<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9864
TENNECO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0233548
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
77002
TENNECO BUILDING, HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 757-2131
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
10% Notes due 1998; 8% Notes due 1999;
10 3/8% Notes due 2000; 9 7/8% Notes
due 2001;
7 7/8% Notes due 2002; 6 1/2% Notes due
2005;
10% Debentures due 2008;
9% Debentures due 2012; 7 1/4% Deben-
tures due 2025 ....................... New York Stock Exchange
Preferred Stock, without par value:
$7.40 cumulative series................ New York Stock Exchange
Common Stock, par value $5 per share.... New York, Chicago, Pacific, Toronto,
London, Paris, Frankfurt, Dusseldorf,
Basel, Geneva and Zurich Stock
Exchanges
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE
TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES
OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF
FILING.
<TABLE>
<CAPTION>
CLASS OF VOTING STOCK AND NUMBER OF SHARES MARKET VALUE HELD
HELD BY NON-AFFILIATES AT JANUARY 31, 1996 BY NON-AFFILIATES
------------------------------------------ -----------------
<S> <C>
$7.40 Cumulative Preferred Stock, 587,270 shares $ 59,901,540*
Common Stock, 173,776,137 shares 9,535,965,517**
</TABLE>
- --------
* Based upon the closing sale price on the Composite Tape for the $7.40
Cumulative Preferred Stock on February 5, 1996.
**Based upon the closing sale price on the Composite Tape for the Common Stock
on February 12, 1996.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Common Stock, par
value $5 per share, 174,327,148 shares outstanding as of January 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
PART OF THE FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
-------- -----------------------
<S> <C>
Tenneco Inc.'s Definitive Proxy Statement for the Part III
Annual
Meeting of Stockholders Held May 14, 1996
</TABLE>
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<PAGE>
TABLE OF CONTENTS
THIS FORM 10-K/A AMENDS ITEMS 1, 6, 7, 8, 14 AND EXHIBITS 11, 12, 23 AND 27
OF THE TENNECO INC. ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON FEBRUARY 14, 1996. THE COMPLETE TEXT OF EACH ITEM WHICH
HAS BEEN AMENDED IS INCLUDED; TEXT OF ITEMS WHICH HAVE NOT BEEN AMENDED ARE
NOT INCLUDED.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. BUSINESS....................................................... 1
ITEM 6. SELECTED FINANCIAL DATA........................................ 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................... 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K............................................................ 66
</TABLE>
i
<PAGE>
The Tenneco Inc. Form 10-K for the fiscal year ended December 31, 1995 is
hereby amended to reflect the disposition of Tenneco's remaining 21%
investment in Case Corporation during March 1996 and to reflect the results of
operations for its farm and construction equipment business as "discontinued
operations."
ITEM 1. BUSINESS.
Tenneco Inc., a Delaware corporation, is a diversified industrial company
conducting all of its operations through its subsidiaries. As used herein,
"Tenneco" refers to Tenneco Inc. and its consolidated subsidiaries.
The major businesses of Tenneco are the manufacture and sale of automotive
exhaust system parts and ride control products; natural gas transportation and
marketing; manufacture and sale of packaging materials, cartons, containers
and specialty packaging products for consumer and commercial markets; and
construction and repair of ships. At December 31, 1995, Tenneco also owned
approximately 21% of Case Corporation, a manufacturer of farm and construction
equipment.
In March 1995, Tenneco Inc. sold, in a public flotation primarily in the
United Kingdom, all of the capital stock of Albright & Wilson plc, which is
engaged in the chemical business. In March 1996, Tenneco sold its remaining
ownership interest in Case Corporation in a public offering. See Note 3 to the
Financial Statements of Tenneco Inc. and Consolidated Subsidiaries for
additional information concerning the sale of these businesses.
At December 31, 1995, Tenneco had approximately 60,000 employees.
CONTRIBUTIONS OF MAJOR BUSINESSES
Information concerning Tenneco's principal industry segments and geographic
areas is set forth in Note 14 to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries. The following tables summarize (i) net sales and
operating revenues from continuing operations, (ii) income from continuing
operations before interest expense, income taxes and minority interest and
(iii) capital expenditures for continuing operations of the major business
groups of Tenneco for the periods indicated.
NET SALES AND OPERATING REVENUES FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive............................... $2,479 28% $1,989 24% $1,785 21%
Energy................................... 1,916 21 2,378 29 2,862 33
Packaging................................ 2,752 31 2,184 26 2,042 24
Shipbuilding............................. 1,756 20 1,753 21 1,861 22
Other.................................... (4) -- (6) -- (5) --
------ --- ------ --- ------ ---
Total.................................. $8,899 100% $8,298 100% $8,545 100%
====== === ====== === ====== ===
</TABLE>
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE, INCOME TAXES AND
MINORITY INTEREST
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Automotive............................................... $ 240 $ 223 $ 222
Energy................................................... 333 415 411
Packaging................................................ 430 209 139
Shipbuilding............................................. 160 200 225
Other.................................................... (67) (25) 18
------ ------ ------
Total.................................................. $1,096 $1,022 $1,015
====== ====== ======
</TABLE>
1
<PAGE>
CAPITAL EXPENDITURES FOR CONTINUING OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive........................................ $208 21% $113 17% $ 93 22%
Energy............................................ 334 34 331 51 170 40
Packaging......................................... 316 33 166 26 124 29
Shipbuilding...................................... 77 8 29 4 36 9
Other............................................. 41 4 14 2 1 --
---- --- ---- --- ---- ---
Total........................................... $976 100% $653 100% $424 100%
==== === ==== === ==== ===
</TABLE>
The interest expense, income taxes and minority interest from continuing
operations that are not allocated to the major businesses were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Interest Expense (net of interest capitalized)............... $306 $263 $254
Income Tax Expense........................................... 279 249 298
Minority Interest............................................ 22 7 --
</TABLE>
TENNECO AUTOMOTIVE
The principal business operations of Tenneco Automotive and its affiliates
are Walker Manufacturing Company and Monroe Auto Equipment Company.
Walker Manufacturing Company and its affiliates ("Walker") manufacture a
variety of automotive exhaust systems and emission control products. In the
United States, Walker operates nine manufacturing facilities and seven
distribution centers, three of which are located at manufacturing facilities,
and also has two research and development facilities. In addition, Walker
operates 25 manufacturing facilities located in Australia, Canada, the United
Kingdom, Mexico, Denmark, Germany, France, Spain, Portugal and Sweden, and
also has one engineering and technical center in Germany.
Walker's products are sold to automotive manufacturers for use as original
equipment and to wholesalers and retailers for sale as replacement equipment.
Sales to the original equipment market are directly dependent on new car
sales, and sales to the replacement market are related to the service life of
original equipment and to the level of maintenance by individual owners of
their automobiles. The service life of exhaust systems has increased in recent
years, resulting in a longer time period for the exhaust replacement rate.
2
<PAGE>
The following table sets forth information relating to Walker's sales:
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States Sales
Automotive replacement equipment (primarily exhaust
system parts).......................................... 46% 48% 52%
Automotive original equipment........................... 54 52 48
--- --- ---
100% 100% 100%
=== === ===
Foreign Sales
Automotive replacement equipment........................ 42% 68% 70%
Automotive original equipment........................... 58 32 30
--- --- ---
100% 100% 100%
=== === ===
Total Sales by Geographic Area
United States........................................... 42% 58% 60%
European Union.......................................... 45 24 23
Canada.................................................. 7 10 12
Other areas............................................. 6 8 5
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
In November 1994, Walker acquired ownership of Heinrich Gillet GmbH & Co. KG
and its affiliates ("Gillet"), a manufacturer of exhaust systems headquartered
at Edenkoben, Germany. The combination of Gillet, Europe's largest original
equipment exhaust supplier, and Walker's European division, which is Europe's
largest replacement market supplier, increased Walker's European sales in 1995
by approximately 150%.
Monroe Auto Equipment Company and its affiliates ("Monroe") are engaged
principally in the design, manufacture and distribution of ride control
products. Monroe ride control products consist of hydraulic shock absorbers,
air adjustable shock absorbers, spring assisted shock absorbers, gas charged
shock absorbers, struts, replacement cartridges and electronically adjustable
suspension systems. Monroe manufactures and markets replacement shock
absorbers for virtually all domestic and most foreign makes of automobiles. In
addition, Monroe manufactures and markets shock absorbers and struts for use
as original equipment on passenger cars and trucks, as well as for other uses.
Monroe has seven manufacturing facilities in the United States and ten foreign
manufacturing operations in Australia, Belgium, Brazil, Canada, Mexico, the
United Kingdom, Spain and New Zealand.
The following table sets forth information relating to Monroe's sales:
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States Sales
Automotive replacement equipment...................... 70% 72% 72%
Automotive original equipment......................... 30 28 28
--- --- ---
100% 100% 100%
=== === ===
Foreign Sales
Automotive replacement equipment...................... 66% 69% 63%
Automotive original equipment......................... 34 31 37
--- --- ---
100% 100% 100%
=== === ===
Total Sales by Geographic Area
United States......................................... 48% 49% 50%
European Union........................................ 36 32 29
Canada................................................ 3 5 7
Other areas........................................... 13 14 14
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
3
<PAGE>
In 1995, Tenneco Automotive acquired a 51% interest in a joint venture that
has two ride control manufacturing facilities in India and a 51% interest in a
joint venture that has one ride control manufacturing facility in China. It is
anticipated that the joint venture in India will also manufacture exhaust
systems.
Tenneco Automotive owns and licenses the rights under a number of domestic
and foreign patents and trademarks relating to its products and businesses. It
manufactures and distributes its products primarily under the names "Walker"
and "Monroe," which are well recognized in the marketplace.
Tenneco Automotive is actively pursuing opportunities to expand its business
by entering additional geographic areas, including countries in Eastern
Europe, Asia and South America. It is anticipated that this expansion will
occur through a variety of means, including joint ventures and acquisitions.
The operations of Tenneco Automotive face intense competition from other
manufacturers of automotive equipment.
TENNECO ENERGY
Tenneco is engaged in the interstate and intrastate transportation and
marketing of natural gas, with operations conducted by Tenneco Energy Inc. and
other related subsidiaries of Tenneco Inc. (collectively, "Tenneco Energy").
Tenneco Energy is also engaged in related businesses that are not generally
subject to regulation by the Federal Energy Regulatory Commission ("FERC")
which Tenneco Energy believes have the potential to generate higher returns
than its regulated businesses. The principal activities of these business
units include the development of and participation in international natural
gas pipelines, primarily in Australia, and in international and domestic gas-
fired power generation projects, and the development of natural gas production
and production financing programs for producers, primarily in the United
States.
INTERSTATE PIPELINE OPERATIONS
Tenneco Energy's interstate pipeline operations include the pipeline systems
of Tennessee Gas Pipeline Company ("Tennessee"), Midwestern Gas Transmission
Company ("Midwestern") and East Tennessee Natural Gas Company ("East
Tennessee"), which are primarily engaged in the transportation and storage of
natural gas for producers, marketers, end-users, and other gas transmission
and distribution companies.
Tennessee's multiple-line system begins in gas-producing regions of Texas
and Louisiana, including the continental shelf of the Gulf of Mexico, and
extends into the northeastern section of the United States, including the New
York City and Boston metropolitan areas. Midwestern's pipeline system extends
from Portland, Tennessee, to Chicago, and principally serves the Chicago
metropolitan area. East Tennessee's pipeline system serves the states of
Tennessee, Virginia and Georgia.
At December 31, 1995, Tenneco Energy's interstate gas transmission systems
included approximately 16,300 miles of pipeline, gathering lines and sales
laterals, together with related facilities that include 90 compressor stations
with an aggregate of approximately 1.5 million horsepower. These systems also
include underground and above-ground gas storage facilities to permit
increased deliveries of gas during peak demand periods. The total design
delivery capacity of Tenneco Energy's interstate systems at December 31, 1995,
was approximately 4,800 million cubic feet ("MMCF") of gas per day, and
approximately 5,600 MMCF on peak demand days, which includes gas withdrawn
from storage.
Tenneco Energy also has a 13.2% interest in Iroquois Gas Transmission
System, L.P. ("Iroquois"). The 370-mile Iroquois pipeline extends from the
Canadian border at Waddington, New York, to Long Island, New York, and is
designed to deliver (directly or through interconnecting pipelines such as
Tennessee) 818 MMCF of gas per day to local distribution companies and
electric generation facilities in six states. For more information on
Iroquois, see Item 3, "Legal Proceedings."
In December 1995, Tenneco Energy sold its 50% interest in Kern River Gas
Transmission Company ("Kern River"). This sale was a part of Tenneco's ongoing
plan to redeploy assets into its primary growth businesses,
4
<PAGE>
which include the nonregulated natural gas operations. Kern River owns a 904-
mile pipeline system extending from Wyoming to California.
Gas Sales and Transportation Volumes
The following table sets forth the volumes of gas, stated in billions of
British thermal units ("BBtu"), sold and transported by Tenneco Energy's
interstate pipeline systems for the periods shown.
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Sales*......................................... 95,397 131,097 213,210
Transportation*................................ 2,139,169 2,183,944 2,118,936
--------- --------- ---------
Total........................................ 2,234,566 2,315,041 2,332,146
========= ========= =========
</TABLE>
- --------
* These sales and transportation volumes include all natural gas sold or
transported by Tenneco Energy's interstate pipeline companies. The table
includes Tenneco Energy's proportionate share of transportation volumes of
the joint ventures in which it had interests during 1995; of the total
transportation volumes shown, 183,281 BBtu was attributable to these joint
venture interests in 1995, 167,961 BBtu in 1994 and 169,871 BBtu in 1993.
Intercompany deliveries of natural gas have not been eliminated from the
table.
Federal Regulation
Tenneco Energy's interstate natural gas pipeline companies are "natural gas
companies" as defined in the Natural Gas Act of 1938, as amended (the "Natural
Gas Act"). As such, these companies are subject to the jurisdiction of the
FERC. Tenneco Energy's interstate pipeline operations are operated pursuant to
certificates of public convenience and necessity issued under the Natural Gas
Act and pursuant to the Natural Gas Policy Act of 1978. The FERC regulates the
interstate transportation and certain sales of natural gas, including, among
other things, rates and charges allowed natural gas companies, extensions and
abandonments of facilities and service, rates of depreciation and amortization
and the accounting system utilized by the companies.
Prior to the FERC's industry restructuring initiatives in the 1980's,
Tenneco Energy's interstate pipeline companies operated primarily as
merchants, purchasing natural gas under long-term contracts and reselling the
gas to customers, also under long-term contracts. Pursuant to Order 636 issued
by the FERC, 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 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 gas supply realignment ("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 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 is subject to refund pending FERC review and approval for
eligibility: 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
5
<PAGE>
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'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, pending FERC review of data
submitted by Tennessee. The FERC subsequently issued an order requiring
Tennessee to refund certain costs from this surcharge. 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 and believes that this decision will not impair Tennessee's
recovery of the costs resulting from this contract. The FERC has committed to
issuing a final order by December 31, 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 seeks $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. Neither ICA nor TransTexas were
original parties to that contract. However, they contend that any stranger
acquiring a fractional interest in the original committed reserves thereby
obtains a right to add to the contract unlimited volumes of gas production
from locations in South Texas. Tennessee filed a motion for summary judgment,
asserting that the Texas statutes of frauds precluded the plaintiffs from
adding new production or acreage to the contract. On May 4, 1995, the trial
court granted Tennessee's motion for summary judgment; the plaintiffs have
filed a notice of appeal. Thereafter, ICA and TransTexas filed a motion for
summary judgment on a separate issue involving the term "committed reserves"
and whether Tennessee has a contractual obligation to purchase gas produced
from a lease not described in the gas contract. On November 8, 1995, the trial
court granted ICA's and TransTexas' motion in part. That order, which would be
finalized upon conclusion of the trial, also held that ICA's and TransTexas'
rights are subject to certain limitations of the Texas Business and Commerce
Code. In addition to these defenses, which are to be resolved at trial,
Tennessee has other defenses which it has asserted
6
<PAGE>
and intends to pursue. Tennessee has filed a Motion to Clarify the November 8,
1995 order together with a new motion for partial summary judgment concerning
the committed reserve issue. The November 8, 1995 ruling does not affect the
trial court's previous May 4, 1995 order granting summary judgment to
Tennessee.
Tennessee has been engaged in separate settlement and contract reformation
discussions with holders of certain gas purchase contracts who have sued
Tennessee. Although Tennessee believes that its defenses in the underlying gas
purchase contract actions are meritorious, Tennessee accrued amounts in the
first quarter of 1995 which it believes are adequate to cover the resolution
of these matters. 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. Motions for
rehearing have been filed by the producers. As of the date hereof, the court
had not ruled on those motions and mandate had not been issued.
As of December 31, 1995, Tennessee has deferred GSR costs yet to be
recovered from its customers of approximately $462 million, net of $316
million previously recovered from its customers, subject to refund. A
proceeding before a FERC ALJ is scheduled to commence in early 1996 to
determine whether Tennessee's GSR costs are eligible for cost recovery. The
FERC has generally encouraged pipelines to settle such issues through
negotiations with customers. Although Order 636 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 and customer
statements acknowledging the desirability of such settlements.
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, Tenneco is unable to
predict the timing or the ultimate impact that the resolution of these issues
will have on its consolidated financial position or results of operations.
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. Settlement discussions with the
FERC staff and customers regarding 1995 Rate Case issues, including structural
rate design and increased revenue requirements, are ongoing and Tennessee is
reserving revenues it believes adequate to cover any refunds that may be
required upon final settlement of this proceeding. A hearing is scheduled to
commence in March 1996.
Competition
The regulated natural gas pipeline industry is experiencing increasing
competition, which results from actions taken by the FERC to strengthen market
forces throughout the industry. In a number of key markets, Tenneco Energy's
interstate pipelines face competitive pressure from other major pipeline
systems, enabling local distribution companies and end users to choose a
supplier or switch suppliers based on the short term price of gas and the cost
of transportation. Competition between pipelines is particularly intense in
Midwestern's Chicago and Northern Indiana markets, in East Tennessee's
Roanoke, Chattanooga and Atlanta markets, and in Tennessee's supply area,
Louisiana and Texas. In some instances, Tenneco Energy's pipelines have been
required to discount their transportation rates in order to maintain their
market share. Additionally, transportation contracts representing
approximately 70% of firm transportation capacity will be expiring over the
next five years, principally in the year 2000. The renegotiation of these
contracts may be impacted by these competitive factors.
Gas Supply
With full implementation of Order 636, Tennessee's firm sales obligations
requiring maintenance of long-term gas purchase contracts have declined from
over a 1.4 billion dekatherm maximum daily delivery obligation
7
<PAGE>
to less than a 200 million dekatherm maximum daily delivery obligation. As
discussed above under the caption "Federal Regulation," Tennessee has
substantially reduced its natural gas purchase portfolio in line with these
requirements through termination and assignment to third parties. Although
Tennessee's requirements for purchased gas are substantially less than prior
to its implementation of Order 636, Tenneco Energy is pursuing the attachment
of gas supplies to Tennessee's pipeline system for transportation by others.
Current gas supply activities include development of offshore and onshore
pipeline gathering projects and utilization of production financing programs
to spur exploration and development drilling in areas adjacent to Tennessee's
system. Major gathering systems in the Gulf of Mexico were completed during
the fourth quarter of 1994.
GAS MARKETING AND INTRASTATE PIPELINES
Tenneco Energy Resources Corporation, an 80% owned subsidiary of Tenneco,
and its subsidiaries (collectively, "Tenneco Resources") are engaged in the
businesses of marketing natural gas and owning and operating approximately
1,300 miles of pipelines that serve the Texas Gulf Coast and West Texas
markets. Its businesses include the buying, selling, storage and
transportation of natural gas and price risk management services, including
the offering of fixed, floating and other natural gas pricing for short or
long terms using natural gas futures contracts or other financial instruments.
These businesses serve third parties, including producers, marketers, end-
users, distribution companies and gas transmission companies. During 1995
Tenneco Resources transported, processed or sold approximately 2.3 billion
cubic feet of natural gas for its customers. Tenneco Resources also owns and
manages gas gathering systems and natural gas liquids plants in Pennsylvania,
Texas, Louisiana and the outer continental shelf of the Gulf of Mexico.
The following table sets forth the volumes of gas, stated in BBtu, sold and
transported by subsidiaries of Tenneco Resources for the periods indicated:
<TABLE>
<CAPTION>
1995 1994 1993
------- --------- -------
<S> <C> <C> <C>
Sales.............................................. 642,096 739,432 741,800
Transportation..................................... 229,415 273,587 235,940
------- --------- -------
Total............................................ 871,511 1,013,019 977,740
======= ========= =======
</TABLE>
In February 1994, a 20% interest in Tenneco Resources was sold to Ruhrgas
AG, Germany's largest natural gas company.
INTERNATIONAL
Tenneco Gas International Inc. and other subsidiaries of Tenneco
(collectively, "TGI") was organized to extend Tennessee's traditional
activities in North American pipelines to international pipeline, power, and
energy-related projects, with a current focus on activities in South America,
Southeast Asia, Australia and Europe. TGI was selected to construct, own and
operate a 470 mile natural gas pipeline in Queensland, Australia; construction
of the pipeline commenced in late 1995 with completion expected in early 1997.
In June 1995, Tenneco acquired the natural gas pipeline assets of the Pipeline
Authority of South Australia, which includes a 488 mile pipeline, for
approximately $225 million. The purchase resulted from the privatization of
Australia's natural gas industry. TGI also has interests in two consortiums
pursuing the development of two natural gas pipeline projects in South
America, from Argentina to Chile and from Bolivia to Brazil, including related
gas-fired electric generation plants.
In December 1995, TGI was selected by the Beijing Natural Gas Transportation
Company ("BGTC") to serve as technical advisor for the construction of China's
first major onshore natural gas pipeline. BGTC, a joint venture between the
Chinese National Petroleum Corporation and the city of Beijing, will build a
600 mile line linking the Jingbian gas field in central China's Ordos Basin
with Beijing. Construction is scheduled to commence in March 1996, with an in-
service date scheduled for October 1997.
8
<PAGE>
POWER GENERATION
Tenneco Power Generation Company ("Tenneco Power") has a 17.5% interest in a
240 megawatt power plant in Springfield, Massachusetts and a 50% interest in
two additional cogeneration projects in Florida which have a combined capacity
of 200 megawatts.
In December 1995, Tenneco Power entered into an agreement with Energy Equity
Corp., Ltd., an Australian company, to purchase 50% of two of its subsidiaries
subject to satisfaction of certain conditions. The new joint venture will
construct a 135 megawatt gas fired power plant.
TENNECO VENTURES
Tenneco Gas Production Corporation ("Tenneco Production") and Tenneco
Ventures Corporation ("Tenneco Ventures"), subsidiaries of Tenneco, together
with institutional investors and partners, invest in oil and gas properties
and finance independent producers engaged in exploration and development
projects. Tenneco Ventures and Tenneco Production hold various ownership
interests in oil and gas fields located primarily in the Gulf of Mexico, Texas
and Louisiana. The reserves in those fields are estimated to be in excess of
approximately 150 billion cubic feet of natural gas. Tenneco Ventures is also
involved in TGI's international projects through exploration and development
of gas reserves in Indonesia, Poland and Bolivia.
TENNECO PACKAGING
Tenneco Packaging Inc. and other related Tenneco subsidiaries (collectively,
"Tenneco Packaging") manufacture and sell containerboard, paperboard,
corrugated shipping containers, folding cartons, plastic food storage and
trash bags, stretch film, disposable plastic and aluminum containers, molded
fiber products and other related products. Its shipping container products are
used in the packaging of food, paper products, metal products, rubber and
plastics, automotive products and point of purchase displays. Its folding
cartons are used in the packaging of soap and detergent, food products and a
wide range of other consumer goods. Uses for its molded fiber products include
produce and egg packaging, food service items and institutional and consumer
disposable dinnerware, as well as a wide range of other consumer and
industrial goods. Its disposable plastic and aluminum containers are sold to
the food service, food processing and related industries. Plastic food storage
and trash bags, foam dinnerware and related products are sold through a
variety of retail outlets. In addition to products bearing the name "Tenneco
Packaging", Tenneco Packaging manufactures and distributes products under the
names "EZ FOIL(R)," "Revere Foil Containers," "Dahlonega Packaging," "Agri-
Pak," "PRESSWARE(R) International," "HEFTY(R)," "HEFTY ONE ZIP(R),"
"BAGGIES(R)" and "KORDITE(R)".
The following table sets forth information with respect to Tenneco
Packaging's sales during the past three years:
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales by Product Type
Corrugated shipping containers and containerboard products. 58% 56% 53%
Disposable plastic and aluminum products................... 22 20 22
Molded fiber products...................................... 7 9 9
Folding cartons and recycled paperboard mill products...... 7 9 10
Paper stock and other...................................... 6 6 6
--- --- ---
100% 100% 100%
=== === ===
Total Sales by Geographic Area
United States.............................................. 90% 90% 88%
European Union............................................. 5 5 7
Canada..................................................... 1 2 2
Other areas................................................ 4 3 3
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
9
<PAGE>
At December 31, 1995, Tenneco Packaging operated 69 container plants, seven
folding carton plants and 12 corrugated containerboard and paperboard machines
at six mills. Two of the mills (located in Georgia and Wisconsin), including
substantially all of the equipment associated with both mills, are leased from
third parties. Tenneco Packaging also has eight molded fiber products plants,
one pressed paperboard plant, three lumber plants, one pole mill, three paper
stock plants, and 25 disposable plastic and aluminum container plants. Tenneco
Packaging's plants are located primarily in the United States. Its foreign
plants are located in Great Britain, Spain, Canada, Switzerland and Germany.
