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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM 10-Q

(Mark One)

<Table>

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

For the Quarterly Period Ended June 30, 2004

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

Commission file number 1-12387

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

<Table>

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

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

Common Stock, par value $.01 per share: 42,004,205 shares as of July 31,
2004.

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

TABLE OF CONTENTS

<Table>
<Caption>
PAGE
----

PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).................. 4
Tenneco Automotive Inc. and Consolidated Subsidiaries--
Report of Independent Registered Public Accounting
Firm................................................ 4
Statements of Income................................. 5
Balance Sheets....................................... 6
Statements of Cash Flows............................. 7
Statements of Changes in Shareholders' Equity........ 8
Statements of Comprehensive Income................... 9
Notes to Consolidated Financial Statements........... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 28
Item 3. Quantitative and Qualitative Disclosures About
Market Risk....................................... 52
Item 4. Controls and Procedures........................... 52
PART II--OTHER INFORMATION
Item 1. Legal Proceedings................................. *
Item 2. Changes in Securities and Use of Proceeds......... *
Item 3. Defaults Upon Senior Securities................... *
Item 4. Submission of Matters to a Vote of Security
Holders........................................... 53
Item 5. Other Information................................. *
Item 6. Exhibits and Reports on Form 8-K.................. 53
</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
"may," "will," "believes," "should," "could," "plans," "expects," "anticipate,"
"intends," "estimates," and similar expressions (and variations thereof),
identify these forward-looking statements. Although we believe that the
expectations reflected in these forward-looking statements are based on
reasonable assumptions, these expectations may not prove to be correct. Because
these forward-looking statements are also subject to risks and uncertainties,
actual results may differ materially from the expectations expressed in the
forward-looking statements. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking
statements include:

- general economic, business and market conditions;

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

- operating hazards associated with our business;

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

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

- cyclicality of automotive production and sales;

- material substitution;

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

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

- customer acceptance of new products;

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

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

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

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

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

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

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

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the accompanying consolidated balance sheet of Tenneco
Automotive Inc. and consolidated subsidiaries as of June 30, 2004, and the
related consolidated statements of income and comprehensive income for the
three-month and six-month periods ended June 30, 2004 and 2003, and of cash
flows and changes in shareholders' equity for the six-month periods ended June
30, 2004 and 2003. These interim financial statements are the responsibility of
Tenneco Automotive Inc.'s management.

We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.

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

We previously audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
Tenneco Automotive Inc. and consolidated subsidiaries as of December 31, 2003,
and the related consolidated statements of income (loss), cash flows, changes in
shareholders' equity and comprehensive income (loss) for the year then ended
(not presented herein); and in our report dated March 9, 2004, we expressed an
unqualified opinion on those consolidated financial statements (such report
includes explanatory paragraphs relating to (i) a change in accounting for
goodwill and intangible assets upon the adoption of Statement of Financial
Accounting Standards No. 142, and (ii) the application of procedures relating to
certain disclosures and reclassifications of financial statement amounts related
to the 2001 financial statements that were audited by other auditors who have
ceased operations and for which we have expressed no opinion or other form of
assurance other than with respect to such disclosures and reclassifications). In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 2003 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.

DELOITTE & TOUCHE LLP

Chicago, Illinois
August 6, 2004

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF INCOME
(UNAUDITED)

<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- --------------------------
2004 2003 2004 2003
------------ ------------ ----------- -----------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)

REVENUES
Net sales and operating revenues........ $ 1,114 $ 998 $ 2,148 $ 1,919
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
shown below)......................... 874 779 1,704 1,522
Engineering, research, and
development.......................... 19 13 34 32
Selling, general, and administrative.... 100 97 211 185
Depreciation and amortization of other
intangibles.......................... 44 41 89 80
----------- ----------- ----------- -----------
1,037 930 2,038 1,819
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Loss on sale of receivables............. (1) (1) (1) (1)
Other income (loss)..................... -- -- -- (1)
----------- ----------- ----------- -----------
(1) (1) (1) (2)
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME
TAXES, AND MINORITY INTEREST............ 76 67 109 98
Interest expense (net of interest
capitalized)......................... 34 38 69 69
Income tax expense...................... 10 3 9 1
Minority interest....................... 2 2 3 3
----------- ----------- ----------- -----------
NET INCOME................................ $ 30 $ 24 $ 28 $ 25
=========== =========== =========== ===========
EARNINGS PER SHARE
Average shares of common stock
outstanding--
Basic................................... 41,475,722 40,394,671 41,132,232 40,244,623
Diluted................................. 44,181,228 41,333,408 43,839,409 41,137,177
Basic earnings per share of common
stock................................... $ 0.73 $ 0.59 $ 0.69 $ 0.61
Diluted earnings per share of common
stock................................... $ 0.69 $ 0.58 $ 0.65 $ 0.60
</Table>

The accompanying notes to financial statements are an integral part of these
statements of income.
5

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

BALANCE SHEETS
(UNAUDITED)

<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
-------- ------------
(MILLIONS)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 166 $ 145
Receivables--
Customer notes and accounts, net........................ 530 427
Other................................................... 20 15
Inventories--
Finished goods.......................................... 153 149
Work in process......................................... 83 73
Raw materials........................................... 78 83
Materials and supplies.................................. 38 38
Deferred income taxes..................................... 62 63
Prepayments and other..................................... 140 112
------- -------
1,270 1,105
------- -------
Other assets:
Long-term notes receivable, net........................... 22 21
Goodwill.................................................. 192 193
Intangibles, net.......................................... 24 25
Deferred income taxes..................................... 202 189
Pension assets............................................ 7 6
Other..................................................... 147 145
------- -------
594 579
------- -------
Plant, property, and equipment, at cost..................... 2,278 2,303
Less--Reserves for depreciation and amortization.......... 1,219 1,192
------- -------
1,059 1,111
------- -------
$ 2,923 $ 2,795
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current maturities of long-term
debt)................................................... $ 20 $ 20
Trade payables............................................ 669 621
Accrued taxes............................................. 30 19
Accrued interest.......................................... 39 42
Accrued liabilities....................................... 211 162
Other..................................................... 28 29
------- -------
997 893
------- -------
Long-term debt.............................................. 1,399 1,410
------- -------
Deferred income taxes....................................... 124 119
------- -------
Postretirement benefits..................................... 272 266
------- -------
Deferred credits and other liabilities...................... 35 26
------- -------
Commitments and contingencies
Minority interest........................................... 23 23
------- -------
Shareholders' equity:
Common stock.............................................. -- --
Premium on common stock and other capital surplus......... 2,757 2,751
Accumulated other comprehensive loss...................... (260) (241)
Retained earnings (accumulated deficit)................... (2,184) (2,212)
------- -------
313 298
Less--Shares held as treasury stock, at cost.............. 240 240
------- -------
73 58
------- -------
$ 2,923 $ 2,795
======= =======
</Table>

The accompanying notes to financial statements are an integral part of these
balance sheets.
6

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CASH FLOWS
(UNAUDITED)

<Table>
<Caption>
SIX MONTHS
ENDED
JUNE 30,
--------------
2004 2003
----- -----
(MILLIONS)

OPERATING ACTIVITIES
Net income.................................................. $ 28 $ 25
Adjustments to reconcile net income to cash provided (used)
by operating activities--
Depreciation and amortization of other intangibles........ 89 80
Deferred income taxes..................................... (5) (10)
Changes in components of working capital--
(Increase) decrease in receivables..................... (113) (87)
(Increase) decrease in inventories..................... (16) 24
(Increase) decrease in prepayments and other current
assets................................................ (27) (1)
Increase (decrease) in payables........................ 60 30
Increase (decrease) in accrued taxes................... 13 (19)
Increase (decrease) in accrued interest................ (2) (5)
Increase (decrease) in other current liabilities....... 24 (19)
Other..................................................... 8 10
----- -----
Net cash provided by operating activities................... 59 28
----- -----
INVESTING ACTIVITIES
Net proceeds from sale of assets............................ 11 3
Expenditures for plant, property, and equipment............. (54) (54)
Investments and other....................................... (2) (2)
----- -----
Net cash used by investing activities....................... (45) (53)
----- -----
Net cash provided (used) before financing activities........ 14 (25)
FINANCING ACTIVITIES
Issuance of common shares................................... 4 --
Proceeds from capital contributions......................... -- 1
Issuance of long-term debt.................................. -- 350
Debt issuance costs on long-term debt....................... -- (12)
Retirement of long-term debt................................ (4) (276)
Net increase (decrease) in short-term debt excluding current
maturities of long-term debt.............................. 1 (25)
Other....................................................... 2 (1)
----- -----
Net cash provided by financing activities................... 3 37
----- -----
Effect of foreign exchange rate changes on cash and cash
equivalents............................................... 4 (8)
----- -----
Increase in cash and cash equivalents....................... 21 4
Cash and cash equivalents, January 1........................ 145 54
----- -----
Cash and cash equivalents, June 30 (Note)................... $ 166 $ 58
===== =====
Cash paid during the period for interest.................... $ 74 $ 67
Cash paid during the period for income taxes (net of
refunds).................................................. $ 7 $ 30
</Table>

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

The accompanying notes to financial statements are an integral part of these
statements of cash flows.
7

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)

<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------
2004 2003
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- -------
(MILLIONS EXCEPT SHARE AMOUNTS)

COMMON STOCK
Balance January 1.................................. 42,167,296 $ -- 41,347,340 $ --
Issued pursuant to benefit plans................. 450,109 -- 541,865 --
Stock options exercised.......................... 676,107 -- 35,106 --
---------- ------- ---------- -------
Balance June 30.................................... 43,293,512 -- 41,924,311 --
========== ======= ========== =======
PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS
Balance January 1.................................. 2,751 2,749
Premium on common stock issued pursuant to
benefit plans................................. 6 2
------- -------
Balance June 30.................................... 2,757 2,751
------- -------
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance January 1.................................. (241) (357)
Other comprehensive income (loss)................ (19) 73
------- -------
Balance June 30.................................... (260) (284)
------- -------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance January 1.................................. (2,212) (2,246)
Net income....................................... 28 25
------- -------
Balance June 30.................................... (2,184) (2,221)
------- -------
LESS--COMMON STOCK HELD AS TREASURY STOCK, AT COST
Balance January 1 and June 30...................... 1,294,692 240 1,294,692 240
========== ------- ========== -------
Total....................................... $ 73 $ 6
======= =======
</Table>

The accompanying notes to financial statements are an integral part
of these statements of changes in shareholders' equity.
8

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

<Table>
<Caption>
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------
2004 2003
------------------------------ ------------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME
(LOSS) (LOSS) (LOSS) (LOSS)
------------- ------------- ------------- -------------
(MILLIONS)

NET INCOME.................................... $ 30 $24
---- ---
ACCUMULATED OTHER COMPREHENSIVE LOSS
CUMULATIVE TRANSLATION ADJUSTMENT
Balance April 1............................. $(149) $(251)
Translation of foreign currency
statements.............................. (13) (13) 47 47
----- -----
Balance June 30............................. (162) (204)
----- -----
FAIR VALUE OF INTEREST RATE SWAPS
Balance April 1............................. -- --
Fair value adjustment..................... -- -- -- --
----- -----
Balance June 30............................. -- --
----- -----
ADDITIONAL MINIMUM PENSION LIABILITY
ADJUSTMENT
Balance April 1 and June 30................. (98) (80)
----- -----
Balance June 30............................... $(260) $(284)
===== ---- ===== ---
Other comprehensive income (loss)............. (13) 47
---- ---
COMPREHENSIVE INCOME.......................... $ 17 $71
==== ===
</Table>

<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------
2004 2003
------------------------------ ------------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME
(LOSS) (LOSS) (LOSS) (LOSS)
------------- ------------- ------------- -------------
(MILLIONS)

NET INCOME.................................... $ 28 $25
---- ---
ACCUMULATED OTHER COMPREHENSIVE LOSS
CUMULATIVE TRANSLATION ADJUSTMENT
Balance January 1........................... $(143) $(273)
Translation of foreign currency
statements.............................. (19) (19) 69 69
----- -----
Balance June 30............................. (162) (204)
----- -----
FAIR VALUE OF INTEREST RATE SWAPS
Balance January 1........................... -- (4)
Fair value adjustment..................... -- -- 4 4
----- -----
Balance June 30............................. -- --
ADDITIONAL MINIMUM PENSION LIABILITY
ADJUSTMENT
Balance January 1 and June 30............... (98) (80)
----- -----
Balance June 30............................... $(260) $(284)
===== ---- ===== ---
Other comprehensive income (loss)............. (19) 73
---- ---
COMPREHENSIVE INCOME.......................... $ 9 $98
==== ===
</Table>

The accompanying notes to financial statements are an integral part
of these statements of comprehensive income.
9

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) As you read the accompanying financial statements and Management's
Discussion and Analysis you should also read our Annual Report on Form 10-K for
the year ended December 31, 2003.

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

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

We have reclassified prior year's financial statements where appropriate to
conform to 2004 presentations.

(2) In June 2003, we issued $350 million of 10 1/4 percent senior secured
notes in a private placement. The notes have a final maturity date of July 15,
2013. The notes accrued interest from June 19, 2003 with a first interest
payment date of January 15, 2004. In October 2003, we completed an offer to
exchange all of the notes issued in the June 2003 private placement for a like
amount of the 10 1/4 percent senior secured notes, with substantially identical
terms, which had been registered under the Securities Act of 1933.

We received net proceeds in the second quarter of 2003 from the offering of
the notes, after deducting underwriting discounts and commissions and our
expenses, of $338 million. We used the net proceeds of the offering to repay
outstanding amounts under our senior credit facility as follows: (i) first, to
prepay $199 million on the term loan A due November 4, 2005, (ii) second, to
prepay $52 million on the term loans B and C due November 4, 2007 and May 4,
2008, respectively, and (iii) third, to prepay outstanding borrowings of $87
million under the revolving credit portion of our senior credit facility.

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

In December 2003, we amended and restated our senior credit facility and in
connection therewith, we issued an additional $125 million of 10 1/4 percent
senior secured notes in a private placement. We received $136 million of net
proceeds from the offering of the additional $125 million of 10 1/4 percent
senior secured notes, after deducting underwriting discounts and commissions and
other expenses and including a 13 percent price premium over par. We also
received $391 million in net proceeds from the new term loan B borrowings under
the amended and restated senior credit facility, after deducting fees and other
expenses. We used the combined net proceeds of $527 million to prepay the $514
million outstanding under term loans A, B and C under the senior credit facility
immediately prior to the completion of the transaction. The remaining $13
million of net proceeds were used for general corporate purposes. In addition,
we received $6 million of accrued interest on the new notes for the period from
June 19 through December 12, 2003 that investors paid

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

us and that we subsequently used to pay, on January 15, 2004, the accrued
interest on the notes from June 19, 2003. In June 2004, we completed an offer to
exchange all of the notes issued in the December 2003 private placement for a
like amount of the 10 1/4 percent senior secured notes, with substantially
identical terms, which have been registered under the Securities Act of 1933.

We incurred $27 million in fees associated with the issuance of the
aggregate $475 million of 10 1/4 percent senior secured notes and the amendment
and restatement of our senior credit facility which will be amortized over the
term of the senior secured notes and the amended and restated senior credit
facility.

After giving effect to the use of the net proceeds from both the June and
December transactions, we expect these transactions would have increased our
annual interest expense by approximately $9 million for 2003. This does not give
effect to the fixed-to-floating interest rate swaps we completed in April 2004,
described below. In addition, we expensed in the second and fourth quarters of
2003 a total of approximately $12 million of existing deferred debt issuance
costs as a result of retiring the term loans under the senior credit facility.

In April 2004, we amended our senior credit facility in connection with a
proposed transaction to refinance our outstanding senior subordinated notes.
While we abandoned the proposed transaction in late May 2004, the amendment
remains in effect. The amendment permitted certain aspects of the transaction
and made other minor technical changes.

