1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 1-12387
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TENNECO INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0515284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1275 KING STREET, GREENWICH, CT
(Address of principal executive 06831
offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 863-1000
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common Stock, par value $.01 per share: 170,136,624 shares as of September
30, 1998.
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TABLE OF CONTENTS
PAGE
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PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Tenneco Inc. and Consolidated Subsidiaries--
Statements of Income.............................. 2
Statements of Cash Flows.......................... 3
Balance Sheets.................................... 4
Statements of Changes in Shareowners' Equity...... 5
Notes to Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................... *
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.............................. *
Item 2. Changes in Securities.......................... *
Item 3. Defaults Upon Senior Securities................ *
Item 4. Submission of Matters to Vote of Security
Holders............................................... *
Item 5. Other Information.............................. *
Item 6. Exhibits and Reports on Form 8-K............... 16
- ------------
* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
CAUTIONARY STATEMENT AND "SAFE HARBOR" OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q contains forward-looking statements
regarding: (i) capital resources; (ii) the development of strategic alternatives
to include among the options the separation of the automotive and packaging
businesses and the separation of the containerboard packaging business from the
specialty packaging business; (iii) a cost reduction program and the expected
savings therefrom; (iv) the adoption of a new accounting standard regarding
start-up costs; and (v) the Year 2000 issue (relating to potential equipment and
computer failures by or at the change in the century). See "Liquidity and
Capital Resources -- Capitalization", "Strategic Alternatives Analysis and
Expected Fourth Quarter Charges", "Changes in Accounting Principles", and "Year
2000" under "Management's Discussion and Analysis of Financial Condition and
Results of Operations." These forward-looking statements are based on the
current expectations of Tenneco (as defined below). Because forward-looking
statements involve risks and uncertainties, Tenneco's plans, actions and actual
results could differ materially. Among the factors that could cause plans,
actions and results to differ materially from current expectations are: (i) the
general economic, political and competitive conditions in markets and countries
where Tenneco operates, including currency fluctuations and other risks
associated with operating in foreign countries and changes in distribution
channels; (ii) governmental actions, including the ability to receive regulatory
approvals and the timing of such approvals; (iii) changes in capital
availability or costs; (iv) results of analysis regarding strategic
alternatives; (v) changes in consumer demand and prices, including decreases in
demand for Tenneco products and its customers' products and the resulting
negative impact on Tenneco's revenues and margins from such products; (vi) the
cost of compliance with changes in regulations, including environmental
regulations; (vii) workforce factors such as strikes or labor interruptions;
(viii) material substitutions or increases in the costs of Tenneco's raw
materials; (ix) Tenneco's ability to integrate operations of acquired businesses
quickly and in a cost-effective manner; (x) new technologies; (xi) the ability
of Tenneco and those with whom it conducts business to timely resolve the Year
2000 issue, unanticipated costs of, problems with or delays in resolving the
Year 2000 issue, and the costs and impacts if the Year 2000 issue is not timely
resolved; (xii) changes by the Financial Accounting Standards Board or other
accounting regulatory bodies of authoritative generally accepted accounting
principles or policies; and (xiii) the timing and occurrence (or non-occurrence)
of transactions and events which may be subject to circumstances beyond
Tenneco's control.
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3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
REVENUES
Net sales and operating revenues--
Automotive....................... $ 804 $ 785 $ 2,468 $ 2,436
Packaging........................ 1,113 1,045 3,255 2,916
Intergroup sales and other....... (2) 1 (3) --
----------- ----------- ----------- -----------
1,915 1,831 5,720 5,352
Other income, net..................... 15 24 51 65
----------- ----------- ----------- -----------
1,930 1,855 5,771 5,417
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)........... 1,342 1,311 3,985 3,840
Engineering, research, and
development......................... 13 20 43 54
Selling, general, and
administrative...................... 254 208 740 653
Depreciation, depletion, and
amortization........................ 115 90 335 273
----------- ----------- ----------- -----------
1,724 1,629 5,103 4,820
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME
TAXES, AND MINORITY INTEREST............. 206 226 668 597
Interest expense (net of interest
capitalized)........................ 61 59 178 157
Income tax expense.................... 34 56 151 138
Minority interest..................... 8 6 24 17
----------- ----------- ----------- -----------
NET INCOME................................. $ 103 $ 105 $ 315 $ 285
=========== =========== =========== ===========
PER SHARE
Average shares of common stock
outstanding--
Basic............................ 167,985,657 169,953,649 168,929,776 170,419,819
Diluted.......................... 168,282,244 170,922,477 169,383,927 170,952,697
Earnings per average share of common
stock--
Basic............................ $ .62 $ .62 $ 1.87 $ 1.67
=========== =========== =========== ===========
Diluted.......................... $ .62 $ .62 $ 1.86 $ 1.67
=========== =========== =========== ===========
Cash dividends per share of common
stock............................... $ .30 $ .30 $ .90 $ .90
=========== =========== =========== ===========
The accompanying notes to financial statements are an integral part of these
statements of income.
