<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(mark one)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12387
----------------
TENNECO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0515284
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1275 KING STREET, GREENWICH, CT 06831
(ADDRESS OF PRINCIPAL EXECUTIVE (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: 170,240,037 SHARES AS OF MARCH 31,
1997.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<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............................................... 12
Item 2. Changes in Securities........................................... *
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. *
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 12
</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 March 31, 1997,
represents Tenneco Inc.'s first 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 industries ("Tenneco Packaging") and an administrative services unit
("Tenneco Business Services"). Management's Discussion and Analysis which
follows the financial statements and footnotes, contains a description of the
transaction 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 improvements in operating income and cash flow projected to result
from the refinancing of two containerboard mill leases. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Operating Income". 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 the impact of interest
rates on leasing costs.
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; and (ix) changes by the Financial Accounting Standards
Board or the Securities and Exchange Commission of 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
MARCH 31,
-----------------------------
1997 1996
----------- -----------
(MILLIONS EXCEPT SHARE
AMOUNTS)
<S> <C> <C> <C>
REVENUES
Net sales and operating revenues--
Automotive................................... $ 778 $ 683
Packaging.................................... 852 859
Intergroup sales and other................... (1) (3)
----------- -----------
1,629 1,539
Other income, net.............................. 40 14
----------- -----------
1,669 1,553
----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation shown
below)........................................ 1,191 1,111
Engineering, research and development.......... 16 21
Selling, general and administrative............ 211 190
Depreciation, depletion and amortization....... 92 70
----------- -----------
1,510 1,392
----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND
MINORITY INTEREST............................... 159 161
Interest expense (net of interest capitalized). 45 47
Income tax expense............................. 33 49
Minority interest.............................. 5 5
----------- -----------
INCOME FROM CONTINUING OPERATIONS................ 76 60
Income from discontinued operations, net of
income tax...................................... -- 435
----------- -----------
NET INCOME....................................... 76 495
Preferred stock dividends........................ -- 3
----------- -----------
NET INCOME TO COMMON STOCK....................... $ 76 $ 492
=========== ===========
PER SHARE
Average number of shares of common stock
outstanding..................................... 171,330,890 170,440,074
Earnings per average share of common stock--
Continuing operations.......................... $ .44 $ .34
Discontinued operations........................ -- 2.55
----------- -----------
$ .44 $ 2.89
=========== ===========
Cash dividends per share of common stock......... $ .30 $ .45
=========== ===========
</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>
THREE MONTHS
ENDED
MARCH 31,
------------------
1997 1996
----- ------
(MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations.......................... $ 76 $ 60
Adjustments to reconcile income from continuing operations
to cash provided (used) by continuing operations--
Depreciation, depletion and amortization................. 92 70
Deferred income taxes.................................... 54 18
Loss on sale of businesses and assets, net............... 6 --
Changes in components of working capital--
(Increase) decrease in receivables..................... (12) (107)
(Increase) decrease in inventories..................... (44) (38)
(Increase) decrease in prepayments and other current
assets................................................ (29) (12)
Increase (decrease) in payables........................ (59) (75)
Increase (decrease) in taxes accrued................... (15) 27
Increase (decrease) in interest accrued................ 33 --
Increase (decrease) in other current liabilities....... (106) (44)
Other.................................................... (19) (11)
----- ------
Cash provided (used) by continuing operations.............. (23) (112)
Cash provided (used) by discontinued operations............ -- (676)
----- ------
Net cash provided (used) by operating activities........... (23) (788)
----- ------
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations................................................ -- 1,024
Net proceeds from sale of businesses and assets............ -- 2
Expenditures for plant, property and equipment--
Continuing operations.................................... (81) (136)
Discontinued operations.................................. -- (57)
Acquisitions of businesses................................. (1) (14)
Investments and other...................................... 17 (14)
----- ------
Net cash provided (used) by investing activities........... (65) 805
----- ------
FINANCING ACTIVITIES
Issuance of common, treasury and SECT shares............... 10 18
Purchase of common stock................................... (51) (61)
Redemption of preferred stock.............................. -- (20)
Issuance of long-term debt................................. 2 --
Retirement of long-term debt............................... (3) (2)
Net increase (decrease) in short-term debt excluding
current maturities on long-term debt...................... 237 13
Dividends (common and preferred)........................... (52) (81)
----- ------
Net cash provided (used) by financing activities........... 143 (133)
----- ------
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ (1) (1)
----- ------
Increase (decrease) in cash and temporary cash investments. 54 (117)
Cash and temporary cash investments, January 1............. 62 354
----- ------
Cash and temporary cash investments, March 31 (Note)....... $ 116 $ 237
===== ======
Cash paid during the period for interest................... $ 13 $ 96
Cash paid during the period for income taxes (net of
refunds).................................................. $ 11 $ 425
</TABLE>
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Note: Cash and temporary cash investments include highly liquid investments
with a maturity of three months or less at the date of purchase.
