<PAGE>
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________ TO __________________
COMMISSION FILE NUMBER 1-9864
----------------
TENNECO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0233548
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
TENNECO BUILDING, HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 757-2131
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, par value $5 per share: 170,171,532 shares as of March 31,
1994.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I--Financial Information
Tenneco Inc. and Consolidated Subsidiaries--
Statements of Income.................................................. 2
Statements of Cash Flows.............................................. 3
Balance Sheets........................................................ 4
Statements of Changes in Stockholders' Equity......................... 6
Statements of Changes in Preferred Stock With Mandatory Redemption
Provisions........................................................... 7
Notes to Financial Statements......................................... 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 12
Part II--Other Information
Item 1. Legal Proceedings............................................... 16
Item 2. Changes in Securities........................................... *
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. *
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 17
</TABLE>
- --------
* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
1
<PAGE>
PART I
FINANCIAL INFORMATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
TENNECO INC. AND
CONSOLIDATED SUBSIDIARIES TENNECO INDUSTRIAL TENNECO FINANCE
-------------------------- ------------------------ ------------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31,
- --------------------------------------------------------------------------------------------------------
(MILLIONS EXCEPT SHARE
AMOUNTS) 1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales and
operating revenues--
Natural gas
pipelines.......... $ 693 $ 818 $ 693 $ 818 $ -- $ --
Farm and
construction
equipment.......... 1,000 814 1,000 814 -- --
Automotive parts.... 481 443 481 443 -- --
Shipbuilding........ 403 452 403 452 -- --
Packaging........... 491 504 491 504 -- --
Chemicals........... 221 220 221 220 -- --
Other............... (3) (4) (3) (4) -- --
------------ ------------ ----------- ----------- ----------- -----------
3,286 3,247 3,286 3,247 -- --
Other income--
Interest income..... 47 74 8 10 110 131
Equity in net
income--Tenneco
Finance............ -- -- 41 23 -- --
Other income, net... 17 14 16 17 1 1
------------ ------------ ----------- ----------- ----------- -----------
3,350 3,335 3,351 3,297 111 132
------------ ------------ ----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales
(exclusive of
depreciation shown
below)............... 2,026 1,938 2,028 1,939 -- --
Operating expenses.... 532 625 541 622 (7) 4
Selling, general and
administrative....... 307 293 359 326 2 2
Finance charges--
Tenneco Finance...... 51 73 -- -- 49 78
Depreciation,
depletion and
amortization......... 133 132 133 131 -- 1
------------ ------------ ----------- ----------- ----------- -----------
3,049 3,061 3,061 3,018 44 85
------------ ------------ ----------- ----------- ----------- -----------
Income Before Interest
Expense and Income
Taxes.................. 301 274 290 279 67 47
Interest Expense (net of
interest capitalized).. 103 128 114 148 4 9
------------ ------------ ----------- ----------- ----------- -----------
Income Before Income
Taxes.................. 198 146 176 131 63 38
Income Tax Expense...... 76 72 54 57 22 15
------------ ------------ ----------- ----------- ----------- -----------
Income From Operations
Before Cumulative
Effect of Change in
Accounting Principle... 122 74 122 74 41 23
Cumulative Effect of
Change in Accounting
Principle, Net of
Income Tax............. (39) -- (39) -- -- --
------------ ------------ ----------- ----------- ----------- -----------
Net Income.............. 83 74 83 74 41 23
Preferred Stock
Dividends.............. 3 4 3 4 -- --
------------ ------------ ----------- ----------- ----------- -----------
Net Income to Common
Stock.................. $ 80 $ 70 $ 80 $ 70 $ 41 $ 23
============ ============ =========== =========== =========== ===========
Average Number of Shares
of Common Stock
Outstanding............ 178,696,826 151,297,379
============ ============
Earnings (Loss) Per
Average Share of Common
Stock:
From operations before
cumulative effect of
change in accounting
principle............ $ .67 $ .46
Cumulative effect of
change in accounting
principle............ (.22) --
------------ ------------
$ .45 $ .46
============ ============
Cash Dividends Per Share
of Common Stock........ $ .40 $ .40
============ ============
</TABLE>
(The accompanying notes to financial statements are an integral part of these
statements of income.)
(Reference is made to Note 1 for definitions of "Tenneco Industrial" and
"Tenneco Finance.")
2
<PAGE>
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TENNECO INC.
AND
CONSOLIDATED TENNECO TENNECO
SUBSIDIARIES INDUSTRIAL FINANCE
-------------- -------------- --------------
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
- --------------------------------------------------------------------------------
(MILLIONS) 1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Income from operations before
cumulative effect of change in
accounting principle.......... $ 122 $ 74 $ 122 $ 74 $ 41 $ 23
Adjustments to reconcile
income from operations before
cumulative effect of change in
accounting principle to cash
provided (used) by continuing
operations--
Depreciation, depletion and
amortization................ 133 132 133 131 -- 1
Deferred income taxes........ 8 2 (5) (8) 13 10
Changes in components of
working capital--
(Increase) decrease in
receivables................ (177) 57 (264) (60) 34 364
(Increase) decrease in
inventories................ (98) (104) (98) (104) -- --
(Increase) decrease in
prepayments and other
current assets............. 72 58 74 46 -- 12
Increase (decrease) in
payables................... 118 (82) 97 (192) 6 9
Increase (decrease) in taxes
accrued.................... 31 (17) 36 (11) (5) (6)
Increase (decrease) in
interest accrued........... 14 21 30 35 (16) (14)
Increase (decrease) in
restructuring liability.... (38) (19) (38) (19) -- --
Increase (decrease) in
natural gas pipeline
revenue reservation........ 36 45 36 45 -- --
Increase (decrease) in other
current liabilities........ 72 (15) 95 -- (23) (15)
(Increase) decrease in long-
term notes and receivables.. 318 (63) -- -- 299 (63)
Take-or-pay (refunds to
customers) recoupments, net. (12) (40) (12) (40) -- --
Other........................ (2) (18) -- (33) 2 (7)
------ ------ ------ ------ ------ ------
Cash provided (used) by
continuing operations...... 597 31 206 (136) 351 314
Cash provided (used) by
discontinued operations.... -- (11) -- (11) -- --
------ ------ ------ ------ ------ ------
Net Cash Provided (Used) by
Operating Activities.......... 597 20 206 (147) 351 314
------ ------ ------ ------ ------ ------
Cash Flows from Investing
Activities:
Net proceeds (expenditures)
related to the sale of
discontinued operations....... (5) (22) (5) (22) -- --
Proceeds from sale of
businesses and assets........ 77 9 77 9 -- --
Expenditures for plant,
property and equipment....... (105) (75) (105) (75) -- --
Investments and other......... (4) 17 (16) 14 1 (1)
------ ------ ------ ------ ------ ------
Net Cash Provided (Used) by
Investing Activities.......... (37) (71) (49) (74) 1 (1)
------ ------ ------ ------ ------ ------
Cash Flows from Financing
Activities:
Issuance of common, treasury
and SECT shares.............. 40 32 40 32 1 --
Purchase of common stock...... (4) (1) (4) (1) -- --
Redemption of preferred stock. (20) (14) (20) (14) -- --
Issuance of long-term debt.... -- -- 2 4 12 --
Retirement of long-term debt.. (393) (360) (34) (271) (372) (89)
Net increase (decrease) in
short-term debt excluding
current maturities on long-
term debt..................... (44) 448 -- 535 23 (234)
Dividends (common and
preferred)................... (82) (71) (82) (71) (18) --
------ ------ ------ ------ ------ ------
Net Cash Provided (Used) by
Financing Activities.......... (503) 34 (98) 214 (354) (323)
------ ------ ------ ------ ------ ------
Effect of Foreign Exchange Rate
Changes on Cash and Temporary
Cash Investments............... 1 5 1 -- -- 5
------ ------ ------ ------ ------ ------
Increase (Decrease) in Cash and
Temporary Cash Investments.... 58 (12) 60 (7) (2) (5)
Cash and Temporary Cash
Investments, January 1........ 218 111 213 102 5 9
------ ------ ------ ------ ------ ------
Cash and Temporary Cash
Investments, March 31 (Note).. $ 276 $ 99 $ 273 $ 95 $ 3 $ 4
====== ====== ====== ====== ====== ======
Cash Paid During the Period
for:
Interest...................... $ 139 $ 180 $ 89 $ 125 $ 74 $ 102
Income taxes (net of refunds). $ (7) $ 82 $ (16) $ 70 $ 9 $ 12
</TABLE>
- -------
NOTE: Cash and temporary cash investments include highly liquid investments
with a maturity of three months or less at date of purchase.