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4
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------
1998 1997
----- -----
(MILLIONS)
OPERATING ACTIVITIES
Net income.................................................. $ 315 $ 285
Adjustments to reconcile net income to net cash provided
(used) by operating activities--
Depreciation, depletion, and amortization.............. 335 273
Deferred income taxes.................................. 150 148
(Gain)/loss on sale of businesses and assets, net...... (17) 14
Changes in components of working capital--
(Increase) decrease in receivables................ (177) (114)
(Increase) decrease in inventories................ (29) (40)
(Increase) decrease in prepayments and other
current assets................................... (13) (63)
Increase (decrease) in payables................... (21) (71)
Increase (decrease) in taxes accrued.............. (33) (48)
Increase (decrease) in interest accrued........... 30 58
Increase (decrease) in other current
liabilities...................................... (36) (113)
Other.................................................. (139) (108)
----- -----
Net cash provided (used) by operating activities............ 365 221
----- -----
INVESTING ACTIVITIES
Net proceeds from sale of businesses and assets............. 22 17
Expenditures for plant, property, and equipment............. (340) (324)
Acquisition of businesses................................... (81) (308)
Investments and other....................................... (78) (61)
----- -----
Net cash provided (used) by investing activities............ (477) (676)
----- -----
FINANCING ACTIVITIES
Issuance of common and treasury shares...................... 39 35
Purchase of common stock.................................... (104) (90)
Issuance of long-term debt.................................. 3 596
Retirement of long-term debt................................ (18) (9)
Net increase (decrease) in short-term debt excluding current
maturities on long-term debt.............................. 328 55
Dividends on common stock................................... (152) (154)
----- -----
Net cash provided (used) by financing activities............ 96 433
----- -----
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ 3 --
----- -----
Increase (decrease) in cash and temporary cash
investments............................................... (13) (22)
Cash and temporary cash investments, January 1.............. 41 62
----- -----
Cash and temporary cash investments, September 30 (Note).... $ 28 $ 40
===== =====
Cash paid during the period for interest.................... $ 162 $ 113
Cash paid during the period for income taxes (net of
refunds).................................................. $ 25 $ 61
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Note: Cash and temporary cash investments include highly liquid investments with
a maturity of three months or less at the date of purchase.
The accompanying notes to financial statements are an integral part of these
statements of cash flows.
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5
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
------------- ------------ -------------
1998 1997 1997
------------- ------------ -------------
(MILLIONS)
ASSETS
Current assets:
Cash and temporary cash investments..................... $ 28 $ 41 $ 40
Receivables--
Customer notes and accounts, net................... 875 729 795
Income taxes....................................... 27 63 67
Other.............................................. 101 17 29
Inventories--
Finished goods..................................... 482 467 495
Work in process.................................... 144 100 95
Raw materials...................................... 235 265 247
Materials and supplies............................. 134 118 117
Deferred income taxes................................... 33 63 99
Prepayments and other................................... 277 252 206
------ ------ ------
2,336 2,115 2,190
------ ------ ------
Other assets:
Long-term notes receivable, net......................... 47 49 43
Goodwill and intangibles, net........................... 1,609 1,577 1,628
Deferred income taxes................................... 50 55 56
Pension assets.......................................... 819 747 707
Other................................................... 385 334 418
------ ------ ------
2,910 2,762 2,852
------ ------ ------
Plant, property, and equipment, at cost..................... 5,640 5,284 5,141
Less--Reserves for depreciation, depletion, and
amortization.......................................... 2,050 1,829 1,795
------ ------ ------
3,590 3,455 3,346
------ ------ ------
$8,836 $8,332 $8,388
====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on
long-term debt)....................................... $ 629 $ 278 $ 370
Trade payables.......................................... 710 687 608
Taxes accrued........................................... 27 96 110
Accrued liabilities..................................... 394 344 295
Other................................................... 204 256 316
------ ------ ------
1,964 1,661 1,699
------ ------ ------
Long-term debt.............................................. 2,623 2,633 2,638
------ ------ ------
Deferred income taxes....................................... 729 614 619
------ ------ ------
Postretirement benefits..................................... 244 228 211
------ ------ ------
Deferred credits and other liabilities...................... 188 244 310
------ ------ ------
Commitments and contingencies
Minority interest........................................... 424 424 313
------ ------ ------
Shareowners' equity:
Common stock............................................ 2 2 2
Premium on common stock and other capital surplus....... 2,704 2,679 2,670
Cumulative translation adjustments...................... (84) (122) (101)
Retained earnings....................................... 253 89 111
------ ------ ------
2,875 2,648 2,682
Less--Common stock held as treasury stock, at cost...... 211 120 84
------ ------ ------
2,664 2,528 2,598
------ ------ ------
$8,836 $8,332 $8,388
====== ====== ======
The accompanying notes to financial statements are an integral part of these
balance sheets.
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6
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
COMMON STOCK
Balance January 1.................................. 172,569,889 $ 2 171,567,658 $ 2
Issued pursuant to benefit plans.............. 918,710 -- 795,108 --
----------- ------ ----------- ------
Balance September 30............................... 173,488,599 2 172,362,766 2
=========== ------ =========== ------
PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS
Balance January 1.................................. 2,679 2,642
Premium on common stock issued pursuant to
benefit plans............................... 25 28
------ ------
Balance September 30............................... 2,704 2,670
------ ------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance January 1.................................. (122) 23
Translation of foreign currency statements.... 38 (139)
Hedges of net investment in foreign
subsidiaries (net of income taxes).......... -- 15
------ ------
Balance September 30............................... (84) (101)
------ ------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance January 1.................................. 89 (21)
Net income.................................... 315 285
Dividends on common stock..................... (151) (153)
------ ------
Balance September 30............................... 253 111
------ ------
LESS -- COMMON STOCK HELD AS TREASURY STOCK, AT
COST
Balance January 1.................................. 2,928,189 120 -- --
Shares acquired............................... 2,765,808 107 2,288,200 90
Shares issued pursuant to benefit and dividend
reinvestment plans.......................... (402,916) (16) (169,410) (6)
----------- ------ ----------- ------
Balance September 30............................... 5,291,081 211 2,118,790 84
=========== ------ =========== ------
Total......................................... $2,664 $2,598
====== ======
The accompanying notes to financial statements are an integral part of these
statements of changes in shareowners' equity.
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TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) In the opinion of Tenneco Inc. (the "Company"), the accompanying
unaudited consolidated financial statements of Tenneco Inc. and its consolidated
subsidiaries ("Tenneco") contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, changes in shareowners' equity, and cash flows for the periods
indicated. The unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles. The consolidated
financial statements of Tenneco include all majority-owned subsidiaries of the
Company. Investments in 20% to 50% owned companies where the Company has the
ability to exert significant influence over operating and financial policies are
carried at cost plus equity in undistributed earnings and cumulative translation
adjustments since date of acquisition.
Prior year's financial statements have been reclassified where appropriate
to conform to 1998 presentations.