The accompanying notes to financial statements are an integral part of these
statements of cash flows.
3
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
--------- ------------ ---------
ASSETS 1997 1996 1996
------ --------- ------------ ---------
(MILLIONS)
<S> <C> <C> <C>
Current assets:
Cash and temporary cash investments............. $ 116 $ 62 $ 237
Receivables--
Customer notes and accounts, net.............. 678 561 470
Affiliated companies.......................... 1 -- 94
Income taxes.................................. -- -- 39
Other......................................... 18 138 63
Inventories--
Finished goods................................ 444 408 435
Work in process............................... 106 118 101
Raw materials................................. 249 245 256
Materials and supplies........................ 111 107 88
Deferred income taxes........................... 100 95 28
Prepayments and other........................... 202 189 188
------ ------ ------
2,025 1,923 1,999
------ ------ ------
Other assets:
Long-term notes receivable...................... 17 20 15
Goodwill and intangibles, net................... 1,365 1,341 957
Deferred income taxes........................... 51 60 61
Pension assets.................................. 618 547 444
Other........................................... 366 444 281
------ ------ ------
2,417 2,412 1,758
------ ------ ------
Plant, property and equipment, at cost............ 4,870 4,870 4,259
Less--Reserves for depreciation, depletion and
amortization................................... 1,690 1,618 1,531
------ ------ ------
3,180 3,252 2,728
------ ------ ------
Net assets of discontinued operations............. -- -- 1,455
------ ------ ------
$7,622 $7,587 $7,940
====== ====== ======
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
<S> <C> <C> <C>
Current liabilities:
Short-term debt (including current maturities on
long-term debt)................................ $ 472 $ 236 $ 574
Payables--
Trade......................................... 625 651 559
Affiliated companies.......................... -- -- 8
Taxes accrued................................... 78 91 71
Accrued liabilities............................. 262 308 279
Other........................................... 284 335 189
------ ------ ------
1,721 1,621 1,680
------ ------ ------
Long-term debt.................................... 2,045 2,067 1,680
------ ------ ------
Deferred income taxes............................. 520 476 421
------ ------ ------
Postretirement benefits........................... 171 168 161
------ ------ ------
Deferred credits and other liabilities............ 306 305 165
------ ------ ------
Commitments and contingencies
Minority interest................................. 304 304 301
------ ------ ------
Shareowners' equity:
Common stock.................................... 2 2 957
Stock Employee Compensation Trust (common stock
held in trust)................................. -- -- (205)
Premium on common stock and other capital
surplus........................................ 2,652 2,642 3,618
Cumulative translation adjustments.............. (35) 23 18
Retained earnings (accumulated deficit)......... 3 (21) (55)
------ ------ ------
2,622 2,646 4,333
Less--Shares held as treasury stock, at cost.... 67 -- 801
------ ------ ------
2,555 2,646 3,532
------ ------ ------
$7,622 $7,587 $7,940
====== ====== ======
</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>
THREE MONTHS ENDED MARCH 31,
---------------------------------------
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..... 365,679 -- 3,317 --
----------- ------ ----------- ------
Balance March 31...................... 171,933,337 2 191,354,932 957
=========== ------ =========== ------
STOCK EMPLOYEE COMPENSATION TRUST
(SECT)
Balance January 1..................... -- (215)
Shares issued........................ -- 34
Adjustment to market value........... -- (24)
------ ------
Balance March 31...................... -- (205)
------ ------
PREMIUM ON COMMON STOCK AND OTHER
CAPITAL SURPLUS
Balance January 1..................... 2,642 3,602
Premium on common stock issued
pursuant to benefit plans........... 10 --
Dividends on shares held by SECT..... -- 2
Adjustment of SECT to market value... -- 24
Other................................ -- (10)
------ ------
Balance March 31...................... 2,652 3,618
------ ------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance January 1..................... 23 26
Translation of foreign currency
statements.......................... (70) (12)
Hedges of net investment in foreign
subsidiaries (net of income taxes).. 12 4
------ ------
Balance March 31...................... (35) 18
------ ------
RETAINED EARNINGS (ACCUMULATED
DEFICIT)
Balance January 1..................... (21) (469)
Net income........................... 76 495
Dividends--
Preferred stock.................... -- (2)
Common stock....................... (52) (78)
Accretion of excess of redemption