(The accompanying notes to financial statements are an integral part of these
statements of cash flows.)
(Reference is made to Note 1 for definitions of "Tenneco Industrial" and
"Tenneco Finance.")
3
<PAGE>
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
TENNECO INC. AND CONSOLIDATED
SUBSIDIARIES
--------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
(MILLIONS) 1994 1993 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash investments.......... $ 276 $ 218 $ 99
Receivables--
Customer notes and accounts (net).......... 2,882 2,669 3,263
Affiliated companies....................... -- -- --
Gas transportation and exchange............ 303 228 285
Other...................................... 267 274 227
Inventories.................................. 1,685 1,581 1,870
Deferred income taxes........................ 53 61 227
Prepayments and other........................ 334 386 361
------- ------- -------
5,800 5,417 6,332
------- ------- -------
Investments and Other Assets:
Investment in affiliated companies........... 472 470 587
Other investments, at cost................... 57 58 87
Long-term notes and other receivables (net).. 1,619 1,961 2,396
Investment in subsidiaries in excess of net
assets at date of acquisition, less
amortization................................ 419 422 430
Deferred income taxes........................ 40 38 --
Other........................................ 1,143 1,327 1,123
------- ------- -------
3,750 4,276 4,623
------- ------- -------
Plant, Property and Equipment, at cost........ 12,148 12,115 12,117
Less--Reserves for depreciation, depletion
and amortization............................ 6,517 6,435 6,455
------- ------- -------
5,631 5,680 5,662
------- ------- -------
$15,181 $15,373 $16,617
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt (including current
maturities on long-term debt)............... $ 1,237 $ 1,274 $ 1,921
Payables--
Trade...................................... 1,386 1,337 1,419
Affiliated companies....................... -- -- --
Gas transportation and exchange............ 207 136 164
Taxes accrued................................ 214 158 212
Interest accrued............................. 173 154 223
Restructuring liability...................... 181 223 280
Natural gas pipeline revenue reservation..... 323 291 201
Other........................................ 1,349 1,337 1,332
------- ------- -------
5,070 4,910 5,752
------- ------- -------
Long-term Debt................................ 4,401 4,799 6,266
------- ------- -------
Deferred Income Taxes......................... 1,166 1,225 1,220
------- ------- -------
Deferred Credits and Other Liabilities........ 1,564 1,522 1,684
------- ------- -------
Commitments and Contingencies
Minority Interest............................. 176 153 164
------- ------- -------
Preferred Stock with Mandatory Redemption
Provisions................................... 144 163 178
------- ------- -------
Stockholders' Equity:
Series A preferred stock..................... 9 9 9
Common stock................................. 870 870 752
Stock Employee Compensation Trust (common
stock held in trust)........................ (466) (499) (515)
Premium on common stock and other capital
surplus..................................... 3,710 3,714 2,689
Cumulative translation adjustments........... (290) (303) (246)
Retained earnings (accumulated deficit)...... (981) (980) (1,082)
------- ------- -------
2,852 2,811 1,607
Less--Shares held as treasury stock, at
cost........................................ 192 210 254
------- ------- -------
2,660 2,601 1,353
------- ------- -------
$15,181 $15,373 $16,617
======= ======= =======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
balance sheets.)
