- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[XQUARTERLY]REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
[_TRANSITION]REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9864
----------------
TENNECO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0233548
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
TENNECO BUILDING, HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 757-2131
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, par value $5 per share: 180,813,474 shares as of April 30,
1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
Part I--Financial Information
Tenneco Inc. and Consolidated Subsidiaries--
Statements of Income.................................................. 2
Statements of Cash Flows.............................................. 3
Balance Sheets........................................................ 4
Statements of Changes in Shareowners' Equity.......................... 6
Statements of Changes in Preferred Stock With Mandatory Redemption
Provisions........................................................... 7
Notes to Financial Statements......................................... 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 14
Part II--Other Information
Item 1. Legal Proceedings............................................... 18
Item 2. Changes in Securities........................................... *
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. *
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 19
- --------
* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
1
PART I
FINANCIAL INFORMATION
STATEMENTS OF INCOME
(UNAUDITED)
TENNECO INC. AND
CONSOLIDATED SUBSIDIARIES TENNECO INDUSTRIAL TENNECO FINANCE
-------------------------- ------------------------ -----------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31,
- --------------------------------------------------------------------------------------------------------
(MILLIONS EXCEPT SHARE
AMOUNTS) 1995 1994 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------
Revenues:
Net sales and
operating revenues--
Natural gas
pipelines.......... $ 505 $ 693 $ 505 $ 693 $ -- $ --
Automotive parts.... 602 465 602 465 -- --
Packaging........... 636 491 636 491 -- --
Shipbuilding........ 421 403 421 403 -- --
Farm and
construction
equipment.......... -- 1,000 -- 1,000 -- --
Other............... (1) (3) (1) (3) -- --
------------ ------------ ----------- ----------- ----------- -----------
2,163 3,049 2,163 3,049 -- --
Other income--
Interest income..... 34 47 17 8 35 110
Equity in net income
of affiliated
companies.......... 43 15 48 56 -- --
Gain on sale of
businesses and
assets, net........ 14 3 14 3 -- --
Other income, net... 7 (6) 7 (7) 1 1
------------ ------------ ----------- ----------- ----------- -----------
2,261 3,108 2,249 3,109 36 111
------------ ------------ ----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales
(exclusive of
depreciation shown
below)............... 1,249 1,826 1,250 1,828 -- --
Operating expenses.... 375 531 371 540 4 (7)
Selling, general and
administrative....... 187 283 190 335 -- 2
Finance charges--
Tenneco Finance...... 23 51 -- -- 24 49
Depreciation,
depletion and
amortization......... 103 123 103 123 -- --
------------ ------------ ----------- ----------- ----------- -----------
1,937 2,814 1,914 2,826 28 44
------------ ------------ ----------- ----------- ----------- -----------
Income Before Interest
Expense, Income Taxes
and Minority Interest.. 324 294 335 283 8 67
Interest Expense (net of
interest capitalized).. 84 96 98 107 -- 4
------------ ------------ ----------- ----------- ----------- -----------
Income Before Income
Taxes and Minority
Interest............... 240 198 237 176 8 63
Income Tax Expense...... 82 77 79 55 3 22
------------ ------------ ----------- ----------- ----------- -----------
Income Before Minority
Interest............... 158 121 158 121 5 41
Minority Interest....... 5 -- 5 -- -- --
------------ ------------ ----------- ----------- ----------- -----------
Income From Continuing
Operations............. 153 121 153 121 5 41
Income From Discontinued
Operations, Net of
Income Tax............. -- 1 -- 1 -- --
------------ ------------ ----------- ----------- ----------- -----------
Income Before Cumulative
Effect of Change in
Accounting Principle... 153 122 153 122 5 41
Cumulative Effect of
Change in Accounting
Principle, Net of
Income Tax............. -- (39) -- (39) -- --
------------ ------------ ----------- ----------- ----------- -----------
Net Income.............. 153 83 153 83 5 41
Preferred Stock
Dividends.............. 3 3 3 3 -- --
------------ ------------ ----------- ----------- ----------- -----------
Net Income to Common
Stock.................. $ 150 $ 80 $ 150 $ 80 $ 5 $ 41
============ ============ =========== =========== =========== ===========
Average Number of Shares
of Common Stock
Outstanding............ 177,792,872 178,696,826
============ ============
Earnings (Loss) Per
Average Share of Common
Stock:
Continuing operations
..................... $ .84 $ .66
Discontinued
operations........... -- .01
Cumulative effect of
change in accounting
principle............ -- (.22)
------------ ------------
$ .84 $ .45
============ ============
Cash Dividends Per Share
of Common Stock........ $ .40 $ .40
============ ============
(The accompanying notes to financial statements are an integral part of these
statements of income.)
(Reference is made to Note 1 for definitions of "Tenneco Industrial" and
"Tenneco Finance.")
2
STATEMENTS OF CASH FLOWS
(UNAUDITED)
TENNECO INC.
AND
CONSOLIDATED TENNECO TENNECO
SUBSIDIARIES INDUSTRIAL FINANCE
-------------- -------------- --------------
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
- --------------------------------------------------------------------------------
(MILLIONS) 1995 1994 1995 1994 1995 1994
- --------------------------------------------------------------------------------
Cash Flows from Operating
Activities:
Income from continuing
operations.................... $ 153 $ 121 $ 153 $ 121 $ 5 $ 41
Adjustments to reconcile
income from continuing
operations to cash provided
(used) by continuing
operations--
Depreciation, depletion and
amortization................ 103 123 103 123 -- --
Deferred income taxes........ 7 8 5 (5) 2 13
Gain on sale of businesses
and assets, net............. (14) (3) (14) (3) -- --
Changes in components of
working capital--
(Increase) decrease in
receivables................ 4 (158) (25) (245) 11 34
(Increase) decrease in
inventories................ (156) (90) (156) (90) -- --
(Increase) decrease in
prepayments and other
current assets............. 4 69 4 70 -- --
Increase (decrease) in
payables................... (75) 128 (73) 107 (5) 6
Increase (decrease) in taxes
accrued.................... 18 31 18 36 -- (5)
Increase (decrease) in
interest accrued........... (14) 14 (8) 30 (6) (16)
Increase (decrease) in
restructuring liability.... -- (37) -- (37) -- --
Increase (decrease) in
natural gas pipeline
revenue reservation........ (177) 36 (177) 36 -- --
Increase (decrease) in other
current liabilities........ (29) 69 (28) 92 (1) (23)
(Increase) decrease in long-
term notes and receivables.. 114 318 3 -- 111 299
Take-or-pay (refunds to
customers) recoupments, net. 14 (12) 14 (12) -- --
Other........................ (26) (1) (33) 2 2 2
------ ------ ------ ------ ------ ------
Cash provided (used) by
continuing operations...... (74) 616 (214) 225 119 351
Cash provided (used) by
discontinued operations.... 61 (19) 61 (19) -- --
------ ------ ------ ------ ------ ------
Net Cash Provided (Used) by
Operating Activities.......... (13) 597 (153) 206 119 351
------ ------ ------ ------ ------ ------
Cash Flows from Investing
Activities:
Net proceeds (expenditures)
related to the sale of
discontinued operations....... 701 (5) 701 (5) -- --
Net proceeds from sale of
businesses and assets........ 33 77 33 77 -- --
Expenditures for plant,
property and equipment--
Continuing operations........ (118) (89) (118) (89) -- --
Discontinued operations...... (4) (16) (4) (16) -- --
Acquisitions of businesses.... (3) -- (3) -- -- --
Investments and other......... 7 (4) 240 (16) (233) 1
------ ------ ------ ------ ------ ------
Net Cash Provided (Used) by
Investing Activities.......... 616 (37) 849 (49) (233) 1
------ ------ ------ ------ ------ ------
Cash Flows from Financing
Activities:
Issuance of common, treasury
and SECT shares.............. 20 40 20 40 -- 1
Purchase of common stock...... (300) (4) (300) (4) -- --
Redemption of preferred stock. (20) (20) (20) (20) -- --
Issuance of long-term debt.... -- -- -- 2 -- 12
Retirement of long-term debt.. (49) (393) (15) (34) (34) (372)
Net increase (decrease) in
short-term debt excluding
current maturities on long-
term debt..................... (19) (44) (32) -- 34 23
Dividends (common and
preferred)................... (76) (82) (76) (82) -- (18)
------ ------ ------ ------ ------ ------
Net Cash Provided (Used) by
Financing Activities.......... (444) (503) (423) (98) -- (354)
------ ------ ------ ------ ------ ------
Effect of Foreign Exchange Rate
Changes on Cash and Temporary
Cash Investments............... 5 1 5 1 -- --
------ ------ ------ ------ ------ ------
Increase (Decrease) in Cash and
Temporary Cash Investments.... 164 58 278 60 (114) (2)
Cash and Temporary Cash
Investments, January 1........ 405 218 172 213 233 5
------ ------ ------ ------ ------ ------
Cash and Temporary Cash
Investments, March 31 (Note).. $ 569 $ 276 $ 450 $ 273 $ 119 $ 3
====== ====== ====== ====== ====== ======
Cash Paid During the Period
for:
Interest...................... $ 119 $ 139 $ 103 $ 89 $ 29 $ 74
Income taxes (net of refunds). $ 56 $ (7) $ 56 $ (16) $ -- $ 9
- -------
NOTE: Cash and temporary cash investments include highly liquid investments
with a maturity of three months or less at date of purchase.
