<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K/A
Amendment No. 1
to
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: January 21, 1997 (Date of Earliest
Event Reported: December 12, 1996)
EL PASO NATURAL GAS COMPANY
(Exact Name of Registrant as Specified in the Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-2700 74-0608280
(Commission File Number) (I.R.S. Employer Identification No.)
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
(Address of Principal Executive Offices) (Zip Code)
(713) 757-2131
(Registrant's Telephone Number, Including Area Code)
One Paul Kayser Center
100 North Stanton Street
El Paso, Texas 79901
(Former Address, if Changed Since Last Report)
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<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On December 12, 1996, El Paso Natural Gas Company, doing business as El
Paso Energy Corporation ("El Paso"), completed the acquisition of the energy
assets and certain other discontinued business assets and liabilities ("Tenneco
Energy") of Tenneco Inc. ("Old Tenneco"). On December 12, 1996, El Paso Merger
Company, an indirect subsidiary of El Paso ("El Paso Merger Sub"), merged with
and into Old Tenneco (the "Merger"), which became an indirect subsidiary of El
Paso. The Merger was effected in accordance with the Amended and Restated
Agreement and Plan of Merger dated as of June 19, 1996 (the "Merger Agreement"),
among El Paso Merger Sub, El Paso and Old Tenneco, which Merger Agreement is
filed as an exhibit to this Current Report on Form 8-K and incorporated herein
by reference. In addition, El Paso and New Tenneco Inc. entered into a Letter
Agreement, dated December 11, 1996, relating to the Merger, which Letter
Agreement is filed as an exhibit to this Current Report on Form 8-K and
incorporated herein by reference. In the Merger, Old Tenneco changed its name to
"El Paso Tennessee Pipeline Co." (referred to herein after the Merger as "El
Paso Tennessee").
Prior to the Merger, Old Tenneco and its subsidiaries effected various
intercompany transfers and distributions which restructured, divided and
separated their businesses, assets and liabilities so that all the assets,
liabilities and operations related to their automotive parts, packaging and
administrative services businesses (collectively, the "Industrial Business")
and their shipbuilding business (the "Shipbuilding Business") were spun-off to
Old Tenneco's then existing common stockholders (the "Distributions"). The
Distributions were effected on December 11, 1996 pursuant to the Distribution
Agreement dated as of November 1, 1996 (as amended, the "Distribution
Agreement"), among Old Tenneco, New Tenneco Inc. and Newport News Shipbuilding
Inc., which Distribution Agreement is filed as an exhibit to this Current
Report on Form 8-K and incorporated herein by reference. Following the
Distributions, the remaining operations of Old Tenneco consisted primarily of
those operations related to the transmission and marketing of natural gas.
The consideration paid by El Paso in the Merger consisted of:
-- the retention after the Merger of approximately $2.6 billion of
debt and preferred stock obligations of Old Tenneco, subject to
certain adjustments (which obligations consisted, in part, of
(1) approximately $200 million of public debt of Old Tenneco
outstanding at the effective time of the Merger, (2) $2.1 billion of
debt of Old Tenneco outstanding at the effective time of the Merger
under a $3 billion Revolving Credit and Competitive Advance Facility
Agreement, dated as of November 4, 1996 (the "Credit Agreement"),
among Old Tenneco, the banks and other financial institutions party
thereto and The Chase Manhattan Bank, as agent, and (3) $300
million of Old Tenneco preferred stock);
-- the issuance of 18.8 million shares of common stock of El Paso
valued at approximately $914 million, based on a closing price per
share of common stock on the New York Stock Exchange of $48.625
on December 9, 1996, to the holders of Old Tenneco's common
stock and two series of its preferred stock; and
-- the retention of liabilities related to certain discontinued
businesses of Old Tenneco which El Paso has estimated to be $600
million.
The number of shares of El Paso's common stock issued in the Merger to
stockholders of Old Tenneco was determined pursuant to formulas set forth in
the Merger Agreement. In the Merger, (i) a holder of Old Tenneco's common
stock received .093 of a share of El Paso's common stock for each share of
Old Tenneco common stock, (ii) a holder of Old Tenneco's $7.40 Cumulative
Preferred Stock received 2.365 shares of El Paso's common stock for each such
share of $7.40 Cumulative Preferred Stock, and (iii) a holder of Old Tenneco's
$4.50 Cumulative Preferred Stock received 2.365 shares of El Paso's common
stock for each such share of $4.50 Cumulative Preferred Stock.
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As a result of the Merger, El Paso indirectly owns 100% of the common
equity and approximately 75% of the combined equity value of El Paso
Tennessee. Currently, approximately $300 million of preferred stock issued in
a public offering by Old Tenneco on November 18, 1996 remains outstanding.
The reorganization of Old Tenneco, including the Merger and the
Distributions, was approved by the stockholders of Old Tenneco at a special
meeting of stockholders on December 10, 1996. The issuance of common stock of
El Paso in the Merger was approved by the stockholders of El Paso at a special
meeting of stockholders on December 9, 1996.
As described above, Old Tenneco entered into the Credit Agreement under
which a syndicate of banks and other financial institutions (the "Lenders")
committed to provide up to $3 billion of financing to Old Tenneco on an
unsecured basis. Chase Securities Inc. arranged the Credit Agreement and The
Chase Manhattan Bank is acting as agent for the Lenders. A list of the Lenders
is set forth on Exhibit 99.1 which is incorporated herein by reference. The
Credit Agreement consists of a 364-day revolving credit facility, with a
two-year term thereafter, the proceeds of which were used to effect the Debt
Realignment (as defined and as described in the Merger Agreement) and for other
general corporate purposes, and is guaranteed by El Paso. The borrowings under
the Credit Agreement mature in November 1999. Borrowings under the Credit
Agreement bear interest at a rate per annum equal to, at the borrowers' option,
either
(a) the highest of (i) the rate from time to time publicly
announced by The Chase Manhattan Bank in New York City as its prime
rate, and (ii) the federal funds effective rate from time to time plus
1/2 of 1%, or
(b) the average of the rates at which eurodollar deposits for
one, two, three or six months or, subject to availability to each
lender, nine or 12 months (as selected by the borrowers) are offered in
the interbank eurodollar market in the approximate amount of the
relevant loan, plus the Applicable Margin.
The "Applicable Margin" will be based on El Paso's senior long-term debt
rating, as determined from time to time, or if El Paso's debt is not rated,
each rating agency will be assumed to have assigned its lowest rating. At
December 26, 1996, the outstanding loans under the Credit Agreement bore a
weighted average interest rate of 5.94% per annum.
The Credit Agreement requires that El Paso's ratio of total
indebtedness to total indebtedness plus net worth not exceed 70%. Failure to
satisfy the foregoing minimum requirement will be a default under the Credit
Agreement that will enable the Lenders to refuse to loan funds to El Paso
Tennessee and to accelerate the indebtedness thereunder. The Credit Agreement
also imposes prohibitions or limitations on liens (other than agreed permitted
liens), subsidiary indebtedness and guarantee obligations, and asset
dispositions (with certain permitted exceptions), among others. The Credit
Agreement contains certain default provisions, including, among other things,
(i) nonpayment of any amount due to the lenders under the Credit Agreement,
(ii) material breach of representations and warranties, (iii) default in the
performance of covenants, (iv) bankruptcy or insolvency, (v) cross-default with
respect to indebtedness for borrowed money and related guaranty obligations in
excess of $100 million, and (vi) a judgment suffered by El Paso in excess of
$50 million not covered by insurance and which judgment shall not have been
vacated, discharged, stayed or bonded pending appeal within 60 days.
Tenneco Energy's business consists principally of the interstate
transportation of natural gas, as well as other unregulated business operations
such as gas marketing, intrastate pipeline operations, international pipelines
and power generation, domestic power generation operations and oil and gas
ventures.
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Tenneco Energy's principal interstate pipeline operations consist of
the pipeline systems of wholly owned subsidiaries Tennessee Gas Pipeline
Company, Midwestern Gas Transmission Company and East Tennessee Natural Gas
Company. The interstate systems, which include approximately 16,300 miles of
pipeline, gathering lines and sales laterals, serve markets located primarily
in the Eastern United States. Tenneco Energy owns and operates approximately
1,300 miles of intrastate pipelines serving the Texas Gulf Coast and West Texas
Markets, and its businesses include buying, selling, storing, processing and
transporting natural gas and price risk management services. Tenneco Energy
also engages in various international energy-related projects.
El Paso currently is engaged in a comprehensive review of the business
and operations of Tenneco Energy. Following the completion of such review, El
Paso intends to integrate, for the most part, the operations of Tenneco Energy
with those of El Paso to increase operating and administrative efficiency
through consolidation and reengineering of facilities, workforce reductions and
coordination of purchasing, sales and marketing activities. El Paso
anticipates that the complementary interstate and intrastate pipeline
operations and gas marketing activities of El Paso and Tenneco Energy should
provide the combined company with increased operating flexibility and access to
additional customers and markets. As previously disclosed, El Paso is pursuing
the monetization of certain assets of Tenneco Energy through asset sales and
non-recourse project financings. In December 1996 El Paso received approximately
$400 million in proceeds from the sale of a 70% interest in Tenneco Energy's two
Australian pipelines and a related debt financing. It also has completed the
sale of its oil and gas exploration, production and financing unit, formerly
known as Tenneco Ventures, in a $105 million transaction. The net proceeds from
these monetization transactions were used to repay outstanding borrowings under
the Credit Agreement. El Paso is also pursuing the monetization of other
assets.
Item 5. Other Events.
El Paso announced on December 23, 1996 that it reached a settlement that
resolves its gas purchase contract disputes with KCS Energy, Inc. Attached as
Exhibit 99.2 to this Current Report on Form 8-K and incorporated by
reference herein is a press release related to such settlement.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Pages F-1 through F-27 and page S-1 of this Current Report are hereby
incorporated by reference herein.
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(b) Pro forma financial information.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF EL PASO AND TENNECO ENERGY
The following Unaudited Pro Forma Combined Financial Statements of El
Paso and Tenneco Energy (the "Pro Forma Financial Statements") illustrate the
effect of (i) the Corporate Restructuring Transactions, the Cash and Debt
Realignment, the public offering of New Preferred Stock and the Distributions;
(ii) the Merger; and (iii) the Refinancing Transactions (as defined). The
Unaudited Pro Forma Consolidated Balance Sheet has been prepared as if such
transactions occurred on September 30, 1996; the Unaudited Pro Forma
Consolidated Statements of Income have been prepared as if such transactions
occurred as of January 1, 1995. Capitalized terms used herein shall have the
respective meanings set forth in the Merger Agreement or the Distribution
Agreement unless otherwise defined herein.
The Pro Forma Financial Statements reflect El Paso having acquired 100%
of the outstanding Tenneco common stock, $7.40 preferred stock and $4.50
preferred stock. Pursuant to the Merger Agreement, El Paso acquired an amount
of debt equal to $2.6 billion (subject to certain other adjustments) less the
New preferred stock Issuance proceeds, issued approximately $750 million
(subject to the effects of a collar on the average El Paso common stock market
price) of El Paso equity securities to holders of Tenneco common stock, $4.50
preferred stock and $7.40 preferred stock, assumed the $295 million of Tenneco
junior preferred stock issued in the New Preferred Stock issuance, and acquired
an estimated amount of $600 million in other liabilities of certain discontinued
businesses of Tenneco for a total purchase price of approximately $4 billion. E
Paso's acquisition of Tenneco will be accounted for under the purchase method.
These pro forma financial statements reflect the common stock issuance as
approved by the stockholders of the Company in a special meeting held on
December 9, 1996.
A final determination of required purchase accounting adjustments,
including the allocation of the purchase price to the assets acquired and
liabilities assumed based on their respective fair values, has not yet been
made. Accordingly, the purchase accounting adjustments made in connection with
the development of the Pro Forma Financial Statements are preliminary and have
been made solely for purposes of developing the pro forma combined financial
information. However, management believes that the pro forma adjustments and
the underlying assumptions reasonably present the significant effects of the
Merger and the Refinancing Transactions. As used herein, "Refinancing
Transactions" means certain transactions with respect to Tenneco Energy in
order to reduce the amount of El Paso Tennessee debt including (i) the
monetization of certain assets of Tenneco Energy for anticipated net proceeds
of approximately $500 million, and (ii) a public equity offering by El Paso of
approximately $150 million and the use of the net proceeds of $140 million to
purchase a subordinated series of preferred stock from El Paso Tennessee. In
addition, El Paso will undertake a study to determine the fair value of
Tenneco Energy's assets and liabilities and will revise purchase accounting
adjustments upon completion of that study. Upon consummation of the Merger,
the actual financial position and results of operations of the combined entity
will differ, perhaps significantly, from the pro forma amounts reflected
herein because of a variety of factors, including access to additional
information, changes in value and changes in operating results between the
dates of the pro forma financial information and the date on which the
purchase accounting adjustments are finalized. The Pro Forma Financial
Statements are not necessarily indicative of actual operating results or
financial position had the transactions occurred as of the dates indicated
above, nor do they purport to indicate operating results or financial
position which may be attained in the future.
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The significant adjustments to the pro forma financial position reflect
(i) reductions to cash, receivables and payables and increases to debt for the
Corporate Restructuring Transactions and the Cash and Debt Realignment
Transactions, (ii) increases to property, plant and equipment and accrued
liabilities and decreases to regulatory assets for the purchase price
allocation, and (iii) decreases to property, plant and equipment and debt and
increases to equity for asset sales, debt restructuring and equity offerings in
connection with the Merger and the Refinancing Transactions.
The pro forma adjustments do not reflect any potential operating
efficiencies or cost savings which El Paso believes are achievable with respect
to the combined companies.
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<PAGE> 7
EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
TENNECO ENERGY
PRE-MERGER PRO FORMA PRO FORMA MERGER
--------------------------------------- ------------------------------------------
TENNECO RESTRUCTURING, TENNECO EL PASO/
EL PASO ENERGY REALIGNMENT ENERGY MERGER REFINANCING TENNECO ENERGY
HISTORICAL HISTORICAL AND OFFERING AS ADJUSTED ADJUSTMENTS TRANSACTIONS COMBINED
---------- ---------- ------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and temporary
investments $ 52 $ 35 $ (2)(d) $ 87 $ $ $ 139
54 (g)
Receivables 317 1187 (82)(a) 839 1,156
(303)(b)
37 (c)
Other current assets 124 153 (10)(c) 143 267
------ ------ ------ ------ ------- ----- ------
Total current assets 493 1,375 (306) 1,069 1,562
------ ------ ------ ------ ------- ----- ------
Net property, plant and
equipment 1,991 2,972 (39)(c) 2,933 1,720 (k) (580)(n) 6,064
Other assets and deferred 290 1,101 (130)(b) 960 (590)(j) 80 (n) 740
charges (11)(c)
------ ------ ------ ------ ------ ----- ------
Total assets $2,774 $5,448 $ (486) $4,962 $1,130 $(500) $8,366
====== ====== ====== ====== ====== ===== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term debt $ 289 $ 836 $ (784)(f) $ 52 $ $ 330 (o) $ 671
Payables 386 475 (120)(a) 353 20 (h) 759
(2)(b)
Other current liabilities 308 553 (4)(c) 433 120 (j) 861
(116)(f)
------ ------ ------ ------ ----- ----- ------
Total current liabilities 983 1,864 (1026) 838 140 330 2,291
------ ------ ------ ------ ----- ----- ------
Long-term debt 665 1,603 1,120 (f) 2,428 (500)(n) 2,123
(295)(e) (140)(m)
(330)(o)
Other liabilities and deferred
credits 82 585 (15)(c) 568 151 (j) 801
(2)(d)
Deferred income taxes 296 437 (14)(b) 423 335 (l) 1,054
------ ------ ------ ------ ----- ----- ------
2,026 4,489 (232) 4,257 626 (640) 6,269
------ ------ ------ ------ ----- ----- ------
Minority interest 40 295 (k) 335
------ ------ ------ ------ ----- ----- ------
Preferred stock with mandatory
redemption provisions 113 113 (113)(i)
------ ------ ------ ------ ----- ----- ------
Stockholders' equity:
Preferred Stock 295 (e) 295 (295)(k)
Common Stock 113 56 (i) 8 (m) 177
Additional Paid In Capital 484 858 (i) 132 (m) 1,474
Accumulated Earnings 111 111
Tenneco Energy Combined Equity 846 38 (a) 297 (297)(k)
(417)(b)
(4)(c)
(220)(f)
54 (g)
------ ------ ------ ------ ----- ----- ------
Total stockholders' equity 708 846 (254) 592 322 140 1,762
------ ------ ------ ------ ----- ----- ------
Total liabilities and
stockholders' equity $2,774 $5,448 $ (486) $4,962 $1,130 $(500) $8,366
====== ====== ====== ====== ====== ===== ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Balance Sheet.
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EL PASO NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
RESTRUCTURING, REALIGNMENT AND OFFERING:
(a) To reflect the settlement of intercompany trade accounts receivable and
intercompany trade accounts payable with Tenneco Energy affiliates.
(b) To reflect the distribution to New Tenneco or sale of receivables
previously sold to Tenneco Credit Corporation, a Tenneco Energy affiliate
which has been renamed "El Paso Energy Credit Corporation."
(c) To reflect the transfer from Tenneco Energy to New Tenneco and affiliates
of certain assets and liabilities held at the corporate level.
(d) To reflect the transfer to New Tenneco of insurance liabilities and the
related portfolio of short-term cash investments and other assets
previously held by Eastern Insurance Company Limited.
(e) To reflect the issuance of $300 million of New Preferred Stock, with an
assumed 8 1/4% dividend yield, for net proceeds of $295 million, and the
use of the net proceeds for the repayment of Tenneco Energy Consolidated
Debt.
(f) To reflect the restructuring and realignment of the Old Tenneco debt
pursuant to the Debt Realignment, the Distributions and the applicable
provisions of the Merger Agreement, and the assumed payment of accrued
interest on the Tenneco Energy Consolidated Debt defeased, redeemed,
tendered or exchanged as part of the Debt Realignment. The amount of
"Tenneco Energy as Adjusted" debt immediately prior to the Merger
consists primarily of borrowings under the Tenneco Credit Facility and is
calculated from the provisions of the Merger Agreement as follows (in
millions):
Base Debt Amount per Merger agreement ...................... $2,611
Less: New Preferred Stock issuance proceeds ................ (300)
------
2,311
Plus: Cash settlement payments ............................. 439
Less: Estimated collections subject to refund .............. (270)
------
$2,480
"Tenneco Energy as Adjusted" debt........................... ======
(g) To reflect the contribution to Tenneco Energy of cash pursuant to the
Cash Realignment provisions of the Merger Agreement and Distribution
Agreement.
MERGER ADJUSTMENTS:
(h) To reflect the liability for the estimated legal, investment banking and
stock issuance costs of $20 million to be incurred by El Paso in
connection with the Merger.
(i) To reflect the issuance of approximately 18.793 million shares of El Paso
common stock valued at $914 million based on an assumed price of $48.625
per share. The equity consideration was issued in exchange for the $113
million of $7.40 preferred stock and $4.50 preferred stock at an assumed
redemption amount equal to $138 million with the remainder exchanged for
Old Tenneco common stock.
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(j) To reflect the preliminary estimated acquisition adjustments under the
purchase method of accounting to record assets acquired and
liabilities assumed at estimated fair value for (i) reduction of
certain other assets, deferred charges and regulatory assets, (ii)
revision of benefit plan assumptions relating to the retiree medical
plan obligation, other employee benefit costs and environmental costs,
and (iii) the accrual of an obligation to New Tenneco which is
expected to be paid after completion of the transaction as a result of
the utilization of certain tax benefits generated by the Debt
Realignment. The following adjustments reflect El Paso management's
intended business strategies which may differ from the business
strategies employed by Tenneco Energy management prior to the Merger
(in millions):
<TABLE>
<S> <C>
Other assets and deferred charges . . . . . . . . . . . . . $ 590
Other liabilities and deferred credits . . . . . . . . . . . 151
Other current liabilities . . . . . . . . . . . . . . . . . 120
-----
$ 861
=====
</TABLE>
(k) The following adjustments are made to adjust the historical values of
certain assets and liabilities to their estimated fair values as
follows (in millions):
<TABLE>
<S> <C>
Increased property, plant and equipment . . . . . . . . . . . $1,720
Reduce other assets and deferred charges . . . . . . . . . . . (590)
Increase current liabilities . . . . . . . . . . . . . . . . . (140)
Increase other liabilities and deferred credits . . . . . . . (151)
Increase deferred income taxes . . . . . . . . . . . . . . . . (335)
Eliminate Tenneco Energy stockholders' equity:
Tenneco Energy preferred stock . . . . . . . . . . . . 113
Tenneco Energy equity . . . . . . . . . . . . . . . . 297
------
Issuance of El Paso common stock . . . . . . . . . . . . . . . $ 914
======
</TABLE>
The allocation above reflects El Paso's internal evaluation of the
excess purchase price and is subject to the completion of an
independent appraisal of the fair value of the property. It is not
expected that any excess purchase price allocated to property, plant
and equipment will be allowed for regulatory purposes or recovered
through rates. Should the independent appraisal not support such
allocation to property, plant and equipment, the excess of total
purchase price over the fair value of the net assets acquired will be
reflected as goodwill.
(l) To reflect the increase in deferred income taxes of $335 million which
have been provided for temporary differences after the allocation of
the pro forma purchase price and acquisition adjustments. The
following pro forma adjustments were required for estimated book and
tax basis differences resulting from the allocation of the pro forma
purchase price, at an assumed tax rate of 39% (in millions):
<TABLE>
<S> <C>
Property, plant and equipment . . . . . . . . . . . $ 671
Other assets . . . . . . . . . . . . . . . . . . . . (230)
Other liabilities . . . . . . . . . . . . . . . . . (106)
-----
$ 335
=====
</TABLE>
REFINANCING TRANSACTIONS:
(m) To reflect the assumed issuance of $150 million El Paso common stock,
for net proceeds of $140 million, and the use of the net proceeds for
the repayment of long-term debt acquired pursuant to the Merger.
(n) To reflect the assumed monetization of $500 million of assets through
sales or project financings, at book value, and to reflect El Paso's
remaining $80 million investment in certain Australian projects using
the equity method. These proceeds are used to pay down long-term debt
acquired pursuant to the Merger.
(o) To reflect the replacement of the remaining balance under the Tenneco
Credit Facility with short-term and long-term financing at interest
rates of 6% and 8%, respectively.
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Tenneco Energy
Pre-Merger Pro Forma Pro Forma Merger
---------------------------------- ------------------------------------
Restructuring, El Paso/
Tenneco Realignment Tenneco Tenneco
El Paso Energy and Energy Merger Refinancing Energy
Historical Historical Offering as Adjusted Adjustments Transactions Combined
---------- ---------- ------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 1,938 $ 1,997 $ $ 1,997 $ $ (36)(j) $ 3,899
Operating costs and expenses ...... 1,744 1,865 (51)(a) 1,814 32(e) (31)(j) 3,565
6(f)
Employee separation and asset
impairment charge ............. 99 99
-------- ------- ------ -------- -------- -------- --------
Operating income ............. 95 132 51 183 (38) (5) 235
Other (income) expense, net ....... (1) (132) 8(a) (124) (125)
Interest expense .................. 73 101 55(c) 156 (38)(i) 183
(5)(k)
(3)(j)
-------- ------- ------ -------- -------- -------- --------
Income before income taxes and
minority interest .............. 23 163 (12) 151 (38) 41 177
Provision for income taxes
(benefit)(1) ................... 9 36 (2)(d) 34 (15)(g) (1)(j) 45
18 (l)
-------- ------- ------ -------- -------- -------- --------
Income before minority interest ... 14 127 (10) 117 (23) 24 132
Minority interest ................. 19 (h) 19
-------- ------- ------ -------- -------- -------- --------
Income before preferred
stock dividends................. 14 127 (10) 117 (42) 24 113
Preferred stock dividends ......... 7 19(b) 26 (19)(h)
(7)(h)
-------- ------- ------ -------- -------- -------- --------
Earnings available to common
stock ......................... $ 14 $ 120 $ (29) $ 91 $ (16) $ 24 $ 113
======== ======= ===== ======== ======== ======== ========
Earnings per average share of
common stock (2) .............. $ .40 $ 1.95
======== ========
Number of shares used in
computation of earnings per
common shares (in thousands) .. 34,994 18,793 4,292 58,079
======== ======== ======== ========
</TABLE>
- -------------------
(1) The provision for income taxes for Tenneco Energy reflects the
realization of unrecognized deferred tax assets; therefore, the
overall effective tax rate is significantly lower than the assumed
statutory rate of 39%. If the statutory rate had been used, the
combined provision for income taxes would have been $69 million and
the pro forma combined amounts for earnings available to common stock
and earnings available to common stock and earnings per average share
of common stock would have been $89 million and $1.53, respectively.
