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Tenneco Inc. (NYSE:TEN)

JPMorgan Chase & Co.'s Global High Yield & Leveraged Finance Conference

February 25, 2013 11:40 am ET

Executives

Gregg M. Sherrill - Executive Chairman and Chief Executive Officer

Kenneth R. Trammell - Chief Financial Officer and Executive Vice President

Unknown Analyst

Good morning, if everybody could grab their seats, we're going to get started. Our next company is Tenneco. We have Gregg Sherrill and Ken Trammell from Tenneco. So please welcome them and we'll get started.

Gregg M. Sherrill

Okay. Thank you and good morning, everyone. I'll get right into the presentation then we'll take any questions you may have at the end.

Okay, just from an overview point of view. 2012, we closed out the year with $7.4 billion in revenue, 67% of that revenue came from our Clean Air, formally known as our emissions control business and 33% from the Ride Performance businesses. Then if you split those 2 divisions down by geography, you can see Clean Air, 51% was generated in North America, 35% in Europe, South America and India, that segment and 14% in Asia-Pac. Ride Performance, similarly, 15% in North America but 43% in Europe, South America and India and about 7% in Asia-Pac. So total, 7.4% and a reasonably challenging year from a macroeconomic point of view. We operate 89 manufacturing facilities now globally, have 14 engineering and technical centers. That map shows very clearly that we sit in all the major centers of production and product development for both light vehicles and commercial vehicles in the world. We also kind of chart our engineering, and combined with our R&D, the true R&D spend on the right side. That total spend last year was $285 million, roughly a little less, I think, than 4% of our revenues, although our net spend was essentially $126 million once you take into account all the customer recoveries we do get for the applications engineering work that we do.

Customer mix. Very balanced. We think getting even more balanced as the years go by. GM and Ford are still our top 2 guys. We've got a lot of business with them, had over the years. We kind of grew up with them, but GM is a little under 17% now, Ford at 14.6%, followed in our top 5 by 3 other big light vehicle customers we're very proud of, Volkswagen, Daimler and Toyota. And then you begin to see some of the newer folks in the top 10, SAIC and down at #9, FAW, Chinese companies that were growing quite a significantly. SAIC with their 2 big joint ventures with GM and Volkswagen, we've got very significant business with them. And FAW, they're Volkswagen joint business, significant business with them, as well as coming commercial vehicle business with FAW. Caterpillar continues to move its way up and we're kind of rounded out there at the top 10 with Navistar. But you can see, balanced -- in #11, I should probably mention NAPA because our aftermarket business is also still a very strong and profitable part of our business and clearly, some of those guys are in the top 20 as well.

But we're very pleased with that and we do feel like that balance is getting better and better as we move into the commercial vehicle segments with the regulatory climate changing year in and year out here.

If you look at the platform mix, our largest platform is really kind of a tie at the top, GMT900 and the P473 program with Ford, both of them at about 5%. So no single platform overly large. Then you get into some of these global platforms, the Ford C1, GM Epsilon, the Delta over on the right side, solid vehicle car platforms that we have good business with, with our customers around the world. But we're very happy with that diversified platform mix we have in the light vehicle world also. Top 10 platforms, by the way, represent about 32% of our total revenues.

Just looking backwards for just a moment, because I said earlier, 2012, we are very proud of the year. We set records financially for the full year, I think, in 7 different financial metrics we reported last month. Total revenue was up 2% year-over-year which is a little bit light for us, but when you consider the situation in Europe and the fact that commercial vehicles are essentially in a recession around the world right now, all of our platform launches, some of the new content coming on, still overcame a lot of that, along with the strength of light vehicles in North America and China, they increase our total revenue by 2% year-over-year. But very importantly, with that increase in revenue came 11% increase in adjusted EBIT and a 25% increase in earnings per share and net income down there and a 51% improvement in cash flow from our operations. So given the challenges we faced, all the launches that we had last year, which were quite numerous and significant to us, the operating performance of the company, I was very, very proud of and very pleased with. So just all in all, a good year and then ultimately, from a leverage ratio point of view, we have driven that down to 1.5x now, which we are equally proud of considering the history.

