<PAGE>
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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 JUNE 30, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12387
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TENNECO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0515284
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1275 KING STREET, GREENWICH, CT 06831
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
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: 169,879,345 SHARES AS OF JUNE 30,
1997.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
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............. 13
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 13
</TABLE>
- --------
* 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 June 30, 1997,
represents Tenneco Inc.'s second quarterly report following the completion of
a series of restructuring transactions completed in December 1996. As a result
of those transactions, Tenneco Inc. now consists of a global manufacturing
company with interests in the automotive parts ("Tenneco Automotive") and
packaging ("Tenneco Packaging") industries and an administrative services
business ("Tenneco Business Services"). Note 1 to the financial statements,
and Management's Discussion and Analysis which follows the financial
statements and footnotes, contain a description of the transaction as well as
a discussion of the results of operations for the quarter and year to date.
CAUTIONARY STATEMENT AND "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q contains forward-looking statements
regarding (i) the implementation of price increases for Tenneco's paperboard
packaging products and (ii) the recovery of increases in resin costs. See
"Revenues" and "Income Before Interest Expense, Income Taxes and Minority
Interest ("Operating Income")" under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Continuing
Operations for the Quarter Ended June 30, 1997" and "Revenues" and "Operating
Income" under "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Continuing Operations for the Six Months
Ended June 30, 1997." These forward-looking statements are made in good faith,
and on a basis and with assumptions which Tenneco believes are reasonable;
however, assumed facts or basis may vary from actual results and the
differences between assumed facts or basis and actual results can be material,
depending upon the circumstances. There can be no assurance that the
expectations set forth in the forward-looking statements will be achieved or
accomplished. Actual results could differ from those in the forward-looking
statements as a result of various factors, including market conditions placing
downward pressure on industry prices for linerboard and medium and other
packaging products.
In addition to the foregoing, Tenneco's future results may be adversely
impacted by a number of other 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, such as
changes in interest rates or ratings of securities; and (x) changes by the
Financial Accounting Standards Board or the Securities and Exchange Commission
to authoritative generally accepted accounting principles or policies.
1
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES
Net sales and operating
revenues--
Automotive.............. $ 873 $ 780 $ 1,651 $ 1,463
Packaging............... 1,019 916 1,871 1,775
Intergroup sales and
other.................. -- (2) (1) (5)
----------- ----------- ----------- -----------
1,892 1,694 3,521 3,233
Other income, net......... 1 57 41 71
----------- ----------- ----------- -----------
1,893 1,751 3,562 3,304
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive
of depreciation shown
below)................... 1,338 1,192 2,529 2,303
Engineering, research and
development.............. 18 23 34 44
Selling, general and
administrative........... 234 206 445 396
Depreciation, depletion
and amortization......... 91 77 183 147
----------- ----------- ----------- -----------
1,681 1,498 3,191 2,890
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST
EXPENSE, INCOME TAXES AND
MINORITY INTEREST.......... 212 253 371 414
Interest expense (net of
interest capitalized).... 53 53 98 100
Income tax expense........ 49 77 82 126
Minority interest......... 6 5 11 10
----------- ----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS................. 104 118 180 178
Income from discontinued
operations, net of income
tax........................ -- 43 -- 478
----------- ----------- ----------- -----------
NET INCOME.................. 104 161 180 656
Preferred stock dividends... -- 2 -- 5
----------- ----------- ----------- -----------
NET INCOME TO COMMON STOCK.. $ 104 $ 159 $ 180 $ 651
=========== =========== =========== ===========
PER SHARE
Average number of shares of
common stock outstanding... 169,907,499 170,264,386 170,673,360 170,351,740
Earnings per average share
of common stock--
Continuing operations..... $ .61 $ .70 $ 1.05 $ 1.04
Discontinued operations... -- .23 -- 2.78
----------- ----------- ----------- -----------
$ .61 $ .93 $ 1.05 $ 3.82
=========== =========== =========== ===========
Cash dividends per share of
common stock............... $ .30 $ .45 $ .60 $ .90
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of income.
