--------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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: 178,332,978 shares as of June 30, 1995.
--------------------------------------------------------------------------------
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TABLE OF CONTENTS
PAGE
----
Part I--Financial Information
Tenneco Inc. and Consolidated Subsidiaries--
Statements of Income.................................................. 2
Statements of Cash Flows.............................................. 5
Balance Sheets........................................................ 6
Statements of Changes in Shareowners' Equity.......................... 8
Statements of Changes in Preferred Stock With Mandatory Redemption
Provisions........................................................... 9
Notes to Financial Statements......................................... 10
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 16
Part II--Other Information
Item 1. Legal Proceedings............................................... 22
Item 2. Changes in Securities........................................... *
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. 23
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 23
--------
* 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
--------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------------------------------------------------
(MILLIONS EXCEPT SHARE
AMOUNTS) 1995 1994 1995 1994
-------------------------------------------------------------------------------
Revenues:
Net sales and operating
revenues--
Natural gas pipelines.. $ 432 $ 605 $ 937 $ 1,298
Automotive parts....... 661 545 1,263 1,010
Packaging.............. 682 527 1,318 1,018
Shipbuilding........... 424 464 845 867
Farm and construction
equipment............. -- 1,118 -- 2,118
Other.................. (1) (1) (2) (4)
----------- ----------- ----------- -----------
2,198 3,258 4,361 6,307
Other income--
Interest income........ 34 40 68 87
Equity in net income of
affiliated companies.. 69 15 112 31
Gain (loss) on sale of
businesses and assets,
net................... (7) 9 7 12
Other income, net...... 12 (14) 19 (21)
----------- ----------- ----------- -----------
2,306 3,308 4,567 6,416
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales (exclusive
of depreciation shown
below)................. 1,295 2,023 2,544 3,849
Operating expenses...... 317 511 692 1,042
Selling, general and ad-
ministrative........... 195 285 382 568
Finance charges--Tenneco
Finance................ 23 44 46 95
Depreciation, depletion
and amortization....... 107 86 210 209
Restructuring costs..... -- (16) -- (16)
----------- ----------- ----------- -----------
1,937 2,933 3,874 5,747
----------- ----------- ----------- -----------
Income Before Interest Ex-
pense, Income Taxes and
Minority Interest........ 369 375 693 669
Interest Expense (net of
interest capitalized).... 87 97 171 193
----------- ----------- ----------- -----------
Income Before Income Taxes
and Minority Interest.... 282 278 522 476
Income Tax Expense ....... 91 117 173 194
----------- ----------- ----------- -----------
Income Before Minority In-
terest................... 191 161 349 282
Minority Interest ........ 6 -- 11 --
----------- ----------- ----------- -----------
Income From Continuing Op-
erations................. 185 161 338 282
Loss From Discontinued Op-
erations, Net of Income
Tax...................... -- (14) -- (13)
----------- ----------- ----------- -----------
Income Before Extraordi-
nary Loss................ 185 147 338 269
Extraordinary Loss, Net of
Income Tax............... -- (5) -- (5)
----------- ----------- ----------- -----------
Income Before Cumulative
Effect of Change in Ac-
counting Principle....... 185 142 338 264
Cumulative Effect of
Change in Accounting
Principle, Net of Income
Tax...................... -- -- -- (39)
----------- ----------- ----------- -----------
Net Income................ 185 142 338 225
Preferred Stock Dividends. 3 4 6 7
----------- ----------- ----------- -----------
Net Income to Common
Stock.................... $ 182 $ 138 $ 332 $ 218
=========== =========== =========== ===========
Average Number of Shares
of Common Stock Outstand-
ing...................... 173,699,875 179,850,934 175,829,883 179,287,726
=========== =========== =========== ===========
Earnings (Loss) Per Aver-
age Share of Common
Stock:
Continuing operations... $ 1.05 $ .88 $ 1.89 $ 1.54
Discontinued operations. -- (.08) -- (.07)
Extraordinary loss...... -- (.03) -- (.03)
Cumulative effect of
change in accounting
principle.............. -- -- -- (.22)
----------- ----------- ----------- -----------
$ 1.05 $ .77 $ 1.89 $ 1.22
=========== =========== =========== ===========
Cash Dividends Per Share
of Common Stock.......... $ .40 $ .40 $ .80 $ .80
=========== =========== =========== ===========
(The accompanying notes to financial statements are an integral part of these
statements of income.)
2
TENNECO INDUSTRIAL TENNECO FINANCE
----------------------------------------- -----------------------------------
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
-------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994 1995 1994
-------------------------------------------------------------------------------
Revenues:
Net sales and operating
revenues--
Natural gas pipelines.. $ 432 $ 605 $ 937 $ 1,298 $ -- $ -- $ -- $ --
Automotive parts....... 661 545 1,263 1,010 -- -- -- --
Packaging.............. 682 527 1,318 1,018 -- -- -- --
Shipbuilding........... 424 464 845 867 -- -- -- --
Farm and construction
equipment............. -- 1,118 -- 2,118 -- -- -- --
Other.................. (1) (1) (2) (4) -- -- -- --
------ ------- ------- ------- ----- ------ ----- -----
2,198 3,258 4,361 6,307 -- -- -- --
Other income--
Interest income........ 19 14 36 22 33 87 68 197
Equity in net income of
affiliated companies.. 75 37 123 94 -- -- -- --
Gain (loss) on sale of
businesses and assets,
net................... (7) 9 7 12 -- -- -- --
Other income, net...... 12 (12) 19 (20) 2 1 3 2
------ ------- ------- ------- ----- ------ ----- -----
2,297 3,306 4,546 6,415 35 88 71 199
------ ------- ------- ------- ----- ------ ----- -----
Costs and Expenses:
Cost of sales (exclusive
of depreciation shown
below)................. 1,297 2,023 2,547 3,851 -- -- -- --
Operating expenses...... 315 514 686 1,054 2 (2) 6 (9)
Selling, general and ad-
ministrative........... 198 327 388 662 -- (1) -- 1
Finance charges--Tenneco
Finance................ -- -- -- -- 22 49 46 98
Depreciation, depletion
and amortization....... 106 85 209 208 1 1 1 1
Restructuring costs..... -- (16) -- (16) -- -- -- --
------ ------- ------- ------- ----- ------ ----- -----
1,916 2,933 3,830 5,759 25 47 53 91
------ ------- ------- ------- ----- ------ ----- -----
Income Before Interest Ex-
pense, Income Taxes and
Minority Interest........ 381 373 716 656 10 41 18 108
Interest Expense (net of
interest capitalized).... 103 110 201 217 -- 4 -- 8
------ ------- ------- ------- ----- ------ ----- -----
Income Before Income Taxes
and Minority Interest.... 278 263 515 439 10 37 18 100
Income Tax Expense ....... 87 102 166 157 4 15 7 37
------ ------- ------- ------- ----- ------ ----- -----
Income Before Minority In-
terest................... 191 161 349 282 6 22 11 63
Minority Interest ........ 6 -- 11 -- -- -- -- --
------ ------- ------- ------- ----- ------ ----- -----
Income From Continuing Op-
erations................. 185 161 338 282 6 22 11 63
Loss From Discontinued Op-
erations, Net of Income
Tax...................... -- (14) -- (13) -- -- -- --
------ ------- ------- ------- ----- ------ ----- -----
Income Before Extraordi-
nary Loss................ 185 147 338 269 6 22 11 63
Extraordinary Loss, Net of
Income Tax............... -- (5) -- (5) -- (4) -- (4)
------ ------- ------- ------- ----- ------ ----- -----
Income Before Cumulative
Effect of Change in Ac-
counting Principle....... 185 142 338 264 6 18 11 59
Cumulative Effect of
Change in Accounting
Principle, Net of Income
Tax...................... -- -- -- (39) -- -- -- --
------ ------- ------- ------- ----- ------ ----- -----
Net Income................ 185 142 338 225 6 18 11 59
Preferred Stock Dividends. 3 4 6 7 -- -- -- --
------ ------- ------- ------- ----- ------ ----- -----
Net Income to Common
Stock.................... $ 182 $ 138 $ 332 $ 218 $ 6 $ 18 $ 11 $ 59
======= ======= ======= ======= ===== ====== ===== =====
(Reference is made to Note 1 for definitions of "Tenneco Industrial" and
"Tenneco Finance.")