(2) Tenneco continues to develop a broad range of strategic alternatives
designed to better realize the long-term value of its businesses for shareowners
as originally announced on July 21, 1998. Among the options are the separation
of the automotive and packaging businesses and the separation of the
containerboard packaging business from the specialty packaging business. The
options for separation of the containerboard business include a sale, merger,
spin-off, initial public offering, or strategic alliance. Tenneco intends to
publicly announce any transactions which may result from the strategic
alternatives analysis as those transactions develop.
Additionally, Tenneco announced that it expects to record a $95 to $105
million pre-tax charge in the fourth quarter of 1998 to recognize the expense of
a planned cost reduction program.
(3) Tenneco is a party to various legal proceedings arising from its
operations. Tenneco believes that the outcome of these proceedings, individually
and in the aggregate, will not have a material adverse effect on its financial
position or results of operations.
(4) Tenneco is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. Tenneco has
provided reserves for compliance with these laws and regulations where it is
probable that a liability exists and where Tenneco can make a reasonable
estimate of the liability. The estimated liabilities recorded are subject to
change as more information becomes available regarding the magnitude of possible
clean-up costs and the timing, varying costs, and effectiveness of alternative
clean-up technologies. However, Tenneco believes that any additional costs which
may arise as more information becomes available will not have a material adverse
effect on its financial position or results of operations.
(5) In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement will be applied
prospectively and is effective for fiscal years beginning after December 15,
1998. The impact of this new standard is not expected to have a significant
effect on Tenneco's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement is effective for fiscal years beginning after
December 15, 1998. The statement requires capitalized costs related to start-up
activities to be expensed as a cumulative effect of a change in accounting
principle when the statement is adopted. Tenneco capitalizes certain costs
related to start-up activities, primarily engineering costs for new automobile
original equipment platforms. Tenneco expects to record an after-tax charge for
the cumulative effect of this change in accounting principle upon adoption that
it estimates will be in the range of $75 to $85 million. Tenneco currently
expects to adopt this new accounting principle in the first quarter of 1999.
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TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes new accounting
and reporting standards requiring that all derivative instruments (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. This statement is effective for
all fiscal years beginning after June 15, 1999. Tenneco is currently evaluating
the new standard but has not yet determined the impact it will have on its
financial position or results of operations.
(6) Earnings per share of common stock outstanding were computed as
follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
Basic Earnings Per Share--
Net income........................... $ 103 $ 105 $ 315 $ 285
----------- ----------- ----------- -----------
Average shares of common stock
outstanding........................ 167,985,657 169,953,649 168,929,776 170,419,819
=========== =========== =========== ===========
Earnings per average share of common
stock.............................. $ .62 $ .62 $ 1.87 $ 1.67
=========== =========== =========== ===========
Diluted Earnings Per Share--
Net income........................... $ 103 $ 105 $ 315 $ 285
----------- ----------- ----------- -----------
Average shares of common stock
outstanding........................ 167,985,657 169,953,649 168,929,776 170,419,819
Effect of dilutive securities:
Restricted stock................ 40,697 3,228 44,438 --
Stock options................... 30,450 883,202 164,921 450,480
Performance shares.............. 225,440 82,398 244,792 82,398
----------- ----------- ----------- -----------
Average shares of common stock
outstanding including dilutive
securities......................... 168,282,244 170,922,477 169,383,927 170,952,697
=========== =========== =========== ===========
Earnings per average share of common
stock.............................. $ .62 $ .62 $ 1.86 $ 1.67
=========== =========== =========== ===========
In August 1998, Tenneco established a grantor trust and issued 1.9 million
shares of common stock to the trust. The trust is consolidated in Tenneco's
financial statements and the shares are reflected in the financial statements as
treasury stock. Consequently, the shares of common stock issued to the trust are
not considered to be outstanding in the computation of earnings per share.
On September 9, 1998, Tenneco adopted a Qualified Offer Rights Plan and
established an independent Board committee to review the Plan every three years.
The Qualified Offer Rights Plan was adopted to deter coercive takeover tactics
and to prevent a potential acquiror from gaining control of Tenneco in a
transaction which is not in the best interests of Tenneco shareholders.
Generally, under the Plan, if a person becomes the beneficial owner of 20% or
more of Tenneco's outstanding common stock, other than pursuant to a "qualified
offer", each right will entitle its holder to purchase, at the right's exercise
price, a number of shares of common
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9
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
stock of Tenneco or, under certain circumstances, of the acquiring person having
a market value of twice the right's exercise price. Rights held by the 20
percent holder will become void and will not be exercisable.
The rights will not become exercisable in connection with a "qualified
offer," which is an all-cash tender offer for all outstanding common stock that
is fully financed, remains open for a period of at least 60 business days,
results in the offeror owning at least 85% of the common stock after
consummation of the offer, assures a prompt second-step acquisition of shares
not purchased in the initial offer at the same price as the initial offer and
meets certain other requirements.
In connection with the adoption of the Qualified Offer Rights Plan, the
Board of Directors also adopted a "TIDE" (Three-year Independent Director
Evaluation) mechanism. Under the TIDE mechanism, an independent Board committee
will review, on an ongoing basis, the Qualified Offer Rights Plan and
developments in rights plans generally, and, if it deems appropriate, recommend
modification or termination of the Qualified Offer Rights Plan. The independent
committee will report to Tenneco's Board at least every three years as to
whether the Qualified Offer Rights Plan continues to be in the best interests of
Tenneco's shareholders.
(7) Tenneco adopted FAS No. 130, "Reporting Comprehensive Income," in the
first quarter of 1998. FAS No. 130 establishes new accounting standards for
reporting and display of comprehensive income and its components. Comprehensive
income is the total of net income and all other non-owner changes in equity in a
given period. For the three months ended September 30, 1998 and 1997, Tenneco's
comprehensive income is $161 million and $95 million, respectively. For the nine
months ended September 30, 1998 and 1997, Tenneco's comprehensive income is $353
million and $161 million, respectively.