value of preferred stock over fair
value at date of issue.............. -- (1)
------ ------
Balance March 31...................... 3 (55)
------ ------
LESS--COMMON STOCK HELD AS TREASURY
STOCK, AT COST
Balance January 1..................... -- -- 16,422,619 753
Shares acquired...................... 1,693,300 67 996,500 51
Shares issued pursuant to benefit
and dividend reinvestment plans..... -- -- (60,674) (3)
----------- ------ ----------- ------
Balance March 31...................... 1,693,300 67 17,358,445 801
=========== ------ =========== ------
Total................................ $2,555 $3,532
====== ======
</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 necessary to
present fairly the financial position as of March 31, 1997, 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. In the opinion
of the Company's management, the unaudited interim consolidated financial
statements contain all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation. 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 since date of
acquisition and cumulative translation adjustments.
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 ("Tenneco Automotive"), packaging ("Tenneco Packaging") and
administrative services businesses ("Tenneco Business Services") 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
("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, 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 clean up costs and the timing, varying costs, and effectiveness of
alternative clean up technologies. However, Tenneco believes that any
additional costs which may arise as more information becomes available will
not have a material adverse effect on its financial 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 first 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.
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 OPERATIONS
The quarter ended March 31, 1997, is the first full quarter of Tenneco Inc.
and Consolidated Subsidiaries' ("Tenneco") operation as a global manufacturing
company focused on its automotive and packaging businesses. Income from
continuing operations was $76 million, or 44 cents per share, for the first
quarter of 1997 compared to $60 million, or 34 cents per share, in the first
quarter of 1996. The improvement resulted from higher income before interest,
taxes and minority interest ("operating income") at Tenneco Automotive, lower
interest expense and lower income taxes partially offset by lower operating
income at Tenneco Packaging, which in the first quarter of 1997 included a
gain from the refinancing of two containerboard mill leases. Each of these
changes is discussed in more detail below.
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
Tenneco Automotive, Tenneco Packaging and the administrative services business
("Tenneco Business Services") were owned by Tenneco 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 ("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 spinoffs and merger, as
discontinued operations.
REVENUES
<TABLE>
<CAPTION>
FIRST QUARTER
--------------
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Automotive........................................ $ 778 $ 683
Tenneco Packaging......................................... 852 859
Intergroup sales and other................................ (1) (3)
------ ------
$1,629 $1,539
====== ======
</TABLE>
Tenneco Automotive's revenues represent a first quarter record and the
fourteenth consecutive quarter of quarter-over-quarter improvement. The ride
control business experienced a 22% increase in revenues, including $80 million
in revenues from acquisitions made since the first quarter of 1996. A portion
of ride control's revenue increase was offset, however, by the negative
effects of the U.S. dollar's strength during the quarter, reducing the U.S.
dollar equivalent of revenues earned overseas by $13 million. The positive
impact of a first quarter aftermarket price increase was largely offset by
lower volumes that resulted from increased purchases by customers in late 1996
prior to the price increase. Order patterns rebounded to normal levels in mid-
March.
Revenues for the exhaust business increased 8%, due to volume growth which
contributed $33 million in additional revenues, as well as $8 million in new
revenues from recent acquisitions. Similar to ride control, exhaust's revenues
stated in U.S. dollars were reduced by approximately $15 million due to the
dollar's strength against foreign currencies.
8
<PAGE>
For Tenneco Packaging, revenues from specialty packaging rose by $85 million
over the prior year's first quarter, primarily due to acquisitions made since
the first quarter of 1996, which added $66 million in revenues. Tenneco
Packaging's plastics business also contributed $22 million to the growth in
specialty packaging revenues due to volume growth in consumer markets,
including higher volumes for Tenneco Packaging's Hefty OneZip(R) storage bag.
