TENNECO AUTOMOTIVE INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-12387
TENNECO AUTOMOTIVE INC.
(Exact name of registrant as specified in its charter)

DELAWARE 76-0515284
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)

500 NORTH FIELD DRIVE, LAKE FOREST, ILLINOIS 60045
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 482-5000

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.

Common Stock, par value $.01 per share: 41,883,299 shares as of April 30,
2003.

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TABLE OF CONTENTS

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* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q contains forward-looking statements
regarding, among other things, our prospects and business strategies. The words
"may", "will," "believes," "should," "could," "plans," "expects," "anticipate,"
"intends," "estimates," and similar expressions (and variations thereof),
identify these forward-looking statements. Although we believe that the
expectations reflected in these forward-looking statements are based on
reasonable assumptions, these expectations may not prove to be correct. Because
these forward-looking statements are also subject to risks and uncertainties,
actual results may differ materially from the expectations expressed in the
forward-looking statements. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking
statements include:

- general economic, business and market conditions;

- the impact of consolidation among automotive parts suppliers and
customers on our ability to compete;

- operating hazards associated with our business;

- changes in consumer demand and preferences for automobiles and automotive
parts, as well as changes in automobile manufacturers' actual and
forecasted requirements for our products;

- changes in distribution channels or competitive conditions in the markets
and countries where we operate, including the impact of changes in
distribution channels for aftermarket products on our ability to increase
or maintain aftermarket sales;

- cyclicality of automotive production and sales;

2

- material substitution;

- labor disruptions at our facilities or at any of our significant
customers or suppliers;

- economic, exchange rate and political conditions in the foreign countries
where we operate or sell our products;

- customer acceptance of new products;

- new technologies that reduce the demand for certain of our products or
otherwise render them obsolete;

- our ability to realize our business strategy of improving operating
performance;

- capital availability or costs, including changes in interest rates,
market perceptions of the industries in which we operate or ratings of
securities;

- changes by the Financial Accounting Standards Board or the Securities and
Exchange Commission of authoritative generally accepted accounting
principles or policies;

- the impact of changes in and compliance with laws and regulations,
including environmental laws and regulations, and environmental
liabilities in excess of the amount reserved;

- terrorism, acts of war and similar events, and their resultant impact on
economic and political conditions; and

- the occurrence or non-occurrence of other circumstances beyond our
control.

3

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

INDEPENDENT ACCOUNTANTS' REPORT

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
TENNECO AUTOMOTIVE INC.

We have reviewed the accompanying consolidated balance sheet of Tenneco
Automotive Inc. and consolidated subsidiaries as of March 31, 2003, and the
related consolidated statements of income (loss), comprehensive income (loss),
cash flows and changes in shareholders' equity for the three-month periods ended
March 31, 2003 and 2002. These financial statements are the responsibility of
Tenneco Automotive Inc.'s management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.

We previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Tenneco Automotive Inc. and consolidated subsidiaries as of December 31, 2002,
and the related consolidated statements of income (loss), cash flows, changes in
shareholders' equity and comprehensive income (loss) for the year then ended
(not presented herein); and in our report dated February 3, 2003, we expressed
an unqualified opinion on those consolidated financial statements (such report
includes an explanatory paragraph relating to the adoption of Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets").
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 2002 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.

DELOITTE & TOUCHE LLP

Chicago, Illinois
April 21, 2003

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF INCOME (LOSS)
(UNAUDITED)

The accompanying notes to financial statements are an integral part of these
statements of income (loss).
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

BALANCE SHEETS
(UNAUDITED)

The accompanying notes to financial statements are an integral part of these
balance sheets.
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CASH FLOWS
(UNAUDITED)

NOTE: Cash and cash equivalents include highly liquid investments with a
maturity of three months or less at the date of purchase.

The accompanying notes to financial statements are an integral part of these
statements of cash flows.
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)

The accompanying notes to financial statements are an integral part of
these statements of changes in shareholders' equity.
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

The accompanying notes to financial statements are an integral part
of these statements of comprehensive income (loss).
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) As you read the accompanying financial statements and Management's
Discussion and Analysis you should also read our Annual Report on Form 10-K for
the year ended December 31, 2002.

In our opinion, the accompanying unaudited financial statements contain all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly Tenneco Automotive's financial position, results of operations, cash
flows, changes in shareholders' equity, and comprehensive income (loss) for the
periods indicated. We have prepared the unaudited interim consolidated financial
statements pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for annual financial statements.

Our consolidated financial statements include all majority-owned
subsidiaries. We carry investments in 20 percent to 50 percent owned companies
at cost plus equity in undistributed earnings and cumulative translation
adjustments from the date of acquisition since we have the ability to exert
significant influence over operating and financial policies.

We have reclassified prior year's financial statements where appropriate to
conform to 2003 presentations.

(2) Over the past several years we have adopted plans to restructure
portions of our operations. These plans were approved by the Board of Directors
and were designed to reduce operational and administrative overhead costs
throughout the business. Prior to the change in accounting required for exit or
disposal activities described in Note 4 below, we recorded charges to income
related to these plans for costs that do not benefit future activities in the
period in which the plans were finalized and approved, while actions necessary
to affect these restructuring plans occurred over future periods in accordance
with established plans.

In the fourth quarter of 2001, our Board of Directors approved a
restructuring plan, the first phase of a project known as Project Genesis,
designed to lower our fixed costs, improve efficiency and utilization, and
better optimize our global footprint. The first phase of Project Genesis
involved closing eight facilities, improving the process flow and efficiency
through value mapping and plant arrangement at 20 facilities, relocating
production among facilities, and centralizing some functional areas. The closed
facilities include an emissions control aftermarket plant and an aftermarket
distribution operation in Europe, a ride control plant in Europe, an engineering
center in Europe, one building at an emissions control plant complex in North
America, a technology facility in North America, an exhaust manufacturing
facility in North America, and our London-based treasury office. In the fourth
quarter of 2001, we recorded pre-tax charges related to Project Genesis of $27
million. Within the statement of income (loss), $23 million of the pre-tax
charge is reflected in cost of sales, while $4 million is included in selling,
general and administrative expenses. These charges are comprised of $18 million
in severance and $9 million for equipment lease cancellation, asset impairment
and other restructuring costs to close the eight facilities. We wrote down the
assets at locations to be closed to their estimated fair value, less costs to
sell. We estimated the market value of buildings using external real estate
appraisals. As a result of the single purpose nature of the machinery and
equipment to be disposed of, fair value was estimated to be scrap value less
costs to dispose in most cases. We also recorded a pre-tax charge of $4 million
in cost of sales related to a strategic decision to adjust some product
offerings and our customer supply strategy in the European aftermarket. The
aftermarket parts were written down to their estimated scrap value, less costs
to sell. Finally, we also incurred $1 million in other restructuring related
costs during the fourth quarter for the value mapping and rearrangement of one
of our emission control plants in North America. Since these costs relate to
ongoing operations, they could not be accrued as part of the restructuring
charge. The total of all these restructuring and other costs recorded in the
fourth quarter of 2001 was $32 million before tax, $31 million after tax, or
$.81 per diluted common share. As of March 31, 2003, we have eliminated 946
positions in connection with the first phase of Project Genesis. Additionally,
we are executing this plan more efficiently than originally anticipated and as a
result in the fourth quarter of 2002 reduced our reserves related to this
restructuring activity by $6 million which was recorded in cost of sales. We
expect to

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

complete all remaining restructuring activities related to the first phase of
Project Genesis in the first half of 2003.

We incurred other costs in the first quarter of 2003 of $4 million for
moving and rearrangement activities related to our restructuring actions
initiated in prior periods that could not be accrued as part of the
restructuring charges for those actions.

Including the costs incurred in 2002 of $11 million, we have incurred $15
million for moving and rearrangement activities related to our restructuring
actions initiated in prior periods that could not be accrued as part of the
restructuring charges for these actions.

In the first quarter of 2003, we incurred costs of $1 million associated
with eliminating 17 salaried positions through selective layoffs and an early
retirement program. Additionally, 93 hourly positions were eliminated through
selective layoffs in the quarter. These reductions were done to reduce ongoing
labor costs in North America. All of this charge was recorded in cost of sales.

