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

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

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

BACKGROUND OF THE SPIN-OFF TRANSACTION

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

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

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

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

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

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

Before the spin-off, we realigned substantially all of our existing debt through a combination of tender offers, exchange offers, and other refinancings. To finance the debt realignment we borrowed under new credit facilities and issued subordinated debt. Pactiv also borrowed under new credit facilities and issued new publicly traded Pactiv debt in exchange for certain series of our publicly traded debt that were outstanding before the debt realignment. The "Liquidity and Capital Resources" section of this Management's Discussion and Analysis contains more information about our debt and the debt realignment.

                                                              THREE MONTHS
                                                                  ENDED
                                                              SEPTEMBER 30,
                                                              -------------
                                                              2000    1999    % CHANGE
                                                              -----   -----   --------
                                                               (MILLIONS)
North America...............................................  $469    $435        8%
Europe......................................................   311     307        1
Rest of World...............................................    90      74       22
                                                              ----    ----
                                                              $870    $816        7
                                                              ====    ====

The increase in revenues from our North American operations is primarily due to the change we made in the first quarter of 2000 with respect to how we record "pass through" catalytic converter sales. In the first quarter of 2000 we changed how we record "pass through" sales of some catalytic converter components. "Pass through" sales occur when we purchase these components from suppliers, use the components in our manufacturing process and sell the components to our customers as part of the completed catalytic converter. In the past, we recorded "pass through" sales as a reduction of cost of sales. We now record them as part of net sales. Relationships with customers have begun to change where we now take title to these components in the manufacturing process. Additionally, we believe that our competitors in the automotive parts industry already follow this practice so this change is consistent with industry practice and will permit improved comparability with these companies. As a result of the change, our North American sales increased $48 million in the third quarter of 2000, with no impact on our earnings before interest and taxes. Had these components been recorded on a comparable basis in the third quarter of 1999, reported net sales would have been $48 million higher in that period.

Excluding this change, revenues from our North American original equipment market decreased 4 percent from the third quarter of 1999 to the third quarter of 2000. This decrease is due primarily to slightly lower light vehicle production, a decline in heavy duty truck production and lower pricing. Specifically, ride control unit volume sales to original equipment manufacturers decreased $8 million and exhaust unit volume sales to original equipment manufacturers decreased $5 million. The decrease in ride control unit volume sales was primarily attributable to lower elastomer unit volume sales to heavy duty truck customers. Revenues from our North American aftermarket business were essentially unchanged in the third quarter of 2000 compared to the same period in 1999. Ride control sales to aftermarket customers increased 3 percent primarily as a result of the introduction of our new premium Monroe Reflex(TM) shock, which we began selling in November, 1999, and the repositioning of our Sensa-trac(R) branded products to the retail market. This increase was offset by a 5 percent decrease in exhaust revenues to aftermarket customers due to the ongoing impact of declining replacement rates in the industry. We expect to experience continued weakness in aftermarket exhaust sales due to the predominant use of stainless steel in exhaust products sold to original equipment manufacturers, which increases average product life and decreases replacement rates. We also expect North American original equipment manufacturer build rates to moderate in future periods from current rates. A reduction in North American original equipment manufacturer build rates would likely reduce revenues from our original equipment operations in North America. We also anticipate lower elastomer sales during the next 12 months as a result of the downturn in the heavy duty truck market.

European revenues increased $4 million from the third quarter of 1999 to the third quarter of 2000, primarily due to a significant increase in exhaust unit sales to original equipment manufacturers. If foreign exchange rates had been the same during the third quarter of 2000 as they were in the third quarter of 1999, our European revenues would have increased 18 percent. Excluding the currency impact, higher unit sales on existing platforms to European original equipment manufacturers increased exhaust and ride control revenues by $58 million and $9 million, respectively. Excluding the currency impact, revenues from our European aftermarket operations decreased by 8 percent in the third quarter of 2000 from the same period in 1999. The European aftermarket sales declines occurred in both of our product lines. Similar to the North American aftermarket, we expect to experience continued weakness in aftermarket exhaust sales due to declining

replacement rates. Pricing adjustments contributed to the remainder of the difference between revenues from the three months ended September 30, 2000 and the same period in 1999.

Revenues from our operations in the rest of the world increased 22 percent in the third quarter of 2000 from the same period in the prior year. If foreign exchange rates had been the same during the third quarter of 2000 as they were in the third quarter of 1999, then our revenues from our operations in the rest of the world would have increased 31 percent. Excluding the impact of foreign exchange rates between comparison periods, revenues from our South American operations increased $15 million from the third quarter of 1999 to the same period in 2000. New original equipment exhaust product launches, increased unit sales on existing original equipment exhaust programs, and improved aftermarket ride control sales contributed most of the increase in South American revenues. Revenues from our Asian operations increased $5 million from the third quarter of 1999 compared to the same period in 2000. This increase was primarily due to higher exhaust unit sales to original equipment manufacturers in the region. Excluding the impact of foreign exchange rates between comparison periods, revenues from our Australian operations increased $3 million in the third quarter of 2000 in comparison to the same period in the prior year primarily due to higher unit sales to original equipment manufacturers.