(2) Per share data is calculated using the income applicable to common
shares divided by the pro forma shares outstanding. The pro forma
weighted average common shares outstanding includes the following
assumptions: (i) the issuance of 18.793 million shares of El Paso
common stock to holders of Tenneco common stock, $7.40 preferred stock
and $4.50 preferred stock under the terms of the Merger, and (ii) the
assumed issuance of 4.292 million shares of El Paso common stock at
$48.625 per share as part of the Refinancing Transactions, the
proceeds of which will be used to pay down long-term debt. Earnings
per average share of common stock excluding the employee separation
and asset impairment special charge ($60 million after tax) would be
$2.11 and $2.98 per common share for the El Paso Historical and El
Paso/Tenneco Energy Combined presentations, respectively.
See accompanying Notes to Unaudited Pro Forma Combined Income Statements.
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Tenneco Energy
Pre-Merger Pro Forma Pro Forma Merger
------------------------------------- ---------------------------------------
Restructuring, El Paso/
Tenneco Realignment Tenneco Tenneco
El Paso Energy and Energy Merger Refinancing Energy
Historical Historical Offering as Adjusted Adjustments Transactions Combined
---------- ---------- ------------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 1,038 $ 1,921 $ $ 1,921 $ $ (47)(j) $ 2,912
Operating costs and expenses ...... 826 1,843 (93)(a) 1,750 43 (e) (41)(j) 2,586
8 (f)
-------- -------- -------- -------- -------- -------- --------
Operating income .............. 212 78 93 171 (51) (6) 326
Other (income) expense, net ....... (7) (190) 84(a) (106) (113)
Interest expense .................. 86 122 92(c) 214 (51)(i) 240
(6)(k)
(3)(j)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes
and minority interest ........... 133 146 (83) 63 (51) 54 199
Provision for income taxes
(benefit)(1) .................... 48 (11) (33)(d) (44) (20)(g) 24(l) 7
(1)(j)
-------- -------- -------- -------- -------- -------- --------
Income before minority interest ... 85 157 (50) 107 (31) 31 192
Minority interest ................. 25 (h) 25
-------- -------- -------- -------- -------- -------- --------
Income before preferred
stock dividends.................. 85 157 (50) 107 (56) 31 167
Preferred stock dividends ......... 12 25(b) 37 (25)(h)
(12)(h)
-------- -------- -------- -------- -------- -------- --------
Earnings available to common
stock ........................... $ 85 $ 145 $ (75) $ 70 $ (19) $ 31 $ 167
======== ======== ======== ======== ======== ======== ========
Earnings per average share
of common stock(2) .............. $ 2.47 $ 2.90
======== ========
Number of shares used in
computation of earnings per
common share (in thousands) ..... 34,495 18,793 4,292 57,580
======== ======== ======== ========
</TABLE>
- -------------------
(1) The provision for income taxes for Tenneco Energy reflects the
realization of unrecognized deferred tax assets; therefore, the
overall effective tax rate is significantly lower than the assumed
statutory rate of 39%. If this statutory rate had been used, the
combined provision for income taxes would have been $78 million and
the pro forma combined amounts for earnings available to common stock
and earnings per average share of common stock would have been $96
million and $1.67 respectively.
(2) Per share data is calculated using the income applicable to common
shares divided by the pro forma shares outstanding. The pro forma
weighted average common shares outstanding includes the following
assumptions: (i) the issuance of 18.793 million shares of El Paso
common stock to holders of Tenneco common stock, $7.40 preferred
stock and $4.50 preferred stock under the terms of the Merger, and
(ii) the assumed issuance of 4.292 million shares of El Paso common
stock at $48.625 per share as part of the Refinancing Transactions,
the proceeds of which will be used to pay down long-term debt.
See accompanying Notes to Unaudited Pro Forma Combined Income Statements.
10
<PAGE> 12
EL PASO NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
RESTRUCTURING, REALIGNMENT AND OFFERING:
(a) To reflect the earnings impact of the distribution to New Tenneco or
sale of receivables previously sold to Tenneco Credit Corporation, a
Tenneco Energy affiliate which has been renamed "El Paso Energy Credit
Corporation."
(b) To reflect preferred stock dividends on the New Preferred Stock issued
at an assumed dividend yield of 8 1/4%.
(c) To reflect interest expense on additional debt issued under the Tenneco
Credit Facility. For purposes of the pro forma calculations, an assumed
interest rate of 8% has been used.
(d) To reflect the income tax expense effects of pro forma adjustments.
MERGER ADJUSTMENTS:
(e) To reflect depreciation expense related to the increase in fair value of
property, plant and equipment, depreciated over a 40 year period which
approximates the FERC approved depreciation rate for the regulated
property, plant and equipment of Tenneco Energy prospectively.
(f) To reflect the assumed pro forma postretirement cost for Tenneco Energy
employees.
(g) To reflect the income tax expense effects of pro forma adjustments at an
estimated rate of 39%.
(h) To reflect the New Preferred Stock dividends as minority interest and
the elimination of dividends on the $7.40 preferred stock and $4.50
preferred stock.
REFINANCING TRANSACTIONS:
(i) To reflect an interest expense reduction relating to debt repaid from
the net proceeds from the $150 million equity offering and proceeds from
the monetization of $500 million of asset sales and project financings at
book value.
(j) To remove the historical operating results of Tenneco Energy's
exploration and production business which is assumed to be disposed at
book value.
(k) To reflect the interest expense reduction relating to the replacement of
the remaining balance under the Tenneco Credit Facility with short-term
and long-term financing at interest rates of 6% and 8%, respectively. A
1/8% change in interest rates would have the impact of increasing total
pro forma interest expense by approximately $1.7 million and $2.2 million
for the nine months ended September 30, 1996 and the year ended December
31, 1995, respectively.
(l) To reflect the income tax expense effects of pro forma adjustments at an
estimated rate of 39%.
11
<PAGE> 13
(c) Exhibits.
Exhibits not incorporated by reference to a prior filing are
designated by an asterisk; all exhibits not so designated are incorporated
herein by reference to a prior filing as indicated.
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
June 19, 1996, among El Paso, El Paso Merger Company and Old Tenneco
(Exhibit 2.1 to El Paso's Form 8-K dated December 26, 1996, File
No. 1-2700).
2.2 Distribution Agreement, dated as of November 1, 1996, among Old
Tenneco, New Tenneco Inc. and Newport News Shipbuilding Inc.
(Exhibit 2.2 to El Paso's Form 8-K dated December 26, 1996, File
No. 1-2700).
*2.3 Amendment No. 1 to Distribution Agreement, entered into as of
December 11, 1996, among Old Tenneco, New Tenneco and Newport News.
2.4 Letter Agreement, dated December 11, 1996, between El Paso and New
Tenneco Inc. (Exhibit 2.3 to El Paso's Form 8-K dated December 26,
1996, File No. 1-2700).
*23 Consent of Arthur Andersen LLP.
99.1 List of Lenders under the Credit Agreement.
99.2 Press Release, dated December 23, 1996 (Exhibit 99.2 to El Paso's
Form 8-K dated December 26, 1996, File No. 1-2700).
12
<PAGE> 14
SIGNATURES
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.
EL PASO NATURAL GAS COMPANY
By /s/ H. BRENT AUSTIN
-----------------------------
H. Brent Austin
Executive Vice President
and Chief Financial Officer
Date: January 21, 1997
13
<PAGE> 15
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE BUSINESSES OF TENNECO ENERGY
Report of Independent Public Accountants................................ F-2
Combined Statements of Income for each of the three years in the period
ended December 31, 1995 and for the nine months ended September 30,
1996 and 1995.......................................................... F-3
Combined Balance Sheets December 31, 1995 and 1994 and September 30,
1996................................................................... F-4
Combined Statements of Cash Flows for each of the three years in the
period ended December 31, 1995 and for the nine months ended September
30, 1996 and 1995...................................................... F-5
Statements of Changes in Combined Equity for each of the three years in
the period ended December 31, 1995 and for the nine months ended
September 30, 1996 and 1995............................................ F-6
Notes to Combined Financial Statements.................................. F-7
FINANCIAL STATEMENT SCHEDULES
Valuation and Qualifying Accounts--The Businesses of Tenneco Energy..... S-1
</TABLE>
F-1
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Inc.:
We have audited the accompanying combined balance sheets of the businesses
of Tenneco Energy (see Note 1) as of December 31, 1995 and 1994, and the
related combined statements of income, cash flows and changes in combined
equity for each of the three years in the period ended December 31, 1995.
These combined financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
businesses of Tenneco Energy as of December 31, 1995 and 1994, and the results
of its combined operations and cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The supplemental schedule
listed in the index to the combined financial statements and schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic combined financial statements.
The supplemental schedule has been subjected to the auditing procedures
applied in the audits of the basic combined financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic combined financial statements of
the businesses of Tenneco Energy taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
August 19, 1996
F-2
<PAGE> 17
THE BUSINESSES OF TENNECO ENERGY
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- --------------
(MILLIONS) 1995 1994 1993 1996 1995
- ------------ ------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues.... $1,921 $2,381 $2,866 $1,997 $1,368
Other income--
Interest income................... 85 65 25 44 64
Equity in net income of affiliated
companies........................ 65 51 47 25 51
Gain (loss) on sale of assets,
net.............................. 11 1 62 37 (7)
Gain on the sale by a subsidiary
of its stock..................... -- 23 -- -- --
Other income (loss), net.......... 29 17 37 26 (7)
------ ------ ------ ------ ------
2,111 2,538 3,037 2,129 1,469
------ ------ ------ ------ ------
COSTS AND EXPENSES
Cost of gas sold.................... 954 1,472 1,786 1,156 671
Operating expenses.................. 414 379 442 331 262
General and administrative.......... 200 143 169 165 147
Finance charges..................... 79 75 51 51 66
Depreciation, depletion and
amortization....................... 196 102 170 162 141
------ ------ ------ ------ ------
1,843 2,171 2,618 1,865 1,287
------ ------ ------ ------ ------
Income before interest expense and
income taxes....................... 268 367 419 264 182
Interest expense, net of interest
allocated to affiliates............ 122 142 127 101 86
------ ------ ------ ------ ------
Income before income taxes.......... 146 225 292 163 96
Income tax expense (benefit)........ (11) 72 104 36 44
------ ------ ------ ------ ------
Income before extraordinary loss.... 157 153 188 127 52
Extraordinary loss, net of income
tax................................ -- -- (25) (1) --
------ ------ ------ ------ ------
Net income ......................... $ 157 $ 153 $ 163 $ 126 $ 52
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements of income.
F-3
<PAGE> 18
THE BUSINESSES OF TENNECO ENERGY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
(MILLIONS) 1995 1994 1996
- ------------ ------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments.............. $ 249 $ 48 $ 35
Receivables--
Customer notes and accounts (net)............... 508 961 415
Affiliated companies............................ 199 215 136
Gas transportation and exchange................. 64 214 144
Income taxes.................................... 133 234 106
Other........................................... 436 130 386
Inventories...................................... 24 22 25
Deferred income taxes............................ -- -- 39
Prepayments and other............................ 83 92 89
------ ------ ------
1,696 1,916 1,375
------ ------ ------
Investments and other assets:
Investment in affiliated companies............... 280 358 252
Long-term notes and other receivables (net) ..... 352 683 188
Goodwill......................................... 22 25 48
Other............................................ 601 307 613
------ ------ ------
1,255 1,373 1,101
------ ------ ------
Plant, property and equipment, at cost............. 6,272 5,768 6,518
Less--Reserves for depreciation, depletion and
amortization.................................... 3,431 3,327 3,546
------ ------ ------
2,841 2,441 2,972
------ ------ ------
$5,792 $5,730 $5,448
====== ====== ======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Short-term debt (including current maturities on
long-term debt)................................. $ 456 $ 399 $ 836
Payables--
Trade........................................... 365 324 250
Affiliated companies............................ 88 47 122
Gas transportation and exchange................. 28 159 103
Taxes accrued.................................... 525 56 17
Deferred income taxes............................ 65 29 --
Interest accrued................................. 102 124 138
Natural gas pipeline revenue reservation......... 27 190 73
Other............................................ 428 238 325
------ ------ ------
2,084 1,566 1,864
------ ------ ------
Long-term debt..................................... 1,811 2,242 1,603
------ ------ ------
Deferred income taxes.............................. 323 735 437
------ ------ ------
Postretirement benefits............................ 260 288 239
------ ------ ------
Deferred credits and other liabilities............. 478 351 346
------ ------ ------
Commitments and contingencies
Minority interest.................................. 19 19 --
------ ------ ------
Preferred stock with mandatory redemption
provisions........................................ 130 147 113
------ ------ ------
Combined equity.................................... 687 382 846
------ ------ ------
$5,792 $5,730 $5,448
====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined balance sheets.
F-4
<PAGE> 19
THE BUSINESSES OF TENNECO ENERGY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED SEPTEMBER
DECEMBER 31, 30,
--------------------- -------------
(MILLIONS) 1995 1994 1993 1996 1995
- ------------ ----- ----- ------- ------ -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................... $ 157 $ 153 $ 163 $ 126 $ 52
Adjustments to reconcile net income to
net cash provided (used) by operating
activities --
Extraordinary loss, net of tax......... -- -- 25 1 --
Depreciation, depletion and
amortization.......................... 196 102 170 162 141
Equity in net income of affiliated
companies, net of dividends........... (12) (3) (5) (2) (6)
Deferred income taxes.................. 88 51 93 5 2
(Gain) loss on sale of assets, net..... (11) (24) (62) (37) 7
Cash paid for interest allocated to
affiliates, net of tax................ (117) (78) (81) (107) (90)
Changes in components of working
capital--
(Increase) decrease in receivables.... 451 17 78 77 535
(Increase) decrease in prepayments and
other current assets................. 8 35 51 19 8
Increase (decrease) in payables....... (25) (262) (241) (68) (117)
Increase (decrease) in taxes accrued.. 40 (252) 90 (240) 6
Increase (decrease) in interest
accrued.............................. (52) (39) (32) (4) (25)
Increase (decrease) in natural gas
pipeline revenue reservation......... (156) (91) 136 23 (169)
Increase (decrease) in other current
liabilities.......................... (102) (60) (122) (40) (51)
(Increase) decrease in long-term notes
and other receivables (net)........... 332 228 -- 182 260
Take-or-pay (refunds to customers)
recoupments, net...................... 36 26 (34) 1 34
Other.................................. (68) (81) (20) (373) 39
----- ----- ------- ------ -----
Net cash provided (used) by operating
activities.............................. 765 (278) 209 (275) 626
----- ----- ------- ------ -----
INVESTING ACTIVITIES
Net proceeds from sale of assets......... 17 68 114 283 14
Expenditures for plant, property and
equipment............................... (337) (345) (171) (267) (224)
Acquisitions of businesses............... (241) -- -- -- (225)
Investments and other.................... 24 48 22 (31) 28
----- ----- ------- ------ -----
Net cash provided (used) by investing
activities.............................. (537) (229) (35) (15) (407)
----- ----- ------- ------ -----
FINANCING ACTIVITIES
Issuance of Tenneco Inc. common, treasury
and SECT shares......................... 102 188 1,215 105 74
Purchase of Tenneco Inc. common stock.... (655) (26) (7) (149) (496)
Redemption of Tenneco Inc. preferred
stock................................... (20) (20) (30) (20) (20)
Dividends (Tenneco Inc. common and
preferred stock)........................ (286) (318) (307) (236) (216)
Redemption of equity securities by a
subsidiary.............................. -- (160) -- -- --
Net increase (decrease) in short-term
debt excluding current maturities on
long-term debt.......................... 415 (97) 19 1,004 271
Issuance of long-term debt............... 594 -- -- -- --
Retirement of long-term debt............. (497) (508) (1,335) (367) (380)
Net cash contributions from
(distributions to) affiliates........... 320 1,367 396 (261) 1,090
----- ----- ------- ------ -----
Net cash provided (used) by financing
activities.............................. (27) 426 (49) 76 323
----- ----- ------- ------ -----
Increase (decrease) in cash and temporary
cash investments........................ 201 (81) 125 (214) 542
Cash and temporary cash investments, at
beginning of period..................... 48 129 4 249 48
----- ----- ------- ------ -----
Cash and temporary cash investments, at
end of period........................... $ 249 $ 48 $ 129 $ 35 $ 590
===== ===== ======= ====== =====
Cash paid during the year for interest... $ 420 $ 349 $ 498 $ 309 $ 307
Cash paid during the year for income
taxes (net of refunds and tax payments
from affiliates)........................ $(123) $(129) $ 14 $ 519 $ 26
</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 combined financial statements are an integral part of
these combined statements of cash flows.
F-5
<PAGE> 20
THE BUSINESSES OF TENNECO ENERGY
STATEMENTS OF CHANGES IN COMBINED EQUITY
<TABLE>
<CAPTION>
(MILLIONS)
- -----------
<S> <C>
Balance, December 31, 1992............................................ $(1,503)
Net income.......................................................... 163
Cash paid for interest allocated to affiliates, net of tax.......... (81)
Change in corporate debt allocated to affiliates.................... (905)
Cash contributions from (distributions to) affiliates, net.......... 396
Noncash contributions from (distributions to) affiliates, net....... 360
Contributions from (distributions to) shareowners, net.............. 918
-------
Balance, December 31, 1993............................................ (652)
Net income.......................................................... 153
Cash paid for interest allocated to affiliates, net of tax.......... (78)
Change in corporate debt allocated to affiliates.................... (135)
Cash contributions from (distributions to) affiliates, net.......... 1,367
Noncash contributions from (distributions to) affiliates, net....... (98)
Contributions from (distributions to) shareowners, net.............. (175)
-------
Balance, December 31, 1994............................................ 382
Net income.......................................................... 157
Cash paid for interest allocated to affiliates, net of tax.......... (117)
Change in corporate debt allocated to affiliates.................... 930
Cash contributions from (distributions to) affiliates, net.......... 320
Noncash contributions from (distributions to) affiliates, net....... (235)
Contributions from (distributions to) shareowners, net.............. (750)
-------
Balance, December 31, 1995............................................ 687
Net income.......................................................... 126
Cash paid for interest allocated to affiliates, net of tax.......... (107)
Change in corporate debt allocated to affiliates.................... 480
Cash contributions from (distributions to) affiliates, net.......... (261)
Noncash contributions from (distributions to) affiliates, net....... 161
Contributions from (distributions to) shareowners, net.............. (240)
-------
Balance, September 30, 1996 (unaudited)............................... $ 846
=======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements of changes in combined equity.
F-6
<PAGE> 21
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Basis of Presentation
The accompanying combined financial statements represent the financial
position, results of operations and cash flows of all energy businesses and
operations owned directly or indirectly by Tenneco Inc. ("Tenneco") and its
subsidiaries, and other existing and discontinued operations of Tenneco and
its subsidiaries other than those relating to Tenneco's automotive, packaging,
administrative services and shipbuilding businesses. The combination of these
energy businesses and operations and such other existing and discontinued
operations of Tenneco, together with Tenneco (which will remain the parent
company of such businesses and operations after the Distributions and Merger
described in Note 2 below) are collectively referred to herein as "Tenneco
Energy" or the "Company".
Investments in 20% to 50% owned companies where Tenneco Energy has the
ability to exert significant influence over operating and financial policies
are carried at cost plus equity in undistributed earnings since date of
acquisition. Reference is made to Note 11, "Investment in Affiliated
Companies," for information concerning significant equity method investees.
All significant transactions and balances among combined businesses have been
eliminated.
Description of Business
Tenneco Energy is engaged primarily in the interstate transportation of
natural gas. The Company is also engaged in related businesses that are not
generally subject to regulation by the Federal Energy Regulatory Commission
("FERC"). The principal activities of these businesses include the intrastate
transportation and marketing of natural gas, the development of and
participation in international natural gas pipelines, primarily in Australia,
the participation in international and domestic gas-fired power generation
projects and the development of natural gas production and production
financing programs, primarily in the United States. Tenneco Energy, through
its combined subsidiary Tenneco Credit Corporation ("TCC"), is also engaged in
financing, on a nonrecourse basis, receivables of certain current and former
operating divisions of Tenneco.
2. MERGER AND DISTRIBUTIONS
On June 19, 1996, Tenneco and El Paso Natural Gas Company ("El Paso")
entered into a merger agreement pursuant to which a subsidiary of El Paso will
be merged with and into Tenneco (the "Merger") which, immediately following
the distributions discussed below, will consist only of the energy businesses
and operations and the other existing and discontinued operations of Tenneco.
The Merger is part of a larger Tenneco reorganization (the "Transaction"),
which includes the distribution of all of the outstanding shares of common
stock of New Tenneco Inc., a newly formed subsidiary of Tenneco which, after
giving effect to certain corporate restructuring transactions, will hold
substantially all of the assets, liabilities and operations of Tenneco's
current automotive, packaging and administrative services businesses ("New
Tenneco"), and Newport News Shipbuilding Inc., a subsidiary of Tenneco that
was formerly named Tenneco InterAmerica Inc. and that will hold substantially
all of the assets, liabilities and operations of Tenneco's current
shipbuilding business ("Newport News"), to the holders of Tenneco common stock
(collectively, the "Distributions"). Upon completion of the Transaction,
holders of Tenneco common stock will receive equity securities in New Tenneco,
Newport News and El Paso.
Prior to the Transaction Tenneco intends to initiate a realignment of its
existing indebtedness. As part of the debt realignment, certain New Tenneco
debt will be offered in exchange for certain issues of Tenneco debt. Tenneco
will initiate tender offers for other Tenneco debt, and certain debt issues
may be defeased. These tender offers and defeasances will be financed by a
combination of new lines of credit of the Company, New Tenneco
F-7
<PAGE> 22
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(which may declare and pay a dividend to Tenneco) and Newport News (which will
declare and pay a dividend of approximately $600 million to Tenneco). Upon
completion of the debt realignment, Tenneco will have responsibility for $2.65
billion of debt and preferred stock, subject to certain adjustments, Newport
News will have responsibility for the borrowings under its credit lines and
New Tenneco will have responsibility for the remaining debt.
The Transaction is subject to certain conditions, including receipt of a
favorable ruling from the Internal Revenue Service to the effect that the
Distributions and certain internal spin-off transactions will be tax-free for
federal income tax purposes and approval by Tenneco's shareowners.
In order to assist in the orderly transition of New Tenneco and Newport News
into separate, publicly held companies, Tenneco intends to modify, amend or
enter into certain contractual agreements with New Tenneco and Newport News,
including a tax sharing agreement (see "Income taxes" in Note 3), an employee
benefits agreement, an insurance agreement, an administrative services
agreement and other ancillary agreements. These agreements will provide, among
other things, that: (i) New Tenneco will become the sole sponsor of the
Tenneco Inc. Retirement Plan, the Tenneco Inc. Thrift Plan, and various
Tenneco Inc. welfare plans; (ii) New Tenneco and Newport News will retain
specific insurance policies relating to their businesses and will continue to
have rights and obligations under certain parent-company level insurance
policies of Tenneco; and (iii) at the election of Tenneco pursuant to El
Paso's request, New Tenneco will provide certain services, such as mainframe
data processing and product purchasing services, to the Company for a limited
period of time following the Distributions.
3. SUMMARY OF ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of the Company's assets,
liabilities, revenues and expenses. Reference is made to the "Revenue
Recognition" and "Income Taxes" sections of this footnote and Notes 9, 13, 14
and 15 for additional information on significant estimates included in the
Company's combined financial statements.
