand, will help to offset the shrinking partnership with our customers. Josep: A combination of things that add exhaust segment that resulted from the up to best-in-class customer service and 11


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    Asia Australia Emission Control Manufacturing Ride Control Manufacturing Emission Control Engineering Center Ride Control Engineering Center >> ASIA PACIFIC China is expected to become the for the production of export products world’s second largest automotive and components. As quality improves, market in terms of sales in three the most likely candidates to handle the years. Are China’s steps to slow its export volume will be India and China. booming economy likely to persist Today, virtually all of our production in and what does that mean for China is for use in the Chinese market. Tenneco’s growth? Another area driving growth will be the Tim Donovan, Executive Vice stricter emission standards. Beijing is President and General Counsel restricting emissions now in anticipation & Managing Director, Asia Pacific: of the 2008 Olympic Games. Shanghai There is concern that the Chinese is planning to do the same. government might try to further limit economic growth this year. As a result, Finally, we are positioning ourselves we expect to deliver a modest increase for the expected consolidation of about in volume in 2005 as that economy 120 automakers in China today to less sorts itself out. Beyond that, I really than 10 that are likely to survive over do believe China’s growth is going the long haul as global players. Our to be a stair-step versus a straight-line leading market share in emission control trajectory. Regardless, we continue gives us a competitive advantage as this to believe that the opportunity is trend plays out. substantial, given its population size What are your plans for Thailand and relatively low level of vehicle and India? ownership. Over the long-term, China could become Tenneco’s largest market. Tim: Thailand presents an opportunity for us to manufacture cost-effective So what will it take to make that emission components for export happen? throughout the region. In India, we are Tim: Two important catalysts will be upgrading our ride control facility to greater efficiency in our OE joint- make products for global export. venture operations and the effective use of capacity in low-cost countries 12


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    Tenneco Automotive 2004 Annual Report “ We became the #1 exhaust supplier in China last year and continue to grow with that market, diversifying our customer base through new business.” Tim Donovan In Asia there are seven joint What differentiates you from the ventures— five in China and one competition in Asia? Execution & Discipline each in Thailand and India. Are there Australia Case History Tim: Primarily the quality of our plans to open more? Global customers need global supply management teams in the region— Tim: In China we’re in pretty good shape hiring local people that have intimate teams that work together across conti- right now with the 2004 addition of a knowledge of the markets, as well as the nents, time zones and cultures with new JV to service Ford and the recent legal, commercial and regulatory seamless focus. General Motors was environment. We supplement this local looking for an exhaust supplier for one partnership with Eberspächer for BMW of its new models. A Tenneco Australian exhaust business. We currently have orientation by drawing on our global team enlisted their counterparts in North four exhaust JVs and one ride control manufacturing, supply chain and America and the commercial representa- JV in China. Why only one shock plant? technological resources. Additionally, tive at our South Africa plant. Operating Shocks are relatively cost-effective to our leading-edge technology gives over three continents as a single global ship, so having multiple facilities, each us a competitive advantage. crew, the team won incremental new in proximity to the customer, is not as business worth millions of dollars. What are your top priorities for 2005? important as it is for exhaust facilities. Of course, we’re always open to new Tim: Expanding and upgrading our ride- opportunities to expand our business control operations, further diversifying Leveraging Joint Ventures to in the Asia Pacific region. our customer base through new business, Capitalize on Growth in China improving processes, and executing What is the outlook for growth in the Tenneco Revenue flawless launches. $ millions $125 aftermarket business? $120 Tim: It’s a very fragmented market What does Tenneco’s culture of Execution and Discipline mean to you? right now in China. There’s no clear $80 distribution system for aftermarket like Tim: It means differentiating ourselves there is in the United States. We’re from the competition by getting the currently launching a very detailed plan $43 basics right. Best-in-class suppliers like $30 to leverage our strong Monroe brand Tenneco know that being more process in China with a goal of capturing a 30% $14 driven allows more opportunities share of the aftermarket by 2009. for growth. We strive to be disciplined 1999 2000 2001 2002 2003 2004 in the execution of our programs and processes—and that should give us an advantage. 13


