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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 1-15157
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PACTIV CORPORATION
(FORMERLY TENNECO PACKAGING INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 36-2552989
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 WEST FIELD COURT 60045
LAKE FOREST, ILLINOIS (Zip Code)
(Address of principal executive
offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 482-2000
------------------------
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 [ ] No [X]
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: 168,372,798 shares as of November
4, 1999. (See Note 9 to Notes to Combined Financial Statements.)
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TABLE OF CONTENTS
PAGE
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PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
The Businesses of Pactiv Corporation
Combined Statements of Income (Loss).............. 3
Combined Statements of Cash Flows................. 4
Combined Balance Sheets........................... 5
Statements of Changes in Combined Equity.......... 6
Combined Statements of Comprehensive Income
(Loss)............................................ 7
Notes to Combined Financial Statements............ 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................... 23
PART II--OTHER INFORMATION
Item 1. Legal Proceedings*............................. 24
Item 2. Changes in Securities*......................... 24
Item 3. Defaults Upon Senior Securities*............... 24
Item 4. Submission of Matters to a Vote of Security
Holders*.............................................. 24
Item 5. Other Information*............................. 24
Item 6. Exhibits and Reports on Form 8-K............... 24
- ------------
* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
GENERAL INFORMATION
This Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, represents Pactiv Corporation's (formerly Tenneco Packaging Inc.) first
quarterly report following a series of restructuring transactions completed by
Tenneco Inc. on November 4, 1999. Pactiv Corporation is a supplier of specialty
packaging products with operations in 19 countries. Pactiv Corporation includes
the assets, liabilities, and operations of Tenneco Inc.'s specialty packaging
and paperboard packaging businesses as well as certain of Tenneco Inc.'s
corporate and administrative service operations. Management's Discussion and
Analysis of Financial Condition and Results of Operations, which follows the
financial statements and footnotes, contains a description of the transactions
as well as a discussion of the results of operations for the quarter.
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) strategic alternatives including the planned sale of the interest
in the containerboard joint venture company; (ii) the restructuring plan; (iii)
expected effective tax rates; (iv) capital resources; and (v) the Year 2000
issue (relating to potential equipment and computer failures by or at the change
in the century). See "Strategic Alternatives Analysis," "Restructuring and Other
Charges," "Quarters Ended September 30, 1999 and 1998 and Nine Months Ended
September 30, 1999 and 1998--Income Taxes," "Liquidity and Capital Resources,"
and "Year 2000" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations." These forward-looking statements are based
on currently available competitive, financial and economic data and management's
views and assumptions regarding future events (as defined below.) Because
forward-looking statements involve risks and uncertainties, the plans, actions
and actual results could differ materially. Among the factors that could cause
plans, actions and results to differ materially from current
1
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expectations are: (i) the general economic, political and competitive conditions
in markets and countries where Pactiv 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 Pactiv products and its customers' products and the resulting
negative impact on 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 raw materials; (ix) Pactiv's ability
to integrate operations of acquired businesses quickly and in a cost-effective
manner; (x) new technologies; (xi) the ability of Pactiv 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; (xiii) the
timing and occurrence (or non-occurrence) of transactions and events which may
be subject to circumstances beyond Pactiv's control; and (xiv) the company's
ability to recognize forecasted savings from its restructuring programs on a
timely basis.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE BUSINESSES OF PACTIV CORPORATION
COMBINED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(MILLIONS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
REVENUES
Net sales and operating revenues --
Specialty.............................................. $754 $701 $2,158 $2,062
Other.................................................. -- (5) -- 5
---- ---- ------ ------
754 696 2,158 2,067
Gain (loss) on sale of businesses and assets, net......... (1) (1) (22) (2)
Other income (expense), net............................... 2 (6) 5 3
---- ---- ------ ------
755 689 2,141 2,068
---- ---- ------ ------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation shown below)..... 526 473 1,450 1,404
Engineering, research, and development.................... 9 6 27 19
Selling, general, and administrative...................... 104 92 310 266
Depreciation and amortization............................. 47 44 141 132
---- ---- ------ ------
686 615 1,928 1,821
---- ---- ------ ------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY
INTEREST.................................................. 69 74 213 247
Interest expense (net of interest capitalized)......... 38 33 106 100
Income tax expense..................................... 27 25 51 62
Minority interest...................................... -- 1 -- 1
---- ---- ------ ------
INCOME FROM CONTINUING OPERATIONS........................... 4 15 56 84
Income (loss) from discontinued operations, net of income
tax....................................................... 8 25 (155) 62
---- ---- ------ ------
Income (loss) before extraordinary loss..................... 12 40 (99) 146
Extraordinary loss, net of income tax....................... -- -- (7) --
---- ---- ------ ------
Income (loss) before cumulative effect of change in
accounting principle...................................... 12 40 (106) 146
Cumulative effect of change in accounting principle, net of
income tax................................................ -- -- (32) --
---- ---- ------ ------
NET INCOME (LOSS)........................................... $ 12 $ 40 $ (138) $ 146
==== ==== ====== ======
EARNINGS (LOSS) PER SHARE
Basic earnings per share of common stock --
Continuing operations..................................... $.01 $.09 $ .33 $ .50
Discontinued operations................................... .05 .15 (.93) .37
Extraordinary loss........................................ -- -- (.04) --
Cumulative effect of change in accounting principle....... -- -- (.19) --
---- ---- ------ ------
$.06 $.24 $ (.83) $ .87
==== ==== ====== ======
Diluted earnings per share of common stock --
Continuing operations..................................... $.01 $.09 $ .33 $ .50
Discontinued operations................................... .05 .15 (.93) .37
Extraordinary loss........................................ -- -- (.04) --
Cumulative effect of change in accounting principle....... -- -- (.19) --
---- ---- ------ ------
$.06 $.24 $ (.83) $ .87
==== ==== ====== ======
The accompanying notes to combined financial statements are an integral part
of these combined statements of income.
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THE BUSINESSES OF PACTIV CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(MILLIONS)
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1999 1998
------- -----
OPERATING ACTIVITIES
Income from continuing operations........................... $ 56 $ 84
Adjustments to reconcile income from continuing operations
to cash provided by continuing operations --
Depreciation and amortization........................... 141 132
Deferred income taxes................................... 78 112
(Gain) loss on sale of businesses and assets, net....... 22 2
Allocated interest, net of tax.......................... 68 64
Changes in components of working capital --
Increase in receivables............................... (64) (38)
Increase in inventories............................... (45) (8)
(Increase) decrease in prepayments and other current
assets............................................... 7 (5)
Decrease in payables.................................. (50) (9)
Decrease in taxes accrued............................. (29) (17)
Increase (decrease) in interest accrued............... (1) --
Increase (decrease) in other current liabilities...... (21) 13
Other................................................... (79) (54)
------- -----
Cash provided by continuing operations...................... 83 276
Cash provided (used) by discontinued operations............. (76) 137
------- -----
Net cash provided by operating activities................... 7 413
------- -----
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations................................................ 312 --
Net proceeds from sale of businesses and assets............. 30 13
Expenditures for plant, property, and equipment............. (114) (146)
Acquisitions of businesses and assets....................... (7) (81)
Expenditures for plant, property, and equipment and business
acquisitions -- discontinued operations................... (1,129) (74)
Investments and other....................................... 3 (41)
------- -----
Net cash used by investing activities....................... (905) (329)
------- -----
FINANCING ACTIVITIES
Issuance of long-term debt.................................. 1,760 2
Retirement of long-term debt................................ (29) (15)
Net increase (decrease) in short-term debt excluding current
maturities of long-term debt.............................. (8) 12
Cash contributions from (distributions to) Tenneco, net..... (810) (90)
------- -----
Net cash provided (used) by financing activities............ 913 (91)
------- -----
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ 2 --
------- -----
Increase (decrease) in cash and temporary cash
investments............................................... 17 (7)
Cash and temporary cash investments, January 1.............. 7 11
------- -----
Cash and temporary cash investments, September 30........... $ 24 $ 4
======= =====
Cash paid during the period for interest.................... $ 3 $ 2
Cash paid during the period for income taxes (net of
refunds).................................................. $ 28 $ 13
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common equity interest received related to the sale of
containerboard operations................................. $ 194 $ --
Principal amount of long-term debt assumed by buyers of
containerboard operations................................. $(1,760) $ --
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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 combined financial statements are an integral part
of these combined statements of cash flows.