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

We reported EBIT of $47 million in the third quarter of 2000 compared to $67 million in the same period in 1999. About 45 percent, or $9 million, of this decline resulted from stand-alone costs we are incurring in 2000 and $4 million relates to a stock option buy-back charge and transaction cost reserve reversal, which we discussed in more detail below. These stand-alone costs include the addition of functions necessary for Tenneco Automotive to operate as an independent public company as well as administrative costs for information technology, payroll and accounts payable services. We currently estimate these stand-alone company expenses will be $50 to $52 million annually. Of that amount, approximately $40 million relates to information technology services received under a contract with Pactiv entered into in connection with the spin- off. The contract extends for 24 months from the date of the spin-off. The remaining amount relates to payroll and accounts payable functions provided by a third party under a contract that extends for 36 months from the date of the spin-off. Before the spin-off, the costs for these services were incurred by Tenneco Inc. but were not fully allocated to its operating segments. While these stand-alone expenses will be ongoing, we have provided the following table to separate the stand-alone expenses reflected in each of our segment's third quarter 2000 reported results to provide enhanced comparability with the reported results for each of these segments for the comparable 1999 period.

                                                    THREE MONTHS ENDED SEPTEMBER 30,
                                               ------------------------------------------
                                                            2000                   1999
                                               -------------------------------   --------
                                                           STAND     OPERATING
                                               REPORTED    ALONE       UNITS     REPORTED
                                               RESULTS    EXPENSES    RESULTS    RESULTS    % CHANGE
                                               --------   --------   ---------   --------   --------
                                                               (MILLIONS)
North America................................    $29        $ 7         $36        $40        (10)%
Europe.......................................     14          2          16         23        (30)
Rest of World................................      8         --           8          4        100
Other expenses...............................     (4)        --          (4)        --         NM
                                                 ---        ---         ---        ---
                                                 $47        $ 9         $56        $67        (10)
                                                 ===        ===         ===        ===

In the preceding table, "Other expenses" include a $13 million pre-tax charge for a stock option buy-back program and a $9 million reversal of a reserve for transaction costs related to the November 1999 spin-off of Pactiv. The combination of these two non-operational items reduced our EBIT by $4 million in the third quarter of 2000.

Our North American segment incurred $7 million in stand-alone expenses in the third quarter of 2000. Before considering these stand-alone expenses, our North American EBIT decreased by 10 percent to $36 million in the third quarter of 2000 compared to the same period in the prior year. Lower heavy-duty elastomer unit volume sales to original equipment manufacturers and a mix shift from higher margin original

equipment exhaust sales to lower margin original equipment exhaust sales reduced EBIT by $5 million. The negative impact of lower pricing and higher manufacturing costs associated with the production of mini-catalytic converters, which are more difficult to manufacture, reduced EBIT by $5 million. This was partially offset by lower selling, general, administrative, and engineering expenses, which improved EBIT in our North American original equipment operations by $4 million. Lower manufacturing costs, cost savings from prior restructuring initiatives and other cost reduction actions improved EBIT in our aftermarket operations by $6 million. We also recorded higher aftermarket ride control unit sales in the third quarter of 2000 compared to the third quarter of 1999, which improved EBIT by $2 million, due primarily to the launch of our new premium Monroe Reflex(TM) product. These increases were offset by lower pricing and volumes in our aftermarket exhaust product lines and the repositioning of our Sensa-trac(R) branded products in the retail market, which combined, reduced EBIT by $6 million.

Our European segment incurred $2 million in stand-alone expenses in the third quarter of 2000. Before considering these stand-alone expenses, our European EBIT decreased 30 percent to $16 million in the third quarter of 2000. If foreign exchange rates had been the same during the third quarter of 2000 as they were in the third quarter of 1999, then our reported European EBIT would have been $3 million greater. Higher exhaust and ride control unit sales to original equipment manufacturers improved EBIT by $7 million in the third quarter of 2000 compared to the same period in 1999. We experienced lower ride control and exhaust unit sales to our European aftermarket customers in the third quarter of 2000 compared to the comparable period in 1999, which reduced EBIT by $6 million. The impact of increased pricing in our aftermarket product lines, which improved EBIT by $1 million, was offset by higher selling, general, administrative and engineering expenses in our European aftermarket operations. The remainder of the EBIT difference between the third quarter of 2000 and the same period in 1999 is due primarily to the combined impact of lower pricing and higher steel and precious metals costs in our European operations that were partially offset by cost reduction initiatives in our manufacturing facilities.

EBIT from our operations in South America, Australia and Asia improved significantly in the third quarter of 2000 to $8 million compared to $4 million in the third quarter of 1999. Higher exhaust unit sales to original equipment manufacturers and higher aftermarket ride control unit sales in South America and Asia improved EBIT by $3 million. We also realized improved pricing on certain product lines in South America, which improved EBIT by $2 million. The combined impact of currency fluctuations in Asia, Australia and South America did not contribute materially to the EBIT difference between the third quarter of 2000 and the third quarter of 1999.

                                                               THREE MONTHS
                                                                  ENDED
                                                              SEPTEMBER 30,
                                                              --------------
                                                              2000      1999
                                                              ----      ----
North America...............................................   8%        9%
Europe......................................................   5%        7%
Rest of World...............................................   9%        5%
          Total Tenneco Automotive..........................   6%        8%

In North America, EBIT as a percentage of revenue decreased. Excluding the $48 million increase in revenues associated with the change in how we record pass-through catalytic converter sales, EBIT as a percentage of revenue would have been 9 percent in the third quarter of 2000, unchanged from the third quarter of 1999. In Europe, the deterioration in EBIT as a percentage of revenue is due primarily to higher sales from original equipment manufacturers and lower aftermarket sales in the third quarter of 2000 compared to the same period in 1999. EBIT as a percentage of revenue for a product sold to an original equipment manufacturer is generally lower than that for our aftermarket product lines. The improvement in

EBIT as a percentage of revenue for our operations in the rest of the world is due primarily to the implementation of price increases which offset some of the material cost increases caused by the currency devaluation in Brazil in 1999 and improved profitability on some products.