4
<PAGE>
<TABLE>
<CAPTION>
TENNECO INDUSTRIAL TENNECO FINANCE
--------------------------------------- ------------------------------------------
MARCH 31, DECEMBER 31, MARCH 31, MARCH 31, DECEMBER 31, MARCH 31,
1994 1993 1993 1994 1993 1993
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash investments.......... $ 273 $ 213 $ 95 $ 3 $ 5 $ 4
Receivables--
Customer notes and accounts (net).......... 858 561 794 2,015 2,098 2,454
Affiliated companies....................... 62 57 36 425 371 337
Gas transportation and exchange............ 303 228 285 -- -- --
Other...................................... 251 259 190 16 15 37
Inventories.................................. 1,685 1,581 1,870 -- -- --
Deferred income taxes........................ 28 40 203 25 21 24
Prepayments and other........................ 328 393 373 11 3 3
------- ------- ------- ------ ------ ------
3,788 3,332 3,846 2,495 2,513 2,859
------- ------- ------- ------ ------ ------
Investments and Other Assets:
Investment in affiliated companies........... 1,549 1,526 1,575 -- -- --
Other investments, at cost................... 52 53 82 5 5 5
Long-term notes and other receivables (net).. 238 243 193 1,416 1,722 2,165
Investment in subsidiaries in excess of net
assets at date of acquisition, less
amortization................................ 419 422 430 -- -- --
Deferred income taxes........................ 40 38 -- -- -- --
Other........................................ 1,171 1,372 1,152 6 7 58
------- ------- ------- ------ ------ ------
3,469 3,654 3,432 1,427 1,734 2,228
------- ------- ------- ------ ------ ------
Plant, Property and Equipment, at cost........ 12,078 12,046 12,046 70 69 71
Less--Reserves for depreciation, depletion
and amortization............................ 6,500 6,419 6,440 17 16 15
------- ------- ------- ------ ------ ------
5,578 5,627 5,606 53 53 56
------- ------- ------- ------ ------ ------
$12,835 $12,613 $12,884 $3,975 $4,300 $5,143
======= ======= ======= ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt (including current
maturities on long-term debt)............... $ 177 $ 179 $ 563 $1,415 $1,382 $1,536
Payables--
Trade...................................... 1,381 1,334 1,418 5 3 1
Affiliated companies....................... 102 129 156 26 11 38
Gas transportation and exchange............ 207 136 164 -- -- --
Taxes accrued................................ 188 132 186 26 26 26
Interest accrued............................. 137 102 167 36 52 56
Restructuring liability...................... 181 223 280 -- -- --
Natural gas pipeline revenue reservation..... 323 291 201 -- -- --
Other........................................ 1,311 1,276 1,263 38 61 69
------- ------- ------- ------ ------ ------
4,007 3,802 4,398 1,546 1,535 1,726
------- ------- ------- ------ ------ ------
Long-term Debt................................ 3,127 3,143 3,902 1,341 1,710 2,415
------- ------- ------- ------ ------ ------
Deferred Income Taxes......................... 1,156 1,227 1,206 10 (2) 14
------- ------- ------- ------ ------ ------
Deferred Credits and Other Liabilities........ 1,565 1,524 1,683 1 1 --
------- ------- ------- ------ ------ ------
Commitments and Contingencies
Minority Interest............................. 176 153 164 -- -- --
------- ------- ------- ------ ------ ------
Preferred Stock with Mandatory Redemption
Provisions................................... 144 163 178 -- -- --
------- ------- ------- ------ ------ ------
Stockholders' Equity:
Series A preferred stock..................... 9 9 9 -- -- --
Common stock................................. 870 870 752 317 317 314
Stock Employee Compensation Trust (common
stock held in trust)........................ (466) (499) (515) -- -- --
Premium on common stock and other capital
surplus..................................... 3,710 3,714 2,689 269 268 267
Cumulative translation adjustments........... (290) (303) (246) (11) (8) (1)
Retained earnings (accumulated deficit)...... (981) (980) (1,082) 502 479 408
------- ------- ------- ------ ------ ------
2,852 2,811 1,607 1,077 1,056 988
Less--Shares held as treasury stock, at
cost........................................ 192 210 254 -- -- --
------- ------- ------- ------ ------ ------
2,660 2,601 1,353 1,077 1,056 988
------- ------- ------- ------ ------ ------
$12,835 $12,613 $12,884 $3,975 $4,300 $5,143
======= ======= ======= ====== ====== ======
</TABLE>
(Reference is made to Note 1 for definitions of "Tenneco Industrial" and
"Tenneco Finance.")
5
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
TENNECO INC. AND CONSOLIDATED
SUBSIDIARIES
----------------------------------------
THREE MONTHS ENDED MARCH 31,
- --------------------------------------------------------------------------------------
(MILLIONS EXCEPT SHARE AMOUNTS) 1994 1993
- --------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------
<S> <C> <C> <C> <C>
Series A Preferred Stock:
Balance January 1 and March 31............ 8,935,175 $ 9 8,935,175 $ 9
=========== ------ =========== ------
Common Stock:
Balance January 1......................... 173,953,012 870 150,300,224 752
Issued pursuant to benefit plans........ 31,671 -- 11,430 --
Other................................... -- -- 152 --
----------- ------ ----------- ------
Balance March 31.......................... 173,984,683 870 150,311,806 752
=========== ------ =========== ------
Stock Employee Compensation Trust (SECT):
Balance January 1......................... (499) (488)
Shares issued........................... 37 36
Adjustment to market value.............. (4) (63)
------ ------
Balance March 31.......................... (466) (515)
------ ------
Premium on Common Stock and Other Capital
Surplus:
Balance January 1......................... 3,714 2,637
Premium on common stock issued pursuant
to benefit plans....................... 2 --
Gain (loss) on issuance of treasury
stock.................................. 2 (2)
Loss on shares issued by SECT........... (4) --
Dividends on shares held by SECT........ 4 4
Adjustment of SECT to market value...... 4 63
Deferred compensation related to stock
plans (net of amortization)............ (12) (13)
------ ------
Balance March 31.......................... 3,710 2,689
------ ------
Cumulative Translation Adjustments:
Balance January 1......................... (303) (230)
Translation of foreign currency
statements............................. 13 (16)
------ ------
Balance March 31.......................... (290) (246)
------ ------
Retained Earnings (Accumulated Deficit):
Balance January 1......................... (980) (1,082)
Net income.............................. 83 74
Dividends--
Preferred stock....................... (2) (3)
Series A preferred stock.............. (13) (12)
Common stock.......................... (68) (58)
Accretion of excess of redemption value
of preferred stock over fair value at
date of issue.......................... (1) (1)
------ ------
Balance March 31.......................... (981) (1,082)
------ ------
Less--Common Stock Held as Treasury Stock,
at Cost:
Balance January 1......................... 4,166,835 210 5,323,912 268
Shares acquired......................... 121,303 6 35,637 2
Shares issued pursuant to benefit and
dividend reinvestment plans............ (474,987) (24) (306,511) (16)
----------- ------ ----------- ------
Balance March 31.......................... 3,813,151 192 5,053,038 254
=========== ------ =========== ------
Total............................... $2,660 $1,353
====== ======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
statements of changes in stockholders' equity.)
6
<PAGE>
STATEMENTS OF CHANGES IN PREFERRED STOCK
WITH MANDATORY REDEMPTION PROVISIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TENNECO INC. AND CONSOLIDATED
SUBSIDIARIES
-----------------------------------
THREE MONTHS ENDED MARCH 31,
- -------------------------------------------------------------------------------
(MILLIONS EXCEPT SHARE AMOUNTS) 1994 1993
- -------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Preferred Stock:
Balance January 1........................ 1,782,508 $163 2,084,796 $191
Shares redeemed........................ (195,744) (20) (134,439) (14)
Accretion of excess of redemption value
over fair value at date of issue...... -- 1 -- 1
--------- ---- --------- ----
Balance March 31......................... 1,586,764 $144 1,950,357 $178
========= ==== ========= ====
</TABLE>
(The accompanying notes to financial statements are an integral part of these
statements of changes in preferred stock with mandatory redemption provisions.)
7
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) In the opinion of Tenneco Inc. (hereinafter referred to as the
"Company"), the accompanying unaudited financial statements of Tenneco Inc. and
Consolidated Subsidiaries (hereinafter referred to as "Tenneco") contain all
adjustments necessary to present fairly the financial position as of March 31,
1994, and the results of operations; changes in stockholders' equity; changes
in preferred stock with mandatory redemption provisions; and cash flows for the
periods indicated.
The accompanying financial statements also include, on a separate and
supplemental basis, the combination of Tenneco's industrial companies and
finance companies as follows:
Tenneco Industrial --The financial information captioned "Tenneco
Industrial" reflects the consolidation of all
majority-owned subsidiaries except for the finance
subsidiaries. The finance operations have been
included using the equity method of accounting
whereby the net income and net assets of these
companies are reflected, respectively, in the income
statement caption, "Equity in net income--Tenneco
Finance," and in the balance sheet caption,
"Investment in affiliated companies."
