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 September 30, 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: 40,824,187 shares as of October 31,
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," "should," "could," "plans," "expect," "anticipate," "estimates,"
"continue," 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 September 30, 2003, and the
related consolidated statements of income (loss) and comprehensive income (loss)
for the three-month and nine-month periods ended September 30, 2003 and 2002,
and of cash flows and changes in shareholders' equity for the nine-month periods
ended September 30, 2003 and 2002. These interim financial statements are the
responsibility of Tenneco Automotive Inc.'s management.

We conducted our reviews 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 and
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 reviews, we are not aware of any material modifications that
should be made to such consolidated interim 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
November 13, 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 Inc.'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) In June 2003, we issued $350 million of 10 1/4 percent senior secured
notes in a private placement. The notes have a final maturity date of July 15,
2013. The notes accrue interest from June 19, 2003 with a first interest payment
date of January 15, 2004. The notes are senior secured obligations and rank
equally in right of payment with our existing and future senior debt and rank
senior in right of payment to all of our existing and future subordinated debt.
The notes are jointly and severally guaranteed by all of our domestic
subsidiaries that also guarantee our senior credit facility. These guarantees
are senior obligations of our subsidiary guarantors. The notes and guarantees
are secured by second priority liens, subject to specified exceptions, on all of
our and our subsidiary guarantors' assets that secure obligations under our
senior credit facility, except that only a portion of the capital stock of our
and our subsidiary guarantor's domestic subsidiaries is provided as collateral
and no assets or capital stock of our direct or indirect foreign subsidiaries
secure the notes or guarantees. In October 2003, we completed an exchange offer
to exchange all of the notes issued in the June 2003 private placement for a
like amount of 10 1/4 percent senior secured notes, with substantially identical
terms, which had been registered under the Securities Act of 1933.

We can redeem some or all of the notes at any time after July 15, 2008. We
can also redeem up to 35 percent aggregate principal amount of the notes using
the proceeds of certain equity offerings completed before July 15, 2006. If we
sell certain of our assets or experience specific kinds of changes in control,
we must offer to repurchase the notes.

We received net proceeds in the second quarter from the offering of the
notes, after deducting underwriting discounts and commissions and our expenses,
of $338 million. We used the net proceeds of the offering to repay outstanding
amounts under our senior credit facility as follows: (i) first, to prepay $199
million on the term loan A due November 4, 2005, (ii) second, to prepay $52
million on the term loans B and C due November 4, 2007 and May 4, 2008,
respectively, and (iii) third, to prepay outstanding borrowings of $87 million
under the revolving credit portion of our senior credit facility without
reducing the commitments from $450 million.

(3) 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 5 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.

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

In the fourth quarter of 2001, our Board of Directors approved a
restructuring plan, a project known as Project Genesis, designed to lower our
fixed costs, improve efficiency and utilization, and better optimize our global
footprint. 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 was reflected in cost of sales, while $4 million
was included in selling, general and administrative expenses. These charges were
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 $0.81 per diluted common share. As
of September 30, 2003, we have eliminated 974 positions in connection with
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 Project Genesis in 2003.

We incurred other costs in the first nine months of 2003 of $6 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 a
total of $17 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 severance 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. This charge was primarily recorded in cost
of sales.

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

Amounts related to the reserves we have established regarding 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 September 30, 2003, we have excluded $17 million of the $60 million
available under the terms of the amendment. In addition to the announced
actions, we continue to evaluate additional opportunities 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
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.

(4) 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 expense
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 September 30, 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 $12 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

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

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. For example, we have recently responded to a request from the
Federal Trade Commission to substantiate certain of our product claims. As
another example, we are involved in litigation with the minority owner of one of
our Indian joint ventures over various operational issues. This dispute involves
a court-mandated bidding process, which could result in a non-cash charge to
earnings if we are required to sell our interest in the joint venture on
unfavorable terms. 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.

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;

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

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.

(5) 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 changed 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 original equipment 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 $191
million at September 30, 2003. We are required to test this balance for
impairment on an annual basis.

The changes in the carrying amount of goodwill for the nine months ended
September 30, 2003, are as follows:

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 changed 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 expanded 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 has not had a
material impact on our financial position or results of operations. You should
also read Note 9 to the financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure, an amendment of FASB No. 123," which
provided alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation and amended 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 7 to our financial statements for this information for the third 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 was effective immediately for variable interest entities created
after January 31, 2003 and effective December 15, 2003 for variable interest
entities created before February 1, 2003. We do not believe the adoption of FIN
46 will have a material impact on our consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amended and
clarified financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on our financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 established standards for classification of certain financial
instruments that have characteristics of both liabilities and equity but have
been presented entirely as equity or between the liabilities and equity section
of the statement of financial position. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003. The adoption of SFAS
No. 150 did not have a material impact on our financial position.

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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

In May 2003, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 01-08, "Determining Whether an Arrangement Contains a
Lease." This issue addressed reporting revenue as rental or leasing income that
would otherwise be reported as part of product sales or service revenue. This
requires the parties to the arrangement to determine whether a service contract
or similar arrangement is or includes a lease within the scope of SFAS No. 13,
"Accounting for Leases." The consensus should be applied prospectively to
arrangements agreed to, modified, or acquired in a business combination in the
fiscal periods beginning after May 28, 2003. We are currently evaluating the
effect that this consensus may have on our financial position or results of
operations.