In April 2004, we entered into three separate fixed-to-floating interest
rate swaps with two separate financial institutions. These agreements swapped an
aggregate of $150 million of fixed interest rate debt at a per annum rate of
10 1/4 percent to floating interest rate debt at a per annum rate of LIBOR plus
a spread of 5.68 percent. Each agreement requires semi-annual settlements
through July 15, 2013. Based on the current LIBOR as determined under these
agreements of 1.86 percent (which remains in effect until January 15, 2005),
these swaps would reduce our annual interest expense by approximately $4
million. The swaps qualify as fair value hedges in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and as such are recorded on the balance
sheet at market value with an offset to the underlying hedged item, which is
long-term debt. As of June 30, 2004, the fair value of the interest rate swaps
was approximately a negative $6 million, which has been recorded as a decrease
to long-term debt and an increase to other long-term liabilities.

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

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

related to a strategic decision to adjust some product offerings and our
customer supply strategy in the European aftermarket. Finally, we also incurred
$1 million in other restructuring related costs during the fourth quarter of
2001 for the value mapping and rearrangement of one of our emission control
plants in North America. Since these costs relate to ongoing operations, they
could not be accrued as part of the restructuring charge. The total of all these
restructuring and other costs recorded in the fourth quarter of 2001 was $32
million before tax, $31 million after tax, or $0.81 per diluted common share. As
of December 31, 2003, we have eliminated 974 positions in connection with
Project Genesis. Additionally, we executed this plan more efficiently than
originally anticipated and as a result in the fourth quarter of 2002 reduced our
reserves related to this restructuring activity by $6 million, which was
recorded in cost of sales. In the fourth quarter of 2003, we reclassified $2
million of severance reserve to the asset impairment reserve. This
reclassification became necessary as actual asset impairments along with the
sale of our closed facilities were different than the original estimates. We
completed the remaining restructuring activities related to Project Genesis in
the second quarter of 2004.

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

In October of 2003 we announced the closure of an emission control
manufacturing facility in Birmingham, U.K. Approximately 130 employees will be
eligible for severance benefits in accordance with union contracts and U.K.
legal requirements. We incurred approximately $2 million in costs related to
this action in the first six months of 2004. Additional costs related to this
closing are not expected to exceed $3 million and will be recorded in the second
half of 2004. This action is in addition to the plant closures announced in
Project Genesis in the fourth quarter of 2001.

In addition to the above costs, we incurred $8 million in restructuring and
restructuring related costs in the first six months of 2004. These costs are
primarily related to the continuation of the optimization of our manufacturing
footprint that was started with Project Genesis in 2001.

Including the costs incurred in 2002 and 2003 of $18 million, we have
incurred a total of $28 million for activities related to our restructuring
actions initiated in prior periods that could not be accrued as part of the
restructuring charges for these actions.

Amounts related to the reserves we have established regarding activities
that are part of our restructuring plans are as follows:

<Table>
<Caption>
DECEMBER 31, JUNE 30,
2003 2004 CHARGED TO IMPACT OF 2004
RESTRUCTURING CASH ASSET EXCHANGE RESTRUCTURING
RESERVE PAYMENTS ACCOUNTS RATES RESERVE
------------- -------- ---------- --------- -------------
(MILLIONS)

Severance............................... $1 $1 $-- $-- $--
Asset Impairment........................ -- -- -- -- --
Other................................... -- -- -- -- --
-- -- --- --- ---
$1 $1 $-- $-- $--
== == === === ===
</Table>

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

the announced actions, we continue to evaluate additional opportunities to
initiate actions that will reduce our costs through implementing the most
appropriate and efficient logistics, distribution and manufacturing footprint
for the future. There can be no assurances, however, that we will undertake
additional restructuring actions. Actions that we take, if any, will require the
approval of our Board of Directors, or its authorized committee, and if the
costs of the plans exceed the amount previously approved by our senior lenders,
could require approval by our senior lenders. We plan to conduct any workforce
reductions that result in compliance with all legal and contractual requirements
including obligations to consult with workers' councils, union representatives
and others.

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

As of June 30, 2004, we are designated as a potentially responsible party
in one Superfund site. We have estimated our share of the remediation costs for
this site to be less than $1 million in the aggregate. In addition to the
Superfund site, 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 $11 million. For the Superfund site 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
site, the Comprehensive Environmental Response, Compensation and Liability Act
provides that our liability could be joint and several, meaning that we could be
required to pay in excess of our share of remediation costs. Our understanding
of the financial strength of other potentially responsible parties at the
Superfund site, and of other liable parties at our current and former
facilities, has been considered, where appropriate, in our determination of our
estimated liability.

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

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

operational issues which involves a court-mandated bidding process. We
vigorously defend ourselves against all of these claims. In future periods, we
could be subjected to cash costs or non-cash charges to earnings if we are
required to sell our interest in the joint venture on unfavorable terms.
However, although the ultimate outcome of any legal matter cannot be predicted
with certainty, based on present information, including our assessment of the
merits of the particular claim, we do not expect that these legal proceedings or
claims will have any material adverse impact on our future consolidated
financial position or results of operations. In addition, we are subject to a
number of lawsuits initiated by a significant number of claimants alleging
health problems as a result of exposure to asbestos. Many of these cases involve
significant numbers of individual claimants. However, only a small percentage of
these claimants allege that they were automobile mechanics who were allegedly
exposed to our former muffler products and a significant number appear to
involve workers in other industries or otherwise do not include sufficient
information to determine whether there is any basis for a claim against us. We
believe, based on scientific and other evidence, it is unlikely that mechanics
were exposed to asbestos by our former muffler products and that, in any event,
they would not be at increased risk of asbestos-related disease based on their
work with these products. Further, many of these cases involve numerous
defendants, with the number of each in some cases exceeding 200 defendants from
a variety of industries. Additionally, the plaintiffs either do not specify any,
or specify the jurisdictional minimum, dollar amount for damages. On the other
hand, we are experiencing an increasing number of these claims, likely due to
bankruptcies of major asbestos manufacturers. We vigorously defend ourselves
against these claims as part of our ordinary course of business. To date, with
respect to claims that have proceeded sufficiently through the judicial process,
we have regularly achieved favorable resolution in the form of a dismissal of
the claim or a judgment in our favor. Accordingly, we presently believe that
these asbestos-related claims will not have a material adverse impact on our
future financial condition or results of operations.

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

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

<Table>
<Caption>
SIX MONTHS
ENDED
JUNE 30,
-----------
2004 2003
---- ----
(MILLIONS)

Beginning Balance........................................... $18 $21
Accruals related to product warranties...................... 3 5
Reductions for payments made................................ (3) (3)
--- ---
Ending Balance.............................................. $18 $23
=== ===
</Table>

(5) In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"), which was revised in December 2003. FIN 46 requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the entity that has the
controlling financial interest. FIN 46 also provides the framework for
determining whether a variable interest entity should be consolidated based on
voting interest or

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

significant financial support provided to it. This interpretation as revised is
effective January 1, 2004. The adoption of FIN 46 did not have a material impact
on our consolidated financial statements.

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

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

In December 2003, the FASB revised SFAS No. 132, "Employer's Disclosures
About Pensions and Other Postretirement Benefits." The revised SFAS No. 132
changes employers' disclosures about pension plans and other postretirement
benefits and requires additional disclosures about assets, obligations, cash
flows and net periodic benefit cost. The revised statement is effective for
annual and interim periods ended after December 15, 2003. We adopted the revised
disclosures as of December 31, 2003, in our consolidated financial statements.

On December 8, 2003, the President signed the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Act) into law. The Act introduces
a voluntary prescription drug benefit under Medicare as well as a federal
subsidy to sponsors of retiree healthcare plans that provide prescription drug
benefits that are at least actuarially equivalent to Medicare Part D. As
permitted by FASB Staff Position ("FSP") 106-1, we previously chose to defer
recognizing the effects of the Act on our postretirement healthcare insurance
plans until authoritative guidance was issued by the FASB. Accordingly, our
measure of the accumulated projected benefit obligation and net periodic
postretirement benefit expense do not reflect the effects of the Act. In May
2004, the FASB issued FSP No. 106-2, which supercedes FSP No. 106-1 and requires
the commencement of accounting recognition for the effects of the Act no later
than our quarter ending September 30, 2004. We anticipate implementing the
accounting guidance related to the effects of the Act during the quarter ending
September 30, 2004. We anticipate the Act will result in a reduction of our
future net healthcare expenses and liabilities.

(6) We entered into an agreement during the third quarter of 2000 to sell
an interest in some of our U.S. trade accounts receivable to a third party.
Receivables become eligible for the program on a daily basis, at which time the
receivables are sold to the third party, net of a purchase discount, through a
wholly-owned subsidiary. Under this agreement, as well as individual agreements
with third parties in Europe, we have sold accounts receivable of $148 million
and $128 million at June 30, 2004 and 2003, respectively. We recognized a loss
of less than $1 million in each of the six months ended June 30, 2004 and 2003,
respectively, on these sales of trade accounts, representing the discount from
book values at which these receivables were sold to the third party. The
discount rate varies based on funding cost incurred by the third party, and it
averaged approximately 4 percent during the time period in 2004 when we sold
receivables. We retained ownership of the remaining interest in the pool of
receivables not sold to the third party. The retained interest represents a
credit enhancement for the program. We value the retained interest based upon
the amount we expect to collect from our customers, which approximates book
value.

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

(7) We account for our stock-based employee compensation plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees." As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation," and amended by SFAS No. 148, "Accounting for
Stock-based Compensation--Transition and Disclosure, an amendment of FASB
Statement No. 123," we follow the disclosure requirements only of SFAS No. 123.
The following table illustrates the effect on net income and earnings per share
if we had applied the fair value recognition provisions of SFAS No. 123:

<Table>
<Caption>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
----------------- -----------------
2004 2003 2004 2003
----- ----- ----- -----
(MILLIONS EXCEPT SHARE
AND PER SHARE AMOUNTS)

Net income............................................... $ 30 $ 24 $ 28 $ 25
Add: Stock-based employee compensation expense included
in net income, net of income tax....................... 1 1 8 --
Deduct: Stock-based employee compensation expense
determined under fair value based method for all
awards, net of income tax.............................. (1) (1) (9) (1)
----- ----- ----- -----
Pro forma net income..................................... $ 30 $ 24 $ 27 $ 24
===== ===== ===== =====
Earnings per share:
Basic--as reported....................................... $0.73 $0.59 $0.69 $0.61
Basic--pro forma......................................... $0.73 $0.58 $0.67 $0.59
Diluted--as reported..................................... $0.69 $0.58 $0.65 $0.60
Diluted--pro forma....................................... $0.68 $0.57 $0.63 $0.58
</Table>

The fair value of each option granted during the first six months of 2004
and 2003 is estimated on the date of grant using the Black-Scholes option
pricing model using the following weighted-average assumptions for grants in the
first six months of 2004 and 2003, respectively: (i) risk-free interest rates of
4.07 percent and 5.20 percent; (ii) expected lives of 10 years and 10 years;
(iii) expected volatility of 43.56 percent and 39.52 percent; and (iv) dividend
yield of 0.00 percentage and 0.00 percentage.

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

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

<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ----------- -----------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)

Basic earnings per share--
Net income.................................. $ 30 $ 24 $ 28 $ 25
=========== =========== =========== ===========
Average shares of common stock
outstanding............................... 41,475,722 40,394,671 41,132,232 40,244,623
=========== =========== =========== ===========
Earnings per average share of common
stock..................................... $ 0.73 $ 0.59 $ 0.69 $ 0.61
=========== =========== =========== ===========
Diluted earnings per share--
Net income.................................. $ 30 $ 24 $ 28 $ 25
=========== =========== =========== ===========
Average shares of common stock
outstanding............................... 41,475,722 40,394,671 41,132,232 40,244,623
Effect of dilutive securities:
Restricted stock.......................... 241,371 18,866 268,634 45,930
Stock options............................. 2,464,135 919,871 2,438,543 846,624
----------- ----------- ----------- -----------
Average shares of common stock outstanding
including dilutive shares................. 44,181,228 41,333,408 43,839,409 41,137,177
=========== =========== =========== ===========
Earnings per average share of common
stock..................................... $ 0.69 $ 0.58 $ 0.65 $ 0.60
=========== =========== =========== ===========
</Table>

Options to purchase 748,652 and 4,709,501 shares of common stock were
outstanding at June 30, 2004 and 2003, respectively, but were not included in
the computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares on such dates.

(9) Net periodic pension costs (income) and postretirement benefit costs
(income) consist of the following components:

<Table>
<Caption>
PENSION POSTRETIREMENT PENSION POSTRETIREMENT
-------------- --------------- -------------- ----------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- ------------------------------------
2004 2003 2004 2003 2004 2003 2004 2003
---- ---- ----- ---- ---- ---- ----- -----
(MILLIONS) (MILLIONS)

Service cost............................. $ 5 $ 4 $ 1 $1 $ 10 $ 8 $ 1 $ 3
Interest cost............................ 7 7 2 3 15 14 4 5
Expected return on plan assets........... (7) (7) -- -- (15) (14) -- --
Net amortization:
Actuarial loss......................... 2 1 1 1 3 1 3 2
Prior service cost..................... 1 1 (2) -- 2 2 (4) (1)
--- --- ----- -- ---- ---- ----- -----
Net pension and postretirement costs..... $ 7 $ 6 $ 2 $5 $ 15 $ 11 $ 4 $ 9
=== === ===== == ==== ==== ===== =====
</Table>

For the six months ended June 30, 2004, we made pension contributions of
approximately $8 million. Based on current actuarial estimates, we believe we
will be required to make approximately $10 million to $15 million in
contributions for the remainder of 2004.

We made postretirement contributions of approximately $3 million during the
first six months of 2004. Based on current actuarial estimates, we believe we
will be required to make approximately $3 million in contributions for the
remainder of 2004.

(10) We occasionally provide guarantees that could require us to make
future payments in the event that the third party primary obligor does not make
its required payments. We have not recorded a liability for any

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

of these guarantees. The only third party guarantee we have made is the
performance of lease obligations by a former affiliate. Our maximum liability
under this guarantee was approximately $4 million and $5 million at June 30,
2004 and 2003, respectively. We have no recourse in the event of default by the
former affiliate. However, we have not been required to make any payments under
this guarantee.

Additionally, we have from time to time issued guarantees for the
performance of obligations by some of our subsidiaries, and some of our
subsidiaries have guaranteed our debt. All of our then existing and future
material domestic wholly-owned subsidiaries fully and unconditionally guarantee
the $800 million senior secured credit facility, the $475 million senior secured
notes and the $500 million senior subordinated notes on a joint and several
basis. The arrangement for the senior secured credit facility is also secured by
first-priority liens on substantially all our domestic assets and pledges of 66
percent of the stock of certain first-tier foreign subsidiaries. The arrangement
for the $475 million senior secured notes is also secured by second-priority
liens on substantially all our domestic assets, excluding some of the stock of
our domestic subsidiaries. This arrangement is not secured by any pledges of
stock or assets of our foreign subsidiaries. You should also read Note 12 where
we present the Supplemental Guarantor Condensed Consolidating Financial
Statements.

We have issued guarantees through letters of credit in connection with some
obligations of our affiliates. We have guaranteed through letters of credit
support for local credit facilities, travel and procurement card programs, and
cash management requirements for some of our subsidiaries totaling $34 million.
We have also issued $18 million in letters of credit to support some of our
subsidiaries' insurance arrangements. In addition, we have issued $3 million in
guarantees through letters of credit to guarantee other obligations of
subsidiaries primarily related to environmental remediation activities.

(11) 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.