(The accompanying notes to financial statements are an integral part of these
statements of cash flows.)
(Reference is made to Note 1 for definitions of "Tenneco Industrial" and
"Tenneco Finance.")
3
BALANCE SHEETS
(UNAUDITED)
TENNECO INC. AND CONSOLIDATED
SUBSIDIARIES
--------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
(MILLIONS) 1995 1994 1994
- -------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and temporary cash investments.......... $ 569 $ 405 $ 276
Receivables--
Customer notes and accounts (net).......... 1,293 1,535 2,882
Affiliated companies....................... 62 67 2
Gas transportation and exchange............ 221 214 303
Income taxes............................... 93 234 100
Other...................................... 252 192 165
Inventories.................................. 933 910 1,685
Deferred income taxes........................ 39 23 53
Prepayments and other........................ 269 315 334
------- ------- -------
3,731 3,895 5,800
------- ------- -------
Investments and Other Assets:
Investment in affiliated companies........... 937 997 472
Other investments, at cost................... 39 47 57
Long-term receivables--
Notes and other (net)...................... 702 805 1,619
Affiliated companies....................... 271 264 --
Investment in subsidiaries in excess of fair
value of net assets at date of acquisition,
less amortization........................... 311 331 419
Deferred income taxes........................ 55 49 40
Other........................................ 1,323 927 1,143
------- ------- -------
3,638 3,420 3,750
------- ------- -------
Plant, Property and Equipment, at cost........ 10,309 11,108 12,148
Less--Reserves for depreciation, depletion
and amortization............................ 5,458 5,881 6,517
------- ------- -------
4,851 5,227 5,631
------- ------- -------
$12,220 $12,542 $15,181
======= ======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Short-term debt (including current
maturities on long-term debt)............... $ 484 $ 545 $ 1,237
Payables--
Trade...................................... 782 1,053 1,360
Affiliated companies....................... 39 35 26
Gas transportation and exchange............ 160 159 207
Taxes accrued................................ 102 86 214
Interest accrued............................. 146 127 173
Restructuring liability...................... -- -- 181
Natural gas pipeline revenue reservation..... 5 190 323
Other........................................ 1,050 859 1,349
------- ------- -------
2,768 3,054 5,070
------- ------- -------
Long-term Debt................................ 3,559 3,570 4,401
------- ------- -------
Deferred Income Taxes......................... 1,309 1,459 1,166
------- ------- -------
Postretirement Benefits....................... 608 603 789
------- ------- -------
Deferred Credits and Other Liabilities........ 602 489 775
------- ------- -------
Commitments and Contingencies
Minority Interest............................. 314 320 176
------- ------- -------
Preferred Stock with Mandatory Redemption
Provisions................................... 128 147 144
------- ------- -------
Shareowners' Equity:
Series A preferred stock..................... -- -- 9
Common stock................................. 957 957 870
Stock Employee Compensation Trust (common
stock held in trust)........................ (295) (298) (466)
Premium on common stock and other capital
surplus..................................... 3,584 3,553 3,710
Cumulative translation adjustments........... (39) (237) (290)
Retained earnings (accumulated deficit)...... (829) (905) (981)
------- ------- -------
3,378 3,070 2,852
Less--Shares held as treasury stock, at
cost........................................ 446 170 192
------- ------- -------
2,932 2,900 2,660
------- ------- -------
$12,220 $12,542 $15,181
======= ======= =======
(The accompanying notes to financial statements are an integral part of these
balance sheets.)
