Tenneco Inc.
A Look
Ahead

                   2005 Annual Report

                   Global growth... by design


        ...
Our mission is to be recognized
Our Mission


              by our customers as the number-one
              technology-dr...
Tenneco Inc.
Original Equipment
Operations              2005 Sales               Applications                        Produ...
Competitors                Key Advantages                   Top Five Customers                 Top Five Platforms 2005    ...
Financial Highlights
Year in
Review




                                                                      2005        ...
Our performance last year was a success
To Our
Shareholders

               on many levels, culminating in a 25%
         ...
segment to 10% by 2007. We expect
An Appropriate Name Change                                                              ...
Competitive Advantages

    Tenneco has good customer, platform
    and geographic diversity, and a
    balance between or...
Competitive Advantages
                                                                                 includes Toyota, N...
platforms make up only 25% of total         Emissions standards for today’s off-
                                         ...
Growth Prospects

Stricter emission-control standards,
demand for improved vehicle stability,
expected long-term growth in...
Emission standards and fuel require-
             ments are tightening around the world.

             Our 2007 sales of h...
Emissions Technologies for
                                            Environmental Mandates
                            ...
Ride quality and handling characteristics
        remain among the top influencers in
        consumer buying decisions.

...
Advanced Technology
                                     for Improved Vehicle Ride
                                     an...
Growth OEMs for
                                               Enhanced Customer Mix
                                     ...
tenneco annual reports 2005
tenneco annual reports 2005
tenneco annual reports 2005
tenneco annual reports 2005
tenneco annual reports 2005
tenneco annual reports 2005
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tenneco annual reports 2005

  1. 1. Tenneco Inc. A Look Ahead 2005 Annual Report Global growth... by design Europe Expanding Eastern European ■ North America footprint Launching four major new ■ Launching four new platforms ■ diesel platforms with electronic suspension Introducing brake products ■ Producing nearly 800,000 Korea ■ in the aftermarket diesel particulate filter units Supporting two new ■ Expanding share of commercial ■ emission-control vehicle exhaust market platforms Opening two new just-in-time ■ facilities to service Toyota South America Building on 32% ■ revenue growth in 2005 India Introducing gas ■ springs in the China Assumed 100% ownership ■ aftermarket of Indian facilities Opening elastomer plant ■ and exhaust engineering facility Launching high-volume ■ ride-control platform 23 new platform launches ■ for a major customer for seven customers Increasing ownership ■ of Beijing ride control facility
  2. 2. Our mission is to be recognized Our Mission by our customers as the number-one technology-driven, global manufacturer and marketer of value differentiated ride control, emission control and elastomer products and systems. We will strengthen our leading position through a shared-value culture of employee involvement, where an intense focus on continued improvement delivers shareholder value in everything we do. Table of Contents Corporate Profile Tenneco Inc. is one of the world’s largest designers, manufacturers and Gatefold marketers of emission-control and Tenneco at a Glance ride-control products and systems for Page 1 the automotive original equipment Financial Highlights market and aftermarket. The company became an independent corporation Page 2 in 1999, allowing singular focus on Chairman’s Letter strategies to maximize global results. Page 5 Our Competitive Advantages Tenneco markets its products principally under the Monroe®, Walker®, Gillet®, Page 9 and Clevite® Elastomer brand names. Emissions Technologies for Leading manufacturers worldwide Environmental Mandates use our products in their vehicles, attracted principally by our advanced Page 11 technologies. We are one of the top Advanced Technology for Improved suppliers to the automotive aftermarket, Vehicle Ride and Handling offering exceptionally strong brand Page 12 recognition among consumers and Growth OEMs for Enhanced trade personnel. Customer Mix Page 13 Safe Harbor Please see the Safe Harbor Statement, China for Rapid Growth Statement risk factors and the description of Page 15 our original equipment (OE) revenue Aftermarket Service Products forecast under quot;Management's for Incremental Sales Discussion and Analysis of Financial Condition and Results of Operationsquot; Page 16 in the accompanying Form 10-K, which Board of Directors and Officers is incorporated herein by reference. Page 17+ Form 10-K Inside back cover Investor Information