In the United States, Tenneco Packaging has a 50% ownership interest in a
molded fiber distribution company and in a hardwood chip mill. In addition,
Tenneco Packaging has a 50% interest in a folding carton plant in Dongguan,
China, and a 50% interest in a folding carton plant in Bucharest, Romania.
In November 1995, Tenneco Packaging acquired the assets of Mobil
Corporation's plastics division for $1.3 billion. The business manufactures
HEFTY(R) trash bags and BAGGIES(R) food storage bags for the consumer market.
It also manufactures polystyrene foam foodservice containers, plates and meat
trays; clear take-out containers from thermoformed polystyrene packaging; and
polyethylene film products including liners, produce and retail bags, and
medical and industrial disposable packaging. The division employs 4,100 people
at 11 manufacturing plants and 16 distribution centers in the United States
and Canada.
Additionally, during 1995 Tenneco Packaging made eight other domestic
acquisitions in the paperboard packaging segment in the United States and two
plastics acquisitions in the United Kingdom. The total purchase price for
these acquisitions was $196 million.
Tenneco Packaging owns and licenses the rights under a number of domestic
and foreign patents and trademarks relating to its products and businesses.
The patents, trademarks and other intellectual property owned by Tenneco
Packaging are important in the manufacturing and distribution of its products.
Generally, Tenneco Packaging faces intense competition from numerous
competitors and alternative products in each of its geographic and product
markets.
The principal raw materials used by Tenneco Packaging in its mill operations
are virgin pulp and reclaimed paper stock and, in its specialty products
operations, aluminum and plastics. Tenneco Packaging obtains virgin pulp and
reclaimed paper stock from independent logging contractors, from timberlands
owned or controlled by it, from operation of its reclaimed paper stock
collecting and processing plants and from other sources. Tenneco Packaging
obtains aluminum rolling stock and plastic feed stock from various suppliers.
At December 31, 1995, Tenneco Packaging owned 187,000 acres of timberland in
Alabama, Michigan, Mississippi and Tennessee and leased, managed or had
cutting rights on an additional 808,000 acres of timberland in those states
(excluding Michigan) and in Florida, Wisconsin and Georgia. During the years
1995, 1994 and 1993 approximately 31%, 20% and 22%, respectively, of the
virgin fiber and timber used by Tenneco Packaging in its operations was
obtained from timberlands controlled by it.
10
<PAGE>
NEWPORT NEWS SHIPBUILDING
Newport News Shipbuilding and Dry Dock Company ("Newport News"), a Tenneco
subsidiary located in Newport News, Virginia, is the largest privately owned
shipbuilding company in the United States. Its primary business is
constructing and overhauling nuclear-powered aircraft carriers for the United
States Navy. Newport News also overhauls and repairs U.S. Navy and commercial
vessels and refuels nuclear-powered ships. Newport News returned to the
commercial shipbuilding market with the October 1994 award of product tanker
contracts from a foreign owner for two ships. Options for two additional ships
were exercised in June 1995. Additionally, Newport News was awarded a contract
to construct five additional "Double Eagle" tankers which will be used in U.S.
domestic trade. In February 1996, the owners secured financing guarantees from
the Maritime Administration. Newport News is also pursuing international sales
of its fast frigate design and is currently being considered under
congressional budgets for additional submarine work. Newport News'
shipbuilding facilities are located on the James River on approximately 475
acres of property which it owns.
At December 31, 1995, the aggregate amount of Newport News' backlog of work
was approximately $4.6 billion (substantially all of which is U.S. Navy-
related), a decrease from the previous backlog of $5.6 billion as of December
31, 1994. Although cuts in naval shipbuilding have continued to put pressure
on the Newport News backlog, Newport News was successful in adding $1 billion
in new work during 1995. Major additions to the backlog included the overhaul
contract for the nuclear-powered aircraft carrier USS Eisenhower, two Double
Eagle product tankers and engineering design work for aircraft carriers and
submarines. At December 31, 1995, Newport News anticipated that it would
complete approximately $1.5 billion of the current backlog by December 31,
1996, and an additional $1.0 billion in 1997. The December 31, 1995, backlog
of Newport News included contracts for the construction of two Nimitz-class
aircraft carriers, scheduled for delivery in 1998 and 2002, and two Los
Angeles-class attack submarines to be delivered in 1996. The backlog also
included contracts for the construction of the four product tankers, the
conversion of two Sealift ships, and the Eisenhower overhaul. The present
backlog extends into 2002. For information concerning the impact of the
conversion work on Newport News' margins, see Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Newport News has various other contracts for U.S. Navy design work and for
industrial products. As is typical for similar Government contracts, all of
Newport News' contracts with the U.S. Navy are unilaterally terminable by the
U.S. Navy at its convenience with compensation for work completed and costs
incurred.
To increase its competitiveness worldwide and in response to the anticipated
decline in U.S. Navy budgets, Newport News has reduced its workforce by
approximately 11,000 or 37% between December 31, 1990 and December 31, 1995.
Newport News is aggressively pursuing new business opportunities and
attempting to expand its business base in light of the declining U.S. Navy
backlog; however, Newport News faces intense worldwide competition in its
efforts to enter new markets. During 1995, Newport News entered into contracts
to construct two additional product tankers. In addition it has a 40% interest
in a venture that will design, construct, own and operate a shipyard in Abu
Dhabi, United Arab Emirates. Construction of the shipyard is expected to be
completed in 1998. While the percentage of Newport News' total business for
commercial work is expected to increase, the U.S. Navy will continue to be its
primary customer. Newport News is pursuing new submarine design and
construction work, major U.S. Navy overhaul and repair work, new commercial
construction contracts, and foreign military sales. For additional
information, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
11
<PAGE>
OTHER
Tenneco Credit Corporation purchases interest-bearing and noninterest-
bearing trade receivables from Tenneco's operating subsidiaries. Through June
1994, it also purchased retail receivables generated primarily by retail sales
of products by Case Corporation ("Case"). At December 31, 1995, approximately
$509 million of those Case retail receivables remained outstanding and are
expected to be substantially liquidated by 1999. Case services the retail
receivables purchased by Tenneco Credit Corporation, for which Case receives a
monthly servicing fee based on the amount of receivables outstanding at the
beginning of each month. Funding for Tenneco Credit Corporation is provided
through the private and public debt markets.
BUSINESS STRATEGY
Since September 1991, Tenneco Inc. has focused on various initiatives and
taken steps designed to strengthen its financial results and improve its
financial flexibility and create greater returns to its stockholders. Asset
evaluation and redeployment have been and will continue to be important parts
of this strategy. Tenneco Inc. continues to study opportunities for the
strategic repositioning and restructuring of its operations (including through
acquisitions, dispositions, divestitures, spin-offs and joint venture
participation, wholly and partially, of various businesses). Tenneco Inc. has
expressed an intention to act on a broad range of options--spin-offs, sales,
public offerings, mergers, joint ventures and acquisitions--until it is
satisfied that its strategic mix and corporate structure maximize stockholder
value. These actions may include one, two or all of its businesses.
ENVIRONMENTAL MATTERS
Tenneco Inc. estimates that its subsidiaries will make capital expenditures
for environmental matters of approximately $60 million in 1996 and that
capital expenditures for environmental matters will range from approximately
$161 million to $201 million in the aggregate for the years 1997 through 2007.
For information regarding environmental matters see Item 3, "Legal
Proceedings--Environmental Proceedings" and "--Potential Superfund Liability,"
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Environmental Matters," and Note 15, "Commitments and
Contingencies" in the "Notes to Financial Statements." See also Note 1,
"Summary of Accounting Policies--Environmental Liabilities," in the "Notes to
Financial Statements."
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(MILLIONS EXCEPT SHARE AMOUNTS)
------------------------------------------------------------------------
1995(A) 1994(A) 1993(A) 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
(LOSS) DATA(B):
Net sales and operating
revenues from
continuing
operations--
Automotive............ $ 2,479 $ 1,989 $ 1,785 $ 1,763 $ 1,668
Energy................ 1,916 2,378 2,862 2,183 2,183
Packaging............. 2,752 2,184 2,042 2,078 1,934
Shipbuilding.......... 1,756 1,753 1,861 2,265 2,216
Other................. (4) (6) (5) 31 26
----------- ----------- ----------- ----------- -----------
Total................ $ 8,899 $ 8,298 $ 8,545 $ 8,320 $ 8,027
=========== =========== =========== =========== ===========
Income from continuing
operations before
interest expense,
income taxes and
minority interest--
Automotive............ $ 240 $ 223 $ 222 $ 237 $ 188
Energy................ 333 415 411 360 561 (c)
Packaging............. 430 209 139 221 139 (c)
Shipbuilding.......... 160 200 225 249 225
Other................. (67) (25) 18 (32) (98)
----------- ----------- ----------- ----------- -----------
Total................ 1,096 1,022 1,015 1,035 1,015
Interest expense (net
of interest
capitalized).......... 306 263 254 221 237
Income tax expense..... 279 249 298 282 258
Minority interest...... 22 7 -- -- --
----------- ----------- ----------- ----------- -----------
Income from continuing
operations............ 489 503 463 532 520
Income (loss) from dis-
continued operations,
net of income tax(e).. 246 (51)(d) (12)(d) (1,144)(d) (1,252)(d)
Extraordinary loss, net
of income tax......... -- (5) (25) (12) --
Cumulative effect of
changes in accounting
principles, net of
income tax............ -- (39)(f) -- (699)(f) --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... 735 408 426 (1,323) (732)
Preferred stock divi-
dends................. 12 12 14 16 16
----------- ----------- ----------- ----------- -----------
Net income (loss) to
common stock.......... $ 723 $ 396 $ 412 $ (1,339) $ (748)
=========== =========== =========== =========== ===========
Average number of
shares of common stock
outstanding........... 173,995,941 180,084,909 168,772,852 144,110,151 122,777,910
Earnings (loss) per
average share of
common stock--
Continuing operations. $ 2.75 $ 2.72 $ 2.66 $ 3.58 $ 4.10
Discontinued opera-
tions................ 1.41 (.27) (.07) (7.93) (10.19)
Extraordinary loss.... -- (.03) (.15) (.08) --
Cumulative effect of
changes in accounting
principles........... -- (.22) -- (4.86) --
----------- ----------- ----------- ----------- -----------
Net earnings (loss)... $ 4.16 $ 2.20 (g) $ 2.44 (g) $ (9.29)(g) $ (6.09)
=========== =========== =========== =========== ===========
Cash dividends paid per
common share.......... $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 2.80
</TABLE>
(Table continued on next page)
13
<PAGE>
(Continued from previous page)
<TABLE>
<CAPTION>
(MILLIONS)
-----------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(B):
Total assets........... $ 13,451 $ 12,251 $ 11,105 $ 11,320 $ 12,985
Short-term debt........ 908 536 431 669 1,132
Long-term debt......... 3,751 3,568 3,620 4,718 4,593
Minority interest...... 320 320 150 160 171
Preferred stock with
mandatory redemption
provisions............ 130 147 163 191 194
Shareowners' equity.... 3,148 2,900 2,601 1,330 2,774
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided by
operating activities.. $ 1,443 $ 450 $ 1,615 $ 929 $ 950
Capital expenditures
for continuing
operations............ 976 653 424 447 564
</TABLE>
- --------
Notes: (a) For a discussion of significant items affecting comparability of
the financial information for 1995, 1994 and 1993, see Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(b) During 1995 and 1994, Tenneco completed several acquisitions at its
various operating segments, the most significant of which was the
acquisition of the plastics division of Mobil Corporation for $1.3
billion by Tenneco Packaging in late 1995. See Note 2 to the Financial
Statements of Tenneco Inc. and Consolidated Subsidiaries for further
information on the Tenneco acquisitions.
(c) For Tenneco Energy, includes a gain of $265 million related to the sale
of its natural gas liquids business including its interest in an MTBE
plant then under construction. Also, Tenneco Packaging recorded a gain
of $42 million related to the sale of three short-line railroads.
(d) Includes restructuring charge of $920 million related to the
discontinued farm and construction equipment business in 1992 reduced
by $20 million in 1993 and $16 million in 1994. Additionally, a $473
million restructuring charge was recorded in 1991, of which $461
million related to the discontinued farm and construction equipment
business.
(e) Discontinued operations reflected in the above periods includes
Tenneco's farm and construction equipment operations, which were
discontinued in March 1996, its chemicals and brakes operations, which
were discontinued during 1994, and its minerals and pulp chemicals
operations, which were discontinued in 1992. In addition, certain
additional costs related to Tenneco's discontinued oil and gas
operations were reflected in the 1991 results.
(f) In 1994, Tenneco adopted Statement of Financial Accounting Standards
("FAS") No. 112, "Employers' Accounting for Postemployment Benefits".
In 1992, Tenneco adopted FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and FAS No. 109,
"Accounting for Income Taxes."
(g) For purposes of computing earnings per share, Series A preferred stock
was included in average common shares outstanding until its conversion
into common stock in December 1994; therefore, the preferred dividends
paid were not deducted from net income (loss) to determine net income
(loss) to common stock. The inclusion of Series A preferred stock in
the computation of earnings per share was antidilutive for the years
and certain quarters in 1994, 1993 and 1992. Other convertible
securities and common stock equivalents outstanding during each of the
five years ended December 31, 1995, 1994, 1993, 1992 and 1991 were not
materially dilutive.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following review of Tenneco's financial condition and results of
operations should be read in conjunction with the financial statements and
related notes of Tenneco Inc. and Consolidated Subsidiaries presented on pages
32-65.
1996 STRATEGIC ACTION
In March 1996, Tenneco sold its remaining ownership of 15.2 million shares
of common stock of Case Corporation in a public offering at $53.75 per share.
Net proceeds of approximately $788 million were received which resulted in a
gain of $340 million, net of $83 million of income tax expense. As a result of
this sale, Tenneco's financial statements have been restated to reflect the
operating results and the gains on the sale of the farm and construction
equipment segment as "discontinued operations" for all periods presented.
YEARS 1995 AND 1994
1995 STRATEGIC ACTIONS
During 1995, Tenneco continued implementing its strategy to redeploy capital
from non-core assets into less cyclical, higher-growth businesses. The
following asset dispositions were completed or announced during 1995:
. In March 1995, Tenneco completed the initial public offering of its
Albright & Wilson chemicals segment, resulting in net proceeds of
approximately $700 million. The loss on the sale, which was recorded in
December 1994 as "discontinued operations", was $170 million, including
income tax expense of $115 million.
. Tenneco sold approximately 16.1 million shares of Case Corporation
("Case") common stock in a public offering in August 1995, reducing
Tenneco's ownership in Case from 44 percent to 21 percent. The net
proceeds from the offering were approximately $540 million, resulting in
a pre-tax gain of $101 million which was reflected as "income from
discontinued operations". Also, in December 1995, Tenneco sold a
subordinated note which had been received from Case in connection with
the initial public offering ("IPO") of Case in June 1994. Tenneco
realized a gain on the sale of the subordinated note of $32 million which
was also reflected as "income from discontinued operations". Net proceeds
from the sale of the subordinated note were $326 million. Since Tenneco
had capital loss carryforwards from the 1994 Case reorganization and IPO
available to offset the taxes on these 1995 sales, no taxes were payable
on these transactions.
. In December 1995, Tenneco Energy sold its 50 percent interest in Kern
River Gas Transmission Company ("Kern River"), a joint venture that owns
a 904-mile pipeline extending from Wyoming to California. The sales price
was $206 million, resulting in a pre-tax gain of $30 million.
Tenneco acquired or announced intentions to acquire several new businesses
during 1995, including:
. Tenneco Packaging acquired the plastics business of Mobil Corporation
("Mobil") which is the largest North American producer of polyethylene
and polystyrene packaging on November 17, 1995 for $1.3 billion. Its
consumer products are marketed under the HEFTY(R), KORDITE(R) and
BAGGIES(R) brand names. The acquired plastics business is also a leader
in polystyrene foam packaging, thermoformed polystyrene packaging and
polyethylene film products for food service and industrial consumers. In
addition to this acquisition, Tenneco Packaging acquired two plastics
packaging operations in the United Kingdom for $25 million during 1995.
. Tenneco Packaging also completed eight acquisitions in the paperboard
packaging business during 1995 for $171 million in cash, notes and
Tenneco Inc. common stock.
15
<PAGE>
. Tenneco Energy acquired the natural gas pipeline assets of the Pipeline
Authority of South Australia ("PASA"), which includes a 488-mile
pipeline, in June 1995 for approximately $225 million and a 50 percent
interest in two gas-fired cogeneration plants from ARK Energy for
approximately $65 million in cash and Tenneco Inc. common stock.
. Tenneco Automotive acquired an exhaust company and a catalytic converter
company in 1995 for $40 million and entered into two ride control joint
ventures for $14 million. Tenneco Automotive also announced that it will
acquire two additional ride control companies for $36 million in 1996.
During 1995, Tenneco completed the $500 million common stock repurchase
program announced in December 1994. Also, in 1995, Tenneco announced two
additional share buyback programs, one for up to 3 million shares and another
for 2.5 million shares. These programs are designed to offset the growth in
common shares resulting from shares issued pursuant to employee benefit plans.
The 3 million share repurchase program was completed in 1995. Since December
1994, Tenneco repurchased a total of 14.3 million common shares at a cost of
$646 million.
Tenneco has expressed an intention to act on a broad range of options--spin-
offs, sales, public offerings, mergers, joint ventures and acquisitions--until
it is satisfied that its strategic mix and corporate structure maximize
shareowner value. These actions may include one, two or all of its businesses.
RESULTS OF OPERATIONS
Tenneco's income from continuing operations in 1995 of $489 million
decreased by 3 percent compared to $503 million in 1994. Improved results from
Tenneco Packaging and Tenneco Automotive were offset by declines at Tenneco
Energy and Newport News Shipbuilding, all of which are discussed below.
Earnings per share from continuing operations increased to $2.75 per average
common share in 1995 from $2.72 in 1994. Average common shares outstanding
during 1995 were 174 million, a 3 percent decrease from 1994 primarily
resulting from Tenneco's share repurchase programs.
In 1995, Tenneco recorded income of $246 million or $1.41 per share on the
discontinued operations of its farm and construction equipment business. In
1994, Tenneco recorded a loss of $51 million or $.27 per share from the
discontinued operations of its farm and construction equipment business,
Albright & Wilson chemicals business and Tenneco Automotive's brakes
operations. An extraordinary loss of $5 million or $.03 per share was incurred
in 1994 for early retirement of debt. Also, 1994 results included a charge of
$39 million or $.22 per share for the adoption of a new accounting principle.
No similar costs were incurred in 1995. Net income to common stock in 1995 was
$723 million or $4.16 per share compared with net income to common stock of
$396 million or $2.20 per share in 1994.
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Automotive................................................ $2,479 $1,989
Energy.................................................... 1,916 2,378
Packaging................................................. 2,752 2,184
Shipbuilding.............................................. 1,756 1,753
Other..................................................... (4) (6)
------ ------
$8,899 $8,298
====== ======
</TABLE>
Tenneco's 1995 revenues increased $601 million and have benefited from
strong market conditions in the packaging industry along with revenues from
acquisitions made in late 1994 and 1995. These increases more than offset
lower natural gas sales at Tenneco Energy. The results of each segment are
discussed in detail below.
16
<PAGE>
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING
INCOME)
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Automotive................................................ $ 240 $ 223
Energy.................................................... 333 415
Packaging................................................. 430 209
Shipbuilding.............................................. 160 200
Other..................................................... (67) (25)
------ ------
$1,096 $1,022
====== ======
</TABLE>
Tenneco's 1995 operating income increased by $74 million compared with 1994.
Tenneco Packaging benefited from favorable market conditions in the packaging
industry and Tenneco Automotive improved as European original equipment and
aftermarkets performed well. These increases were offset by lower operating
income at Tenneco Energy in both its regulated and nonregulated businesses and
at Newport News Shipbuilding due to lower margins on conversion work, costs
incurred to enter the highly competitive international commercial shipbuilding
markets and a charge for staff downsizing. The results of each segment are
discussed in detail below.
Significant transactions affecting the comparability of operating income
between 1995 and 1994 are:
. Pre-tax gains on sales of assets and businesses of $27 million in 1995
(primarily a mill in North Carolina and Tenneco Energy's interest in Kern
River) compared with gains of $30 million in 1994 primarily from the sale
of a 20 percent interest in Tenneco Energy Resources Corporation
("Tenneco Resources").
. Reserves established in 1995 of $25 million for the liquidation of
surplus real estate holdings and notes, $30 million for estimated
regulatory and legal settlement costs at Tenneco Energy, $30 million for
restructuring at Tenneco Packaging's molded fiber and aluminum foil
packaging operations and $24 million in charges at Newport News
Shipbuilding related to staff downsizing and costs related to entering
the highly competitive international commercial markets.
. A gain from a 1994 contract settlement between Tenneco Energy and
Columbia Gas Transmission Corporation ("Columbia Gas") of $11 million.
. Charges in 1994 of $22 million at Tenneco Automotive for a plant closing
in Ohio and consolidations in Europe associated with the acquisition of
Heinrich Gillet GmbH & Co. KG ("Gillet"), the German exhaust
manufacturer.
TENNECO AUTOMOTIVE
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Revenues....................................................... $2,479 $1,989
Operating income............................................... $ 240 $ 223
</TABLE>
Revenues from Tenneco Automotive's original equipment business increased
during 1995 by $419 million to $1,155 million. Eighty-three percent, or $346
million, of this increase resulted from revenues of Gillet. European original
equipment volumes were up significantly in 1995 where Gillet is the leading
original equipment manufacturer of exhaust components. In North America, ride
control sales increased eleven percent and exhaust sales increased four
percent in 1995.
Operating income in the original equipment business for 1995 decreased by $5
million to $53 million compared with 1994. The 1994 operating income included
a $5 million charge recorded for a plant closing. The addition of Gillet
contributed $16 million to operating income in 1995. The remainder of the
operating income change in 1995 is due primarily to a high level of costs
related to new product launches. Tenneco Automotive
17
<PAGE>
completed 68 product launches for 1996 model year vehicles in 1995, more than
twice the normal levels, which strained plant capabilities and adversely
affected 1995 earnings. In connection with the new product launches, Tenneco
Automotive incurred additional costs of $10 million in 1995 including those
related to a new process, hydroforming. Hydroforming is a liquid, high-
pressure process for bending and shaping metal parts not available with
traditional manufacturing technology.
Aftermarket revenues increased $71 million to $1,324 million in 1995. This
increase was due primarily to higher aftermarket revenues in both the European
exhaust and ride control businesses, resulting from improved economic
conditions in many European countries. North American aftermarket revenues
were down 5 percent in 1995.
Operating income in the aftermarket business was $187 million for 1995
compared with $165 million for the prior year. Tenneco Automotive recorded a
charge of $17 million in 1994 related to plant consolidations associated with
the Gillet acquisition. Excluding this charge, aftermarket operating income
increased $5 million compared with 1994. The positive impact of higher sales
volumes in Europe was offset by the negative impact of lower North American
sales. Industry-wide, the North American aftermarket experienced its sharpest
decline in more than a decade. The unusually mild winter weather in 1995 in
the Northeast and Midwest slowed automotive parts replacement rates.
OUTLOOK
The consolidation of the exhaust operations of Walker Europe and Gillet
which was undertaken during 1995 is substantially complete and is expected to
result in improved earnings from the European original equipment business in
1996. Also, Tenneco Automotive's international expansion, including joint
ventures in India and China, acquisitions in Spain and Australia and new
international plants such as the new ride control plant in Mexico, are
expected to contribute to future earnings. Tenneco Automotive anticipates
higher original equipment volumes as a result of the high level of new product
launches undertaken in 1995 and interest by additional customers in
hydroforming technology. Tenneco also anticipates the North American
aftermarket to improve to more normal activity levels in 1996.
TENNECO ENERGY
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Revenues....................................................... $1,916 $2,378
Operating income............................................... $ 333 $ 415
</TABLE>
The regulated portion of Tenneco Energy's business experienced a decline in
revenues from $918 million in 1994 to $761 million in 1995. Lower regulated
merchant gas sales along with a small decrease in transportation revenues
caused the decline. Under Federal Energy Regulatory Commission ("FERC") Order
636, customers assume the responsibility for acquiring their gas supplies,
reducing sales by the pipeline. The contract settlement reached with Columbia
Gas in 1994 as part of its bankruptcy proceedings reduced its contract volume,
contributing to the transportation revenue decline in 1995.
Operating income in the regulated portion of Tenneco Energy's business was
down by $27 million in 1995 as compared with 1994. The 1995 results included
the $30 million pre-tax gain on the sale of Tenneco's interest in Kern River
and a $21 million reserve for estimated regulatory and legal settlement costs
while 1994 included the $11 million benefit from the Columbia Gas contract
settlement. Excluding these transactions, Tenneco Energy's regulated business
operating income decrease was primarily due to the reduction of revenues
related to the early termination of transportation contracts and lower returns
earned on regulated assets due to the operating environment created by Order
636. This decrease was partially offset by the benefit Tennessee realized
through the implementation of a new rate structure in July 1995.