2
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
-------------------
1997 1996
------ ------
(MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations......................... $ 180 $ 178
Adjustments to reconcile income from continuing operations
to cash provided (used) by continuing operations--
Depreciation, depletion and amortization................ 183 147
Deferred income taxes................................... 71 37
(Gain) loss on sale of businesses and assets, net....... 10 (49)
Changes in components of working capital--
(Increase) decrease in receivables.................... (126) (110)
(Increase) decrease in inventories.................... (20) 18
(Increase) decrease in prepayments and other current
assets............................................... (54) (19)
Increase (decrease) in payables....................... (88) (13)
Increase (decrease) in taxes accrued.................. (20) 23
Increase (decrease) in interest accrued............... 28 --
Increase (decrease) in other current liabilities...... (90) (43)
Other................................................... (60) (33)
------ ------
Cash provided (used) by continuing operations............. 14 136
Cash provided (used) by discontinued operations........... -- (351)
------ ------
Net cash provided (used) by operating activities.......... 14 (215)
------ ------
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations............................................... -- 1,051
Net proceeds from sale of businesses and assets........... 7 10
Expenditures for plant, property and equipment--
Continuing operations................................... (202) (274)
Discontinued operations................................. -- (190)
Acquisitions of businesses................................ (289) (24)
Investments and other..................................... (52) (68)
------ ------
Net cash provided (used) by investing activities.......... (536) 505
------ ------
FINANCING ACTIVITIES
Issuance of common, treasury and SECT shares.............. 20 46
Purchase of common shares................................. (90) (122)
Redemption of preferred stock............................. -- (20)
Issuance of long-term debt................................ 593 2
Retirement of long-term debt.............................. (5) (302)
Net increase (decrease) in short-term debt excluding
current maturities on long-term debt..................... 126 141
Dividends (common and preferred).......................... (102) (158)
------ ------
Net cash provided (used) by financing activities.......... 542 (413)
------ ------
Effect of foreign exchange rate changes on cash and
temporary cash investments............................... (1) (2)
------ ------
Increase (decrease) in cash and temporary cash
investments.............................................. 19 (125)
Cash and temporary cash investments, January 1............ 62 354
------ ------
Cash and temporary cash investments, June 30 (Note)....... $ 81 $ 229
====== ======
Cash paid during the period for interest.................. $ 80 $ 224
Cash paid during the period for income taxes (net of
refunds)................................................. $ 42 $ 621
</TABLE>
- --------
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.
3
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
-------- ------------ --------
ASSETS 1997 1996 1996
------ -------- ------------ --------
(MILLIONS)
<S> <C> <C> <C>
Current assets:
Cash and temporary cash investments............... $ 81 $ 62 $ 229
Receivables--
Customer notes and accounts, net................ 808 561 477
Affiliated companies............................ -- -- 114
Income taxes.................................... -- -- 52
Other........................................... 35 138 186
Inventories--
Finished goods.................................. 500 408 381
Work in process................................. 95 118 100
Raw materials................................... 227 245 249
Materials and supplies.......................... 114 107 90
Deferred income taxes............................. 86 95 28
Prepayments and other............................. 201 189 196
------ ------ ------
2,147 1,923 2,102
------ ------ ------
Other assets:
Long-term notes receivable........................ 41 20 16
Goodwill and intangibles, net..................... 1,578 1,341 965
Deferred income taxes............................. 113 60 61
Pension assets.................................... 681 547 444
Other............................................. 415 444 287
------ ------ ------
2,828 2,412 1,773
------ ------ ------
Plant, property and equipment, at cost.............. 5,029 4,870 4,332
Less--Reserves for depreciation, depletion and
amortization..................................... 1,747 1,618 1,584
------ ------ ------
3,282 3,252 2,748
------ ------ ------
Net assets of discontinued operations............... -- -- 1,301
------ ------ ------
$8,257 $7,587 $7,924
====== ====== ======
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
<S> <C> <C> <C>
Current liabilities:
Short-term debt (including current maturities on
long-term debt).................................. $ 437 $ 236 $ 530
Payables--
Trade........................................... 603 651 599
Affiliated companies............................ -- -- 23
Taxes accrued..................................... 72 91 74
Accrued liabilities............................... 282 308 242
Other............................................. 293 335 242
------ ------ ------
1,687 1,621 1,710
------ ------ ------
Long-term debt...................................... 2,663 2,067 1,573
------ ------ ------
Deferred income taxes............................... 519 476 451
------ ------ ------
Postretirement benefits............................. 211 168 161