Amounts related to activities that are part of our restructuring plans are
as follows:

Under the terms of an amendment to our senior credit agreement that took
effect on March 13, 2002, we are allowed to exclude up to $60 million of cash
charges and expenses, before taxes, related to potential future cost reduction
initiatives over the 2002-2004 period from the calculation of the financial
covenant ratios we are required to maintain under our senior credit agreement.
As of March 31, 2003, we have excluded $15 million of the $60 million available
under the terms of the amendment. In addition to the announced actions, we
continue to evaluate additional opportunities, including additional phases of
Project Genesis, to initiate actions that will reduce our costs through
implementing the most appropriate and efficient logistics, distribution, and
manufacturing footprint for the future. There can be no assurances however, that
we will undertake additional phases of Project Genesis or other additional
restructuring actions. Actions that we take, if any, will require the approval
of our Board of Directors, or its authorized committee, and if the costs of the
plans exceed the amount previously approved by our senior lenders, could require
approval by our senior lenders. We plan to conduct any workforce reductions that
result in compliance with all legal and contractual requirements including
obligations to consult with workers' councils, union representatives and others.

(3) We are subject to a variety of environmental and pollution control laws
and regulations in all jurisdictions in which we operate. We expense or
capitalize, as appropriate, expenditures for ongoing compliance with
environmental regulations that relate to current operations. We record
expenditures that relate to an existing condition caused by past operations and
that do not contribute to current or future revenue generation. We record
liabilities when environmental assessments indicate that remedial efforts are
probable and the costs can be reasonably estimated. Estimates of the liability
are based upon currently available facts, existing technology, and presently
enacted laws and regulations taking into consideration the likely effects of
inflation and other societal and economic factors. We consider all available
evidence including prior experience in remediation of contaminated sites, other
companies' cleanup experiences and data released by the United States
Environmental Protection Agency or other organizations. These estimated
liabilities are

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

subject to revision in future periods based on actual costs or new information.
Where future cash flows are fixed or reliably determinable, we have discounted
the liabilities. All other environmental liabilities are recorded at their
undiscounted amounts. We evaluate recoveries separately from the liability and,
when they are assured, recoveries are recorded and reported separately from the
associated liability in our financial statements.

As of March 31, 2003, we are designated as a potentially responsible party
in three Superfund sites. We have estimated our share of the remediation costs
for these sites to be less than $1 million in the aggregate. In addition to the
Superfund sites, we may have the obligation to remediate current or former
facilities, and we estimate our share of remediation costs at these facilities
to be approximately $14 million. For each of the Superfund sites and the current
and former facilities, we have established reserves that we believe are adequate
for these costs. Although we believe our estimates of remediation costs are
reasonable and are based on the latest available information, the cleanup costs
are estimates and are subject to revision as more information becomes available
about the extent of remediation required. At some sites, we expect that other
parties will contribute to the remediation costs. In addition, at the Superfund
sites, the Comprehensive Environmental Response, Compensation and Liability Act
provides that our liability could be joint and several, meaning that we could be
required to pay in excess of our share of remediation costs. Our understanding
of the financial strength of other potentially responsible parties at the
Superfund sites, and of other liable parties at our current and former
facilities, has been considered, where appropriate, in our determination of our
estimated liability.

We believe that any potential costs associated with our current status as a
potentially responsible party in the Superfund sites, or as a liable party at
our current or former facilities, will not be material to our results of
operations or consolidated financial position.

We also from time to time are involved in legal proceedings or claims that
are incidental to the conduct of our business. Some of these proceedings allege
damages against us relating to environmental liabilities (including toxic tort,
property damage and remediation), intellectual property matters (including
patent, trademark and copyright infringement, and licensing disputes), personal
injury claims (including injuries due to product failure, design or warnings
issues, and other product liability related matters), employment matters, and
commercial or contractual disputes, sometimes related to acquisitions or
divestitures. We will continue to vigorously defend ourselves against all of
these claims. Although the ultimate outcome of any legal matter cannot be
predicted with certainty, based on present information, including our assessment
of the merits of the particular claim, we do not expect that these legal
proceedings or claims will have any material adverse impact on our future
consolidated financial position or results of operations. In addition, we are
subject to a number of lawsuits initiated by a significant number of claimants
alleging health problems as a result of exposure to asbestos. Many of these
cases involve significant numbers of individual claimants. However, only a small
percentage of these claimants allege that they were automobile mechanics who
were allegedly exposed to our former muffler products and a significant number
appear to involve workers in other industries or otherwise do not include
sufficient information to determine whether there is any basis for a claim
against us. We believe, based on scientific and other evidence, it is unlikely
that mechanics were exposed to asbestos by our former muffler products and that,
in any event, they would not be at increased risk of asbestos-related disease
based on their work with these products. Further, many of these cases involve
numerous defendants, with the number of each in some cases exceeding 200
defendants from a variety of industries. Additionally, the plaintiffs either do
not specify any, or specify the jurisdictional minimum, dollar amount for
damages. On the other hand, we are experiencing an increasing number of these
claims, likely due to bankruptcies of major asbestos manufacturers. We
vigorously defend ourselves against these claims as part of our ordinary course
of business. To date, with respect to claims that have proceeded sufficiently
through the judicial process, we have regularly achieved favorable resolution in
the form of a dismissal of the claim or a judgment in our favor.

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

Accordingly, we presently believe that these asbestos-related claims will not
have a material adverse impact on our future financial condition or results of
operations.

We provide warranties on some of our products. The warranty terms vary but
range from one year up to limited lifetime warranties on some of our premium
aftermarket products. Provisions for estimated expenses related to product
warranty are made at the time products are sold or when specific warranty issues
are identified on OE products. These estimates are established using historical
information about the nature, frequency, and average cost of warranty claims. We
actively study trends of warranty claims and take action to improve product
quality and minimize warranty claims. We believe that the warranty reserve is
appropriate; however, actual claims incurred could differ from the original
estimates, requiring adjustments to the reserve. The reserve is included in both
long-term and short-term liabilities on the balance sheet.

Below is a table that shows the activity in the warranty accrual accounts:

During the second quarter of 2002, we reached an agreement with an OE
customer to recover our investment in development costs and related equipment,
as well as amounts owed to some of our suppliers, for a platform cancelled by
the customer. We collected $30 million, net of the amounts we owed to suppliers,
during the second quarter pursuant to this agreement. The agreement had no
effect on our results of operations.

(4) In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting
for purchased goodwill from an amortization method to an impairment-only
approach. Therefore amortization of all purchased goodwill, including
amortization of goodwill recorded in past business combinations, ceased upon
adoption of SFAS No. 142 in January 2002. Under the provisions of SFAS No. 142,
we were required to perform an impairment analysis on the balance of goodwill at
January 1, 2002. The fair value of our reporting units used in determining the
goodwill impairment was computed using the present value of expected future cash
flows. As a result of this analysis, we determined that goodwill associated with
our North American ride control and European aftermarket operations was
impaired. As a result, a charge of $218 million, net of taxes of $6 million, was
recorded in the first quarter of 2002 as a cumulative effect of a change in
accounting principle. The balance of unamortized goodwill was $187 million at
March 31, 2003. We are required to test this balance for impairment on an annual
basis.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 was effective for fiscal years beginning
after June 15, 2002. The adoption of SFAS No. 143 did not have a material impact
on our financial position or results of operations.

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 changes the
definition of the date at which a liability exists for exit or disposal
activities also referred to as restructuring activities. Previously, we
recognized a liability for restructuring activities when we committed to a plan
of restructuring and announced this plan to the employees. We are required to
apply the new standard prospectively to new exit or disposal activities
initiated after December 31, 2002. SFAS No. 146 generally requires that these
costs be recognized at a later date and over time, rather than in a single
charge. The adoption of SFAS No. 146 did not have a material impact on our
financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"), which expands previously
issued accounting guidance and disclosure requirements for certain guarantees.
FIN 45 provides that issuing a guarantee imposes a non-contingent obligation to
stand ready to perform in the event that the conditions specified in the
guarantee occur, and that a liability representing the fair value of such a
guarantee must be recognized when the guarantee is issued. We are required to
apply these initial recognition and measurement provisions to guarantees issued
or modified after December 31, 2002. The adoption of FIN 45 did not have a
material impact on our financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148 which provides alternative
methods of transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation and amends the disclosure
requirements to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. See Note 6
to our financial statements for this information for the first quarter.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the entity that has the
controlling financial interest. FIN 46 also provides the framework for
determining whether a variable interest entity should be consolidated based on
voting interest or significant financial support provided to it. This
interpretation is effective immediately for variable interest entities created
after January 31, 2003 and effective July 1, 2003 for variable interest entities
created before February 1, 2003. We do not expect the adoption of FIN 46 to have
any impact on our consolidated financial statements.