Revenues in Tenneco Energy's nonregulated businesses were $1,155 million,
down $305 million compared with 1994. Average natural gas prices were lower in
1995 compared with 1994, contributing approximately $175
18
<PAGE>
million to the revenue decrease. Natural gas volumes declined also,
contributing $148 million to the revenue decrease. Warmer weather in early
1995 resulted in lower levels of storage activity during the year, decreasing
demand for natural gas and forcing prices lower. These effects were offset
somewhat by $18 million in revenues earned by the PASA assets which were
acquired by Tenneco Energy in June 1995.
The 1995 operating income for the nonregulated business decreased $55
million compared with 1994. Operating income in 1994 included a $23 million
gain from the sale of a 20 percent interest in Tenneco Resources to Ruhrgas
AG. The remainder of the operating income decline was due to increased startup
and development costs on international programs, a $9 million reserve for
estimated legal settlement costs and lower
margins and volumes due to lower demand in gas marketing. Tenneco Energy
operating results included $9 million in income from operating the PASA assets
during the last half of 1995.
OUTLOOK
During 1995, Tenneco Energy sold its interest in Kern River and purchased
the PASA assets in Australia. Tenneco Energy also began construction during
1995 of a 470-mile pipeline in Queensland, Australia, has been chosen to
participate in constructing a pipeline from Bolivia to Brazil, is
participating in feasibility studies for the construction of a pipeline in
Taiwan and was selected as a technical advisor for the construction of China's
first major onshore natural gas pipeline. Tenneco Energy and its partners
continue to pursue pre-construction commitments from prospective natural gas
shippers and obtaining right-of-way concessions for the construction of the
Argentina to Chile pipeline. Also, Tenneco Energy has acquired a stake in
GreyStar Corp., a Houston-based offshore services company that serves
production and pipeline facilities in the Gulf of Mexico. These actions are
intended to reduce Tenneco Energy's reliance on regulated businesses,
increasing the opportunity to earn higher returns.
The regulated natural gas pipeline industry is experiencing increasing
competition, which results from actions taken by the FERC to strengthen market
forces throughout the industry. In a number of key markets, Tenneco Energy's
interstate pipelines face competitive pressure from other major pipeline
systems, enabling local distribution companies and end users to choose a
supplier or switch suppliers based on the short term price of gas and the cost
of transportation. Competition between pipelines is particularly intense in
Midwestern Gas Transmission's Chicago and Northern Indiana markets, in East
Tennessee Natural Gas' Roanoke, Chattanooga and Atlanta markets, and in
Tennessee Gas Pipeline Company's ("Tennessee") supply area, Louisiana and
Texas. In some instances, Tenneco Energy's pipelines have been required to
discount their transportation rates in order to maintain their market share.
Additionally, transportation contracts representing approximately 70 percent
of firm transportation capacity will be expiring over the next five years,
principally in the year 2000. The renegotiation of these contracts may be
impacted by these competitive factors.
TENNECO PACKAGING
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Revenues....................................................... $2,752 $2,184
Operating income............................................... $ 430 $ 209
</TABLE>
Tenneco Packaging's paperboard business experienced excellent results during
1995. Revenues were up $399 million to $1,928 million in 1995, primarily as a
result of strong pricing improvements. As a result of the move into higher
margin graphics and specialty corrugated segments, Tenneco Packaging realized
higher revenues on comparable volumes. In addition, strong industry demand for
linerboard and corrugated products served to substantially increase prices for
those products in 1995 and contributed to record revenues.
Operating income in the paperboard business improved by $260 million to $399
million in 1995. This improvement includes the 1995 pre-tax gain of $14
million on the sale of a mill in North Carolina. Effective mix management
allowed Tenneco Packaging to absorb rapidly rising raw material prices for
corrugated products
19
<PAGE>
while posting increased margins. Additionally, Tenneco Packaging continued to
post new productivity gains, especially in the operation of its containerboard
mills, resulting in record operating margins in 1995.
Revenues in Tenneco Packaging's specialty packaging business increased by
$169 million to $824 million during 1995. Revenues of $106 million from the
recently acquired plastics business (November 1995) are included in the
results of the specialty packaging business. The remainder of the revenue
increase over 1994 results from price increases realized during the year.
The specialty packaging business earned $31 million in operating income in
1995, a $39 million decrease compared with 1994 results. Specialty packaging
recorded a restructuring charge of $30 million in 1995 for its molded fiber
and aluminum foil packaging operations and recognized income from the recently
acquired plastics business of $15 million. Excluding these two items, the
decline in operating income for specialty packaging resulted from raw material
cost increases that more than offset the positive effects of the pricing
increases initiated during the year. The major contributors to the raw
material cost increases were higher prices for polystyrene, aluminum and old
newspaper. However, these prices declined during the second half of the year
and are expected to remain at their current lower levels.
In its restructuring actions, specialty packaging expects to complete in
1996 a realignment of molded fiber assets, enter into joint venture agreements
to reduce egg packaging and fruit tray costs and close an aluminum rolling
mill, whose production will be outsourced.
OUTLOOK
The plastics business is expected to be a major contributor to earnings. Its
revenues, combined with specialty packaging's existing business, will comprise
approximately one-half of Tenneco Packaging's revenues in 1996. The plastics
business is expected to generate less cyclical earnings than the paperboard
segment has historically. Tenneco Packaging has also been working to reduce
the cyclicality of its paperboard business. Four of the paperboard
acquisitions completed in 1995 were in enhanced graphics and displays, a
business less sensitive to changes in linerboard pricing. These acquisitions,
along with the corrugated requirements of the recently acquired plastics
business, have increased Tenneco Packaging's level of integration, reducing
exposure to linerboard pricing volatility. Tenneco Packaging expects some
softening in the paperboard market in the first and second quarters of 1996
followed by an improvement in the second half of the year.
NEWPORT NEWS SHIPBUILDING
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Revenues....................................................... $1,756 $1,753
Operating income............................................... $ 160 $ 200
</TABLE>
Shipbuilding revenues for 1995 increased slightly compared with 1994 due to
greater levels of activity on the conversion program, offset by lower carrier
and submarine program revenues. Construction activity on the Los Angeles-class
submarines declined in 1995 as two of the remaining four vessels were
delivered during the year. Carrier activity declined for the year as 1994
activity included the overhaul of the Enterprise; the overhaul of the
Eisenhower began in the third quarter of 1995 and construction activity on the
Ronald Reagan replaced construction of the John C. Stennis which was delivered
in the fourth quarter of 1995.
Operating income for the Shipbuilding segment was down for the year due to
lower margins for conversion work and costs of approximately $24 million
incurred related to staff downsizing and Newport News' reentry into the highly
competitive international commercial markets.
20
<PAGE>
OUTLOOK
Shipbuilding will continue to rely on the U.S. Navy for a significant amount
of its revenue; however, Shipbuilding is actively pursuing the large, global
commercial and military markets. Newport News has contracts to build four
"Double Eagle" product tankers. Additionally, Newport News was awarded a
contract to construct five additional "Double Eagle" tankers which will be
used in U.S. domestic trade. In February 1996, the owners secured financing
guarantees from the Maritime Administration. Shipbuilding is also pursuing
sales of its fast frigate to Middle East and Pacific Rim countries. U.S. Navy
work accounted for 95 percent of Shipbuilding revenues in 1995.
The shipyard's backlog was $4.6 billion at December 31, 1995 substantially
all of which is U.S. Navy-related. This compares with $5.6 billion at the end
of 1994. During 1995, Shipbuilding delivered one aircraft carrier (John C.
Stennis) and two submarines.
The yearend backlog included two Los Angeles-class submarines, two Nimitz-
class aircraft carriers (Harry S. Truman and Ronald Reagan), the two ship
Sealift conversion contract and contracts to construct four "Double Eagle"
product tankers. In addition, Newport News has ongoing engineering contracts
as the lead design yard for the Los Angeles-class and Seawolf-class
submarines. Subject to new orders, this backlog will decline as the remaining
submarines are delivered in 1996 and the aircraft carriers are delivered in
1998 and 2002.
OTHER
Tenneco's other operations reported an operating loss of $67 million during
1995. This included a $25 million charge to establish a reserve for
liquidation of surplus real estate holdings and notes. During 1994, other
operations reported $25 million in operating loss.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Tenneco's interest expense in 1995 was $306 million compared with $263
million in 1994. The higher interest expense in 1995 compared with 1994 is
principally due to lower amounts of interest allocated to discontinued
operations in 1995. Interest capitalized was $9 million in 1995 compared with
$4 million in 1994 due to higher levels of capital spending in 1995.
MINORITY INTEREST
Minority interest of $22 million in 1995 related to dividends on preferred
stock of a U.S. subsidiary which was issued in December 1994. The $7 million
of minority interest in 1994 resulted primarily from other minority
shareholders' interests.
INCOME TAXES
Income tax expense for 1995 was $279 million compared with $249 million in
1994 which resulted in a 1995 effective tax rate of 35.3 percent, compared
with 32.8 percent in 1994.
The increased tax expense in 1995 was primarily from higher pre-tax income
and higher foreign tax expense. In 1994, Tenneco recorded tax benefits from
the realization of deferred tax assets resulting from consolidation of
Tenneco's German operations.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
In March 1996, Tenneco sold its remaining ownership of Case Corporation,
which has been reflected as a discontinued operation for all periods
presented. Income from discontinued operations in 1995 of $246 million, net of
income tax benefit of $6 million, or $1.41 per average common share, reflected
Tenneco's ownership interest in the farm and construction equipment business.
Included in income from discontinued operations is a gain of $133 million, net
of tax expense of $2 million, from the August 1995 sale of 16.1 million shares
of Case common stock and a December 1995 gain on the sale of the subordinated
note due from Case. Since Tenneco had capital loss carryforwards from the 1994
Case reorganization and IPO available to offset the taxes on these 1995 sales,
no taxes were payable on these transactions.
21
<PAGE>
In 1994, Tenneco sold its brakes operations and announced its plan to
dispose of Albright & Wilson, its chemicals segment. These businesses were
accounted for as discontinued operations in 1994. Of the after-tax loss from
discontinued operations, $158 million was attributable to Albright & Wilson
and $31 million to the brakes operations partially offset by income of $138
million from the farm and construction equipment segment. The income of $138
million from the farm and construction equipment segment included a $36
million gain, net of income tax benefit of $7 million, from the IPO and
secondary offering in November 1994, and income from operations of $102
million, net of income tax expense of $59 million.
In June 1994, Tenneco realized an extraordinary loss of $5 million, net of a
$2 million tax benefit, for the redemption premium resulting from the
prepayment of debt.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, Tenneco adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits," using the cumulative catch-up method.
It 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 adopting this statement,
an after-tax charge of $39 million, or $.22 per average common share, was
recorded in 1994.
Tenneco will adopt FAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," in the first quarter of
1996. FAS No. 121 establishes new accounting standards for measuring the
impairment of long-lived assets. Adoption of the new standard will not have a
material effect on Tenneco's consolidated financial position or results of
operations.
In October 1995, the Financial Accounting Standards Board issued FAS No.
123, "Accounting for Stock-Based Compensation." This statement defines a fair
value based method of accounting for stock issued to employees and others but
also allows companies to choose to continue to measure compensation cost for
such plans as it is measured currently. Tenneco has elected to continue to use
the current method of accounting for stock issued to employees. Consequently,
FAS No. 123 will have no impact on Tenneco's consolidated financial position
or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
<TABLE>
<CAPTION>
CASH PROVIDED (USED) BY: 1995 1994
------------------------ ------ ----
(MILLIONS)
<S> <C> <C>
Operating activities...................................... $1,443 $450
Investing activities...................................... (1,146) (117)
Financing activities...................................... (356) (151)
</TABLE>
Tenneco's operating results, combined with proceeds from sales of assets and
businesses including the sale of discontinued operations, and supplemented by
short-term and long-term borrowings, have provided funds for acquisitions and
capital investments in existing businesses and to repurchase its common stock.
Operating cash flow for 1995 improved as Tenneco generated $859 million from
the collection and sale of customer receivables compared with $211 million in
1994. This increase was due primarily to trade receivables sold to Asset
Securitization Cooperative Corporation, which were $783 million higher in 1995
compared with 1994. The increase in collections of receivables was also due in
part to the collection of approximately $300 million of Case retail
receivables in 1995. Operating cash flow in 1995 also benefited from lower
interest and tax payments compared with 1994. Interest payments were $154
million lower and tax payments were $72 million lower compared with payments
in 1994. Sales of discontinued operations and other businesses and assets,
primarily the Albright & Wilson chemicals operations, 16.1 million shares of
Case common stock and the Case subordinated note, provided an additional
$1,595 million of cash during the year. Finally, Tenneco accessed its credit
facilities, the commercial paper market and the long-term debt markets during
1995 for $1,016 million. Included in the $1,016 million of debt funding
obtained during the year was $600 million in long-term debt issued in December
1995; $300 million issued at an interest rate of 7 1/4% due in 2025 and $300
million issued at an interest rate of 6 1/2% due in 2005.
22
<PAGE>
Cash used for business acquisitions during 1995 totaled $1,702 million. The
largest single transaction was the acquisition of the plastics business from
Mobil by Tenneco Packaging for $1.3 billion. However, the Energy and
Automotive segments also made acquisitions during the year. Further, Tenneco
invested $976 million in capital expenditures in its existing businesses
during the year. Capital expenditures during the year included $208 million
for Automotive, $334 million for Energy, $316 million for Packaging, $77
million for Shipbuilding and $41 million related to Tenneco's other
operations. Capital expenditures were higher at Automotive, Packaging and
Shipbuilding during 1995 while Energy capital expenditures were approximately
the same as the prior year.
Besides business expansion, Tenneco used its cash flow during the year for
the scheduled retirement of $513 million in long-term debt, to reacquire
Tenneco Inc. common stock for $655 million and to pay $286 million in
dividends on its common and preferred stock.
During 1994, Tenneco's cash sources included operating cash flow of $450
million and $843 million in proceeds from sales of businesses and assets
including discontinued operations (primarily the Case initial and secondary
public offerings for $694 million). During 1994, Tenneco acquired Gillet for
$44 million in cash and other businesses for $7 million. Capital expenditures
were $653 million for continuing operations. Tenneco had a net reduction of
$111 million in debt (primarily as a result of the Case offerings and
deconsolidation of Case) and paid dividends on its common and preferred stock
of $318 million.
LIQUIDITY
Tenneco and its consolidated subsidiaries had, at December 31, 1995,
committed credit agreements providing for $2,522 million of borrowing
capacity. Of these facilities, $2.0 billion are committed through 1999. As of
December 31, 1995, $393 million of borrowings were outstanding under these
facilities. The availability of borrowings under Tenneco's agreements and
facilities is subject to its ability at the time to meet certain specified
conditions, which Tenneco believes it currently meets. These conditions
include compliance with the financial covenants and ratios required by such
agreements, absence of default under such agreements, and continued accuracy
of the representations and warranties contained in such agreements (including
the absence of any material adverse changes since the specified dates).
Tenneco's current liabilities exceeded current assets at December 31, 1995.
The decrease in working capital resulted primarily from a tax audit settlement
payment made in January 1996 and the short-term debt borrowed to finance the
recently acquired plastics business. The financing for this acquisition is
discussed below under "Capitalization."
In connection with the implementation of FERC Order 636 and the resolution
of the GSR costs issues, Tenneco intends to put in place, as needed, financing
arrangements to fund needs arising from timing differences between recovery
from pipeline customers and payments for transition costs. The actual cash
required will depend upon negotiations between Tennessee, its customers and
suppliers.
Based upon Tenneco's estimates of anticipated funding needs and expected
results of its operations, together with anticipated market conditions and
including any payments associated with the settlement of the GSR issues
discussed below, Tenneco expects adequate sources of funds to be available to
finance its future requirements through internally generated funds, the sale
of assets, the use of credit facilities, and the issuance of long-term
securities.
CAPITALIZATION
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Short-term debt and current maturities..................... $ 908 $ 536
Long-term debt............................................. 3,751 3,568
Minority interest.......................................... 320 320
Preferred stock............................................ 130 147
Common shareowners' equity................................. 3,148 2,900
------ ------
Total capitalization....................................... $8,257 $7,471
====== ======
</TABLE>
23
<PAGE>
The primary reason for the net increase in debt outstanding is the debt
issued for the acquisition of the plastics business from Mobil. Tenneco
initially funded this acquisition primarily with short-term debt. In December
1995, Tenneco issued $600 million of long-term debt to refinance a portion of
the purchase price.
Tenneco's ratio of debt to total capitalization at December 31, 1995 was
56.4 percent compared with 54.9 percent at December 31, 1994. Including the
market value of the SECT shares, the ratio of total debt to total
capitalization at December 31, 1995 was 55.0 percent compared with 52.8
percent at December 31, 1994.
DIVIDENDS ON COMMON STOCK
Tenneco Inc. declared dividends on its common shares of $.40 per share for
each quarter in 1995. In December 1995, the Board of Directors declared a
dividend of $.45 per share for the first quarter of 1996, an increase of 12.5
percent over the previous indicated quarterly rate. Declaration of dividends
is at the discretion of the Board of Directors. The Board has not adopted a
dividend policy as such. Subject to legal and contractual restrictions, its
decisions regarding dividends are based on all considerations that in its
business judgment are relevant at the time, including past and projected
earnings, cash flows, economic, business and securities market conditions and
anticipated developments concerning Tenneco's business and operations.
Tenneco Inc. is a party to credit agreements containing provisions that
limit the amount of dividends paid on its common stock. At December 31, 1995,
under the most restrictive provisions contained in these credit agreements,
Tenneco Inc. had in excess of $300 million available for the payment of
dividends. Tenneco does not believe that this limitation will prevent the
payment of dividends on Tenneco Inc. common stock at the present annual
dividend rate.
As a holding company, Tenneco Inc.'s ability to pay dividends is
substantially dependent upon cash flow from its subsidiaries by way of
dividends, distributions, loans and other advances. Under the most restrictive
of their covenants, however, Tenneco Inc.'s subsidiaries would have been able
to pay approximately $3.7 billion of their retained earnings as dividends to
Tenneco Inc. at December 31, 1995.
FERC MATTERS
Tennessee has deferred certain costs it has incurred associated with
renegotiating gas supply contracts ("GSR" costs) as a result of FERC Order
636. As of December 31, 1995, Tennessee has deferred GSR costs yet to be
recovered from its customers of approximately $462 million, net of $316
million previously recovered from its customers, subject to refund. A
proceeding before a FERC administrative law judge is scheduled to commence in
early 1996 to determine whether Tennessee's GSR costs are eligible for cost
recovery. The FERC has generally encouraged pipelines to settle such issues
through negotiations with customers. Although Order 636 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 and
customer statements acknowledging the desirability of such settlements.
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 seeks $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. Neither ICA nor TransTexas were
original parties to that contract. However, they contend that any stranger
acquiring a fractional interest in the original committed reserves thereby
obtains a right to add to the contract unlimited volumes of gas production
from locations in South Texas. Tennessee filed a motion for summary judgment,
asserting that the Texas statutes of frauds precluded the plaintiffs from
adding new production or acreage to the contract. On May 4, 1995, the trial
court granted Tennessee's motion for summary judgment; the plaintiffs have
24
<PAGE>
filed a notice of appeal. Thereafter, ICA and TransTexas filed a motion for
summary judgment on a separate issue involving the term "committed reserves"
and whether Tennessee has a contractual obligation to purchase gas produced
from a lease not described in the gas contract. On November 8, 1995, the trial
court granted ICA's and TransTexas' motion in part. That order, which would be
finalized upon conclusion of the trial, also held that ICA's and TransTexas'
rights are subject to certain limitations of the Texas Business and Commerce
Code. In addition to these defenses, which are to be resolved at trial,
Tennessee has other defenses which it has asserted and intends to pursue.
Tennessee has filed a Motion to Clarify the November 8, 1995 order together
with a new motion for partial summary judgment concerning the committed
reserve issue. The November 8, 1995 ruling does not affect the trial court's
previous May 4, 1995 order granting summary judgment to Tennessee.
Tennessee has been engaged in separate settlement and contract reformation
discussions with holders of certain gas purchase contracts who have sued
Tennessee. Although Tennessee believes that its defenses in the underlying gas
purchase contract actions are meritorious, Tennessee accrued amounts in the
first quarter of 1995 which it believes are adequate to cover the resolution
of these matters. 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. Motions for
rehearing have been filed by the producers. As of the date hereof, the court
had not ruled on those motions and mandate had not been issued.
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, Tenneco is unable to
predict the timing or the ultimate impact that the resolution of these issues
will have on its consolidated financial position or results of operations.
ENVIRONMENTAL MATTERS
Tenneco and certain of its subsidiaries and affiliates are parties to
environmental proceedings. 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 that 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' cleanup experience and data released by the United States
Environmental Protection Agency ("EPA") 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
balance sheet at their undiscounted amounts. Recoveries are evaluated
separately from the liability and, when recovery is assured, are recorded and
reported separately from the associated liability in the financial statements.
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. Tennessee has executed a
consent order with the EPA governing the remediation of certain of its
compressor stations and is working with the Pennsylvania and New York
environmental agencies to specify the remediation requirements at the
Pennsylvania and 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.
A subsidiary of Tennessee owns a 13.2% general partnership interest in
Iroquois Gas Transmission System, L.P. ("Iroquois"), which owns an interstate
natural gas pipeline from the Canadian border through the states of New York
and Connecticut to Long Island. The operator of the pipeline is Iroquois
Pipeline Operating Company (the "Operator"), a subsidiary of TransCanada
Pipelines, Ltd., an affiliate of TransCanada Iroquois, Ltd. which is also a
partner in Iroquois. Tennessee has a contract to provide gas dispatching as
well as post-construction field operation and maintenance services for the
Operator of Iroquois, but Tennessee is not the Operator and is not an
affiliate of the Operator.
25
<PAGE>
Iroquois has been informed of investigations and allegations regarding
alleged environmental violations which occurred during the construction of the
pipeline. Communications have been received from U.S.
Attorneys' Offices, the Enforcement Staff of the FERC's Office of the General
Counsel, the Army Corps of Engineers, the Public Service Commission of the
State of New York, the EPA and the Federal Bureau of Investigation.
Proceedings have not been commenced against Iroquois in connection with these
inquiries. However, communications have indicated possible allegation of civil
and criminal violations. Iroquois has held discussions with certain of the
agencies to explore the possibility of a negotiated resolution of the issues.
In the absence of a negotiated resolution, Iroquois believes that indictments
will be sought and, in them, substantial fines and other sanctions may be
requested.
As a general partner, Tennessee's subsidiary may be jointly and severally
liable with the other partners for the liabilities of Iroquois. The foregoing
proceedings and investigations have not affected pipeline operations. Based
upon information available to Tennessee, Tennessee believes that neither it
nor any of its subsidiaries is a target of the criminal investigation
described above. Further, while a global resolution of these inquiries could
have a material adverse effect on the financial condition of Iroquois, Tenneco
believes that the ultimate resolution of these matters will not have a
material adverse effect on the financial condition or results of operations of
Tenneco Inc. and its consolidated subsidiaries.
At December 31, 1995, Tenneco has been designated as a potentially
responsible party in 55 "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
remediation costs to be between $11 million and $69 million or 0.5% 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 cleanup 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 believes that the
costs associated with its current status as a potentially responsible party in
the Superfund sites described above will not be material to its consolidated
financial position or results of operations.
YEARS 1994 AND 1993
RESULTS OF OPERATIONS
REVENUES
Revenues for 1994 were $8.30 billion, down from $8.55 billion in 1993.
Automotive revenues were $1,989 million, a $204 million, or 11 percent
increase, compared with 1993 primarily due to improved sales in both the
aftermarket and original equipment market. Tenneco Energy revenues were down
$484 million or 17 percent as customers shifted from sales to transportation
service in the regulated business and gas prices fell in the nonregulated gas
marketing business. Packaging revenues increased $142 million, or seven
percent, to $2.18 billion in 1994, as prices in the paperboard business
recovered from the seven-year low reached in the third quarter of 1993.
Revenues for Shipbuilding decreased to $1.75 billion, or six percent, due to a
drop in carrier and submarine construction work and the fourth quarter 1993
divestiture of Sperry Marine.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING
INCOME)
Operating income was $1,022 million for 1994. This was an improvement of $7
million over 1993's operating income of $1,015 million. Excluding gains from
asset sales and other special items including plant
consolidations, 1994 operating income increased $118 million, or 13 percent,
compared with 1993 primarily due to improved pricing in Packaging's
containerboard business.
26
<PAGE>
Tenneco Automotive operating income for 1994 was $223 million, compared with
$222 million in 1993. The 1994 operating income included a $17 million charge
for plant consolidations in Europe associated with acquiring Gillet and a $5
million charge taken in the second quarter for closing a plant in Ohio.
Excluding special items, operating income increased $23 million, or 10
percent, compared with 1993. This increase is a result of higher volumes in
North America and Europe and was partially offset by higher costs for new
product development and new facility start-up.
In November 1994, Tenneco acquired Gillet for $44 million in cash and $69
million in assumed debt. Gillet is the leading manufacturer of original
equipment exhaust systems and components for European auto makers.
