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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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 MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 1-12387
---------------------------
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 06831
(Address of principal executive
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: 169,641,034 shares as of March 31,
1998.
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TABLE OF CONTENTS
PAGE
----
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......... 8
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 a Vote of Security
Holders............................................... *
Item 5. Other Information.............................. *
Item 6. Exhibits and Reports on Form 8-K............... 12
- - ------------
* 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
Tenneco's future results may be impacted by a number of matters and
uncertainties, including: (i) changes in consumer demand and prices; (ii)
potential legislation or regulatory changes; (iii) material substitution and
changes in the prices of raw materials; (iv) possible labor interruptions; (v)
certain risks associated with operating in foreign countries, such as
devaluations and fluctuations in currency exchange rates; (vi) new technologies;
(vii) changes in distribution channels or competitive conditions in the markets
and countries where Tenneco operates; (viii) increases in the cost of compliance
with regulations, including environmental regulations, and environmental
liabilities in excess of the amount reserved; (ix) changes in capital
availability or costs; (x) the ability of Tenneco and those with which it
conducts business to timely resolve the Year 2000 issue (relating to potential
computer and equipment failures by or at the change in the century),
unanticipated costs of resolving the Year 2000 issue, and the costs and impacts
if the Year 2000 issue is not timely resolved; and (xi) changes by the Financial
Accounting Standards Board or other accounting regulatory bodies of
authoritative generally accepted accounting principles or policies.
1
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
----------- -----------
(MILLIONS EXCEPT SHARE
AMOUNTS)
REVENUES
Net sales and operating revenues--
Automotive........................................ $ 800 $ 778
Packaging......................................... 1,009 852
Intergroup sales and other........................ -- (1)
----------- -----------
1,809 1,629
Other income, net...................................... 16 40
----------- -----------
1,825 1,669
----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation shown
below)................................................ 1,268 1,191
Engineering, research, and development................. 19 16
Selling, general, and administrative................... 242 211
Depreciation, depletion, and amortization.............. 110 92
----------- -----------
1,639 1,510
----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY
INTEREST.................................................. 186 159
Interest expense (net of interest capitalized)......... 56 45
Income tax expense..................................... 47 33
Minority interest...................................... 8 5
----------- -----------
NET INCOME.................................................. $ 75 $ 76
=========== ===========
PER SHARE
Average shares of common stock outstanding--
Basic............................................. 169,542,371 171,284,192
Diluted........................................... 170,065,712 171,373,061
Earnings per average share of common stock--
Basic............................................. $ .44 $ .44
=========== ===========
Diluted........................................... $ .44 $ .44
=========== ===========
Cash dividends per share of common stock............... $ .30 $ .30
=========== ===========
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)
THREE MONTHS
ENDED
MARCH 31,
-------------
1998 1997
----- -----
(MILLIONS)
OPERATING ACTIVITIES
Net income.................................................. $ 75 $ 76
Adjustments to reconcile net income to net cash provided
(used) by operating activities--
Depreciation, depletion, and amortization.............. 110 92
Deferred income taxes.................................. 30 54
Loss on sale of businesses and assets, net............. 6 6
Changes in components of working capital--
(Increase) decrease in receivables................ (87) (12)
(Increase) decrease in inventories................ (51) (44)
(Increase) decrease in prepayments and other
current assets................................... (12) (29)
Increase (decrease) in payables................... (36) (59)
Increase (decrease) in taxes accrued.............. 3 (15)
Increase (decrease) in interest accrued........... 30 33
Increase (decrease) in other current
liabilities...................................... (40) (106)
Other.................................................. (62) (19)
----- -----
Net cash provided (used) by operating activities............ (34) (23)
----- -----
INVESTING ACTIVITIES
Net proceeds from sale of assets............................ 1 --
Expenditures for plant, property, and equipment............. (102) (81)
Acquisition of businesses................................... -- (1)
Investments and other....................................... (5) 17
----- -----
Net cash provided (used) by investing activities............ (106) (65)
----- -----
FINANCING ACTIVITIES
Issuance of common and treasury shares...................... 13 10
Purchase of common stock.................................... (11) (51)
Issuance of long-term debt.................................. 3 2
Retirement of long-term debt................................ (3) (3)