------ ------ ------
Deferred credits and other liabilities.............. 326 305 159
------ ------ ------
Commitments and contingencies
Minority interest................................... 313 304 301
------ ------ ------
Shareowners' equity:
Common stock...................................... 2 2 957
Stock Employee Compensation Trust (common stock
held in trust)................................... -- -- (58)
Premium on common stock and other capital surplus. 2,659 2,642 3,605
Cumulative translation adjustments................ (91) 23 4
Retained earnings (accumulated deficit)........... 56 (21) 26
------ ------ ------
2,626 2,646 4,534
Less--Shares held as treasury stock, at cost...... 88 -- 965
------ ------ ------
2,538 2,646 3,569
------ ------ ------
$8,257 $7,587 $7,924
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
4
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------
1997 1996
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
COMMON STOCK
Balance January 1.................... 171,567,658 $ 2 191,351,615 $ 957
Issued pursuant to benefit plans.... 534,867 -- 3,986 --
----------- ------ ----------- ------
Balance June 30...................... 172,102,525 2 191,355,601 957
=========== ------ =========== ------
STOCK EMPLOYEE COMPENSATION TRUST
(SECT)
Balance January 1.................... -- (215)
Shares issued....................... -- 161
Adjustment to market value.......... -- (4)
------ ------
Balance June 30...................... -- (58)
------ ------
PREMIUM ON COMMON STOCK AND OTHER
CAPITAL SURPLUS
Balance January 1.................... 2,642 3,602
Premium on common stock issued
pursuant to benefit plans.......... 17 --
Dividends on shares held by SECT.... -- 3
Adjustment of SECT to market value.. -- 4
Other............................... -- (4)
------ ------
Balance June 30...................... 2,659 3,605
------ ------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance January 1.................... 23 26
Translation of foreign currency
statements......................... (127) (21)
Hedges of net investment in foreign
subsidiaries (net of income
taxes)............................. 13 (1)
------ ------
Balance June 30...................... (91) 4
------ ------
RETAINED EARNINGS (ACCUMULATED
DEFICIT)
Balance January 1.................... (21) (469)
Net income.......................... 180 656
Dividends--
Preferred stock................... -- (3)
Common stock...................... (103) (156)
Accretion of excess of redemption
value of preferred stock over fair
value at date of issue............. -- (2)
------ ------
Balance June 30...................... 56 26
------ ------
LESS--COMMON STOCK HELD AS TREASURY
STOCK, AT COST
Balance January 1.................... -- -- 16,422,619 753
Shares acquired..................... 2,288,200 90 4,184,368 217
Shares issued pursuant to benefit
and dividend reinvestment plans.... (65,020) (2) (117,107) (5)
----------- ------ ----------- ------
Balance June 30...................... 2,223,180 88 20,489,880 965
=========== ------ =========== ------
Total............................... $2,538 $3,569
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of changes in shareowners' equity.
5
<PAGE>
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, and the 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.
The Company was spun-off from the company previously known as Tenneco Inc.
("Old Tenneco") on December 11, 1996, following a series of transactions
undertaken to realign the assets, liabilities and operations of Old Tenneco
such that the automotive parts ("Tenneco Automotive"), packaging ("Tenneco
Packaging") and the administrative services ("Tenneco Business Services")
businesses were owned by the Company and the shipbuilding business was owned
by Newport News Shipbuilding Inc. ("Newport News"). Old Tenneco distributed
the shares of the Company and Newport News to its shareowners on December 11,
1996. On December 12, 1996, Old Tenneco, which then consisted primarily of the
energy business and certain previously discontinued operations of Old Tenneco,
merged with a subsidiary of El Paso Natural Gas Company.
Although the separation of Tenneco from Old Tenneco was structured as a
spin-off for legal, tax and other reasons, Tenneco kept certain important
aspects of Old Tenneco, including its executive management, Board of Directors
and headquarters. Most importantly, the combined assets, revenues, and
operating income of Tenneco Automotive and Tenneco Packaging represented more
than half the assets, revenues and operating income of Old Tenneco prior to
the spin-offs and merger. Consequently, Tenneco's financial statements for
periods prior to the spin-offs and merger present the net assets and results
of operations of Old Tenneco's shipbuilding and energy businesses, as well as
its farm and construction equipment business which was disposed of prior to
the spin-offs and merger, as discontinued operations.
Prior year's financial statements have been reclassified where appropriate
to conform to 1997 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 condition or results of
operations.
6
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(4) In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("FAS") No. 128, Earnings Per
Share, which establishes new standards for computing and presenting earnings
per share. The provisions of the statement are effective for fiscal years
ending after December 15, 1997. If the provisions of FAS No. 128 had been
adopted in the second quarter of 1997 and 1996, basic and diluted earnings per
share would not have been materially different from primary and fully diluted
earnings per share, respectively, as calculated in accordance with Accounting
Principles Board Opinion No. 15.