(5) We have an agreement to periodically sell an interest in some of our
U.S. trade accounts receivable to a third party. Receivables become eligible for
the program on a daily basis, at which time the receivables are sold to the
third party, net of a factoring discount, through a wholly-owned subsidiary.
Under this agreement, as well as individual agreements with third parties in
Europe, we have sold accounts receivable of $122 million and $112 million at
March 31, 2003 and 2002, respectively. We recognized a loss of less than $1
million in each of the first three months ended March 31, 2003 and 2002,
respectively, on these sales of trade accounts, representing the discount from
book values at which these receivables were sold to the third party. The
discount rate varies based on funding cost incurred by the third party, and it
averaged 2.9 percent during the time period in 2003 when we sold receivables. We
retained ownership of the remaining interest in the pool of receivables not sold
to the third party. The retained interest represents a credit enhancement for
the program. We value the retained interest based upon the amount we expect to
collect from our customers, which approximates book value.

(6) We account for our stock-based employee compensation plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees." No stock-based employee compensation cost is
reflected in net income (loss) for stock options, as all options granted under
those plans had an exercise price equal to the market value of the stock at the
date of grant. We also granted
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

restricted shares, restricted units and stock equivalent units to certain key
employees. We recognized after-tax stock based compensation income in the first
quarter of 2003 of less than $1 million and compensation expense in the first
quarter of 2002 of $1 million related to this stock based compensation. As
permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," and
amended by SFAS No. 148, "Accounting for Stock-Based Compensation--Transition
and Disclosure, an amendment of FASB Statement No. 123," we follow the
disclosure only requirements of SFAS No. 123. We estimate that our net income
(loss) for the first quarter 2003 and 2002 would have been lower by less than $1
million had we applied the fair value method of accounting for stock options.
The following table illustrates the effect on net income (loss) and earnings
(loss) per share if we had applied the fair value recognition provisions of SFAS
No. 123:

(7) Earnings (loss) per share of common stock outstanding were computed as
follows:

15

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

Options to purchase 4,781,784 and 2,487,301 shares of common stock were
outstanding at March 31, 2002 and 2003, respectively, but were not included in
the computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares on such dates.

(8) We occasionally provide guarantees that could require us to make future
payments in the event that the third party primary obligor does not make its
required payments. We have not recorded a liability for any of these guarantees.
The only third party guarantee we have made is the performance of lease
obligations by a former affiliate. Our maximum liability under this guarantee
was approximately $5 million and $6 million at March 31, 2003 and 2002,
respectively. We have no recourse in the event of default by the former
affiliate. However, we have not been required to make any payments under this
guarantee.

Additionally, we have from time to time issued guarantees for the
performance of obligations by some of our subsidiaries, and some of our
subsidiaries have guaranteed our debt. All of our then existing and future
material domestic wholly-owned subsidiaries fully and unconditionally guarantee
the $1.215 billion senior secured credit facility and the $500 million senior
subordinated notes on a joint and several basis. The arrangement for the senior
secured credit facility is also secured by substantially all our domestic assets
and pledges of 66 percent of the stock of certain first-tier foreign
subsidiaries. You should also read Note 10 where we present the Supplemental
Guarantor Condensed Consolidating Financial Statements.

We have issued guarantees through letters of credit in connection with some
obligations of our affiliates. We have guaranteed through letters of credit
support for local credit facilities, travel and procurement card programs, and
cash management requirements for some of our subsidiaries totaling $48 million.
We have also issued $14 million in letters of credit to support some of our
subsidiaries' insurance arrangements. In addition, we have issued $3 million in
guarantees through letters of credit to guarantee other obligations of
subsidiaries primarily related to environmental remediation activities.

(9) We are a global manufacturer with two geographic reportable segments:
North America and Europe. Each segment manufactures and distributes ride control
and emission control products primarily for the automotive industry. We have not
aggregated individual operating segments within these reportable segments. We
evaluate segment performance based primarily on income before interest expense,
income taxes, and minority interest. Products are transferred between segments
and geographic areas on a basis intended to reflect as nearly as possible the
"market value" of the products.

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

The following table summarizes certain Tenneco segment information:

(10) Supplemental guarantor condensed financial statements are presented
below:

Basis of Presentation

All of our existing and future material domestic wholly owned subsidiaries
(which comprise the Guarantor Subsidiaries) fully and unconditionally guarantee
our senior subordinated notes due 2009 on a joint and several basis. We have not
presented separate financial statements and other disclosures concerning each of
the Guarantor Subsidiaries because management has determined that such
information is not material to the holders of the notes. Therefore, the
Guarantor Subsidiaries are combined in the presentation below.

These condensed consolidating financial statements are presented on the
equity method. Under this method our investments are recorded at cost and
adjusted for our ownership share of a subsidiary's cumulative results of
operations, capital contributions and distributions, and other equity changes.
You should read the condensed consolidating financial statements of the
Guarantor Subsidiaries in connection with our consolidated financial statements
and related notes of which this note is an integral part.

Distributions

There are no significant restrictions on the ability of the Guarantor
Subsidiaries to make distributions to us.

17

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

STATEMENT OF INCOME (LOSS)

18

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

STATEMENT OF INCOME (LOSS)

19

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

BALANCE SHEET

20

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

BALANCE SHEET

21

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

STATEMENT OF CASH FLOWS

NOTE: Cash and cash equivalents include highly liquid investments with a
maturity of three months or less at the date of purchase.

22

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

STATEMENT OF CASH FLOWS

NOTE: Cash and cash equivalents include highly liquid investments with a
maturity of three months or less at the date of purchase.

(The preceding notes are an integral part of the foregoing financial
statements.)
23

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002

NET SALES AND OPERATING REVENUES

The following tables reflect our revenues for the first quarter of 2003 and
2002. We present these reconciliations of revenues in order to reflect the trend
in our sales, in various product lines and geographic regions, separately from
the effects of doing business in currencies other than the U.S. dollar.
Additionally, pass-through catalytic converter sales include precious metals
pricing, which may be volatile. These "pass-through" catalytic converter sales
occur when, at the direction of our OE customers, we purchase catalytic
converters or components from suppliers, use them in our manufacturing process,
and sell them as part of the completed system. While our original equipment
customers assume the risk of this volatility, it impacts our reported revenue.
Excluding pass-through catalytic converter sales removes this impact. We have
not reflected any currency impact in the 2002 table since this is the base
period for measuring the effects of currency during 2003 on our operations. We
use this information to analyze the trend in our revenues before these factors.
We believe investors find this information useful in understanding period to
period comparisons in our revenues.

Revenues from our North American operations increased $14 million in the
first quarter of 2003 compared to last year's first quarter reflecting higher
sales generated from the original equipment business. Total North American OE
revenues increased 9 percent to $373 million in the first three months of this
year due primarily to increased volumes in both emission control and ride
control product lines. Pass-through emission control sales increased 2 percent
to $87 million in the current quarter. OE emission control revenues were up 7
percent in the quarter. OE ride control revenues increased 16 percent, driven by
increased volumes in both the light vehicle and heavy-duty market. Total OE
revenues, excluding pass-through sales, increased 12 percent in the first
quarter, while North American light vehicle production increased approximately 2
percent from the first quarter a year ago. Our revenue increase was greater than
the build rate increase primarily due to our strong position on top-selling
platforms with General Motors, Ford and Honda. Additionally, our heavy-duty
volume was up 7 percent from the prior year. Aftermarket revenues for North
America were $108 million in the first three months of 2003, representing a
decrease of 15 percent compared to the same period in the prior year.
Aftermarket ride control revenues decreased $12 million or 14 percent in the
first quarter, as a result of a weak economy and higher initial orders related
to new customer additions in 2002 compared to the current year. Aftermarket
emission control revenues declined 14 percent in the first quarter reflecting an
overall market decline in the emission control business and inclement weather
conditions in February and March that reduced sales by our customers to end
users and affected our ability to ship product.