The above notes are an integral part of the foregoing financial statements.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997
Tenneco Inc. and its consolidated subsidiaries ("Tenneco") reported net
income of $103 million, or 62 cents per share on a diluted basis, for the
quarter ended September 30, 1998. (All references to earnings per share in this
Management's Discussion and Analysis are on a diluted basis unless otherwise
noted.) Net income for the third quarter of 1997 was $105 million, or 62 cents
per share. Tenneco Packaging showed a 29% increase in its income before
interest, taxes, and minority interest ("operating income"), while Tenneco
Automotive's operating income declined by 28%. Costs in Tenneco's Other category
increased by $18 million. As a result, operating income declined by 9% for the
three months ended September 30, 1998 compared to the year earlier period. These
operating income changes were offset by a lower effective tax rate in the 1998
third quarter.
Revenues
THIRD QUARTER
----------------------------
1998 1997 % CHANGE
------ ------ --------
(MILLIONS)
Tenneco Automotive.................................. $ 804 $ 785 2%
Tenneco Packaging................................... 1,113 1,045 7%
Intergroup sales and other.......................... (2) 1 --
------ ------
$1,915 $1,831 5%
====== ======
Tenneco Automotive's third quarter 1998 revenue increase primarily
reflected the volume growth in the original equipment portion of Automotive's
business, partially offset by continued weakness in the aftermarket portion of
the business. Despite lower shipments to GM in the quarter due to the effects of
the GM strike, Automotive's volume growth in original equipment contributed $48
million in increased revenues for the third quarter of 1998. Revenue growth in
the quarter also came from $3 million in revenues earned by companies acquired
since the third quarter of 1997. Lower volumes shipped to Automotive's
aftermarket customers during the quarter, reflecting softness particularly in
the North American aftermarket and continued high levels of customer inventory,
reduced third quarter 1998 revenues by approximately $35 million. The remainder
of the third quarter revenue change resulted from several factors, the most
significant of which was a product mix change. This reflects Automotive's
introduction of entry level and mid-priced products to serve additional segments
of the marketplace.
Tenneco Packaging's specialty and paperboard packaging businesses both
contributed revenue increases during the third quarter of 1998 compared to the
same period in 1997. Specialty packaging's revenue grew from $679 million in the
three months ended September 30, 1997, to $701 million in the 1998 period.
Specialty packaging showed unit volume growth in most product lines. Volume
growth, however, was not fully reflected in revenue growth as declining resin
costs resulted in lower product pricing to customers. Acquisitions made since
the third quarter of 1997, primarily Richter Manufacturing, a leading producer
of protective packaging for the western United States which was acquired in May
1998, contributed $15 million to the revenue increase.
Revenues in the paperboard packaging business increased by $46 million to
$412 million in the third quarter of 1998 over the comparable 1997 period.
Pricing improvements contributed $28 million to 1998 third quarter revenue
improvements. Volume increases, primarily at the corrugated box plants,
contributed the remainder of the revenue improvement.
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Operating Income
THIRD QUARTER
----------------------------
1998 1997 % CHANGE
---- ---- ---------
(MILLIONS)
Tenneco Automotive.................................. $ 86 $119 (28%)
Tenneco Packaging................................... 138 107 29%
Other............................................... (18) -- NM
---- ----
$206 $226 (9%)
==== ====
Tenneco Automotive's operating income performance for the third quarter of
1998 compared to the same period in 1997 reflected the same primary factors as
revenues. Despite the effects of the GM strike, the original equipment business
showed strong volume, partially offsetting the impact of the weak aftermarket.
Overall, volume changes from the third quarter of 1997 to the third quarter of
1998 reduced operating income by $13 million. Higher promotional costs and
product mix and pricing changes, mostly in the aftermarket, further reduced
operating income by $8 million in the third quarter of 1998. Operating income in
the third quarter of 1997 included $10 million related to the favorable
resolution of a legal action and a net reduction of $4 million in certain
reserves, primarily related to ongoing reorganization initiatives which had
proceeded more rapidly and efficiently than planned, allowing Automotive to
adjust its cost estimates for completing the initiatives. Cost savings in the
third quarter of 1998 accounted for the balance of the quarter-over-quarter
change in operating income at Tenneco Automotive.
Tenneco Packaging's operating income improvement occurred primarily in the
paperboard packaging business. Paperboard packaging posted operating income of
$52 million in the third quarter of 1998 compared to $23 million in the same
period in 1997. Results for 1998 included a $17 million gain on the sale of non-
strategic timberland assets while a similar transaction in 1997 contributed $5
million. The remainder of the operating income increase for paperboard packaging
is attributable to the pricing and volume gains discussed under Revenues above.
The specialty packaging business reported operating income of $86 million
in the third quarter of 1998, up from $84 million in the third quarter of 1997.
Volume growth, as discussed under Revenues above, was partially offset by weak
performance in the UK plastics and German based non-medical flexible businesses.
In addition, the specialty packaging business incurred approximately $5 million
in one-time costs related to a systems project in North America.
Tenneco's Other expenses increased in the third quarter of 1998 over the
1997 period primarily as a result of higher costs for its new data center.
Tenneco began consolidating its North American data center operations in 1998
and plans for the effort to be substantially complete by the end of the year.
The operating cost of the data center will continue beyond year-end.
Interest Expense (net of interest capitalized)
Interest expense increased by $2 million for the third quarter of 1998
compared to the same period in 1997. This increase is primarily attributable to
debt issued to finance Tenneco's capital needs, including acquisitions and its
share repurchase activity.
Income Taxes
Tenneco's effective tax rate for the third quarter of 1998 was 23 percent
compared to 34 percent in the 1997 third quarter. The third quarter 1998 tax
rate was significantly lower as a result of lower foreign tax rates, a reduction
in Tenneco's estimated tax liabilities related to certain global tax audits, and
the availability of tax credits in certain foreign jurisdictions.