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

The following table summarizes certain segment information:

<Table>
<Caption>
SEGMENT
-------------------------------------------------------------
RECLASS
NORTH AMERICA EUROPE OTHER & ELIMS CONSOLIDATED
------------- ------ ----- --------- ------------
(MILLIONS)

FOR THE THREE MONTHS ENDED JUNE 30, 2004
Revenues from external customers............ $ 523 $ 446 $145 $ -- $1,114
Intersegment revenues....................... 2 13 5 (20) --
Income before interest, income taxes, and
minority interest......................... 50 14 12 -- 76
FOR THE THREE MONTHS ENDED JUNE 30, 2003
Revenues from external customers............ $ 501 $ 388 $109 $ -- $ 998
Intersegment revenues....................... 2 10 3 (15) --
Income before interest, income taxes, and
minority interest......................... 49 11 7 -- 67
AT JUNE 30, 2004, AND FOR THE SIX MONTHS
THEN ENDED
Revenues from external customers............ $1,026 $ 854 $268 $ -- $2,148
Intersegment revenues....................... 3 27 10 (40) --
Income before interest, income taxes, and
minority interest......................... 80 11 18 -- 109
Total Assets................................ 747 1,138 918 120 2,923
AT JUNE 30, 2003, AND FOR THE SIX MONTHS
THEN ENDED
Revenues from external customers............ $ 982 $ 733 $204 $ -- $1,919
Intersegment revenues....................... 4 19 5 (28) --
Income before interest, income taxes, and
minority interest......................... 77 10 11 -- 98
Total Assets................................ 755 1,057 737 124 2,673
</Table>

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

Basis of Presentation

Subject to limited exceptions, all of our existing and future material
domestic wholly owned subsidiaries (which are referred to as the Guarantor
Subsidiaries) fully and unconditionally guarantee our senior subordinated notes
due 2009 and our senior secured notes due 2013 on a joint and several basis. We
have not presented separate financial statements and other disclosures
concerning each of the Guarantor Subsidiaries because management has determined
that such information is not material to the holders of the notes. Therefore,
the Guarantor Subsidiaries are combined in the presentation below.

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

Distributions

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

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

STATEMENT OF INCOME (LOSS)

<Table>
<Caption>
FOR THE THREE MONTHS ENDED JUNE 30, 2004
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)

REVENUES
Net sales and operating revenues--
External....................... $489 $625 $ -- $ -- $1,114
Affiliated companies........... 10 81 -- (91) --
---- ---- ---- ---- ------
499 706 -- (91) 1,114
---- ---- ---- ---- ------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)...... 384 581 -- (91) 874
Engineering, research, and
development.................... 9 10 -- -- 19
Selling, general, and
administrative................. 52 48 -- -- 100
Depreciation and amortization of
other intangibles.............. 20 24 -- -- 44
---- ---- ---- ---- ------
465 663 -- (91) 1,037
---- ---- ---- ---- ------
OTHER INCOME (EXPENSE)
Loss on sale of receivables....... -- (1) -- -- (1)
Other income (loss)............... 10 (8) -- (2) --
---- ---- ---- ---- ------
10 (9) -- (2) (1)
---- ---- ---- ---- ------
INCOME (LOSS) BEFORE INTEREST
EXPENSE, INCOME TAXES, MINORITY
INTEREST, AND EQUITY IN NET INCOME
FROM AFFILIATED COMPANIES......... 44 34 -- (2) 76
Interest expense--
External (net of interest
capitalized)................. -- 2 32 -- 34
Affiliated companies (net of
interest income)............. 21 (3) (18) -- --
Income tax expense (benefit)...... (31) 12 (17) (46) 10
Minority interest................. -- 2 -- -- 2
---- ---- ---- ---- ------
54 21 3 (48) 30
Equity in net income (loss) from
affiliated companies........... 24 -- 27 (51) --
---- ---- ---- ---- ------
NET INCOME (LOSS)................... $ 78 $ 21 $ 30 $(99) $ 30
==== ==== ==== ==== ======
</Table>

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

STATEMENT OF INCOME (LOSS)

<Table>
<Caption>
FOR THE THREE MONTHS ENDED JUNE 30, 2003
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)

REVENUES
Net sales and operating revenues--
External....................... $478 $520 $ -- $ -- $998
Affiliated companies........... 12 87 -- (99) --
---- ---- ---- ---- ----
490 607 -- (99) 998
---- ---- ---- ---- ----
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)...... 379 499 -- (99) 779
Engineering, research, and
development.................... 6 7 -- -- 13
Selling, general, and
administrative................. 44 53 -- -- 97
Depreciation and amortization of
other intangibles.............. 18 23 -- -- 41
---- ---- ---- ---- ----
447 582 -- (99) 930
---- ---- ---- ---- ----
OTHER INCOME (EXPENSE)
Loss on sale of receivables....... -- (1) -- -- (1)
Other income (loss)............... -- -- -- -- --
---- ---- ---- ---- ----
-- (1) -- -- (1)
---- ---- ---- ---- ----
INCOME (LOSS) BEFORE INTEREST
EXPENSE, INCOME TAXES, MINORITY
INTEREST, AND EQUITY IN NET INCOME
FROM AFFILIATED COMPANIES......... 43 24 -- -- 67
Interest expense--
External (net of interest
capitalized)................. (1) 1 38 -- 38
Affiliated companies (net of
interest income)............. 25 (2) (23) -- --
Income tax expense (benefit)...... (1) (3) (20) 27 3
Minority interest................. -- 2 -- -- 2
---- ---- ---- ---- ----
20 26 5 (27) 24
Equity in net income (loss) from
affiliated companies........... 33 (1) 19 (51) --
---- ---- ---- ---- ----
NET INCOME (LOSS)................... $ 53 $ 25 $ 24 $(78) $ 24
==== ==== ==== ==== ====
</Table>

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

STATEMENT OF INCOME (LOSS)

<Table>
<Caption>
FOR THE SIX MONTHS ENDED JUNE 30, 2004
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)

REVENUES
Net sales and operating revenues--
External....................... $890 $1,258 $ -- $ -- $2,148
Affiliated companies........... 27 107 -- (134) --
---- ------ ---- ----- ------
917 1,365 -- (134) 2,148
---- ------ ---- ----- ------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)...... 703 1,135 -- (134) 1,704
Engineering, research, and
development.................... 16 18 -- -- 34
Selling, general, and
administrative................. 108 103 -- -- 211
Depreciation and amortization of
other intangibles.............. 39 50 -- -- 89
---- ------ ---- ----- ------
866 1,306 -- (134) 2,038
---- ------ ---- ----- ------
OTHER INCOME (EXPENSE)
Loss on sale of receivables....... -- (1) -- -- (1)
Other income (loss)............... 18 (11) -- (7) --
---- ------ ---- ----- ------
18 (12) -- (7) (1)
---- ------ ---- ----- ------
INCOME (LOSS) BEFORE INTEREST
EXPENSE, INCOME TAXES, MINORITY
INTEREST, AND EQUITY IN NET INCOME
FROM AFFILIATED COMPANIES......... 69 47 -- (7) 109
Interest expense--
External (net of interest
capitalized)................. -- 3 66 -- 69
Affiliated companies (net of
interest income)............. 42 (5) (37) -- --
Income tax expense (benefit)...... (34) 14 (35) 64 9
Minority interest................. -- 3 -- -- 3
---- ------ ---- ----- ------
61 32 6 (71) 28
Equity in net income (loss) from
affiliated companies........... 38 -- 22 (60) --
---- ------ ---- ----- ------
NET INCOME (LOSS)................... $ 99 $ 32 $ 28 $(131) $ 28
==== ====== ==== ===== ======
</Table>

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

STATEMENT OF INCOME (LOSS)

<Table>
<Caption>
FOR THE SIX MONTHS ENDED JUNE 30, 2003
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)

REVENUES
Net sales and operating revenues--
External....................... $865 $1,054 $ -- $ -- $1,919
Affiliated companies........... 23 107 -- (130) --
---- ------ ---- ----- ------
888 1,161 -- (130) 1,919
---- ------ ---- ----- ------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)...... 696 956 -- (130) 1,522
Engineering, research, and
development.................... 16 16 -- -- 32
Selling, general, and
administrative................. 85 100 -- -- 185
Depreciation and amortization of
other intangibles.............. 36 44 -- -- 80
---- ------ ---- ----- ------
833 1,116 -- (130) 1,819
---- ------ ---- ----- ------
OTHER INCOME (EXPENSE)
Loss on sale of receivables....... -- (1) -- -- (1)
Other income (loss)............... (1) 2 -- (2) (1)
---- ------ ---- ----- ------
(1) 1 -- (2) (2)
---- ------ ---- ----- ------
INCOME (LOSS) BEFORE INTEREST
EXPENSE, INCOME TAXES, MINORITY
INTEREST, AND EQUITY IN NET INCOME
FROM AFFILIATED COMPANIES......... 54 46 -- (2) 98
Interest expense--
External (net of interest
capitalized)................. (1) 2 68 -- 69
Affiliated companies (net of
interest income)............. 42 1 (43) -- --
Income tax expense (benefit)...... (5) (1) (35) 42 1
Minority interest................. -- 3 -- -- 3
---- ------ ---- ----- ------
18 41 10 (44) 25
Equity in net income (loss) from
affiliated companies........... 45 (2) 15 (58) --
---- ------ ---- ----- ------
NET INCOME (LOSS)................... $ 63 $ 39 $ 25 $(102) $ 25
==== ====== ==== ===== ======
</Table>

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

BALANCE SHEET

<Table>
<Caption>
JUNE 30, 2004
------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS &
SUBSIDIARIES SUBSIDIARIES COMPANY) ELIMS CONSOLIDATED
------------ ------------ --------------- --------- ------------
(MILLIONS)

ASSETS
Current assets:
Cash and cash equivalents.......... $ 96 $ 70 $ -- $ -- $ 166
Receivables, net................... 163 595 23 (231) 550
Inventories........................ 99 253 -- -- 352
Deferred income taxes.............. 70 9 -- (17) 62
Prepayments and other.............. 30 110 -- -- 140
------ ------ ------ ------- ------
458 1,037 23 (248) 1,270
------ ------ ------ ------- ------
Other assets:
Investment in affiliated
companies....................... 289 -- 2,118 (2,407) --
Notes and advances receivable from
affiliates...................... 2,811 39 3,284 (6,134) --
Long-term notes receivable, net.... 2 20 -- -- 22
Goodwill........................... 136 56 -- -- 192
Intangibles, net................... 14 10 -- -- 24
Deferred income taxes.............. 132 -- 103 (33) 202
Pension assets..................... -- 7 -- -- 7
Other.............................. 47 66 34 -- 147
------ ------ ------ ------- ------
3,431 198 5,539 (8,574) 594
------ ------ ------ ------- ------
Plant, property, and equipment, at
cost............................... 880 1,398 -- -- 2,278
Less--Reserves for depreciation and
amortization.................... 529 690 -- -- 1,219
------ ------ ------ ------- ------
351 708 -- -- 1,059
------ ------ ------ ------- ------
$4,240 $1,943 $5,562 $(8,822) $2,923
====== ====== ====== ======= ======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current
maturities of long-term debt)
Short-term
debt--non-affiliated.......... $ -- $ 16 $ 4 $ -- $ 20
Short-term debt--affiliated..... 18 115 10 (143) --
Trade payables..................... 219 535 -- (85) 669
Accrued taxes...................... -- 42 16 (28) 30
Other.............................. 112 130 38 (2) 278
------ ------ ------ ------- ------
349 838 68 (258) 997
Long-term debt--non-affiliated....... -- 15 1,384 -- 1,399
Long-term debt--affiliated........... 2,103 -- 4,031 (6,134) --
Deferred income taxes................ 68 39 -- 17 124
Postretirement benefits and other
liabilities........................ 217 78 6 6 307
Commitments and contingencies
Minority interest.................... -- 23 -- -- 23
Shareholders' equity................. 1,503 950 73 (2,453) 73
------ ------ ------ ------- ------
$4,240 $1,943 $5,562 $(8,822) $2,923
====== ====== ====== ======= ======
</Table>

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

BALANCE SHEET

<Table>
<Caption>
DECEMBER 31, 2003
------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS &
SUBSIDIARIES SUBSIDIARIES COMPANY) ELIMS CONSOLIDATED
------------ ------------ --------------- --------- ------------
(MILLIONS)

ASSETS
Current assets:
Cash and cash equivalents.......... $ 70 $ 75 $ -- $ -- $ 145
Receivables, net................... 136 449 19 (162) 442
Inventories........................ 89 254 -- -- 343
Deferred income taxes.............. 85 9 -- (31) 63
Prepayments and other.............. 40 72 -- -- 112
------ ------ ------ ------- ------
420 859 19 (193) 1,105
------ ------ ------ ------- ------
Other assets:
Investment in affiliated
companies....................... 330 -- 2,105 (2,435) --
Notes and advances receivable from
affiliates...................... 2,741 37 3,243 (6,021) --
Long-term notes receivable, net.... 2 19 -- -- 21
Goodwill........................... 136 57 -- -- 193
Intangibles, net................... 14 11 -- -- 25
Deferred income taxes.............. 124 -- 78 (13) 189
Pension assets..................... -- 6 -- -- 6
Other.............................. 39 70 36 -- 145
------ ------ ------ ------- ------
3,386 200 5,462 (8,469) 579
------ ------ ------ ------- ------
Plant, property, and equipment, at
cost............................... 877 1,426 -- -- 2,303
Less--Reserves for depreciation and
amortization.................... 511 681 -- -- 1,192
------ ------ ------ ------- ------
366 745 -- -- 1,111
------ ------ ------ ------- ------
$4,172 $1,804 $5,481 $(8,662) $2,795
====== ====== ====== ======= ======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (including current
maturities of long-term debt)
Short-term
debt--non-affiliated....... $ -- $ 16 $ 4 $ -- $ 20
Short-term debt--affiliated... -- 123 10 (133) --
Trade payables..................... 184 464 -- (27) 621
Accrued taxes...................... -- 32 17 (30) 19
Other.............................. 100 94 40 (1) 233
------ ------ ------ ------- ------
284 729 71 (191) 893
Long-term debt--non-affiliated....... -- 17 1,393 -- 1,410
Long-term debt--affiliated........... 2,062 -- 3,959 (6,021) --
Deferred income taxes................ 92 40 1 (14) 119
Postretirement benefits and other
liabilities........................ 210 77 (1) 6 292
Commitments and contingencies
Minority interest.................... -- 23 -- -- 23
Shareholders' equity................. 1,524 918 58 (2,442) 58
------ ------ ------ ------- ------
$4,172 $1,804 $5,481 $(8,662) $2,795
====== ====== ====== ======= ======
</Table>

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

STATEMENT OF CASH FLOWS

<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2004
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)

OPERATING ACTIVITIES
Net cash provided (used) by
operating activities.............. $ 80 $ 93 $(114) $ -- $ 59
---- ---- ----- ----- ----
INVESTING ACTIVITIES
Net proceeds from sale of assets.... -- 11 -- -- 11
Expenditures for plant, property,
and equipment..................... (18) (36) -- -- (54)
Investments and other............... (1) (1) -- -- (2)
---- ---- ----- ----- ----
Net cash used by investing
activities........................ (19) (26) -- -- (45)
---- ---- ----- ----- ----
FINANCING ACTIVITIES
Issuance of common shares........... -- -- 4 -- 4
Proceeds from capital
contributions..................... -- -- -- -- --
Issuance of long-term debt.......... -- -- -- -- --
Debt issuance costs on long-term
debt.............................. -- -- -- -- --
Retirement of long-term debt........ -- (2) (2) -- (4)
Net increase (decrease) in
short-term debt excluding current
maturities of long-term debt...... -- 1 -- -- 1
Intercompany dividends and net
increase (decrease) in
intercompany obligations.......... (35) (77) 112 -- --
Other............................... -- 2 -- -- 2
---- ---- ----- ----- ----
Net cash provided (used) by
financing activities.............. (35) (76) 114 -- 3
---- ---- ----- ----- ----
Effect of foreign exchange rate
changes on cash and cash
equivalents....................... -- 4 -- -- 4
---- ---- ----- ----- ----
Increase (decrease) in cash and cash
equivalents....................... 26 (5) -- -- 21
Cash and cash equivalents, January
1................................. 70 75 -- -- 145
---- ---- ----- ----- ----
Cash and cash equivalents, June 30
(Note)............................ $ 96 $ 70 $ -- $ -- $166
==== ==== ===== ===== ====
</Table>

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

TENNECO AUTOMOTIVE INC. AND CONSOLIDATED SUBSIDIARIES

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

STATEMENT OF CASH FLOWS

<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2003
--------------------------------------------------------------------------
TENNECO
AUTOMOTIVE INC.
GUARANTOR NONGUARANTOR (PARENT RECLASS
SUBSIDIARIES SUBSIDIARIES COMPANY) & ELIMS CONSOLIDATED
------------ ------------ --------------- ------- ------------
(MILLIONS)