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THE BUSINESSES OF PACTIV CORPORATION
COMBINED BALANCE SHEETS
(UNAUDITED)
(MILLIONS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
ASSETS
Current assets:
Cash and temporary cash investments....................... $ 24 $ 7
Receivables --
Customer notes and accounts, net....................... 324 336
Affiliated companies................................... -- 44
Income taxes........................................... 26 15
Other.................................................. 40 52
Inventories --
Finished goods......................................... 288 246
Work in process........................................ 60 51
Raw materials.......................................... 54 63
Materials and supplies................................. 51 52
Deferred income taxes..................................... 30 6
Prepayments and other..................................... 21 45
------ ------
918 917
------ ------
Other assets:
Long-term notes receivable, net........................... 16 22
Goodwill and intangibles, net............................. 1,024 1,052
Pension assets............................................ 822 742
Other..................................................... 155 143
------ ------
2,017 1,959
------ ------
Plant, property, and equipment, at cost..................... 2,106 2,057
Less -- Reserves for depreciation......................... 578 501
------ ------
1,528 1,556
------ ------
Net assets of discontinued operations....................... 118 366
------ ------
$4,581 $4,798
====== ======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Short-term debt (including current maturities of long-term
debt).................................................. $ 457 $ 595
Payables --
Trade.................................................. 249 255
Affiliated companies................................... 98 6
Taxes accrued............................................. 30 13
Accrued liabilities....................................... 207 188
Other..................................................... 92 85
------ ------
1,133 1,142
Long-term debt.............................................. 1,528 1,312
Deferred income taxes....................................... 305 291
Postretirement benefits..................................... 152 163
Deferred credits and other liabilities...................... 59 100
Commitments and contingencies
Minority interest........................................... 21 14
Combined equity............................................. 1,383 1,776
------ ------
$4,581 $4,798
====== ======
The accompanying notes to combined financial statements are an integral part
of these combined balance sheets.
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THE BUSINESSES OF PACTIV CORPORATION
STATEMENTS OF CHANGES IN COMBINED EQUITY
(UNAUDITED)
(MILLIONS)
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1999 1998
------ ------
Balance, January 1.......................................... $1,776 $1,839
Net income (loss)......................................... (138) 146
Accumulated other comprehensive income (loss)............. (20) 21
Allocated interest, net of tax............................ 68 64
Change in allocated corporate debt........................ 459 (73)
Cash contributions from (distributions to) Tenneco, net... (810) (90)
Noncash contributions from (distributions to) Tenneco,
net.................................................... 48 (82)
------ ------
Balance, September 30....................................... $1,383 $1,825
====== ======
The accompanying notes to combined financial statements are an integral part of
these statements of changes in combined equity.
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THE BUSINESSES OF PACTIV CORPORATION
COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(MILLIONS)
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME
------------- ------------- ------------- -------------
NET INCOME.............................................. $ 12 $ 40
---- ----
ACCUMULATED OTHER COMPREHENSIVE INCOME:
CUMULATIVE TRANSLATION ADJUSTMENT
Balance, July 1....................................... $(26) $(26)
Translation of foreign currency statements.......... 9 9 26 26
---- ----
Balance, September 30................................. (17) --
---- ----
ADDITIONAL MINIMUM PENSION LIABILITY ADJUSTMENT
Balance, July 1....................................... (2) --
---- ----
Balance, September 30................................. (2) --
---- ----
Balance, September 30................................... $(19) $ --
==== ---- ==== ----
Other comprehensive income.............................. 9 26
---- ----
COMPREHENSIVE INCOME.................................... $ 21 $ 66
==== ====
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME
------------- ------------- ------------- -------------
NET INCOME (LOSS)....................................... $(138) $146
----- ----
ACCUMULATED OTHER COMPREHENSIVE INCOME:
CUMULATIVE TRANSLATION ADJUSTMENT
Balance, January 1.................................... $ 3 $(21)
Translation of foreign currency statements.......... (20) (20) 21 21
---- ----
Balance, September 30................................. (17) --
---- ----
ADDITIONAL MINIMUM PENSION LIABILITY ADJUSTMENT
Balance, January 1.................................... (2) --
---- ----
Balance, September 30................................. (2) --
---- ----
Balance, September 30................................... $(19) $ --
==== ----- ==== ----
Other comprehensive income (loss)....................... (20) 21
----- ----
COMPREHENSIVE INCOME (LOSS)............................. $(158) $167
===== ====
The accompanying notes to combined financial statements are an integral part
of these combined statements of comprehensive income (loss).
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THE BUSINESSES OF PACTIV CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The accompanying combined financial statements represent the financial
position, results of operations, and cash flows for all of the businesses of
Pactiv Corporation ("Pactiv"), formerly named Tenneco Packaging Inc.
("Packaging") prior to the Spin-off as defined in Note 2 below, owned directly
or indirectly by Tenneco Inc. ("Tenneco") and its subsidiaries. Pactiv includes
the assets, liabilities, and operations of Tenneco's specialty packaging and
paperboard packaging businesses as well as certain of Tenneco's corporate and
administrative service operations.
Unless the context otherwise requires, the term "Tenneco" refers to: (i)
for periods prior to the Spin-off, Tenneco's automotive and packaging businesses
and corporate and administrative service operations and (ii) for periods after
the Spin-off, Tenneco's automotive business.
In the opinion of Pactiv, the accompanying unaudited combined financial
statements of Pactiv contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, cash flows, changes in equity, and comprehensive income for the
periods indicated. The unaudited interim combined 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.
(2) In July 1998, Tenneco's Board of Directors authorized management to
develop a broad range of strategic alternatives to separate the automotive,
paperboard packaging, and specialty packaging businesses. Subsequently, Tenneco
completed the following actions:
- In January 1999, Tenneco reached an agreement to contribute the
containerboard assets of its paperboard packaging segment to a new joint
venture, Packaging Corporation of America ("PCA"), with Madison Dearborn
Partners, Inc. The contribution to the joint venture was completed in
April 1999. Pactiv received consideration of cash and debt assumption
totaling approximately $2 billion and a 45 percent common equity interest
in the joint venture (now 43 percent due to subsequent management equity
issuances) recorded at a value of approximately $200 million.
- In April 1999, Tenneco reached an agreement to sell the paperboard
packaging segment's other assets, its folding carton operation, to
Caraustar Industries. This transaction closed in June 1999.
- Also in April 1999, Tenneco announced that its Board of Directors had
approved the separation of its automotive and packaging businesses into
two separate, independent companies.
- In June 1999, Tenneco's Board of Directors approved a plan to sell
Pactiv's remaining interest in its containerboard joint venture.
Subsequent to that decision, equity market conditions in the paper and
forest products sector have deteriorated and Pactiv's plans to divest the
remaining interest in PCA have been temporarily suspended.
- In August 1999, Tenneco received a letter ruling from the Internal
Revenue Service that the separation of the automotive and packaging
businesses would be tax-free for U.S. federal income tax purposes to
Tenneco and its shareowners.
- On November 4, 1999, Tenneco completed the separation of Pactiv through a
dividend of the common stock of Pactiv to Tenneco shareowners
("Spin-off").
As a result of the decision to sell Pactiv's remaining interest in PCA,
Pactiv's paperboard packaging segment is presented as a discontinued operation
in the accompanying combined financial statements. Reference is made to Note 3
for information related to discontinued operations.
Before the Spin-off, Tenneco realigned substantially all of its existing
debt through a combination of tender offers, exchange offers, and other
refinancings. Tenneco's debt realignment was financed by borrowings
8
10
THE BUSINESSES OF PACTIV CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
by Tenneco Automotive under new credit facilities, the issuance by Tenneco
Automotive of subordinated debt, and Pactiv's issuance of debt and borrowings by
Pactiv under new credit facilities.
At the Spin-off date, Pactiv had total funded debt of approximately $2.1
billion, comprised of new public debt securities and drawings under its new
credit facilities. The $164 million increase in debt from the amounts reflected
in Pactiv's September 30, 1999, financial statements resulted primarily from the
payment of transaction costs associated with the Spin-off. The debt of Pactiv
was rated investment grade by both Standard & Poors and Moody's debt rating
agencies. The debt is described in more detail in the Liquidity section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained herein.
