<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-4101
TENNESSEE GAS PIPELINE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-1056569
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
TENNECO BUILDING, HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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>
6% Debentures due 2011; 9 1/4% Notes due 1996; 9%
Notes due 1997....................................... New York Stock Exchange
</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
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.
None
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK, AS OF THE CLOSE OF THE LATEST PRACTICABLE DATE. Common stock,
par value $5 per share, 200 shares outstanding as of March 17, 1994.
TENNESSEE GAS PIPELINE COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION
J(1)(A) AND (B) TO THE FORM 10-K AND IS THEREFORE FILING THIS REPORT WITH A
REDUCED DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I
ITEM 1. BUSINESS.................................................... 1
Tennessee Gas Pipeline Company.............................. 1
Contributions of Major Businesses........................... 1
Natural Gas Pipelines and Marketing......................... 3
Farm and Construction Equipment............................. 7
Automotive Parts............................................ 9
Shipbuilding................................................ 11
Packaging................................................... 12
Chemicals................................................... 13
Other....................................................... 13
Business Strategy........................................... 13
Environmental Matters....................................... 14
ITEM 2. PROPERTIES.................................................. 14
ITEM 3. LEGAL PROCEEDINGS........................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 17
PART II
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
ITEM 5. STOCKHOLDER MATTERS........................................ 17
ITEM 6. SELECTED FINANCIAL DATA..................................... *
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 24
Index to Financial Statements of Tennessee Gas Pipeline
Company and Consolidated Subsidiaries...................... 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................... 54
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... *
ITEM 11. EXECUTIVE COMPENSATION...................................... *
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................. *
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. *
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K........................................................ 54
Financial Statements Included in Item 8..................... 54
Index to Financial Statements and Schedules Included in Item
14......................................................... 54
Schedules Omitted as Not Required or Inapplicable........... 54
Reports on Form 8-K......................................... 66
Exhibits.................................................... 66
</TABLE>
- --------
* No response to this item is included herein for the reason that no response
is required pursuant to the reduced disclosure format permitted by General
Instruction J to Form 10-K.
i
<PAGE>
PART I
TENNESSEE GAS PIPELINE COMPANY
ITEM 1. BUSINESS.
Tennessee Gas Pipeline Company, a Delaware corporation (the "Company"), is a
wholly-owned subsidiary of Tenneco Inc. As used herein, "Tennessee" refers to
the Company and its consolidated subsidiaries.
The major businesses of Tennessee are the transportation and sale of natural
gas; manufacture and sale of farm and construction equipment; manufacture and
sale of automotive exhaust system parts, ride control products and brake
products; construction and repair of ships; manufacture and sale of packaging
materials, cartons, containers and specialty packaging products; and
manufacture and sale of phosphorus chemicals and surfactant products. See
"Business Strategy".
At December 31, 1993, Tennessee had approximately 60,000 employees.
CONTRIBUTIONS OF MAJOR BUSINESSES
Information concerning Tennessee's principal industry segments and geographic
areas is set forth in Note 13 of the Financial Statements of Tennessee Gas
Pipeline Company and Consolidated Subsidiaries. The following tables summarize
(i) net sales and operating revenues from continuing operations, (ii) income
(loss) from continuing operations before interest expense and income taxes and
(iii) capital expenditures of the major business groups of Tennessee for the
periods indicated.
