<PAGE> 1
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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 JUNE 30, 1999
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)
<TABLE>
<S> <C>
DELAWARE 76-0515284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1275 KING STREET, GREENWICH, CT 06831
(Address of principal executive
offices) (Zip Code)
</TABLE>
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: 170,409,064 shares as of June 30,
1999.
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<PAGE> 2
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 (Loss)....................... 2
Statements of Cash Flows.......................... 3
Balance Sheets.................................... 4
Statements of Changes in Shareowners' Equity...... 5
Statements of Comprehensive Income (Loss)......... 6
Notes to Financial Statements..................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................... *
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.............................. *
Item 2. Changes in Securities.......................... *
Item 3. Defaults Upon Senior Securities................ *
Item 4. Submission of Matters to a Vote of Security
Holders............................................... 25
Item 5. Other Information.............................. *
Item 6. Exhibits and Reports on Form 8-K............... 25
</TABLE>
- ------------
* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
CAUTIONARY STATEMENT AND "SAFE HARBOR" OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q contains forward-looking statements
regarding: (i) strategic alternatives, including the expected timing and
tax-free nature of the spin-off, the planned sale of the containerboard interest
in the joint venture and the packaging and automotive companies after the
spin-off; (ii) the restructuring plan; (iii) capital resources; and (iv) the
Year 2000 issue (relating to potential equipment and computer failures by or at
the change in the century). See "Strategic Alternatives Analysis,"
"Restructuring and Other Charges," "Liquidity and Capital
Resources -- Capitalization," and "Year 2000" under "Management's Discussion and
Analysis of Financial Condition and Results of Operations." These
forward-looking statements are based on the current expectations of Tenneco (as
defined below). Because forward-looking statements involve risks and
uncertainties, the plans, actions and actual results could differ materially.
Among the factors that could cause plans, actions and results to differ
materially from current expectations are: (i) the general economic, political
and competitive conditions in markets and countries where Tenneco operates,
including currency fluctuations and other risks associated with operating in
foreign countries and changes in distribution channels; (ii) governmental
actions, including the ability to receive regulatory approvals and the timing of
such approvals; (iii) changes in capital availability or costs; (iv) results of
analysis regarding strategic alternatives; (v) changes in consumer demand and
prices, including decreases in demand for Tenneco products and its customers'
products and the resulting negative impact on revenues and margins from such
products; (vi) the cost of compliance with changes in regulations, including
environmental regulations; (vii) workforce factors such as strikes or labor
interruptions; (viii) material substitutions or increases in the costs of raw
materials; (ix) Tenneco's ability to integrate operations of acquired businesses
quickly and in a cost-effective manner; (x) new technologies; (xi) the ability
of Tenneco and those with whom it conducts business to timely resolve the Year
2000 issue, unanticipated costs of, problems with or delays in resolving the
Year 2000 issue, and the costs and impacts if the Year 2000 issue is not timely
resolved; (xii) changes by the Financial Accounting Standards Board or other
accounting regulatory bodies of authoritative generally accepted accounting
principles or policies; and (xiii) the timing and occurrence (or non-occurrence)
of transactions and events which may be subject to circumstances beyond
Tenneco's control.
1
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues --
Automotive.................................. $ 868 $ 864 $ 1,657 $ 1,664
Specialty Packaging......................... 738 731 1,404 1,361
Other....................................... -- 7 -- 10
----------- ----------- ----------- -----------
1,606 1,602 3,061 3,035
Other income --
Gain (loss) on sale of businesses and
assets, net............................... (5) (5) (24) (11)
Other income, net........................... 7 9 13 26
----------- ----------- ----------- -----------
1,608 1,606 3,050 3,050
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation shown
below)......................................... 1,106 1,086 2,135 2,092
Engineering, research, and development........... 27 9 45 26
Selling, general, and administrative............. 197 202 409 392
Depreciation and amortization.................... 82 81 165 160
----------- ----------- ----------- -----------
1,412 1,378 2,754 2,670
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND
MINORITY INTEREST.................................. 196 228 296 380
Interest expense (net of interest capitalized)... 54 51 109 97
Income tax expense............................... 51 55 68 92
Minority interest................................ 8 8 14 16
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS.................... 83 114 105 175
Income (loss) from discontinued operations, net of
income tax......................................... 9 23 (163) 37
----------- ----------- ----------- -----------
Income (loss) before extraordinary loss.............. 92 137 (58) 212
Extraordinary loss, net of income tax................ -- -- (7) --
----------- ----------- ----------- -----------
Income (loss) before cumulative effect of change in
accounting principle............................... 92 137 (65) 212
Cumulative effect of change in accounting principle,
net of income tax.................................. -- -- (134) --
----------- ----------- ----------- -----------
NET INCOME (LOSS).................................... $ 92 $ 137 $ (199) $ 212
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE
Average shares of common stock outstanding --
Basic............................................ 167,119,483 169,174,444 166,937,362 169,341,555
Diluted.......................................... 167,501,881 169,869,703 167,319,412 169,936,676
Basic earnings (loss) per share of common stock --
Continuing operations............................ $ .50 $ .67 $ .63 $ 1.03
Discontinued operations.......................... .05 .14 (.98) .22
Extraordinary loss............................... -- -- (.04) --
Cumulative effect of change in accounting
principle...................................... -- -- (.80) --
----------- ----------- ----------- -----------
$ .55 $ .81 $ (1.19) $ 1.25
=========== =========== =========== ===========
Diluted earnings (loss) per share of common stock --
Continuing operations............................ $ .50 $ .67 $ .63 $ 1.03
Discontinued operations.......................... .05 .14 (.98) .22
Extraordinary loss............................... -- -- (.04) --
Cumulative effect of change in accounting
principle...................................... -- -- (.80) --
----------- ----------- ----------- -----------
$ .55 $ .81 $ (1.19) $ 1.25
=========== =========== =========== ===========
Cash dividends per share of common stock............. $ .30 $ .30 $ .60 $ .60
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of income (loss).
2
<PAGE> 4
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1999 1998
------- -----
(MILLIONS)
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations........................... $ 105 $ 175
Adjustments to reconcile income from continuing operations
to cash provided (used) by operating activities --
Depreciation and amortization.......................... 165 160
Deferred income taxes.................................. 83 77
(Gain) loss on sale of businesses and assets, net...... 24 11
Changes in components of working capital --
(Increase) decrease in receivables................ (215) (180)
(Increase) decrease in inventories................ (55) (27)
(Increase) decrease in prepayments and other
current assets................................... (10) (11)
Increase (decrease) in payables................... (19) (7)
Increase (decrease) in taxes accrued.............. (55) 3
Increase (decrease) in interest accrued........... 2 --
Increase (decrease) in other current
liabilities...................................... (40) (64)
Other.................................................. (104) (67)
------- -----
Cash provided (used) by continuing operations............... (119) 70
Cash provided (used) by discontinued operations............. (62) 108
------- -----
Net cash provided (used) by operating activities............ (181) 178
------- -----
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations................................................ 306 --
Net proceeds from sale of assets............................ 36 17
Expenditures for plant, property, and equipment............. (145) (181)
Acquisition of businesses................................... (37) (58)
Expenditures for plant, property, and
equipment -- discontinued operations...................... (1,129) (51)
Investments and other....................................... 4 (41)
------- -----
Net cash provided (used) by investing activities............ (965) (314)
------- -----
FINANCING ACTIVITIES
Issuance of common and treasury shares...................... 20 27
Purchase of common stock.................................... (4) (82)
Issuance of long-term debt.................................. 1,761 3
Retirement of long-term debt................................ (29) (15)
Net increase (decrease) in short-term debt excluding current
maturities on
long-term debt............................................ (478) 294
Dividends (common).......................................... (100) (102)
------- -----
Net cash provided (used) by financing activities............ 1,170 125
------- -----
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ (2) --
------- -----
Increase (decrease) in cash and temporary cash
investments............................................... 22 (11)
Cash and temporary cash investments, January 1.............. 36 41
------- -----
Cash and temporary cash investments, June 30 (Note)......... $ 58 $ 30
======= =====
Cash paid during the period for interest.................... $ 126 $ 127
Cash paid during the period for income taxes (net of
refunds).................................................. $ 31 $ (5)
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common equity interest received related to the sale of
containerboard operations................................. $ 194 $ --
Principal amount of long-term debt assumed by buyers of
containerboard
operations................................................ $(1,760) $ --
</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> 5
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
--------- ------------ ---------
1999 1998 1998
--------- ------------ ---------
(MILLIONS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments..................... $ 58 $ 36 $ 30
Receivables --
Customer notes and accounts, net................... 912 766 875
Income taxes....................................... 7 18 22
Other.............................................. 44 64 48
Inventories --
Finished goods..................................... 499 467 464
Work in process.................................... 136 130 112
Raw materials...................................... 123 136 134
Materials and supplies............................. 89 93 87
Deferred income taxes................................... 87 46 73
Prepayments and other................................... 114 182 254
------ ------ ------
2,069 1,938 2,099
------ ------ ------
Other assets:
Long-term notes receivable, net......................... 42 45 46
Goodwill and intangibles, net........................... 1,538 1,551 1,534
Deferred income taxes................................... 42 37 54
Pension assets.......................................... 891 843 796
Other................................................... 202 344 313
------ ------ ------
2,715 2,820 2,743
------ ------ ------
Plant, property, and equipment, at cost..................... 3,928 4,001 3,797
Less -- Reserves for depreciation and amortization...... 1,384 1,351 1,239
------ ------ ------
2,544 2,650 2,558
------ ------ ------
Net assets of discontinued operations....................... 133 366 382
------ ------ ------
$7,461 $7,774 $7,782
====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on
long-term debt)....................................... $ 573 $ 900 $ 503
Trade payables.......................................... 608 592 581
Taxes accrued........................................... 92 45 67
Accrued liabilities..................................... 381 368 295
Other................................................... 151 142 208
------ ------ ------
1,805 2,047 1,654
------ ------ ------
Long-term debt.............................................. 2,326 1,983 2,235
------ ------ ------
Deferred income taxes....................................... 417 387 495
------ ------ ------
Postretirement benefits..................................... 280 302 235
------ ------ ------
Deferred credits and other liabilities...................... 86 130 182
------ ------ ------
Commitments and contingencies
Minority interest........................................... 425 421 422
------ ------ ------
Shareowners' equity:
Common stock............................................ 2 2 2
Premium on common stock and other capital surplus....... 2,718 2,710 2,699
Accumulated other comprehensive income (loss)........... (194) (91) (142)
Retained earnings (accumulated deficit)................. (157) 142 199
------ ------ ------
2,369 2,763 2,758
Less -- Shares held as treasury stock, at cost.......... 247 259 199
------ ------ ------
2,122 2,504 2,559
------ ------ ------
$7,461 $7,774 $7,782
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
4
<PAGE> 6
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
1999 1998
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
COMMON STOCK
Balance January 1.................................. 173,670,197 $ 2 172,569,889 $ 2
Issued pursuant to benefit plans.............. 334,816 -- 539,220 --
----------- ------ ----------- ------
Balance June 30.................................... 174,005,013 2 173,109,109 2
=========== ------ =========== ------
PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS
Balance January 1.................................. 2,710 2,679
Premium on common stock issued pursuant to
benefit plans............................... 8 20
------ ------
Balance June 30.................................... 2,718 2,699
------ ------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance January 1.................................. (91) (122)
Other comprehensive income (loss)............. (103) (20)
------ ------
Balance June 30.................................... (194) (142)
------ ------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance January 1.................................. 142 89
Net income (loss)............................. (199) 212
Dividends on common stock..................... (100) (102)
------ ------
Balance June 30.................................... (157) 199
------ ------
LESS -- COMMON STOCK HELD AS TREASURY STOCK, AT
COST
Balance January 1.................................. 6,757,678 259 2,928,189 120
Shares acquired............................... 121,867 4 2,202,423 88
Shares issued pursuant to benefit and dividend
reinvestment plans.......................... (417,961) (16) (219,711) (9)
----------- ------ ----------- ------
Balance June 30.................................... 6,461,584 247 4,910,901 199
=========== ------ =========== ------
Total......................................... $2,122 $2,559
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of changes in shareowners' equity.