Unaudited Interim Information
The unaudited interim combined financial statements as of September 30, 1996
and for each of the nine month periods ended September 30, 1996 and 1995,
included herein, 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 for complete financial statements. In the opinion of the Company's
management, the unaudited interim combined financial statements contain all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation. The interim financial results may not be indicative
of operating results for an entire year.
Notes Receivable and Allowance for Doubtful Accounts and Notes
Short-term notes receivable of $302 million and $305 million were
outstanding at December 31, 1995 and 1994, respectively, of which $216 million
and $284 million, respectively, related to TCC. These notes receivable are
presented net of unearned finance charges of $26 million and $43 million at
December 31, 1995 and 1994, respectively, which related to TCC. At December
31, 1995 and 1994, unearned finance charges related to long-term notes and
other receivables were $23 million and $66 million, respectively, which
related to TCC.
F-8
<PAGE> 23
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and 1994, the allowance for doubtful accounts and
notes receivable was $49 million and $21 million, respectively.
Inventory
Inventories, consisting of materials and supplies are valued at the lower of
average cost or market.
Property, Plant and Equipment, at Cost
The majority of the Company's property, plant and equipment consists of its
investment in interstate and intrastate pipeline systems. At December 31, 1995
and 1994, $223 million and $160 million, respectively, of the Company's
property, plant and equipment balance is construction work in progress.
Additionally, the Company has recorded capitalized interest and an allowance
for equity funds used during construction in the cost of property, plant and
equipment. Pursuant to a FERC order, Tennessee Gas Pipeline Company, a
combined subsidiary of the Company ("Tennessee") recorded all natural gas in
storage as a fixed asset. As of December 31, 1995 and 1994, the balance of
Tennessee's natural gas in storage included in property, plant and equipment
was $96 million.
Depreciation, Depletion and Amortization
Depreciation of the Company's regulated transmission plants are provided
using the composite method over the estimated useful lives of the depreciable
facilities. The rates for depreciation range from 2% to 5%. Costs of
properties that are not operating units, as defined by the FERC, which are
retired, sold or abandoned by the regulated subsidiaries are credited or
charged, net of salvage, to accumulated depreciation. Gains or losses on sales
of operating units are credited or charged to income.
Depreciation of the Company's nonregulated properties is provided using the
straight line or composite method which, in the opinion of management, is
adequate to allocate the cost of properties over their estimated useful lives.
Goodwill
Goodwill is being amortized over a 15-year period using the straight-line
method. Such amortization amounted to $1.8 million for 1995, 1994 and 1993 and
is included in "Other income, net" in the accompanying combined statements of
income. Accumulated amortization of goodwill was $5.4 million and $3.6 million
at December 31, 1995 and 1994, respectively.
Environmental Liabilities
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations,
and which do not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when environmental assessments indicate
that remedial efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into
consideration the likely effects of inflation and other societal and economic
factors. All available evidence is considered including prior experience in
remediation of contaminated sites, other companies clean-up experience and
data released by the United States Environmental Protection Agency or other
organizations. These estimated liabilities are subject to revision in future
periods based on actual costs or new circumstances. These liabilities are
included in the combined balance sheets at their undiscounted amounts.
Recoveries are evaluated separately from the liability and, when recovery is
assured, are
F-9
<PAGE> 24
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
recorded and reported separately from the associated liability in the combined
financial statements. Reference is made to Note 15, "Commitments and
Contingencies--Environmental Matters" for further information on this subject.
Revenue Recognition
The regulated subsidiaries of the Company are subject to FERC regulations
and, accordingly, revenues are collected subject to possible refunds pending
final FERC orders. The regulated subsidiaries record rate refund accruals
based on management's estimate of the expected income impact of the rate
proceedings. The Company has recorded revenue reservations of $27 million and
$190 million as of December 31, 1995 and 1994, respectively. The Company
believes the estimate for revenues subject to refund is adequate.
Other Income
Gains or losses on the sale by a subsidiary of its stock are included in
"Other Income, net" in the accompanying combined statements of income.
Income Taxes
The Company utilizes the liability method of accounting for income taxes
whereby it recognizes deferred tax assets and liabilities for the future tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the combined financial statements.
Deferred tax assets are reduced by a valuation allowance when, based upon
management's estimates, it is more likely than not that a portion of the
deferred tax assets will not be realized in a future period. The estimates
utilized in the recognition of deferred tax assets are subject to revision in
future periods based on new facts or circumstances.
Tenneco, together with certain of its subsidiaries which are owned 80% or
more (including Tenneco Energy), have entered into an agreement to file a
consolidated U.S. federal income tax return. Such agreement provides, among
other things, that (i) each company in a taxable income position will be
currently charged with an amount equivalent to its federal income tax computed
on a separate return basis, and (ii) each company in a tax loss position will
be reimbursed currently to the extent its deductions, including general
business credits, are utilized in the consolidated return. The income tax
amounts reflected in the combined financial statements of Tenneco Energy under
the provisions of the tax sharing arrangement are not materially different
from the income taxes which would have been provided had Tenneco Energy filed
a separate tax return. Under the tax sharing agreement, Tenneco pays all
federal taxes directly and bills or refunds, as applicable, its subsidiaries,
including those comprising Tenneco Energy, for the applicable portion of the
total tax payments.
In connection with the Distributions, the current tax sharing agreement will
be cancelled and the Company will enter into a tax sharing agreement with
Newport News, New Tenneco and El Paso. The tax sharing agreement will provide,
among other things, for the allocation of taxes among the parties of tax
liabilities arising prior to, as a result of, and subsequent to the
Distributions. Generally, Tenneco will be liable for taxes imposed on Tenneco
Energy. In the case of federal income taxes imposed with respect to periods
prior to the consummation of the Distributions on the combined activities of
Tenneco and other members of its consolidated group prior to giving effect to
the Distributions, New Tenneco and Newport News will be liable to Tenneco for
federal income taxes attributable to their activities, and each will be
allocated an agreed-upon share of estimated tax payments made by the Tenneco
consolidated group.
Changes in Accounting Principles
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments
F-10
<PAGE> 25
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
of Liabilities," which establishes new accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. The statement is effective for transactions occurring after
December 31, 1996. The impact of the new standard has not been determined.
Effective January 1, 1996, the Company adopted FAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". FAS No. 121 establishes new accounting standards for measuring the
impairment of long-lived assets. The adoption of this new standard had no
material impact on the Company's combined financial position or results of
operations.
Effective January 1, 1994, the Company adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees, after employment but before retirement, on the accrual basis rather
than the "pay-as-you-go" basis. The adoption of this new standard had no
material impact on the Company's combined financial position or results of
operations.
Risk Management Activities
The Company is currently a party to financial instruments and commodity
contracts to hedge its exposure to changes in interest rates and natural gas
prices. These financial instruments and commodity contracts are accounted for
on the accrual basis with gains and losses being recognized based on the type
of contract and exposure being hedged. The amounts paid or received under
interest rate swap agreements are recognized, on the accrual basis, as an
adjustment to interest expense. Net gains and losses on energy commodity
contracts and financial instruments are deferred and recognized when the
hedged transaction is consummated. In the combined statements of cash flows,
cash receipts or payments related to these financial instruments and commodity
contracts are classified consistent with the cash flows from the transactions
being hedged.
4. ACQUISITIONS
During 1995, the Company acquired the natural gas pipeline assets of the
Pipeline Authority of South Australia, which includes a 488-mile pipeline, for
approximately $225 million. Also during 1995, the Company acquired a 50%
interest in two gas-fired cogeneration plants from ARK Energy, a privately-
owned power generation company, for approximately $65 million in cash and
Tenneco common stock. Each of the acquisitions was accounted for as a
purchase. If these assets and investments had been acquired January 1, 1995,
net income would not have been significantly different from the reported
amount.
5. DISPOSITION OF ASSETS AND EXTRAORDINARY LOSS
Disposition of Assets
During the first nine months of 1996, the Company sold its 13.2% interest in
Iroquois Gas Transmission System, L.P., its 50% interest in Dauphin Island
Gathering System, an investment in stock and certain other assets, resulting
in a net pre-tax gain of $37 million.
In December 1995, the Company sold its 50% interest in Kern River Gas
Transmission Company ("Kern River") for a pre-tax gain of $30 million. Kern
River owns a 904-mile pipeline extending from Wyoming to California. Also in
1995, the Company sold certain other facilities and assets for a combined pre-
tax loss of $19 million.
In 1994, Tenneco Energy Resources Corporation, a combined subsidiary which
operates the Company's nonregulated gas marketing and intrastate pipeline
businesses, issued 50 shares of its common stock, diluting Tenneco's ownership
in this subsidiary to 80% and resulting in a gain of $23 million. No taxes
were provided on the gain because management expects that the recorded
investment will be recovered in a tax-free manner.
F-11
<PAGE> 26
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
During 1993, the Company disposed of two wholly-owned companies, Viking Gas
Transmission Company and Dean Pipeline Company, and investments in stock and
certain other assets for a total pre-tax gain of $62 million.
Extraordinary Loss
In April 1993, Tenneco issued 23.5 million shares of its common stock for
approximately $1.1 billion. The proceeds were used to retire $327 million of
short-term debt, $688 million of long-term debt and $14 million of variable-
rate preferred stock. In November 1993, Tenneco retired DM250 million bonds.
The redemption premium related to the retirement of long-term debt resulting
from these two transactions ($25 million, net of income tax benefits of $13
million) was recorded as an extraordinary loss.
6. TRANSACTIONS WITH AFFILIATES
Combined Equity
The "Combined equity" caption in the accompanying combined financial
statements represents Tenneco's cumulative investment in the combined
businesses of Tenneco Energy. Changes in the "Combined equity" caption
represent the net income of the Company, cash paid for interest allocated to
affiliates, net of tax, changes in corporate debt allocated to affiliates, net
cash and noncash contributions from (distributions to) affiliates and net
contributions from (distributions to) shareowners. Reference is made to the
Statements of Changes in Combined Equity for an analysis of activity in the
"Combined equity" caption for each of the three years ended December 31, 1995
and for the nine months ended September 30, 1996.
General and Administrative Expenses
Included in the total general and administrative expenses for 1995, 1994 and
1993, is $16 million, $13 million, and $17 million, respectively, which
represents Tenneco Energy's share of Tenneco's corporate general and
administrative costs for legal, financial, communication and other
administrative services. Tenneco's corporate general and administrative
expenses are allocated based on the estimated level of effort devoted to
Tenneco's various operations and relative size based on revenues, gross
property and payroll. The Company's management believes the method for
allocating corporate general and administrative expenses is reasonable. Total
general and administrative expenses reflected in the accompanying combined
statements of income are reasonable when compared with the total general and
administrative costs Tenneco Energy would have incurred on a stand-alone
basis.
Corporate Debt and Interest Allocations
Tenneco's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Consequently, corporate debt of Tenneco and its
related interest expense have been allocated to New Tenneco and Newport News
based upon the portion of Tenneco's investment in New Tenneco and Newport News
which is deemed to be debt, generally based upon the ratio of New Tenneco's
and Newport News' net assets to Tenneco consolidated net assets plus debt.
Interest expense was allocated at a rate equivalent to the weighted-average
cost of all corporate debt, which was 7.7%, 8.3% and 7.4% for 1995, 1994 and
1993, respectively. Total pre-tax interest expense allocated to New Tenneco
and Newport News in 1995, 1994 and 1993 was $180 million, $120 million and
$124 million, respectively. New Tenneco and Newport News have also been
allocated tax benefits totaling approximately 35% of the allocated pre-tax
interest expense. Although interest expense, and the related tax effects, have
been allocated to New Tenneco and Newport News for financial
F-12
<PAGE> 27
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
reporting on a historical basis, New Tenneco and Newport News have not been
billed for these amounts. The changes in allocated corporate debt and the
after-tax allocated interest expense have been included as a component of the
Company's combined equity. Although, management believes that the historical
allocation of corporate debt and interest expense is reasonable, it is not
necessarily indicative of the Company's debt upon completion of the Debt
Realignment.
Notes and Advances Payable with Affiliates
"Cash contributions from (distributions to) affiliates" in the Statements of
Changes in Combined Equity consist of net cash changes in notes and advances
payable between the Company and New Tenneco and Newport News which have been
included in combined equity. Historically, Tenneco has utilized notes and
advances to centrally manage cash funding requirements for its consolidated
group.
At December 31, 1995 and 1994, the Company had an interest bearing note
payable to New Tenneco totaling $494 million and $310 million, respectively,
which is due on demand and is included as a component of the Company's
combined equity. At December 31, 1995 and 1994, the Company had a non-interest
bearing note payable to Newport News totalling $965 million and $991 million,
respectively, which is due on demand and is included as a component of the
Company's combined equity.
Accounts Receivable and Accounts Payable--Affiliated Companies
The "Payables--Affiliated companies" balance primarily includes billings for
general and administrative costs incurred by New Tenneco and charged to
Tenneco Energy. The "Receivables--Affiliated companies" balance primarily
relates to billings for U.S. income taxes incurred by Tenneco and charged to
New Tenneco and Newport News. Affiliated accounts receivable and accounts
payable between the Company and New Tenneco and Newport News will be settled,
capitalized or converted into ordinary trade accounts, as applicable, as part
of the Distributions.
Employee Benefits
Certain employees of the Company participate in Tenneco's employee stock
ownership and employee stock purchase plans. The Tenneco employee stock
ownership plan provides for the grant of Tenneco common stock options and
other stock awards at a price not greater than market value at the date of
grant. The Tenneco employee stock purchase plan allows employees to purchase
Tenneco common stock at a 15% discount subject to certain thresholds. Certain
employees of New Tenneco and Newport News also participate in Tenneco's
employee stock ownership and employee stock purchase plans. The cost of stock
issued to these employees is billed to New Tenneco and Newport News. In
connection with the Distributions, outstanding options on Tenneco common stock
held by the Company's employees will be vested so that they become fully
exercisable prior to the Merger. If not exercised prior to the Merger, such
options will be cancelled upon consummation of the Merger. Outstanding options
on Tenneco common stock held by New Tenneco and Newport News employees will be
converted into new options of New Tenneco and Newport News, as applicable, so
as to preserve the aggregate value of the options held prior to the
Distributions.
Employees of the Company also participate in certain Tenneco postretirement
and pension plans. Reference is made to Notes 13 and 14 for a further
discussion of the plans.
Sales of Receivables
TCC purchased $513 million and $384 million of trade receivables from New
Tenneco at December 31, 1995 and 1994, respectively. TCC sells these trade
receivables to a third party in the ordinary course of business.
F-13
<PAGE> 28
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT, SHORT-TERM DEBT AND FINANCING ARRANGEMENTS
Long-Term Corporate Debt
A summary of long-term corporate debt obligations of the Company at December
31, 1995 and 1994, is set forth in the following table:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
- ------------ ------ ------
<S> <C> <C>
Tenneco Inc.--
Debentures due 1998 through 2025, average effective interest
rate 8.7% in 1995 and 9.7% in 1994 (net of $2 million in 1995
and 1994 of unamortized discount)............................. $ 698 $ 398
Notes due 1996 through 2005, average effective interest rate
8.8% in 1995 and 9.2% in 1994 (net of $5 million in 1995 and
$4 million in 1994 of unamortized discount)................... 1,962 1,681
Tennessee Gas Pipeline Company--
Debentures due 2011, effective interest rate 15.1% in 1995 and
1994 (net of $216 million in 1995 and $219 million in 1994 of
unamortized discount)......................................... 184 181
Notes due 1996 through 1997, average effective interest rate
9.7% in 1995 and 10.1% in 1994 (net of $5 million in 1995 and
$8 million in 1994 of unamortized discount)................... 573 808
Tenneco Credit Corporation--
Senior notes due 1996 through 2001, average effective interest
rate 9.7% in 1995 and 9.6% in 1994 (net of $1 million in 1995
and $2 million in 1994 of unamortized discount)............... 549 749
Medium-term notes due 1996 through 2002, average interest rate
9.0% in 1995 and 9.4% in 1994................................. 38 73
Subordinated notes due 1998 through 2001, average interest rate
9.9% in 1995 and 1994......................................... 92 92
Other subsidiaries--
Notes due 1996 through 2014, average effective interest rate
8.6% in 1995 and 8.0% in 1994 (net of $14 million in 1995 and
$15 million in 1994 of unamortized discount).................. 8 4
------ ------
4,104 3,986
Less--Current maturities......................................... 414 485
------ ------
Total long-term corporate debt............................... $3,690 $3,501
====== ======
</TABLE>
The aggregate maturities and sinking fund requirements applicable to the
issues outstanding at December 31, 1995, are $414 million, $513 million, $838
million, $250 million and $175 million for 1996, 1997, 1998, 1999 and 2000,
respectively.
Long-Term Corporate Debt Allocation
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
- ------------ -------- --------
<S> <C> <C>
Total long-term corporate debt................................ $ 3,690 $ 3,501
Less: Long-term corporate debt allocated to New Tenneco and
Newport News................................................. (1,879) (1,259)
-------- --------
Total long-term corporate debt, net of allocation to New
Tenneco and Newport News................................... $ 1,811 $ 2,242
======== ========
</TABLE>
- ----------
Note: Reference is made to Note 6 for information concerning debt allocated to
New Tenneco and Newport News.
F-14
<PAGE> 29
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Short-Term Corporate Debt
The Company uses commercial paper, lines of credit and overnight borrowings
to finance its short-term capital requirements. Information regarding short-
term debt for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
TENNECO TENNECO
COMMERCIAL CREDIT COMMERCIAL CREDIT
(MILLIONS) PAPER AGREEMENTS PAPER AGREEMENTS
- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding borrowings at end of
year.............................. $346 $ 85 $ -- $ 17
Weighted average interest rate on
outstanding borrowings at end of
year.............................. 6.2% 7.2% -- 10.7%
Approximate maximum month-end
outstanding borrowings during
year.............................. $615 $467 $362 $133
Approximate average month-end
outstanding borrowings during
year.............................. $109 $104 $164 $ 51
</TABLE>
- - --------
Note:Includes borrowings under both committed credit facilities and
uncommitted lines of credit and similar arrangements.
Tenneco had other short-term borrowings outstanding of $24 million at
December 31, 1995, and none at December 31, 1994.
Short-Term Corporate Debt Allocation
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Current maturities on long-term corporate debt.................... $ 414 $ 485
Commercial paper.................................................. 346 --
Credit agreements................................................. 85 17
Other............................................................. 24 --
----- -----
Total short-term corporate debt (including current maturities on
long-term corporate debt)...................................... 869 502
Less: Short-term corporate debt allocated to New Tenneco and
Newport News................................................... (413) (103)
----- -----
Total short-term corporate debt, net of allocation to New
Tenneco and Newport News..................................... $ 456 $399
===== =====
</TABLE>
- ----------
Note:Reference is made to Note 6 for information concerning corporate debt
allocated to New Tenneco and Newport News.
Financing Arrangements
As of December 31, 1995, Tenneco had arranged committed credit facilities of
approximately $2.5 billion:
<TABLE>
<CAPTION>
COMMITTED CREDIT FACILITIES(A)
------------------------------------------
(MILLIONS) TERM COMMITMENTS UTILIZED AVAILABLE
- ------------ --------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Tenneco credit agreements............ 1996-1999 $2,400(b) $346(c) $2,054
Other credit agreements.............. various 79 35 44
------ ---- ------
$2,479 $381 $2,098
====== ==== ======
</TABLE>
- ----------
Notes:(a) These facilities generally require the payment of commitment fees on
the unused portion of the total commitment and facility fees on the
total commitment.
(b) In 1996, $400 million of these agreements expire; the remainder are
committed through 1999. Of the total committed long-term credit
facilities, $400 million are available to both Tenneco and TCC.
(c) Tenneco's committed long-term credit facilities support its commercial
paper borrowings; consequently, the amount available under the committed
long-term credit facilities is reduced by outstanding commercial paper
borrowings.
F-15
<PAGE> 30
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCIAL INSTRUMENTS
The carrying and estimated fair values of the Company's financial
instruments by class at December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
(MILLIONS) CARRYING FAIR CARRYING FAIR
ASSETS (LIABILITIES) AMOUNT VALUE AMOUNT VALUE
- ---------------------- -------- ------ -------- ------
<S> <C> <C> <C> <C>
Asset and Liability Instruments
Cash and temporary cash investments........ $ 249 $ 249 $ 48 $ 48
Receivables (customer and long-term)....... 860 860 1,644 1,644
Accounts payable (trade)................... (365) (365) (324) (324)
Short-term debt (excluding current
maturities) (Note)........................ (455) (455) (17) (17)
Long-term debt (including current
maturities) (Note)........................ (4,104) (4,692) (3,986) (4,206)
Instruments With Off-Balance-Sheet Risk
Derivative
Interest rate swaps:
In a net receivable position........... -- 10 -- --
In a net payable position.............. -- (22) -- (30)
Natural gas swaps, futures and options... -- 3 -- (5)
Non-derivative
Financial guarantees..................... -- (14) -- (14)
</TABLE>
- ----------
Note: The carrying amounts and estimated fair values of short-term debt and
long-term debt are before allocation of corporate debt to New Tenneco
and Newport News. Reference is made to Note 6 for information concerning
corporate debt allocated to New Tenneco and Newport News.
Asset and Liability Instruments
The fair value of cash and temporary cash investments, receivables, accounts
payable, and short-term debt in the above table was considered to be the same
as or was determined not to be materially different from the carrying amount.
At December 31, 1995 and 1994, respectively, Tenneco Energy's aggregate
customer and long-term receivable balance was concentrated by industry as
follows: energy industry 22% and 21%; automotive parts industry 9% and 11%;
packaging industry 8% and 13%; and farm and construction equipment industry
52% and 47%; all other amounts were not significant. Receivables in the
automotive parts, packaging and farm and construction equipment industries
result from TCC's financing receivables of current and former operating
divisions of Tenneco. TCC sells these trade receivables to a third party in
the ordinary course of business.
Long-term debt--The fair value of fixed-rate long-term debt was based on the
market value of debt with similar maturities and interest rates; the carrying
amount of floating-rate debt was assumed to approximate its fair value.
Instruments With Off-Balance-Sheet Risk
Derivative
Interest Rate Swaps--The fair value of interest rate swaps was based on the
cost that would have been incurred to buy out those swaps in a loss position
and the consideration that would have been received to terminate those swaps
in a gain position. At December 31, 1995 and 1994, the Company was a party to
swaps with a notional value of $1.5 billion and $1.6 billion, respectively. At
December 31, 1995, $750 million were in a net receivable position and $795
million were in a net payable position. At December 31, 1994, the entire $1.6
billion was in a net payable position. Notional amounts associated with these
swaps do not represent future cash payment requirements. These contractual
amounts are only used as a base to measure amounts to be exchanged at
specified settlement dates.
F-16
<PAGE> 31
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Consistent with its overall policy, the Company uses these instruments from
time to time only to hedge known, quantifiable risks arising from fluctuations
in interest rates. The counterparties to these interest rate swaps are major
international financial institutions. The risk associated with counterparty
default on interest rate swaps is measured as the cost of replacing, at the
prevailing market rates, those contracts in a gain position. In the event of
non-performance by the counterparties, the cost to replace outstanding
interest rate swaps at December 31, 1995 and 1994, would not have been
material.
Price Risk Management--The Company uses exchange-traded futures and option
contracts and over-the-counter option and swap contracts to reduce its
exposure to fluctuations in the prices of natural gas. The fair value of these
contracts is based upon the estimated consideration that would be received to
terminate those contracts in a gain position and the estimated cost that would
be incurred to terminate those contracts in a loss position. As of December
31, 1995 and 1994, these contracts, maturing through 1997 and 1996,
respectively, had an absolute notional contract quantity of 321 Bcf and 187
Bcf, respectively. Since the contracts described above are designated as
hedges whose fair values correlate to price movements of natural gas, any
gains or losses on the contracts resulting from market changes will be offset
by losses or gains on the hedged transactions. The Company has off-balance
sheet risk of credit loss in the event of non-performance by counterparties to
all over-the-counter contracts. However, the Company does not anticipate non-
performance by the counterparties.
