References herein to "Tenneco", the "Company", "we", "us", and "our" refer to Tenneco Inc. and its consolidated subsidiaries. Unless otherwise stated, all comparisons of September 30, 2022 financial results are to September 30, 2021 financial results.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the condensed consolidated financial statements and related notes included in Item 1 of this quarterly report on Form 10-Q and the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission ("SEC") on February 24, 2022 (the "2021 Form 10-K").



EXECUTIVE OVERVIEW
Our Business
We design, manufacture, market, and distribute products and services for light
vehicle, commercial truck, off-highway, industrial, motorsport, and aftermarket
customers. Our business consists of four operating segments, Motorparts,
Performance Solutions, Clean Air, and Powertrain and serves both original
equipment ("OE") manufacturers and the repair and replacement markets worldwide.
We supply OE parts to vehicle manufacturers for use in light vehicles,
commercial vehicles, and other mobility markets; and the global aftermarket with
replacement parts that are sold to wholesalers, retailers, and installers, as
well as original equipment service ("OES") parts to OE customers to support
their service channels. We serve our customers through our brands, including
Monroe®, Champion®, Öhlins®, MOOG®, Walker®, Fel-Pro®, Wagner®, Ferodo®,
Rancho®, Thrush®, National®, and Sealed Power®; and others.

Factors that continue to be critical to our success include winning new business awards, managing our overall global manufacturing and fulfillment footprint to ensure proper placement and workforce levels in line with business needs, maintaining competitive wages and benefits, maximizing efficiencies in manufacturing processes, positioning the business to adapt to changes in vehicle electrification, and reducing overall costs. In addition, our ability to adapt to key industry trends, such as a shift in consumer preferences to other vehicles in response to higher fuel costs and other economic, social or environmental factors, increasing technologically sophisticated content, changing aftermarket distribution channels, increasing environmental standards, and extended product life of automotive parts, also play a critical role in our success. Other factors that are critical to our success include adjusting to economic challenges such as managing the availability of materials or increases in the cost of raw materials and our ability to successfully reduce the effect of any such cost increases through material substitutions, cost reduction initiatives, and other methods.



Tenneco consists of four operating segments, Motorparts, Performance Solutions,
Clean Air, and Powertrain:
•The Motorparts segment designs, manufactures, sources, markets, and distributes
a broad portfolio of brand-name products in the global vehicle aftermarket while
also servicing the OES market. Motorparts products are organized into
categories, including shocks and struts, steering and suspension, braking,
sealing, emissions control, engine, and maintenance;
•The Performance Solutions segment designs, manufactures, markets, and
distributes a variety of products and systems designed to optimize the ride
experience to a global OE customer base, including noise, vibration, and
harshness performance materials, advanced suspension technologies, ride control,
braking, and system protection. Performance Solutions is agnostic to powertrain
technologies;
•The Clean Air segment designs, manufactures, and distributes a variety of
products and systems designed to reduce pollution and optimize engine
performance, acoustic tuning, and weight on a vehicle for light vehicle,
commercial truck, and off-highway OE customers; and
•The Powertrain segment designs, manufactures, and distributes a variety of OE
powertrain products for light vehicle, commercial truck, off-highway, and
industrial applications to OE customers for use in new vehicle production and
OES parts to support their service and distribution channels.

Costs related to other business activities, primarily corporate headquarter functions, are disclosed separately from the four operating segments as "Corporate." See Note 14, "Segment Information", in our condensed consolidated financial statements located in Part I, Item 1 of this Form 10-Q for additional information.



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Proposed Merger On February 22, 2022, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Pegasus Holdings III, LLC ("Parent") and Pegasus Merger Co., a wholly owned subsidiary of Parent ("Merger Sub" and together with Parent, "Buyer"). Pursuant to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into Tenneco (the "Merger") with Tenneco continuing as the surviving corporation of the Merger and as a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of certain funds managed by affiliates of Apollo Global Management, Inc. At the effective time of the Merger (the "Effective Time"), each share of the Company's Class A voting common stock that is issued and outstanding immediately prior to the Effective Time (other than shares to be cancelled pursuant to the Merger Agreement or shares of Class A voting common stock held by holders who have made a valid demand for appraisal in accordance with Section 262 of the Delaware General Corporation Law), will be automatically converted into the right to receive $20.00 in cash, without interest.

At the Effective Time, subject to the terms and conditions set forth in the Merger Agreement, each RSU and each PSU of Tenneco that is outstanding immediately prior to the Effective Time will automatically be cancelled and converted into the holder's right to receive a cash amount (subject to any applicable withholding taxes) calculated based on the per-share Merger consideration of $20.00.