  3. 3. Tenneco Inc. Original Equipment Operations 2005 Sales Applications Products Brands Emission $2,390 million Passenger cars Complete exhaust systems ■ ■ Control Light trucks Fabricated manifolds ■ ■ Commercial vehicles Manifold-converter modules ■ ■ Industrial applications Catalytic converters ■ ■ Motorbikes Mufflers and resonators ■ ■ Buses Diesel particulate filter systems ■ ■ NOx abatement systems ■ Exhaust heat exchangers ■ Exhaust isolators & hanging systems ■ Ride Control $1,030 million Passenger cars Shocks & struts ■ ■ Light trucks Suspension bushings ■ ■ Commercial vehicles Coil, air & leaf springs ■ ■ Golf carts Torque rods ■ ■ Off-road recreational Engine/body mounts ■ ■ Rail cars Suspension modules/systems ■ ■ Buses Control arms/bars/links ■ ■ Cabin dampers ■ Computerized electronic suspension ■ Anti-roll system ■ Aftermarket Operations 2005 Sales Applications Products Brands Emission $368 million Mufflers Passenger cars ■ ■ Control Pipes Light trucks ■ ■ Tubing Commercial vehicles ■ ■ Mounting components Performance vehicles ■ ■ Catalytic converters ■ Performance mufflers ■ Headers ■ Ride Control $653 million Passenger cars Shocks ■ ■ Light trucks Struts ■ ■ Commercial vehicles Cartridges ■ ■ Performance vehicles Mounting kits ■ ■ Trailers Performance shocks, struts, ■ ■ filters and brakes Torque rods ■ Suspension bushings ■ Engine mounts ■ Coil springs ■ Car-appearance products ■ Suspension lift kits ■ 2005 2004 2005 Sales 2005 EBIT* Revenues (millions) $4,441 $4,213 2005 2004 2005 2004 North America 46% 47% Emission Control/ North America 67% 77% Ride Control Balance† 62/38 63/37 Europe, Europe, South America, South America, Original Equipment/ and India 46% 45% and India 25% 12% Aftermarket Balance† 77/23 76/24 Asia Pacific 8% 8% Asia Pacific 8% 11% †percentage of sales *EBIT is earnings before interest expense, taxes, and minority interest.
  4. 4. Competitors Key Advantages Top Five Customers Top Five Platforms 2005 Market Opportunities PSA Citroën C5, Peugeot 407, ArvinMeritor General Motors Corp. Additional content due ■ ■ ■ ■ lortnoC ediR & noissimE Peugeot 608 to emission regulations Advanced technologies Faurecia DaimlerChrysler AG ■ ■ ■ GM Escalade, Silverado, Diesel aftertreatment ■ ■ Experienced team Eberspächer Ford Motor Co. ■ ■ ■ Suburban, Avalanche, Tahoe, Customized sound attenuation ■ Product/process quality Bosal Volkswagen AG ■ ■ ■ Sierra, Yukon Demand for diesel/hybrid/ ■ Global program Delphi PSA Peugeot/Citroën ■ ■ ■ GM Envoy, Trailblazer ■ fuel cell management Nelson Fleetguard ■ Dodge Ram Pickup ■ Emerging markets ■ Japanese alliances ■ DaimlerChrysler Town & Country, ■ Commercial vehicle segment ■ Joint ventures in China, ■ Caravan Thailand and U.K. Adjacent markets ■ Customer relationships ■ Broad product range ■ ZF Sachs Ford Motor Co. GM Silverado, Suburban, Vehicle stability/ ■ ■ ■ ■ Full-service supplier ■ Avalanche, Tahoe, Sierra, Yukon safety requirements Delphi Volkswagen AG ■ ■ Just-In-Time (JIT) ■ Ford Focus, Mazda3, Modular assembly ■ ■ ArvinMeritor General Motors Corp. ■ ■ assembly Volvo S40 New technologies ■ Kayaba Nissan Motor Co., Ltd. ■ ■ Test and validation ■ VW Golf, Caddy, Seat Altea ■ Adjacent markets ■ Magneti Marelli DaimlerChrysler AG systems ■ ■ Ford Fiesta, Fusion, Mazda2 ■ Electronic technologies ■ Hitachi Knowledge-based ■ ■ DaimlerChrysler Town & Country, ■ Emerging markets engineering ■ Caravan Seat damping systems ■ Cabin damping systems ■ Commercial vehicle segment ■ Competitors Key Advantages Top Five Customers Leading Products Market Opportunities Quiet-Flow3® Mufflers/ ArvinMeritor TEMOT Autoteile Growing number of vehicles ■ ■ ■ ■ lortnoC ediR & noissimE Assemblies on the road Brand dominance OE Service NAPA ■ ■ ■ Dynomax® Ultra-Flo Stainless/ OE Service ■ ■ Relationships with Bosal Automotive Distribution ■ ■ ■ Welded Mufflers/Systems all major wholesale International (ADI) New technologies ■ Goerlich’s ■ distributors/retailers DNX™ performance ■ Exhaust Systems Advance Auto Parts Emission regulations ■ ■ exhaust systems Global presence ■ International Group Auto Union (GAU) Performance-product demand ■ ■ ■ SoundFX™ mufflers ■ Leading market shares Muffler Company ■ Clean Air™ catalytic converters ■ Product innovation ■ Product quality ■ Extensive product and ■ Reflex® shocks & struts ArvinMeritor NAPA Growing