4
TENNECO INDUSTRIAL TENNECO FINANCE
------------------------------------ ------------------------------------
MARCH 31, DECEMBER 31, MARCH 31, MARCH 31, DECEMBER 31, MARCH 31,
(MILLIONS) 1995 1994 1994 1995 1994 1994
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and temporary cash investments.......... $ 450 $ 172 $ 273 $ 119 $ 233 $ 3
Receivables--
Customer notes and accounts (net).......... 470 650 858 820 882 2,015
Affiliated companies....................... 62 65 62 42 186 425
Gas transportation and exchange............ 221 214 303 -- -- --
Income taxes............................... 93 234 100 -- -- --
Other...................................... 247 187 151 5 5 16
Inventories.................................. 933 910 1,685 -- -- --
Deferred income taxes........................ 39 23 28 -- -- 25
Prepayments and other........................ 271 315 328 -- 2 11
------- ------- ------- ------ ------ ------
2,786 2,770 3,788 986 1,308 2,495
------- ------- ------- ------ ------ ------
Investments and Other Assets:
Investment in affiliated companies........... 1,467 1,762 1,549 -- -- --
Other investments, at cost................... 39 42 52 -- 5 5
Long-term receivables--
Notes and other (net)...................... 198 214 238 482 566 1,416
Affiliated companies....................... 271 264 -- -- -- --
Investment in subsidiaries in excess of fair
value of net assets at date of acquisition,
less amortization........................... 311 331 419 -- -- --
Deferred income taxes........................ 55 49 40 -- -- --
Other........................................ 1,344 951 1,171 3 3 6
------- ------- ------- ------ ------ ------
3,685 3,613 3,469 485 574 1,427
------- ------- ------- ------ ------ ------
Plant, Property and Equipment, at cost........ 10,239 11,038 12,078 70 70 70
Less--Reserves for depreciation, depletion
and amortization............................ 5,439 5,863 6,500 19 18 17
------- ------- ------- ------ ------ ------
4,800 5,175 5,578 51 52 53
------- ------- ------- ------ ------ ------
$11,271 $11,558 $12,835 $1,522 $1,934 $3,975
======= ======= ======= ====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Short-term debt (including current
maturities on long-term debt)............... $ 279 $ 310 $ 177 $ 239 $ 410 $1,415
Payables--
Trade...................................... 782 1,053 1,355 -- -- 5
Affiliated companies....................... 45 36 128 -- 7 26
Gas transportation and exchange............ 160 159 207 -- -- --
Taxes accrued................................ 100 86 188 2 -- 26
Interest accrued............................. 128 102 137 18 25 36
Restructuring liability...................... -- -- 181 -- -- --
Natural gas pipeline revenue reservation..... 5 190 323 -- -- --
Other........................................ 1,042 853 1,311 9 7 38
------- ------- ------- ------ ------ ------
2,541 2,789 4,007 268 449 1,546
------- ------- ------- ------ ------ ------
Long-term Debt................................ 2,853 2,865 3,127 706 705 1,341
------- ------- ------- ------ ------ ------
Deferred Income Taxes......................... 1,293 1,446 1,156 16 13 10
------- ------- ------- ------ ------ ------
Postretirement Benefits....................... 608 603 789 -- -- --
------- ------- ------- ------ ------ ------
Deferred Credits and Other Liabilities........ 602 488 776 2 2 1
------- ------- ------- ------ ------ ------
Commitments and Contingencies
Minority Interest............................. 314 320 176 -- -- --
------- ------- ------- ------ ------ ------
Preferred Stock with Mandatory Redemption
Provisions................................... 128 147 144 -- -- --
------- ------- ------- ------ ------ ------
Shareowners' Equity:
Series A preferred stock..................... -- -- 9 -- -- --
Common stock................................. 957 957 870 -- 71 317
Stock Employee Compensation Trust (common
stock held in trust)........................ (295) (298) (466) -- -- --
Premium on common stock and other capital
surplus..................................... 3,584 3,553 3,710 185 264 269
Cumulative translation adjustments........... (39) (237) (290) -- 2 (11)
Retained earnings (accumulated deficit)...... (829) (905) (981) 345 428 502
------- ------- ------- ------ ------ ------
3,378 3,070 2,852 530 765 1,077
Less--Shares held as treasury stock, at
cost........................................ 446 170 192 -- -- --
------- ------- ------- ------ ------ ------
2,932 2,900 2,660 530 765 1,077
------- ------- ------- ------ ------ ------
$11,271 $11,558 $12,835 $1,522 $1,934 $3,975
======= ======= ======= ====== ====== ======
(Reference is made to Note 1 for definitions of "Tenneco Industrial" and
"Tenneco Finance.")
5
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(UNAUDITED)
TENNECO INC. AND CONSOLIDATED
SUBSIDIARIES
----------------------------------------
THREE MONTHS ENDED MARCH 31,
- --------------------------------------------------------------------------------------
(MILLIONS EXCEPT SHARE AMOUNTS) 1995 1994
- --------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------
Series A Preferred Stock:
Balance January 1 and March 31............ -- $ -- 8,935,175 $ 9
=========== ------ =========== ------
Common Stock:
Balance January 1......................... 191,335,193 957 173,953,012 870
Issued pursuant to benefit plans........ 1,476 -- 31,671 --
Other................................... 1,536 -- -- --
----------- ------ ----------- ------
Balance March 31.......................... 191,338,205 957 173,984,683 870
=========== ------ =========== ------
Stock Employee Compensation Trust (SECT):
Balance January 1......................... (298) (499)
Shares issued........................... 31 33
Adjustment to market value.............. (28) --
------ ------
Balance March 31.......................... (295) (466)
------ ------
Premium on Common Stock and Other Capital
Surplus:
Balance January 1......................... 3,553 3,714
Premium on common stock issued pursuant
to benefit plans....................... -- 2
Gain on issuance of treasury stock...... -- 2
Dividends on shares held by SECT........ 3 4
Adjustment of SECT to market value...... 28 --
Other................................... -- (12)
------ ------
Balance March 31.......................... 3,584 3,710
------ ------
Cumulative Translation Adjustments:
Balance January 1......................... (237) (303)
Translation of foreign currency
statements............................. 68 13
Sale of investment in chemicals foreign
subsidiary............................. 139 --
Hedges of net investment in foreign
subsidiaries (net of income taxes)..... (9) --
------ ------
Balance March 31.......................... (39) (290)
------ ------
Retained Earnings (Accumulated Deficit):
Balance January 1......................... (905) (980)
Net income.............................. 153 83
Dividends--
Preferred stock....................... (2) (2)
Series A preferred stock.............. -- (13)
Common stock.......................... (74) (68)
Accretion of excess of redemption value
of preferred stock over fair value at
date of issue.......................... (1) (1)
------ ------
Balance March 31.......................... (829) (981)
------ ------
Less--Common Stock Held as Treasury Stock,
at Cost:
Balance January 1......................... 3,617,510 170 4,166,835 210
Shares acquired......................... 6,252,519 276 121,303 6
Shares issued pursuant to benefit and
dividend reinvestment plans............ (11,686) -- (474,987) (24)
----------- ------ ----------- ------
Balance March 31.......................... 9,858,343 446 3,813,151 192
=========== ------ =========== ------
Total............................... $2,932 $2,660
====== ======
(The accompanying notes to financial statements are an integral part of these
statements of changes in shareowners' equity.)
6
STATEMENTS OF CHANGES IN PREFERRED STOCK
WITH MANDATORY REDEMPTION PROVISIONS
(UNAUDITED)
TENNECO INC. AND CONSOLIDATED
SUBSIDIARIES
-----------------------------------
THREE MONTHS ENDED MARCH 31,
- -------------------------------------------------------------------------------
(MILLIONS EXCEPT SHARE AMOUNTS) 1995 1994
- -------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------
Preferred Stock:
Balance January 1........................ 1,586,764 $147 1,782,508 $163
Shares redeemed........................ (195,761) (20) (195,744) (20)
Accretion of excess of redemption value
over fair value at date of issue...... -- 1 -- 1
--------- ---- --------- ----
Balance March 31......................... 1,391,003 $128 1,586,764 $144
========= ==== ========= ====
(The accompanying notes to financial statements are an integral part of these
statements of changes in preferred stock with mandatory redemption provisions.)
7
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) In the opinion of Tenneco Inc. (hereinafter referred to as the
"Company"), the accompanying unaudited financial statements of Tenneco Inc. and
consolidated subsidiaries (hereinafter referred to as "Tenneco") contain all
adjustments necessary to present fairly the financial position as of March 31,
1995, and the results of operations; changes in shareowners' equity; changes in
preferred stock with mandatory redemption provisions; and cash flows for the
periods indicated. The financial statements of Tenneco include all majority-
owned subsidiaries including wholly-owned finance subsidiaries. Companies in
which at least a 20% to a 50% voting interest is owned are carried at cost plus
equity in undistributed earnings since date of acquisition (except for
Tenneco's Farm and construction equipment segment as noted below) and
cumulative translation adjustments.