3
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
STATEMENTS OF CASH FLOWS
(UNAUDITED)
TENNECO INC. AND
CONSOLIDATED
SUBSIDIARIES TENNECO INDUSTRIAL TENNECO FINANCE
------------------ -------------------- ------------------
SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
--------------------------------------------------------------------------------------------------------------
(MILLIONS) 1995 1994 1995 1994 1995 1994
--------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Income from continuing operations.............. $ 338 $ 282 $ 338 $ 282 $ 11 $ 63
Adjustments to reconcile income from
continuing operations to cash provided
(used) by continuing operations--
Depreciation, depletion and amortization..... 210 209 209 208 1 1
Deferred income taxes........................ 8 (37) 8 (44) -- 7
Gain on sale of businesses and assets,
net......................................... (7) (12) (7) (12) -- --
Changes in components of working capital--
(Increase) decrease in receivables.......... 58 (510) (56) (1,683) 94 708
(Increase) decrease in inventories.......... (184) (141) (184) (141) -- --
(Increase) decrease in prepayments and other
current assets............................. (3) 63 (3) 72 -- (2)
Increase (decrease) in payables............. (123) 205 (121) (10) (4) 53
Increase (decrease) in taxes accrued........ 1 149 1 161 -- (12)
Increase (decrease) in interest accrued..... (25) (32) (24) (14) (1) (18)
Increase (decrease) in restructuring
liability.................................. -- (49) -- (49) -- --
Increase (decrease) in natural gas pipeline
revenue reservation........................ (179) (157) (179) (157) -- --
Increase (decrease) in other current
liabilities................................ (27) 99 (26) 117 (1) (18)
(Increase) decrease in long-term notes and
receivables.................................. 199 275 6 70 189 189
Take-or-pay (refunds to customers)
recoupments, net............................. 25 4 25 4 -- --
Other......................................... (49) (74) 238 (78) 2 5
------- --------- -------- ---------- ------- ---------
Cash provided (used) by continuing
operations................................. 242 274 225 (1,274) 291 976
Cash provided (used) by discontinued
operations................................. 13 (5) 13 (5) -- --
------- --------- -------- ---------- ------- ---------
Net Cash Provided (Used) by Operating
Activities..................................... 255 269 238 (1,279) 291 976
------- --------- -------- ---------- ------- ---------
Cash Flows from Investing Activities:
Net proceeds (expenditures) related to the sale
of discontinued operations.................... 691 (5) 691 (5) -- --
Net proceeds from sale of businesses and
assets........................................ 45 522 45 522 -- --
Expenditures for plant, property and
equipment--
Continuing operations........................ (322) (208) (322) (208) -- --
Discontinued operations...................... (4) (32) (4) (32) -- --
Acquisitions of businesses..................... (271) -- (271) -- -- --
Investments and other.......................... 44 9 236 (198) (188) (10)
------- --------- -------- ---------- ------- ---------
Net Cash Provided (Used) by Investing
Activities..................................... 183 286 375 79 (188) (10)
------- --------- -------- ---------- ------- ---------
Cash Flows from Financing Activities:
Issuance of common, treasury and SECT
shares........................................ 39 108 39 108 -- 185
Purchase of common stock....................... (450) (6) (450) (6) -- --
Redemption of preferred stock.................. (20) (20) (20) (20) -- --
Issuance of long-term debt..................... -- 979 -- 992 -- 12
Retirement of long-term debt................... (192) (1,060) (156) (66) (36) (1,018)
Net increase (decrease) in short-term debt
excluding current maturities on long-term
debt.......................................... 28 (54) 50 455 -- 112
Dividends (common and preferred)............... (146) (161) (146) (161) (300) (18)
------- --------- -------- ---------- ------- ---------
Net Cash Provided (Used) by Financing
Activities..................................... (741) (214) (683) 1,302 (336) (727)
------- --------- -------- ---------- ------- ---------
Effect of Foreign Exchange Rate Changes
on Cash and Temporary Cash Investments......... 5 3 5 3 -- --
------- --------- -------- ---------- ------- ---------
Increase (Decrease) in Cash and Temporary Cash
Investments.................................... (298) 344 (65) 105 (233) 239
Cash and Temporary Cash Investments, January 1.. 405 218 172 213 233 5
------- --------- -------- ---------- ------- ---------
Cash and Temporary Cash Investments, June 30
(Note)......................................... $ 107 $ 562 $ 107 $ 318 $ -- $ 244
======= ========= ======== ========== ======= =========
Cash Paid During the Period for:
Interest....................................... $ 235 $ 338 $ 219 $ 258 $ 46 $ 130
Income taxes (net of refunds).................. $ 203 $ (62) $ 196 $ (78) $ 7 $ 16
--------
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.")