OPERATING ACTIVITIES
Net cash provided (used) by
operating activities.............. $ 68 $ 61 $(101) $ -- $ 28
---- ---- ----- ----- -----
INVESTING ACTIVITIES
Net proceeds from the sale of
assets............................ -- 3 -- -- 3
Expenditures for plant, property,
and equipment..................... (20) (34) -- -- (54)
Investments and other............... -- (2) -- -- (2)
---- ---- ----- ----- -----
Net cash used by investing
activities........................ (20) (33) -- -- (53)
---- ---- ----- ----- -----
FINANCING ACTIVITIES
Issuance of common shares........... -- -- -- -- --
Proceeds from capital
contributions..................... -- -- 1 -- 1
Issuance of long-term debt.......... -- -- 350 -- 350
Debt issuance costs on long-term
debt.............................. -- -- (12) -- (12)
Retirement of long-term debt........ -- (2) (274) -- (276)
Net increase (decrease) in
short-term debt excluding current
maturities of long-term debt...... -- -- (25) -- (25)
Intercompany dividends and net
increase (decrease) in
intercompany obligations.......... (47) (14) 61 -- --
Other............................... -- (1) -- -- (1)
---- ---- ----- ----- -----
Net cash provided (used) by
financing activities.............. (47) (17) 101 -- 37
---- ---- ----- ----- -----
Effect of foreign exchange rate
changes on cash and cash
equivalents....................... -- (8) -- -- (8)
---- ---- ----- ----- -----
Increase (decrease) in cash and cash
equivalents....................... 1 3 -- -- 4
Cash and cash equivalents, January
1................................. -- 54 -- -- 54
---- ---- ----- ----- -----
Cash and cash equivalents, June 30
(Note)............................ $ 1 $ 57 $ -- $ -- $ 58
==== ==== ===== ===== =====
</Table>

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

(The preceding notes are an integral part of the foregoing financial
statements.)
27

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

EXECUTIVE SUMMARY

We are one of the world's leading manufacturers of automotive emission
control and ride control products and systems. We completed the separation of
our packaging business in a series of transactions during 1999, culminating in
the spin-off to our shareholders of the common stock of Pactiv Corporation
(formerly known as Tenneco Packaging Inc.) on November 4, 1999. We serve both
original equipment (OE) vehicle manufacturers and the repair and replacement
markets, or aftermarket, globally through leading brands, including Monroe(R),
Rancho(R), Clevite(R) Elastomers and Fric Rot(TM) ride control products and
Walker(R), Fonos(TM), and Gillet(TM) emission control products. Worldwide we
serve more than 30 different original equipment manufacturers, and our products
or systems are included on six of the top 10 passenger car models produced in
North American and Western Europe and all of the top 10 light truck models
produced in North America for 2003. During 2003, our aftermarket customers were
comprised of full-line and specialty warehouse distributors, retailers, jobbers,
installer chains and car dealers. We operate more than 70 manufacturing
facilities worldwide and employ approximately 19,100 people to service our
customer's demands.

Factors that are critical to our success include new business awards,
managing our overall global manufacturing footprint to ensure proper placement
and workforce levels in line with business needs, maintaining competitive wages
and benefits, maximizing efficiencies in manufacturing processes, fixing or
eliminating unprofitable businesses and reducing overall costs. In addition, our
ability to adapt to key industry trends, such as the consolidation of OE
customers, increasing technologically sophisticated content, changing
aftermarket distribution channels, increasing environmental standards and
extended product life of automotive parts, also plays a critical role in our
success.

We have a substantial amount of indebtedness, with total debt, net of cash
balances, of $1.253 billion as of June 30, 2004. As such, our ability to
generate cash--both to fund operations and service our debt--is also a
significant area of focus for our company. See "Liquidity and Capital Resources"
below for further discussion of cash flows.

Total revenues for the second quarter of 2004 were $1.1 billion, a 12
percent increase over the second quarter of 2003. Higher global OE volumes and
improved North American aftermarket revenues drove this increase. Gross margin
for the second quarter of 2004 was 21.5 percent down four-tenths of a percent
from 21.9 percent in the second quarter of 2003. Strong growth in the global OE
business outpaced the improvement in the higher gross margin aftermarket. We
reported selling, general, administrative and engineering expenses for the
second quarter of 2004 of 10.7 percent of revenues, as compared to 11.0 percent
of revenues for the second quarter of 2003. The decrease was primarily
attributable to higher sales volumes that more than offset the impact of
aftermarket new-customer changeover costs, restructuring and certain consulting
fees that related to a 1999 agreement that provided that a portion of the
consultant's compensation would be in stock appreciation rights that were priced
above the market price of our stock at the grant date. EBIT was $76 million for
the second quarter of 2004, up $9 million from the $67 million reported in the
second quarter of 2003. Stronger global operational performances drove this
improvement.

Total revenues for the first six months of 2004 were $2.1 billion, a 12
percent increase over the $1.9 million reported for same period last year.
Strong OE volumes, improved North American aftermarket revenues and currency
appreciation primarily drove this increase. Gross margin for first six months of
2004 was 20.7 percent, the same percentage as the first six months of 2003.
Selling, general, administrative and engineering expenses for the first six
months of 2004 were 11.4 percent of revenues, slightly higher than the 11.3
percent of revenues reported for the same period last year. The increase
included higher sales volumes being offset by higher aftermarket new-customer
changeover costs, restructuring and certain consulting fees tied to the stock
price. EBIT was $109 million for the first six months of 2004, up $11 million
from the $98 million reported for prior year. The increase in EBIT was primarily
driven by higher volumes and operating efficiencies.

RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003

NET SALES AND OPERATING REVENUES

The following tables reflect our revenues for the second quarter of 2004
and 2003. We present these reconciliations of revenues in order to reflect the
trend in our sales in various product lines and geographic regions separately
from the effects of doing business in currencies other than the U.S. dollar.
Additionally, "pass-through" catalytic converter sales include precious metals
pricing, which may be volatile. These "pass-through" catalytic converter sales
occur when, at the direction of our OE customers, we purchase catalytic
converters or components from suppliers, use them in our manufacturing process,
and sell them as part of the completed system. While our original equipment
customers assume the risk of this volatility, it impacts our reported revenue.
Excluding "pass-through" catalytic converter sales removes this impact. We have
not reflected any currency impact in the 2003 table since this is the base
period for measuring the effects of currency during 2004 on our operations. We
use this information to analyze the trend in our revenues before these factors.
We believe investors find this information useful in understanding
period-to-period comparisons in our revenues.

<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, 2004
-------------------------------------------------------------
PASS-THROUGH REVENUES
SALES EXCLUDING
REVENUES EXCLUDING CURRENCY AND
CURRENCY EXCLUDING CURRENCY PASS-THROUGH
REVENUES IMPACT CURRENCY IMPACT SALES
-------- -------- --------- ------------ ------------
(MILLIONS)

North America Aftermarket
Ride Control................................ $ 100 $-- $ 100 $ -- $100
Emission Control............................ 44 -- 44 -- 44
------ --- ------ ---- ----
Total North America Aftermarket........ 144 -- 144 -- 144
North America Original Equipment
Ride Control................................ 120 -- 120 -- 120
Emission Control............................ 259 1 258 84 174
------ --- ------ ---- ----
Total North America Original
Equipment........................... 379 1 378 84 294
Total North America................. 523 1 522 84 438
Europe Aftermarket
Ride Control................................ 51 2 49 -- 49
Emission Control............................ 52 2 50 -- 50
------ --- ------ ---- ----
Total Europe Aftermarket............... 103 4 99 -- 99
Europe Original Equipment
Ride Control................................ 91 4 87 -- 87
Emission Control............................ 252 14 238 81 157
------ --- ------ ---- ----
Total Europe Original Equipment........ 343 18 325 81 244
Total Europe........................ 446 22 424 81 343
Asia.......................................... 58 1 57 20 37
South America................................. 36 (1) 37 3 34
Australia..................................... 51 4 47 4 43
------ --- ------ ---- ----
Total Other......................... 145 4 141 27 114
------ --- ------ ---- ----
Total Tenneco Automotive...................... $1,114 $27 $1,087 $192 $895
====== === ====== ==== ====
</Table>

<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, 2003
-----------------------------------------------------------------
PASS-THROUGH REVENUES
SALES EXCLUDING
REVENUES EXCLUDING CURRENCY AND
CURRENCY EXCLUDING CURRENCY PASS-THROUGH
REVENUES IMPACT CURRENCY IMPACT SALES
-------- -------- --------- ------------ ------------
(MILLIONS)

North America Aftermarket
Ride Control............................ $ 90 $ -- $ 90 $ -- $ 90
Emission Control........................ 46 -- 46 -- 46
---- ----- ---- ---- ----
Total North America Aftermarket.... 136 -- 136 -- 136
North America Original Equipment
Ride Control............................ 118 -- 118 -- 118
Emission Control........................ 247 -- 247 75 172
---- ----- ---- ---- ----
Total North America Original
Equipment....................... 365 -- 365 75 290
Total North America............. 501 -- 501 75 426
Europe Aftermarket
Ride Control............................ 53 -- 53 -- 53
Emission Control........................ 49 -- 49 -- 49
---- ----- ---- ---- ----
Total Europe Aftermarket........... 102 -- 102 -- 102
Europe Original Equipment
Ride Control............................ 64 -- 64 -- 64
Emission Control........................ 222 -- 222 73 149
---- ----- ---- ---- ----
Total Europe Original Equipment.... 286 -- 286 73 213
Total Europe.................... 388 -- 388 73 315
Asia...................................... 40 -- 40 14 26
South America............................. 29 -- 29 3 26
Australia................................. 40 -- 40 4 36
---- ----- ---- ---- ----
Total Other..................... 109 -- 109 21 88
---- ----- ---- ---- ----
Total Tenneco Automotive.................. $998 $ -- $998 $169 $829
==== ===== ==== ==== ====
</Table>

Revenues from our North American operations increased $22 million in the
second quarter of 2004 compared to the same period last year reflecting higher
sales from both the OE and aftermarket businesses. Total North American OE
revenues were up $14 million to $379 million in the second quarter of 2004,
driven by higher volumes in both emission and ride control businesses. OE
emission control revenues were up $12 million to $259 million in the second
quarter of 2004, from $247 million in the prior year. Adjusted for pass-through
sales, which increased 12 percent, and currency, OE emission control sales were
up $2 million compared to the prior year. OE ride control revenues for the
second quarter of 2004 increased two percent from the prior year. Total OE
revenues, excluding pass-through sales and currency, increased two percent in
the second quarter of 2004, while North American light vehicle production rates
were flat with the second quarter of 2003. OE revenues benefited from higher
heavy-duty volumes, our position on many of North America's top-selling
platforms and a favorable shift in the mix of products we sold our OE customers.
Aftermarket revenues for North America were $144 million in the second quarter
of 2004, representing an increase of seven percent compared to the prior year.
Aftermarket ride control revenues increased $10 million or 11 percent in the
second quarter of 2004, due in large part to orders from a new customer as well
as higher sales of premium priced products. Aftermarket emission control
revenues decreased three percent in the second quarter of 2004 compared to 2003.
It appears that the double-digit declines we experienced in the exhaust
aftermarket, driven by the OE introduction of stainless steel and its negative
impact on aftermarket replacement rates, are subsiding.

Our European segment's revenues increased $58 million or 15 percent in the
second quarter of 2004 compared to last year. Total OE revenues were $343
million in the second quarter of 2004, up 20 percent from last year. OE emission
control revenues increased 14 percent to $252 million in the second quarter of
2004,

from $222 million in the prior year. Excluding an $8 million increase in
pass-through sales and a $14 million increase due to strengthening currency, OE
emission control revenues increased six percent over 2003, while European light
vehicle production levels were flat with the second quarter of 2003. We
experienced this increase despite the flat market production rates as a result
of our position on successful platforms with Volvo, Mercedes and Volkswagen,
along with new launches on Peugeot, Porsche and BMW models. OE ride control
revenues increased to $91 million in the second quarter of 2004, up 41 percent
from $64 million a year ago. Excluding a $4 million benefit from currency
appreciation, OE ride control revenues increased 34 percent. We experienced this
revenue increase, despite the flat European build rate, due to stronger sales on
new platforms with Volkswagen, Renault and Ford. European aftermarket sales were
$103 million in the second quarter of 2004 compared to $102 million last year.
Excluding $4 million attributable to currency appreciation, European aftermarket
revenues declined four percent in the second quarter of 2004 compared to last
year. Ride control aftermarket revenues, excluding the impact of currency, were
down seven percent compared to the prior year as a result of customer
consolidations, primarily in Germany and the U.K. In addition, aftermarket
emission control revenues excluding currency declined by one percent, versus an
estimated market decline of eight percent. The exhaust segment is being
adversely impacted by the now-standard use of stainless steel, which increases
the lifespan of OE exhaust products.

Revenues from our Other operations, which include South America, Australia
and Asia, increased $36 million to $145 million in the second quarter of 2004 as
compared to $109 million in the prior year. Higher OE exhaust volumes drove
increased revenues of $18 million at our Asian operations. In Australia,
stronger OE volumes and strengthening currency increased revenues by 27 percent
to $51 million. Excluding the impact of currency, Australian revenues increased
15 percent. South American revenues were up $7 million primarily as a result of
improving economies in both Brazil and Argentina, driving both OE and
aftermarket volumes higher.

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

<Table>
<Caption>
THREE MONTHS
ENDED
JUNE 30,
---------------
2004 2003 CHANGE
---- ---- ------
(MILLIONS)

North America............................................... $50 $49 $1
Europe...................................................... 14 11 3
Other....................................................... 12 7 5
--- --- --
$76 $67 $9
=== === ==
</Table>

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

<Table>
<Caption>
THREE MONTHS
ENDED
JUNE 30,
---------------
2004 2003
---- ----
(MILLIONS)

North America
Restructuring-related expenses............................ $1 $--
Changeover costs for a major new aftermarket customer..... 2 --
Consulting fees indexed to stock price.................... 1 --
Europe
Restructuring-related expenses............................ 4 1
</Table>

EBIT for North American operations increased to $50 million in the second
quarter of 2004 from $49 million one year ago. Higher volumes in both OE ride
control and emission control segments increased EBIT by $8 million in the second
quarter of 2004 compared to the prior year. The higher North American ride

control aftermarket volumes increased EBIT by $6 million. Offsetting these
increases were OE price concessions, materials costs and currency. Included in
North America's second quarter 2004 EBIT was $1 million in restructuring and
restructuring-related expenses, $2 million of changeover costs for a major new
aftermarket customer that we acquired in the first quarter and $1 million in
consulting fees indexed to the stock price. The customer changeover costs
include the cost of acquiring and disposing of competitor inventory when we
supply aftermarket parts to a new customer. We expect an additional $2 million
of changeover costs related to this customer in the second half of 2004. The
consulting fees relate to a 1999 agreement that provided that a portion of the
consultant's compensation would be in stock appreciation rights that were priced
above the market price of our stock at the grant date. These rights expire in
November 2004.

Our European segment's EBIT was a $14 million for the second quarter of
2004, up $3 million from $11 million in 2003. Higher OE volumes contributed $5
million to EBIT in the second quarter. Also contributing to EBIT was
manufacturing efficiencies of $4 million, currency appreciation of $1 million
and aftermarket price increases of $1 million. Partially offsetting these
increases in the second quarter were lower aftermarket volumes and OE pricing
concessions. Included in 2004's second quarter EBIT were $4 million in
restructuring related expenses. Included in 2003's second quarter EBIT was $1
million in restructuring-related expenses.

EBIT for our Other operations increased $5 million to $12 million in the
second quarter of 2004 compared to $7 million one year ago. Higher OE revenues
in all regions drove this improvement. Additionally, favorable currency exchange
rates in Australia increased EBIT by $1 million.