number of vehicles ■ ■ ■ ■ vehicle coverage on the road Sensa-Trac® shocks & struts Kayaba Advance Auto Parts ■ ■ ■ Targeted marketing ■ OE Service ■ Rancho® shocks, struts and programs OE Service O’Reilly Auto Parts ■ ■ ■ New technologies suspension lift kits ■ Introduction of service ZF Sachs TEMOT Autoteile ■ ■ ■ parts Unperformed maintenance Quick Strut™ ■ ■ Automotive Distribution ■ Gas-Magnum® shocks International (ADI) Premium mix expansion ■ ■ Broader product coverage DNX™ performance shocks ■ ■ and struts Heavy-duty truck penetration ■ Monro-Matic Plus® shocks ■ Safety/installer education ■ DuPont™ car-care line ■ Testing/diagnostic equipment ■ Diverse Customer Base Profile Top Customers as a % of Total 2005 Revenues People: Approx. 19,000 Largest OE Customers Largest AM Customers Manufacturing and General Motors NAPA 16.7% 1.9% Just-In-Time Facilities: 79 Ford Motor Co. TEMOT Autoteile GmbH 11.6% 1.5% 9.1% Volkswagen 1.2% Advance Auto Parts Engineering Centers: 13 DaimlerChrysler 9.0% 1. 1% ADI (Automotive Distribution Int’l) Countries Served: 135 6.1% 0.7% PSA Peugeot Citroën Uni-Select 3.6% 0.7% Toyota Motor Co. O’Reilly Automotive As of 12.31.05 3.3% 0.5% Nissan Motor Co. GAU (Group Auto Union) 2.5% 0.4% BMW AG KFE (Kwik-Fit Europe)
  5. 5. Financial Highlights Year in Review 2005 2004 2003 2002 2001 2000 (dollars in millions except share and per share data) Net sales and operating revenues $ 4,441 $ 4,213 $3,766 $3,459 $3,364 $3,528 Earnings before interest, taxes and minority Interest $ 215 $ 174 $ 174 $ 169 $ 90 $ 122 Depreciation and amortization $ 177 $ 177 $ 163 $ 144 $ 153 $ 151 EBITDA* $ 392 $ 351 $ 337 $ 313 $ 243 $ 273 Net income (loss) before change in accounting principle $ 58 $ 15 $ 26 $ 31 $ (131) $ (41) Earnings (loss) per share before change in accounting principle $ 1.29 $ 0.35 $ 0.62 $ 0.74 $ (3.47) $ (1.16) Capital expenditures $ 144 $ 130 $ 130 $ 138 $ 127 $ 146 Average diluted shares outstanding 45,321,225 44,180,460 41,767,959 41,667,815 38,001,248 34,906,825 Total debt $ 1,378 $1,420 $ 1,430 $ 1,445 $ 1,515 $ 1,527 Cash and cash equivalents $ 141 $ 214 $ 145 $ 54 $ 53 $ 35 Debt net of cash balances $ 1,237 $1,206 $ 1,285 $ 1,391 $ 1,462 $ 1,492 *EBITDA represents income before cumulative effect of change in accounting principle, interest expense, income taxes, minority interest and depreciation and amortization. EBITDA is not a calculation based upon generally accepted accounting principles. The amounts includ- ed in the EBITDA calculation, however, are derived from amounts included in the historical statements of income data. In addition, EBITDA should not be considered as an alternative to net income or operating income as an indicator of our performance, or as an alternative to operating cash flows as a measure of liquidity. We have reported EBITDA because we believe EBITDA is a measure commonly reported and widely used by investors and other interested parties as an indicator of a company’s performance. We also believe EBITDA assists investors in comparing a company’s performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon many factors. However, the EBITDA measure presented in this document may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation. Stock Price Performance Revenue per employee SG&A* TEN vs. S&P 1500 Auto Parts Index $ in thousands as percentage of revenue Based on an initial investment of $100 on December 31, 2000 $234 $229 Tenneco Inc. 653.6 S&P 1500 Auto Parts Index 574.6 TEN $197 +554% $176 $156 $153 12.1% 10.5% 10.1% 9.7% 9.9% 8.7% 223 S&P 1500 Auto Parts Index +23% 134.6 122.6 100 158.6 157 123.3 109.7 100 68 00 01 02 03 04 05 00 01 02 03 04 05 00 01 02 03 04 05 *Selling, general and administrative expenses 1
  6. 6. Our performance last year was a success To Our Shareholders on many levels, culminating in a 25% increase in adjusted earnings per share. * We have solved the management dilemma— growing the business while shrinking costs. Tenneco enters 2006 with our most us to fully translate the greater revenue robust portfolio of projected business into operating profit expansion, ever, the greatest financial strength in adjusted* for certain items, despite our six-year history, and a wide range $135 million of higher steel prices. of competitive advantages. The end result was a 25% improve- ment in adjusted* earnings per share. Strategic Growth Drives Robust Sales Projection Operational accomplishments in 2005 We are concentrating on strategic reflect our expansion into adjacent growth areas: markets. Last year, we were awarded International Truck & Engine Corp.’s Increasing our investment in new n medium-duty truck platform that is a technologies for diesel emission and big part of our 2007 