TENNECO AUTOMOTIVE INC, 10-Q, 2000-05-15

TENNECO AUTOMOTIVE INC
10-Q, 2000-05-15
MOTOR VEHICLE PARTS & ACCESSORIES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM 10-Q

<TABLE>
<S> <C> <C>
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-12387
</TABLE>

TENNECO AUTOMOTIVE INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
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)
</TABLE>

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 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: 33,978,558 shares as of March 31, 2000.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Tenneco Automotive Inc. and Consolidated Subsidiaries --
Report of Independent Public Accountants............... 4
Statements of Income (Loss)............................ 5
Balance Sheets......................................... 6
Statements of Cash Flows............................... 7
Statements of Changes in Shareholders' Equity.......... 8
Statements of Comprehensive Income (Loss).............. 9
Notes to Financial Statements.......................... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and
Results of Operations.................................. 22
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................ 32

PART II -- OTHER INFORMATION
Item 1. Legal Proceedings................................. *
Item 2. Changes in Securities............................. 33
Item 3. Defaults Upon Senior Securities................... *
Item 4. Submission of Matters to a Vote of Security
Holders................................................ *
Item 5. Other Information................................. 33
Item 6. Exhibits and Reports on Form 8-K.................. 33
</TABLE>

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

* 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
"will," "believes," "should," "plans," "expects," and "estimates," and similar
expressions (and variations thereof), identify these forward-looking statements.
Although we believe that the expectations reflected in these forward-looking
statements are based on reasonable assumptions, these expectations may not prove
to be correct. Because these forward-looking statements are also subject to
risks and uncertainties, actual results may differ materially from the
expectations expressed in the forward-looking statements. Important factors that
could cause actual results to differ materially from the expectations reflected
in the forward-looking statements include:

- general economic, business and market conditions;

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

- operating hazards associated with our business;

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

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

- cyclicality of automotive production and sales;

2
<PAGE> 3

- 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 integrate operations of acquired businesses quickly and in
a cost effective manner;

- our ability to successfully transition as a stand-alone company;

- 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; and

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

3
<PAGE> 4

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Tenneco Automotive Inc.:

We have reviewed the consolidated balance sheet of Tenneco Automotive Inc.
and consolidated subsidiaries as of March 31, 2000, and the related consolidated
statements of income and cash flows for the three-month period ended March 31,
2000. These financial statements are the responsibility of Tenneco Automotive
Inc.'s management.

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

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

ARTHUR ANDERSEN LLP
Chicago, Illinois
May 8, 2000

4
<PAGE> 5

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
(MILLIONS EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES
Net sales and operating revenue........................... $ 882 $ 789
----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation shown below)..... 672 585
Engineering, research, and development.................... 15 11
Selling, general, and administrative...................... 110 105
Depreciation and amortization............................. 39 35
----------- -----------
836 736
----------- -----------
OTHER INCOME (EXPENSE)...................................... 1 2
----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY
INTEREST.................................................. 47 55
Interest expense (net of interest capitalized)............ 45 19
Income tax expense (benefit).............................. (1) 14
Minority interest......................................... 2 6
----------- -----------
INCOME FROM CONTINUING OPERATIONS........................... 1 16
Income (loss) from discontinued operations, net of income
tax....................................................... -- (166)
----------- -----------
Income (loss) before extraordinary loss..................... 1 (150)
Extraordinary loss, net of income tax....................... -- (7)
----------- -----------
Income (loss) before cumulative effect of change in
accounting principle...................................... 1 (157)
Cumulative effect of change in accounting principle, net of
income tax................................................ -- (134)
----------- -----------
NET INCOME (LOSS)........................................... $ 1 $ (291)
=========== ===========
EARNINGS (LOSS) PER SHARE
Average shares of common stock outstanding --
Basic..................................................... 33,672,112 33,348,701
Diluted................................................... 33,904,365 33,436,119
Basic earnings (loss) per share of common stock --
Continuing operations..................................... $ .03 $ .47
Discontinued operations................................... -- (4.99)
Extraordinary loss........................................ -- (.20)
Cumulative effect of change in accounting principle....... -- (4.00)
----------- -----------
$ .03 $ (8.72)
=========== ===========
Diluted earnings (loss) per share of common stock --
Continuing operations..................................... $ .03 $ .47
Discontinued operations................................... -- (4.99)
Extraordinary loss........................................ -- (.20)
Cumulative effect of change in accounting principle....... -- (4.00)
----------- -----------
$ .03 $ (8.72)
=========== ===========
Cash dividends per share of common stock.................... $ .05 $ 1.50
=========== ===========
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements of income (loss).
5
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments....................... $ 53 $ 84
Receivables --
Customer notes and accounts, net....................... 613 557
Other.................................................. 32 14
Inventories --
Finished goods......................................... 219 215
Work in process........................................ 89 86
Raw materials.......................................... 70 73
Materials and supplies................................. 37 38
Deferred income taxes..................................... 60 59
Prepayments and other..................................... 78 75
------ ------
1,251 1,201
------ ------
Other assets:
Long-term notes receivable, net........................... 22 20
Goodwill and intangibles, net............................. 486 495
Deferred income taxes..................................... 13 13
Pension assets............................................ 31 31
Other..................................................... 145 146
------ ------
697 705
------ ------
Plant, property, and equipment, at cost..................... 1,914 1,923
Less -- Reserves for depreciation and amortization........ 901 886
------ ------
1,013 1,037
------ ------
$2,961 $2,943
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on long-term
debt).................................................. $ 77 $ 56
Trade payables............................................ 383 348
Accrued taxes............................................. 22 20
Accrued interest.......................................... 47 29
Accrued liabilities....................................... 139 149
Other..................................................... 46 61
------ ------
714 663
------ ------
Long-term debt.............................................. 1,571 1,578
------ ------
Deferred income taxes....................................... 106 108
------ ------
Postretirement benefits..................................... 127 125
------ ------
Deferred credits and other liabilities...................... 33 31
------ ------
Commitments and contingencies
Minority interest........................................... 17 16
------ ------
Shareholders' equity:
Common stock.............................................. -- --
Premium on common stock and other capital surplus......... 2,721 2,721
Accumulated other comprehensive income (loss)............. (207) (179)
Retained earnings (accumulated deficit)................... (1,881) (1,880)
------ ------
633 662
Less -- Shares held as treasury stock, at cost............ 240 240
------ ------
393 422
------ ------
$2,961 $2,943
====== ======
</TABLE>

The accompanying notes to financial statements are an integral part of these
balance sheets.
6
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------
2000 1999
---- ----
(MILLIONS)
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations........................... $ 1 $ 16
Adjustments to reconcile income from continuing operations
to cash provided
(used) by continuing operations --
Depreciation and amortization............................. 39 35
Deferred income taxes..................................... -- 9
(Gain) loss on sale of businesses and assets, net......... -- 1
Changes in components of working capital --
(Increase) decrease in receivables..................... (71) (86)
(Increase) decrease in inventories..................... (13) (30)
(Increase) decrease in prepayments and other current
assets................................................ (4) --
Increase (decrease) in payables........................ 50 49
Increase (decrease) in accrued taxes................... (11) (19)
Increase (decrease) in accrued interest................ 17 31
Increase (decrease) in other current liabilities....... (13) (33)
Other..................................................... 1 (25)
---- ----
Cash provided (used) by continuing operations............... (4) (52)
Cash provided (used) by discontinued operations............. -- 1
---- ----
Net cash provided (used) by operating activities............ (4) (51)
---- ----
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations................................................ -- 3
Net proceeds from sale of assets............................ 2 5
Expenditures for plant, property, and equipment............. (34) (33)
Acquisitions of businesses.................................. -- (3)
Expenditures for plant, property, and equipment and business
acquisitions -- discontinued operations................... -- (53)
Investments and other....................................... (4) 4
---- ----
Net cash provided (used) by investing activities............ (36) (77)
---- ----
NET CASH PROVIDED (USED) BEFORE FINANCING
ACTIVITIES -- CONTINUING OPERATIONS....................... (40) (79)
FINANCING ACTIVITIES
Issuance of common and treasury stock....................... -- 12
Purchase of common stock.................................... -- (4)
Retirement of long-term debt................................ -- (29)
Net increase (decrease) in short-term debt excluding current
maturities on long-term debt.............................. 13 204
Dividends (common).......................................... (2) (51)
---- ----
Net cash provided (used) by financing activities............ 11 132
---- ----
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ (2) (2)
---- ----
Increase (decrease) in cash and temporary cash
investments............................................... (31) 2
Cash and temporary cash investments, January 1.............. 84 29
---- ----
Cash and temporary cash investments, March 31 (Note)........ $ 53 $ 31
==== ====
Cash paid during the period for interest.................... $ 29 $ 37
Cash paid during the period for income taxes (net of
refunds).................................................. $ 15 $ 17
</TABLE>

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NOTE: Cash and temporary cash investments 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.
7
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
2000 1999
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
COMMON STOCK
Balance January 1.............................. 34,970,485 $ -- 34,734,039 $ --
Issued pursuant to benefit plans............. 306,446 -- 27,197 --
---------- ------- ---------- ------
Balance March 31............................... 35,276,931 -- 34,761,236 --
========== ------- ========== ------
PREMIUM ON COMMON STOCK AND OTHER CAPITAL
SURPLUS
Balance January 1.............................. 2,721 2,712
Premium on common stock issued pursuant to
benefit plans............................. -- 3
------- ------
Balance March 31............................... 2,721 2,715
------- ------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance January 1.............................. (179) (91)
Other comprehensive income (loss)............ (28) (77)
------- ------
Balance March 31............................... (207) (168)
------- ------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance January 1.............................. (1,880) 142
Net income (loss)............................ 1 (291)
Dividends on common stock.................... (2) (51)
------- ------
Balance March 31............................... (1,881) (200)
------- ------
LESS -- COMMON STOCK HELD AS TREASURY STOCK,
AT COST
Balance January 1.............................. 1,298,373 240 1,351,535 259
Shares acquired.............................. -- -- 212 --
Shares issued pursuant to benefit and
dividend reinvestment plans............... -- -- (42,772) (8)
---------- ------- ---------- ------
Balance March 31............................... 1,298,373 240 1,308,975 251
========== ------- ========== ------
Total.......................................... $ 393 $2,096
======= ======
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements of changes in shareholders' equity.
8
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME
------------- ------------- ------------- -------------
(MILLIONS)
<S> <C> <C> <C> <C>
NET INCOME (LOSS).................... $ 1 $(291)
----- -----
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)

CUMULATIVE TRANSLATION ADJUSTMENT
Balance January 1.................. $(176) $ (82)
Translation of foreign currency
statements.................... (28) (28) (77) (77)
----- -----
Balance March 31................... (204) (159)
----- -----
ADDITIONAL MINIMUM PENSION LIABILITY
ADJUSTMENT
Balance January 1.................. (3) (9)
Additional minimum pension
liability adjustments......... -- -- -- --
----- -----
Balance March 31................... (3) (9)
----- -----
Balance March 31..................... $(207) $(168)
===== ----- ===== -----
Other comprehensive income (loss).... (28) (77)
----- -----
COMPREHENSIVE INCOME (LOSS).......... $ (27) $(368)
===== =====
</TABLE>

The accompanying notes to financial statements are an integral part
of these statements of comprehensive income (loss).
9
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

(1) Tenneco Automotive Inc. was known as Tenneco Inc. before the spin-off,
on November 4, 1999, of our packaging business, as described in Note 2. In these
notes, when we discuss Tenneco we mean Tenneco Inc. and its subsidiaries before
the spin-off and Tenneco Automotive Inc. and its subsidiaries after the
spin-off.