Pactiv has modified or entered into certain contractual agreements with
Tenneco related to its becoming a separate publicly held company. These
agreements include a distribution agreement, a tax sharing agreement, a human
resources agreement, an insurance agreement, and a transition services
agreement.
These agreements provide, among other things, that (i) Pactiv has become
the sponsor of the Tenneco Retirement Plan, the Tenneco Supplemental Executive
Retirement Plan, and the Tenneco Thrift Plan; and (ii) Pactiv will provide
certain administrative services, including information processing, payroll,
accounts payable, benefits administration, accounting, cash management, and
travel-related services to Tenneco for a specified period of time based on
contracted fee arrangements.
(3) In January 1999, Tenneco reached an agreement to contribute the
containerboard assets of its paperboard packaging segment to a new joint
venture, PCA, with Madison Dearborn Partners, Inc. The contribution to the joint
venture was completed in April 1999. Pactiv received consideration of cash and
debt assumption totaling approximately $2 billion plus a 45 percent common
equity interest in the joint venture (now 43 percent due to subsequent
management equity issuances) recorded at a value of approximately $200 million.
The containerboard assets contributed to the joint venture represented
substantially all of the assets of Pactiv's paperboard packaging segment and
included four mills, 67 corrugated products plants, and an ownership or
leasehold interest in approximately 950,000 acres of timberland. Prior to the
transaction, Pactiv borrowed approximately $1.8 billion and used approximately
$1.2 billion of those borrowings to acquire assets used by the containerboard
business under operating leases and timber cutting rights and to purchase
containerboard business accounts receivable that had previously been sold to a
third party. The remainder of the borrowings was remitted to Tenneco and used to
repay a portion of Tenneco's short-term debt. Pactiv then contributed the
containerboard business assets and transferred responsibility for the new
indebtedness and the containerboard business liabilities to the joint venture in
exchange for $247 million in cash and the 45 percent interest in the joint
venture. As a result of the transaction, Pactiv recognized a pre-tax loss of
$293 million, $178 million after-tax, or $1.07 per diluted common share, in the
first quarter of 1999, based on the amount by which the carrying amount of the
containerboard assets exceeded the fair value of those assets, less selling
costs. The fair value of the containerboard assets was based on the fair value
of the consideration received by Pactiv from the joint venture.
Under a transition services agreement, Pactiv provides office space rental
and certain administrative services, including information processing, payroll,
benefits administration, office building administration and accounting to PCA
for a specified period of time based on contracted fee arrangements.
In April 1999, Tenneco reached an agreement to sell the paperboard
packaging segment's other assets, its folding carton operations, to Caraustar
Industries. Pactiv received cash proceeds of $73 million from this transaction
which closed in June 1999. As a result of the sale, Pactiv recognized a pre-tax
gain of $14 million, $9 million after-tax, or $.05 per diluted common share,
which is included in discontinued operations in the second quarter of 1999.
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THE BUSINESSES OF PACTIV CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues and income for the paperboard packaging discontinued operations
are shown in the following table:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- --------------
1999 1998 1999 1998
----- ----- ----- ------
(MILLIONS)
Net sales and operating revenues....................... $-- $415 $ 445 $1,185
=== ==== ===== ======
Income before income taxes and interest allocation..... $ 8 $ 35 $ 30 $ 101
Income tax expense..................................... -- 12 11 38
--- ---- ----- ------
Income before interest allocation...................... 8 23 19 63
Allocated interest expense, net of income tax.......... -- 8 5 20
--- ---- ----- ------
Income from discontinued operations before
disposition.......................................... 8 15 14 43
Gain (loss) on disposition, net of income tax.......... -- 10 (169) 19
--- ---- ----- ------
Income (loss) from discontinued operations............. $ 8 $ 25 $(155) $ 62
=== ==== ===== ======
(4) In the fourth quarter of 1998, Tenneco's Board of Directors approved an
extensive restructuring plan designed to reduce administrative and operational
overhead costs in Tenneco's business. As a result, Pactiv recorded a pre-tax
charge to income from continuing operations of $32 million, $20 million
after-tax ($.12 per diluted common share). Of the pre-tax charge, $10 million
related to operational restructuring actions and $22 million related to a staff
and cost reduction plan, which covered employees in both the operating unit and
corporate operations.
The operational restructuring plans for Pactiv involved the elimination of
production lines at two plants, resulting in the reduction of 104 positions, and
the decision to exit four joint ventures. The staff and cost reduction plan
involved the elimination of 184 administrative positions in Pactiv's business
unit and corporate operations.
The fixed assets for the production lines, as well as the joint venture
investments, were written down to their fair value, less disposition costs, in
the fourth quarter of 1998. Fair value for the production lines was estimated at
scrap value, less removal costs. Fair value for the joint venture investments
were determined to be zero as Pactiv relinquished its interests. No significant
net cash proceeds are expected to be received upon the disposal of these assets,
which should be completed by the fourth quarter of 1999. Annual depreciation
expense was reduced by approximately $1 million as a result of the elimination
of the production lines.
As of September 30, 1999, approximately 240 employees have been terminated.
This restructuring is being executed according to Pactiv's initial plan, and
Pactiv expects to complete substantially all restructuring actions by the fourth
quarter of 1999.
In the first quarter of 1999, Tenneco adopted a plan to realign its
headquarters functions. This plan involved the severance of approximately 40
employees, and the closing of the Greenwich, Connecticut, headquarters facility.
Tenneco reached an agreement to sell its headquarters facility and recorded an
impairment charge based on the selling price, less selling costs. The carrying
value of the facility before the impairment was $43 million. Annual depreciation
expense was reduced by approximately $3 million as a result of the sale. The
charge for this plan was $29 million pre-tax, $17 million after-tax, or $.10 per
diluted common share. Tenneco received approximately $30 million in the second
quarter of 1999 related to the sale of these assets.
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THE BUSINESSES OF PACTIV CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts related to the restructuring plans described above are shown in the
following table:
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------
BALANCE AT CHARGED BALANCE AT
DECEMBER 31, RESTRUCTURING CASH TO ASSET SEPTEMBER 30,
1998 CHARGE PAYMENTS ACCOUNTS 1999
------------ ------------- -------- -------- -------------
(MILLIONS)
Severance............... $15 $16 $17 $-- $14
Asset impairments....... -- 13 -- 13 --
--- --- --- --- ---
$15 $29 $17 $13 $14
=== === === === ===
Pactiv's management is evaluating Pactiv's strategy in light of its
competitive position as a new stand-alone public company and, as part of this
evaluation, is analyzing its business operations and assets. Specifically, the
evaluation includes a review of Pactiv's strategic and competitive position in
market segments and operations where results are not meeting management's
expectations. Although plans are still being developed and have not been
finalized or approved, potential options could include the disposition,
restructuring or rationalization of assets and operations. Pactiv expects to
complete its evaluation in the fourth quarter of 1999. Pactiv currently
estimates that its evaluation could result in an aggregate pre-tax charge of up
to approximately $175 million, of which approximately 10% could be cash.
(5) Pactiv and its combined subsidiaries are parties to various legal
proceedings arising from their operations. Pactiv believes that the outcome of
these proceedings, individually and in the aggregate, will not have a material
effect on the combined financial position or results of operations of Pactiv.
(6) Pactiv and its combined subsidiaries are subject to a variety of
environmental and pollution control laws and regulations in all jurisdictions in
which they operate. Pactiv has provided reserves for compliance with these laws
and regulations where it is probable that a liability exists and where Pactiv
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 expenditures and the timing, varying costs,
and effectiveness of alternative clean-up technologies. However, Pactiv believes
that any additional costs which arise as more information becomes available will
not have a material effect on the combined financial condition or results of
operations of Pactiv.
(7) In the first quarter of 1999, Pactiv recorded an extraordinary loss for
extinguishment of debt of $7 million (net of a $3 million income tax benefit),
or $.04 per diluted common share. The loss related to early retirement of debt
associated with the sale of the containerboard assets.
(8) 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 requires prospective
application for fiscal years beginning after December 15, 1998. Pactiv adopted
SOP 98-1 on January 1, 1999. The impact of this new standard did not have a
significant effect on Pactiv's combined 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 became effective for fiscal years beginning after
December 15, 1998. The statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Pactiv previously
capitalized certain costs in connection with the start-up of new foreign
operations and its shared administrative service operations. Pactiv adopted SOP
98-5 on January 1, 1999, and recorded a related after-tax charge of $32 million
(net of a $9 million tax benefit), or $.19 per diluted common share.