(5) Tenneco uses derivative financial instruments, principally foreign
currency forward purchase and sale contracts with terms of less than one year,
to hedge its exposure to changes in foreign currency exchange rates. Tenneco's
primary exposure to changes in foreign currency rates results from
intercompany loans made between Tenneco affiliates to minimize the need for
borrowings from third parties. Net gains or losses on these foreign currency
exchange contracts which are designated as hedges are recognized in the income
statement to offset the foreign currency gain or loss on the underlying
transaction. Additionally, Tenneco enters into foreign currency forward
purchase and sale contracts to mitigate its exposure to changes in exchange
rates on intercompany and third party trade receivables and payables. Since
these anticipated transactions are not firm commitments, Tenneco marks these
forward contracts to market each period and records any gain or loss in the
income statement. Tenneco has from time to time also entered into forward
contracts to hedge its net investment in foreign subsidiaries. The after-tax
net gains or losses on these contracts are recognized on the accrual basis in
the balance sheet caption "Cumulative translation adjustments". In the
statement of cash flows, cash receipts or payments related to these exchange
contracts are classified consistent with the cash flows from the transaction
being hedged.
Tenneco does not currently enter into derivative financial instruments for
speculative purposes.
The above notes are an integral part of the foregoing financial statements.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1997
Tenneco Inc. and its consolidated subsidiaries ("Tenneco") reported income
from continuing operations of $104 million, or 61 cents per share, for the
second quarter of 1997 compared to $118 million, or 70 cents per share, for
the same period in 1996. The 1996 results include a $50 million gain ($30
million after-tax or 18 cents per share) on the sale of certain recycled
paperboard assets to a joint venture with Caraustar Industries. The 18 percent
improvement in income from continuing operations excluding this 1996 gain
resulted from record performance at both Tenneco Automotive and Tenneco
Packaging's specialty packaging business as well as a lower effective tax rate
in 1997.
Tenneco was spun-off from the company previously known as Tenneco Inc. ("Old
Tenneco") on December 11, 1996, following a series of transactions undertaken
to realign the assets, liabilities and operations of Old Tenneco such that the
automotive parts ("Tenneco Automotive"), packaging ("Tenneco Packaging") and
the administrative services ("Tenneco Business Services") businesses were
owned by Tenneco and the shipbuilding business was owned by Newport News
Shipbuilding Inc. ("Newport News"). Old Tenneco distributed the shares of
Tenneco and Newport News to its shareowners on December 11, 1996. On December
12, 1996, Old Tenneco, which then consisted primarily of the energy business
("Energy") and certain previously discontinued operations of Old Tenneco,
merged with a subsidiary of El Paso Natural Gas Company.
Although the separation of Tenneco from Old Tenneco was structured as a
spin-off for legal, tax and other reasons, Tenneco kept certain important
aspects of Old Tenneco, including its executive management, Board of Directors
and headquarters. Most importantly, the combined assets, revenues, and
operating income of Tenneco Automotive and Tenneco Packaging represented more
than half the assets, revenues and operating income of Old Tenneco prior to
the spin-offs and merger. Consequently, this management's discussion and
analysis and Tenneco's financial statements for periods prior to the spin-offs
and merger present the net assets and results of operations of Old Tenneco's
shipbuilding and energy businesses, as well as its farm and construction
equipment business which was disposed of prior to the spin-offs and merger, as
discontinued operations.
Revenues
<TABLE>
<CAPTION>
SECOND
QUARTER
-------------
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Automotive......................................... $ 873 $ 780
Tenneco Packaging.......................................... 1,019 916
Intergroup sales and other................................. -- (2)
------ ------
$1,892 $1,694
====== ======
</TABLE>
Tenneco Automotive earned record revenues in the second quarter, its
fifteenth consecutive quarter of quarter-over-quarter improvement. The revenue
increase of 12 percent resulted primarily from acquisitions made since the
second quarter of 1996, which contributed $88 million in revenues for the
quarter. Increased volumes and new business contributed $29 million in revenue
growth in the quarter while the U.S. dollar equivalent of revenues earned
overseas decreased by $30 million due to the strength of the dollar in foreign
markets.