EBIT AS A PERCENTAGE OF REVENUE

<Table>
<Caption>
THREE MONTHS
ENDED
JUNE 30,
---------------
2004 2003
---- ----

North America............................................... 10% 10%
Europe...................................................... 3% 3%
Other....................................................... 8% 6%
Total Tenneco Automotive.................................. 7% 7%
</Table>

In North America, EBIT as a percentage of revenue for the second quarter of
2004 remained flat compared to the prior year. Higher volumes in both the OE and
aftermarket segments were offset by higher price concessions and materials
costs, including changeover costs. In Europe, EBIT margins for the second
quarter of 2004 were also flat compared to the prior year. Weaker aftermarket
volumes, OE price concessions and restructuring costs offset OE volume
increases, manufacturing efficiencies and currency appreciation. EBIT as a
percentage of revenue for our Other operations increased two percent in the
second quarter of 2004 from the prior year. Higher OE volumes in all regions and
currency appreciation in Australia drove the increase.

INTEREST EXPENSE, NET OF INTEREST CAPITALIZED

We reported interest expense of $34 million in the second quarter of 2004
compared to $38 million in the prior year. Last year's interest expense included
$5 million related to the write off of debt issuance costs that were deferred on
the senior debt we paid down with the proceeds of the June $350 million bond
offering. Excluding that write-off, the latest quarter's increase resulted from
higher interest expense on the debt issued in June of last year, partially
offset by benefits of the interest rate swaps we entered into in April of this
year. See more detailed explanations on our debt structure, including the $350
million bond offering in June 2003, the $125 million bond offering in December
2003 and the senior debt refinancing in December 2003 and their anticipated
impact on our interest expense, in "Liquidity and Capital
Resources -- Capitalization" later in this Management's Discussion and Analysis.

annum rate of 10 1/4 percent to floating interest rate debt at a per annum rate
of LIBOR plus a spread of 5.68 percent. Based on the current LIBOR as determined
under these agreements of 1.86 percent (which remains in effect until January
15, 2005), these swaps would reduce our annual interest expense by approximately
$4 million.

INCOME TAXES

Income taxes were $10 million in the second quarter of 2004, compared to $3
million in the prior year. Included in the second quarter of 2004's results is a
benefit of $4 million primarily related to the settlement of outstanding
Canadian tax issues. Included in the second quarter of 2003 was a benefit of $8
million related to the resolution of outstanding tax issues. The effective rate
for the second quarter of 2004 including the $4 million benefit was 23 percent.
Excluding the $4 million benefit, our effective tax rate was 34 percent. The
effective tax rate for the second quarter of 2003 was 14 percent when including
the $8 million benefit. Excluding this $8 million benefit, the effective tax
rate was 40 percent.

EARNINGS PER SHARE

We reported earnings of $30 million or $0.69 per diluted common share for
the second quarter of 2004, compared to $24 million or $0.58 per diluted common
share for 2003. Included in the results for the second quarter of 2004 were the
negative impacts from expenses related to our restructuring activities, customer
changeover costs for a major new aftermarket customer, consulting fees indexed
to the stock price and tax benefits for the resolution of several outstanding
tax issues. The net impact of these items decreased earnings per diluted common
share by $0.01. Included in the results for the second quarter of 2003 are the
negative impacts from expenses related to our restructuring activities, the
write-off of debt issuance costs relating to the bond transaction in June of
2003 and a tax benefit for the resolution of outstanding audit issues. The net
impact of these items increased earnings per diluted common share by $0.09. You
should also read Note 8 to the consolidated financial statements for more
detailed information on earnings per share.

RESTRUCTURING AND OTHER CHARGES

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

In the fourth quarter of 2001, our Board of Directors approved a
restructuring plan, a project known as Project Genesis, designed to lower our
fixed costs, improve efficiency and utilization, and better optimize our global
footprint. Project Genesis involved closing eight facilities, improving the
process flow and efficiency through value mapping and plant arrangement at 20
facilities, relocating production among facilities, and centralizing some
functional areas. The closed facilities included an emission control aftermarket
plant and an aftermarket distribution operation in Europe, a ride control plant
in Europe, an engineering center in Europe, one building at an emission control
plant complex in North America, a technology facility in North America, an
exhaust manufacturing facility in North America, and our London-based treasury
office. In the fourth quarter of 2001, we recorded pre-tax charges related to
Project Genesis of $27 million. Within the statement of income, $23 million of
the pre-tax charge was reflected in cost of sales, while $4 million was included
in selling, general and administrative expenses. We also recorded a pre-tax
charge of $4 million in cost of sales related to a strategic decision to adjust
some product offerings and our customer supply strategy in the European
aftermarket. Finally, we also incurred $1 million in other restructuring related
costs during the fourth quarter of 2001 for the value mapping and rearrangement
of one of our emission control plants in North America. Since these costs relate
to ongoing operations, they could not be accrued as part of the restructuring
charge. The total of all these restructuring and other costs recorded in the
fourth quarter of 2001 was $32 million before tax, $31 million after tax, or
$0.81 per diluted common share. As of December 31, 2003, we have eliminated 974
positions in connection with Project Genesis. Additionally, we executed this
plan more
33

efficiently than originally anticipated and as a result in the fourth quarter of
2002 reduced our reserves related to this restructuring activity by $6 million,
which was recorded in cost of sales. In the fourth quarter of 2003, we
reclassified $2 million of severance reserve to the asset impairment reserve.
This reclassification became necessary as actual asset impairments along with
the sale of our closed facilities were different than the original estimates. We
completed the remaining restructuring activities related to Project Genesis in
the second quarter of 2004.

To date we have generated about $31 million of annual savings from Project
Genesis. About $7 million of savings was related to closing the eight
facilities, about $16 million of savings was related to value mapping and plant
arrangement and about $8 million of savings was related to relocating production
among facilities and centralizing some functional areas. To date, there have
been no significant deviations from planned savings. All actions for Project
Genesis have been completed including $1 million of severance that was paid
during the second quarter of 2004.

Amounts related to the reserves we have established regarding activities
that are part of our restructuring plans are as follows:

Severance............................... $1 $1 $ -- $ -- $ --
Asset Impairment........................ -- -- -- -- --
Other................................... -- -- -- -- --
-- -- ----- ----- -----
$1 $1 $ -- $ -- $ --
== == ===== ===== =====
</Table>

Under the terms of our amended and restated senior credit agreement that
took effect on December 12, 2003, we are allowed to exclude up to $60 million of
cash charges and expenses, before taxes, related to potential future cost
reduction initiatives over the 2002-2006 period from the calculation of the
financial covenant ratios we are required to maintain under our senior credit
agreement. As of June 30, 2004, we have excluded $29 million of the $60 million
available under the terms of the senior credit facility. In addition to the
announced actions, we continue to evaluate additional opportunities to initiate
actions that will reduce our costs through implementing the most appropriate and
efficient logistics, distribution and manufacturing footprint for the future.
There can be no assurances, however, that we will undertake additional
restructuring actions. Actions that we take, if any, will require the approval
of our Board of Directors, or its authorized committee, and if the costs of the
plans exceed the amount previously approved by our senior lenders, could

require approval by our senior lenders. We plan to conduct any workforce
reductions that result in compliance with all legal and contractual requirements
including obligations to consult with workers' councils, union representatives
and others.

CRITICAL ACCOUNTING POLICES

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

Revenue Recognition

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

Long-Term Receivables

We expense pre-production design and development costs incurred for our
original equipment customers unless we have a contractual guarantee for
reimbursement of those costs from the customer. At June 30, 2004, we had $16
million recorded as a long-term receivable from original equipment customers for
guaranteed pre-production design and development arrangements. While we believe
that the vehicle programs behind these arrangements will enter production, these
arrangements allow us to recover our pre-production design and development costs
in the event that the programs are cancelled or do not reach expected production
levels. We have not experienced any material losses on arrangements where we
have a contractual guarantee of reimbursement from our customers.

Income Taxes

We have a U.S. Federal tax net operating loss ("NOL") carryforward at June
30, 2004, of $537 million, which will expire in varying amounts from 2018 to
2024. The federal tax effect of that NOL is $188 million, and is recorded as an
asset on our balance sheet at June 30, 2004. We estimate, based on available
evidence, that it is more likely than not that we will utilize the NOL within
the prescribed carryforward period. That estimate is based upon our expectations
regarding future taxable income of our U.S. operations and upon strategies
available to accelerate usage of the NOL. Circumstances that could change that
estimate include future U.S. earnings at lower than expected levels or a
majority ownership change as defined in the rules of the U.S. tax law. If that
estimate changed, we would be required to cease recognizing an income tax
benefit for any new NOL and could be required to record a reserve for some or
all of the asset currently recorded on our balance sheet. As of June 30, 2004,
we believe that there has been a significant change in our ownership, but not a
majority change, in the last three years.

Stock-Based Compensation

We utilize the intrinsic value method to account for our stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." If our compensation costs for
our stock-based compensation plans were determined using the fair value method
of accounting as provided in Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for

Stock-Based Compensation," we estimate that our pro-forma net income and
earnings per share would be lower by approximately $1 million or $0.02 per
diluted share for both the six months ended June 30, 2004 and 2003.

Goodwill and Other Intangible Assets

We utilize an impairment-only approach to value our purchased goodwill in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." Each year
in the fourth quarter, we perform an impairment analysis on the balance of
goodwill. Inherent in this calculation is the use of estimates as the fair value
of our designated reporting units is based upon the present value of our
expected future cash flows. In addition, our calculation includes our best
estimate of our weighted average cost of capital and growth rate. If the
calculation results in a fair value of goodwill which is less than the book
value of goodwill, an impairment charge would be recorded in the operating
results of the impaired reporting unit.

Pension and Other Postretirement Benefits

We have various defined benefit pension plans that cover substantially all
of our employees. We also have postretirement health care and life insurance
plans that cover a majority of our domestic employees. Our pension and
postretirement health care and life insurance expenses and valuations are
dependent on management's assumptions used by our actuaries in calculating such
amounts. These assumptions include discount rates, health care cost trend rates,
long-term return on plan assets, retirement rates, mortality rates and other
factors. Health care cost trend rate assumptions are developed based on
historical cost data and an assessment of likely long-term trends. Retirement
and mortality rates are based primarily on actual plan experience.

Our approach to establishing the discount rate assumption starts with the
Moody's AA Corporate Bond Index adjusted for an incremental yield based on
actual historical performance. This incremental yield adjustment is the result
of selecting securities whose yields are higher than the "normal" bonds that
comprise the index. Based on this approach, at September 30, 2003 the discount
rate for pension plans was 6.1 percent. The discount rate for postretirement
benefits was 6.5 percent at September 30, 2003.

Our approach to determining expected return on plan asset assumptions
evaluates both historical returns as well as estimates of future returns, and is
adjusted for any expected changes in the long-term outlook for the equity and
fixed income markets. As a result, our estimate of the long-term rate of return
on plan assets for our pension plans was 8.4 percent for 2003 and is 8.75
percent for 2004.

CHANGES IN ACCOUNTING PRINCIPLES

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"),
which was revised in December 2003. FIN 46 requires that the assets, liabilities
and results of the activity of variable interest entities be consolidated into
the financial statements of the entity that has the controlling financial
interest. FIN 46 also provides the framework for determining whether a variable
interest entity should be consolidated based on voting interest or significant
financial support provided to it. This interpretation as revised is effective
January 1, 2004. The adoption of FIN 46 did not have a material impact on our
consolidated financial statements.

entirely as equity or between the liabilities and equity section of the
statement of financial position. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003. The adoption of SFAS
No. 150 did not have a material impact on our financial position.

RESULTS FROM OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003

NET SALES AND OPERATING REVENUES

The following tables reflect our revenues for the first six months of 2004
and 2003, including the same reconciliations as are presented above for the
second quarter of 2004 and 2003. See "Results from Operations for the Three
Months Ended June 30, 2004 and 2003" for a description of why we present, and
how we use, these reconciliations.

<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2004
--------------------------------------------------------------------
PASS-THROUGH REVENUES
SALES EXCLUDING
REVENUES EXCLUDING CURRENCY AND
CURRENCY EXCLUDING CURRENCY PASS-THROUGH
REVENUES IMPACT CURRENCY IMPACT SALES
-------- -------- ------------ ------------ ------------
(MILLIONS)

North America Aftermarket
Ride Control.......................... $ 185 $-- $ 185 $ -- $ 185
Emissions Control..................... 81 -- 81 -- 81
------ --- ------ ---- ------
Total North America
Aftermarket................... 266 -- 266 -- 266
North America Original Equipment
Ride Control.......................... 238 -- 238 -- 238
Emissions Control..................... 522 6 516 172 344
------ --- ------ ---- ------
Total North America Original
Equipment..................... 760 6 754 172 582
Total North America........... 1,026 6 1,020 172 848
Europe Aftermarket
Ride Control.......................... 89 6 83 -- 83
Emissions Control..................... 94 8 86 -- 86
------ --- ------ ---- ------
Total Europe Aftermarket......... 183 14 169 -- 169
Europe Original Equipment
Ride Control.......................... 176 14 162 -- 162
Emissions Control..................... 495 35 460 158 302
------ --- ------ ---- ------
Total Europe Original
Equipment..................... 671 49 622 158 464
Total Europe.................. 854 63 791 158 633
Asia.................................... 97 1 96 33 63
South America........................... 71 3 68 7 61
Australia............................... 100 16 84 8 76
------ --- ------ ---- ------
Total Other................... 268 20 248 48 200
------ --- ------ ---- ------
Total Tenneco Automotive................ $2,148 $89 $2,059 $378 $1,681
====== === ====== ==== ======
</Table>

<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2003
--------------------------------------------------------------------
PASS-THROUGH REVENUES
SALES EXCLUDING
REVENUES EXCLUDING CURRENCY AND
CURRENCY EXCLUDING CURRENCY PASS-THROUGH
REVENUES IMPACT CURRENCY IMPACT SALES
-------- -------- ------------ ------------ ------------
(MILLIONS)

North America Aftermarket
Ride Control.......................... $ 162 $ -- $ 162 $ -- $ 162
Emissions Control..................... 82 -- 82 -- 82
------ ----- ------ ---- ------
Total North America
Aftermarket................... 244 -- 244 -- 244
North America Original Equipment
Ride Control.......................... 234 -- 234 -- 234
Emissions Control..................... 504 -- 504 162 342
------ ----- ------ ---- ------
Total North America Original
Equipment..................... 738 -- 738 162 576
Total North America........... 982 -- 982 162 820
Europe Aftermarket
Ride Control.......................... 88 -- 88 -- 88
Emissions Control..................... 90 -- 90 -- 90
------ ----- ------ ---- ------
Total Europe Aftermarket......... 178 -- 178 -- 178
Europe Original Equipment
Ride Control.......................... 121 -- 121 -- 121
Emissions Control..................... 434 -- 434 147 287
------ ----- ------ ---- ------
Total Europe Original
Equipment..................... 555 -- 555 147 408
Total Europe.................. 733 -- 733 147 586
------ ----- ------ ---- ------
Asia.................................... 76 -- 76 27 49
South America........................... 55 -- 55 5 50
Australia............................... 73 -- 73 7 66
------ ----- ------ ---- ------
Total Other................... 204 -- 204 39 165
------ ----- ------ ---- ------
Total Tenneco Automotive................ $1,919 $ -- $1,919 $348 $1,571
====== ===== ====== ==== ======
</Table>

Revenues from our North American operations increased $44 million in the
first six months of 2004 compared to last year's first six months reflecting
higher sales from both OE and aftermarket businesses. Total North American OE
revenues increased three percent to $760 million in the first six months of this
year primarily due to higher emission control volumes and ride control
heavy-duty volumes. OE emission control revenues were up four percent in the
first six months of 2004 as compared to the prior year. Pass-through emission
control sales increased six percent to $172 million in the first six months of
2004. Adjusted for pass-through sales, and currency, OE emission control sales
were up one percent compared to the prior year. OE ride control revenues
increased two percent from the prior year. Total OE revenues, excluding
pass-through sales, and currency, increased one percent in the first six months
of 2004, while North American light vehicle production was unchanged from the
first six months a year ago. Our revenue improvement was greater than the flat
production rate primarily due to our strong position on top-selling platforms
with General Motors, Ford and Toyota, as well as higher heavy-duty volumes.
Aftermarket revenues for North America were $266 million in the first six months
of 2004, representing an increase of nine percent compared to the same period in
the prior year. Aftermarket ride control revenues increased $23 million or 15
percent in the first six months of 2003, primarily due to orders from a new
customer, higher sales of premium priced products and, to a lesser degree,
introductory sales of recently launched DuPont car care appearance products.
Aftermarket emission control revenues declined one percent in the first six
months of 2004 compared to 2003 reflecting a continued overall market decline in
the emission control business and the longer lives of exhaust components due to
the OE use of stainless steel, which reduces aftermarket replacement rates.