Lower revenues in other portions of the specialty packaging business,
including molded fibre, partially offset the foam products and plastics
growth.
Offsetting the revenue growth in the specialty packaging business was a
decline in revenues in Tenneco Packaging's paperboard packaging business of
$92 million. Weaker containerboard prices accounted for much of the decline,
with industry linerboard price declines of 27% and medium prices down 38%
compared with the same period last year. Linerboard prices were the lowest
since 1993, the last cyclical trough, while medium prices were the lowest
since 1982.
OPERATING INCOME
<TABLE>
<CAPTION>
FIRST
QUARTER
------------
1997 1996
----- -----
(MILLIONS)
<S> <C> <C>
Tenneco Automotive.......................................... $ 80 $ 59
Tenneco Packaging........................................... 80 106
Other....................................................... (1) (4)
----- -----
$ 159 $ 161
===== =====
</TABLE>
Tenneco Automotive set a first quarter record for operating income, with the
$21 million increase almost evenly split between the ride control and exhaust
businesses. In ride control, the operating income growth resulted from $10
million in operating income earned from new acquisitions including Clevite, a
$5 million reduction in selling and operating expenses and improved pricing
resulting from the first quarter aftermarket price increase and continued
strong sales of Tenneco Automotive's premium Sensa-Trac(R) product. Volume
decreases primarily as a result of increased purchases by customers in late
1996 prior to the first quarter price increase offset a portion of the
operating income growth for ride control.
In the exhaust business, an $8 million reduction in selling and operating
expenses and strong volume growth, particularly in the original equipment
market, pushed operating income higher.
While the strong dollar reduced the U.S. dollar equivalent of revenues
earned overseas, because much of Tenneco Automotive's costs to build its
products are incurred in the same currencies as the revenues are earned, the
impact of the strong U.S. dollar on operating income for the quarter was less
than $3 million for ride control and exhaust combined.
Tenneco Packaging's specialty business earned $48 million in the first
quarter of 1997, a $5 million improvement over the prior year. The recently
acquired foam products business earned $10 million in operating income in the
first quarter while improved margins in specialty packaging's international
operations contributed $2 million in operating income growth. Partially
offsetting these increases were lower margins caused by higher resin prices
and pricing pressures in stretch film.
Operating income for the paperboard packaging business was $32 million for
the quarter, down from $63 million in the prior year first quarter. The 1997
results include a one-time $38 million pre-tax gain which resulted from the
refinancing of two containerboard mill leases. The decline in operating income
is due primarily to the pricing declines for linerboard and medium previously
discussed.
The lease refinancing transaction, in addition to the first quarter one-time
gain, will provide Tenneco Packaging's leased containerboard mills with other
ongoing benefits. Reduced lease expenses are projected to
9
<PAGE>
improve operating income, based on Tenneco's estimated financing costs, by
approximately $15 million annually, while cash flow improvement is expected to
be more than $120 million over the first two years of the lease and to total
approximately $250 million over a five year period due to lower lease costs
and other benefits.
Following the end of the first quarter, in April 1997, Tenneco Packaging
completed the acquisition of the flexible and protective packaging operations
of KNP BT for approximately $380 million, including debt assumed and preferred
stock of a subsidiary issued to the seller.
INTEREST EXPENSE
Interest expense declined by $2 million in the first quarter of 1997
compared to 1996. The decline was due to lower long term borrowing rates which
resulted from the December 1996 realignment of Tenneco's debt obligations
undertaken in connection with the spin-off and merger transactions. Offsetting
the impact of lower rates was a higher level of debt outstanding primarily
reflecting acquisitions made since the first quarter of 1996.
INCOME TAXES
Tenneco's effective tax rate was approximately 29% for the first quarter of
1997 compared to 43% in the first quarter of 1996. The lower tax rate resulted
from non-recurring foreign tax benefits recognized in the first quarter of
1997.
DISCONTINUED OPERATIONS
The $435 million in after tax income from discontinued operations in the
first quarter of 1996 resulted from the disposition of Tenneco's remaining
interest in its former farm and construction equipment subsidiary, Case
Corporation, and the operations of the energy and shipbuilding businesses
prior to the spin-off and merger transactions.