NET SALES AND OPERATING REVENUES FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Natural gas pipelines................. $ 2,862 27% $ 2,183 21% $ 2,183 17%
Farm and construction equipment....... 1,014 10 1,256 12 3,616 29
Automotive parts...................... 1,676 16 1,655 16 1,693 14
Shipbuilding.......................... 1,861 18 2,265 22 2,216 18
Packaging............................. 2,042 20 2,078 20 1,934 15
Chemicals............................. 914 9 951 9 916 7
Other................................. 1 -- 2 -- 33 --
Intergroup sales...................... (8) -- (6) -- (13) --
------- --- ------- --- ------- ---
Total............................... $10,362 100% $10,384 100% $12,578 100%
======= === ======= === ======= ===
</TABLE>
1
<PAGE>
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE AND INCOME
TAXES
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ----
(MILLIONS)
<S> <C> <C> <C>
Natural gas pipelines................................... $ 411 $ 360 $561
Farm and construction equipment......................... 49* (264)* (951)*
Automotive parts........................................ 191 203 183
Shipbuilding............................................ 225 249 225
Packaging............................................... 139 221 139
Chemicals............................................... 78 72 (70)*
Other................................................... 219 211 59
------ ------ ----
Total................................................. $1,312 $1,052 $146
====== ====== ====
</TABLE>
- --------
* Includes a 1993 reduction of the restructuring charge of $62 million and
restructuring charges of $241 million and $403 million related to Farm and
construction equipment for 1992 and 1991, respectively, and $79 million
related to Chemicals for 1991. For additional information concerning these
charges, see Note 2 to the Financial Statements of Tennessee Gas Pipeline
Company and Consolidated Subsidiaries and Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
CAPITAL EXPENDITURES FOR CONTINUING OPERATIONS
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Natural gas pipelines............................. $170 35% $251 49% $278 39%
Farm and construction equipment................... 11 2 5 1 82 11
Automotive parts.................................. 92 19 62 12 81 11
Shipbuilding...................................... 36 7 35 7 64 9
Packaging......................................... 124 25 97 19 127 18
Chemicals......................................... 59 12 58 12 69 10
Other............................................. 1 -- 2 -- 20 2
---- --- ---- --- ---- ---
Total........................................... $493 100% $510 100% $721 100%
==== === ==== === ==== ===
</TABLE>
The interest expense and income taxes from continuing operations which are
not allocated to the major businesses were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Interest Expense (net of interest capitalized)............ $277 $354 $399
Income Tax Expense........................................ 342 341 67
</TABLE>
2
<PAGE>
NATURAL GAS PIPELINES AND MARKETING
Tennessee is engaged in the interstate and intrastate transportation and
marketing of natural gas. Its natural gas operations are conducted by Tenneco
Gas Inc. and other subsidiaries of Tennessee Gas Pipeline Company
(collectively, "Tenneco Gas").
Historically, interstate pipeline companies served primarily as merchants of
natural gas, purchasing gas under long-term contracts with numerous producers
and reselling gas to local distribution companies under long-term sales
agreements. Interstate pipelines were not required to transport gas for
customers who did not purchase the gas from the pipeline company.
Commencing in 1984, the Federal Energy Regulatory Commission (the "FERC")
issued a series of orders that have resulted in a major restructuring of the
natural gas transmission industry and its business practices. This
restructuring, coupled with a nationwide excess of deliverable natural gas,
resulted in increased competition for markets and decreased prices for natural
gas, and dramatically increased the ratio that pipelines' transportation
volumes bear to their total throughput. With full implementation of the FERC's
Order No. 636 (discussed below under the caption "Federal Regulation"), most
interstate pipeline companies now serve primarily as gas transporters rather
than gas merchants.
During this period, pipeline customers have turned more and more to marketers
of natural gas to secure natural gas supplies for them, make transportation
arrangements and provide other services. Generally, these gas marketers are not
regulated by the FERC and may be affiliates of regulated interstate pipeline
companies, subject to certain information-sharing restrictions to prevent
unfair competitive advantages. To respond to the changing natural gas industry,
Tenneco Gas, through companies that are not subject to regulation by the FERC,
has been providing natural gas marketing services since 1984. In addition,
Tenneco Gas has started building new business units that are not generally
subject to regulation by the FERC and that Tenneco Gas believes have the
potential to generate higher returns than its regulated businesses. The
principal activities of these business units include development of and
participation in international natural gas pipeline and gas-fired power
generation projects and of domestic gas-fired power generation projects;
establishment of natural gas production financing programs for producers; and
the sale of administrative services.