In June 1994, Tenneco completed an initial public offering ("IPO") of
approximately 29% of the common stock of Case Corporation ("Case"), the holder
of Tenneco's Farm and construction equipment segment. In November 1994, a
secondary offering of Case's common stock reduced Tenneco's ownership to
approximately 44%. From January through November 1994, Case's financial
statements were fully consolidated with Tenneco's. From July through November
1994, the financial statements reflected the 29% minority shareowners' interest
in Case. Subsequent to November 1994, Case was reflected in Tenneco's financial
statements using the equity method of accounting.
The accompanying financial statements also include, on a separate and
supplemental basis, the combination of Tenneco's industrial companies and
finance companies as follows:
Tenneco Industrial-- The financial information captioned "Tenneco
Industrial" reflects the consolidation of all
majority-owned subsidiaries except for the finance
subsidiaries. The finance operations have been
included using the equity method of accounting
whereby the net income and net assets of these
companies are reflected, respectively, in the income
statement caption, "Equity in net income of
affiliated companies," and in the balance sheet
caption, "Investment in affiliated companies."
Tenneco Finance-- The financial information captioned "Tenneco Finance"
reflects the combination of Tenneco's wholly-owned
finance subsidiaries.
Prior to the Case IPO, the wholesale (dealer) credit and retail credit
operations of Case were financed by wholly-owned finance subsidiaries.
Subsequent to the IPO, the wholesale (dealer) credit operations are being
financed by industrial subsidiaries. As a result of this change, interest
expense related to the wholesale (dealer) credit operations has been reported
as "Interest Expense" from July through November 1994, rather than "Finance
charges--Tenneco Finance" as in prior periods. If the prior period was
reclassified to reflect this prospective presentation of interest expense
related to wholesale (dealer) credit operations, consolidated "Finance
charges--Tenneco Finance" would have been reduced and "Interest Expense" would
have increased by $12 million for the three months ended March 31, 1994, with
no effect on consolidated net income. At March 31, 1994, this change would have
increased receivables and debt of Tenneco Industrial by $1.7 billion, with no
effect on the consolidated balance sheet.
All significant intercompany transactions, including activity within and
between the "Tenneco Industrial" and "Tenneco Finance" business units, have
been eliminated.
The inclusion of Series A preferred stock in the computation of earnings per
share was antidilutive for the first quarter of 1994. In December 1994, all
Series A preferred stock was converted into common stock.
8
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Prior years' financial statements have been reclassified where appropriate to
conform to 1995 presentations.
(2) Pursuant to Order 636 issued by the Federal Energy Regulatory Commission
("FERC") on April 8, 1992, Tennessee Gas Pipeline Company ("Tennessee")
implemented revisions to its tariff which put into effect on September 1, 1993,
the restructuring of its transportation, storage and sales services. Pursuant
to the provisions of Order 636 allowing for the recovery of transition costs
related to the restructuring, Tennessee has made filings to recover gas
production costs related to its Bastian Bay facilities, the remaining balance
of purchased gas ("PGA") costs, stranded transportation ("TBO") costs and gas
supply realignment ("GSR") costs resulting from remaining gas purchase
obligations.
Tennessee's filings to recover production costs related to its Bastian Bay
facilities have been rejected by the FERC based on the continued use of the gas
production from the field; however, the FERC recognized the ability of
Tennessee to file for the recovery of losses upon disposition of these assets.
Tennessee has filed for appellate review of the FERC actions and is confident
that the Bastian Bay costs will ultimately be recovered as transition costs
directly related to Order 636, and no FERC order has questioned the ultimate
recoverability of these costs.
The filings implementing Tennessee's recovery mechanisms for the following
transition costs were accepted effective September 1, 1993, and made subject to
refund pending FERC review: 1) direct-billing of unrecovered PGA costs to its
former sales customers over a twelve-month period, 2) recovery of TBO costs,
which Tennessee is obligated to pay under existing contracts, through a
surcharge from firm transportation customers, adjusted annually and 3) GSR cost
recovery of 90% of such costs over a period of up to thirty-six months from
firm transportation customers and recovery of 10% of such costs from
interruptible transportation customers.
Following negotiations with its customers, Tennessee filed in July 1994 with
the FERC a Stipulation and Agreement (the "PGA Stipulation"), which provides
for the recovery of PGA costs of approximately $100 million and the recovery of
costs associated with the transfer of storage gas inventory to new storage
customers in Tennessee's restructuring proceeding. The PGA Stipulation
eliminates all challenges to the PGA costs, but establishes a cap on the
charges that may be imposed upon former sales customers. On November 15, 1994,
the FERC issued an order approving the PGA Stipulation and resolving all
outstanding issues. On April 5, 1995, the FERC issued its order on rehearing
affirming its initial approval of the PGA Stipulation. Tennessee implemented
the terms of the PGA Stipulation and expects to make refunds in May 1995.
Tennessee has recorded a liability which it believes is adequate to cover the
PGA refunds.
Tennessee is recovering TBO costs formerly incurred to perform its sales
functions, subject to refund, pending review of data submitted by Tennessee
through technical conference proceedings. On November 18, 1994, the FERC issued
an order on Tennessee's initial TBO surcharge filing to recover TBO costs for
the twelve-month period beginning September 1, 1993. The order required
Tennessee to remove certain costs from this surcharge, subject to FERC's review
at a second technical conference and FERC's consideration of a request for
rehearing. On November 30, 1994, Tennessee filed for a surcharge to recover
approximately $25 million of TBO costs in compliance with the FERC's order, and
in a separate filing, Tennessee filed to recover its projected annual TBO costs
of approximately $21 million for the twelve-month period beginning September 1,
1994, through a new TBO surcharge. The FERC accepted Tennessee's filing to
recover its projected TBO costs, subject to refund, pending review through
technical conference proceedings.
With regard to Tennessee's GSR costs, Tennessee, along with three other
pipelines, executed four separate settlement agreements with Dakota
Gasification Company and the U.S. Department of Energy and
9
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
initiated four separate proceedings at the FERC seeking approval to implement
the settlement agreements. The settlement resolved litigation concerning
purchases made by Tennessee of synthetic gas produced from the Great Plains
Coal Gasification plant ("Great Plains"). On October 18, 1994, the FERC
consolidated the four proceedings and set them for hearing before an
administrative law judge who is to issue his initial decision by December 31,
1995. The FERC has committed to a final order by December 31, 1996. The FERC
order stated that the costs related to the Great Plains project are eligible
for recovery through GSR and other special recovery mechanisms and that the
costs are eligible for recovery for the duration of the term of the original
gas purchase agreements. The hearing will be limited to the issue of whether
the settlement agreements are prudent.
Also related to Tennessee's GSR costs, on October 14, 1993, Tennessee was
sued in the State District Court of Ector County, Texas, by ICA Energy, Inc.
("ICA") and TransTexas Gas Corporation ("TransTexas"). In that suit, ICA and
TransTexas contended that Tennessee had an obligation to purchase gas
production which TransTexas thereafter attempted to add unilaterally to the
reserves originally dedicated to a 1979 gas contract. On two subsequent
occasions, TransTexas gave Tennessee notice that it was adding new production
and/or acreage "to the contract." An amendment to the pleadings seeks $1.5
billion from Tennessee for alleged damages caused by Tennessee's refusal to
purchase gas produced from the TransTexas leases covering the new production
and lands. Neither ICA nor TransTexas were original parties to that contract.