Net increase (decrease) in short-term debt excluding current
maturities on long-term debt.............................. 177 237
Dividends (common).......................................... (51) (52)
----- -----
Net cash provided (used) by financing activities............ 128 143
----- -----
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ -- (1)
----- -----
Increase (decrease) in cash and temporary cash
investments............................................... (12) 54
Cash and temporary cash investments, January 1.............. 41 62
----- -----
Cash and temporary cash investments, March 31 (Note)........ $ 29 $ 116
===== =====
Cash paid during the period for interest.................... $ 31 $ 13
Cash paid during the period for income taxes (net of
refunds).................................................. $ 17 $ 11
- - ------------
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)
MARCH 31, DECEMBER 31, MARCH 31,
--------- ------------ ---------
1998 1997 1997
--------- ------------ ---------
(MILLIONS)
ASSETS
Current assets:
Cash and temporary cash investments..................... $ 29 $ 41 $ 116
Receivables--
Customer notes and accounts, net................... 799 729 679
Income taxes....................................... 60 63 --
Other.............................................. 24 17 18
Inventories--
Finished goods..................................... 494 467 444
Work in process.................................... 116 100 106
Raw materials...................................... 252 265 249
Materials and supplies............................. 135 118 111
Deferred income taxes................................... 70 63 100
Prepayments and other................................... 294 252 202
------ ------ ------
2,273 2,115 2,025
------ ------ ------
Other assets:
Long-term notes receivable, net......................... 47 49 17
Goodwill and intangibles, net........................... 1,593 1,577 1,365
Deferred income taxes................................... 53 55 51
Pension assets.......................................... 771 747 618
Other................................................... 338 334 366
------ ------ ------
2,802 2,762 2,417
------ ------ ------
Plant, property, and equipment, at cost..................... 5,368 5,284 4,870
Less--Reserves for depreciation, depletion, and
amortization.......................................... 1,896 1,829 1,690
------ ------ ------
3,472 3,455 3,180
------ ------ ------
$8,547 $8,332 $7,622
====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on
long-term debt)....................................... $ 476 $ 278 $ 472
Trade payables.......................................... 682 687 625
Taxes accrued........................................... 97 96 78
Accrued liabilities..................................... 323 344 262
Other................................................... 272 256 284
------ ------ ------
1,850 1,661 1,721
------ ------ ------
Long-term debt.............................................. 2,640 2,633 2,045
------ ------ ------
Deferred income taxes....................................... 651 614 520
------ ------ ------
Postretirement benefits..................................... 233 228 171
------ ------ ------
Deferred credits and other liabilities...................... 223 244 306
------ ------ ------
Commitments and contingencies
Minority interest........................................... 422 424 304
------ ------ ------
Shareowners' equity:
Common stock............................................ 2 2 2
Premium on common stock and other capital surplus....... 2,690 2,679 2,652
Cumulative translation adjustments...................... (145) (122) (35)
Retained earnings (accumulated deficit)................. 113 89 3
------ ------ ------
2,660 2,648 2,622
Less--Shares held as treasury stock, at cost............ 132 120 67
------ ------ ------
2,528 2,528 2,555
------ ------ ------
$8,547 $8,332 $7,622
====== ====== ======
The accompanying notes to financial statements are an integral part of these
balance sheets.
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TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
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.............. 280,146 -- 365,679 --
----------- ------ ----------- ------
Balance March 31................................... 172,850,035 2 171,933,337 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............................... 11 10
------ ------
Balance March 31................................... 2,690 2,652
------ ------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance January 1.................................. (122) 23
Translation of foreign currency statements.... (23) (70)
Hedges of net investment in foreign
subsidiaries (net of income taxes).......... -- 12
------ ------
Balance March 31................................... (145) (35)
------ ------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance January 1.................................. 89 (21)
Net income.................................... 75 76
Dividends on common stock..................... (51) (52)
------ ------
Balance March 31................................... 113 3
------ ------
LESS -- COMMON STOCK HELD AS TREASURY STOCK, AT
COST
Balance January 1.................................. 2,928,189 120 -- --
Shares acquired............................... 341,500 14 1,693,300 67
Shares issued pursuant to benefit and dividend
reinvestment plans.......................... (60,688) (2) -- --
----------- ------ ----------- ------
Balance March 31................................... 3,209,001 132 1,693,300 67
=========== ------ =========== ------
Total......................................... $2,528 $2,555
====== ======
The accompanying notes to financial statements are an integral part of these
statements of changes in shareowners' equity.