10
12
Minority Interest
Minority interest primarily represents dividends on the preferred stock of
a subsidiary. The $2 million increase in the 1998 third quarter resulted from
dividends paid on additional subsidiary preferred stock, which was issued in
December 1997.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997 % CHANGE
---- ---- --------
(MILLIONS)
Tenneco Automotive................................ $2,468 $2,436 1%
Tenneco Packaging................................. 3,255 2,916 12%
Intergroup sales and other........................ (3) -- --
------ ------
$5,720 $5,352 7%
====== ======
Through the first three quarters of 1998, Tenneco Automotive's strong
original equipment sales volume more than offset the weaknesses experienced in
the aftermarket. Growth in the original equipment portion of the business
contributed $155 million in additional 1998 revenues through the end of
September. Acquisitions also contributed $34 million to revenue growth.
Partially offsetting revenue growth in the original equipment portion of
the business and from acquisitions, the weak aftermarket and high levels of
customer inventory reduced aftermarket sales volume, causing a decline in
year-to-date revenues of $105 million. While the U.S. dollar weakened against
major currencies in the third quarter and had a negligible impact on
quarter-to-quarter revenue changes, on a year-to-date basis, the strong U.S.
dollar has reduced revenue by $58 million. Finally, pricing and volume mix
changes accounted for the majority of the remainder of the year-to-date revenue
change.
Tenneco Packaging's specialty and paperboard packaging businesses both
contributed revenue increases in the nine-month period ended September 30, 1998.
Specialty packaging's revenues increased to $2,062 million in the first nine
months of 1998 from $1,852 million in the year earlier period. Acquisitions,
including revenue earned by the flexible and protective packaging businesses
acquired from NV Koninklijke KNP BT ("KNP BT"), through the date of the first
anniversary of its acquisition, contributed $183 million to the revenue growth.
Volume growth, particularly in consumer products, food service and institutional
sales, and foam products, contributed the majority of the remaining increase.
Paperboard packaging's revenues increased from $1,064 million in the first
nine months of 1997 to $1,193 million in the same period of 1998. As with the
third quarter results above, improved pricing during the 1998 period contributed
the majority of the improvement while corrugated box volume also improved year-
over-year.
Operating Income
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997 % CHANGE
---- ---- --------
(MILLIONS)
Tenneco Automotive.................................. $305 $330 (8%)
Tenneco Packaging................................... 396 269 47%
Other............................................... (33) (2) NM
---- ----
$668 $597 12%
==== ====
11
13
Tenneco Automotive's volume changes discussed under Revenues above resulted
in a net reduction to operating income of $34 million on a year-to-date basis.
While the strong sales volume in the original equipment portion of the business
more than offset the volume reduction in aftermarket at the revenue line, the
shift from higher margin aftermarket sales to lower margin original equipment
sales resulted in the negative impact on operating income. Similar to the
revenue discussion above, while the U.S. dollar had a minor impact on third
quarter results, its strength in 1998 relative to 1997 has reduced operating
income by $10 million. As discussed under the third quarter results, the 1997
year-to-date period included the effects of the legal resolution and the
reduction in reserves. The remainder of the change in Automotive's year-to-date
operating income is due to several factors, primarily the cost reduction
efforts.
Tenneco Packaging's operating income growth occurred in both the specialty
and paperboard packaging businesses. Specialty packaging's operating income on a
year-to-date basis was $261 million, an improvement of $38 million over the year
ago period. Acquisitions, including the operating income earned by the
protective and flexible packaging businesses of KNP BT prior to the first
anniversary of that acquisition, contributed $21 million to year-to-date
earnings growth. Strong volume growth year-to-date has contributed $18 million
in additional operating income through September 30, 1998. Lower resin costs
during the first nine months of 1998 resulted in variable cost savings, which
were offset by lower prices to customers as resin cost savings were passed
through. Specialty packaging also incurred a higher level of fixed costs,
partially due to the one-time systems costs initiatives discussed above.
Paperboard packaging reported operating income of $135 million for the
first nine months of 1998 compared to $46 million for the 1997 period. Pricing
improvements were primarily responsible for the operating income growth while
corrugated box volumes also grew. The 1998 period included the $17 million gain
on the timberland management transaction previously discussed as well as a $15
million gain on the sale of paperboard's remaining 20 percent interest in a
recycled paperboard joint venture with Caraustar Industries. The 1997 period
included the previously discussed $5 million timberland management transaction
as well as a $38 million gain on a mill lease refinancing transaction.
Interest Expense (net of interest capitalized)
Interest expense for the first three quarters of 1998 increased by $21
million over the same period in 1997. The increase in interest expense results
from higher debt levels used to finance Tenneco's capital needs, including
acquisitions and its share repurchase program.
Income Taxes
Tenneco's effective tax rate for the nine months ended September 30, 1998,
was 31 percent, approximately the same as the 1997 nine-month period. The 1998
year-to-date tax rate was lower than the statutory rate as a result of certain
non-recurring foreign and state tax benefits, lower foreign tax rates, a
reduction in Tenneco's estimated tax liabilities related to certain global tax
audits, and the availability of tax credits in certain foreign jurisdictions.
The 1997 effective tax rate primarily reflects certain non-recurring foreign tax
benefits recognized during 1997.
Minority Interest
Minority interest primarily represents dividends on the preferred stock of
a subsidiary. The increase of $7 million for the first nine months of 1998
compared to the comparable 1997 period is due to dividends paid on additional
subsidiary preferred stock, which was issued in December 1997.
12
14
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1998 1997
----- -----
(MILLIONS)
Cash provided (used) by:
Operating activities...................................... $ 365 $ 221
Investing activities...................................... (477) (676)
Financing activities...................................... 96 433
Cash flow from operating activities improved by $144 million for the first
nine months of 1998 compared to the same period in 1997. Income before non-cash
depreciation and deferred income tax charges and gains or losses on sale of
businesses and assets increased by $63 million for the first three quarters of
1998 compared to the 1997 period. Additionally, cash used in the components of
working capital declined during the nine months ended September 30, 1998,
compared to the same period in 1997, contributing $112 million to the operating
cash flow improvement. Although accounts receivable grew at a faster rate in
1998 than in 1997, lower use of cash for prepayments and other current assets as
well as the payment of accounts payable and other current liabilities
contributed to the operating cash flow improvement.