INTERSTATE PIPELINE OPERATIONS
Tenneco Gas' interstate pipeline operations include the pipeline systems of
the Company, Midwestern Gas Transmission Company ("Midwestern") and East
Tennessee Natural Gas Company ("East Tennessee"), which are engaged in the
transportation, storage and, to a limited extent, sale of natural gas primarily
to or for other gas transmission or distribution companies for resale.
The Company'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, 1993, Tennessee's interstate gas transmission systems
included approximately 16,300 miles of pipeline, gathering lines and sales
laterals, together with related facilities that include 91 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 Tennessee's interstate systems at December 31, 1993, was
approximately 4,299 million cubic feet ("MMCF") of gas per day, and
approximately 5,605 MMCF on peak demand days, which includes gas withdrawal
from storage.
3
<PAGE>
Joint Ventures
Tennessee also has interests in several joint ventures formed to own and
operate interstate pipeline systems. These interests include a 50% interest in
Kern River Gas Transmission Company ("Kern River") and a 13.2% interest in
Iroquois Gas Transmission Company ("Iroquois").
Kern River, which owns a 904-mile pipeline system extending from Wyoming to
California with a design capacity of 700 MMCF of gas per day, completed its
second year of operations in 1993. Also in 1993, Kern River implemented Order
No. 636 with no adverse effect to the pipeline's normal business flow.
The 370-mile Iroquois pipeline began initial operation in late 1991 and
became fully operational in January 1992. The pipeline extends from the
Canadian border at Waddington, New York, to Long Island, New York, and, with
additional compression added in 1993, is designed to deliver (directly or
through interconnecting pipelines such as Tennessee) 641 MMCF of gas per day to
local distribution companies and electric generation facilities in six states.
Gas Sales and Transportation Volumes
The following table sets forth the volumes of gas, stated in MMCF, sold and
transported by Tennessee's interstate pipeline systems for the periods shown.
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Sales*........................................ 207,505 233,006 185,185
Transportation*............................... 2,067,541 1,968,331 1,991,735
--------- --------- ---------
Total....................................... 2,275,046 2,201,337 2,176,920
========= ========= =========
</TABLE>
- --------
* These sales and transportation volumes include all natural gas sold or
transported by Tennessee's interstate pipeline companies. The table includes
Tennessee's proportionate share of sales and transportation volumes of the
joint ventures in which it has interests; of the total volumes shown, 165,728
MMCF was attributable to these joint venture interests in 1993, 125,134 MMCF
in 1992, and 118,839 MMCF in 1991. Intercompany deliveries of natural gas
have not been eliminated from the table.
Federal Regulation
Tennessee'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
Department of Energy, including the FERC. Tennessee'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,
Tennessee's interstate pipeline companies operated primarily as merchants,
purchasing natural gas under long-term contracts and reselling the gas to
customers, again under long-term contracts. With the FERC mandated conversion
from a primarily merchant to a primarily transportation business, the Company's
sales, and hence its purchases of gas for resale, declined precipitously, and
the Company incurred significant liability to its producers under its long-term
gas supply contracts, many of which specified prices at above market levels. On
June 25, 1992, the FERC approved a settlement allowing the Company to recover
from its customers up to $650 million of excess gas supply costs incurred in
resolving this liability through July 1, 1992 (including take-or-pay costs and
payments to producers to suspend or terminate contracts or to reduce contract
prices to market levels). The settlement also allowed the Company to place into
effect, as of July 1, 1992, a Gas Inventory Charge
4
<PAGE>
providing a mechanism for the recovery of these excess gas supply costs until
September 1, 1993, the effective date of the Company's implementation of Order
No. 636. The Company charged to operating expenses that portion of excess gas
supply costs incurred prior to the implementation of Order No. 636 that it
cannot recover from customers.