INTEREST EXPENSE, NET OF INTEREST CAPITALIZED

We reported interest expense of $46 million during the third quarter of 2000, compared to $16 million during the same period in 1999. The increase in our total interest expense is due primarily to the higher debt levels allocated to us as a result of the spin-off of Pactiv last year, higher interest rates due to our lower debt rating, and recent interest rate increases. The new debt structure is explained in more detail in "Liquidity and Capital Resources" later in this Management's Discussion and Analysis.

INCOME TAXES

Our effective tax rate during the third quarter of 1999 was 31 percent. During the third quarter of 2000, we recorded a tax benefit of $5 million. This tax benefit resulted from an adjustment to some foreign tax liabilities based on recently filed tax returns and an adjustment of our expected effective tax rate in 2000 from 41 percent rate recorded in the first six months to 31 percent. The adjustment to the expected tax rate is based on our revised pre-tax earnings estimates for 2000.

EARNINGS PER SHARE

Earnings from continuing operations per diluted common share were $0.16 for the third quarter of 2000 compared to $0.86 per diluted common share in the same period in 1999. In the third quarter of 1999, we recorded earnings of $0.32 per diluted common share from discontinued operations. In the third quarter of 2000, we recorded an extraordinary loss of $0.01 per diluted common share due to the early retirement of debt.

OPTION PURCHASE OFFER

On May 8, 2000, we initiated an offer to purchase from our employees stock options covering approximately 6.8 million shares of our common stock. These old stock options were issued before the spin-off of Pactiv, primarily from 1996 to 1998, by the prior management of Tenneco Inc. By the time of the spin-off and the change in management of our company, the exercise prices of these options had become substantially lower than the market price of Tenneco Inc.'s common stock. Upon the spin-off, these options held by continuing employees of our automotive operations were adjusted to maintain their economic value after giving effect to that transaction. Accordingly, as a newly independent stand-alone public company we emerged with 6.8 million underwater stock options, a large number considering the size of our company and the number of outstanding shares. Further, we believed that in order to retain and attract talent in the future, more options would need to be issued. In order to be in a position to more effectively manage our outstanding equity in the future, we initiated the purchase offer. Final responses were received from employees in July 2000. A significant number of employees holding 6 million options chose to participate. We recorded a charge and made cash payments for the cost of this program in the third quarter of 2000. The total cost of the program was $13 million, before taxes.

RESTRUCTURING AND OTHER CHARGES

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

Our aftermarket restructuring involved closing two plant locations and five distribution centers, resulting in eliminating 302 positions. Our staff and related cost reduction plan involved eliminating 454 administrative

positions. We wrote down the fixed assets at the locations to be closed to their fair value, less costs to sell, in the fourth quarter of 1998. As a result of the single-purpose nature of the assets, we estimated fair value at scrap value less cost to dispose. We do not expect to receive any significant net cash proceeds from the ultimate disposal of these assets, which should be complete by the fourth quarter of 2000. The effect of suspending depreciation for these impaired assets is a reduction in depreciation and amortization of approximately $2 million on an annual basis. As of September 30, 2000, we have completed the restructuring actions with respect to the 1998 plan.

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

The charge includes $37 million recorded in Europe to close a ride control manufacturing facility and an exhaust just-in-time plant, close or downsize four aftermarket distribution centers, and reduce administrative overhead by reducing management employment; $15 million to close a North American exhaust manufacturing facility; and $3 million for employment reductions in South America and Asia. In total, the plan involves eliminating about 780 positions. We wrote down the fixed assets at the locations to be closed to their fair value, less costs to sell, in the fourth quarter of 1999. We estimated the fair value for buildings using external real estate valuations or a review of recent sales prices for like buildings in the area surrounding the plant to be closed. As a result of the single-purpose nature of the machinery and equipment to be disposed of, fair value was estimated at scrap value less cost to dispose in most cases. For certain machines which have value in the used equipment market, engineers estimated value based on recent sales of like machines. We expect to receive net cash proceeds of about $8 million when we dispose of these assets. The effect of suspending depreciation for these impaired assets is a reduction in depreciation and amortization expense of approximately $3 million on an annual basis. We expect to complete all restructuring activities for the 1999 plan by the middle of 2001.

As of September 30, 2000, approximately 690 employees have been terminated under the 1999 plan. The closure of the North American exhaust facility and the employment reductions in South America have been completed with the exception of the final disposal of certain assets. The European actions are being completed in accordance with our initial restructuring plan.