In our opinion, the accompanying unaudited financial statements contain all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly Tenneco's financial position, results of operations, cash flows, changes
in shareholders' equity, and comprehensive income for the periods indicated. The
unaudited interim consolidated financial statements have been prepared 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 generally accepted accounting principles.

Our consolidated financial statements include all majority-owned
subsidiaries. We carry investments in 20% to 50% owned companies where we have
the ability to exert significant influence over operating and financial policies
at cost plus equity in undistributed earnings and cumulative translation
adjustments since date of acquisition. We have no investments in 20% to 50%
owned companies where we do not carry the investment at cost plus equity in
undistributed earnings.

We have reclassified prior year's financial statements where appropriate to
conform to 2000 presentations.

In the first quarter of 2000 we changed how we record "pass through" sales
of some catalytic converter components. "Pass through" sales occur when we
purchase these components from suppliers, use the components in our
manufacturing process and sell the components to our customers as part of the
completed catalytic converter. In the past, we recorded "pass through" sales as
a component of cost of sales. We now record them as part of net sales.
Relationships with customers have begun to change where we now take title to
these components in the manufacturing process. Additionally, we believe that our
competitors in the automotive parts industry already follow this practice so
this change is consistent with industry practice and will permit improved
comparability with these companies. As a result of the change, our sales
increased $50 million in the first quarter of 2000, with no impact on our
earnings before interest and taxes. Had these components been recorded on a
comparable basis in the first quarter of 1999, net sales would have been $18
million higher.

(2) In July 1998, the Board of Directors authorized management to develop a
broad range of strategic alternatives to separate the automotive, paperboard
packaging, and specialty packaging businesses. Subsequently, we completed the
following actions:

- In January 1999, we announced an agreement to contribute the
containerboard business to a new joint venture with an affiliate of
Madison Dearborn Partners. The proceeds from the transaction, including
debt assumed by the new joint venture, were approximately $2 billion. The
transaction closed in April 1999. We retained a 43 percent interest in
the joint venture.

- In April 1999, we announced an agreement to sell our folding carton
operations to Caraustar Industries. This transaction closed in June 1999.
The folding carton operations and the containerboard business together
represented our paperboard packaging operating segment.

- On November 4, 1999, we completed the spin-off of the common stock of
Tenneco Packaging Inc., now known as Pactiv Corporation, to our
shareholders. Pactiv included all of the businesses that made up our
specialty packaging segment, as well as our remaining interest in the
containerboard joint venture, and our administrative services operations.

As a result of this series of transactions, our former specialty and
paperboard packaging operating segments are presented as discontinued operations
in the accompanying financial statements.

10
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

The morning following the spin-off, we completed a reverse stock split that
had been approved by our shareholders in a special meeting held in October 1999.
As a result, every five shares of our common stock were converted into one share
of our new common stock.

(3) The results of operations for the three months ended March 31, 1999,
for our discontinued specialty packaging business were:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------
(MILLIONS)
<S> <C>
Net sales and operating revenues............................ $666
====
Income before income taxes and interest allocation.......... $ 45
Income tax (expense) benefit................................ (16)
----
Income before interest allocation........................... 29
Allocated interest expense, net of income tax............... (23)
----
Income from discontinued operations......................... $ 6
====
</TABLE>

The results of operations for the three months ended March 31, 1999, for
our discontinued paperboard packaging business were:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------
(MILLIONS)
<S> <C>
Net sales and operating revenues............................ $ 392
=====
Income (loss) before income taxes and interest allocation
Operations................................................ $ 18
Loss on containerboard sale............................... (293)
-----
(275)
Income tax (expense) benefit................................ 108
-----
Income before interest allocation........................... (167)
Allocated interest expense, net of income tax............... (5)
-----
Loss from discontinued operations........................... $(172)
=====
</TABLE>

Our practice is to incur indebtedness for our consolidated group at the
parent company level or at a limited number of subsidiaries, rather than at the
operating company level, and to centrally manage various cash functions.
Consequently, our corporate debt was allocated to discontinued operations based
upon the ratio of the discontinued operations' net assets to our consolidated
net assets plus debt. We have allocated interest expense, net of tax, to our
discontinued operations based on the same allocation methodology.

(4) We adopted plans to restructure portions of our operations in both 1998
and 1999. In the fourth quarter of 1998, our Board of Directors approved an
extensive restructuring plan designed to reduce administrative and operational
overhead costs. We recorded a pre-tax charge to income from continuing
operations in that quarter of $53 million, $34 million after-tax, or $1.02 per
diluted common share. Of the pre-tax charge, for operational restructuring
plans, $36 million related to the consolidation of the manufacturing and
distribution operations of our North American aftermarket business. A staff and
related cost reduction plan, which covered employees in both the operating units
and corporate operations, cost $17 million.

11
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

Our aftermarket restructuring involved closing two plant locations and five
distribution centers, resulting in eliminating 302 positions. Our staff and
related cost reduction plan involved eliminating 454 administrative positions.
We wrote down the fixed assets at the locations to be closed to their fair
value, less costs to sell, in the fourth quarter of 1998. As a result of the
single-purpose nature of the assets, we estimated fair value at scrap value less
cost to dispose. We do not expect to receive any significant net cash proceeds
from the ultimate disposal of these assets, which should be complete by the
fourth quarter of 2000. The effect of suspending depreciation for these impaired
assets is a reduction in depreciation and amortization of approximately $2
million on an annual basis.

As of March 31, 2000, we have completed the restructuring actions with
respect to the 1998 plan, with the exception of the final disposal of certain
assets and final payment of some severance benefits. The North American
aftermarket business closed one plant location and one distribution center in
the first quarter. All positions expected to be eliminated as a result of the
plan have been eliminated.

In the fourth quarter of 1999, our Board of Directors approved a
restructuring plan designed to further reduce operational overhead costs. We
recorded a pre-tax charge to income from continuing operations in that quarter
of $55 million, $50 million after-tax, or $1.50 per diluted common share.

The charge includes $37 million recorded in Europe to close a ride control
manufacturing facility and an exhaust just-in-time plant, close or downsize four
aftermarket distribution centers, and reduce administrative overhead by reducing
management employment; $15 million to close a North American exhaust
manufacturing facility; and $3 million for employment reductions in South
America and Asia. In total, the plan involves eliminating approximately 780
positions. We wrote down the fixed assets at the locations to be closed to their
fair value, less costs to sell, in the fourth quarter of 1999. We estimated the
fair value for buildings using external real estate valuations or a review of
recent sales prices for like buildings in the area surrounding the plant to be
closed. As a result of the single-purpose nature of the machinery and equipment
to be disposed of, fair value was estimated at scrap value less cost to dispose
in most cases. For certain machines which have value in the used equipment
market, engineers estimated value based on recent sales of like machines. We
expect to receive net cash proceeds of approximately $11 million when we dispose
of these assets. The effect of suspending depreciation for these impaired assets
is a reduction in depreciation and amortization expense of approximately $3
million on an annual basis. We expect to complete all restructuring activities
by the middle of 2001.

As of March 31, 2000, approximately 485 employees have been terminated
under the 1999 plan. These reductions happened primarily at the North American
exhaust manufacturing facility which was closed during the first quarter, except
for one production line which remains open at our customer's request. This line
will be shut down during the third quarter of 2000. All restructuring actions
are being completed in accordance with our initial restructuring plan.

Amounts related to the 1998 and 1999 restructuring plans are shown in the
following table:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 2000 MARCH 31, 2000
RESTRUCTURING CASH RESTRUCTURING
RESERVE PAYMENTS RESERVE
----------------- -------- --------------
<S> <C> <C> <C>
Severance.......................................... $26 $ 3 $23
Facility exit costs................................ 2 1 1
--- --- ---
$28 $ 4 $24
=== === ===
</TABLE>

(5) We are party to various legal proceedings arising from our operations.
We believe that the outcome of these proceedings, individually and in the
aggregate, will have no material effect on our financial position or results of
operations.

12
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TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

(6) We are subject to a variety of environmental and pollution control laws
and regulations in all jurisdictions in which we operate. We have provided
reserves for compliance with these laws and regulations where it is probable
that a liability exists and where we can make a reasonable estimate of the
liability. The estimated liabilities recorded are subject to change as more
information becomes available regarding the magnitude of possible costs and the
timing, varying costs, and effectiveness of alternative technologies. However,
we believe that any additional costs that may arise as more information becomes
available will not have a material effect on our financial condition or results
of operations.

(7) In the first quarter of 1999, we recognized an extraordinary loss for
extinguishment of debt of $7 million (net of a $3 million income tax benefit),
or $.20 per diluted common share. The loss related to early retirement of debt
in connection with the sale of the containerboard assets.

(8) In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement was effective for fiscal years beginning after
December 15, 1998. The statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Prior to January 1, 1999, we
capitalized certain costs related to start-up activities, primarily
pre-production design and development costs for new original equipment
automobile platforms. We adopted SOP 98-5 on January 1, 1999, and recorded an
after-tax charge for the cumulative effect of this change in accounting
principle of $102 million (net of a $50 million tax benefit), or $3.05 per
diluted common share.

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes new
accounting and reporting standards requiring that all derivative instruments,
including derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting treatment. This statement cannot
be applied retroactively and is effective for all fiscal years beginning after
June 15, 2000. We are currently evaluating the new standard and have not yet
determined the impact it will have on our financial positions or results of
operations.