In 1992, the FERC issued Order No. 636 which, together with subsequently
issued clarifying Order Nos. 636-A and 636-B (the "FERC Restructuring Orders"),
directed a further sweeping restructuring of the interstate gas pipeline
industry. The FERC Restructuring Orders required pipelines to: "unbundle" their
transportation and storage services from their sales services; increase
pipeline customers' flexibility to change receipt and delivery points under
transportation contracts and to allow release of capacity under those contracts
for use by others; and separate interstate pipeline gas sales organizations
from interstate pipeline transportation and storage business units. Under the
FERC Restructuring Orders, rates for pipeline transportation and storage
generally remain subject to traditional cost-of-service regulation but under a
rate design which is relatively insensitive to throughput and hence less
sensitive to seasonal variation. Sales of natural gas by interstate pipelines
occur pursuant to a blanket sales certificate under which price and other terms
of sale are set by market forces. After a series of FERC orders and compliance
filings, the Company implemented its Order No. 636 tariff commencing on
September 1, 1993, restructuring its transportation, storage and sales
services.
The FERC Restructuring Orders recognized that transition costs, including gas
supply realignment costs, may result from this restructuring and provided
mechanisms for the full recovery of such qualified costs. Pipelines were
encouraged to propose various mechanisms in the restructuring proceedings to
reduce transition costs, including assignment of gas supply contracts and
phasing in of the conversions of the pipeline sales service. The FERC
Restructuring Orders specified that pipelines would be allowed to make special
filings to recover many types of transition costs.
The Company has made multiple filings to begin recovery of certain of the
transition costs already paid or obligated to be paid in connection with the
FERC Restructuring Orders. The Company's filings request authority to: recover,
through a monthly surcharge, one-time gas supply realignment costs and certain
related costs incurred to date over a twelve-month period; direct-bill
customers for unrecovered gas costs over a twelve-month period; and track and
recover, through an annual surcharge, upstream transportation costs from
customers. The filings were accepted effective September 1, 1993, and made
subject to refund pending review. The FERC will review the recovery of the gas
supply realignment costs and the direct billing of unrecovered gas costs in
hearings set for the fall of 1994. However, the Company's filings to recover
production costs related to its Bastian Bay facilities have been rejected by
the FERC based on the continued use of the gas production from the field; but,
the FERC recognized the Company's right to file for the recovery of losses upon
disposition of these assets. The Company will seek judicial review of the FERC
actions rejecting recovery of production costs relating to Bastian Bay. The
Company is confident that the Bastian Bay costs will ultimately be recovered as
transition costs directly related to Order No. 636, and no FERC order has
questioned the ultimate recoverability of these costs.
The total amount of transition costs that will be incurred by the Company
will depend upon: developments in restructuring proceedings involving the
Company, its customers and other affected parties; the resolution of pending
litigation; and the terms of multiple negotiations with individual suppliers.
Until these issues are resolved, the Company cannot finally determine the
ultimate amount of one-time realignment costs or other related annual costs it
will incur, nor the amounts which will be recovered from customers. The Company
believes that one-time realignment costs will not exceed $700 million; at
December 31, 1993, the Company had recorded and deferred approximately $120
million of such one-time costs which are recoverable from its customers. The
Company believes that other related annual costs will not exceed $100 million
in 1994, decreasing thereafter over the length of the contracts involved.
The FERC Restructuring Orders will undergo judicial review, clarifications
and formulation of cost recovery details as the restructuring process proceeds.
However, the Company believes that it is entitled to
5
<PAGE>
full recovery of all transition costs it will incur. Given the fact that the
FERC Restructuring Orders contemplate complete recovery by pipelines of
qualified transition costs, Tennessee believes that the Company's Order No. 636
restructuring (together with the Order No. 636 restructuring of Tennessee's
other interstate pipelines) will not have a material effect on Tennessee's
consolidated financial position or results of operations.
Competition
The natural gas pipeline industry is experiencing increasing competition in
virtually every aspect of operations, the result of actions by the FERC to
strengthen market forces throughout the industry. In a number of key markets,
Tennessee'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 the 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. Even in other markets, such as the Company's New England
market, displacement of load to other pipelines is possible during summer or
other low demand seasons. Tenneco Gas pipelines have frequently been required
to discount their transportation rates to maintain market share.
