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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 11-K
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ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-12387
A. Full title of the plan and address of the plan, if
different from that of the issuer named below:
THE TENNECO EMPLOYEE STOCK
OWNERSHIP PLAN FOR SALARIED EMPLOYEES
B. Name of issuer of the securities held pursuant to the plan
and the address of its principal executive office:
TENNECO INC.
500 NORTH FIELD DRIVE
LAKE FOREST, IL 60045
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THE TENNECO EMPLOYEE STOCK
OWNERSHIP PLAN FOR SALARIED EMPLOYEES
TABLE OF CONTENTS
PAGE
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of
December 31, 2005 and 2004 2
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 2005 3
Notes to Financial Statements 4-8
SUPPLEMENTAL SCHEDULE:
Form 5500, Schedule H, Part IV, Line 4i--
Schedule of Assets (Held at End of Year) as of December 31, 2005 9
NOTE: All other schedules required by Section 2520.103-10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974 have been omitted because
they are not applicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Participants of
The Tenneco Employee Stock Ownership Plan for Salaried Employees:
We have audited the accompanying statements of net assets available for benefits
of The Tenneco Employee Stock Ownership Plan for Salaried Employees (the "Plan")
as of December 31, 2005 and 2004, and the related statement of changes in net
assets available for benefits for the year ended December 31, 2005. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Plan is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Plan's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets of the Plan at December 31, 2005 and 2004, and the
changes in net assets available for benefits for the year ended December 31,
2005 in conformity with accounting principles generally accepted in the United
States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) as of December 31, 2005 is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This schedule is the responsibility of
the Plan's management. Such schedule has been subjected to the auditing
procedures applied in our audit of the basic 2005 financial statements and, in
our opinion, is fairly stated in all material respects when considered in
relation to the basic financial statements taken as a whole.
Deloitte & Touche LLP
Chicago, Illinois
June 29, 2006
THE TENNECO EMPLOYEE STOCK
OWNERSHIP PLAN FOR SALARIED EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2005 AND 2004
2005 2004
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ASSETS:
Participant-directed investments (Note 3) $155,266,722 $147,601,296
Nonparticipant-directed investments (Note 4) 42,889,067 41,165,769
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Total investments 198,155,789 188,767,065
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LIABILITIES:
Accrued administrative expenses 37,500 35,750
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Total liabilities 37,500 35,750
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NET ASSETS AVAILABLE FOR BENEFITS $198,118,289 $188,731,315
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See notes to financial statements.
-2-
THE TENNECO EMPLOYEE STOCK
OWNERSHIP PLAN FOR SALARIED EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2005
ADDITIONS:
Contributions:
Participant contributions $ 9,087,563
Employer contributions 3,447,110
Rollovers 1,318,184
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Total contributions 13,852,857
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Investment income:
Net appreciation in fair value of investments (Note 3) 10,070,195
Dividend 3,149,638
Interest 929,955
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Net investment income 14,149,788
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Transfers into Plan (Note 2) 334,467
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Total additions 28,337,112
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DEDUCTIONS:
Benefits paid to participants 18,900,024
Administrative expenses 50,114
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Total deductions 18,950,138
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INCREASE IN NET ASSETS 9,386,974
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 188,731,315
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End of year $198,118,289
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See notes to financial statements.
-3-
THE TENNECO EMPLOYEE STOCK
OWNERSHIP PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004, AND FOR THE YEAR ENDED DECEMBER 31, 2005
1. DESCRIPTION OF THE PLAN
The following description of The Tenneco Employee Stock Ownership Plan for
Salaried Employees (the "Plan") is provided for general information
purposes only. Participants should refer to the Plan Document for more
complete information.
GENERAL -- The Plan is a defined contribution plan covering substantially
all salaried employees of Tenneco Inc. (the "Company"). The Company
controls and manages the operation and administration of the Plan. Putnam
Fiduciary Trust Company serves as the trustee of the Plan. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974 ("ERISA").
ELIGIBILITY -- Employees are eligible to participate in the Plan the first
day of the month following the Company's receipt of an application for
enrollment or two complete calendar months of employment provided the
employee has not waived automatic enrollment.
CONTRIBUTIONS -- An employee is automatically enrolled in the Plan upon
completion of the eligibility requirements at a pretax contribution rate of
four percent of pretax annual compensation, as defined in the Plan
Document, subject to certain Internal Revenue Code limitations, unless the
employee elects to waive automatic enrollment prior to the effective date.
Participants can elect to increase the pretax deferral rate, subject to
certain Internal Revenue Code limitations, from four percent up to 100
percent, in any whole percentage, at any time.