projected growth. electronic ride control products; This is high-content diesel business Positioning ourselves in every high- n that marks our first commercial vehicle growth region around the globe; contract for emission control in Penetrating adjacent markets like n North America. We also furthered commercial trucks and motorcycles; our penetration into the two-wheeler Targeting the fast-growing OEMs market when we acquired the primary n in Japan and Korea; and exhaust provider to Harley-Davidson. Leveraging our strong brands into n Tenneco stockholders realized a higher-replacement service-parts 14% return on investment in our common categories, like brakes and filters. shares last year driven by our solid operating performance; favorable These building blocks provide a platform, customer and geographic foundation that has Tenneco poised mix; and rising investor appreciation for $1 billion of projected OE revenue of our growth strategies. In contrast, growth in 2007. Furthermore, we the S&P 1500 Auto Index declined estimate 40% of 2007 OE sales will 21% primarily affected by industry come from these strategic growth areas, challenges in North America. up from approximately 22% in 2005. New Director Brings Global 2005 Operating Performance Perspective Sparks Share Gain Earlier this year, we added Mitsunobu Our performance last year was a “Tony” Takeuchi to our board of success on many levels, as we continued directors. Tony was formerly the to outdistance the competition and chairman and chief executive officer solidify our leadership position. of DENSO International Americas, Inc., the North American arm of Japan- Our revenue, operating income and based DENSO Corp., the world's earnings per share reached levels third-largest automotive supplier. unsurpassed at any time in Tenneco’s His global perspective, vast industry independent history. We delivered knowledge and outstanding business sales of $4.4 billion, up 5% over 2004, judgment will benefit Tenneco greatly outperforming the industry’s estimated as we expand our focus on global 3% global light-vehicle production growth opportunities. increase. We reached this milestone while carefully managing costs, allowing *An explanation of these adjustments can be found in the Management’s Discussion and Analysis of the attached Form 10-K. Additionally, a reconciliation of the results is detailed on the inside back cover of this report. 2
  7. 7. segment to 10% by 2007. We expect An Appropriate Name Change Our People are the Key this share to double by the end of the As I mentioned earlier, our strategies Our future will be built around the decade benefiting from the ever-more for growth are not limited to the great work of the nearly 19,000 stringent heavy truck emission automotive sector. Heavy-duty trucks employees of Tenneco. We continue regulations mandated for 2009 and and motorcycles have emission- to invest in the development of our 2010. Penetrating other adjacent and ride-control products that offer people as we roll out change markets for emission control, like opportunities to expand our top line management and leadership training construction, agriculture and industrial into adjacent, potentially counter- for the hourly workforce. I believe equipment, and small engines for cyclical markets. This diversification our talented employees have made lawnmowers and golf carts, represents into sectors outside of automotive led and will continue to make Tenneco a significant incremental growth to our name change late last year to a standout enterprise, and it is my opportunity for Tenneco that we expect Tenneco Inc. Deleting “Automotive” privilege to lead them. will extend and further diversify our from our name is a natural step in the revenue stream over the long term. evolution of the enterprise. Tenneco Inc. is less restrictive in representing Growing the Business While the direction of our company and how Shrinking Costs far we aspire to go. While delivering sustainable growth, our culture of continuous improvement As I look out over the next decade, means that we are standardizing it is imperative that we maintain our business processes, operating more passionate customer focus and product efficiently and delivering greater value. leadership in each operating segment Mark P. Frissora Training for Lean Manufacturing and served, while expanding into new non- Chairman, Chief Executive Officer Six Sigma programs to reduce waste automotive markets. Three years ago and President and improve quality has been effective. we set our sights on the commercial Today we are doing more with less. vehicle market for emissions. Today we March 2006 have platforms in Europe and By focusing on our core competencies North America that we estimate will with a spirit of execution and discipline, increase our market share in this we have solved the management dilemma— growing the business while shrinking costs. Mark P. Frissora Chairman, Chief Executive Officer and President March 2006 3