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7
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 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.
(3) 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
cleanup costs and the timing, varying costs, and effectiveness of alternative
cleanup 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.
(4) 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 financial statements 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 financial statements 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 and is currently evaluating the new
standard but has not yet determined the impact it will have on its financial
position or results of operations.
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8
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(5) Earnings per share of common stock outstanding were computed as
follows:
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1997
----------- -----------
(MILLIONS EXCEPT SHARE
AND PER SHARE AMOUNTS)
Basic Earnings Per Share--
Net income................................... $ 75 $ 76
----------- -----------
Average shares of common stock outstanding... 169,542,371 171,284,192
=========== ===========
Earnings per average share of common stock... $ .44 $ .44
=========== ===========
Diluted Earnings Per Share--
Net income................................... $ 75 $ 76
----------- -----------
Average shares of common stock outstanding... 169,542,371 171,284,192
Effect of dilutive securities:
Restricted stock........................ 27,632 --
Stock options........................... 250,061 --
Performance shares...................... 245,648 88,869
----------- -----------
Average shares of common stock outstanding
including dilutive securities.............. 170,065,712 171,373,061
=========== ===========
Earnings per average share of common stock... $ .44 $ .44
=========== ===========
(6) Tenneco adopted Financial Accounting Standards ("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 nonowner changes in equity in a given period. For the three months
ended March 31, 1998 and 1997, Tenneco's comprehensive income was $52 million
and $18 million, respectively.
The above notes are an integral part of the foregoing financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Tenneco reported net income of $75 million, or 44 cents per share on a
diluted basis, for the quarter ended March 31, 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 first quarter of 1997 was $76
million or 44 cents per share. However, the results for the first quarter of
1997 included a one-time after-tax gain of $23 million, or $.13 per share, which
resulted from the refinancing of two containerboard mill leases. Before this
gain, net income for the quarter ended March 31, 1997 was $53 million, or $.31
per share. The increase from 1997 to 1998 excluding the first quarter 1997
one-time gain resulted from strong performance at both Tenneco Automotive and
Tenneco Packaging. The performance at the operating units was partially offset
by a higher 1998 effective tax rate and greater interest expense.
REVENUES
FIRST QUARTER
--------------------------
1998 1997 % CHANGE
------ ------ --------
(MILLIONS)
Tenneco Automotive................................... $ 800 $ 778 3%
Tenneco Packaging.................................... 1,009 852 18%
Intergroup sales and other........................... -- (1) --
------ ------
$1,809 $1,629 11%
====== ======
Tenneco Automotive's higher first quarter 1998 revenues resulted from
strong sales performance and companies acquired in 1997. Volume gains added $40
million to revenue in the first quarter of 1998. These volume gains resulted
from higher original equipment sales, particularly in North America and Europe.
A total of 18 new vehicle launches to which Tenneco Automotive supplied parts in
the first quarter of 1998 contributed to this volume increase. Worldwide,
Tenneco Automotive supplies exhaust and/or ride control products on most of the
top selling vehicles and is particularly strong in the fast growing North
American light truck and sport utility vehicle segment. The higher original
equipment sales volumes were partially offset by a soft aftermarket in both
North America and Europe. Mild winter weather and declining automotive parts
replacement rates contributed to the aftermarket decline. Tenneco Automotive
began the North American launch of two new aftermarket product lines in the
quarter, helping to lessen the impact of the soft aftermarket. The products
launched were Sensa-Trac(R) with Safe-Tech(TM) shocks and struts and the
Quiet-Flow(TM) muffler.
Companies acquired in 1997, including an exhaust supplier in Mexico and a
ride control joint venture in South Africa, contributed $14 million to revenue
growth.
Partially offsetting Tenneco Automotive's first quarter 1998 revenue
increase was the continued impact of the strong US dollar on revenues earned in
overseas markets. The impact of the strong dollar was $31 million.