Our European segment's revenues increased $73 million or 27 percent in the
first three months of 2003 compared to last year's first quarter. Total OE
revenues were $269 million, up 30 percent from the first quarter of last year.
OE emission control revenues increased 28 percent to $212 million from $166
million the prior year. Excluding an $11 million increase in pass-through sales
and a $34 million increase due to strengthening currency, OE exhaust revenues
increased one percent. This increase was in line with European production

25

levels, which increased approximately one percent from the first quarter a year
ago. OE ride control revenues increased to $57 million or up 39 percent from $41
million a year ago. Excluding a $9 million benefit from currency appreciation,
OE ride control revenues increased 17 percent. Our revenue increase was greater
than the build rate due to stronger sales on existing platforms with Volkswagen,
Ford and PSA. European aftermarket sales were $76 million in the first three
months of this year compared to $65 million in last year's first quarter.
Excluding $14 million attributable to currency appreciation, European
aftermarket revenues declined 4 percent. Ride control aftermarket revenues,
excluding the impact of currency, increased 4 percent reflecting the continued
positive impact of the Monroe Reflex(R) introduction in the second quarter of
last year. This impact, however, was more than offset by lower aftermarket
emission control revenues, which continue to be impacted by the now standard use
of longer lasting stainless-steel by OE manufacturers. Excluding the impact of
currency, European aftermarket emission control revenues declined 11 percent
from the prior year.

Revenues from our Other operations, which include South America, Australia
and Asia, increased $25 million to $95 million in the first quarter of 2003 as
compared to $70 million in the prior year. Higher volumes and increased
pass-through sales drove increased revenues of $18 million at our Asian
operations. In Australia, stronger OE volumes and strengthening currency
increased revenues by 27 percent. South American revenues were flat year over
year as increased volumes in both OE and aftermarket were offset by unfavorable
currency exchange rate changes.

EARNINGS BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST ("EBIT")

The EBIT results shown in the preceding table include the following items,
discussed below under "Restructuring Charges" and "Liquidity and Capital
Resources--Capitalization", which have an effect on the comparability of EBIT
results between periods:

EBIT for North American operations increased to $28 million in the first
quarter 2003 from $19 million one year ago as higher sales volumes in our OE
segments improved our earnings in the first three months of the year. Higher OE
volumes contributed $6 million to the EBIT increase. Additionally, manufacturing
efficiencies contributed $2 million to the increase. The North American
aftermarket EBIT was flat quarter over quarter as volume decreases were offset
by lower selling, general and administrative costs including changeover and
advertising expenses. Included in North America's first quarter of 2003 EBIT
were restructuring and restructuring-related expenses of $3 million. Included in
2002's first quarter EBIT was $1 million related to amending the senior credit
facility and $1 million in restructuring-related expenses.

26

Our European segment's EBIT declined to a loss of $1 million in the first
quarter of 2003, down $6 million from positive EBIT of $5 million the previous
year. The decrease was primarily driven by a $4 million increase in depreciation
due to the appreciation of the Euro and the startup of a new plant in Poland.
Additionally, higher promotional spending, lower aftermarket exhaust volumes and
$2 million of restructuring-related expenses also contributed to the EBIT
decline. These declines were partially offset by increased OE volumes and
benefits we are realizing from the Project Genesis, which is described further
in "Restructuring Charges" later in this Management's Discussion and Analysis.
Included in 2002's first quarter EBIT was $1 million related to amending the
senior credit facility.

EBIT for the company's Other operations increased by $1 million in the
first three months of 2003 compared to the same three months one year ago.
Higher OE volumes in all of the regions drove the increase.

EBIT AS A PERCENTAGE OF REVENUE

In North America, EBIT as a percentage of revenue increased by 1 percent.
Stronger OE volumes drove this increase. Additionally, manufacturing
efficiencies also contributed to the increase. In Europe, EBIT margins declined
in the first quarter due to higher depreciation expense, promotional spending
increases and restructuring-related expenses. Also contributing to the decline
was lower aftermarket exhaust volumes. EBIT as a percentage of revenue for the
rest of the world was flat.

INTEREST EXPENSE, NET OF INTEREST CAPITALIZED

We reported interest expense of $31 million during the first quarter of
2003 compared to $36 million during the same period in 2002. The decrease in
total interest expense is due to lower interest rates on our variable debt and
the termination of our three-year floating to fixed interest rate swap agreement
that expired on February 3, 2003. See more detailed explanations on our debt
structure in "Liquidity and Capital Resources--Capitalization" later in this
Management's Discussion and Analysis.

INCOME TAXES

Income taxes were a $2 million benefit for the quarter ended March 31,
2003, compared to an $8 million benefit for the quarter ended March 31, 2002.
The first quarter 2003 included a $3 million benefit related to the settlement
of several tax-related audit issues. The effective tax rate including the $3
million benefit was a negative 232 percent. Excluding the $3 million benefit our
effective tax rate was 40 percent. The first quarter 2002 benefit included a $4
million tax benefit related to lower-than-expected costs for withholding taxes
related to our foreign operations. The lower cost of tax withholding for the
first quarter 2002 tax repatriation transaction resulted from an amendment to
our bank agreement allowing a more tax efficient transaction to be completed.
The effective tax rate before this adjustment was 44 percent.

EARNINGS PER SHARE

We reported earnings per diluted common share of $.02 for the first three
months of 2003, compared to a loss of $5.54 per share for the first three months
of 2002. Included in the results for the first quarter of 2003 are the negative
impacts from expenses related to our restructuring activities and the tax
benefit for the resolution of several audit issues. The net impact of these
items reduced earnings per diluted share by $.01. Included in the results for
the first quarter 2002 are the negative impacts from expenses related to our
restructuring activities and the costs related to the amendment of certain terms
of the senior credit facility, partially offset

27

by the tax benefit related to lower-than-expected costs for withholding taxes.
In total, these items improved earnings per diluted common share by $.06. In
addition, we recorded a loss for the cumulative effect of a change in accounting
principle of $5.49 per share to record the impact of the adoption of the new
accounting standard for goodwill. See "Changes in Accounting Principles" below
for more information about this charge. You should also read Note 7 to the
financial statements for more detailed information on earnings per share.

RESTRUCTURING CHARGES

Over the past several years we have adopted plans to restructure portions
of our operations. These plans were approved by the Board of Directors and were
designed to reduce operational and administrative overhead costs throughout the
business. Prior to the change in accounting required for exit or disposal
activities described under "Changes in Accounting Principles" below, we recorded
charges to income related to these plans for costs that do not benefit future
activities in the period in which the plans were finalized and approved, while
actions necessary to affect these restructuring plans occurred over future
periods in accordance with established plans.

In the fourth quarter of 2001, our Board of Directors approved a
restructuring plan, the first phase of a project known as Project Genesis,
designed to lower our fixed costs, improve efficiency and utilization, and
better optimize our global footprint. The first phase of Project Genesis
involved closing eight facilities, improving the process flow and efficiency
through value mapping and plant arrangement at 20 facilities, relocating
production among facilities, and centralizing some functional areas. The closed
facilities include an emissions control aftermarket plant and an aftermarket
distribution operation in Europe, a ride control plant in Europe, an engineering
center in Europe, one building at an emissions control plant complex in North
America, a technology facility in North America, an exhaust manufacturing
facility in North America, and our London-based treasury office. In the fourth
quarter of 2001, we recorded pre-tax charges related to Project Genesis of $27
million. Within the statement of income (loss), $23 million of the pre-tax
charge is reflected in cost of sales, while $4 million is included in selling,
general and administrative expenses. These charges are comprised of $18 million
in severance and $9 million for equipment lease cancellation, asset impairment
and other restructuring costs to close the eight facilities. We wrote down the
assets at locations to be closed to their estimated fair value, less costs to
sell. We estimated the market value of buildings using external real estate
appraisals. As a result of the single purpose nature of the machinery and
equipment to be disposed of, fair value was estimated to be scrap value less
costs to dispose in most cases. We also recorded a pre-tax charge of $4 million
in cost of sales related to a strategic decision to adjust some product
offerings and our customer supply strategy in the European aftermarket. The
aftermarket parts were written down to their estimated scrap value, less costs
to sell. Finally, we also incurred $1 million in other restructuring related
costs during the fourth quarter for the value mapping and rearrangement of one
of our emission control plants in North America. Since these costs relate to
ongoing operations, they could not be accrued as part of the restructuring
charge. The total of all these restructuring and other costs recorded in the
fourth quarter of 2001 was $32 million before tax, $31 million after tax, or
$.81 per diluted common share. As of March 31, 2003, we have eliminated 946
positions in connection with the first phase of Project Genesis. Additionally,
we are executing this plan more efficiently than originally anticipated and as a
result in the fourth quarter of 2002 reduced our reserves related to this
restructuring activity by $6 million which was recorded in cost of sales. We
expect to complete all remaining restructuring activities related to the first
phase of Project Genesis in the first half of 2003.