5
<PAGE> 7
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME
------------- ------------- ------------- -------------
(MILLIONS)
<S> <C> <C> <C> <C>
NET INCOME (LOSS)........................ $ 92 $137
----- ----
ACCUMULATED OTHER COMPREHENSIVE INCOME
CUMULATIVE TRANSLATION ADJUSTMENT
Balance April 1........................ $(159) $(145)
Translation of foreign currency
statements........................ (26) (26) 3 3
----- -----
Balance June 30........................ (185) (142)
----- -----
ADDITIONAL MINIMUM PENSION LIABILITY
ADJUSTMENT
Balance April 1........................ (9) --
Additional minimum pension liability
adjustment........................ -- -- -- --
----- -----
Balance June 30........................ (9) --
----- -----
Balance June 30.......................... $(194) $(142)
===== =====
----- ----
Other comprehensive income (loss)........ (26) 3
----- ----
COMPREHENSIVE INCOME (LOSS).............. $ 66 $140
===== ====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
ACCUMULATED ACCUMULATED
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME
------------- ------------- ------------- -------------
(MILLIONS)
<S> <C> <C> <C> <C>
NET INCOME (LOSS)........................ $(199) $212
----- ----
ACCUMULATED OTHER COMPREHENSIVE INCOME
CUMULATIVE TRANSLATION ADJUSTMENT
Balance January 1...................... $ (82) $(122)
Translation of foreign currency
statements........................ (103) (103) (20) (20)
----- -----
Balance June 30........................ (185) (142)
----- -----
ADDITIONAL MINIMUM PENSION LIABILITY
ADJUSTMENT
Balance January 1...................... (9) --
Additional minimum pension liability
adjustment........................ -- -- -- --
----- -----
Balance June 30........................ (9) --
----- -----
Balance June 30.......................... $(194) $(142)
===== =====
----- ----
Other comprehensive income (loss)........ (103) (20)
----- ----
COMPREHENSIVE INCOME (LOSS).............. $(302) $192
===== ====
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements of comprehensive income (loss).
6
<PAGE> 8
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) In the opinion of Tenneco Inc. (the "Company"), the accompanying
unaudited financial statements of Tenneco Inc. and its consolidated subsidiaries
("Tenneco") contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position, results of operations, cash
flows, changes in shareowners' equity, and comprehensive income for the periods
indicated. The unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles. The consolidated
financial statements of Tenneco include all majority-owned subsidiaries of the
Company. Investments in 20% to 50% owned companies where the Company has the
ability to exert significant influence over operating and financial policies are
carried at cost plus equity in undistributed earnings and cumulative translation
adjustments since date of acquisition.
Prior year's financial statements have been reclassified where appropriate
to conform to 1999 presentations.
(2) In July 1998, Tenneco's Board of Directors authorized management to
develop a broad range of strategic alternatives which could result in the
separation of the automotive, paperboard packaging, and specialty packaging
businesses. As part of that strategic alternatives analysis, Tenneco has taken
the following actions:
- In January 1999, Tenneco reached an agreement to contribute the
containerboard assets of its paperboard packaging segment to a new joint
venture with an affiliate of Madison Dearborn Partners, Inc. The
contribution to the joint venture was completed in April 1999. Tenneco
received consideration of cash and debt assumption totaling approximately
$2 billion and a 45 percent common equity interest in the joint venture
(now 43 percent due to subsequent management equity issuances) valued at
approximately $200 million.
- In April 1999, Tenneco reached an agreement to sell the paperboard
packaging segment's other assets, its folding carton operation, to
Caraustar Industries. This transaction closed in June 1999.
- Also in April 1999, Tenneco announced that its Board of Directors had
approved the separation of its automotive and packaging businesses into
two separate, independent companies.
- In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in its containerboard joint venture.
Tenneco expects the sale to be completed before the spin-off discussed
below.
As a result of the decision to sell Tenneco's remaining interest in the
containerboard joint venture, Tenneco's paperboard packaging segment is
presented as a discontinued operation in the accompanying financial statements.
Reference is made to Note 3 for information related to discontinued operations.
The separation of Tenneco's automotive and packaging businesses will be
accomplished by the spin-off of the common stock of Tenneco Packaging to Tenneco
shareowners (the "Spin-off"). At the time of the Spin-off, Packaging will
include Tenneco's specialty packaging business, Tenneco's administrative
services operations and the remaining interest in the containerboard joint
venture if the sale has not been completed. Tenneco and Tenneco Packaging are,
however, currently analyzing the alternatives with respect to the administrative
services operations.
Before the Spin-off, Tenneco will realign substantially all of its existing
debt through some combination of tender offers, exchange offers, prepayments,
and other refinancings. This debt realignment will be financed by internally
generated cash, borrowings by Tenneco under a new credit facility, the issuance
by Tenneco of subordinated debt, and borrowings by Packaging under a new credit
facility.
Also before the Spin-off, Tenneco will restructure its existing businesses,
assets, and liabilities through a series of corporate restructuring
transactions. As Tenneco is currently organized, ownership of its subsidiaries
7
<PAGE> 9
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
is based on geographic location and tax considerations rather than on the
businesses in which the subsidiaries are involved. Therefore, Tenneco will need
to restructure its existing businesses so that the assets, liabilities, and
operations of its packaging business and administrative services operations will
be owned by Tenneco Packaging, and the assets, liabilities, and operations of
its automotive businesses will be owned by Tenneco.
The Spin-off is subject to conditions, including formal declaration of the
Spin-off by the Tenneco Board of Directors, a favorable determination that the
Spin-off will be tax-free for U.S. federal income tax purposes, and the
successful completion of the debt realignment and corporate restructuring
transactions. Tenneco has requested a favorable ruling from the Internal Revenue
Service on the tax-free nature of the Spin-off.
(3) In January 1999, Tenneco reached an agreement to contribute the
containerboard assets of its paperboard packaging segment to a new joint venture
with an affiliate of Madison Dearborn Partners, Inc. The contribution to the
joint venture was completed in April 1999. Tenneco received consideration of
cash and debt assumption totaling approximately $2 billion plus a 45 percent
common equity interest in the joint venture (now 43 percent due to subsequent
management equity issuances) valued at approximately $200 million. The
containerboard assets contributed to the joint venture represented substantially
all of the assets of Tenneco's paperboard packaging segment and included four
mills, 67 corrugated products plants, and an ownership or leasehold interest in
approximately 950,000 acres of timberland. Prior to the transaction, Tenneco
Packaging borrowed approximately $1.8 billion and used approximately $1.2
billion of those borrowings to acquire assets used by the containerboard
business under operating leases and timber cutting rights and to purchase
containerboard business accounts receivable that had previously been sold to a
third party. The remainder of the borrowings was remitted to Tenneco and used to
repay a portion of Tenneco's short-term debt. Tenneco Packaging then contributed
the containerboard business assets (subject to the new indebtedness and the
containerboard business liabilities) to the joint venture in exchange for $247
million in cash and the 45 percent interest in the joint venture. As a result of
the transaction, Tenneco recognized a pre-tax loss of $293 million, $178 million
after-tax or $1.07 per diluted common share, in the first quarter of 1999, based
on the amount by which the carrying amount of the containerboard assets exceeded
the fair value of those assets, less cost to sell. The estimate of fair value of
the containerboard assets was based on the fair value of the consideration
received by Tenneco from the joint venture.
In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in its containerboard joint venture. Tenneco
expects the sale to be completed before the Spin-off. As a result of the
decision to sell the remaining interest in the containerboard joint venture,
Tenneco's paperboard packaging segment is presented as a discontinued operation
in the accompanying financial statements.
In April 1999, Tenneco reached an agreement to sell the paperboard
packaging segment's other assets, its folding carton operation, to Caraustar
Industries. Tenneco received cash proceeds of $73 million from this transaction
which closed in June 1999. As a result of the sale transaction, Tenneco
recognized a pre-tax gain of $14 million, $9 million after-tax or $.05 per
diluted share and is included in discontinued operations in the second quarter
of 1999.
8
<PAGE> 10
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Revenues and income for the paperboard packaging discontinued operations
are shown in the following table:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS
JUNE 30, ENDED JUNE 30,
------------- --------------
1999 1998 1999 1998
----- ----- ------ -----
<S> <C> <C> <C> <C>
Net sales and operating revenues........................ $53 $394 $ 445 $770
=== ==== ===== ====
Income before income taxes and interest allocation...... $ 4 $ 32 $ 22 $ 66
Income tax (expense) benefit............................ (4) (12) (11) (26)
--- ---- ----- ----
Income before interest allocation....................... -- 20 11 40
Allocated interest expense, net of income tax........... -- (6) (5) (12)
--- ---- ----- ----
Income from discontinued operations before
disposition........................................... -- 14 6 28
Gain (loss) on disposition, net of income tax........... 9 9 (169) 9
--- ---- ----- ----
Income (loss) from discontinued operations.............. $ 9 $ 23 $(163) $ 37
=== ==== ===== ====
</TABLE>
(4) In the fourth quarter of 1998, Tenneco's Board of Directors approved an
extensive restructuring plan designed to reduce administrative and operational
overhead costs in every part of Tenneco's business. Tenneco recorded a pre-tax
charge to income from continuing operations of $86 million, $55 million
after-tax or $.33 per diluted common share. Of the pre-tax charge, for
operational restructuring plans, $36 million related to the consolidation of the
manufacturing and distribution operations of Automotive's North American
aftermarket business and $10 million was recorded in the Specialty Packaging
business. A staff and related cost reduction plan, which covers employees in
both the operating units and at corporate, is expected to cost $40 million.
The Automotive aftermarket restructuring involves closing two plant
locations and five distribution centers, with the elimination of 302 positions
at those locations. The Specialty Packaging restructuring plans involve the
elimination of production lines at two plants resulting in the elimination of
104 positions. Additionally, Specialty Packaging will exit four joint ventures.
The staff and related cost reduction plan involves the elimination of 638
administrative positions in Tenneco's two business units and its corporate
operations.
The fixed assets at the locations to be closed and for the production lines
to be eliminated, as well as the joint venture investments, were written down to
their estimated fair value. No significant cash proceeds are expected to be
received from the ultimate disposal of these assets.
As of June 30, 1999, approximately 902 employees have been terminated. To
address customer service issues, the closure of one Automotive aftermarket
distribution center has been delayed until the second quarter of 2000. All other
restructuring actions are being executed according to the initial plan and are
expected to be complete by the fourth quarter of 1999. During the six months
ended June 30, 1999, the Automotive aftermarket business closed one plant
location and four distribution centers.
In the first quarter of 1999, in connection with the sale of the
containerboard assets, Tenneco adopted a plan to realign its headquarters
functions. This plan involves the severance of approximately 40 employees, and
the closing of the Greenwich, Connecticut, headquarters facility. The charge was
recorded in Tenneco's "Other" segment in the amount of $29 million pre-tax, $17
million after-tax or $.10 per diluted common share. Assets were written down to
net realizable value. Tenneco collected approximately $30 million in the second
quarter of 1999 related to the sale of these assets.
9
<PAGE> 11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Amounts related to the restructuring plan are shown in the following table:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------
DECEMBER 31, 1998 CHARGED BALANCE AT
RESTRUCTURING RESTRUCTURING CASH TO ASSET JUNE 30,
CHARGE BALANCE CHARGE PAYMENTS ACCOUNTS 1999
----------------- ------------- -------- -------- ----------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Severance............................ $30 $16 $18 $-- $28
Asset impairments.................... -- 13 -- 13 --
Facility exit costs.................. 2 -- 1 -- 1
--- --- --- --- ---
$32 $29 $19 $13 $29
=== === === === ===
</TABLE>
(5) 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.