Gas Supply
With full implementation of Order No. 636, the Company'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 to
less than a 200 million dekatherm maximum daily delivery obligation. As
discussed above under the caption "Federal Regulation", the Company has
attempted to reduce its natural gas purchase portfolio in line with these
requirements through termination and assignment to third parties. Although the
Company's requirements for purchased gas are substantially less than prior to
its implementation of Order No. 636, Tenneco Gas is pursuing the attachment of
gas supplies to, and transportation by others through, the Company's system.
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 the Company's
system.
GAS MARKETING AND INTRASTATE PIPELINES
Subsidiaries of Tenneco Energy Resources Corporation ("TERC") buy and sell
natural gas and arrange for shipment of gas purchased and sold. With the
implementation of Order No. 636, the volumes of gas that are purchased and sold
by gas marketers have increased and competition to serve the increased demand
is intense. Consequently, TERC is focused upon improving its ability to serve
as a major gas marketer and specifically upon the development of natural gas
products and services designed to meet the changing needs of its customers as
the natural gas market continues to become more deregulated.
Through various intrastate pipeline and gathering subsidiaries, Tennessee is
engaged in the intrastate sale and transportation of natural gas in various
states. These subsidiaries include Channel Industries Gas Company, Tenngasco
Gas Supply Company, Tenneco Gas Gathering Company and Creole Gas Pipeline
Corporation. Tenngasco Gas Supply Company also owns an equity interest in Oasis
Pipeline Company, which has 1 Bcf of pipeline capacity from central and west
Texas. As of December 31, 1993, Tennessee owned or had an equity interest in
approximately 2,000 miles of intrastate pipelines and other related facilities.
Tennessee's intrastate pipeline systems are subject to the jurisdiction of
state regulatory authorities and are subject to the jurisdiction of the FERC
but only to a very limited extent.
6
<PAGE>
The following table sets forth the volumes of gas, stated in MMCF, sold by
subsidiaries of TERC and transported by Tennessee's non-jurisdictional
pipelines for the periods indicated:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Sales................................................ 741,800 494,445 524,052
Transportation....................................... 235,940 168,776 66,041
------- ------- -------
Total.............................................. 977,740 663,221 590,093
======= ======= =======
</TABLE>
TERC is also engaged in the processing of natural gas, including the
processing of gas of third parties, and it also markets natural gas liquids
that are extracted from the gas stream.
On February 11, 1994, TERC announced the sale of original issue stock to
Ruhrgas AG, through a transaction, certain terms of which are to be finalized
by February 1995, resulting in dilution of the Company's ownership in that
subsidiary from 100% to 80%. At the same time, Tenneco Gas entered into an
agreement with the buyer to pursue joint opportunities in the European gas
industry.
TENNECO VENTURES
Tenneco Gas Production Corporation ("TGPC") and Tenneco Ventures Corporation
("Ventures"), subsidiaries of the Company, together with certain institutional
investors and partners, invest in oil and gas properties by acquiring interests
in properties or providing financing to producers for exploration and
development. Three institutional investors have agreed to provide up to an
aggregate of $65,000,000 to TGPC for investment in oil and gas properties. TGPC
selects the properties to be acquired and owns at least a 10% interest in each
of the properties. As of December 31, 1993, approximately $25,000,000 of such
amount had been used to acquire interests in oil and gas properties. A majority
of the gas reserves from these properties should be available for sale through
TERC and transportation on the pipeline systems of Tenneco Gas.
FARM AND CONSTRUCTION EQUIPMENT
Tennessee's farm and construction equipment subsidiaries ("Case") manufacture
farm equipment and components for agricultural and construction equipment. The
Case manufacturing activities are presently carried on at three plants in two
foreign countries. Case's products are sold through company-owned retail
outlets and independently owned dealer outlets throughout the world.
RESTRUCTURING OF CASE OPERATIONS
On March 21, 1993, the Board of Directors of Tenneco Inc. adopted a
comprehensive restructuring program for Case (the "Case Restructuring Program")
which resulted in a pre-tax charge of $241 million ($240 million after taxes),
all of which was reflected in the 1992 loss from continuing operations before
interest expense and income taxes. Implementation of the Case Restructuring
Program was commenced in 1993, and various restructuring actions in the Program
were completed in 1993 and others are in process. The Case Restructuring
Program is expected to be substantially completed during 1996.