Tenneco Packaging's revenue increase occurred in both its specialty and
paperboard businesses. Specialty packaging's revenues increased to $630 million
in the first quarter of 1998 from $504 million in the same period of 1997. The
flexible and protective packaging businesses acquired in April 1997 from NV
Koninklijke KNP BT (KNP) contributed $121 million to this revenue increase. The
remaining increase resulted primarily from favorable pricing in the first
quarter of 1998, particularly in consumer waste bags, aluminum and stretch film.
The paperboard packaging business earned revenues of $379 million in the
first quarter of 1998, up $31 million from the first quarter of 1997. Improved
pricing accounted for this revenue gain. Linerboard pricing continued its
recovery from the depressed prices of early 1997.
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OPERATING INCOME
FIRST QUARTER
----------------------
1998 1997 % CHANGE
---- ---- --------
(MILLIONS)
Tenneco Automotive..................................... $ 89 $ 80 11%
Tenneco Packaging...................................... 108 80 35%
Other.................................................. (11) (1) NM
---- ----
$186 $159 17%
==== ====
The largest contributor to Tenneco Automotive's operating income increase
was the cost reduction initiatives begun during 1997. Net of inflation and other
cost changes, the cost reduction initiatives contributed $11 million to first
quarter 1998 results. Acquisitions added another $2 million to first quarter
results. While the increase in original equipment volumes had a positive impact
on revenues, the volume declines in the aftermarket, where Tenneco earns higher
margins, largely offset that positive impact at the operating income line. The
strong U.S. dollar partially offset Tenneco Automotive's operating income
increase, reducing operating income earned in foreign markets by $4 million for
the first quarter of 1998.
Tenneco Packaging's operating income increase occurred in both the
specialty and paperboard packaging businesses. Specialty packaging's operating
income increased to $74 million in the first quarter of 1998, up from $49
million in the prior year's quarter. Operating income earned from the flexible
and protective packaging businesses acquired from KNP added $12 million to
operating income in the quarter. Cost reduction initiatives and lower resin
prices contributed $7 million of the operating income increase. The remainder of
the operating income increase resulted from the improved pricing discussed under
"Revenues" above combined with a more favorable product mix as unit volume sales
of higher margin products increased during the quarter.
Paperboard packaging recorded the one-time mill lease refinancing gain in
the first quarter of 1997, the operating income impact of which was $38 million.
Before this gain, paperboard packaging's operating income increased $41 million
to $34 million in the first quarter of 1998. Improved pricing for linerboard and
higher volumes in the 1998 quarter contributed $35 million to the improvement
while lower costs accounted for the remainder of the operating income increase.
OTHER
Tenneco's Other expenses increased to $11 million in the first quarter
primarily as a result of costs incurred in the effort to consolidate Tenneco's
North American data center operations and integrate the data center operations
of recently acquired businesses. The consolidation effort will continue
throughout 1998.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Interest expense increased $11 million for the first quarter of 1998
compared to the first quarter of 1997. This increase is primarily attributable
to debt issued to finance acquisitions as well as Tenneco's share repurchase
activity.
INCOME TAXES
Tenneco's effective tax rate for the first quarter of 1998 was 36 percent
compared to 29 percent in the 1997 first quarter. The 1997 first quarter rate
was lower as a result of non-recurring foreign tax benefits recognized in that
quarter.
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MINORITY INTEREST
Minority interest primarily represents dividends on the preferred stock of
a subsidiary. The increase of $3 million in the first quarter of 1998 resulted
from the dividends paid on additional subsidiary preferred stock which was
issued in December 1997.
LIQUIDITY AND CAPITAL RESOURCES
FIRST QUARTER
-------------
1998 1997
----- -----
(MILLIONS)
Cash provided (used) by:
Operating activities...................................... $(34) $(23)
Investing activities...................................... (106) (65)
Financing activities...................................... 128 143
Cash flow from operating activities declined by $11 million in the first
quarter of 1998 compared to the same period in 1997. Income before non-cash
charges for depreciation and deferred income taxes declined by $7 million in the
first quarter of 1998. The lower use of cash in the components of working
capital, which improved by $39 million in the first quarter of 1998 compared to
the same period in 1997, offset by lower cash flow for other operating
activities of $43 million in the first quarter of 1998, caused the remainder of
the decline in operating cash flow.