(6) Tenneco is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. Tenneco has
provided reserves for compliance with these laws and regulations where it is
probable that a liability exists and where Tenneco can make a reasonable
estimate of the liability. The estimated liabilities recorded are subject to
change as more information becomes available regarding the magnitude of possible
cleanup costs and the timing, varying costs, and effectiveness of alternative
cleanup technologies. However, Tenneco believes that any additional costs which
may arise as more information becomes available will not have a material adverse
effect on its financial position or results of operations.
(7) In the first quarter of 1999, Tenneco recorded an extraordinary loss
for extinguishment of debt of $7 million (net of a $3 million income tax
benefit), or $.04 per diluted common share. The loss related to early retirement
of debt in connection with the sale of the containerboard assets.
(8) In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes new
accounting and reporting standards requiring that all derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting treatment. This
statement cannot be applied retroactively and is effective for all fiscal years
beginning after June 15, 2000. Tenneco is currently evaluating the new standard
but has not yet determined the impact it will have on its financial position or
results of operations.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement is effective for fiscal years beginning after
December 15, 1998. The statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Prior to January 1, 1999,
Tenneco capitalized certain costs related to start-up activities, primarily
engineering costs for new automobile original equipment platforms. Tenneco
adopted SOP 98-5 on January 1, 1999, and recorded an after-tax charge for the
cumulative effect of this change in accounting principle of $102 million (net of
a $50 million tax benefit), or $.61 per diluted common share. The change in
accounting principle decreased income from
10
<PAGE> 12
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
continuing operations by $2 million (net of a $1 million tax benefit), or $.01
per diluted common share for the six months ended June 30, 1999. If the new
accounting method had been applied retroactively, income from continuing
operations for the six months ended June 30, 1998, would have been lower by $13
million (net of a $8 million tax benefit), or $.08 per diluted common share. The
change in accounting principle had no impact on the three months ended June 30,
1999. If the new accounting method had been applied retroactively, income from
continuing operations for the three months ended June 30, 1998, would have been
lower by $6 million (net of a $4 million tax benefit), or $.04 per diluted
common share.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes new
accounting and reporting standards for the costs of computer software developed
or obtained for internal use. This statement requires prospective application
for fiscal years beginning after December 15, 1998. Tenneco adopted SOP 98-1 on
January 1, 1999. The impact of this new standard did not have a significant
effect on Tenneco's financial position or results of operations.
Effective January 1, 1999, Tenneco changed its method of accounting for
customer acquisition costs from a deferral method to an expense-as-incurred
method. In connection with Tenneco's decision to separate its automotive and
specialty packaging businesses into independent public companies, Tenneco
determined that a change to an expense-as-incurred method of accounting for
automotive aftermarket customer acquisition costs was preferable in order to
permit improved comparability of stand-alone financial results with its
aftermarket industry competitors. Tenneco recorded an after-tax charge for the
cumulative effect of this change in accounting principle of $32 million (net of
a $22 million tax benefit), or $.19 per diluted common share. The change in
accounting principle increased income from continuing operations by $5 million
(net of $4 million in income tax expense), or $.03 per diluted common share for
the six months ended June 30, 1999. If the new accounting principle had been
applied retroactively, income from continuing operations for the six months
ended June 30, 1998, would have been lower by $2 million (net of a $1 million
tax benefit), or $.01 per diluted common share. For the three months ended June
30, 1999, the change in accounting principle increased income from continuing
operations by $2 million (net of $2 million in income tax expense), or $.01 per
diluted common share. If the new accounting principle had been applied
retroactively, income from continuing operations for the three months ended June
30, 1998, would have been higher by $2 million (net of $2 million in income tax
expense), or $.01 per diluted common share.
11
<PAGE> 13
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(9) Earnings from continuing operations per share of common stock
outstanding were computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ----------- -----------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Basic Earnings Per Share --
Income from continuing
operations........... $ 83 $ 114 $ 105 $ 175
=========== =========== =========== ===========
Average shares of
common stock
outstanding.......... 167,119,483 169,174,444 166,937,362 169,341,555
=========== =========== =========== ===========
Earnings from
continuing operations
per average share of
common stock......... $ .50 $ .67 $ .63 $ 1.03
=========== =========== =========== ===========
Diluted Earnings Per Share--
Income from continuing
operations........... $ 83 $ 114 $ 105 $ 175
=========== =========== =========== ===========
Average shares of
common stock
outstanding.......... 167,119,483 169,174,444 166,937,362 169,341,555
Effect of dilutive
securities:
Restricted
stock........... 64,370 52,224 64,831 39,512
Stock options..... -- 364,170 -- 296,498
Performance
shares.......... 318,028 278,865 317,219 259,111
----------- ----------- ----------- -----------
Average shares of
common stock
outstanding including
dilutive
securities........... 167,501,881 169,869,703 167,319,412 169,936,676
=========== =========== =========== ===========
Earnings from
continuing operations
per average share of
common stock......... $ .50 $ .67 $ .63 $ 1.03
=========== =========== =========== ===========
</TABLE>
(10) Tenneco is a global manufacturer with the following major operating
segments:
Automotive -- Manufacture and sale of exhaust and ride control systems
for both the original equipment and replacement markets.
Specialty Packaging -- Manufacture and sale of specialty and
protective packaging products for consumer, institutional, and industrial
markets.
Tenneco evaluates business segment operating performance based primarily on
income before interest expense, income taxes, and minority interest, exclusive
of restructuring charges and other unusual items. Individual operating segments
have not been aggregated within these reportable segments.
Products are transferred between segments on a basis intended to reflect as
nearly as possible the "market value" of the products.
12
<PAGE> 14
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The following table summarizes certain segment information of Tenneco's
businesses:
<TABLE>
<CAPTION>
SEGMENT
------------------------------- RECLASS
SPECIALTY &
AUTOMOTIVE PACKAGING OTHER ELIMS CONSOLIDATED
---------- --------- ------ ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED JUNE 30, 1999
Revenues from external customers............. $ 868 $ 738 $ -- $ -- $1,606
Income (loss) before interest, income taxes,
and minority interest...................... 99 107 (10) -- 196
FOR THE THREE MONTHS ENDED JUNE 30, 1998
Revenues from external customers............. $ 864 $ 731 $ 7 $ -- $1,602
Income (loss) before interest, income taxes,
and minority interest...................... 130 101 (3) -- 228
AT JUNE 30, 1999, AND FOR THE SIX MONTHS THEN
ENDED
Revenues from external customers............. $1,657 $1,404 $ -- $ -- $3,061
Income (loss) before interest, income taxes,
and minority interest...................... 156 190 (50) -- 296
Extraordinary loss........................... -- -- (7) -- (7)
Cumulative effect of change in accounting
principle.................................. (101) (17) (16) -- (134)
Total assets (Note).......................... 2,765 3,296 1,601 (201) 7,461
Net assets of discontinued operations........ -- -- 133 -- 133
AT JUNE 30, 1998, AND FOR THE SIX MONTHS THEN
ENDED
Revenues from external customers............. $1,664 $1,361 $ 10 $ -- $3,035
Income (loss) before interest, income taxes,
and minority interest...................... 219 175 (14) -- 380
Total assets (Note).......................... 2,796 3,373 1,740 (127) 7,782
Net assets of discontinued operations........ -- -- 382 -- 382
</TABLE>
- -------------------------
Note: The Other segment's total assets includes pension assets retained by
Tenneco related to certain employees of Tenneco's discontinued operations
as well as the net assets of discontinued operations.
The above notes are an integral part of the foregoing financial
statements.
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STRATEGIC ALTERNATIVES ANALYSIS
In July 1998, Tenneco's Board of Directors authorized management to develop
a broad range of strategic alternatives which could result in the separation of
the automotive, paperboard packaging, and specialty packaging businesses. As
part of that strategic alternatives analysis, Tenneco has taken the following
actions:
- In January 1999, Tenneco reached an agreement to contribute the
containerboard assets of its paperboard packaging segment to a new joint
venture with an affiliate of Madison Dearborn Partners, Inc. The
contribution of the containerboard assets to the joint venture was
completed in April 1999. Tenneco received consideration of cash and debt
assumption totaling approximately $2 billion and a 45 percent common
equity interest in the joint venture (now 43 percent due to subsequent
management equity issuances) valued at approximately $200 million.
- In April 1999, Tenneco reached an agreement to sell the paperboard
packaging segment's other assets, its folding carton operations, to
Caraustar Industries. This transaction closed in June 1999.
- Also in April 1999, Tenneco announced that its Board of Directors had
approved the separation of its automotive and specialty packaging
businesses into two separate, independent companies.
- In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in its containerboard joint venture.
Tenneco expects the sale to be completed before the spin-off of the new
packaging company discussed below.
The containerboard assets contributed to the joint venture represented
substantially all of the assets of the paperboard packaging segment and included
four mills, 67 corrugated products plants, and an ownership or controlling
interest in approximately 950,000 acres of timberland. Before the transaction,
Tenneco Packaging borrowed approximately $1.8 billion and used approximately
$1.2 billion to acquire assets used by the containerboard business under
operating leases and timber cutting rights and to purchase containerboard
business accounts receivable that had previously been sold to a third party. The
remainder of the borrowings was remitted to Tenneco and used to repay a portion
of short-term debt. Tenneco Packaging then contributed the containerboard
business assets (subject to the new indebtedness and the containerboard business
liabilities) to the joint venture in exchange for $247 million in cash and the
45 percent interest in the joint venture. As a result of the sale transaction,
Tenneco recognized a pre-tax loss of $293 million, $178 million after-tax or
$1.07 per diluted common share in the first quarter of 1999.
As a result of the decision to sell the remaining interest in the
containerboard joint venture, Tenneco's paperboard packaging segment is
presented as a discontinued operation in the accompanying financial statements.
Refer to Note 3 to the Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries contained elsewhere in this document for further information.
The separation of the automotive and packaging businesses will be
accomplished by the spin-off of the common stock of Tenneco Packaging to Tenneco
shareowners (the "Spin-off"). At the time of the Spin-off, the new Packaging
company will include Tenneco's specialty packaging business, Tenneco's
administrative services operations and the remaining interest in the
containerboard joint venture if the sale has not been completed. Tenneco and
Tenneco Packaging are, however, currently analyzing the alternatives with
respect to the administrative services operations.
Before the Spin-off, Tenneco will realign substantially all of its existing
debt through some combination of tender offers, exchange offers, prepayments,
and other refinancings. This debt realignment will be financed by internally
generated cash, borrowings by Tenneco under a new credit facility, the issuance
by Tenneco of subordinated debt, and borrowings by the new packaging company
under a new credit facility. Tenneco currently expects that, subject to
discussions with debt rating agencies, the debt of the new Packaging company
will be rated investment grade and the debt of the automotive company will be
rated non-investment grade.
Also before the Spin-off, Tenneco will restructure its existing businesses,
assets, and liabilities through a series of corporate restructuring
transactions. As Tenneco is currently organized, ownership of its subsidiaries
14
<PAGE> 16
is based on geographic location and tax considerations rather than on the
businesses in which the subsidiaries are involved. Therefore, Tenneco will need
to restructure its existing businesses so that the assets, liabilities, and
operations of its packaging business and administrative services operations will
be owned by Tenneco Packaging, and the assets, liabilities, and operations of
its automotive businesses will be owned by Tenneco.
The Spin-off is subject to conditions, including formal declaration of the
Spin-off by the Tenneco Board of Directors, a favorable determination that the
Spin-off will be tax-free for U.S. federal income tax purposes, and the
successful completion of the debt realignment and corporate restructuring
transactions. Tenneco has requested a favorable ruling from the Internal Revenue
Service on the tax-free nature of the Spin-off.
RESULTS OF CONTINUING OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999 AND 1998
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
SECOND QUARTER
----------------------------
1999 1998 % CHANGE
------ ------ --------
(MILLIONS)
<S> <C> <C> <C>
Automotive.......................................... $ 868 $ 864 --%
Specialty Packaging................................. 738 731 1
Intergroup sales and other.......................... -- 7 NM
------ ------
$1,606 $1,602 --%
====== ======
</TABLE>
Tenneco Automotive's global revenue was $868 million for the second quarter
of 1999, essentially flat with the $864 million recorded in the 1998 second
quarter.