The Company's matching contribution is 50 percent of the participant's
contributions, not to exceed eight percent of the participant's base
compensation. Additional amounts may be contributed at the discretion of
the Company. No such additional discretionary contributions were made for
the year ended December 31, 2005. Participants may also rollover amounts
from other qualified plans.
Effective January 1, 2002, Company matching contributions are made in cash.
Prior to January 1, 2002, Company matching contributions were made in the
Company's common stock to the Tenneco Inc. Common Stock Fund. All Company
matching contributions of Company common stock made prior to January 1,
2002 and the related earnings/losses, will remain in the form of the
Company's common stock until the participant reaches age 55 or terminates
employment and requests a total distribution.
PARTICIPANT ACCOUNTS -- Individual accounts are maintained for each Plan
participant. Each participant's account is credited with the participant's
contribution, the Company's matching contribution, and allocations of
Company discretionary contributions and Plan earnings, and charged with
withdrawals and an allocation of Plan losses and administrative expenses.
Allocations are based on participant earnings or account balances, as
defined. The benefit to which a participant is entitled is the benefit that
can be provided from the participant's vested account.
-4-
INVESTMENTS -- Participants direct the investment of their contributions
and the Company's matching contributions into various investment options
offered by the Plan. The Plan currently offers participants the option to
invest their contribution into the following funds: Putnam Money Market
Fund, Putnam Bond Index Fund, Lord Abbett Mid Cap Value Fund, Lord Abbett
Small Cap Value Fund, PIMCO Total Return Fund, Putnam Equity Income Fund,
The George Putnam Fund of Boston, Fidelity Growth Company Fund, Fidelity
Low-Priced Stock Fund, BBH Inflation Index Securities Fund, MSIF Mid Cap
Growth Value Portfolio, MSIF Inc. Small Company Growth Value Fund, Putnam
Retirement Ready Maturity Fund, Putnam Retirement Ready 2010, Putnam
Retirement Ready 2015, Putnam Retirement Ready 2020, Putnam Retirement
Ready 2025, Putnam Retirement Ready 2030, Putnam Retirement Ready 2035,
Putnam Retirement Ready 2040, Putnam Retirement Ready 2045, Putnam
Retirement Ready 2050, Putnam Income Fund, Putnam Limited Duration
Government Inc. Fund CL A, Putnam International Equity Fund, Putnam New
Opportunities Fund, Putnam Research Fund, Putnam S&P 500 Index Fund, and
Tenneco Inc. Common Stock Fund.
Shares of Pactiv Corporation common stock are held by the Plan in a
separate fund due to a transfer of participant account balances from
another defined contribution plan in 2000, however; the fund is no longer
an investment option for participants and direct contributions or fund
transfers are not allowed.
VESTING -- Participants are vested immediately in both their contributions
plus actual earnings thereon and the Company's matching contribution
portion of their accounts.
PARTICIPANT LOANS -- Active participants and certain other individuals who
have not had a loan during the previous three months may borrow from their
accounts up to a maximum of $50,000 less their highest outstanding loan
balance in the previous 12 months or 50 percent of their account balance,
whichever is less. Each participant may only have one loan outstanding at
any time, with a term not to exceed 54 months and the amount of the loan
may not be less than $1,000. The loans are secured by the balance in the
participant's account and bear interest at rates equal to the prime rate as
reported in The Wall Street Journal (ranging from 4.00% to 9.50% at
December 31, 2005) at the time the loan is made. Principal and interest is
paid ratably through payroll deductions.
TERMINATION OF PARTICIPATION -- Prior to March 28, 2005, upon termination
of service due to death, disability, retirement, or termination of
employment, a participant was permitted to elect either to receive a
lump-sum amount equal to the value of the participant's vested interest in
his or her account, or to maintain the account, if the participant's vested
interest in the account was more than $5,000. A quarterly installment
option was available only to former participants of a merged plan. If the
participant's account was less than $5,000, the participant was required to
receive a lump-sum amount or roll over the amount to another qualified plan
or IRA. At December 31, 2004, the amount owed to participants whose service
has been terminated was $72,706, for accounts with balances less than
$5,000. Effective March 28, 2005, Tenneco amended the Plan to reduce the
mandatory lump-sum payout requirement from $5,000 to $1,000. As a result,
at December 31, 2005 the amount owed to participants whose service had been
terminated with account balances less than $1,000 was $12,132.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING -- The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires Plan management to make estimates and assumptions that
affect the reported amounts of net assets available for benefits and
changes therein. Actual results could differ from those estimates. The Plan
utilizes various investment instruments.
-5-
Investment securities, in general, are exposed to various risks, such as
interest rate, credit, and overall market volatility. Due to the level of
risk associated with certain investment securities, it is reasonably
possible that changes in the values of investment securities will occur in
the near term and that such changes could materially affect the amounts
reported in the financial statements.