Tenneco Energy's operating income for 1994 was $415 million, compared with
$411 million in 1993. Special items, including gains on asset sales along with
regulatory and litigation settlements, amounted to $34 million in 1994 and $28
million in 1993. Special items in 1994 included a $23 million gain on the sale
of a 20 percent interest in Tenneco Resources to Ruhrgas AG. When non-
recurring items in both years are excluded, operating income in 1994 declined
slightly, compared with 1993. Significant growth in the nonregulated
businesses, including an increase in Tenneco Ventures' operating income, was
offset by declines in the regulated business caused by implementing Order 636.
Tenneco Packaging's operating income for 1994 was $209 million, compared
with $139 million in 1993. The 1993 operating income included $29 million from
gains related to asset realignment. Excluding these gains, operating income
increased $99 million, or 90 percent, compared with 1993 primarily because of
improved paperboard pricing.
The paperboard business earned $139 million, up $104 million compared with
1993, excluding the 1993 asset realignment gains. Prices rose from depressed
levels in 1993 and contributed $125 million, excluding the recycling business,
of increased operating income. This was partially offset by higher raw
material costs of $32 million, but improved productivity helped counter rising
raw material costs. Paperboard productivity rose 1.6 percent, with mill
operating rates exceeding rated capacity for the full year. The specialty
business operating income for 1994 declined $5 million to $70 million,
excluding the asset realignment gains in 1993. Both the aluminum and plastic
packaging businesses reported improved operating income. Plastic packaging
volumes grew seven percent in 1994 and demand continues to be strong.
Operating income for plastics rose 40 percent in 1994, reflecting increased
volumes and higher pricing. The increase in operating income provided by the
aluminum and plastic businesses was more than offset by weak performance in
the molded fiber business, where higher raw material costs had a negative
effect on operating income. Prices for recycled newspaper, a major raw
material for molded fiber, rose to over $100 per ton, compared with $26 per
ton in 1993.
Newport News Shipbuilding's operating income for 1994 was $200 million
compared with $225 million in 1993. Special items in 1993 included a $15
million gain on the sale of Sperry Marine and a $12 million benefit from
recovering a portion of the postretirement benefit costs reserve that was
established when FAS No. 106 was adopted in 1992. If these special items were
excluded, operating income increased $2 million in 1994 on revenues that were
six percent lower due to aggressive efforts to improve productivity and
control costs.
Tenneco's other operations reported an operating loss of $25 million in
1994, compared with operating income of $18 million for 1993. The 1993
operating income included a gain of $39 million from contributing Tenneco's
investment in Cummins Engine Company to the Case Corporation Pension Plan for
Hourly Paid Employees.
INTEREST EXPENSE
Net interest incurred increased $9 million from $254 million in 1993 to $263
million in 1994, principally due to lower allocated interest to discontinued
operations in 1994 partially offset by lower debt levels in 1994 and continued
emphasis on managing cash flow and working capital. Interest capitalized
increased to $4 million in 1994 from $3 million in 1993 due to higher levels
of major capital projects.
27
<PAGE>
INCOME TAXES
Income tax expense for 1994 was $249 million compared with $298 million
reported for 1993. The lower tax expense in 1994 was the result of tax
benefits from the realization of deferred tax assets resulting from
consolidation of Tenneco's German operations.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, Tenneco adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." As a result, an after-tax charge of
$39 million, or $.22 per average common share, was recorded in 1994.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
Loss from discontinued operations in 1994 of $51 million, net of income tax
expense of $156 million, or $.27 per average common share, resulted from
Tenneco's farm and construction equipment, chemicals and brakes businesses.
Loss from discontinued operations in 1993 of $12 million, net of income tax
benefit of $40 million, or $.07 per average common share, was attributable to
Tenneco's farm and construction equipment operations, brakes business and
chemical operations. Net loss for 1993 for the brakes business was $7 million,
net of income tax benefit of $4 million. Net income for the chemicals business
was $45 million, net of income tax expense of $5 million. Net loss for the
farm and construction equipment business was $50 million, net of income tax
benefit of $41 million.
Extraordinary loss for 1994 was $5 million, net of income tax benefit of $2
million, or $.03 per average common share. The 1993 amount was $25 million,
net of income tax benefit of $13 million, or $.15 per average common share.
Both were the result of redemption premiums from prepaying high interest-
bearing long-term debt.
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
Income from continuing operations for 1994 was $503 million, or $2.72 per
average common share after preferred dividends. This compares with income from
continuing operations of $463 million, or $2.66 per average common share after
preferred dividends, in 1993. The average number of shares of common stock
outstanding used for calculating earnings per average common share for 1994
was 180.1 million, compared with 168.8 million in 1993. Most of the increase
resulted from issuing 23.5 million shares in an underwritten public offering
in April 1993 and issuing treasury shares and SECT shares to employee benefit
plans.
LIQUIDITY & CAPITAL RESOURCES
Net cash provided by operating activities was $450 million for the year
1994, compared with $1,615 million for 1993, a decrease of $1,165 million.
This decrease was due in part to lower sales of Case retail receivables in the
form of asset backed securities reported in discontinued operations. Proceeds
from the sale of Case retail receivables in the form of asset backed
securities were $850 million in 1994 compared with $1.0 billion in 1993.
Higher dealer demand for farm and construction equipment in 1994 resulting in
higher receivables compared with 1993 also lowered cash provided by
discontinued operations. Trade receivables sold to Asset Securitization
Cooperative Corporation were $313 million less in 1994 compared with 1993.
Finally, rate refund payments of approximately $250 million were made to
pipeline customers in 1994. The working capital increase of $609 million for
1994 resulted primarily from the reduction of the pipeline rate refund
liability of approximately $250 million and lower tax accruals of $256
million. The lower tax accruals resulted from the utilization of capital
losses related to the sale of assets.
Net cash used by investing activities in 1994 was $117 million, compared
with $338 million in 1993. Net proceeds from the sale of businesses and assets
including the sale of discontinued operations were $843 million in 1994,
primarily due to the initial and secondary public offerings of Case for $694
million. Net proceeds from
28
<PAGE>
the sale of businesses and assets, including the sale of discontinued
operations in 1993 of $212 million resulted from the sales of Dean Pipeline
Company, Viking Gas Transmission Company, Sperry Marine, and various
international aluminum ventures.
Expenditures for plant, property and equipment from continuing operations
for 1994 were $653 million, compared with $424 million for 1993. Increased
expenditures for Energy ($161 million), Automotive ($20 million), Packaging
($42 million) and Tenneco's other operations ($13 million) were partially
offset by a decline for Shipbuilding ($7 million).
Cash used for financing activities for 1994 was $151 million compared with
$1,166 million in 1993. In June 1994, as part of the Case reorganization and
IPO, Case borrowed $983 million of term loans and $478 million of short-term
debt to acquire the net assets of Tenneco's farm and construction equipment
segment. Tenneco utilized these funds to repay long-term debt. As a result of
the November 1994 secondary public offering which reduced Tenneco's ownership
in Case to approximately 44 percent, Case's debt was no longer consolidated
with Tenneco's debt on the balance sheet at December 31, 1994, due to
reporting Case on the equity method of accounting.
In December 1994, Tenneco sold a 25 percent preferred stock interest in a
subsidiary which resulted in net cash proceeds of $296 million. This was
included in minority interest in the balance sheet at December 31, 1994.
Concurrently, $160 million was used to retire equity securities of another
subsidiary which had been included in the balance sheet as minority interest.
Capitalization totaled $7.47 billion at December 31, 1994, an increase of
$506 million from December 31, 1993. The ratio of total debt to capitalization
decreased from 58.2 percent at December 31, 1993, to 54.9 percent at December
31, 1994. The ratio of total debt to capitalization was 52.8 percent at
December 31, 1994, including the market value of the SECT shares, compared
with 54.3 percent at December 31, 1993. Total debt increased $53 million from
December 31, 1993 to December 31, 1994, while shareowners' equity increased
$299 million. Minority interest increased $170 million and preferred stock
decreased $16 million.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS OF TENNECO INC.
AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent public accountants.................................. 31
Statements of income for each of the three years in the period ended
December 31, 1995........................................................ 32
Balance sheets--December 31, 1995 and 1994................................ 33
Statements of cash flows for each of the three years in the period ended
December 31, 1995........................................................ 34
Statements of changes in shareowners' equity for each of the three years
in the period ended December 31, 1995.................................... 35
Notes to financial statements............................................. 36
</TABLE>
30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Inc.:
We have audited the accompanying balance sheets of Tenneco Inc. (a Delaware
corporation) and consolidated subsidiaries as of December 31, 1995 and 1994,
and the related statements of income, cash flows and changes in shareowners'
equity for each of the three years in the period ended December 31, 1995.
These financial statements and the schedules referred to below are the
responsibility of Tenneco's management. Our responsibility is to express an
opinion on these financial statements and schedules 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tenneco Inc. and
consolidated subsidiaries as of December 31, 1995 and 1994, and the results of
their operations, cash flows and changes in shareowners' equity for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective January 1,
1994, Tenneco changed its method of accounting for postemployment benefits.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in
the index to Part IV, Item 14 relating to Tenneco Inc. and consolidated
subsidiaries are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial
statements. The supplemental schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements of Tenneco
Inc. and consolidated subsidiaries taken as a whole.
Arthur Andersen LLP
Houston, Texas
February 8, 1996
(except with respect to
the matter discussed in
Note 3, as to which the
date is March 7, 1996)
31
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
(MILLIONS EXCEPT SHARE AMOUNTS) 1995 1994 1993
- ------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Net sales and operating revenues--
Automotive............................ $ 2,479 $ 1,989 $ 1,785
Energy................................ 1,916 2,378 2,862
Packaging............................. 2,752 2,184 2,042
Shipbuilding.......................... 1,756 1,753 1,861
Other................................. (4) (6) (5)
----------- ----------- -----------
8,899 8,298 8,545
Other income--
Interest income....................... 99 85 29
Equity in net income of affiliated
companies............................ 66 51 50
Gain on sale of businesses and assets,
net.................................. 27 7 106
Gain on the sale by a subsidiary of
its stock............................ -- 23 --
Other income, net..................... 33 (10) 34
----------- ----------- -----------
9,124 8,454 8,764
----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation
shown below)........................... 5,262 4,526 4,419
Operating expenses...................... 1,426 1,882 2,264
Selling, general and administrative..... 808 635 637
Finance charges--Tenneco Finance........ 83 83 59
Depreciation, depletion and
amortization........................... 449 306 370
----------- ----------- -----------
8,028 7,432 7,749
----------- ----------- -----------
Income before interest expense, income
taxes and minority interest............ 1,096 1,022 1,015
Interest expense (net of interest
capitalized)........................... 306 263 254
----------- ----------- -----------
Income before income taxes and minority
interest............................... 790 759 761
Income tax expense...................... 279 249 298
----------- ----------- -----------
Income before minority interest......... 511 510 463
Minority interest....................... 22 7 --
----------- ----------- -----------
Income from continuing operations....... 489 503 463
Income (loss) from discontinued
operations, net of income tax.......... 246 (51) (12)
----------- ----------- -----------
Income before extraordinary loss........ 735 452 451
Extraordinary loss, net of income tax... -- (5) (25)
----------- ----------- -----------
Income before cumulative effect of
change in accounting principle......... 735 447 426
Cumulative effect of change in
accounting principle, net of income
tax.................................... -- (39) --
----------- ----------- -----------
Net income.............................. 735 408 426
Preferred stock dividends............... 12 12 14
----------- ----------- -----------
Net income to common stock.............. $ 723 $ 396 $ 412
=========== =========== ===========
PER SHARE
Average number of shares of common stock
outstanding............................ 173,995,941 180,084,909 168,772,852
Earnings (loss) per average share of
common stock:
Continuing operations................. $ 2.75 $ 2.72 $ 2.66
Discontinued operations............... 1.41 (.27) (.07)
Extraordinary loss.................... -- (.03) (.15)
Cumulative effect of change in
accounting principle................. -- (.22) --
----------- ----------- -----------
$ 4.16 $ 2.20 $ 2.44
=========== =========== ===========
Cash dividends per share of common
stock.................................. $ 1.60 $ 1.60 $ 1.60
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of income.
32
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
(MILLIONS) ------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments........................ $ 354 $ 405
Receivables--
Customer notes and accounts (net)........................ 921 1,331
Affiliated companies..................................... 112 59
Gas transportation and exchange.......................... 64 214
Income taxes............................................. 172 234
Other.................................................... 514 192
Inventories................................................ 1,181 761
Deferred income taxes...................................... -- 21
Prepayments and other...................................... 264 254
------- -------
3,582 3,471
------- -------
Investments and other assets:
Investment in affiliated companies......................... 297 364
Long-term Notes and other receivables (net)................ 435 804
Investment in subsidiaries in excess of fair value of net
assets at date of acquisition, less amortization.......... 642 321
Deferred income taxes...................................... 52 49
Other...................................................... 1,801 963
------- -------
3,227 2,501
------- -------
Plant, property and equipment, at cost....................... 11,962 10,328
Less--Reserves for depreciation, depletion and
amortization.............................................. 5,643 5,476
------- -------
6,319 4,852
------- -------
Net assets of discontinued operations........................ 323 1,427
------- -------
$13,451 $12,251
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on long-term
debt)..................................................... $ 908 $ 536
Payables--
Trade.................................................... 1,102 907
Affiliated companies..................................... 2 29
Gas transportation and exchange.......................... 28 159
Taxes accrued.............................................. 572 80
Deferred income taxes...................................... 13 --
Interest accrued........................................... 103 126
Natural gas pipeline revenue reservation................... 27 190
Other...................................................... 1,081 780
------- -------
3,836 2,807
------- -------
Long-term debt............................................... 3,751 3,568
------- -------
Deferred income taxes........................................ 962 1,420
------- -------
Postretirement benefits...................................... 616 602
------- -------
Deferred credits and other liabilities....................... 688 487
------- -------
Commitments and contingencies
Minority interest............................................ 320 320
------- -------
Preferred Stock with mandatory redemption provisions......... 130 147
------- -------
Shareowners' equity:
Common stock............................................... 957 957
Stock Employee Compensation Trust (common stock held in
trust).................................................... (215) (298)
Premium on common stock and other capital surplus.......... 3,602 3,553
Cumulative translation adjustments......................... 26 (237)
Retained earnings (accumulated deficit).................... (469) (905)
------- -------
3,901 3,070
Less--Shares held as treasury stock, at cost............... 753 170
------- -------
3,148 2,900
------- -------
$13,451 $12,251
======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
33
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
(MILLIONS) 1995 1994 1993
- ---------- ------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations..................... $ 489 $ 503 $ 463
Adjustments to reconcile income from continuing opera-
tions to cash provided (used) by continuing
operations--
Depreciation, depletion and amortization............. 449 306 370
Equity in net (income) loss of affiliated companies,
net of dividends.................................... (12) (3) (5)
Deferred income taxes................................ 161 23 84
(Gain) loss on sale of businesses and assets, net.... (27) (30) (106)
Changes in components of working capital--
(Increase) decrease in receivables................... 527 (17) 10
(Increase) decrease in inventories................... (239) (128) 45
(Increase) decrease in prepayments and other current
assets.............................................. (33) 35 12
Increase (decrease) in payables...................... 3 (66) (153)
Increase (decrease) in taxes accrued................. 38 (256) (46)
Increase (decrease) in interest accrued.............. (49) (31) (37)
Increase (decrease) in natural gas pipeline revenue
reservation......................................... (156) (91) 136
Increase (decrease) in other current liabilities..... (98) (55) 3
(Increase) decrease in long-term notes and receiv-
ables............................................... 332 228 --
Take-or-pay (refunds to customers) recoupments, net.. 36 26 (34)
Other................................................ 22 (124) (211)
------ ------ ------
Cash provided (used) by continuing operations........ 1,443 320 531
Cash provided (used) by discontinued operations...... -- 130 1,084
------ ------ ------
Net cash provided (used) by operating activities...... 1,443 450 1,615
------ ------ ------
INVESTING ACTIVITIES
Net proceeds (expenditures) related to the sale of
discontinued operations.............................. 1,522 704 (54)
Net proceeds from sale of businesses and assets....... 73 139 266
Expenditures for plant, property and equipment--
Continuing operations................................ (976) (653) (424)
Discontinued operations.............................. (4) (151) (163)
Acquisitions of businesses............................ (1,702) (51) (14)
Investments and other................................. (59) (105) 51
------ ------ ------
Net cash provided (used) by investing activities...... (1,146) (117) (338)
------ ------ ------
FINANCING ACTIVITIES
Issuance of common, treasury and SECT shares.......... 102 188 1,215
Purchase of common stock.............................. (655) (26) (7)
Issuance of equity securities by a subsidiary......... -- 296 --
Redemption of equity securities by a subsidiary....... -- (160) --
Redemption of preferred stock......................... (20) (20) (30)
Issuance of long-term debt............................ 595 980 3
Retirement of long-term debt.......................... (513) (1,466) (2,019)
Net increase (decrease) in short-term debt excluding
current maturities on long-term debt................. 421 375 (21)
Dividends (common and preferred)...................... (286) (318) (307)
------ ------ ------
Net cash provided (used) by financing activities...... (356) (151) (1,166)
------ ------ ------
Effect of foreign exchange rate changes on cash and
temporary cash investments........................... 8 5 (4)
------ ------ ------
Increase (decrease) in cash and temporary cash invest-
ments................................................ (51) 187 107
Cash and temporary cash investments, January 1........ 405 218 111
------ ------ ------
Cash and temporary cash investments, December 31
(Note)............................................... $ 354 $ 405 $ 218
====== ====== ======
Cash paid during the year for interest................ $ 459 $ 613 $ 759
Cash paid during the year for income taxes (net of re-
funds)............................................... $ 168 $ 240 $ 349
</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.
34
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------ ----------- ------
(MILLIONS EXCEPT SHARE
AMOUNTS)
- ----------------------
<S> <C> <C> <C> <C> <C> <C>
SERIES A PREFERRED STOCK
Balance January 1....... -- $ -- 8,935,175 $ 9 8,935,175 $ 9
Shares converted....... -- -- (8,935,175) (9) -- --
----------- ------ ----------- ------ ----------- ------
Balance December 31..... -- -- -- -- 8,935,175 9
=========== ------ =========== ------ =========== ------
COMMON STOCK
Balance January 1....... 191,335,193 957 173,953,012 870 150,300,224 752
Issued to convert Se-
ries A preferred
stock................. -- -- 17,342,763 87 -- --
Issued to retire debt.. -- -- -- -- 23,500,000 117
Issued pursuant to
benefit plans......... 3,761 -- 37,996 -- 151,678 1
Other.................. 12,661 -- 1,422 -- 1,110 --
----------- ------ ----------- ------ ----------- ------
Balance December 31..... 191,351,615 957 191,335,193 957 173,953,012 870
=========== ------ =========== ------ =========== ------
STOCK EMPLOYEE COMPENSA-
TION TRUST (SECT)
Balance January 1....... (298) (499) (488)
Shares issued.......... 118 115 113
Adjustment to market
value................. (35) 86 (124)
------ ------ ------
Balance December 31..... (215) (298) (499)
------ ------ ------
PREMIUM ON COMMON STOCK
AND OTHER CAPITAL SUR-
PLUS
Balance January 1....... 3,553 3,714 2,637
Premium on common
stock issued to re-
tire debt............. -- -- 935
Premium on common
stock issued pursuant
to benefit plans...... -- 2 6
Conversion of Series A
preferred stock....... -- (78) --
Loss on issuance of
treasury stock........ (2) (9) (3)
Dividends on shares
held by SECT.......... 9 13 17
Adjustment of SECT to
market value.......... 35 (86) 124
Other.................. 7 (3) (2)
------ ------ ------
Balance December 31..... 3,602 3,553 3,714
------ ------ ------
CUMULATIVE TRANSLATION
ADJUSTMENTS
Balance January 1....... (237) (303) (230)
Translation of foreign
currency statements... 25 68 (78)
Sale of investment in
foreign subsidiaries.. 235 -- --
Hedges of net invest-
ment in foreign sub-
sidiaries (net of
income taxes)......... 3 (2) 5
------ ------ ------
Balance December 31..... 26 (237) (303)
------ ------ ------
RETAINED EARNINGS (ACCU-
MULATED DEFICIT)
Balance January 1....... (905) (980) (1,082)
Net income............. 735 408 426
Dividends--
Preferred stock...... (9) (8) (11)
Series A preferred
stock............... -- (48) (50)
Common stock......... (287) (273) (260)
Accretion of excess of
redemption value of
preferred stock over
fair value at date of
issue................. (3) (4) (3)
------ ------ ------
Balance December 31..... (469) (905) (980)
------ ------ ------
LESS--COMMON STOCK HELD
AS TREASURY STOCK, AT
COST
Balance January 1....... 3,617,510 170 4,166,835 210 5,323,912 268
Shares acquired........ 14,066,214 641 1,731,263 75 234,434 12
Shares issued to ac-
quire businesses...... (1,229,614) (56) -- -- -- --
Shares issued pursuant
to benefit and divi-
dend reinvestment
plans................. (31,491) (2) (2,280,588) (115) (1,391,511) (70)
----------- ------ ----------- ------ ----------- ------
Balance December 31..... 16,422,619 753 3,617,510 170 4,166,835 210
=========== ------ =========== ------ =========== ------
Total................ $3,148 $2,900 $2,601
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of changes in shareowners' equity.
35
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Consolidation and Presentation
The financial statements of Tenneco Inc. and consolidated subsidiaries
("Tenneco") include all majority-owned subsidiaries including wholly-owned
finance subsidiaries. Investments in 20% to 50% owned companies where Tenneco
has the ability to exert significant influence over operating and financial
policies are carried at cost plus equity in undistributed earnings since date
of acquisition and cumulative translation adjustments.
Gains or losses on the sale by a subsidiary of its stock are included in the
Statements of Income.
All significant intercompany transactions have been eliminated.
Depreciation, Depletion and Amortization
Depreciation of Tenneco's properties is provided on a straight-line basis in
amounts which, in the opinion of management, are adequate to allocate the cost
of properties over their estimated useful lives.
The excess of investment in subsidiaries over fair value of net assets at
date of acquisition is being amortized over periods ranging from 15 years to
40 years. Such amortization relative to continuing operations amounted to $12
million, $10 million and $10 million for 1995, 1994 and 1993, respectively,
and is included in the income statement caption, "Other income, net."
Tenneco has capitalized certain other intangible assets, primarily
trademarks and patents, based on their estimated fair value at date of
acquisition. Amortization is provided on these intangible assets on a
straight-line basis over periods ranging from five to 40 years. The majority
of other intangible assets at December 31, 1995, resulted from the acquisition
of the plastics division of Mobil Corporation during 1995. See Note 2,
"Acquisitions," for further information on the acquisition.
Revenue Recognition
Newport News Shipbuilding and Dry Dock Company ("Newport News"), a wholly-
owned subsidiary, reports profits on its long-term shipbuilding contracts on
the percentage-of-completion method of accounting, determined on the basis of
total costs incurred to date to estimated final total costs. Losses on
contracts are reported when first estimated. The performance of contracts
usually extends over several years, requiring periodic reviews and revisions
of estimated final contract prices and costs during the term of the contracts.
The effect of these revisions to estimates is included in income in the period
the revisions are made.
Tenneco's other divisions recognize revenue on the accrual method when title
passes to the customer or when the service is performed.
Risk Management Activities
Tenneco has utilized financial instruments for many years to mitigate its
exposure to various risks. Tenneco is currently a party to financial
instruments to hedge its exposure to changes in interest rates, foreign
currency exchange rates and natural gas prices. These financial instruments
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 as an adjustment
to interest expense. After-tax net gains or losses on foreign currency
contracts designated as hedges of Tenneco's net investments in foreign
subsidiaries are recognized in the balance sheet caption, "Cumulative
translation adjustments." Net gains and
36
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
losses of foreign currency contracts designated as hedges of firm commitments
or other specific transactions are deferred and recognized when the offsetting
gains or losses are recognized on the hedged items. Net gains and losses on
energy commodity contracts are deferred and recognized when the hedged
transaction is consummated.
In the statements of cash flows, cash receipts or payments related to the
financial instruments discussed above are classified consistent with the cash
flows from the transactions being hedged.
Income Taxes
Tenneco 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 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 does not provide for U.S. income taxes on unremitted earnings of
foreign subsidiaries as it is the present intention of management to reinvest
the unremitted earnings in its foreign operations. Unremitted earnings of
foreign subsidiaries is approximately $515 million at December 31, 1995. It is
not practicable to determine the amount of U.S. income taxes that would be
payable upon remittance of the assets that represent those earnings.
Changes in Accounting Principles
Tenneco will adopt Statement of Financial Accounting Standards ("FAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," in the first quarter of 1996. FAS No. 121
establishes new accounting standards for measuring the impairment of long-
lived assets. The adoption of this new standard will not have a significant
effect on Tenneco's consolidated financial position or results of operations.
Effective January 1, 1994, Tenneco 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. 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.
Inventories
At December 31, 1995 and 1994, inventory by major classification was as
follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Finished goods.............................................. $ 396 $ 267
Work in process............................................. 102 81
Long-term contracts in progress, less progress billings..... 264 138
Raw materials............................................... 253 136
Materials and supplies...................................... 166 139
------ ------
$1,181 $ 761
====== ======
</TABLE>
37
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Inventories are stated at the lower of cost or market. A portion of
inventories are valued using the "last-in, first-out" method (38% and 32% at
December 31, 1995 and 1994, respectively). All other inventories are valued on
the "first-in, first-out" ("FIFO") or "average" methods. If the FIFO or
average method of inventory accounting had been used by Tenneco for all
inventories, inventories would have been $56 million, $54 million and $47
million higher at December 31, 1995, 1994 and 1993, respectively.