<TABLE>
<CAPTION>
FIRST QUARTER 1996
------------------
(MILLIONS)
<S> <C>
Case Corporation
Gain on disposition................................... $340
Loss from operations.................................. (1)
Newport News
Income from operations................................ 19
Energy
Income from operations................................ 77
----
$435
====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
<TABLE>
<CAPTION>
FIRST
QUARTER
-----------
1997 1996
---- -----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities-continuing operations................ $(23) $(112)
Investing activities...................................... (65) 805
Financing activities...................................... 143 (133)
</TABLE>
Cash flow from operating activities of Tenneco's continuing operations
improved by $89 million compared to the prior year first quarter. This
increase was primarily due to higher income before non-cash charges.
10
<PAGE>
Tenneco's discontinued operations also used $676 million in cash during the
first quarter of 1996.
Investing cash flow was principally used for capital expenditures in 1997.
Cash from investing activities in 1996 included proceeds of $1,024 million
from the sale of operations that have been discontinued, including Tenneco's
remaining Case Corporation shares and a business owned by Energy. Capital
expenditures for discontinued operations were $57 million in 1996 while
capital expenditures for continuing operations were $136 million.
Cash provided by financing activities in 1997 resulted from $237 million in
short-term borrowings, partially offset by $51 million used to repurchase
common shares and $52 million in dividends paid to common shareowners. In the
first quarter of 1996, Tenneco spent $61 million to repurchase common stock
and paid dividends of $81 million to common and preferred shareowners.
CAPITALIZATION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 472 $ 236
Long-term debt..................................... 2,045 2,067
Minority interest.................................. 304 304
Shareowners' equity................................ 2,555 2,646
------ ------
$5,376 $5,253
====== ======
</TABLE>
The increase in debt during the first quarter represents the use of cash for
the quarter as described above under Cash Flow.
Equity declined as net income for the quarter was more than offset by
dividends, share repurchases and cumulative translation adjustments resulting
from the strong U.S. dollar.
As a result of the above changes, Tenneco's debt to capitalization ratio
increased from 43.8% at December 31, 1996 to 46.8% at March 31, 1997.
During April 1997, Tenneco refinanced a portion of its short-term debt by
issuing $100 million of 10 year 7 1/2% notes and $200 million of 30 year 7
7/8% debentures.
Tenneco believes it has adequate capital resources available to it to meet
its future capital needs, including strategic acquisitions and announced stock
repurchases.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Pursuant to federal and state audit policies, Tenneco Packaging Inc.
("Tenneco Packaging") recently disclosed facts it had discovered concerning
the possible New Source Performance Standard ("NSPS") status of Boiler #2 at
its Filer City, Michigan Mill to the United States Environmental Protection
Agency and the Michigan Department of Environmental Quality ("MDEQ"). Certain
information concerning a 1987 modification to the boiler was discovered by
Tenneco Packaging during an internal audit undertaken as part of the
preparation of the Mill's draft Title V air permit application. On February
14, 1997, the MDEQ issued a letter of violation based on its determination
that the 1987 modification had subjected the boiler to NSPS standards. On
March 3, 1997, Tenneco Packaging representatives met with MDEQ officials and
agreed to draft a proposed consent order to address the past alleged
violation. On April 2, 1997, the MDEQ requested that Tenneco perform a
compliance test of the boiler's nitrogen oxides emission rates within sixty
days. The Mill is presently completing the arrangements for this test. The
MDEQ likely will seek a penalty based in substantial part on whether the
boiler passes the compliance test. Tenneco believes that the outcome of the
NSPS status of Boiler #2 at its Filer City, Michigan Mill will not have a
material adverse effect its the financial condition or results of operations.
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 February 24, 1997 the Company filed a Current Report on Form 8-K/A
relating to the Current Report on Form 8-K filed December 26, 1996. The Form
8-K/A set forth certain pro-forma financial information omitted from the
initial filing in reliance on Item 7 thereof and included, as an exhibit,
Amendment No. 1 to Distribution Agreement dated as of December 11, 1996 by and
among the Company, El Paso Tennessee Pipeline Co. (formerly known as Tenneco
Inc.) and Newport News Shipbuilding Inc.