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    “ With new, global emission regulations for medium- and heavy-duty trucks, our broad technology portfolio and extensive experience gives us a strategic advantage.” Lois Boyd >> COMMERCIAL VEHICLE Tenneco formed its Commercial is our biggest challenge. We spent a lot Vehicle business unit in 2004. Why of time this year linking the brands they Higher Content Per Vehicle this heightened emphasis now? know— Gillet, Walker, Monroe, Clevite— Drives Growth Opportunities Lois Boyd, Vice President and to Tenneco Automotive. We’re fortunate Global Exhaust Market for to already have good customer relation- Medium/Heavy-Duty Trucks General Manager, Commercial Revenue in Millions $1,685 Vehicle Systems and Global ships on the ride-control side that we can Program Management: We’ve always leverage, and that many of the traditional participated in this segment with ride muffler suppliers in this market don’t $1,200 control and elastomer, or rubber-to- have emission technologies to support $818 $823 EPA metal, products, but had no real presence the OEMs in addressing the new environ- U.S. 07 in the exhaust market and not in a global mental mandates. We believe that our EURO 4 fashion. Although the emission-control experience, products and capabilities $173 $203 & Japan market worldwide was less than $200 give us an edge. million in 2003, future opportunities 2003 2004 2005 2006 2007 Have you been successful in winning are enormous. We estimate the size of Medium/Heavy-Duty Truck Market any new business yet? With Selective Catalytic Reduction the market could reach $2.2 billion by adoption in U.S. 2010 as more stringent environmental Lois: We are the exhaust supplier to Sources: Global Insight unit volume; regulations require more sophisticated DaimlerChrysler on their heavy-duty TEN estimate of content per vehicle technology, driving up the value of Actros truck in Europe, which launched vehicle content. We formed a business in January 2005 and addresses the unit to take advantage of this growth, What are specialty markets? Euro 4/Euro 5 environmental regula- capitalizing on our global synergies, as tions. We’ve also been awarded business Lois: Specialty markets include vehicles well as our reputation in the light-truck by one of North America’s largest like snowmobiles, recreational vehicles, exhaust market. commercial vehicle producers to supply golf carts, and motorcycles. There are exhaust systems that meet EPA 2007 about 30 million motorcycles produced What hurdles do you face? standards. And currently, we’re quoting globally each year. We currently have Lois: Since we’re relatively new to the on 2007 launches with some specialty BMW business in Europe, and recently commercial vehicle exhaust market, market customers and on platforms acquired the exclusive Harley-Davidson raising our visibility with the truck makers that must meet Euro 5 standards, exhaust business in North America. beginning in 2008, and more stringent Specialty markets are niche opportunities EPA standards for 2010. with big potential. 14


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    Tenneco Automotive 2004 Annual Report “ Computerized electronic suspension is an exciting new technology that enhances vehicle stability and control. We expect our share of the electronic-shock market in Europe to triple by 2007.” Tim Jackson >> TECHNOLOGY Tenneco is known for developing What’s new in ride control? and commercializing innovative Innovative Technologies Drive technologies. What design and Tim: Electronic shocks, which offer both Content Per Vehicle engineering capabilities are unique superior ride and handling. We’re also to the company? taking advantage of opportunities to use our elastomers expertise with some of Tim Jackson, Senior Vice our exhaust and ride-control components, President, Global Manufacturing like we did with the exhaust hangers for Diesel Particulate Filter (DPF) and Engineering: Tenneco has always the new Ford F-150. Additionally, we’re been a leader in emission technology, developing fluid-filled elastomers that from the mid-1970s with development act as a damper to minimize noise, of catalytic converters to being an vibration and harshness. All are leading- industry-leading supplier of diesel edge, high-margin products. particulate filter (DPF) technology today. Just one vehicle without a diesel What products do you have to Computerized Electronic Suspension (CES) particulate filter emits the same amount improve fuel efficiency? of pollution as 10,000 vehicles properly equipped with diesel particulate filters. Tim: One of our most exciting products is the Semi Active Muffler (SAM). The market potential for DPF is signifi- SAM provides a cost-effective means cant. In Europe, 44% of light-vehicle of satisfying the need to provide registrations are diesel, yet only a small acoustic silencing at low engine speeds, percentage are voluntarily fitted with Semi Active Muffler (SAM) while minimizing back pressure at high DPF technology. The new European RPMs— automatically. emission standards of 2008 should hybrid demonstration vehicle. This increase that number rapidly. In North Also, we’ve developed a new close- concept vehicle is the first diesel America, diesel accounts for just over coupled manifold fabrication technology equipped with an aftertreatment system 1% of the market today, but could reach that is lighter in weight and produces capable of meeting California’s SULEV 6%-8% of total units produced by the cleaner emissions, more horsepower and requirements— the world’s toughest! end of this decade. greater torque. These are exciting times for automotive technology and Tenneco is leading What about hybrids and other the way. alternative vehicles? Tim: We’re working with Ford to develop an exhaust system for a diesel/electric 15