Plant, Property and Equipment, at Cost
At December 31, 1995 and 1994, plant, property and equipment, at cost, by
major segment was as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(MILLIONS)
<S> <C> <C>
Automotive................................................ $ 1,403 $ 1,331
Energy.................................................... 6,262 5,654
Packaging................................................. 2,623 1,661
Shipbuilding.............................................. 1,552 1,494
Other..................................................... 122 188
------- -------
$11,962 $10,328
======= =======
</TABLE>
Notes Receivable and Allowance for Doubtful Accounts and Notes
Short-term notes receivable of $373 million and $337 million were
outstanding at December 31, 1995 and 1994, respectively. These notes
receivable are presented net of unearned finance charges of $26 million and
$43 million at December 31, 1995 and 1994, respectively. At December 31, 1995
and 1994, unearned finance charges related to long-term notes and other
receivables were $23 million and $66 million, respectively.
At December 31, 1995 and 1994, the allowance for doubtful accounts and notes
receivable was $73 million and $44 million, 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 balance sheet at their undiscounted amounts. Recoveries are
evaluated separately from the liability and, when recovery is assured, are
recorded and reported separately from the associated liability in the
financial statements.
For further information on this subject, reference is made to Note 15,
"Commitments and Contingencies--Environmental Matters."
Earnings Per Share
Earnings per share of common stock are based on the average number of shares
of common stock outstanding during each period. For purposes of computing
earnings per share, Series A preferred stock was
38
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
included in average common shares outstanding until its conversion into common
stock in December 1994; therefore, the preferred dividends paid were not
deducted from net income to determine net income to common stock. The
inclusion of Series A preferred stock in the computation of earnings per share
was antidilutive for the years and certain quarters in 1994 and 1993. Other
convertible securities and common stock equivalents outstanding during each of
the three years ended December 31, 1995, 1994 and 1993, were not materially
dilutive.
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 outstanding until the shares are utilized to fund the obligations
for which the trust was established. During the years ended December 31, 1995,
1994 and 1993, the SECT issued 2,697,770, 2,464,721 and 2,479,425 shares,
respectively.
Under Tenneco's stock repurchase programs, a total of 14.3 million shares of
Tenneco Inc. common stock have been acquired since December 1994, and are
included in "Shares held as treasury stock, at cost" on the balance sheet. For
further information on this subject, reference is made to Note 9, "Common
Stock."
Foreign Currency Translation
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and the weighted average exchange rate for each applicable period
for revenues, expenses and gains and losses. Translation adjustments are
reflected in the balance sheet caption "Cumulative translation adjustments."
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 Tenneco's assets,
liabilities, revenues and expenses. Reference is made to the "Revenue
Recognition" and "Income Taxes" sections of this footnote and Notes 6, 12, 13
and 15 for additional information on significant estimates included in
Tenneco's financial statements.
Reclassifications
Prior years' financial statements have been reclassified where appropriate
to conform to 1995 presentations.
2. ACQUISITIONS
In November 1995, Tenneco acquired the plastics division of Mobil
Corporation for $1.3 billion. The plastics business is the largest North
American producer of polyethylene and polystyrene consumer and food service
packaging and became part of Tenneco Packaging.
Tenneco's acquisition of the plastics business was accounted for as a
purchase; accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based on preliminary estimates of their
fair values. Final purchase price allocations will be based on more complete
evaluations and may differ from the original allocation. The excess of the
purchase price over the fair value of the net assets acquired is included in
the balance sheet caption, "Investment in subsidiaries in excess of fair value
of net assets at date of acquisition, less amortization" and is being
amortized on a straight-line basis over 40 years. The purchase was initially
financed by a combination of short-term debt and cash. In December 1995,
Tenneco refinanced a portion
39
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of the purchase price through a $600 million long-term debt offering. See Note
4, "Long-Term Debt, Short-Term Debt and Financing Arrangements."
The following unaudited pro forma information of Tenneco Inc. and
consolidated subsidiaries illustrates the effect of the plastics business
acquisition as if it had occurred at the beginning of 1994, after giving
effect to certain pro forma adjustments including amortization of the excess
purchase price, depreciation and other adjustments based on the preliminary
purchase price allocation and interest expense related to financing the
acquisition, together with estimates of the related income tax effects.
<TABLE>
<CAPTION>
(UNAUDITED)
YEARS ENDED DECEMBER 31
-----------------------
1995 1994
----------- -----------
(MILLIONS)
<S> <C> <C>
Net sales and operating revenues................. $9,895 $9,335
Income from continuing operations
applicable to common stock...................... $ 487 $ 434
Earnings per average share of common stock from
continuing operations........................... $ 2.80 $ 2.41
</TABLE>
The summarized pro forma information has been prepared for comparative
purposes only. It is not intended to be indicative of the actual operating
results that would have occurred had the acquisition been consummated at the
beginning of 1994, or the results which may be attained in the future.
During 1995, Tenneco made various other acquisitions of assets and
investments. Tenneco Energy acquired the natural gas pipeline assets of the
Pipeline Authority of South Australia, which includes a 488-mile pipeline, for
approximately $225 million. Tenneco Energy also 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 Inc.
common stock. Tenneco Packaging completed acquisitions of 10 packaging
businesses for total consideration of approximately $196 million in cash,
notes and Tenneco Inc. common stock. In addition, Tenneco Automotive completed
four acquisitions for approximately $54 million.
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.
In 1994, Tenneco Automotive acquired Heinrich Gillet GmbH & Co. KG for $44
million in cash and $69 million in assumed debt.
3. DISCONTINUED OPERATIONS, DISPOSITION OF ASSETS AND EXTRAORDINARY LOSS
Discontinued Operations
Chemicals and Brakes Operations
In March 1995, Tenneco completed an initial public offering of 100% of its
Albright & Wilson chemicals segment. The offering was underwritten in the
United Kingdom and was offered primarily in the United Kingdom. Also in 1994,
Tenneco sold its brakes operation. Net proceeds from the sales of the
chemicals and the brakes operations were approximately $700 million and $18
million, respectively.
40
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net assets and results from discontinued chemicals and brakes operations as
of and for the years ended December 31, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------- ----------------
CHEMICALS BRAKES CHEMICALS BRAKES
--------- ------ --------- ------
(MILLIONS)
- ----------
<S> <C> <C> <C> <C> <C> <C>
Net assets at December 31........................................................ $ 633 $ -- $554 $61
===== ==== ==== ====
Net sales and operating revenues................................................. $ 986 $ 62 $914 $54
===== ==== ==== ====
Income (loss) before income taxes and interest allocation........................ $ 40 $ (8) $ 69 $ (8)
Total income tax (expense) benefit from discontinued operations.................. (9) 5 (5) 4
----- ---- ---- ----
Income (loss) before interest allocation......................................... 31 (3) 64 (4)
Allocation of interest expense, net of income tax (a)............................ (19) (2) (19) (3)
----- ---- ---- ----
Net income (loss)................................................................ 12 (5) 45 (7)
----- ---- ---- ----
Loss on disposition.............................................................. (55) (41) -- --
Income tax (expense) benefit from loss on disposition............................ (115) 15 -- --
----- ---- ---- ----
Net loss on disposition.......................................................... (170) (26) -- --
----- ---- ---- ----
Net income (loss) from discontinued operations................................. $(158) $(31) $ 45 $ (7)
- --------------------------------------------------
===== ==== ==== ====
</TABLE>
- --------
(a) The allocation of interest expense to discontinued operations is based on
the ratio of net assets of discontinued operations to consolidated net
assets plus debt.
Farm and Construction Equipment Operations
In June 1994, Tenneco completed an initial public offering ("IPO") of
approximately 29% of the common stock of Case Corporation ("Case"), the holder
of Tenneco's farm and construction equipment segment. In November 1994, a
secondary offering of Case common stock reduced Tenneco's ownership interest
in Case to approximately 44%. Combined proceeds from the two transactions was
$694 million, net of commissions and offering expenses. The combined gain on
the transactions was $36 million, including a $7 million tax benefit. In an
August 1995 public offering, Tenneco sold an additional 16.1 million shares of
Case common stock for net proceeds of approximately $540 million. The sale
resulted in a pre-tax gain of $101 million and reduced Tenneco's ownership in
Case from 44% to 21%. In December 1995, Tenneco sold to a third party a
subordinated note receivable due from Case, which was received as part of the
reorganization preceding the Case initial public offering, for net proceeds of
$298 million and recognized a pre-tax gain of $32 million.
In March 1996, Tenneco sold its remaining 15.2 million shares of common
stock of Case in a public offering. Net proceeds of approximately $788 million
were received, resulting in a gain of $340 million, net of $83 million in
income tax expense. As a result of this sale, Tenneco's financial statements
have been restated to reflect the operating results and the gains on the sale
of the farm and construction equipment segment as "discontinued operations"
for all periods presented.
41
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net assets and results from the discontinued farm and construction equipment
operations as of and for the years ended December 31, 1995, 1994 and 1993, are
as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
- ---------- ---- ------ ------
<S> <C> <C> <C>
Net assets at December 31................................. $323 $ 794 $2,003
==== ====== ======
Net sales and operating revenues.......................... $ -- $3,881 $3,748
==== ====== ======
Income (loss) before income taxes and interest allocation. $126 $ 210 $ (3)
Total income tax (expense) benefit from discontinued
operations............................................... 8 (59) 41
---- ------ ------
Income before interest allocation......................... 134 151 38
Allocation of interest expense, net of income tax(a)...... (21) (49) (88)
---- ------ ------
Net income (loss) ........................................ 113 102 (50)
---- ------ ------
Gains on disposition...................................... 135 29 --
Income tax (expense) benefit from gains on disposition.... (2) 7 --
---- ------ ------
Net gains on disposition.................................. 133 36 --
---- ------ ------
Net income (loss) from discontinued operations.......... $246 $ 138 $ (50)
==== ====== ======
</TABLE>
- --------
(a) The allocation of interest expense to discontinued operations is based on
the ratio of net assets of discontinued operations to consolidated net
assets plus debt.
Disposition of Assets
In December 1995, Tenneco Energy 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, Tenneco sold certain other facilities and assets, principally at its
Tenneco Packaging and Tenneco Energy segments, for a combined pre-tax net loss
of $3 million.
During 1994, Tenneco disposed of several assets and investments including a
facility, machinery and equipment at Tenneco Packaging resulting in a pre-tax
net gain of $7 million. Also in 1994, Tenneco Energy Resources Corporation, a
subsidiary which operates nonregulated gas marketing and intrastate pipeline
businesses, issued 50 shares of its common stock, diluting Tenneco's ownership
in this subsidiary to 80%. Cash proceeds were $41 million 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.
During 1993, Tenneco disposed of a number of assets and investments
including its Newport News' Sperry Marine business; several Tenneco Packaging
operations; two wholly-owned Tenneco Energy companies, Viking Gas Transmission
Company and Dean Pipeline Company. These dispositions resulted in a pre-tax
net gain of $106 million.
Extraordinary Loss
In June 1994, an extraordinary loss of $5 million was recorded, net of $2
million income tax benefit, for the redemption premium resulting from the
prepayment of debt.
In April 1993, Tenneco Inc. issued 23.5 million shares of 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.
42
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT, SHORT-TERM DEBT AND FINANCING ARRANGEMENTS
Long-Term Debt
A summary of long-term debt outstanding 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
10.1% in 1995 and 10.7% in 1994 (net of $46 million in 1995 and
$48 million in 1994 of unamortized discount)................... 75 76
------ ------
4,171 4,058
------ ------
Less--Current maturities......................................... 420 490
------ ------
$3,751 $3,568
====== ======
</TABLE>
At December 31, 1995 and 1994, approximately $72 million and $154 million,
respectively, of gross plant, property and equipment was pledged as collateral
to secure $30 million and $31 million, respectively, principal amounts of
long-term debt.
The aggregate maturities and sinking fund requirements applicable to the
issues outstanding at December 31, 1995, are $420 million, $521 million, $845
million, $255 million and $181 million for 1996, 1997, 1998, 1999 and 2000,
respectively.
43
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Short-Term Debt
Tenneco 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
---------------------- ----------------------
COMMERCIAL CREDIT COMMERCIAL CREDIT
PAPER AGREEMENTS* PAPER AGREEMENTS*
---------- ----------- ---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Outstanding borrowings at end of
year............................ $346 $101 $ -- $ 38
Weighted average interest rate on
outstanding borrowings at end of
year............................ 6.2% 7.2% -- 8.9%
Approximate maximum month-end
outstanding borrowings during
year............................ $615 $486 $362 $255
Approximate average month-end
outstanding borrowings during
year............................ $109 $103 $164 $105
Weighted average interest rate on
approximate average month-end
outstanding borrowings during
year............................ 6.2% 8.6% 4.6% 5.9%
</TABLE>
- --------
* Includes borrowings under both committed credit facilities and uncommitted
lines of credit and similar arrangements.
Tenneco had other short-term borrowings outstanding of $41 million at
December 31, 1995, and $8 million at December 31, 1994.
Financing Arrangements
As of December 31, 1995, Tenneco and its subsidiaries had arranged committed
credit facilities of $2.5 billion:
<TABLE>
<CAPTION>
COMMITTED CREDIT FACILITIES(A)
--------------------------------
TERM COMMITMENTS UTILIZED AVAILABLE
--------- ----------- -------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Tenneco Inc. credit agreements........ 1996-1999 $2,400(b) $346(c) $2,054
Subsidiaries' credit agreements....... Various 122 47 75
------ ---- ------
$2,522 $393 $2,129
====== ==== ======
</TABLE>
- --------
Notes:(a) Tenneco and its subsidiaries generally are required to pay
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 Inc. and
Tenneco's finance subsidiary.
(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.
44
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Restrictions on the Payment of Dividends
Tenneco Inc.'s credit agreements contain provisions that limit the amount of
dividends paid on its common stock. At December 31, 1995, under the most
restrictive provisions contained in these credit agreements, Tenneco Inc. had
in excess of $300 million available for the payment of dividends.
Tennessee Gas Pipeline Company ("Tennessee"), a wholly-owned consolidated
subsidiary, is restricted as to the payment of dividends under certain of its
notes and debentures. Under the provisions of such agreements, Tennessee had
approximately $3.7 billion of unrestricted retained earnings at December 31,
1995 for payment of dividends. The payment of unrestricted amounts by
Tennessee would not affect the amount of retained earnings of Tenneco Inc.
available for dividends on common stock.
5. FINANCIAL INSTRUMENTS
The carrying and estimated fair values of Tenneco's financial instruments by
class at December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
(MILLIONS)
ASSETS (LIABILITIES)
<S> <C> <C> <C> <C>
Asset and Liability Instruments
Cash and temporary cash investments........ $ 354 $ 354 $ 405 $ 405
Receivables (customer and long-term)....... 1,356 1,356 2,135 2,135
Accounts payable (trade)................... (1,102) (1,102) (907) (907)
Short-term debt (excluding current
maturities)............................... (488) (488) (46) (46)
Long-term debt (including current
maturities)............................... (4,171) (4,759) (4,058) (4,281)
Instruments With Off-Balance-Sheet Risk
Derivative
Interest rate swaps:
In a net receivable position........... -- 10 -- --
In a net payable position.............. -- (22) -- (30)
Foreign currency contracts............... 5 4 15 20
Natural gas swaps, futures and options... -- 3 -- (5)
Non-derivative
Financial guarantees..................... -- (30) -- (50)
</TABLE>
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 not determined to be materially different from the carrying amount.
At December 31, 1995 and 1994, respectively, Tenneco's aggregate customer and
long-term receivable balance was concentrated by industry segment as follows:
Tenneco Automotive, 28% and 19%; Tenneco Energy, 14% and 13%; Tenneco
Packaging, 9% and 13%; Newport News Shipbuilding, 9% and 9%; United States
retail farm and construction equipment receivables held by Tenneco Credit
Corporation, 33% and 36%; all other amounts were not significant.
45
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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, Tenneco 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.
Consistent with its overall policy, Tenneco 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.
Foreign Currency Contracts--Tenneco utilizes foreign exchange forward
contracts and foreign currency interest rate swaps to hedge certain
translation effects of Tenneco's investment in net assets in certain foreign
subsidiaries. Pursuant to these arrangements, Tenneco recognized aggregate
after-tax translation gains (losses) of $3 million, $(2) million and $5
million for 1995, 1994 and 1993, respectively, which have been included in the
balance sheet caption, "Cumulative translation adjustments."
In the normal course of business, Tenneco and its foreign subsidiaries also
routinely enter into various foreign currency forward purchase and sale
contracts to hedge the transaction effect of exchange rate movements on
receivables and payables denominated in foreign currencies. These foreign
currency contracts generally mature in one year or less.
In managing its foreign currency exposures, Tenneco identifies naturally
occurring offsetting positions and then hedges residual exposures. The
following table summarizes by major currency the contractual amounts of
foreign currency contracts utilized by Tenneco:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
-----------------------------------
DECEMBER 31,
DECEMBER 31, 1995 1994
------------------- ---------------
PURCHASE SELL PURCHASE SELL
---------- -------- -------- ------
(MILLIONS)
<S> <C> <C> <C> <C>
Foreign currency contracts (in US$):
Australian Dollars....................... $ 1 $202 $ 94 $ 26
British Pounds........................... 81 125 277 964
Canadian Dollars......................... 23 50 81 74
French Francs............................ 44 16 94 15
U.S. Dollars............................. 240 81 244 377
Other.................................... 127 83 274 123
-------- -------- ------ ------
$ 516 $ 557 $1,064 $1,579
======== ======== ====== ======
</TABLE>
46
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Based on exchange rates at December 31, 1995 and 1994, the cost of replacing
these contracts in the event of non-performance by the counterparties would
not have been material.
Price Risk Management--Tenneco 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. Tenneco has off-balance sheet
risk of credit loss in the event of non-performance by counterparties to all
over-the-counter contracts. However, Tenneco does not anticipate non-
performance by the counterparties.
Non-derivative
Guarantees--At December 31, 1995 and 1994, Tenneco had guaranteed payment
and performance of approximately $30 million and $50 million, respectively,
primarily with respect to letters of credit and other guarantees supporting
various financing and operating activities.
6. FEDERAL ENERGY REGULATORY COMMISSION ("FERC") REGULATORY MATTERS
Restructuring Proceedings
Pursuant to Order 636 issued by the FERC on April 8, 1992, 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 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 gas supply realignment ("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 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 is subject to refund pending FERC review and approval for
eligibility: 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.
47
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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'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, pending FERC review of data
submitted by Tennessee. The FERC subsequently issued an order requiring
Tennessee to refund certain costs from this surcharge. 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 and believes that this decision will not impair Tennessee's
recovery of the costs resulting from this contract. The FERC has committed to
issuing a final order by December 31, 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 seeks $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. Neither ICA nor TransTexas were
original parties to that contract. However, they contend that any stranger
acquiring a fractional interest in the original committed reserves thereby
obtains a right to add to the contract unlimited volumes of gas production
from locations in South Texas. Tennessee filed a motion for summary judgment,
asserting that the Texas statutes of frauds precluded the plaintiffs from
adding new production or acreage to the contract. On May 4, 1995, the trial
court granted Tennessee's motion for summary judgment; the plaintiffs have
filed a notice of appeal. Thereafter, ICA and TransTexas filed a motion for
summary judgment on a separate issue involving the term "committed reserves"
and whether Tennessee has a contractual obligation to purchase gas produced
from a lease not described in the gas contract. On November 8, 1995, the trial
court granted ICA's and TransTexas' motion in part. That order, which would be
finalized upon conclusion of the trial, also held that ICA's and TransTexas'
rights are subject to certain limitations of the Texas Business and Commerce
Code. In addition to these defenses, which are to be resolved at trial,
Tennessee has other defenses which it has asserted
48
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and intends to pursue. Tennessee has filed a Motion to Clarify the November 8,
1995 order together with a new motion for partial summary judgment concerning
the committed reserve issue. The November 8, 1995 ruling does not affect the
trial court's previous May 4, 1995 order granting summary judgment to
Tennessee.
Tennessee has been engaged in separate settlement and contract reformation
discussions with holders of certain gas purchase contracts who have sued
Tennessee. Although Tennessee believes that its defenses in the underlying gas
purchase contract actions are meritorious, Tennessee accrued amounts in the
first quarter of 1995 which it believes are adequate to cover the resolution
of these matters. 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. Motions for
rehearing have been filed by the producers. As of the date hereof, the court
had not ruled on those motions and mandate had not been issued.
As of December 31, 1995, Tennessee has deferred GSR costs yet to be
recovered from its customers of approximately $462 million, net of $316
million previously recovered from its customers, subject to refund. A
proceeding before a FERC ALJ is scheduled to commence in early 1996 to
determine whether Tennessee's GSR costs are eligible for cost recovery. The
FERC has generally encouraged pipelines to settle such issues through
negotiations with customers. Although Order 636 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 and customer
statements acknowledging the desirability of such settlements.
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, Tenneco is unable to
predict the timing or the ultimate impact that the resolution of these issues
will have on its consolidated 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. Settlement discussions with the
FERC staff and customers regarding 1995 Rate Case issues, including structural
rate design and increased revenue requirements, are ongoing and Tennessee is
reserving revenues it believes adequate to cover any refunds that may be
required upon final settlement of this proceeding. A hearing is scheduled to
commence in March 1996.
49
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The domestic and foreign components of income from continuing operations
before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
--------------
1995 1994 1993
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
U.S. income before income taxes........................... $667 $724 $624
Foreign income before income taxes........................ 123 35 137
---- ---- ----
Income before income taxes................................ $790 $759 $761
==== ==== ====
</TABLE>
Following is a comparative analysis of the components of consolidated income
tax expense applicable to continuing operations:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
---------------
1995 1994 1993
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Current--
U.S..................................................... $ 7 $144 $128
State and local......................................... 45 40 49
Foreign................................................. 66 43 37
---- ---- ----
118 227 214
---- ---- ----
Deferred--
U.S..................................................... 148 30 63
State and local......................................... 12 13 11
Foreign................................................. 1 (21) 10
---- ---- ----
161 22 84
---- ---- ----
Income tax expense........................................ $279 $249 $298
==== ==== ====
</TABLE>
Following is a reconciliation of income taxes computed at the U.S. federal
income tax rate (35% for all years presented) to the income tax expense from
continuing operations reflected in the Statements of Income:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
----------------
1995 1994 1993
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Tax expense computed at the U.S. federal income tax rate..... $277 $266 $266
Increases (reductions) in income tax expense resulting from:
Foreign income taxed at different rates and foreign losses
with no tax benefit....................................... 15 (17) 9
Permanent differences on sale of businesses................ 24 (8) (5)
State and local taxes on income, net of U.S. federal income
tax benefit............................................... 37 34 38
U.S. federal income tax rate change........................ -- -- 11
Realization of unrecognized deferred tax assets............ (72) (12) --
Other...................................................... (2) (14) (21)
---- ---- ----
Income tax expense........................................... $279 $249 $298
==== ==== ====
</TABLE>
50
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of Tenneco's net deferred tax liability at December 31, 1995
and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Deferred tax assets--
Tax loss carryforwards....................................... $ 246 $ 356
Postretirement benefits other than pensions.................. 181 181
GSR reserve.................................................. 141 --
Environmental reserve........................................ 76 83
Other........................................................ 135 169
Valuation allowance.......................................... (200) (365)
------ ------
Net deferred tax asset..................................... 579 424
------ ------
Deferred tax liabilities--
Tax over book depreciation................................... 801 761
Pension...................................................... 175 166
Asset related to GSR costs of operations regulated by the
FERC........................................................ 141 --
Long-term shipbuilding contracts............................. 62 54
Debt related items........................................... 43 44
Book versus tax gains and losses on asset disposals.......... 86 475
Other........................................................ 194 274
------ ------
Total deferred tax liability............................... 1,502 1,774
------ ------
Net deferred tax liability..................................... $ 923 $1,350
====== ======
</TABLE>
As reflected by the valuation allowance in the table above, Tenneco had
potential tax benefits of $200 million and $365 million at December 31, 1995
and 1994, respectively, which were not recognized in the Statements of Income
when generated. These benefits resulted primarily from tax loss carryforwards
which are available to reduce future tax liabilities. During 1995, Tenneco
reduced its deferred tax asset valuation allowance due to the recognition of
tax loss carryforwards utilized to offset income taxes payable on asset and
investment dispositions.
At December 31, 1995, Tenneco had tax benefits of $163 million related to
U.S. capital loss carryforwards which expire in 1999 and $83 million from
foreign net operating loss carryforwards which will carry forward
indefinitely.
8. INVESTMENT IN AFFILIATED COMPANIES
Tenneco holds investments in various affiliates which are accounted for on
the equity method of accounting. The principal equity method investments
during 1995 and 1994 were Tenneco's investment in Case common stock and its
50% investment in Kern River. As previously discussed, during 1995, Tenneco
reduced its total ownership in Case from 44% to 21% and sold its investment in
Kern River. Additionally, Case was not accounted for by the equity method of
accounting until December 1994, when Tenneco's total ownership in Case was
reduced below 50%. At December 31, 1995, the quoted market value of Tenneco's
21% investment in Case was approximately $694 million.