Original equipment revenue increased 10 percent versus the prior year's
quarter. Increases were achieved in North America, Europe and Asia/Pacific of
$45 million, $6 million and $5 million, respectively as Tenneco Automotive
placed its products on 20 new vehicle launches worldwide. Revenue in South
America declined by $8 million primarily as a result of a currency devaluation
in Brazil and troubled economic conditions in Brazil and Argentina.
Worldwide aftermarket revenues declined by $44 million compared to the
previous year's second quarter. Revenue declined by $23 million in North America
as Tenneco Automotive discontinued some of its aftermarket sales programs and as
aftermarket replacement rates declined. In the European market, high customer
inventories and economic weakness in Russia and Eastern Europe contributed to
lower revenues of $16 million. The decline of $6 million in South America was
primarily attributable to the economic conditions in Brazil and Argentina and
the currency devaluation in Brazil noted above.
Specialty Packaging's revenue increased by 1 percent over last year's
second quarter. The second-half 1998 acquisitions of Sentinel and Champion
International's Belvidere, Illinois dual-ovenable paperboard tray manufacturing
facility generated $10 million of revenue in the current quarter. Excluding
these acquisitions, revenue was essentially flat as pricing declined in most
products to reflect lower raw material costs. The lower pricing was offset by
overall unit volume growth of 6 percent. The largest volume increases were in
North American protective packaging, Hefty OneZip(R) bags, food service
containers, disposable tableware, and industrial products.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING
INCOME)
RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1998, Tenneco's Board of Directors approved an
extensive restructuring plan designed to reduce administrative and operational
overhead costs in every part of Tenneco's business. Tenneco recorded a pre-tax
charge to income from continuing operations of $86 million, $55 million
after-tax or $.33 per diluted common share. Of the pre-tax charge, for
operational restructuring plans, $36 million related to the consolidation of the
manufacturing and distribution operations of Automotive's North American
aftermarket
15
<PAGE> 17
business and $10 million was recorded in the Specialty Packaging business. A
staff and related cost reduction plan, which covers employees in both the
operating units and at corporate, is expected to cost $40 million.
The Automotive aftermarket restructuring involves closing two plant
locations and five distribution centers, with the elimination of 302 positions
at those locations. The Specialty Packaging restructuring plans involve the
elimination of production lines at two plants resulting in the elimination of
104 positions. Additionally, Specialty Packaging will exit four joint ventures.
The staff and related cost reduction plan involves the elimination of 638
administrative positions in Tenneco's two business units and its corporate
operations.
The fixed assets at the locations to be closed and for the production lines
to be eliminated, as well as the joint venture investments, were written down to
their estimated fair value. No significant cash proceeds are expected to be
received from the ultimate disposal of these assets.
As of June 30, 1999, approximately 902 employees have been terminated. To
address customer service issues, the closure of one Automotive aftermarket
distribution center has been delayed until the second quarter of 2000. All other
restructuring actions are being executed according to the initial plan and are
expected to be complete by the fourth quarter of 1999. During the six months
ended June 30, 1999, the Automotive aftermarket business closed one plant
location and four distribution centers.
In the first quarter of 1999, in connection with the sale of the
containerboard assets, Tenneco adopted a plan to realign its headquarters
functions. This plan involves the severance of approximately 40 employees, and
the closing of the Greenwich, Connecticut, headquarters facility. The charge was
recorded in Tenneco's "Other" segment in the amount of $29 million pre-tax, $17
million after-tax or $.10 per diluted common share. Assets were written down to
net realizable value. Tenneco collected approximately $30 million in the second
quarter of 1999 related to the sale of these assets.
Amounts related to the restructuring plan are shown in the following table:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------
DECEMBER 31, 1998 CHARGED BALANCE AT
RESTRUCTURING RESTRUCTURING CASH TO ASSET JUNE 30,
CHARGE BALANCE CHARGE PAYMENTS ACCOUNTS 1999
----------------- ------------- -------- -------- ----------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Severance............................ $30 $16 $18 $-- $28
Asset impairments.................... -- 13 -- 13 --
Facility exit costs.................. 2 -- 1 -- 1
--- --- --- --- ---
$32 $29 $19 $13 $29
=== === === === ===
</TABLE>
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST
("OPERATING INCOME")
<TABLE>
<CAPTION>
SECOND QUARTER
------------------------
1999 1998 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
Automotive............................................. $ 99 $130 (24)%
Specialty Packaging.................................... 107 101 6
Other.................................................. (10) (3) NM
---- ----
$196 $228 (14)%
==== ====
</TABLE>
Automotive's operating income was $31 million lower for 1999's second
quarter than for the comparable period of 1998. The decline was primarily
attributable to soft North American and European aftermarkets and a higher level
of research and development investment in the European original equipment
business.
Aftermarket operating income declined by 42 percent compared to 1998's
second quarter. Unfavorable currency impacts reduced operating income by $5
million. The balance of the reduction in income was primarily attributable to
the lower level of revenue as discussed above.
16
<PAGE> 18
Specialty Packaging's operating income increased by $6 million versus the
same quarter in the prior year. The second-half 1998 acquisitions of Sentinel
and Champion International's Belvidere, Illinois dual-ovenable paperboard tray
manufacturing facility contributed $2 million. Also included in the current
year's quarter was $3 million of non-recurring Year 2000 remediation costs, and
$3 million of overhead costs that Specialty Packaging incurred related to the
separation of the Paperboard business. Adjusting for these two items, Specialty
Packaging's operating income improved by 12 percent for the quarter. This
improvement was primarily driven by lower manufacturing costs as strong unit
volumes were offset by a temporary lag in passing through rising raw material
costs during the quarter.
Tenneco's "Other" operating loss for both periods reflects unallocated
corporate overhead and costs at Tenneco's administrative services operations.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
For the quarter ended June 30, 1998, Tenneco allocated $10 million of
pre-tax interest expense to the discontinued paperboard operations. Adjusting
for this allocation, interest expense was $7 million lower in the second quarter
of 1999 than the comparable period in 1998. The lower interest expense is
primarily attributable to debt reduction from the proceeds of the sale of
Tenneco's containerboard interest early in the second quarter of 1999.
INCOME TAXES
Tenneco's effective tax rate for the second quarter of 1999 was 36 percent
compared to 31 percent in the second quarter last year. The 1998 second quarter
rate was lower as a result of certain non-recurring state tax benefits in that
quarter.
MINORITY INTEREST
Minority interest is primarily composed of dividends on the preferred stock
of a U.S. subsidiary.
DISCONTINUED OPERATIONS
In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in its containerboard joint venture. Tenneco
expects the sale to be completed before the Spin-off. As a result, Tenneco's
paperboard packaging operations have been reflected as discontinued operations.
Revenues and income for the paperboard packaging discontinued operations
are shown in the following table:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JUNE 30,
------------
1999 1998
---- ----
<S> <C> <C>
Net sales and operating revenues............................ $53 $394
=== ====
Income before income taxes and interest allocation.......... $ 4 $ 32
Income tax (expense) benefit................................ (4) (12)
--- ----
Income before interest allocation........................... -- 20
Allocated interest expense, net of income tax............... -- (6)
--- ----
Income from discontinued operations before disposition...... -- 14
Gain (loss) on disposition, net of income tax............... 9 9
--- ----
Income (loss) from discontinued operations.................. $ 9 $ 23
=== ====
</TABLE>
CHANGES IN ACCOUNTING PRINCIPLES
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement requires prospective
application for fiscal years beginning after
17
<PAGE> 19
December 15, 1998. Tenneco adopted SOP 98-1 on January 1, 1999. The impact of
this new standard did not have a significant effect on Tenneco's financial
position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement is effective for fiscal years beginning after
December 15, 1998. This statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Prior to January 1, 1999,
Tenneco capitalized certain costs related to start-up activities, primarily
engineering costs for new automobile original equipment platforms. Tenneco
adopted SOP 98-5 on January 1, 1999, and recorded an after-tax charge for the
cumulative effect of this change in accounting principle of $102 million (net of
a $50 million tax benefit), or $.61 per diluted common share. The change in
accounting principle decreased income from continuing operations by $2 million
(net of a $1 million tax benefit), or $.01 per diluted common share for the six
months ended June 30, 1999. If the new accounting method had been applied
retroactively, income from continuing operations for the six months ended June
30, 1998, would have been lower by $13 million (net of an $8 million tax
benefit), or $.08 per diluted common share. The change in accounting principle
had no impact on the three months ended June 30, 1999. If the new accounting
method had been applied retroactively, income from continuing operations for the
three months ended June 30, 1998, would have been lower by $6 million (net of a
$4 million tax benefit), or $.04 per diluted common share.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes new
accounting and reporting standards requiring that all derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting treatment. This
statement cannot be applied retroactively and is effective for all fiscal years
beginning after June 15, 2000. Tenneco is currently evaluating the new standard
but has not yet determined the impact it will have on its financial position or
results of operations.
Effective January 1, 1999, Tenneco changed its method of accounting for
customer acquisition costs from a deferral method to an expense-as-incurred
method. In connection with Tenneco's decision to separate its automotive and
specialty packaging businesses into independent public companies, Tenneco
determined that a change to an expense-as-incurred method of accounting for
automotive aftermarket customer acquisition costs was preferable in order to
permit improved comparability of stand-alone financial results with its
aftermarket industry competitors. Tenneco recorded an after-tax charge for the
cumulative effect of this change in accounting principles of $32 million (net of
a $22 million tax benefit), or $.19 per diluted common share. The change in
accounting principle increased income from continuing operations by $5 million
(net of $4 million in income tax expense), or $.03 per diluted common share for
the six months ended June 30, 1999. If the new accounting principle had been
applied retroactively, income from continuing operations for the six months
ended June 30, 1998, would have been lower by $2 million (net of a $1 million
tax benefit), or $.01 per diluted common share. For the three months ended June
30, 1999, the change in accounting principle increased income from continuing
operations by $2 million (net of $2 million in income tax expense), or $.01 per
diluted common share. If the new accounting principle had been applied
retroactively, income from continuing operations for the three months ended June
30, 1998, would have been higher by $2 million (net of $2 million in income tax
expense), or $.01 per diluted common share.
EARNINGS PER SHARE
Income from continuing operations was $.50 per diluted common share for the
second quarter of 1999, compared to $.67 per diluted common share for last
year's quarter. Discontinued operations generated income of $.05 per diluted
common share during this year's quarter compared to income of $.14 per diluted
common
18
<PAGE> 20
share for the prior year's quarter. Net income was $.55 per diluted common share
for the second quarter of 1999, compared to $.81 per diluted common share in
last year's quarter.
RESULTS OF CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 1998 % CHANGE
------ ------ --------
(MILLIONS)
<S> <C> <C> <C>
Automotive.......................................... $1,657 $1,664 --%
Specialty Packaging................................. 1,404 1,361 3
Intergroup sales and other.......................... -- 10 NM
------ ------
$3,061 $3,035 1%
====== ======
</TABLE>
Tenneco Automotive's global revenue was $1,657 million for the first half
of 1999, essentially flat with the $1,664 million recorded in the comparable
period of 1998.
Original equipment revenue increased 9 percent versus the first half of the
prior year. Increases were achieved in North America, Europe and Asia/Pacific of
$65 million, $31 million and $6 million, respectively as Tenneco Automotive
continued to place its products on many of the world's best selling vehicles,
including the top 10 selling light trucks and sport utility vehicles in North
America. Revenue in South America declined by $15 million primarily as a result
of troubled economic conditions in Brazil and Argentina and a currency
devaluation in Brazil.
Worldwide aftermarket revenues declined by $94 million compared to the
previous year's first half. Decreases of $57 million in North America and $26
million in Europe were primarily attributable to overall softness during the
quarter while North America was further impacted by a reduction in customer
incentive programs. The decline of $13 million in South America was primarily
attributable to the economic conditions in Brazil and Argentina and the currency
devaluation in Brazil noted above.