The Company's Board of Directors and the sole member or board of directors, as applicable, of Parent and Merger Sub have each unanimously approved the Merger and the Merger Agreement. On June 7, 2022, the Company's stockholders approved the Merger and Merger Agreement, and the closing of the Merger is subject to various conditions, including (i) the absence of any order, injunction or other legal or regulatory restraint making illegal, enjoining or otherwise prohibiting the closing of the Merger; (ii) the receipt of clearances and/or approvals under applicable foreign competition and/or other laws; (iii) the accuracy of the representations and warranties contained in the Merger Agreement, subject to customary materiality qualifications; and (iv) compliance with the covenants and agreements contained in the Merger Agreement as of the closing of the Merger. In addition, the obligation of Parent and Merger Sub to consummate the Merger is subject to the absence, since the date of the Merger Agreement, of a Company Material Adverse Effect (as defined in the Merger Agreement under clause (b) of such definition). The closing of the Merger is not subject to a financing condition, and Parent has obtained equity and debt financing commitments for the purpose of financing the Merger and the other transactions contemplated by the Merger Agreement.

All conditions to closing under the Merger Agreement with respect to antitrust and/or foreign direct investment laws have been satisfied or waived in accordance with the terms and conditions of the Merger Agreement. Parent, Merger Sub, and Tenneco expect to consummate the Merger in the middle of November 2022 promptly after the completion of certain debt financing activities by the Buyer and its debt financing sources that are contemplated by the Merger Agreement. Until the closing, the Company will continue to operate as an independent company.

The Company has incurred and will incur certain significant costs relating to the Merger, such as legal, accounting, financial advisory, printing and other professional services fees, as well as other customary payments.

Financial Results for the Nine Months Ended September 30, 2022 Consolidated revenues were $14,245 million, an increase of $599 million, or 4%, for the nine months ended September 30, 2022. Higher sales volume of $569 million and the net favorable effects of other, which includes recoveries of commodity price increases, of $637 million caused an increase in consolidated revenue, which was partially offset by the unfavorable effects of foreign currency exchange of $607 million.

Cost of sales were $12,663 million, an increase of $853 million, or 7%, for the nine months ended September 30, 2022. The primary driver of the increase is the unfavorable effects of materials sourcing of $666 million, the net effects of higher sales volume and unfavorable mix of $617 million, and the net unfavorable effects of other costs of $137 million. These were partially offset by the favorable effects of foreign currency exchange of $527 million and a decrease of $40 million in a non-cash write-down of inventory that the Motorparts segment recognized in connection with its initiative to rationalize its supply chain and distribution network as compared to the nine months ended September 30, 2021.


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Results for the nine months ended September 30, 2022 was a net loss of $151
million as compared to net income of $129 million for the nine months ended
September 30, 2021. Contributing to the change from net income to a net loss are
the following:
•a decrease in equity in earnings (losses) of nonconsolidated affiliates, net of
tax of $22 million, primarily attributable to the decrease in equity in earnings
of nonconsolidated affiliates located in Turkey and China;
•a non-cash gain on extinguishment of debt of $8 million that was recognized for
the nine months ended September 30, 2021 related to the discharge of the 4.875%
euro floating rate notes due 2024 and 5.000% euro fixed rate notes due 2024;
•an increase in interest expense of $27 million primarily due to higher average
interest rates on variable debt, higher average outstanding borrowings on the
revolver, along with overall higher interest rates on our senior secured notes,
and an increase of $10 million in financing charges on sales of accounts
receivable primarily driven by higher factoring balances and higher average
interest rates. The increase was partially offset by the effect of lower average
outstanding borrowing on term loans; and
•an increase in income tax expense of $18 million primarily due to the effects
of pre-tax income that is taxed at rates higher than the U.S. statutory rate and
a disproportionate share of pre-tax losses in jurisdictions with valuation
allowances for which no tax benefit is recognized, as well as a $7 million
non-cash benefit related to the release of a valuation allowance during the nine
months ended September 30, 2022.

These unfavorable effects were partially offset by: •a decrease in selling, general, and administrative expenses of $36 million, primarily attributable to the favorable effects of foreign currency exchange and the effects of lower net compensation and employee benefits, partially offset by higher strategic and transaction related costs; and •a decrease in depreciation and amortization of $18 million, primarily attributable to the favorable effects of foreign currency exchange.