Tenneco Finance --The financial information captioned "Tenneco
Finance" reflects the combination of Tenneco's
wholly-owned finance subsidiaries.
All significant intercompany transactions, including activity within and
between the "Tenneco Industrial" and "Tenneco Finance" business units, have
been eliminated.
(2) On June 2, 1993, Tennessee Gas Pipeline Company ("Tennessee") filed a
Stipulation and Agreement that resolved several significant issues in Docket
No. RP91-203 and established procedures for resolving the remaining issues,
including the recovery of certain environmental expenditures. Tennessee is
currently collecting the environmental costs in its rates subject to further
review in the rate case and possible refund. Tennessee intends to pursue full
recovery of these costs. On October 29, 1993, the Federal Energy Regulatory
Commission ("FERC") approved Tennessee's Stipulation and Agreement. On April 5,
1994, the FERC issued an Order on Rehearing which denied rehearing of the
October 29, 1993, order. Tennessee considers the April 5, 1994, order a final
order and will disburse refunds related to the period February 1, 1992, through
August 31, 1993, within 60 days of that order. Refunds related to Tennessee's
Stipulation and Agreement for the period September 1, 1993, through present
will be disbursed by Tennessee upon receipt of a final FERC order in
Tennessee's restructuring proceedings. Tennessee has recorded a liability which
is adequate to cover these estimated refunds.
On April 8, 1992, the FERC issued Order No. 636 which, together with
subsequently issued clarifying Order Nos. 636-A and 636-B (the "FERC
Restructuring Orders"), directed a further sweeping restructuring of the
interstate gas pipeline industry. The FERC Restructuring Orders required
pipelines to: 1) "unbundle" their transportation and storage services from
their sales services, 2) increase pipeline customers' flexibility to change
receipt and delivery points under transportation contracts and to allow release
of capacity under those contracts for use by others and 3) separate interstate
pipeline gas sales organizations from interstate pipeline transportation and
storage business units. Under the FERC Restructuring Orders, rates for pipeline
transportation and storage generally remain subject to traditional cost-of-
service regulation but under a rate design which is relatively insensitive to
throughput and hence less sensitive to seasonal variation. Sales of natural gas
by interstate pipelines occur pursuant to a blanket sales certificate under
which price and other terms of sale are set by market forces.
Commencing on September 1, 1993, Tennessee implemented its Order No. 636
tariff and the restructuring of its transportation, storage and sales services
and the implementation of various recovery
8
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
mechanisms to begin recovery of certain transition costs already paid or
obligated to be paid in connection with the FERC Restructuring Orders.
Tennessee's Order No. 636 compliance filings request authority to: 1)
recover, through a monthly surcharge, one-time gas supply realignment costs and
certain related costs incurred to date over a period of up to thirty-six
months, 2) direct-bill customers for unrecovered gas costs over a twelve-month
period and 3) track and recover, through an annual surcharge, upstream
transportation costs from customers. The filings were accepted effective
September 1, 1993, and made subject to refund pending review. Hearings have
been instituted to review the recovery of the gas supply realignment costs and
the direct billing of unrecovered gas costs.
Tennessee's filings to recover production 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 will seek appellate review of the FERC actions. Tennessee is
confident that the Bastian Bay costs will ultimately be recovered either as
transition costs directly related to Order No. 636 or through traditional rate
recovery methods, and no FERC order has questioned the ultimate recoverability
of these costs.
The total amount of transition costs that will be incurred by Tennessee will
depend upon: 1) developments in restructuring proceedings involving Tennessee,
its customers and other affected parties, 2) the resolution of pending
litigation and 3) the terms of multiple negotiations with individual suppliers.
Until these issues are resolved, Tennessee cannot finally determine the
ultimate amount of one-time transition costs or other annual costs it will
incur, nor the amounts which will be recovered from customers. Tennessee
believes that one-time transition costs will not exceed $700 million. As of
March 31, 1994, Tennessee has deferred transition costs net of recoveries of
approximately $124 million which are recoverable from its customers. Tennessee
believes that other annual transition costs will not exceed $100 million in
1994, decreasing thereafter over the length of the contracts involved.
The FERC Restructuring Orders will undergo judicial review, clarification and
formulation of cost recovery details as the restructuring process proceeds.
However, Tennessee believes that it is entitled to full recovery of all
transition costs it will incur. Given the fact that the FERC Restructuring
Orders contemplate complete recovery by pipelines of qualified transition
costs, Tenneco believes that Tennessee's Order No. 636 restructuring (together
with the Order No. 636 restructuring of Tenneco's other interstate pipelines)
will not have a material adverse effect on Tenneco's consolidated financial
position or results of operations.
(3) Tenneco Inc. and its subsidiaries are parties to numerous legal
proceedings arising from their operations. Tenneco Inc. believes that the
outcome of these proceedings, individually and in the aggregate, will have no
material effect on the financial position or results of operations of Tenneco
Inc. and its consolidated subsidiaries.
(4) In 1988, Tennessee initiated an internal project to identify and deal
with the presence of polychlorinated biphenyls ("PCBs") at compressor stations
operated by both its interstate and intrastate natural gas pipeline systems.
This situation arose as a result of the use of a PCB-containing lubricant,
purchased between 1953 and the early 1970's, in air compressors which are used
to start the main gas compressor engines (lubricants containing PCBs were not
used in the main gas compressor engines themselves). The project was
subsequently expanded to include a screening for the presence of any substances
included on the U.S. Environmental Protection Agency List of Hazardous
Substances ("HS List"). Tennessee conducted the project with frequent contact
with federal and state regulatory agencies, both through informal negotiations
and formal entry of consent orders, in order to assure that site
characterization efforts met
9
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
regulatory requirements. As a result of its recent negotiations with federal
and state regulatory agencies, Tennessee anticipates that it will perform
further testing for and characterization of substances on the HS List, and
other substances of concern to it and those agencies, at its compressor sites
and other sites on its interstate pipeline systems. Due to the current
uncertainty regarding the regulatory requirements for site characterization,
the actual presence of such substances at the sites, and the final, site-
specific clean-up decisions to be made with respect to clean-up levels and
remediation technologies, Tennessee cannot at this time project what additional
costs may result.
In 1991, upon the conclusion of a comprehensive study to estimate remediation
costs for its compressor sites and all other sites on Tennessee's interstate
and intrastate pipeline systems at which listed substances had then been
identified, Tenneco recorded a reserve of $260 million for estimated future
environmental expenses including: 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 March 31, 1994, Tenneco has charged $67 million against this
environmental reserve. Of the remaining reserve, $41 million has been recorded
on the balance sheet under "Payables--Trade" and $152 million under "Deferred
Credits and Other Liabilities." While there are still many uncertainties
relating to the ultimate costs which may be incurred, based upon Tennessee's
continuing evaluation and experience to date, Tenneco continues to believe that
the amount of the reserve is appropriate.
