References herein to "Tenneco", the "Company", "we", "us", and "our" refer to Tenneco Inc. and its consolidated subsidiaries. Unless otherwise stated, all comparisons of March 31, 2021 financial results are to March 31, 2020 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, 2020, which was filed with the Securities and Exchange Commission ("SEC") on February 24, 2021 (the "2020 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. We manufacture innovative performance solutions, clean air, and
powertrain products and systems, and serve 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 leading 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 and social 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.

Change in Reportable Segments Beginning in the first quarter of 2021, we made a change to our operating segments. This change consisted of moving a reporting unit from the Powertrain segment to the Ride Performance segment to align with a change in how our Chief Operating Decision Maker allocates resources and assesses performance against our key growth strategies. With this segment change and our enhanced focus on growth, Ride Performance was renamed Performance Solutions. As such, prior period operating segment results and related disclosures have been conformed to reflect our current operating segments.



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 leading brand-name products in the global vehicle
aftermarket while also servicing the original equipment servicers 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 performance solutions and systems to a global OE
customer base, including noise, vibration, and harshness performance materials,
advanced suspension technologies, ride control, braking, and system protection;
•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
original equipment 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 16, "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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Strategic Alternatives We are continually evaluating our portfolio and a full range of strategic options to enhance shareholder value creation, including a potential separation of the Company into an Aftermarket and Ride Performance company and a new Powertrain Technology company. Efforts to optimize shareholder value creation remain focused on operational improvements, reducing structural costs, lowering capital intensity, reducing debt, and growth in targeted business lines.

Financial Results for the Three Months Ended March 31, 2021 Consolidated revenues were $4,731 million, an increase of $895 million, or 23%, for the three months ended March 31, 2021. The primary driver of the increase is higher sales volume and favorable mix of $775 million, largely attributable to the effects of COVID-19 in the prior year. The remaining increase is attributable to the favorable effects of foreign currency exchange of $124 million and the net favorable effects of other of $2 million. The favorable effects were partially offset by the net effects of acquisitions and divestitures contributing a $6 million decrease in revenues, or less than 1%.

Cost of sales were $4,061 million, an increase of $722 million, or 22%, for the three months ended March 31, 2021. The primary driver of the increase is from higher sales volume of $667 million, largely attributable to the effects of COVID-19 in the prior year. The remaining increase is attributable to the unfavorable effects of materials sourcing of $23 million and the unfavorable effects of foreign currency exchange of $116 million. This was partially offset by the decrease in cost of sales of $6 million, or less than 1%, related to the net effects of acquisitions and divestitures and the net favorable effects of other costs of $78 million.



Net income increased by $913 million to a net income of $87 million for the
three months ended March 31, 2021 as compared to a net loss of $826 million for
the three months ended March 31, 2020. The increase was primarily driven by:
•a decrease in restructuring charges, net and asset impairments of $459 million
primarily related to the impairment of long-lived asset groups recognized during
the three months ended March 31, 2020 triggered by the effects of the COVID-19
global pandemic on the Company's projected financial information, and global
headcount and cost reduction initiatives;
•a decrease in goodwill and intangible impairment charges of $383 million, which
was comprised of $267 million of goodwill impairment charges, $65 million of
definite-lived intangible asset impairments, and $51 million of indefinite-lived
intangible asset impairments recognized during the three months ended March 31,
2020;
•a non-cash gain on extinguishment of debt of $8 million, which was recognized
during the three months ended March 31, 2021 related to the discharge of the
4.875% euro floating rate notes due 2024 and 5.000% euro fixed rate notes due
2024; and
•a decrease in interest expense of $5 million primarily attributable to lower
interest rates on variable rate debt. This includes a decrease of $2 million in
financing charges on sales of accounts receivable during the three months ended
March 31, 2021.

These favorable effects were partially offset by an increase in income tax expense of $141 million to an income tax expense of $47 million as compared to an income tax benefit of $94 million in the three months ended March 31, 2020, primarily driven by the pre-tax loss recognized during the three months ended March 31, 2020 relating to the asset impairment charges of $854 million compared to pre-tax income for the three months ended March 31, 2021.

Recent Trends and Market Conditions 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.

The principal raw material that we use is steel. 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, we may encounter difficulty in obtaining steel at current contractual prices and as a result may incur higher costs to procure steel. In addition, our customers may face supply chain constraints in obtaining computer microchips that could directly affect vehicle production in the near term.

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; the average age of vehicles; vehicle usage trends (primarily miles driven); and component failure and wear rates.



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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 outbreaks, related government responses, the rate of economy recovery from the pandemic, 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.

Global vehicle production levels Global light vehicle production levels (According to IHS Markit, April, 2021) For the three months ended March 31, 2021, global light vehicle production was up 14% overall across the major markets in which we operate compared to the same period in the prior year. While some markets were experiencing increases in production, others were experiencing declines. Light vehicle production levels in China were up 78%, India was up 23%, and South America production was up 4%, while production levels in North America were down 4% and Europe was down 1%.

Global commercial truck production levels (According to IHS Markit, February, 2021) For the three months ended March 31, 2021, global commercial truck production was up 7% across all major markets in which we operate compared to the same period in the prior year. Production increased by 17% in North America, 7% in Brazil, 10% in Europe, 26% in India, and 4% in China.

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.



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 2020 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 2020 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;
•Invest in applications that benefit from global light vehicle battery electric
vehicle adoption; and
•Penetrate adjacent market segments.

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 the company's key competitive strengths: a leading portfolio of products and brands; extensive global manufacturing, distribution and service capabilities; and market intelligence gathered from the company's distributors, installers, and consumers.



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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 2020 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 2020 Form 10-K, which was filed with the SEC on February 24, 2021.

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. 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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