Recent Trends and Market Conditions Recent events affecting our business include the COVID-19 global pandemic (including the implementation of government lockdowns in China), the semiconductor shortage, the Russia and Ukraine conflict, other supply chain challenges, and the effects of inflation, commodity cost increases and rising interest rates on the overall macroeconomic environment. We do not have significant operations in Russia or Ukraine compared to our global operations, but our operations in these regions have been disrupted due to the conflict. Sales from our Russian subsidiaries and sales into Russia and Ukraine from our global subsidiaries were less than 1% of our consolidated "Net sales and operating revenue" for the year ended December 31, 2021.

We use various raw materials, including steel and other metals. We obtain steel from a number of sources pursuant to various contractual and other arrangements. Due to recent supply chain constraints within the automotive industry, which may be exacerbated by the conflict in Ukraine, we may encounter difficulty in obtaining steel and other commodities, including energy, at current contractual prices and as a result may incur higher costs to procure these items. In addition, the automotive industry continues to face a shortage of semiconductors, which has led to production disruptions globally and created operating challenges for the automotive supplier base. We expect industry production to remain volatile for the foreseeable future and, sustained unfavorable commodity prices, volatility in commodity prices or changes in markets for a given commodity could negatively affect our operations.

We are experiencing other supply chain challenges, along with the effects of inflation on commodities, including raw materials and energy, other purchases, and labor. Further, unfavorable conditions such as a general slowdown of the global or U.S. economy, uncertainty and volatility in the financial markets, or additional inflationary factors, commodity cost increases, and rising interest rates could result in higher operating expenses and project costs for us.

Additionally, the Russia and Ukraine conflict and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. While neither Russia nor Ukraine constitutes a material portion of our business, a significant escalation or expansion of economic disruption or the conflict's current scope (including reduced availability and increased costs for energy and raw materials, among other things) could disrupt our supply chain, broaden inflationary costs, and have a material adverse effect on our results of operations.



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There is inherent uncertainty in the continuation of the trends discussed below. In addition, there may be other factors or trends that can have an effect on our business. Our business and operating results are affected by the relative strength of:

General economic conditions Our OE business is directly related to automotive vehicle production by our customers. Automotive production levels depend on a number of factors, including global and regional economic conditions. Demand for aftermarket products is driven by four primary factors: the number of vehicles in operation (VIO); the average age of vehicles; vehicle usage trends (primarily miles driven); and component failure and wear rates.

The COVID-19 global pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. The extent of the effects of the COVID-19 pandemic will depend on a number of factors, including the duration and severity of the pandemic or subsequent resurgence of the outbreaks, the effects and extent of COVID-19 variants, related government responses, the rate of economic recovery from the pandemic, vaccination rates, and the effectiveness of available vaccines. There continues to be many uncertainties that remain related to COVID-19 that could negatively affect our results of operations, financial position, and cash flows.

The uncertain nature, magnitude, and duration of hostilities stemming from Russia's recent military invasion of Ukraine, including the potential effects of sanctions limitations, retaliatory cyber-attacks, and potential shipping delays, have contributed to increased market volatility and economic uncertainty. The effect of the invasion of Ukraine, including economic sanctions or additional war or military conflict, as well as potential responses by Russia, is currently unknown and could adversely affect the Company's business, supply chain, suppliers, customers and potential consumer demand for our products.

Global vehicle production levels Global light vehicle production levels (According to IHS Markit, October, 2022) For the three months ended September 30, 2022, global light vehicle production was up across all major markets in which we operate by 27% overall compared to the same period in the prior year. Global light vehicle production in the three months ended September 30, 2021 experienced significant disruptions due to semiconductor shortages and created a favorable year-over-year growth comparison. Light vehicle production levels were up in South America by 33%, India by 33%, China by 31%, North America by 24%, and Europe by 20%.

For the nine months ended September 30, 2022, global light vehicle production was up 7% overall compared to the same period in the prior year. Light vehicle production levels were up 24% in India, 11% in North America, 10% in South America, and 11% in China, which was partially offset by a production level decrease of 3% in Europe.

Global commercial truck production levels (According to IHS Markit, August, 2022) For the three months ended September 30, 2022, global commercial truck production increased 10% as compared to the same period in the prior year. Production levels were up 26% in India, 14% in North America, 12% in China, and 6% in Europe. Brazil production was flat compared to the same period in prior year.

For the nine months ended September 30, 2022, global commercial truck production decreased 19% as compared to the same period in the prior year. Production declined by 44% in China, 4% in Brazil, and 3% in Europe, while production levels were up 26% in India and 15% in North America. The significant production decline in China is primarily due to the effects of COVID-19, supply chain challenges and the difficult growth comparisons in the first quarter of 2022.