  8. 8. Competitive Advantages Tenneco has good customer, platform and geographic diversity, and a balance between original equipment sales (77%) and aftermarket sales (23%). About 46% of 2005 sales were generated in North America; 46% in the Europe, South America and India segment; and 8% in the Asia Pacific region. We have OE products on more than 200 platforms with the top 10 platforms representing only 25% of total sales. Revenue by Customer Geographic Revenue Mix As a percentage of 2005 sales 2005 North America 46% General Motors 16.7% Europe, S. America Ford Motor Co. 11.6% and India 46% Volkswagen 9.1% Asia Pacific 8% DaimlerChrysler 9.0% PSA Peugeot Citroën 6.1% Toyota Motor Co. 3.6% Nissan Motor Co. 3.3% BMW AG 2.5% Other 38.1% 4
  9. 9. Competitive Advantages includes Toyota, Nissan and Honda Tenneco has one of the broadest among its top 10 OE customers. These global footprints among automotive growth customers represented 20% of parts suppliers. Tenneco’s total North America OE Our geographic diversity helps protect revenues in 2005, enabling us to us from regional downturns in automo- outperform the light vehicle market. tive production. North America and We continue to build relationships with our Europe, South America and India growing customers, with a goal of segments each generated 46% of 2005 matching our customer revenues with revenues with Asia Pacific responsible their market shares for optimal balance. for the remaining 8%. As a result, we are well positioned to offset weakness In the aftermarket, we have contracts in any one region of the world with with four of the top five retailers in growth from another. Our broad North America and do business with geographic coverage places us closer virtually all of the major warehouse to our customers, minimizing high distributors globally. No single after- shipping costs associated with market customer accounted for more emission-control products. Besides A Variety Two Wheeler n than 2% of our 2005 total revenues. being well-established in Western of Markets Passenger Car Europe, we have penetrated Eastern n Served Tenneco’s broad coverage Europe, where our goal is to generate Light-Duty Truck n of vehicle platforms encompasses approximately 25% of our total Heavy-Duty Truck n production on the top-selling European unit production by 2010— vehicles worldwide. in line with that market’s production We have products on more than 200 mix. Moreover, we estimate that Tenneco platforms with average annual revenue is the #1 emission-control supplier in per platform of about $14 million, China, an economy forecasted to grow providing an advantageous balance. at a rate more than double the rate of Suppliers with substantial volumes the U.S. economy over the balance of spread across only a few platforms are this decade. at greater risk in a declining production environment. In 2005, for example, We have one of the best customer suppliers with a significant percent of mixes among our peers. their total volume tied to full-size SUVs In 2005, many North American parts in North America were meaningfully suppliers struggled as a result of their impacted when production on those high exposure to domestic OEMs, who vehicles declined by nearly 30%. cut production after losing nearly two At Tenneco, our largest OE platform points of market share to foreign represents less than 5% of total automakers. Our balanced customer company revenues. Our top 10 OE set made up of more than 30 OEMs Chevrolet Tahoe Automakers must operate globally Global Tenneco does business in 135 countries n to remain cost competitive, and they Footprint Tenneco has 13 engineering centers n require that suppliers develop a similar worldwide with another to open in footprint. Geographic diversity helps China in 2006 reduce logistic costs, allowing for the regional supply of items that are cost prohibitive to ship globally, like exhaust systems. Equally important are global engineering capabilities. 5
