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Tenneco Inc. (NYSE:TEN)

Q3 2008 Earnings Call

November 4, 2008, 10:00 am ET

Executives

Gregg Sherrill – Chairman, Chief Executive Officer

Kenneth R. Trammell – Executive Vice President, Chief Financial Officer

James K. Spangler – Vice President – Global Communications

Analysts

Rich Kwas – Wachovia Securities

Brett Hoselton – KeyBanc Capital Markets

Brian Johnson – [Brathwaites Capital]

Douglas Carson – Banc of America

Chris Ceraso – Credit Suisse

Patrick Archambault – Goldman Sachs

Itay Michaeli – Citigroup

Tony [Vetrino] – Federated Investors

Operator

Good morning and welcome to Tenneco’s third quarter 2008 earnings release conference call. All lines have been placed on a listen-only mode until the question-and-answer session. (Operator Instructions).

Today’s call is being recorded. If you have any objections you may disconnect at this time.

Now I’d like to turn the call over to Mr. James Spangler, Vice President of Global Communications. Thank you, Sir. You may begin.

James K. Spangler

Good morning and welcome to Tenneco’s third quarter 2008 financial results conference call. Earlier this morning we issued our press release and associated financial information and in a minute I’ll be turning the call over to Gregg Sherrill, Tenneco’s chairman and CEO, and Ken Trammell, our chief financial officer. Gregg and Ken will spend about 30 minutes taking you through a detailed explanation of our third quarter performance. Slides related to their prepared comments are available on the financial section of Tenneco’s website at www.tenneco.com. The two then will take your questions during the second half of our call. The conference call operator will explain the process for asking a question at that time. Keep in mind we’ll do everything possible to address all of your questions on our call today.

Please note that our discussions today will include information on non-GAAP financial measures, all of which are reconciled with GAAP numbers as shown in our press release attachments. The press release and the attachments are also posted in our website.

In addition to reviewing our third quarter financial results some of our comments today will include forward-looking statements. Please keep in mind that our actual results could differ materially from those projected in any of our forward-looking statements.

With that I will now turn the cal over to Gregg Sherrill. Greg?

Gregg Sherrill

Good morning, everyone, and thanks for joining us. The global automotive industry is clearly operating in an extremely challenging environment. The events are unfolding on a daily basis that are unprecedented as to the speed of occurrence as well as the impact on both markets and the economy. To be a little more specific about the macro environment and its effects on our business, you’ll recall last quarter we told you that North American customers were continuing to cut back light truck production while several OEMs in China were reducing their summer production schedules. These realities are reflected in our third quarter results.

On slide four, in China light vehicle production increased 4% in the third quarter which reflects the slower pace of growth compared with the 2008 second quarter’s 16% and the 2007 third quarter’s 21%. Although overall production increased slightly, Volkswagen, GM, Ford, and Brilliance all took unplanned plant downtime in the summer resulting in a year-over-year 14% production decline for these OEMs. These negatively affected our business in China as these are our largest customers in the region. With the fourth quarter production in China is expected to increase 4% over the 2007 period.

Of course, North American production also continued to shrink. In the third quarter light vehicle production declined an estimated 16% and the fourth quarter also is projected to see a 16% decline year over year.

Western Europe again is significantly weakened as we enter the fourth quarter. According to Global Insight, Western Europe’s auto production for the third quarter declined 5% year over year and is projected to fall 13% in the fourth quarter. Eastern Europe reported production growth at about 12% in the last quarter, but this region also is beginning to feel the effects of the weakening global economy, especially in Russia. Eastern Europe production is now forecasted to decrease 4% in the 2008 fourth quarter.

The intensity of the slowdown in automobile demand, brought on by frozen credit markets, high fuel costs, and rising unemployment, is far greater than anyone could have anticipated even a couple of months ago. Furthermore, while material prices have declined from peak 2008 levels, commodity costs are still higher than year-end 2007 representing continuing (inaudible).

There will be more market risk in the near term, so right sizing our business is a priority. I want to assure you that over the past several months we’ve been highly focused in this area with cost savings and efficiencies initiatives under way. Last week we announced a restructuring program expected to yield $64 million in annual savings with a payback period of less than one year.

You’ll see on slide five as part of that program we’re in the process of closing four manufacturing plants and one engineering facility, and restructuring an emission control plant to adjust to reduced OEM demand. These initiatives and other actions will result in the elimination of approximately 1,100 positions worldwide: 600 hourly jobs and 500 positions in our global salaries workforce. The salaries workforce reduction was across all functional areas. At the same time, we’re maintaining engineering development work to support those objectives while deferring some engineering spending by retiming future technology development where no customer program is yet in place.

This latest reduction in force is in addition to the 1,150 employees that were laid off earlier this year. In total, year to date we’ve decreased our global workforce by about 10%.

Our employees were working with the highest level of urgencies on the things that we can control and leveraging the company’s operational agility to succeed in the changing environment. The steps we’re taking are designed to position us to maintain our competitive edge in the near term and to build on our growth position for the future. We continue to focus on maintaining our financial flexibility. I know that’s an important topic right now so let me lay it out for you on slide six and then Ken will follow up later with more detail.

We run Tenneco in a very disciplined and judicious manner. At the end of quarter we had $127 million in cash, $328 million in unused borrowing capacity on our revolving credit facilities, and cushions against our tightest covenant of $79 million for EBIDTA and $318 million for debt. Our debt structure is conservative and we have only $21 million in debt maturities in 2009 and no significant maturities until 2010.

Our facilities were funded by a group of 19 banks. As the credit crisis intensified we increased our contacts with our lenders to make sure they would remain capable of honouring their facility commitments. Through those same conversations we know that Tenneco has built a lot of credibility with these banks over the last several years and, as a result, they are both very supportive of our team and our management strategy.

Generating cash flow is our highest priority. First on slide seven you’ll see the strategies that we employed to minimize capital spending. As we restructure we are redeploying equipment to the new commercial vehicle platforms awarded. This reduces the capital investment required for those launches. We are also evaluating make-versus-buy decisions for additional opportunities to avoid spending on capital equipment and we’re deferring regional expansion plans for our ride control business utilizing existing capacity to import parts from established regions.

The restructuring program we just announced also will generate cash as we move forward. As I said, the payback period on this investment is less than one year. Additionally, lower production levels are reducing cash requirements for our receivables and inventories and we continue to work to be more efficient as measured by our days still outstanding and inventory days on hand metrics.