Non-derivative
Guarantees--At December 31, 1995 and 1994, the Company had guaranteed
payment and performance of approximately $14 million, primarily with respect
to letters of credit and other guarantees supporting various financing and
operating activities.
9. FEDERAL ENERGY REGULATORY COMMISSION REGULATORY MATTERS
Restructuring Proceedings
On April 8, 1992, the FERC issued Order 636 which restructured the natural
gas industry by requiring mandatory unbundling of pipeline sales and
transportation services. Numerous parties appealed, to the U.S. Court of
Appeals for the D.C. Circuit Court, the legality of Order 636 generally, as
well as the legality of specific provisions of Order 636. On July 16, 1996,
the U.S. Court of Appeals for the D.C. Circuit issued its decision upholding,
in large part, Order 636. The Court remanded to the FERC several issues for
further explanation, including further explanation of the FERC's decision to
allow pipelines to recover 100% of their gas supply realignment ("GSR") costs.
Tennessee implemented revisions to its tariff, effective on September 1,
1993, which restructured its transportation, storage and sales services to
convert Tennessee from primarily a merchant to primarily a transporter of gas
as required by Order 636. As a result of this restructuring, Tennessee's gas
sales declined while certain obligations to producers under long-term gas
supply contracts continued, causing Tennessee to incur significant
restructuring transition costs. Pursuant to the provisions of Order 636
allowing for the recovery of transition costs related to the restructuring,
Tennessee has made filings to recover GSR costs resulting from remaining gas
purchase obligations, costs related to its Bastian Bay facilities, the
remaining unrecovered balance of purchased gas ("PGA") costs and the
"stranded" cost of Tennessee's continuing contractual obligation to pay for
capacity on other pipeline systems ("TBO costs").
Tennessee's filings to recover costs related to its Bastian Bay facilities
have been rejected by the FERC based on the continued use of the gas
production from the field; however, the FERC recognized the ability of
Tennessee to file for the recovery of losses upon disposition of these assets.
Tennessee has filed for appellate
F-17
<PAGE> 32
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
review of the FERC actions and is confident that the Bastian Bay costs will
ultimately be recovered as transition costs under Order 636; the FERC has not
contested the ultimate recoverability of these costs.
The filings implementing Tennessee's recovery mechanisms for the following
transition costs were accepted by the FERC effective September 1, 1993;
recovery was made subject to refund pending FERC review and approval for
eligibility and prudence: 1) direct-billing of unrecovered PGA costs to its
former sales customers over a twelve-month period; 2) recovery of TBO costs,
which Tennessee is obligated to pay under existing contracts, through a
surcharge from firm transportation customers, adjusted annually; and 3) GSR
cost recovery of 90% of such costs over a period of up to 36 months from firm
transportation customers and recovery of 10% of such costs from interruptible
transportation customers over a period of up to 60 months.
Following negotiations with its customers, Tennessee filed in July 1994 with
the FERC a Stipulation and Agreement (the "PGA Stipulation"), which provides
for the recovery of PGA costs of approximately $100 million and the recovery
of costs associated with the transfer of storage gas inventory to new storage
customers in Tennessee's restructuring proceeding. The PGA Stipulation
eliminates all challenges to the PGA costs, but establishes a cap on the
charges that may be imposed upon former sales customers. On November 15, 1994,
the FERC issued an order approving the PGA Stipulation and resolving all
outstanding issues. On April 5, 1995, the FERC issued its order on rehearing
affirming its initial approval of the PGA Stipulation. Tennessee implemented
the terms of the PGA Stipulation and made refunds in May 1995. The refunds had
no material effect on Tenneco Energy's reported net income. The orders
approving the PGA Stipulation have been appealed to the D.C. Circuit Court of
Appeals by certain customers. Tennessee believes the FERC orders approving the
PGA Stipulation will be upheld on appeal.
Tennessee is recovering through a surcharge, subject to refund, TBO costs
formerly incurred to perform its sales function. The FERC subsequently issued
an order requiring Tennessee to refund certain costs from this surcharge and
refunds were made in May 1996. Tennessee is appealing this decision and
believes such appeal will likely be successful.
With regard to Tennessee's GSR costs, Tennessee, along with three other
pipelines, executed four separate settlement agreements with Dakota
Gasification Company and the U.S. Department of Energy and initiated four
separate proceedings at the FERC seeking approval to implement the settlement
agreements. The settlement resolved litigation concerning purchases made by
Tennessee of synthetic gas produced from the Great Plains Coal Gasification
plant ("Great Plains"). The FERC previously ruled that the costs related to
the Great Plains project are eligible for recovery through GSR and other
special recovery mechanisms and that the costs are eligible for recovery for
the duration of the term of the original gas purchase agreements. On October
18, 1994, the FERC consolidated the four proceedings and set them for hearing
before an administrative law judge ("ALJ"). The hearing, which concluded in
July 1995, was limited to the issue of whether the settlement agreements are
prudent. The ALJ concluded, in his initial decision issued in December 1995,
that the settlement was imprudent. Tennessee has filed exceptions to this
initial decision. Tenneco believes that this decision will not impair
Tennessee's recovery of the costs resulting from this contract. On July 17,
1996, the FERC ordered oral arguments to be heard September 1996. Oral
arguments were held before the full FERC on September 25, 1996. A decision by
the FERC is expected by the end of 1996.
Also related to Tennessee's GSR costs, on October 14, 1993, Tennessee was
sued in the State District Court of Ector County, Texas, by ICA Energy, Inc.
("ICA") and TransTexas Gas Corporation ("TransTexas"). In that suit, ICA and
TransTexas contended that Tennessee had an obligation to purchase gas
production which TransTexas thereafter attempted to add unilaterally to the
reserves originally dedicated to a 1979 gas contract. An amendment to the
pleading sought $1.5 billion from Tennessee for alleged damages caused by
Tennessee's refusal to purchase gas produced from the TransTexas leases
covering the new production and lands. In June 1996, Tennessee reached a
settlement with ICA and TransTexas for $125 million wherein ICA and TransTexas
agreed to terminate their contract rights, released Tennessee from liability
under the contract, and indemnified Tennessee against future claims, including
royalty owner claims. In connection with that litigation, certain
F-18
<PAGE> 33
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
royalty interest owners filed a claim in July 1996 against Tennessee in Webb
County, Texas, alleging that they are sellers entitled to tender gas to
Tennessee under the settled contract. This claim falls under the
indemnification provisions of Tennessee's settlement with ICA and TransTexas,
which requires ICA and TransTexas to defend and indemnify Tennessee on this
claim.
Tennessee has been engaged in other settlement and contract reformation
discussions with other holders of certain gas purchase contracts who have sued
Tennessee. On August 1, 1995, the Texas Supreme Court affirmed a ruling of the
Court of Appeals favorable to Tennessee in one of these matters and indicated
that it would remand the case to the trial court. On April 18, 1996, however,
the Texas Supreme Court withdrew its initial opinion and issued an opinion
reversing the Court of Appeals opinion on the matter which was favorable to
Tennessee. In June 1996, Tennessee filed a motion for rehearing with the Texas
Supreme Court which was denied in August 1996. The Supreme Court's April 1996
ruling explicitly preserves Tennessee's defenses based on bad faith conduct of
the producers. Nothing in the Supreme Court's decision affects Tennessee's
ability to seek recovery of its above-market costs of purchasing gas under the
contract from its customers as GSR costs in proceedings currently pending
before the FERC. In addition, Tennessee has initiated two lawsuits against the
holders of this gas purchase contract, seeking damages related to their
conduct in connection with that contract. Tennessee has accrued amounts which
it believes are appropriate to cover the resolution of the litigation
associated with its contract reformation efforts.
As of September 30, 1996, and December 31, 1995, Tennessee has deferred GSR
costs yet to be recovered from its customers of approximately $527 million and
$462 million, respectively, net of $380 million and $414 million,
respectively, previously recovered from its customers, subject to refund. A
phased proceeding is underway at the FERC with respect to the recovery of
Tennessee's GSR costs. Testimony has been completed in connection with Phase I
of that proceeding relating to the eligibility of GSR cost recovery; oral
argument on eligibility issues has been set by a FERC ALJ for late October
1996. The Chief Judge of the FERC has since issued orders (i) cancelling the
October oral arguments, (ii) convening settlement discussions which commenced
on October 9, 1996, and (iii) postponing scheduling an oral argument on
eligibility issues.
Phase II of the proceeding on the prudency of the costs to be recovered and
on certain contract specific eligibility issues has not yet been scheduled,
but will likely occur sometime after the ALJ's decision in Phase I is issued.
The FERC has generally encouraged pipelines to settle such issues through
negotiations with customers. Although the Order 636 transition cost recovery
mechanism provides for complete recovery by pipelines of eligible and
prudently incurred transition costs, certain customers have challenged the
prudence and eligibility of Tennessee's GSR costs and Tennessee has engaged in
settlement discussions with its customers concerning the amount of such costs
in response to the FERC statements acknowledging the desirability of such
settlements. However, El Paso has reached, contingent upon consummation of the
Merger (as defined in Note 2) and various other conditions, a preliminary
understanding with certain of Tennessee's customers regarding the customers'
challenges to Tennessee's ability to recover GSR and other costs from its
customers.
Given the uncertainty over the results of ongoing discussions between
Tennessee and its customers related to the recovery of GSR costs and the
uncertainty related to predicting the outcome of its gas purchase contract
reformation efforts and the associated litigation, the Company is unable to
predict the timing or the ultimate impact that the resolution of these issues
will have on its combined financial position or results of operations.
Rate Proceedings
On December 30, 1994, Tennessee filed for a general rate increase (the "1995
Rate Case"). On January 25, 1995, the FERC accepted the filing, suspended its
effectiveness for the maximum period of five months pursuant to normal
regulatory process, and set the matter for hearing. On July 1, 1995, Tennessee
began collecting rates, subject to refund, reflecting an $87 million increase
in Tennessee's annual revenue requirement. A Stipulation and Agreement was
filed with an ALJ in this proceeding on April 5, 1996. This Stipulation, which
F-19
<PAGE> 34
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
is currently pending before the FERC, proposed to resolve the rates subject to
the 1995 Rate Case, including structural rate design and increased revenue
requirements, and Tennessee is reserving revenues it believes are adequate to
cover any refunds that may be required upon final settlement of this
proceeding. On October 30, 1996, the FERC approved the Stipulation for the
settlement of the 1995 Rate Case, with certain modifications and clarifications
which are not material and which should not cause changes which are adverse to
the Company.
10. INCOME TAXES
Following is a comparative analysis of the components of combined income tax
expense (benefit) for the years 1995, 1994 and 1993:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
---------- ---- ---- ----
<S> <C> <C> <C>
Current--
U.S. ................................................ $(96) $25 $(11)
State and local...................................... (3) (4) 22
---- --- ----
(99) 21 11
---- --- ----
Deferred--
U.S.................................................. 76 39 82
State and local...................................... 12 12 11
---- --- ----
88 51 93
---- --- ----
Income tax expense (benefit)........................... $(11) $72 $104
==== === ====
</TABLE>
Following is a reconciliation of income taxes computed at the statutory U.S.
federal income tax rate (35% for all years presented) to the income tax expense
(benefit) reflected in the combined statements of income for the years 1995,
1994 and 1993:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
---------- ---- ---- ----
<S> <C> <C> <C>
Tax expense computed at the statutory U.S. federal
income tax rate........................................ $ 51 $79 $102
Increases (reductions) in income tax expense resulting
from:
State and local taxes on income, net of U.S. federal
income tax benefit................................... 6 5 21
U.S. federal income tax rate change................... -- -- 4
Permanent differences on sales of assets.............. 12 -- (15)
Realization of unrecognized deferred tax assets....... (72) -- --
Other................................................. (8) (12) (8)
---- --- ----
Income tax expense (benefit)............................ $(11) $72 $104
==== === ====
</TABLE>
Current U.S. income tax expense (benefit) for the years ended December 31,
1995, 1994 and 1993, includes a reduction in tax benefits of $63 million, $42
million and $44 million, respectively, related to the allocation of corporate
interest expense to New Tenneco and Newport News. Reference is made to Note 6
for information concerning corporate debt allocated to New Tenneco and Newport
News from the Company.
F-20
<PAGE> 35
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The components of the Company's net deferred tax liability at December 31,
1995 and 1994, were as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
---------- ---- ------
<S> <C> <C>
Deferred tax assets--
U.S. capital loss carryforwards.......................... $163 $ 267
Postretirement benefits other than pensions.............. 104 107
GSR reserve.............................................. 141 --
Environmental reserve.................................... 75 81
Other.................................................... 76 119
Valuation allowance...................................... (117) (293)
---- ------
Net deferred tax asset................................... 442 281
---- ------
Deferred tax liabilities--
Tax over book depreciation............................... 440 437
Asset related to GSR costs of operations regulated by the
FERC.................................................... 141 --
Other regulatory assets.................................. 67 56
Debt related items....................................... 43 44
Book versus tax gains and losses on asset disposals...... 23 321
Other.................................................... 116 187
---- ------
Total deferred tax liability............................. 830 1,045
---- ------
Net deferred tax liability................................. $388 $ 764
==== ======
</TABLE>
As reflected by the valuation allowance in the table above, the Company had
potential tax benefits of $117 million and $293 million at December 31, 1995
and 1994, respectively, which were not recognized in the combined statements
of income when generated. These benefits resulted primarily from U.S. capital
loss carryforwards which are available to reduce future capital gains. During
1995, the Company reduced its deferred tax asset valuation allowance due to
the recognition of U.S. capital loss carryforwards utilized to offset income
taxes payable on asset dispositions. During 1996, these capital loss
carryforwards were utilized to offset taxes on capital gain transactions.
11. INVESTMENT IN AFFILIATED COMPANIES
The Company holds investments in various affiliates which are accounted for
on the equity method of accounting. The principal equity method investments
were the Company's 50% investment in Kern River, and joint venture interests
in power generation plants, interstate pipelines, gathering systems and
natural gas storage facilities.
At December 31, 1995 and 1994, the Company's combined equity included equity
in undistributed earnings from equity method investments of $25 million and
$69 million, respectively. Dividends and distributions received from
affiliates accounted for on the equity method were $53 million, $48 million
and $42 million during 1995, 1994 and 1993, respectively.
F-21
<PAGE> 36
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information of the Company's proportionate share of 50%
or less owned companies accounted for by the equity method of accounting as of
December 31, 1995, 1994 and 1993, and for the years then ended is as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
---------- ---- ---- ----
<S> <C> <C> <C>
Current assets............................................ $ 60 $ 47 $ 41
Non-current assets........................................ 543 901 829
Short-term debt........................................... 122 19 17
Other current liabilities................................. 24 61 37
Long-term debt............................................ 152 494 496
Other non-current liabilities............................. 25 16 13
Equity in net assets...................................... 280 358 307
Revenues and other income................................. 184 183 164
Costs and expenses........................................ 119 132 117
Net income................................................ 65 51 47
</TABLE>
- ---------
Note: Balance sheet amounts related to Kern River are not included in the
table above as of December 31, 1995, due to the Company's sale of its
investment in Kern River in December 1995. Reference is made to Note 5 for
information concerning the sale of Kern River.
12. PREFERRED STOCK
At December 31, 1995, Tenneco had authorized 15,000,000 shares of preferred
stock. In addition, Tenneco has an authorized class of stock consisting of
50,000,000 shares of junior preferred stock, without par value, none of which
has been issued.
The preferred stock issues outstanding at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
SHARES REDEMPTION PERIODS OPTIONAL
ISSUED AND ------------------- REDEMPTION
ISSUE OUTSTANDING OPTIONAL MANDATORY PRICE
----- ----------- --------- --------- ----------
<S> <C> <C> <C> <C>
$7.40 preferred (no par
value)....................... 587,270 1996-1998 1996-1998 $100
$4.50 preferred (no par
value)....................... 803,723 1996-1999 1999 $100
---------
1,390,993
=========
</TABLE>
The $7.40 and $4.50 preferred stock issues have a mandatory redemption value
of $100 per share (an aggregate of $139 million and $159 million at December
31, 1995 and 1994, respectively). Tenneco recorded these preferred stocks at
their fair value at the date of original issue (an aggregate of $250 million)
and is making periodic accretions of the excess of the redemption value over
the fair value at the date of issue.
During 1993, Tenneco retired the remainder of a variable rate preferred
stock issue at the redemption price of $100 per share, or $17 million.
The aggregate maturities applicable to preferred stock issues outstanding at
December 31, 1995, are $20 million for each of the years 1996 and 1997, $19
million for 1998 and $80 million for 1999.
F-22
<PAGE> 37
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Changes in Preferred Stock with Mandatory Redemption Provisions
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
(MILLIONS EXCEPT SHARE
AMOUNTS) SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1........ 1,586,764 $147 1,782,508 $163 2,084,796 $191
Shares redeemed........ (195,771) (20) (195,744) (20) (302,288) (31)
Accretion of excess of
redemption value over
fair value at date of
issue................. -- 3 -- 4 -- 3
--------- ---- --------- ---- --------- ----
Balance December 31...... 1,390,993 $130 1,586,764 $147 1,782,508 $163
========= ==== ========= ==== ========= ====
</TABLE>
13. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Postretirement Benefits
Tenneco has postretirement health care and life insurance plans which cover
substantially all of Tenneco Energy's employees. For salaried employees, the
plans cover employees retiring from the Company on or after attaining age 55
who have had at least 10 years service with the Company after attaining age
45. For hourly employees, the postretirement benefit plans generally cover
employees who retire pursuant to one of Tenneco's hourly employee retirement
plans. Tenneco Energy is also obligated to provide certain benefits to former
employees of operations previously disposed of by Tenneco. Tenneco Energy will
retain this liability after the Distributions. In addition, Tenneco Energy
will retain liabilities with respect to welfare benefits of its current and
former employees of Tenneco Energy and their dependents in connection with the
Distributions. All of these benefits may be subject to deductibles, copayment
provisions and other limitations, and Tenneco has reserved the right to change
these benefits.
The majority of Tenneco's postretirement benefit plans are not funded. In
June 1994, two trusts were established to fund postretirement benefits for
certain plan participants of the Company. The contributions are collected from
customers in FERC approved rates. As of December 31, 1995, cumulative
contributions were $10 million. Plan assets consist principally of fixed
income securities.
The funded status of the postretirement benefit plans reconciles with
amounts recognized on the combined balance sheets at December 31, 1995 and
1994, as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
- ------------ ----- -----
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation at September 30:
Retirees....................................................... $ 320 $ 321
Fully eligible active plan participants........................ 5 5
Other active plan participants................................. 2 2
----- -----
Total accumulated postretirement benefit obligation.............. 327 328
Plan assets at fair value at September 30........................ 3 2
----- -----
Accumulated postretirement benefit obligation in excess of plan
assets at September 30.......................................... (324) (326)
Claims paid during the fourth quarter............................ 14 10
Unrecognized reduction of prior service obligations resulting
from plan amendments............................................ (68) (83)
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions........................................ 74 65
----- -----
Accrued postretirement benefit cost at December 31............... $(304) $(334)
===== =====
</TABLE>
- ----------
Note: The accrued postretirement benefit cost has been recorded based upon
certain actuarial estimates as described below. Those estimates are subject to
revision in future periods given new facts or circumstances.
F-23
<PAGE> 38
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The net periodic postretirement benefit cost for the years 1995, 1994 and
1993 consist of the following components:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
---------- ---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year......... $ 1 $ 1 $ 1
Interest cost on accumulated postretirement benefit
obligation.............................................. 26 17 8
Net amortization of unrecognized amounts................. (13) (6) (1)
---- --- ---
Net periodic postretirement benefit cost................. $ 14 $12 $ 8
==== === ===
</TABLE>
The initial weighted average assumed health care cost trend rate used in
determining the 1995, 1994 and 1993 accumulated postretirement benefit
obligation was 7%, 8% and 9%, respectively, declining to 5% in 1997 and
remaining at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage-point
in each year would increase the 1995, 1994 and 1993 accumulated postretirement
benefit obligations by approximately $14 million, $14 million and $7 million,
respectively, and would increase the aggregate of the service cost and
interest cost components of the net postretirement benefit cost for 1995, 1994
and 1993 by approximately $1 million, $3 million and $1 million, respectively.
The discount rates (which are based on long-term market rates) used in
determining the 1995, 1994 and 1993 accumulated postretirement benefit
obligations were 7.75%, 8.25% and 7.50%, respectively.
Postemployment Benefits
The Company adopted FAS No. 112, "Employers' Accounting for Postemployment
Benefits," in the first quarter of 1994. This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees after employment but before retirement on the accrual basis rather
than the "pay-as-you-go" basis. The adoption of this new standard had no
material impact on the Company's combined financial position or results of
operations.
14. PENSION PLANS
Tenneco has retirement plans which cover substantially all of the Company's
employees. Benefits are based on years of service and, for most salaried
employees, on final average compensation. Tenneco's funding policies are to
contribute to the plans amounts necessary to satisfy the funding requirements
of federal laws and regulations. Plan assets consist principally of listed
equity and fixed income securities. Certain employees of the Company
participate in the Tenneco Inc. Retirement Plan (the "TRP").
New Tenneco will become the sole sponsor of the TRP upon consummation of the
Distributions. The benefits accrued by the employees of Tenneco Energy who
participate in the TRP will be frozen as of the last day of the calendar month
including the Distributions and New Tenneco will amend the TRP to provide that
all benefits accrued through that day by the employees of Tenneco Energy are
fully vested and non-forfeitable.
F-24
<PAGE> 39
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plans reconciles with amounts recognized on the
combined balance sheets at December 31, 1995 and 1994, as follows:
<TABLE>
<CAPTION>
ALL PLANS
----------
(MILLIONS) 1995 1994
- ----------- ---- ----
<S> <C> <C>
Actuarial present value of benefits based on service to date and
present pay levels at September 30:
Vested benefit obligation....................................... $187 $169
Non-vested benefit obligation................................... 12 11
---- ----
Accumulated benefit obligation.................................. 199 180
Additional amounts related to projected salary increases.......... 41 37
---- ----
Total projected benefit obligation at September 30................ 240 217
Plan assets at fair value at September 30......................... 259 224
---- ----
Plan assets in excess of total projected benefit obligation at
September 30..................................................... 19 7
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions......................................... 14 26
Unrecognized prior service obligations resulting from plan
amendments....................................................... 2 3
Remaining unrecognized net asset at initial application........... (14) (16)
---- ----
Prepaid pension cost at December 31............................... $ 21 $ 20
==== ====
</TABLE>
- ----------
Note: Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the prepaid pension cost has been recorded based upon certain
actuarial estimates as described below. Those estimates are subject to
revision in future periods given new facts or circumstances.
Net periodic pension income for the years 1995, 1994 and 1993 consist of the
following components:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the year. $ 6 $ 6 $ 7
Interest accrued on prior year's projected
benefit obligation........................... 18 16 15
Expected return on plan assets--
Actual (return) loss........................ (45) 4 (31)
Unrecognized excess (deficiency) of actual
return over expected return................ 22 (26) 10
--- --- ---
(23) (22) (21)
Net amortization of unrecognized amounts...... (2) (2) (2)
---- ---- ----
Net periodic pension income................... $ (1) $ (2) $ (1)
==== ==== ====
</TABLE>
The weighted average discount rates (which are based on long-term market
rates) used in determining the 1995, 1994 and 1993 actuarial present value of
the benefit obligations were 7.8%, 8.3% and 7.5%, respectively. The rate of
increase in future compensation was 4.9%, in 1995, 1994, and 1993. The
weighted average expected long-term rate of return on plan assets was 10% in
1995, 1994 and 1993.
15. COMMITMENTS AND CONTINGENCIES
Capital Commitments
The Company estimates that expenditures aggregating approximately $636
million will be required after December 31, 1995, to complete facilities and
projects authorized at such date, and substantial commitments have been made
in connection therewith.
F-25
<PAGE> 40
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Purchase Obligations
In connection with the financing commitments of certain joint ventures, the
Company has entered into unconditional purchase obligations for products and
services of $145 million ($106 million on a present value basis) at December
31, 1995. The Company's annual obligations under these agreements are $22
million for the years 1996 through 2000. Payments under such obligations,
including additional purchases in excess of contractual obligations, were $26
million, $34 million and $31 million for the years 1995, 1994 and 1993,
respectively. In addition, in connection with the Great Plains coal
gasification project (Dakota Gasification Company), Tennessee has contracted
to purchase 30% of the output of the plant's original design capacity for a
remaining period of 14 years. Tennessee has executed a settlement of this
contract as a part of its gas supply realignment negotiations discussed in
Note 9.