(6) 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 $136 million and $121 million at
September 30, 2003 and 2002, respectively. We recognized a loss of approximately
$1 million and $2 million in the nine-month periods ended September 30, 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 three 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.

(7) 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 restricted shares, restricted units and stock
equivalent units to certain key employees. After-tax stock based compensation
expense relating to restricted shares and stock equivalent units for the first
nine months of 2003 was less than $2 million compared to approximately $3
million for the same period in the prior year relating to restricted shares,
performance shares, and stock equivalent units. As permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation," and amended by SFAS No. 148, we
follow the disclosure only requirements of SFAS No. 123. We estimate that our
net income (loss) for the first nine months of 2003 and 2002 would have been
lower by approximately $1 million had we applied the fair value method of
accounting

16

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

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:

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

17

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

Options to purchase 2,312,219 and 2,476,791 shares of common stock were
outstanding at September 30, 2003 and 2002, 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.

(9) 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 $4 million at both September 30, 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 $964 million senior secured credit facility, the $350 million senior secured
notes 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
first-priority liens on substantially all our domestic assets and pledges of 66
percent of the stock of certain first-tier foreign subsidiaries. The arrangement
for the $350 million senior secured notes is also secured by second-priority
liens on substantially all our domestic assets, excluding some of the stock of
our domestic subsidiaries. This arrangement is not secured by any pledges of
stock or assets of our foreign subsidiaries. You should also read Note 11 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 $42 million.
We have also issued $18 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.

(10) 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.

18

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

The following table summarizes certain segment information:

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

Basis of Presentation

Subject to limited exceptions, all of our existing and future material
domestic wholly owned subsidiaries (which we refer to as the Guarantor
Subsidiaries) fully and unconditionally guarantee our senior subordinated notes
due 2009 and our senior secured notes due 2013 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,
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.

19

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

STATEMENT OF INCOME (LOSS)

20

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

STATEMENT OF INCOME (LOSS)

21

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

STATEMENT OF INCOME (LOSS)

22

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

STATEMENT OF INCOME (LOSS)

23

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

BALANCE SHEET

24

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

BALANCE SHEET

25

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.

26

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.)
27

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

RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

NET SALES AND OPERATING REVENUES

The following tables reflect our revenues for the third 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 decreased $14 million in the
third quarter of 2003 compared to last year's third quarter reflecting lower
sales generated from both the original equipment and aftermarket businesses.
Total North American OE revenues decreased two percent to $329 million in the
third quarter of this year due to decreased volumes and pass-through sales in
the emission control product line. Pass-through emission control sales decreased
nine percent to $67 million in the current quarter. OE emission control revenues
were down four percent in the quarter, while OE ride control revenues increased
two percent. Total OE revenues, excluding pass-through sales, decreased less
than one percent in the third quarter, while North American light vehicle
production decreased approximately five percent from the third quarter a year
ago. Our revenue decline was less than the build rate decline primarily due to
our strong position on top-selling platforms with General Motors and Nissan.
Aftermarket revenues for North America were $123 million in the third quarter of
2003, representing a decrease of five percent compared to the same period in the
prior year. Aftermarket ride control revenues decreased $2 million or two
percent in the third quarter, primarily as a result of a weak economy.
Aftermarket emission control revenues declined nine percent in the third quarter
reflecting the continued overall market decline in the emission control business
and the longer lives of exhaust components due to the OE's use of stainless
steel, which reduces aftermarket replacement rates.

Our European segment's revenues increased $39 million or 12 percent in the
third quarter of 2003 compared to last year's third quarter. Total OE revenues
were $252 million, up 15 percent from the third quarter of last year. OE
emission control revenues increased eight percent in the third quarter of 2003
to $187 million from $173 million the prior year's third quarter. Excluding a $4
million decrease in pass-through sales and a $26 million increase due to
strengthening currency, OE emission control revenues decreased seven percent in
the third quarter of 2003 compared to the last year's third quarter. This was
consistent with the change in European production levels, which decreased
approximately five percent from the third quarter a year ago. OE ride control
revenues increased to $65 million or up 40 percent from $46 million a year ago.

29

Excluding an $8 million benefit from currency appreciation, OE ride control
revenues increased 22 percent. Our OE ride control revenues increased despite
the overall decline in the European build rate primarily due to stronger sales
on new platform launches with Volkswagen and Ford. European aftermarket sales
were $92 million in the third quarter of this year compared to $86 million in
last year's third quarter. Excluding $14 million attributable to currency
appreciation, European aftermarket revenues declined nine percent. Ride control
aftermarket revenues, excluding the impact of currency, decreased only three
percent reflecting the continued positive impact of the Monroe Reflex(R)
introduction in the second quarter of last year. Additionally, aftermarket
emission control revenues were lower as a result of the now standard use of
longer lasting stainless steel by OE manufacturers. Excluding the impact of
currency, European aftermarket emission control revenues declined 14 percent
from the prior year.

