Financial Overview

(in million dollars)

	FY2010	FY2009	Rate of change(%)	Factors
Sales	5,937	4,649	27.7	1)
EBIT	281	92	205.4

 

Factors
1)
North America
-Revenues from our North American operations increased in 2010 compared to last year due to higher OE and aftermarket sales of both product lines. The increase in North American OE revenues was primarily driven by improved production volumes of Tenneco-supplied vehicles such as the Ford F-150 and Super-Duty pick-ups, GM’s crossover models and the GMT900 platform which accounted for $655 million in revenues.

Europe, South America and India
-European, South American and Indian segment’s revenues increased in 2010 compared to last year, due to increased sales in both Europe OE business units as well as in South America and India. The full year total European light vehicle industry production was up 15 percent, while industry Class 8 commercial vehicle production was up 55 percent and industry Class 4-7 commercial vehicle production was up 38 percent in 2010 when compared to 2009.

-Light vehicle production increased nine percent in South America and 35 percent in India for 2010 when compared to 2009. South American and Indian revenues were higher in 2010 when compared to the prior year primarily due to higher aftermarket sales in South America and stronger OE production volumes in both regions, which increased revenue by $112 million.

Asia Pacific
-Industry light vehicle production increased 30 percent and 8 percent year-over-year in China and Australia, respectively. Revenues from our Asia Pacific segment, which includes Australia and Asia, increased due to higher sales in both regions. Asian revenues for 2010 improved from last year, primarily due to $133 million from stronger production volumes, particularly in China on key Tenneco-supplied GM, VW and Audi platforms.

Joint Ventures

-The Company will establish a joint venture with China's Changchun FAW Sihuan Group Ltd., a company affiliated to FAW Group, to supply emission control systems for passenger and commercial vehicles. The JV, which will be based in Changchun, Jilin Province, has three partners - Tenneco with a 41% equity share, FAW Sihuan with a 49% share and Tenneco's Chinese subsidiary Tenneco Tongtai (Dalian) Exhaust System Company Ltd. with a 10% share. Initial customers will include FAW-Volkswagen and FAW Jiefang. The new company represents Tenneco's seventh joint venture in China. The company has emission control joint ventures in Shanghai, Dalian (2), Chongqing and Beijing, and a ride control joint venture in Beijing. (From a press release on March 2, 2010)

Contract

-The Company is supplying exhaust systems and shock absorbers for Nissan's new global compact car, the Micra and March models. Tenneco manufactures these products at its new manufacturing plants in Chennai, India; Guangzhou, China; Chonburi, Thailand; and an expanded plant in Hosur, India. Design and development for these products involved engineering centers in Asia, Europe and North America. (From a press release on November 30, 2010)

-The Company will supply selective catalytic reduction (SCR) after treatment system, including a diesel oxidation catalyst, diesel particulate filter and SCR catalyst and mixer, for the 2011 Chevrolet Silverado and GMC Sierra Heavy Duty pickup trucks that feature clean diesel engines. SCR technology will be used on these models for the first time. The SCR systems will be manufactured at its Litchfield, Michigan; Marshall, Michigan; and South Africa facilities. Tenneco is also supplying its valving system on shock absorbers as well as Hydroelastic(TM) body mounts for the new Silverados and Sierras. The valving systems are produced at the company's Hartwell facility, Georgia, USA, while body mounts are manufactured in Angola, Indiana. (From a press release on May 5, 2010)

Investment Activities
-The Company announced the opening of a new manufacturing plant in Chennai, India. The plant will primarily produce emission control products and systems. The company invested 5 million USD in the new facility - Tenneco's seventh manufacturing plant in India – which began producing exhaust systems for the Nissan Micra in May of this year. Tenneco is also supplying modular assembled struts and shocks to Ford from this new facility. (From a press release on October 1, 2010)

Outlook for FY2011

-The Company estimate that their global original equipment revenues will be approximately $5.9 billion in 2011 and $7.1 billion in 2012 with substrate sales making up 29 percent of total OE revenue each year. The Company expect its global original equipment revenue to increase to between $9.5 billion and $11 billion by 2015, with substrate sales comprising 32 percent of total OE revenue.

-Between 2009 and 2012, ｔhe Company are launching multiple programs with thirteen different commercial vehicle customers, both truck and engine manufacturers, to help customers meet new emissions regulations for on-road and non-road commercial vehicles. The Company began to launch some of these programs in China at the end of 2009 with China National Heavy Truck Company, Shanghai Diesel Engine Company and Weichai Power. Programs in North America, Europe and South America primarily began to launch in the second half of 2010. Our commercial vehicle emission control customers also include Caterpillar, John Deere, Navistar, FAW, Deutz and Guangxi Yuchai Machinery Company as well as four customers who will be announced as programs launch. The Company will also be supplying diesel aftertreatment systems, including selective catalytic reduction, for next generation heavy-duty pick-up trucks in North America. Based on the current commercial vehicle production forecasts mentioned above, ｔhe Company project that its commercial and specialty vehicle revenue to be $0.8 billion in 2011 and $1.6 billion in 2012 and account for about 30 percent to 35 percent of our global original equipment revenue by 2015.

R&D Expenditure

(in million dollars)

	FY2010	FY2009	FY2008
Total	117	97	127

R&D Structure

-In May 2007, the Company opened its first research and development center in China. This engineering center -- a joint venture between Shanghai Tractor and Engine Company (STEC), a subsidiary of Shanghai Automotive Industry Corp. (SAIC) -- will focus on emission control product design and development for its growing OE and aftermarket businesses in China and the Asia-Pacific region.

Technological Alliance

-Tenneco and US-based Sturman Industries have entered into a joint development agreement. Under the agreement, the companies will develop ride control damping systems incorporating digital valves. Tenneco anticipates initially introducing and commercializing the new technology in the U.S. and European markets. Sturman specializes in the research and development of digital valve technologies. (From a press release on June 29, 2010)

Capital Expenditure

(in million dollars)

	FY2010	FY2009	FY2008
North America	59	45	108
Europe, South America and India	66	58	89
Asia Pacific	29	15	24
Total	154	118	221