We incurred other costs in the first quarter of 2003 of $4 million for
moving and rearrangement activities related to our restructuring actions
initiated in prior periods that could not be accrued as part of the
restructuring charges for those actions.

Including the costs incurred in 2002 of $11 million, we have incurred $15
million for moving and rearrangement activities related to our restructuring
actions initiated in prior periods that could not be accrued as part of the
restructuring charges for these actions.

In the first quarter of 2003, we incurred costs of $1 million associated
with eliminating 17 salaried positions through selective layoffs and an early
retirement program. Additionally, 93 hourly positions were

28

eliminated through selective layoffs in the quarter. These reductions were done
to reduce ongoing labor costs in North America. All of this charge was recorded
in cost of sales.

To date we have generated about $17 million of savings from Project
Genesis. About $3 million of savings was related to closing the eight
facilities, about $9 million of savings was related to value mapping and plant
arrangement and about $5 million of savings was related to relocating production
among facilities and centralizing some functional areas. To date, there have
been no significant deviations from planned savings. When complete, we expect
that the series of restructuring actions initiated in the fourth quarter of 2001
will generate annualized savings of $30 million. About $7 million of the
expected savings should be generated by closing the eight facilities, about $13
million of the expected savings should be generated by improving process flow
and efficiency through value mapping and plant arrangement and about $10 million
of the expected savings will be generated by relocating production among
facilities and centralizing some functional areas.

Amounts related to activities that are part of our restructuring plans are
as follows:

Under the terms of an amendment to our senior credit agreement that took
effect on March 13, 2002, we are allowed to exclude up to $60 million of cash
charges and expenses, before taxes, related to potential future cost reduction
initiatives over the 2002-2004 period from the calculation of the financial
covenant ratios we are required to maintain under our senior credit agreement.
As of March 31, 2003, we have excluded $15 million of the $60 million available
under the terms of the amendment. In addition to the announced actions, we
continue to evaluate additional opportunities, including additional phases of
Project Genesis, to initiate actions that will reduce our costs through
implementing the most appropriate and efficient logistics, distribution, and
manufacturing footprint for the future. There can be no assurances however, that
we will undertake additional phases of Project Genesis or other additional
restructuring actions. Actions that we take, if any, will require the approval
of our Board of Directors, or its authorized committee, and if the costs of the
plans exceed the amount previously approved by our senior lenders, could require
approval by our senior lenders. We plan to conduct any workforce reductions that
result in compliance with all legal and contractual requirements including
obligations to consult with workers' councils, union representatives and others.

CRITICAL ACCOUNTING POLICES

We prepare our financial statements in accordance with accounting
principles generally accepted in the United States. Preparing our financial
statements in accordance with generally accepted accounting principles requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The following paragraphs include a discussion of
some critical areas where estimates are required.

We recognize revenue for sales to our original equipment and aftermarket
customers under the terms of our arrangements with those customers, generally at
the time of shipment from our plants or distribution centers. For our
aftermarket customers, we provide for promotional incentives and returns at the
time of sale. Estimates are based upon the terms of the incentives and
historical experience with returns. Where we have offered product warranty, we
also provide for warranty costs. Those estimates are based upon historical
experience and upon specific warranty issues as they arise. While we have not
experienced any material differences between these estimates and our actual
costs, it is reasonably possible that future warranty issues could arise that
could have a significant impact on our financial statements.

29

We expense pre-production design and development costs incurred for our
original equipment customers unless we have a contractual guarantee for
reimbursement of those costs from the customer. At March 31, 2003, we had $10
million recorded as a long-term receivable from original equipment customers for
guaranteed pre-production design and development arrangements. While we believe
that the vehicle programs behind these arrangements will enter production, these
arrangements allow us to recover our pre-production design and development costs
in the event that the programs are cancelled or do not reach expected production
levels. We have not experienced any material losses on arrangements where we
have a contractual guarantee of reimbursement from our customers.

We have a U.S. Federal tax net operating loss ("NOL") carryforward at March
31, 2003, of $514 million, which will expire in varying amounts from 2012 to
2023. The federal tax effect of that NOL is $180 million, and is recorded as an
asset on our balance sheet at March 31, 2003. We estimate, based on available
evidence, that it is more likely than not that we will utilize the NOL within
the prescribed carryforward period. That estimate is based upon our expectations
regarding future taxable income of our U.S. operations and upon strategies
available to accelerate usage of the NOL. Circumstances that could change that
estimate include future U.S. earnings at lower than expected levels or a
majority ownership change as defined in the rules of the U.S. tax law. If that
estimate changed, we would be required to cease recognizing an income tax
benefit for any new NOL and could be required to record a reserve for some or
all of the asset currently recorded on our balance sheet. As of March 31, 2003,
we believe that there has been a significant change in our ownership, but not a
majority change, since the 1999 spin-off of Pactiv.

We utilize the intrinsic value method to account for our stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." If our compensation costs for
our stock-based compensation plans were determined using the fair value method
of accounting as provided in Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," we estimate that
our pro-forma net income (loss) and earnings per share for both the first
quarter of 2003 and 2002 would be lower by less than $1 million or $.01 per
diluted share.

CHANGES IN ACCOUNTING PRINCIPLES

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. SFAS No.
142 changes the accounting for purchased goodwill from an amortization method to
an impairment-only approach. Therefore amortization of all purchased goodwill,
including amortization of goodwill recorded in past business combinations,
ceased upon adoption of SFAS No. 142 in January 2002. Under the provisions of
SFAS No. 142, we were required to perform an impairment analysis on the balance
of goodwill at January 1, 2002. The fair value of our reporting units used in
determining the goodwill impairment was computed using the present value of
expected future cash flows. As a result of this analysis, we determined that
goodwill associated with our North American ride control and European
aftermarket operations was impaired. As a result, a charge of $218 million, net
of taxes of $6 million, was recorded in the first quarter of 2002 as a
cumulative effect of a change in accounting principle. The balance of
unamortized goodwill was $187 million at March 31, 2003. We are required to test
this balance for impairment on an annual basis.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 was effective for fiscal years beginning
after June 15, 2002. The adoption of SFAS No. 143 did not have a material impact
on our financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 changes the
definition of the date at which a liability exists for exit or disposal
activities also referred to as restructuring activities. Previously, we
recognized a liability for restructuring activities when we committed to a plan
of restructuring and announced this plan to the employees. We are

30

required to apply the new standard prospectively to new exit or disposal
activities initiated after December 31, 2002. SFAS No. 146 generally requires
that these costs be recognized at a later date and over time, rather than in a
single charge. The adoption of SFAS No. 146 did not have a material impact on
our financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"), which expands previously
issued accounting guidance and disclosure requirements for certain guarantees.
FIN 45 provides that issuing a guarantee imposes a non-contingent obligation to
stand ready to perform in the event that the conditions specified in the
guarantee occur, and that a liability representing the fair value of such a
guarantee must be recognized when the guarantee is issued. We are required to
apply these initial recognition and measurement provisions to guarantees issued
or modified after December 31, 2002. The adoption of FIN 45 did not have a
material impact on our financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148 which provides alternative
methods of transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation and amends the disclosure
requirements to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. See Note 6
to our financial statements for this information for the first quarter.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the entity that has the
controlling financial interest. FIN 46 also provides the framework for
determining whether a variable interest entity should be consolidated based on
voting interest or significant financial support provided to it. This
interpretation is effective immediately for variable interest entities created
after January 31, 2003 and effective July 1, 2003 for variable interest entities
created before February 1, 2003. We do not expect the adoption of FIN 46 to have
any impact on our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

CAPITALIZATION

The year-to-date increase in shareholders' equity primarily results from a
$4 million increase in the fair market value of our interest rate swaps, which
expired in February 2003, and $22 million related to the translation of foreign
balances into U.S. dollars. In addition, net income and premium on common stock
issued pursuant to benefit plans each contributed $1 million to the increase in
shareholders' equity. Although our book equity balance was negative at March 31,
2003, it should not affect our business operations. We have no debt covenant
ratios that are based upon our book equity and there are no other agreements
that are adversely impacted by our negative book equity.