Effective January 1, 1999, we changed our method of accounting for customer
acquisition costs from a deferral method to an expense-as-incurred method. In
connection with the decision to separate the automotive and specialty packaging
businesses into independent public companies, we determined that a change to an
expense-as-incurred method of accounting for automotive aftermarket customer
acquisition costs was preferable in order to permit improved comparability of
stand-alone financial results with our aftermarket industry competitors. We
recorded an after-tax charge for the cumulative effect of this change in
accounting principle of $32 million (net of a $22 million tax benefit), or $.95
per diluted common share.

13
<PAGE> 14
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
(MILLIONS EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
Basic Earnings Per Share--
Income from continuing operations......................... $ 1 $ 16
=========== ===========
Average shares of common stock outstanding................ 33,672,112 33,348,701
=========== ===========
Earnings from continuing operations per average share of
common stock........................................... $ .03 $ .47
=========== ===========
Diluted Earnings Per Share--
Income from continuing operations......................... $ 1 $ 16
=========== ===========
Average shares of common stock outstanding................ 33,672,112 33,348,701
Effect of dilutive securities:
Restricted stock....................................... 47,274 17,040
Stock options.......................................... 30,291 --
Performance shares..................................... 154,688 70,378
----------- -----------
Average shares of common stock outstanding including
dilutive securities.................................... 33,904,365 33,436,119
=========== ===========
Earnings from continuing operations per average share of
common stock........................................... $ .03 $ .47
=========== ===========
</TABLE>

(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.

14
<PAGE> 15
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

The following table summarizes certain Tenneco segment information:

<TABLE>
<CAPTION>
SEGMENT
--------------------------------------------------------
RECLASS
NORTH AMERICA EUROPE OTHER & ELIMS CONSOLIDATED
------------- ------ ------ ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
AT MARCH 31, 2000, AND FOR THE THREE
MONTHS THEN ENDED
Revenues from external customers.......... $ 514 $ 294 $ 74 $ -- $ 882
Intersegment revenues..................... 3 9 3 (15) --
Income before interest, income taxes, and
minority interest....................... 34 12 1 -- 47
Total assets.............................. 1,195 961 845 (40) 2,961

FOR THE THREE MONTHS ENDED MARCH 31, 1999
Revenues from external customers.......... $ 417 $ 312 $ 60 $ -- $ 789
Intersegment revenues..................... 1 8 3 (12) --
Income (loss) before interest, income
taxes, and minority interest............ 33 26 (4) -- 55
Income (loss) from discontinued
operations.............................. -- -- (166) -- (166)
Extraordinary loss........................ -- -- (7) -- (7)
Cumulative effect of change in accounting
principle............................... (65) (32) (37) -- (134)
</TABLE>

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

Basis of Presentation

We issued senior subordinated notes due 2009 as a component of a plan to
realign our debt in connection with the spin-off. You should also read Note 2
for further discussion of the spin-off and debt realignment of the notes and
related guarantee. All of our existing and future material domestic wholly-owned
subsidiaries (the "Guarantor Subsidiaries") fully and unconditionally guarantee
the notes on a joint and several basis. We believe separate financial statements
and other disclosures concerning each of the Guarantor Subsidiaries would not
provide additional information that is material to investors. Therefore, the
Guarantor Subsidiaries are combined in the presentation below.

Included in the financial information of the Guarantor Subsidiaries for
each period presented are the financial position and results of operations of a
domestic subsidiary, Tenneco International Holding Corp., which had issued
preferred stock to a third party. The preferred stock was redeemed in the fourth
quarter of 1999.

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.
The balance sheet caption "Investment in affiliated companies" includes
investments in continuing and discontinued subsidiaries. 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.

15
<PAGE> 16
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

STATEMENT OF INCOME (LOSS)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 2000
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues --
External........................... $423 $459 $ -- $ -- $882
Affiliated companies............... 19 19 -- (38) --
---- ---- ---- ---- ----
442 478 -- (38) 882
---- ---- ---- ---- ----
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below).......... 333 377 -- (38) 672
Engineering, research, and
development........................ 8 7 -- -- 15
Selling, general, and
administrative..................... 62 48 -- -- 110
Depreciation and amortization........ 20 19 -- -- 39
---- ---- ---- ---- ----
423 451 -- (38) 836
---- ---- ---- ---- ----
OTHER INCOME, NET...................... 1 -- -- -- 1
---- ---- ---- ---- ----
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INTEREST EXPENSE,
INCOME TAXES, MINORITY INTEREST, AND
EQUITY IN NET INCOME FROM CONTINUING
OPERATIONS OF AFFILIATED COMPANIES... 20 27 -- -- 47
Interest expense --
External (net of interest
capitalized)..................... (1) 3 43 -- 45
Affiliated companies (net of
interest income)................. 24 3 (27) -- --
Income tax expense (benefit)......... (3) 8 (5) (1) (1)
Minority interest.................... -- 2 -- -- 2
---- ---- ---- ---- ----
-- 11 (11) 1 1
Equity in net income (loss) from
continuing operations of affiliated
companies.......................... 10 -- 12 (22) --
---- ---- ---- ---- ----
INCOME (LOSS) FROM CONTINUING
OPERATIONS........................... 10 11 1 (21) 1
Income (loss) from discontinued
operations, net of income tax........ -- -- -- -- --
---- ---- ---- ---- ----
Income (loss) before extraordinary
loss................................. 10 11 1 (21) 1
Extraordinary loss, net of income
tax.................................. -- -- -- -- --
---- ---- ---- ---- ----
Income (loss) before cumulative effect
of change in accounting principle.... 10 11 1 (21) 1
Cumulative effect of change in
accounting principle, net of income
tax.................................. -- -- -- -- --
---- ---- ---- ---- ----
NET INCOME (LOSS)...................... 10 11 1 (21) 1
Preferred stock dividends.............. -- -- -- -- --
---- ---- ---- ---- ----
NET INCOME (LOSS) TO COMMON STOCK...... $ 10 $ 11 $ 1 $(21) $ 1
==== ==== ==== ==== ====
</TABLE>

16
<PAGE> 17
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

STATEMENT OF INCOME (LOSS)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC. RECLASS
GUARANTOR NONGUARANTOR (PARENT &
SUBSIDIARIES SUBSIDIARIES COMPANY) ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues --
External............................ $342 $ 447 $ -- $ -- $ 789
Affiliated companies................ 21 18 -- (39) --
---- ----- ----- ---- -----
363 465 -- (39) 789
---- ----- ----- ---- -----
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)........... 266 358 -- (39) 585
Engineering, research, and
development......................... 6 5 -- -- 11
Selling, general, and
administrative...................... 51 54 -- -- 105
Depreciation and amortization......... 17 18 -- -- 35
---- ----- ----- ---- -----
340 435 -- (39) 736
---- ----- ----- ---- -----
OTHER INCOME, NET....................... 2 -- -- -- 2
---- ----- ----- ---- -----
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE, INCOME TAXES,
MINORITY INTEREST, AND EQUITY IN NET
INCOME FROM CONTINUING OPERATIONS OF
AFFILIATED COMPANIES.................. 25 30 -- -- 55
Interest expense --
External (net of interest
capitalized)...................... 1 5 13 -- 19
Affiliated companies (net of
interest income).................. 19 -- (19) -- --
Income tax expense (benefit).......... 2 7 9 (4) 14
Minority interest..................... -- -- -- 6 6
---- ----- ----- ---- -----
3 18 (3) (2) 16
Equity in net income (loss) from
continuing operations of affiliated
companies........................... 17 -- 19 (36) --
---- ----- ----- ---- -----
INCOME (LOSS) FROM CONTINUING
OPERATIONS............................ 20 18 16 (38) 16
Income (loss) from discontinued
operations, net of income tax......... -- (128) (166) 128 (166)
---- ----- ----- ---- -----
Income (loss) before extraordinary
loss.................................. 20 (110) (150) 90 (150)
Extraordinary loss, net of income tax... -- (7) (7) 7 (7)
---- ----- ----- ---- -----
Income (loss) before cumulative effect
of change in accounting principle..... 20 (117) (157) 97 (157)
Cumulative effect of change in
accounting principle, net of income
tax................................... (64) (70) (134) 134 (134)
---- ----- ----- ---- -----
NET INCOME (LOSS)....................... (44) (187) (291) 231 (291)
Preferred stock dividends............... 6 -- -- (6) --
---- ----- ----- ---- -----
NET INCOME (LOSS) TO COMMON STOCK....... $(50) $(187) $(291) $237 $(291)
==== ===== ===== ==== =====
</TABLE>

17
<PAGE> 18
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

BALANCE SHEET

<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash
investments...................... $ 18 $ 35 $ -- $ -- $ 53
Receivables......................... 632 372 35 (394) 645
Inventories......................... 164 251 -- -- 415
Deferred income taxes............... 68 (8) -- -- 60
Prepayments and other............... 32 46 -- -- 78
------ ------ ------ ------- ------
914 696 35 (394) 1,251
------ ------ ------ ------- ------
Other assets:
Investment in affiliated
companies........................ 249 -- 2,342 (2,591) --
Notes and advances receivable from
affiliates....................... 1,843 -- 3,332 (5,175) --
Long-term notes receivable, net..... 5 17 -- -- 22
Goodwill and intangibles, net....... 329 157 -- -- 486
Deferred income taxes............... -- 13 -- -- 13
Pension assets...................... 19 12 -- -- 31
Other............................... 72 46 27 -- 145
------ ------ ------ ------- ------
2,517 245 5,701 (7,766) 697
------ ------ ------ ------- ------
Plant, property, and equipment, at
cost................................ 894 1,020 -- -- 1,914
Less -- Reserves for depreciation
and amortization............... 442 459 -- -- 901
------ ------ ------ ------- ------
452 561 -- -- 1,013
------ ------ ------ ------- ------
$3,883 $1,502 $5,736 $(8,160) $2,961
====== ====== ====== ======= ======

LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current
maturities on long-term debt).... $ 1 $ 150 $ 242 $ (316) $ 77
Trade payables...................... 137 309 5 (68) 383
Accrued taxes....................... 4 18 -- -- 22
Other............................... 107 79 46 -- 232
------ ------ ------ ------- ------
249 556 293 (384) 714
Long-term debt........................ 1,609 9 5,128 (5,175) 1,571
Deferred income taxes................. 129 55 (78) -- 106
Postretirement benefits and other
liabilities......................... 136 24 -- -- 160
Commitments and contingencies
Minority interest..................... -- 17 -- -- 17
Shareholders' equity.................. 1,760 841 393 (2,601) 393
------ ------ ------ ------- ------
$3,883 $1,502 $5,736 $(8,160) $2,961
====== ====== ====== ======= ======
</TABLE>