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

                                   DECEMBER 31, 1999     2000     IMPACT OF   SEPTEMBER 30, 2000
                                     RESTRUCTURING       CASH     EXCHANGE      RESTRUCTURING
                                        RESERVE        PAYMENTS     RATES          RESERVE
                                   -----------------   --------   ---------   ------------------
Severance........................         $26            $16         $ 1             $ 9
Facility exit costs..............           2              1          --               1
                                          ---            ---         ---             ---
                                          $28            $17         $ 1             $10
                                          ===            ===         ===             ===

On October 24, 2000 we eliminated 285 salaried positions in North America as part of a cost reduction plan to eliminate up to 700 positions from our worldwide salaried work force. We estimate that we will realize $45 million in annual savings as a result of this worldwide cost reduction plan, which we expect to complete during the second quarter of 2001. All work force reductions will be completed in compliance with all legal and contractual requirements including obligations to consult with worker committees, union representatives and others. Year-to-date, we have already reduced approximately 140 salaried positions globally, primarily through attrition, which we expect to generate an additional $15 million in annual savings. In addition, we have adjusted our operations to lower production volumes by eliminating, at minimal cost, approximately 310 hourly positions throughout North America in the past 90 days. We anticipate that we will take a restructuring charge of up to $60 million in the fourth quarter to cover many of these reductions, and for other operational restructuring activities. Those include consolidating our North American aftermarket exhaust production at one plant, and scrapping certain North American aftermarket inventories. We are evaluating additional cost reduction initiatives for 2001, which will require review and approval by our Board of Directors.

CHANGES IN ACCOUNTING PRINCIPLES

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

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

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

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". This SAB provides guidance on the recognition, presentation, and disclosure of revenue in the financial statements and is effective no later than the fourth quarter of fiscal years beginning after December 15, 1999. The SAB draws on the existing accounting rules and defines the basic criteria that must be met before we can record revenue. The impact of adopting SAB 101 will not have a significant effect on our results of operations or financial position.

OUTLOOK

We believe revenues will decline by about 2 percent for 2001, due to slowing North American original equipment production rates and continuing softness in the global aftermarket. This estimate is based on the following assumptions: (1) North America original equipment manufacturer build rate of 16.5 million light vehicles, (2) European original equipment manufacturer build rate of 20.0 million light vehicles, (3) improved aftermarket share positions for our company in both North America and Europe and, (4) continued aftermarket exhaust declines in both North America and Europe.

Our estimate for revenues in 2001 is also based on our global original equipment customer book of business. When we refer to our book of business, we mean revenues for original equipment manufacturer platforms that have been awarded to us as well as platforms which we are at least 95 percent confident will

result in customer awards. This book of business, which is subject to increase or decrease due to changes in customer platform requirements or preferences, is shown below by segment:

                                                         2001      2002      2003      2004      2005
                                                        ------    ------    ------    ------    ------
                                                                         ($ MILLIONS)
North America.......................................    $1,331    $1,437    $1,384    $1,531    $1,591
Europe..............................................       931       983     1,026     1,095     1,208
Rest of World.......................................       202       219       243       253       271
                                                        ------    ------    ------    ------    ------
Total...............................................    $2,464    $2,639    $2,653    $2,879    $3,070
                                                        ======    ======    ======    ======    ======

We also believe that EBITDA, before restructuring and other non-operating items, will be in the range of $415 million to $425 million for 2001. This estimate for EBITDA is dependent on our earlier forecast for 2000 EBITDA of $355 to $365 million, the revenue assumptions discussed above, $60 million of cost savings from the successful implementation of restructuring and other cost reduction initiatives, $40 million of cost savings from six sigma process improvements, foreign exchange rates and, inflation rates in the range of 2 percent to 4 percent.

                                                                NINE MONTHS
                                                                   ENDED
                                                               SEPTEMBER 30,
                                                              ---------------
                                                               2000     1999    % CHANGE
                                                              ------   ------   --------
                                                                (MILLIONS)
North America...............................................  $1,522   $1,321      15%
Europe......................................................  927...      945      (2)
Rest of World...............................................     251      207      21
                                                              ------   ------
                                                              $2,700   $2,473       9
                                                              ======   ======

The increase in revenues from our North American operations is primarily due to the strong North American original equipment manufacturers' build rates in the first half of 2000 and the change we made in the first quarter of 2000 with respect to how we record "pass through" catalytic converter sales which is discussed in more detail above. As a result of the change, our North American sales increased $150 million in the nine months ended September 30 of 2000, with no impact on our earnings before interest and taxes. Had these components been recorded on a comparable basis in the nine months ended September 30 of 1999, reported net sales would have been $90 million higher in that period.

Excluding this change, revenues from our North American operations increased 4 percent from the nine months ended September 30, 1999 to the comparable period in 2000. This increase is due primarily to exceptionally strong original equipment manufacturer production levels in the first half of 2000. Specifically, ride control unit volume sales to original equipment manufacturers increased $9 million and exhaust unit volume sales to original equipment manufacturers increased $36 million. The increase in North American revenues was partially offset by the build-out of customer platforms, an increasing decline in heavy duty elastomer sales and lower pricing. Revenues from our North American aftermarket business were essentially unchanged in the nine months ended September 30, 2000 compared to the same period in 1999. Ride control sales to aftermarket customers increased $15 million primarily as a result of the introduction of our new premium Monroe Reflex(TM) shock, which we began selling in November, 1999, and the repricing of our Sensatrac(R) branded products to the retail market. This increase was offset by a $13 million decrease in exhaust revenues to aftermarket customers due to the ongoing impact of declining replacement rates in the industry.