Specialty Packaging's revenue increased by 3 percent over the first half of
1998. The second-half 1998 acquisitions of Sentinel and Champion International's
Belvidere, Illinois dual-ovenable paperboard tray manufacturing facility
generated $21 million of the revenue increase. Lower prices due to lower raw
material costs were offset by overall unit volume growth of 8 percent. The
largest increases were in North American protective packaging, Hefty OneZip(R)
bags, foodservice containers, disposable tableware and industrial products.
OPERATING INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 1998 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
Automotive........................................... $156 $219 (29)%
Specialty Packaging.................................. 190 175 9
Other................................................ (50) (14) NM
---- ----
$296 $380 (22)%
==== ====
</TABLE>
Automotive's operating income was $63 million lower for 1999's first half
than for the comparable period of 1998. Original equipment operating income was
down 14 percent from 1998's first half. Higher costs related to a first quarter
1999 change in accounting for platform start-up costs from a capitalization to
an expense basis and unfavorable currency impacts lowered income by $4 million
and $6 million, respectively. The balance of the decline in original equipment
income was attributable to pricing actions and product mix.
Aftermarket operating income declined by 46 percent compared to 1998's
first half. Unfavorable currency impacts reduced income by $6 million. The
balance of the reduction in income was attributable to the lower level of
revenue as discussed above.
19
<PAGE> 21
Specialty Packaging's operating income increased by $15 million over the
comparable period of 1998. The second half acquisitions of Sentinel and Champion
International's Belvidere, Illinois dual-ovenable paperboard tray manufacturing
facility produced $4 million during the first half of 1999. First half operating
income also reflected $5 million of non-recurring Year 2000 and systems
implementation costs, and $3 million of overhead costs related to the separation
of the Paperboard business. Adjusting for these two items, Specialty Packaging's
operating income improved by 13 percent. This improvement was driven by lower
manufacturing costs and strong unit volumes partially offset by lags in passing
through rising raw material costs.
Tenneco's "Other" operating loss for both periods reflects unallocated
corporate overhead and costs at Tenneco's data center and administrative service
center operations. In addition, the first half of 1999 includes a $29 million
charge recorded in the first quarter to realign Tenneco's headquarters functions
as discussed above in the Restructuring and Other Charges section.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
For the six months ended June 30, 1998, Tenneco allocated $20 million in
interest expense to the discontinued paperboard operations. For the comparable
period in 1999, $8 million in interest expense was allocated to discontinued
operations. Including the allocations, interest expense was the same in the
first six months of 1998 and 1999. The second quarter 1999 interest savings
generated from the use of the proceeds from the sale of the containerboard
business was offset by borrowings made since June 30, 1998 to finance capital
expenditures, acquisitions, net share repurchases and other investments which
were in excess of cash provided by operations.
INCOME TAXES
Tenneco's effective tax rate for the first half of 1999 was 36 percent
compared to 33 percent in the first half of last year. The 1998 first half rate
was lower as a result of certain non-recurring state tax benefits.
MINORITY INTEREST
Minority interest is primarily composed of dividends on the preferred stock
of a U.S. subsidiary. The $2 million favorable variance versus last year's first
half, however, is primarily attributable to lower earnings in Tenneco
Automotive's joint venture.
DISCONTINUED OPERATIONS
In June 1999, Tenneco's Board of Directors approved a plan to sell
Packaging's remaining interest in its containerboard joint venture. Tenneco
expects the sale to be completed before the Spin-off. As a result, Tenneco's
paperboard packaging operations have been reflected as discontinued operations.
Revenues and income for the paperboard packaging discontinued operations
are shown in the following table:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
1999 1998
------ -----
<S> <C> <C>
Net sales and operating revenues............................ $ 445 $770
===== ====
Income before income taxes and interest allocation.......... $ 22 $ 66
Income tax (expense) benefit................................ (11) (26)
----- ----
Income before interest allocation........................... 11 40
Allocated interest expense, net of income tax............... (5) (12)
----- ----
Income from discontinued operations before disposition...... 6 28
Gain (loss) on disposition, net of income tax............... (169) 9
----- ----
Income (loss) from discontinued operations.................. $(163) $ 37
===== ====
</TABLE>
20
<PAGE> 22
EARNINGS PER SHARE
Income from continuing operations was $.63 per diluted common share for the
first half of 1999, compared to $1.03 per diluted common share in the same
period last year. Discontinued operations generated a loss of $.98 per diluted
common share during the first 6 months of 1999 compared to income of $.22 per
diluted common share for the prior year period. The current year period also
included a $.04 per diluted common share extraordinary loss on early retirement
of debt in connection with the sale of the containerboard assets, and $.80 per
diluted common share of charges related to the cumulative effect of changes in
accounting principles noted above. Net loss was $1.19 per diluted common share
for the first half of 1999, compared to net income of $1.25 per diluted common
share in the comparable period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
CAPITALIZATION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998 % CHANGE
-------- ------------ --------
(MILLIONS)
<S> <C> <C> <C>
Short-term debt and current maturities.......... $ 573 $ 900
Long-term debt.................................. 2,326 1,983
Debt allocated to discontinued operations....... -- 548
------ ------
Total debt...................................... 2,899 3,431 (15)%
Minority interest............................... 425 421 1
Common shareowners' equity...................... 2,122 2,504 (15)
------ ------
Total capitalization.................. $5,446 $6,356 (14)%
====== ======
</TABLE>
Tenneco's debt to capitalization ratio was 53.2 percent at June 30, 1999,
compared to 54.0 percent at December 31, 1998. The decrease in the ratio is
attributable to lower debt resulting from the use of the proceeds from the April
1999 containerboard transaction to reduce short-term debt. The effect on the
ratio of the debt reduction was, however, partially offset by an equity decline.
The equity decline resulted from the net loss for the first six months of 1999
of $199 million, common stock dividends of $100 million, and adverse changes in
the cumulative translation adjustment of $103 million. Tenneco issued $20
million in common stock during the six month period for employee benefit and
dividend reinvestment plans.
Following Tenneco's series of announcements regarding its strategic
alternatives, Standard and Poor's and Moody's debt rating agencies are
continuing to review the ratings on Tenneco's debt pending further information
about the debt profile of the new companies. In consideration of the rating
agency actions and the requirement to realign Tenneco's long-term debt to
accomplish the Spin-off, Tenneco continues to finance its requirements with
short-term debt. Tenneco believes that its existing committed credit facility is
adequate to meet its 1999 capital requirements, including scheduled long-term
debt retirements of $250 million. Additional credit facilities will be required
in order to accomplish the debt realignment. Tenneco believes it can obtain the
necessary credit arrangements to complete the debt realignment at commercially
reasonable rates.
21
<PAGE> 23
CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
---------------
1999 1998
------ -----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities...................................... $ (181) $ 178
Investing activities...................................... (965) (314)
Financing activities...................................... 1,170 125
</TABLE>
OPERATING ACTIVITIES
Cash flow provided by continuing operating activities declined by $189
million for the first six months of 1999 compared to the comparable 1998 period.
Tenneco invested $106 million more in working capital for the six months ended
June 30, 1999 compared to the 1998 period. This was attributable to increased
receivables, a seasonal build in inventories, and higher tax payments during the
1999 period. A lower level of income before non-cash charges for depreciation
and deferred income taxes and gains on asset sales accounted for the majority of
the remaining change.
Cash provided by Tenneco's discontinued paperboard operations declined by
$170 million in the first six months of 1999 compared to the 1998 period. This
is primarily attributable to the purchase of containerboard business accounts
receivable in contemplation of the sale of the containerboard business in April.
Additionally, lower linerboard and medium prices resulted in lower operating
cash flow for the containerboard business.
INVESTING ACTIVITIES
Excluding the effects of the discontinued paperboard operations, cash used
by investing activities was lower during the first six months of 1999 by $121
million compared to the first six months of 1998. Reduced capital spending,
lower systems related expenditures and lower acquisition activity contributed to
the decline.
During the second quarter of 1999, Tenneco acquired for approximately $1.1
billion certain assets previously used by the containerboard business under
operating leases and timber cutting rights. This was required in order to
complete the April containerboard sale. The source of the funds for these
capital expenditures was borrowings by Tenneco Packaging prior to the
containerboard sale. See "Financing Activities" below. Tenneco also received
approximately $300 million in proceeds related to the containerboard and folding
carton sale transactions.
FINANCING ACTIVITIES
Absent the borrowings required to complete the containerboard sale
transaction, cash used by financing activities was $590 million for the first
six months of 1999. This primarily reflected the use of the net proceeds of the
containerboard sale transaction to reduce Tenneco's short-term debt.
Before the containerboard sale transaction, Tenneco Packaging borrowed
approximately $1.8 billion. These borrowings were used to acquire the assets
used under operating leases and timber cutting rights described under "Investing
Activities" above, and to purchase the containerboard business accounts
receivable described under "Operating Activities" above. Tenneco Packaging
remitted the balance of the borrowings to Tenneco to retire short-term debt.
Tenneco Packaging contributed the containerboard business to the new joint
venture subject to the approximately $1.8 billion in new debt. The debt
reduction which resulted from this contribution is shown on the Statements of
Cash Flows as a non-cash financing activity.
YEAR 2000
Many computer software systems, as well as some hardware and equipment
utilizing date-sensitive data, were designed to use a two-digit date field.
Consequently, these systems will not be able to properly recognize
22
<PAGE> 24
dates beyond the year 1999 ("the Year 2000 issue"). Tenneco's significant
technology transformation projects have addressed the Year 2000 issue in those
areas where replacement systems are being installed for other business reasons.
Where existing systems and equipment are expected to remain in place beyond
1999, Tenneco has a detailed process in place to identify and assess Year 2000
issues and to remediate, replace or establish alternative procedures addressing
non-Year 2000 compliant systems, hardware, and equipment.
Tenneco has substantially completed inventorying its systems and equipment,
including computer systems and business applications, as well as date-sensitive
technology embedded in its equipment and facilities. Tenneco continues to plan
for and undertake remediation, replacement, or establishment of alternative
procedures for non-compliant Year 2000 systems and equipment; and test
remediated, replaced or alternative procedures for systems and equipment.
Tenneco believes that approximately 85 percent of its major business
applications systems and approximately 90 to 95 percent of its manufacturing
equipment had achieved Year 2000 compliance as of June 30, 1999. Tenneco has
confirmed that none of its products are date-sensitive. Remediation,
replacement, or establishment of alternative procedures for systems and
equipment have been and are being undertaken on a business priority basis. This
is ongoing and was completed at some locations in 1998 with the remainder to be
completed through the third quarter of 1999. Testing will occur in the same time
frame.
Tenneco has also contacted its major suppliers, financial institutions, and
others with whom it conducts business to determine whether they will be able to
resolve in a timely manner Year 2000 problems possibly affecting Tenneco. A
majority of these entities, including all critical suppliers, have responded by
advising as to the status of their efforts to become Year 2000 compliant. This
process is ongoing. Tenneco intends to continue corresponding with critical high
risk third parties to obtain updates on their Year 2000 efforts and to assess
new suppliers, financial institutions and others with whom it begins to conduct
business.
Based upon current estimates, Tenneco believes that costs to address Year
2000 issues and implement necessary changes to its existing systems and
equipment, including costs incurred to date, will range from $40 to $50 million.
As of June 30, 1999, approximately $30 million of the costs had been incurred.
These costs are being expensed as they are incurred, except that in some
instances Tenneco may determine that replacing existing computer systems or
equipment may be more effective and efficient, particularly where additional
functionality is available. These replacements would be capitalized and would
reduce the estimated expense associated with Year 2000 issues.
If Tenneco is unable to complete on a timely and cost-effective basis the
remediation or replacement of critical systems or equipment not yet in
compliance, or develop alternative procedures, or if those with whom Tenneco
conducts business are unsuccessful in implementing timely solutions, Year 2000
issues could have a material adverse effect on Tenneco's financial condition or
results of operations. Possible worst case scenarios include interruptions in
Tenneco's ability to manufacture its products, process and ship orders, and bill
and collect accounts receivable due to internal systems failures or the systems
failures of its suppliers or customers. Tenneco believes it will be able to
timely resolve its own Year 2000 issues.