18
<PAGE> 19
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash
investments...................... $ 28 $ 56 $ -- $ -- $ 84
Receivables......................... 665 316 18 (428) 571
Inventories......................... 155 257 -- -- 412
Deferred income taxes............... 68 (9) -- -- 59
Prepayments and other............... 34 41 -- -- 75
------ ------ ------ ------- ------
950 661 18 (428) 1,201
------ ------ ------ ------- ------
Other assets:
Investment in affiliated
companies........................ 266 -- 2,365 (2,631) --
Notes and advances receivable from
affiliates....................... 1,809 -- 3,302 (5,111) --
Long-term notes receivable, net..... 3 17 -- -- 20
Goodwill and intangibles, net....... 331 164 -- -- 495
Deferred income taxes............... -- 13 -- -- 13
Pension assets...................... 21 10 -- -- 31
Other............................... 67 52 27 -- 146
------ ------ ------ ------- ------
2,497 256 5,694 (7,742) 705
------ ------ ------ ------- ------
Plant, property, and equipment, at
cost................................ 888 1,035 -- -- 1,923
Less -- Reserves for depreciation
and amortization................. 428 458 -- -- 886
------ ------ ------ ------- ------
460 577 -- -- 1,037
------ ------ ------ ------- ------
$3,907 $1,494 $5,712 $(8,170) $2,943
====== ====== ====== ======= ======

LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current
maturities on long-term debt).... $ 1 $ 176 $ 238 $ (359) $ 56
Trade payables...................... 138 268 6 (64) 348
Accrued taxes....................... 6 15 (1) -- 20
Other............................... 131 81 27 -- 239
------ ------ ------ ------- ------
276 540 270 (423) 663
Long-term debt........................ 1,580 10 5,098 (5,110) 1,578
Deferred income taxes................. 131 55 (78) -- 108
Postretirement benefits and other
liabilities......................... 130 26 -- -- 156
Commitments and contingencies
Minority interest..................... -- 16 -- -- 16
Shareholders' equity.................. 1,790 847 422 (2,637) 422
------ ------ ------ ------- ------
$3,907 $1,494 $5,712 $(8,170) $2,943
====== ====== ====== ======= ======
</TABLE>

19
<PAGE> 20
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net cash provided (used) by
operating activities........... $ 8 $ (12) $ -- $ -- $ (4)
---- ----- ---- ----- ----
INVESTING ACTIVITIES
Net proceeds related to the sale
of discontinued operations..... -- -- -- -- --
Net proceeds from sale of
businesses and assets.......... 2 -- -- -- 2
Expenditures for plant, property,
and equipment.................. (13) (21) -- -- (34)
Acquisitions of businesses....... -- -- -- -- --
Expenditures for plant, property,
and equipment and business
acquisitions -- discontinued
operations..................... -- -- -- -- --
Investments and other............ (2) (2) -- -- (4)
---- ----- ---- ----- ----
Net cash provided (used) by
investing activities........... (13) (23) -- -- (36)
---- ----- ---- ----- ----
FINANCING ACTIVITIES
Issuance of common and treasury
stock.......................... -- -- -- -- --
Purchase of common stock......... -- -- -- -- --
Issuance of long-term debt....... -- -- -- -- --
Retirement of long-term debt..... -- -- -- -- --
Net increase (decrease) in
short-term debt excluding
current maturities on long-term
debt........................... 34 (24) 3 -- 13
Intercompany dividends and net
increase (decrease) in
intercompany obligations....... (39) 40 (1) -- --
Dividends (common)............... -- -- (2) -- (2)
---- ----- ---- ----- ----
Net cash provided (used) by
financing activities........... (5) 16 -- -- 11
---- ----- ---- ----- ----
Effect of foreign exchange rate
changes on cash and temporary
cash investments............... -- (2) -- -- (2)
---- ----- ---- ----- ----
Increase (decrease) in cash and
temporary cash investments..... (10) (21) -- -- (31)
Cash and temporary cash
investments, January 1......... 28 56 -- -- 84
---- ----- ---- ----- ----
Cash and temporary cash
investments, March 31 (Note)... $ 18 $ 35 $ -- $ -- $ 53
==== ===== ==== ===== ====
</TABLE>

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

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

20
<PAGE> 21
TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
----------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net cash provided (used) by
operating activities............ $(44) $ 35 $(42) $ -- $(51)
---- ---- ---- ---- ----
INVESTING ACTIVITIES
Net proceeds related to the sale
of discontinued operations...... -- 3 -- -- 3
Net proceeds from sale of
businesses and assets........... 5 -- -- -- 5
Expenditures for plant, property,
and equipment................... (16) (17) -- -- (33)
Acquisitions of businesses........ -- (3) -- -- (3)
Expenditures for plant, property,
and equipment and business
acquisitions -- discontinued
operations...................... -- (53) -- -- (53)
Investments and other............. (2) 4 2 -- 4
---- ---- ---- ---- ----
Net cash provided (used) by
investing activities............ (13) (66) 2 -- (77)
---- ---- ---- ---- ----
FINANCING ACTIVITIES
Issuance of common and treasury
stock........................... -- -- 12 -- 12
Purchase of common stock.......... -- -- (4) -- (4)
Issuance of long-term debt........ -- -- -- -- --
Retirement of long-term debt...... -- (33) 4 -- (29)
Net increase (decrease) in
short-term debt excluding
current maturities on long-term
debt............................ -- 28 176 -- 204
Intercompany dividends and net
increase (decrease) in
intercompany obligations........ 57 40 (97) -- --
Dividends (common)................ -- -- (51) -- (51)
---- ---- ---- ---- ----
Net cash provided (used) by
financing activities............ 57 35 40 -- 132
---- ---- ---- ---- ----
Effect of foreign exchange rate
changes on cash and temporary
cash investments................ -- (2) -- -- (2)
---- ---- ---- ---- ----
Increase (decrease) in cash and
temporary cash investments...... -- 2 -- -- 2
Cash and temporary cash
investments, January 1.......... 1 25 3 -- 29
---- ---- ---- ---- ----
Cash and temporary cash
investments, March 31 (Note).... $ 1 $ 27 $ 3 $ -- $ 31
==== ==== ==== ==== ====
</TABLE>

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

NOTE: Cash and temporary cash investments 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.)

21
<PAGE> 22

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

On November 4, 1999, Tenneco Inc. completed the spin-off of its packaging
business, to shareholders leaving the automotive business as the sole remaining
operating segment. Following the spin-off, Tenneco Inc. changed its name to
Tenneco Automotive Inc. In this Management's Discussion and Analysis, when we
discuss Tenneco we mean Tenneco Inc. and its consolidated subsidiaries before
the spin-off and Tenneco Automotive Inc. and its consolidated subsidiaries after
the spin-off.

As you read the following review of our financial condition and results of
operations, you should also read our financial statements and related notes
beginning on page 4.

Background of the Spin-off Transaction

In July 1998, the Board of Directors authorized management to develop a
broad range of strategic alternatives to separate the automotive, paperboard
packaging, and specialty packaging businesses. Subsequently, we completed the
following actions:

- On November 4, 1999, We completed the spin-off of Tenneco Packaging Inc.,
now known as Pactiv Corporation, to our shareholders. Pactiv included all
of the businesses that made up our specialty packaging operating segment
as well as our remaining interest in the containerboard joint venture and
our administrative services operations.

As a result of this series of transactions, our former specialty and
paperboard packaging operating segments are presented as discontinued operations
in the accompanying financial statements. Note 3 to the financial statements
contains more information about our discontinued operations.

Before the spin-off, we realigned substantially all of our existing debt
through a combination of tender offers, exchange offers, and other refinancings.
To finance the debt realignment we borrowed under new credit facilities and
issued subordinated debt. Pactiv also borrowed under new credit facilities and
issued new publicly traded Pactiv debt in exchange for certain series of our
publicly traded debt that was outstanding before the debt realignment. Note 2 to
the financial statements contains more information about our debt and the debt
realignment.

22
<PAGE> 23

Results from Continuing Operations

Net Sales and Operating Revenues

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
North America........................................... $514 $417 23%
Europe.................................................. 294 312 (6)
Rest of World........................................... 74 60 23
---- ----
$882 $789 12
==== ====
</TABLE>

The increase in revenues from our North American operations is primarily
due to the strong North American original equipment manufacturers build rate and
the change we made in the first quarter of 2000 with respect to how we record
"pass through" catalytic converter sales.

Excluding this change, revenues from our North American original equipment
market increased 16 percent from the first quarter of 1999 to the same period in
2000. This increase is due primarily to exceptionally strong original equipment
manufacturer production levels combined with our position on many top-selling
light truck platforms. Revenues from our North American aftermarket business
increased by $2 million in the first quarter of 2000 from the same period in
1999. Ride control sales to aftermarket customers increased 7 percent to $78
million primarily as a result of the introduction of our new premium Monroe
Reflex(R) shock, which we began shipping to customers in November, 1999. This
increase was partially offset by a 6 percent decrease to $54 million in exhaust
sales to aftermarket customers due to the ongoing impact of declining
replacement rates in the industry.

European revenues decreased $18 million from the first quarter of 1999 to
the first quarter of 2000 primarily due to the depreciation of the European
currencies with respect to the US dollar. If foreign exchange rates had been the
same during the first quarter of 2000 as they were in the first quarter of 1999,
then our European revenues would have increased 4 percent. Higher exhaust unit
sales to Peugeot, Volkswagen, Porsche and other European original equipment
manufacturers increased revenues by $22 million. Excluding the currency impact,
European aftermarket revenues decreased 6 percent in the first quarter of 2000
from the same period in 1999. The impact from the overall weakness in the
Western European aftermarket and an unfavorable mix shift from higher margin
premium branded products to lower margin entry level branded products was
partially offset by the recovery in Russia and in Eastern Europe.

Revenues from our operations in the rest of the world increased 21 percent
in the first quarter of 2000 from the same period in the prior year. If South
American foreign exchange rates had been the same during the first quarter of
2000 as they were in the first quarter of 1999, then revenues from our South
American operations would have increased 42 percent in the first quarter.
Increased aftermarket ride control product volumes and new original equipment
exhaust product launches contributed $7 million of the increase in South
American revenues. Revenues from our Australian operations in the first quarter
of 2000 were essentially flat in comparison to the same period in the prior year
while revenues from our Asian operations increased by

23
<PAGE> 24

38 percent to $11 million during the quarter due to higher unit volume sales to
both original equipment and aftermarket customers in China and Indonesia.