The specific restructuring measures were based on management's best business
judgment under prevailing circumstances and on assumptions which may be revised
over time and as circumstances change. As the initial actions were implemented
and plans progressed for measures to be taken over the next three years,
Tenneco Inc. determined that it was appropriate to reallocate its estimate of
the overall pre-tax restructuring charge among the companies in the Tenneco
Inc. farm and construction equipment group, not all of which are subsidiaries
of Tennessee. This resulted in a $62 million reduction of the $241 million pre-
tax charge recorded by Tennessee in 1992 with a corresponding increase in the
amounts attributable to other Tenneco Inc. farm and construction equipment
group affiliates which are not included in the Tennessee Gas
7
<PAGE>
Pipeline Company consolidation. The estimated costs may require further
revision in the future. The Case Restructuring Program is highly complex, and
effectively implementing it continues to be a major undertaking. For additional
information about Case's restructuring program, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 2 to the Financial Statements of Tennessee Gas Pipeline Company and
Consolidated Subsidiaries.
OPERATIONS
The following were products and components manufactured by Case in 1993:
<TABLE>
<CAPTION>
WHOLEGOODS MAJOR COMPONENTS
---------- ----------------
<S> <C>
two-wheel drive farm tractors diesel engines
</TABLE>
Case manufactures and distributes equipment primarily under the names "Case",
"Case IH" and "Case International."
The following table sets forth information with respect to sales during the
past three years:
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES*
----------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Sales by Product Type
Farm equipment.......................................... 59% 54% 60%
Construction equipment.................................. 41 46 40
--- --- ---
100% 100% 100%
=== === ===
Sales by Geographic Area
United States........................................... 0% 0% 52%
European Community...................................... 88 86 29
Canada.................................................. 0 0 9
Other areas............................................. 12 14 10
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
- --------
* The information with respect to 1991 includes results from operations that
were sold by Tennessee in November 1991. For additional information
concerning this sale, see Note 4 to the Financial Statements of Tennessee Gas
Pipeline Company and Consolidated Subsidiaries.
Case's business is affected by the general level of activity in the
agricultural and construction industries, including the rate of worldwide
agricultural production and demand, levels of total industry capacity, weather
conditions, exchange rates, commodity prices, levels of equipment inventory and
prevailing levels of construction. The farm and construction equipment industry
is characterized by unrelenting global competition and flat to declining
markets. International manufacturers of farm and construction equipment compete
on a world-wide basis in such markets.
8
<PAGE>
AUTOMOTIVE PARTS
The principal components of the automotive parts operations of Tennessee are
Walker Manufacturing Company, Monroe Auto Equipment Company and Tenneco Brake.
WALKER MANUFACTURING 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. Walker also operates ten
manufacturing facilities located in Australia, the United Kingdom, Mexico,
Denmark, Germany, France, Portugal and Sweden.
Walker's products are sold to automotive manufacturers for use as original
equipment and to wholesalers and retailers for resale 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 decline in the exhaust replacement rate.
The following table sets forth information relating to Walker's sales:
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES
----------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
United States Sales
Automotive replacement equipment
(primarily exhaust system parts)........................... 52% 53% 60%
Automotive original equipment............................... 48 47 40
--- --- ---
100% 100% 100%
=== === ===
Foreign Sales
Automotive replacement equipment............................ 78% 81% 72%
Automotive original equipment............................... 22 19 28
--- --- ---
100% 100% 100%
=== === ===
Total Sales by Geographic Area
United States............................................... 67% 65% 59%
European Community.......................................... 26 31 27
Canada...................................................... 0 0 13
Other areas................................................. 7 4 1
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
In addition to the "Walker" line, Walker manufactures and distributes exhaust
systems under a number of other brand names in the United States and foreign
countries.