The accounts receivable securitization program affords us another source of liquidity. In September we added a new $70 million facility in Europe which increased our global factoring capacity to $310 million. The terms of our debt agreements limit the amount of receivables we can sell for $250 million. However, this new facility increases and diversifies our funding sources and further strengthens our financial flexibility. Globally these are non-recourse agreements for Tenneco and its subsidiaries.

With that let’s get into some of the financial details of the quarter starting on slide eight. As I mentioned, steel costs continue to rise resulting in an $11 million greater impact year over year.

Gross margin in the quarter was 13.3%, down from 15.6% a year ago. The decrease was due to lower industry production volumes, the impact of the North American vehicle mix shift, and unfavourable currency. Gross margin also was negatively impacted by the timing of steel cost recovery from a major OE customer. In both the third quarter 2008 and 2007 gross margin included $3 million in restructuring related expenses.

We reported SGA&E at 7.7% of revenues compared with 8.4% of revenue for the same period last year. The improvement in the SGA&E percent was attributable to tight spending control and lower incentive compensation costs.

Now I want to take a couple minutes to discuss some commercial highlights. In the third quarter we launched 27 light vehicle models that were either new, refreshed, or had expanded content. The emission control regulatory timeline is firm. These mandates in the US, Europe, and China will continue to drive higher content and new business, even in this turbulent environment.

Technology and innovation are a corner stone of Tenneco’s leadership position. We recently learned that we’ve been selected as the 2009 Automotive News PACE Award finalist for our high damping Elastomer technology, and we received an honourable mention for our Elim-NOx dosing and injection technology which is a critical piece of the solution for reducing nitrogen-oxide emissions in accordance with the 2010 regulations in North America and China. We have some of the best engineers in the industry developing new products, processes, and technologies for a variety of markets that are coming under stricter environmental control regulations each year.

With that I will turn the call over to Ken.

Kenneth R. Trammell

Thanks, Gregg. Before I go into business segment analysis let me review some of the items that affect comparability between the third quarters of 2007 and 2008 on slide nine.

Third quarter 2007 adjustments include three items: the restructuring and related expenses of $3 million pre-tax or $0.05 per diluted share, after-market customer changeover cost of $5 million pre-tax or $0.06 per diluted share, and tax benefits of $8 million or $0.17 per dilute share related to reduction in income tax rates in Germany and adjustments for prior year income tax returns.

Third quarter 2008 adjustments include two items: restructuring and related expenses of $6 million pre-tax or $0.09 per share, and non-cash tax charges of $132 million or $2.84 per share primarily for recording a valuation allowance against the company’s deferred tax assets and repatriating $40 million in cash from Brazil as a result of the company’s strong performance in South America over the past several years.

Now let me take a minute on slide 10 to discuss the valuation allowance that we were required to record against our US net operating losses. First let me remind you that nearly all of our interest expense is incurred in the United States while less than 40% of our revenue is generated here. This is the largest reason that we generate a taxable loss in the US. Accounting standards require us to evaluate our accounting for this operating loss quarterly. This evaluation considers a number of factors, including the length of the carry-forward period for using NOLs as well as tax planning strategies that are reasonable to implement and that would result in utilizing the NOL before it expires.

The fact that received the most weight, though, is recent taxable losses. As the US economy, and US automobile production in particular, has gotten progressively worse this year the results for our US business also declined resulting in higher taxable losses. Accounting standards do not permit us to assume an economic recovery, nor do they permit us to give any weight to future business growth. Consequently, we must assume that the current negative operating environment in the US continues indefinitely when we assess the need for our valuation allowance.

Now, one key point that I should make is that the accounting for the NOL does not determine the ultimate economic benefit that we’ll get from the NOL. That benefit will be determined by future events, including an economic recovery and our ability to launch profitable new business in our growth outlook.

Let me emphasize that the NOL do not begin to expire until 2020 and the last one expires in 2027. So we have a significant amount of time to utilize this asset.

Now turning to the North American OE results on slide 11, our revenues for the third quarter of 2008 was $520 million. That’s down 14% compared with $602 million in the third quarter last year. Excluding substrate sales and currency, revenue was down 7%. However, the year over year revenue comparison included the benefit of $40 million from the recently acquired Kettering, Ohio, ride control operation.

North American light vehicle market production was down 16%. Our North American OE revenue was impacted by the overall volume weakness and more specifically by mix issues where industry production for the higher content light truck platforms fell by 32% compared to the 5% passenger car increase.

Tenneco’s mix deteriorated further with SUVs and pickups making up 46% of our sales in the third quarter compared with 58% in the 2008 second quarter. The temporary production shutdown of the Toyota Tundra magnified the impact for us.

Our ride control revenue was up 10% compared with the prior year thanks to a full-quarter revenue from the passenger car platforms, etcetera. These passenger car platforms contributed $40 million in the quarter. After this acquisition benefit our ride control revenue would have declined more than the market production due to the significant volume decreases in light truck production. Especially for the GMT900 where we supply much higher than average content with a front module assembly.

North American OE emission control revenues fell by 20%. Substrate sales net of currency were 23% lower than the prior year as a result of production decline. When you exclude substrate sales and currency North American OE emission control revenue fell 17% in the 2008 third quarter. Our emission control sales suffered as a result of lower year-over-year volumes on the light truck platforms. The biggest impact came from the Ford SuperDuty, the GMT900, the Toyota Tundra, and the Dodge Ram.

Only partially able to offset the decline were GM’s Epsilon passenger car models and the Lambda crossover platforms, as well as Volkswagen’s compact Jetta passenger car and the new Dodge Journey crossover.

North American aftermarket revenue for the third quarter of 2008 was $142 million, up 8% from the year earlier period. This increase was driven by higher ride control and exhaust sales volumes, as well as higher pricing to offset material cost increases. Ride control after market revenue was up 8% in the third quarter and emission control after market revenue, excluding currency, rose 9%.

Now on slide 12. Third quarter EBIT for our total North American operations was a $2 million loss versus earnings of $24 million in last year’s third quarter. Third quarter 2008 included $5 million of restructuring costs for headcount reduction and last year’s third quarter included $5 million of aftermarket changeover costs. In total, adjusted EBIT for North America was $3 million compared with $29 million last year. We were able to offset nearly half of the negative EBIT impact from market and economic conditions in the quarter with new business and substantial cost reductions.

Let me bridge the year over year change for you. Lower OE production volumes and mix accounted for $28 million of the EBIT decline. Lower manufacturing fixed cost absorption, particularly at plants that are supplying SUVs and light trucks, reduced EBIT by another $14 million. Unfavourable currency exchange rates related to the Mexican Peso and the Canadian Dollar accounted for $6 million of the decline. One million dollars of higher depreciation expense had a negative effect on the EBIT, as did timing of steel cost recoveries for a major OE customer.