Our European segment's revenues increased $121 million or 16 percent in the
first six months of 2004 compared to last year's first six months. Total OE
revenues were $671 million, up 21 percent from the first six months of last
year. OE emission control revenues in the first six months increased 14 percent
to $495 million from $434 million in the prior year. Excluding an $11 million
increase in pass-through sales and a $35 million increase due to strengthening
currency, OE emissions control revenues increased five percent over the first
six months of 2003. This improvement was greater than overall European
production levels, which remained unchanged during the first six months compared
to a year ago. Strong volumes on PSA, Volkswagen, Ford and Porsche platforms
more than offset the general market's flat production rates. OE ride control
revenues in the first six months increased to $176 million, up 45 percent from
$121 million a year ago. Excluding a $14 million benefit from currency
appreciation, OE ride control revenues increased 34 percent. We experienced this
revenue increase despite the overall flat market build rates due to stronger
sales on new and existing platforms with Volkswagen, Ford, Renault and Fiat.
European aftermarket sales were $183 million in the first six months of this
year compared to $178 million in last year's first six months. Excluding $14
million attributable to currency appreciation, European aftermarket revenues
declined six percent in the first six months of 2004 compared to the same period
last year. Ride control aftermarket revenues, excluding the impact of currency,
were down six percent compared with the prior year, reflecting continued market
pressure from customer consolidations. Additionally, aftermarket emission
control revenues were lower as a result of the now standard use of longer
lasting stainless steel by OE manufacturers. Excluding the impact of currency,
European aftermarket emission control revenues declined five percent from the
prior year.

Revenues from our Other operations, which include South America, Australia
and Asia, increased $64 million to $268 million in the first six months of 2004
as compared to $204 million in the first six months of the prior year. Higher OE
volumes and pass-through sales drove increased revenues of $21 million at our
Asian operations. In Australia, stronger volumes and strengthening currency
increased revenues by 37 percent to $100 million. Stronger volumes, pricing and
currency appreciation increased South American revenues by 16 million or 27
percent over the same period last year.

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

<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
----------------------
2004 2003 CHANGE
---- ---- ------
(MILLIONS)

North America............................................... $ 80 $77 $ 3
Europe...................................................... 11 10 1
Other....................................................... 18 11 7
---- --- ---
$109 $98 $11
==== === ===
</Table>

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

<Table>
<Caption>
SIX MONTHS
ENDED
JUNE 30,
------------
2004 2003
---- ----
(MILLIONS)

North America
Restructuring-related expenses............................ $3 $3
Changeover costs for a major new aftermarket customer..... 8 --
Consulting fees indexed to stock price.................... 2 --
Europe
Restructuring-related expenses............................ 7 3
Consulting fees indexed to stock price.................... 1 --
Other
Consulting fees indexed to stock price.................... 1 --
</Table>

EBIT for North American operations increased to $80 million in the first
six months of 2004 from $77 million one year ago, driven by higher volumes in
both the OE ride control and emission control product lines. Higher OE ride and
emission control volumes increased EBIT by $7 million and $5 million,
respectively. Partially offsetting these increases were price concessions and
higher selling, general and administrative costs. The North American aftermarket
ride control volumes increased EBIT by $13 million with price and mix
improvements adding another $4 million to EBIT. These increases were
substantially offset by higher selling, general and administrative costs
including changeover, promotion and advertising expenses. Included in 2004's
EBIT for the first six months was $3 million in restructuring and
restructuring-related expenses, $8 million in changeover costs and $2 million in
consulting fees indexed to the stock price. Included in 2003's EBIT for the
first six months was $3 million in restructuring-related expenses.

Our European segment's EBIT was $11 million for the first six months of
2004, up $1 million from $10 million in the first six months of 2003. Higher OE
volumes in both product lines contributed $10 million to EBIT. OE manufacturing
efficiencies increased EBIT $3 million. Currency appreciation added $2 million
of EBIT compared to the same period last year. These increases were partially
offset by price concessions and higher selling, general and administrative
costs. Lower aftermarket volumes also reduced EBIT by $4 million, but were more
than offset by higher operating efficiencies and customer price increases.
Included in 2004's EBIT for the first six months were $7 million in
restructuring-related expenses and $1 million in consulting fees indexed to the
stock price. For the same period last year, EBIT included $3 million in
restructuring-related expenses.

EBIT for our Other operations increased $7 million to $18 million in the
first six months of 2004 compared to the same period one year ago. Higher
revenues, operating efficiencies and strengthening Australian currency are the
main drivers of this increase. Included in 2004's EBIT for the first six months
was $1 million in consulting fees indexed to the stock price.

EBIT AS A PERCENTAGE OF REVENUE

<Table>
<Caption>
SIX MONTHS
ENDED
JUNE 30,
------------
2004 2003
---- ----

North America............................................... 8% 8%
Europe...................................................... 1% 1%
Other....................................................... 7% 5%
Total Tenneco Automotive.................................. 5% 5%
</Table>

In North America, EBIT as a percentage of revenue for the first six months
of 2004 was flat compared to the prior year. Higher volumes in both the OE and
aftermarket segments were offset by higher price concessions, materials costs
and selling, general and administrative costs, including changeover costs. In
Europe, EBIT margins for the first six months of 2004 were level with the same
period last year, remaining at one percent. OE volume increases, manufacturing
efficiencies and currency appreciation were offset by OE price concessions,
restructuring expenses and higher selling, general and administrative costs.
EBIT as a percentage of revenue for our Other operations increased to seven
percent in the first six months of 2004 compared to five percent in the prior
year. Higher volumes, operating efficiencies and currency appreciation,
primarily drove this increase.

INTEREST EXPENSE, NET OF INTEREST CAPITALIZED

We reported interest expense of $69 million for the first six months of
both 2004 and 2003. Last year's interest expense includes $5 million for the
write-off of senior debt issuance costs that were deferred on the senior debt
that we paid down with the proceeds of our $350 million bond offering in June of
2003. For the first six months of 2004 higher interest expense on the
10 1/4bonds that we issued in June and December of 2003 was partially offset by
benefits of the interest rate swaps we entered into in April of this year. See
more detailed explanations on our debt structure, including the $350 million
bond offering in June 2003 and its anticipated

impact on our interest expense, in "Liquidity and Capital
Resources--Capitalization" later in this Management's Discussion and Analysis.

INCOME TAXES

Income taxes were a $9 million expense for the first six months of 2004,
compared to a $1 million expense for the first six months of 2003. The first six
months of 2004 included $5 million of tax benefits, reflecting the settlement of
prior year tax issues on a more favorable basis than originally anticipated.
Including these benefits the effective tax for the first six months of 2004 was
23 percent. Excluding these benefits our effective tax rate was 34 percent. The
first six months of 2003 included benefits of $11 million related to the
resolution of outstanding tax issues. Including these benefits the effective tax
rate for the first six months of 2003 was five percent. Excluding these benefits
our effective tax rate was 40 percent.

EARNINGS PER SHARE

We reported earnings per diluted common share of $0.65 for the first six
months of 2004, compared to $0.60 per diluted share for the first six months of
2003. Included in the results for the first six months of 2004 were the negative
impacts from expenses related to our restructuring activities, customer
changeover costs for a major new aftermarket customer, consulting fees indexed
to the stock price and benefits for the resolution of outstanding tax issues. In
total, these items decreased earnings per diluted common share by $0.20.
Included in the results for the first six months of 2003 are the negative
impacts from expenses related to our restructuring activities, the write-off of
debt issuance costs relating to the bond transaction in June of 2003 and tax
benefits for the resolution of several audit issues. The net impact of these
items increased earnings per diluted common share by $0.10. You should also read
Note 8 to the financial statements for more detailed information on earnings per
share.

LIQUIDITY AND CAPITAL RESOURCES

CAPITALIZATION

<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003 % CHANGE
-------- ------------ --------
(MILLIONS)

Short-term debt and current maturities...................... $ 20 $ 20 --%
Long-term debt.............................................. 1,399 1,410 (1)
------ ------
Total debt.................................................. 1,419 1,430 (1)
------ ------
Total minority interest..................................... 23 23 --
Common shareholders' equity................................. 73 58 26
------ ------
Total capitalization........................................ $1,515 $1,511 --
====== ======
</Table>

General. The increase in shareholders' equity primarily results from the
net income of $28 million reported in the first six months of 2004 and a $6
million increase in premium on common stock issued pursuant to benefit plans and
other transactions. This amount was offset by a decrease of $19 million related
to the translation of foreign balances into U.S. dollars. Although our book
equity balance was small at June 30, 2004, it should not affect our business
operations. We have no debt covenants that are based upon our book equity, and
there are no other agreements that are adversely impacted by our relatively low
book equity.

Short-term debt, which includes the current portion of long-term
obligations and borrowings by foreign subsidiaries, as well as our revolving
credit facility, remained constant in the second quarter of 2004. There were no
borrowings outstanding under our revolving credit facility at both June 30, 2004
and 2003. The overall decrease in long-term debt resulted from payments made on
our outstanding long-term debt and capital leases in addition to our position on
interest rate swaps entered into in April 2004. See below for further
information on the interest rate swaps.

Senior Credit Facility. Our financing arrangements are primarily provided
by a committed senior secured financing arrangement with a syndicate of banks
and other financial institutions, which was $800 million at June 30, 2004. The
arrangement is secured by substantially all our domestic assets and pledges of
66 percent of the stock of certain first-tier foreign subsidiaries, as well as
guarantees by our material domestic subsidiaries. We originally entered into
this facility in 1999 and since that time have periodically requested and
received amendments to the facility for various purposes. In 2003, we engaged in
a series of transactions that resulted in the full refinancing of the facility,
through an amendment and restatement, in December.

In June 2003, we issued $350 million of 10 1/4 percent senior secured notes
in a private placement. The notes have a final maturity date of July 15, 2013.
The notes accrue interest from June 19, 2003 with a first interest payment date
of January 15, 2004. In October 2003, we completed an offer to exchange all of
the notes issued in the June 2003 private placement for a like amount of the
10 1/4 percent senior secured notes, with substantially identical terms, which
had been registered under the Securities Act of 1933. These notes are described
in more detail below under "--Senior and Subordinated Notes."

described below. In addition, we expensed in the second and fourth quarters of
2003 a total of approximately $12 million of existing deferred debt issuance
costs as a result of retiring the term loans under the senior credit facility.

Our amended and restated senior credit facility consists of a seven-year,
$400 million term loan B facility maturing in December 2010; a five-year, $220
million revolving credit facility maturing in December 2008; and a seven-year,
$180 million tranche B letter of credit/revolving loan facility maturing in
December 2010. Although the term loan facility and the tranche B letter of
credit/revolving loan facility mature in 2010, the two facilities are subject to
mandatory prepayment in full, and any letters of credit issued under the term
loan B/revolving loan facility are subject to full cash collateralization, (a)
on April 15, 2009, if by that date our senior subordinated notes are not
refinanced or extended with a maturity not earlier than April 15, 2011, and (b)
on the date which is six months prior to the date to which the senior
subordinated notes have been refinanced or had their maturity extended, if our
senior subordinated notes have been refinanced or had their maturity extended to
a date prior to April 15, 2011. Quarterly principal repayment installments of $1
million on the term loan B facility will begin on March 31, 2004 and continue
until December 31, 2009, then rise to $94 million each on March 31, June 30, and
September 30 of 2010, with the remaining $94 million final principal repayment
due on December 12, 2010. As of June 30, 2004, borrowings under the term loan B
facility and the tranche B letter of credit facility bear interest at an annual
rate equal to, at our option, either (i) the London Interbank Offering Rate plus
a margin of 300 basis points; or (ii) a rate consisting of the greater of the JP
Morgan Chase prime rate or the Federal Funds rate plus 50 basis points, plus a
margin of 200 basis points. Under the provisions of the senior credit facility
agreement, the interest margins for borrowings under the credit facility and
fees paid on letters of credit issued under our credit facility are subject to
adjustment based on the consolidated leverage ratio (consolidated indebtedness
divided by consolidated EBITDA as defined in the senior credit facility
agreement) measured at the end of each quarter. The interest margins for
borrowings under the term loan B facility will be further reduced by 25 basis
points following the end of each fiscal quarter for which the consolidated
leverage ratio is less than 3.5. The interest margin on our revolving credit
facility is currently 25 basis points higher than those stated above, and is
subject to adjustment beginning with the fourth quarter of 2004. We also pay a
commitment fee of 50 basis points on the unused portion of the revolving credit
facility. Our senior secured credit facility does not contain any terms that
could accelerate the payment of the facility as a result of a credit rating
agency downgrade.

The new $180 million tranche B letter of credit/revolving loan facility is
available for borrowings of revolving loans and to support letters of credit
issued from time to time under the senior credit facility. On December 12, 2003,
the tranche B letter of credit/revolving loan facility lenders deposited $180
million with the administrative agent, who will invest that amount in time
deposits. Revolving loans can be drawn, repaid and reborrowed thereunder. Such
revolving loans will be funded from such deposits and such repayments will be
redeposited with the administrative agent. If a letter of credit is paid under
this facility and not reimbursed in full by us, each participating lender's
ratable share of the deposit will be applied automatically in satisfaction of
the reimbursement obligation. We will not have an interest in any such funds on
deposit, and we will not account for such funds as our indebtedness when
deposited with the administrative agent until drawn by us as described below.
Revolving loans borrowed under such facility will be funded with the funds on
deposit in such accounts and accrue interest at a rate per annum equal to LIBOR
plus 300 basis points. Letters of credit issued thereunder will accrue a letter
of credit fee at a per annum rate of 300 basis points for the pro
44

rata account of the lenders under such facility and a fronting fee for the
ratable account of the issuers thereof at a per annum rate in an amount to be
agreed upon payable monthly in arrears. The administrative agent will pay on a
monthly basis to the lenders under the facility a return on their funds actually
on deposit in such accounts in an amount equal to a per annum rate of monthly
LIBOR (reset every business day during such monthly period) minus 10 basis
points. We will be obligated to pay such lenders on a monthly basis a fee equal
to the excess of (x) a per annum rate equal to monthly LIBOR (reset at the start
of the applicable month) plus 300 basis points on the size of such facility
(i.e., $180 million initially) over (y) the sum of (1) the amount of such return
for such month, (2) the amount of interest accrued on such loans under such
facility for such month and (3) the letter of credit fees (but not the fronting
fees) accrued on such letters of credit under such facility for such month;
provided, that except in certain circumstances, the aggregate amount of such
interest and fees shall not exceed the amount determined pursuant to clause (x)
above minus such return. The interest margins paid on revolving loans and the
fees paid on letters of credit issued under the tranche B letter of
credit/revolving loan facility will reduce by 25 basis points following the end
of each fiscal quarter for which the consolidated leverage ratio is less than
4.0.

The tranche B letter of credit/revolving loan facility will be reflected as
debt on our balance sheet only if we have outstanding thereunder revolving loans
or payments by the facility in respect of letters of credit. We will not be
liable for any losses to or misappropriation of any (i) return due to the
administrative agent's failure to achieve the return described above or to pay
all or any portion of such return to any lender under such facility or (ii)
funds on deposit in such account by such lender (other than the obligation to
repay funds released from such accounts and provided to us as revolving loans
under such facility).