Tenneco believes that a substantial portion of these costs, which will be
expended over the next five to ten years, will be recovered through rates
charged to customers of its natural gas pipelines. The estimated costs expected
to be recovered, amounting to $230 million, were recorded in 1991 as an asset
($30 million in "Current Assets" and $200 million in "Investments and Other
Assets"). The estimated unrecoverable portion, amounting to $30 million, was
charged against income and reflected in "Operating expenses" in 1991. Tennessee
is currently recovering environmental expenses annually in its rates. A
significant portion of these expenses remains subject to review and refund in
Tennessee's pending rate case. As of March 31, 1994, the asset balance is $159
million ($37 million in "Current Assets" and $122 million in "Investments and
Other Assets").
Tenneco believes that its liability insurance policies in effect during the
period in which the environmental issues occurred provide coverage for
remediation costs and related claims. In 1991, the Company commenced litigation
in a Louisiana state court against 26 of its insurance carriers during this
period, seeking recovery of losses which the Company incurred. The issues in
dispute involve determining: 1) whether the presence of PCBs and other
substances at each compressor station constituted a separate occurrence for
purposes of the per-occurrence limits of the policies; 2) the applicability of
the pollution exclusions in certain policies issued after 1971; 3) the
applicability of provisions which exclude the environmental impacts located
solely on the insured's property; 4) whether the term "property damage" in the
policies will cover the cost of compliance with governmental clean-up
directives; 5) the allocation of costs to the various policies in effect during
the period the environmental impact occurred; 6) the applicability of
provisions excluding pollution that is "expected or intended"; and 7) the
adequacy of notice of claims to insurance carriers. This environmental
insurance coverage litigation remains pending. Tenneco has completed
settlements with five of the defendant carriers and believes that the
likelihood of recovery against the remaining defendant carriers is reasonably
possible. While it believes its legal position to be meritorious, Tenneco has
not adjusted its environmental reserve to reflect any insurance recoveries.
Tenneco has identified other sites in its various operating divisions 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.
10
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) Effective January 1, 1994, Tenneco adopted Statement of Financial
Accounting Standards 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.
Tenneco recorded an after-tax charge of $39 million ($.22 per average common
share) which was reported as a cumulative effect of change in accounting
principle.
(6) In February 1994, Tenneco Energy Resources Corporation announced the sale
of original issue stock to Ruhrgas AG, resulting in dilution of Tenneco
Corporation's ownership in that subsidiary from 100% to 80%. Proceeds from the
sale were $47 million. The agreement provides for finalization of the
transaction no later than February 1995, and the gain, if any, will not be
recognized until that time. At the same time, Tenneco Gas Inc. entered into an
agreement with the buyer to pursue joint opportunities in the European gas
industry.
(7) On April 26, 1994, Tenneco Inc. announced that it intends to offer 35% of
the common stock of a newly created corporation which will own its farm and
construction equipment segment ("Case") through an initial public offering.
After the offering, Tenneco would retain 65% of the new corporation, which
would operate under the name of Case Corporation (the "new Case Corporation").
Additional details of the offering are: 1) Tenneco would transfer all of Case's
assets to the new Case Corporation, except for existing U.S. retail
receivables, which will be retained by Tenneco Credit Corporation, 2) separate
finance companies owned by the new Case Corporation would finance retail
receivables going forward, 3) wholesale receivables would now be on the new
Case Corporation balance sheet and 4) the new Case Corporation would be
financed independently of Tenneco with $2.9 billion of credit lines to be
syndicated by Chemical Bank. Proceeds from the proposed offering would be used
by Tenneco to repay short-term debt, to pay taxes related to the transaction
and for general corporate purposes. Proceeds from the initial public offering
are dependent upon the offering price per share to be determined later. It is
expected that the proposed offering would not have a material effect on
Tenneco's earnings in 1994.
(The above notes are an integral part of the foregoing financial statements.)
11
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT EVENT
On April 26, 1994, a newly organized corporation formed to acquire the farm
and construction equipment segment ("Case") of Tenneco Inc. and its
consolidated subsidiaries ("Tenneco"), filed a registration statement with the
Securities and Exchange Commission whereby Tenneco will offer for sale to the
public 35% of its ownership of the common stock of the new corporation through
an initial public offering. Upon the successful completion of the offering,
Tenneco would continue to own 65% of the new corporation, which would operate
under the name Case Corporation (the "new Case Corporation").
In connection with the offering, Tenneco will transfer all of its farm and
construction equipment assets to the new Case Corporation, except for certain
existing U.S. retail receivables, which will be retained by Tenneco Credit
Corporation. Finance subsidiaries of the new Case Corporation will finance
retail receivables in the future. Wholesale receivables will be included on the
balance sheet of the new Case Corporation. The new Case Corporation will be
financed independently of Tenneco with $2.9 billion of credit syndicated by
Chemical Bank.
The proceeds from the proposed sale, which is dependent upon the offering
price per share to be determined later, will be used by Tenneco to repay short-
term debt, to pay taxes related to the transaction, and for general corporate
purposes. The sale is not expected to have a material effect on the earnings of
Tenneco in 1994. Longer term, the Company intends to reinvest the proceeds in a
manner consistent with the Company's strategic plans; under current planning
assumptions the expected returns from these investments would replace the
earnings contribution lost as a result of the proposed offering.
THREE MONTHS RESULTS
RESTRUCTURING PROGRAMS-CASE OPERATIONS
In the first quarter of 1994, Case made announcements which further described
certain of its restructuring actions in Europe as part of its previously
announced three-year, $920 million restructuring program. These actions include
the creation of centers of excellence for engineering and assembly of
construction equipment, for tractor assembly, and for manufacturing of small
and medium-range agricultural transmissions, as well as a single parts depot in
France. As a result, Case plans to close its Vierzon, France production
facility, and its parts depot in Ris Orangis, France, and to outsource certain
parts and components currently manufactured at the St. Dizier, France facility.
Case also announced its intent to pursue a joint venture, partnership or sale
to another company of the foundries at Doncaster, England and St. Dizier,
France and begin to outsource the production of components presently
manufactured at its Doncaster and Carr Hill, England, facilities.
REVENUES
Revenues for the first quarter of 1994 were $3.29 billion, up slightly from
$3.25 billion in the first quarter of 1993. Higher revenues for farm and
construction equipment (up $186 million or 23 percent), automotive parts (up
$38 million or 9 percent) and chemicals (up slightly) were partially offset by
lower revenues in natural gas pipelines (down $125 million or 15 percent),
shipbuilding (down $49 million or 11 percent) and packaging (down $13 million
or 3 percent).
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES ("OPERATING INCOME")
Operating income for the first quarter of 1994 was $301 million, up $27
million or 10 percent, compared with $274 million for the first quarter of
1993.
Natural gas pipelines reported first quarter operating income of $105 million
compared with $121 million in the 1993 quarter. Revenues for the first quarter
of 1994 decreased to $693 million compared with $818
12
<PAGE>
million in the first quarter of 1993, mainly due to the year-over-year change
to operating under the Federal Energy Regulatory Commission ("FERC") Order No.