The good news is that the higher aftermarket volumes in new OE platform launches added $15 million to EBIT in the quarter. Our focus on spending controls and reducing SG&A accounted for most of the remaining EBIT contributions.

Moving on to Europe on slide 13, we reported third quarter 2008 OE revenue of $481 million. That’s up 1% compared with the $478 million reported a year ago. Currency exchange rates favourably impacted total European OE revenue by $16 million the later three months.

Substrate sales net of currency effects were down 6% over last year. Excluding substrate sales and currency, our total European OE revenue was down 2%.

European OE ride control revenue excluding currency increased by 7% in the 2008 third quarter with favourable volumes on the Suzuki’s Flash, the Ford Focus, the Volkswagen Transporter, the new Mazda 2, and the Volkswagen Passat and Mercedes C-Class, both with our electronic shock technology.

Revenue from our European OE emission control revenue and emission control units fell 3%. Excluding currency and substrates revenue declined 5%. Volume increases on BMW’s 1-Series, the new Jaguar XF, VW’s Golf, and the Ford Mondeo and C-Max were more than offset by declining volumes on aging platforms like Daimler’s Sprinter and E-Class, PSA’s 207 and 306 models, GM’s Astra, and Porsche’s 911.

Third quarter European after market revenue was $111 million, up from the $108 million recorded a year ago. This is on slide 14. When adjusted for currency, after market revenue fell by $1 million.

Excluding currency, ride control revenue was up 5% compared with the third quarter of 2007, while emission control aftermarket sales excluding currency were down 10%.

Revenue from our South America and India operations on slide 15 was $115 million compared with $86 million reported in the year earlier quarter due to higher OE revenues and an increase in South American aftermarket revenue. Currency had an $11 million favourable impact on revenue. Excluding currency and substrate sales revenue in South America and India combined rose 16%.

For the 2008 third quarter total EBIT for our Europe, South America, and India segments was $24 million compared with $22 million in the third quarter of 2007. This is on slide 16. Adjusted for restructuring in each quarter, EBIT was flat at $25 million. Favourable rise in ride control, as well as manufacturing efficiency improvements offset lower OE volumes in our emission control business and $1 million of unfavourable currency.

On the next slide third quarter revenue for our Australian operations was $51 million unchanged from one year ago. Including favourable currency and lower substrate sales, revenue rose 8%.

Finally, our Asian operations reported revenue of $77 million during the third quarter of 2008, down from $99 million in the year-earlier period. This was driven by 24% lower sales in China primarily related to the extended summer shutdown at four of our largest customers there, which Gregg mentioned earlier.

EBIT with $6 million versus $11 million last year in our Asia Pacific region. Operational improvements in Australia of $1 million and $2 million of currency benefited EBIT. This was more than offset by the lower volume in China, which reduced EBIT by $5 million year over year, $1 million of higher SGA&E, and inventory adjustments related to some platform changes which added another $2 million negative effect. This adjustment isn’t expected to recur.

On slide 18 for the company’s total, currency favourably impacted year over year third quarter revenue comparisons by $37 million, but unfavourably affected total company EBIT by $5 million due to the weakening trends in the Mexican Peso and Canadian Dollar during the quarter.

Depreciation and amortization was $56 million for the quarter compared with $52 million the prior year. This change is primarily related to the Euro. For 2008 we still expect depreciation and the amortization will likely be in the range of $220 million to $225 million.

Moving on to slide 19, interest expense in the 2008 third quarter was $30 million. There was no expense related to marking the interest rate swaps to market. Last year’s interest expense of $32 million included a $4 million mark-to-market reduction in expense from the swaps. The net decrease in interest expense came from lower rates from both our variable debt and a portion of our fixed rate debt. For 2008 our projected interest expense was expected to be roughly $120 million excluding any further mark-to-market impact.

On slide 20 we recorded a $131 million tax expense in the latest three months which includes the $132 million in non-cash charges that I referred to earlier. In the 2007 comparable quarter we recorded no tax expense. The income tax rate that we report on a go-forward basis will be significantly impacted by the fact that we will not record tax benefits for future US and operating losses until the US begins to generate taxable income. So each quarter we’ll make sure that we report separately the impact on our tax expense of not recording a benefit on the US operating loss. Cash taxes for the latest quarter were $26 million compared with $17 million in the prior year and we expect our cash taxes to be between $10 million and $15 million for the fourth quarter of 2008.

Now let’s talk about cash and debt on slide 21. On an overall basis we completed the quarter with $307 million in borrowings and $45 million in letters of credit outstanding against our $680 million in revolving credit facilities. Accordingly we had $328 million of unused borrowing capacity available on September 30th. Our consolidated debt level was $1.524 billion at quarter end and our cash balance was $127 million bringing debt net of cash balances to $1.397 billion. Net debt to adjusted last 12 months EBIDTA at September 30th was 3.1 times, up from 2.9 times last year.

If you’ll turn to the next slide we’ll review our cash flow performance. Cash provided by operations in the quarter was $40 million. That’s a $44 million improvement from the cash used for operating activities of $4 million a year ago. Our working capital cash flow improved by $70 million year over year. Our cash flow benefited from a $10 million improvement in securitized accounts receivable, the changes in cash flow for accounts receivable and inventories year over year related to the different levels of production activity, as well as lower inventories of catalytic converters sourced from South Africa for operations in North America.

Days sales outstanding including factoring improved 62 days versus 66 days one year ago, mostly related to timing of activity in the quarter. Inventory days on hand were 40 days; three days less than last year’s level. Again, this primarily resulted from the decrease in pipeline inventories from South Africa that I just mentioned.

Days payable outstanding was 68 days in 2008 third quarter compared with 76 days a year ago. That’s also related to timing of activities in the quarter.

Now on slide 23 you’ll see that we have two financial covenant ratios that we must meet each quarter. As cited, the debt compliance ratio is the leverage ratio. At September 30th our leverage ratio was 3.27. It could be no more than 4.0. The interest coverage ratio was 4.08 and we needed to maintain this ratio above 2.1 times. As Gregg mentioned, the cushion we have against our tightest covenant for EBIDTA is $79 million and for debt it’s $318 million. This level of covenant performance would meet our tightest covenant ratio through the maturity of our senior debt facility in 2012. I want to point out here that there are no other provisions in our covenants, including ratings triggers or a net worth test, that could trip us up in this environment.