The amended and restated senior credit facility requires that we maintain
financial ratios equal to or better than the following consolidated leverage
ratios (consolidated indebtedness divided by consolidated EBITDA), consolidated
interest coverage ratios (consolidated EBITDA divided by consolidated cash
interest paid), and fixed charge coverage ratios (consolidated EBITDA less
consolidated capital expenditures, divided by consolidated cash interest paid)
at the end of each period indicated. The financial ratios required under the
amended senior credit facility and, in the case of the first and second quarters
of 2004, the actual ratios we achieved are shown in the following tables:

<Table>
<Caption>
QUARTER ENDED
-------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2004 2004 2004 2004
------------ ------------ ------------- ------------
REQ. ACT. REQ. ACT. REQUIRED REQUIRED
---- ---- ---- ---- ------------- ------------

Leverage Ratio (maximum).................... 5.00 3.97 5.00 3.78 4.75 4.75
Interest Coverage Ratio (minimum)........... 2.00 2.77 2.00 3.15 2.00 2.00
Fixed Charge Coverage Ratio (minimum)....... 1.10 1.76 1.10 2.04 1.10 1.10
</Table>

<Table>
<Caption>
QUARTERS ENDING
----------------------------------------------------------------------------------------------------
MARCH 31,
2005- SEPTEMBER 30- MARCH 31- MARCH 31- MARCH 31- MARCH 31- MARCH 31-
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2005 2006 2007 2008 2009 2010
--------- ------------- ------------ ------------ ------------ ------------ ------------
REQ. REQ. REQ. REQ. REQ. REQ. REQ.
--------- ------------- ------------ ------------ ------------ ------------ ------------

Leverage Ratio (maximum)... 4.75 4.50 4.25 3.75 3.50 3.50 3.50
Interest Coverage Ratio
(minimum)................ 2.00 2.00 2.10 2.20 2.35 2.50 2.75
Fixed Charge Coverage Ratio
(minimum)................ 1.10 1.10 1.15 1.25 1.35 1.50 1.75
</Table>

As part of the amendment and restatement, the terms of our senior credit
facility were also revised to: (i) extend the period of time during which we can
exclude up to $60 million of cash charges and expenses, before taxes, related to
any cost reduction initiatives from the calculation of the financial covenant
ratios by another two years through 2006; (ii) permit the refinancing of our
senior subordinated notes and/or our 10 1/4 percent senior secured notes using
the net cash proceeds from the issuance of similarly structured debt; (iii)
permit the repurchase of our senior subordinated notes and/or our 10 1/4 percent
senior secured notes using the net cash proceeds from the issuance of shares of
common stock of Tenneco Automotive Inc.; and

(iv) delete the mandatory prepayment of term loans from excess cash flow in 2003
and reduce the percentage of excess cash flow that must be used to prepay term
loans in subsequent years from 75 percent to 50 percent.

The senior credit facility agreement also contains restrictions on our
operations that are customary for similar facilities, including limitations on:
(i) incurring additional liens; (ii) sale and leaseback transactions (except for
the permitted transactions as described in the amendment); (iii) liquidations
and dissolutions; (iv) incurring additional indebtedness or guarantees; (v)
capital expenditures; (vi) dividends; (vii) mergers and consolidations; and
(viii) prepayments and modifications of subordinated and other debt instruments.
Compliance with these requirements and restrictions is a condition for any
incremental borrowings under the senior credit facility agreement and failure to
meet these requirements enables the lenders to require repayment of any
outstanding loans. As of June 30, 2004, we were in compliance with both the
financial covenants (as indicated above) and operational restrictions of the
facility.

Senior Secured and Subordinated Notes. Our outstanding debt also includes
$500 million of 11 5/8 percent senior subordinated notes due October 15, 2009 in
addition to the $475 million of 10 1/4 percent senior secured notes due July 15,
2013 described above. We can redeem some or all of the notes at any time after
July 15, 2008, in the case of the senior secured notes, and October 15, 2004, in
the case of the senior subordinated notes. If we sell certain of our assets or
experience specified kinds of changes in control, we must offer to repurchase
the notes. We are permitted to redeem up to 35 percent of the senior secured
notes with the proceeds of certain equity offerings completed before July 15,
2006.

The senior indentures for our senior secured notes and existing senior
subordinated notes require that we, as a condition to incurring certain types of
indebtedness not otherwise permitted, maintain an interest coverage ratio of not
less than 2.25. We have not incurred any of the types of indebtedness not
otherwise permitted by the indentures. The indentures also contain restrictions
on our operations, including limitations on: (i) incurring additional
indebtedness or liens; (ii) dividends; (iii) distributions and stock
repurchases; (iv) investments; and (v) mergers and consolidations. Subject to
limited exceptions, all of our existing and future material domestic wholly
owned subsidiaries fully and unconditionally guarantee these notes on a joint
and several basis. In addition, the senior secured notes and related guarantees
are secured by second priority liens, subject to specified exceptions, on all of
our and our subsidiary guarantors' assets that secure obligations under our
senior credit facility, except that only a portion of the capital stock of our
and our subsidiary guarantor's domestic subsidiaries is provided as collateral
and no assets or capital stock of our direct or indirect foreign subsidiaries
secure the notes or guarantees. There are no significant restrictions on the
ability of the subsidiaries that have guaranteed these notes to make
distributions to us. As of June 30, 2004, we were in compliance with the
covenants and restrictions of these indentures.

From time to time, we evaluate opportunities to refinance our senior and
subordinated notes. For example, the 11 5/8 percent senior subordinated notes
are callable beginning in October 2004. If we determined it is advantageous to
do so, we could refinance the senior subordinated notes with the cash proceeds
of sales of new debt, debt securities or preferred stock convertible into common
equity, or common stock, or through any combination of those securities. We
previously disclosed our consideration of specific transactions to refinance our
subordinated notes earlier this year, but determined not to proceed with those
transactions because the pricing for the new securities we would have issued to
complete the refinancing was not sufficiently attractive in light of our
intended use of the proceeds. Any future decision to refinance our current debt
will be based upon the current economic conditions and the benefits to our
company.

Accounts Receivable Securitization. In addition to our senior credit
facility, senior secured notes and senior subordinated notes, we also sell some
of our accounts receivable. In North America, we have an accounts receivable
securitization program with a commercial bank. We sell original equipment and
aftermarket receivables on a daily basis under this program. We had sold
accounts receivable under this program of $48 million and $50 million at June
30, 2004 and 2003, respectively. This program is subject to cancellation prior
to its maturity date if we were to (i) fail to pay interest or principal
payments on an amount of indebtedness exceeding $50 million, (ii) default on the
financial covenant ratios under the senior credit facility, or (iii) fail to
maintain certain financial ratios in connection with the accounts receivable
securitization program. In January 2003, this program was amended to extend its
term to January 31, 2005 and reduce

the size of the program to $50 million. The program has since been amended to
increase its size to $75 million with its termination date unchanged at January
31, 2005. We also sell some receivables in our European operations to regional
banks in Europe. At June 30, 2004, we had sold $100 million of accounts
receivable in Europe up from $78 million at June 30, 2003. The arrangements to
sell receivables in Europe are not committed and can be cancelled at any time.
If we were not able to sell receivables under either the North American or
European securitization programs, our borrowings under our revolving credit
agreements would increase. These accounts receivable securitization programs
provide us with access to cash at costs that are generally favorable to
alternative sources of financing, and allow us to reduce borrowings under our
revolving credit agreements.

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

CONTRACTUAL OBLIGATIONS

Our remaining required debt principal amortization and payment obligations
under lease and certain other financial commitments as of June 30, 2004, are
shown in the following table:

<Table>
<Caption>
PAYMENTS DUE IN:
--------------------------------------------------------
BEYOND
2004 2005 2006 2007 2008 2008 TOTAL
---- ---- ---- ---- ---- ------ ------
(MILLIONS)

Obligations:
Revolver borrowings....................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Senior long-term debt..................... 2 4 4 4 4 380 398
Long-term notes........................... -- 1 -- 1 2 470 474
Capital leases............................ 2 3 3 3 2 5 18
Subordinated long-term debt............... -- -- -- -- -- 500 500
Other subsidiary debt..................... 1 -- -- -- -- -- 1
Short-term debt........................... 12 -- -- -- -- -- 12
---- ---- ---- ---- ---- ------ ------
Debt and capital lease obligations.......... 17 8 7 8 8 1,355 1,403
Operating leases............................ 9 15 12 12 5 6 59
Interest payments........................... 62 122 122 122 121 285 834
Capital commitments......................... 29 -- -- -- -- -- 29
Stock appreciation rights................... 2 -- -- -- -- -- 2
---- ---- ---- ---- ---- ------ ------
Total Payments.............................. $119 $145 $141 $142 $134 $1,646 $2,327
==== ==== ==== ==== ==== ====== ======
</Table>

We principally use our revolving credit facilities to finance our
short-term capital requirements. As a result, we classify the outstanding
balances of the revolving credit facilities within our short-term debt even
though the revolving credit facility has a termination date of December 13, 2008
and the tranche B letter of credit facility/revolving loan facility has a
termination date of December 13, 2010.

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

Included in our contractual obligations is the amount of interest to be
paid on our long-term debt. As our debt structure contains both fixed and
variable rate interest debt, we have made assumptions in calculating the amount
of the future interest payments. Interest on our senior secured notes is
calculated using the fixed rates of 10 1/4 percent. Interest on our senior
subordinated notes is calculated using the fixed rate of 11 5/8 percent.
Interest on our variable rate debt is calculated as 350 basis point plus LIBOR
of 1.5 percent which is the current rate at June 30, 2004. We have assumed that
LIBOR will remain unchanged for the outlying years. See
"--Capitalization--Senior Secured and Subordinated Notes." In addition we have
included the impact of our interest rate swaps entered into in April 2004. See
"Interest Rate Risk" below.

We have also included an estimate of expenditures required after June 30,
2004 to complete the facilities and projects authorized at December 31, 2003, in
which we have made substantial commitments in connections with facilities. In
addition, we have included an estimate of our obligation to a consulting firm
who received stock appreciation rights ("SAR") as partial payment for services
rendered in the year 2000. The SAR's expire in November 2004.

We have not included purchase obligations as part of our contractual
obligations as we generally do not enter into long-term agreements with our
suppliers. In addition, the agreements we currently have do not specify the
volumes we are required to purchase. If any commitment is provided, in many
cases the agreements state only the minimum percentage of our purchase
requirements we must buy from the supplier. As a result, these purchase
obligations fluctuate from year to year and we are not able to quantify the
amount of our future obligation.

We have also not included material cash requirements for taxes and funding
requirements for pension and postretirement benefits. We have not included cash
requirements for taxes as we are a taxpayer in certain foreign jurisdictions but
not in domestic locations. Additionally, it is difficult to estimate taxes to be
paid as shifts in where we generate income can have a significant impact on
future tax payments. We have not included cash requirements for funding pension
and postretirement costs, as based upon current estimates we believe we will be
required to make contributions between $24 million to $29 million to those plans
in 2004 of which approximately $11 million has been contributed as of June 30,
2004. Pension and postretirement contributions beyond 2004 will be required but
those amounts will vary based upon many factors, including the performance of
our pension fund investments during 2004.

We occasionally provide guarantees that could require us to make future
payments in the event that the third party primary obligor does not make its
required payments. We have not recorded a liability for any of these guarantees.
The only third party guarantee we have made is the performance of lease
obligations by a former affiliate. Our maximum liability under this guarantee
was approximately $4 million and $5 million at June 30, 2004 and 2003,
respectively. We have no recourse in the event of default by the former
affiliate. However, we have not been required to make any payments under this
guarantee.

Additionally, we have from time to time issued guarantees for the
performance of obligations by some of our subsidiaries, and some of our
subsidiaries have guaranteed our debt. All of our then existing and future
material domestic wholly-owned subsidiaries fully and unconditionally guarantee
the $800 million senior secured credit facility, the $475 million senior secured
notes and the $500 million senior subordinated notes on a joint and several
basis. The arrangement for the senior secured credit facility is also secured by
first-priority liens on substantially all our domestic assets and pledges of 66
percent of the stock of certain first-tier foreign subsidiaries. The arrangement
for the $475 million senior secured notes is also secured by second-priority
liens on substantially all of our domestic assets, excluding some of the stock
of our domestic subsidiaries. This arrangement is not secured by any pledges of
stock or assets of our foreign subsidiaries. You should also read Note 12 where
we present the Supplemental Guarantor Condensed Consolidating Financial
Statements.
48

CASH FLOWS

<Table>
<Caption>
SIX MONTHS
ENDED
JUNE 30,
------------
2004 2003
---- ----
(MILLIONS)

Cash provided (used) by:
Operating activities...................................... $ 59 $ 28
Investing activities...................................... (45) (53)
Financing activities...................................... 3 37
</Table>

Operating Activities

For the six months ended, June 30, 2004, cash flows provided from operating
activities were $59 million as compared to $28 million in the prior six months.
The increase was primarily attributable to higher earnings and a reduced use of
working capital year over year. For the first six months of 2004 working capital
was a use of $61 million as compared to a use of $77 million for the first six
months of 2003. More aggressive management of payables, lower cash tax payments
and the timing of payments versus other current liabilities accrued in the first
six months of the current year are primary drivers to the increase.

In June 2001, we entered into arrangements with two major OE customers in
North America under which, in exchange for a discount, payments for product
sales are made earlier than otherwise required under existing payment terms.
These arrangements reduced accounts receivable by $88 million and $89 million as
of June 30, 2004 and 2003, respectively. We have been informed that the
financing company that supports this program intends to discontinue advance
payments on behalf of the OE customers after December 31, 2005. Although we
cannot assure you that another similar arrangement will be available for periods
after December 2005 on commercially reasonable terms or at all, we intend to
seek such an arrangement and presently believe that one will be available in the
marketplace.

In June 2003, we entered into a similar arrangement with a third major OE
customer in North America. This arrangement further reduced accounts receivable
by $15 million at June 30, 2004. In March 2004, we entered into another
arrangement with a major OE customer in Europe. This arrangement reduced
accounts receivable by $19 million at June 30, 2004. These arrangements can be
cancelled at any time.

Investing Activities

Cash used for investing activities was $8 million lower in the first six
months of 2004 compared to the same period a year ago. In the first six months
of 2004, we received $11 million in cash from the sale of our Birmingham, U.K.
facility. Capital expenditures were $54 million during the first six months of
both 2004 and 2003.

Financing Activities

Cash flow from financing activities was a $3 million inflow in the first
six months of 2004 compared to an inflow of $37 million in the same period of
2003. The primary reason for the change is attributable to the net increase in
debt related to the $350 million bond offering in June of 2003.

INTEREST RATE RISK

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

On June 30, 2004, we had $988 million in long-term debt obligations that
have fixed interest rates. Of that amount, $500 million is fixed through October
2009, and $480 million through July 2013, while the remainder was fixed over
periods of 2005 through 2025. There were also $413 million in long-term debt
obligations that have variable interest rates based on a current market rate of
interest. In April 2004, we entered into three separate fixed-to-floating
interest rate swaps with two separate financial institutions. These agreements
swapped an aggregate of $150 million of fixed interest rate debt at a per annum
rate of 10 1/4 percent to floating interest rate debt at a per annum rate of
LIBOR plus a spread of 5.68 percent. Each agreement requires semi-annual
settlements through July 15, 2013. Based on the current LIBOR as determined
under these agreements of 1.86 percent (which remains in effect until January
15, 2005), these swaps would reduce our annual interest expense by approximately
$4 million. The swaps qualify as fair value hedges in accordance with SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," and as such
are recorded on the balance sheet at market value with an offset to the
underlying hedged item, which is long-term debt. As of June 30, 2004, the fair
value of the interest rate swaps was approximately a negative $6 million, which
has been recorded as a decrease to long-term debt and an increase to other long-
term liabilities.

We estimate that the fair value of our long-term debt at June 30, 2004 was
about 108 percent of its book value and a one percentage point increase or
decrease in interest rates would increase or decrease the annual interest
expense we recognize in the income statement and the cash we pay for interest
expense by about $3 million after tax, excluding the effect of the interest rate
swaps we completed in April 2004. A one percentage point increase or decrease in
interest rates on the swaps we completed in April 2004 would increase or
decrease the annual interest expense we recognize in the income statement and
the cash we pay for interest expense by approximately $1 million after tax.