At December 31, 1995, Tenneco's retained earnings included equity in
undistributed earnings and cumulative translation adjustments from equity
method investments of $113 million and $(4) million, respectively; at December
31, 1994, the corresponding amounts were $154 million and $(29) million,
respectively. Dividends and distributions received from affiliates accounted
for on the equity method, including discontinued operations, were $60 million,
$50 million and $45 million during 1995, 1994 and 1993, respectively.
51
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information of Tenneco'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>
1995 1994 1993
------ ------ ----
(MILLIONS)
<S> <C> <C> <C>
Current assets.............................................. $ 683 $1,249 $161
Non-current assets.......................................... 1,103 2,133 970
Short-term debt............................................. 336 278 36
Other current liabilities................................... 338 676 100
Long-term debt.............................................. 341 1,147 510
Other non-current liabilities............................... 151 284 15
Equity in net assets........................................ 620 997 470
Revenues and other income................................... 1,975 738 581
Costs and expenses.......................................... 1,799 684 529
Net income.................................................. 176 54 52
</TABLE>
- --------
Note: Tenneco's equity method investments related to its discontinued farm and
construction equipment and chemicals operations are reflected in the
December 31, 1995 and 1994 balance sheets under the caption "Net assets
of discontinued operations". In addition, the equity in net income from
Tenneco's equity method investments related to its discontinued farm and
construction equipment and chemicals operations is reflected in the
caption "Income (loss) from discontinued operations, net of income tax"
in the Statements of Income for all periods presented. Reference is made
to Note 3, "Discontinued Operations, Disposition of Assets and
Extraordinary Loss," for further discussion of these operations. Balance
sheet amounts related to Kern River are not included in the table above
as of December 31, 1995 due to the sale discussed above.
9. COMMON STOCK
Tenneco Inc. has authorized 350 million shares ($5.00 par value) of common
stock, and 191,351,615 and 191,335,193 shares were issued at December 31, 1995
and 1994, respectively. At December 31, 1995, the SECT held 4,358,084 shares
which are included in the issued shares quoted above. Treasury stock held by
Tenneco was 16,422,619 and 3,617,510 shares at the respective dates.
Stock Repurchase Plans
Tenneco completed the $500 million common stock repurchase program initiated
in December 1994. In 1995, Tenneco announced two additional repurchase
programs, one for up to 3 million shares and another for 2.5 million shares.
Purchases executed through the programs were made in the open market or in
negotiated purchases. Under these programs, approximately 14.3 million shares
have been acquired at a total cost of $646 million and are included in "Shares
held as treasury stock, at cost" on the balance sheet at December 31, 1995.
Reserved
At December 31, 1995, the shares of Tenneco Inc. common stock reserved for
issuance were as follows:
<TABLE>
<S> <C>
ORIGINAL ISSUE SHARES
Restricted Stock Plan........................................... 323,706
Stock Option Plan............................................... 3,241,573
Performance Unit Plan........................................... 1,654,494
Other........................................................... 35,820
---------
5,255,593
=========
Treasury Stock
Dividend Reinvestment Plan...................................... 640,456
=========
</TABLE>
52
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Stock Plans
1994 Tenneco Inc. Stock Ownership Plan--In May 1994, Tenneco adopted the
Stock Ownership Plan effective as of December 8, 1993. This plan provides
Tenneco the latitude to grant a variety of awards, such as common stock, stock
equivalent units, dividend equivalents, performance units, stock appreciation
rights ("SARs") and stock options, to officers and key employees of the
Tenneco companies. The plan requires that options and SARs be granted at not
less than the fair market value of a share of common stock on the grant date.
The plan also requires that no award granted shall vest in less than six
months after the grant date. The Company can issue 8,400,000 shares of common
stock under this plan, which will terminate December 31, 1998. At December 31,
1995, 620,030 restricted shares and 19,705 restricted units at an average
price of $48.18 per share and 110,500 stock equivalent units were outstanding
under this plan at an average price of $49.63 per share.
1988 Key Employee Restricted Stock Plan--At December 31, 1995, 524,688
restricted shares and 11,895 restricted units were outstanding under this plan
at an average price of $43.82 per share. These awards generally require, among
other things, that the employee remain an employee of Tenneco during the
restriction period. This plan was superseded by the 1994 Tenneco Inc. Stock
Ownership Plan.
Under another arrangement, 300 shares (250 shares for years prior to 1995)
of restricted stock or restricted units are issued annually to each member of
the Board of Directors who is not also an officer of Tenneco. At December 31,
1995, 13,000 restricted shares and no restricted units were outstanding under
this program at an average price of $45.51 per share.
Options and Stock Appreciation Rights--Tenneco Inc. has granted stock
options and stock appreciation rights to key employees under a prior plan. The
options and SARs became exercisable over four years and lapse after ten years
from the date of grant. The prior plan was superseded by the 1994 Tenneco Inc.
Stock Ownership Plan.
The following table reflects the status and activity for all stock options
issued by Tenneco Inc., including those outside the option plans discussed
above, for the periods indicated:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ----------------------- ---------------------
SHARES SHARES SHARES
UNDER UNDER UNDER
STOCK OPTIONS OPTION OPTION PRICES OPTION OPTION PRICES OPTION OPTION PRICES
------------- --------- ------------- --------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 2,084,942 $36.44-$57.50 434,114 $36.44-$53.13 434,379 $34.94-$53.13
Granted--Options........ 1,493,505 $42.88-$49.13 1,718,320 $45.75-$57.50 75,000 $48.69
Exercised--Options...... 2,700 $39.06-$42.88 2,250 $39.06-$41.13 3,942 $34.94-$41.13
--SARs............... 45,215 $39.06-$42.13 28,832 $39.06-$48.38 68,347 $34.94-$48.38
Cancelled............... 511,416 -- 36,410 -- 2,976 --
--------- ------------- --------- ------------- ------- -------------
Outstanding, end of
year................... 3,019,116 $36.44-$53.94 2,084,942 $36.44-$57.50 434,114 $36.44-$53.13
========= ============= ========= ============= ======= =============
Exercisable at end of
year................... 846,889 $36.44-$53.94 471,732 $36.44-$53.13 275,780 $36.44-$53.13
========= ============= ========= ============= ======= =============
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, compensation expense
for these stock plans was not material.
Employee Stock Purchase Plan--In June 1992, Tenneco initiated an Employee
Stock Purchase Plan. The Plan allows U.S. and Canadian Tenneco employees to
purchase Tenneco Inc. common stock at a 15% discount. Each year employees in
the plan may purchase shares with a discounted value not to exceed $21,250.
Tenneco reserved 5,000,000 shares of treasury stock to be issued through this
plan. At December 31, 1995, 1,844,461 shares had been issued to participants
and the remaining shares are held by the SECT for issuance to employees in
this plan.
53
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Stock Employee Compensation Trust
In November 1992, Tenneco established the SECT to fund a portion of its
obligations arising from its various employee compensation and benefit plans.
Tenneco issued 12,000,000 shares of treasury stock to the SECT in exchange for
a promissory note of $432 million that bears interest at the rate of 7.8% per
annum. The SECT has a five-year life during which it will utilize the common
stock to satisfy those obligations. At December 31, 1995, 7,641,916 shares had
been utilized.
Shareholder Rights Plan
In 1988, Tenneco Inc. adopted a Shareholder Rights Plan ("the Plan") to
deter coercive takeover tactics and to prevent a potential acquiror from
gaining control of Tenneco without offering a fair price to all Tenneco Inc.
shareholders. Under the Plan, each outstanding share of Tenneco Inc. common
stock received one Purchase Right, exercisable at $130, subject to adjustment.
In the event a person or group acquires 20% or more of the outstanding Tenneco
Inc. common stock other than pursuant to an offer for all shares of such
common stock which is fair and in the best interests of Tenneco Inc. and its
shareholders, or has in the judgment of the Tenneco Inc. Board of Directors
acquired a substantial amount of common stock under certain motives deemed
adverse to Tenneco's best interests, each Purchase Right entitles the holder
to purchase shares of common stock or other securities of Tenneco Inc. or,
under certain circumstances, of the acquiring person, having a value of twice
the exercise price. The Purchase Rights, under certain circumstances, are
redeemable by Tenneco Inc. at a price of $.02 per Purchase Right. The Plan is
scheduled to terminate in 1998.
Dividend Reinvestment and Stock Purchase Plan
Under the Tenneco Inc. Dividend Reinvestment and Stock Purchase Plan,
holders of Tenneco Inc. common stock and $7.40 preferred stock may apply their
cash dividends and optional cash investments to the purchase of shares of
common stock.
10. PREFERRED STOCK
At December 31, 1995, Tenneco Inc. had authorized 15,000,000 shares of
preferred stock. In addition, Tenneco Inc. 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. Tenneco has reserved 3,500,000 shares of junior
preferred stock for the Shareholder Rights Plan.
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>
In December 1991, Tenneco issued 17,870,350 Depositary Shares, each
representing one-half of a share of a new series of cumulative preferred stock
designated as Series A preferred stock. On December 16, 1994, Tenneco
exercised its option to call all of the outstanding shares, which were
converted into shares of Tenneco Inc. common stock. In addition, $11 million
was paid for dividends on the Series A preferred stock that were accrued but
unpaid at the conversion date.
54
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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. Such accretions are included in the
income statement caption "Preferred stock dividends" as a reduction of net
income to arrive at net income to common stock.
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.
Changes in Preferred Stock with Mandatory Redemption Provisions*
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------ --------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
<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>
- --------
* For additional information on Series A preferred stock see Statements of
Changes in Shareowners' Equity.
11. MINORITY INTEREST
At both December 31, 1995 and 1994, Tenneco reported minority interest in
the balance sheet of $320 million. At December 31, 1995, $293 million of
minority interest resulted from the December 1994 sale by Tenneco of a 25%
preferred stock interest in Tenneco International Holding Corp. ("TIHC") to a
financial investor. TIHC is a separate legal entity from Tenneco Inc. and
holds certain assets including the capital stock of Tenneco Canada Inc.,
Monroe Europe N.V., Monroe Australia Proprietary Limited, Walker France S.A.
and other subsidiaries included in the Tenneco Automotive segment. TIHC also
holds financial obligations of Tenneco or guaranteed by Tenneco. For financial
reporting purposes, the assets, liabilities and earnings of TIHC and its
subsidiaries have continued to be consolidated in Tenneco's financial
statements, and the investor's preferred stock interest has been recorded as
"Minority interest" in the balance sheet.
Dividends on the TIHC preferred stock are based on the issue price ($300
million) times a rate per annum equal to 1.12% over LIBOR and are payable
quarterly in arrears on the last business day of each quarter commencing on
March 31, 1995. For 1995, the weighted average rate paid on TIHC preferred
stock was 7.30%. Additionally, beginning in 1996, the holder of the 12,000,000
shares of preferred stock will be entitled to receive, when and if declared by
the Board of Directors of TIHC, participating dividends based on the operating
income growth rate of TIHC. For financial reporting purposes, dividends paid
by TIHC to its financial investors have been recorded in Tenneco's income
statement as "Minority interest."
55
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Postretirement Benefits
Tenneco has postretirement health care and life insurance plans which cover
substantially all of its domestic employees. For salaried employees, the plans
cover employees retiring from Tenneco on or after attaining age 55 who have
had at least 10 years service with Tenneco 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. 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 Tenneco Energy segment. 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 balance sheet at December 31, 1995 and 1994, as
follows:
<TABLE>
<CAPTION>
1995 1994
----- -----
(MILLIONS)
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation at September 30:
Retirees....................................................... $ 512 $ 510
Fully eligible active plan participants........................ 48 46
Other active plan participants................................. 64 61
----- -----
Total accumulated postretirement benefit obligation.............. 624 617
Plan assets at fair value at September 30........................ 3 2
----- -----
Accumulated postretirement benefit obligation in excess of plan
assets at September 30.......................................... (621) (615)
Claims paid during the fourth quarter............................ 20 16
Unrecognized reduction of prior service obligations resulting
from plan amendments............................................ (100) (107)
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions........................................ 164 142
----- -----
Accrued postretirement benefit cost at December 31............... $(537) $(564)
===== =====
</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.
In conjunction with the Case IPO in June 1994, active Case salaried
employees were transferred from the Tenneco Inc. plans to new Case salaried
plans, and Case hourly retirees were transferred from the Case hourly plans to
the Tenneco Inc. plans. Amendments to reduce the cost of providing future
benefits for Case hourly retirees were reflected at that time.
In November 1994, through a secondary offering of Case stock, Tenneco's
ownership in Case dropped below 50%. Therefore, all Case liabilities for the
new Case plans are excluded from the Tenneco disclosure information beginning
in 1994. Benefit costs for these plans have been included up to the date of
the November 1994 secondary offering (for all of 1993 and 11 months of 1994)
in income from discontinued operations.
56
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The net periodic postretirement benefit cost from continuing operations for
the years 1995, 1994 and 1993 consist of the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned during the year......... $ 6 $ 7 $ 8
Interest cost on accumulated postretirement benefit
obligation.............................................. 49 38 28
Net amortization of unrecognized amounts................. (13) (7) (1)
---- --- ---
Net periodic postretirement benefit cost................. $ 42 $38 $35
==== === ===
</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 $36 million, $34 million and $32 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 $4 million, $5 million and $5 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
Tenneco 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. Implementation of this new rule reduced 1994
net income by $39 million, or $.22 per share, net of income tax benefits of
$26 million, which was reported as the cumulative effect of a change in
accounting principle.
13. PENSION PLANS
Tenneco has retirement plans which cover substantially all of its 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.
57
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plans reconciles with amounts recognized on the
balance sheet at December 31, 1995 and 1994, as follows:
<TABLE>
<CAPTION>
PLANS IN
WHICH ASSETS PLANS IN WHICH
EXCEED ACCUMULATED
ACCUMULATED BENEFITS ALL PLANS
BENEFITS EXCEED ASSETS (NOTE)
-------------- ---------------- --------------
1995 1994 1995 1994 1995 1994
------ ------ ------- ------- ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of
benefits based on service to
date and present pay levels
at September 30:
Vested benefit obligation... $2,550 $2,733 $ 35 $ 27 $2,585 $2,760
Non-vested benefit obliga-
tion....................... 93 88 4 2 97 90
------ ------ ------- ------- ------ ------
Accumulated benefit obliga-
tion....................... 2,643 2,821 39 29 2,682 2,850
Additional amounts related to
projected salary increases.. 217 231 3 4 220 235
------ ------ ------- ------- ------ ------
Total projected benefit obli-
gation at September 30...... 2,860 3,052 42 33 2,902 3,085
Plan assets at fair value at
September 30................ 3,259 3,314 8 10 3,267 3,324
------ ------ ------- ------- ------ ------
Plan assets in excess of
(less than) total projected
benefit obligation at
September 30................ 399 262 (34) (23) 365 239
Contributions during the
fourth quarter.............. 4 16 -- -- 4 16
Unrecognized net (gain) loss
resulting from plan
experience and changes in
actuarial assumptions....... 160 255 2 3 162 258
Unrecognized prior service
obligations resulting from
plan amendments............. 84 155 1 1 85 156
Remaining unrecognized net
obligation (asset) at ini-
tial application............ (143) (203) 1 2 (142) (201)
Adjustment recorded to recog-
nize minimum liability...... -- -- (2) (3) (2) (3)
------ ------ ------- ------- ------ ------
Prepaid (accrued) pension
cost at December 31......... $ 504 $ 485 $ (32) $ (20) $ 472 $ 465
====== ====== ======= ======= ====== ======
</TABLE>
- --------
Note: Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the prepaid (accrued) 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.
In December 1993, all liabilities and assets were transferred from the Case
Corporation Pension Plan for Hourly-Paid Employees ("Case Plan") to the
Tenneco Inc. Retirement Plan. In June 1994, all future accruals for the
salaried and hourly active Case employees were transferred from the Tenneco
Inc. Retirement Plan to new Case plans. In November 1994, through a secondary
offering of Case stock, Tenneco's ownership in Case dropped below 50%.
Therefore, all domestic and foreign Case liabilities and assets in the new
Case plans are excluded from the Tenneco disclosure information beginning in
1994. Pension cost (income) for these plans has been included up to the date
of the November 1994 secondary offering (for all of 1993 and 11 months of
1994) in income from discontinued operations.
Net periodic pension costs (income) from continuing operations for the years
1995, 1994 and 1993 consist of the following components:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned
during the year................... $ 52 $ 62 $ 53
Interest accrued on prior year's
projected benefit obligation...... 214 176 123
Expected return on plan assets--
Actual (return) loss............... (565) 29 (278)
Unrecognized excess (deficiency) of
actual return over expected
return............................ 275 (277) 95
---- ----- ----
(290) (248) (183)
Net amortization of unrecognized
amounts........................... (11) (6) (14)
----- ----- -----
Net periodic pension costs
(income).......................... $ (35) $ (16) $ (21)
===== ===== =====
</TABLE>
58
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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%, 8.4% and 7.6%, respectively. The rate of
increase in future compensation was 5.0%, in 1995 and 1994, and 5.1% in 1993.
The weighted average expected long-term rate of return on plan assets was
10.0% in 1995 and 1994 and 9.9% in 1993.
14. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Tenneco is a diversified industrial conglomerate with multinational
operations. Tenneco's principal business segments are as follows:
Tenneco Automotive-- International manufacturer of exhaust system
parts and ride control products for automobiles,
which are sold in both the original equipment and
replacement markets.
Tenneco Energy-- Transporter and marketer of natural gas,
operating in both the regulated and nonregulated
environments. Additionally, holds interests in
international natural gas pipelines and domestic
power generation projects.
Tenneco Packaging-- Manufacturer of packaging materials, cartons,
containers and specialty packaging products for
consumer and commercial markets.
Newport News Primary business includes the design,
Shipbuilding-- construction and repair of U.S. Naval ships and
submarines, and commercial vessels.
In March 1996, Tenneco sold its remaining 21% ownership interest in Case, a
leading manufacturer of farm and construction equipment with primary
operations in the U.S. and European Union. Also, during 1995, Tenneco sold its
Albright & Wilson chemicals segment, which was involved in the production of
phosphorous chemicals and surfactants, as well as a range of specialty
chemicals. For more discussion of Tenneco's farm and construction equipment
and chemicals segments, see Note 3.
59
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following tables summarize certain segment and geographic information of
Tenneco's businesses:
<TABLE>
<CAPTION>
SEGMENT
------------------------------------------------------------------
FARM AND RECLASS.
AUTO- SHIP- CONSTRUCTION AND CONSOL-
(MILLIONS) MOTIVE ENERGY PACKAGING BUILDING EQUIPMENT(D) CHEMICALS(D) OTHER ELIMINATION IDATED
---------- ------ ------ --------- -------- ------------ ------------ ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1995, AND FOR THE YEAR THEN ENDED
Net sales and operating
revenues(a)............ $2,479 $1,916 $2,752 $1,756 $-- $-- $ 5 $ (9) $8,899
====== ====== ====== ====== === === ===== ==== ======
Operating profit........ 248 286 440 172 -- -- (27) -- 1,119
Equity in net income of
affiliated companies... 1 63 -- -- -- -- 2 -- 66
General corporate
expenses............... (9) (16) (10) (12) -- -- (42) -- (89)
------ ------ ------ ------ --- --- ----- ---- ------
Income before interest
expense, income taxes
and minority interest.. 240 333 430 160 -- -- (67) -- 1,096
====== ====== ====== ====== === === ===== ==== ======
Identifiable assets..... 1,890 4,122 3,359 1,439 -- -- 2,322 (301) 12,831
Investment in affiliated
companies.............. 3 280 4 9 -- -- 1 -- 297
Investment in affiliated
companies related to
discontinued
operations............. -- -- -- -- 323 -- -- -- 323
------ ------ ------ ------ --- --- ----- ---- ------
Total assets......... 1,893 4,402 3,363 1,448 323 -- 2,323 (301) 13,451
====== ====== ====== ====== === === ===== ==== ======
Depreciation, depletion
and amortization....... 80 195 104 67 -- -- 3 -- 449
====== ====== ====== ====== === === ===== ==== ======
Capital expenditures
for continuing
operations............. 208 334 316 77 -- -- 41 -- 976
====== ====== ====== ====== === === ===== ==== ======
AT DECEMBER 31, 1994, AND FOR THE YEAR THEN ENDED
Net sales and operating
revenues(a)............ $1,989 $2,378 $2,184 $1,753 $-- $-- $ 3 $ (9) $8,298
====== ====== ====== ====== === === ===== ==== ======
Operating profit........ 231 379 217 213 -- -- (17) -- 1,023
Equity in net income
(loss) of affiliated
companies.............. -- 52 -- -- -- -- (1) -- 51
General corporate
expenses............... (8) (16) (8) (13) -- -- (7) -- (52)
------ ------ ------ ------ --- --- ----- ---- ------
Income before interest
expense, income taxes
and minority interest.. 223 415 209 200 -- -- (25) -- 1,022
====== ====== ====== ====== === === ===== ==== ======
Identifiable assets..... 1,505 3,241 1,574 1,353 -- -- 3,119 (332) 10,460
Investment in affiliated
companies.............. 2 359 3 -- -- -- -- -- 364
Identifiable net assets
related to discontinued
operations............. -- -- -- -- -- 530 264 -- 794
Investment in affiliated
companies related
to discontinued
operations............. -- -- -- -- 530 103 -- -- 633
------ ------ ------ ------ --- --- ----- ---- ------
Total assets......... 1,507 3,600 1,577 1,353 530 633 3,383 (332) 12,251
====== ====== ====== ====== === === ===== ==== ======
Depreciation, depletion
and amortization....... 49 100 82 70 -- -- 5 -- 306
====== ====== ====== ====== === === ===== ==== ======
Capital expenditures
for continuing
operations............. 113 331 166 29 -- -- 14 -- 653
====== ====== ====== ====== === === ===== ==== ======
</TABLE>
See notes at the end of these tables.
60
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SEGMENT
--------------------------------------------------------------------
FARM AND RECLASS.
AUTO- SHIP- CONSTRUCTION AND CONSOL-
(MILLIONS) MOTIVE(D) ENERGY PACKAGING BUILDING EQUIPMENT(D) CHEMICALS(D) OTHER ELIMINATION IDATED
---------- --------- ------ --------- -------- ------------ ------------ ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1993, AND FOR THE YEAR THEN ENDED
Net sales and operating
revenues(a)............ $1,785 $2,862 $2,042 $1,861 $ -- $-- $ 6 $(11) $8,545
====== ====== ====== ====== ===== === ===== ==== ======
Operating profit ....... 230 376 146 238 -- -- 26 -- 1,016
Equity in net income
(loss) of affiliated
companies.............. -- 49 2 -- -- -- (1) -- 50
General corporate
expenses............... (8) (14) (9) (13) -- -- (7) -- (51)
------ ------ ------ ------ ----- --- ----- ---- ------
Income before interest
expense, income taxes
and minority interest.. 222 411 139 225 -- -- 18 -- 1,015
====== ====== ====== ====== ===== === ===== ==== ======
Identifiable assets..... 1,016 2,953 1,468 1,277 -- -- 1,613 (367) 7,960
Investment in affiliated
companies.............. 4 307 6 -- -- -- 1 -- 318
Identifiable net assets
related to discontinued
operations............. 61 -- -- -- 1,913 492 -- 209 2,675
Investment in affiliated
companies related
to discontinued
operations............. -- -- -- -- 90 62 -- -- 152
------ ------ ------ ------ ----- --- ----- ---- ------
Total assets......... 1,081 3,260 1,474 1,277 2,003 554 1,614 (158) 11,105
====== ====== ====== ====== ===== === ===== ==== ======
Depreciation, depletion
and amortization....... 50 166 77 72 -- -- 5 -- 370
====== ====== ====== ====== ===== === ===== ==== ======
Capital expenditures for
continuing operations.. 93 170 124 36 -- -- 1 -- 424
====== ====== ====== ====== ===== === ===== ==== ======
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC AREA(C)(D)
--------------------------------
RECLASS.
UNITED EUROPEAN OTHER AND CONSOL-
(MILLIONS) STATES CANADA UNION FOREIGN ELIMINATION IDATED
---------- ------- ------ -------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1995, AND
FOR THE YEAR THEN ENDED
Net sales and operating
revenues:
Sales to unaffiliated
customers(a)........... $ 7,343 $ 149 $ 1,140 $ 267 $ -- $ 8,899
Transfers among
geographic areas(b).... 74 43 27 34 (178) --
------- ----- ------- ----- ---- -------
Total................. 7,417 192 1,167 301 (178) 8,899
======= ===== ======= ===== ==== =======
Operating profit......... 1,003 20 77 19 -- 1,119
Equity in net income of
affiliated companies.... 65 -- 1 -- -- 66
General corporate
expenses................ (89) -- -- -- -- (89)
------- ----- ------- ----- ---- -------
Income before interest
expense, income taxes
and
minority interest....... 979 20 78 19 -- 1,096
======= ===== ======= ===== ==== =======
Identifiable assets...... 11,083 207 1,079 769 (307) 12,831
Investment in affiliated
companies............... 255 2 2 38 -- 297
Investment in affiliated
companies related to
discontinued operations. 323 -- -- -- -- 323
------- ----- ------- ----- ---- -------
Total assets.......... 11,661 209 1,081 807 (307) 13,451
======= ===== ======= ===== ==== =======
</TABLE>
See notes on following page.