However, they contend that any stranger acquiring a fractional interest in the
original committed reserves thereby obtains a right to add to the contract
unlimited volumes of gas production from locations in South Texas. Tennessee
filed a motion for summary judgment, asserting that the Texas statutes of
frauds precluded the plaintiffs from adding new production or acreage to the
contract. On May 4, 1995, the trial court granted Tennessee's motion for
summary judgment. The time for appeal of the trial court's ruling had not
commenced as of May 15, 1995.
Tennessee is engaged in separate settlement and contract reformation
discussions with holders of certain gas purchase contracts who have sued
Tennessee. Although Tennessee believes that its defenses in the underlying gas
purchase contract actions are meritorious, Tennessee recorded in the first
quarter liabilities which it believes are adequate to cover the resolution of
these matters.
As of March 31, 1995, Tennessee has deferred GSR costs yet to be recovered
from its customers of approximately $518 million, net of $232 million
previously collected from its customers subject to refund. Proceedings have
commenced to review the recovery of these GSR costs; however, the FERC has also
generally encouraged pipelines to settle such issues through negotiations with
customers. Although Order 636 contemplates complete recovery by pipelines of
qualified transition costs, Tennessee is engaged in settlement discussions with
its customers concerning the amount of recoverable GSR costs in response to
FERC and customer statements acknowledging the desirability of such
settlements.
Given the uncertainty over the results of ongoing discussions between
Tennessee and its customers related to the recovery of GSR costs and the
uncertainty related to predicting the outcome of its gas purchase contract
reformation efforts and the associated litigation, Tenneco is unable to predict
the timing or the ultimate impact the resolution of these issues will have on
its consolidated financial position or results of operations.
The FERC issued final orders approving Tennessee's Stipulation and Agreement
partially resolving its 1991 rate case. Pursuant to these final FERC orders,
rates for the period February 1, 1992, through August 31, 1993, were approved,
and Tennessee paid refunds for this period in June 1994. Also pursuant to these
orders, rates for the period after September 1, 1993, were approved and
Tennessee paid refunds for the period September 1, 1993, to October 31, 1994,
in February 1995. Tennessee had recorded a liability which was adequate to
cover the refund obligations.
10
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The approved Stipulation and Agreement discussed above also established
procedures for resolving the recovery of certain environmental expenditures.
These environmental costs are currently being collected in Tennessee's rates
subject to further review and possible refund. Tennessee intends to pursue full
recovery of the costs at issue. Tennessee is also currently pursuing the
possibility of a global settlement with its customers that would not only
address recovery of the environmental costs currently being recovered in its
rates, but would also establish a mechanism for recovering a substantial
portion of the environmental costs discussed in Note 4, that will be expended
in the future. The total amount of and timing for any recovery pursuant to such
a global settlement will depend upon the results of Tennessee's negotiations
with its customers and will be subject to FERC approval.
On December 30, 1994, Tennessee filed a general rate increase in Docket No.
RP95-112 which reflected an increase in Tennessee's revenue requirement of $118
million, including recovery of certain environmental costs as discussed in Note
4. On January 25, 1995, the FERC accepted the filing, suspended its
effectiveness for the maximum period of five months pursuant to normal
regulatory process, and set the matter for hearing. Subject to the outcome of
certain issues identified in the FERC order, the increased rates will become
effective on July 1, 1995, subject to refund.
The January 25, 1995, order also required the convening of a technical
conference, which was held in March 1995, to address various concerns raised by
the FERC and Tennessee's customers over, among other issues, Tennessee's
ability to provide its shippers with timely and accurate operating and billing
information, and the associated systems costs. At that technical conference, a
series of follow-up technical conferences were scheduled to address these
issues. The ultimate resolution of these issues may result in adjustments to
customer billings.
(3) Reference is made to Note 2 for information concerning gas supply
litigation. Tenneco Inc. and its subsidiaries are parties to numerous other
legal proceedings arising from their operations. Tenneco Inc. believes that the
outcome of these proceedings, individually and in the aggregate, will have no
material effect on the financial position or results of operations of Tenneco
Inc. and its consolidated subsidiaries.
(4) Since 1988, Tennessee has been engaged in an internal project to identify
and deal with the presence of 1) polychlorinated biphenyls ("PCBs") and 2)
other substances of concern, including substances on the U.S. Environmental
Protection Agency ("EPA") List of Hazardous Substances ("HS List") at
compressor stations and other facilities operated by both its interstate and
intrastate natural gas pipeline systems. While conducting this project,
Tennessee has been in frequent contact with federal and state regulatory
agencies, both through informal negotiation and formal entry of consent orders,
in order to assure that its efforts meet regulatory requirements.
Tenneco has established a reserve for Tennessee's environmental expenses,
which includes: 1) expected remediation expense and associated onsite, offsite
and groundwater technical studies, 2) legal fees and 3) settlement of third
party and governmental litigation, including civil penalties. Through March 31,
1995, Tenneco has charged approximately $98 million against the environmental
reserve. Of the remaining reserve, $30 million has been recorded on the balance
sheet under "Payables-Trade" and $135 million under "Deferred Credits and Other
Liabilities."
Due to the current uncertainty regarding the further activity necessary for
Tennessee to address the substances on the HS List and other substances of
concern, including the requirements for site characterization, the actual
presence of such substances at the sites, and the final, site-specific cleanup
decisions to be made with respect to cleanup levels and remediation
technologies, Tennessee cannot at this
11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
time project what additional costs, if any, may result from such activity.
While there are still many uncertainties relating to the ultimate costs which
may be incurred, based upon Tennessee's continuing evaluation and experience to
date, Tenneco continues to believe that the amount of the reserve is adequate.
Tenneco believes that a substantial portion of these costs, which will be
expended over the next five to ten years, will be recovered from customers of
its natural gas pipelines. Tennessee is currently recovering environmental
expenses annually in its rates. Reference is made to Note 2 for more
information regarding recovery of environmental costs. A significant portion of
these expenses remains subject to review and refund in Tennessee's 1991 rate
case. Tennessee is also currently pursuing the possibility of a global
settlement with its customers that would not only address recovery of the
environmental costs currently being recovered in its rates, but would also
establish a mechanism for recovering a substantial portion of the environmental
costs that will be expended in the future. The total amount of and timing for
any recovery pursuant to such a global settlement will depend upon the results
of Tennessee's negotiations with its customers and will be subject to FERC
approval. As of March 31, 1995, $125 million was remaining to be recovered from
customers.
Tenneco believes that its liability insurance policies in effect during the
period in which the environmental issues occurred provide coverage for
remediation costs and related claims. Tennessee has pending litigation in a
Louisiana state court against its insurance carriers during this period,
seeking recovery of costs which Tennessee incurred. The issues in dispute
involve determining: 1) whether the presence of PCBs and other substances at
each compressor station constituted a separate occurrence for purposes of the
per-occurrence limits of the policies; 2) the applicability of the pollution
exclusions in certain policies issued after 1971; 3) the applicability of
provisions which exclude the environmental impacts located solely on the
insured's property; 4) whether the term "property damage" in the policies will
cover the cost of compliance with governmental cleanup directives; 5) the
allocation of costs to the various policies in effect during the period the
environmental impact occurred; 6) the applicability of provisions excluding
pollution that is "expected or intended" and 7) the adequacy of notice of
claims to insurance carriers. Tenneco has completed settlements with and
received payment from several of the defendant carriers and believes that the
likelihood of recovery of a portion of its remediation costs and claims against
the remaining defendant carriers is reasonably possible.