Now on slide 25 you will see that we’ve been taking advantage of the actions we executed in November 2007 to expand our receivable securitization capacity. Worldwide factored receivables were higher at $226 million as of September 30th, 2008, compared with $149 million one year ago. Of the amount outstanding in the latest quarter $99 million was from the US receivable securitization program with a balance of the factored receivables coming from programs with regional institutions in Europe.

In September we expanded our global securitization capacity to $310 million of receivables by adding a new facility in Germany. So although our limit under the credit facility is $250 million we have flexibility to use several sources to maintain the program. The third quarter’s higher level of factored receivables is a reflection of our taking advantage of the now larger capacity.

So let me summarize where we stand on liquidity on slide 26. We worked the finance with a conservative debt profile so we could be prepared to weather auto industry volatility. We currently have substantial room on our debt covenant ratios, as I mentioned.

In November 2007 we expanded the cap in our debt agreement on factored receivables to $250 million and in September of this year we expanded global capacity to $310 million. Our first significant debt maturity is an amortization payment on our term loan A from 2010 of $54 million. And at the end of September we had a net $143 million receivable from GM, Ford, and Chrysler in the US. Of this amount $49 million was sold into the North American securitization program.

Capital spending on slide 28 was $67 million for the third quarter compared with $49 million a year earlier as we prepared for a new business, including commercial vehicle on highway and off-road programs that have been awarded for 2010 and 2011, and support our growth in the BRIC economy. For 2008, we expect capital spending will be about $220 million.

On slide 29, in terms of restructuring, we recorded $6 million of expense in the third quarter for headcount reductions in North America and Europe. The fourth quarter restructuring actions that Gregg discussed are estimated to results in a $25 million charge this quarter and another $35 million in charges throughout 2009. Headcount reduction should be substantially completed by first quarter next year and facility closures are expected to be finalized by year end of 2009.

Now I’ll turn the call back to Gregg.

Gregg Sherrill

Thanks, Ken. We anticipate continued volatility across the global industry driven by the ongoing economic crisis with continued production buying declines in North America and with key customers in China. We also expect to now combine weakness in Europe in the fourth quarter as our OE customers continue to adjust schedules to declining vehicle sales. Global Insights’ latest production forecast is summarized on slide 30.

Currently we’re in the process of reviewing and finalizing our plans for 2009. You can expect ongoing investment to support business growth, along with aggressive cost management. We’ll be able to give you more colour on our strategy and expectations during our fourth quarter call in February.

We have confidence in the capabilities and determination of our people, and our ability to execute in each country and each segment in which we operate. Our business model is solid. We continue to maintain our financial flexibility and our relationships with our vendors are strong. This is a company that has successfully weathered hard times in the past, so we know what needs to be done and how to do it. We know what our priorities are and we know what challenges need to be overcome.

This is a very experienced team. Throughout our ranks every person is making a contribution and I’m confident we’ll get where we need to be to effectively perform in the midst of this unprecedented economic cycle.

At Tenneco there are a number of things we’re confident about. Among them is our market share growth, particularly in the commercial vehicle segment, and another is the content expansion we’ll benefit from as a result of worldwide environmental regulations.

In the press release we told you that we’re still comfortable with our compounded annual revenue growth projection for our global OE business of 11% to 13% between 2007 and 2012. This is on slide 32. Among the basic assumptions underlying this projection are third party projections for light vehicle and commercial vehicle build rights in 2012, our own market share estimates based on business already won and new business we expect to capture, the mandated timelines for worldwide emission regulations, and the increased content requirements to meet those regulations.

Regarding these basic assumptions, we have seen no significant changes in the regulation time line and no changes in required content. There have been some changes within the forecasted 2012 build rate, but the total rate overall is virtually unchanged.

As you know, due to the timing of regulations the majority of our growth in this five-year time frame comes between 2010 and 2012 with approximately half of the total growth being generated in the commercial vehicle sector. Our success in winning new production and development programs remains on track.

With that we can open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from Brian Johnson – [Brathwaites Capital].

Brian Johnson – [Brathwaites Capital]

Good morning. I want to focus a bit on decremental EBIT margin in North America. My calculations have it somewhere between 30% and 40%. Can you help us with how you calculate it and also what’s driving that versus sort of the 20% to 25% we’d seen in earlier quarters?

Gregg Sherrill

Yeah, a couple points to take into account there. You’re talking North America in particular.

Brian Johnson – [Brathwaites Capital]

Yeah.

Gregg Sherrill

We said it in the script there, but let me go back to it. In this last quarter our light truck mix represented about 46% of revenue. In the second quarter it was at 58% of revenue. If you go all the way to 2007 it was 72%. That’s probably not even relevant right now. So that is one of the items.

There are obviously overall more quarter-to-quarter sales. You have the seasonal issue in there. I think also currency affected, between the Mexican Peso and the Canadian Dollar. And then the last thing is the timing on some steel recovery that we expect now in the future quarter. I think those are the big drivers there.

Ken, you got anything you want to add?

Kenneth R. Trammell

I think that covers it. Brian, I think one thing you probably just want to think about that Gregg mentioned is the unusual movement in currency, especially near the end of the quarter. Because we found that was, like Gregg said, about a $6 million currency headwind that we had not clearly anticipated.

Brian Johnson – [Brathwaites Capital]

Right. But if I strip out the currency, the $28 million, if I divide that into the revenue decline ex substrate seems to get me to a 40% decremental operating margin.

Kenneth R. Trammell

Yeah. And then the other things that Gregg mentioned I think are the things that you need to take into account. Certainly the mix deteriorated faster in the third quarter than it did in the second quarter. We also had the timing issue on the steel recovery. Which, as Gregg said, we anticipate to recover in a later quarter.

Gregg Sherrill

Probably the biggest factor in the mix continuing to deteriorate was the tundra shutdown.

Brian Johnson – [Brathwaites Capital]

And as we think about Europe what kind of decremental margins should we be thinking about going into 4Q in Europe?

Kenneth R. Trammell

I don’t know that I have a percentage to give you, Brian. As usual, it kind of depends entirely on the mix. We don’t have the same mix issue in Europe obviously that we do in North America where the light trucks have made up such a large percentage in the past of the overall build rate. But there will certainly be some headwind [inaudible].

Gregg Sherrill

Yeah, Europe is kind of where North America was several months ago. So we’re getting literally daily updates on production schedules and plant downtime and that sort of thing. It’s just too volatile to really forecast at the moment.