636 which commenced September 1, 1993. Under the FERC No. Order 636, regulated
pipeline revenues will no longer include gas sales since this business will
include primarily transportation revenues, and will reflect a smoother
quarterly earnings stream with the switch to a non-seasonal rate structure.
This new structure eliminates the seasonal peaks in the winter and valleys in
the summer. Operating income decreased primarily due to the shift to the new
non-seasonal rate structure, partially offset by higher operating income
resulting from the expansion into non-regulated businesses.
In February 1994, Tenneco Energy Resources Corporation ("TERC"), a gas
marketing and intrastate pipeline subsidiary, announced the sale of original
issue stock to Ruhrgas AG, resulting in dilution of Tenneco Corporation's
ownership in that subsidiary from 100% to 80%. Proceeds from the sale were $47
million. The agreement provides for finalization of the transaction no later
than February 1995, and the gain, if any, will not be recognized until that
time. At the same time, Tenneco Gas Inc. entered into an agreement with the
buyer to pursue joint opportunities in the European gas industry.
Farm and construction equipment posted first quarter operating income of $81
million, an improvement of $98 million over its operating loss of $17 million
in the first quarter last year. First quarter revenues of $1.0 billion were up
from $814 million reported in the 1993 quarter as sales of farm and
construction equipment in the North American segment and the international
business group improved significantly during the first quarter. Farm and
construction equipment operating income improved compared to the first quarter
1993 as a result of the higher sales volumes, lower discounts and improved
pricing, and manufacturing performance improvements. During the first quarter,
worldwide farm and construction equipment production increased by 27 percent
compared with the same period last year in response to improving market
conditions. Case's North American retail sales of major agricultural equipment
units increased 48 percent while North American retail sales of construction
equipment rose 54 percent compared to the first quarter 1993.
Automotive parts reported first quarter operating income of $52 million
compared with $51 million recorded in the same quarter a year ago. Revenues for
the quarter totaled $481 million compared with $443 million in last year's
first quarter, mainly due to higher North American original equipment sales (up
15 percent) in both the Walker exhaust and Monroe ride control segments,
reflecting higher new car and truck production. Aftermarket sales of exhaust
and ride control products in North America also increased due to intensive
product promotions in anticipation of the peak selling season. Market share
gains and improving economic conditions led to higher European aftermarket
sales for the exhaust business. Operating income increased as result of the
higher North American original equipment sales and the benefit of quality
program initiatives, which more than offset higher distribution costs in the
North American exhaust aftermarket.
Shipbuilding reported first quarter operating income of $48 million compared
with $55 million in the 1993 first quarter. Revenues decreased $49 million to
$403 million in the first three months of 1994 compared with $452 million in
the same period a year ago. The sale in November 1993 of the Sperry Marine
business and reduced work on Navy contracts for aircraft carriers and
submarines accounted for most of the decline in revenues and operating income.
The backlog at the end of the first quarter of 1994 stood at $3.5 billion and
included construction contracts for five LOS ANGELES class submarines and two
NIMITZ class aircraft carriers, the refueling and overhaul contract on the
carrier USS ENTERPRISE and a conversion contract for two fast sealift ships.
First quarter operating income for packaging was $20 million, down from $37
million generated in the 1993 quarter. Revenues for the first three months were
$491 million compared with $504 million in the same period last year. The lower
operating income is primarily the result of severe winter weather in the
Midwest and Northeast, as well as the California earthquake which curtailed
plant operations, delayed customer shipments, increased energy and wood costs
and significantly constrained consumer spending for packaged
13
<PAGE>
goods. Lower linerboard and specialty pricing also contributed to the operating
income decline as well as the 1993 divestiture of three international aluminum
packaging businesses.
Chemicals reported first quarter 1994 operating income of $9 million down
from $15 million in the same period last year. Revenues rose slightly to $221
million in the 1994 first quarter compared with $220 million in the 1993
period. During the 1994 quarter, chemicals recorded a $7 million charge to
increase the efficiency of the surfactants operations and to reduce costs at
the Whitehaven, U.K. site. With the exception of the surfactants business, each
of the chemicals business groups posted improvements in operating income.
Demand for phosphate products remained good in all major markets.
INTEREST EXPENSE
Interest expense decreased from $129 million in the 1993 quarter to $105
million in the first quarter of 1994. The decline was primarily attributable to
lower debt levels that resulted from the $1.1 billion equity offering completed
in April 1993 and scheduled long-term debt retirements partially offset by
higher interest expense for pending pipeline rate refunds. Interest capitalized
increased from $1 million in the 1993 quarter to $2 million in 1994 due to
higher capital expenditures.
INCOME TAXES
Income tax expense for the first quarter of 1994 was $76 million versus $72
million reported for 1993. This increase was primarily due to higher pre-tax
income in 1994, partially offset by lower levels of unbenefitted European
losses.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, Tenneco adopted Statement of Financial Accounting
Standards ("FAS") No. 112, Employers' Accounting for Postemployment Benefits.
This new standard was adopted using the cumulative catch-up method and 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. As a result of the adoption of this statement,
the first quarter 1994 Statement of Income includes an after-tax charge of $39
million, or 22 cents per average common share, for the cumulative effect of the
accounting change.
EARNINGS PER AVERAGE COMMON SHARE
Net income for the first quarter of 1994 was $83 million, or 45 cents per
average common share after preferred stock dividends, compared with net income
of $74 million, or 46 cents per average common share after preferred stock
dividends, in the 1993 first quarter. Preferred stock dividends were $3 million
for the first quarter of 1994 and $4 million in the 1993 first quarter.
Included in the 1994 net income was income from operations before the
cumulative effect of the change in accounting principle of $122 million, or 67
cents per average common share and the charge of $39 million (net of tax), or
22 cents per average common share, relating to the cumulative effect of the
change in accounting principle.
Average shares outstanding used for the calculation of earnings per average
common share for the first quarter of 1994 were 178.7 million compared to 151.3
million in the 1993 quarter. The increase was primarily the result of the 23.5
million shares issued in the April 1993 underwritten public offering and the
issuance of treasury shares and shares from the stock employee compensation
trust ("SECT").
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $597 million for the first
three months of 1994 compared to cash provided of $20 million for the same
period in 1993, an increase of $577 million including
14
<PAGE>
discontinued operations. Excluding the discontinued operations, there was an
improvement of $566 million. This improvement was due primarily to the sale of
approximately $740 million of Case retail receivables to limited purpose
business trusts, which issued asset-backed securities to the public in the 1994
first quarter. Higher income from continuing operations and lower tax payments
also contributed to the improvement. Partially offsetting these improvements
were increases in inventories primarily of Case and its dealers and higher Case
restructuring expenditures.
Net cash used by investing activities was $37 million compared to $71 million
used in the first three months of 1993. Proceeds from sale of businesses and
assets were higher ($68 million, primarily due to the sale of a 20 percent
interest in TERC which will be finalized no later than February 1995 and the
sale of several Case facilities), partially offset by higher capital
expenditures of $30 million.