Tenneco Packaging's 11 percent growth in quarterly revenue compared to the
second quarter of 1996 resulted from a $172 million increase in specialty
packaging business revenues, partially offset by a decline in paperboard
packaging business revenues of $69 million. Specialty packaging's increase
resulted primarily from $154 million in revenues from acquisitions made since
the second quarter of 1996 as well as unit sales growth in
8
<PAGE>
consumer products. Hefty OneZip(R) bag sales increased by more than 50% over
the same period last year, Hefty(R) trash bags recorded strong unit volume and
market share gains, and sales of clear plastic and foam containers to
supermarkets and the foodservice industry were up 11 percent over the year-ago
period.
The paperboard packaging business revenue decline was due to lower prices in
the 1997 second quarter compared to the same period in the prior year.
Industry linerboard prices were 17 percent lower and medium prices were 26
percent lower than the second quarter of 1996, and were 5 percent and 6
percent, respectively, lower than the first quarter of 1997. Tenneco Packaging
implemented a June price increase of $40 per ton for medium and announced an
additional $40 per ton increase for August 1, which is expected to hold.
Income Before Interest Expense, Income Taxes and Minority Interest ("Operating
Income")
<TABLE>
<CAPTION>
SECOND
QUARTER
------------
1997 1996
----- -----
(MILLIONS)
<S> <C> <C>
Tenneco Automotive.......................................... $ 131 $ 104
Tenneco Packaging........................................... 82 150
Other....................................................... (1) (1)
----- -----
$212 $ 253
===== =====
</TABLE>
Tenneco Automotive set a record for quarterly operating income. Of the $27
million increase in operating income, $19 million came from acquisitions made
since the second quarter of 1996. Cost reductions and lower selling expenses
contributed $15 million to second quarter 1997 results. A change in the mix of
products from the higher margin aftermarket to the original equipment market
offset the positive effects of the volume improvements discussed above. The
strong U.S. dollar reduced operating income by $5 million for the quarter,
while the impact of the labor strikes at GM and Chrysler accounted for the
balance of the change in operating income.
Tenneco Packaging's specialty packaging business reported operating income
of $88 million an improvement of $23 million over the second quarter of 1996.
This improvement was largely driven by businesses acquired since the second
quarter of 1996. The positive impact of the increase in volumes discussed
under Revenues above was offset by resin cost increases, which are expected to
be recovered later this year, and weak stretch film margins.
Excluding the 1996 gain discussed above, the paperboard packaging business
reported a $41 million decline in operating income in the second quarter of
1997 compared to 1996. This was primarily the result of the pricing declines
discussed above, somewhat offset by containerboard mill cost reductions and
productivity improvements. Significantly, despite the price declines
experienced in the second quarter of 1997 compared to the first quarter, the
paperboard packaging operating loss was $6 million in both periods, before the
one-time portion of a mill lease refinancing gain in the first quarter of
1997, discussed below.
Interest Expense
Interest expense was $53 million in the second quarter of both 1997 and
1996. Tenneco realized a benefit from lower long-term borrowing rates as a
result of the December 1996 realignment of Tenneco's debt obligations
undertaken in connection with the spin-off and merger transactions. Offsetting
this benefit was a higher level of debt outstanding during the first half of
1997, primarily reflecting acquisitions made since the second quarter of 1996.
Income Taxes
Tenneco's effective tax rate for the second quarter of 1997 was 31 percent
compared to 39 percent in 1996. The lower tax rate resulted primarily from
non-recurring foreign tax benefits recognized in the second quarter of 1997.
9
<PAGE>
RESULTS OF CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997
Tenneco earned income from continuing operations of $180 million, or $1.05
per share, for the first six months of 1997 compared to $178 million, or $1.04
per share, for the same period in 1996.
Revenues
<TABLE>
<CAPTION>
SIX MONTHS
--------------
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Automotive........................................ $1,651 $1,463
Tenneco Packaging......................................... 1,871 1,775
Intergroup sales and other................................ (1) (5)
------ ------
$3,521 $3,233
====== ======
</TABLE>
Tenneco Automotive's year to date revenue improvement of 13 percent is due
to the same reasons as the second quarter improvement. Revenues from recent
acquisitions added $176 million in the first half of 1997. Volume growth and
new business contributed $60 million in additional revenue for the first half
of 1997. The strong dollar reduced first half revenues by $58 million compared
to the same period in 1996.
Tenneco Packaging's revenue growth of 5 percent is attributable to the
specialty packaging business where revenues increased by $258 million to
$1,130 million. Of the increase, $220 million resulted from revenues from
acquisitions made since the first half of 1996 and the remainder was primarily
due to unit sales growth as discussed under second quarter results above.