Revenues from our Other operations, which include South America, Australia
and Asia, increased $33 million to $118 million in the third quarter of 2003 as
compared to $85 million in the prior year. Higher OE volumes and increased
pass-through sales drove increased revenues of $12 million at our Asian
operations. In Australia, strong OE volumes and strengthening currency increased
revenues by 41 percent. Excluding $9 million attributable to currency
appreciation, Australian revenues increased by 14 percent. South American
revenues were up $7 million on strengthening currency and increased OE volumes.

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 decreased to $32 million in the third
quarter of 2003 from $36 million one year ago driven primarily by lower sales
volumes and timing of marketing and promotional spending in the aftermarket.
Lower aftermarket volumes reduced EBIT by $5 million. Also reducing EBIT in the
current quarter was $4 million of marketing and promotional spending in the
aftermarket. In contrast to last year, we have allocated some promotional
spending to the fall of this year to try to extend the selling season. These
decreases were partially offset by OE manufacturing efficiencies of $3 million
and lower restructuring related expenses. Included in 2002's third quarter EBIT
was $1 million in restructuring-related expenses. There were no
restructuring-related expenses in 2003's third quarter.

Our European segment's EBIT decreased $2 million to a loss of $3 million in
the third quarter of 2003. Higher OE ride control volumes contributed $3 million
to EBIT. Also contributing to EBIT in the current quarter were $4 million in
manufacturing efficiencies primarily in OE emission control and currency

30

appreciation of $1 million. These increases were more than offset by lower
aftermarket volumes that reduced EBIT by $5 million. In addition, as a result of
our inventory reduction programs, EBIT was reduced by $4 million. This EBIT
decrease was the result of inventory absorption costs--fixed manufacturing costs
that we continued to incur in spite of the lower production levels necessary to
drive inventory down. Because of the lower production levels, a greater portion
of fixed manufacturing costs were recognized in the income statement rather than
allocated to inventory balances. Also negatively impacting EBIT in the current
quarter were lower OE emission control volumes. Included in 2003's third quarter
EBIT was $1 million in restructuring-related expenses. Included in 2002's third
quarter EBIT was $2 million of restructuring-related expenses.

EBIT for our Other operations increased $4 million in the third quarter of
2003 to $9 million compared to $5 million in the third quarter of 2002. Higher
OE revenues, favorable currency exchange rates and manufacturing efficiencies
drove the improvement.

EBIT AS A PERCENTAGE OF REVENUE

In North America, EBIT as a percentage of revenue declined one percent
primarily due to lower OE and aftermarket volumes and higher marketing and
promotional spending. In Europe, EBIT margins also declined one percent in the
third quarter, as lower aftermarket volumes and higher absorption costs more
than offset OE manufacturing efficiencies, currency appreciation and lower
restructuring-related expenses. EBIT as a percentage of revenue for our Other
operations increased two percent. The increase was primarily driven by stronger
OE revenues and, to a lesser extent, favorable currency exchange rates and
manufacturing efficiencies.

INTEREST EXPENSE, NET OF INTEREST CAPITALIZED

We reported interest expense of $34 million during the third quarter of
2003. Interest expense includes a $2 million reduction related to the write-off
of debt issuance costs associated with the 10 1/4 percent bonds issued in June
2003. Also, interest expense was higher by approximately $4 million related to
the new senior bonds issued in June. Offsetting this increase were lower
interest rates and balances on our variable rate 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 benefit of $2 million for the quarter ended September
30, 2003, compared to a benefit of $2 million for the quarter ended September
30, 2002. The third quarter 2003 included a tax benefit of $3 million, which
occurred as we adjusted our tax accruals based on the tax returns filed in the
quarter. The effective tax rate including the $3 million benefit was a negative
53 percent. Excluding the $3 million benefit our effective tax rate was 40
percent. The effective tax rate for the third quarter of 2002 was 40 percent.

EARNINGS PER SHARE

We reported earnings per diluted common share of $0.10 for the third
quarter of 2003, compared to $0.13 per diluted share for the third quarter of
2002. Included in the results for the third quarter of 2003 are the negative
impacts from expenses related to our restructuring activities, the reduction
related to the write-off of

31

debt issuance costs and a tax benefit as we adjusted our tax accruals based on
tax returns filed in the quarter. The net impact of these items increased
earnings per diluted share by $0.09. Included in the results for the third
quarter 2002 are the negative impacts from expenses related to our restructuring
activities and a tax benefit related to a change in the effective tax rate for
2002. In total, these items improved earnings per diluted common share by $0.02.
You should also read Note 8 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, a project known as Project Genesis, designed to lower our
fixed costs, improve efficiency and utilization, and better optimize our global
footprint. 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 was reflected in cost of sales, while $4 million
was included in selling, general and administrative expenses. These charges were
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 $0.81 per diluted common share. As
of September 30, 2003, we have eliminated 974 positions in connection with
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 Project Genesis in 2003.

We incurred other costs in the first nine months of 2003 of $6 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 a
total of $17 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 severance costs of $1 million
associated with eliminating 17 salaried positions through selective layoffs and
an early retirement program. Additionally, 93 hourly

32

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

To date we have generated about $26 million of savings from Project
Genesis. About $6 million of savings was related to closing the eight
facilities, about $13 million of savings was related to value mapping and plant
arrangement and about $7 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 the reserves we have established regarding 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 September 30, 2003, we have excluded $17 million of the $60 million
available under the terms of the amendment. In addition to the announced
actions, we continue to evaluate additional opportunities 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
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.