In July 1994, Tennessee commenced litigation in a Kentucky state court
against the manufacturer of the PCB-containing lubricant used by Tennessee,
seeking reimbursement of sums Tennessee has and will incur in the defense and
settlement of PCB-related claims brought by state and federal agencies, private
individuals, and others. Tennessee anticipates that the defendant will raise a
variety of issues in dispute of Tennessee's claims.
While Tenneco believes its legal position to be meritorious, Tenneco has not
adjusted its environmental reserve to reflect any anticipated insurance
recoveries or recoveries from the manufacturer of the PCB-containing lubricant.
Recoveries could reduce the amount ultimately recoverable from customers.
Tenneco has identified other sites in its various operating divisions where
environmental remediation expenses may be required should there be a change in
ownership, operations or applicable regulations. These possibilities cannot be
predicted or quantified at this time and accordingly, no provision has been
recorded. However, provisions have been made for all instances where it has
been determined that the incurrence of any material remedial expense is
probable.
(5) In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 which establishes new accounting
standards for the impairment of long-lived assets and
12
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
for long-lived assets to be disposed of. The statement is effective for fiscal
years beginning after December 15, 1995. The impact of the adoption of the new
standards has not been quantified.
(6) In March 1995, the Company completed an IPO of 100 percent of its
Albright & Wilson chemicals segment, resulting in net proceeds of approximately
$700 million. The loss on the sale, which was recorded in December 1994 as
"discontinued operations," was $170 million, net of income tax expense of $115
million.
(The above notes are an integral part of the foregoing financial statements.)
13
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS RESULTS
REVENUES
Revenues for the first quarter of 1995 were $2.16 billion, down from $3.05
billion in the first quarter of 1994. Natural gas pipelines revenues were down
$188 million or 27 percent primarily in the nonregulated sector, which
experienced lower demand and prices stemming from the warm winter weather.
Automotive parts revenues increased $137 million or 29 percent, of which $86
million resulted from the Heinrich Gillet GmbH & Company ("Gillet") acquisition
in November 1994. Packaging revenues increased $145 million or 30 percent from
improved price realizations and volumes in both the paperboard and specialty
packaging segments. Shipbuilding revenues increased $18 million or four percent
due to increased activity on the SEALIFT conversion contract. Tenneco's first
quarter 1995 revenues exclude revenues from Case Corporation ("Case"), its farm
and construction equipment segment, due to the change to the equity method of
accounting for Case in December 1994. (See Note 1 in the "Notes to Financial
Statements" for additional information.)
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST ("OPERATING
INCOME")
Operating income for the first quarter of 1995 was $324 million, up $30
million or 10 percent, compared with $294 million for the first quarter of 1994
mainly resulting from improved pricing and volumes in the packaging sector.
NATURAL GAS PIPELINES
Natural gas pipelines reported first quarter operating income of $80 million
compared with $105 million in the 1994 first quarter. Revenues for the first
quarter of 1995 decreased to $505 million compared with $693 million in the
first quarter of 1994 primarily due to the decline in spot prices and lower
volumes in the nonregulated segment. Operating income decreased as a result of
depressed natural gas demand and prices in the nonregulated business and the
discounting of capacity associated with a terminated contract in the regulated
business. The natural gas pipeline industry is experiencing increasing
competition in virtually every aspect of operations, which is the result of
actions by the FERC to strengthen market forces throughout the industry. In a
number of key markets, Tenneco's interstate pipelines face competitive pressure
from other major pipeline systems, enabling local distribution companies and
end users to choose a supplier or switch suppliers based on the short-term
price of the gas and the cost of transportation. Tenneco's pipelines have
frequently been required to discount their transportation rates to maintain
market share. Additionally, the majority of Tennessee's transportation
contracts will be expiring over the next five years. The renegotiation of these
contracts may be impacted by such competitive factors.
In April 1995, Tenneco announced its intent to sell its 50% interest in Kern
River Gas Transmission Company ("Kern River") provided an agreement can be
reached with a buyer on terms acceptable to Tenneco. Kern River owns a 904-mile
natural gas pipeline system extending from southwestern Wyoming to Bakersfield,
California.
AUTOMOTIVE PARTS
Automotive parts reported first quarter operating income of $56 million
compared with $54 million in the first quarter of 1994. Revenues for the first
quarter of 1995 increased to $602 million compared with $465 million in last
year's first quarter, primarily as a result of the acquisition of Gillet, which
added $86 million
14
in revenues. Profit margins declined in the first quarter of 1995 due to the
integration of Walker Europe with Gillet, the largest supplier of exhaust
systems for auto manufacturers in Europe. Aftermarket sales rose 11 percent
worldwide, primarily due to the broadened geographic introduction and model
coverage of the Sensa-Trac ride control product line. Sensa-Trac was introduced
in North America, Australia and France last year and is being introduced in the
rest of Europe this year. Original equipment sales grew 58 percent worldwide
with much of the increase supplied by the Gillet acquisition and the improving
European economy. Tenneco expects new vehicle sales in Europe to rise by three
to four percent in 1995 and new car and truck production in North America to
equal last year.
PACKAGING
First quarter operating income for packaging was $116 million, up $96 million
compared with $20 million generated in the first quarter of 1994. The 1995
first quarter operating income included a $14 million gain from the sale of a
mill in Sylva, North Carolina. Revenues for the first three months of 1995 were
$636 million compared with $491 million in the same period last year, up 30
percent primarily due to improved price realizations and volumes in both
paperboard and specialty packaging.
The paperboard packaging business, which includes containerboard and folding
boxboard operations, reported operating income of $107 million in the first
quarter, compared with $9 million a year ago, up $98 million primarily due to
higher commodity prices. Wastepaper costs increased by $19 million as costs of
a major component of wastepaper, old corrugated containers, escalated to more
than $200 per ton in March 1995 from $44 per ton a year ago.
Productivity of containerboard mills rose 3.3 percent over the year-ago
period and primary mills set a record with average production exceeding 6,000
tons per day for three consecutive months. Reduced machine downtime and scrap
contributed to these productivity gains.
Specialty packaging reported operating income of $9 million in the first
quarter of 1995 down slightly from last year. Aluminum and plastics packaging
operating income increased 11 percent in the first quarter as demand for these
products continues to grow. The molded fiber business reported lower operating
income in the first quarter of 1995 compared with the same period last year due
to higher raw material costs. The cost of recycled fiber rose 80 percent
compared with last year's first quarter.
SHIPBUILDING
Shipbuilding reported first quarter operating income of $44 million compared
with $48 million in the 1994 first quarter. Revenues increased $18 million to
$421 million in the first three months of 1995 compared with $403 million in
the same period last year due to a higher level of activity on the SEALIFT
conversion contract. Operating income declined due to the completion of the
contract to refuel and overhaul the aircraft carrier USS ENTERPRISE, which was
completed in September 1994, and higher initial costs on the SEALIFT conversion
contract.
The backlog at the end of the first quarter of 1995 was approximately $5.3
billion and included construction contracts for three LOS ANGELES class
submarines and three NIMITZ class aircraft carriers, a conversion contract for
two fast SEALIFT ships and two "Double Eagle" product tankers.