European revenues decreased $18 million from the nine months ended September 30, 1999 compared to the same period in 2000, primarily due to a decrease in the value of European currencies relative to the US dollar. If foreign exchange rates had been the same during the first nine months of 2000 as they were in the first nine months of 1999, then our European revenues would have increased 10 percent. Higher unit sales

to European original equipment manufacturers increased exhaust and ride control revenues by $104 million and $17 million, respectively. Excluding the currency impact, unit sales from our European aftermarket ride control operations decreased by $8 million and unit sales from our European aftermarket exhaust operations decreased by $19 million in the nine months ended September 30 of 2000 from the same period in 1999. Similar to the North American aftermarket, we expect to experience continued weakness in aftermarket exhaust sales due to declining replacement rates. Pricing adjustments in both original equipment and aftermarket product lines contributed to the remainder.

Revenues from our operations in the rest of the world increased 21 percent in the nine months ended September 30 of 2000 compared to the same period in the prior year. Excluding the impact of currency fluctuations, revenues from our South American operations increased $35 million from the nine months ended September 30 of 1999 to the same period in 2000. Excluding the impact of currency fluctuations, existing original equipment exhaust programs contributed most of the increase in South American revenues. Revenues from our Asian operations increased $14 million from the nine months ended September 30 of 1999 to the same period in 2000. This increase was primarily due to higher unit sales to original equipment customers in the region. Revenues from our Australian operations decreased $4 million in the nine months ended September 30 of 2000 in comparison to the same period in the prior year. If currency exchange rates between the Australian dollar and U.S. dollar been the same during the nine months ended September 30, 2000 as in the same period in 1999, revenues from our Australian operations would have increased by $6 million.

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

We reported EBIT of $162 million in the nine months ended September 30, 2000 compared to $219 million in the same period in 1999. Approximately 63 percent, or $36 million, of this decline resulted from stand-alone costs we are incurring in 2000 and $4 million relates to a stock option buy-back charge and transaction cost reserve reversal, which we discussed in more detail above.

While these stand-alone expenses will be ongoing, we have provided the following table to separate the stand-alone expenses reflected in each of our segment's reported results for the first nine months of 2000 to provide enhanced comparability with the reported results for each of these segments for the comparable 1999 period.

                                                    NINE MONTHS ENDED SEPTEMBER 30,
                                               ------------------------------------------
                                                            2000                   1999
                                               -------------------------------   --------
                                                           STAND     OPERATING
                                               REPORTED    ALONE       UNITS     REPORTED
                                               RESULTS    EXPENSES    RESULTS    RESULTS    % CHANGE
                                               --------   --------   ---------   --------   --------
                                                               (MILLIONS)
North America................................    $103       $25        $128        $143       (10)%
Europe.......................................      48         9          57          74       (23)
Rest of World................................      15         2          17           6       183
Other........................................      (4)       --          (4)         (4)
                                                 ----       ---        ----        ----
                                                 $162       $36        $198        $219       (10)
                                                 ====       ===        ====        ====

In the preceding table, "Other expenses" for the nine months ended September 30, 2000 include a $13 million pre-tax charge for a stock option buy-back program and a $9 million reversal of a reserve for transaction costs related to the November 1999 spin-off of Pactiv. The combination of these two non-operational items reduced our EBIT by $4 million in the third quarter of 2000. In the nine months ended September 30, 1999 we also recorded $4 million of previously unallocated Tenneco Inc. expenses. These expenses are included as "Other expenses" under "1999 Reported Results" in the preceding table.

Our North American segment incurred $25 million in stand-alone expenses in the nine months ended September 30, 2000. Before considering these stand-alone expenses, our North American EBIT decreased by 10 percent to $128 million in the nine months ended September 30, 2000 compared to the same period in the prior year. Higher unit volume sales to North American original equipment manufacturers on new and existing platforms improved EBIT by $4 million. We also recorded higher aftermarket ride control unit sales

in the first nine months of 2000 compared to the first nine months of 1999, which improved EBIT by $14 million, due primarily to the launch of our new premium Monroe Reflex(TM) product. Cost savings from prior restructuring initiatives and other cost reduction actions improved EBIT at our aftermarket operations by $24 million. These increases were offset by lower pricing and volumes in our aftermarket exhaust product lines and the repositioning of our Sensatrac(R) branded products in the retail market, combined, which reduced EBIT by $23 million. We also incurred $14 million of higher changeover and promotional expenses associated with the repositioning of our aftermarket ride control product lines. The negative impact of price reductions to original equipment manufacturers on certain platforms and an unfavorable product mix change in our original equipment customer base reduced EBIT by $3 million. In the first nine months of 2000, we also recorded costs of $9 million associated with the closing of our Culver, Indiana, OE exhaust plant. These costs included activities such as the relocation of equipment and employee training programs that we could not accrue as restructuring costs. Our North American original equipment operations incurred $3 million in higher selling, general and administrative expenses in the nine months ended September 30, 2000, including engineering expenses for advanced suspension technologies. Higher manufacturing and depreciation expenses in our original equipment operations contributed the majority of the remaining decrease in North American EBIT.

Our European segment incurred $9 million in stand-alone expenses in the nine months ended September 30, 2000. Before considering these stand-alone expenses, our European EBIT decreased 23 percent to $57 million in the nine months ended September 30, 2000. The impact of higher unit volume sales to European original equipment manufacturers, which improved EBIT by $14 million during the nine months ended September 30, 2000, was partially offset by the negative impact of price reductions to original equipment manufacturers on certain platforms, which reduced EBIT by $6 million during that period. Lower aftermarket unit sales for both exhaust and ride control products decreased EBIT by $16 million during the nine months ended September 30, 2000. Currency weakness in Europe decreased EBIT by $7 million during the nine months ended September 30, 2000. Higher steel costs in our European operations and a mix shift from higher margin products to lower margin products in our aftermarket operations was offset by fixed cost absorption during the nine months ended September 30, 2000.