Income Before Interest Expense, Income Taxes, and Minority Interest
("EBIT")

We reported EBIT of $47 million in the first quarter of 2000, compared to
$55 million in the same period in 1999. Reported results include costs and
charges, shown in the following table, that have an effect on comparability of
the results. Therefore, we isolated these costs and charges, consisting of stand
alone company expenses from the reported results for the first quarter of 2000.
To more effectively compare our operating results by segment, we will discuss
"Operating Units Results" from 2000 compared to the "Reported Results" from
1999. The stand alone company expenses are explained in more detail following
the discussion of our automotive operating units results in the sub-section -
"Stand-Alone Company Expenses."

In the following section, we discuss our operating units results excluding
"stand-alone" expenses. Those results are shown by segment in the following
table:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------
2000 1999 % CHANGE
------------------------------- -------- --------
STAND OPERATING
REPORTED ALONE UNITS REPORTED
RESULTS EXPENSES RESULTS RESULTS
-------- -------- --------- --------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
North America.................................. $34 $ 9 $43 $34 26%
Europe......................................... 11 4 15 26 (42)
Rest of World.................................. 2 1 3 (3) NM
Previously unallocated Tenneco Inc. expenses... -- -- -- (2) NM
--- --- --- ---
$47 $14 $61 $55 9
=== === === ===
</TABLE>

Our North American EBIT improved 26 percent to $43 million in the first
quarter of 2000 compared to the same period in the prior year. Higher
aftermarket ride control volumes reflecting the launch of our new premium Monroe
Reflex product and higher original equipment manufacturer production contributed
$8 million of this increase. This was offset by unfavorable pricing and a mix
shift from higher margin product sales to lower margin product sales in both our
original equipment and aftermarket businesses, which reduced EBIT by $9 million.
We also incurred a $3 million one-time cost associated with the closing our
Culver, Indiana OE exhaust plant during the first quarter of 2000. These costs
include activities such as the relocation of equipment and employee training
programs that we could not accrue as restructuring costs. Lower fixed costs and
savings realized from the 1998 restructuring program in our aftermarket
operations contributed the remainder of the EBIT improvement.

EBIT from our European operations decreased by 42 percent to $15 million in
the first quarter of 2000. Lower aftermarket sales in the first quarter of 2000
decreased EBIT by $6 million. We also incurred $3 million in higher
manufacturing costs and $1 million in higher distribution costs due to customer
demand for more frequent deliveries from our aftermarket exhaust operations.
Increased original equipment manufacturer volumes and benefits from lean
manufacturing and total quality initiatives were more than offset by unfavorable
mix and higher steel costs. Currency weakness in Europe also decreased operating
results by $2 million. Similar to North America, we also incurred a $1 million
one-time cost in the first quarter of 2000 related to the restructuring actions
we announced in the fourth quarter of 1999.

EBIT from our operations in South America, Australia and Asia improved in
the first quarter of 2000 to $3 million compared to a loss of $3 million in the
first quarter of the prior year. Excluding the $4 million foreign currency
transaction loss that we incurred during the first quarter of 1999 in our
Brazilian operations, EBIT increased $2 million. Price reductions to original
equipment manufacturers and unfavorable mix were offset by stronger aftermarket
volumes in the emerging markets of South America and Asia.

24
<PAGE> 25

EBIT as a Percentage of Revenue

The following table shows EBIT as a percentage of revenue by segment. This
EBIT percentage for the first quarter 2000 is calculated after excluding the
stand alone expenses described below under "Stand-Alone Company Expense".

<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31,
-----------
2000 1999
---- ----
<S> <C> <C>
North America............................................... 8% 8%
Europe...................................................... 5% 8%
Rest of World............................................... 4% (5)%
Total Tenneco Automotive.......................... 7% 7%
</TABLE>

In North America, EBIT as a percentage of revenue was relatively unchanged.
Excluding the $50 million increase in revenues associated with the change in
revenue recognition of pass-through catalytic converter sales, EBIT as a
percentage of revenue would have been 9 percent. This increase is due primarily
to increased operating efficiencies in the aftermarket operations as a result of
the 1998 restructuring program and increased management focus on lowering our
cost structure. European EBIT as a percentage of revenue decreased primarily due
to lower aftermarket sales and unfavorable mix changes in both market channels.
The improvement in EBIT margin from our operations in the rest of the world was
due primarily to the $4 million foreign currency transaction loss that we
incurred during the first quarter of 1999 in our Brazilian operations.

"Stand-Alone" Company Expense

We incurred $14 million of costs in the first quarter of 2000 associated
with being a "stand-alone" company that are not reflected in the reported
results from the first quarter of 1999. To improve comparability between the
first quarters of 2000 and 1999, these costs have been identified and explained
separately since they were not included in the 1999 results.

These costs include the addition of functions necessary for Tenneco
Automotive to operate as a public company as well as administrative costs for
information technology and payroll and accounts payable services. We receive
these information technology and payroll and accounts payable services from
Pactiv under a contractual agreement entered into in connection with the
spin-off of the packaging business. We currently estimate these stand-alone
company expenses will be approximately $54 million annually. Of that amount,
approximately $40 million relates to the services received under the contract
with Pactiv. The contract extends for 24 months from the date of the spin-off.
Subsequent to the spin-off Pactiv sold the payroll and accounts payable
functions to a third party who will continue to provide those services under
terms similar to the Pactiv arrangements, except that the term has been extended
for an additional year.

Interest Expense, Net of Interest Capitalized

We reported interest expense for our continuing operations of $45 million
during the first quarter of 2000, compared to $19 million during the same period
in 1999. Interest expense allocated to discontinued operations was $44 million
in 1999. The increase in our total interest expense is due primarily to our
higher debt levels as a result of the spin-off of Pactiv last year. The new debt
structure is explained in more detail in "Liquidity and Capital Resources" later
in this Management's Discussion.

Income Taxes

Our effective tax rate during the first quarter of 1999 was 38 percent.
Taxes in the first quarter of 2000, were a $1 million tax benefit. This reflects
tax expenses offset by a benefit related to state taxes.

25
<PAGE> 26

Earnings Per Share

Earnings from continuing operations per diluted common share were $.03 for
the first quarter of 2000 compared to $.47 per diluted common share in the prior
period. In the first quarter of 1999, we incurred a loss of $4.99 per diluted
common share from discontinued operations and an extraordinary loss of $.20 per
diluted common share due to the retirement of debt in connection with the sale
of the containerboard assets. We also recorded an after-tax charge of $4.00 per
diluted common share due to the cumulative effect of the changes in accounting
with respect to start-up activities and customer acquisition costs. You should
read Note 8 in the "Notes to Financial Statements" for more information.

Option Purchase Offer

On May 8, 2000, we initiated an offer to purchase from our employees stock
options covering about 7 million shares of our common stock. These old stock
options were issued before the spin-off of Pactiv, primarily from 1996 to 1998,
by the prior management of Tenneco Inc. By the time of the spin-off and the
change in management of our company, the exercise prices of these options had
become substantially lower than the market price of Tenneco Inc.'s common stock.
Upon the spin-off, these options held by continuing employees of our automotive
operations were adjusted to maintain their economic value after giving effect to
that transaction. Accordingly, as a newly independent stand-alone public company
we emerged with a substantial number of underwater stock options. In order to be
in a position to more effectively manage our outstanding equity in the future,
we initiated the purchase offer. We will record a charge and make cash payments
for the cost of this program. The cost of the program depends upon how many of
the options we are able to purchase; if all options are purchased, the cost will
be about $14 million before taxes.

Restructuring Charges

We adopted plans to restructure portions of our operations in both 1998 and
1999. In the fourth quarter of 1998, our Board of Directors approved an
extensive restructuring plan designed to reduce administrative and operational
overhead costs. We recorded a pre-tax charge to income from continuing
operations in that quarter of $53 million, $34 million after-tax, or $1.02 per
diluted common share. Of the pre-tax charge, for operational restructuring
plans, $36 million related to the consolidation of the manufacturing and
distribution operations of our North American aftermarket business. A staff and
related cost reduction plan, which covered employees in both the operating units
and corporate operations, cost $17 million.

As of March 31, 2000, we have completed the restructuring actions with
respect to the 1998 plan, with the exception of the final disposal of certain
assets and final payment of some severance benefits. The North American
aftermarket business closed one plant location and one distribution center in
the first quarter, except for one production line which remains open at our
customer's request. This line will be shut down during the third quarter of
2000. All positions expected to be eliminated as a result of the plan have been
eliminated.

26
<PAGE> 27

ing facility; and $3 million for employment reductions in South America and
Asia. In total, the plan involves eliminating approximately 780 positions. We
wrote down the fixed assets at the locations to be closed to their fair value,
less costs to sell, in the fourth quarter of 1999. We estimated the fair value
for buildings using external real estate valuations or a review of recent sales
prices for like buildings in the area surrounding the plant to be closed. As a
result of the single-purpose nature of the machinery and equipment to be
disposed of, fair value was estimated at scrap value less cost to dispose in
most cases. For certain machines which have value in the used equipment market,
engineers estimated value based on recent sales of like machines. We expect to
receive net cash proceeds of approximately $11 million when we dispose of these
assets. The effect of suspending depreciation for these impaired assets is a
reduction in depreciation and amortization expense of approximately $3 million
on an annual basis. We expect to complete all restructuring activities by the
middle of 2001.

As of March 31, 2000, approximately 485 employees have been terminated
under the 1999 plan. These reductions happened primarily at the North American
exhaust manufacturing facility which was closed during the first quarter. All
restructuring actions are being completed in accordance with our initial
restructuring plan.

Amounts related to the 1998 and 1999 restructuring plans are shown in the
following table:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 2000 MARCH 31, 2000
RESTRUCTURING CASH RESTRUCTURING
RESERVE PAYMENTS RESERVE
----------------- -------- --------------
<S> <C> <C> <C>
Severance............................ $26 $ 3 $23
Facility exit costs.................. 2 1 1
--- --- ---
$28 $ 4 $24
=== === ===
</TABLE>

Changes in Accounting Principles

In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement was effective for fiscal years beginning after
December 15, 1998. The statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Prior to January 1, 1999, we
capitalized certain costs related to start-up activities, primarily
pre-production design and development costs for new original equipment
automobile platforms. We adopted SOP 98-5 on January 1, 1999, and recorded an
after-tax charge for the cumulative effect of this change in accounting
principle of $102 million (net of a $50 million tax benefit), or $3.05 per
diluted common share.