11
13
THE BUSINESSES OF PACTIV CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
This change in accounting principle decreased the loss before cumulative effect
of change in accounting principle by $6 million (net of $4 million in income tax
expense), or $.04 per diluted common share for the nine months ended September
30, 1999. If the new accounting method had been applied retroactively, income
before cumulative effect of change in accounting principle for the nine months
ended September 30, 1998, would have been lower by $11 million (net of a $7
million tax benefit), or $.06 per diluted common share. For the three months
ended September 30, 1999, the change in accounting principle increased income
before cumulative effect of change in accounting principle by $2 million (net of
$2 million in income tax expense), or $.01 per diluted common share. If the new
accounting principle had been applied retroactively, income before cumulative
effect of change in accounting principle for the three months ended September
30, 1998, would have been lower by $4 million (net of a $2 million income tax
benefit), or $.02 per diluted common share.
In June 1998, the Financial Accounting Standards Board ("FASB") 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 special hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset results related to the hedged item in the income statements and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting treatment. This
statement cannot be applied retroactively and is effective for all fiscal years
beginning after June 15, 2000. Pactiv is currently evaluating the new standard
but has not yet determined the impact it will have on its financial position or
results of operations.
(9) In connection with the Spin-off, Tenneco shareowners received one share
of Pactiv common stock for each share of Tenneco common stock held as of October
29, 1999. As of September 30, 1999, basic and diluted earnings per share for
Pactiv have been calculated using Tenneco's historical weighted average shares
outstanding and weighted average shares outstanding adjusted to include
estimates of additional shares that would be issued if potentially dilutive
common shares had been issued, respectively. Potentially dilutive securities
include stock options, restricted stock, and performance shares.
Tenneco's basic and diluted average common shares outstanding were as
follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Basic..................... 167,459,483 167,985,657 167,115,070 168,929,776
Diluted................... 167,725,321 168,282,244 167,458,449 169,383,927
(10) Pactiv is a manufacturer with a single operating segment as described
below:
Specialty Packaging -- Manufacture and sale of specialty packaging and
consumer products for foodservice, consumer, protective, flexible, and
institutional/industrial markets.
In conjunction with the Spin-off, Pactiv management is evaluating the
realignment of its operating segments.
Pactiv evaluates operating performance based primarily on income before
interest expense, income taxes, and minority interest. Individual operating
segments have not been aggregated within this reportable segment.
Products are transferred between geographic areas on a basis intended to
reflect as nearly as possible the "market value" of the products.
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14
THE BUSINESSES OF PACTIV CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes certain segment information of Pactiv:
SEGMENT RECLASS
----------------- &
SPECIALTY OTHER ELIMS COMBINED
--------- ----- ------- --------
(MILLIONS)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
Revenues from external customers.................. $ 754 $ -- $ -- $ 754
Income (loss) before interest, income taxes, and
minority interest............................... 71 (2) -- 69
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
Revenues from external customers.................. $ 701 $ -- $ (5) $ 696
Income (loss) before interest, income taxes, and
minority interest............................... 86 (12) -- 74
AT SEPTEMBER 30, 1999, AND FOR THE
NINE MONTHS THEN ENDED
Revenues from external customers.................. $2,158 $ -- $ -- $2,158
Income (loss) before interest, income taxes, and
minority interest............................... 261 (48)(a) -- 213
Extraordinary loss................................ -- (7) -- (7)
Cumulative effect of change in accounting
principle....................................... (17) (15) -- (32)
Total assets...................................... 3,296 1,447(b) (162) 4,581
Net assets of discontinued operations............. -- 118 -- 118
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenues from external customers.................. $2,062 $ 5 $ -- $2,067
Income (loss) before interest, income taxes, and
minority interest............................... 261 (14) -- 247
- ---------------
Notes: (a) Includes a $29 million restructuring charge (see Note 4).
(b) The Other segment's total assets include: (1) pension plan assets
retained by Pactiv related to benefits provided to certain employees
of Tenneco's and Pactiv's discontinued operations, (2) Pactiv's
administrative and corporate service operations assets, and (3) net
assets of the discontinued paperboard packaging segment.
The above notes are an integral part of the foregoing financial statements.
13
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STRATEGIC ALTERNATIVES ANALYSIS
In July 1998, Tenneco's Board of Directors authorized management to develop
a broad range of strategic alternatives to separate the automotive, paperboard
packaging, and specialty packaging businesses. Subsequently, Tenneco completed
the following actions:
- In January 1999, Tenneco reached an agreement to contribute the
containerboard assets of its paperboard packaging segment to a new joint
venture, Packaging Corporation of America (PCA), with Madison Dearborn
Partners, Inc. The contribution to the joint venture was completed in
April 1999. Pactiv received consideration of cash and debt assumption
totaling approximately $2 billion and a 45 percent common equity interest
in the joint venture (now 43 percent due to subsequent management equity
issues) recorded at a value of approximately $200 million.
- In April 1999, Tenneco reached an agreement to sell the paperboard
packaging segment's other assets, its folding carton operation, to
Caraustar Industries. This transaction closed in June 1999.
- Also in April 1999, Tenneco announced that its Board of Directors had
approved the separation of its automotive and packaging businesses into
two separate, independent companies.
- In June 1999, Tenneco's Board of Directors approved a plan to sell
Pactiv's remaining interest in its containerboard joint venture.
Subsequent to that decision, equity market conditions in the paper and
forest products sector have deteriorated and Pactiv's plans to divest the
remaining interest in PCA have been temporarily suspended.
- In August 1999, Tenneco received a letter ruling from the Internal
Revenue Service that the separation of the automotive and packaging
businesses would be tax-free for U.S. federal income tax purposes to
Tenneco and its shareholders.
- On November 4, 1999, Tenneco completed the separation of Pactiv through a
dividend of the common stock of Pactiv to Tenneco shareowners
("Spin-off").
As a result of the decision to sell Pactiv's remaining interest in PCA,
Pactiv's paperboard packaging segment is presented as a discontinued operation
in the Combined Financial Statements of The Businesses of Pactiv Corporation
contained elsewhere in this document. Refer to Note 3 for further information.
Before the Spin-off, Tenneco realigned substantially all of its existing
debt through a combination of tender offers, exchange offers, and other
refinancings. Tenneco's debt realignment was financed by borrowings by Tenneco
Automotive under a new credit facility, the issuance by Tenneco Automotive of
subordinated debt, Pactiv's issuance of debt and borrowings by Pactiv under new
credit facilities.
At the Spin-off date, Pactiv had total funded debt of approximately $2.1
billion, comprised of new public debt securities and drawings under its new
credit facilities. The $164 million increase in debt from the amounts reflected
in Pactiv's September 30, 1999 financial statements resulted primarily from the
payment of transaction costs associated with the Spin-off. The debt of Pactiv
was rated investment grade by both Standard & Poor's and Moody's debt rating
agencies. The debt is described in more detail in the Liquidity section below.
Pactiv has modified or entered into certain contractual arrangements with
Tenneco related to its becoming a separate publicly held company. These
agreements include a distribution agreement, a tax sharing agreement, a human
resources agreement, an insurance agreement, and a transition services
agreement.
These agreements provide, among other things, that (i) Pactiv has become
the sponsor of the Tenneco Retirement Plan, the Tenneco Supplemental Executive
Retirement Plan, and the Tenneco Thrift Plan; and (ii) Pactiv will provide
certain administrative services, including information processing, payroll,
accounts payable, benefits administration, accounting, cash-management, and
travel related services to Tenneco for a specified period of time based on
contracted fee arrangements.
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16
RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1998, Tenneco's Board of Directors approved an
extensive restructuring plan designed to reduce administrative and operational
overhead costs in Tenneco's business. As a result, Pactiv recorded a pre-tax
charge to income from continuing operations of $32 million, $20 million
after-tax ($.12 per diluted common share.) Of the pre-tax charge, $10 million
related to operational restructuring actions and $22 million related to a staff
and cost reduction plan, which covered employees in both the operating unit and
corporate operations.
Pactiv's operational restructuring plans involved the elimination of
production lines at two plants, resulting in the reduction of 104 positions, and
the decision to exit four joint ventures. The staff and cost reduction plan
involved the elimination of 184 administrative positions in Pactiv's business
unit and corporate operations.