Litigation
Reference is made to Note 9, "Federal Energy Regulatory Commission
Regulatory Matters," for information concerning gas supply litigation. The
Company is party to numerous other legal proceedings arising from their
operations. The Company believes that the outcome of these proceedings,
individually and in the aggregate, will have no material effect on the
combined financial position or results of operations of the Company.
Environmental Matters
Since 1988, Tennessee has been engaged in an internal project to identify
and deal with the presence of polychlorinated biphenyls ("PCBs") and other
substances of concern, including substances on the U.S. Environmental
Protection Agency ("EPA") List of Hazardous Substances ("HS List") at
compressor stations and other facilities operated by both its interstate and
intrastate natural gas pipeline systems. While conducting this project,
Tennessee has been in frequent contact with federal and state regulatory
agencies, both through informal negotiation and formal entry of consent
orders, in order to assure that its efforts meet regulatory requirements.
The Company has established a reserve for Tennessee's environmental
expenses, which includes: 1) expected remediation expense and associated
onsite, offsite and groundwater technical studies, 2) legal fees and 3)
settlement of third party and governmental litigation, including civil
penalties. Through September 30, 1996, and December 31, 1995, the Company has
charged approximately $160 million and $147 million, respectively, against the
environmental reserve, excluding recoveries related to Tennessee's
environmental settlement as discussed below. Of the remaining reserve at
September 30, 1996 and December 31, 1995, $24 million and $38 million,
respectively, has been recorded on the combined balance sheets under
"Payables-trade" and $128 million and $126 million, respectively, under
"Deferred credits and other liabilities."
Due to the current uncertainty regarding the further activity necessary for
Tennessee to address the presence of the PCBs, the substances on the HS List
and other substances of concern on its sites, including the requirements for
additional site characterization, the actual amount of such substances at the
sites, and the final, site-specific cleanup decisions to be made with respect
to cleanup levels and remediation technologies, Tennessee cannot at this time
accurately project what additional costs, if any, may arise from future
characterization and remediation activities. While there are still many
uncertainties relating to the ultimate costs which may be incurred, based upon
Tennessee's evaluation and experience to date, the Company continues to
believe that the recorded estimate for the reserve is adequate.
Following negotiations with its customers, Tennessee in May 1995 filed with
the FERC a separate Stipulation and Agreement (the "Environmental
Stipulation") that establishes a mechanism for recovering a substantial
portion of the environmental costs. In November 1995, the FERC issued an order
approving the Environmental Stipulation. Although one shipper filed for
rehearing, the FERC denied rehearing of its order on
F-26
<PAGE> 41
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
February 20, 1996. This shipper filed a Petition for Review on April 22, 1996
in the D.C. Circuit Court of Appeals; Tennessee believes the FERC Order
approving the Environmental Stipulation will be upheld on appeal. The effects
of the Environmental Stipulation, which was effective as of July 1, 1995, have
been recorded with no material effect on the Company's combined financial
position or results of operations. As of September 30, 1996, and December 31,
1995, the balance of the regulatory asset is $54 million and $74 million,
respectively.
The Company has completed settlements with and has received payments from
the majority of its liability insurance policy carriers for remediation costs
and related claims. The Company believes that the likelihood of recovery of a
portion of its remediation costs and claims against the remaining carriers in
its pending litigation is reasonably possible. In addition, Tennessee has
settled its pending litigation against and received payment from the
manufacturer of the PCB-containing lubricant. These recoveries have been
considered in Tennessee's recording of its environmental settlement with its
customers.
The Company has identified other sites where environmental remediation
expense may be required should there be a change in ownership, operations or
applicable regulations. These possibilities cannot be predicted or quantified
at this time and accordingly, no provision has been recorded. However,
provisions have been made for all instances where it has been determined that
the incurrence of any material remedial expense is reasonably possible. The
Company believes that the provisions recorded for environmental exposures are
adequate based on current estimates.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET SALES INCOME
AND BEFORE INTEREST
QUARTER OPERATING EXPENSE AND NET
(MILLIONS) REVENUES INCOME TAXES INCOME
- ------------ --------- --------------- ------
<S> <C> <C> <C>
1996 1st....................................... $ 748 $119 $ 78
2nd....................................... 622 69 25
3rd....................................... 627 76 23
------ ---- ----
$1,997 $264 $126
====== ==== ====
1995 1st....................................... $ 505 $ 71 $ 32
2nd....................................... 434 69 15
3rd....................................... 429 43 5
4th....................................... 553 85 105
------ ---- ----
$1,921 $268 $157
====== ==== ====
1994 1st....................................... $ 693 $ 89 $ 18
2nd....................................... 607 80 60
3rd....................................... 549 71 (38)
4th....................................... 532 127 113
------ ---- ----
$2,381 $367 $153
====== ==== ====
</TABLE>
- ----------
Note: Reference is made to Notes 4 and 5 for discussion of items affecting
quarterly results.
The preceding notes to combined financial statements are an integral part of
the foregoing combined financial statements.
F-27
<PAGE> 42
SCHEDULE II
THE BUSINESSES OF TENNECO ENERGY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts Deducted from
Assets to Which it
Applies:
Year Ended December 31,
1995.................. $21 $26 $ 9 $ 7 $49
=== === === === ===
Year Ended December 31,
1994.................. $37 $ 2 $ 2 $20 $21
=== === === === ===
Year Ended December 31,
1993.................. $15 $23 $ 3 $ 4 $37
=== === === === ===
</TABLE>
S-1
<PAGE> 43
EL PASO NATURAL GAS COMPANY
EXHIBIT INDEX
to
FORM 8-K/A CURRENT REPORT
(Amendment No. 1)
Date of Report: January 21, 1997
Exhibits not incorporated by reference to a prior filing are
designated by an asterisk; all exhibits not so designated are incorporated
herein by reference to a prior filing as indicated.
Exhibit
Number Description
- ------- -----------
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
June 19, 1996, among El Paso, El Paso Merger Company and Old Tenneco
(Exhibit 2.1 to El Paso's Form 8-K dated December 26, 1996, File
No. 1-2700).
2.2 Distribution Agreement, dated as of November 1, 1996, among Old
Tenneco, New Tenneco Inc. and Newport News Shipbuilding Inc.
(Exhibit 2.2 to El Paso's Form 8-K dated December 26, 1996, File
No. 1-2700).
*2.3 Amendment No. 1 to Distribution Agreement, entered into as of
December 11, 1996, among Old Tenneco, New Tenneco and Newport News.
2.4 Letter Agreement, dated December 11, 1996, between El Paso and New
Tenneco Inc. (Exhibit 2.3 to El Paso's Form 8-K dated December 26,
1996, File No. 1-2700).
*23 Consent of Arthur Andersen LLP.
99.1 List of Lenders under the Credit Agreement (Exhibit 99.1 to El
Paso's Form 8-K dated December 26, 1996, File No. 1-2700).
99.2 Press Release, dated December 23, 1996 (Exhibit 99.2 to El Paso's
Form 8-K dated December 26, 1996, File No. 1-2700).
<PAGE> 1
EXHIBIT 2.3
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
THIS AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT (this "Amendment") is
made and entered into as of this 11th day of December, 1996 by and among TENNECO
INC., a Delaware corporation ("Tenneco"), NEW TENNECO INC., a Delaware
corporation ("Industrial Company"), and NEWPORT NEWS SHIPBUILDING INC.
(formerly known as Tenneco InterAmerica Inc.), a Delaware corporation
("Shipbuilding Company").
R E C I T A L S
A. Tenneco, Industrial Company and Shipbuilding Company previously
entered into a Distribution Agreement, dated as of November 1, 1996 (the
"Distribution Agreement"), pursuant to which, among other things, Tenneco will
separate and divide its existing business so that (i) its automotive, packaging
and business services businesses (the "Industrial Business") shall be owned
directly and indirectly by Industrial Company and (ii) the shipbuilding
business (the "Shipbuilding Business) shall be owned directly and indirectly
Shipbuilding Company.
B. Tenneco, Industrial Company and Shipbuilding Company desire to amend
the Distribution Agreement as specifically permitted thereunder.
NOW, THEREFORE, in consideration of the mutual promises and agreements
of the parties set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
A G R E E M E N T S
1. Terms. Unless otherwise defined herein, terms used herein shall have
the meaning ascribed thereto as set forth in the Distribution Agreement.
2. Amendments. Tenneco, Industrial Company and Shipbuilding Company
have determined pursuant to Section 2.01 of the Distribution Agreement that:
(a) it is necessary to amend, supplement, modify and, in certain respects,
eliminate certain of the Corporate Restructuring Transactions to properly
divide the existing businesses of Tenneco so that (i) the Industrial Business
shall be owned directly and indirectly by Industrial Company and (ii) the
Shipbuilding Business shall be owned directly and indirectly by the
Shipbuilding Company, and (b) that such amendments, modifications, supplements
and eliminations neither individually or in the aggregate, adversely affect the
Energy Business nor materially delay or prevent the consummation of the Merger.
Accordingly,
<PAGE> 2
pursuant to Section 2.01 and Section 8.08 of the Distribution Agreement, the
Distribution Agreement is hereby amended as follows:
a. Section 5.04(c) of the Distribution Agreement is hereby
amended by deleting the term "Shipbuilding Subsidiary" in the first line and
inserting the term "Shipbuilding Company" in lieu thereof.
b. Exhibit B to the Distribution Agreement is hereby deleted in
its entirety and the Exhibit B attached hereto is substituted in lieu thereof.
c. Exhibit E to the Distribution Agreement is hereby deleted in
its entirety and the Exhibit E attached hereto is substituted in lieu thereof.
d. Exhibit G to the Distribution Agreement is hereby deleted in
its entirety and the Exhibit G attached hereto is substituted in lieu thereof.
e. Exhibit J to the Distribution Agreement is hereby deleted in
its entirety and the Exhibit J attached hereto is substituted in lieu thereof.
3. Distribution Agreement in Full Force. Except as herein amended or
modified, the Distribution Agreement shall remain unchanged and in full force
and effect and is hereby ratified, approved and confirmed in all respects.
4. References. After the date hereof, all references in the
Distribution Agreement to "Agreement," "hereof" or similar terms shall refer to
the Distribution Agreement as hereby amended.
5. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of Tenneco, Industrial Company and Shipbuilding Company
and their respective successors and assigns.
6. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws, and not the laws of conflict, of the State
of Delaware.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
TENNECO INC.
By: /s/ KARL A. STEWART
--------------------------------------
Name: Karl A. Stewart
------------------------------
Title: Vice President and Secretary
-----------------------------
NEW TENNECO INC.
By: /s/ ROBERT G. SIMPSON
--------------------------------------
Name: Robert G. Simpson
------------------------------
Title: Vice President
-----------------------------
NEWPORT NEWS SHIPSBUILDING INC.
By: /s/ STEPHEN B. CLARKSON
--------------------------------------
Name: Stephen B. Clarkson
------------------------------
Title: Vice President
-----------------------------
<PAGE> 4
EXHIBIT B
TO THE
DISTRIBUTION AGREEMENT
<PAGE> 5
PROJECT LIZA
TRANSACTION STEPS
Set forth below are the transactions that, as applicable, the members of
each of the Energy Group, Industrial Group, and Shipbuilding Group will
consummate in connection with the Distributions and Merger. Capitalized terms
used but not otherwise defined herein have the meaning ascribed to them under
the Distribution Agreement.
A. REALIGNMENT OF INTERCOMPANY ACCOUNTS
Except as otherwise provided in Section B below, the following
transactions will be effected as of October 31, 1996 to realign the
intercompany accounts of the Groups. As a result of these transactions,
Tenneco will have one net intercompany account receivable or payable with New
Tenneco Inc. ("Industrial Company") and one net intercompany account receivable
or payable with Newport News Shipbuilding Inc. ("Shipbuilding Company"), and
all other intercompany accounts payable or receivable of members of each Group
(other than trade accounts) will be exclusively between members of that Group.
Following completion of these transactions, there will be no further transfers
of funds between members of the different Groups other than pursuant to
transactions occurring in ordinary course of business (trade accounts),
transfers from or to Tenneco and either Industrial Company or Shipbuilding
Company, and transfers required or otherwise permitted pursuant to these
Corporate Restructuring Transactions.
1. Realignment of Industrial Group Intercompany Accounts. Each member
of the Industrial Group having a net intercompany receivable from a member of
the Energy Group or the Shipbuilding Group (excluding trade accounts receivable)
will transfer such net intercompany receivable to Industrial Company in exchange
for an intercompany advance receivable from Industrial Company in an amount
equal to the amount of the net intercompany receivable transferred. Industrial
Company will assume the net intercompany payable of each member of the
Industrial Group having the net intercompany payable to a member of the Energy
Group or the Shipbuilding Group (excluding trade accounts payable) in exchange
for the issuance by each such Industrial Group member of an intercompany advance
payable to Industrial Company in an amount equal to the amount of the net
intercompany payable assumed. Industrial Company will consent to the assumption
of other net intercompany payables by Shipbuilding Company or Tenneco as
provided in this section A.
2. Realignment of Shipbuilding Group Intercompany Accounts.
Shipbuilding Company will cause each member of the Shipbuilding Group having a
net intercompany receivable from a member of the Industrial Group or the Energy
Group to transfer such net intercompany receivable to Shipbuilding Company in
exchange for an intercompany advance receivable from Shipbuilding Company in an
amount equal to the amount of the net intercompany receivable transferred.
Shipbuilding Company will assume the net intercompany payable to a member of
the Industrial Group or the Energy Group (excluding trade accounts payable) in
exchange for the issuance by each such Shipbuilding Group member of an
intercompany advance payable to Shipbuilding Company in an amount equal to the
amount of the net intercompany payable assumed. Shipbuilding Company will
<PAGE> 6
Project Liza Transaction Steps
Page 2
consent to the assumption of other net intercompany payables by Industrial
Company or Tenneco as provided in this section A.
3. Realignment of Energy Group Intercompany Accounts. Tenneco will
cause each member of the Energy Group having a net intercompany receivable from
a member of the Industrial Group or the Shipbuilding Group to transfer such net
intercompany receivable to Tenneco in exchange for an intercompany advance
receivable from Tenneco in an amount equal to the amount of the net
intercompany receivable transferred. Tenneco will assume the net intercompany
payable of each member of the Energy Group having a net intercompany payable to
a member of the Industrial Group or the Shipbuilding Group (excluding trade
accounts payable) in exchange for the issuance by each such Energy Group member
of an intercompany advance payable to Tenneco in an amount equal to the amount
of the net intercompany payable assumed. Tenneco will consent to the assumption
of other net intercompany payables by Industrial Company or Shipbuilding
Company as provided in this section A.
4. Realignment of Intercompany Accounts Between Industrial Company and
Shipbuilding Company. If after the completion of steps A(1) through A(3),
Industrial Company has a net intercompany receivable from Shipbuilding Company
(excluding trade accounts), Tenneco will assume Shipbuilding Company's net
payable to Industrial Company in exchange for the issuance by Shipbuilding
Company of an intercompany advance payable to Tenneco in an amount equal to the
amount of the net Intercompany payable assumed. If after the completion of
steps A(1) through A(3), Shipbuilding Company has a net intercompany receivable
from Industrial Company, Tenneco will assume Industrial Company's net payable
to Shipbuilding Company in exchange for the issuance by Industrial Company of
an intercompany advance payable to Tenneco having a face amount equal to the
face amount of the net intercompany payable assumed.
B. PRELIMINARY DEBT REALIGNMENT TRANSACTIONS
1. Capitalization or Liquidation of Subsidiaries. The following
transactions will be effected to increase the capitalization of various
subsidiaries and to liquidate other subsidiaries. Except as otherwise noted,
the transfers are effective as of 10/31/96. Transfers of funds will be
accomplished by daylight overdrafts.
a. Newport News Shipbuilding and Dry Dock Company ("Newport News") will
transfer to Newport News Industrial Corporations ("NNIC") as a contribution to
capital $1,700,000. NNIC will transfer the funds to Newport News as an
intercompany advance.
b. NNIC will transfer to Newport News Industrial Corporation of Ohio
("NNICO") as a contribution to capital $200,000. NNICO will transfer the funds
to NNIC as an intercompany advance.
c. TGP will transfer to TII as a contribution to capital the
intercompany account payable owed by Tenneco Automotive Trading Company
("TATC") to TGP as of August 31, 1996 ($____________).
<PAGE> 7
Project Liza Transaction Steps
Page 3
d. TII will transfer to TATC as a contribution to capital the
intercompany account payable received by TII in step B(1)(c).
e. TGP will transfer to Tenneco Brake Inc. as a contribution to
capital $15,000,000. Tenneco Brake Inc. will transfer the funds to TGP an
intercompany advance. The intercompany advance will be settled as provided in
Section A above.
f. TGP will transfer to Walker Electronic Silencing Inc. as a
contribution to capital $10,000,000. Walker Electronic Silencing Inc. will
transfer the funds to TGP as an intercompany advance. The intercompany advance
will be settled as provided in Section A above.
g. TGP will transfer to TII as contribution to capital the
intercompany account payable owed by Walker Europe Inc. to TGP as of October 31,
1996 ($_________). TII will transfer to Walker Europe Inc. as a contribution to
capital (1) the intercompany account payable received pursuant to the previous
sentence, and (2) $10,000,000. Walker Europe Inc. will transfer $10,000,000 to
TII as an intercompany advance. The intercompany will be settled as provided in
Section A above.
h. Effective as of October 30, 1996, Tenneco will transfer to
Tenneco Liquidation Company (f/k/a Tenneco Business Services Inc.) ("TBS") as a
contribution to capital $60,000,000. TBS will transfer the funds to Tenneco as
an intercompany advance. The intercompany advance will be settled as provided in
Section A above. Effective as of October 31, 1996, Tenneco will transfer to TBS
as a contribution to capital the intercompany account payable owed by TBS to
Tenneco as of August 31, 1996 ($______________).
i. Tenneco Corporation will transfer to Tenneco Independent
Power I Company as a contribution to capital $5,000,000. Tenneco Independent
Power I Company will transfer the funds to Tenneco Corporation as an
intercompany advance.
j. Tenneco Corporation will transfer to Tenneco Independent
Power II Company as a contribution to capital $1,000,000. Tenneco Independent
Power II Company will transfer the funds to Tenneco Corporation as an
intercompany advance.
k. Tenneco Corporation will transfer to Tenneco Minerals
Company - Nevada as a contribution to capital $5,000,000. Tenneco Minerals
Company - Nevada will transfer the funds to Tenneco Corporation as an
intercompany advance.
l. Tenneco Corporation will transfer to Tenneco Oil Company as
a contribution to capital $700,000,000. Tenneco Oil Company will transfer the
funds to Tenneco Corporation as an intercompany advance.
m. Tenneco Corporation will transfer to Tenneco Power
Generation Company as a contribution to capital $5,000,000. Tenneco Power
Generation Company will transfer the funds to Tenneco Corporation as an
intercompany advance.
<PAGE> 8
Project Liza Transaction Steps
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n. Tenneco Power Generation Company will transfer to Tenneco
Ethanol Company as a contribution to capital $10,000,000. Tenneco Ethanol
Company will transfer the funds to Tenneco Power Generation Company as an
intercompany advance.
o. The following subsidiaries will merge into their respective
parent corporations as indicated below.
<TABLE>
<CAPTION>
Subsidiary Parent
---------- ------
<S> <C>
Holmes Machinery Company The Pullman Company
Pullman RSC Company The Pullman Company
Pullman Aircraft Products Inc. Pullman Aerospace, Inc.
Pullman Aerospace Inc. The Pullman Company
Peabody Instruments, Inc. Peabody International Corporation
Peabody Noise Control Inc. Peabody International Corporation
Holmes Blowers Inc. Peabody International Corporation
Peabody Solid Waste Management Inc. - Peabody International Corporation
DeWald
Peabody ABC Corp. Peabody International Corporation
Peabody Pumps, Inc. Peabody International Corporation
Galco Inc. Peabody International Corporation
</TABLE>
2. Refinancing of TIHC Liquidity Facility and TIHC Loan to Tenneco.
Effective as of November 1, 1996, Tenneco International Holdings Corp.
(Delaware) ("TIHC") will restructure its credit facility with Tenneco Credit
Corporation ("TCC") and its loans to Tenneco as follows:
a. Tenneco will transfer to Industrial Company as an
intercompany advance an amount of funds equal to $25,000,000.
b. Industrial Company will transfer the funds received in step
B(2)(a) to Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company; see
step C(13)) ("TAI") as an intercompany advance.
c. TAI will enter into a credit facility with TIHC on terms
identical to the terms of the credit facility currently existing between TIHC
and TCC. TAI will transfer the funds received in step B(2)(b) to TIHC as an
advance of funds under the terms of the TAI/TIHC credit facility.
d. Tenneco will transfer to TIHC an amount of funds equal to the
accrued balance through October 31, 1996 on TIHC's net intercompany loan to
Tenneco, and the loan shall be canceled.
e. From the funds received in steps B(2)(c) and B(2)(d), TIHC
will transfer to TCC an amount of funds equal to the accrued balance through
October 31, 1996 under TIHC's credit facility with TCC, and the credit facility
will be terminated.
f. TCC will transfer the funds received in step B(2)(e) to
Tenneco as an intercompany loan.
<PAGE> 9
Project Liza Transaction Steps
Page 5
g. TIHC will transfer any funds remaining after the transfer
described in step B(2)(e) to Industrial Company as an intercompany loan (on
terms substantively identical to the terms of the prior loan to Tenneco).
h. Industrial Company will transfer the funds received in step
B(2)(g) to Tenneco as an intercompany advance.
There will be no actual transfers of funds in step B(2); the intercompany
transfers will be accomplished though journal entries.
3. Purchase of Diamond Notes. Sara Lee Corporation currently holds a
note issued by Tenneco Packaging Inc. to Diamond International Inc. (the "TPI
Diamond Note") and two notes issued by Tenneco International Inc. ("TII") to
Diamond International Inc. (the "TII Diamond Note"). Tenneco Corporation's
distribution of the stock of Shipbuilding Company and Industrial Company in
step C(16) may violate certain provisions of a guarantee agreement executed by
Tenneco Corporation in connection with the issuance of the Diamond Notes. To
eliminate the possibility of a violation of the agreement, the Diamond Notes
will be purchased from Sara Lee on November 15, 1996 as follows:
a. Tenneco will transfer to Industrial Company as an
intercompany advance an amount of funds equal to the purchase price of the TPI
Diamond Note ($1,365,000).
b. Industrial Company will transfer the funds received in Step
B(3)(a) to Tenneco Packaging Inc. as an intercompany advance.
c. Tenneco will transfer to TII as an intercompany advance an
amount of funds equal to the fair market value of the TII Diamond Notes
($3,769,000 plus $673,000).
d. Tenneco Packaging Inc. and TII will transfer the funds
received in steps B(3)(b) and B(3)(c) to Sara Lee Corporation in exchange for
the TPI Diamond Note and the TII Diamond Note, respectively.
Step B(3) will be accomplished by a direct transfer of funds ($5,807,000) from
Tenneco to Sara Lee Corporation. The intercompany transfers will be
accomplished through journal entries.
4. TCC Sale of Case Receivables. Effective as of December 5, 1996, TCC
will sell all of its interest in the receivables relating to the business of
Case Corporation (the "Case Receivables") to a newly formed wholly owned
Industrial Company subsidiary ("Tenneco Retail Receivables Company") as
follows:
a. Tenneco will transfer to Industrial Company as an
intercompany advance an amount of funds equal to the fair market value of the
Case Receivables (approximately $160,000,000).
