Financial Overview

(in million dollars)

	FY2011	FY2010	Rate of change(%)	Factors
Sales	7,205	5,937	21.4	1)
EBIT	379	281	34.9	-
North America
Sales	3,426	2,832	21.0	2)
Europe, South America and India
Sales	3,169	2,594	22.2	3)
Asia Pacific
Sales	804	698	15.2	4)

 

Factors
1) Overall
-Total revenues for 2011 were a 21.4 percent increase year-on-year. Excluding the impact of currency and substrate sales, revenue was up 15 percent, driven primarily by higher OE production volumes, higher aftermarket sales globally and new launches of light and commercial vehicle emission control programs.

2) North America
-Revenues from North American operations increased by 21.0 percent in 2011 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, which accounted for 503 million dollars of the year-over-year change in revenues, on Tenneco-supplied vehicles such as the Ford "Super-Duty" and "F-150" pick-ups, Ford "Focus", Chevrolet "Malibu", "Equinox", VW "Jetta", GM's crossover models and the Toyota "Tundra". Also contributing to the increase was a 63 percent increase in commercial vehicle OE revenues and a favorable 4 million dollars currency impact on OE revenue year-over-year.

3) Europe, South America and India
-Segment's revenues increased by 22.2 percent in 2011 compared to last year, due to increased sales in both Europe OE business units and European Aftermarket ride control as well as in South America and India. Improved volumes due to higher OE production on platforms such as the Volkswagen "Golf" and "Polo", the Mercedes "E-class" and "CLS", Daimler "Sprinter", the Ford "Focus", the BMW "1 and 3 Series", Audi "A4", "A6" and "A1", Renault/Dacia "Logan" and Opel "Astra" and "Zafira" were the primary drivers of our increased Europe OE revenues and contributed to an increase in revenue of 315 million dollars. European OE revenue also benefited compared to last year from improved pricing, mainly material cost recovery and favorable foreign currency which had a combined impact of 127 million dollars.

4) Asia Pacific
-Revenues from Asia Pacific segment increased mainly due to higher sales in China. Asian revenues for 2011 improved from last year, primarily due to 77 million dollars from stronger production volumes, particularly in China on key Tenneco-supplied GM, Ford, Audi, Volkswagen, FAW and Nissan platforms. Foreign currency also benefited Asian revenue by 29 million dollars. Excluding 20 million dollars in favorable foreign currency, lower OE production volumes in Australia drove a 10 million dollars negative impact on revenue for 2011 over 2010.

Recent Development Outside USA

<Japan>
-The Company will enhance its supply network of products to the Japan market. It will consider shifting the production facilities from the U.S. and Australia to China and Southeast Asia, and also enlarging supply capacity as early as the end of this year. The Company is aiming to increase share not only in the OEM market for Japanese automakers, but also in the aftermarket, expecting to increase sales by locating production sites closer to Japan to enable timely supply of products. (From an article in the Nikkan Jidosha Shimbun on March 4, 2011)

<New emerging markets>
-The Company is poised to strengthen its business operations for new emerging markets. On the heels of new contracts with Nissan of underbody and exhaust parts for the "Micra" (known in Japan as "March") last year, the Company obtained orders for a shock absorber of Toyota's compact "Etios" designed for emerging markets. It plans to produce shock absorbers fitting for 200,000 Toyota cars per year in India and Brazil. The company has already invested 20 million dollars (approximately 1.6 billion yen) in India for the past three years. It forecasts that small-size vehicles will occupy a half of the demand in growing markets during the next ten years, and that Japanese automakers will account for 20 percent of the compact car market. The Company is set to enhance investments in equipment and research and development activities, targeting BRICs and Thailand by taking aggressive marketing approaches to Japanese automakers. (From an article in the Nikkan Jidosha Shimbun on January 28, 2011)

Contract

-The Company developed Kinetic H2/CES semi-active suspension system and fully-active suspension system, or ACOCAR. Kinetic H2/CES, which integrates the Kinetic H2 system with controlled electronic suspension (CES) technology, recently went into series production on a British supercar. The first generation of CES system went into production in 2003 as standard equipment on the Volvo "R-line" and as an option on the "S80", "V70" and "S60". Today, CES shocks are available on Audi "Q3"; Ford "S-Max", "Galaxy" and "Mondeo"; Mercedes-Benz "C-Class", "E-Class", "AMG E-Class", "SLK" and "CLS"; BMW "X3"; Volkswagen "Golf", "Golf GTI", "Scirocco", "Passat", "Passat CC", "Eos", "Tiguan", "Touran" and "Sharan" and Volvo "V70", "S80", "XC70", "XC60", "S60" and "V60". The ACOCAR features the addition of hydraulic pumps to the shock absorbers to bring energy to the suspension. ACOCAR is planned for series production from 2015. The Company's Monroe Engineering & Technology Centre (METC) in Sint Truiden, Belgium and Tenneco Innovation, part of the Automotive Intelligence Centre (AIC) in Ermua, Spain, are the main engineering hubs for electronic damping. Production is at the company's manufacturing facilities in Sint Truiden, Belgium, and Ermua, Spain. (From a press release on June 21, 2011)