5
BALANCE SHEETS
(UNAUDITED)
TENNECO INC. AND
CONSOLIDATED SUBSIDIARIES
-------------------------------
JUNE 30, DECEMBER 31, JUNE 30,
(MILLIONS) 1995 1994 1994
---------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and temporary cash investments............ $ 107 $ 405 $ 562
Receivables--
Customer notes and accounts (net)............ 1,192 1,535 3,398
Affiliated companies......................... 60 67 1
Gas transportation and exchange.............. 198 214 295
Income taxes................................. 133 234 --
Other........................................ 304 192 234
Inventories--
Finished goods............................... 312 355 985
Work in process.............................. 90 83 184
Long-term contracts in progress, less pro-
gress billings.............................. 212 138 113
Raw materials................................ 209 178 316
Materials and supplies....................... 153 156 156
Deferred income taxes.......................... 33 23 104
Prepayments and other.......................... 254 315 330
------- ------- -------
3,257 3,895 6,678
------- ------- -------
Investments and Other Assets:
Investment in affiliated companies............. 966 997 472
Other investments, at cost..................... 43 47 54
Long-term receivables--
Notes and other (net)........................ 614 805 1,587
Affiliated companies......................... 277 264 --
Investment in subsidiaries in excess of fair
value of net assets at date of acquisition,
less amortization............................. 307 331 410
Deferred income taxes.......................... 60 49 41
Other.......................................... 1,354 927 1,218
------- ------- -------
3,621 3,420 3,782
------- ------- -------
Plant, Property and Equipment, at cost.......... 10,760 11,108 12,287
Less--Reserves for depreciation, depletion and
amortization.................................. 5,548 5,881 6,591
------- ------- -------
5,212 5,227 5,696
------- ------- -------
$12,090 $12,542 $16,156
======= ======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Short-term debt (including current maturities
on long-term debt)............................ $ 635 $ 545 $ 1,133
Payables--
Trade........................................ 806 1,053 1,462
Affiliated companies......................... 20 35 34
Gas transportation and exchange.............. 129 159 208
Taxes accrued.................................. 77 86 309
Interest accrued............................... 125 127 138
Restructuring liability........................ -- -- 171
Natural gas pipeline revenue reservation....... 3 190 118
Other.......................................... 1,060 859 1,463
------- ------- -------
2,855 3,054 5,036
------- ------- -------
Long-term Debt.................................. 3,309 3,570 4,848
------- ------- -------
Deferred Income Taxes........................... 1,308 1,459 1,178
------- ------- -------
Postretirement Benefits......................... 606 603 798
------- ------- -------
Deferred Credits and Other Liabilities.......... 657 489 739
------- ------- -------
Commitments and Contingencies
Minority Interest............................... 315 320 573
------- ------- -------
Preferred Stock with Mandatory Redemption Provi-
sions.......................................... 129 147 145
------- ------- -------
Shareowners' Equity:
Series A preferred stock....................... -- -- 9
Common stock................................... 957 957 870
Stock Employee Compensation Trust (common
stock held in trust).......................... (272) (298) (386)
Premium on common stock and other capital sur-
plus.......................................... 3,587 3,553 3,664
Cumulative translation adjustments............. (50) (237) (243)
Retained earnings (accumulated deficit)........ (718) (905) (923)
------- ------- -------
3,504 3,070 2,991
Less--Shares held as treasury stock, at cost... 593 170 152
------- ------- -------
2,911 2,900 2,839
------- ------- -------
$12,090 $12,542 $16,156
======= ======= =======
(The accompanying notes to financial statements are an integral part of these
balance sheets.)
6
TENNECO INDUSTRIAL TENNECO FINANCE
---------------------------------- ------------------------------------
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 31, JUNE 30,
1995 1994 1994 1995 1994 1994
-------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and temporary cash investments............ $ 107 $ 172 $ 318 $ -- $ 233 $ 244
Receivables--
Customer notes and accounts (net)............ 461 650 2,343 731 882 1,049
Affiliated companies......................... 57 65 62 37 186 564
Gas transportation and exchange.............. 198 214 295 -- -- --
Income taxes................................. 133 234 -- -- -- --
Other........................................ 299 187 222 5 5 13
Inventories--
Finished goods............................... 312 355 985 -- -- --
Work in process.............................. 90 83 184 -- -- --
Long-term contracts in progress, less pro-
gress billings.............................. 212 138 113 -- -- --
Raw materials................................ 209 178 316 -- -- --
Materials and supplies....................... 153 156 156 -- -- --
Deferred income taxes.......................... 33 23 101 -- -- 3
Prepayments and other.......................... 255 315 325 -- 2 7
------- ------- ------- ------ ------ ------
2,519 2,770 5,420 773 1,308 1,880
------- ------- ------- ------ ------ ------
Investments and Other Assets:
Investment in affiliated companies............. 1,202 1,762 1,352 -- -- --
Other investments, at cost..................... 43 42 49 -- 5 5
Long-term receivables--
Notes and other (net)........................ 226 214 664 370 566 945
Affiliated companies......................... 277 264 -- -- -- --
Investment in subsidiaries in excess of fair
value of net assets at date of acquisition,
less amortization............................. 307 331 410 -- -- --
Deferred income taxes.......................... 60 49 41 -- -- --
Other.......................................... 1,369 951 1,250 3 3 5
------- ------- ------- ------ ------ ------
3,484 3,613 3,766 373 574 955
------- ------- ------- ------ ------ ------
Plant, Property and Equipment, at cost.......... 10,690 11,038 12,217 70 70 70
Less--Reserves for depreciation, depletion and
amortization.................................. 5,529 5,863 6,573 19 18 18
------- ------- ------- ------ ------ ------
5,161 5,175 5,644 51 52 52
------- ------- ------- ------ ------ ------
$11,164 $11,558 $14,830 $1,197 $1,934 $2,887
======= ======= ======= ====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Short-term debt (including current maturities
on long-term debt)............................ $ 456 $ 310 $ 809 $ 204 $410 $ 897
Payables--
Trade........................................ 806 1,053 1,447 -- -- 15
Affiliated companies......................... 26 36 81 2 7 36
Gas transportation and exchange.............. 129 159 208 -- -- --
Taxes accrued.................................. 75 86 301 2 -- 8
Interest accrued............................... 100 102 103 25 25 35
Restructuring liability........................ -- -- 171 -- -- --
Natural gas pipeline revenue reservation....... 3 190 118 -- -- --
Other.......................................... 1,052 853 1,427 9 7 36
------- ------- ------- ------ ------ ------
2,647 2,789 4,665 242 449 1,027
------- ------- ------- ------ ------ ------
Long-term Debt.................................. 2,604 2,865 3,940 705 705 919
------- ------- ------- ------ ------ ------
Deferred Income Taxes........................... 1,295 1,446 1,171 13 13 7
------- ------- ------- ------ ------ ------
Postretirement Benefits......................... 606 603 798 -- -- --
------- ------- ------- ------ ------ ------
Deferred Credits and Other Liabilities.......... 657 488 751 1 2 2
------- ------- ------- ------ ------ ------
Commitments and Contingencies
Minority Interest............................... 315 320 521 -- -- 52
------- ------- ------- ------ ------ ------
Preferred Stock with Mandatory Redemption Provi-
sions.......................................... 129 147 145 -- -- --
------- ------- ------- ------ ------ ------
Shareowners' Equity:
Series A preferred stock....................... -- -- 9 -- -- --
Common stock................................... 957 957 870 -- 71 71
Stock Employee Compensation Trust (common
stock held in trust).......................... (272) (298) (386) -- -- --
Premium on common stock and other capital sur-
plus.......................................... 3,587 3,553 3,664 185 264 403
Cumulative translation adjustments............. (50) (237) (243) -- 2 (5)
Retained earnings (accumulated deficit)........ (718) (905) (923) 51 428 411
------ ------- ------- ------ ------ ------
3,504 3,070 2,991 236 765 880
Less--Shares held as treasury stock, at cost... 593 170 152 -- -- --
------ ------- ------- ------ ------ ------
2,911 2,900 2,839 236 765 880
------- ------- ------- ------ ------ ------
$11,164 $11,558 $14,830 $1,197 $1,934 $2,887
======= ======= ======= ====== ====== ======
(Reference is made to Note 1 for definitions of "Tenneco Industrial" and
"Tenneco Finance.")