The fixed assets for the production lines, as well as the joint venture
investments, were written down to their fair value, less disposition costs, in
the fourth quarter of 1998. Fair value for the production lines was estimated at
scrap value, less removal costs. Fair value for the joint venture investments
was determined to be zero as Pactiv relinquished its interests. No significant
net cash proceeds are expected to be received upon the disposal of these assets,
which should be complete by the fourth quarter of 1999. Annual depreciation
expense was reduced by approximately $1 million as a result of the elimination
of the production lines.
As of September 30, 1999, approximately 240 employees had been terminated.
This restructuring is being executed according to Pactiv's initial plan, and
Pactiv expects to complete substantially all restructuring actions by the fourth
quarter of 1999.
In the first quarter of 1999, Tenneco adopted a plan to realign its
headquarters functions. This plan involved the severance of approximately 40
employees and the closing of the Greenwich, Connecticut headquarters facility.
Tenneco reached an agreement to sell its headquarters facility and recorded an
impairment charge based on the selling price, less selling costs. The carrying
value of the facility before the impairment was $43 million. Annual depreciation
was reduced by $3 million as a result of the sale. The charge for this plan was
$29 million pre-tax, $17 million after-tax, or $.10 per diluted common share.
Tenneco received approximately $30 million in the second quarter of 1999 related
to the sale of these assets.
Amounts related to the restructuring plans described above are shown in the
following table:
NINE MONTHS ENDED
SEPTEMBER 30, 1999
-----------------------------------
BALANCE AT CHARGED BALANCE AT
DECEMBER 31, RESTRUCTURING CASH TO ASSET SEPTEMBER 30,
1998 CHARGE PAYMENTS ACCOUNTS 1999
------------ ------------- -------- -------- -------------
(MILLIONS)
Severance................................... $15 $16 $17 $-- $14
Asset impairments........................... -- 13 -- 13 --
--- --- -- --- ---
$15 $29 $17 $13 $14
=== === == === ===
Pactiv expects to realize annual savings of $53 million and $11 million
after completing the fourth quarter 1998 and first quarter 1999 restructuring
actions, respectively, which is expected to occur in the fourth quarter of 1999.
Pactiv's management is evaluating Pactiv's strategy in light of its
competitive position as a new stand-alone public company and, as part of this
evaluation, is analyzing its business operations and assets. Specifically, the
evaluation includes a review of Pactiv's strategic and competitive position in
market segments and operations where results are not meeting management's
expectations. Although plans are still being developed and have not been
finalized or approved, potential options could include the disposition,
restructuring or rationalization of assets and operations. Pactiv expects to
complete its evaluation in the fourth
15
17
quarter of 1999. Pactiv currently estimates that its evaluation could result in
an aggregate pre-tax charge of up to approximately $175 million, of which
approximately 10% could be cash.
QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998
RESULTS OF CONTINUING OPERATIONS
Net Sales and Operating Revenues
THIRD QUARTER
----------------------------
1999 1998 % CHANGE
---- ---- --------
(MILLIONS)
Specialty........................................... $ 754 $ 701 8%
Intergroup sales and other.......................... -- (5) NM
------ ------
$ 754 $ 696 8%
====== ======
Specialty revenue grew 8% due to a combination of broad based unit volume
growth and higher selling prices. Revenues of the consumer products and
foodservice/food packaging business grew 8% while revenues of the protective and
flexible packaging business grew 7%. The second half 1998 acquisitions of
Sentinel Products, a producer of polyolefin foams, and Champion International's
Belvidere, Illinois dual-ovenable paperboard tray manufacturing facility
generated approximately $10 million of the revenue increase.
Income (Loss) Before Interest Expense, Income Taxes, and Minority Interest
("Operating Income")
THIRD QUARTER
----------------------------
1999 1998 % CHANGE
---- ---- --------
(MILLIONS)
Specialty............................................ $ 71 $ 86 (17%)
Other................................................ (2) (12) NM
----- -----
$ 69 $ 74 (7%)
===== =====
Specialty operating income declined $15 million or 17% as selling price
increases lagged behind a rapid escalation in raw material prices, principally
polyethylene. In addition, consumer advertising and promotional expenditures
increased to support the growth of the Hefty One Zip(R) product. Specialty also
incurred $3 million of overhead expense related to the restructuring of the
company.
Other operating loss of $2 million was a $10 million improvement,
reflecting lower overhead costs at its business services operations and the
winding down of the Tenneco corporate headquarters in Greenwich, Connecticut.
Operating Income as a Percentage of Revenue
Operating income as a percentage of revenue for the third quarters of 1999
and 1998 were as follows:
THIRD QUARTER
----------------------
1999 1998 % CHANGE
---- ---- --------
Specialty.............................................. 9.4% 12.3% (24%)
Total.................................................. 9.2% 10.6% (13%)
Specialty operating income as a percentage of revenue declined to 9.4% in
the third quarter 1999 from 12.3% in the third quarter 1998 as selling price
increases lagged behind a rapid escalation in raw materials, principally
polyethylene. Total operating income as a percentage of revenue declined to 9.2%
from 10.6% for the same reason.
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18
Interest Expense, net of interest capitalized
Interest expense from continuing operations increased from $33 million in
the third quarter of 1998 to $38 million in the 1999 third quarter. See further
discussion under "Nine Months Ended September 30, 1999 and 1998 -- Interest
Expense, net of interest capitalized" and "Liquidity."
For the quarter ended September 30, 1998, Pactiv allocated $9 million in
interest expense to the discontinued paperboard packaging operations. For the
comparable period in 1999, no interest expense was allocated to discontinued
operations. Adjusting for this allocation, interest expense was $4 million lower
in the third quarter of 1999 than the comparable period in 1998. The lower
interest expense was primarily attributable to debt reduction related to the
receipt of proceeds from the sale of Pactiv's containerboard interest early in
the second quarter of 1999.
Income Taxes
Pactiv's effective tax rate for the three months ended September 30, 1999
was 87 percent compared to 61 percent for the comparable 1998 period. The third
quarter 1999 effective tax rate includes the impact of a nonrecurring
intercompany tax allocation adjustment related to the separation of Pactiv from
its predecessor parent, Tenneco Inc. Excluding the impact of this one-time
adjustment, Pactiv's earnings per diluted share from continuing operations would
have been $.10 for the three months ended September 30, 1999.
DISCONTINUED OPERATIONS
Income from discontinued operations for the three months ended September
30, 1999, was $8 million, reflecting Pactiv's 43% interest in PCA. Discontinued
operations generated income of $25 million during the three months ended
September 30, 1998, including a $10 million gain on the sale of non-strategic
timberlands, net of income tax.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
RESULTS OF CONTINUING OPERATIONS
Net Sales and Operating Revenues
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998 % CHANGE
---- ---- --------
(MILLIONS)
Specialty........................................... $2,158 $2,062 5%
Intergroup sales and other.......................... -- 5 NM
------ ------
$2,158 $2,067 4%
====== ======
Specialty revenue grew 5% due to unit volume growth of 7% partially offset
by lower selling prices and unfavorable foreign exchange rates. Revenues of the
consumer products and foodservice/food packaging business grew 4% while revenues
of the protective and flexible packaging business grew 6%. The second half 1998
acquisitions of Sentinel Products, a producer of polyolefin foams, and Champion
International's Belvidere, Illinois dual-ovenable paperboard tray manufacturing
facility generated approximately $31 million of the revenue increase.
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19
Income (Loss) Before Interest Expense, Income Taxes, and Minority Interest
("Operating Income")
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998 % CHANGE
---- ---- --------
(MILLIONS)
Specialty............................................ $ 261 $ 261 --
Other................................................ (48) (14) NM
----- -----
$ 213 $ 247 (14%)
===== =====
Specialty operating income was unchanged as the favorable impact of unit
volume growth was offset entirely by lower margins. Margins deteriorated as
selling price increases lagged behind a rapid escalation in raw material prices,
principally polyethylene. The first nine months' operating income included $8
million of non-recurring Year 2000 and systems implementation costs and $6
million of overhead costs related to the separation of the paperboard segment.
Other operating loss for both periods reflected unallocated corporate
overhead and costs at Pactiv's data center and administrative services
operations. In addition, the first nine months of 1999 included a $29 million
restructuring charge recorded in the first quarter to realign Tenneco's
headquarters functions. Refer to Note 4 for further information.