In October of 2003 we announced the closure of an emission control
manufacturing facility in Birmingham, U.K. Approximately 130 employees will be
eligible for severance benefits in accordance with union contracts and U.K.
legal requirements. Charges related to this closing are not expected to exceed
$5 million. This action is in addition to the plant closures announced in
Project Genesis in the fourth quarter of 2001.

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.

33

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.

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 September 30, 2003, we had
$14 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
September 30, 2003, of $520 million, which will expire in varying amounts from
2018 to 2023. The federal tax effect of that NOL is $182 million, and is
recorded as an asset on our balance sheet at September 30, 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 September 30, 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 would be lower by
approximately $1 million or $.03 per diluted share for the nine months ended
September 30, 2003 and by $1 million or $.03 per diluted share for the nine
months ended September 30, 2002. You should also read Note 7 to the financial
statements.

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 changed 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 original equipment 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 $191 million at September 30, 2003. We are required to
test this balance for impairment on an annual basis.

34

The changes in the carrying amount of goodwill for the nine months ended
September 30, 2003, are as follows:

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 changed 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 expanded 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 has not had a
material impact on our financial position or results of operations. You should
also read Note 9 to the financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure, an amendment of FASB Statement No.
123," which provided alternative methods of transition for a voluntary change to
the fair value method of accounting for stock-based employee compensation and
amended 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 7 to our financial statements for this information for the
third 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 was effective immediately for variable interest entities created
after January 31, 2003 and effective December 15, 2003 for variable interest
entities created before February 1, 2003. We do not believe the adoption of FIN
46 will have a material impact on our consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amended and
clarified financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and

35

for hedging activities under SFAS No. 133. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. The adoption of SFAS No.
149 did not have a material impact on our financial position or results of
operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 established standards for classification of certain financial
instruments that have characteristics of both liabilities and equity but have
been presented entirely as equity or between the liabilities and equity section
of the statement of financial position. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003. The adoption of SFAS
No. 150 did not have a material impact on our financial position.

In May 2003, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 01-08, "Determining Whether an Arrangement Contains a
Lease." This issue addressed reporting revenue as rental or leasing income that
would otherwise be reported as part of product sales or service revenue. This
requires the parties to the arrangement to determine whether a service contract
or similar arrangement is or includes a lease within the scope of SFAS No. 13,
"Accounting for Leases." The consensus should be applied prospectively to
arrangements agreed to, modified, or acquired in a business combination in the
fiscal periods beginning after May 28, 2003. We are currently evaluating the
effect that this consensus may have on our financial position or results of
operations.

RESULTS FROM OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

NET SALES AND OPERATING REVENUES

The following tables reflect our revenues for the first nine months of 2003
and 2002, including the same reconciliations as are presented above for the
first three months of 2003 and 2002. See "Results from

36

Operations for the Three Months Ended September 30, 2003 and 2002" for a
description of why we present, and how we use, these reconciliations.

Revenues from our North American operations decreased $38 million in the
first nine months of 2003 compared to last year's first nine months reflecting
lower sales primarily from the aftermarket business. Total North American OE
revenues were flat at $1,067 million in the first nine months of this year as
higher ride control volumes were offset by lower emission control volumes.
Pass-through emission control sales decreased eight percent to $229 million in
the first nine months of 2003. OE emission control revenues were down three
percent in the first nine months of 2003 as compared to the prior year. Adjusted
for pass-through sales OE emission control sales were down less than one percent
from the prior year. OE ride control revenues for the first nine months of 2003
increased seven percent from the prior year. Total OE revenues, excluding pass-
through sales, increased two percent in the first nine months of 2003, while
North American light vehicle production decreased approximately four percent
from the first nine months one year ago. We experienced this improvement despite
the build rate decline primarily due to our strong position on top-selling
platforms with General Motors, Ford, Honda and Nissan. Aftermarket revenues for
North America were $367 million in the first nine months of 2003, representing a
decrease of nine percent compared to the same period in the prior year.
Aftermarket ride control revenues decreased $16 million or six percent in the
first nine months of 2003, as a result of a weak economy and lower initial
orders related to new customer additions in 2003 compared to the prior year.
Aftermarket emission control revenues declined 13 percent in the first nine
months of 2003 compared to 2002 reflecting the continued overall market decline
in the emission control business and the longer lives of exhaust components due
to the OE's use of stainless steel, which reduces aftermarket replacement rates.