On March 28, 1997 the Company filed a Current Report on Form 8-K with
respect to a press release issued on March 24, 1997 announcing that the
Company signed a definitive agreement to purchase the protective and flexible
packaging division of NV Koninklijke KNP BT.
12
<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: May 15, 1997
13
<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 MARCH 31,
-----------------------------
1997 1996
-------------- --------------
(MILLIONS EXCEPT SHARE
AMOUNTS)
<S> <C> <C> <C>
COMPUTATION FOR STATEMENTS OF INCOME
Primary Earnings Per Share (average shares
outstanding):
Income from continuing operations........ $ 76 $ 60
Income from discontinued operations, net
of income tax........................... -- 435
-------------- --------------
Net income............................... 76 495
Preferred stock dividends................ -- 3
-------------- --------------
Net income to common stock............... $ 76 $ 492
============== ==============
Average shares of common stock
outstanding(a).......................... 171,330,890 170,440,074
============== ==============
Earnings per average share of common
stock:
Continuing operations.................. $ .44 $ .34
Discontinued operations................ -- 2.55
-------------- --------------
$ .44 $ 2.89
============== ==============
ADDITIONAL COMPUTATIONS(B)
Net income to common stock, per above...... $ 76 $ 492
============== ==============
Primary Earnings Per Share (including
common stock equivalents):
Average shares of common stock
outstanding(a).......................... 171,330,890 170,440,074
Incremental common shares applicable to
common stock options based on the common
stock daily average market price during
the period.............................. -- 535,013
Incremental common shares applicable to
performance units based upon the
attainment of specified goals........... 88,869 88,125
-------------- --------------
Average common shares, as adjusted....... 171,419,759 171,063,212
============== ==============
Earnings per average share of common
stock (including common stock
equivalents):
Continuing operations.................. $ .44 $ .34
Discontinued operations................ -- 2.54
-------------- --------------
$ .44 $ 2.88
============== ==============
Fully Diluted Earnings Per Share:
Average shares of common stock
outstanding(a).......................... 171,330,890 170,440,074
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.. -- 774,770
Incremental common shares applicable to
performance units based upon the
attainment of specified goals........... 88,869 88,125
-------------- --------------
Average common shares assuming full
dilution................................ 171,419,759 171,302,969
============== ==============
Fully diluted earnings per average share,
assuming conversion of all applicable
securities:
Continuing operations.................. $ .44 $ .34
Discontinued operations................ -- 2.53
-------------- --------------
$ .44 $ 2.87
============== ==============
</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 period ended
March 31, 1996, the SECT utilized 717,256 shares. 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>
THREE MONTHS
ENDED
MARCH 31,
--------------
1997 1996
------ ------
<S> <C> <C>
Income from continuing operations............................... $ 76 $ 60
Add:
Interest...................................................... 45 47
Portion of rentals representative of interest factor.......... 13 14
Preferred stock dividend requirements of majority-owned
subsidiaries................................................. 5 6
Income tax expense and other taxes on income.................. 33 49
Amortization of interest capitalized.......................... 1 --
Undistributed (earnings) losses of affiliated companies in
which less than a 50% voting interest is owned............... (1) --
------ ------
Earnings as defined......................................... $ 172 $ 176
====== ======
Interest........................................................ $ 45 $ 47
Interest capitalized............................................ 1 3
Portion of rentals representative of interest factor............ 13 14
Preferred stock dividend requirements of majority-owned
subsidiaries on a pre-tax basis................................ 7 9
------ ------
Fixed charges as defined.................................... $ 66 $ 73
====== ======
Ratio of earnings to fixed charges.............................. 2.61 2.41
====== ======
</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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 116
<SECURITIES> 0
<RECEIVABLES> 678
<ALLOWANCES> 0
<INVENTORY> 910
<CURRENT-ASSETS> 2,025
<PP&E> 4,870
<DEPRECIATION> 1,690
<TOTAL-ASSETS> 7,622
<CURRENT-LIABILITIES> 1,721
<BONDS> 2,045
0
0
<COMMON> 2
<OTHER-SE> 2,553
<TOTAL-LIABILITY-AND-EQUITY> 7,622
<SALES> 1,629
<TOTAL-REVENUES> 1,629
<CGS> 1,207
<TOTAL-COSTS> 1,207
<OTHER-EXPENSES> 303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> 114
<INCOME-TAX> 33
<INCOME-CONTINUING> 76
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