The paperboard packaging business experienced a decline in revenues for the
first half of 1997 of $162 million. The decline was primarily attributable to
lower pricing for linerboard and medium, as discussed in the second quarter
analysis above.
Operating Income
<TABLE>
<CAPTION>
SIX MONTHS
--------------
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Automotive....................................... $ 211 $ 163
Tenneco Packaging........................................ 162 256
Other.................................................... (2) (5)
------ ------
$ 371 $ 414
====== ======
</TABLE>
Tenneco Automotive's 29 percent improvement in operating income resulted
primarily from recent acquisitions, which contributed $28 million, and cost
reductions of $28 million. For the year to date, the effect of the strong U.S.
dollar reduced operating income by less than $8 million.
Tenneco Packaging's specialty packaging business contributed a $28 million
increase in operating income, primarily due to recent acquisitions, offset
somewhat by the weak stretch film margins and resin cost increases discussed
under second quarter results above.
The paperboard packaging business results for the first half of 1996
included the $50 million gain discussed under second quarter results above.
The first half of 1997 included $38 million related to the one-time portion of
a mill lease refinancing gain. Excluding these two items, the paperboard
packaging business experienced a
10
<PAGE>
decline in operating income of $110 million in the first half of 1997. Like
the second quarter, this decline was largely due to lower prices for
linerboard and medium in 1997.
Interest Expense
Interest expense decreased by $2 million for the first half of 1997 compared
to 1996, due to the lower long-term borrowing rates which resulted from the
December 1996 debt realignment, offset by higher debt levels due to
acquisitions.
Income Taxes
The effective tax rate for the first half of 1997 was 30 percent compared to
40 percent in the same period of 1996, reflecting non-recurring foreign tax
benefits recognized in 1997.
RESULTS OF DISCONTINUED OPERATIONS
The 1996 after-tax income from discontinued operations resulted from
Tenneco's disposition of its remaining interest in its former farm and
construction equipment subsidiary, Case Corporation, in March 1996, and the
operations of the energy and shipbuilding businesses prior to the spin-off and
merger transactions in December 1996.
<TABLE>
<CAPTION>
SECOND SIX
QUARTER MONTHS
1996 1996
------- ------
(MILLIONS)
<S> <C> <C>
Case Corporation
Gain on disposition...................................... $ -- $ 340
Loss from operations..................................... -- (1)
Shipbuilding
Income from operations................................... 18 37
Energy
Income from operations................................... 25 102
----- -----
$43 $ 478
===== =====
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
<CAPTION>
SIX MONTHS
--------------
1997 1996
------- ------
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities-continuing operations.............. $ 14 $ 136
Investing activities.................................... (536) 505
Financing activities.................................... 542 (413)
</TABLE>
Cash flow from continuing operations declined by $122 million for the first
six months of 1997 compared to the first six months of 1996. Income before
non-cash items was higher; however, the positive cash effect was more than
offset by changes in the components of working capital in operating cash flow.
These changes result from higher levels of activity, particularly in
receivables and inventory, in 1997, the liquidation of certain payables
incurred in connection with the December 1996 spin-off and merger transactions
and lower levels of 1997 capital expenditures, which contributed to a decrease
in payables.
Tenneco's discontinued operations used $351 million in cash for the first
six months of 1996.
Cash flow used for investing activities for the first half of 1997 included
$275 million of cash paid for the acquisition of the protective and flexible
packaging businesses of NV Koninklijke KNP BT. The total purchase
11
<PAGE>
price of the KNP acquisition was approximately $380 million, which included
debt assumed in the acquisition and preferred stock of a subsidiary issued to
the seller. The acquisition closed in April 1997. Tenneco also used $202
million during the first six months of 1997 for capital expenditures in its
continuing operations, compared to $274 million during the same period in 1996.
Capital expenditures in the first half of 1996 for discontinued operations
totaled $190 million. Also during the first half of 1996, Tenneco received
$1,051 million in proceeds from sales of business operations that have been
discontinued, primarily the remaining Case investment and Tenneco's 50 percent
investment in a pipeline partnership.