Short-term debt, which includes the current portion of long-term
obligations and borrowings by foreign subsidiaries, as well as our revolving
credit facility, increased by $22 million during the first quarter of 2003. This
increase resulted from an increase in borrowings of approximately $21 million
during the first quarter of

31

2003 under our revolving credit facility. In addition our foreign subsidiaries'
borrowings increased by approximately $1 million. The borrowings outstanding
under our revolving credit facility as of March 31, 2003 were $141 million and
were $64 million as of March 31, 2002. The decline in long-term debt represents
amounts due during 2003. We did not issue any long-term debt during the first
quarter of 2003.

Our financing arrangements are primarily provided by a committed senior
secured financing arrangement with a syndicate of banks and other financial
institutions, which was $1.215 billion at March 31, 2003. The arrangement is
secured by substantially all our domestic assets and pledges of 66 percent of
the stock of certain first-tier foreign subsidiaries, as well as guarantees by
our material domestic subsidiaries. We entered into an agreement to amend this
facility on October 20, 2000 to (i) relax the financial covenant ratios
beginning in the fourth quarter of 2000, (ii) exclude up to $80 million of cash
charges and expenses related to cost reduction initiatives from the calculation
of consolidated earnings before interest, taxes, depreciation and amortization
("EBITDA") used in our financial covenant ratios through 2001 and (iii) make
certain other technical changes. In exchange for these amendments, we agreed to
certain interest rate increases, lowered our capital expenditure limits and paid
an aggregate fee of about $3 million.

As a result of significant reductions in North American vehicle production
levels announced in 2000 by our original equipment customers, as well as an
accelerated weakening of the global aftermarket, we entered into a second
amendment of our senior credit facility on March 22, 2001. The second amendment
revised the financial covenant ratios we were required to maintain as of the end
of each of the quarters ending in 2001. The second amendment also reduced the
limitation on 2001 capital expenditures from $225 million to $150 million, and
required that net cash proceeds from all significant, non-ordinary course asset
sales be used to prepay the senior term loans. In exchange for these amendments,
we agreed to a 25 basis point increase in interest rates on the senior term
loans and borrowings under our revolving credit facility and paid an aggregate
fee of $3 million to consenting lenders. We incurred legal, advisory and other
costs related to the amendment process of $2 million.

At the time of the second amendment, we expected that we would meet with
the senior lenders during the first quarter of 2002 to negotiate further
amendments to the senior credit facility. Consequently, we amended the senior
credit facility for a third time on March 13, 2002. The third amendment revised
the financial covenant ratios we are required to maintain as of the end of each
of the quarters ending in 2002, 2003 and 2004. It also extends the limitation on
annual capital expenditures of $150 million through this three-year period. The
amendment further provides us with the option to enter into sale and leaseback
arrangements on up to $200 million of our assets. The proceeds from these
arrangements must be used to reduce senior debt. These senior debt prepayments
would reduce the next scheduled principal amortization payments. Because the
payments on senior debt from sale and leaseback transactions would be made on a
pro-rata basis based on the remaining principal amounts outstanding on our
Tranche A, B, and C senior term loans, but principal amortization payments are
not pro-rata, about 29 percent of any sale and leaseback transactions we enter
into during 2003 would reduce our scheduled principal amortization. The
amendment also allows us to exclude up to $60 million of cash charges and
expenses, before taxes, related to any cost reduction initiatives over the
2002-2004 period from the calculation of the financial covenant ratios we are
required to maintain under our senior credit agreement. It also permits us to
execute exchanges of our senior subordinated bonds for shares of common stock.
We do not have any current plans to enter into any debt-for-stock exchanges. Any
significant debt-for-stock exchange would require approval of our stockholders.
In exchange for these amendments, we agreed to a $50 million reduction in our
revolving credit facility, a 25 basis point increase in interest rates on the
senior term loans and borrowings under our revolving credit facility, and paid
an aggregate fee of $3 million to consenting lenders. We also incurred legal,
advisory, and other costs related to the amendment process of $2 million.

The senior secured credit facility, as amended on March 13, 2002, consists
of: (i) a $450 million revolving credit facility with a final maturity date of
November 4, 2005; (ii) a $243 million term loan with a final maturity date of
November 4, 2005; (iii) a $261 million term loan with a final maturity date of
November 4, 2007; and (iv) a $261 million term loan with a final maturity date
of May 4, 2008. Quarterly principal repayment installments on each term loan
began October 1, 2001. Borrowings under the facility bear interest at an annual
rate equal to, at our option, either (i) the London Interbank Offering Rate plus
a margin
32

of 325 basis points for the revolving credit facility and the term loan maturing
November 4, 2005, 400 basis points for the term loan maturing November 4, 2007
and 425 basis points for the term loan maturing May 4, 2008; or (ii) a rate
consisting of the greater of the JP Morgan Chase prime rate or the Federal Funds
rate plus 75 basis points, plus a margin of 225 basis points for the revolving
credit facility and the term loan maturing November 4, 2005, 300 basis points
for the term loan maturing November 4, 2007 and 325 basis points for the term
loan maturing May 4, 2008. We also pay a commitment fee of 50 basis points on
the unused portion of the revolving credit facility. Under the provisions of the
senior credit facility agreement, the interest margins for borrowings under the
revolving credit facility and the term loan maturing November 4, 2005 and fees
paid on letters of credit issued under our revolving credit facility are subject
to adjustment based on the consolidated leverage ratio (consolidated
indebtedness divided by consolidated EBITDA as defined in the senior credit
facility agreement) measured at the end of each quarter. Our consolidated
leverage ratio fell below 4.50 as of June 30, 2002; therefore, the interest
margins for borrowings under our revolving credit facility and on our term loan
maturing November 4, 2005, and fees paid on letters of credit issued under our
revolving credit facility, were reduced by 25 basis points beginning in the
third quarter of 2002. Our consolidated leverage ratio remained below 4.50 as of
March 31, 2003. Our senior secured credit facility does not contain any terms
that could accelerate the payment of the facility as a result of a credit rating
agency downgrade.

The amended senior credit facility requires that we maintain financial
ratios equal to or better than the following consolidated leverage ratios
(consolidated indebtedness divided by consolidated EBITDA), consolidated
interest coverage ratios (consolidated EBITDA divided by consolidated cash
interest paid), and fixed charge coverage ratios (consolidated EBITDA less
consolidated capital expenditures, divided by consolidated cash interest paid)
at the end of each period indicated. The financial ratios required under the
amended senior credit facility and, in the case of the first quarter of 2003,
the actual ratios we achieved are shown in the following tables:

The senior credit facility agreement also contains restrictions on our
operations that are customary for similar facilities, including limitations on:
(i) incurring additional liens; (ii) sale and leaseback transactions (except for
the permitted transactions described above); (iii) liquidations and
dissolutions; (iv) incurring additional indebtedness or guarantees; (v) capital
expenditures; (vi) dividends; (vii) mergers and consolidations; and (viii)
prepayments and modifications of subordinated and other debt instruments.
Compliance with these requirements and restrictions is a condition for any
incremental borrowings under the senior credit facility agreement and failure to
meet these requirements enables the lenders to require repayment of any

33

outstanding loans. As of March 31, 2003, we were in compliance with both the
financial covenants (as indicated above) and operational restrictions of the
facility.

Our outstanding debt also includes $500 million of 11 5/8 percent Senior
Subordinated Notes due October 15, 2009. The senior subordinated debt indenture
requires that we, as a condition to incurring certain types of indebtedness not
otherwise permitted, maintain an interest coverage ratio of not less than 2.25.
We have not incurred any of the types of indebtedness not otherwise permitted by
this indenture. The indenture also contains restrictions on our operations,
including limitations on: (i) incurring additional indebtedness or liens; (ii)
dividends; (iii) distributions and stock repurchases; (iv) investments; and (v)
mergers and consolidations. All of our existing and future material domestic
wholly owned subsidiaries fully and unconditionally guarantee these notes on a
joint and several basis. There are no significant restrictions on the ability of
the subsidiaries that have guaranteed these notes to make distributions to us.
As of March 31, 2003, we were in compliance with the covenants and restrictions
of this indenture.