Our operations in the rest of the world incurred $2 million in stand-alone expenses in the first nine months of 2000. Before considering these stand-alone expenses, EBIT from our operations in South America, Australia and Asia improved in the nine months ended September 30, 2000 to $17 million compared to $6 million in the same period of 1999. If currency exchange rates between the Australian dollar and the U.S. dollar had been the same during the nine months ended September 30, 2000 as in the same period of 1999, EBIT (excluding stand-alone expenses) from our operations in the rest of the world would have been $19 million. Excluding the $4 million foreign currency transaction gains and losses that we incurred during the nine months ended September 30 in both 1999 and 2000 in our Brazilian operations, EBIT during the first nine months of 2000 increased $7 million compared to the same period in 1999. Higher unit sales in Asia combined with cost reduction actions throughout South America, Asia and Australia were the primary reasons for the remainder of the EBIT difference from the nine months ended September 30, 1999 to the same period in 2000. The impact of currency fluctuations in Asia and South America on the translation of financial results did not contribute materially to the EBIT difference between the nine months ended September 30, 2000 and the same period in 1999.

                                                               NINE MONTHS
                                                                  ENDED
                                                              SEPTEMBER 30,
                                                              --------------
                                                              2000      1999
                                                              ----      ----
North America...............................................   8%       11%
Europe......................................................   6%        8%
Rest of World...............................................   7%        3%
          Total Tenneco Automotive..........................   7%        9%

In North America, EBIT as a percentage of revenue decreased by 3 percent. Excluding the $150 million increase in revenues associated with the change in revenue recognition of pass-through catalytic converter sales, EBIT as a percentage of revenue would have been 9 percent in the nine months ended September 30, 2000. The decrease in EBIT margin from the nine months ended September 30, 1999 to the same period in 2000 is due primarily to a mix shift from higher margin OE product sales to lower margin OE product sales, the one-time costs associated with the closing of our Culver, Indiana exhaust plant and product repricings in both our ride control and exhaust aftermarkets. In Europe, EBIT as a percentage of revenue decreased by 2 percent from the nine months ended September 30, 1999 to the same period in 2000 primarily due to lower aftermarket sales and unfavorable mix changes in both market channels. The increase in EBIT margin from our operations in the rest of the world was due primarily to the impact of foreign currency transaction gains and losses experienced by our Brazilian operations and our continuous efforts to lower selling, general and administrative expenses in our South American and Asian operations.

INTEREST EXPENSE, NET OF INTEREST CAPITALIZED

We reported interest expense of $139 million during the first nine months of 2000, compared to $58 million during the same period in 1999. The increase in our total interest expense is due primarily to the higher debt levels allocated to us as a result of the spin-off of Pactiv last year, higher interest rates due to our lower debt rating, and recent interest rate increases. The new debt structure is explained in more detail in "Liquidity and Capital Resources" later in this Management's Discussion and Analysis.

INCOME TAXES

Our effective tax rate during the nine months ended September 30, 1999 was 37 percent. During the third quarter of 2000, we recorded a tax benefit of $5 million. This tax benefit resulted from an adjustment to some foreign tax liabilities based on recently filed tax returns and an adjustment of our expected effective tax rate in 2000 from 41 percent rate recorded in the first six months to 31 percent. The adjustment to the expected tax rate is based on our revised pre-tax earnings estimates for 2000.

EARNINGS PER SHARE

Earnings from continuing operations per diluted common share were $.61 for the nine months ended September 30, 2000 compared to $2.40 per diluted common share in the prior period. In the nine months ended September 30, 1999, we recorded a loss of $2.98 per diluted common share from discontinued operations. In the first quarter of 1999, we incurred an extraordinary loss of $.20 per diluted common share due to the retirement of debt in connection with the sale of the containerboard assets. We also recorded an after-tax charge of $4.00 per diluted common share due to the cumulative effect of the changes in accounting with respect to start-up activities and customer acquisition costs. In the third quarter of 2000, we recorded an extraordinary loss of $0.01 per diluted common share due to the early retirement of debt.

                                                            SEPTEMBER 30,   DECEMBER 31,
                                                                2000            1999       % CHANGE
                                                            -------------   ------------   --------
Short term debt and current maturities....................     $   35          $   56        (38)%
Long term debt............................................      1,505           1,578         (5)
                                                               ------          ------
Total debt................................................      1,540           1,634         (6)
Total minority interest...................................         15              16         (6)
Common shareholders' equity...............................        363             422        (14)
                                                               ------          ------
Total capitalization......................................      1,918           2,072         (7)

Our debt to capitalization ratio was 80 percent at September 30, 2000, slightly above the 79 percent level we had on December 31, 1999. The increase in the ratio was primarily attributable to the equity decline. The decline in equity resulted from adverse changes in the cumulative translation adjustment of $71 million and payment of common stock dividends of $5 million. This was partially offset by the retirement of $94 million of debt, our net income of $21 million and issuance of $13 million of common stock for employee benefit and dividend reinvestment plans during the first nine months of 2000.