Operating Income as a Percentage of Revenue
Operating income as a percentage of revenue for the first nine months of
1999 and 1998 was as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998 % CHANGE
---- ---- --------
Specialty............................................ 12.1% 12.7% (5%)
Total................................................ 9.9% 11.9% (17%)
Specialty operating income as a percentage of revenue declined to 12.1% in
the first nine months 1999 from 12.7% in the first nine months 1998 as operating
income was unchanged and revenue grew 5%. Total operating income as a percentage
of revenue declined to 9.9% from 11.9% due to the specialty segment decline
discussed above plus the first quarter restructuring charge of $29 million.
Refer to Note 4 for further discussion.
Excluding the first quarter 1999 restructuring charge, operating income as
a percentage of revenue was as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998 % CHANGE
---- ---- --------
Specialty............................................ 12.1% 12.7% (5%)
Total................................................ 11.2% 11.9% (6%)
Interest Expense, net of interest capitalized
Tenneco's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Consequently, corporate debt of Tenneco and its
related interest expense has been allocated to Pactiv based on the portion of
Tenneco's investment in Pactiv which is deemed to be debt, generally based upon
the ratio of Pactiv's net assets to Tenneco consolidated net assets plus debt.
Interest expense was allocated at a rate equivalent to the weighted-average cost
of all corporate debt. Although interest expense, and the related tax effects,
have been allocated to Pactiv for financial reporting on a historical basis,
Pactiv has not been billed for these amounts. The changes in allocated corporate
debt and the after-tax allocated interest have been included as a component of
Pactiv's combined equity. Although management believes that the historical
allocation of corporate
18
20
debt and interest is reasonable, it is not necessarily indicative of Pactiv's
debt upon completion of the realignment of Tenneco's debt nor debt and interest
that may be incurred by Pactiv as a separate public company. See further
discussion under "Liquidity".
Interest expense from continuing operations increased from $100 million for
the nine months ended September 30, 1998 to $106 million in the comparable 1999
period.
For the nine months ended September 30, 1998, Pactiv allocated $29 million
in interest expense to the discontinued paperboard packaging operations. For the
comparable period in 1999, $9 million in interest expense was allocated to
discontinued operations. Adjusting for this allocation, interest expense was $14
million lower in the first three quarters of 1999 than the comparable period in
1998. The lower interest expense was primarily attributable to debt reduction
related to the receipt of proceeds from the sale of Pactiv's containerboard
interest early in the second quarter of 1999.
Income Taxes
Pactiv's effective tax rate for the nine months ended September 30, 1999
was 48 percent, compared to 42 percent for the comparable 1998 period. The 1999
year-to-date effective tax rate reflected the effects of the reorganization and
separation of Pactiv as a stand-alone company and the impact of nondeductible
goodwill amortization on a lower income level. Pactiv expects the annual
normalized effective tax rate to be 41 to 42 percent after 1999.
DISCONTINUED OPERATIONS AND EXTRAORDINARY CHARGE
Loss from discontinued operations for the nine months ended September 30,
1999, was $155 million. This included a loss on the contribution of the
containerboard assets of $178 million, net of an income tax benefit of $115
million, or $1.07 per diluted common share.
Discontinued operations generated income of $62 million for the nine months
ended September 30, 1998.
The current year's first nine months also included an extraordinary charge
to cover the cost of early retirement of debt in connection with the
contribution of the containerboard assets of $7 million, net of income tax
benefit of $3 million, or $.04 per diluted common share.
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 requires prospective
application for fiscal years beginning after December 15, 1998. Pactiv adopted
SOP 98-1 on January 1, 1999. The impact of this new standard did not have a
significant effect on Pactiv'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 became effective for fiscal years beginning after
December 15, 1998. This statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Pactiv previously
capitalized costs related to the start-up of new foreign operations and its
administrative service operations. Pactiv adopted SOP 98-5 on January 1, 1999,
and recorded a related after-tax charge of $32 million, net of a $9 million tax
benefit, or $.19 per diluted common share. This change in accounting principle
decreased the loss before cumulative effect of change in accounting principle by
$6 million, net of $4 million in income tax expense, or $.04 per diluted common
share, for the nine months ended September 30, 1999. If the new accounting
method had been applied retroactively, income before cumulative effect of change
in accounting principle for the nine months ended September 30, 1998, would have
been lower by $11 million, net of a $7 million income tax benefit, or $.06 per
diluted common share. For the three months ended September 30, 1999, the change
in accounting principle increased income before cumulative effect of change in
accounting principle by $2 million (net of $2 million in income tax expense), or
19
21
$.01 per diluted common share. If the new accounting principle had been applied
retroactively, income before cumulative effect of change in accounting principle
for the three months ended September 30, 1998, would have been lower by $4
million (net a of $2 million income tax benefit), or $.02 per diluted common
share.
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 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 special hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset results
related to the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting treatment. This statement cannot be applied
retroactively and is effective for all fiscal years beginning after June 15,
2000. Pactiv is currently evaluating the new standard but has not yet determined
the impact it will have on its financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
SEPTEMBER 30, DECEMBER 31, %
1999 1998 CHANGE
------------- ------------ ------
(MILLIONS)
Short-term debt and current maturities of
long-term debt............................... $ 457 $ 595 (23%)
Long-term debt............................... 1,528 1,312 16%
Debt allocated to discontinued operations.... -- 548 NM
------ ------
Total debt.............................. 1,985 2,455 (19%)
Minority interest............................ 21 14 50%
Combined equity.............................. 1,383 1,776 (22%)
------ ------
Total capitalization.................... $3,389 $4,245 (20%)
====== ======
Pactiv's ratio of debt to total capitalization was 58.6 percent and 57.8
percent at September 30, 1999, and at December 31, 1998, respectively. Debt
allocated from Tenneco to Pactiv declined due to the contribution by Pactiv of
its containerboard assets to the joint venture.
Equity declined as a result of distributions to Tenneco and the net loss
for the first nine months, which included the loss on the containerboard assets
as well as the charge associated with the plan to realign the Greenwich,
Connecticut, headquarters facility. See the Statements of Changes in Combined
Equity in the Combined Financial Statements of The Businesses of Pactiv
Corporation contained elsewhere in this document for a description of factors
affecting equity.
Cash Flows
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1999 1998
---- ----
(MILLIONS)
Cash provided (used) by:
Operating activities...................................... $ 7 $ 413
Investing activities...................................... (905) (329)
Financing activities...................................... 913 (91)
Cash flow provided by continuing operating activities declined by $193
million for the first nine months of 1999 compared to the same period in 1998,
primarily due to higher working capital levels. This was mainly attributable to
higher receivables, lower payables and a build in inventories during 1999.
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22
Cash flow from Pactiv's discontinued paperboard operations declined by $213
million in the first nine months of 1999 compared to the 1998 period. This was
primarily attributable to the purchase of containerboard business accounts
receivable in contemplation of the contribution of the containerboard business
to the joint venture in April 1999. Additionally, lower linerboard and medium
prices resulted in lower operating cash flow for the containerboard business.
Excluding the effects of the discontinued paperboard operations, cash used
by investing activities was lower during the first nine months of 1999 by $167
million compared to the first nine months of 1998. Reduced capital spending,
lower systems related expenditures and lower acquisition activity contributed to
the decline.
As described above, Packaging borrowed approximately $1.8 billion in the
second quarter of 1999 in connection with the formation of the containerboard
joint venture and used approximately $1.2 billion of that amount to purchase
leased assets and timber cutting rights of that business. The remaining proceeds
from these borrowings, plus additional cash proceeds of approximately $306
million from the containerboard and folding carton transactions, were used to
retire Tenneco's short-term debt in the second quarter. Accordingly, absent the
borrowings described above, cash used by financing activities was $847 million
for the first nine months of 1999.
Packaging contributed the containerboard business and transferred
responsibility for $1.8 billion in new debt to the new joint venture. The debt
reduction which resulted from this contribution is shown on the statements of
cash flows as a non-cash financing activity.
CAPITAL COMMITMENTS
Packaging estimates that expenditures aggregating approximately $110
million will be required after December 31, 1998, to complete facilities and
projects authorized at that date, and substantial commitments have been made in
connection with those projects.