OUTLOOK

North America light vehicle production rates for 2003 weakened slightly to
an annualized rate of 15.9 million units or a three percent decline from the
prior year. Additionally, North American heavy-duty truck production was down
three percent from the prior year. North American OE light vehicle production
was flat for the first six months of 2004 as compared to the previous year. We
still expect North American OE light vehicle production to increase to
approximately 16.0 million units in 2004, however we remain cautious due to
continuing uncertainty in economic and political environments, as well as
uncertainty about the willingness of the original equipment manufacturers to
continue to support consumer vehicle sales through incentives. We saw a strong
increase in heavy-duty truck production rates during the first six months of
2004. We expect that heavy-duty truck production rates could increase between 30
and 40 percent for all of 2004. In Europe, 2003 new light vehicle production
rates were down one percent from 2002 levels. Expectations for 2004 indicate a
slight increase in production rates, even though volumes were flat during the
first six months. In the global aftermarket, issues that have impacted volumes
in the past will likely continue to be a challenge throughout 2004. Customer
consolidation and longer product replacement cycles are expected to continue to
impact volumes. We saw signs of improvement in the North America aftermarket
during the first six months of 2004 and are cautiously optimistic that these
conditions will continue for the remainder of 2004. We expect our global
presence on many of the world's top selling OE platforms as well as our
increasing business with thriving Japanese platforms manufactured in North
America should allow us to outperform general market conditions.

In addition to economic uncertainties, continued processed metal and raw
carbon steel price increases are becoming a concern. While we believe we are in
a good position overall on materials prices, pressure on carbon steel prices are
expected to continue into the foreseeable future. We are working hard to address
this situation by evaluating alternative materials and aggressively pursuing
recovery of higher costs from our customers. We
50

are hopeful that these actions and recent increases in new business awards will
be effective in containing margin pressures.

ENVIRONMENTAL AND OTHER MATTERS

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

From time to time we are subject to product warranty claims whereby we are
required to bear costs of repair or replacement of certain of our products.
Warranty claims may range from individual customer claims to full recalls of all
products in the field. See Note 4 to our consolidated financial statements
included under Item 1 for information regarding our warranty reserves.

We also from time to time are involved in legal proceedings or claims that
are incidental to the conduct of our business. Some of these proceedings allege
damages against us relating to environmental liabilities (including toxic tort,
property damage and remediation), intellectual property matters (including
patent, trademark and copyright infringement, and licensing disputes), personal
injury claims (including injuries due to product failure, design or warnings
issues, and other product liability related matters), employment matters, and
commercial or contractual disputes, sometimes related to acquisitions or
divestitures. As another example, we are involved in litigation with the
minority owner of one of our Indian joint ventures over various operational
issues which involves a court-mandated bidding process. We vigorously defend
ourselves against all of these claims. In future periods, we could be subjected
to cash costs or non-cash charges to earnings if we are required to sell our
interest in the joint venture on unfavorable terms. However, although the
ultimate outcome of any legal matter cannot be predicted with certainty, based
on present information, including our assessment of the merits of the particular
claim, we do not expect that these legal proceedings or claims will

have any material adverse impact on our future consolidated financial position
or results of operations. In addition, we are subject to a number of lawsuits
initiated by a significant number of claimants alleging health problems as a
result of exposure to asbestos. Many of these cases involve significant numbers
of individual claimants. However, only a small percentage of these claimants
allege that they were automobile mechanics who were allegedly exposed to our
former muffler products and a significant number appear to involve workers in
other industries or otherwise do not include sufficient information to determine
whether there is any basis for a claim against us. We believe, based on
scientific and other evidence, it is unlikely that mechanics were exposed to
asbestos by our former muffler products and that, in any event, they would not
be at increased risk of asbestos-related disease based on their work with these
products. Further, many of these cases involve numerous defendants, with the
number of each in some cases exceeding 200 defendants from a variety of
industries. Additionally, the plaintiffs either do not specify any, or specify
the jurisdictional minimum, dollar amount for damages. On the other hand, we are
experiencing an increasing number of these claims, likely due to bankruptcies of
major asbestos manufacturers. We vigorously defend ourselves against these
claims as part of our ordinary course of business. To date, with respect to
claims that have proceeded sufficiently through the judicial process, we have
regularly achieved favorable resolution in the form of a dismissal of the claim
or a judgment in our favor. Accordingly, we presently believe that these
asbestos-related claims will not have a material adverse impact on our future
financial condition or results of operations.

EMPLOYEE DEFINED CONTRIBUTION PLAN

We have established Employee Defined Contribution Plans for the benefit of
our employees. Under the plans, participants may elect to defer up to 50 percent
of their salary through contributions to the plan, which are invested in
selected mutual funds or used to buy our common stock. We currently match in
cash 50 percent of each employee's contribution up to eight percent of the
employee's salary. We recorded expense for these matching contributions of
approximately $3 million for each of the six months ended June 30, 2004 and
2003, respectively. All contributions vest immediately.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the quarter covered by this report. Based
on their evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that the company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by our company in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. There were no changes in the internal
control over financial reporting that occurred during the second quarter of 2004
that have materially affected, or are likely to materially affect, our internal
control over financial reporting.

PART II

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We held our annual stockholders' meeting on May 11, 2004, to consider and
vote on two separate proposals: (i) a proposal to elect Charles W. Cramb,
Timothy R. Donovan, M. Kathryn Eickhoff, Mark P. Frissora, Frank E. Macher,
Roger B. Porter, David B. Price, Jr., Dennis G. Severance and Paul T. Stecko as
directors of our company for a term expiring at our next annual stockholders'
meeting, and (ii) a proposal to ratify the appointment of Deloitte & Touche LLP
as independent public accountants for 2004. The following sets forth the vote
results with respect to these proposals at the meeting:

ELECTION OF DIRECTORS

<Table>
<Caption>
VOTES FOR VOTES WITHHELD
---------- --------------

Charles W. Cramb............................................ 30,297,745 810,359
Timothy R. Donovan.......................................... 30,409,594 698,510
M. Kathryn Eickhoff......................................... 30,295,569 812,535
Mark P. Frissora............................................ 30,126,260 981,844
Frank E. Macher............................................. 30,293,107 814,997
Roger B. Porter............................................. 29,664,084 1,444,020
David B. Price, Jr.......................................... 29,663,223 1,444,881
Dennis G. Severance......................................... 29,407,905 1,700,199
Paul T. Stecko.............................................. 24,711,714 6,396,390
</Table>

RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP

<Table>
<Caption>
VOTES FOR VOTES AGAINST VOTES ABSTAIN
- ---------- ------------- -------------

30,804,313.. 261,671 42,120
</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. We filed or furnished the following Current
Reports on Form 8-K during the quarter ended June 30, 2004:

Current Report on Form 8-K dated April 16, 2004, including pursuant to Item 5
certain information pertaining to the filing of a Registration Statement on Form
S-3 relating to a proposed offering of common stock.

Current Report on Form 8-K dated April 20, 2004, including pursuant to Item 5
certain information pertaining to the results of the Company's operations for
the first quarter of 2004.

Current Report on Form 8-K dated April 20, 2004, including pursuant to Item 12
certain information pertaining to the results of the Company's operations for
the first quarter of 2004.

Current Report on Form 8-K dated April 30, 2004, including pursuant to Item 5
certain information pertaining to the commencement of a cash tender offer and
consent solicitation for the Company's $500,000,000 aggregate principal amount
of 11 5/8% Senior Subordinated Notes due 2009.

Current Report on Form 8-K dated May 5, 2004, including pursuant to Item 5
certain information pertaining to the Company's 2004 annual stockholder's
meeting.

Current Report on Form 8-K dated May 13, 2004, including pursuant to Item 5
certain information pertaining to (i) the Company's receipt of requisite
consents from the holders of its $500,000,000 aggregate principal amount of the
11 5/8% Senior Subordinated Notes due 2009 to adopt proposed amendments to the
indenture

governing the notes and that a supplemental indenture adopting the proposed
amendments had been executed, and (ii) the beginning of the Company's road show
for its public offering of approximately $150 million, or approximately 11.9
million shares, of its common stock.

Current Report on Form 8-K dated May 20, 2004, including pursuant to Item 5
certain information pertaining to the amendment of the Company's previously
announced cash tender offer to seek approximated $130,000,000 aggregate
principal amount of its 11 5/8% Senior Subordinated Notes due 2009, rather than
the full outstanding $500,000,000 aggregate principal amount previously sought.

Current Report on Form 8-K dated May 24, 2004, including pursuant to Item 5
certain information pertaining to the Company not proceeding with its proposed
public offering of approximately $150 million, or 11.9 million shares, of its
common stock as previously announced on April 16, 2004; and the withdrawal of
its tender offer seeking approximately $130,000,000 aggregate principal amount
of its 11 5/8 percent Senior Subordinated Notes due in 2009.

Current Report on Form 8-K dated June 2, 2004, including pursuant to Item 5
certain information pertaining to the commencement of an offer to exchange up to
$125 million principal amount of 10.25% Senior Secured Notes due 2013, which
have been registered under the Securities Act of 1933, for a like amount of the
Company's existing 10.25% Senior Secured Notes due 2013, which were issued on
December 12, 2003 in a private placement.

SIGNATURE

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

TENNECO AUTOMOTIVE INC.

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

Dated: August XX, 2004

INDEX TO EXHIBITS
TO
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 2004

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

2 -- None.
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
(incorporated herein by reference from Exhibit 3.1(i) of the
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000, File No. 1-12387).
*3.2 -- By-laws of the registrant, as amended July 13, 2004.
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).
</Table>

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

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).
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 Restated 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 4.4(b) of the registrant's Annual
Report on Form 10-K for the year ended December 31, 1999,
File No. 1-12387).
4.1(c) -- Amendment No. 2 to Rights Agreement, dated February 5, 2001,
by and between the registrant and First Union National Bank,
as Rights Agent (incorporated herein by reference from
Exhibit 4.4(b) of the registrant's Post-Effective Amendment
No. 3, dated February 26, 2001, to its Registration
Statement on Form 8-A dated September 17, 1998).
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).
</Table>

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

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).
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) -- 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 Annual Report on Form 10-K for the
year ended December 31, 2000, 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, Clevite
Industries Inc. and TMC Texas 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).
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) -- Amended and Restated Credit Agreement, dated as of December
12, 2003, among Tenneco Automotive Inc., the several banks
and other financial institutions or entities from time to
time parties thereto, Bank of America, N.A. and Citicorp
North America, Inc., as co-documentation agents, Deutsche
Bank Securities Inc., as syndication agent, and JP Morgan
Chase Bank, as administrative agent (incorporated herein by
reference to Exhibit 4.5(a) to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2003,
File No. 1-12387).
4.5(b) -- Amended and Restated Guarantee And Collateral Agreement,
dated as of November 4, 1999, by Tenneco Automotive Inc. and
the subsidiary guarantors named therein, in favor of
JPMorgan Chase Bank, as Administrative Agent (incorporated
herein by reference from Exhibit 4.5(f) to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, File No. 1-12387).
4.6(a) -- Indenture, dated as of June 19, 2003, among Tenneco
Automotive Inc., the subsidiary guarantors named therein and
Wachovia Bank, National Association (incorporated herein by
reference from Exhibit 4.6(a) to the registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003,
File No. 1-12387).
</Table>

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

4.6(b) -- Collateral Agreement, dated as of June 19, 2003, by Tenneco
Automotive Inc. and the subsidiary guarantors named therein
in favor of Wachovia Bank, National Association
(incorporated herein by reference from Exhibit 4.6(b) to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003, File No. 1-12387).
4.6(c) -- Registration Rights Agreement, dated as of June 19, 2003,
among Tenneco Automotive Inc., the subsidiary guarantors
named therein, and the initial purchasers named therein, for
whom JPMorgan Securities Inc. acted as representative
(incorporated herein by reference from Exhibit 4.6(c) to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003, File No. 1-12387).
4.6(d) -- Supplemental Indenture, dated as of December 12, 2003, among
Tenneco Automotive Inc., the subsidiary guarantors named
therein and Wachovia Bank, National Association
(incorporated herein by reference to Exhibit 4.6(d) to the
registrant's Annual Report on Form 10-K for the year ended
December 31, 2003, File No. 1-12387).
4.6(e) -- Registration Rights Agreement, dated as of December 12,
2003, among Tenneco Automotive Inc., the subsidiary
guarantors named therein, and the initial purchasers named
therein, for whom Banc of America Securities LLC acted as
representative agent (incorporated herein by reference to
Exhibit 4.5(a) to the registrant's Annual Report on Form
10-K for the year ended December 31, 2003, File No.
1-12387).
4.7 -- Intercreditor Agreement, dated as of June 19, 2003, among
JPMorgan Chase Bank, as Credit Agent, Wachovia Bank,
National Association, as Trustee and Collateral Agent, and
Tenneco Automotive Inc. (incorporated herein by reference
from Exhibit 4.7 to the registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003, File No.
1-12387).
9 -- None.
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).
</Table>

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

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, El Paso Natural Gas
Company 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. Value Added "TAVA" 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, 2003, 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 10.11 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000, File No. 1-12387).
10.12 -- Tenneco Automotive Inc. Deferred Compensation Plan
(incorporated herein by reference from Exhibit 10.12 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000, File No. 1-12387).
10.13 -- Tenneco Automotive Inc. Supplemental Executive Retirement
Plan (incorporated herein by reference from Exhibit 10.13 to
the registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, File No. 1-12387).
10.14 -- 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).
10.15 -- 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).
10.16 -- 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).
10.17 -- 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 10.24 of the registrant's
Registration Statement on Form S-4, Reg. No. 333-93757).
10.18 -- Amendment No. 1 to Change in Control Severance Benefits Plan
for Key Executives (incorporated herein by reference from
Exhibit 10.23 to the registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, File No. 1-12387).
10.19 -- Letter Agreement dated July 27, 2000 between the registrant
and Mark P. Frissora (incorporated herein by reference from
Exhibit 10.24 to the registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, File No. 1-12387).
10.20 -- Letter Agreement dated July 27, 2000 between the registrant
and Richard P. Schneider (incorporated herein by reference
from Exhibit 10.26 to the registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000, File No.
1-12387).
</Table>

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.21 -- Letter Agreement dated July 27, 2000 between the registrant
and Timothy R. Donovan (incorporated herein by reference
from Exhibit 10.28 to the registrant's Annual Report on Form
10-K for the year ended December 31, 2000, File No.
1-12387).
10.22 -- Form of Indemnity Agreement entered into between the
registrant and the following directors of the registrant:
Paul Stecko, M. Kathryn Eickhoff and Dennis Severance
(incorporated herein by reference from Exhibit 10.29 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000, File No. 1-12387).
10.23 -- Mark P. Frissora Special Appendix under Tenneco Automotive
Inc. Supplemental Executive Retirement Plan (incorporated
herein by reference from Exhibit 10.30 to the registrant's
Annual Report on Form 10-K for the year ended December 31,
2000, File No. 1-12387).
10.24 -- Letter Agreement dated as of June 1, 2001 between the
registrant and Hari Nair (incorporated herein by reference
from Exhibit 10.28 to the registrant's Annual Report on Form
10-K for the year ended December 31, 2001. File No.
1-12387).
10.25 -- Tenneco Automotive Inc. 2002 Long-Term Incentive Plan (As
Amended and Restated Effective March 11, 2003) (incorporated
herein by reference from Exhibit 10.26 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003. File No. 1-12387).
10.26 -- Amendment to No. 1 Tenneco Automotive Inc. Deferred
Compensation Plan (incorporated herein by reference from
Exhibit 10.27 to the registrant's Annual Report on Form 10-K
for the year ended December 31, 2002, File No. 1-12387).
10.27 -- Tenneco Automotive Inc. Supplemental Stock Ownership Plan
(incorporated herein by reference from Exhibit 10.28 to the
registrant's Annual Report on Form 10-K for the year ended
December 31, 2002, File No. 1-12387).
11 -- None.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*15 -- Letter of Deloitte and Touche LLP regarding interim
financial information.
18 -- None.
22 -- None.
23 -- None.
24 -- None.
*31.1 -- Certification of Mark P. Frissora under Section 302 of the
Sarbanes-Oxley Act of 2002.
*31.2 -- Certification of Kenneth R. Trammell under Section 302 of
the Sarbanes-Oxley Act of 2002.
*32.1 -- Certification of Mark P. Frissora and Kenneth R. Trammell
under Section 906 of the Sarbanes-Oxley Act of 2002.
99 -- None.
</Table>

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

* Filed herewith.