Brian Johnson – [Brathwaites Capital]

Okay. Thanks.

Operator

Your next question comes from Rich Kwas – Wachovia Securities.

Rich Kwas – Wachovia Securities

Good morning. Gregg, just touching on Europe here, with margins in the past you’ve talked about OEM margins there, the opportunity that you have given the macro environment here. What are you thinking in terms of preserving margins in Europe and your ability to do that? How does the recently announced restructuring program go about in terms of helping you out on that end?

Gregg Sherrill

Well, the restructuring program, particularly if you look at the workforce implications, were balanced between North America and Europe. So there was a big piece of it in Europe. Now Europe takes a little bit longer to get those in place. You can move a little bit quicker here in North America; I think we’re all fairly aware of that. Nevertheless, by the end of the whole thing Europe was well represented. The plants themselves, I mean, we’ve been doing quite a bit of restructuring in Europe lately and we just closed the emission control plant in France at the end of last year. The plants were all North America oriented. We had to get it fast and we have been working on that. I think we’ve told people we were working on that one over the last several months. The engineering centre was down in Australia, so it was really impotent in either of those two regions. The main plant restructuring is North America, but the overall workforce implications were pretty well balanced between the two regions, I think.

Rich Kwas – Wachovia Securities

Okay. So do you feel that you’ll, it may take a little longer here, but do you feel that you can preserve margins at a reasonable level going forward here in Europe?

Gregg Sherrill

Certainly. You know, that’s what the whole restructuring program is aimed at is preserving margins. Now, we can’t say for sure right now the degree to which the volumes are going to get in Europe. As I said a moment ago, we’ve got that same level of uncertainty that we had in North America just a few months ago. That’s something to watch very, very closely. But that’s all a part of rolling it into our 2009 plan and I can assure you that we’re going to keep that thing as up to date as possible. If we have to take further actions in the future we’re going to be prepared to move there as well if things do deteriorate further than what our current planning is calling for.

Rich Kwas – Wachovia Securities

Okay. And then that just segues into my next question on restructuring here. It looks like you’re kind of getting close to the limit in terms of cash restructuring under your current covenants. Are you starting to have discussions with your banks on the level of added flexibility that you may be able to generate going forward?

Kenneth R. Trammell

Rich, I think there’s a few ways to look at the restructuring benefit. The first is, it’s not a limit on restructuring spending. It’s simply a limit on the amount that’s automatically excluded from the debt covenant ratio. So one alternative to it is, you know, I’ve always, especially when it’s a fast payback project, to continue to implement restructuring and let it impact the debt covenant ratio. So the banks don’t prevent us from doing restructuring. We just have to go back to them if we want to then renew or change the amount of the basket. And that’s something that we have historically done. We have a pretty good track record of being able to accomplish that. And if we decide that’s the appropriate approach that’s one that we would follow and we expect to be able to get done.

Rich Kwas – Wachovia Securities

Okay. And then in terms of steel, I know you’re not still higher than levels exiting 2007, but kind of first thoughts in terms of next year. Do you expect it to be a headwind?

Gregg Sherrill

I don’t know that we can actually say yet. We do know that steel prices are continuing to come down. They’ve lacked some of the other commodities a little bit. I think everyone’s aware of that. And we’re currently clearly at a point in time where we’re in negotiations, but also deferring negotiations really as late as possible as we watch what is really occurring with steel costs. I think it’s a little too early to say exactly where they’re going to come out year over year.

Rich Kwas – Wachovia Securities

How much of those negotiations do you expect to have finalized by the time that you report Q4 in January?

Kenneth R. Trammell

I’d say it’s a decent amount of it, Rich. I think a lot of it depends on how commodity prices are turning at that time. But we’ll certainly keep you updated as things progress.

Rich Kwas – Wachovia Securities

Okay. Thank you.

Operator

Your next question comes from Brett Hoselton – KeyBanc Capital Markets.

Brett Hoselton – KeyBanc Capital Markets

Good morning. Let’s see. Restructuring; $64 million in annualized savings. Kind of by the end of 2009 or is that going to push back into 2010?

Kenneth R. Trammell

We should reach the run rate by the end of 2009. Of that a substantial portion of it relates to the head count reduction, so we’ll probably get, I think, north of 80% of that in the end of 2000.

Gregg Sherrill

Pretty quick, yeah.

Brett Hoselton – KeyBanc Capital Markets

And then if I understood your answer to Richard’s question correctly, it sounds like you can go to the banks and basically spend some additional cash if necessary, if you can demonstrate that the payback period is quick enough.

Kenneth R. Trammell

Yes. If you think about it, Brett, our interest in the bank [inaudible] when it comes to restructuring so we’ve had a pretty good history and been able to get an amendment for that. We would expect to follow that if we decide that’s the right way to go.

Brett Hoselton – KeyBanc Capital Markets

And then the ramp up is fairly consistent throughout the year, you think? Or is there going to be stair step function sometime during the year?

Kenneth R. Trammell

Because the headcount reductions will be pretty much a full run rate by the end of the first quarter. I don’t see a decent amount of it in the first quarter and then, like I said, we’ll get north of 80% of it for the full year. So it will ramp up relevant to –

Gregg Sherrill

It’s the plant fee, so it’s a little bit slower, obviously.

Brett Hoselton – KeyBanc Capital Markets

Okay. And then as we think about the decremental contribution margins, I know we were trying to drive at that earlier, can you provide us with any sense of what the decremental contribution margins would be, maybe on the value-added side of the OE business in North America and Europe.

Kenneth R. Trammell

You know, Brett, it’s tough to give you a rule of thumb. I think this quarter is probably a great example of that because the margins are driven by so much more than just the rule of thumb. I mean, if you think about it, like we’ve said before, a substantial portion of our cost base is certainly labour and materials. Those are fairly flexible in the short term for us in North America. But because of the mix change that’s going on with the light trucks and SUVs, the currency headwind, the other things that we talked about, there’s not a rule of thumb that I can give you on having a look at that.

Gregg Sherrill

It’s still volatility of production volumes. It has as much to do with that as anything.

Brett Hoselton – KeyBanc Capital Markets

If we think about the cash constraints as you say with your debt covenants, you obviously have a fairly significant amount of new business coming on line over the next several years. How should we think, are the cash constraints, do you think going to be an impediment to being able to capacitize for some of that new business going forward or are you not concerned about that at all?