So now looking forward, and we kind of rolled this out a little bit in New York last week. We have spent about 1.5 years internally focused on our 2 product lines from an overall review point of view. And we kind of set a marker out as a vision to understand our markets in the year 2025 to the extent that you can understand them that far out, but we were to look at some macro trends where regulations were ahead and particularly on the emissions side because they've been such a powerful driver over the last 5 years and look at how we wanted to see what our company should look like that far out. We're clearly a manufacturing company, we clearly have 2 very strong product lines in the company, our emissions business and our ride control business. But they are absolutely driven by different markets factors out there.

Clean Air is a regulatory driven business. We're in the midst of 5-, 6-, 7-year period, maybe longer, of heavy emphasis on diesel engine applications. Hence our growth into commercial vehicles and other market segments that we'll talk about in a few minutes. But we're also seeing on the horizon the advent of additional light vehicle emissions requirements coming on. So there could be a shift back over the next 5 to 10 years with a focus on some of the gasoline engines, again, as well. But what we wanted to make sure of, our strategy in and of itself really didn't change. That's what this whole thing told us. But the execution and deployment of our strategy, because the 2 divisions were really separating themselves within the company, Ride Performance and Clean Air, and we wanted a clear line of sight from my office right down through the entire organization and each business of deploying that strategy that is unique to both sides of the business. So I'm going to get into that in a little more detail on both sides of the business in a few minutes, so I'm not going to take you through that right now.

But underlying all of that, common to the whole corporation, is a common foundation. We talk about our operational excellence all the time. I think it was very prominent in 2012, focus on safety and quality, our Tenneco Manufacturing System, which helps us drive a very common operating system across the company, supported by global business processes and capabilities, optimizing our global footprint, whether it's Ride Performance or Clean Air side of the business. And developing strategic supplier partnerships because the more and more complex our products get, the more top line, high-quality suppliers we need, some of which with engineering capabilities in and of themselves. And of course, common to our foundation is our financial strength, our earnings growth, our cash flow, EVA performance and balance sheet strength.

Looking for a few minutes at the Clean Air division. 2012, I showed a moment ago, revenue came in a little over $4.9 billion, broken up as you see. Again, in the pie chart at the top and you can also see the pie chart at the bottom, that geographic split for Clean Air in earnings with $202 million of it coming North America, $61 million in Europe, reflecting the recession that Europe is in over there and $71 million in Asia-Pacific, with only $694 million in total revenue there.

And the focus we have now really aligned ourselves on Clean Air, which is exactly the focus that took us into all of this commercial vehicle business that we've been so successful in winning is kind of step-by-step, a clear expertise in the global regulation environment that we see, not just the United States, but in Europe, in China, in South America, India, et cetera. All over the world, we must have global regulatory expertise. If I look back on the company's history over the last 6, 8, 10 years, we have got tremendous amount of product expertise. We didn't have the right focus on the regulatory regimes and quite frankly, early in the last decade, we sort of missed the curve on the on-road vehicle regulations coming on. And we've been playing a little bit catch up there.

We took a hard look at that, we looked at what the upcoming regulatory regimes were, saw the commercial off-road vehicles coming online beginning in 2011 and incrementing again in 2014, really got our act together, focused, got the beachheads established, got the right technologies in place and we've hit that one out of the ballpark. But it was all over, really focused on the regulatory regimes well enough ahead of time to get the technologies lined up in new markets where our products are very much the solution. So it starts with that regulatory expertise. It then needs a foundation in the core sciences of Clean Air because these reactions are very critical, what addresses carbon monoxide is different from what addresses particulate matter, is different from what addresses NOx, and all of those are the category pollutants that we address around the world that are very much health concerns around the world.