In the first half of 1997, Tenneco refinanced a portion of its short-term
debt by issuing $100 million of 10 year 7 1/2 % notes, $200 million of 30 year
7 7/8% debentures and $300 million of 20 year 7 5/8% debentures. The net
proceeds to Tenneco of these debt offerings were $593 million. Tenneco also
paid $102 million in dividends in the first half of 1997 and purchased $90
million of its common stock as part of the previously announced share
repurchase program. During the first half of 1996, Tenneco retired $302 million
in long-term debt, paid $158 million in dividends and repurchased $122 million
of its common stock. The net increase in short-term debt in the first half of
1996 was $141 million.
Capitalization
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(MILLIONS)
<S> <C> <C>
Short-term debt..................................... $ 437 $ 236
Long-term debt...................................... 2,663 2,067
Minority interest................................... 313 304
Shareowners' equity................................. 2,538 2,646
------ ------
$5,951 $5,253
====== ======
</TABLE>
Tenneco's debt to capitalization ratio at June 30, 1997 was 52.1 percent
compared to 43.8 percent at December 31, 1996. The increase in the ratio is
attributable to the additional debt issued as described under Cash Flow above
as well as a decline in equity resulting from net income for the first six
months being more than offset by dividends, share repurchases and cumulative
translation adjustments resulting from the strong US dollar.
Tenneco believes it has adequate capital resources available to it to meet
its future capital needs, including strategic acquisitions and announced share
repurchases.
12
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on May 13,
1997. The following matters were voted upon at the meeting and the votes cast
for, against, or withheld, as well as the number of abstentions and broker
non-votes, as to each such matter is also listed:
(a) Election of Directors for a term to expire at the year 2000 Annual
Meeting of Stockholders:
<TABLE>
<CAPTION>
FOR WITHHELD
----------- ---------
<S> <C> <C>
Mark Andrews......................................... 146,831,571 1,340,458
W. Michael Blumenthal................................ 146,782,990 1,389,039
Belton K. Johnson.................................... 146,904,211 1,267,818
William L. Weiss..................................... 146,922,680 1,249,349
</TABLE>
(b) To approve the appointment of Arthur Andersen LLP as independent public
accountants for Tenneco Inc. for the year 1997:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED BROKER NON-VOTE
--- ------- --------- ---------------
<S> <C> <C> <C>
147,272,833 474,335 424,861 -0-
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11--Computation of Earnings Per Share of Common Stock
12--Computation of Ratio of Earnings to Fixed Charges
27--Financial Data Schedule
(b) Reports on Form 8-K.
On April 25, 1997, the Company filed a Current Report on Form 8-K relating
to its sale of $100,000,000 aggregate principal amount of its 7 1/2% Notes due
April 15, 2007 and $200,000,000 aggregate principal amount of its 7 7/8%
Debentures due April 15, 2027 under the Company's existing shelf Registration
Statement on Form S-3 (File No. 333-24291).
On April 29, 1997, the Company filed a Current Report on Form 8-K with
respect to a press release issued on April 29, 1997 announcing the Company's
earnings for the quarter ended March 31, 1997 and other matters.
On June 13, 1997, the Company filed a Current Report on Form 8-K relating to
its sale of $300,000,000 aggregate principal amount of its 7 5/8% Debentures
due June 15, 2017 under the Company's existing shelf Registration Statement on
Form S-3 (File No. 333-24291).
13
<PAGE>
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: August 14, 1997
14
<PAGE>
[LOGO OF TENNECO APPEARS HERE]
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
11 Computation of Earnings Per Share of Common Stock
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE SIX MONTHS ENDED
30, JUNE 30,
----------------------- -----------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
COMPUTATION FOR STATEMENTS OF
INCOME
Earnings Per Share (average
shares outstanding):
Income from continuing
operations................ $ 104 $ 118 $ 180 $ 178
Income from discontinued
operations, net of income
tax....................... -- 43 -- 478
----------- ----------- ----------- -----------
Net income................. 104 161 180 656
Preferred stock dividends.. -- 2 -- 5
----------- ----------- ----------- -----------
Net income to common stock. $ 104 $ 159 $ 180 $ 651
=========== =========== =========== ===========
Average shares of common
stock outstanding(a)...... 169,907,499 170,264,386 170,673,360 170,351,740
=========== =========== =========== ===========
Earnings per average share
of common stock:
Continuing operations.... $ .61 $ .70 $ 1.05 $ 1.04
Discontinued operations.. -- .23 -- 2.78