Expenditures for plant, property and equipment for the first three months of
1994 were $105 million compared to $75 million for the first three months of
1993. Packaging increased $16 million (due to higher spending on expansion and
enhancement projects), and increased expenditures for chemicals ($7 million),
farm and construction equipment ($6 million) and natural gas pipelines ($3
million), more than offset the decrease of $2 million for shipbuilding.
Capitalization totaled $8.62 billion at March 31, 1994, a decrease of $372
million from December 31, 1993. The resulting ratio of total debt to
capitalization decreased from 67.6 percent to 65.4 percent. The total debt to
capitalization ratio was 62.1 percent including the market value of the SECT
shares compared to 64.0 percent at December 31, 1993. The major changes in
capitalization were: total debt down $435 million, stockholders' equity up $59
million, minority interest up $23 million and preferred stock down $19 million
due to mandatory redemption.
Based upon Tenneco's estimates of anticipated needs and circumstances of
business operations, together with anticipated market conditions, Tenneco
expects adequate sources of funds to be available to finance its future
operations through internally generated funds, the sale of assets, the use of
credit facilities and the issuance of asset-backed securities and other long-
term securities. Over the past several years, Tenneco has relied on externally
generated funds to meet substantial portions of its cash requirements.
OTHER MATTERS
In April 1994, Tenneco filed for FERC approval to transfer the assets of East
Tennessee Natural Gas Company and Midwestern Gas Transmission Company to two
separate limited partnerships. This provides Tenneco with the financial
flexibility to optimize the value of these assets in the future. Tenneco also
formally entered the 750-mile Argentina-to-Chile pipeline project as a 25
percent equity partner and agreed to oversee the design, construction and
operation of the transmission pipeline. Tenneco will be the pipeline's
technical operator upon completion of the $600 million pipeline project.
15
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
(1) Environmental Proceedings.
Tennessee is a party in proceedings involving federal and state authorities
regarding the past use by Tennessee of a lubricant containing polychlorinated
biphenyls ("PCBs") in its starting air systems.
On January 13, 1992, the United States Environmental Protection Agency
("EPA") filed an administrative complaint alleging that Tennessee violated the
Toxic Substances Control Act between 1980 and 1990 by engaging in the
unauthorized use and disposal of materials containing PCBs. The complaint
addresses PCB-related activity at 26 compressor stations in five states
(Alabama, Mississippi, Kentucky, Tennessee and Ohio). A civil penalty of
$15,678,000 was sought. Tennessee and the EPA have reached a tentative oral
agreement under which Tennessee will make a specified payment in full
settlement of civil penalties under the Toxic Substances Control Act arising
from Tennessee's prior use of PCBs at compressor stations throughout its
system. This agreement covers 42 Tennessee compressor stations in nine states
and five EPA regions. The finalization of this agreement, however, has been
delayed while the EPA and Tennessee assess the impact of the District of
Columbia Court of Appeals decision in 3M Company v. Browner, which, if upheld
on appeal, may limit the applicable statute of limitations. Meanwhile,
Tennessee's negotiations with EPA to finalize an agreement on the remediation
of its compressor stations in Regions IV, V, and VI are continuing on a
separate track. With respect to the nine stations in Regions II and III, EPA
has advised Tennessee that it is deferring to the Pennsylvania and New York
environmental agencies to specify the remediation requirements applicable to
Tennessee. Tennessee anticipates that it will soon reach an agreement with the
Pennsylvania Department of Environmental Resources ("PaDER") and will enter
into a consent order on remediation at the Pennsylvania stations (under which
Tennessee also agrees to pay a civil penalty and to make a contribution for
environmental projects); meanwhile, Tennessee will continue its negotiations
with the New York Department of Environmental Conservation on remediation at
the New York stations. Tenneco believes that the ultimate resolution of this
matter will not have a material adverse effect on the financial condition or
results of operations of Tenneco Inc. and its consolidated subsidiaries.
(2) Potential Superfund Liability.
At March 31, 1994, Tenneco has been designated as a potentially responsible
party in 72 "Superfund" sites. With respect to its pro rata share of the
remediation costs of certain sites, Tenneco is fully indemnified by third
parties. With respect to certain other sites, Tenneco has sought to resolve its
liability through payments to the other potentially responsible parties. For
the remaining sites, Tenneco has estimated its share of the remediation costs
to be between $12.6 million and $72.25 million or 0.4% to 2.5% of the total
remediation costs for those sites and has provided reserves that it believes
are adequate for such costs. Because the clean-up costs are estimates and are
subject to revision as more information becomes available about the extent of
remediation required, Tenneco's estimate of its share of remediation costs
could change. Moreover, liability under the Comprehensive Environmental
Response, Compensation and Liability Act is joint and several, meaning that
Tenneco could be required to pay in excess of its pro rata share of remediation
costs. Tenneco's understanding of the financial strength of other potentially
responsible parties has been considered, where appropriate, in Tenneco's
determination of its estimated liability. Tenneco does not believe that the
costs associated with its current status as a potentially responsible party in
the Superfund sites described above will be material to its financial position
or results of operations.
For additional information concerning environmental matters, see Note 4 in
the "Notes to Financial Statements" of Tenneco Inc. and Consolidated
Subsidiaries.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11--Computation of Earnings (Loss) Per Share of Common Stock
12--Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K. Tenneco Inc. did not file any reports on Form 8-K
during the quarter ended March 31, 1994.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TENNECO INC.
Robert T. Blakely
Date: May 3, 1994 By __________________________________
Robert T. Blakely
Senior Vice President and
Chief Financial Officer
18
<PAGE>
EXHIBIT 11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
(UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS EXCEPT SHARE
AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Computation for Statements of Income
Primary Earnings Per Share (average shares
outstanding):
Income from operations before cumulative effect
of change in accounting principle.............. $ 122 $ 74
Cumulative effect of change in accounting
principle, net of income tax................... (39) --
----------- -----------
Net income...................................... 83 74
Preferred stock dividends....................... 3 4
----------- -----------
Net income to common stock...................... $ 80 $ 70
=========== ===========
Average shares of common stock
outstanding(a),(b)............................. 178,696,826 151,297,379
=========== ===========
Earnings (loss) per average share of common
stock:
From operations before cumulative effect of
change in accounting principle............... $ .67 $ .46
Cumulative effect of change in accounting
principle.................................... (.22) --
----------- -----------
$ .45 $ .46
=========== ===========
Additional Computations(c)
Net income to common stock, per above............ $ 80 $ 70
=========== ===========
Primary Earnings Per Share (including common
stock equivalents):
Average shares of common stock
outstanding(a),(b)............................. 178,696,826 151,297,379
Incremental common shares applicable to common
stock options based on the common stock daily
average market price during the period......... 119,080 11,757
----------- -----------
Average common shares, as adjusted.............. 178,815,906 151,309,136
=========== ===========
Earnings (loss) per average share of common
stock (including common stock equivalents):
From operations before cumulative effect of
change in accounting principle............... $ .67 $ .46
Cumulative effect of change in accounting
principle.................................... (.22) --
----------- -----------
$ .45 $ .46
=========== ===========
Fully Diluted Earnings Per Share:
Average shares of common stock
outstanding(a),(b)............................. 178,696,826 151,297,379
Incremental common shares applicable to common
stock options based on the more dilutive of the
common stock ending or average market price
during the period.............................. 119,080 18,174
Average common shares issuable assuming
conversion of Tenneco Inc. 10% loan stock...... 41,903 42,937
----------- -----------
Average common shares assuming full dilution.... 178,857,809 151,358,490
=========== ===========
Fully diluted earnings (loss) per average share,
assuming conversion of all applicable
securities:
From operations before cumulative effect of
change in accounting principle............... $ .67 $ .46
Cumulative effect of change in accounting
principle.................................... (.22) --
----------- -----------
$ .45 $ .46
=========== ===========
</TABLE>
- --------
NOTES:(a) In 1992, 12,000,000 shares of common stock were issued to the Stock
Employee Compensation Trust ("SECT"). Shares of common stock issued
to a related trust are not considered to be outstanding in the
computation of average shares of common stock until the shares are
utilized to fund the obligations for which the trust was
established. At March 31, 1994, the SECT had utilized 3,135,075 of
these shares.