As we looked out and saw the newer markets we were getting into and even learning from the commercial off-road business, we needed to make sure we had the right level of systems integration, because if you look at our light vehicle customers, a lot of those are still very heavily involved in their total powertrain design and development. And we kind of worked jointly with those engineers, very much jointly. As you get out into off-road and then further on into marine, locomotive type applications, they don't really hit -- they buy their engines, #1; they've never had to address any sort of environmental concern and they're kind of wanting someone to come in and just take care of the whole thing for them. So we had to make sure we're focused on that, I feel like we are, we've made dramatic steps with the off-road business that we have very successfully won.

Then we have to have cost effective global market solutions into these major new markets for us. Certainly light vehicle, which is sort of still our bread-and-butter, commercial vehicles, which we are now well into the way of launching and then what we call the large engine platforms, which are the future potential market opportunities for Tenneco and I'll show you that in just a moment.

We threw China-specific solutions as a major part of our strategy because China is big enough, they're growing fast enough, they are the largest vehicle manufacturer in the around, they're the largest commercial vehicle manufacturer in the world and they are driving their own solutions. They're not just copying what occurred in the West. They have a different durability requirements, different uniquenesses within the regulatory regimes and they need their own solutions tailored just for them to be successful. If you want to be the leading global Clean Air company in the world, you cannot ignore China.

So very much and we have invested heavily in our Chinese engineering capabilities. And then I'll talk about this again in a few minutes, the potential of a large platform life cycle services business coming with some of these large engine applications in the future. I said it all starts with the regulatory timeline, it's a busy chart. We provide it for you. You have a copy of the major regulations that we have on our radar screens for the technology roadmap that these things drive. The big one's coming up. 2013, quite frankly, is a bit of a quiet year for launch activity because that's a quite year on the regulatory regime. But 2014 is another big year steer for our final before the off-roads comes on in Europe and North America and some other regulations that we see on the screen there. So we'll begin launching those in late 2013, but they won't have a huge impact on us this year. This year, it'll primarily be however the markets recover that drives some of our revenues on the commercial vehicle side of our business with some content coming on but not like we've seen in the past. The next major content launch is really at the end of the year and then the next year and then continues.

So it starts with the regularly timeline, moves into a product pipeline that lines up with that as we shown you this before. And I won't go into great detail here but suffice it to say, this is just a high level of how we line up the required technologies to meet those regulations looking into the future so that we're well prepared for them. And this is what's been so effective at moving us, migrating us from light vehicle into commercial vehicle and again, particularly the off-road side of the business and what we're now beginning to get on our radar screen, locomotives, marine and stationary engine applications, all of which take the same basic core technology that Tenneco provides.

This is a chart, I kind of call it the success chart. I think it speaks for itself. I was asked a question a little bit earlier, and it kind of dawned on me. If you go back maybe even 4 years, there's only about 4 or 5 names listed on this chart. And the last 4 or 5 years is expanded into what you see there. That's when I said we hit it out of the ballpark by getting ahead of the curve on the off-road stuff, and we're beginning to catch up now on on-road as we really got focused on those markets, and we're very proud of all of these customers. We're in the midst of launching a lot of this business 2013, I mean in 2012, now moving into the end of this year as we go to Tier 4 final that begins to be required in 2014, China is still a little bit of its own -- it's a wildcard for us but we are well positioned with a great customer base that we are in development with. Development activity has picked up. There has been a question on the enforcement of the regulations in China's for years now. I'm tired of talking about it but it is a reality. But we all know, currently the official date for implementation of regulations on their commercial vehicles is July of this year. We've had official dates that have come and gone in the past. There is an enormous amount of pressure building on China. It's hitting the Western newspapers big. Their air quality indexes are off the charts, literally off the charts. The charts only go to 500, in Beijing it's hit as high as 855, which at 300, it signals health warnings all over most of the Western world. So they got a real issue. And we know that at some point, they've got to begin implementing this. It's still a question of when, not whether. And this is the list of customers that we're heavily involved with and we are very pleased with that. So it still represents such a large market, such a huge need, when the government does decide to start enforcing it, a big opportunity for Tenneco, and we believe those forcing functions are beginning to get fairly acute for them as the world press and even their own government begins to see the effects that it's having. But again, real successful chart we are very proud of and are continuing to build as we go forward. This is kind of that market vision that we developed through that whole year and a half's progress of kind of setting what should -- what will things look like by 2025. And it's sort of left to right, the various markets from light vehicle to on-road commercial off-road, et cetera. And up and down, it's geographic regions that are color-coded and you can see the legend on the left-hand side there. The bottom line is, is that whole rectangle represents about $100 billion in Clean Air technologies required on the planet by 2025, about. Let's say I'm wrong. It could be $80 billion, it's still a big, big market that we're looking at. That same rectangle today is between $30 billion and $35 billion.