Gregg Sherrill

Well, you know, when we built our restructuring program we took all that into account. So when we set up our plans, what we’re looking at for what we think are very conservative levels of production volumes, continuing to grow, supporting our customers, supporting the business that we’re working on, all that rolls into it. So we feel good at this point in time that executing that restructuring program keeps us on track, not only for the base business, but for the growth aspects as well. Again, if conditions were to continue to deteriorate we’ll ramp that up and continue to keep the critical growth aspects front and centre as part of our consideration.

Brett Hoselton – KeyBanc Capital Markets

Okay. And then just finally, we tend to focus on the OE side of the business and the aftermarket is obviously a different animal. As you think about the aftermarket performance over the next 12 months or something along those lines directionally do you have any sense of where the aftermarket may or may not go in North America and Europe over the next 12 months?

Gregg Sherrill

Well, again, the aftermarket’s always an interesting question. We’ve seen some improvement here this quarter. I would say we’re looking for probably flat to maybe moderately up. I don’t think we’re anticipating any huge increases at all. But we’re going to stay focused. We’ve been winning new business and we’re going to stay focused on winning new business as well and continuing to drive that piece. I mean, it’s still a very strong performing part of our overall portfolio.

Brett Hoselton – KeyBanc Capital Markets

Thank you, Gregg. Thank you, Ken.

Operator

Your next question is Douglas Carson – Banc of America.

Douglas Carson – Banc of America

Great thanks. Good morning. A question on Europe. GM has just announced their production is going to be down 51% there, which was kind of shocking. It looks like your plan is closer down to between 4% in Eastern Europe and 12% or 13% in Western Europe. Which other OEMs do you feel could pressure that percentage decline you guys have kind of baked in? It seems like we’re getting a lot worse numbers than the numbers you guys kind of have put out here.

Gregg Sherrill

Yeah, we’ve provided the Global Insight numbers as a reference point. Now, underneath that is clearly what platforms are we on, what specific programs were up or down, and what are running. That gets back into this volatility I’ve been talking about. We are getting every day updates to production schedules in Europe. I can’t overemphasize that. It is exactly where North America was several months ago where from one day to the other you could get an announcement on your way out that a plant was going down for three months. That’s the sort of thing we’re seeing in Europe. So we’re not trying to suggest that you can translate that forecast. Right now we’re in Europe for, the nearer the term is is almost the more difficult it is to forecast, just like we were in North America. So sure, as those numbers come out we’re going to be adjusting and looking at what the long-term effects of those potentially are. But that’s all I can say. You’ve got sort of a Global Insight general number. Underneath it we are looking every day at our production schedule. So anything that GM announces that impacts my production we’ll roll right into our planning. Or a Volkswagen, or a BMW, or a PSI, it doesn’t matter who. We’re getting it in from everyone right now.

Douglas Carson – Banc of America

So is GM kind of like a modest part of the business in Europe? Is it up a few percent or is it up to 10% of what you’re doing in Europe.

Gregg Sherrill

I’m not sure what percentage of the full European business is GM. I mean, our GM business is more concentrated in North America than it is outside of North America. They are an important piece. [Inaudible} virtually all the European.

Douglas Carson – Banc of America

And then finally, the 2007 to 2012 OE revenue plan is unchanged. The marketing conditions are pretty bad. At least the last six months have been horrendous. Could you give us more detail on the split of that growth? I know it’s a long-term plan, but how much is kind of commercial vehicles or slight vehicles? You’re probably one of the only guys that have a growth rate that high for the next few years.

Gregg Sherrill

Again, I go back to what basically under turns that growth rate. It starts with that regulatory timeline. Those are absolute mandatory requirements as they sit on the books today. In regards to your question on the commercial and light vehicle split, about half of the total growth between 2007 and 2012 is in the commercial vehicle segment. And that just happens to have a lot to do with the fact that the regulatory activity in this time frame is more heavily involving diesel engines, which obviously pick up commercial, on-road, off-road, you name it. Again, we said before our technologies scale up just fine and work quite well for that segment.

Kenneth R. Trammell

Doug, one of the keys, and don’t forget the way Gregg put it in the presentation, that we try to validate growth rate based on looking at what 2012 production volumes are. While there’s certainly bad economic climate today I think everybody’s projecting that there’s a full recovery by 2012. That’s a big driver of why the growth rate is what it is.

Gregg Sherrill

Yeah. I mean, clearly we’re looking at some lower than what we had planned revenue expectations in 2009 and probably in 2010 as well, depending on how long this thing goes, right? Those are just all volume dependent. By as Ken just said, by 2012 we’re expecting a recovery. As I think pretty much everyone is.

Douglas Carson – Banc of America

All right, guys. Thanks so much.

Operator

Your next question comes from Chris Ceraso – Credit Suisse.

Chris Ceraso – Credit Suisse

Thanks. Did you say what the actual build rate is? The third party build rate here for 2012? I know you said it changed a little bit, it came down, but what’s the number?

Gregg Sherrill

I do not have that in front of me. We can get that for you. I have no problem sharing it.

Kenneth R. Trammell

Yeah. It’s the Global Insight number for 2012. I just don’t remember the exact number off the top of my head. I’ll take a look and see if I’ve got it with me and if not we’ll get it to you.

Chris Ceraso – Credit Suisse

Okay. I may have missed this. I apologize. But did you quantify what that steel recovery was that slipped here out of the third quarter and do you expect to get that in the fourth quarter?

Gregg Sherrill

It’s our expectation to get it in the fourth quarter. We did not quantify it. It’s only because of sort of the state of the talks with the customer right now. So we would like to just hold off on that.

Chris Ceraso – Credit Suisse

Okay. Is it, like, are we talking nickels or dimes?

Gregg Sherrill

It’s not insignificant.

Kenneth R. Trammell

Or else we wouldn’t have mentioned it.

Gregg Sherrill

Right.

Kenneth R. Trammell

To your other question, Chris, I’m looking at, let me make sure I’m looking at the right numbers here. It looks like the number of units in 2012 is about 1.8 million units on a global basis. And there’s ups and downs. Compared to where we were before it’s just down in some regions and up in others. But net-net it’s virtually unchanged. It’s actually down about seven-tenths of a percent.

Chris Ceraso – Credit Suisse

Okay. With regard to the deferred tax valuation allowance, is it just the US where you’ve taken that? Is that where you’re unprofitable?

Kenneth R. Trammell

There are other overseas locations, like the UK, where we have not traditionally been valuing or would not have traditionally been booking an asset for that because those that have not traditionally benefit, but this charge that we’ve taken is really in the US.