At September 30, 2000, we had no borrowings outstanding under our revolving credit facility and had approximately $16 million of letters of credit issued. Our short-term debt, which relates primarily to borrowings by foreign subsidiaries, decreased by $21 million during the first nine months of 2000. This decrease was primarily due to the refinancing of $35 million of high interest rate short-term debt in our Brazilian subsidiary with equity from one of our US affiliates, which in turn was funded with surplus cash balances. Our long-term debt balance consists of borrowings made under new credit agreements (described below) to facilitate the debt realignment, as well as approximately $21 million of debt that was not retired in the cash tender and exchange offers associated with the spin-off of Pactiv. At the end of the third quarter we pre-paid $65 million of long-term debt. The prepayment of long-term debt was primarily funded by the sale of $62 million of accounts receivable.

As part of the realignment of debt that was required in order to complete the spin-off, on September 30, 1999, we entered into a $1.55 billion committed senior secured financing arrangement with a syndicate of banks and other financial institutions. As we previously reported in our current report on form 8-K, dated October 24, 2000, on October 20 we entered into an agreement to amend this facility to: (i) relax the financial ratios beginning in the fourth quarter of 2000, (ii) exclude up to $80 million of cash charges and expenses related to cost reduction initiatives from the calculation of EBITDA for our financial ratios through 2001 and, (iii) make certain other technical changes. In exchange for these amendments, we agreed to certain interest rate increases, lowered our capital expenditure limits and paid an aggregate fee of about $3 million. The remainder of this discussion describes the senior secured credit facility, as amended.

The senior secured credit facility consists of: (i) a $500 million, six-year revolving credit facility; (ii) a $422 million six-year term loan;
(iii) a $281 million eight-year term loan and; (iv) a $281 million eight-and- one-half year term loan. A portion of each term loan is payable in quarterly installments beginning September 30, 2001. Borrowings under the facility bear interest at an annual rate equal to, at the borrower's option, either (i) the London Interbank Offering Rate plus a margin of 300 basis points for the six-year revolving credit facility and the six-year term loan, 350 basis points for the eight-year term loan and 375 basis points for the eight-and-one-half year term loan; or (ii) a rate consisting of the greater of The Chase Manhattan Bank's prime rate or the Federal Funds rate plus 50 basis points, plus a margin of 200 basis points for the six-year revolving credit facility and the six-year term loan, 250 basis points for the eight-year term loan and 275 basis points for the eight-and-one-half year term loan. Under the provisions of the senior credit facility agreement, the interest margins for borrowings under the revolving credit facility and the six year term loan may be adjusted based on our consolidated leverage ratio (total debt divided by consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") as defined in the senior credit facility agreement) measured at the end of each quarter starting with the fiscal quarter ending December 31, 2000.

The amended senior credit facility agreement requires that we initially maintain: (i) a consolidated leverage ratio (consolidated indebtedness divided by consolidated EBITDA) not greater than 4.90; (ii) a consolidated interest coverage ratio (consolidated EBITDA divided by consolidated cash interest paid) not less than 1.70; and (iii) a consolidated fixed charge coverage ratio (consolidated EBITDA less consolidated capital expenditures, divided by consolidated cash interest paid) not less than 0.75.

The senior credit facility agreement also contains restrictions on our operations that are customary for similar facilities, including limitations on:
(a) incurring additional liens; (b) sale and leaseback transactions; (c) liquidations and dissolutions; (d) incurring additional indebtedness or guarantees; (e) capital expenditures; (f) dividends; (g) mergers and consolidations; and (h) prepayments and modifications of subordinated and 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. At September 30, 2000, we were in compliance with the financial ratios and other covenants under the facility. Since our debt-to-equity ratio is high, our ability to maintain compliance with these requirements is very sensitive to earnings and interest rate movements. If we do not maintain compliance with the financial ratios and other covenants under the facility discussed above or obtain waivers from our lenders, our ability to raise additional future borrowings may be restricted.

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

We believe that cash flows from operations, combined with our current available borrowing capacity described above and assuming that we maintain compliance with the requirements of our loan agreements, will be sufficient to meet our future capital requirements for the following year.

                                                               NINE MONTHS
                                                                  ENDED
                                                              SEPTEMBER 30,
                                                              -------------
                                                              2000    1999
                                                              -----   -----
Cash provided (used) by:
  Operating activities--continuing operations...............  $ 203   $(100)
  Investing activities--continuing operations...............   (121)   (161)
  Financing activities......................................    (93)  1,244

OPERATING ACTIVITIES

Cash provided by continuing operating activities increased by $300 million for the first nine months of 2000 compared to the same period in the prior year. This improvement was driven primarily by our increased focus on working capital management and the sale of accounts receivable. Working capital decreased by $40 million during the first nine months of 2000 in comparison to an increase of $289 million during the same period last year. During the first nine months of 2000, the balance of accounts receivable sold increased from $16 million to $93 million and during the first nine months of 1999 the balance of accounts receivable sold decreased from $137 million to $1 million. Our accounts payable also increased from $348 million on December 31, 1999 to $436 million on September 30, 2000. During the third quarter of 2000, we continued to take advantage of accounts payable terms versus discounts. Our accounts payable increased from $592 million on December 31, 1998 to $636 million on September 30, 1999. The remainder of the change in operating cash flow is primarily due to the change in operating income, accrued income taxes and other current liabilities. We had a net cash tax benefit of $16 million in the third quarter of 2000, resulting from receiving several refunds

related to filing our 1999 tax returns. Some portion of these refunds could be temporary once the responsibility for pre-spin-off taxes is determined.