MONROE AUTO EQUIPMENT COMPANY
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
five manufacturing facilities in the United States and five foreign
manufacturing operations in Australia, Belgium, the United Kingdom and Spain.
9
<PAGE>
The following table sets forth information relating to Monroe's sales:
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES
----------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
United States Sales
Automotive replacement equipment............................ 72% 77% 80%
Automotive original equipment............................... 28 23 20
--- --- ---
100% 100% 100%
=== === ===
Foreign Sales
Automotive replacement equipment............................ 65% 61% 59%
Automotive original equipment............................... 35 39 41
--- --- ---
100% 100% 100%
=== === ===
Total Sales by Geographic Area
United States............................................... 58% 52% 48%
European Community.......................................... 33 35 33
Canada...................................................... 0 0 10
Other areas................................................. 9 13 9
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
TENNECO BRAKE
Tenneco Brake manufactures brake products for sale in the replacement
equipment market. Its facilities consist of a plant in Cartersville, Georgia,
which produces non-asbestos friction material for car and light truck brakes,
and Tenneco Heavy Duty Brake, a Canadian manufacturer of heavy-duty non-
asbestos friction brakes. Additionally, Tennessee's Brake-Pro Systems Division
operates a distribution network for brake products and provides services to
retail installer specialists.
The automotive parts operations of Tennessee face intense competition from
other manufacturers of automotive equipment.
10
<PAGE>
SHIPBUILDING
Newport News Shipbuilding and Dry Dock Company ("Newport News"), a Tennessee
subsidiary located in Newport News, Virginia, is the largest privately-owned
shipbuilding company in the United States. Its primary business is constructing
nuclear-powered submarines and aircraft carriers for the United States Navy.
Newport News also overhauls and repairs Naval and commercial vessels and
refuels nuclear-powered ships. Newport News' shipbuilding facilities are
located on the James River on approximately 475 acres of property which it
owns.
At December 31, 1993, the aggregate amount of Newport News' backlog of work
to be completed was approximately $3.7 billion (substantially all of which is
Navy-related), a decline from the backlog of $4.7 billion as of December 31,
1992. The cuts in naval shipbuilding following the end of the cold war have
continued to put pressure on the Newport News backlog. At December 31, 1993,
Newport News anticipated that it would complete approximately $1.6 billion of
the current backlog by December 31, 1994, and an additional $1.0 billion in
1995. The December 31, 1993, backlog of Newport News included contracts for the
construction of two Nimitz class aircraft carriers and five Los Angeles class
attack submarines. Also included in that backlog is a contract for the
refueling and overhaul of the aircraft carrier Enterprise, and a contract for
the conversion of two Sealift ships. The present backlog extends into 1998.
Subject to new orders, this existing backlog will decline as two submarines per
year, on average, are delivered through 1996, and the aircraft carriers are
delivered in 1995 and 1998.
Newport News has various other contracts for Naval design work and for
industrial projects. As is typical for similar Government contracts, all of
Newport News' contracts with the Navy are unilaterally terminable by the Navy
at its convenience with compensation for work completed and costs incurred.
Newport News is aggressively pursuing new business opportunities and
attempting to expand its business base in light of the declining Naval backlog,
but there is no assurance that it will be able to do so to a material extent.
While the mix of jobs between Naval and commercial work is expected to change
somewhat, the U.S. Navy will continue to be the leading customer of the
shipyard. The shipyard is actively pursuing the design and construction
contract for the next aircraft carrier, CVN 76. Congress has appropriated
through the government's fiscal year 1994 $2.1 billion of the $4.5 billion cost
of this program (which will include approximately $1.4 billion of work to be
performed by other companies). Authorization of the acquisition of CVN 76 by
the U.S. Navy and appropriation of the balance of the cost is anticipated
subsequent to the government's fiscal year 1994. In addition to working toward
authorization of CVN 76, Newport News is pursuing major Naval overhaul and
repair work and foreign military sales. A commercial division is pursuing ship
repair work and new commercial construction opportunities. However, Newport
News has not entered into any contracts for the initial construction of
commercial ships since 1974.