61
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA(C)(D)
--------------------------------
RECLASS.
UNITED EUROPEAN OTHER AND CONSOL-
(MILLIONS) STATES CANADA UNION FOREIGN ELIMINATION IDATED
---------- ------- ------ -------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1994, AND
FOR THE YEAR THEN ENDED
Net sales and operating
revenues:
Sales to unaffiliated
customers(a)........... $ 7,275 $166 $ 618 $239 $ -- $ 8,298
Transfers among
geographic areas(b).... 72 35 44 39 (190) --
------- ---- ------ ---- ----- -------
Total................. 7,347 201 662 278 (190) 8,298
======= ==== ====== ==== ===== =======
Operating profit......... 992 30 (32) 33 -- 1,023
Equity in net income
(loss) of affiliated
companies............... 52 -- -- (1) -- 51
General corporate
expenses................ (52) -- -- -- -- (52)
------- ---- ------ ---- ----- -------
Income before interest
expense, income taxes
and minority interest... 992 30 (32) 32 -- 1,022
======= ==== ====== ==== ===== =======
Identifiable assets...... 9,097 154 1,156 256 (203) 10,460
Investment in affiliated
companies............... 361 -- -- 3 -- 364
Identifiable net assets
related to discontinued
operations.............. 361 (2) 403 30 2 794
Investment in affiliated
companies related to
discontinued operations. 556 -- 3 74 -- 633
------- ---- ------ ---- ----- -------
Total assets.......... 10,375 152 1,562 363 (201) 12,251
======= ==== ====== ==== ===== =======
AT DECEMBER 31, 1993, AND
FOR THE YEAR THEN ENDED
Net sales and operating
revenues:
Sales to unaffiliated
customers(a)........... $ 7,559 $176 $ 597 $213 $ -- $ 8,545
Transfers among
geographic areas(b).... 70 31 41 28 (170) --
------- ---- ------ ---- ----- -------
Total................. 7,629 207 638 241 (170) 8,545
======= ==== ====== ==== ===== =======
Operating profit ........ 885 25 50 56 -- 1,016
Equity in net income
(loss) of affiliated
companies............... 49 -- 4 (3) -- 50
General corporate
expenses................ (51) -- -- -- -- (51)
------- ---- ------ ---- ----- -------
Income before interest
expense, income taxes
and
minority interest....... 883 25 54 53 -- 1,015
======= ==== ====== ==== ===== =======
Identifiable assets...... 7,223 118 658 237 (276) 7,960
Investment in affiliated
companies............... 313 -- 2 3 -- 318
Identifiable net assets
related to discontinued
operations.............. 1,588 309 608 164 6 2,675
Investment in affiliated
companies related to
discontinued operations. 116 -- 5 31 -- 152
------- ---- ------ ---- ----- -------
Total assets.......... 9,240 427 1,273 435 (270) 11,105
======= ==== ====== ==== ===== =======
</TABLE>
- --------
Notes: (a) Contracts with U.S. government agencies (primarily shipbuilding
contracts with the U.S. Navy) accounted for $1.7 billion, $1.7 billion
and $1.8 billion for 1995, 1994 and 1993, respectively.
(b) Products are transferred between geographic areas on a basis intended to
reflect as nearly as possible the "market value" of the products.
(c) As reflected above, Tenneco's segments principally market their products
and services in the United States, with significant sales in the
European Union and other foreign countries.
(d) Tenneco's farm and construction equipment, chemicals and brakes operations
have been reflected as discontinued operations in the accompanying
financial statements. Reference is made to Note 3, "Discontinued
Operations, Disposition of Assets and Extraordinary Loss," for further
information.
62
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Tenneco is engaged in the sale of products for export from the United
States. Such sales are reflected in the table below:
<TABLE>
<CAPTION>
(MILLIONS)
--------------
GEOGRAPHIC AREA PRINCIPAL PRODUCTS 1995 1994 1993
--------------- ------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Canada.................. Paperboard products, molded and
pressed pulp goods, corrugated
boxes, aluminum and plastics,
natural gas........................ $ 87 $ 75 $115
European Union.......... Molded and pressed pulp goods,
paperboard products, corrugated
boxes, aluminum and plastics,
navigation aids (1993 only), tanker
construction and repair work (1995
only).............................. 164 23 37
Other Foreign........... Ride control systems, molded and
pressed pulp goods, paperboard
products, corrugated boxes,
aluminum and
plastics........................... 113 49 60
---- ---- ----
Total Export Sales........................................... $364 $147 $212
==== ==== ====
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
Capital Commitments
Tenneco estimates that expenditures aggregating approximately $1.3 billion
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.
Purchase Obligations
In connection with the financing commitments of certain joint ventures,
Tenneco has entered into unconditional purchase obligations for products and
services of $145 million ($106 million on a present value basis) at December
31, 1995. Tenneco'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 6.
Lease Commitments
Tenneco holds certain of its facilities and equipment under long-term
leases. The minimum rental commitments under non-cancelable operating leases
with lease terms in excess of one year are $139 million, $128 million, $126
million, $113 million and $117 million for the years 1996, 1997, 1998, 1999
and 2000, respectively, and $868 million for subsequent years. Of these
amounts, $81 million for 1996, $84 million for 1997, $93 million for 1998, $86
million for 1999, $92 million for 2000 and $689 million for subsequent years
are lease payment commitments to GECC, John Hancock and Metropolitan Life for
assets purchased from
63
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Georgia-Pacific in January 1991 and leased to Tenneco Packaging. Commitments
under capital leases were not significant to the accompanying financial
statements. Total rental expense for continuing operations for the years 1995,
1994 and 1993, was $176 million, $167 million and $165 million, respectively,
including minimum rentals under non-cancelable operating leases of $166
million, $160 million and $161 million for the corresponding periods.
Litigation
Reference is made to Note 6, "Federal Energy Regulatory Commission ("FERC")
Regulatory Matters," for information concerning gas supply litigation. Tenneco
Inc. and its subsidiaries are parties to numerous other legal proceedings
arising from their operations. Tenneco 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.
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.
Tenneco 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 December
31, 1995, Tenneco has charged approximately $147 million against the
environmental reserve, excluding recoveries related to Tennessee's
environmental settlement as discussed below. Of the remaining reserve, $38
million has been recorded on the balance sheet under "Payables-trade" and $126
million 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, Tenneco 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 addresses the recovery of environmental costs currently
being recovered in its rates and also establishes a mechanism for recovering a
substantial portion of the environmental costs that will be expended in the
future. In November 1995, the FERC issued an order approving the Environmental
Stipulation. Although one shipper on its system has filed for rehearing,
Tennessee believes the Environmental Stipulation will be upheld. The effects
of the Environmental Stipulation, which is effective as of July 1, 1995, have
been recorded with no material effect on Tenneco's financial position or
results of operations. As of December 31, 1995, the balance of the regulatory
asset is $74 million.
64
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Tenneco has completed settlements with and has received payments from the
majority of its liability insurance policy carriers for remediation costs and
related claims. Tenneco 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.
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. Tenneco believes that the provisions recorded for
environmental exposures are adequate based on current estimates.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
INCOME INCOME
BEFORE INTEREST (LOSS) FROM CUMULATIVE
NET SALES EXPENSE, DISCONTINUED EFFECT OF CHANGE
AND INCOME TAXES INCOME FROM OPERATIONS, EXTRAORDINARY IN ACCOUNTING
QUARTER OPERATING AND MINORITY CONTINUING NET OF LOSS, NET OF PRINCIPLE, NET NET
(MILLIONS) REVENUES INTEREST OPERATIONS INCOME TAX INCOME TAX OF INCOME TAX INCOME
---------- --------- --------------- ----------- ------------ ------------- ---------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995.................... 1st $2,163 $ 291 $128 $ 25 $ -- $ -- $153
2nd 2,198 314 129 56 -- -- 185
3rd 2,136 250 94 120 -- -- 214
4th 2,402 241 138 45 -- -- 183
------ ------ ---- ---- ----- ---- ----
$8,899 $1,096 $489 $246 $ -- $ -- $735
====== ====== ==== ==== ===== ==== ====
1994.................... 1st $2,050 $ 213 $106 $ 16 $ -- $(39) $ 83
2nd 2,141 255 119 28 (5) -- 142
3rd 2,043 274 133 18 -- -- 151
4th 2,064 280 145 (113) -- -- 32
------ ------ ---- ---- ----- ---- ----
$8,298 $1,022 $503 $(51) $ (5) $(39) $408
====== ====== ==== ==== ===== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EARNINGS (LOSS) PER AVERAGE SHARE OF COMMON STOCK
-----------------------------------------------------------------
CUMULATIVE EFFECT OF
CONTINUING DISCONTINUED EXTRAORDINARY CHANGE IN ACCOUNTING NET
QUARTER OPERATIONS OPERATIONS LOSS PRINCIPLE INCOME
------- ---------- ------------ ------------- -------------------- ------
<S> <C> <C> <C> <C> <C> <C>
1995..... 1st $ .71 $ .13 $ -- $ -- $ .84
2nd .72 .33 -- -- 1.05
3rd .53 .69 -- -- 1.23
4th .79 .26 -- -- 1.05
------- ----- ------ ----- -----
$ 2.75 $1.41 $ -- $ -- $4.16
======= ===== ====== ===== =====
1994..... 1st $ .57 $ .10 $ -- $(.22) $ .45
2nd .65 .15 (.03) -- .77
3rd .72 .10 -- -- .82
4th .78 (.62) -- -- .16
------- ----- ------ ----- -----
$ 2.72 $(.27) $ (.03) $(.22) $2.20
======= ===== ====== ===== =====
</TABLE>
- -------
Notes: Reference is made to Notes 2, 3 and 9 for discussion of items affecting
quarterly results.
The sum of the quarters may not equal the total of the respective year's
earnings per share due to the issuance or repurchase of shares throughout
the year.
(The preceding notes are an integral part of the foregoing financial
statements.)
65
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS INCLUDED IN ITEM 8
See "Index to Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries" set forth in Item 8, "Financial Statements and Supplementary
Data."
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES INCLUDED IN ITEM 14
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedules of Tenneco Inc. and Consolidated Subsidiaries--
Schedule I--Condensed financial information of registrant............... 67
Schedule II--Valuation and qualifying accounts--three years ended
December 31, 1995...................................................... 71
</TABLE>
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE
Schedule III--Real estate and accumulated depreciation
Schedule IV--Mortgage loans on real estate
Schedule V--Supplemental Information Concerning Property--
Casualty Insurance Operations
66
<PAGE>
SCHEDULE I
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TENNECO INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(MILLIONS)
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest Income from Affiliated Companies......... $ 101 $ 79 $ 41
Other Income, Net................................. -- -- 39
-------- ------- --------
101 79 80
-------- ------- --------
Interest Expense and Other:
Affiliated companies............................ 421 229 83
Other........................................... 199 206 211
-------- ------- --------
620 435 294
-------- ------- --------
Loss from Continuing Operations Before Income
Taxes and Equity in Net Income from Continuing
Operations of Affiliated Companies............... (519) (356) (214)
-------- ------- --------
Income Tax Expense (Benefit):
Current......................................... (248) (93) (100)
Deferred........................................ 41 (16) 20
-------- ------- --------
(207) (109) (80)
-------- ------- --------
Equity in Net Income from Continuing Operations of
Affiliated Companies............................. 801 750 597
-------- ------- --------
Income from Continuing Operations................. 489 503 463
Income (Loss) from Discontinued Operations, Net of
Income Tax....................................... 246 (51) (12)
-------- ------- --------
Income Before Extraordinary Loss.................. 735 452 451
Extraordinary Loss, Net of Income Tax............. -- (5) (25)
-------- ------- --------
Income before Cumulative Effect of Change in
Accounting Principle............................. 735 447 426
Cumulative Effect of Change in Accounting
Principle, Net of Income Tax..................... -- (39) --
-------- ------- --------
Net Income........................................ 735 408 426
Preferred Stock Dividends......................... 12 12 14
-------- ------- --------
Net Income to Common Stock........................ $ 723 $ 396 $ 412
======== ======= ========
</TABLE>
(The accompanying notes to financial statements are an integral part of these
statements of income.)
67
<PAGE>
SCHEDULE I
(CONTINUED)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TENNECO INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(MILLIONS)
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Operating Activities:
Income from continuing operations............... $ 489 $ 503 $ 463
Adjustments to reconcile income from continuing
operations to net cash provided (used) by
operating activities--
Deferred income taxes......................... 41 (16) 20
Equity in net income of affiliates, net of
cash dividends............................... (511) (671) (597)
Changes in components of working capital--
(Increase) decrease in receivables........... 100 57 200
Increase (decrease) in payables.............. 536 50 (27)
Increase (decrease) in taxes accrued......... -- -- (19)
Increase (decrease) in interest accrued...... -- -- (7)
Other......................................... 5 19 (18)
-------- --------- -------
Net cash provided (used) by operating activities. 660 (58) 15
-------- --------- -------
Investing Activities:
Net proceeds related to the sale of discontinued
operations..................................... 392 -- --
Investment in affiliated companies and other.... (1,572) (2,603) (224)
-------- --------- -------
Net cash used by investing activities............ (1,180) (2,603) (224)
-------- --------- -------
Financing Activities:
Issuance of common, treasury and SECT shares.... 102 188 1,234
Purchase of common stock........................ (655) (26) (7)
Redemption of preferred stock................... (20) (20) (30)
Issuance of long-term debt...................... 594 -- --
Retirement of long-term debt--
Note payable to Tenneco France Finance S.A. .. -- (160) --
Other......................................... (19) (150) (256)
Net increase in advances from affiliated
companies...................................... 170 195 --
Net increase (decrease) in short-term debt
excluding current
maturities on long-term debt--
Notes payable to affiliated companies......... (384) (64) (615)
Demand notes payable to affiliated companies.. 626 3,009 243
Commercial paper.............................. 341 10 (1)
Other......................................... 51 (3) (52)
Dividends (common and preferred)................ (286) (318) (307)
-------- --------- -------
Net cash provided by financing activities........ 520 2,661 209
-------- --------- -------
Increase (Decrease) in Cash and Temporary Cash
Investments..................................... -- -- --
Cash and Temporary Cash Investments, January 1... -- -- --
-------- --------- -------
Cash and Temporary Cash Investments, December 31
(Note).......................................... $ -- $ -- $ --
======== ========= =======
Cash paid during the year for interest........... $ 622 $ 433 $ 304
Cash paid during the year for income taxes (net
of refunds)...................................... $ (244) $ (123) $ 99
</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.)
68
<PAGE>
SCHEDULE I
(CONTINUED)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TENNECO INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(MILLIONS)
DECEMBER 31,
----------------
1995 1994
------- -------
<S> <C> <C>
ASSETS
Current Assets:
Receivables--
Affiliated companies....................................... $ 149 $ 241
Income taxes............................................... 133 234
Interest-bearing notes receivable from affiliated
companies................................................. 361 --
Other...................................................... 17 16
Deferred income taxes....................................... -- 2
------- -------
660 493
------- -------
Investments and Other Assets:
Investment in affiliated companies.......................... 11,791 9,514
Deferred income taxes....................................... 24 --
Other....................................................... 48 25
------- -------
11,863 9,539
------- -------
$12,523 $10,032
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities on long-term debt........................ $ 8 $ 8
Commercial paper--
Affiliated companies....................................... 56 62
Other...................................................... 346 --
Payables--
Affiliated companies....................................... 885 463
Other...................................................... 86 31
Interest-bearing notes payable to affiliated companies...... 240 240
Demand notes payable to affiliated companies................ 4,436 3,810
Interest accrued............................................ 60 60
Taxes accrued............................................... 70 --
Other....................................................... 7 5
------- -------
6,194 4,679
------- -------
Long-term Debt............................................... 2,652 2,072
------- -------
Advances from Affiliated Companies........................... 365 195
------- -------
Deferred Income Taxes........................................ -- 5
------- -------
Deferred Credits and Other Liabilities....................... 34 34
------- -------
Preferred Stock.............................................. 130 147
------- -------
Shareowners' Equity:
Common stock................................................ 957 957
Stock Employee Compensation Trust (common stock held in
trust)..................................................... (215) (298)
Premium on common stock and other capital surplus........... 3,602 3,553
Cumulative translation adjustments.......................... 26 (237)
Retained earnings (accumulated deficit)..................... (469) (905)
------- -------
3,901 3,070
Less--Shares held as treasury stock, at cost................ 753 170
------- -------
3,148 2,900
------- -------
$12,523 $10,032
======= =======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
balance sheets.)
69
<PAGE>
SCHEDULE I
(CONTINUED)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TENNECO INC.
NOTES TO FINANCIAL STATEMENTS
The financial statements of Tenneco Inc. should be read in conjunction with
the financial statements of Tenneco Inc. and Consolidated Subsidiaries
presented in this document.
Accounting Policies
Majority-owned subsidiaries and companies in which at least a 20% voting
interest is owned are carried at cost plus equity in undistributed earnings
since date of acquisition and cumulative translation adjustments. At December
31, 1995, equity in undistributed earnings and cumulative translation
adjustments amounted to $3,890 million and $18 million, respectively; at
December 31, 1994, the corresponding amounts were $3,241 million and $(199)
million, respectively.
Cash dividends received from companies accounted for on an equity basis
amounted to $305 million, $1 million and none for 1995, 1994 and 1993,
respectively. In addition, $250 million in non-cash dividends were received in
1995.
Income Taxes
Tenneco Inc., together with certain of its respective subsidiaries which are
owned 80% or more, have entered into an agreement to file a consolidated
federal income tax return. Such agreement provides, among other things, that
(1) 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 (2) each company in a tax loss position will be currently reimbursed
to the extent its deductions, including general business credits, are utilized
in the consolidated return.
Tenneco Inc.'s pre-tax earnings (loss) from continuing operations (excluding
equity in net income from continuing operations of affiliated companies) for
the years 1995, 1994 and 1993 are principally domestic. The differences
between the U.S. income tax benefit, reflected in the Statements of Income, of
$207 million, $109 million and $80 million for the years 1995, 1994 and 1993
and the income tax expense, computed based on pre-tax income from continuing
operations at the U.S. federal income tax rates, of $99 million, $138 million
and $134 million, respectively, consisted principally of the tax effect of
equity in net income from continuing operations of affiliated companies in
each of the three years and permanent differences on the sale of businesses in
1994.
Long-Term Debt and Current Maturities
The aggregate maturities and sinking fund requirements applicable to the
long-term debt issues outstanding at December 31, 1995, are $8 million, $15
million, $769 million, $250 million and $175 million for 1996, 1997, 1998,
1999 and 2000, respectively.
Financial Instruments
Tenneco Inc. has guaranteed the performance of certain subsidiaries pursuant
to arrangements under which receivables are factored on a nonrecourse basis
with Tenneco Credit Corporation. Also, Tenneco Inc. has agreed to pay to
Tenneco Credit Corporation a service charge to the extent necessary so that
the earnings of Tenneco Credit Corporation and its consolidated subsidiaries
(before fixed charges and income taxes) are not less than 125% of the fixed
charges.
(The above notes are an integral part of the foregoing financial statements.)
70
<PAGE>
SCHEDULE II
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
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 DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS (NOTE) OF YEAR
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts Deducted from
Assets to Which it
Applies:
Year Ended December 31,
1995.................. $44 $46 $ 9 $26 $73
=== === === === ===
Year Ended December 31,
1994.................. $54 $13 $ 2 $25 $44
=== === === === ===
Year Ended December 31,
1993.................. $35 $35 $ 3 $19 $54
=== === === === ===
</TABLE>
- --------
Note: For 1995, 1994 and 1993, includes uncollectible accounts written off,
net of recoveries on accounts previously written off.
71
<PAGE>
REPORTS ON FORM 8-K
Tenneco Inc. filed three Current Reports on Form 8-K during the fourth
quarter of the fiscal year ended December 31, 1995: on October 2, 1995
regarding the issuance of a press release announcing that it had signed a
definitive agreement to acquire the plastics division of Mobil Corporation for
$1.27 billion; on November 17, 1995 regarding the issuance of a press release
announcing that it had completed the acquisition of the plastics division of
Mobil Corporation for $1.27 billion and filing financial statements of
businesses acquired and pro forma financial information of Tenneco Inc.; and
on December 13, 1995 regarding the issuance of $300,000,000 aggregate
principal amount of 6 1/2% Notes due 2005 of Tenneco Inc. and $300,000,000
aggregate principal amount of 7 1/4% Debentures due 2025 of Tenneco Inc.
EXHIBITS
The exhibits listed below are filed with this Form 10K/A Amendment:
<TABLE>
<C> <S>
11 --Computation of Earnings (Loss) Per Share of Common Stock
12 --Computation of Ratio of Earnings to Fixed Charges
23 --Consent of Arthur Andersen LLP, Independent Public Accountants for
Tenneco Inc.
27 --Financial Data Schedules
</TABLE>
The following exhibits were filed with Tenneco Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1995, or incorporated therein by
reference, at the time such Report was originally filed on February 14, 1996
(exhibits designated by an asterisk were filed with the Report; all other
exhibits were incorporated by reference):
<TABLE>
<C> <S>
*3(b) --Copy of By-Laws of Tenneco Inc. as amended on December 6, 1995.
*4(a)(1) --Indenture dated as of March 15, 1988 between Tenneco Inc. and The
Chase Manhattan Bank (National Association), as Trustee
*4(a)(2) --Second Supplemental Indenture dated as of March 30, 1988 to
Indenture dated as of
March 15, 1988 between Tenneco Inc. and The Chase Manhattan Bank
(National Association), as Trustee
*4(a)(3) --Fifth Supplemental Indenture dated as of November 15, 1990 to
Indenture dated as of March 15, 1988 between Tenneco Inc. and The
Chase Manhattan Bank (National Association), as Trustee
*4(a)(4) --Sixth Supplemental Indenture dated as of February 1, 1991 to
Indenture dated as of
March 15, 1988 between Tenneco Inc. and The Chase Manhattan Bank
(National Association), as Trustee
*4(a)(5) --Seventh Supplemental Indenture dated as of August 1, 1991 to
Indenture dated as of
March 15, 1988 between Tenneco Inc. and The Chase Manhattan Bank
(National Association), as Trustee
*4(a)(6) --Eighth Supplemental Indenture dated as of October 1, 1992 to
Indenture dated as of
March 15, 1988 between Tenneco Inc. and The Chase Manhattan Bank
(National Association), as Trustee
*4(a)(7) --Ninth Supplemental Indenture dated as of November 15, 1992 to
Indenture dated as of March 15, 1988 between Tenneco Inc. and The
Chase Manhattan Bank (National Association), as Trustee
*4(a)(8) --Tenth Supplemental Indenture dated as of November 15, 1992 to
Indenture dated as of March 15, 1988 between Tenneco Inc. and The
Chase Manhattan Bank (National Association), as Trustee
*4(a)(9) --Eleventh Supplemental Indenture dated as of December 15, 1995 to
Indenture dated as of March 15, 1988 between Tenneco Inc. and The
Chase Manhattan Bank (National Association), as Trustee
</TABLE>
72
<PAGE>
<TABLE>
<C> <S>
*4(a)(10) --Twelfth Supplemental Indenture dated as of December 15, 1995 to
Indenture dated as of March 15, 1988 between Tenneco Inc. and
The Chase Manhattan Bank (National Association), as Trustee
9 --None.
10(a)(1) --Copy of Tenneco Inc. Board of Directors Deferred Compensation
Plan, amended and restated January 1, 1988 (Exhibit 10(a)(1) to
Form 10-K for the fiscal year ended December 31, 1988, File No.
1-9864).
10(a)(2) --Copy of Tenneco Inc. Executive Incentive Compensation Plan,
amended and restated
July 31, 1986 (Exhibit 10(a)(2) to Registration No. 33-17815).
*10(a)(3) --Copy of Tenneco Inc. Deferred Compensation Plan, amended and
restated September 12, 1995, together with form of Deferred
Compensation Agreement.
*10(a)(4) --Copy of Tenneco Inc. 1993 Deferred Compensation Plan, amended
September, 1995.
10(a)(5) --Copy of 1981 Tenneco Inc. Key Employee Stock Option Plan,
amended and restated January 13, 1987 (Exhibit 10(a)(4) to
Registration No. 33-17815).
10(a)(6) --Copy of Tenneco Inc. Key Employee Restricted Stock and
Restricted Unit Plan effective May 10, 1988 (Exhibit 10(a)(8) to
Form 10-K for the fiscal year ended December 31, 1988, File No.
1-9864).
10(a)(7) --Copy of Tenneco Inc. Supplemental Executive Retirement Plan
effective January 1, 1989 (Exhibit 10(a)(9) to Form 10-K for the
fiscal year ended December 31, 1988, File No.
1-9864).
10(a)(8) --Copy of Amendment No. 1 to Tenneco Inc. Supplemental Executive
Retirement Plan (Exhibit 10(a)(9) to Form 10-K for the fiscal
year ended December 31, 1992, File No.
1-9864).
10(a)(9) --Copy of Tenneco Inc. Benefit Equalization Plan (Exhibit
10(a)(10) to Form 10-K for the fiscal year ended December 31,
1988, File No. 1-9864).
