We experienced many unexpected challenges in our first year as an independent company and managed to record a number of solid accomplishments, even as deteriorating industry conditions and economic uncertainty contributed to disappointing financial results.
A significant decline in demand began in the global heavy-duty vehicle market in the second quarter of 2000. As the U.S. economy showed signs of cooling off later in the year, North American vehicle manufacturers implemented production cutbacks, hurting our fourth quarter original equipment volumes. In addition, the global aftermarket continues to experience sluggish sales. Based on industry forecasts in North America, we believe this condition will likely persist until mid-2002, when a large proportion of vehicles now on the road enters the six- to 10-year-old vehicle segment - the age when cars are most in need of replacement shock absorbers and exhaust systems.
Our European operations, which contributed 35 percent of our revenues, were undercut by the weakness in the value of the euro versus the U.S. dollar. Rising interest rates in the United States early in the year also served both to dampen new vehicle purchases and increase our interest payments on our debt.
Against this backdrop, our 2000 revenues grew 8 percent to $3,549 million, which reflects $206 million in pass-through sales for catalytic converters, compared to $3,279 million in 1999. Net cash provided before financing activities and factoring improved by $61 million over 1999. For the year, we reported a loss from continuing operations of $41 million, which reflects $45 million in one-time after-tax charges for restructuring and other items. This compares to a 1999 loss of $63 million, which reflects after-tax restructuring and transaction costs of $144 million. Excluding the one-time items, income from continuing operations in 2000 was $4 million compared to $24 million in the prior year assuming that we had incurred the same level of stand-alone and interest costs in 1999 as we did in 2000.
While we are disappointed with this year-over-year
decline in earnings, additional progress was made in
several financial metrics during 2000.
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We were in a period of transition during 2000, going from
being an operating income (EBIT)-driven company to one
primarily focused on Economic Value Added (EVA¨), a
measurement that defines how well we are utilizing
invested capital. We improved EVA by $23 million during the
year, although this shift to EVA negatively impacted
earnings in some instances because it required that we
trade off actions that might improve operating income for
actions that reduce the amount of capital invested in our
operations.
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Disciplined management of debt reduction was, and
continues to be, a key focus for us, as we believe that's the
best way to improve shareholder value. In 2000, we
aggressively sought to improve working capital through
better management of inventories and accounts payable,
and implementation of a securitization program for
accounts receivable. These initiatives enabled us to bring
our debt level down by $107 million. As of December 31,
2000, we had $35 million of cash on hand and our overall
debt position was $1,527 million. In addition, our
effective management of working capital and debt
practices allowed us to have available liquidity on our
revolving credit facility of $454 million at the end of 2000.
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We also limited our 2000 capital spending to $146 million, down from the $154 million we spent in 1999.
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We attained some significant operational accomplishments in 2000 as well.
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We achieved strong financial results in our European
original equipment business and in our expanding
operations in the emerging markets of Asia and South
America.
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We continued to win new original equipment business
around the globe and added over $200 million in
incremental business in 2000.
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In our North American aftermarket, we developed or
launched 10 new products, expanded our ride control
product offering with the launch of our new premium
Monroe¨ Reflexª line, and increased our market share for
exhaust by 1 point to 35 percent and ride control by 4 points
to 51 percent compared to 1999.
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We also strengthened our technological position with
innovative products currently under development, such as
lightweight exhaust systems, fabricated manifolds,
close-coupled converters, oil-free and electronic shocks,
and elastomeric axles. Indicative of this quest for
innovation, we recently won a 2001 PACE Award for
our revolutionary ASD shock absorber technology.
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By focusing on the factors under our control - primarily costs - we have made some tough decisions that we believe will help us to weather this industry downturn.
Beginning in the fourth quarter of 2000, we undertook an aggressive cost-cutting initiative to reduce global salaried employment, followed by a second round of salaried employee reductions announced in the first quarter of 2001. We expect these combined actions to eliminate approximately 22 percent of our global salaried work force by early 2002. When this initiative is fully implemented, we anticipate realizing cost savings of $72 million annually.
Our aggressive pursuit of cost controls also includes the recent elimination of our $7 million stock dividend. We believe these funds are best used to operate the business and pay down debt.
We are also again tightly controlling capital spending and implementing a zero-based budgeting program that challenges spending requirements and habits throughout the organization. In addition, we are seeking to improve our manufacturing efficiency through the further adoption of lean processes and, most important, Six Sigma. We anticipate that these initiatives will provide savings of at least $20 million in 2001.
We believe these tough responses to tough conditions will help Tenneco weather current difficulties. Although 2000 was challenging and 2001 will be equally as hard, these responses demonstrate management's willingness to take swift and decisive action.
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Mark P. Frissora
Chairman and Chief Executive Officer
March 22, 2001
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