In addition to our senior credit facility and senior subordinated notes, we
also sell some of our accounts receivable. In North America, we have an accounts
receivable securitization program with a commercial bank. We sell original
equipment and aftermarket receivables on a daily basis under this program. We
had sold accounts receivable under this program of $50 million and $72 million
at March 31, 2003 and 2002, respectively. This program is subject to
cancellation prior to its maturity date if we were to (i) fail to pay interest
or principal payments on an amount of indebtedness exceeding $50 million, (ii)
default on the financial covenant ratios under the senior credit facility, or
(iii) fail to maintain certain financial ratios in connection with the accounts
receivable securitization program. In January 2003, this program was amended to
extend its term to January 31, 2005 and reduce the size of the program to $50
million. The reduced program size will lower commitment fees payable on the
available and unused portion of the committed facility amount. We also sell some
receivables in our European operations to regional banks in Europe. At March 31,
2003, we had sold $72 million of accounts receivable in Europe up from $40
million at March 31, 2002. The arrangements to sell receivables in Europe are
not committed and can be cancelled at any time. If we were not able to sell
receivables under either the North American or European securitization programs,
our borrowings under our revolving credit agreement would increase. These
accounts receivable securitization programs provide us with access to cash at
costs that are generally favorable to alternative sources of financing, and
allow us to reduce borrowings under our revolving credit agreement.

We believe that cash flows from operations, combined with available
borrowing capacity described above, assuming that we maintain compliance with
the financial covenants and other requirements of our loan agreement, will be
sufficient to meet our future capital requirements for the following year,
including scheduled debt principal amortization payments. Our ability to meet
the financial covenants depends upon a number of operational and economic
factors, many of which are beyond our control. Factors that could impact our
ability to comply with the financial covenants include the rate at which
consumers continue to buy new vehicles and the rate at which they continue to
repair vehicles already in service, as well as our ability to successfully
implement our restructuring plans. Lower North American vehicle production
levels, weakening in the global aftermarket, or a reduction in vehicle
production levels in Europe, beyond our expectations, could impact our ability
to meet our financial covenant ratios. In the event that we are unable to meet
these financial covenants, we would consider several options to meet our cash
flow needs. These options could include further renegotiations with our senior
credit lenders, additional cost reduction or restructuring initiatives, sales of
assets or common stock, or other alternatives to enhance our financial and
operating position. Should we be required to implement any of these actions to
meet our cash flow needs, we believe we can do so in a reasonable time frame.

34

CONTRACTUAL OBLIGATIONS

Our remaining required debt principal amortization and payment obligations
under lease and certain other financial commitments are shown in the following
table:

We principally use a revolving credit facility to finance our short-term
capital requirements. As a result, we classify the outstanding balance of the
revolving credit facility within our short-term debt even though the revolving
credit facility has a termination date of November 4, 2005. The revolving credit
facility balance included in short-term debt is $141 million at March 31, 2003
and $121 million at December 31, 2002.

If we do not maintain compliance with the terms of our senior credit
facility and senior subordinated debt indenture described above, all amounts
under those arrangements could, automatically or at the option of the lenders or
other debt holders, become due. Additionally, each of those facilities contains
provisions that certain events of default under one facility will constitute a
default under the other facility, allowing the acceleration of all amounts due.
We currently expect to maintain compliance with terms of all of our various
credit agreements for the foreseeable future.

We occasionally provide guarantees that could require us to make future
payments in the event that the third party primary obligor does not make its
required payments. We have not recorded a liability for any of these guarantees.
The only third party guarantee we have made is the performance of lease
obligations by a former affiliate. Our maximum liability under this guarantee
was approximately $5 million and $6 million at March 31, 2003 and 2002,
respectively. We have no recourse in the event of default by the former
affiliate. However, we have not been required to make any payments under this
guarantee.

Additionally, we have from time to time issued guarantees for the
performance of obligations by some of our subsidiaries, and some of our
subsidiaries have guaranteed our debt. All of our then existing and future
material domestic wholly-owned subsidiaries fully and unconditionally guarantee
the $1.215 billion senior secured credit facility and the $500 million senior
subordinated notes on a joint and several basis. The arrangement for the senior
secured credit facility is also secured by substantially all our domestic assets
and pledges of 66 percent of the stock of certain first-tier foreign
subsidiaries. You should also read Note 10 where we present the Supplemental
Guarantor Condensed Consolidating Financial Statements.

We have issued guarantees through letters of credit in connection with some
obligations of our affiliates. We have guaranteed through letters of credit
support for local credit facilities, travel and procurement card programs, and
cash management requirements for some of our subsidiaries totaling $48 million.
We have also issued $14 million in letters of credit to support some of our
subsidiaries' insurance arrangements. In addition, we have issued $3 million in
guarantees through letters of credit to guarantee other obligations of
subsidiaries primarily related to environmental remediation activities.

35

CASH FLOWS

OPERATING ACTIVITIES

For the first quarter, cash flows provided from operating activities were
$36 million as compared to $41 million in the prior year quarter. The decrease
was primarily attributable to reduced year over year working capital
improvements. We generated no cash flow from working capital in the first
quarter of 2003, down $26 million from the 2002 first quarter. This was
primarily to prepare for platform launches and for seasonal inventory builds. In
the quarter, we took more aggressive receivables and payables management steps
to offset this heavier cash use and to help preserve liquidity given the
uncertainties in the market for the second quarter of 2003. Partially offsetting
the working capital decrease were higher earnings in the current year.

In June 2001, we entered into arrangements with two major OE customers in
North America under which, in exchange for a discount that is less than our
marginal borrowing cost, payments for product sales are made earlier than
otherwise required under existing payment terms. These arrangements reduced
accounts receivable by $58 million and $52 million as of March 31, 2003 and
2002, respectively. These arrangements reduced accounts receivable by $40
million at December 31, 2002. These arrangements can be cancelled at any time.

INVESTING ACTIVITIES

Cash used for investing activities was $1 million lower in the first
quarter of 2003 compared to the same period a year ago. Capital expenditures
were $26 million in the first three months of 2003, up from $23 million in the
first three months of last year.

FINANCING ACTIVITIES

Cash used for financing activities was $3 million in the first quarter of
2003 compared to a use of $7 million in the first quarter of 2002. The decrease
in the first three months of this year is attributable to higher short-term
borrowings during the period offset by a quarterly senior term loan payment of
$24 million.

INTEREST RATE RISK

Our financial instruments that are sensitive to market risk for changes in
interest rates are our debt securities. We primarily use a revolving credit
facility to finance our short-term capital requirements. We pay a current market
rate of interest on these borrowings. We have financed our long-term capital
requirements with long-term debt with original maturity dates ranging from six
to ten years.

Under the terms of our senior credit facility agreement, we were required
to hedge our exposure to floating interest rates by April 2000 so that at least
50 percent of our long-term debt was fixed for a period of at least three years.
In February 2000, we hedged $250 million of our floating rate long-term debt
with three-year, floating to fixed interest rate swaps. In April 2000, we hedged
an additional $50 million of our floating rate long-term debt with three-year,
floating to fixed interest rate swaps. The hedges that we executed fully
satisfied the interest rate hedging requirement of the senior credit facility
agreement. The swaps expired in February 2003 and we are not required to renew
them. On March 31, 2003, we had $508 million in long-term debt obligations that
have fixed interest rates. Of that amount, $500 million is fixed through October
2009,
36

while the remainder is fixed over periods of 2003 through 2025. There is also
$686 million in long-term debt obligations that have variable interest rates
based on a current market rate of interest.

We estimate that the fair value of our long-term debt at March 31, 2003 was
about 85 percent of its book value. A one percentage point increase or decrease
in interest rates would increase or decrease the annual interest expense we
recognize in the income statement and the cash we pay for interest expense by
about $6 million after tax.

OUTLOOK

North America light vehicle production continued at a relatively strong
pace in 2002. Manufacturer incentives kept consumer purchases higher than
estimates at the beginning of the year. Consequently, the 2002 North America
light vehicle build rate was an estimated 16.4 million units. Production rates
for the first quarter of 2003 remained relatively strong at an annualized rate
of 16.0 million units. However, we remain cautious regarding volumes for the
remainder of 2003 due to continuing uncertain economic conditions in the U.S.
and uncertainty about the willingness of the original equipment manufacturers to
continue to support consumer automobile sales through incentives. Several major
North American OE manufacturers have announced reductions in their production
rates for the second quarter. These overall reductions are targeted at specific
platforms, however, and we have not yet seen a percentage reduction in many of
the platforms for which we provide parts in the range of those that have been
announced. Currently, industry estimates have heavy duty build rates down
approximately 9 percent compared to 2002. These estimates have slightly improved
from the expected decline following the implementation of new emissions
standards in October 2002 which caused operators to pull forward some of their
truck purchases into 2002. In Europe, new vehicle selling rates remain about the
same or slightly lower than last year. However, because of the new platform
launch delays we experienced in 2002, we expect favorable OE comparisons in the
second quarter of 2003 over the prior year. In the North American aftermarket we
are cautiously optimistic that sales levels are beginning to stabilize from the
significant reductions we saw in late 2002 and early 2003.