LIQUIDITY
Historically, Pactiv's excess net cash flows from operating and investing
activities have been used by its parent, Tenneco, to meet consolidated debt and
other obligations. Conversely, when Pactiv's cash requirements have been in
excess of cash flows from operations, Tenneco has utilized its consolidated
credit facilities to fund Pactiv's obligations. Also, depending on market and
other conditions, Pactiv has utilized external sources of capital to meet
specific funding requirements. Pactiv's management believes that, after the
Spin-off, Pactiv's cash flows from operations combined with available borrowing
capacity under the new credit facilities described below, will generally be
sufficient to meet its future capital requirements for the following year.
Before the Spin-off, Tenneco realigned substantially all of its debt
through a combination of tender offers, exchange offers, and other refinancings.
Tenneco's debt realignment was financed in part by the exchange of public debt
securities issued by Pactiv and borrowings by Pactiv under its new credit
facilities, which are described below. At the Spin-off, Pactiv had total funded
debt of approximately $2.1 billion, comprised of new public debt securities and
drawings under its new credit facilities. The $164 million increase in debt at
the Spin-off date from the amount that was reflected in Pactiv's September 30,
1999, financial statements resulted primarily from the payment of transaction
costs associated with the Spin-off.
The terms of the new public debt securities are substantially identical to
the terms of the corresponding series of Tenneco's original securities for which
they were exchanged, except that (1) Pactiv is the issuer and (2) interest rates
are approximately 50 basis points higher. The terms of the new securities will
not restrict Pactiv's ability to declare dividends, authorize capital
expenditures, or incur additional unsecured debt.
In addition, Pactiv has entered into a five-year, $750 million long-term
revolving credit facility and a $250 million 364-day revolving credit facility
in connection with the Spin-off. Initial borrowings under these facilities of
$644 million at the time of the Spin-off were used to fund a portion of the debt
realignment. After the Spin-off, additional borrowings may be used for general
corporate purposes. These facilities do not impose any general restrictions on
Pactiv's ability to declare dividends or restrict capital expenditures. They do,
however, include limitations on incurring liens and subsidiary debt, disposing
of all or substantially all of its
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assets and discontinuing its primary businesses. These facilities require Pactiv
to satisfy specified financial ratios, as well as to comply with other customary
covenants and agreements. Borrowings under these facilities will bear interest
at a floating rate based on LIBOR, adjusted for reserve requirements, plus a
specified margin, or based on a specified prime or reference rate plus a
specified margin, at Pactiv's option. Borrowings under these facilities may also
bear interest based on competitive bids.
In connection with the Spin-off, Pactiv exercised its right to a one time
draw under a $1.5 billion term loan agreement in the amount of $300 million.
Pursuant to the terms of this agreement, Pactiv is no longer entitled to make
further borrowings. The borrowing under this facility will be due 18 months
after funding or upon Pactiv's sale of its remaining interest in PCA, whichever
occurs first and bear interest at a floating rate based on LIBOR, adjusted for
reserve requirements, plus a specified margin or based on a specified prime or
reference rate plus a specific margin, at Pactiv's option. This financing
includes covenants similar to those described above for the revolving credit
facilities. Under certain conditions, the lender has the option to syndicate all
or a portion of the loan no later than 120 days after the Spin-off, and in
connection therewith and after consultation with Pactiv, could change the loan
pricing, covenants, maturity, structure or other terms if advisable to ensure a
successful syndication.
Pactiv has entered into a $175 million syndicated lease facility with a
third party lessor and various lenders, the proceeds of which will be used to
restructure or replace certain existing operating leases and public warehouse
arrangements and to facilitate additional leasing arrangements for other
operating facilities. The syndicated lease facility contains customary terms and
conditions, including a residual value guarantee, default provisions and
financial covenants.
YEAR 2000
Many computer software systems, as well as some hardware and equipment
utilizing date-sensitive data, were designed to use a two-digit date field.
Consequently, these systems, hardware and equipment will not be able to properly
recognize dates beyond the year 1999. This is referred to herein as the "Year
2000 issue". Pactiv's significant technology transformation projects have
addressed 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, Pactiv 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.
Pactiv 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. Pactiv continues to plan
for and undertake remediation, replacement or establishment of alternative
procedures for non-compliant Year 2000 systems and equipment; and test
remediated, replaced or alternative procedures for systems and equipment.
Pactiv believes that approximately 99 percent of its major business
applications systems and approximately 90 percent of its manufacturing equipment
are in Year 2000 compliance as of September 30, 1999. Pactiv has confirmed that
none of its products are date-sensitive. Remediation, replacement or
establishment of alternative procedures for systems and equipment and testing
have been and are being undertaken on a business priority basis.
Pactiv's administrative services operation is 99% complete with its Year
2000 remediation, replacement and testing activities for information technology
infrastructure. Subsequent to the Spin-off, Pactiv will provide information
technology infrastructure to Tenneco as part of a transition services agreement.
Based upon current estimates, Pactiv believes that costs to address Year
2000 issues and implement the necessary changes to its existing systems and
equipment, including costs incurred to date, will approximate $30 million. As of
September 30, 1999, approximately $23 million of the costs had been incurred.
Such expenditures are being expensed as they are incurred. Where Pactiv has
determined that replacing, rather than changing, existing computer systems or
equipment is more effective and efficient, particularly where additional
functionality is available, related assets have been capitalized.
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Pactiv has also contacted its major 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 compliance problems possibly affecting
Pactiv. A majority of these entities, including critical suppliers, have
responded by advising as to the status of their efforts and indicated that they
expect to become Year 2000 compliant in a timely manner. Based on these
responses, critical vendors have been assigned a risk rating. This process is
ongoing. Pactiv intends to continue corresponding with critical high risk third
parties to obtain information and updates on their Year 2000 compliance efforts,
and to assess the Year 2000 readiness of new suppliers, financial institutions
and others with whom it begins to conduct business.
If Pactiv is unable to complete in a timely and cost-effective fashion the
remaining remediation or replacement of critical systems or equipment not yet in
compliance, or develop alternative procedures, or if those with whom Pactiv
conducts business are unsuccessful in implementing timely solutions, Year 2000
issues could have a material adverse effect on Pactiv's condition or results of
operations. Possible worst case scenarios include interruptions in Pactiv's
ability to manufacture its products, process and ship orders, and bill and
collect from customers due to internal system failures or the system failures of
its suppliers or customers. Pactiv believes it will be able to resolve its own
Year 2000 issues in a timely manner.
As part of its planning and readiness activities, Pactiv is completing Year
2000 contingency plans for critical business processes such as banking, data
center operations and just-in-time manufacturing operations. Contingency plans
are being completed on a business unit basis, where needed, to respond to
previously undetected Year 2000 problems and business interruption from
suppliers. Contingency plans will include alternative suppliers, as necessary,
as well as assuring the availability of key personnel at year end to address
unforeseen Year 2000 problems.
EURO CONVERSION
The European Monetary Union resulted in the adoption of a common currency,
the Euro, among eleven European nations. The Euro is being adopted over a
three-year transition period which commenced on January 1, 1999. In October
1997, Tenneco established a cross-functional euro committee, comprised of
representatives of Tenneco's operationing divisions, including Pactiv, as well
as its corporate offices. That Committee had two principal objectives: (1) to
determine the impact of the Euro on Tenneco's business operations; and (2) to
recommend and facilitate implementation of those steps necessary to ensure that
Tenneco would be fully prepared for the Euro's introduction. As of January 1,
1999, Pactiv had implemented those Euro conversion procedures that it had
determined to be necessary and prudent to adopt by that date, and is on track to
becoming fully "Euro ready" on or before the conclusion of the three-year Euro
transition period. Pactiv believes that the costs associated with transitioning
to the Euro will not be material to its combined financial position or the
results of its operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Before the Spin-off, Tenneco realigned substantially all of its debt
through a combination of tender offers, exchange offers, and other refinancings.
Tenneco's debt realignment was financed in part by the exchange of public debt
securities issued by Pactiv and borrowings by Pactiv under its new credit
facilities. The new credit facilities carry interest rates that change with
market rates of interests. See Item 2, "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Liquidity" for further
information.
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PART II
OTHER INFORMATION
ITEMS 1-5. NONE
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.
None.
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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.