Our European segment's revenues increased $179 million or 20 percent in the
first nine months of 2003 compared to last year's first nine months. Total OE
revenues were $807 million, up 23 percent from the first nine months of last
year. OE emission control revenues in the first nine months increased 19 percent
to $621 million from $521 million in the prior year. Excluding a $6 million
increase in pass-through sales and a

38

$97 million increase due to strengthening currency, OE emissions control
revenues decreased less than one percent over the first nine months of 2002.
This was a slight improvement from the change in European production levels,
which decreased approximately one percent from the first nine months one year
ago. Strong volumes on Volkswagen, General Motors and Volvo platforms slightly
offset the general market decline. OE ride control revenues in the first nine
months increased to $186 million or up 36 percent from $136 million a year ago.
Excluding a $28 million benefit from currency appreciation, OE ride control
revenues increased 16 percent. We experienced this revenue increase despite the
decline in the European build rate due to stronger sales on existing platforms
with Volkswagen, Ford and PSA. European aftermarket sales were $270 million in
the first nine months of this year compared to $241 million in last year's first
nine months. Excluding $46 million attributable to currency appreciation,
European aftermarket revenues declined seven percent in the first nine months
compared to last year's first nine months. Ride control aftermarket revenues,
excluding the impact of currency, were down less than one percent compared to
the prior year, reflecting the continued positive impact of the Monroe Reflex(R)
introduction in the second quarter of last year. Additionally, aftermarket
emission control revenues were lower as a result of the now standard use of
longer lasting stainless steel by OE manufacturers. Excluding the impact of
currency, European aftermarket emission control revenues declined 12 percent
from the prior year.

Revenues from our Other operations, which include South America, Australia
and Asia, increased $79 million to $322 million in the first nine months of 2003
as compared to $243 million in the first nine months of the prior year. Higher
volumes and increased pass-through sales drove increased revenues of $41 million
at our Asian operations. In Australia, stronger OE volumes and strengthening
currency increased revenues by 34 percent. Excluding the impact of currency,
Australian revenues increased 12 percent. South American revenues were up $8
million primarily as a result of increased OE volumes and a stabilizing
currency.

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

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

39

EBIT for North American operations increased to $109 million in the first
nine months of 2003 from $108 million one year ago driven by higher volumes in
our OE ride control segment, which increased EBIT by $4 million, and OE
manufacturing efficiencies, which added $6 million to EBIT in the first nine
months of 2003 compared to the prior year. The North American aftermarket volume
decreases in both product lines reduced EBIT by $19 million, but were partially
offset by lower selling, general and administrative costs including $7 million
in lower year over year changeover expenses. North American EBIT was also
reduced by $1 million as a result of our inventory reduction programs. This EBIT
decrease was the result of inventory absorption costs--fixed manufacturing costs
that the company continued to incur in spite of the lower production levels
necessary to drive inventory down. Because of the lower production levels, a
greater portion of fixed manufacturing costs were recognized in the income
statement rather than allocated to inventory balances. Included in North
America's 2003 EBIT for the first nine months was $3 million in restructuring
and restructuring-related expenses. Included in 2002's EBIT for the first nine
months were $3 million in restructuring-related expenses and $1 million related
to amending the senior credit facility.

Our European segment's EBIT was $7 million for the first nine months of
2003, down $8 million from $15 million in the first nine months of 2002.
However, included in 2002's first nine months EBIT was an $11 million gain on
the sale of our York, U.K. facility, $3 million in restructuring and
restructuring-related expenses and $1 million related to amending the senior
credit facility. Included in the first nine months of 2003's EBIT were $4
million of restructuring-related expenses. Higher OE volumes in both product
lines contributed $6 million to EBIT. Also contributing to EBIT were
manufacturing efficiencies of $5 million primarily in OE emission control and
currency appreciation of $6 million. Additionally, benefits we are realizing
from Project Genesis, which is described further in "Restructuring Charges" in
this Management's Discussion and Analysis, added to EBIT. These increases were
partially offset by lower aftermarket volumes that reduced EBIT by $8 million.
In addition, as a result of our inventory reduction programs, EBIT was reduced
by $6 million due to higher absorption costs.

EBIT for our Other operations increased $5 million to $20 million in the
first nine months of 2003 compared to the same nine months one year ago. Higher
OE revenues and favorable currency exchange rates drove the improvement.

EBIT AS A PERCENTAGE OF REVENUE

In North America, EBIT as a percentage of revenue for the first nine months
of 2003 increased one percent compared to the prior year. Higher OE ride control
volumes and manufacturing efficiencies more than offset lower aftermarket
volumes. In Europe, EBIT margins for the first nine months decreased one percent
compared to the prior year. OE volume increases, manufacturing efficiencies,
restructuring savings and currency appreciation in the current quarter partially
replaced a one-time gain from the prior year and lower aftermarket volumes. EBIT
as a percentage of revenue for our Other operations remained flat as compared to
the prior year.

INTEREST EXPENSE, NET OF INTEREST CAPITALIZED

We reported interest expense of $103 million during the first nine months
of 2003 compared to $108 million during the same period in 2002. The current
year's interest expense includes $3 million for the write-off of senior debt
issuance costs that were deferred on the senior debt that we partially paid with
the proceeds of our $350 million bond offering in June of 2003. Additionally, we
incurred approximately

40

$4 million in higher interest costs related to the bond offering. Offsetting
this increase was lower interest rates on our variable rate 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, including the $350 million bond offering in June 2003 and its
anticipated impact on our interest expense, in "Liquidity and Capital
Resources--Capitalization" later in this Management's Discussion and Analysis.