So it's both growth in light vehicle and commercial vehicle volumes around the world and continued increase in content in the regulation, and by the way, those last 3 columns on the right really don't exist today so that's all regulations coming yet to launch in the locomotive and marine, really the right 2-hand columns, locomotives and marine is combined there and stationary.

Then in the lower right-hand corner, you can see what our estimate is just relatively speaking. In the large application, think locomotive, marine and stationary there, the ratio of post OE revenue to what the OE revenue would be. The only thing in that big chart, the colorful chart there, is OE revenue. But if you look at marine, oceangoing vessels, driven by big large diesel engines. These things have life expectancies of 50 years and they continually rebuild them during that 50-year period. And what we're looking at because marine is such a low-volume thing compared to our normal high-volume business. If all we would ever do is go after the OE side of that, I can't even look you in the face today and tell you I would pursue that business. But coupled with a lifetime parts and service contract, it might be very attractive to Tenneco.

So the main thing I'm telling you is with the new organization, with a vision of 2025 of what that market can look like, unlike sort of missing the on-road but very much like catching the off-road. We will have all of these market applications on our radar screen. Whether we pursue them or not, will be a decision we make. We're not going to let one slip by unnoticed, that's for sure. And the market is plenty big enough for us to be able to be very selective as we go forward and still continue a very nice rate of growth beyond our normal 5-year period that we are looking at.

Turning to Ride Performance division. Different set of drivers I said, revenue in 2012 of $2.4 billion. You see the revenue split that I showed earlier in the top pie chart in the earning split and the lower pie chart looks a little different than Clean Air. But here, the strategic imperatives look different. Product cost leadership. What I mean there is we currently manufacture a little over 80 million shocks and struts a year. Last year, I was told it's right at 81 million, shocks and struts. As we begin to commonize the internals of shocks and struts around the world, which we're driving for, and if we could drive product cost down, you can imagine, and I can leverage that across 80 million or 81 million shock absorbers, the earnings benefit can be quite huge. So even a few pennies worth of cost savings -- leverage would cost 80 million or 81 million shocks -- can be big. We have to do that in a way that maintains our superior functionality, which we believe we have. Advanced technology could very well play into this because it's an area of the vehicle that's not really had that much impact from the electronics revolution yet, although we are there in niche markets with electronic controlled damping systems on cars particularly in Europe and we want to get a focus on how we can drive that across a broader market. We have to have vehicle dynamics and integrated systems expertise. A lot of people don't realize that on the Ride Performance side of our business, we are very heavily involved in the whole chassis development of the vehicle.