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" This statement establishes new
accounting and reporting standards requiring that all derivative instruments,
including derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting treatment. This statement cannot
be applied retroactively and is effective for all fiscal years beginning after
June 15, 2000. We are currently evaluating the new standard and have not yet
determined the impact it will have on our financial positions or results of
operations.

27
<PAGE> 28

industry competitors. We recorded an after-tax charge for the cumulative effect
of this change in accounting principle of $32 million (net of a $22 million tax
benefit), or $.95 per diluted common share.

Liquidity and Capital Resources

Capitalization

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999 % CHANGE
--------- ------------ --------
<S> <C> <C> <C>
Short term debt and current maturities......... $ 77 $ 56 38%
Long term debt................................. 1,571 1,578 0
------ ------
Total debt..................................... 1,648 1,634 1
------ ------
Total minority interest........................ 17 16 6
Common shareowners' equity..................... 393 422 (7)
------ ------
Total capitalization........................... 2,058 2,072 (1)
</TABLE>

At March 31, 2000, we had no borrowing under our revolving credit facility.
Our short-term debt relates primarily to borrowings by foreign subsidiaries. Our
long-term debt balance consists of borrowings made under new credit agreements
described below to facilitate the debt realignment, as well as approximately $21
million of debt that was not retired in the cash tender and exchange offers
associated with the spin-off of Pactiv. We believe that cash flows from
operations, combined with available borrowing capacity described above, will
generally be sufficient to meet our future capital requirements for the
following year.

Our equity was reduced by $29 million during the first quarter of 2000
primarily due to cumulative translation adjustments resulting from the strong US
dollar.

As part of the realignment of debt that was required in order to complete
the spin-off, on September 30, 1999, we entered into a $1.55 billion committed
senior secured financing arrangement with a syndicate of banks and other
financial institutions consisting of: (i) a $500 million, six year revolving
credit facility; (ii) a $450 million six year term loan; (iii) a $300 million
eight year term loan and; (iv) a $300 million eight and one half year term loan.
A portion of each term loan is payable in quarterly installments beginning
September 30, 2001. Borrowings under this facility bear interest at an annual
rate equal to, at the borrower's option, either (i) the London Interbank
Offering Rate plus a margin of 275 basis points for the six year revolving
credit facility and the six year term loan, 325 basis points for the eight year
term loan and 350 basis points for the eight and one half year term loan; or
(ii) a rate consisting of the greater of The Chase Manhattan Bank's prime rate
or the Federal Funds rate plus 50 basis points, plus a margin of 175 basis
points for the six year revolving credit facility and the six year term loan,
225 basis points for the eight year term loan and 250 basis points for the eight
and one half year term loan. Under the provisions of the senior credit facility
agreement, the interest margins for borrowings under the revolving credit
facility and the six year term loan may be adjusted based on the consolidated
leverage ratio (total debt divided by consolidated earnings before interest,
taxes, depreciation and amortization ("EBITDA") as defined in the senior credit
facility agreement) measured at the end of each quarter starting with the fiscal
quarter ending December 31, 2000.

The senior credit facility agreement requires that we initially maintain:
(i) a consolidated leverage ratio (consolidated indebtedness divided by
consolidated EBITDA) not greater than 4.75; (ii) a consolidated interest
coverage ratio (consolidated EBITDA divided by consolidated interest expense)
not less than 2.00; and (iii) a consolidated fixed charge coverage ratio
(consolidated EBITDA less consolidated capital expenditures, divided by
consolidated interest expense) not less than 1.00. Under the terms of the senior
credit facility agreement, the maximum permitted consolidated leverage ratio
will decrease beginning in the year 2001, the minimum permitted consolidated
interest coverage ratio will increase beginning in the year 2001 and the minimum
permitted consolidated fixed charge coverage ratio will increase beginning in
the year 2002. The senior credit facility agreement also contains restrictions
on our operations that are customary for similar facilities, including
limitations on: (a) incurring additional liens; (b) sale and leaseback
transactions; (c) liquidations and dissolutions (d) incurring additional
indebtedness or guarantees; (e) capital expenditures; (f) dividends; (g) mergers
and consolidations; and (h) prepayments and modifications of subordinated and

28
<PAGE> 29

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.

On October 14, 1999, we issued $500 million of 11 5/8% Senior Subordinated
Notes due 2009. The senior subordinated debt indenture requires that we, as a
condition to incurring certain types of indebtedness not otherwise permitted,
initially maintain an interest coverage ratio of not less than 2.00. Under the
terms of the indenture, the minimum interest coverage ratio will increase
beginning in 2001. The indenture also contains restrictions on our operations,
including limitations on: (1) incurring additional indebtedness or liens; (2)
dividends; (3) distributions and stock repurchases; (4) investments; and (5)
mergers and consolidations.

Cash Flows

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------
2000 1999
---- -----
<S> <C> <C>
Cash provided (used) by:
Operating activities--continuing operations............... $ (4) $ (52)
Investing activities--continuing operations............... (36) (27)
Financing activities...................................... 11 132
</TABLE>

Operating Activities

Cash used by continuing operating activities improved by $48 million for
the first quarter of 2000 compared to the same period in the prior year. This
improvement was driven primarily by increased focus on working capital which we
reduced by $43 million in comparison to the same period last year. At the end of
the first quarter of 1999, we factored $78 million accounts receivable compared
to $9 million at the end of the first quarter of 2000.

Cash provided by our discontinued specialty and paperboard packaging
operations was $1 million in the first quarter of 1999.

Investing Activities

Cash used by investing activities for continuing operations was $9 million
higher in the first quarter of 2000 compared to the same period in 1999. Capital
expenditures were relatively flat at $34 million in 2000 compared to $33 million
in 1999.

Cash used by investments in discontinued operations were $50 million in the
first quarter of 1999. The primary use of cash for investments in discontinued
operations in 1999 was capital expenditures for plant, property and equipment.

Financing Activities

Cash provided by financing activities was $11 million in the first quarter
of 2000. This includes a $13 million increase in short-term debt, offset by a $2
million dividend payment to our common stock shareholders.

Cash provided by financing activities was $132 million in the first quarter
of 1999. Of this amount, $51 million was distributed to our common stock
shareholders as dividends. The majority of the difference was related to the
paperboard transactions and pre-spin-off related activities.

Interest Rate Risk

Under the terms of our senior credit facility agreement, we are required to
hedge our exposure to floating interest rates within 180 days following the
spin-off so that at least 50 percent of our long-term debt is fixed for

29
<PAGE> 30

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 satisfy the interest rate hedging requirement of
the senior credit facility agreement. Therefore, we effectively have $800
million long-term debt obligations that have fixed interest rates and $750
million long-term debt obligations that have variable interest rates based on a
current market rate of interest.

Euro Conversion

The European Monetary Union resulted in the adoption of a common currency,
the "Euro," among eleven European nations. The Euro is being adopted over a
three-year transition period beginning January 1, 1999. In October 1997, Tenneco
established a cross-functional Euro Committee, comprised of representatives of
the Company's operational divisions as well as its corporate offices. That
Committee had two principal objectives: (1) to determine the impact of the Euro
on Our business operations, and (2) to recommend and facilitate implementation
of those steps necessary to ensure that Tenneco would be fully prepared for the
Euro's introduction. As of January 1, 1999, Tenneco implemented those Euro
conversion procedures that it had determined to be necessary and prudent to
adopt by that date, and is on track to becoming fully "Euro ready" on or before
the conclusion of the three-year Euro transition period. Tenneco believes that
the costs associated with transitioning to the Euro will not be material to its
consolidated financial position or the results of its operations.

Environmental and Other Matters

We and some of our subsidiaries and affiliates are parties to environmental
proceedings. 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 experience 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. We report these liabilities in the balance sheet 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.

At March 31, 2000, we had been designated as a potentially responsible
party in four Superfund sites. We have estimated our share of the remediation
costs for these sites to be approximately $1 million in the aggregate. In
addition to the Superfund sites, we may have the obligation to remediate current
or former facilities, and we estimate our share of remediation costs at these
facilities to be approximately $14 million. For both 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 has been considered, where appropriate, in our determination of our
estimated liability. We believe that the 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
consolidated financial position or results of operations.

30
<PAGE> 31

Discontinued Operations and Extraordinary Loss

Revenues and income for the paperboard packaging discontinued operations
are shown in the following table. In the first quarter of 1999, we recorded a
charge of $293 million related to a loss on the sale of the containerboard
business.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999
----
<S> <C>
Net sales and operating revenues......................... $ 392
-----
Income before income taxes and interest allocation
Operations.......................................... $ 18
Loss on containerboard sale......................... $(293)
-----
$(275)
Income tax (expense) benefit............................. 108
-----
Income before interest allocation........................ (167)
Allocated interest expense, net of income tax............ (5)
-----
Loss from discontinued operations........................ $(172)
=====
</TABLE>

Revenues and income for the discontinued specialty packaging business and
administrative services operations are shown in the following table.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999
----
<S> <C>
Net sales and operating revenues...................... $666
----
Income before income taxes and interest allocation.... 45
Income tax (expense) benefit.......................... (16)
----
Income before interest allocation..................... 29
Allocated interest expense, net of income tax......... (23)
----
Income (loss) from discontinued operations............ $ 6
====
</TABLE>

31
<PAGE> 32

ITEM 3. QUALITATIVE AND QUANTITATIVE 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.

32
<PAGE> 33

PART II

OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

On May 9, 2000, our stockholders approved an amendment to our restated
certificate of incorporation, as amended. This amendment, which became effective
on May 9, 2000, reduced the number of authorized shares of our common stock from
350,000,000 to 135,000,000. The principal effect of the amendment was to reduce
the number of authorized but unissued shares of common stock which we may issue
in the future. As of March 17, 2000, we had 316,021,442 shares of common stock
available for future issuance (in addition to 1,294,773 shares of common stock
held in treasury and available for future sale). If the amendment had become
effective on March 17, 2000, we would have had approximately 101,021,442 shares
of common stock available for future issuance (in addition to the 1,294,773
shares of common stock held in treasury and available for future sale), based on
issued share amounts as of March 17, 2000.

ITEM 5. OTHER INFORMATION.