OTHER
Tenneco recorded $26 million for equity in net income from its 44 percent
ownership of Case in the first quarter of 1995 compared with 100 percent of
Case's operating income of $81 million in the first quarter of 1994.
15
Tenneco's other operations reported operating income of $2 million in the
first quarter of 1995, compared with an operating loss of $14 million for the
first quarter of 1994. Operating income improved in the first quarter of 1995
primarily due to interest income from higher levels of notes receivable and
temporary cash investments.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Interest expense decreased from $96 million in the 1994 first quarter to $84
million in the first quarter of 1995. The decline was primarily attributable to
lower debt levels that resulted from the deconsolidation of Case in November
1994, scheduled long-term debt retirements and lower interest expense for a
pipeline rate refund. Interest capitalized decreased from $2 million in the
1994 first quarter to $1 million in 1995.
INCOME TAXES
Income tax expense for the first quarter of 1995 was $82 million versus $77
million reported for the 1994 first quarter. This increase was primarily due to
higher pre-tax income in 1995, partially offset by lower levels of unbenefitted
European losses.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, Tenneco adopted Statement of Financial Accounting
Standards ("FAS") No. 112, "Employers' Accounting for Postemployment Benefits".
This new standard was adopted using the cumulative catch-up method and requires
employers to account for postemployment benefits for former or inactive
employees after employment but before retirement on the accrual basis rather
than the "pay-as-you-go" basis. As a result of the adoption of this statement,
the first quarter 1994 Statement of Income includes an after-tax charge of $39
million, or 22 cents per average common share, for the cumulative effect of the
accounting change.
DISCONTINUED OPERATIONS
Income from discontinued operations in the first quarter of 1994 of $1
million (net of an income tax benefit of $1 million) was attributable to the
chemicals and brakes businesses, which have been sold.
In March 1995, Tenneco completed an IPO of 100 percent of its Albright &
Wilson chemicals segment, resulting in net proceeds of approximately $700
million. The proceeds will be used to take advantage of growth opportunities in
its other businesses. The loss on the sale, which was recorded in December 1994
as "discontinued operations", was $170 million, net of income tax expense of
$115 million.
EARNINGS PER AVERAGE COMMON SHARE
Net income for the first quarter of 1995 was $153 million, or 84 cents per
average common share after preferred stock dividends, compared with net income
of $83 million, or 45 cents per average common share after preferred stock
dividends, in the 1994 first quarter. Preferred stock dividends were $3 million
for the first quarter of 1995 and 1994.
Included in the first quarter 1994 net income of $83 million was income from
continuing operations of $121 million, or 66 cents per average common share,
income from discontinued operations of $1 million, or 1 cent per average common
share, and a charge of $39 million, or 22 cents per average common share,
related to the cumulative effect of the change in accounting principle.
Average shares outstanding used for the calculation of earnings per average
common share for the first quarter of 1995 were 177.8 million compared to 178.7
million in the 1994 first quarter. The decrease was primarily the result of the
common stock repurchase program partially offset by the issuance of shares from
the stock employee compensation trust ("SECT").
16
CASH FLOW
Net cash used by operating activities was $13 million for the first quarter
of 1995 compared with cash provided by operating activities of $597 million for
the same period in 1994, a decrease of $610 million. This decrease in cash
provided by operating activities was due primarily to the sale of approximately
$740 million of Case retail receivables to limited purpose business trusts,
which issued asset-backed securities to the public in the 1994 first quarter,
and a pipeline rate refund in the 1995 first quarter. Partially offsetting
these declines were higher collections of receivables and lower working capital
requirements due to the Case deconsolidation. The 1994 cash provided by
operating activities included a decrease related to the buildup of inventories
of Case and its dealers.
Net cash provided by investing activities was $616 million compared with net
cash used of $37 million in the first quarter of 1994. Proceeds from sale of
businesses and assets were higher primarily due to the sale of the Albright &
Wilson chemicals division.
Cash used for financing activities for the first quarter of 1995 was $444
million compared with $503 million for the first quarter of 1994. In the first
quarter of 1995, Tenneco purchased approximately $300 million of its common
stock as a part of its $500 million common stock repurchase program. Since the
repurchase program began in December 1994, 7,299,900 shares have been acquired
at a cost of $320 million.
Expenditures for plant, property and equipment from continuing operations for
the first quarter of 1995 were $118 million compared with $89 million for the
first quarter of 1994. Increased expenditures for natural gas pipelines ($25
million), automotive parts ($4 million), shipbuilding ($8 million) and
packaging ($3 million) were partially offset by the decline for farm and
construction equipment ($11 million).
LIQUIDITY AND CAPITAL RESOURCES
Capitalization totaled $7.42 billion at March 31, 1995, a decrease of $65
million from December 31, 1994. The resulting ratio of total debt to
capitalization decreased from 55.0 percent to 54.5 percent. The total debt to
capitalization ratio was 52.4 percent including the market value of the SECT
shares compared to 52.9 percent at December 31, 1994. The major changes in
capitalization were: total debt down $72 million, shareowners' equity up $32
million, minority interest down $6 million and preferred stock down $19 million
due to mandatory redemption.
Based upon Tenneco's estimates of anticipated needs and circumstances of
business operations, together with anticipated market conditions and including
any payments associated with the settlement of the GSR issues, Tenneco expects
adequate sources of funds to be available to finance its future operations
through internally generated funds, the sale of assets, the use of credit
facilities and the issuance of other long-term securities.
OTHER MATTERS
In March 1995, the Financial Accounting Standards Board issued FAS No. 121
which establishes new accounting standards for the impairment of long-lived
assets and for long-lived assets to be disposed of. The statement is effective
for fiscal years beginning after December 15, 1995. The impact of the adoption
of the new standards has not been quantified.
17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
(1) Environmental Proceedings.
Tennessee is a party in proceedings involving federal and state authorities
regarding the past use by Tennessee of a lubricant containing polychlorinated
biphenyls ("PCBs") in its starting air systems.
Tennessee has executed a consent order with the United States Environmental
Protection Agency ("EPA") governing the remediation of its compressor stations
in Regions IV, V and VI. With respect to the stations in Regions II and III,
EPA has advised Tennessee that it is deferring to the Pennsylvania and New York
environmental agencies to specify the remediation requirements applicable to
Tennessee. Tennessee anticipates that it will soon reach an agreement with the
Pennsylvania Department of Environmental Resources and will enter into a
consent order on remediation at the Pennsylvania stations (under which
Tennessee also agrees to pay a civil penalty and to make a contribution for
environmental projects); meanwhile, Tennessee will continue its negotiations
with the New York Department of Environmental Conservation on remediation at
the New York stations. Tenneco believes that the ultimate resolution of this
matter will not have a material adverse effect on the financial condition or
results of operations of Tenneco Inc. and its consolidated subsidiaries.
(2) Other Proceedings.