(b) Series A preferred stock is converted into common stock under the
Contingent Share method. The above computation includes 8,935,175
shares of Series A preferred stock which were converted into
17,870,350 shares of common stock.
(c) These calculations are submitted in accordance with Securities and
Exchange Commission requirements although not required by Accounting
Principles Board Opinion No. 15 because they result in dilution of
less than 3%.
<PAGE>
EXHIBIT 12
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS)
THREE
MONTHS
ENDED
MARCH 31,
------------
1994 1993
----- -----
<S> <C> <C>
Income from operations before cumulative effect of change in
accounting principle............................................ $ 122 $ 74
Add:
Interest....................................................... 162 210
Portion of rentals representative of interest factor........... 17 18
Income tax expense and other taxes on income................... 76 73
Amortization of interest capitalized applicable to non-utility
companies..................................................... 2 3
Undistributed earnings of affiliated companies in which less
than a 50% voting interest is owned........................... (3) (3)
----- -----
Earnings as defined.......................................... $ 376 $ 375
===== =====
Interest......................................................... $ 162 $ 210
Interest capitalized............................................. 2 1
Portion of rentals representative of interest factor............. 17 18
----- -----
Fixed charges as defined..................................... $ 181 $ 229
===== =====
Ratio of earnings to fixed charges............................... 2.08 1.64
===== =====
</TABLE>
<PAGE>
[LOGO OF TENNECO APPEARS HERE]
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
11 --Computation of Earnings (Loss) Per Share of Common Stock
12 --Computation of Ratio of Earnings to Fixed Charges
</TABLE>
<PAGE>
EXHIBIT 11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
(UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS EXCEPT SHARE
AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Computation for Statements of Income
Primary Earnings Per Share (average shares
outstanding):
Income from operations before cumulative effect
of change in accounting principle.............. $ 122 $ 74
Cumulative effect of change in accounting
principle, net of income tax................... (39) --
----------- -----------
Net income...................................... 83 74
Preferred stock dividends....................... 3 4
----------- -----------
Net income to common stock...................... $ 80 $ 70
=========== ===========
Average shares of common stock
outstanding(a),(b)............................. 178,696,826 151,297,379
=========== ===========
Earnings (loss) per average share of common
stock:
From operations before cumulative effect of
change in accounting principle............... $ .67 $ .46
Cumulative effect of change in accounting
principle.................................... (.22) --
----------- -----------
$ .45 $ .46
=========== ===========
Additional Computations(c)
Net income to common stock, per above............ $ 80 $ 70
=========== ===========
Primary Earnings Per Share (including common
stock equivalents):
Average shares of common stock
outstanding(a),(b)............................. 178,696,826 151,297,379
Incremental common shares applicable to common
stock options based on the common stock daily
average market price during the period......... 119,080 11,757
----------- -----------
Average common shares, as adjusted.............. 178,815,906 151,309,136
=========== ===========
Earnings (loss) per average share of common
stock (including common stock equivalents):
From operations before cumulative effect of
change in accounting principle............... $ .67 $ .46
Cumulative effect of change in accounting
principle.................................... (.22) --
----------- -----------
$ .45 $ .46
=========== ===========
Fully Diluted Earnings Per Share:
Average shares of common stock
outstanding(a),(b)............................. 178,696,826 151,297,379
Incremental common shares applicable to common
stock options based on the more dilutive of the
common stock ending or average market price
during the period.............................. 119,080 18,174
Average common shares issuable assuming
conversion of Tenneco Inc. 10% loan stock...... 41,903 42,937
----------- -----------
Average common shares assuming full dilution.... 178,857,809 151,358,490
=========== ===========
Fully diluted earnings (loss) per average share,
assuming conversion of all applicable
securities:
From operations before cumulative effect of
change in accounting principle............... $ .67 $ .46
Cumulative effect of change in accounting
principle.................................... (.22) --
----------- -----------
$ .45 $ .46
=========== ===========
</TABLE>
- --------
NOTES:(a) In 1992, 12,000,000 shares of common stock were issued to the Stock
Employee Compensation Trust ("SECT"). Shares of common stock issued
to a related trust are not considered to be outstanding in the
computation of average shares of common stock until the shares are
utilized to fund the obligations for which the trust was
established. At March 31, 1994, the SECT had utilized 3,135,075 of
these shares.
(b) Series A preferred stock is converted into common stock under the
Contingent Share method. The above computation includes 8,935,175
shares of Series A preferred stock which were converted into
17,870,350 shares of common stock.
(c) These calculations are submitted in accordance with Securities and
Exchange Commission requirements although not required by Accounting
Principles Board Opinion No. 15 because they result in dilution of
less than 3%.
<PAGE>
EXHIBIT 12
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS)
THREE
MONTHS
ENDED
MARCH 31,
------------
1994 1993
----- -----
<S> <C> <C>
Income from operations before cumulative effect of change in
accounting principle............................................ $ 122 $ 74
Add:
Interest....................................................... 162 210
Portion of rentals representative of interest factor........... 17 18
Income tax expense and other taxes on income................... 76 73
Amortization of interest capitalized applicable to non-utility
companies..................................................... 2 3
Undistributed earnings of affiliated companies in which less
than a 50% voting interest is owned........................... (3) (3)
----- -----
Earnings as defined.......................................... $ 376 $ 375
===== =====
Interest......................................................... $ 162 $ 210
Interest capitalized............................................. 2 1
Portion of rentals representative of interest factor............. 17 18
----- -----
Fixed charges as defined..................................... $ 181 $ 229
===== =====
Ratio of earnings to fixed charges............................... 2.08 1.64
===== =====
</TABLE>