As part of its planning and readiness activities, Tenneco is developing
Year 2000 contingency plans for critical business processes such as banking,
data center operations and just-in-time manufacturing operations. Contingency
plans are being developed on a business unit basis, where needed, to respond to
previously undetected Year 2000 problems and business interruption from
suppliers. Contingency plans will include alternative suppliers, as necessary,
and assuring the availability of key personnel at year end to address unforeseen
Year 2000 problems.
EURO CONVERSION
The European Monetary Union resulted in the adoption of a common currency,
the "Euro," among eleven European nations. The Euro is being adopted over a
three-year transition period beginning January 1, 1999. In October 1997, Tenneco
established a cross-functional Euro Committee, comprised of representatives of
the Company's operational divisions as well as its corporate offices. That
Committee had two principal objectives: (i) to determine the impact of the Euro
on the Company's business operations, and (ii) to
23
<PAGE> 25
recommend and facilitate implementation of those steps necessary to ensure that
Tenneco would be fully prepared for the Euro's introduction. As of January 1,
1999, Tenneco implemented those Euro conversion procedures that it had
determined to be necessary and prudent to adopt by that date, and is on track to
becoming fully "Euro ready" on or before the conclusion of the three-year Euro
transition period. Tenneco believes that the costs associated with transitioning
to the Euro will not be material to its consolidated financial position or the
results of its operations.
24
<PAGE> 26
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareowners of the Company was held on May 11,
1999. 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 included:
(a) Elections of directors for a term to expire at the year 2002 Annual
Meeting of Shareowners:
<TABLE>
<CAPTION>
FOR WITHHELD
----------- ---------
<S> <C> <C>
Sir David Plastow..................................... 143,386,811 7,277,866
Paul T. Stecko........................................ 146,580,861 4,083,836
</TABLE>
(b) To approve the appointment of Arthur Andersen LLP as independent public
accountants for Tenneco Inc. for the year 1999:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED BROKER NON-VOTE
- --------------------- --------- --------- ---------------
<S> <C> <C> <C>
148,996,255 1,120,390 583,699 -0-
</TABLE>
(c) To approve of a stockholder proposal concerning the election of the
Board of Directors:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED BROKER NON-VOTE
- --------------------- ---------- --------- ---------------
<S> <C> <C> <C>
80,473,124 55,265,742 1,758,134 13,203,344
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The exhibits filed herewith are listed in the exhibit index which
follows the signature page and immediately precedes the exhibits filed.
(b) Reports on Form 8-K.
On April 27, 1999, the Company filed a Current Report on Form 8-K to
report the contribution of the containerboard assets of its paperboard
packaging segment to a new joint venture with an affiliate of Madison
Dearborn Partners, Inc.
25
<PAGE> 27
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 3, 1999
26
<PAGE> 28
EXHIBITS
The following exhibits are filed with Tenneco Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, or incorporated therein by
reference (exhibits designated by an asterisk are filed with the Report; all
other exhibits are incorporated by reference):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<C> <C> <S>
2 -- None.
3.1(a) -- Restated Certificate of Incorporation of Tenneco Inc. dated
December 11, 1996 (incorporated herein by reference from
Exhibit 3.1(a) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997, File No. 1-12387).
3.1(b) -- Certificate of Amendment, dated December 11, 1996
(incorporated herein by reference from Exhibit 3.1(c) of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12387).
3.1(c) -- Certificate of Ownership and Merger, dated July 8, 1997
(incorporated herein by reference from Exhibit 3.1(d) of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12387).
3.1(d) -- Certificate of Designation of Series B Junior Participating
Preferred Stock dated September 9, 1998 (incorporated herein
by reference from Exhibit 3.1(d) of Tenneco Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998, File No. 1-12387).
3.1(e) -- Certificate of Elimination of the Series A Participating
Junior Preferred Stock of Tenneco Inc. dated September 11,
1998 (incorporated herein by reference from Exhibit 3.1(e)
of Tenneco Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, File No. 1-12387).
3.2 -- Amended By-laws of Tenneco Inc. (incorporated herein by
reference from Exhibit 3.2 of Tenneco Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1998, File No.
1-12387).
4.1 -- Form of Specimen Stock Certificate of Tenneco Inc. Common
Stock (incorporated herein by reference from Exhibit 4.1 of
Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, File No. 1-12387).
4.2 -- Qualified Offer Plan Rights Agreement dated as of September
8, 1998, by and between Tenneco Inc. and First Chicago Trust
Company of New York, as Rights Agent (incorporated herein by
reference from Exhibit 4.1 of Tenneco Inc.'s Current Report
on Form 8-K dated September 24, 1998, File No. 1-12387).
4.3(a) -- Indenture, dated as of November 1, 1996, between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.1 of Tenneco Inc.'s Form S-4, Registration No.
333-14003).
4.3(b) -- First Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(b) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(c) -- Second Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(c) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<C> <C> <S>
4.3(d) -- Third Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(d) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(e) -- Fourth Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(e) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(f) -- Fifth Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(f) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(g) -- Sixth Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(g) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(h) -- Seventh Supplemental Indenture dated as of December 11, 1996
to Indenture dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.3(h) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(i) -- Eighth Supplemental Indenture, dated as of April 28, 1997,
to Indenture, dated as of November 1, 1996 between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.1 of Tenneco Inc.'s Current Report on Form 8-K
dated April 23, 1997, File No. 1-12387).
4.3(j) -- Ninth Supplemental Indenture, dated as of April 28, 1997, to
Indenture, dated as of November 1, 1996, between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.2 of Tenneco Inc.'s Current Report on Form 8-K
dated April 23, 1997, File No. 1-12387).
4.3(k) -- Tenth Supplemental Indenture, dated as of July 16, 1997, to
Indenture, dated as of November 1, 1996, between Tenneco
Inc. (formerly New Tenneco Inc.) and The Chase Manhattan
Bank, as Trustee (incorporated herein by reference from
Exhibit 4.1 of Tenneco Inc.'s Current Report on Form 8-K
dated June 11, 1997, File No. 1-12387).
4.3(l) -- Registration Rights Agreement dated as of August 28, 1998 by
and between Tenneco Inc. and Dana G. Mead, Theodore R.
Tetzlaff, Paul T. Stecko and Robert T. Blakely, not
individually but solely as trustees under that certain
Tenneco Inc. Rabbi Trust dated as of August 28, 1998
(incorporated herein by reference from Exhibit 4.3(l) of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998, File No. 1-12387).
9 -- None.
10.1 -- Distribution Agreement, dated November 1, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.),
Tenneco Inc. (formerly New Tenneco Inc.), and Newport News
Shipbuilding Inc. (incorporated herein by reference from
Exhibit 2 of Tenneco Inc.'s Form 10, File No. 1-12387).
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<C> <C> <S>
10.2 -- Amendment No. 1 to Distribution Agreement, dated as of
December 11, 1996, by and among El Paso Tennessee Pipeline
Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New
Tenneco Inc.), and Newport News Shipbuilding Inc.
(incorporated herein by reference from Exhibit 10.2 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
10.3 -- Debt and Cash Allocation Agreement, dated December 11, 1996,
by and among El Paso Tennessee Pipeline Co. (formerly
Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and
Newport News Shipbuilding Inc. (incorporated herein by
reference from Exhibit 10.3 of Tenneco Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1996, File No.
1-12387).
10.4 -- Benefits Agreement, dated December 11, 1996, by and among El
Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco
Inc. (formerly New Tenneco Inc.), and Newport News
Shipbuilding Inc. (incorporated herein by reference from
Exhibit 10.4 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
10.5 -- Insurance Agreement, dated December 11, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.),
Tenneco Inc. (formerly New Tenneco Inc.), and Newport News
Shipbuilding Inc. (incorporated herein by reference from
Exhibit 10.5 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
10.6 -- Tax Sharing Agreement, dated December 11, 1996, by and among
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.),
Newport News Shipbuilding Inc., Tenneco Inc. (formerly New
Tenneco Inc.), and El Paso Natural Gas Company (incorporated
herein by reference from Exhibit 10.6 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
10.7 -- First Amendment to Tax Sharing Agreement, dated as of
December 11, 1996 among El Paso Tennessee Pipeline Co.
(formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco
Inc.) and Newport News Shipbuilding Inc. (incorporated
herein by reference from Exhibit 10.7 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
10.8 -- Transition Services Agreement, dated June 19, 1996, by and
among, Tenneco Business Services, Inc., El Paso Tennessee
Pipeline Co. (formerly Tenneco Inc.) and El Paso Natural Gas
Company (incorporated herein by reference from Exhibit 10.8
of Tenneco Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-12387).
10.9 -- Trademark Transition License Agreement, dated December 11,
1996, by and between Newport News Shipbuilding Inc. and
Tenneco Inc. (formerly New Tenneco Inc.) (incorporated
herein by reference from Exhibit 10.9 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
10.10 -- Trademark Transition License Agreement, dated December 11,
1996, by and between Tenneco Inc. (formerly New Tenneco
Inc.) and El Paso Tennessee Pipeline Co. (formerly Tenneco
Inc.) (incorporated herein by reference from Exhibit 10.10
of Tenneco Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-12387).
10.11 -- 1997 Tenneco Inc. Board of Directors Deferred Compensation
Plan (incorporated herein by reference from Exhibit 10.11 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12387).
10.12 -- Executive Incentive Compensation Plan (incorporated herein
by reference from Exhibit 10.12 of Tenneco Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997,
File No. 1-12387).
10.13 -- Tenneco Inc. Deferred Compensation Plan (incorporated herein
by reference from Exhibit 10.13 of Tenneco Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997,
File No. 1-12387).
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<C> <C> <S>
*10.14 -- Amended and Restated Tenneco Inc. Supplemental Executive
Retirement Plan.
10.15 -- Amended and Restated Tenneco Inc. Change in Control
Severance Benefit Plan for Key Executives (incorporated
herein by reference from Exhibit 10.16 of Tenneco's Form 10,
File No. 1-12387).
10.16 -- Amended and Restated Tenneco Benefits Protection Trust
(incorporated herein by reference from Exhibit 10.18 of
Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter
ended 3/31/98, File No. 1-12387).
10.17 -- Employment Agreement, dated March 12, 1992 between Dana G.
Mead and Tenneco Inc. (incorporated herein by reference from
Exhibit 10.19 of Tenneco's Form 10, File No. 1-12387).
10.18 -- Employment Agreement, dated December 3, 1993 between Paul T.
Stecko and Tenneco Packaging Inc. (incorporated herein by
reference from Exhibit 10.20 of Tenneco's Form 10, File No.
1-12387).
10.19 -- Agreement, dated September 9, 1992 between Theodore R.
Tetzlaff and Tenneco Inc. (incorporated herein by reference
from Exhibit 10.21 of Tenneco's Form 10, File No. 1-12387).
10.20 -- 1996, Tenneco Inc. Stock Ownership Plan, as amended
(incorporated herein by reference from Exhibit 10.11 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12387).
10.21 -- Professional Services Agreement, dated August 22, 1996, by
and between Tenneco Business Services Inc. and Newport News
Shipbuilding Inc. (incorporated herein by reference from
Exhibit 10.28 of Tenneco Inc.'s Form 10, File No. 1-12387).
10.22 -- Tenneco Inc. Rabbi Trust (incorporated herein by reference
from Exhibit 10.22 of Tenneco Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, File No.
1-12387).
*10.23 -- Tenneco Inc. Rabbi Trust Appointment of Successor Trustee
dated May 31, 1999.
10.24 -- Letter Agreement dated September 24, 1998 between Robert T.
Blakely and Tenneco Inc. (incorporated herein by reference
from Exhibit 10.23 of Tenneco Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, File No.
1-12387).
10.25 -- Letter Agreement dated September 24, 1998 between John J.
Castellani and Tenneco Inc. (incorporated herein by
reference from Exhibit 10.28 of Tenneco Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1998, File No.
1-12387).
*10.26 -- Tenneco Benefits Protection Trust Appointment of Successor
Trustee dated May 31, 1999.