Cash flow used in investing activities declined by $199 million in the
first nine months of 1998 compared to the same period in 1997. Lower acquisition
activity is the primary contributor to this change. During 1997, Tenneco spent
$308 million of cash on acquisitions of businesses during the first nine months.
The most significant 1997 acquisition was the protective and flexible packaging
businesses of KNP BT in April 1997. During 1998, Tenneco acquired Richter
Manufacturing for $58 million in May and the Belvidere, Illinois, ovenable
paperboard tray manufacturing facility of Champion International for $23 million
in the third quarter. Capital expenditures for Tenneco Automotive were $120
million for the first nine months of 1998, down from $126 million during the
comparable 1997 period. For the same periods, Tenneco Packaging's capital
expenditures increased to $210 million from $197 million. In addition, Tenneco
spent $9 million in capital during the first nine months of 1998 related to its
data center consolidation effort and spent $1 million in capital related to
other projects in both the 1998 and 1997 periods. Tenneco spent $78 million on
other investing activities in the first nine months of 1998 compared to $61
million in the same period of 1997. These expenditures are primarily related to
costs for software being developed for Tenneco's internal use. Expenditures for
these efforts were $32 million in the 1998 year-to-date period compared to $48
million in the 1997 period. Tenneco Automotive also incurred $26 million in the
first nine months of 1998 related to engineering costs for new original
equipment automobile platforms.
Cash provided by financing activities was $337 million lower during the
first nine months of 1998 compared to the same 1997 period, reflecting lower
incremental borrowing needs primarily as a result of the lower acquisition
activity discussed in the preceding paragraph. Tenneco issued $331 million in
debt through September 30, 1998, down from $651 million through September 30,
1997. Scheduled debt retirements were $18 million during the 1998 period
compared to $9 million during the 1997 period. Tenneco issued $39 million in
common stock and repurchased $104 million in common stock through the end of
September 1998. For the comparable 1997 period, $35 million in common stock was
issued while $90 million was repurchased. Tenneco paid $152 million in common
stock dividends through the first nine months of 1998 and $154 million in the
1997 period.
13
15
Capitalization
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(MILLIONS)
Short-term debt...................................... $ 629 $ 278
Long-term debt....................................... 2,623 2,633
Minority interest.................................... 424 424
Shareowners' equity.................................. 2,664 2,528
------ ------
$6,340 $5,863
====== ======
The increase in Tenneco's level of outstanding debt for the first nine
months of 1998 represents the use of cash for acquisitions (primarily the June
1998 acquisition of Richter's protective packaging operations), share
repurchases, and other activity described above under Cash Flow. Shareowners'
equity increased as net income, shares issued pursuant to employee benefit
plans, and the effect of recent weakness in the U.S. dollar on cumulative
translation adjustments more than offset the amounts Tenneco paid for dividends
and share repurchases. As a result of these debt and equity changes, Tenneco's
debt to capitalization ratio at September 30, 1998 increased to 51.3 percent
from 49.7 percent at December 31, 1997.
Tenneco believes it has adequate capital resources available to meet its
future capital needs, including strategic acquisitions and announced share
repurchases.
STRATEGIC ALTERNATIVES ANALYSIS AND EXPECTED FOURTH QUARTER CHARGES
Tenneco continues to develop a broad range of strategic alternatives
designed to better realize the long-term value of its businesses for shareowners
as originally announced on July 21, 1998. Among the options are the separation
of the automotive and packaging businesses and the separation of the
containerboard packaging business from the specialty packaging business. The
options for separation of the containerboard business include a sale, merger,
spin-off, initial public offering, or strategic alliance. Tenneco intends to
publicly announce any transactions which may result from the strategic
alternatives analysis as those transactions develop.
Additionally, Tenneco announced that it expects to record a $95 to $105
million pre-tax charge in the fourth quarter of 1998 to recognize the expense of
a planned cost reduction program. The actions in the cost reduction program are
expected to result in savings of $130 to $145 million on an annual basis when
fully implemented.
CHANGES IN ACCOUNTING PRINCIPLES
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement will be applied
prospectively and is effective for fiscal years beginning after December 15,
1998. The impact of this new standard is not expected to have a significant
effect on Tenneco's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement is effective for fiscal years beginning after
December 15, 1998. The statement requires capitalized costs related to start-up
activities to be expensed as a cumulative effect of a change in accounting
principle when the statement is adopted. Tenneco capitalizes certain costs
related to start-up activities, primarily engineering costs for new automobile
original equipment platforms. Tenneco expects to record an after-tax charge for
the cumulative effect of this change in accounting principle upon adoption that
it estimates will be in the range of $75 to $85 million. Tenneco currently
expects to adopt this new accounting principle in the first quarter of 1999.
14
16
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes new accounting and reporting
standards requiring that all derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. This statement is effective for all fiscal years
beginning after June 15, 1999. Tenneco is currently evaluating the new standard
but has not yet determined the impact it will have on its financial position or
results of operations.
YEAR 2000
Many computer software systems, as well as certain hardware and equipment
utilizing date-sensitive data, were structured to use a two-digit date field
meaning that they will not be able to properly recognize dates in the Year 2000.
Tenneco's significant technology transformation projects are addressing the Year
2000 issue in those areas where replacement systems are being installed for
other business reasons. Where existing systems and equipment are expected to
remain in place beyond 1999, Tenneco has a detailed process in place to identify
and assess Year 2000 issues and to remediate, replace or establish alternative
procedures addressing non-Year 2000 compliant systems, hardware, and equipment.
Tenneco has substantially completed inventorying its systems and equipment
including computer systems and business applications as well as date-sensitive
technology embedded in its equipment and facilities. Tenneco continues to plan
for and undertake remediation, replacement, or alternative procedures for non-
compliant Year 2000 systems and equipment; and test remediated, replaced, or
alternative procedures for systems and equipment. Tenneco has confirmed that
none of its products are date-sensitive. Remediation, replacement, or
alternative procedures for systems and equipment are being undertaken on a
business priority basis. This is ongoing and has been completed at some plants.