7
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(UNAUDITED)
TENNECO INC. AND CONSOLIDATED
SUBSIDIARIES
----------------------------------------
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------
(MILLIONS EXCEPT SHARE AMOUNTS) 1995 1994
--------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------
Series A Preferred Stock:
Balance January 1 and June 30............. -- $ -- 8,935,175 $ 9
=========== ------ =========== ------
Common Stock:
Balance January 1......................... 191,335,193 957 173,953,012 870
Issued pursuant to benefit plans........ 2,742 -- 37,946 --
Other................................... 1,536 -- -- --
----------- ------ ----------- ------
Balance June 30........................... 191,339,471 957 173,990,958 870
=========== ------ =========== ------
Stock Employee Compensation Trust (SECT):
Balance January 1......................... (298) (499)
Shares issued........................... 51 59
Adjustment to market value.............. (25) 54
------ ------
Balance June 30........................... (272) (386)
------ ------
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
Dividends on shares held by SECT........ 5 7
Adjustment of SECT to market value...... 25 (54)
Other................................... 4 (5)
------ ------
Balance June 30........................... 3,587 3,664
------ ------
Cumulative Translation Adjustments:
Balance January 1......................... (237) (303)
Translation of foreign currency state-
ments.................................. 52 63
Sale of investment in foreign
subsidiaries........................... 139 --
Hedges of net investment in foreign sub-
sidiaries (net of income taxes)........ (4) (3)
------ ------
Balance June 30........................... (50) (243)
------ ------
Retained Earnings (Accumulated Deficit):
Balance January 1......................... (905) (980)
Net income.............................. 338 225
Dividends--
Preferred stock....................... (4) (5)
Series A preferred stock.............. -- (25)
Common stock.......................... (145) (136)
Accretion of excess of redemption value
of preferred stock over fair value at
date of issue.......................... (2) (2)
------ ------
Balance June 30........................... (718) (923)
------ ------
Less--Common Stock Held as Treasury Stock,
at Cost:
Balance January 1......................... 3,617,510 170 4,166,835 210
Shares acquired......................... 9,400,669 423 190,458 10
Shares issued pursuant to benefit and
dividend reinvestment plans............ (11,686) -- (1,334,518) (68)
----------- ------ ----------- ------
Balance June 30........................... 13,006,493 593 3,022,775 152
=========== ------ =========== ------
Total............................... $2,911 $2,839
====== ======
(The accompanying notes to financial statements are an integral part
of these statements of changes in shareowners' equity.)
8
STATEMENTS OF CHANGES IN PREFERRED STOCK
WITH MANDATORY REDEMPTION PROVISIONS
(UNAUDITED)
TENNECO INC. AND CONSOLIDATED
SUBSIDIARIES
-----------------------------------
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------------
(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........................ (195,771) (20) (195,744) (20)
Accretion of excess of redemption value
over fair value at date of issue...... -- 2 -- 2
--------- ---- --------- ----
Balance June 30.......................... 1,390,993 $129 1,586,764 $145
========= ==== ========= ====
(The accompanying notes to financial statements are an integral part of these
statements of changes in preferred stock with mandatory redemption provisions.)
9
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 June 30,
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. See Note 5 for additional
information regarding Tenneco's investment in Case.
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 been increased by $10 million and $18 million for the three months and six
months ended June 30, 1994, respectively, with no effect on consolidated net
income.
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 half of 1994. In December 1994, all Series
A preferred stock was converted into common stock.
Prior years' financial statements have been reclassified where appropriate to
conform to 1995 presentations.
10
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(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 made refunds in May 1995. The orders
approving the PGA Stipulation have been appealed to the D.C. Circuit Court of
Appeals by certain customers. Tennessee believes the PGA Stipulation will be
upheld on appeal.
Tennessee is recovering TBO costs formerly incurred to perform its sales
functions, subject to refund, pending review of data submitted by Tennessee. 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. Tennessee has appealed this decision to the D.C. Circuit Court
of Appeals. On November 30, 1994, Tennessee filed with the FERC to collect
through a surcharge approximately $25 million annually of TBO costs in
compliance with the FERC's November 18, 1994 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 January 1, 1995. The FERC
accepted Tennessee's filing to recover its projected TBO costs, subject to
refund.
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 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
11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
four proceedings and set them for hearing before an administrative law judge
("ALJ"). The hearing, which concluded in July 1995, was limited to the issue
of whether the settlement agreements are prudent. The ALJ is required to issue
his initial decision by December 31, 1995. The FERC has committed to issuing 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.
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 plaintiffs have filed a notice of appeal.
Tennessee has been 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 liabilities in
the first quarter of 1995 which it believes are adequate to cover the
resolution of these matters. On August 1, 1995, the Texas Supreme Court
affirmed a ruling favorable to Tennessee of the Court of Appeals in one of
these matters and indicated that it would remand the case to the trial court.
As of August 11, 1995, the mandate had not yet been issued on this ruling.
Tennessee is reassessing these liabilities in light of this favorable Texas
Supreme Court ruling.
As of June 30, 1995, Tennessee has deferred GSR costs yet to be recovered
from its customers of approximately $493 million, net of $270 million
previously recovered from its customers, subject to refund. Proceedings have
commenced to review the recovery of these GSR costs; however, the FERC has
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 the 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.
On December 30, 1994, Tennessee filed a general rate increase in Docket No.
RP95-112 (the "1995 Rate Case") 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. With modifications, the proposed rates in the 1995 Rate Case became
effective on July 1, 1995, subject to refund. Settlement discussions with the
FERC staff and customers are ongoing and Tennessee will reserve revenues it
believes adequate to cover any refunds which may be required upon final
settlement of this proceeding.
12
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Also on January 25, 1995, the FERC issued an order requiring the convening of
a technical conference to discuss certain issues in the 1995 Rate Case and
concerns expressed in response to operational issues in a 1995 tariff filing.
The concerns include Tennessee's ability to provide its shippers with timely
and accurate operating and billing information and the associated systems
costs. Several technical conferences were held during the second quarter of
1995 resulting in modifications to the 1995 tariff filing and the assignment of
certain issues to the 1995 Rate Case for final resolution. 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 polychlorinated biphenyls ("PCBs") and 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 June 30,
1995, Tenneco has charged approximately $107 million against the environmental
reserve. Of the remaining reserve, $30 million has been recorded on the balance
sheet under "Payables--Trade" and $126 million under "Deferred Credits and
Other Liabilities."