Fuel efficiency, powertrain evolution, and vehicle electrification Various jurisdictions around the world have announced plans to limit the production of new diesel and gasoline powered vehicles in the future. Major vehicle manufacturers have announced their intention to reduce and phase out production of diesel and gasoline powered vehicles during the next two decades. However, for the foreseeable future, it is expected that the majority of the powertrains for light and commercial vehicles will be gasoline and diesel engines (including hybrids, which combine a battery electric drive with a combustion engine). While we see similar electrification trends for light vehicle and commercial vehicle, we expect light vehicles will experience those trends in advance of commercial vehicles. We expect to monitor those trends and adopt our business strategy accordingly.



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Business Strategy
We are a leading diversified, global supplier of innovative products and
services to light vehicle, commercial truck, off-highway, industrial, and
aftermarket customers. Our strategy focuses on addressing the evolving needs of
our OE and aftermarket customers around the world to drive growth. As discussed
in more detail in our 2021 Form 10-K, the key components of our business
strategy are as follows:
•Continue to optimize operational performance by aggressively pursuing cost
competitiveness in all business segments and continuing to drive cash flow
generation and meet capital allocation objectives;
•Pursue focused transactional opportunities, consistent with our capital
allocation priorities, product line enhancements, technological advancements,
geographic positioning, penetration of emerging markets, and market share
growth; and
•Adapt cost structure to economic realities.

Original Equipment Specific Strategies
The converging forces of connectivity, autonomy, electrification, and shared
mobility are spawning a new age of automotive autonomy and a unique opportunity
to position our business for significant growth and profitability. We strive to
strengthen our global position by designing, manufacturing, delivering, and
marketing technologically innovative products and solutions for OE
manufacturers. As discussed in more detail in our 2021 Form 10-K, the key
components of our OE strategy are as follows:
•Capitalize on our breadth of technology, differentiated products, and global
reach to support and strengthen relationships with existing and emerging OE
customers across the world;
•Maintain technological leadership to drive further growth from secular market
trends (our performance solutions division will leverage its innovative
technology, NVH performance materials, differentiated products, and advanced
system capabilities to provide innovative solutions; as well as, accelerate the
development of advanced technology suspension solutions, while also
fast-tracking time to market);
•Invest in applications that benefit from global light vehicle battery electric
vehicle (BEV) adoption (we have prioritized investments in light vehicle product
lines and applications that have content growth opportunities in light vehicle
BEV and are agnostic to an anticipated increase in adoption rates); and
•Penetrate adjacent market segments (aggressively leverage our technology and
engineering leadership in powertrain, clean air, performance solutions and
aftermarket into adjacent sales opportunities for commercial trucks, buses,
agricultural equipment, construction machinery, and other vehicles in other
regions around the world).

Aftermarket Specific Strategies Our aftermarket business strategy incorporates a go-to-market model that we believe differentiates us from our competitors and creates structural support for sustained revenue growth. The model is designed to drive revenue growth by capitalizing on three of our key competitive strengths: a leading portfolio of products and brands; extensive global manufacturing, distribution and service capabilities; and market intelligence gathered from our distributors, installers, and consumers.



We expect this distinctive go-to-market model will result in a sustainable
competitive advantage, particularly as the industry trends previously mentioned
disrupt the traditional aftermarket landscape and business practices. We expect
the demand for replacement parts to increase as a result of the increase in the
average age of VIO and the increase in the average miles driven per year. The
characteristics of aftermarket sales and distribution are defined regionally,
which require localized strategies to address the key success factors of our
customers. As discussed in more detail in our 2021 Form 10-K, the key components
of our aftermarket strategy are as follows:
•Leverage the strength of our global aftermarket leading brands positions,
product portfolio and range, marketing and selling expertise, and distribution
and logistics capabilities for global growth;
•Continue to strengthen our aftermarket capabilities and product offerings in
mature markets, including North America and Europe; and
•Increase aftermarket position in high-growth regions, notably in Asia Pacific.

Critical Accounting Estimates
Refer to our 2021 Form 10-K.

Non-GAAP Measures We use EBITDA including noncontrolling interests as the key performance measure of segment profitability and use the measure in our financial and operational decision-making processes, for internal reporting, and for planning and forecasting purposes to effectively allocate resources. EBITDA including noncontrolling interests is defined as earnings before interest expense, income taxes, noncontrolling interests, and depreciation and amortization. EBITDA including noncontrolling interests should not be considered a substitute for results prepared in accordance with U.S. GAAP and should not be considered an alternative to net income, which is the most directly comparable financial measure to EBITDA including noncontrolling interests that is in accordance with U.S. GAAP. EBITDA including noncontrolling interests, as determined and measured by us, should not be compared to similarly titled measures reported by other companies.


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RESULTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2022 compared to the Three and Nine Months Ended September 30, 2021

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