10(a)(10) --Copy of Amendment No. 1 to Tenneco Inc. Benefit Equalization
Plan (Exhibit 10(a)(11) to Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-9864).
10(a)(11) --Copy of Tenneco Inc. Board of Directors Restricted Stock and
Restricted Unit Program (Exhibit 10(a)(12) to Form 10-K for the
fiscal year ended December 31, 1990, File No.
1-9864).
10(a)(12) --Copy of 1994 Tenneco Inc. Stock Ownership Plan (Exhibit
10(a)(13) to Form 10-K for the fiscal year ended December 31,
1993, File No. 1-9864).
10(a)(13) --Copy of Tenneco Inc. Outside Directors Retirement Plan (Exhibit
10(a)(12) to Form 10-K for the fiscal year ended December 31,
1994, File No. 1-9864).
10(a)(14) --Supplemental Pension Agreement, dated September 12, 1995,
between Dana G. Mead and Tenneco Inc. (Exhibit 10 to Form 10-Q
for the quarter ended September 30, 1995, File No. 1-9864).
10(b)(1) --Lease Agreement, Tomahawk, dated as of January 30, 1991,
between The Connecticut National Bank, as Owner Trustee, and
Packaging Corporation of America (Exhibit 10(b)(1) to Form 10-K
for the fiscal year ended December 31, 1990, File No. 1-9864).
10(b)(2) --Lease Agreement, Valdosta, dated as of January 30, 1991,
between The Connecticut National Bank, Philip G. Kane, Jr.,
Frank McDonald, Jr., and William R. Monroe, as Owner Trustee,
and Packaging Corporation of America (Exhibit 10(b)(2) to Form
10-K for the fiscal year ended December 31, 1990, File No. 1-
9864).
10(b)(3) --Timberland Lease dated January 31, 1991, by and between Four
States Timber Venture and Packaging Corporation of America
(Exhibit 10(b)(3) to Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-9864).
</TABLE>
73
<PAGE>
<TABLE>
<C> <S>
10(b)(4) --Asset Purchase Agreement, dated as of October 1, 1995, among
Mobil Oil Corporation, Mobil Chemical Canada Limited and Tenneco
Inc. (Exhibit 2 to Current Report on Form 8-K, dated November
17, 1995, of Tenneco Inc., File No. 1-9864).
10(c)(1) --Employment Agreement dated June 29, 1992, between Stacy S. Dick
and Tenneco Inc. (Exhibit 10(c)(3) to Form 10-K for the fiscal
year ended December 31, 1993, File No.
1-9864).
10(c)(2) --Employment Agreement dated March 12, 1992, between Dana G. Mead
and Tenneco Inc. (Exhibit 10(c)(2) to Form 10-K for the fiscal
year ended December 31, 1993, File
No. 1-9864).
10(c)(3) --Employment Agreement dated December 3, 1993, between Paul T.
Stecko and Tenneco Inc. (Exhibit 10(c)(5) to Form 10-K for the
year ended December 31, 1993, File
No. 1-9864).
10(c)(4) --Agreement dated September 9, 1992, between Theodore R. Tetzlaff
and Tenneco Inc. (Exhibit 10(c)(6) to Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-9864).
*11 --Computation of Earnings (Loss) Per Share of Common Stock.
*12 --Computation of Ratio of Earnings to Fixed Charges.
13 --None.
16 --None.
18 --None.
*21 --List of Subsidiaries and Affiliates of Tenneco Inc.
22 --None.
*23 --Consent of Arthur Andersen LLP, Independent Public Accountants
for Tenneco Inc.
*24 --Powers of Attorney of the following directors of Tenneco Inc.:
Mark Andrews
W. Michael Blumenthal
M. Kathryn Eickhoff
Peter T. Flawn
Henry U. Harris, Jr.
Belton K. Johnson
John B. McCoy
Joseph J. Sisco
William L. Weiss
Clifton R. Wharton, Jr.
*27 --Financial Data Schedule.
28 --None.
99 --None.
</TABLE>
UNDERTAKING.
The undersigned, Tenneco Inc., hereby undertakes, pursuant to Regulation S-
K, Item 601(b), paragraph (4)(iii), to furnish to the Securities and Exchange
Commission upon request all constituent instruments defining the rights of
holders of long-term debt of Tenneco Inc. and its consolidated subsidiaries
not filed herewith for the reason that the total amount of securities
authorized under any of such instruments does not exceed 10% of the total
consolidated assets of Tenneco Inc. and its consolidated subsidiaries.
74
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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
By __________________________________
Executive Vice President and Chief
Financial Officer
Date: August 27, 1996
75
<PAGE>
EXHIBIT 11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
(MILLIONS EXCEPT SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
COMPUTATION FOR STATEMENTS OF INCOME
Primary Earnings Per Share (average
shares outstanding):
Income from continuing operations...... $ 489 $ 503 $ 463
Income (loss) from discontinued opera-
tions, net of income tax.............. 246 (51) (12)
----------- ----------- -----------
Income before extraordinary loss....... 735 452 451
Extraordinary loss, net of income tax.. -- (5) (25)
----------- ----------- -----------
Income before cumulative effect of
change in accounting principle........ 735 447 426
Cumulative effect of change in ac-
counting principle, net of income
tax................................... -- (39) --
----------- ----------- -----------
Net income ............................ 735 408 426
Preferred stock dividends.............. 12 12 14
----------- ----------- -----------
Net income to common stock............. $ 723 $ 396 $ 412
=========== =========== ===========
Average shares of common stock out-
standing (a)(b)....................... 173,995,941 180,084,909 168,772,852
=========== =========== ===========
Earnings (loss) per average share of
common stock:
Continuing operations................ $ 2.75 $ 2.72 $ 2.66
Discontinued operations.............. 1.41 (.27) (.07)
Extraordinary loss................... -- (.03) (.15)
Cumulative effect of change in ac-
counting principle.................. -- (.22) --
----------- ----------- -----------
$ 4.16 $ 2.20 $ 2.44
=========== =========== ===========
ADDITIONAL COMPUTATIONS(C)
Net income to common stock, per above... $ 723 $ 396 $ 412
=========== =========== ===========
Primary Earnings Per Share (including
common stock equivalents):
Average shares of common stock out-
standing (a)(b)....................... 173,995,941 180,084,909 168,772,852
Incremental common shares applicable
to common stock options based on the
common stock daily average market
price during the year................. 64,329 74,087 38,171
Incremental common shares applicable
to performance units based upon the
attainment of specified goals......... 27,625 -- --
----------- ----------- -----------
Average common shares, as adjusted..... 174,087,895 180,158,996 168,811,023
=========== =========== ===========
Earnings (loss) per average share of
common stock (including common
stock equivalents):
Continuing operations................ $ 2.75 $ 2.72 $ 2.66
Discontinued operations.............. 1.41 (.27) (.07)
Extraordinary loss................... -- (.03) (.15)
Cumulative effect of change in ac-
counting principle.................. -- (.22) --
----------- ----------- -----------
$ 4.16 $ 2.20 $ 2.44
=========== =========== ===========
Fully Diluted Earnings Per Share:
Average shares of common stock out-
standing (a)(b)....................... 173,995,941 180,084,909 168,772,852
Incremental common shares applicable
to common stock options based on the
more dilutive of the common stock
ending or average market price during
the year.............................. 94,418 75,223 106,901
Average common shares issuable assum-
ing conversion of Tenneco Inc. 10%
loan stock............................ -- 41,356 42,663
Incremental common shares applicable
to performance units based upon the
attainment of specified goals......... 27,625 -- --
----------- ----------- -----------
Average common shares assuming full
dilution.............................. 174,117,984 180,201,488 168,922,416
=========== =========== ===========
Fully diluted earnings (loss) per av-
erage share, assuming conversion of
all applicable securities:
Continuing operations................ $ 2.75 $ 2.72 $ 2.66
Discontinued operations.............. 1.41 (.27) (.07)
Extraordinary loss................... -- (.03) (.15)
Cumulative effect of change in ac-
counting principle.................. -- (.22) --
----------- ----------- -----------
$ 4.16 $ 2.20 $ 2.44
=========== =========== ===========
</TABLE>
- --------
Notes: (a) In 1992, 12,000,000 shares of common stock were issued to the
Tenneco Inc. Stock Employee Compensation Trust ("SECT"). Shares of
common stock issued to a related trust are not considered to be
outstanding in the computation of average shares of common stock until
the shares are utilized to fund the obligations for which the trust
was established. During each of the years ended December 31, 1995,
1994 and 1993, the SECT utilized 2,697,770, 2,464,721 and 2,479,425
shares, respectively.
(b) For purposes of computing earnings per share, Series A preferred stock
was 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 17,342,763 shares of common stock. In
December 1994, all of the outstanding shares of Series A preferred
stock were converted into Tenneco Inc. common stock. The inclusion of
Series A preferred stock in the computation of earnings per share was
antidilutive for the years and certain quarters in 1994 and 1993.
(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
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations............................. $ 489 $ 503 $ 463 $ 532 $ 520
Add:
Interest............................... 425 381 349 321 326
Portion of rentals representative of
interest factor....................... 59 56 55 53 50
Preferred stock dividend requirements
of majority-owned subsidiaries........ 22 -- -- -- --
Income tax expense and other taxes on
income................................ 279 249 298 282 259
Amortization of interest capitalized
applicable to nonutility companies.... 5 4 4 2 1
Interest capitalized applicable to
utility companies..................... 2 1 1 2 4
Undistributed (earnings) losses of
affiliated companies in which less
than a 50% voting interest is owned... (9) (3) 3 (3) (4)
------ ------ ------ ------ ------
Earnings as defined................. $1,272 $1,191 $1,173 $1,189 $1,156
====== ====== ====== ====== ======
Interest................................ $ 425 $ 381 $ 349 $ 321 $ 326
Interest capitalized.................... 9 4 3 6 20
Portion of rentals representative of
interest factor........................ 59 56 55 53 50
Preferred stock dividend requirements of
majority-owned subsidiaries on a pretax
basis.................................. 30 -- -- -- --
------ ------ ------ ------ ------
Fixed charges as defined............ $ 523 $ 441 $ 407 $ 380 $ 396
====== ====== ====== ====== ======
Ratio of earnings to fixed charges...... 2.43 2.70 2.88 3.13 2.92
====== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
(MILLIONS EXCEPT SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
COMPUTATION FOR STATEMENTS OF INCOME
Primary Earnings Per Share (average
shares outstanding):
Income from continuing operations...... $ 489 $ 503 $ 463
Income (loss) from discontinued opera-
tions, net of income tax.............. 246 (51) (12)
----------- ----------- -----------
Income before extraordinary loss....... 735 452 451
Extraordinary loss, net of income tax.. -- (5) (25)
----------- ----------- -----------
Income before cumulative effect of
change in accounting principle........ 735 447 426
Cumulative effect of change in ac-
counting principle, net of income
tax................................... -- (39) --
----------- ----------- -----------
Net income ............................ 735 408 426
Preferred stock dividends.............. 12 12 14
----------- ----------- -----------
Net income to common stock............. $ 723 $ 396 $ 412
=========== =========== ===========
Average shares of common stock out-
standing (a)(b)....................... 173,995,941 180,084,909 168,772,852
=========== =========== ===========
Earnings (loss) per average share of
common stock:
Continuing operations................ $ 2.75 $ 2.72 $ 2.66
Discontinued operations.............. 1.41 (.27) (.07)
Extraordinary loss................... -- (.03) (.15)
Cumulative effect of change in ac-
counting principle.................. -- (.22) --
----------- ----------- -----------
$ 4.16 $ 2.20 $ 2.44
=========== =========== ===========
ADDITIONAL COMPUTATIONS(C)
Net income to common stock, per above... $ 723 $ 396 $ 412
=========== =========== ===========
Primary Earnings Per Share (including
common stock equivalents):
Average shares of common stock out-
standing (a)(b)....................... 173,995,941 180,084,909 168,772,852
Incremental common shares applicable
to common stock options based on the
common stock daily average market
price during the year................. 64,329 74,087 38,171
Incremental common shares applicable
to performance units based upon the
attainment of specified goals......... 27,625 -- --
----------- ----------- -----------
Average common shares, as adjusted..... 174,087,895 180,158,996 168,811,023
=========== =========== ===========
Earnings (loss) per average share of
common stock (including common
stock equivalents):
Continuing operations................ $ 2.75 $ 2.72 $ 2.66
Discontinued operations.............. 1.41 (.27) (.07)
Extraordinary loss................... -- (.03) (.15)
Cumulative effect of change in ac-
counting principle.................. -- (.22) --
----------- ----------- -----------
$ 4.16 $ 2.20 $ 2.44
=========== =========== ===========
Fully Diluted Earnings Per Share:
Average shares of common stock out-
standing (a)(b)....................... 173,995,941 180,084,909 168,772,852
Incremental common shares applicable
to common stock options based on the
more dilutive of the common stock
ending or average market price during
the year.............................. 94,418 75,223 106,901
Average common shares issuable assum-
ing conversion of Tenneco Inc. 10%
loan stock............................ -- 41,356 42,663
Incremental common shares applicable
to performance units based upon the
attainment of specified goals......... 27,625 -- --
----------- ----------- -----------
Average common shares assuming full
dilution.............................. 174,117,984 180,201,488 168,922,416
=========== =========== ===========
Fully diluted earnings (loss) per av-
erage share, assuming conversion of
all applicable securities:
Continuing operations................ $ 2.75 $ 2.72 $ 2.66
Discontinued operations.............. 1.41 (.27) (.07)
Extraordinary loss................... -- (.03) (.15)
Cumulative effect of change in ac-
counting principle.................. -- (.22) --
----------- ----------- -----------
$ 4.16 $ 2.20 $ 2.44
=========== =========== ===========
</TABLE>
- --------
Notes: (a) In 1992, 12,000,000 shares of common stock were issued to the
Tenneco Inc. Stock Employee Compensation Trust ("SECT"). Shares of
common stock issued to a related trust are not considered to be
outstanding in the computation of average shares of common stock until
the shares are utilized to fund the obligations for which the trust
was established. During each of the years ended December 31, 1995,
1994 and 1993, the SECT utilized 2,697,770, 2,464,721 and 2,479,425
shares, respectively.
(b) For purposes of computing earnings per share, Series A preferred stock
was 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 17,342,763 shares of common stock. In
December 1994, all of the outstanding shares of Series A preferred
stock were converted into Tenneco Inc. common stock. The inclusion of
Series A preferred stock in the computation of earnings per share was
antidilutive for the years and certain quarters in 1994 and 1993.
(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
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations............................. $ 489 $ 503 $ 463 $ 532 $ 520
Add:
Interest............................... 425 381 349 321 326
Portion of rentals representative of
interest factor....................... 59 56 55 53 50
Preferred stock dividend requirements
of majority-owned subsidiaries........ 22 -- -- -- --
Income tax expense and other taxes on
income................................ 279 249 298 282 259
Amortization of interest capitalized
applicable to nonutility companies.... 5 4 4 2 1
Interest capitalized applicable to
utility companies..................... 2 1 1 2 4
Undistributed (earnings) losses of
affiliated companies in which less
than a 50% voting interest is owned... (9) (3) 3 (3) (4)
------ ------ ------ ------ ------
Earnings as defined................. $1,272 $1,191 $1,173 $1,189 $1,156
====== ====== ====== ====== ======
Interest................................ $ 425 $ 381 $ 349 $ 321 $ 326
Interest capitalized.................... 9 4 3 6 20
Portion of rentals representative of
interest factor........................ 59 56 55 53 50
Preferred stock dividend requirements of
majority-owned subsidiaries on a pretax
basis.................................. 30 -- -- -- --
------ ------ ------ ------ ------
Fixed charges as defined............ $ 523 $ 441 $ 407 $ 380 $ 396
====== ====== ====== ====== ======
Ratio of earnings to fixed charges...... 2.43 2.70 2.88 3.13 2.92
====== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 8, 1996 (except with respect to the
matter discussed in Note 3, as to which the date is March 7, 1996), included
in the Annual Report of Tenneco Inc. on Form 10-K, as amended, for the year
ended December 31, 1995, into the following Registration Statements previously
filed with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
REGISTRATION NO. FORM SECURITIES REGISTERED
---------------- ---- ---------------------
<C> <C> <S>
2-78521 S-8 Common Stock, par value $5 per share, of Tenneco Inc.
(formerly Tenneco Holdings, Inc.) ("Common Stock")
issuable under the 1981 Tenneco Inc. Key Employee Stock
Option Plan.
33-46579 S-8 5,000,000 shares of Common Stock of Tenneco Inc. offered
in connection with the Tenneco Inc. 1992 Employee Stock
Purchase Plan.
33-61135 S-8 8,400,000 shares of Common Stock of Tenneco Inc. offered
in connection with the 1994 Tenneco Inc. Stock
Ownership Plan.
33-52595 S-3 1,000,000 shares of Common Stock of Tenneco Inc. offered
in connection with the Dividend Reinvestment and Stock
Purchase Plan, as amended by Post-Effective Amendment
No. 1 dated February 10, 1995 in which the Plan was
made available to investors as a direct purchase plan.
33-61133 S-8 Packaging Corporation of America 401(k) Savings Plan,
contributions thereunder and Common Stock of Tenneco
Inc. offered thereunder.
33-61129 S-8 Newport News Shipbuilding Savings (401(k)) Plan for
Union Eligible Employees, contributions thereunder and
Common Stock of Tenneco Inc. offered thereunder.
33-61127 S-8 Tenneco Automotive Hourly Employees Savings Plan,
contributions thereunder and Common Stock of Tenneco
Inc. offered thereunder.
33-64797 S-3 $900,000,000 aggregate principal amount of Debt
Securities of Tenneco Inc. offered pursuant to Rule 415
of the General Rules and Regulations under the
Securities Act of 1933, as amended (of which
$500,000,000 has been issued).
33-55622 S-3 2,800,000 shares of Common Stock of Tenneco Inc. offered
to the trustee of the Tenneco Inc. General Employee
Benefit Trust.
33-61137 S-8 Tenneco Inc. Thrift Plan, contributions thereunder and
Common Stock of Tenneco Inc. offered thereunder.
</TABLE>
Arthur Andersen LLP
Houston, Texas
August 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Tenneco
Inc. and consolidated subsidiaries financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 229
<SECURITIES> 0
<RECEIVABLES> 1,104
<ALLOWANCES> 0
<INVENTORY> 1,175
<CURRENT-ASSETS> 3,651
<PP&E> 12,338
<DEPRECIATION> 5,842
<TOTAL-ASSETS> 13,262
<CURRENT-LIABILITIES> 3,663
<BONDS> 3,374
112
0
<COMMON> 957
<OTHER-SE> 2,612
<TOTAL-LIABILITY-AND-EQUITY> 13,262
<SALES> 5,517
<TOTAL-REVENUES> 5,517
<CGS> 4,150
<TOTAL-COSTS> 4,150
<OTHER-EXPENSES> 854
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179
<INCOME-PRETAX> 502
<INCOME-TAX> 175
<INCOME-CONTINUING> 317
<DISCONTINUED> 339
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 656
<EPS-PRIMARY> 3.82
<EPS-DILUTED> 3.80
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TENNECO
INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 1,509
<ALLOWANCES> 0
<INVENTORY> 1,252
<CURRENT-ASSETS> 3,811
<PP&E> 12,144
<DEPRECIATION> 5,748
<TOTAL-ASSETS> 13,312
<CURRENT-LIABILITIES> 3,473
<BONDS> 3,482
111
0
<COMMON> 957
<OTHER-SE> 2,575
<TOTAL-LIABILITY-AND-EQUITY> 13,312
<SALES> 2,725
<TOTAL-REVENUES> 2,725
<CGS> 2,062
<TOTAL-COSTS> 2,062
<OTHER-EXPENSES> 420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89
<INCOME-PRETAX> 230
<INCOME-TAX> 69
<INCOME-CONTINUING> 156
<DISCONTINUED> 339
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 495
<EPS-PRIMARY> 2.89
<EPS-DILUTED> 2.87
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TENNECO
INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 354
<SECURITIES> 0
<RECEIVABLES> 921
<ALLOWANCES> 0
<INVENTORY> 1,181
<CURRENT-ASSETS> 3,582
<PP&E> 11,962
<DEPRECIATION> 5,643
<TOTAL-ASSETS> 13,451
<CURRENT-LIABILITIES> 3,836
<BONDS> 3,751
130
0
<COMMON> 957
<OTHER-SE> 2,191
<TOTAL-LIABILITY-AND-EQUITY> 13,451
<SALES> 8,899
<TOTAL-REVENUES> 8,899
<CGS> 6,688
<TOTAL-COSTS> 6,688
<OTHER-EXPENSES> 1,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 306
<INCOME-PRETAX> 790
<INCOME-TAX> 279
<INCOME-CONTINUING> 489
<DISCONTINUED> 246
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 735
<EPS-PRIMARY> 4.16
<EPS-DILUTED> 4.16
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TENNECO
INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 712
<SECURITIES> 0
<RECEIVABLES> 1,026
<ALLOWANCES> 0
<INVENTORY> 1,002
<CURRENT-ASSETS> 3,665
<PP&E> 11,000
<DEPRECIATION> 5,629
<TOTAL-ASSETS> 12,383
<CURRENT-LIABILITIES> 2,875
<BONDS> 3,310
129
0
<COMMON> 957
<OTHER-SE> 2,172
<TOTAL-LIABILITY-AND-EQUITY> 12,383
<SALES> 6,497
<TOTAL-REVENUES> 6,497
<CGS> 4,819
<TOTAL-COSTS> 4,819
<OTHER-EXPENSES> 961
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 222
<INCOME-PRETAX> 633
<INCOME-TAX> 265
<INCOME-CONTINUING> 351
<DISCONTINUED> 201
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 552
<EPS-PRIMARY> 3.11
<EPS-DILUTED> 3.11
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TENNECO
INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 107
<SECURITIES> 0
<RECEIVABLES> 1,192
<ALLOWANCES> 0
<INVENTORY> 976
<CURRENT-ASSETS> 3,257
<PP&E> 10,760
<DEPRECIATION> 5,548
<TOTAL-ASSETS> 12,090
<CURRENT-LIABILITIES> 2,855
<BONDS> 3,309
129
0
<COMMON> 957
<OTHER-SE> 1,954
<TOTAL-LIABILITY-AND-EQUITY> 12,090
<SALES> 4,361
<TOTAL-REVENUES> 4,361
<CGS> 3,236
<TOTAL-COSTS> 3,236
<OTHER-EXPENSES> 638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152
<INCOME-PRETAX> 453
<INCOME-TAX> 185
<INCOME-CONTINUING> 257
<DISCONTINUED> 81
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 338
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.89
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TENNECO
INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 569
<SECURITIES> 0
<RECEIVABLES> 1,293
<ALLOWANCES> 0
<INVENTORY> 933
<CURRENT-ASSETS> 3,731
<PP&E> 10,309
<DEPRECIATION> 5,458
<TOTAL-ASSETS> 12,220
<CURRENT-LIABILITIES> 2,768
<BONDS> 3,559
128
0
<COMMON> 957
<OTHER-SE> 1,975
<TOTAL-LIABILITY-AND-EQUITY> 12,220
<SALES> 2,163
<TOTAL-REVENUES> 2,163
<CGS> 1,624
<TOTAL-COSTS> 1,624
<OTHER-EXPENSES> 313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75
<INCOME-PRETAX> 216
<INCOME-TAX> 83
<INCOME-CONTINUING> 128
<DISCONTINUED> 25
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 153
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TENNECO
INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 405
<SECURITIES> 0
<RECEIVABLES> 1,331
<ALLOWANCES> 0
<INVENTORY> 761
<CURRENT-ASSETS> 3,471
<PP&E> 10,328
<DEPRECIATION> 5,476
<TOTAL-ASSETS> 12,251
<CURRENT-LIABILITIES> 2,807
<BONDS> 3,568
147
0
<COMMON> 957
<OTHER-SE> 1,943
<TOTAL-LIABILITY-AND-EQUITY> 12,251
<SALES> 8,298
<TOTAL-REVENUES> 8,298
<CGS> 6,408
<TOTAL-COSTS> 6,408
<OTHER-EXPENSES> 1,024
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263
<INCOME-PRETAX> 759
<INCOME-TAX> 249
<INCOME-CONTINUING> 503
<DISCONTINUED> (51)
<EXTRAORDINARY> (5)
<CHANGES> (39)
<NET-INCOME> 408
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.20
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TENNECO
INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 429
<SECURITIES> 0
<RECEIVABLES> 1,348
<ALLOWANCES> 0
<INVENTORY> 672
<CURRENT-ASSETS> 3,342
<PP&E> 9,810
<DEPRECIATION> 5,286
<TOTAL-ASSETS> 12,091
<CURRENT-LIABILITIES> 2,912
<BONDS> 3,656
146
9
<COMMON> 870
<OTHER-SE> 2,104
<TOTAL-LIABILITY-AND-EQUITY> 12,091
<SALES> 6,234
<TOTAL-REVENUES> 6,234
<CGS> 4,847
<TOTAL-COSTS> 4,847
<OTHER-EXPENSES> 738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189
<INCOME-PRETAX> 553
<INCOME-TAX> 192
<INCOME-CONTINUING> 358
<DISCONTINUED> 62
<EXTRAORDINARY> (5)
<CHANGES> (39)
<NET-INCOME> 376
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.04
</TABLE>