INVESTMENT VALUATION AND INCOME RECOGNITION -- Quoted market prices are
used to determine the fair value of the Plan's investments, when available.
Shares of registered investment companies and common/collective trusts are
valued at the net asset value of shares held by the Plan at year-end.
Participant loans are valued at the outstanding loan balances.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded on
the ex-dividend date.
Management fees and operating expenses charged to the Plan for investments
in registered investment companies sponsored by the Company's trustee,
Putnam Fiduciary Trust Company, are deducted from income earned on a daily
basis and are not separately reflected. Consequently, these management fees
and operating expenses are reflected as a reduction of net appreciation
(depreciation) in the fair market value of investments for such
investments.
ADMINISTRATIVE EXPENSES -- Administrative expenses of the Plan are paid by
the Plan as provided in the Plan Document.
PAYMENT OF BENEFITS -- Benefit payments to participants, including deemed
distributions of participant loans, are recorded upon distribution. The
amount allocated to accounts of persons who have elected to withdraw from
the Plan but have not yet been paid were $12,132 and $72,706 at December
31, 2005 and 2004, respectively. There were deemed distributions of
participant loans in default of $61,036 and $32,412 at December 31, 2005
and 2004, respectively.
TRANSFERS -- The Company also sponsors an employee stock ownership plan
for hourly employees. If employees change their hourly or salaried status
during the year, their account balances are transferred into the
corresponding plan. For the year ended December 31, 2005, plan transfers
received from the hourly plan were $287,488 and loans rolled over from
Gabilan were $46,979.
3. INVESTMENTS
The Plan's investments that represented five percent or more of the Plan's
net assets available for benefits as of December 31, 2005 and 2004 are as
follows:
2005 2004
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Fidelity Growth Company Fund $23,913,027 $23,319,716
Pactiv Corporation common stock ** 11,421,119
Putnam Money Market Fund 28,019,494 30,385,051
Putnam S&P 500 Index Fund 15,437,130 15,422,344
Tenneco Inc. common stock* 58,821,889 54,781,945
* Partially nonparticipant-directed.
** Less than five percent.
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During 2005, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
in value as follows:
Registered investment companies $ 4,049,381
Common/collective trusts 756,175
Pactiv Corporation common stock (1,507,840)
Tenneco Inc. common stock 6,772,479
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Net appreciation in fair value of investments $10,070,195
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4. NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of the
changes in net assets relating to the nonparticipant-directed investments
is as follows as of December 31, 2005 and 2004, and for the year ended
December 31, 2005:
2005 2004
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Net assets:
Tenneco Inc. common stock $42,889,067 $41,165,769
YEAR ENDED
DECEMBER 31, 2005
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Changes in net assets:
Net appreciation in fair value of investments $ 4,911,957
Benefits paid to participants (2,419,332)
Transfers to participant-directed investments (769,327)
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Total $ 1,723,298
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5. RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of registered investment companies and
common/collective trusts managed by Putnam Fiduciary Trust Company. Putnam
Fiduciary Trust Company is the trustee as defined by the Plan and,
therefore, these transactions qualify as party-in-interest transactions.
Fees paid by the Plan for investment management services were included as a
reduction of the return earned on each of these funds.
At December 31, 2005 and 2004, the Plan held 2,999,586 and 3,177,607
shares, respectively, of common stock of Tenneco Inc., the sponsoring
employer, with a cost basis of $16,849,026 and $15,104,321, respectively.
-7-
6. PLAN TERMINATION
Although it has not expressed any intention to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions set forth in ERISA. Any assets
which are not allocated to the accounts of participants upon the complete
termination of the Plan, or complete discontinuance of contributions, will
be allocated among all of the participant accounts pro rata on the basis of
their respective balances.
7. FEDERAL INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter, dated April 30, 2002, that the Plan and related trust, as then
designed, were in accordance with the applicable sections of the Internal
Revenue Code. Although the Plan has been amended since receiving the
determination letter, the Plan administrator and the Plan's tax counsel
believe that the Plan is currently designed and being operated in
compliance with the applicable requirements of the Internal Revenue Code
and is tax-exempt. Therefore, no provision for income taxes has been
included in the Plan's financial statements.
8. ACQUISITION OF GABILAN MANUFACTURING COMPANY
In February 2005, Tenneco Inc acquired substantially all the assets and
assumed certain related liabilities of Gabilan Manufacturing Inc., a
privately held company that had developed and manufactured motorcycle
exhaust systems for Harley-Davidson motorcycles since 1978. The company
also produced aftermarket muffler kits for Harley-Davidson.