Chris Ceraso – Credit Suisse

And then I know it gets really difficult to forecast your tax rate on a go-forward basis once you’ve done this, but you’re saying $10 million to $15 million in past taxes in the fourth quarter. Is book tax going to look like that too? Does that work on a go-forward basis?

Kenneth R. Trammell

Cash taxes and book taxes, I know, Chris, will look significantly different. I’ll be honest with you, we’re still trying to figure out how to give you better visibility on it. I know once we finish the quarter we’ll give you perfect visibility because we’ll let you know what the impact of not benefitting US [inaudible] and hopeful that might help with the process of evaluating what the [inaudible].

Chris Ceraso – Credit Suisse

And then the last one. You spoke to this a little bit, but it does look like the aftermarket was a bit stronger here. Is that evidence, do you think, of people holding on to vehicles a little bit longer and having to maintain them or am I reading too much into that and it’s just one month that was decent?

Gregg Sherrill

Yeah, I would be just a little careful. Again, I’ve said before, the aftermarket in the short term is fairly difficult to predict because there are so many seasonality related items in it. But I mean, over the long haul, if the fleet ages, which it’s currently doing, that is a positive pick up for the aftermarket. I mean, it’s certainly not negative pressure. It’s more positive. But you can really month to month and quarter to quarter almost drive yourself crazy because of some of the seasonality issues again.

Kenneth R. Trammell

Chris, you asked about is it a month in the quarter, we’ve seen some decent performance in the aftermarket for the last several months. If you go back into the second quarter you could see that we had a pretty good second quarter in the aftermarket as well.

Chris Ceraso – Credit Suisse

Right. Okay. Thanks a lot.

Operator

Your next question comes from Patrick Archambault – Goldman Sachs.

Patrick Archambault – Goldman Sachs

Hi. Good morning. I just wanted to get a sense of the CapEx number that you have put out there for 2008. How much could you, how much of that might be maintenance CapEx, how much is supporting your books or your business for next year? In kind of a worst case scenario what could that be flexed down to in 2009 if need be just to shore up cash without getting into trouble with some of your customers?

Kenneth R. Trammell

Your definition of maintenance and mine are probably different. So let me just kind of put it this way: of the 220 I would say that this year we’re spending mostly on the platform growth that comes in late 2009, 2010. That time frame. And the expansion in the BRIC economy. It’s important for us to keep those. We will seek the flush as much as possible. I think Gregg mentioned a couple of ways that we’ve been doing that so far as we change our capacity footprint in North America and as we match our needs against our customers’ capacity needs. We’re redeploying some of the capital that was devoted to some of the light truck platforms to other platforms. So that will help us flush capital. We’ll also defer some of our expansion plans, especially in the ride control side. In some of the growing markets where we can ship shops from other locations in the world where we have some excess capacity because of the production decline. Things like that that will help us flex down some of the needs that we have. It’s a little too early to give you a view on what we think 2009 CapEx is going to be, but we’re very focused on making sure that we preserve cap.

Gregg Sherrill

Yeah, the only other one, and I mentioned it earlier, make-versus-buy decisions which we’ve been looking at very, very critically for deferred capital spending as well. But the one on our ride control business deferring some of the expansion that we had planned is important. We can ship ride control products fairly efficiently. And I wouldn’t trust the defer nature there until market conditions improve. That’s just simply prudently taking advantage of existing temporary capacity while markets are down in our major regions to hold off on capital spending.

Patrick Archambault – Goldman Sachs

And then allow me to just push that question a little further. At the very least, I know we’ll get more in January, but at the very least can we think about a CapEx number that’s maybe flatter, even a little lower than what you have this year? Would that be hard to do?

Gregg Sherrill

We’re still working through all that. I really would like to wait until February when we’ve got that all worked out in some detail.

Kenneth R. Trammell

Patrick, we literally tore up our 2009 plan and started over. We’re making sure we’re focused very intently on capital to be sure that we’re being very efficient. But it’s just too early to give you anything specific about 2009.

Patrick Archambault – Goldman Sachs

Okay. And on slide 25, the $99 million, or I guess the $120 million program that comes up for renewal in January, can you just give us a little colour on that? I mean, have you had those discussions? Are you having those discussions? Are you fairly optimistic about being able to renew that? If not, I take it what that means is kind of a $99 million working capital headwind unless you replace it with other things. In the worst case what might some of those other things be?

Kenneth R. Trammell

Yes, Patrick, we are highly confident of renewing the program. We have renewed it each of the last eight years and don’t see any reason why it shouldn’t be renewed this year. We’ve had discussions with the bank. They don’t see any reason why it shouldn’t be renewed.

Patrick Archambault – Goldman Sachs

Okay. And just a last quick one. I guess your FX margin is negative with a tailwind on revenue and then headwind on EBIT. Just on a go-forward basis I understand there’s a lot of moving pieces, but how should we think about modeling currency, particularly as we’re getting into quarters where the revenue is going to be negative. How should we think about modelling that, at least in terms of an EBIT impact?

Kenneth R. Trammell

Patrick, it is a general rule, and obviously third quarter is an exception, but it’s a general rule that we make and sell parts in very similar currencies. Where that’s broken down in the quarter was the Canadian Dollar and the Mexican Peso where there is a lot of cross-border activity. Where it sometimes has an impact is some of the Eastern European countries, like the Polish Zloty and the Czech Koruna versus the Euro. Those were not a significant issue in the quarter, but what we did see in terms of the headwind was the unusual movement right near the end of the quarter, especially the Mexican Peso and the Canadian Dollar. I can’t give you a projection of what those are going to do. Traditionally they don’t move as rapidly as obviously they did in the third quarter. I would expect a return to more normal.

Patrick Archambault – Goldman Sachs

I guess in the past has, just with you producing and selling in the same regions, is then kind of the EBIT margin at least a good first pass modelling assumption?

Kenneth R. Trammell

That’s a good rule of thumb in a normal environment to use.

Patrick Archambault – Goldman Sachs

All right. Thank you very much.

Operator

Your next question comes from Itay Michaeli – Citigroup.

Itay Michaeli – Citigroup

Good morning. I just want to circle back to a couple balance sheet questions. It looks like you still have quite a bit of room under your revolver covenants, but if things get progressively worse, if you could just say what some of your options might be? Is there any more collateral you could offer the banks should a future renegotiation be required? Any thoughts or colour you can share there?

Kenneth R. Trammell

Yeah. Itay, obviously the restructuring that we announced last week is designed to make sure that we continue to meet our covenant. Obviously our first goal is to make sure that we don’t get to the position that you’re talking about. But I should point out that in the past, if you go back to the early part of this decade, we’ve had a history of being proactive and talking with our banks and renegotiating covenants as necessary. Based on where we are today we would expect that we should be able to be successful if that’s the position that we need to pursue.