  10. 10. platforms make up only 25% of total Emissions standards for today’s off- sales, and are split 50/50 between road equipment are relatively lenient passenger cars and light trucks. compared to those for on-road Furthermore, of our top 10 platforms, vehicles. However, in May 2004 the 40% are produced in North America, U.S. Environmental Protection Agency 30% in Europe and 30% are global. introduced new off-road emission standards, which are to be phased-in Expanding penetration into between 2008-2015. These standards synergistic markets helps diversify affect approximately one million off- business model. road units. With the addition of the We are positioned to offset cyclical small engine market for lawnmowers trends in the auto industry by diversify- and snowblowers, the market opportu- ing into adjacent markets with similarly nity grows to nearly 19 million units. stringent environmental regulations Tenneco has innovative technologies that drive growth. Today, about 5% across several product lines. of our revenues are derived from the commercial truck market. We expect Tenneco has long been known as a that percent to increase significantly as leading product innovator. Today we we capitalize on the tightening emission have global networks in place to regulations for medium- and heavy- share knowledge and ideas across duty trucks in 2007 and 2010 in the departments and locations, and across U.S., and in 2006 and 2009 in Europe. global employee populations. Our goal is to ensure that no opportunity is overlooked in our quest to deliver leading-edge products and services. Growing demand for our premium Our Competitive A highly competitive global footprint n products, most notably advanced Advantages One of the best customer mixes among our peers emission technologies for gas and n diesel engine vehicles, and computerized Products on more than 200 vehicle platforms n electronic suspensions, anti-rollover Average platform size only $14 million n devices and elastomer products in ride Penetrating adjacent growth markets for greater diversity n control, underscores the company’s Innovative technologies across several product lines technological achievements. n A stable, experienced management team n A stable, experienced management team focuses on execution and discipline. We also have a growing position Tenneco’s strategic business units are in the two-wheeler market, supplying led by experienced executives who exhaust products for BMW and have a proven track record and Harley-Davidson. Motorcycles produce average more than 20 years in the up to 15 times the emissions per mile automotive industry. The majority as the average new car or light-duty of our senior management team has truck. We are utilizing technologies been with the company since we similar to those that make new cars became independent in late 1999. and trucks cleaner to cost-effectively Together, we have remained disciplined reduce motorcycle emissions. A new in the execution of the same strategies set of emissions standards for motor- for six years. Product innovation and cycles went into effect in 2004 with debt reduction continue to be priorities. additional reductions required for 2008. We are well-positioned to take advantage of the environmental legislation as it evolves into off-road market segments, including construction, agriculture and industrial equipment. Tenneco acquired the primary emission- Harley-Davidson wanted a supplier with Two-Wheeler control supplier to Harley-Davidson a global footprint and similar depth Market in early 2005. This acquisition reflects of experience. Not only do we meet those our strategy to grow through adjacent- requirements, but we have proven our market opportunities. Harley-Davidson ability to easily transfer our emission- worldwide has been in business for control technology from automobiles more than 100 years with one of the to motorcycles. most lasting brands in U.S. history. 6
  11. 11. Growth Prospects Stricter emission-control standards, demand for improved vehicle stability, expected long-term growth in the Chinese auto market, rapid market share gains from the Japanese and Korean OEMs and new aftermarket products create favorable growth prospects for Tenneco. An estimated 40% Global Original Equipment Revenue Projection* of 2007 projected original equipment $ in billions sales will come from strategic growth areas versus 22% in 2005. $4.5 $1 billion increase over 2006* 4 $3.5 $3.4 $3.2 3 $2.8 $2.6 2 02 03 04 05 06 07 *January 2006 projection. See the company’s attached Form 10-K for information regarding the calculation of its revenue projection. 7
  12. 12. Emission standards and fuel require- ments are tightening around the world. Our 2007 sales of higher-content diesel vehicle programs are expected to increase five-fold from 2005. Exhaust tailpipe Muffler Pipe exhaust Heat exchanger Diesel oxidation catalyst Diesel particulate filter Selective catalytic reduction system F-350 “The diesel engine is a great alternative with a good product at the right time. Ford Motor for consumers that demand improved In addition to diesel, Tenneco worked Company power, torque and fuel efficiency. collaboratively with our Research and The challenge is in meeting future diesel Innovation Center to deliver the first emissions regulations without degrading diesel hybrid to meet Partial Zero the key characteristics of the diesel Emissions Vehicle (PZEV) requirements.” powertrain. Tenneco is well positioned 8