10.27 -- Contribution Agreement, dated as of January 25, 1999, among
Tenneco Packaging Inc., PCA Holdings LLC, and Packaging
Corporation of America (incorporated herein by reference
from Exhibit 10.30 of Tenneco Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998, File No.
1-12387).
10.28 -- Letter Agreement (the "Letter Agreement"), dated as of April
12, 1999, among Tenneco Packaging Inc., PCA Holdings LLC and
Packaging Corporation of America, amending the Contribution
Agreement (incorporated herein by reference from Exhibit
10.31 of Tenneco Inc.'s Current Report on Form 8-K dated
April 12, 1999, File No. 1-12387).
10.29 -- Stockholders Agreement, as amended, dated as of April 12,
1999, among Tenneco Packaging Inc., PCA Holdings LLC and
Packaging Corporation of America (incorporated herein by
reference from Exhibit 10.32 of Tenneco Inc.'s Current
Report on Form 8-K dated April 12, 1999, File No. 1-12387).
10.30 -- Registration Rights Agreement, as amended, dated as of April
12, 1999, among Tenneco Packaging Inc., PCA Holdings LLC and
Packaging Corporation of America (incorporated herein by
reference from Exhibit 10.33 of Tenneco Inc.'s Current
Report on Form 8-K dated April 12, 1999, File No. 1-12387).
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<C> <C> <S>
10.31 -- Agreement, dated as of April 12, 1999, among Tenneco Inc.,
Tenneco Management Company, Tenneco Packaging Inc., and Paul
T. Stecko. (incorporated herein by reference from Exhibit
10.30 of Tenneco Inc.'s Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, File No. 1-12387).
11 -- None.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
18 -- None.
22 -- None.
23 -- None.
24 -- None.
*27.1 -- Financial Data Schedule for the six months ended June 30,
1997.
*27.2 -- Financial Data Schedule, as reclassified where appropriate,
for the six months ended June 30, 1998.
28 -- None.
99 -- None.
</TABLE>
- -------------------------
Note: Exhibits designated by an asterisk are filed with this Report; all others
are incorporated by reference.
31
<PAGE> 33
[TENNECO LOGO]
<PAGE> 1
EX-10.14
TENNECO INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Amended and Restated Generally Effective as of January 1, 1997)
PURPOSE
-------
The Tenneco Inc. Supplemental Executive Retirement Plan (the "Plan") is
maintained by Tenneco Inc. (the "Company") as an unfunded plan for the purpose
of providing retirement benefits with respect to certain employees that are
equal to retirement benefits lost under the Tenneco Inc. Retirement Plan (the
"Retirement Plan" or the "TRP") as a result of the imposition of the limitations
contained in the Internal Revenue Code of 1986, as amended (the "Code"). The
portion of the Plan that provides for benefits limited by Code Section 415 is
maintained as an "excess benefit plan" as described in Section 3(36) of the
Employee Retirement Income Security Act of 1974 as amended ("ERISA"). The other
benefits provided for under the Plan are only available to a "select group of
management or highly compensated employees" as determined by the Tenneco
Benefits Committee, and the portion of the Plan providing such benefits is
intended to satisfy the ERISA exemption requirements for a plan limited to such
a group.
THE PLAN
--------
1. Effective Date
--------------
The effective date of this amendment and restatement of the Plan is
January 1, 1997. The benefit entitlement, if any, under the Plan or under the
Tenneco Inc. Benefit Equalization Plan (the "BEP"), which has been merged into
this Plan, of any person who separated from service prior to that date shall be
governed by the provisions of the Plan or the BEP as either was in effect from
time to time prior to that date.
2. Eligibility
-----------
An employee shall be eligible for benefits under this Plan if the
employee is a participant in the Retirement Plan or is provided a benefit under
Section 11 hereof.
3. Amount of Benefit
-----------------
The benefit payable under this Plan to a Participant, or to the
Participant's Eligible Spouse, Eligible Child(ren), joint annuitant or other
beneficiary(ies), all as determined under the provisions of the Retirement Plan,
shall equal the excess, if any, of (a) over (b) where:
(a) is the benefit that would be paid under the Retirement
Plan if the provisions of the Retirement Plan were administered without
regard to the limitations imposed by the Code and, only with respect to
Participants who, at any time, were participants in the Tenneco
Inc. Executive Incentive Compensation Plan ("EICP"), if Final Average
Compensation, as computed under the Retirement Plan, were determined on
the basis of compensation paid during the three calendar years (of the
five calendar year period ending no later than the calendar year
immediately preceding his or her termination or retirement) for which
such compensation is the highest, and increased by the quotient of (i)
the total of the cash bonuses, as defined below, paid to the
Participant in the three calendar years (during the
-1-
<PAGE> 2
same five calendar year period ending no later than the calendar year
immediately preceding his or her termination or retirement) for which
such total is the highest, divided by (ii) three or such lesser number
of calendar years (included in such period) in which such bonuses were
paid to the Participant; provided, that the calendar year including his
or her termination or retirement shall be included if such event
follows the payment of regular bonuses for that year; and provided,
that bonuses and salary, respectively, deferred at the election of the
Participant shall be counted only in the year that they would have been
paid absent such election, and provided further, that, effective with
respect to bonuses that relate to the period on and after January 1,
1998, the foregoing language shall be applied to count bonuses which
relate to a calendar year as paid in that year, for example, 1998
bonuses will be counted in 1998 notwithstanding the fact that they are
actually paid in 1999; and
(b) is the benefit that is payable under the Retirement Plan.
Notwithstanding the foregoing, if, except as otherwise provided in
writing, an employee is granted credit for purposes of benefit accrual under the
Retirement Plan for service rendered prior to the time that the employee became
a participant in the Retirement Plan, such employee shall be credited with such
service under this Plan only if and to the extent determined by the Tenneco
Benefits Committee. Unless otherwise provided in writing, no benefit shall be
payable under the Plan unless a benefit also is payable under the Retirement
Plan.
Cash bonus means only cash bonuses paid under the EICP and the cash
special bonuses paid in January 1997.
4. Form of Benefit
---------------
Any benefit under this Plan shall be paid in the same form and manner
as the benefit payments made to, or with respect to, the Participant under the
TRP. Notwithstanding the preceding sentence, no benefit is payable hereunder
prior to 60 days after the Participant has separated from service, unless the
Tenneco Benefits Committee so determines. Prior to the commencement of benefits
but, in no event later than 24 months after the Participant has separated from
service, and only with respect to a Participant or beneficiary who at any time
was a participant in the EICP, such Participant or beneficiary may elect, but
only with the approval of the Tenneco Benefits Committee, to receive payment of
such benefit in the form of a lump sum or annuity, provided that in cases where
a Participant has chosen a lump sum and the exact amount of a Participant's
benefit cannot be determined by the date elected for payment, a preliminary lump
sum shall be paid with respect to amounts that can be clearly ascertained then,
with the remainder to be issued in a subsequent lump sum when that amount is
exactly determined by the Tenneco Benefits Committee or its delegee. In
addition, with respect to all Plan participants, if the benefit payable from
this Plan (expressed as an age 65 life annuity) would be less than $50 per
month, the benefit payable from this Plan automatically shall be paid as a lump
sum.
The actuarial factors set forth in the TRP shall be used to compute
benefits hereunder, provided that, for purposes of any lump sum payment that may
be payable under the Plan, the interest rate used shall be the annual rate of
interest on 30-year Treasury securities as specified by the IRS for the second
calendar month preceding the first day of the Plan Year during which the annuity
starting date occurs, and the applicable mortality table described in Rev. Rul.
95-6, 1995-1 C.B. (page 80), or in such other formal guidance as may be issued
from time to time by the IRS.
-2-
<PAGE> 3
5. Unfunded Plan
-------------
This Plan shall be maintained as an unfunded non-qualified deferred
compensation plan. All benefits under this Plan shall be payable from the
general assets of Tenneco Inc. No person shall be entitled to receive any
benefits under this Plan from the funds of the Retirement Plan.
6. No Assignment
-------------
No benefit under this Plan shall be assignable or alienable or
subjected, by attachment or otherwise, to the claims of creditors of any person.
7. No Guarantee of Employment
--------------------------
This Plan shall not be construed to give any Participant the right to
be retained in the employment of Tenneco Inc. or any of its affiliates.
8. Operation and Administration
----------------------------
This Plan shall be operated under the direction of the Compensation and
Benefits Committee of the Board of Directors of Tenneco Inc. and administered by
the Tenneco Benefits Committee.
The Tenneco Benefits Committee's decision in all matters involving the
interpretation and application of this Plan shall be final and binding. The
Tenneco Benefits Committee shall establish a claims procedure which is
consistent with the claims procedure employed under the TRP.
9. Governing Law
-------------
To the extent not preempted by federal law, this Plan shall be
construed, administered and enforced in accordance with the laws of the State of
Delaware.
10. Amendment and Discontinuance
----------------------------
Tenneco Inc. expects to continue this Plan indefinitely but reserves
the right, by action of the Compensation and Benefits Committee of its Board of
Directors, to amend or discontinue it. However, no such amendment or
discontinuance shall impair or adversely affect any benefits accrued under this
Plan as of the date of such action.
-3-
<PAGE> 4
11. Special Appendix
----------------
The Company may from time to time determine to provide certain persons
additional supplemental pension benefits, which may be reflected in a Special
Appendix hereto or in such other document as the Company shall determine.
References in a Special Appendix or such other document to the "Plan" are to
this Plan.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing, Tenneco Inc., a Delaware corporation, has caused these presents to be
duly executed in its name and behalf by its proper officers thereunto duly
authorized this 9th day of September, 1998.
TENNECO INC.
By: /s/ Barry R. Schuman
----------------------------------------
Its: Senior Vice President - Human Resources
-4-
<PAGE> 5
MEAD SPECIAL APPENDIX
TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
This Special Appendix sets forth certain special provisions of
the Plan with respect to the benefits of Dana G. Mead ("Mead").
1. Mead shall be entitled to monthly pension benefits in the amount
determined under Section 2 hereof commencing on the first day of the
calendar month immediately following the termination of his employment
with the Tenneco Management Company (the "Company").
2. The monthly pension benefits to which Mead shall be entitled shall
be equal to the greater of (a) or (b), where
(a) equals the benefits to which Mead would be entitled
under the Tenneco Inc. Retirement Plan (the "TRP")
and this Plan, computed using Final Average Earnings,
as defined in Section 3 hereof, and Years of Credited
Service, as defined in Section 4 hereof, and
substituting the rules of Sections 1, 5 and 6 hereof
for the generally applicable rules of such plans; and
(b) equals 2.48% of Mead's Final Average Earnings, as
defined in Section 3 hereof, times his Years of
Credited Service, as defined in Section 4 hereof, and
substituting the rules of Sections 1, 5 and 6 hereof
for the generally applicable rules of such plans.
3. "Final Average Earnings" means the quotient of (i) Mead's Earnings,
as defined below, for the 3 calendar years in which his Earnings were
the highest in the 5 consecutive calendar year period ending prior to
his termination of employment, divided by (ii) 36. "Earnings" means
regular base salary plus Executive Incentive Compensation Plan bonus
earned (regardless of when paid) with respect to that period.
4. "Years of Credited Service" means the total of (i) 14 2/3 plus (ii)
Mead's Actual Tenneco Service, as defined below. "Actual Tenneco
Service" means the period, in whole years and fractions thereof with
each month or portion thereof counting as one-twelfth of one year, from
April 1, 1992 through the date of Mead's termination of employment with
the Company.
5. The benefits provided hereunder shall be paid in the joint and 50%
survivor form of annuity if Mead is married at the time benefits are to
commence -- i.e., to Mead for life and, after his death, 50% of the
monthly amount payable during Mead's life continuing to the spouse, if
any, to whom he was legally married at the date of the commencement of
payment of benefits hereunder and to whom he was so married on the date
of his death. There shall be no reduction in the amount of the benefits
payable during Mead's life on account of payment in the joint and 50%
survivor form. The benefits provided hereunder shall be paid in the
life only form of annuity if Mead is not married at the time that
benefit
<PAGE> 6
payments are to commence. Subject to the rules stated in the
immediately following paragraph, Mead may elect to receive such
benefits in another form which is the actuarial equivalent of the
normal form of benefit specified above for his marital status at the
time in question. At Mead's election, the Company will purchase and
distribute to him an annuity contract issued by an insurance company
acceptable to Mead to provide such benefits.