The process will continue and, depending upon the business unit, is targeted to
be completed, in most cases, sometime during the fourth quarter of 1998 and the
first through the third quarters of 1999 with testing to occur in the same time
frame. Also, Tenneco is contacting its major customers, suppliers, financial
institutions, and others with whom it conducts business to determine whether
they will be able to resolve in a timely manner Year 2000 problems affecting
Tenneco. As part of its planning and readiness activities, Tenneco is beginning
to address and develop Year 2000 contingency plans for critical business
processes.
Based upon current estimates, Tenneco believes it will incur costs which
may range from approximately $50 to $60 million during 1998 and 1999 to address
Year 2000 issues and implement the necessary changes to its existing systems and
equipment. As of September 30, 1998, approximately $7 million of the costs have
already been incurred. These costs are being expensed as they are incurred,
except that in certain instances Tenneco may determine that replacing existing
computer systems or equipment may be more effective and efficient, particularly
where additional functionality is available. These replacements would be
capitalized and would reduce the estimated 1998 and 1999 expense associated with
Year 2000 issues.
In the event Tenneco is unable to complete the remediation, replacement, or
alternative procedures for critical systems and equipment in a timely manner or
if those with whom Tenneco conducts business are unsuccessful in implementing
timely solutions, Year 2000 issues could have a material adverse effect on
Tenneco's results of operations. At this time, the potential effect in the event
Tenneco and/or third parties are unable to timely resolve Year 2000 problems is
not determinable; however, Tenneco believes it will be able to resolve its own
Year 2000 issues.
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17
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The exhibits filed herewith are listed in the exhibit index which
follows the signature page and immediately precedes the exhibits filed.
(b) Reports on Form 8-K.
On August 3, 1998, the Company filed a Current Report on Form 8-K with
respect to: (i) a press release issued on July 21, 1998 announcing the
Company's earnings for the quarter ended June 30, 1998 and other matters,
and (ii) a press release issued on July 21, 1998 announcing strategic
actions.
On September 24, 1998, the Company filed a Current Report on Form 8-K
to report that its Board of Directors had approved the adoption of a
Qualified Offer Rights Plan which authorized the issuance of one preferred
share purchase right for each outstanding share of common stock, par value
$.01 per share, of the Company.
16
18
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.
By: /s/ ROBERT T. BLAKELY
------------------------------------
Robert T. Blakely
Executive Vice President and
Chief Financial Officer
Date: November 10, 1998
17
19
EXHIBITS
The following exhibits are filed with Tenneco Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, or incorporated therein by
reference (exhibits designated by an asterisk are filed with the Report; all
other exhibits are incorporated by reference):
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
2 -- None.
3.1(a) -- Restated Certificate of Incorporation of Tenneco Inc. dated
December 11, 1996 (incorporated herein by reference from
Exhibit 3.1(a) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997).
3.1(b) -- Certificate of Amendment, dated December 11, 1996
(incorporated herein by reference from Exhibit 3.1(c) of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).
3.1(c) -- Certificate of Ownership and Merger, dated July 8, 1997
(incorporated herein by reference from Exhibit 3.1(d) of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).
* 3.1(d) -- Certificate of Designation of Series B Junior Participating
Preferred Stock dated September 9, 1998.
* 3.1(e) -- Certificate of Elimination of the Series A Participating
Junior Preferred Stock of Tenneco Inc. dated September 11,
1998.
3.2 -- Amended and Restated By-laws of Tenneco Inc. (incorporated
herein by reference from Exhibit 3.2 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
* 4.1 -- Form of Specimen Stock Certificate of Tenneco Inc. Common
Stock.
4.2 -- Qualified Offer Plan Rights Agreement dated as of September
9, 1998 by and between Tenneco Inc. and First Chicago Trust
Company of New York, as Rights Agent (incorporated herein by
reference from Exhibit 4.1 of Tenneco Inc.'s Current Report
on Form 8-K dated September 24, 1998, File No. 1-12387).
4.3(a) -- Indenture, dated as of November 1, 1996, between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.1 of Tenneco Inc.'s Form S-4, Registration No.
333-14003).
4.3(b) -- First Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(b) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(c) -- Second Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(c) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(d) -- Third Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(d) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(e) -- Fourth Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(e) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
18
20
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
4.3(f) -- Fifth Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(f) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(g) -- Sixth Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(g) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(h) -- Seventh Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(h) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(i) -- Eighth Supplemental Indenture, dated as of April 28, 1997,
to Indenture, dated as of November 1, 1996, between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.1 of Tenneco Inc.'s Current Report on Form 8-K
dated April 23, 1997, File No. 1-12387).
4.3(j) -- Ninth Supplemental Indenture, dated as of April 28, 1997, to
Indenture, dated as of November 1, 1996, between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.2 of Tenneco Inc.'s Current Report on Form 8-K
dated April 23, 1997, File No. 1-12387).
4.3(k) -- Tenth Supplemental Indenture, dated as of July 16, 1997, to
Indenture, dated as of November 1, 1996, between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.1 of Tenneco Inc.'s Current Report on Form 8-K
dated June 11, 1997, File No. 1-12387).
10.1 -- Distribution Agreement, dated November 1, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.),
Tenneco Inc. (formerly New Tenneco Inc.), and Newport News
Shipbuilding Inc. (incorporated herein by reference from
Exhibit 2 of Tenneco Inc.'s Form 10, File No. 1-12387).
10.2 -- Amendment No. 1 to Distribution Agreement, dated as of
December 11, 1996, by and among El Paso Tennessee Pipeline
Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New
Tenneco Inc.), and Newport News Shipbuilding Inc.