Riding the vehicles with our customers and tuning them to the right ride performance that they want. We're an NVH solution provider, which is noise, vibration and hoarseness. Everything that we making, including elastomers on this side of the business, isolates the driver or the passenger from some adverse powertrain or road input into the vehicle, be it shocks, vibration or whatever, that's what we do. And this is also where, particularly with our ride control aftermarket, we have our very powerful aftermarket business. So I've already talked about product cost leadership across 80 million or 81 million, has a lot to do with commonizing the design, making sure we have the most optimal manufacturing footprint, continuous improvement in our plants. But if we could get that more and more commonized through the years and leverage that volume and scale, we think we can be very, very successful in a market that's priced close to like commodity pricing, quite frankly. And then if we can implement within that, a percentage that's higher than today of our advanced technologies, and these are 4 that we have, the upper left-hand when it's in production in a niche way in Europe, mainly on higher performance luxury vehicles, but in some midsized vehicles as well. But usually, the installation rates aren't any higher than 5% to 10% of any given platform that it's on. The product we show right below that is a lower-cost version of that, which we see helping us drive a little more mass market, a similar performance to what we have in that CES module in the upper left. The upper right is a very advanced system, combines kinetic technology and the electronic [audio gap]. It is only in production on a very low volume supercar today but it's -- it has won all kinds of awards and we believe the value in that is really almost the marketing that it gives us of our technology capabilities here.

MacLaren is extremely pleased. They've won all kinds of awards, and this is a vehicle that's probably the closest thing to a Formula 1 vehicle that's legal to drive on the road. And as I said, it is entirely our CES kinetic suspension system in there. The lower right is maybe a little bit further out in development and this is a fully active suspension system that several companies are now evaluating for upper end cars as well. So we still see a technology play through the years helping the mix in that product line drive a higher value content for us. We've developed a technology road map -- we've been showing this for a few years -- that is focused on not only product innovation for the mass-market shocks and struts but for the technologies, the electronic technologies that I just mentioned so I won't dwell on that but it's there for you to have a look at.

And then I want to talk just briefly about the aftermarket business we have where we are #1 in North America, we’re #1 in Europe, we're #1 in South America. We have extremely powerful brands. Monroe is one of those rare component brands that transcends regions, rarely does that occur within the automotive world. And Monroe has this #1 position in these 3 regions and we're looking at ways as the aftermarket develops in the emerging economies. And again, you can probably think China is #1, which still doesn't have that large of a carpark, cars and service, and they're not very old because they've all been built in the last few years. So the aftermarket itself is not developed there. But what can we take to the uniqueness of China from our own brand and distribution knowledge capability and grow that? We're going to stick to our knitting there. We want to stick to the products that we know best, and the aftermarket that's the strongest for us is clearly ride control, which grows about with the GDP of any given region versus emission control where the products simply last so long now that, that aftermarket actually is declining in all of the developed regions of the world. The ride control, very, very important to us and we want to continue and it's a countercyclical business that has been considerable help to us in the past and should be going forward.

All that kind of adds up to the latest OE revenue growth projection that we just published a week or so ago and this is all OE revenues. We don't think include aftermarket in these numbers.

2013, I mentioned, is going to be kind of a quiet year. The revenue growth that we do see there will again be driven by probably North American light vehicle production, China light vehicle production, Europe, we don't see any help coming at all in 2013, and it will also depend on recoveries in the commercial vehicle segments where we're launched, we're on the platforms and it's now going to be subject to how many machines do they build. And that is -- some expected recovery in the back half of the year. But 2014, again, content kicks up, and we're certainly like a lot of people anticipating more market recovery by then, and some of the uncertainties, hopefully, clear out of the global markets and we begin to see a commercial vehicle recovery in those years. But still, a 10% to 12% CAGR over the 5-year period, depending on whether you want to take our high or low numbers and just a very solid growth curve. The bulk of this business is booked. People ask me those questions all the time and those last 2 years, there's probably business that's not exactly locked down yet, but we're so deep into the development program that we believe it's a very high likelihood that it will be sourced to Tenneco and include those in our numbers as well. So very pleased with that. What we show at the bottom, because it's the big driver of our growth, is the pertinent regulations and by year that are helping to drive the growth that you see there.