  13. 13. Emissions Technologies for Environmental Mandates Stringent global emission regulations Tenneco is a leading supplier of Global Diesel offer one of the most important advanced emission-control solutions. Particular Filter growth opportunities for Tenneco. We expect diesel platforms to repre- (DPF) Business While pollution control measures sent about 24% of our projected global Units in millions have drastically reduced light-vehicle OE revenues in 2007, up from just emissions over the past two decades, 6% in 2005. Also in 2007, we expect 1.50 the U.S., Europe, Japan and other to supply 1.5 million diesel particulate countries are pushing for even tighter filter units – more than five times last regulations in coming years. year’s level. We’re also in production with diesel oxidation catalysts, and The best emission-control opportunity we’re supplying selective catalytic may rest in diesel vehicles. Global light- reduction systems for heavy-duty duty diesel volume is forecasted to trucks. Furthermore, we’re working grow more than 50% by 2012 to 19.6 on an advanced regeneration diesel million units. J.D. Power and Associates particulate filter and developing a NOx predicts U.S. light-duty diesel sales adsorber catalyst that removes nitrogen will nearly double to more than one- oxides from the exhaust stream. These million units in 2010. Last year, only are just some of our technologies and about 3% of the light vehicles sold in development activities that address the 0.50 the U.S. had diesel engines, compared dramatic diesel growth expected over to half the vehicles in Europe. the next several years. 0.29 Diesel’s superior fuel economy and low Our technological expertise, commer- carbon dioxide emissions are driving cialized exhaust product portfolio and its forecasted growth. Diesels will also worldwide manufacturing facilities get a boost this October, when U.S. fuel position us well to capitalize on these 05 06 07 retailers are required to begin selling growth trends. low-sulfur diesel fuel. And the energy Tenneco’s DPF bill recently signed by President Bush volumes to increase New Diesel Business Supports Growth gives a tax credit to U.S. purchasers five times by 2007 in 2007 of certain diesel vehicles. 2007 “New-to-Tenneco” Business Low-sulfur fuel and better technology Customer Product will help diesels meet new federal emissions standards being phased in Diesel & Gasoline Ford Super Duty Emission Control beginning in 2007. In Europe, new diesel emission regulations are expected to GM Duramax engines Diesel Emission Control go into effect in 2010. N.A. OEM Light Duty Diesel Emission Control Medium Duty Diesel International Truck Emission Control Heavy-duty Truck Commercial Euro 4 and Euro 5 are increasingly oxide emissions. Tenneco helped launch Vehicle Market stringent emission standards that will be DaimlerChrysler’s Actros heavy-duty effective in 2006 and 2009, respectively. commercial truck in Europe last year In order to meet these clean-air regulations, using an advanced-technology truckmakers are using a variety of diesel emission-control system that addresses aftertreatment solutions to cut nitrogen the new mandates. 9
  14. 14. Ride quality and handling characteristics remain among the top influencers in consumer buying decisions. Tenneco’s electronic suspension integrates the latest technology into a highly advanced ride-control system. Continuously Controlled Electronic Suspension S80 “Safety, comfort and handling are key XC70 and S80 models. We looked for Volvo to consumer buying decisions. Volvo a partner to further enhance ride control used Tenneco’s computerized electronic and handling, and believe Tenneco suspension to develop our continuously fully understands how to combine controlled chassis concept, called Four- new technical solutions, integrations C, which is standard on our performance and refinements.” vehicles and optional on our S60, V70, 10