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    BOARD OF DIRECTORS Left to right: Mark P. Frissora M. Kathryn Eickhoff 1,3 Charles W. Cramb 1 David B. Price, Jr. 2,3 Chairman, Chief Executive President and Senior Vice President Chief Executive Officer Officer and President Chief Executive Officer and Chief Financial Officer and President Tenneco Automotive Inc. Eickhoff Economics, Inc. The Gillette Company Birdet Price, LLC Frank E. Macher 1 Paul T. Stecko 2,3 1 Audit Committee Jane L. Warner 2 Retired Chairman and Chairman and 2 Compensation/Nominating/ President, Plexus Systems Chief Executive Officer Chief Executive Officer Governance Committee Federal-Mogul Corporation Packaging Corporation Timothy R. Donovan 3 Three-Year Independent Director Dennis G. Severance 1 of America Executive Vice President Evaluation Committee and General Counsel & Accenture Professor of Roger B. Porter 2,3 Orange numbers indicate the Managing Director, Asia Pacific Business & Information IBM Professor of Business committee chair. Tenneco Automotive Inc. Technology, Stephen M. Ross and Government School of Business Harvard University University of Michigan OFFICERS Mark P. Frissora Timothy E. Jackson Lois Boyd Theo Bonneu Chairman, Chief Executive Senior Vice President, Vice President and General Vice President, Finance, Officer and President Global Manufacturing Manager, Commercial Europe Timothy R. Donovan and Engineering Vehicle Systems and Global H. William Haser Executive Vice President Paul Schultz Program Management Vice President and and General Counsel Senior Vice President, Josep Fornos Chief Information Officer & Managing Director, Global Supply Chain Vice President and John E. Kunz Asia Pacific Management General Manager, Europe Vice President and Treasurer Hari N. Nair Brent J. Bauer Original Equipment Ride Control Paul D. Novas Executive Vice President, Senior Vice President Vice President, Finance Managing Director, and General Manager, Ulrich Mehlmann and Administration, Europe Europe and South America North America Vice President and Original Equipment General Manger, Europe James A. Perkins Kenneth R. Trammell Vice President and Controller Senior Vice President Emission Control Original Equipment and Chief Financial Officer Neal A. Yanos Emission Control James K. Spangler Senior Vice President Herman Weltens Vice President, Richard P. Schneider Global Communications Senior Vice President, and General Manager, Vice President, Global Global Administration North America Ride Control Engineering and Technology, J. Jeffrey Zimmerman and Aftermarket Emission Control Vice President, Law 16


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    Tenneco Automotive 2004 Annual Report INVESTOR INFORMATION Corporate Headquarters Stockholder Inquiries Dividends Tenneco Automotive Inc. For stockholder services such as The company expects that for the 500 North Field Drive exchange of certificates, issuance foreseeable future it will follow a policy Lake Forest, Illinois 60045 of certificates, lost certificates, of retaining earnings in order to finance 847.482.5000 change of address, change in registered the continued development of its business. ownership or share balance, write, call Additional information on the company’s Web Site or e-mail the company’s transfer agent: dividend policy and restrictions on the www.tenneco-automotive.com payment of dividends can be found in Wachovia Bank, N.A. Corporate Information Management’s Discussion and Analysis Equity Services Group Individuals interested in receiving the in the Annual Report on Form 10-K for 1525 West W.T. Harris Blvd., 3C3 company’s latest quarterly earnings the year ended December 31, 2004. Charlotte, NC 28262-8522 press release or other company litera- (Overnight Courier ZIP 28262-1153) Annual Meeting ture should write the Investor Relations 866.839.3259 Toll Free The Annual Meeting of Stockholders Department at the corporate head- 704.427.2602 will be held at 10:00 a.m. quarters address or call 847.482.5146. Central Time on Tuesday, May 10, www.wachovia.com/shareholder- Information about Tenneco Automotive services 2005, at Tenneco Automotive’s is also available on the company’s Click on “Access Accounts” headquarters, 500 North Field Drive, web site.† Click on “FirstLink Equity” Lake Forest, Illinois. Stock Listing Tenneco Automotive’s common stock Reconciliation of Adjusted Operating Income and Earnings Per Share is listed under the ticker symbol TEN. (see Chairman’s Letter, page 2) TEN is traded primarily on the New York Year Ended Year Ended Stock Exchange and also on the Dec. 31, 2004 Dec. 31, 2003 following exchanges: Chicago, Pacific and London. EBIT Earnings EBIT Earnings (Millions) Per Share (Millions) Per Share As of February 22, 2005, there were Earnings Measures $171 $0.31 $176 $0.65 approximately 34,355 holders of record of the company’s common stock, par Adjustments (reflects non-GAAP measures): value $0.01 per share. Restructuring and restructuring related expenses 40 0.56 8 0.13 Investor Inquiries Changeover costs for a major Securities analysts, portfolio managers new aftermarket customer 8 0.12 — — and representatives of financial institu- Consulting fees indexed to stock price 4 0.06 — — tions seeking information about the Tax Adjustments — (0.47) — (0.41) company should contact the Investor Cost related to refinancing — 0.60 — 0.18 Relations department: 847.482.5042. Non-GAAP earnings measures $223 $1.18 $184 $0.55 † The information on our web site is not part of this annual report STOCK PRICE DATA 2005 2004 2003 2002 Sales Prices Sales Prices Sales Prices Sales Prices High Low High Low High Low High Low First Quarter* $17.36 $13.92 $14.88 $÷6.73 $4.32 $2.01 $4.10 $1.90 Second Quarter $15.34 $10.09 $4.65 $2.25 $6.75 $3.82 Third Quarter $14.51 $11.95 $7.45 $3.61 $8.32 $3.50 Fourth Quarter $17.49 $10.93 $7.32 $4.66 $5.97 $3.28 * 2005 First Quarter through March 9, 2005


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    500 North Field Drive Lake Forest, Illinois 60045 www.tenneco-automotive.com NYSE: TEN


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