PACTIV CORPORATION
By: /s/ ANDREW A. CAMPBELL
----------------------------------
Andrew A. Campbell
Vice President Finance and
Chief Financial Officer
Date: November 17, 1999
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EXHIBIT INDEX
TO
QUARTERLY ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1999
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2 -- Distribution Agreement by and between Tenneco Inc. and
Pactiv Corporation (formerly known as Tenneco Packaging
Inc.), (incorporated herein by reference to Exhibit 2 to
Pactiv Corporation's Current Report on Form 8-K dated
November 11, 1999, File No. 1-15157).
3.1(a) -- Restated Certificate of Incorporation of the registrant
dated November 4, 1999.
3.1(b) -- Certificate of Amendment, dated November 4, 1999.
3.1(c) -- Certificate of Designation of Series A Junior
Participating Preferred Stock of Pactiv Corporation,
dated November 4, 1999.
3.2 -- Amended and Restated By-laws of Pactiv Corporation
(formerly known as Tenneco Packaging Inc.).
4.1 -- Specimen Stock Certificate of Pactiv Corporation Common
Stock.
4.2 -- Qualified Offer Plan Rights Agreement, dated as of
November 4, 1999, by and between Pactiv Corporation and
First Chicago Trust Company of New York, as Rights Agent.
4.3(a) -- Indenture, dated September 29, 1999, by and between
Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.1 to
Tenneco Packaging Inc.'s Registration Statement on Form
S-4, File No. 333-82923).
4.3(b) -- First Supplemental Indenture, dated as of November 4,
1999, to Indenture dated as of September 29, 1999,
between the registrant and The Chase Manhattan Bank, as
Trustee.
4.3(c) -- Second Supplemental Indenture, dated as of November 4,
1999, to Indenture dated as of September 29, 1999,
between the registrant and The Chase Manhattan Bank, as
Trustee.
4.3(d) -- Third Supplemental Indenture, dated as of November 4,
1999, to Indenture dated as of September 29, 1999,
between the registrant and The Chase Manhattan Bank, as
Trustee.
4.3(e) -- Fourth Supplemental Indenture, dated as of November 4,
1999, to Indenture dated as of September 29, 1999,
between the registrant and The Chase Manhattan Bank, as
Trustee.
4.3(f) -- Fifth Supplemental Indenture, dated as of November 4,
1999, to Indenture dated as of September 29, 1999,
between the registrant and The Chase Manhattan Bank, as
Trustee.
4.4 -- Registration Rights Agreement, dated as of November 4,
1999, by and between Pactiv Corporation (formerly known
as Tenneco Packaging Inc.) and the trustees under the
Pactiv Corporation Rabbi Trust. \
10.1 -- Human Resources Agreement, dated as of November 4, 1999,
by and between Tenneco Inc. and Pactiv Corporation
(formerly known as Tenneco Packaging Inc.) (incorporated
herein by reference to Exhibit 99.1 to Tenneco Inc.'s
Current Report on Form 8-K dated November 4, 1999, File
No. 1-12387).
10.2 -- Tax Sharing Agreement, dated as of November 3, 1999, by
and between Tenneco Inc. and Pactiv Corporation (formerly
known as Tenneco Packaging Inc.) (incorporated herein by
reference to Exhibit 99.2 to Tenneco Inc.'s Current
Report on Form 8-K dated November 4, 1999, File No.
1-12387).
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.3 -- Amended and Restated Transition Services Agreement, dated
as of November 4, 1999, by and between Tenneco Inc. and
Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) (incorporated herein by reference to Exhibit 10.21
to Tenneco Automotive Inc.'s Quarterly Report on Form
10-Q for quarterly period ended September 30, 1999, File
No. 1-12387).
10.4 -- Trademark Transition License Agreement, dated as of
November 4, 1999, by and between Tenneco Inc. and Pactiv
Corporation (formerly known as Tenneco Packaging Inc.)
10.5 -- Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Executive Incentive Compensation Plan.
10.6 -- Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Supplemental Executive Retirement Plan.
10.7 -- Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Change in Control Severance Benefit Plan for Key
Executives.
10.8 -- Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Deferred Compensation Plan.
10.9 -- Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Stock Ownership Plan.
10.10 -- Professional Services Agreement, dated August 22, 1996,
by and between Tenneco Business Services Inc. and Newport
News Shipbuilding Inc. (incorporated herein by reference
to Exhibit 10.28 of Tenneco Inc.'s Form 10, File No.
1-12387).
10.11 -- Pactiv Corporation Rabbi Trust.
10.12 -- Tenneco Rabbi Trust Agreement.
10.13(a) -- Contribution Agreement, dated as of January 25, 1999, by
and among Tenneco Packaging Inc., PCA Holdings LLC and
Packaging Corporation of America (the "Contribution
Agreement") (incorporated herein by reference to Exhibit
10.30 to Tenneco Inc.'s Current Report on Form 8-K dated
April 12, 1999, File No. 1-12387).
10.13(b) -- Letter Agreement, dated as of April 12, 1999, by and
among Tenneco Packaging Inc., PCA Holdings LLC and
Packaging Corporation of America, amending the
Contribution Agreement (incorporated herein by reference
to Exhibit 10.31 to Tenneco Inc.'s Current Report on Form
8-K dated April 12, 1999, File No. 1-12387).
10.14 -- Stockholders Agreement, as amended, dated as of April 12,
1999, by and among Tenneco Packaging Inc., PCA Holdings
LLC and Packaging Corporation of America (incorporated
herein by reference to Exhibit 10.32 to Tenneco Inc.'s
Current Report on Form 8-K dated April 12, 1999, File No.
1-12387).
10.15 -- Registration Rights Agreement, as amended, dated as of
April 12, 1999, by and among Tenneco Packaging Inc., PCA
Holdings LLC and Packaging Corporation of America
(incorporated herein by reference to Exhibit 10.33 to
Tenneco Inc.'s Current Report on Form 8-K dated April 12,
1999, File No. 1-12387).
10.16 -- Release Agreement dated as of October 18, 1999, by and
between Dana G. Mead and Tenneco Management Company, and
Modification of Release Agreement dated as of October 18,
1999, by and among Dana G. Mead, Tenneco Inc. and Tenneco
Management Company (incorporated herein by reference to
Exhibit 10.18 to Tenneco Automotive Inc.'s Quarterly
Report on Form 10-Q for quarterly period ended September
30, 1999, File No. 1-12387).
10.17 -- Employment Agreement, dated as of March 11, 1997, by and
between Richard L. Wambold and Tenneco Inc.
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.18 -- Short Term Credit Agreement, dated as of September 29,
1999, among Tenneco Packaging Inc., Bank of America,
N.A., as Administrative Agent, Credit Suisse First
Boston, as Syndication Agent, Bank One, NA and Banque
Nationale de Paris, as Co-Documentation Agents, and the
other financial institutions party thereto (incorporated
herein by reference to Exhibit 4.4 to Tenneco Packaging
Inc.'s Registration Statement on Form S-4, File No.
333-82923).
10.19 -- Long Term Credit Agreement, dated as of September 29,
1999, among Tenneco Packaging Inc., Bank of America,
N.A., as Administrative Agent, Credit Suisse First
Boston, as Syndication Agent, Bank One, NA and Banque
Nationale de Paris, as Co-Documentation Agents, and the
other financial institutions party thereto (incorporated
herein by reference to Exhibit 4.3 to Tenneco Packaging
Inc.'s Registration Statement on Form S-4, File No.
333-82923).
10.20 -- Term Loan Agreement, dated as of November 3, 1999,
between Pactiv Corporation (formerly known as Tenneco
Packaging Inc.) and Bank of America.
10.21 -- Letter of Agreement dated September 10, 1999, by and
among Tenneco Inc., Bank of America, N.A., and Bank of
America Securities LLC, related to Term Loan Agreement,
dated as of November 3, 1999, by and between Pactiv
Corporation (formerly known as Tenneco Packaging Inc.)
and Bank of America.
10.22 -- Participation Agreement, dated as of October 28, 1999,
among Pactiv Corporation (formerly known as Tenneco
Packaging Inc.), First Security Bank, N.A., Bank of
America, as Administrative Agent, and the other financial
institutions party thereto.
11 -- None.
12 -- Computation of Ratio of Earnings to Fixed Charges.
15 -- None.
18 -- None.
22 -- None.
23 -- None.
24 -- None.
27.1 -- Financial Data Schedule, September 30, 1999.
27.2 -- Financial Data Schedule, September 30, 1998.
28 -- None.
99 -- None.
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