(incorporated herein by reference from Exhibit 10.2 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
10.3 -- Debt and Cash Allocation Agreement, dated December 11, 1996,
by and among El Paso Tennessee Pipeline Co. (formerly
Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and
Newport News Shipbuilding Inc. (incorporated herein by
reference from Exhibit 10.3 of Tenneco Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1996, File No.
1-12387).
10.4 -- Benefits Agreement, dated December 11, 1996, by and among El
Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco
Inc. (formerly New Tenneco Inc.), and Newport News
Shipbuilding Inc. (incorporated herein by reference from
Exhibit 10.4 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
10.5 -- Insurance Agreement, dated December 11, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.),
Tenneco Inc. (formerly New Tenneco Inc.), and Newport News
Shipbuilding Inc. (incorporated herein by reference from
Exhibit 10.5 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
19
21
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
10.6 -- Tax Sharing Agreement, dated December 11, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.),
Newport News Shipbuilding Inc., Tenneco Inc. (formerly New
Tenneco Inc.), and El Paso Natural Gas Company (incorporated
herein by reference from Exhibit 10.6 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
10.7 -- First Amendment to Tax Sharing Agreement, dated as of
December 11, 1996 among El Paso Tennessee Pipeline Co.
(formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco
Inc.) and Newport News Shipbuilding Inc. (incorporated
herein by reference from Exhibit 10.7 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
10.8 -- Transition Services Agreement, dated June 19, 1996, by and
among, Tenneco Business Services, Inc., El Paso Tennessee
Pipeline Co. (formerly Tenneco Inc.) and El Paso Natural Gas
Company (incorporated herein by reference from Exhibit 10.8
of Tenneco Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-12387).
10.9 -- Trademark Transition License Agreement, dated December 11,
1996, by and between Newport News Shipbuilding Inc. and
Tenneco Inc. (formerly New Tenneco Inc.) (incorporated
herein by reference from Exhibit 10.9 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
10.10 -- Trademark Transition License Agreement, dated December 11,
1996, by and between Tenneco Inc. (formerly New Tenneco
Inc.) and El Paso Tennessee Pipeline Co. (formerly Tenneco
Inc.) (incorporated herein by reference from Exhibit 10.10
of Tenneco Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-12387).
10.11 -- 1997 Tenneco Inc. Board of Directors Deferred Compensation
Plan (incorporated herein by reference from Exhibit 10.11 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).
10.12 -- Executive Incentive Compensation Plan (incorporated herein
by reference from Exhibit 10.12 of Tenneco Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997).
10.13 -- Tenneco Inc. Deferred Compensation Plan (incorporated herein
by reference from Exhibit 10.13 of Tenneco Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997).
*10.14 -- Tenneco Inc. Supplemental Executive Retirement Plan (as
amended and restated generally effective as of January 1,
1997).
10.15 -- Amended and Restated Tenneco Inc. Change in Control
Severance Benefit Plan for Key Executives (incorporated
herein by reference from Exhibit 10.16 of Tenneco's Form 10,
File No. 1-12387).
10.16 -- Amended and Restated Tenneco Benefits Protection Trust
(incorporated herein by reference from Exhibit 10.18 of
Tenneco's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998).
10.17 -- Employment Agreement, dated March 12, 1992 between Dana G.
Mead and Tenneco Inc. (incorporated herein by reference from
Exhibit 10.19 of Tenneco's Form 10, File No. 1-12387).
10.18 -- Employment Agreement, dated December 3, 1993 between Paul T.
Stecko and Tenneco Packaging Inc. (incorporated herein by
reference from Exhibit 10.20 of Tenneco's Form 10, File No.
1-12387).
10.19 -- Agreement, dated September 9, 1992 between Theodore R.
Tetzlaff and Tenneco Inc. (incorporated herein by reference
from Exhibit 10.21 of Tenneco's Form 10, File No. 1-12387).
10.20 -- Release Agreement dated July 6, 1998 between Stacy S. Dick,
Pamela Dick and Tenneco Management Company (incorporated
herein by reference from Exhibit 10.22 of Tenneco's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998)
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EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
10.21 -- 1996 Tenneco Inc. Stock Ownership Plan, as amended
(incorporated herein by reference from Exhibit 10.23 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).
*10.22 -- Tenneco Inc. Rabbi Trust.
*10.23 -- Letter Agreement dated September 24, 1998 between Robert T.
Blakely and Tenneco Inc.
*10.24 -- Tenneco Benefits Protection Trust Appointment of Successor
Trustee dated September 28, 1998.
10.25 -- Amended and Restated Mill I Lease, dated as of November 4,
1996, between Credit Suisse Leasing 92A, L.P. and Tenneco
Packaging Inc. (incorporated herein by reference from
Exhibit 10.28 of Tenneco Inc.'s Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
10.26 -- Amended and Restated Mill II Lease, dated as of November 4,
1996, between Credit Suisse Leasing 92A, L.P. and Tenneco
Packaging Inc. (incorporated herein by reference from
Exhibit 10.29 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
10.27 -- Timberland Lease, dated January 31, 1991, by and between
Four States Timber Venture and Packaging Corporation of
America, as amended (incorporated herein by reference from
Exhibit 10.26 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997).
10.28 -- Professional Services Agreement, dated August 22, 1996, by
and between Tenneco Business Services Inc. and Newport News
Shipbuilding and Dry Dock Company (incorporated herein by
reference from Exhibit 10.28 of Tenneco Inc.'s Form 10, File
No. 1-12387).
10.29 -- Termination Agreement, dated April 23, 1998, by and between
Tenneco Business Services Inc. and Newport News Shipbuilding
and Dry Dock Company, a wholly-owned subsidiary of Newport
News Shipbuilding Inc., relating to Professional Services
Agreement, dated August 22, 1996 (incorporated herein by
reference from Exhibit 10.28 of Tenneco's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998).
11 -- None.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
15 -- None.
18 -- None.
19 -- None.
22 -- None.
24 -- None.
*27.1 -- Financial Data Schedule.
28 -- None.
99 -- None.
- -------------------------
Note: Exhibits designated by an asterisk are filed with this Report; all others
are incorporated by reference.
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