<PAGE> 10
Project Liza Transaction Steps
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b. Industrial Company will transfer the funds received in step
B(4)(a) to Tenneco Retail Receivables Company as an intercompany advance.
c. Tenneco Retail Receivables Company will transfer the funds
received in step B(4)(b) to TCC in exchange for the Case Receivables.
d. TCC will transfer the funds received in step B(4)(c) to
Tenneco as an intercompany loan.
e. Tenneco Retail Receivables Company will sell all or a
portion of the Case Receivables to a third party for cash.
f. Tenneco Retail Receivables Company will transfer the funds
received in step B(4)(e) to Industrial Company as a repayment of the
intercompany advance received from Industrial Company in step B(4)(b).
g. Industrial Company will transfer the funds received in step
B(4)(e) to Tenneco as a repayment of the intercompany advance received from
Tenneco in step B(4)(a). Tenneco will use the funds to repay short-term
borrowings under its credit facility or for other corporate purposes.
The funds to be received in step B(4)(e) will be transferred directly from the
third party's bank to Tenneco's credit facility administrative agent for credit
to Tenneco's account. No other funds transfers will required in step B(4).
5. TCC Transfer of Interest in Industrial Group Receivables. Effective
as of December 9, 1996, TCC will transfer all of its interest and obligations
associated with the receivables relating to the Industrial Business (the
"Industrial Receivables"), including TCC's rights and obligations under
agreements with ASCC to the extent related to the Industrial Receivables, to a
newly formed wholly owned Industrial Company subsidiary ("TMC Texas Inc.") as
follows:
a. Tenneco will transfer to Industrial Company as an
intercompany advance an amount of funds equal to the fair market value of the
Industrial Receivables ($_________).
b. Industrial Company will transfer the funds received in step
B(5)(a) to TMC Texas Inc. as an intercompany advance.
c. TMC Texas Inc. will transfer the funds received in step
B(5)(b) to TCC in exchange for the Industrial Receivables.
d. TCC will transfer the funds received in step B(5)(c) to
Tenneco as an intercompany loan.
6. Sale of Hvide Van Ommeren Interest. Intentionally omitted.
<PAGE> 11
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7. Termination of Eastern Insurance Company Non-Energy Business
a. On June 21, 1996, Eastern Insurance Company Limited
("Eastern") paid a dividend of $20,118,711 out of its earned surplus to TGP. TGP
transferred the funds to Tenneco as an intercompany advance.
b. On September 23, 1996, Eastern transferred funds to Tenneco
Management Company in the amount of $34,200,289 representing the amount
described in Section 4.3(c)(i) of the Insurance Agreement attached as Exhibit H
to the Distribution Agreement (i.e., "all amounts which appear as reserves on
the books and records of the Eastern Insurance Provider as of the Termination
Time in respect of claims relating to any Industrial Covered Person which have
been reported prior to the Termination Time").
c. Effective as of [October 31, 1996], Eastern will transfer
funds to Industrial Company in the amount of $2,181,014 representing the amount
described in Section 4.3(c)(iii) of the Insurance Agreement attached as Exhibit
H to the Distribution Agreement (i.e., "50% of `incurred but not reported'
reserve appearing on the books and records of the Eastern Insurance Provider as
of the Termination Time under the excess liability programs of the Eastern
Policies with respect to Industrial and Energy").
8. Consents of Lessors and Creditors. As soon as practical, the
following consents will be obtained to permit the transactions contemplated by
the Corporate Restructuring Transactions:
a. Counce. The lenders under loan agreements with Counce
Finance Corporation (the "Counce Noteholders") must consent to the distribution
by Tenneco Corporation of substantially all of its assets as contemplated by
paragraph 16 of the Corporate Restructuring Transactions and to the transfer of
the Counce Limited Partnership partnership interests as contemplated by steps
C(6), C(9), and C(15A).
b. GECC Leases. The lenders, equity holder, and trustee under
the Tenneco Packaging Inc. mill leases must consent to Tenneco Packaging Inc.
ceasing to be an affiliate of Tenneco as contemplated by step D(1).
c. Tenneco International Holding Corp. MW Investors L.L.C., as
holder of the Variable Rate Voting Participating Preferred Stock of Tenneco
International Holding Corp., must consent to Tenneco International Holding Corp.
ceasing to be an affiliate of Tenneco as contemplated by step D(1).
9. Execution of Underwriting Agreement. On November 12, 1996, Tenneco
will enter into a firm commitment underwriting agreement with a group of
underwriters relating to the issuance by Tenneco to the underwriters of shares
of voting junior preferred stock of Industrial Company ("New Preferred Stock")
for $300,000,000 cash less underwriting discount.
10. NPS Issuance. On November 18, 1996, Tenneco will issue the New
Preferred Stock to the underwriters in exchange for cash of $300,000,000 less
underwriting discount. Tenneco will use the funds to pay down existing credit
facilities.
<PAGE> 12
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11. Defeasance of a Portion of Tenneco's Consolidated Debt. On
December 6, 1996, Tenneco will defease a portion of the debt of TGP and TCC as
follows:
a. Tenneco will borrow $283,369,921.01 under Tenneco's existing
credit facilities to effect a defeasance of the following debt obligations:
---------------------------------------------------------------
Interest
Issuer Face Amount Coupon Maturity at Maturity
---------------------------------------------------------------
TGP $250,000,000 9.00% 01/15/97 $11,250,000
TCC $7,500,000 8.50% 01/30/97 $318,750
TCC $500,000 8.50% 03/17/97 $21,250
TCC $3,000,000 8.50% 03/24/97 $127,500
TCC $5,000,000 8.52% 03/28/97 $213,000
TCC $6,600,000 8.57% 03/18/97 $282,810
------------ -----------
Total $272,600,000 $12,213,310
============ ===========
b. Tenneco will transfer $23,237,635.59 to TCC from the funds
described in step B(11)(a) to defease the TCC debt identified in step B(11)(a).
The transfer will be treated as a payment by Tenneco against its intercompany
loan payable to TCC.
c. Tenneco will transfer $260,132,285.42 to TGP as an
intercompany advance from the funds described in step B(11)(a) to defease the
TGP debt identified in step B(11)(a).
d. TCC will transfer the funds received in step B(11)(b) to JP
Morgan, which will use such funds to purchase U.S. Treasury securities and will
transfer such securities to the indenture trustee in accordance with the terms
of the indenture relating to TCC's debt obligations identified in step B(11)(a)
to effect a legal defeasance of such obligations under the terms of the
indenture.
e. TGP will transfer the funds received in step B(11)(c) to JP
Morgan, which will use such funds to purchase U.S. Treasury securities and will
transfer such securities to the indenture trustee in accordance with the terms
of the indenture relating to TGP's debt obligations identified in step B(11)(a)
to effect a legal defeasance of such obligations under the terms of the
indenture.
f. The indenture trustee will transfer to Industrial Company
any proceeds from the defeasance portfolio (including investment of such
proceeds) in excess of the amounts necessary to pay the defeasance debt at
maturity.
12. Consent of $4.50 Preferred. Approval of the Transaction requires
the affirmative vote of holders of a majority of the outstanding shares of
Tenneco's $4.50 Preferred Stock and $7.40 Preferred Stock voting as a class. To
ensure that the holders of Tenneco's $4.50 Preferred Stock vote in favor of the
transaction, Tenneco will obtain an irrevocable proxy from the holders in
exchange for amending the Merger Agreement to fix the formula for determining
the number of shares of Acquiror Parent voting common stock to be paid to the
holders in the Merger.
13. Declaration of Accrued Dividends. Dividends on $4.50 Preferred
Stock otherwise due on March 12, 1997 will be declared on December 4, 1996,
payable to holders of record on December
<PAGE> 13
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9, 1996, and payable on December 12, 1996. Dividends on $7.40 Preferred Stock
otherwise due on December 31, 1996 will be declared on October 8, 1996, payable
to holders of record on November 22, 1996, and payable on December 31, 1996.
C. IMPLEMENTATION OF CORPORATE RESTRUCTURING TRANSACTIONS
The following transactions will be effected following the receipt of
the IRS Ruling Letter and on or before the Distribution Date (December 11,
1996) pursuant to the requirement in Section 2.01 of the Distribution Agreement
that the parties and their affiliates "take such action or actions as is
necessary to cause, effect and consummate the Corporate Restructuring
Transactions." Transactions occurring on the same day shall be deemed to have
occurred in the order listed herein regardless of the order in which the
documentation is executed, filed, or accepted, and regardless of the order in
which the funds or other assets are transferred.
1. Effective as of October 31, 1996, TGP will transfer all of the
assets and associated liabilities of and relating to the Walker muffler shop
distribution center operation located in Carson, California (the "MSDC
Business") to Tenneco Corporation as a contribution to capital.
2. Effective as of October 31, 1996, Tenneco Corporation will transfer
the MSDC Business to Industrial Company as a contribution to capital. Any title
transfer documents required for steps C(1) and C(2) should reflect the transfer
of the assets directly from TGP to Industrial Company.
3. The following transactions will be effected to implement the
requirement that Tenneco Corporation satisfy the active business requirements
of I.R.C. Section 355(b):
a. Effective as of October 31, 1996, TGP will transfer all of
the stock of Midwestern Gas Transmission Company (Delaware) ("Midwestern") to
Tenneco Corporation as a contribution to capital.
b. Effective as of October 31, 1996, Tenneco Energy Resources
Corporation (Delaware) ("TERC") will merge into Channel Industries Gas Company
(Delaware) ("CIGC"), a wholly owned subsidiary of TERC, with CIGC as the
surviving corporation. In the merger, all of the shares of TERC stock held by
Tenneco Corporation will be canceled, and Tenneco Corporation will become the
owner of all of the shares of CIGC stock formerly held by TERC. As a result of
the merger, CIGC will become a wholly owned direct subsidiary of Tenneco
Corporation, and all of TERC's assets other than the stock of CIGC will become
assets of CIGC.
c. Effective as of October 31, 1996, Tenneco Corporation will
transfer to New Midwestern Inc., a newly formed wholly owned subsidiary of
Tenneco Corporation, as a contribution to capital all of Tenneco Corporation's
Energy Business assets other than stock of subsidiaries, and all of its
liabilities other than liabilities for accrued taxes.
d. Effective as of October 31, 1996, Tenneco Corporation will
transfer to Midwestern as a contribution to capital all of the stock of the
following companies:
Entrade Engine Company (Kentucky)
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H.T. Gathering Company (Texas)(50%)(1)
Petro-Tex Chemical Corporation (Delaware)
(in dissolution)
SWL Security Corp. (Texas)
TGP Corporation (Delaware)
Tenneco Minerals Company -- California (Delaware)
Tenneco Minerals Company -- Nevada (Delaware)
Tenneco OCS Company, Inc. (Delaware)
Tenneco Oil Company (Delaware)
Tenneco Polymers, Inc. (Delaware)
Tennessee Overthrust Gas Company (Delaware)
New Midwestern Inc.
e. Effective as of October 31, 1996, Tenneco Corporation will
transfer to CIGC as a contribution to capital all of the stock owned by Tenneco
Corporation in the following companies:
Deepsea Ventures, Inc. (Delaware)
Tenneco Independent Power I Company (Delaware)
Tenneco Independent Power II Company (Delaware)
Tenneco Insurance Ventures (Delaware)
Tenneco Power Generation Company (Delaware)
Following step C(3), Tenneco Corporation will have no assets other than the
stock of the following companies:
Autopartes Walker, S.A. de C.V. (Mexico) (0.02%)
Channel Industries Gas Company (Delaware)
Midwestern Gas Transmission Company (Delaware)
Newport News Shipbuilding Inc. (Delaware)
New Tenneco Inc. (Delaware)
Tenneco Deutschland Holdinggesellschaft mbH
(Germany) (99.97%)
Walker Deutschland GmbH (Germany) (1%)
Tenneco International Holding Corp. (7.82% interest in
Common Stock)
4. Effective as of October 31, 1996, Tenneco will transfer to TGP as a
contribution to capital all of its assets other than cash, the interest rate
swap contracts entered into in August 1996 relating to the Consolidated Debt,
the note receivable from I.C.H. Corporation, the stock to be transferred in
step C(12), and the stock of TGP, and all of its liabilities other than the
Consolidated Debt issued by Tenneco, accrued taxes, unpaid dividends, and the
intercompany payables due to Industrial Company and Shipbuilding Company. The
assets to be transferred to TGP include stock of the following companies:
- -------------
(1) Tenneco Corporation owns 50% of the issued and outstanding Class A Voting
Stock and 20% of the Class B Nonvoting Stock, 29% of the total equity, and
Houston Pipe Line Company, an unaffiliated company, owns 50% of the issued and
outstanding Class A Voting Stock and 80% of the Class B Nonvoting Stock, 71% of
the total equity.
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Greater Houston Small Business Equity Fund, Inc. (Texas)
Kern County Land Company (Delaware)
MESBIC Financial Corporation of Houston (Texas)
Tenneco Credit Corporation (Delaware)
Tenneco MLP Inc. (Delaware)
5. Effective as of October 31, 1996. Newport News Industrial
Corporation (Virginia) will transfer all of its assets and trade accounts
payable to Shipbuilding Company in exchange for a Shipbuilding Company
$4,000,000 promissory note.
6. Subject to receipt of the consent of the Counce Noteholders referred
to in step B(8)(a), effective as of November 30, 1996 TCC will transfer all of
its interest as a limited partner in Counce Limited Partnership, a Texas
Limited Partnership ("Counce"), to Tenneco Corporation in exchange for Voting
Preferred Stock of Tenneco Corporation having a fair market value equal to the
aggregate appraised value of the partnership interest transferred by TCC.
7. Effective as of November 30, 1996, Tenneco Equipment Corporation
("TEC") will transfer (a) all of TEC's interest in the shares of the Common
Stock of TIHC, and (b) all of TEC's interest in the shares of $8.00 Junior
Preferred Stock of TIHC to Tenneco Corporation in exchange for Voting Preferred
Stock of Tenneco Corporation having a fair market value equal to the aggregate
appraised value of the stock transferred by TEC.
8. Effective as of November 30, 1996, TII will transfer all of its
ownership interest (100% unless otherwise indicated) in the following companies
to Tenneco Corporation in exchange for (a) a $50,000 promissory note issued by
Tenneco Corporation and (b) Voting Preferred Stock of Tenneco Corporation. The
consideration issued by Tenneco Corporation will have an aggregate fair market
value equal to the aggregate appraised value of the stock transferred by TII.
Autopartes Walker, S.A. de C.V. (Mexico) (0.02%)
Omni-Pac GmbH (Germany) (1%)
Omni-Pac S.A.R.L. (France) (97%)
Tenneco Automotive Trading Company
Tenneco International Holding Corp. (71.84% interest in Common
Stock and 50% interest in $8.00 Junior Preferred Stock)
Tenneco United Kingdom Holdings Limited
Walker Europe, Inc.
Walker Norge A/S (Norway)
9. Subject to receipt of the consent of the Counce Noteholders referred
to in step B(8)(a), effective as of November 30, 1996 Shipbuilding Company
will transfer its interest as general partner in Counce Limited Partnership to
PCA Leasing Company as a contribution to capital.
10A. On or shortly before the Distribution Date, Shipbuilding Company
will issue $400,000,000 principal amount of high-yield notes, the proceeds of
which (after payment of issuance expenses) will be placed in an escrow amount
until the Distribution Date, at which time the funds
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will be transferred to Shipbuilding Company account number 910-2-780 609 at The
Chase Manhattan Bank.
10B. On the Distribution Date, Shipbuilding Company will borrow
$215,000,000 under its credit facility. The funds will be deposited in
Shipbuilding Company account number 910-2-780 609 at The Chase Manhattan Bank.
From the proceeds of the credit facility borrowing and the proceeds of the
high-yield notes released from the escrow described in step C(10A), Shipbuilding
Company will transfer $600,000,000 to NNS Delaware Management Company as a
contribution to capital. NNS Delaware Management Company will loan the funds to
Newport News Shipbuilding and Dry Dock Company. Newport News Shipbuilding and
Dry Dock Company will transfer the proceeds of the loan, plus Shipbuilding
Company's net intercompany receivable from Tenneco, to Tenneco Corporation as a
dividend. Tenneco Corporation will loan the funds received from Shipbuilding
Company to Tenneco. Tenneco will use all of the funds to retire existing TGP
debt as contemplated by the tender offers described in step C(16B), and to
retire existing Tenneco and TCC debt as contemplated by step C(20). To document
that the funds received by Tenneco were used to retire debt, the funds will be
transferred directly from Shipbuilding Company account number 910-2-780 609 at
The Chase Manhattan Bank to the account to be used by The Chase Manhattan Bank
as Depositary for the offers to purchase debt of TGP, TCC, and Tenneco as
contemplated by steps C(16B) and C(20)(account number 910-2-758 084).
11. On the Distribution Date following consummation of step C(10B),
Shipbuilding Company will transfer all of its stock in Tenneco Packaging Inc.
to Tenneco Corporation as a distribution with respect to stock (i.e., return
of contributed surplus), and will transfer all of its stock of PCA Leasing
Company as a dividend.
12. Effective as of October 31, 1996, Tenneco will transfer all of its
ownership interest (100% unless otherwise indicated) in the following companies
to TGP as a contribution to capital and in exchange and consideration for
additional shares of stock of TGP.
Autopartes Walker, S.A. de C.V.(Mexico)(0.02%)
Tenneco Windsor Box & Display Inc. (f/k/a DeLine Box & Display,
Inc.)
Tenneco Asia Inc.
Tenneco Brazil Ltda. (Brazil)
Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business
Services, Inc.)
Tenneco Foam Products Company (f/k/a Amoco Foam Products
Company)
Tenneco Management Company (f/k/a 1275, Inc.)
Tenneco Moorhead Acquisition Inc.
Tenneco Packaging Hungary Holdings Inc.
Tenneco Romania Holdings Inc.
13. Effective of October 31, 1996, Monroe Auto Equipment Company will
change its name to Tenneco Automotive Inc., and will create three divisions:
Monroe Auto Equipment Company division
Walker Manufacturing Company division
Tenneco Automotive Headquarters division
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Effective as of October 31, 1996 following the name change referred to in the
previous sentence. TGP will transfer all of the assets and related liabilities
of the Walker Manufacturing Company division of TGP (other than MSDC Business
transferred in step C(1) and (2)) to the Walker Manufacturing Company division
of Tenneco Automotive Inc., and will transfer all of the assets and liabilities
of the Tenneco Automotive Headquarters Division to the Tenneco Automotive
Headquarters division of Tenneco Automotive Inc., in each case as a
contribution to capital. For purposes of this transfer, TGP's Asheville, N.C.
plant shall not be treated as part of the Walker Manufacturing Company
division's assets nor as part of the Tenneco Automotive Headquarters Division's
assets. See Step 21 for the transfer of the Asheville, N.C. property.
14. Effective of October 31, 1996 following consummation of step C(12),
TGP will transfer all of its ownership interest (100% unless otherwise
indicated) in the following assets to Tenneco Corporation as a contribution to
capital and in exchange and consideration for additional shares of common stock
of Tenneco Corporation.
Autopartes Walker, S.A. de C.V. (Mexico)(99.94%)(2)
Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company)
Monroe-Mexico S.A. de C.V. (Mexico)(0.01%)
Proveedora Walker S.A. de C.V. (Mexico)(99.99%)(3)
Tenneco Automotive Foreign Sales Corporation Ltd. (Jamaica)(1%)
Tenneco Brake, Inc.
Walker Electronic Silencing, Inc.
Walker Manufacturing Company
STOCK RECEIVED IN STEP(12) ABOVE
--------------------------------
Tenneco Windsor Box & Display Inc. (f/k/a DeLine Box & Display,
Inc.)
Tenneco Asia Inc.
Tenneco Brazil Ltda. (Brazil)
Tenneco Business Services Holdings Inc. (f/k/a/ Tenneco
Business Services Inc.)
Tenneco Foam Products Company (f/k/a Amoco Foam Products
Company)
Tenneco Management Company (f/k/a 1275, Inc.)
Tenneco Moorhead Acquisition, Inc.
Tenneco Packaging Hungary Holdings Inc.
Tenneco Romania Holdings Inc.
- ---------------
(2) Includes 0.02% interest acquired from Tenneco in step 12 above.
(3) TGP owns 49,999 shares, and Tenneco Automotive Inc. (f/k/a Monroe Auto
Equipment Company) owns 1 share.
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15A. Effective as of October 31, 1996 following the consummation of step
C(14), Tenneco Corporation will transfer all of its ownership interest (100%
unless otherwise indicated) in the following entities to Industrial Company as
a contribution to capital and in exchange and consideration for additional
shares of stock of Industrial Company.
STOCK OWNED AT OCTOBER 30, 1996
-------------------------------
Tenneco Deutschland Holdinggesellschaft mbH (Germany)
Tenneco Inc. (Nevada)
Walker Deutschland GmbH (Germany)(1%)
STOCK AND ASSETS RECEIVED IN STEP (14)
---------------------------------------
Autopartes Walker, S.A. de C.V. (Mexico)(99.96%)(4)
Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company)
Monroe-Mexico S.A. de C.V. (Mexico)(0.01%)
Proveedora Walker S.A. de C.V. (Mexico)(99.99%)
Tenneco Automotive Foreign Sales Corporation Ltd. (Jamaica)(1%)
Tenneco Brake, Inc.
Walker Electronic Silencing, Inc.
Walker Manufacturing Company
Tenneco Windsor Box & Display Inc. (f/k/a DeLine Box & Display
Inc.)
Tenneco Asia Inc.
Tenneco Brazil Ltda. (Brazil)
Tenneco Business Services Holdings, Inc. (f/k/a Tenneco Business
Services Inc.)
Tenneco Foam Products Company (f/k/a Amoco Foam Products
Company)
Tenneco Management Company (f/k/a 1275, Inc.)
Tenneco Moorehead Acquisition Inc.
Tenneco Packaging Hungary Holdings Inc.
Tenneco Romania Holdings Inc.
15B. Effective as of December 4, 1997 or December 6, 1996, TGP will
transfer to Tenneco Management Company as a contribution to capital the
following assets:
a. All trademarks, trade names, service marks, company or
operating unit names containing the word "Tenneco" or any variation of the name
"Tenneco", such as those names with a "Tenn" of "Ten" syllable and respective
applications or registrations therefor wherever used or registered, except
that Tenneco and other members of the Energy Group shall retain the right to
use the name "Tennessee" in their respective corporate names or otherwise in
respect of the Energy Business.
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(4) Includes: 0.02% interest owned by Tenneco Corporation at 12/31/95; and
99.94% interest accepted from TGP. Tenneco Automotive Inc. (f/d/a Monroe Auto
Equipment Company) continues to own 0.02% of the stock.
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b. All other intellectual property that does not solely and
directly relate to the Energy Business and/or the Shipbuilding Business,
including but not limited to patents, copyrights, trademarks, service marks,
tradenames, know-how, trade secrets, licenses and rights therein.
15C. Effective as of November 30, 1996 following the consummation of
steps C(6) through C(8), Tenneco Corporation will transfer all of its ownership
interest (100% unless otherwise indicated) in the following entities to
Industrial Company as a contribution to capital and in exchange and
consideration for additional shares of stock of Industrial Company. The
transfer of the Counce Limited Partnership interest is subject to receipt of
the consent of the Counce Noteholders referred to in step B(8)(a).
STOCK AND PARTNERSHIP INTEREST RECEIVED IN STEPS (6)-(8)
Counce Limited Partnership (95% limited partner interest)
Tenneco International Holding Corp. (100% interest in Common
Stock and 100% interest in $8.00 Junior Preferred Stock)
Autopartes Walker, S.A. de C.V. (Mexico)(0.02%)
Omni-Pac GmbH (Germany)(1%)
Omni-Pac S.A.R.L. (France)(97%)
Tenneco Automotive Trading Company
Tenneco United Kingdom Holdings Limited
Walker Europe, Inc.
Walker Norge A/S (Norway)
15D. Effective as of December 1, 1996, TGP will transfer to Tenneco
Corporation as a contribution to capital the assets listed on Schedule I.
Tenneco Corporation will transfer the assets to Industrial Company as a
contribution to capital. Industrial Company will transfer the assets to Tenneco
Management Company as a contribution to capital.(5)
15E. On the Distribution Date following the consummation of step C(11),
Tenneco Corporation will transfer the stock of the following entities to
Industrial Company as a contribution to capital:
STOCK RECEIVED IN STEP (11)
Tenneco Packaging Inc.