Due to the current uncertainty regarding the estimated costs of the further
activity necessary for Tennessee to address the presence of the PCBs, the
substances on the HS List and other substances of concern on its sites,
including the requirements for additional site characterization, the actual
amount 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 time accurately project what additional
costs, if any, may arise from future characterization and remediation
activities. While there are still many uncertainties relating to the ultimate
costs which may be incurred, based upon Tennessee's 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. The Stipulation and Agreement approved by the FERC
in Tennessee's 1991 rate case 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. Following negotiations with its customers, Tennessee in May 1995 filed
with the FERC a separate Stipulation and Agreement (the "Environmental
Stipulation") that addresses the recovery of environmental costs currently
being recovered in its rates and also establishes a mechanism for recovering a
substantial portion of the environmental costs that will be expended in the
future. Upon FERC approval, the Environmental Stipulation will become effective
as of July 1, 1995, and will have no material effect on Tenneco's financial
position or results of operations. As of June 30, 1995, the balance of the
regulatory asset is $113 million.
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
13
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 is receiving payments from the majority 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) On August 9, 1995, Tenneco sold in a public offering 16.1 million shares
of common stock of Case Corporation at $35 per share. Net proceeds of
approximately $540 million will be used for ongoing investment programs and
Tenneco stock repurchases. The offering reduced Tenneco's ownership in Case
from 44% to 21%.
(6) In June 1995, Tenneco acquired the natural gas pipeline assets of the
Pipeline Authority of South Australia ("PASA"), which includes a 488-mile
pipeline, for approximately $225 million. The purchase was made possible by the
privatization of Australia's natural gas industry. Tenneco is already
developing a 470-mile pipeline in southwest Queensland, Australia. Over the
longer term, as the pipeline in Queensland is developed, Tenneco should realize
significant economies of scale, operating both systems from an existing,
centralized gas control center with a single engineering and technical staff.
Pipe for the Queensland transmission system was ordered in the second quarter
of 1995, with construction expected to begin in late 1995. The pipeline is
expected to enter service by January 1997. In the second quarter of 1995,
Tenneco completed four acquisitions of packaging plants and companies for a
total of approximately $50 million. Tenneco has accounted for all of these
acquisitions by the "purchase" method of accounting. If these assets had been
acquired January 1, 1995, there would not have been a significant effect on net
income.
(7) Tenneco substantially completed its $500 million stock repurchase program
initiated in December 1994. Through June 30, 1995, 10.4 million shares have
been acquired at a cost of $465 million. The remaining $35 million under the
program will be used to purchase shares as they are issued from the Stock
Employee Compensation Trust ("SECT") this year. In July 1995, Tenneco announced
an additional repurchase program for up to three million shares of its common
stock.
14
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) 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 for long-lived assets to
be disposed of. Tenneco will adopt the new standard in the first quarter of
1996 but does not expect that the adoption will have a material effect on
Tenneco's consolidated financial position or results of operations.
(The above notes are an integral part of the foregoing financial statements.)
15
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS RESULTS
REVENUES
Net sales and operating revenues for the second quarter of 1995 were $2.20
billion, down from $3.26 billion in the second quarter of 1994 primarily due to
the exclusion of revenues from Case Corporation and its subsidiaries ("Case")
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.)
Excluding Case second quarter 1994 revenues, revenues increased three percent
compared with the second quarter of 1994.
Natural gas pipelines revenues were down $173 million or 29 percent primarily
due to decreased volumes and lower gas spot prices in the nonregulated sector,
and the phase-out of gas sales in the regulated sector as a result of operating
under Order 636 of the Federal Energy Regulatory Commission ("FERC").
Automotive parts revenues increased $116 million or 21 percent, of which $87
million resulted from the Heinrich Gillet GmbH & Company ("Gillet") acquisition
in November 1994. Packaging revenues increased $155 million or 29 percent from
improved price realizations in the paperboard packaging business, which
includes containerboard and folding boxboard operations. Shipbuilding revenues
decreased $40 million or nine percent as a result of lower volume on carrier
and submarine work.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST ("OPERATING
INCOME")
Operating income for the second quarter of 1995 was $369 million, down $6
million or two percent, compared with $375 million for the second quarter of
1994. The 1995 second quarter operating income included $48 million for
Tenneco's 44 percent interest in Case's earnings, while the 1994 second quarter
operating income included 100 percent of Case's income before interest and
taxes, and a $9 million gain on the initial public offering of Case. Excluding
the impact of these items from both periods, Tenneco's operating income
improved 26 percent compared with the second quarter of 1994. This improvement
was due principally to higher prices and improved productivity in packaging's
paperboard business, which reflected strong demand from favorable economic
conditions in the United States and Europe.
NATURAL GAS PIPELINES
Natural gas pipelines reported operating income of $68 million in the 1995
second quarter compared with $89 million in the 1994 second quarter. Revenues
for the second quarter of 1995 decreased to $432 million compared with $605
million in the second quarter of 1994 primarily due to the decline in gas spot
prices and lower volumes in the nonregulated segment and the phase-out of gas
sales by the regulated pipelines. The entire decrease in operating income was
in the regulated business which resulted from competitive pressures in some
markets related to operating under FERC Order 636. The natural gas pipeline
industry is experiencing increasing competition, 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 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. (See Note 2 in the "Notes to Financial Statements" for
additional information.)
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
16
Tenneco. Kern River owns a 904-mile natural gas pipeline system extending from
southwestern Wyoming to Bakersfield, California.
In June 1995, Tenneco acquired the natural gas pipeline assets of the
Pipeline Authority of South Australia ("PASA"), which includes a 488-mile
pipeline, for approximately $225 million. The purchase was made possible by the
privatization of Australia's natural gas industry. Tenneco is already
developing a 470-mile pipeline in southwest Queensland, Australia. Over the
longer term, as the pipeline in Queensland is developed, Tenneco should realize
significant economies of scale, operating both systems from an existing,
centralized gas control center with a single engineering and technical staff.
Pipe for the Queensland transmission system was ordered in the second quarter
of 1995, with construction expected to begin in late 1995. The pipeline is
expected to enter service by January 1997.
AUTOMOTIVE PARTS
Automotive parts reported second quarter 1995 operating income of $78 million
compared with $77 million in the second quarter of 1994. Second quarter 1994
operating income included a $5 million charge to reduce excess capacity.
Revenues for the second quarter of 1995 increased to $661 million compared with
$545 million in last year's second quarter, primarily as a result of the
acquisition of Gillet, which added $87 million in revenues. Profit margins
declined in the second quarter of 1995 due to the integration of Walker Europe
with Gillet, the largest supplier of exhaust systems for auto manufacturers in
Europe, and competitive pressure in the exhaust and ride control aftermarket.