  15. 15. Advanced Technology for Improved Vehicle Ride and Handling Tenneco develops technologically All are leading-edge products. For advanced ride-control products that example, CES typically sells for roughly focus on safety as well as comfort. seven times the price of a standard We estimate we are the top supplier shock. The computerized electronic to the aftermarket, led by our world- shock absorber market share for famous Monroe brand, and the Tenneco was 9% in 2005, but we project #2 provider to original equipment it will grow significantly over the next manufacturers worldwide. Our ride- five years. control sales in 2005 contributed $1.7 billion to Tenneco’s total revenue, We continue to extend product tech- with about 60% of this coming from nologies from our original equipment Elastomer V-Rod n the original equipment market. business to the aftermarket. This practice Products Bushings and n expands the marketing reach of each Cartridges Strategically, we have dedicated product, spreads out the development Torque Rod n ourselves to developing and commer- costs and enhances the return on our cializing premium products. Our investment. advanced Continuously Controlled Electronic Suspension (CES) product The ride-control aftermarket has been provides vehicle handling and safety strong in recent years, and can improvements by continuously be counter-cyclical to the original monitoring road conditions and vehicle equipment auto-parts market. movement, making instantaneous Our global Safety Triangle aftermarket adjustments to vehicle suspension. campaign educates both installers We are currently producing CES for and consumers on the importance nearly all Volvo models in Europe as of vehicle maintenance and replacing well as Audi’s A6 and Avant vehicles. worn shock absorbers, which can Our anti-rollover suspension technology, help improve stopping, steering and Kinetic, which offers improved vehicle vehicle stability. stability, is available today on Toyota’s Lexus GX470 sport utility vehicle. And we’ve developed fluid-filled elastomers that act as dampers to minimize noise, vibration and harshness. Global Platform Tenneco was awarded the Volkswagen geographic end market. Tenneco leveraged Capabilities global emission- and ride-control plat- its cross-border synergies and capabilities form that includes the VW Golf and in engineering, purchasing and manufac- Audi A3 models. Under a global plat- turing to successfully launch this strategic form development strategy, common platform across North America, Europe vehicle platforms are tailored by local and the Asia Pacific region. design and engineering to suit each 11
  16. 16. Growth OEMs for Enhanced Customer Mix Winning new business with Asian OEMs, In North America, the Big Three U.S. Japanese OEMs nurturing established relationships with automakers' sales were down 2% in as a percentage of total the top three Japanese automakers 2005, while Asian brands' sales North American Original Equipment sales in North America, extending our climbed 7%. The Detroit Big Three’s European OEM customer base and market share in the U.S. was 56.9% last a more recent focus on building year, down from 58.7% in 2004 and 19.9% 18.7% relationships with Korean OEMs 61.7% three years ago, while Asian 16.3% will position Tenneco at the forefront brands' U.S. market share rose to of global automotive growth. 36.5%, up from 34.6% in 2002. Revenue from Japanese suppliers Toyota is the second-ranked automotive represented 20% of our North American group in the world in terms of produc- 13.2% original equipment sales in 2005, up tion and sales. Worldwide, Toyota is our from 19% in 2004 and 16% in 2003. sixth-largest customer among more We continue to build on these relation- than 30 different OEMs served. ships. In fact, we are expanding our design, development and program In the highly competitive and ever- management capabilities in Japan changing automotive industry, we are to further enhance the value we bring continuously working to improve our to these customers. customer mix by targeting growth customers in growth markets. For optimal Our relationships with the Japanese balance, our goal is to have each automakers started in 1988 with a of our customer’s percent of our total single customer in a single market. OE revenues reflect its market share. Today, this business spans the globe as we manufacture products for seven 02 03 04 05 Japanese customers in 14 countries. The number of Japanese platforms in North America also continues to grow. Our products are on many leading programs including: the Lexus RX330, Toyota Sienna, Honda Pilot, Acura MDX, Nissan Pathfinder and Nissan Altima. Tenneco also was awarded the exhaust business on Toyota's high-volume Tundra truck platform that launches in 2007. Toyota Tundra Toyota looks to its suppliers to provide advanced emission-control products Growing with superior parts and materials, particularly that address higher environmental Japanese OEMs those that support quantum leaps standards, and innovative suspension in the value of its vehicles. Tenneco systems, which combine ride comfort works to meet those goals with its and safer handling. 12

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