If his termination of employment is effective after he attains
age 62 or earlier with the consent of the Company, Mead may elect to
receive such benefits in the form of a lump sum distribution. If a lump
sum distribution is elected, it shall be computed under the assumptions
then in use with respect to the TRP, or its successor; provided, that
in no event shall the interest assumption be greater than the Pension
Benefit Guaranty Corporation immediate annuity interest rate in effect
as of January 1 of the year in which the payment is to be made, and
provided further that the mortality table shall be no less favorable to
Mead or his Beneficiary than the 1983 group annuity table, 50% male,
50% female mix.
Mead may elect that the lump sum benefit be paid at some date
certain which is later than the date specified for benefit commencement
in Section 1 hereof. Any such election shall be irrevocable and must be
filed no later than 90 days prior to the date benefits would otherwise
commence hereunder. If he makes such an election, the lump sum amount
computed above shall be credited with interest at the prime rate
prevailing from time to time from the date specified in Section 1 above
until the date of actual payment.
6. If Mead dies before commencing to receive the benefits described
hereunder, his Beneficiary will receive a death benefit in a lump sum
distribution which is the present value of the benefits which he has
accrued hereunder as of the date of his death computed in accordance
with the rules set forth herein, including the interest assumption
specified in Section 5 hereof. Without limiting the generality of the
foregoing, it is specifically provided that the special alternative
death benefit called for by the TRP as in effect on December 31, 1994,
shall apply if that produces a higher benefit.
7. The benefits provided hereunder are in lieu of any benefits to which
Mead might otherwise be entitled under the TRP, Tenneco Inc. Benefit
Equalization Plan or this Plan, but shall not adversely affect his
entitlement to benefits under any other plan, fund or program
maintained by the Company, nor shall benefits provided under any other
such plan fund or program be offset against or otherwise reduce the
benefits provided for hereunder.
8. For the purpose of calculating Mead's Final Average Earnings, the
Company shall determine an amount that shall be used as a cash bonus
number (the "Hypothetical Bonus") for any year in which Mead has
received something in lieu of a cash bonus. Notwithstanding the
foregoing, a Hypothetical Bonus shall be counted only in circumstances
in which it would yield larger monthly pension benefits.
-2-
<PAGE> 7
STECKO SPECIAL APPENDIX
TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
This Special Appendix sets forth certain special provisions of
the Plan with respect to the benefits of Paul T. Stecko ("Stecko").
The aggregate monthly pension benefits to which Stecko shall be entitled
under the TRP, the Plan and this Special Appendix shall be no less than the
amount to which Stecko would have been entitled if Stecko's coverage under
International Paper defined benefit plans in effect as of December 3, 1993 had
continued from his date of hire with International Paper through October 21,
2002; provided, that (i) assumed final three-year average pay shall be
substituted for final five-year average pay; (ii) the Social Security offset
shall be disregarded; (iii) he shall be deemed to have attained age 55 except
that he shall be deemed to have attained age 58 for purposes of determining
early retirement reduction factors; and (iv) adjustment for TRP benefits shall
be determined by subtracting TRP normal retirement benefit from the
International Paper normal retirement benefit prior to applying early retirement
and other factors.
If Stecko dies before commencing to receive the benefits described
hereunder, his beneficiary will receive a death benefit which is the present
value of the benefits which he has accrued hereunder as of the date of his
death.
<PAGE> 8
BLAKELY SPECIAL APPENDIX
TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
This Special Appendix sets forth certain special provisions of the Plan
with respect to the benefits of Robert T. Blakely ("Blakely").
The monthly pension benefits to which Blakely shall be
entitled hereunder shall be equal to the benefits to which Blakely
would be entitled under the Plan, except that, if Blakely retains his
position as Executive Vice President and Chief Financial Officer of
Tenneco Inc. until the earlier of (i) December 31, 1999 or (ii) the
date that the Chief Executive Officer of Tenneco Inc. determines that
his services with respect to the strategic review announced in 1998 and
related transactions are completed, for all purposes, including without
limitation benefit accrual, death benefits, normal retirement and
eligibility for early retirement benefits, Blakely shall be deemed to
have 25 years of service and 25 years of participation. If Blakely dies
before commencing to receive the benefits described hereunder, his
beneficiary will receive a death benefit which is the present value of
the benefits which he has accrued hereunder as of the date of his
death. This benefit enhancement is consistent with those provided to
other senior executives.
<PAGE> 9
TETZLAFF SPECIAL APPENDIX
TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
This Special Appendix sets forth certain special provisions of
the Plan with respect to the benefits of Theodore R. Tetzlaff ("Tetzlaff").
The monthly pension benefits to which Tetzlaff shall be
entitled shall be equal to the benefits to which Tetzlaff would be
entitled under the Plan if he were a participant in the Tenneco Inc.
Retirement Plan ("TRP"), computed using the following special
provisions:
(a) Tetzlaff's service and participation will be
regarded as beginning July 1, 1992.
(b) Tetzlaff's retainer and bonus for each calendar year
will be prorated for each month that Tetzlaff
performs services for the Company as an officer
during the calendar year to arrive at a covered
monthly compensation under the TRP formula.
(c) If Tetzlaff reaches age 55 while performing services
for the Company as an officer, Tetzlaff will be
eligible for an early retirement benefit with
subsidized reduction factors parallel to the TRP
factors, even though Tetzlaff does not have the
service or participation required under the TRP
provisions.
(d) Tetzlaff's guaranteed minimum annual life only
benefit will be as follows:
Age at Commencement
Of Benefits
-------------------
Age 55 $100,000 per year
Age 60 $200,000 per year
Age 65 $300,000 per year
with a prorated guaranteed minimum annual life only
benefit between the above ages.
(e) In all other respects, the provisions of the Plan
shall apply.
If Tetzlaff dies before commencing to receive the benefits
described hereunder, his beneficiary will receive a death benefit which
is the present value of the benefits which he has accrued hereunder as
of the date of his death.
<PAGE> 10
J. CASTELLANI BENEFITS
UNDER THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
The benefits of John J. Castellani ("Castellani") under the Plan will be
adjusted as follows:
The monthly normal retirement pension benefits to which Castellani shall be
entitled hereunder shall be equal to the normal retirement pension benefits to
which Castellani would be entitled under the Plan, deeming him to have a total
of 20 years of service and 20 years of participation (including both actual and
deemed service and participation), for all purposes (including without
limitation benefit accrual, death benefits, normal retirement and eligibility
for early retirement benefits). If Castellani dies before commencing to receive
the benefits described hereunder, his beneficiary will receive a death benefit
which is the present value of the benefits which he has accrued hereunder as of
the date of his death.
Castellani shall be entitled to benefits hereunder prior to his normal
retirement under the following rules. If Castellani becomes entitled to
benefits under the Tenneco Inc. Retirement Plan ("TRP") under its generally
applicable rules prior to Castellani attaining normal retirement, Castellani
shall be entitled to a benefit hereunder equal to the benefit that would be
payable under the TRP at the time in question if the benefit stated in the
foregoing paragraph were Castellani's normal retirement benefit under the TRP.
APPROVED ON THIS 27TH DAY OF MAY, 1999
/s/ Stephen J. Smith
- -----------------------------------------
Stephen J. Smith
Vice President, Human Resources
<PAGE> 1
EXHIBIT 10.23
TENNECO INC. RABBI TRUST
APPOINTMENT OF SUCCESSOR TRUSTEE
Pursuant to Section Eleven of the Tenneco Inc. Rabbi Trust, we the
undersigned Trustees hereby appoint Mr. Karl A. Stewart as Trustee to succeed
Mr. Paul T. Stecko, effective upon Mr. Stewart's acceptance.
Dated: May 31, 1999 /s/ Dana G. Mead
------------------------
Dana G. Mead
/s/ Theodore R. Tetzlaff
------------------------
Theodore R. Tetzlaff
/s/ Robert T. Blakely
------------------------
Robert T. Blakely
I hereby accept appointment as a Trustee of the Tenneco Inc. Rabbi Trust
Dated: May 31, 1999
-------------------------
/s/ Karl A. Stewart
- --------------------------------
Karl A. Stewart
<PAGE> 1
EXHIBIT 10.26
TENNECO BENEFITS PROTECTION TRUST
APPOINTMENT OF SUCCESSOR TRUSTEE
Pursuant to Article Twelfth of the Tenneco Benefits Protection Trust, we
the undersigned Trustees hereby appoint Mr. Karl A. Stewart as Trustee to
succeed Mr. Paul T. Stecko, effective upon Mr. Stewart's acceptance.
Dated: May 31, 1999 /s/ Dana G. Mead
-----------------------------
Dana G. Mead
/s/ Theodore R. Tetzlaff
-----------------------------
Theodore R. Tetzlaff
/s/ Robert T. Blakely
-----------------------------
Robert T. Blakely
I hereby accept appointment as a Trustee of the Tenneco Benefits Protection
Trust
Dated: May 31, 1999
------------------
/s/ Karl A. Stewart
- ------------------------
Karl A. Stewart
<PAGE> 1
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,
------------
1999 1998
---- ----
<S> <C> <C>
Income from continuing operations........................... $105 $175
Add:
Interest............................................... 109 97
Portion of rentals representative of interest factor... 14 11
Preferred stock dividend requirements of majority-owned
subsidiaries.......................................... 13 14
Income tax expense (benefit) and other taxes on
income................................................ 68 92
Amortization of interest capitalized................... -- --
Undistributed (earnings) losses of affiliated companies
in which less than a 50% voting interest is owned..... -- --
---- ----
Earnings as defined............................... $309 $389
==== ====
Interest.................................................... $109 $ 97
Interest capitalized........................................ -- --
Portion of rentals representative of interest factor........ 14 11
Preferred stock dividend requirements of majority-owned
subsidiaries on a pre-tax basis........................... 22 22
---- ----
Fixed charges as defined.......................... $145 $130
==== ====
Ratio of earnings to fixed charges.......................... 2.13 2.99
==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 58
<SECURITIES> 0
<RECEIVABLES> 912
<ALLOWANCES> 0
<INVENTORY> 847
<CURRENT-ASSETS> 2,069
<PP&E> 3,928
<DEPRECIATION> 1,384
<TOTAL-ASSETS> 7,461
<CURRENT-LIABILITIES> 1,805
<BONDS> 2,326
0
0
<COMMON> 2
<OTHER-SE> 2,120
<TOTAL-LIABILITY-AND-EQUITY> 7,461
<SALES> 3,061
<TOTAL-REVENUES> 3,061
<CGS> 2,180
<TOTAL-COSTS> 2,180
<OTHER-EXPENSES> 574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109
<INCOME-PRETAX> 187
<INCOME-TAX> 68
<INCOME-CONTINUING> 105
<DISCONTINUED> (163)
<EXTRAORDINARY> (7)
<CHANGES> (134)
<NET-INCOME> (199)
<EPS-BASIC> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 875
<ALLOWANCES> 0
<INVENTORY> 797
<CURRENT-ASSETS> 2,099
<PP&E> 3,797
<DEPRECIATION> 1,239
<TOTAL-ASSETS> 7,782
<CURRENT-LIABILITIES> 1,654
<BONDS> 2,235
0
0
<COMMON> 2
<OTHER-SE> 2,557
<TOTAL-LIABILITY-AND-EQUITY> 7,782
<SALES> 3,035
<TOTAL-REVENUES> 3,035
<CGS> 2,118
<TOTAL-COSTS> 2,118
<OTHER-EXPENSES> 552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97
<INCOME-PRETAX> 283
<INCOME-TAX> 92
<INCOME-CONTINUING> 175
<DISCONTINUED> 37
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.25
</TABLE>