INCOME TAXES

Income taxes were a benefit of $1 million for the first nine months of
2003, compared to a $6 million expense for the first nine months of 2002. The
first nine months of 2003 included benefits of $14 million, including book to
return adjustments and settlement of prior year tax issues on a more favorable
basis than originally anticipated. The effective tax rate for the first nine
months of 2003 including the $14 million benefit was a negative two percent.
Excluding the $14 million benefit our effective tax rate was 40 percent. The
first nine months of 2002 included a benefit of $6 million related primarily to
lower-than-expected costs for withholding taxes related to 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 for the first nine
months of 2002 including the $6 million benefit was 18 percent. Excluding the $6
million benefit our effective tax rate was 40 percent.

EARNINGS PER SHARE

We reported earnings, before cumulative effect of change in accounting
principle, per diluted common share of $0.70 for the first nine months of 2003,
compared to $0.53 per diluted share for the first nine months of 2002. Included
in the results for the first nine months of 2003 are the negative impacts from
expenses related to our restructuring activities, the write-off of debt issuance
costs relating to the bond transaction in June of 2003 and tax benefits for the
resolution of several audit issues. The net impact of these items increased
earnings per diluted share by $0.20. Included in the results for the first nine
months of 2002 are the negative impacts from expenses related to our
restructuring activities, costs related to amending the senior credit facility,
a tax benefit for lower withholding on foreign repatriation of earnings and the
gain on the sale of our York, U.K. facility. In total, these items improved
earnings per diluted common share by $0.19. You should also read Note 8 to the
financial statements for more detailed information on earnings per share.

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 $76 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 contributed $32 million to the increase in
shareholders' equity. Although our book equity balance was near zero at
September 30, 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 relatively low book equity.

41

Short-term debt, which includes the current portion of long-term
obligations and borrowings by foreign subsidiaries, as well as our revolving
credit facility, decreased by $210 million during the first nine months of 2003.
Of the $210 million, $89 million is the result of a $93 million decrease in the
current portion of long-term obligations resulting from the June 2003 repayment
of some of our long-term obligations offset by a $4 million increase in
short-term debt on foreign subsidiaries. In addition, we decreased our
borrowings by approximately $121 million during the first nine months of 2003
under our revolving credit facility. There were no borrowings outstanding under
our revolving credit facility as of September 30, 2003. Borrowings outstanding
under our revolving credit facility were $51 million as of September 30, 2002.
The overall increase in long-term debt resulted from the issuance of new
long-term debt as described below, offset by payments made on outstanding
long-term debt.

Our financing arrangements are primarily provided by a committed senior
secured financing arrangement with a syndicate of banks and other financial
institutions, which was $964 million at September 30, 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 extended the limitation
on annual capital expenditures of $150 million through this three-year period.
The amendment further provided us with the option to enter into sale and
leaseback arrangements on up to $200 million of our assets. The proceeds from
these arrangements would have to be used to prepay the term loans under the
senior credit agreement. 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.

In June 2003, we issued $350 million of 10 1/4 percent senior secured notes
in a private placement. The notes have a final maturity date of July 15, 2013.
The notes accrue interest from June 19, 2003 with a first interest payment date
of January 15, 2004. The notes are senior secured obligations and rank equally
in right of payment with our existing and future senior debt and rank senior in
right of payment to all of our existing
42

and future subordinated debt. The notes are jointly and severally guaranteed by
all of our domestic subsidiaries that also guarantee our senior credit facility.
These guarantees are senior obligations of our subsidiary guarantors. The notes
and guarantees are secured by second priority liens, subject to specified
exceptions, on all of our and our subsidiary guarantors' assets that secure
obligations under our senior credit facility, except that only a portion of the
capital stock of our and our subsidiary guarantor's domestic subsidiaries is
provided as collateral and no assets or capital stock of our direct or indirect
foreign subsidiaries secure the notes or guarantees. In October 2003, we
completed an offer to exchange all of the notes issued in the June 2003 private
placement for a like amount of the 10 1/4 percent senior secured notes, with
substantially identical terms, which had been registered under the Securities
Act of 1933.

We can redeem some or all of the notes at any time after July 15, 2008. We
can also redeem up to 35 percent aggregate principal amount of the notes using
the proceeds of certain equity offerings completed before July 15, 2006. If we
sell certain of our assets or experience specific kinds of changes in control,
we must offer to repurchase the notes.

We received net proceeds in the second quarter from the offering of the
notes, after deducting underwriting discounts and commissions and our expenses,
of $338 million. We used the net proceeds of the offering to repay outstanding
amounts under our senior credit facility as follows: (i) first, to prepay $199
million on the term loan A due November 4, 2005, (ii) second, to prepay $52
million on the term loans B and C due November 4, 2007 and May 4, 2008,
respectively, and (iii) third, to prepay outstanding borrowings of $87 million
under the revolving credit portion of our senior credit facility without
reducing the commitments from $450 million.

We incurred $13 million in fees associated with the transaction which will
be amortized over the term of the senior secured notes. After giving effect to
the use of proceeds we expect the offering will increase annual interest expense
by approximately $19 million. In addition, we expensed approximately $3 million
of existing deferred debt issuance costs as a result of retiring a portion of
the term loans under the senior credit facility.