-The Company announced that the company has begun producing suspension products for the Toyota "Etios", Toyota's new global small car that launched in India. The Company is supplying the "Etios" with both front struts and rear shock absorbers. The company is manufacturing the "Etios" product at its ride control plant in Hosur, India for delivery to Toyota's Kirloskar Motors plant in Bangalore, India. The Company will supply Toyota's future compact car launch in Brazil as well. (From a press release on January 26, 2011)

Outlook

	Estimate global OE revenue (in million dollars)	Substrate sales versus OE revenue (%)
2012	6,600	29
2013	7,800	30
by 2016	10,000-11,500	32

R&D Expenditure

(in million dollars)

	FY2011	FY2010	FY2009
Total	133	117	97

R&D Facilities

Emission Control Systems
-The Company operates 5 emission control engineering and technical facilities worldwide and share two other such facilities with its ride control operations.

Ride Control Systems
-The Company operates 7 emission control engineering and technical facilities worldwide and share two other such facilities with its emission control operations.

R&D Structure

-The Company has its 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) -- is focus on emission control product design and development for its growing OE and aftermarket businesses in China and the Asia-Pacific region.

Product Development

Selective Catalytic Reduction (SCR)
-The Company developed XNOx Selective Catalytic Reduction (SCR), which combines the Company's expertise in urea dosing systems with components such as the company's XNOx injector to deliver an optimized solution with more than 95 percent NOx conversion efficiency. The process uses a chemical reaction to convert toxic NOx from engine emissions into harmless nitrogen and H2O. (From a press release on August 24, 2011)

Thermal regeneration unit for exhaust
-The Company developed a new thermal regeneration unit for exhaust, T.R.U.E.-Clean, which provides diesel particulate filter regeneration under any conditions with reduced fuel penalty. The thermal regeneration technology continuously monitors the diesel particulate filter's temperature and soot levels. When the system senses that the filter should be cleaned, the unit automatically initiates the regeneration process while maintaining proper temperatures and controls until the regeneration cycle is complete. (From a press release on August 24, 2011)

Electrical valve
-The Company developed a new electrical valve, a fully variable backpressure control valve, which enables vehicles using low-pressure exhaust gas recirculation (EGR) systems to minimize NOx emissions. Installed in the exhaust systems downstream from the diesel oxidation catalyst (DOC) and diesel particulate filter (DPF), it continuously adjusts the required pressure and re-circulates some of the vehicle's exhaust gas back to the engine's intake side. When combined with the OEM's low pressure EGR system the electrical valve can help to reduce NOx emissions by up to 50 percent. (From a press release on August 24, 2011)

Diesel fuel vaporizer
-The Company developed a new diesel fuel vaporizer, an external-dosing solution that provides efficient diesel particulate filter (DPF) regeneration. The vaporizer uses an electrically heated glow plug to heat and evaporate diesel fuel, then introduce it into the exhaust stream directly before the diesel oxidation catalyst (DOC). The Vaporizer helps improve fuel economy compared to vehicles without this system and, therefore, contributes to a reduction in CO2 emissions. (From a press release on August 24, 2011)

Insulated manifold
-The Company's family of fabricated manifold systems include shell, tubular and double-wall air gap insulated manifolds, all of which provide significant cost, weight, durability and packaging advantages when compared to cast manifolds. (From a press release on August 24, 2011)

Capital Expenditure

(in million dollars)

	FY2011	FY2010	FY2009
North America	88	59	45
Europe, South America and India	95	66	58
Asia Pacific	35	29	15
Total	218	154	118

Investment Outside USA

<Asia>
-The Company is investing in its manufacturing facilities for emission and ride control technologies. The company has recently launched business with Ford, Toyota and Nissan on global vehicle platform launches in key markets such as China, India and Thailand. The Company has made capital investments to support the Chinese market, including five newly-added or expanded existing facilities within the last year. Plans are also in place to relocate and expand two additional plants by the end of 2011. In India, the company opened a new manufacturing facility in Chennai, marking its seventh manufacturing operation there. The Company also expanded its presence in Thailand with the opening of a new ride control plant in Bangkok to support Nissan's small car platform. (From a press release on September 14, 2011)