Aftermarket sales rose six percent worldwide, primarily in Europe where
aftermarket sales increased 16 percent from the same quarter a year ago.
Original equipment sales grew 50 percent worldwide with much of this increase
supplied by the Gillet acquisition and the improving European economy. Tenneco
expects new vehicle sales in Europe to rise by two to two and one-half percent
in 1995 and new car and truck production in North America to equal last year.
PACKAGING
Second quarter 1995 operating income for packaging was $128 million, up $84
million, compared with $44 million generated in the 1994 second quarter.
Revenues for the 1995 second quarter were $682 million compared with $527
million in the same period last year, up 29 percent primarily due to improved
price realizations in the paperboard packaging business.
The paperboard packaging business reported operating income of $112 million
in the second quarter, compared with $24 million in the year ago quarter, up
$88 million. The improvement in operating income was primarily due to continued
strong market conditions and limited capacity increases resulting in improved
pricing, offset somewhat by higher costs for recycled fiber. Improved
productivity and operating efficiencies also contributed to the higher
operating income. Market prices for old corrugated containers, a major
component of recycled fiber, escalated to approximately $170 per ton for the
second quarter, up from $77 per ton for the 1994 second quarter.
The outlook for containerboard remains positive, with industry containerboard
production rising six percent through May 1995 and operating rates at 100
percent as compared with 98 percent for the same period last year. Industry
inventory levels, at 5.5 weeks of supply, are still below the normal six-weeks
level.
Productivity of containerboard mills rose nearly three percent over the year-
ago period with all-time production records at the Valdosta and Tomahawk mills.
Reduced downtime and rejects, combined with increased machine speed,
contributed to the productivity gains.
Specialty packaging reported operating income of $16 million in the second
quarter of 1995, compared with $20 million for the same period last year.
Operating income continued to be adversely affected by increases in raw
material costs. The costs of polystyrene and aluminum reroll were up more than
35 percent from the second quarter of 1994, and the cost of old newspapers, the
primary raw material for molded fiber products, remained at record high levels.
Looking forward, it appears that polystyrene costs are stabilizing and aluminum
costs are trending down.
17
In the 1995 second quarter, packaging completed four acquisitions for
approximately $50 million, the largest of which was Lux Packaging, Ltd.
("Lux"). Lux is a Texas-based leader in gravure preprinting for corrugated
packaging. Annual sales of these acquisitions are estimated to be approximately
$65 million.
SHIPBUILDING
Shipbuilding reported second quarter operating income of $46 million compared
with $53 million in the 1994 second quarter. Revenues decreased $40 million to
$424 million in the second quarter of 1995 compared with $464 million in the
same period last year as a result of lower volume on carrier and submarine work
largely due to the redelivery of the aircraft carrier USS ENTERPRISE in
September 1994 and deliveries of the submarines CHARLOTTE and TOLEDO in August
1994 and January 1995, respectively. Operating income declined due to revised
profit margins on SEALIFT work and lower volume on carrier and submarine work.
The backlog at the end of the second quarter of 1995 was $4.9 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 four "Double Eagle" product tankers. In all, Newport News has
contracts or letters of intent for up to 14 of the double-hulled tankers
introduced only a year ago. The backlog grew an additional $400 million in July
1995 with a new contract to overhaul the aircraft carrier USS EISENHOWER.
OTHER
Tenneco recorded $48 million in operating income which represented its 44
percent ownership in Case's earnings for the second quarter of 1995 compared
with 100 percent of Case's operating income of $111 million in the second
quarter of 1994.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Interest expense decreased from $97 million in the 1994 second quarter to $87
million in the second quarter of 1995. The decline was primarily attributable
to lower debt levels that resulted from the deconsolidation of Case in November
1994 and scheduled long-term debt retirements. Interest capitalized increased
from $1 million in the 1994 second quarter to $2 million in the second quarter
of 1995.
INCOME TAXES
Income tax expense for the second quarter of 1995 was $91 million versus $117
million reported for the 1994 second quarter. This decrease was primarily due
to lower 1995 pre-tax income excluding Case equity income. The 1994 period
included tax expense of $8 million attributable to the gain on the 1994 second
quarter IPO of Case stock.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
Loss from discontinued operations in the second quarter of 1994 of $14
million (net of an income tax benefit of $16 million) resulted from the sale of
Tenneco's chemicals and brakes businesses. The loss included a $21 million loss
(net of income tax benefit of $15 million) on the sale of automotive's brakes
business. Also included in the 1994 second quarter is net loss from the brakes
operations of $3 million, net of an income tax benefit of $4 million. Net
income from the chemicals operations in the second quarter of 1994 was $10
million, net of income tax expense of $3 million.
The extraordinary loss of $5 million for the second quarter of 1994 resulted
from the redemption premium associated with the prepayment of long-term debt.
18
EARNINGS PER AVERAGE COMMON SHARE
Net income for the second quarter of 1995 was $185 million, or $1.05 per
average common share after preferred stock dividends, compared with net income
of $142 million, or 77 cents per average common share after preferred stock
dividends, in the 1994 second quarter. Preferred stock dividends were $3
million for the second quarter of 1995 and $4 million for the second quarter of
1994.
Included in the second quarter 1994 net income of $142 million was income
from continuing operations of $161 million, or 88 cents per average common
share, loss from discontinued operations of $14 million, or eight cents per
average common share, and an extraordinary loss of $5 million, or three cents
per average common share.
Average shares outstanding used for the calculation of earnings per average
common share for the second quarter of 1995 were 173.7 million compared to
179.9 million in the 1994 second 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") to employee benefit
plans.
SIX MONTHS RESULTS
REVENUES
Net sales and operating revenues for the first six months of 1995 were $4.36
billion, down from $6.31 billion reported in 1994 primarily due to the
exclusion of farm and construction equipment revenues as a result of the change
to the equity method of accounting for Case in December 1994. Excluding Case
revenues for the first half of 1994, revenues increased four percent, compared
with the first six months of 1994. Higher revenues for packaging (up $300
million or 29 percent) and automotive parts (up $253 million or 25 percent)
were partially offset by lower revenues for natural gas pipelines (down $361
million or 28 percent), and shipbuilding (down $22 million or three percent).
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST ("OPERATING
INCOME")
Operating income for the first six months of 1995 was $693 million compared
with $669 million reported for the same period of 1994, an improvement of four
percent.
Natural gas pipelines reported operating income of $148 million for the first
half of 1995 compared with $194 million in the same period of 1994. Revenues
decreased to $937 million compared to $1.30 billion in the first six months of
1994 primarily due to the decline in gas spot prices and lower volumes in the
nonregulated segment and the phase-out of gas sales by the regulated pipelines.
Operating income declined in the first half of 1995 mainly due to competitive
pressures related to operating under FERC Order 636. Operating income also
decreased as a result of depressed natural gas demand and prices in the
nonregulated business in the first quarter of 1995.