Itay Michaeli – Citigroup

All right. That’s helpful. And then just another quick on one pension. Any update to having US pension as a type of formula? I think the underfunding last year was about $60 million. Any direction view or order of magnitude over how we should be thinking about next year’s pension contribution?

Kenneth R. Trammell

Yeah. I think next year’s pension contributions will be up a bit, but I don’t think it’s going to be a significant change year over year.

Itay Michaeli – Citigroup

Okay. Is that because you have any pension credit offsetting that or is that just the timing of catch up payments?

Kenneth R. Trammell

Yes, there’s certainly a timing of catch up payments. The assets are what most people, most pension plans are a mix of fixed income and equity, none of which have obviously performed very well in the last 45 days. But as we’ve moved toward the end of the year we’ll get a better view of what that impact will be. I’m not expecting it to be a huge cash flow headwind next year.

Itay Michaeli – Citigroup

That’s helpful. Thanks a lot.

Operator

(Operator Instructions). Your next question is from Rich Kwas – Wachovia Securities.

Rich Kwas – Wachovia Securities

Just a quick follow up. Gregg, EPA just announced some new emissions rules for boat engines and lawn mowers and that type of stuff takes effect in 2010 and beyond, how meaningful is that to you? I know you’ve talked about the off-road being a driver in the future, but when you’re talking about the content on these types of products it seems like it’s going to be a lot lower than vehicle. How should we think about that?

Gregg Sherrill

We said all along we’ll continue to do that. Any of these that we refer to as adjacent markets we’ll evaluate on a business case basis. Obviously you’ve just named two that are completely different from one another. We are certainly looking at the marine market, but we’ve not made any commitments there yet one way or the other. We’ve done much less work on the lawn mower market at this point in time. But again, we’ll just evaluate those on a business-by-business basis. It is fundamentally the same type of technology. It is scalable in either direction. But we have to make sure their the right markets for us, the right business that we can take advantage of the economies of scale moving back into our components areas to efficiently address those markets. The two that you mentioned, one of them is under study and one is really not at this point. Again, we will stay apprised of all that, including stationary applications as well. It doesn’t have to be mobile. There are a lot of stationary applications for, say, diesel engines out there.

Rich Kwas – Wachovia Securities

Okay. Very helpful. Thank you.

Operator

Your next question comes from Tony [Vetrino] – Federated Investors.

Tony [Vetrino] – Federated Investors

Thank you. How are you doing? Just a quick clarification on the China sales. Do all those stay in the Chinese market or do any of those get sent back to Europe or the US?

Gregg Sherrill

I think it’s virtually all domestic consumption.

Tony [Vetrino] – Federated Investors

Okay. So then the declines there are indicative of what’s going on with the Chinese market then.

Gregg Sherrill

Yeah. And like we said, the overall market may have been up a little bit, but it was very much, there was no real consistency. I mean, there were some customers went down and some went up. It had a lot to do with where they were introducing new models or not up there. But like we mentioned, in the quarter Volkswagen, GM, Ford, and Brilliance, which happen to be four of our significant customers, were all literally down. And that’s down year over year. Actually, their plants were literally down for a while.

Tony [Vetrino] – Federated Investors

And then moving on. You said, I think, if I got the number right, there was $40 million that you brought back from Brazil. Is that correct?

Gregg Sherrill

That’s right.

Tony [Vetrino] – Federated Investors

How much cash do you have overseas in other areas and do you expect to bring more of that back? What’s your plan for that?

Kenneth R. Trammell

I see our overseas cash is designed to fund operational needs overseas. So of the $127 million that’s on the balance sheet we’ve probably got, I have to give you rough numbers, a third to a half of it in different locations around the world where it funds just those local needs, like China.

Tony [Vetrino] – Federated Investors

So none of that is really excess? Really the only excess would be in Brazil?

Kenneth R. Trammell

Well, no. There is clearly excess cash in a number of different locations around the world, but generally speaking we design that to sustain those locations because we don’t want to use up our NOL assets by bringing cash back. That cash is generally available to fund operations either in the local economies, the local regions, especially like growth in China, or in the event that we need to we can certainly move it back to the US in a fairly expeditious way.

Tony [Vetrino] – Federated Investors

And did you have to pay taxes on that $40 million that came back?

Kenneth R. Trammell

Yeah. That was part of the tax charge that we took.

Tony [Vetrino] – Federated Investors

Okay.

Kenneth R. Trammell

Because of the NOL I guess there’s sort of a chicken or the egg question. If we had taken the NOL valuation allowance before then the tax charge would have been zero. If we did the dividend first then the tax charge for the NOL was less, which is why we grouped the two of them together for you. But that certainly did use up a piece of the NOL. From a signing perspective we felt it was important to get the cash back out of Brazil. From an exchange rate perspective we did it in the middle of September and I guess that turned out to be just about the best time to bring cash out of Brazil. We were glad to get it back when we did.

Tony [Vetrino] – Federated Investors

And then just one last one. Trying to understand the CapEx and the restructuring and your plans for the future. You’ve taken down or will take down four plants. Is that going to affect, I think before you were saying that the CapEx is platform growth in 2010 and beyond. Is this restructuring and the decreasing CapEx, is that going to affect any of your future plans or how will that affect your future plans?

Kenneth R. Trammell

The only way it really affects our future plans is in the equipment itself there will be some freed up equipment that we can actually use to reduce our capital going forward. But we took nothing down from the way of a floor space point of view that was in any sort of a location that we could have used for that anyway. So it’s only a positive.

Tony [Vetrino] – Federated Investors

All right. That’s it for me. Thank you.

Operator

At this time I’m showing no further questions. I would like to turn the call back over to your presenters for any closing comments.

James K. Spangler

This concludes our call today. An audio replay of the call will be available on our website, www.tenneco.com. You may also access a recording over the telephone. If you’re located in North America you may reach the playback at 1-800-925-0608. For those of you outside North America the dial in is 1-402-220-3037. The playback will be available in about one hour from now. This call-in information you can find in our news release.

If you are an analyst or an investor with additional questions please follow up with Leslie Hunziker, our executive director of investor relations, at 847-482-5042. Financial reporters may contact Jane Ostrander, our executive director of communications, at 847-482-5607.

Thank you again for taking part in our conference call and have a good day.

Operator

Thank you. This concludes today’s conference. Thank you for participating. You may disconnect at this time.

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