PCA Leasing Company
15F. On the Distribution Date following the consummation of steps C(1)
through C(15E), Tenneco Corporation will transfer all of its assets (excluding
the stock of Industrial Company, Shipbuilding Company, Midwestern, and CIGC,
but including the intercompany receivable from Tenneco received in step C(10B))
and all of its liabilities (excluding liabilities for accrued taxes) to
Midwestern as a contribution to capital. Midwestern will transfer such assets
and liabilities to New
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(5) These transfers are being effected as of December 1, 1996 because the
transfer of the partnership interest in Waukegan Corporate Aviation Facilities
cannot become effective earlier than the first day of the month following the
month in which the transfer is approved by the partnership.
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Midwestern as a contribution to capital. Tenneco Corporation shall not acquire
any assets following the consummation of step C(15F) and Tenneco Corporation and
Midwestern will enter in to an agreement pursuant to which any assets
inadvertently acquired by Tenneco Corporation following the consummation of
step C(15F) will be deemed contributed to the capital of Midwestern immediately
upon acquisition without any further action by the parties.
16A. On the Distribution Date following the consummation of steps C(1)
through C(15F), Tenneco Corporation will transfer all of the stock of
Shipbuilding Company and Industrial Company of TGP as a distribution with
respect to stock (i.e., return of contributed surplus).
16B. On the Distribution Date following the consummation of step C(16A)
and prior to the consummation of step C(17), Tenneco will purchase the debt of
TGP as follows:
a. Pursuant to a tender offer made on November 8, 1996, Tenneco
will purchase the debt of TGP validly tendered by the holders (and not
withdrawn) at or prior to 5:00 p.m. New York City time on December 10, 1996
(the "Expiration Time").(6) Using the funds received by Tenneco in step C(10B)
(which are being are being held by The Chase Manhattan Bank as Depositary for
the offers to purchase TGP, TCC, and Tenneco debt), on the Distribution Date
Tenneco will purchase the tendered TGP debt, excluding interest to be paid by
TGP. Also on the Distribution Date, TGP will transfer to The Chase Manhattan
Bank as Depositary for the tender offers an amount of funds equal to the
interest to be paid by TGP pursuant to the terms of the tender offer. To
document TGP's payment of interest on the tendered debt, on the Distribution
Date Tenneco will make an actual transfer of funds into a TGP account (as an
intercompany advance), and TGP will transfer funds from that account to Chase's
Depositary account.
b. Tenneco will transfer the TGP debt acquired in step C(16B)(a)
to TGP in exchange for cash equal to Tenneco's cost of acquiring the debt
(including fees and expenses paid by Tenneco in connection with the purchase of
the TGP debt, but excluding accrued interest paid by TGP), thereby
extinguishing the debt.
c. Tenneco will transfer the cash received in step C(16B)(b) to
TGP as an intercompany advance.
The transfers of cash described in steps C(16B)(b) and C(16B)(c) will be
accomplished using a daylight overdraft.
17. On the Distribution Date following the consummation of steps C(16A)
and C(16B), TGP will transfer all of the stock of Shipbuilding Company and
Industrial Company to Tenneco as a distribution with respect to stock (i.e.,
return of contributed surplus).
18. On the Distribution Date following the consummation of step C(17),
Industrial Company will transfer to Tenneco as a dividend the net intercompany
account payable owed by Tenneco to Industrial Company.
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(6) These Transaction Steps assume that the tender offer will not be extended
or earlier terminated.
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19. On the Distribution Date following the consummation of step C(17),
Industrial Company will participate in the Debt Realignment as follows:
a. Industrial Company will borrow $347,000,000 under a new
credit facility an amount equal to the amount necessary to fund, after payment
of credit facility expenses, a dividend to Tenneco (see step C(19)(d)) which,
when used by Tenneco to fund the retirement of debt pursuant to the Tenneco
debt tender offer, will cause the Actual Energy Debt Amount to be equal to the
Base Amount, as estimated on the Distribution Date.
b. Industrial Company's offer to exchange up to $1,950,000,000
face amount of Industrial Company debt for certain Tenneco debt will expire at
5:00 p.m. New York City time on December 10, 1996 (the "expiration time").(7)
Pursuant to the exchange offer, Industrial Company will accept for exchange
Tenneco debt validly tendered and not withdrawn as of the expiration time, and
will acquire such Tenneco debt by issuing new debt in exchange therefor on the
first NYSE trading day following the expiration time (the "issuance date,"
which is also the Distribution Date). On the Distribution Date, Industrial
Company will deliver the new debt certificates to The Chase Manhattan Bank as
exchange agent for the holders of Tenneco debt participating in the exchange.
The exchange agent will deliver the new debt certificates to such holders on
the third trading day following the expiration time (the "exchange date"). Also
on the Distribution Date, Industrial Company will transfer cash (from the funds
received in step C(19)(a)) to the exchange agent equal to the amount of
interest accrued on the exchanged Tenneco debt up to but excluding the issuance
date; provided that Tenneco, and not Industrial Company, will pay accrued
interest up to the issuance date on exchanged Tenneco debt for which the record
date for any interest payment is prior to the Distribution Date and for which
the payment date for such interest payment is after the issuance date. Interest
on the new debt will accrue from and including the issuance date ("straddle
interest"). To document Tenneco's payment of straddle interest on the exchange
debt as required by the exchange offer, Tenneco will transfer funds equal to
the required payment of straddle interest from a Tenneco Inc. account to the
account to be used by The Chase Manhattan Bank as exchange agent for the
payment of such interest pursuant to the exchange offer.
c. Tenneco will transfer to Industrial Company in exchange for
the Tenneco debt acquired by Industrial Company in step C(19)(b) an amount of
funds equal to the fair market value of the debt issued by Industrial Company
to acquire the Tenneco debt in step C(19)(b), plus the accrued interest to be
paid by Industrial Company on the Tenneco debt, plus any fees and expenses
incurred by Industrial Company in connection with the exchange.
d. Industrial Company will transfer to Tenneco as a dividend
the funds received in steps C(19)(a) and C(19)(c) remaining after payment of
accrued interest on the tendered Tenneco debt and expenses related to the
credit facility and debt exchange.
To document that the funds received in step C(19)(a) and transferred to Tenneco
in step C(19)(d) were used by Tenneco to retire debt, the funds will be
transferred directly from Morgan Guaranty
- ----------
(7) These Transaction Steps assume that the exchange offer will not be extended
or earlier terminated.
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Trust Company of New York as administrative agent for the lenders under the
Industrial Company credit facility to The Chase Manhattan Bank as Depositary
for the Tenneco debt tender offer (see step C(20)(b)). The funds to be received
by Industrial Company in step C(19)(c) and then transferred to Tenneco in step
C(19)(d) will be arranged under a daylight overdraft facility.
20. On the Distribution Date following the consummation of step C(17),
Tenneco will participate in the Debt Realignment as follows:
a. Tenneco will borrow $2,164,000,000 under a new credit
facility (the "Tenneco Credit Facility") an amount equal to the amount
necessary to cause the Actual Energy Debt Amount to be equal to the Base
Amount, as estimated on the Distribution Date, taking into account funds
utilized in the Debt Realignment.
b. Pursuant to a tender offer made on November 8, 1996, Tenneco
will purchase the debt of Tenneco and TCC validly tendered by the holders (and
not withdrawn) at or prior to 5:00 p.m. New York City time on December 10, 1996
(the "Expiration Time").(3) From the funds received in step C(20)(a), on the
Distribution Date Tenneco will transfer to The Chase Manhattan Bank as
Depositary for the tender offers an amount of funds sufficient to fund the
purchases of the tendered Tenneco and TCC debt, taking into account the funds
deposited with Chase as Depositary as described in steps C(10B) and C(19)(d)
and the utilization of a portion of such funds as contemplated by step
C(16B)(a). Chase will use such funds to effect the purchases of the tendered
Tenneco and TCC debt on behalf of Tenneco.
c. Tenneco will transfer to TCC the debt of TCC acquired in
step C(20)(b) in exchange for cash equal to Tenneco's cost of acquiring the
TCC debt, including accrued interest plus any fees and expenses incurred by
Tenneco in connection with the acquisition of the TCC debt. Tenneco will use
the cash to repay its intercompany loan from TCC or to make an intercompany
advance to TCC. Step C(20)(c) will be accompanied using a daylight overdraft.
d. Tenneco will repay all of its outstanding bank debt and
commercial paper, pay transaction expenses, transfer funds to Shipbuilding
Company and TGP as necessary to fund the Guaranteed Shipbuilding Cash Amount
and the Guaranteed Energy Cash Amount, respectively (as defined in the Debt and
Cash Allocation Agreement), and fund cash expenditures of Tenneco and its
affiliates for the Distribution Date. To the extent the Shipbuilding Group cash
and cash equivalents on the Distribution Date (taking into account all of the
foregoing transactions) exceeds the Guaranteed Shipbuilding Cash Amount, the
excess shall be transferred by Shipbuilding Company to Tenneco as a dividend.
To the extent the Energy Group cash and cash equivalents on the Distribution
Date (taking into account all of the foregoing transactions, and including the
dividend described in the previous sentence) exceeds the Guaranteed Energy Cash
Amount, Tenneco shall transfer such excess to Industrial Company as a
contribution to capital.
e. Tenneco will transfer to TGP as a contribution to capital
all of its assets other than the stock of TGP and the note receivable from
I.C.H. Corporation, and all of its liabilities other than
- ------------------
(3) These Transaction Steps assume that the tender offer will not be extended or
earlier terminated.
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the Consolidated Debt issued by Tenneco (as defined in the Debt Realignment
Plan attached as Exhibit C to the Merger Agreement, including the untendered
portions of Tenneco public debt and the Tenneco Revolving Debt incurred under
the Tenneco Credit Facility), accrued taxes, and unpaid dividends.
Following step 20, Tenneco should have no assets other than the stock of TGP
and the note receivable from I.C.H. Corporation, and no liabilities other than
the Tenneco Credit Facility, the untendered portion of the Tenneco Consolidated
Debt, accrued taxes, and unpaid dividends. Tenneco shall not acquire any assets
following the consummation of step 20, and Tenneco and TGP will enter into an
agreement pursuant to which any assets inadvertently acquired by Tenneco
following the consummation of step 20 will be deemed contributed to the capital
of TGP immediately upon acquisition without any further action by the parties.
21. Effective as of November 30, 1996, TGP will transfer to Tenneco
Asheville Inc., a newly formed wholly owned subsidiary of TGP, as a
contribution to capital the assets and liabilities associated with the Walker
Manufacturing property located in Asheville, NC. TGP will then transfer the
stock of Tenneco Asheville Inc. to Tenneco Corporation as a contribution to
capital, and Tenneco Corporation will transfer the stock of Tenneco Asheville
Inc. to Industrial Company as a contribution to capital.
22. Effective as of November 1, 1996, Tenneco Liquidation Company
(formerly Tenneco Business Services Inc.) will transfer all of its assets and
liabilities to Tenneco Business Services Inc. (formerly Tenneco Technology
Services Inc.). Tenneco Liquidation Company will change its name to Tenneco
Business Services Holdings Inc.
23. On the Distribution Date immediately before the Distributions,
Industrial Company and Shipbuilding Company will issued a stock dividend to
Tenneco as provided in Section 2.02 of the Distribution Agreement.
D. DISTRIBUTIONS AND MERGER
1. On the Distribution Date following the consummation of steps C(1)
through C(23), Tenneco will distribute all of the stock of Industrial Company
and Shipbuilding Company to Tenneco shareholders as a distribution with respect
to stock (i.e., return of contributed surplus) pro rata on the basis of one
share of Industrial Company stock for one share of Tenneco common stock
outstanding and on the basis of one share of Shipbuilding Company stock for
five shares of Tenneco common stock outstanding. Cash will be paid in lieu of
issuing fractional shares of Shipbuilding Company stock. Each share of stock of
Industrial Company and Shipbuilding Company will have attached to it stock
purchase rights (the "Rights") which will entitle the holder to purchase
certain stock of Industrial Company or Shipbuilding Company, as the case may
be, upon the occurrence of certain triggering events.
2. Effective as of the Distribution Date, the account of the employees
of the Shipbuilding Business in the Tenneco Thrift Plan will be transferred to
a Shipbuilding Company qualified plan (the "Shipbuilding Company Thrift Plan")
as of the distribution date. The Shipbuilding Company Thrift Plan will include
an employee stock ownership plan ("ESOP"), and Shipbuilding Company
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stock received with respect to Tenneco stock on their accounts will held
subject to the terms of the ESOP.
3. Effective as of 8:00 a.m. EST on the day following the Distribution
Date, Industrial Company, Acquiror, Acquiror Sub A1, and Acquiror Parent will
consummate the merger of Acquiror Sub A1 into Tenneco (the "Merger").
E. POST-MERGER TRANSACTIONS
1. [Despite transfers of 401(k) accounts and communication of
opportunity to sell shares of non-employer stock.]
2. [Describe settlement of cash under Debt and Cash Allocation
Agreement. If there is a transfer of excess cash from Shipbuilding Company to
Industrial Company, the transfer should be treated as dividend by Shipbuilding
Company to Tenneco and a contribution by Tenneco to the capital of Industrial
Company immediately prior to step D(1). If there is a transfer of cash from
Industrial Company to Shipbuilding Company, the transfer should be treated as
dividend by Industrial Company to Tenneco and a contribution by Tenneco to the
capital of Shipbuilding Company immediately prior to step D(1). Any transfer of
cash from Tenneco to Industrial Company should be treated as a contribution by
Tenneco to the capital Industrial Company immediately prior to step D(1), and
any transfer of cash from Industrial Company to Tenneco should be treated as a
dividend by Industrial Company to Tenneco immediately prior to step D(1).]
3. Effective as of December 12, 1996, Tenneco will make arrangements
for the funding of the Energy Business cash requirements without flowing cash
through Tenneco and without creating any intercompany receivables held by
Tenneco. As soon as practical after the Effective Time, Tenneco will close all
of its bank accounts.
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Project Liza Transaction Steps
Page 21
Schedule 1
Pursuant to the Corporate Restructuring Transactions, the following assets
owned by TGP shall be transferred to Tenneco Management Company.
1. Aviation Assets.
a. All fixed wing corporate aircraft (except the Gulfstream
G-II, serial number 248, and Rolls Royce Spey Model 511-8 engines,
manufacturer's Serial Numbers 9816 and 9844), and spare parts for the aircraft
which as of the Effective time will not have a net book value in excess of $1
million.
b. Limited partner interest in the Waukegan Corporate Aviation
Facilities, an Illinois limited partnership (which owns the Waukegan, Illinois
airport hanger facility and common facilities), the furniture, fixtures, and
equipment owned by TGP located at the Waukegan aviation facilities, the stock
of Corporate Hangar Services, Inc., an Illinois corporation (which is the
corporate general partner of Waukegan Corporate Aviation Facility), and TGP's
sublease of the aviation facilities from Waukegan Corporate Aviation
Facilities.
c. Certain furniture, fixtures, and equipment located in the
Houston, Texas airport hangar facilities associated with the fixed wing
aircraft described in clause (a), which at the Effective Time will not have a
net book value in excess of $1 million.
2. Furniture, Fixtures, and Equipment. Furniture, fixtures, and
equipment (including furnishings and computer equipment) which as of the
Effective Time will not have a net book value in excess of $2 million located
in:
a. Greenwich, CT Management Center.
b. Washington, D.C. office.
c. Houston, Texas office.
3. Albright & Wilson Note. The long-term note receivable from Albright
& Wilson Americas Inc. in the amount of $6,936,384 as of October 31, 1996.
<PAGE> 26
Exhibit E
to the
Distribution Agreement
<PAGE> 27
ENERGY SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Tennessee Gas Pipeline Company (Delaware)............................. 100%
Altamont Service Corporation (Delaware)............................ 100
Altamont Gas Transmission Canada Limited (Canada)............... 100
(Altamont Service Corporation is the registered holder of all
of the issued and outstanding shares of Altamont Gas
Transmission Canada Limited, as Trustee for Altamont Gas
Transmission Company, a Joint Venture)
Border Gas Inc. (Delaware) (a close corp.)......................... 37.5
(Tennessee Gas Pipeline Company owns 100% of the Class A Common
Stock, 37.5% of the total equity, and 37.5% of the total voting
stock; unaffiliated companies (Texas Eastern Transmission
Corporation, El Paso Natural Gas Company, Transcontinental Gas
Pipe Line Corporation, Southern Natural Gas Company, and
Florida Gas Transmission Company) own the remaining stock and
equity)
Eastern Insurance Company Limited (Bermuda)........................ 100
East Tennessee Natural Gas Company (Tennessee)..................... 100
Tenneco East Natural Gas L.P. (Delaware Limited Partnership).... 1
(East Tennessee Natural Gas Company, as General Partner,
owns 1%; and Tenneco East Corporation, as Limited Partner,
owns 99%)
Energy TRACS, Inc. (Delaware)...................................... 100
Greater Houston Small Business Equity Funds, Inc. (Texas).......... ??
Kern County Land Company (Delaware)................................ 100
Tenneco Equipment Corporation (Delaware)........................ 100
Marlin Drilling Co., Inc. (Delaware)
Bluefin Supply Company (Delaware)......................... 100
Marlin do Brasil Perfuacoes Maritimas Ltda. (Brazil)...... 0.16
(in dissolution)
(Bluefin Supply Company owns 0.16%; and Marlin Drilling
Co., Inc. owns 99.84%)
Marlin do Brasil Perfuacoes Maritimas Ltda. (Brazil)...... 99.84
(in dissolution)
(Marlin Drilling Co., Inc. owns 99.84%; and Bluefin
Supply Company owns 0.16%)
Tenneco Equipment Holding I Company (Delaware)............... 100
Tenneco Equipment Holding II Company (Delaware).............. 100
Tenneco Equipment Holding III Company (Delaware)............. 100
Tenneco Equipment Holding V Company (North Dakota)........ 100
Tenneco Equipment Holding IV Company (Wisconsin)............. 100
Tenneco Equipment Holding VI Company (Illinois).............. 100
Tenneco West, Inc. (Delaware)................................... 100
Kern County Land Company, Inc. (California).................. 100
Kern River Corporation (Delaware).................................. 0.01
Land Ventures, Inc. (Delaware)..................................... 100
MESBIC Financial Corporation of Houston (Texas).................... ??
Midwestern Gas Marketing Company (Delaware)........................ 100
Mont Belvieu Land Company (Delaware)............................... 100
</TABLE>
1
<PAGE> 28
ENERGY SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
New Tenn Company (Delaware)...................................... 100
(New Tenn Company and New Tennessee Gas Pipeline are in the
process of being merged into Tennessee Gas Pipeline Company.)
New Tennessee Gas Pipeline Company (Delaware).................... 100
(New Tenn Company and New Tennessee Gas Pipeline are in the
process of being merged into Tennessee Gas Pipeline Company.)
S.K. Petroleum Company (Delaware)................................ 100
Sandbar Petroleum Company (Delaware)............................. 100
Tennchase Inc. (Texas)........................................... 100
Tenneco Alaska, Inc. (Alaska).................................... 100
Tenneco-Altamont Corporation (Delaware).......................... 100
Altamont Gas Transmission Company (Delaware Joint Venture).... 53.34
(Tenneco-Altamont Corporation owns 53-1/3%; Amoco Altamont
Company, an unaffiliated company, owns 33-1/3%; and Entech
Altamont, Inc., an unaffiliated company, owns 13-1/3%.)
Tenneco Argentina Corporation (Delaware)......................... 100
Tenneco Baja California Corporation (Delaware)................... 100
Tenneco Communications Corporation (Delaware).................... 100
Tenneco Corporation (Delaware)................................... 100
(Tennessee Gas Pipeline Company owns 100% of the Common
Stock; Tenneco Credit Corporation owns ___% of the Second
Preferred Stock; Tenneco Equipment Corporation owns ___% of
the Second Preferred Stock; and Tenneco International Inc.
owns ___% of the Second Preferred Stock.)
Channel Industries Gas Company (Delaware)...................... 100
Tenneco Energy Marketing Company (Kentucky)................. 100
Creole Gas Pipeline Corporation (Louisiana).............. 100
Entrade Pipeline Company (Kentucky)...................... 100
Channel Gas Marketing Company (Delaware).................... 100
Oasis Pipe Line Company (Delaware)....................... 30
(Channel Gas Marketing Company owns 100% of the issued
and outstanding Series B Preference Stock and 30% of
the Common Stock, 30% of total equity; Dow Chemical
Company, an unaffiliated company owns 100% of the
issued and outstanding Series A Preference Stock and
70% of the Common Stock, 70% of total equity.)
Tenneco Gas Processing Company (Delaware)................... 100
Tenneco Independent Power I Company (Delaware).............. 100
Tenneco Independent Power II Company (Delaware)............. 100
Tenneco Insurance Ventures (Delaware)....................... 100
Tenneco Offshore Gathering Company (Delaware)............... 100
Tenneco Gas Marketing Company (Delaware).................... 100
</TABLE>
2
<PAGE> 29
ENERGY SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Subsidiaries of Tenneco Corporation
Subsidiaries of Channel Industries Gas Company
Tenneco Power Generation Company (Delaware)....................... 100
Orange Acquisition, Inc. (Delaware)............................. 100
Orange Cogeneration Limited Partnership (Delaware Limited
Partnership).................................................. 49.5
(Orange Acquisition Inc. owns 49.5% as a Limited Partner; CSW
Orange, Inc., an unaffiliated company, owns _____% as a
Limited Partner; and Orange Cogeneration GP, Inc. owns _____%
as General Partner.)
Orange Cogeneration GP II, Inc. (Delaware).................... 50
(Tenneco Power Generation Company owns 50%; and CSW
Development-I, Inc., an unaffiliated company, owns 50%.)
Orange Cogeneration G.P., Inc. (Delaware).................... 100
Polk Power GP II, Inc. (Delaware).............................. 50
(Tenneco Power Generation Company owns 50% and CSW
Development-I, Inc., an unaffiliated company, owns 50%.)
Polk Power GP, Inc........................................... 100
Tenneco Ethanol Company (Delaware)............................. 100
Tenneco Ethanol Services Company (Delaware).................... 100
West Campus Cogeneration Company (Delaware).................... 100
Midwestern Gas Transmission Company (Delaware)................... 100
Deepsea Ventures, Inc. (Delaware).............................. ??
Entrade Engine Company (Kentucky).............................. 100
H.T. Gathering Company (Texas)................................. 50
(Midwestern Gas Transmission Company owns 50% of the issued
and outstanding Class A Voting Stock and 20% of the Class B
Nonvoting Stock, 29% of the total equity; and Houston Pipe
Line Company, an unaffiliated company, owns 50% of the issued
and outstanding Class A Voting Stock and 80% of the Class B
Nonvoting Stock, 71% of the total equity.)
New Midwestern Inc. (Delaware)................................. 100
Petro-Tex Chemical Corporation (Delaware) (in dissolution)..... 100
(Certificate of Dissolution was filed in Delaware on January
18, 1995, Final dissolution date will be January 18, 1998,
subject to settlement of any other outstanding business.)
SWL Security Corp. (Texas)..................................... 100
Tenneco Midwest Natural Gas L.P. (Delaware Limited
Partnership)................................................. 1
(Midwestern Gas Transmission Company, as General Partner,
owns 1%; and Tenneco Midwest Corporation, as Limited Partner
owns 99%.)
Tenneco Minerals Company - California (Delaware)............... 100
Tenneco Minerals Company - Nevada (Delaware)................... 100
Tenneco OCS Company, Inc. (Delaware)........................... 100
Tenneco Oil Company (Delaware)................................. 100
</TABLE>
3
<PAGE> 30
ENERGY SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Subsidiaries of Tenneco Corporation
Subsidiaries of Midwestern Gas Transmission Company
Tenneco Polymers, Inc. (Delaware)............................ 100
Tenneco Eastern Realty, Inc. (New Jersey).................... 100
Tennessee Overthrust Gas Company (Delaware).................. 100
Overthrust Pipeline Company (Delaware General Partner).... 18
(Tennessee Overthrust Gas Company owns an 18% general
partnership interest; unaffiliated parties own 82%
partnership interest)
TGP Corporation (Delaware)................................... 100
Tenneco Credit Corporation (Delaware).............................. 100
TenFac Corporation (Delaware)................................... 100
Tenneco Deepwater Gathering Company (Delaware)..................... 100
Tenneco Delta XII Gas Co., Inc. (Delaware)......................... 100
Tenneco East Corporation (Delaware)................................ 100
Tenneco East Ntural Gas L.P. (Delaware Limited Partnership)..... 99
(Tenneco East Corporation, as Limited Partner, owns 99%; and
East Tennessee Natural Gas Company, as General Partner,
owns 1%)
Tenneco Energy Europe Inc. (Delaware).............................. 100
Tenneco Energy Hungary Inc. (Delaware).......................... 99
[Tenneco Energy Hungary B.V. (Netherlands)................... ??]