----------- ----------- ----------- -----------
$ .61 $ .93 $ 1.05 $ 3.82
=========== =========== =========== ===========
ADDITIONAL COMPUTATIONS(B)
Net income to common stock,
per above................... $ 104 $ 159 $ 180 $ 651
=========== =========== =========== ===========
Primary Earnings Per Share
(including common stock
equivalents):
Average shares of common
stock outstanding(a)...... 169,907,499 170,264,386 170,673,360 170,351,740
Incremental common shares
applicable to common stock
options based on the
common stock daily average
market price during the
period.................... 306,630 642,997 234,122 589,005
Incremental common shares
applicable to performance
units based upon the
attainment of specified
goals..................... 83,686 88,125 83,686 88,125
----------- ----------- ----------- -----------
Average common shares, as
adjusted.................. 170,297,815 170,995,508 170,991,168 171,028,870
=========== =========== =========== ===========
Earnings per average share
of common stock (including
common stock equivalents):
Continuing operations.... $ .61 $ .70 $ 1.05 $ 1.04
Discontinued operations.. -- .23 -- 2.77
----------- ----------- ----------- -----------
$ .61 $ .93 $ 1.05 $ 3.81
=========== =========== =========== ===========
Fully Diluted Earnings Per
Share:
Average shares of common
stock outstanding(a)...... 169,907,499 170,264,386 170,673,360 170,351,740
Incremental common shares
applicable to common stock
options based on the more
dilutive of the common
stock ending or average
market price during the
period.................... 550,256 642,997 550,256 708,884
Incremental common shares
applicable to performance
units based upon the
attainment of specified
goals..................... 83,686 88,125 83,686 88,125
----------- ----------- ----------- -----------
Average common shares
assuming full dilution.... 170,541,441 170,995,508 171,307,302 171,148,749
=========== =========== =========== ===========
Fully diluted earnings per
average share, assuming
conversion of all
applicable securities:
Continuing operations.... $ .61 $ .70 $ 1.05 $ 1.04
Discontinued operations.. -- .23 -- 2.76
----------- ----------- ----------- -----------
$ .61 $ .93 $ 1.05 $ 3.80
=========== =========== =========== ===========
</TABLE>
- -------
NOTES:
(a) In 1992, 12,000,000 shares of common stock were issued to the Tenneco Inc.
Stock Employee Compensation Trust ("SECT"). Shares of common stock issued
to a related trust are not considered to be outstanding in the computation
of average shares of common stock until the shares are utilized to fund
the obligations for which the trust was established. For the three months
and six months ended June 30, 1996, the SECT utilized 2,517,180 and
3,234,436 shares, respectively. At December 31, 1996, all shares had been
utilized.
(b) These calculations are submitted in accordance with Securities and
Exchange Commission requirements although not required by Accounting
Principles Board Opinion No. 15 because they result in dilution of less
than 3%.
<PAGE>
EXHIBIT 12
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
------------
1997 1996
----- -----
<S> <C> <C>
Income from continuing operations................................. $ 180 $ 178
Add:
Interest........................................................ 98 100
Portion of rentals representative of interest factor............ 26 29
Preferred stock dividend requirements of majority-owned
subsidiaries................................................... 10 10
Income tax expense and other taxes on income.................... 82 126
Amortization of interest capitalized............................ 1 1
Undistributed (earnings) losses of affiliated companies in which
less than a 50% voting interest is owned....................... (1) --
----- -----
Earnings as defined........................................... $ 396 $ 444
===== =====
Interest.......................................................... $ 98 $ 100
Interest capitalized.............................................. 1 4
Portion of rentals representative of interest factor.............. 26 29
Preferred stock dividend requirements of majority-owned
subsidiaries on a pre-tax basis.................................. 16 16
----- -----
Fixed charges as defined...................................... $ 141 $ 149
===== =====
Ratio of earnings to fixed charges................................ 2.81 2.98
===== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TENNECO
INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 81
<SECURITIES> 0
<RECEIVABLES> 808
<ALLOWANCES> 0
<INVENTORY> 936
<CURRENT-ASSETS> 2,147
<PP&E> 5,029
<DEPRECIATION> 1,747
<TOTAL-ASSETS> 8,257
<CURRENT-LIABILITIES> 1,687
<BONDS> 2,663
0
0
<COMMON> 2
<OTHER-SE> 2,536
<TOTAL-LIABILITY-AND-EQUITY> 8,257
<SALES> 3,521
<TOTAL-REVENUES> 3,521
<CGS> 2,563
<TOTAL-COSTS> 2,563
<OTHER-EXPENSES> 628
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 273
<INCOME-TAX> 82
<INCOME-CONTINUING> 180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