Automotive parts reported first half 1995 operating income of $134 million
compared with $131 million recorded in the same period a year ago. Year-to-date
revenues for 1995 totaled $1.26 billion as compared with last year's amount of
$1.01 billion. Revenues increased primarily as a result of the acquisition of
Gillet, which added $173 million in revenues, and increased European
aftermarket revenues. Profit margins declined in the first half of 1995 due to
the integration of Walker Europe with Gillet and competitive pressure in the
exhaust aftermarket.
Shipbuilding reported first half 1995 operating income of $90 million
compared with $101 million in the same period in 1994. Revenues were $845
million for the first six months of 1995 compared with $867 million in the
first half of 1994. Revenue and operating income decreases resulted from lower
volumes on carrier and submarine construction contracts. Operating income
declined primarily as a result of revised profit margins on SEALIFT work.
Packaging had operating income of $244 million in the first six months of
1995 versus $64 million in the prior year period. Revenues were $1.32 billion
in the first half of 1995 compared with $1.02 billion
19
in the first half of 1994. Higher revenues and operating income were primarily
due to strengthening containerboard pricing. In addition, the 1995 first
quarter operating income included a $14 million gain on the sale of a mill in
Sylva, North Carolina.
Tenneco recorded $74 million in operating income which represented its 44
percent ownership in Case's earnings for the first half of 1995 compared with
100 percent of Case's operating income of $192 million in the first half of
1994.
INTEREST EXPENSE
Interest expense decreased from $193 million in the first half of 1994 to
$171 million in the first half of 1995, while interest capitalized was $3
million in both periods. The year-to-year change in these items was due to the
same reasons discussed under "Three Months Results" above.
INCOME TAXES
Income tax expense for the first half of 1995 was $173 million versus $194
million in the same period of 1994. Income tax expense decreased in the first
half of 1995 due to lower pre-tax income excluding Case equity income. The 1994
period also included higher taxes on asset sales attributable to the gain on
the Case IPO and higher levels of unbenefitted European losses.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
Loss from discontinued operations for the first half of 1994 of $13 million
(net of an income tax benefit of $17 million) included a $21 million loss (net
of income tax benefit of $15 million) on the sale of Tenneco's brakes business
and a loss of $5 million (net of income tax benefit of $5 million) from the
brakes operations. Net income from the chemicals operations for the first half
of 1994 was $13 million, net of income tax expense of $3 million.
The extraordinary loss for the first half of 1994 of $5 million was
attributable to the second quarter early redemption premiums on long-term debt
as discussed under "Three Months Results" above.
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 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.
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
Income from continuing operations for the first half of 1995 was $338
million, or $1.89 per average common share after preferred stock dividends,
compared with income from continuing operations of $282 million, or $1.54 per
average common share after preferred stock dividends, in the 1994 first half.
Preferred stock dividends were $6 million in the first half of 1995 and $7
million in the 1994 first half.
Loss from discontinued operations for the first half of 1994 was $13 million,
or seven cents per average common share. Also included in 1994 was the charge
of $39 million, or 22 cents per average common share, related to the cumulative
effect of a change in accounting principle. The extraordinary loss for the
first six months of 1994 was $5 million, or three cents per average common
share. Net income to common stock for the first six months of 1995 was $332
million, or $1.89 per average common share, compared to net income to common
stock of $218 million, or $1.22 per average common share, for the first half of
1994.
Average shares outstanding used for the calculation of earnings per average
common share for the first half of 1995 were 175.8 million compared to 179.3
million in the first half of 1994. The decrease was primarily
20
the result of the common stock repurchase program partially offset by the
issuance of SECT shares to employee benefit plans during the second half of
1994 and the first half of 1995, respectively.
CASH FLOW
Net cash provided by operating activities was $255 million for the first six
months of 1995 compared with net cash provided by operating activities of $269
million for the same period in 1994, a decrease of $14 million. This decrease
in cash provided by operating activities was due primarily to higher working
capital requirements, particularly inventories and higher income tax payments.
Inventories increased in the first six months of 1995 due primarily to higher
anticipated sales and increased raw material costs.
Net cash provided by investing activities in the first half of 1995 was $183
million compared with net cash provided of $286 million in the first six months
of 1994. Proceeds from the sale of businesses and assets were higher in the
first half of 1995 due to the completion of an IPO of the Albright & Wilson
chemicals division resulting in net proceeds of approximately $700 million. The
1994 period includes the proceeds from the sale of 29 percent of the common
stock of Case in June 1994. Higher proceeds from sale of businesses and assets
in the first half of 1995 were partially offset by higher capital spending and
the acquisitions of businesses.
Expenditures for plant, property and equipment from continuing operations for
the first six months of 1995 were $322 million compared with $208 million for
the first six months of 1994. Increased expenditures for natural gas pipelines
($53 million), automotive parts ($49 million), shipbuilding ($20 million) and
packaging ($24 million) were partially offset by the decline for farm and
construction equipment ($33 million).
Cash used for financing activities for the first six months of 1995 was $741
million compared with $214 million for the first six months of 1994. In the
first six months of 1995, Tenneco purchased approximately $450 million of its
common stock as a part of its $500 million common stock repurchase program.
Since the repurchase program began in December 1994, 10.4 million shares have
been acquired at a cost of $465 million. The remaining $35 million under the
program will be used to purchase shares as they are issued from the SECT this
year. In July 1995, Tenneco announced an additional repurchase program for up
to three million shares of its common stock.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization totaled $7.30 billion at June 30, 1995, a decrease of $183
million from December 31, 1994. The resulting ratio of total debt to
capitalization decreased from 55.0 percent to 54.0 percent. Tenneco's total
debt to capitalization ratio was 52.1 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 decreased $171 million, shareowners' equity
increased $11 million, minority interest decreased $5 million and preferred
stock decreased $18 million due to a 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 Statement of
Financial Accounting Standards No. 121 which establishes new accounting
standards for the impairment of long-lived assets and for long-lived assets to
be disposed of. Tenneco will adopt the new standard in the first quarter of
1996 but does not expect that the adoption will have a material effect on
Tenneco's consolidated financial position or results of operations.
On August 9, 1995, Tenneco sold in a public offering 16.1 million shares of
common stock of Case Corporation at $35 per share. Net proceeds of
approximately $540 million will be used for ongoing investment programs and
Tenneco stock repurchases. The offering reduced Tenneco's ownership in Case
from 44% to 21%.
21
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 has executed a consent order with the Pennsylvania
Department of Environmental Resources dated August 1, 1995, governing
remediation at the Pennsylvania stations; this consent order also obligates
Tennessee to pay a civil penalty of $500,000. In addition, Tennessee has agreed
to fund environmentally beneficial projects within the State of Pennsylvania
over the next three years; those projects are expected to have a total cost to
Tennessee of approximately $490,000. 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 plaintiffs have filed a notice of appeal.
(3) Potential Superfund Liability.