Tenneco Energy Ltd. (Canada)....................................... 100
Tenneco Energy Services Company (Delaware)......................... 100
GreyStar Corporation (Texas).................................... 50
(Tenneco Energy Services Company owns 50%, and unaffiliated
parties own 50%. Tenneco Energy Services Company owns
1,135,294 shares of Series B Preferred Stock, $0.01 par value
per share.)
Tenneco Energy AIRCO Inc. (Delaware)............................ 100
Tenneco Energy OGS Inc. (Delaware).............................. 100
Tenneco Energy TEPSCO Inc. (Delaware)........................... 100
Tenneco Energy Inc. (Delaware)..................................... 100
Tenneco EIS Company (Delaware).................................. 100
Tenneco EIS Canada Ltd. (Alberta)............................ 100
Tenneco Gas Transportation Company (Delaware)................... 100
Tenneco Gas Canada, Ltd. (Ontario)................................. 100
Tenneco Gas International Inc. (Delaware).......................... 100
Tenneco Energy China Inc. (Delaware)............................ 100
Tenneco Gas Brazil Corporation (Delaware)....................... 100
Tenneco Gas International Servicos do Brasil Ltda (Brazil)... 100
Tenneco Gas Chile Corporation (Delaware)........................ 100
Tenneco Energy International (East Asia/Pacific) Inc.
(Delaware)................................................... 100
Tenneco Gas Services (Chile) Corporation (Delaware)............. 100
Tenneco Gas Transportes S.A. (Chile)......................... 100
Tenneco Gas Latin America Inc. (Delaware)....................... 100
</TABLE>
4
<PAGE> 31
ENERGY SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Tenneco Gas Louisiana Inc. (Delaware) ................................ 100
Martin Exploration Company (Delaware) ............................. 100
Tenneco Gas Production Corporation (Delaware) ........................ 100
Tenneco Gas Properties Inc. (Delaware) ............................... 100
Tenneco Gas Services, Inc. (Delaware) ................................ 100
Tenneco Gas Supply Corporation (Delaware) ............................ 100
Tenneco Gas Australia Inc. (Delaware) ................................ 100
Tenneco Holdings Pty. Ltd. (Australia) ............................ 100
Sulawesi Energy Pty Ltd. (Australia) ........................... 50
(Upon the acquisition of the Energy Equity subsidiaries
contemplated for the South Sulawesi Project, Tenneco
Holdings Pty. Ltd. will own 50%, and an unaffiliated
company will own 50%.)
PT Energi Sengkang (Indonesia)............................... 95
(Upon the acquisition of the Energy Equity subsidiaries
contemplated for the South Sulawesi Project, Sulawesi
Energy Pty. Ltd. will own 95%, and an unaffiliated
company will own 5%.)
Tenneco Energy Australia Pty. Limited (Australia) .............. 100
Tenneco Energy Queensland Pty. Limited (Australia) .......... 100
Tenneco Energy South Australia Pty. Limited (Australia) ..... 100
Tenneco Energy Operations and Maintenance Pty. Ltd. ............ 100
Energy Management Technical Systems Pty. Ltd. (Australia) ... 50
(Upon the acquisition of the Energy Equity subsidiaries
contemplated for the South Sulawesi Project, Tenneco
Energy Operations and Maintenance Pty. Ltd. will own
50%, and an unaffiliated company will own 50%.)
Tenneco Sulawesi Gas Pty. Ltd. (Australia) ..................... 100
Energy Equity (Sengkang) Pty. Ltd. (Australia) .............. 50
(Upon the acquisition of the Energy Equity subsidiaries
contemplated for the South Sulawesi Project, Tenneco
Sulawesi Gas Pty. Ltd. will own 50%, and an unaffiliated
company will own 50%.)
Galtee Limited (Cayman Islands) ................................... 100
Tenneco International Inc. (Delaware) ................................ 100
Tenneco Nederland B.V. (Netherlands) .............................. 100
Tenneco Offshore Netherlands Company (Delaware) ................... 100
Tenneco Liquids Corporation (Delaware) ............................... 100
Tenneco Marketing Services Company (Delaware) ........................ 100
Tenneco MLP Inc. (Delaware) .......................................... 100
Polk Power Partners, L.P. (Delaware Limited Partnership) ....... 100
(Tenneco MLP Inc. owns __% as a Limited Partner; CSW
Mulberry, Inc., an unaffiliated company, owns __% as a
Limited Partner; GPSF-A Inc., an Unaffiliated company
owns __% as Preferred Limited Partner; and Polk Power
GP, Inc. owns __% as the General Partner.)
Tenneco MTBE, Inc. (Delaware) ........................................ 100
</TABLE>
5
<PAGE> 32
ENERGY SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Tenneco Midwest Corporation (Delaware)................................ 100
Tenneco Midwest Natural Gas L.P. (Delaware Limited Partnership).... 99
(Tenneco Midwest Corporation, as Limited Partner, owns 99%; and
Midwestern Gas Transmission Company, as General Partner, owns
1%).
Tenneco Pittsfield Corporation (Delaware)............................. 100
Tenneco Portland Corporation (Delaware)............................... 100
Tenneco Realty, Inc. (Delaware)....................................... 100
Tenneco SNG Inc. (Delaware)........................................... 100
Tenneco Texas Acquisition, Inc. (Delaware)............................ 100
Tenneco Trinidad LNG, Inc. (Delaware)................................. 100
Tenneco Ventures Bolivia Corporation (Delaware)....................... 100
Tenneco Ventures Corporation (Delaware)............................... 100
Tenneco Ventures Poland Corporation (Delaware)........................ 100
Tenneco Western Market Center Corporation (Delaware).................. 100
The Western Market Center Joint Venture (Joint Venture)............ 50
(Tenneco Western Market Center Corporation owns 50%; Entech Gas
Ventures, Inc., an unaffiliated company, owns 15%; Questar WMC
Corporation, an unaffiliated company, owns 25%; and Fuels WMC
Corporation, an unaffiliated company, owns 10%.)
Tenneco Western Market Center Service Corporation (Delaware).......... 100
TennEcon Services, Inc. (Delaware) ................................... 100
Tenneco Energy Technology Consulting Services Inc. (Delaware)...... 100
Tennessee Gas Transmission Company (Delaware)......................... 100
Tennessee Storage Company (Delaware).................................. 100
Tennessee Trailblazer Gas Company (Delaware).......................... 100
Ten Ten Parking Garage Inc. (Delaware)................................ 100
The Fontanelle Corporation (Louisiana). .............................. 100
The F and E Oyster Partnership (Louisiana Partnership)............. 64
(The Fontanelle Corporation owns 64% as General Partner; and
Expedite Oyster, Inc., an unaffiliated company, owns, 36% as
General Partner.)
The LaChute Corporation (Louisiana)................................... 100
</TABLE>
6
<PAGE> 33
EXHIBIT G
TO THE
DISTRIBUTION AGREEMENT
<PAGE> 34
INDUSTRIAL SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Industrial Company
Subsidiaries of Tenneco Automotive Inc.
Tenneco Automotive Italia S.r.l. (Italy)............................ 15
(Tenneco Automotive Inc. owns 85%; and Monroe Auto
Equipment France, S.A. owns 15%)
Monroe Auto Pecas S.A. (Brazil)................................... 2.82
(Tenneco Automotive Inc. owns 2.82%; Monroe do Brazil Industria
e Comercio Ltda. Owns 82.71%; and Monteiro Aranha S/A, an
unaffiliated company, owns 14.47%)
Monroe-Mexico S.A. de C.V. (Mexico).............................. 99.99
(Tenneco Automotive Inc. owns 99.99%; and Industrial Company
owns 0.01%)
Precision Modular Assembly Corp. (Delaware)........................ 100
Rancho Industries Europe B.V. (Netherlands)........................ 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica)..... 99
(Tenneco Automotive Inc. owns 99%; and Industrial Company owns
1%)
Tenneco Automotive International Sales Corporation
(DE-In Dissolution)............................................. 100
Tenneco Automotive Italia S.r.l. (Italy)........................... 85
(Tenneco Automotive Inc. owns 85%; and Monroe Auto Equipement
France, S.A. owns 15%)
Tenneco Automotive Japan Ltd. (Japan).............................. 100
The Pullman Company (Delaware)..................................... 100
Axios Produtos de Elastomeros Limitada (Brazil)................. 99
(99% The Pullman Company; 1% Peabody International
Corporation)
Clevite Industries Inc. (Delaware).............................. 100
Peabody International Corporation (Delaware).................... 100
Axios Produtos de Elastomeros Limitada (Brazil).............. 1
(99% The Pullman Company; 1% Peabody International
Corporation)
Barasset Corporation (Ohio).................................. 100
Peabody Galion Corporation (Delaware)........................ 100
Peabody Gordon-Piatt, Inc. (Delaware)........................ 100
Peabody N.E., Inc. (Delaware)................................ 100
Peabody World Trade Corporation (Delaware)................... 100
Pullmex, S.A. de C.V. (Mexico)........................... 0.1
(99.9% The Pullman Company; 0.1% Peabody World Trade
Corporation)
Peabody-Myers Corporation (Illinois)......................... 100
Pullman Canada Ltd. (Canada)................................. 61
(61% Peabody International Corporation; 39% The Pullman
Company)
Pullman Canada Ltd. (Canada).................................... 39
(61% Peabody International Corporation; 39% The Pullman
Company)
Pullman Standard, Inc. (Delaware)............................... 100
</TABLE>
2
<PAGE> 35
INDUSTRIAL SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Industrial Company
Pullmex, S.A. de C.V. (Mexico).................................. 99.9
(99.9% The Pullman Company; 0.1% Peabody World Trade
Corporation)
Tenneco Automotive Trading Company (Delaware)......................... 100
Tenneco Brake, Inc. (Delaware)..................................... 100
Tenneco Brazil Ltda. (Brazil)......................................... 100
Monroe do Brazil Industria e Comercio Ltda. (Brazil)............... 100
Monroe Auto Pecas S.A. (Brazil)................................. 82.71
(Monroe do Brazil Industria e Comercio Ltda. Owns 82.71%;
Tenneco Automotive Inc. owns 2.82%; and Monteiro Aranha
S/A, an unaffiliated company owns 14.47%)
Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business
Services Inc.)..................................................... 100
Tenneco Business Services Inc. (f/k/a Tenneco Technology
Services Inc.).................................................. 100
Tenneco Deutschland Holdinggesellschaft mbH (Germany)................. 99.97
(Industrial Company owns 99.97%; and Atlas Bermoegensverwaltung, an
unaffiliated company, owns 0.03%)
GILLET Unternehmesverwaltungs (Germany)............................ 100
Heinrich Gillet GmbH & Co. KG (Germany)......................... 0.1
(GILLET Unternehmesverwaltungs GmbH owns 0.1%; and Tenneco
Deutschland Holdinggesellschaft mbH owns 99.9%)
Heinrich Gillet GmbH & Co. KG (Germany)............................ 99.9
(Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%; and
GILLET Unternchmesverwaltungs GmbH owns 0.1%)
Gillet-Abgassysteme Zwickau Gmbh (Germany)...................... 100
Mastra-Gillet Industria e Comercio Ltda. (Brazil)............... 50
(Heinrich Gillet GmbH & Co. KG owns 50%; and Mastra Industria
e Comercio Ltda., an unaffiliated company, owns 50%)
Omni-Pac Ekco GmbH Verpackungsmittel (Germany)..................... 100
Omni-Pac Poland Sp. z o.o. (Poland)............................. 100
PCA Embalajes Espana, S.L. (Spain).............................. 1
(Omni-Pac Ekco GmbH Verpackungsmittel owns 1%; and PCA
Verpackungsmittel GmbH owns 99%)
Omni-Pac GmbH (Germany)............................................ 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and
Industrial Company owns 1%)
Omni-Pac ApS (Denmark).......................................... 100
Omni-Pac A.B. (Sweden).......................................... 100
Omni-Pac S.A.R.L. (France)...................................... 3
(Omni-Pac GmbH owns 3%; and Industrial Company owns 97%)
Walker Deutschland GmbH (Germany).................................. 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and
Industrial Company owns 1%)
Walker Gillet (Enrope) GmbH (Germany).............................. 100
Tenneco Foam Products Company......................................... 100
Tenneco Inc. (Nevada)................................................. 100
</TABLE>
3
<PAGE> 36
INDUSTRIAL SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Industrial Company
Tenneco International Holding Corp. (Delaware)........................ 100
Monroe Australia Pty. Limited (Australia).......................... 100
Monroe Springs (Australia) Pty. Ltd. Australia)................. 100
Monroe Superannuation Pty. Ltd. (Australia)..................... 100
Walker Australia Pty. Limited (Australia)....................... 100
S.A. Monroe Europe N.V. (Belgium).................................. 100
Borusan Amortisor Imalat Ve Ticaret A.S. (Turkey)............... 16.67
(S.A. Monroe Europe N.V. owns 16.67%; Borusan Holding AS, an
unaffiliated company, owns 83.03%; and various unaffiliated
individual stockholders own 0.3%)
Monroe Europe Coordination Center N.V. (Belgium)................ 99.9
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto
Equipment France, S.A. owns 0.1%)
Monroe Europe (UK) Limited (United Kingdom)..................... 18
(S.A. Monroe Europe N.V. owns 18%; and Tenneco United
Kingdom Holdings Limited owns 82%)
Monroe Packaging N.V. (Belgium)................................. 99.9
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto
Equipment France, S.A. owns 0.1%)
Tenneco Canada Inc. (Ontario)...................................... 51.28
(Tenneco International Holding Corp. Owns 100% of the issued and
outstanding Common Stock, 51.28% of total equity; and Tenneco
United Kingdom Holdings Limited owns 100% of the Class A Stock,
48.72% of total equity)
98174 Ontario Limited (Ontario)................................. 100
Tenneco Canada Wholesale Finance Company (Alberta).............. 100
Tenneco Credit Canada Corporation (Alberta)..................... 100
Tenneco Espana Holdings, Inc. (Delaware)........................... 100
Louis Minuzzi E. Hijos S.A.I.C. (Argentina)..................... 100??
Monroe Springs (New Zealand) Pty. Ltd. (New Zealand)............ 100
Monroe Spain, S.A. (f/k/a Tenneco Espana, S.A.) (Spain)...... 100
Gillet Iberica, S.A. (Spain)................................. 100
Manufacturas Fonos, S.L. (Spain)............................. 100
Omni-Pac Embalajes S.A. (Spain).............................. 100
Reknowned Automotive Products Manufacturers Ltd. (India)........ 51
Thibault Investments Limited (Mauritius)........................ 100
Hydraulics Limited (India)................................... 51
(Thibault Investments Limited owns 51% and Bangalore Union
Services Limited, an unaffiliated company, owns 49%)
Tenneco Holdings Danmark A/S (Denmark)............................. 100
Gillet Exhaust Technologie (Proprietary) Limited
(South Africa).................................................. 100
Gillet Lazne Belohrad, s.r.o. (Republic of Czechoslovakia)...... 100
Hemrich Gillet Portuguesa - Sistemas de Escape, Lda.
(Portugal)...................................................... 100
Walker Danmark A/S (Denmark).................................... 100
</TABLE>
4
<PAGE> 37
INDUSTRIAL SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Industrial Company
Subsidiaries of Tenneco International Holding Corp. (Delaware)
Subsidiaries of Tenneco Holdings Danmark A/S (Denmark)
Walker Inapal Escapes, S.A. (Portugal)............................ 90
(Tenneco Holdings Danmark A/S owns 90%; Inapal, Industria
Nacional de Acessorios Para Automoveis, SA, an unaffiliated
company, owns 9.99%; and Walker Danmark A/S owns 0.01%
Walker France S.A. (France)....................................... 100
Constructions Metallurgiques de Wissembourg - Wimetal
(France)....................................................... 100
Societe Europeenne des Ensembles-Montes (France)............ 100
Gillet Tubes Technologies G.T.T. (France)...................... 100
Walker Sverige A.B. (Sweden)...................................... 100
Tenneco Management Company (Delaware)................................ 100
Tenneco Moorhead Acquisition Inc. (Delaware)......................... 100
Tenneco Packaging Hungary Holdings Inc. (Delaware)................... 100
Tenneco Packaging Inc. (Delaware).................................... 100
A&E Plastics, Inc. (Delaware)..................................... 100
Alupak A.G. (Switzerland)......................................... 100
American Cellulose Corporation (Delaware)......................... 100
(Tenneco Packaging Inc. owns 50%; and Larry E. Homan, an
unaffiliated individual, owns 50%)
The Corinth and Counce Railroad Company (Mississippi)............. 100
Marinette Tomahawk & Western Railroad Company (Wisconsin)...... 100
Valdosta Southern Railroad Company (Florida)................... 100
Dahlonega Packaging Corporation (Delaware)........................ 100
Dixie Container Corporation (Virginia)............................ 100
Dixie Convoy Corporation (North Carolina)......................... 100
Dongguan PCA Packaging Co., Ltd. (Peoples Republic of China)...... 50
(Tenneco Packaging Inc. owns 50%; and Dongguan Dong Ya Color
Printing and Packaging Factory, an unaffiliated company,
owns 50%)
EKCO Products, Inc. (Illinois).................................... 100
E-Z Por Corporation (Delaware).................................... 100
Hexacomb Corporation (Illinois)................................... 100
Hexacomb International Sales Corporation (U.S. Virgin
Islands)....................................................... 100
Packaging Corporation of America (Nevada)......................... 100
PCA Box Company (Delaware)........................................ 100
PCA-Budafok (Kartongyar) Kft. (Hungary)........................... 100
PCA Hydro, Inc. (Delaware)........................................ 100
PCA Romania Srl (Romania)......................................... 50
(Tenneco Packaging Inc. owns 50%; and Kraftcorr Inc., an
unaffiliated company owns 50%)
PCA Tomahawk Corporation (Delaware)............................... 100
PCA Valdosta Corporation (Delaware)............................... 100
</TABLE>
5
<PAGE> 38
INDUSTRIAL SUBSIDIARIES
<TABLE>
<S> <C>
Subsidiaries of Industrial Company
Subsidiaries of Tenneco Packaging Inc.
PCA Verpackungsmittel GmbH (Germany)............................... 100
PCA Embalajes Espana S.L. (Spain)............................... 99
(PCA Verpackungsmittel GmbH owns 99%; and Omni-Pac Ekco
GmbH Verpackungsmittel owns 1%)
PCA West Inc. (Delaware)........................................... 100
Coast-Packaging Company (California General Partnership)........ 50
(PCA West Inc. owns 50%, as General Partner; and J.G. Haddy
Sales Company, an unaffiliated company, owns 50%, as
General Partner)
Pressware International, Inc. (Delaware)........................... 100
Revere Foil Containers, Inc. (Delaware)............................ 100
Tenneco Packaging-Romania S.R.L. (Romania)......................... 100
Tenneco Plastics Company (Delaware)................................ 100
798795 Ontario Limited (Ontario)................................... 100
PCA Canada Inc. (Ontario)....................................... 100
Tenneco Retail Receivables Company (Delaware)......................... 100
Tenneco Romania Holdings Inc. (Delaware).............................. 100
Tenneco United Kingdom Holdings Limited (Delaware).................... 100
Monroe Europe (UK) Limited (United Kingdom)........................ 82
(Tenneco United Holdings Limited owns 82%; and S.A. Monroe
Europe N.V. owns 18%)
Omni-Pac U.K. Limited (United Kingdom)............................. 100
Packaging Corporation of America (UK) Limited (Scotland)........... 100
Alpha Products (Bristol Limited (United Kingdom)................ 100
Calendered Plastics Limited (United Kingdom).................... 100
Delyn Packaging Limited (United Kingdom)........................ 100
Penlea Plastics Limited (United Kingdom)........................ 100
Polbeth Packaging Limited (Scotland)............................ 100
Brucefield Plastics Limited (Scotland)....................... 100
Polbeth Packaging (Corby) Limited (Scotland)................. 100
Tenneco Canada Inc. (Ontario)...................................... 48.72
(Tenneco United Kingdom Holdings Limited owns 100% of the Class
A Stock, 48.72% of total equity; and Tenneco International
Holding Corporation owns 100% of the issued and outstanding
common stock, 51.28% of total equity)
Tenneco Europe Limited (Delaware).................................. 100
Tenneco Asia Limited (United Kingdom)........................... 100
Tenneco International Finance Limited (United Kingdom)............. 100
Tenneco International Finance B.V. (Netherlands)................ 100
Tenneco Management (Europe) Limited (United Kingdom)............... 100
Tenneco Packaging (UK) Limited (United Kingdom).................... 100
Tenneco West Limited (United Kingdom).............................. 100
Thompson and Stammers Dunmow (Number 6) Limited (United Kingdom)... 100
Thompson and Stammers Dunmow (Number 7) Limited (United Kingdom)... 100
</TABLE>
6
<PAGE> 39
EXHIBIT J
TO THE
DISTRIBUTION AGREEMENT
<PAGE> 40
SHIPBUILDING SUBSIDIARIES
Subsidiaries of Newport News Shipbuilding Inc. (Delaware) (formerly known as
Tenneco InterAmerica Inc.)
<TABLE>
<S> <C>
Newport News Shipbuilding and Dry Dock Company (Virginia) . . . . . . . 100%
Asheville Industries Inc. (North Carolina). . . . . . . . . . . . . . 100
Greeneville Industries Inc. (Virginia). . . . . . . . . . . . . . . . 100
Newport News Global Corporation (U.S. Virgin Islands) . . . . . . . . 100
Newport News Industrial Corporation (Virginia). . . . . . . . . . . . 100
Newport News Industrial Corporation of Ohio (Ohio). . . . . . . . . 100
Newport News Reactor Services, Inc. (Virginia). . . . . . . . . . . . 100
Tenneco Tanker Holding Corporation (Delaware) . . . . . . . . . . . . 100
The James River Oyster Corporation (Virginia) . . . . . . . . . . . . 100
NNS Delaware Management Company (Delaware). . . . . . . . . . . . . . . 100
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated August 19, 1996 for the Businesses of Tenneco
Energy, included in the Current Report of El Paso Natural Gas Company on Form
8-K/A dated January 21, 1997, into the following Registration Statements
previously filed with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
Description of Registration/
Registration No. Form Securities Registered
- ---------------- ---- ---------------------------
<S> <C> <C>
333-14617 S-3 $800,000,000 aggregate principal amount of Debt
33-55153 Securities, shares of Preferred Stock and
33-44327 shares of Common Stock of El Paso Natural Gas
Company offered pursuant to Rule 415 of the
General Rules and Regulations under the
Securities Act of 1933, as amended.
33-49956 S-8 El Paso Natural Gas Company Retirement Savings
Plan, contributions thereunder, and Common Stock
of El Paso Natural Gas Company offered
thereunder.
33-46519 S-8 Omnibus Compensation Plan Stock Option Plan for
Non-Employee Directors, contributions thereunder,
and Common Stock of El Paso Natural Gas Company
offered thereunder.
33-57553 S-8 1995 Omnibus Compensation Plan, 1995 Incentive
Compensation Plan and 1995 Compensation Plan for
Non-Employee Directors, contributions thereunder,
and Common Stock of El Paso Natural Gas Company
offered thereunder.
33-51851 S-8 Omnibus Plan for Management Employees,
contributions thereunder, and Common Stock of El
Paso Natural Gas Company offered thereunder.
</TABLE>
Houston, Texas ARTHUR ANDERSEN LLP
January 21, 1997
