Financial overview

in million $	FY2006	FY2005	Rate of change (%)	Factors
Sales	4,685	4,441	5.5	Excluding the impact of currency and substrate sales, revenues was down $58 million, or two percent, driven primarily by lower OE production volumes in North America, particularly light trucks and SUVs, partially offset by higher aftermarket sales. The company's geographic balance and diverse customer base helped partially offset the North American production decline.
EBIT	196	215	(8.8)	Higher material costs, reduced North American production volumes and increased restructuring charges more than offset increased global aftermarket revenues, lower selling, general, administrative and engineering costs, benefits from the company's ongoing manufacturing efficiency programs and reduced costs through tight controls on discretionary spending.
North America
Sales	1,959	2,028	(3.4)	1)
Europe, South America and India
Sales	2,305	2,053	12.3	2)
Asia Pacific
Sales	421	360	16.9	3)

Factors:
1)
-Total OE revenues decreased 8% in 2006, while North American light-vehicle production fell by 3%.
-OE emission control sales were down 12% and OE ride control revenues decreased 2%.
-North American industry production of SUVs and light trucks was down year-over-year which had a significant impact on OE volumes, particularly on key exhaust platforms.

2)
-Total Europe OE revenues were up by 13%.
-OE emission control revenues increased 17%, and OE ride control revenues were up by 1%.
-Improved pricing, market share gains, and the introduction of new diesel particulate filter business drove the increase.

3)
-Increased revenues from Asia driven by higher OE volumes in China.
-Australian revenues were down 17%.


Contracts
- In Jan. 2006, the Company announced that it was awarded a contract with International Truck and Engine Corporation to supply exhaust aftertreatment systems for its entire line of medium-duty diesel vehicles with International engines, launching in 2007. The contract is the Company's first in North America for diesel emission control technologies for the medium-duty commercial vehicle segment. The Company will provide International's vehicles with complete exhaust aftertreatment systems, including the diesel particulate filter (DPF) and the diesel oxidation catalyst (DOC). The development and engineering for International is being done at the Company's engineering center in Grass Lake, Michigan and production will take place at its exhaust manufacturing facility in Seward, Nebraska.

- In Jun. 2006, the Company announced that it is supplying the front strut module and rear shock for the new Suzuki Swift Sport launched in Japan. The sport version comes as an addition to the conventional suspension business for the Swift, which the Company was awarded in September 2003 and started production in January 2005. The award of suspension component business for Suzuki's domestic production makes Suzuki the third Japanese customer to source its European-produced shocks for export to Japan. Others include Nissan and Mazda.

- In Feb. 2007, the company of U.S. has announced at a press meeting in Tokyo that the company is focusing on growth with Japan-based carmakers, targeting a 32 percent increase in global revenue from them by 2008. The company aims to achieve this target by boosting the sales from the current level of 56 billion yen (2006) to 72 billion yen, through increased business with fast-growing automakers that are stepping up production. Tenneco will focus its marketing efforts on diesel aftertreatment technologies and electronic suspension systems, demand for which is expected to grow. Gregg Sherrill, the company's chairman and CEO, announced that Tenneco has been named a development supplier by a Japanese automaker on four different platforms to be produced globally, and it is currently working on developing shock absorbers and exhaust systems for these models.

Outlook
-The Company believes that new product launches, its position on top-selling platforms, its position with Japanese OE customers, and strong new product and technology pipeline will more than offset pressures from North American production rates.

R&D expenditure

$ in million	2006	2005	2004	2003
R&D	88	83	76	67

- In Mar. 2006, the Company will move into production in Japan. It will establish its first production base in Japan to start with supplying shock absorbers to Japanese automakers. Its R&D base in Yokohama will be largely enhanced as well by doubling the development personnel in engineering and production technologies in a year and by appointing the former chairman of Denso''s U.S. subsidiary as a board member. With appointment of the person with extensive know-how in business with Japanese automakers, the U.S. supplier aims to increase orders from them.

Capital Expenditure

$ in million	FY2006	FY2005	FY2004
North America	100	74	55
Europe, South America and India	51	54	59
Asia Pacific	19	16	16
Total	170	144	130

- In Feb. 2006, the Company announced it is expanding its operations in China with investment in both manufacturing and engineering facilities. The Company will open a wholly-owned elastomer manufacturing facility, Tenneco Suzhou Vibration Control Company Ltd., in Suzhou. The plant, which will initially employ 80 people, is scheduled to open in June. The Company has also established a joint venture engineering center to develop automotive exhaust products in Shanghai. It is slated to open at the end of 2006. The new center will provide engineering resources to support both OE and aftermarket customers. The engineering center is part of the company's joint venture with Shanghai Tractor and Engine Company (STEC), which is a subsidiary of Shanghai Automotive Industry Corp. (SAIC). The company has also reached an agreement to increase its ownership share to 65 percent in its Beijing ride control joint venture, Beijing Monroe Shock Co. Today, the joint venture supplies ride control components to leading OE manufacturers at its newly opened 34,000 sqm plant.

- In May. 2006, the Compqany announced that the company is expanding its North American emission control engineering center in Grass Lake, Michigan. The company has invested $13 million to add 30,000 sq ft to the current 110,000 sq ft facility. The expansion will accommodate additional development and testing capabilities to meet the growing demand for advanced emission control technologies. Increasingly stringent emissions regulations globally and growth in the diesel engine market are driving demand for emission control components and systems. As a result, Tenneco is capturing new business and leveraging its global engineering capabilities into new geographical and vehicle markets.