We held our annual stockholders' meeting on May 9, 2000 to consider and
vote on three separate proposals: (i) a proposal to elect Mark Andrews and David
B. Price, Jr. as directors of our company for a term expiring at our next annual
stockholders' meeting, (ii) a proposal to ratify our selection of Arthur
Andersen LLP as our independent accountants for the year ending December 31,
2000, and (iii) a proposal to amend our certificate of incorporation to reduce
our number of authorized shares of common stock from 350 million to 135 million.
The meeting proceeded and all proposals were approved by the requisite vote of
the holders of our outstanding common stock. The following sets forth the vote
results with respect to these proposals at the meeting:

ELECTION OF DIRECTORS

<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
--------- --------------
<S> <C> <C>
Mark Andrews........................ 27,989,542 645,430
David B. Price, Jr.................. 28,053,800 581,172
</TABLE>

RATIFICATION OF ARTHUR ANDERSEN LLP

<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAIN
--------- ------------- -------------
<S> <C> <C>
28,431,435 145,155 58,382
</TABLE>

AMENDMENT TO CERTIFICATE OF INCORPORATION TO REDUCE AUTHORIZED COMMON STOCK

<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAIN
--------- ------------- -------------
<S> <C> <C>
28,235,810 272,887 126,275
</TABLE>

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. None.

33
<PAGE> 34

SIGNATURE

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

TENNECO AUTOMOTIVE INC.

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

May 15, 2000

34
<PAGE> 35

INDEX TO EXHIBITS
TO
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 2000

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2 -- Distribution Agreement by and between the registrant and
Tenneco Packaging Inc. dated November 3, 1999 (incorporated
herein by reference to Exhibit 2 to the registrant's Current
Report on Form 8-K dated November 4, 1999, File No.
1-12387).
3.1(a) -- Restated Certificate of Incorporation of the registrant
dated December 11, 1996 (incorporated herein by reference
from Exhibit 3.1(a) of the registrant's Annual Report on
Form 10-K for the year ended December 31, 1997, File No.
1-12387).
3.1(b) -- Certificate of Amendment, dated December 11, 1996
(incorporated herein by reference from Exhibit 3.1(c) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12387).
3.1(c) -- Certificate of Ownership and Merger, dated July 8, 1997
(incorporated herein by reference from Exhibit 3.1(d) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12387).
3.1(d) -- Certificate of Designation of Series B Junior Participating
Preferred Stock dated September 9, 1998 (incorporated herein
by reference from Exhibit 3.1(d) of the registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 1-12387).
3.1(e) -- Certificate of Elimination of the Series A Participating
Junior Preferred Stock of the registrant dated September 11,
1998 (incorporated herein by reference from Exhibit 3.1(e)
of the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, File No. 1-12387).
3.1(f) -- Certificate of Amendment to Restated Certificate of
Incorporation of the registrant dated November 5, 1999
(incorporated herein by reference from Exhibit 3.1(f) of the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-12387).
3.1(g) -- Certificate of Amendment to Restated Certificate of
Incorporation of the registrant dated November 5, 1999
(incorporated herein by reference from Exhibit 3.1(g) of the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-12387).
3.1(h) -- Certificate of Ownership and Merger merging Tenneco
Automotive Merger Sub Inc. with and into the registrant,
dated November 5, 1999 (incorporated herein by reference
from Exhibit 3.1(h) of the registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999, File No.
1-12387).
*3.1(i) -- Certificate of Amendment to Restated Certificate of
Incorporation of the registrant dated May 9, 2000.
3.2(a) -- By-laws of the registrant, as amended March 14, 2000
(incorporated herein by reference from Exhibit 3.2(a) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1999, File No. 1-12387).
3.3 -- Certificate of Incorporation of Tenneco Global Holdings Inc.
("Global"), as amended (incorporated herein by reference to
Exhibit 3.3 to the registrant's Registration Statement on
Form S-4, Reg. No. 333-93757).
3.4 -- By-laws of Global (incorporated herein by reference to
Exhibit 3.4 to the registrant's Registration Statement on
Form S-4, Reg. No. 333-93757).
3.5 -- Certificate of Incorporation of TMC Texas Inc. ("TMC")
(incorporated herein by reference to Exhibit 3.5 to the
registrant's Registration Statement on Form S-4, Reg. No.
333-93757).
</TABLE>

35
<PAGE> 36

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
3.6 -- By-laws of TMC (incorporated herein by reference to Exhibit
3.6 to the registrant's Registration Statement on Form S-4,
Reg. No. 333-93757).
3.7 -- Amended and Restate Certificate of Incorporation of Tenneco
International Holding Corp. ("TIHC") (incorporated herein by
reference to Exhibit 3.7 to the registrant's Registration
Statement on Form S-4, Reg. No. 333-93757).
3.8 -- Amended and Restated By-laws of TIHC (incorporated herein by
reference to Exhibit 3.8 to the registrant's Registration
Statement on Form S-4, Reg. No. 333-93757).
3.9 -- Certificate of Incorporation of Clevite Industries Inc.
("Clevite"), as amended (incorporated herein by reference to
Exhibit 3.9 to the registrant's Registration Statement on
Form S-4, Reg. No. 333-93757).
3.10 -- By-laws of Clevite (incorporated herein by reference to
Exhibit 3.10 to the registrant's Registration Statement on
Form S-4, Reg. No. 333-93757).
3.11 -- Amended and Restated Certificate of Incorporation of the
Pullman Company ("Pullman") (incorporated herein by
reference to Exhibit 3.11 to the registrant's Registration
Statement on Form S-4, Reg. No. 333-93757).
3.12 -- By-laws of Pullman (incorporated herein by reference to
Exhibit 3.12 to the registrant's Registration Statement on
Form S-4, Reg. No. 333-93757).
3.13 -- Certificate of Incorporation of Tenneco Automotive Operating
Company Inc. ("Operating") (incorporated herein by reference
to Exhibit 3.13 to the registrant's Registration Statement
on Form S-4, Reg. No. 333-93757).
3.14 -- By-laws of Operating (incorporated herein by reference to
Exhibit 3.14 to the registrant's Registration Statement on
Form S-4, Reg. No. 333-93757).
4.1(a) -- Rights Agreement dated as of September 8, 1998, by and
between the registrant and First Chicago Trust Company of
New York, as Rights Agent (incorporated herein by reference
from Exhibit 4.1 of the registrant's Current Report on Form
8-K dated September 24, 1998, File No. 1-12387).
4.1(b) -- Amendment No. 1 to Rights Agreement, dated March 14, 2000,
by and between the registrant and First Chicago Trust
Company of New York, as Rights Agent (incorporated herein by
reference from Exhibit 4.1(b) of the registrant's Annual
Report on Form 10-K for the year ended December 31, 1999,
File No. 1-12387).
4.2(a) -- Indenture, dated as of November 1, 1996, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.1 of the
registrant's Registration Statement on Form S-4,
Registration No. 333-14003).
4.2(b) -- First Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between registrant
and The Chase Manhattan Bank, as Trustee (incorporated
herein by reference from Exhibit 4.3(b) of the registrant's
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
4.2(c) -- Second Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.3(c) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
4.2(d) -- Third Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.3(d) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
</TABLE>

36
<PAGE> 37

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
4.2(e) -- Fourth Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.3(e) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
4.2(f) -- Fifth Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.3(f) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
4.2(g) -- Sixth Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.3(g) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
4.2(h) -- Seventh Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.3(h) of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
4.2(i) -- Eighth Supplemental Indenture, dated as of April 28, 1997,
to Indenture, dated as of November 1, 1996 between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.1 of the
registrant's Current Report on Form 8-K dated April 23,
1997, File No. 1-12387).
4.2(j) -- Ninth Supplemental Indenture, dated as of April 28, 1997, to
Indenture, dated as of November 1, 1996, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.2 of the
registrant's Current Report on Form 8-K dated April 23,
1997, File No. 1-12387).
4.2(k) -- Tenth Supplemental Indenture, dated as of July 16, 1997, to
Indenture, dated as of November 1, 1996, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.1 of the
registrant's Current Report on Form 8-K dated June 11, 1997,
File No. 1-12387).
4.2(l) -- Eleventh Supplemental Indenture, dated October 21, 1999, to
Indenture dated November 1, 1996 between The Chase Manhattan
Bank, as Trustee, and the registrant (incorporated herein by
reference from Exhibit 4.2(l) of the registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-12387).
4.3 -- Specimen stock certificate for Tenneco Automotive Inc.
common stock (incorporated herein by reference from Exhibit
4.3 of the registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, File No. 1-12387).
4.4(a) -- Indenture dated October 14, 1999 by and between the
registrant and The Bank of New York, as trustee
(incorporated herein by reference from Exhibit 4.4(a) of the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-12387).
4.4(b) -- Supplemental Indenture dated November 4, 1999 among Tenneco
Automotive Operating Subsidiary Inc. (formerly Tenneco
Automotive Inc.), Tenneco International Holding Corp.,
Tenneco Global Holdings Inc., the Pullman Company and
Clevite Industries Inc. in favor of The Bank of New York, as
trustee (incorporated herein by reference from Exhibit
4.4(b) of the registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, File No. 1-12387).
</TABLE>