Employees of Gabilan and the administration of their payroll and benefits
was assumed by Tenneco on April 1, 2005. At that time, Gabilan employees
had the opportunity to roll-over their balances in the Gabilan 401(k)
program into either the Tenneco Employee Stock Ownership Plan for Hourly
Employees or the Tenneco Employee Stock Ownership Plan for Salaried
Employees depending on whether the employee was categorized as hourly or
salaried. Gabilan employees were also allowed to roll-over their 401(k)
loans as part of the roll-over of their assets. The total rollover into the
Tenneco Salaried Plan related to Gabilan employees totaled $918,236 for the
year ended December 31, 2005.
9. SUBSEQUENT EVENT
Effective April 1, 2006, the Plan's trustee changed from Putnam Fiduciary
Trust Company to ACS (Mellon). The assets were transferred to ACS (Mellon)
on March 24, 2006.
10. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per
the financial statements to Form 5500:
2005 2004
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Net assets available for benefits per the financial statements $198,118,289 $188,731,315
Deemed distributions of participant loans (61,036) (32,412)
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Net assets available for benefits per Form 5500 $198,057,253 $188,698,903
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The following is a reconciliation of changes in net assets available for
benefits per the financial statements for the year ended December 31, 2005
to Form 5500:
Benefits paid to participants per the financial statements $18,900,024
Add deemed distributions of participant loans at December 31, 2005 61,036
Less deemed distributions of participant loans at December 31, 2004 (32,412)
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Benefits paid to participants per Form 5500 $18,928,648
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THE TENNECO EMPLOYEE STOCK
OWNERSHIP PLAN FOR SALARIED EMPLOYEES
FORM 5500, SCHEDULE H, PART IV, LINE 4I--SCHEDULE OF ASSETS (HELD AT END OF
YEAR)
AS OF DECEMBER 31, 2005
FAIR
COST VALUE
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INVESTMENTS:
Common/collective trusts:
*Putnam Bond Index Fund ** $ 2,792,512
*Putnam S&P 500 Index Fund ** 15,437,130
Common stock:
Pactiv Corporation ** 7,862,921
*Tenneco Inc. $16,849,026 58,821,889
Non-interest-bearing cash ** 84,552
Registered investment companies:
Fidelity Growth Company Fund ** 23,913,027
Fidelity Low-Priced Stock Fund ** 8,155,890
Lord Abbett Mid Cap Value Fund ** 8,460,756
Lord Abbett Small Cap Value Fund ** 4,617,903
MSIF Inc. Small Company Growth Value Fund ** 3,816,882
MSIF Mid Cap Growth Value Portfolio ** 2,887,969
PIMCO Total Return Fund ** 2,113,271
BBH Inflation Index Securities Fund ** 1,350,164
*Putnam Limited Duration Government Inc. CL A ** 270,079
*Putnam Equity Income Fund ** 2,469,649
*Putnam International Equity Fund ** 5,340,534
*Putnam Money Market Fund ** 28,019,494
*Putnam New Opportunities Fund ** 6,385,907
*Putnam Research Fund ** 613,586
*The George Putnam Fund of Boston ** 3,648,604
*Putnam Income Fund ** 569,074
*Putnam Retirement Ready Maturity Fund ** 94,052
*Putnam Retirement Ready 2010 ** 1,575,062
*Putnam Retirement Ready 2015 ** 1,795,295
*Putnam Retirement Ready 2020 ** 695,401
*Putnam Retirement Ready 2025 ** 1,101,774
*Putnam Retirement Ready 2030 ** 757,851
*Putnam Retirement Ready 2035 ** 627,159
*Putnam Retirement Ready 2040 ** 258,784
*Putnam Retirement Ready 2045 ** 391,297
*Putnam Retirement Ready 2050 ** 14,430
*Participant loans (maturing 2006 to 2010 at
interest rates of 4.00% to 9.50%) ** 3,212,891
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TOTAL $16,849,026 $198,155,789
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* Party in interest.
** Cost information is not required for participant-directed investments.
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SIGNATURES
THE PLAN - Pursuant to the requirements of the Securities and Exchange Act of
1934, the Tenneco Inc. Benefits Committee has duly caused this annual report to
be signed on its behalf by the undersigned hereunder duly authorized.
THE TENNECO EMPLOYEE
STOCK OWNERSHIP PLAN FOR SALARIED
EMPLOYEES
Date: June 29, 2006 /s/ RICHARD P. SCHNEIDER
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RICHARD P. SCHNEIDER
CHAIRMAN OF TENNECO INC.
BENEFITS COMMITTEE
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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23.1 Consent of Deloitte & Touche LLP