A. We believe an appropriate leverage ratio for an auto supplier is a net debt/adjusted EBITDA ratio of 2.0x. It is important to understand that we have been intensely focused on reducing our leverage since becoming a stand-alone company in November 1999. At the end of 1999, our net debt was $1.550 billion and by the end of 2007 it had declined to $1.186 billion, a $364 million reduction in net borrowings. More importantly, operational improvements and business growth had improved our earnings such that our net debt to adjusted EBITDA ratio leverage had declined from a peak of 4.9x at the end of 2001 to 2.4x at December 31, 2007. We had made significant progress in reducing our debt, which unfortunately was reversed by the effects of today’s global economic recession. However, regardless of today’s negative climate, we remain committed to reaching our 2.0x leverage goal.

 

A. As a non-investment grade company, we have always adhered to a strategy of accessing the credit markets when the markets are ready rather than waiting until Tenneco requires capital.  As a result, our senior secured credit facility is in place through March of 2012. Our first significant debt maturity is an amortization payment of $54 million on our Term Loan A in 2010, and our first bond maturity is in 2013.  So, we do not have the pressure in this difficult credit market of needing to refinance any of our debt.

 

 A.  We use a combination of our $680 million in revolving credit facilities and cash balances for our short term financing.  At the end of 2008, we had $394 million of undrawn revolving borrowing capacity and $126 million in cash balances.  We must comply with the covenant ratios in our senior secured credit facility to maintain access to our revolving borrowing capacity.  Therefore, in February 2009, we successfully amended our credit facility to give us more room under our debt covenant ratios.  We also renewed our U.S. securitization facility for $100 million through February 22, 2010.  Our limit for securitizing receivables is $250 million and we have the flexibility of using sources globally in order to maximize the amounts under the cap. 

 

Operationally, we continue to aggressively reduce our costs and implement actions to generate and preserve cash. We began stepping up our cost reduction efforts in North America in the second quarter of 2008 in response to a decrease in revenues due to the impact of the American Axle strike on General Motors, our largest customer. We were also working to offset record-high commodity costs worldwide. As we moved into the summer months, our aftermarket businesses experienced softer sales, likely due to higher gasoline prices that resulted in lower consumer spending on vehicle maintenance and repairs. On the OE side of our business, the higher fuel costs caused a dramatic decline in SUV and pick up truck sales, vehicles on which Tenneco has a strong presence. We responded in July with targeted restructuring programs in our North American businesses designed to generate $10 million in cost savings.

 

As the global economic crisis accelerated over the final four months of 2008, we quickly stepped up our efforts to take costs out of the organization and generate cash.  These efforts included a global restructuring program that we expect to generate about $58 million in annual savings when fully implemented by the end of 2009, primarily through facility closures and permanent layoffs; salary and benefit reductions; temporary employee layoffs; reductions in capital spending and engineering investments; and aggressive cuts in discretionary spending.

 

Finally, we are using the discipline we have built around our working capital management to generate our own liquidity.  Inventories in particular should be a source of cash flow for us this year.  And, continued tight control over receivables, payables and other working capital components, such as tooling produced for our customers, will help us manage through this economic crisis.

 

A.  Our decision to amend our credit facility was driven by the external operating environment.  After analyzing third-party production forecasts and other economic indicators, we felt it was a necessary step in our financial strategy for managing through this global industry crisis.  I want to emphasize that we have good relationships with our lenders and they have been very supportive of Tenneco and our strategic direction over the years.  In addition, there seems to be recognition that Tenneco has strong longer-term growth potential, particularly with the commercial vehicle emission control business that we begin launching in early 2010.

 

Initially, we went back to our lenders at the end of the fourth quarter of 2008 to amend our leverage ratio for the quarter, which was a precautionary step as we saw OE production volumes rapidly decline toward the end of the year.  Subsequently, in February of this year, we successfully completed a broader amendment that included revising the financial covenant ratios for each quarter, beginning with first quarter 2009 and continuing through second quarter 2011.  We are required to meet two compliance ratios under our agreement; a maximum leverage ratio (net debt/EBITDA) and a minimum interest coverage ratio (EBITDA/interest expense).  The specific ratio requirements for each quarter can be found in our Form 10-K filing. 

 

A.  We worked diligently to get as much cushion as possible since it is very difficult to predict when we’ll start to see a recovery in production volumes and overall economic conditions.  That being said, we can’t control the negative external factors affecting our business.  So, we really can’t guarantee that external conditions won’t impact our performance against the revised covenant ratios.  What we are doing is staying intensely focused on all the actions that we can control to help us counter the impact of these conditions including cost reduction initiatives and efforts to generate and preserve cash.

 

 A.  In total, as of December 31, 2008, we had $142 million in net receivables due from General Motors, Ford and Chrysler in North America.

 

A.  There are really too many uncertainties for me to speculate about a customer bankruptcy or the potential impact on Tenneco.  We focus our energies on making sure that we’re doing everything possible to keep our cash position strong, take out costs and operate as efficiently as possible.   These efforts will help us through the near-term and keep us well-positioned operationally for an eventual economic and industry recovery.  We have not deviated from our growth strategies during this industry crisis.  We are staying focused on opportunities that are driving our longer-term growth including expansion in new vehicle and geographic markets.

 

A. Our average market capitalization was less than $75 million over a 30-day trading period in late February and early March and our last reported stockholders equity was less than $75 million.  It is our understanding that a number of listed companies have received similar notices, driven by the tough global economic conditions that all companies are facing.  We are working with NYSE to demonstrate that Tenneco can comply with the listing standards within 18 months, which is the timeframe the exchange requires. We are confident in our plan.

 

A.  It is important to remember that steel is Tenneco’s largest commodity purchase, which means we are working with large global steel suppliers who are better positioned than many other industries.  Another significant piece of our purchase costs is substrate, where the suppliers are also in better financial health.  We are monitoring our supply base very closely during this industry downturn.  So far, we have not had any significant problems.  Our global supply chain team is paying close attention to our suppliers and developing strategies as needed including identifying alternative global sourcing options.