The increase in cash used for investing activities was principally related
to a higher level of capital expenditures in the first quarter of 1998. Capital
expenditures were $40 million at Automotive, $60 million at Packaging and $2
million for the consolidated data center for the first quarter of 1998, compared
to $37 million at Automotive and $44 million at Packaging for the same period in
1997. Cash flow for other investing activities declined by $22 million during
the first quarter of 1998. Other investing activities during the first quarter
of 1997 included cash adjustments related to acquired companies which did not
recur in 1998.
Financing activities provided cash of $128 million in 1998. Tenneco
incurred short-term debt financing in the first quarter of 1998 of $177 million
to meet its financing needs for capital expenditures and working capital during
the first quarter. This compares to $237 million in short-term debt incurred in
the first quarter of 1997. Tenneco issued $13 million in common stock, primarily
related to employee benefit plans, and repurchased $11 million of common stock
pursuant to its share repurchase program during the first quarter of 1998. This
compares to $10 million in stock issuances and $51 million in share repurchases
in the first quarter of 1997. For the quarter, common stock dividends were $51
million in 1998 and $52 million in 1997.
CAPITALIZATION
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(MILLIONS)
Short-term debt......................................... $ 476 $ 278
Long-term debt.......................................... 2,640 2,633
Minority interest....................................... 422 424
Shareowners' equity..................................... 2,528 2,528
------ ------
$6,066 $5,863
====== ======
The increase in debt for the first quarter represents the use of cash
described above. Equity remained unchanged as net income for the quarter was
offset by dividends, share repurchases, and cumulative translation adjustments
resulting from the strong U.S. dollar. As a result of those changes, Tenneco's
debt to capitalization ratio increased to 51.4 percent at March 31, 1998, from
49.7 percent at December 31, 1997.
Tenneco believes it has adequate capital resources available to it to meet
its future capital needs, including strategic acquisitions and announced share
repurchases.
10
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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 financial statements 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 financial statements 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 and is currently evaluating the new
standard but has not yet determined the impact on its financial position or
results of operations.
11
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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.
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1998.
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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: May 13, 1998
13
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EXHIBITS
The following exhibits are filed with Tenneco Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 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 Designation, Preferences and Rights of Series
A Participating Junior Preferred Stock, dated December 11,
1996 (incorporated herein by reference from Exhibit 3.1(b)
of Tenneco Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1997).
3.1(c) -- 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(d) -- 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).
3.2 -- 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 (incorporated herein by reference from Exhibit 4.1 of
Tenneco Inc.'s Form 10, File No. 1-12387).
4.2 -- Rights Agreement, dated as of December 11, 1996, by and
between Tenneco Inc. (formerly New Tenneco Inc.) and First
Chicago Trust Company of New York, as Rights Agent
(incorporated herein by reference from Exhibit 4.2 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996, 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).
14
16
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).
15
17
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 -- Amended and Restated Tenneco Inc. Supplemental Executive
Retirement Plan (incorporated herein by reference from
Exhibit 10.12 of Tenneco's Form 10, File No. 1-12387).
10.15 -- Amended and Restated Tenneco Inc. Benefit Equalization Plan
(incorporated herein by reference from Exhibit 10.13 of
Tenneco's Form 10, File No. 1-12387).
10.16 -- Amended and Restated Supplemental Pension Agreement, dated
September 12, 1995 between Dana G. Mead and Tenneco Inc.
(incorporated herein by reference from Exhibit 10.15 of
Tenneco's Form 10, File No. 1-12387).
10.17 -- 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).
*10.18 -- Amended and Restated Tenneco Benefits Protection Trust.
10.19 -- Employment Agreement, dated June 29, 1992 between Stacy S.
Dick and Tenneco Inc. (incorporated herein by reference from
Exhibit 10.18 of Tenneco's Form 10, File No. 1-12387).
10.20 -- 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).
16
18
EXHIBIT
NUMBER DESCRIPTION
- - --------- -----------
10.21 -- 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).
10.22 -- 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).
10.23 -- 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).
10.24 -- 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).
10.25 -- 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).
10.26 -- 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).
10.27 -- 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).
*10.28 -- 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.
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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