In connection with issuing $350 million of 10 1/4 percent senior secured
notes due July 15, 2013, we amended the senior credit facility for the fourth
time effective May 29, 2003. The fourth amendment allowed us to incur debt
secured by a second lien on our U.S. assets and to have that debt guaranteed by
our major U.S. subsidiaries. The amendment also allowed us to use a portion of
the proceeds from the new senior secured notes to repay outstanding borrowings
under the revolving credit facility, without having to reduce the $450 million
size of the revolving credit facility, and to prepay the term loans under the
senior credit facility on a non pro-rata basis with the remaining net proceeds
from the notes. In exchange for these amendments, we agreed to pay an aggregate
sum of $1 million to consenting lenders. We also incurred legal, advisory and
other costs related to the amendment process of $1 million. These costs were
included in the capitalized debt issuance costs.

The senior secured credit facility, as amended effective May 29, 2003 (and
after giving effect to the use of proceeds from the bond offering described
above on June 19, 2003), consists of: (i) a $450 million revolving credit
facility with a final maturity date of November 4, 2005; (ii) a $44 million term
loan with a final maturity date of November 4, 2005; (iii) a $235 million term
loan with a final maturity date of November 4, 2007; and (iv) a $235 million
term loan with a final maturity date of May 4, 2008. Quarterly principal
repayment installments on each term loan began October 1, 2001. As of September
30, 2003, 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
of 350 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 50 basis points, plus a margin of 250 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

43

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 declined below 4.50 as of September 30, 2003;
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, will decrease by
25 basis points beginning in the fourth quarter of 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 three quarters 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
outstanding loans. As of September 30, 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 and the $350 million of 10 1/4 percent
senior secured notes due July 15, 2013 described above. The senior subordinated
debt and senior secured debt indentures both require 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 the indentures. The indentures
also contain restrictions on our operations, including limitations on: (i)
incurring additional

44

indebtedness or liens; (ii) dividends; (iii) distributions and stock
repurchases; (iv) investments; and (v) mergers and consolidations. Subject to
limited exceptions, all of our existing and future material domestic wholly
owned subsidiaries fully and unconditionally guarantee these notes on a joint
and several basis. In addition, the senior secured notes and related guarantees
are secured by second priority liens, subject to specified exceptions, on all of
our and our subsidiary guarantors' assets that secure obligations under our
senior credit facility, except that only a portion of the capital stock of our
and our subsidiary guarantor's domestic subsidiaries is provided as collateral
and no assets or capital stock of our direct or indirect foreign subsidiaries
will secure the notes or guarantees. There are no significant restrictions on
the ability of the subsidiaries that have guaranteed these notes to make
distributions to us. As of September 30, 2003, we were in compliance with the
covenants and restrictions of these indentures.

In addition to our senior credit facility, senior secured notes 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 $69
million and $66 million at September 30, 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 program has since been amended to
increase its size to $75 million with its termination date unchanged at January
31, 2005. We also sell some receivables in our European operations to regional
banks in Europe. At September 30, 2003, we had sold $67 million of accounts
receivable in Europe up from $54 million at September 30, 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.

As described above, the revolving portion of our senior credit facility
expires in November 2005. We are evaluating potential alternatives to extend or
establish a new senior credit facility to ensure the company's continued access
to a long-term source of liquidity. Taking advantage of improved conditions in
the non-investment grade credit markets, our goal is to complete a transaction
in advance of November 2004 when the existing revolving credit facility will
become current. We cannot be certain, however, that a commercially reasonable
alternative to our existing revolver will be available or that we would be able
to execute such a transaction. Any such transaction could involve costs or
charges in the period the transaction is executed.

45

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.

If we do not maintain compliance with the terms of our senior credit
facility and the indentures for our senior secured notes and senior subordinated
debt 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 $4 million at both September 30, 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 $964 million senior secured credit facility, the $350 million senior secured
notes 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. The arrangement for the senior secured
notes is secured by second priority liens, subject to specified exceptions, on
all of our domestic assets that secure obligations under our senior credit
facility, except that only a portion of the capital stock of our domestic
subsidiaries is provided as collateral. No assets or capital stock of our direct
or indirect foreign subsidiaries secure these notes. You should also read Note
11 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 $42 million.
We have also

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issued $18 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.

CASH FLOWS

OPERATING ACTIVITIES

For the nine months ended September 30, 2003, cash flows provided from
operating activities was $162 million as compared to $168 million in the prior
nine months. The decrease was primarily attributable to reduced year over year
working capital improvements. For the first nine months of 2003 cash flow
provided from working capital was $10 million as compared to $69 million for the
first nine months of 2002. Lower collections of receivables, including factoring
balances, higher cash tax payments and the timing of accruals versus payments in
the current year as compared to the prior year, are primary drivers to the
decrease. Finally, we generated cash from our inventory reduction programs,
which increased cash flow from working capital by $32 million over the prior
year. 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, payments for product
sales are made earlier than otherwise required under existing payment terms.
These arrangements reduced accounts receivable by $64 million and $57 million as
of September 30, 2003 and 2002, respectively. These arrangements reduced
accounts receivable by $40 million at December 31, 2002. In June 2003, we
entered into a similar arrangement with a third major OE customer in North
America. This arrangement further reduced accounts receivable by $18 million at
September 30, 2003. These arrangements can be cancelled at any time.