ENVIRONMENTAL AND OTHER MATTERS

We are subject to a variety of environmental and pollution control laws and
regulations in all jurisdictions in which we operate. We expense or capitalize,
as appropriate, expenditures for ongoing compliance with environmental
regulations that relate to current operations. We record expenditures that
relate to an existing condition caused by past operations and that do not
contribute to current or future revenue generation. We record liabilities when
environmental assessments indicate that remedial efforts are probable and the
costs can be reasonably estimated. Estimates of the liability are based upon
currently available facts, existing technology, and presently enacted laws and
regulations taking into consideration the likely effects of inflation and other
societal and economic factors. We consider all available evidence including
prior experience in remediation of contaminated sites, other companies' cleanup
experiences and data released by the United States Environmental Protection
Agency or other organizations. These estimated liabilities are subject to
revision in future periods based on actual costs or new information. Where
future cash flows are fixed or reliably determinable, we have discounted the
liabilities. All other environmental liabilities are recorded at their
undiscounted amounts. We evaluate recoveries separately from the liability and,
when they are assured, recoveries are recorded and reported separately from the
associated liability in our financial statements.

As of March 31, 2003, we are designated as a potentially responsible party
in three Superfund sites. We have estimated our share of the remediation costs
for these sites to be less than $1 million in the aggregate. In addition to the
Superfund sites, we may have the obligation to remediate current or former
facilities, and we estimate our share of remediation costs at these facilities
to be approximately $14 million. For each of the Superfund sites and the current
and former facilities, we have established reserves that we believe are adequate
for these costs. Although we believe our estimates of remediation costs are
reasonable and are based on the latest available information, the cleanup costs
are estimates and are subject to revision as more information becomes available
about the extent of remediation required. At some sites, we expect that other
parties will contribute to the remediation costs. In addition, at the Superfund
sites, the Comprehensive Environmental Response, Compensation and Liability Act
provides that our liability could be joint and
37

several, meaning that we could be required to pay in excess of our share of
remediation costs. Our understanding of the financial strength of other
potentially responsible parties at the Superfund sites, and of other liable
parties at our current and former facilities, has been considered, where
appropriate, in our determination of our estimated liability.

We believe that any potential costs associated with our current status as a
potentially responsible party in the Superfund sites, or as a liable party at
our current or former facilities, will not be material to our results of
operations or consolidated financial position.

We also from time to time are involved in legal proceedings or claims that
are incidental to the conduct of our business. Some of these proceedings allege
damages against us relating to environmental liabilities (including toxic tort,
property damage and remediation), intellectual property matters (including
patent, trademark and copyright infringement and licensing disputes), personal
injury claims (including injuries due to product failure, design or warnings
issues, and other product liability related matters), employment matters, and
commercial or contractual disputes, sometimes related to acquisitions or
divestitures. We will continue to vigorously defend ourselves against all of
these claims. Although the ultimate outcome of any legal matter cannot be
predicted with certainty, based on present information, including our assessment
of the merits of the particular claim, we do not expect that these legal
proceedings or claims will have any material adverse impact on our future
consolidated financial position or results of operations. In addition, we are
subject to a number of lawsuits initiated by a significant number of claimants
alleging health problems as a result of exposure to asbestos. Many of these
cases involve significant numbers of individual claimants. However, only a small
percentage of these claimants allege that they were automobile mechanics who
were allegedly exposed to our former muffler products and a significant number
appear to involve workers in other industries or otherwise do not include
sufficient information to determine whether there is any basis for a claim
against us. We believe, based on scientific and other evidence, it is unlikely
that mechanics were exposed to asbestos by our former muffler products and that,
in any event, they would not be at increased risk of asbestos-related disease
based on their work with these products. Further, many of these cases involve
numerous defendants, with the number of each in some cases exceeding 200
defendants from a variety of industries. Additionally, the plaintiffs either do
not specify any, or specify the jurisdictional minimum, dollar amount for
damages. On the other hand, we are experiencing an increasing number of these
claims, likely due to bankruptcies of major asbestos manufacturers. We
vigorously defend ourselves against these claims as part of our ordinary course
of business. To date, with respect to claims that have proceeded sufficiently
through the judicial process, we have regularly achieved favorable resolution in
the form of a dismissal of the claim or a judgment in our favor. Accordingly, we
presently believe that these asbestos-related claims will not have a material
adverse impact on our future financial condition or results of operations.

During the second quarter of 2002, we reached an agreement with an OE
customer to recover our investment in development costs and related equipment,
as well as amounts owed to some of our suppliers, for a platform cancelled by
the customer. We collected $30 million, net of the amounts we owed to suppliers,
during the second quarter pursuant to this agreement. The agreement had no
effect on our results of operations.

EMPLOYEE STOCK OWNERSHIP PLANS

We have established Employee Stock Ownership Plans for the benefit of our
employees. Under the plans, participants may elect to defer up to 16 percent of
their salary through contributions to the plan, which are invested in selected
mutual funds or used to buy our common stock. We currently match in cash 50
percent of each employee's contribution up to 8 percent of the employee's
salary. We recorded expense for these matching contributions of approximately $2
million for each of the three months ended March 31, 2003 and 2002,
respectively. All contributions vest immediately.

38

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding our exposure to interest rate risk, see the
caption entitled "Interest Rate Risk" in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations," which is
incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-14(c) under the Securities Exchange Act of 1934). Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that the company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by our company in reports that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms. Subsequent to the date of their evaluation, there
were no significant changes in our internal controls or in other factors that
could significantly affect these controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

39

PART II

ITEM 5. OTHER INFORMATION

We held our annual stockholders' meeting on May 13, 2003, to consider and vote
on three separate proposals: (i) a proposal to elect Charles W. Cramb, M.
Kathryn Eickhoff, Mark P. Frissora, Frank E. Macher, Sir David Plastow, Roger B.
Porter, David B. Price, Jr., Dennis G. Severance and Paul T. Stecko as directors
of our company for a term expiring at our next annual stockholders' meeting,
(ii) a proposal to ratify the appointment of Deloitte & Touche LLP as
independent public accountants for 2003 and (iii) a proposal to amend the
Tenneco Automotive Inc. 2002 Long-Term Incentive Plan. The meeting proceeded and
all proposals were approved by the requisite vote of the holders of our
outstanding common stock. The following sets forth the vote results with respect
to these proposals at the meeting:

Election of Directors

Ratification of Appointment of Deloitte & Touche LLP

Approval to Amend the Tenneco Automotive Inc. 2002 Long-Term Incentive Plan

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits. The exhibits filed with this report are listed on the
Exhibit Index following the signature page of this report, which is incorporated
herein by reference.

(b) Reports on Form 8-K. We filed the following Current Reports on Form
8-K during the quarter ended March 31, 2003:

Current Report on Form 8-K dated February 4, 2003, including pursuant to Item 5
certain information pertaining to the results of our operations for the fourth
quarter and full year 2002.

Current Report on Form 8-K dated March 12, 2003, including pursuant to Item 5
certain information pertaining to the Board's election of Charles W. Cramb to
the Board of Directors.

40

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934,
Tenneco Automotive Inc. has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.

TENNECO AUTOMOTIVE INC.

By: /s/ MARK A. MCCOLLUM
------------------------------------
Mark A. McCollum
Senior Vice President and
Chief Financial Officer

Dated: May 14, 2003

41

CERTIFICATIONS

I, Mark P. Frissora, Chairman and Chief Executive Officer of Tenneco Automotive
Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tenneco
Automotive Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

/s/ MARK P. FRISSORA
--------------------------------------

Dated: May 14, 2003

42

I, Mark A. McCollum, Senior Vice President and Chief Financial Officer of
Tenneco Automotive Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tenneco
Automotive Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

/s/ MARK A. MCCOLLUM
--------------------------------------

Dated: May 14, 2003

43

INDEX TO EXHIBITS
TO
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 2003

- ---------------
* Filed herewith

49