37
<PAGE> 38

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
4.4(c) -- Subsidiary Guarantee dated as of October 14, 1999 from
Tenneco Automotive Operating Subsidiary Inc. (formerly
Tenneco Automotive Inc.), Tenneco International Holding
Corp., Tenneco Global Holdings Inc., the Pullman Company,
Clevite Industries Inc. and TMC Texas Inc. in favor of The
Bank of New York, as trustee (incorporated herein by
reference to Exhibit 4.4(c) to the registrant's Registration
Statement on Form S-4, Reg. No. 333-93757).
4.5(a) -- Credit Agreement, dated as of September 30, 1999, among the
registrant, the Lenders named therein, Commerzbank and Bank
of America, N.A., Citicorp USA, Inc. and The Chase Manhattan
Bank (incorporated herein by reference from Exhibit 4.5(a)
of the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-12387).
10.1 -- Distribution Agreement, dated November 1, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), the
registrant, and Newport News Shipbuilding Inc. (incorporated
herein by reference from Exhibit 2 of the registrant's Form
10, File No. 1-12387).
10.2 -- Amendment No. 1 to Distribution Agreement, dated as of
December 11, 1996, by and among El Paso Tennessee Pipeline
Co. (formerly Tenneco Inc.), the registrant, and Newport
News Shipbuilding Inc. (incorporated herein by reference
from Exhibit 10.2 of the registrant's Annual Report on Form
10-K for the year ended December 31, 1996, File No.
1-12387).
10.3 -- Debt and Cash Allocation Agreement, dated December 11, 1996,
by and among El Paso Tennessee Pipeline Co. (formerly
Tenneco Inc.), the registrant, and Newport News Shipbuilding
Inc. (incorporated herein by reference from Exhibit 10.3 of
the registrant's Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-12387).
10.4 -- Benefits Agreement, dated December 11, 1996, by and among El
Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), the
registrant, and Newport News Shipbuilding Inc. (incorporated
herein by reference from Exhibit 10.4 of the registrant's
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
10.5 -- Insurance Agreement, dated December 11, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), the
registrant, and Newport News Shipbuilding Inc. (incorporated
herein by reference from Exhibit 10.5 of the registrant's
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
10.6 -- Tax Sharing Agreement, dated December 11, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.),
Newport News Shipbuilding Inc., the registrant, and El Paso
Natural Gas Company (incorporated herein by reference from
Exhibit 10.6 of the registrant's Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
10.7 -- First Amendment to Tax Sharing Agreement, dated as of
December 11, 1996, among El Paso Tennessee Pipeline Co.
(formerly Tenneco Inc.), the registrant and Newport News
Shipbuilding Inc. (incorporated herein by reference from
Exhibit 10.7 of the registrant's Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
10.8 -- Tenneco Automotive Inc. Executive Incentive Compensation
Plan (incorporated herein by reference from Exhibit 10.8 of
the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-12387).
10.9 -- Tenneco Automotive Inc. Change of Control Severance Benefits
Plan for Key Executives (incorporated herein by reference
from Exhibit 10.13 of the registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999, File No.
1-12387).
10.10 -- Tenneco Automotive Inc. Stock Ownership Plan (incorporated
herein by reference from Exhibit 10.10 of the registrant's
Registration Statement on Form S-4, Reg. No. 333-93757).
10.11 -- Tenneco Automotive Inc. Key Executive Pension Plan
(incorporated herein by reference from Exhibit 10.15 of the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-12387).
</TABLE>

38
<PAGE> 39

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.12 -- Tenneco Automotive Inc. Deferred Compensation Plan
(incorporated herein by reference from Exhibit 10.16 of the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-12387).
10.13 -- Tenneco Automotive Inc. Supplemental Executive Retirement
Plan (incorporated herein by reference from Exhibit 10.17 of
the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-12387).
10.14 -- Release Agreement dated as of October 18, 1999 by and
between Dana G. Mead and Tenneco Management Company and
Modification of Release Agreement dated as of October 18,
1999 among Dana G. Mead, Tenneco Automotive Inc. and Tenneco
Management Company (incorporated herein by reference from
Exhibit 10.18 of the registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999, File No.
1-12387).
10.15 -- Release Agreement dated as of September 17, 1999 by and
between Robert T. Blakely and Tenneco Management Company and
Modification of Release Agreement dated as of September 17,
1999 among Robert T. Blakely, Tenneco Automotive Inc. and
Tenneco Management Company (incorporated herein by reference
from Exhibit 10.15 to the registrant's Annual Report on Form
10-K for the year ended December 31, 1999, File No.
1-12387).
10.16 -- Agreement, dated as of April 12, 1999, among the registrant,
Tenneco Management Company, Tenneco Packaging Inc. and Paul
T. Stecko (incorporated herein by reference from Exhibit
10.30 of the registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, File No. 1-12387).
10.17 -- Human Resources Agreement by and between Tenneco Automotive
Inc. and Tenneco Packaging Inc. dated November 4, 1999
(incorporated herein by reference to Exhibit 99.1 to the
registrant's Current Report on Form 8-K dated November 4,
1999, File No. 1-12387).
10.18 -- Tax Sharing Agreement by and between Tenneco Automotive Inc.
and Tenneco Packaging Inc. dated November 3, 1999
(incorporated herein by reference to Exhibit 99.2 to the
registrant's Current Report on Form 8-K dated November 4,
1999, File No. 1-12387).
10.19 -- Amended and Restated Transition Services Agreement by and
between Tenneco Automotive Inc. and Tenneco Packaging Inc.
dated as of November 4, 1999 (incorporated herein by
reference from Exhibit 10.21 of the registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-12387).
10.20 -- Purchase Agreement among Salomon Smith Barney Inc., the
other Initial Purchasers as named therein and Tenneco Inc.
dated October 8, 1999 (incorporated herein by reference from
Exhibit 10.18 of the registrant's Registration Statement on
Form S-4, Reg. No. 333-93757).
10.21 -- Registration Rights Agreement among Tenneco Inc., the
Guarantors named therein, Salomon Smith Barney Inc. and the
other Initial Purchasers named therein dated October 14,
1999 (incorporated herein by reference from Exhibit 10.19 of
the registrant's Registration Statement on Form S-4, Reg.
No. 333-93757).
10.22 -- Assumption Agreement among Tenneco Automotive Operating
Company Inc., Tenneco International Holding Corp., Tenneco
Global Holdings Inc., The Pullman Company, Clevite
Industries Inc., TMC Texas Inc., Salomon Smith Barney Inc.
and the other Initial Purchasers listed in the Purchase
Agreement dated as of November 4, 1999 (incorporated herein
by reference from Exhibit 10.20 of the registrant's
Registration Statement on Form S-4, Reg. No. 333-93757).
10.23 -- Letter Agreement between Tenneco Automotive Inc. and Richard
P. Schneider dated as of December 12, 1996 (incorporated
herein by reference from Exhibit 10.23 to the registrant's
Annual Report on Form 10-K for the year ended December 31,
1999, File No. 1-12387).
</TABLE>

39
<PAGE> 40

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.24 -- Letter Agreement between Tenneco Automotive Inc. and Mark P.
Frissora dated as of January 11, 2000 (incorporated herein
by reference from Exhibit 10.24 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 1999,
File No. 1-12387).
11 -- None.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*15 -- Letter Regarding Unaudited Interim Financial Information.
18 -- None.
19 -- None.
22 -- None.
23 -- None.
24 -- None.
*27 -- Financial Data Schedule -- Period Ended March 31, 2000.
99 -- None.
</TABLE>

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

* Filed herewith

<PAGE> 1

EXHIBIT 3.1(I)

CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF
INCORPORATION OF TENNECO AUTOMOTIVE INC.

Tenneco Automotive Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby amend the Restated Certificate of
Incorporation, as amended, of the Corporation.

The undersigned hereby certifies that this amendment to the Restated
Certificate of Incorporation, as amended, of the Corporation has been duly
adopted in accordance with Section 242 of the DGCL.

Subsection A of Article FOURTH of the Corporation's current Restated
Certificate of Incorporation, as amended, is hereby amended to read in its
entirety as follows:

"FOURTH: A. The total number of shares of all classes of stock
which the corporation shall be authorized to issue is
185,000,000 shares, divided into 135,000,000 shares of common
stock, par value $.01 per share (herein called "Common Stock"),
and 50,000,000 shares of preferred stock, par value $.01 per
share (herein called "Preferred Stock")."

THE UNDERSIGNED, being the Senior Vice President and General Counsel of the
Corporation, for the purpose of amending the Restated Certificate of
Incorporation, as amended, of the Corporation pursuant to the DGCL, does make
this amendment to the Restated Certificate of Incorporation, as amended, of the
Corporation, hereby declaring and certifying that this is my act and deed and
the facts herein stated are true and accordingly I have hereunto set my hand as
of this 9th day of May, 2000.

TENNECO AUTOMOTIVE INC.

By: /s/ TIMOTHY R. DONOVAN
------------------------------------
Name: Timothy R. Donovan
Title: Senior Vice President and
General Counsel

<PAGE> 1

EXHIBIT 12

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------
2000 1999
----- -----
<S> <C> <C>
Income from continuing operations........................... $ 1 $ 16
Add:
Interest expense.......................................... 45 19
Portion of rentals representative of the interest
factor................................................. 3 3
Preferred stock dividend requirements of majority-owned
subsidiaries........................................... -- 6
Income tax expense (benefit) and other taxes on income.... (1) 14
Amortization of interest capitalized...................... -- --
Undistributed (earnings) losses of affiliated companies in
which less than a 50% voting interest is owned......... -- --
----- -----
Earnings as defined.................................. $ 48 $ 58
===== =====
Interest expense............................................ $ 45 $ 19
Interest capitalized........................................ 2 --
Portion of rentals representative of the interest factor.... 3 3
Preferred stock dividend requirements of majority-owned
subsidiaries on a pre-tax basis........................... -- 10
----- -----
Fixed charges as defined............................. $ 50 $ 32
===== =====
Ratio of earnings to fixed charges.......................... 0.96 1.81
===== =====
</TABLE>

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

NOTE: For the three months ended March 31, 2000, earnings were inadequate to
cover fixed charges by
$2 million.

<PAGE> 1

EXHIBIT 15

Tenneco Automotive Inc.

May 15, 2000

We are aware that Tenneco Automotive Inc. has incorporated by reference in the
following Registration Statements its Form 10-Q for the quarter ended March 31,
2000, which includes our report dated May 8, 2000 covering the unaudited interim
financial information contained therein. Pursuant to Regulations C of the
Securities Act of 1933, that report is not considered a part of the Registration
Statements prepared or certified by our firm or a report prepared or certified
by our firm within the meaning of Sections 7 and 11 of the Act.

<TABLE>
<CAPTION>
REGISTRATION NO. FORM
- ---------------- ----
<C> <S> <C>
333-24291 ............................................... S-3
333-17485 ............................................... S-8
333-30933 ............................................... S-8
333-17487 ............................................... S-8
333-41535 ............................................... S-8
333-27279 ............................................... S-8
333-23249 ............................................... S-8
333-27281 ............................................... S-8
333-41537 ............................................... S-8
333-48777 ............................................... S-8
333-76261 ............................................... S-8
333-33442 ............................................... S-8
333-33934 ............................................... S-8
</TABLE>

Very truly yours,

Arthur Andersen LLP

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TENNECO
AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 613
<ALLOWANCES> 0
<INVENTORY> 415
<CURRENT-ASSETS> 1,251
<PP&E> 1,914
<DEPRECIATION> 901
<TOTAL-ASSETS> 2,961
<CURRENT-LIABILITIES> 714
<BONDS> 1,571
0
0
<COMMON> 0
<OTHER-SE> 393
<TOTAL-LIABILITY-AND-EQUITY> 2,961
<SALES> 882
<TOTAL-REVENUES> 882
<CGS> 687
<TOTAL-COSTS> 687
<OTHER-EXPENSES> 149
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> 2
<INCOME-TAX> (1)
<INCOME-CONTINUING> 1
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1
<EPS-BASIC> .03
<EPS-DILUTED> .03

</TABLE>