INVESTING ACTIVITIES

Cash used for investing activities was $28 million higher in the first nine
months of 2003 compared to the same period a year ago. In the first nine months
of 2002, we received $17 million in cash from the sale of our York UK facility
and also recorded $19 million from a settlement with an OE customer for
reimbursement of expenses related to a cancelled platform. Capital expenditures
were $83 million in the first nine months of 2003, down $3 million from the $86
million in the first nine months of last year.

FINANCING ACTIVITIES

Cash flow from financing activities was a $59 million outflow in the first
nine months of 2003 compared to an outflow of $110 million in the same period of
2002. The primary reason for the change is attributable to higher short-term
borrowings during the first nine months of 2003 as compared to the prior year.

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.

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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 September 30, 2003, we had $858 million in long-term debt obligations
that have fixed interest rates. Of that amount, $500 million is fixed until
October 2009 and $350 million is fixed until July 2013, while the remainder is
fixed over periods of 2003 through 2025. There was also $528 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 September 30, 2003
was about 102 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 $4 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 nine months of 2003 weakened slightly to an annualized rate of
15.8 million units or a four percent decline from the prior year. 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. While fourth quarter production levels are predicted
to remain flat to the prior year we expect our North American OE revenues to be
softer in the fourth quarter, due to several OE emissions control platform
expirations and lower volumes. Currently, industry estimates have heavy duty
build rates down approximately two percent compared to 2002. These estimates
have 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 yearly production
rates appear to be down two percent from last year. Our emission control
business will continue to be under pressure by these declines in production
levels and customer efforts to reduce inventory levels to manage weak demand. We
however plan to build on the newly launched OE ride control business. In the
global aftermarket, issues that have impacted volumes over the last twelve
months will continue to challenge us for the balance of the year. Customer
consolidation, longer product replacement cycles, a weaker economy and
competition from short-liners in the exhaust business will continue to impact
our volumes.

In July of 2003, we announced a change to our retiree medical benefits
program, which will provide participating retirees with continued access to
group health coverage while reducing our subsidization of the program. Based on
current estimates, we anticipate that this change will decrease our post
retirement benefit costs by approximately $7 million after tax annually,
beginning in the third quarter of 2003. We realized $1 million of savings from
this change in the third quarter of 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 expense 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

48

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 September 30, 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 $12 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. For example, we have recently responded to a request from the
Federal Trade Commission to substantiate certain of our product claims. As
another example, we are involved in litigation with the minority owner of one of
our Indian joint ventures over various operational issues. This dispute involves
a court-mandated bidding process, which could result in a non-cash charge to
earnings if we are required to sell our interest in the joint venture on
unfavorable terms. 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

49

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 50 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 $5
million for both the nine months ended September 30, 2003 and 2002. All
contributions vest immediately.

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

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(e) under the Securities Exchange Act of
1934) as of the end of the fiscal quarter covered by this report. Based on this
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. There were no changes in our internal control over
financial reporting that occurred during the period covered by this report that
have materially affected, or are likely to materially affect our internal
control over financial reporting.

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PART II

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 and/or furnished the following Current
Reports on Form 8-K during the quarter ended September 30, 2003:

Current Report on Form 8-K dated July 15, 2003, including pursuant to Item 5
certain information pertaining to our appointment by Ford Motor Company as the
full service exhaust supplier for the Ford gas and diesel 2007 model year
F-series Super-Duty truck platform.

Current Report on Form 8-K dated July 22, 2003, including pursuant to Items 5
and 12 certain information pertaining to the results of our operations for the
second quarter 2003.

Current Report on Form 8-K dated July 30, 2003, including pursuant to Item 5
certain information pertaining to the resignation of Mark McCollum, senior vice
president and chief financial officer.

Current Report on Form 8-K dated August 18, 2003, including pursuant to Item 5
certain information pertaining to our appointment by DaimlerChrysler AG as a
supplier of advanced emission control systems.

Current Report on Form 8-K dated August 19, 2003, including pursuant to Item 5
certain information pertaining to our earning of the prestigious CIO 100 Award
from CIO Magazine.

Current Report on Form 8-K dated September 9, 2003, including pursuant to Item 5
certain information pertaining to our continued expansion in Central and Eastern
Europe with the opening of a manufacturing facility in Togliatti, Russia,
approximately 1,000 kilometers southeast of Moscow.

Current Report on Form 8-K dated September 10, 2003, including pursuant to Item
5 certain information pertaining to appointment of Kenneth R. Trammell as senior
vice president and chief financial officer.

Current Report on Form 8-K dated September 17, 2003, as amended, including
pursuant to Item 5 certain information pertaining to the commencement of an
offer to exchange up to $350 million principal amount of 10.25% Senior Secured
Notes due 2013, which have been registered under the Securities Act of 1933, for
a like amount of our existing 10.25% Senior Secured Notes due 2013, which were
issued on June 19, 2003 in a private placement.

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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/ KENNETH R. TRAMMELL
------------------------------------
Kenneth R. Trammell
Senior Vice President and
Chief Financial Officer

Dated: November 13, 2003

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INDEX TO EXHIBITS
TO
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2003

- ---------------

* Filed herewith

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