The common foundation I mentioned a moment ago on operational excellence, I'm going to go into a few things and financial strength here. I cannot overestimate the importance of our Tenneco Manufacturing System across both product lines. It is a very standard way that we've developed of operating plants. So -- and I mean it, you can walk into one of my plants in Brazil, in China, in North America or Europe or wherever and you will get a sense of commonality with its sister plants in the other regions, by the charts you see, by how we run the production lines, the layouts, et cetera. So we're very focused on that standardization because that is a way of leveraging the volumes that we do produce around the world. And we have a very standardized set of global business processes that go with the physicals that you would see in those plants, and we think that's also a very powerful tool and the upshot is to drive absolute consistency across operations because so many of them are producing product for the same customer in various regions, and they do not want to see a different delivery performance or quality performance or cost performance in different regions around the world.

From a balance sheet point of view, I think our record speaks for itself. You could lay a ruler going back to, say, 2004 is one end and 2012 and seeing absolute steady progression of [indiscernible] but with the sole exceptions of '08 and '09. And clearly, those were the recession years where our leverage ratio popped up but we brought it right back down and continued that downward path to where last year we completed the year at 1.5x on that leverage ratio, something that we're very, very proud of. And that leverage we do believe needs to be sufficiently low to operate what is clearly a cyclical business, light vehicles are cyclical, commercial vehicles are more cyclical and as they become a bigger part of our portfolio, we will certainly be subjected to those business cycles as well. So we've kind of targeted now with that advent of all of that an operating leverage of 1x, our covenant leverage ratio is 3.5x and we want enough room for business cycles without any uncertainty around any covenant amendments whatsoever. We've done that before, Ken and I both prefer not to do it again. So we're looking at what we believe is a conservative level that allows us to operate within any business, foreseeable business cycle, without anyone's help but our own operating capabilities there.

So 1x is what we're considering as a target, if you will. We set at 1.5x today. And then when you look at priorities for cash flow, because we've continued to generate, I think, more and more positive cash flow and we'll continue to in the future, obviously, #1 in our priority list is funding that organic growth curve that we showed you. The company is absolutely focused there and I want very few things distracting the corporation from that growth curve because it's there for us to execute. The only variable in it is macroeconomic driven volumes out there. And one thing for sure is particularly in commercial vehicles, we are at a low point in that cycle, therefore, the next cycle is up in our view, it's not down.

Executing on our European cost reduction plans. That will cost us some money. We reported that, I think, in the fourth quarter earnings release. It's about $120 million, and of course, that's a priority as well but that's going to really help us size our European operations as many of our customers are doing right now to kind of the new reality within Europe. We'll continue debt and pension liability reduction. We will look at strategic opportunities, we're on no shopping spree. We feel like we're in good shape with what we've got. But there could be some core sciences foundation that we see out there. We've done it in the past, small acquisitions that help shore us up in a way that may take us more time to develop on our own. And there could be even some customer and geographic consolidation operations. There's still some regional players out there but again, nothing is mandatory, nothing at all is required to meet the growth curve I showed you. These would only be enhancements down any of those strategic priorities that we see. And then capital returns to shareholders, of course, we began back in 2011 to repurchase shares that offset dilution due to our employee ownership programs. To date, that's been about 1 million shares, cost about $34 million through 2012. We have authorization again this year for another 550,000 shares to be repurchased. And then, also, as we get towards that operating leverage that we talked about, certainly further returns to our shareholders would be something that we would be planning for as well. So that's kind of the priority as you walk down. And again, we feel very good about where the business is at today and where it's going in the future. So with that, I'll summarize and leave a few minutes for questions. We've got a history of growth profitability and deleveraging. Clean Air regulations, I mentioned, and technology are driving significant growth opportunities for us. We have a market-leading Ride Performance business and we are going to leverage that scale, we believe, better than we have even in the past as we really get a solid focus on that business. And we're going to continue to look at driving the semi-active and active damping technologies into the market. We've got a sound business model and we have really good and getting better by the year geographic, customer, end market, product and platform balance that we're very, very proud of. We are a leading supplier of Clean Air and Ride Performance products today, and we do have a #1 aftermarket position in the major regions of the world. Our operational capabilities, I think, speak for themselves as well. Our manufacturing footprint, I showed you, is really in good shape in all of the leading regions of the world and we've got that demonstrated commitment to our balance sheet and continuing to strengthen it and improve financial stability, and we do have an experienced management team or we wouldn't be delivering all of the above.