Cash used by our discontinued specialty and paperboard packaging operations was $66 million in the nine months ended September 30 1999.

INVESTING ACTIVITIES

Cash used by investing activities for continuing operations was $40 million lower in the first nine months of 2000 compared to the same period in 1999. Capital expenditures were slightly higher at $108 million in the first nine months of 2000 compared to $104 million in 1999. During the first nine months of 1999, we used $36 million to acquire businesses, primarily Kinetic Ltd, an Australian suspension engineering company. In July 2000, we increased our ownership percentage in a South African joint-venture for $4 million.

Cash used by investments in discontinued operations were $907 million in the nine months ended September 30, 1999. During the second quarter of 1999, Tenneco acquired for approximately $1.1 billion certain assets previously used by the containerboard business under operating leases and timber cutting rights. This was required in order to complete the April, 1999 containerboard sale. We also received $306 million in proceeds related to the containerboard and folding carton sale transactions and $28 million in proceeds from disposal of assets in our specialty packaging business.

FINANCING ACTIVITIES

Cash used by financing activities was $93 million in the first nine months of 2000. This decrease was primarily due to improved operating cash flow which allowed us to pay down debt by $92 million. We also issued $13 million of common stock during the nine month period for employee benefit and dividend reinvestment plans which was offset by $5 million of common stock dividend payments.

Cash provided by financing activities was $1.2 billion during the first nine months of 1999. Excluding the borrowings required to complete the containerboard sale transaction, cash used by financing activities was $517 million for the first nine months of 1999. This primarily reflected the use of the net proceeds of the containerboard sale transaction to reduce our short-term debt. Before the containerboard sale transaction, our Packaging division borrowed approximately $1.8 billion. These borrowings were used to acquire the assets used under operating leases and timber cutting rights described under "Investing Activities" above, and to purchase the containerboard business accounts receivable. Our Packaging division remitted the balance of the borrowings to us to retire short-term debt. Packaging contributed the containerboard business to the new joint venture subject to the approximately $1.8 billion in new debt. The debt reduction, which resulted from this contribution, is shown on the Statements of Cash Flows as a non-cash financing activity.

INTEREST RATE RISK

Following the realignment of our debt in connection with the spin-off of Pactiv, 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 financed our long-term capital requirements with long-term debt with original maturity dates ranging from six to 10 years.

Under the terms of our senior credit facility agreement, we were required to hedge our exposure to floating interest rates within 180 days following the spin-off so that at least 50 percent of our long-term debt is fixed for a period of at least three years. In February 2000, we hedged $250 million of our floating rate long-term debt with three-year, floating to fixed interest rate swaps. In April 2000, we hedged an additional $50 million of our floating rate long-term debt with three-year, floating to fixed interest rate swaps. The hedges that we executed fully satisfy the interest rate hedging requirement of the senior credit facility agreement. Therefore, we have $821 million in long-term debt obligations that have fixed interest rates for the next three years and $684 million in long-term debt obligations that have variable interest rates based on a current market rate of interest.

We estimate that the fair value of our long-term debt at September 30, 2000 was about 83 percent of its book value. A one percent increase or decrease in interest rates would increase or decrease the interest expense we recognize in the income statement and the cash we pay for interest expense by about $5 million after tax.

EURO CONVERSION

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

ENVIRONMENTAL AND OTHER MATTERS

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

At September 30, 2000, we had been designated as a potentially responsible party in four Superfund sites. We have estimated our share of the remediation costs for these sites to be approximately $1 million in the aggregate. In addition to the Superfund sites, we may have the obligation to remediate current or former facilities, and we estimate our share of remediation costs at these facilities to be approximately $14 million. For both the Superfund sites and the current and former facilities, we have established reserves that we believe are adequate for these costs. Although we believe our estimates of remediation costs are reasonable and are based on the latest available information, the cleanup costs are estimates and are subject to revision as more information becomes available about the extent of remediation required. At some sites, we expect that other parties will contribute to the remediation costs. In addition, at the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides that our liability could be joint and several, meaning that we could be required to pay in excess of our share of remediation costs. Our understanding of the financial strength of other potentially responsible parties has been considered, where appropriate, in our determination of our estimated liability.

We have also recently undertaken a third-party evaluation of estimated environmental remediation costs at two of our facilities. The evaluations were initiated as a result of testing that indicated the potential underground migration of some contaminants beyond our facility property. For one of the facilities, we have determined that there is no significant change to our cost estimates which were previously accrued. The evaluation of the second facility is expected to be complete in the fourth quarter of 2000. If those results indicate environmental contamination has occurred, we could be required to increase our reserves for that facility in an amount which we cannot predict at this time. The reserve required could be material to our income statement in the period when we are required to adjust it. However, we believe that the costs

associated with our current status as a potentially responsible party in the Superfund sites, or as a liable party at our current or former facilities, will not be material to our consolidated financial position.

EMPLOYEE STOCK OWNERSHIP PLANS

We have established Employee Stock Ownership Plans for the benefit of our employees. Under the plans, participants may elect to defer up to 16% 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 qualified contributions with a contribution of 100% of each employee's contribution up to 8% of the employee's salary. These matching contributions are made in company stock and approximated $11 million and $6 million, for the nine months ended September 30, 2000 and 1999, respectively. All contributions vest immediately.

DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS

The results of operations for the three and nine months ended September 30, 1999 for our discontinued specialty packaging and paperboard packaging businesses are shown in note 3 to the financial statements.