On October 14, 1993, Tennessee was sued in the State District Court of Ector
County, Texas, by ICA Energy, Inc. ("ICA") and TransTexas Gas Corporation
("TransTexas"). In that suit, ICA and TransTexas contended that Tennessee had
an obligation to purchase gas production which TransTexas thereafter attempted
to add unilaterally to the reserves originally dedicated to a 1979 gas
contract. On two subsequent occasions, TransTexas gave Tennessee notice that it
was adding new production and/or acreage "to the contract." An amendment to the
pleadings seeks $1.5 billion from Tennessee for alleged damages caused by
Tennessee's refusal to purchase gas produced from the TransTexas leases
covering the new production and lands. Neither ICA nor TransTexas were original
parties to that contract. However, they contend that any stranger acquiring a
fractional interest in the original committed reserves thereby obtains a right
to add to the contract unlimited volumes of gas production from locations in
South Texas. Tennessee filed a motion for summary judgment, asserting that the
Texas statutes of frauds precluded the plaintiffs from adding new production or
acreage to the contract. On May 4, 1995, the trial court granted Tennessee's
motion for summary judgment. The time for appeal of the trial court's ruling
had not commenced as of May 15, 1995.
(3) Potential Superfund Liability.
At March 31, 1995, Tenneco has been designated as a potentially responsible
party in 66 "Superfund" sites. With respect to its pro rata share of the
remediation costs of certain sites, Tenneco is fully indemnified by third
parties. With respect to certain other sites, Tenneco has sought to resolve its
liability through payments to the other potentially responsible parties. For
the remaining sites, Tenneco has estimated its share of the remediation costs
to between $12 million and $71 million or 0.4% to 2.2% of the total remediation
costs for those sites and has provided reserves that it believes are adequate
for such costs. Because the clean-up costs are estimates and are subject to
revision as more information becomes available about the extent of remediation
required, Tenneco's estimate of its share of remediation costs could change.
Moreover, liability under the Comprehensive Environmental Response,
Compensation and Liability Act is joint and several, meaning that Tenneco could
be required to pay in excess of its pro rata share of remediation costs.
Tenneco's understanding of the financial strength of other potentially
responsible parties has been considered, where appropriate, in Tenneco's
determination of its estimated liability. Tenneco does not believe that the
costs associated with its current status as a potentially responsible party in
the Superfund sites described above will be material to its consolidated
financial position or results of operations.
For additional information concerning environmental matters, see Note 4 in
the "Notes to Financial Statements" of Tenneco Inc. and Consolidated
Subsidiaries.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3--By-Laws of Tenneco Inc., as amended May 9, 1995.
11--Computation of Earnings (Loss) Per Share of Common Stock
12--Computation of Ratio of Earnings to Fixed Charges
27--Financial Data Schedule
(b) Reports on Form 8-K. Tenneco Inc. did not file any Current Reports on
Form 8-K during the quarter ended March 31, 1995.
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TENNECO INC.
Robert T. Blakely
By __________________________________
Robert T. Blakely
Senior Vice President and
Chief Financial Officer
Date: May 15, 1995
20
EXHIBIT 11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
(UNAUDITED)
(MILLIONS EXCEPT SHARE
AMOUNTS)
THREE MONTHS ENDED MARCH 31,
------------------------------
1995 1994
------------ ------------
COMPUTATION FOR STATEMENTS OF INCOME
Primary Earnings Per Share (average shares
outstanding):
Income from continuing operations.......... $ 153 $ 121
Income from discontinued operations, net of
income tax................................ -- 1
------------ ------------
Income before cumulative effect of change
in accounting principle................... 153 122
Cumulative effect of change in accounting
principle, net of income tax.............. -- (39)
------------ ------------
Net income................................. 153 83
Preferred stock dividends.................. 3 3
------------ ------------
Net income to common stock................. $ 150 $ 80
============ ============
Average shares of common stock
outstanding(a),(b)........................ 177,792,872 178,696,826
============ ============
Earnings (loss) per average share of common
stock:
Continuing operations.................... $ .84 $ .66
Discontinued operations.................. -- .01
Cumulative effect of change in accounting
principle............................... -- (.22)
------------ ------------
$ .84 $ .45
============ ============
ADDITIONAL COMPUTATIONS(C)
Net income to common stock, per above....... $ 150 $ 80
============ ============
Primary Earnings Per Share (including common
stock equivalents):
Average shares of common stock
outstanding(a),(b)........................ 177,792,872 178,696,826
Incremental common shares applicable to
common stock options based on the common
stock daily average market price during
the period................................ 49,907 119,080
Incremental common shares applicable to
performance units based upon the
attainment of specified goals............. 27,625 --
------------ ------------
Average common shares, as adjusted......... 177,870,404 178,815,906
============ ============
Earnings (loss) per average share of common
stock (including common stock
equivalents):
Continuing operations.................... $ .84 $ .66
Discontinued operations.................. -- .01
Cumulative effect of change in accounting
principle............................... -- (.22)
------------ ------------
$ .84 $ .45
============ ============
Fully Diluted Earnings Per Share:
Average shares of common stock
outstanding(a),(b)........................ 177,792,872 178,696,826
Incremental common shares applicable to
common stock options based on the more
dilutive of the common stock ending or
average market price during the period.... 64,438 119,080
Average common shares issuable assuming
conversion of Tenneco Inc. 10% loan stock. 39,329 41,903
Incremental common shares applicable to
performance units based upon the
attainment of specified goals............. 27,625 --
------------ ------------
Average common shares assuming full
dilution.................................. 177,924,264 178,857,809
============ ============
Fully diluted earnings (loss) per average
share, assuming conversion of all
applicable securities:
Continuing operations.................... $ .84 $ .66
Discontinued operations.................. -- .01
Cumulative effect of change in accounting
principle............................... -- (.22)
------------ ------------
$ .84 $ .45
============ ============
- --------
NOTES:(a) In 1992, 12,000,000 shares of common stock were issued to the Stock
Employee Compensation Trust ("SECT"). Shares of common stock issued
to a related trust are not considered to be outstanding in the
computation of average shares of common stock until the shares are
utilized to fund the obligations for which the trust was
established. At March 31, 1995, the SECT had utilized 5,681,945 of
these shares.
(b) Prior to conversion in December 1994, Series A preferred stock was
converted into common stock under the Contingent Share method. The
above computation includes 8,935,175 shares of Series A preferred
stock which were converted into 17,342,763 shares of common stock. In
December 1994, all of the outstanding shares of Series A preferred
stock were converted into Tenneco Inc. common stock. The inclusion of
Series A preferred stock in the computation of earnings per share was
antidilutive for the first quarter of 1994.
(c) These calculations are submitted in accordance with Securities and
Exchange Commission requirements although not required by Accounting
Principles Board Opinion No. 15 because they result in dilution of
less than 3%.
EXHIBIT 12
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
(UNAUDITED)
THREE
MONTHS
ENDED
MARCH 31,
----------
1995 1994
---- ----
Income from continuing operations.................................. $153 $121
Add:
Interest......................................................... 117 155
Portion of rentals representative of interest factor............. 14 16
Preferred stock dividend requirements of majority-owned
subsidiaries.................................................... 6 --
Income tax expense and other taxes on income..................... 82 77
Amortization of interest capitalized applicable to nonutility
companies....................................................... 1 2
Undistributed earnings of affiliated companies in which less than
a 50% voting interest is owned.................................. (26) (2)
---- ----
Earnings as defined............................................ $347 $369
==== ====
Interest........................................................... $117 $155
Interest capitalized............................................... 1 2
Portion of rentals representative of interest factor............... 14 16
Preferred stock dividend requirements of majority-owned
subsidiaries...................................................... 10 --
---- ----
Fixed charges as defined....................................... $142 $173
==== ====
Ratio of earnings to fixed charges................................. 2.44 2.13
==== ====
[LOGO OF TENNECO APPEARS HERE]