At June 30, 1995, Tenneco has been designated as a potentially responsible
party in 56 "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 be between $10 million and $69 million or 0.4% to 2.5% 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.
22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of the shareholders of the Company was held on May 9,
1995. The following matters were voted upon at the meeting and the votes cast
for, against, or withheld, as well as the number of abstentions and broker non-
votes, as to each such matter is also listed:
(a) Election of Directors for a term to expire at the 1998 Annual Meeting
of Stockholders:
FOR WITHHELD
----------- ---------
M. Kathryn Eickhoff................................ 155,278,088 2,942,305
Peter T. Flawn..................................... 156,236,267 1,984,126
John B. McCoy...................................... 156,724,386 1,496,007
Dana G. Mead....................................... 156,717,806 1,502,587
(b) Other Matters:
(1) To approve the appointment of Arthur Andersen LLP as independent
public accountants for Tenneco Inc. for the year 1995:
FOR AGAINST ABSTAIN BROKER NON-VOTE
--- ------- ------- ---------------
156,802,957 813,401 604,035 -0-
(2) In connection with stockholder proposal concerning modification of
the Compensation Committee:
FOR AGAINST ABSTAIN BROKER NON-VOTE
--- ------- ------- ---------------
45,964,914 94,034,596 5,101,595 13,119,288
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
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 June 30, 1995.
23
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
Date: August 11, 1995 By __________________________________
Robert T. Blakely
Senior Vice President and
Chief Financial Officer
24
EXHIBIT 11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
(UNAUDITED)
(MILLIONS EXCEPT SHARE AMOUNTS)
----------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
COMPUTATION FOR STATE-
MENTS OF INCOME
Primary Earnings Per
Share (average shares
outstanding):
Income from continuing
operations........... $ 185 $ 161 $ 338 $ 282
Loss from discontinued
operations, net of
income tax........... -- (14) -- (13)
------------ ------------ ------------ ------------
Income before extraor-
dinary loss.......... 185 147 338 269
Extraordinary loss,
net of income tax.... -- (5) -- (5)
------------ ------------ ------------ ------------
Income before cumula-
tive effect of change
in accounting princi-
ple.................. 185 142 338 264
Cumulative effect of
change in accounting
principle, net of in-
come tax............. -- -- -- (39)
------------ ------------ ------------ ------------
Net income............ 185 142 338 225
Preferred stock divi-
dends................ 3 4 6 7
------------ ------------ ------------ ------------
Net income to common
stock................ $ 182 $ 138 $ 332 $ 218
============ ============ ============ ============
Average shares of com-
mon stock
outstanding(a),(b)... 173,699,875 179,850,934 175,829,883 179,287,726
============ ============ ============ ============
Earnings (loss) per
average share of com-
mon stock:
Continuing opera-
tions.............. $ 1.05 $ .88 $ 1.89 $ 1.54
Discontinued opera-
tions.............. -- (.08) -- (.07)
Extraordinary loss.. -- (.03) -- (.03)
Cumulative effect of
change in account-
ing principle...... -- -- -- (.22)
------------ ------------ ------------ ------------
$ 1.05 $ .77 $ 1.89 $ 1.22
============ ============ ============ ============
ADDITIONAL COMPUTATIONS
(C)
Net income to common
stock, per above....... $ 182 $ 138 $ 332 $ 218
============ ============ ============ ============
Primary Earnings Per
Share (including com-
mon stock equiva-
lents):
Average shares of com-
mon stock
outstanding(a),(b)... 173,699,875 179,850,934 175,829,883 179,287,726
Incremental common
shares applicable to
common stock options
based on the common
stock daily average
market price during
the period........... 59,941 79,004 54,924 99,042
Incremental common
shares applicable to
performance units
based upon the at-
tainment of specified
goals................ 27,625 -- 27,625 --
------------ ------------ ------------ ------------
Average common shares,
as adjusted.......... 173,787,441 179,929,938 175,912,432 179,386,768
============ ============ ============ ============
Earnings (loss) per
average share of com-
mon stock (including
common stock equiva-
lents):
Continuing opera-
tions.............. $ 1.05 $ .88 $ 1.89 $ 1.54
Discontinued opera-
tions.............. -- (.08) -- (.07)
Extraordinary loss.. -- (.03) -- (.03)
Cumulative effect of
change in account-
ing principle...... -- -- -- (.22)
------------ ------------ ------------ ------------
$ 1.05 $ .77 $ 1.89 $ 1.22
============ ============ ============ ============
Fully Diluted Earnings
Per Share:
Average shares of com-
mon stock
outstanding(a),(b)... 173,699,875 179,850,934 175,829,883 179,287,726
Incremental common
shares applicable to
common stock options
based on the more
dilutive of the com-
mon stock ending or
average market price
during the period.... 59,941 79,004 62,190 99,042
Average common shares
issuable assuming
conversion of Tenneco
Inc. 10% loan stock.. 38,945 41,903 39,164 41,903
Incremental common
shares applicable to
performance units
based upon the at-
tainment of specified
goals................ 27,625 -- 27,625 --
------------ ------------ ------------ ------------
Average common shares
assuming full dilu-
tion................. 173,826,386 179,971,841 175,958,862 179,428,671
============ ============ ============ ============
Fully diluted earnings
(loss) per average
share, assuming con-
version of all appli-
cable securities:
Continuing opera-
tions.............. $ 1.05 $ .88 $ 1.89 $ 1.54
Discontinued opera-
tions.............. -- (.08) -- (.07)
Extraordinary loss.. -- (.03) -- (.03)
Cumulative effect of
change in account-
ing principle...... -- -- -- (.22)
------------ ------------ ------------ ------------
$ 1.05 $ .77 $ 1.89 $ 1.22
============ ============ ============ ============
-------
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 June 30, 1995, the SECT had utilized 6,150,243 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 half 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)
SIX MONTHS
ENDED
JUNE 30,
------------
1995 1994
----- -----
Income from continuing operations................................ $338 $282
Add:
Interest....................................................... 235 306
Portion of rentals representative of interest factor........... 29 33
Preferred stock dividend requirements of majority-owned
subsidiaries.................................................. 11 --
Income tax expense and other taxes on income................... 173 194
Amortization of interest capitalized applicable to nonutility
companies..................................................... 2 3
Interest capitalized applicable to utility companies........... 1 --
Undistributed earnings of affiliated companies in which less
than a 50% voting
interest is owned............................................. (78) (4)
----- -----
Earnings as defined.......................................... $ 711 $ 814
===== =====
Interest......................................................... $ 235 $ 306
Interest capitalized............................................. 3 3
Portion of rentals representative of interest factor............. 29 33
Preferred stock dividend requirements of majority-owned
subsidiaries.................................................... 20 --
----- -----
Fixed charges as defined..................................... $ 287 $ 342
===== =====
Ratio of earnings to fixed charges............................... 2.48 2.38
===== =====
(LOGO OF TENNECO APPEARS HERE)