So that is the end of the formal presentation. With that, we have a few minutes for any questions that you may have.

Question-and-Answer Session

Unknown Analyst

I think most investors were a little bit surprised by the commercial vehicle market binary experience last year, almost schizophrenic. I mean, very strong in the first half and then just plunged in the back half. And what we heard was the small -- the big commercial buyers were able to get financing, they replenished their fleet in the first half and then the small fleet kind of faded away not being able to get financing in the back half. I guess my question is, where are we right now? I mean, it's an aged fleet, is the back half optimism driven off of forcing some of these small fleets into buying and what's your confidence in that back half recovery?

Gregg M. Sherrill

Yes, one of the things that we almost need to put a definition of commercial vehicle markets every time we talked about it because our experience is, if we just say commercial vehicle, everyone goes straight to United States Class 8 on-the-road trucks. And everything you just described describes that market, which we're not even in. We're in Class 4 through 7 with Navistar, which has some unique problems, quite frankly. We all know that. And they've suffered some market share losses and that's pressured our business. But the bulk of our business is in the off-road markets, right? So in the United States, you think Caterpillar and Deere. Agriculture has held up pretty well but construction has not. And it was, I don't think, strong really at any point in the year last year. So it's just been hit hard by the macro uncertainty. These are big machines, they're big investment for people and they've actually been going through a lot of inventory correction, as well as poor sales. I mean, it's driven by one off the other and hence our volumes were quite low as we launched into it. Now, again we still overcame, had year-over-year revenue improvement, and I gave a figure right now based on what our customers in the markets had expected from a year prior for the off-road sales, we're in total operating at about a 45% underutilization. That's how severe that recession is. But that -- I give that number also for the opportunity that exists for a volume pickup because we're on the platforms, it's launched. As I said, even 2013 is a pretty quiet year. And when that upturn does occur, primarily the off-road side, and it will depend on some of these macro, even some of our government policy issues getting behind us, but it will come. Then we're going to ride a very nice volume increase and there's long way to go on that.

Unknown Analyst

Yes, I think you guys are showing a little bit, like $100 million lift in revenue in the commercial vehicle '12 versus '11. But $200 million this year, is that your penetration as you guys grow into the market?

Gregg M. Sherrill

That's because it was still a ramping end year last year, and now it's whatever the market is going to be. And quite frankly, in a more normalized economic cycle, those revenues would be considerably higher but that's where we see it right now.

Unknown Analyst

And then just looking at the pension, are there any major changes in the cash and expense '13 versus '12? And then secondly, we've had a couple of companies, one kind of made sense, one really didn't made much sense of paying down pension with on-balance sheet debt. Any consideration to doing that?

Kenneth R. Trammell

From that perspective, no, I think we've said, assume $50 million to $60 million a year in pension contributions and I think our expense runs around $30 million a year, give or take, so we'll continue to work that liability down. Remember that we're funding a frozen benefit as opposed to chasing a liability up, like some of the other guys that you've mentioned are. And so from that perspective, we will continue to work on it. At some point in the future, it may make sense to derisk the balance sheet, but I don't think we're at a level of funding yet where that could be the case. In the U.S., we're at about 75% of funding right now. If discount rates moved up 200 basis points, we'd be closer to 95% funded. So obviously, we're going to -- we'd like to derisk the balance sheet at some point. I just don't think we're at a position yet to do that.

Unknown Analyst

I think we're pretty much out of time, if not over time, right? But thanks, everyone, for coming today.

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Source: Tenneco's CEO Presents at JPMorgan Chase & Co.'s Global High Yield & Leveraged Finance Conference (Transcript)
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