With respect to all Navy work, Newport News faces intense business pressures
in the future because of expected declines in the United States' defense budget
and excess ship building and repair capacity in the United States. Due to
uncertainties as to future defense spending levels and the allocation of
amounts appropriated for such spending to the various defense programs
involved, Tennessee is unable to predict the number or timing of subsequent
contracts for Naval construction or refueling and overhaul which may be
awarded.
Newport News reduced its workforce by approximately 7,000 or 25% between
December 31, 1990 and December 31, 1993.
11
<PAGE>
PACKAGING
Packaging Corporation of America and other Tennessee subsidiaries ("PCA")
manufacture and sell containerboard, paperboard, corrugated shipping
containers, folding cartons, molded fibre products, disposable plastic and
aluminum containers 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 fibre products include
produce and egg packaging, food service items and institutional and consumer
disposable dinnerware. Its disposable plastic and aluminum containers are sold
to the food service, food processing and related industries. In addition to
products bearing the name "Packaging Corporation of America", PCA manufactures
and distributes products under the names "EZ POR", "Packaging Company of
California", "Revere Foil Containers", Dahlonega Packaging", "Dixie Container",
"Agri-Pak" and "Pressware International."
The following table sets forth information with respect to PCA's sales during
the past three years:
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES
----------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Sales by Product Type
Corrugated shipping containers and containerboard products.... 53% 53% 53%
Disposable plastic and aluminum products...................... 22 21 22
Molded fibre products......................................... 9 10 10
Folding cartons............................................... 6 6 6
Recycled paperboard mill products............................. 4 4 4
Paper stock and other......................................... 6 6 5
--- --- ---
100% 100% 100%
=== === ===
Total Sales by Geographic Area
United States................................................. 88% 88% 88%
European Community............................................ 7 8 8
Canada........................................................ 2 1 1
Other areas................................................... 3 3 3
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
At December 31, 1993, PCA operated 55 shipping container plants, six carton
plants and 13 corrugated containerboard and paperboard machines at seven 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.
PCA also has eight molded fibre products plants, one pressed paperboard plant,
one lumber plant, five paper stock plants, and 10 disposable plastic and
aluminum container plants. PCA'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, PCA has a 50% ownership interest
in a molded fibre distribution company and in a hardwood chip mill. In
addition, PCA has a 50% ownership interest in a disposable aluminum product
joint venture in Great Britain and a 30% interest in a joint venture in Hungary
that owns a paperboard mill and a carton plant.
The principal raw materials used by PCA in its mill operations are virgin
pulp and reclaimed paper stock. PCA obtains these raw materials 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.
At December 31, 1993, PCA owned 188,000 acres of timberland in Alabama,
Michigan, Mississippi and Tennessee and leased, managed or had cutting rights
on an additional 843,000 acres of timberland in those
12
<PAGE>
states and in Florida, Wisconsin and Georgia. During the years 1993, 1992 and
1991, approximately 22%, 18% and 23%, respectively, of the virgin fibre and
timber used by PCA in its operations was obtained from timberlands controlled
by it.
PCA faces intense competition from many other manufacturers and alternative
products of others.
CHEMICALS
Albright & Wilson Limited, a British-based chemical company, and other
Tennessee subsidiaries ("Albright & Wilson"), are engaged in the chemical
business. Albright & Wilson has four manufacturing facilities in the United
Kingdom, four manufacturing facilities in the United States and 23 additional
manufacturing facilities in 12 other countries (Canada, Colombia, Australia,
Italy, France, Spain and six countries in Asia). In the years 1993, 1992 and
1991, approximately 81%, 84% and 86%, respectively, of Albright & Wilson's
sales were made outside the United States.
The principal products of Albright & Wilson are phosphorus chemicals and
surfactants and a range of specialty chemicals for water management, flame
retardants and intermediates for pharmaceuticals and agricultural chemicals.
The following table sets forth sales of Albright & Wilson by product lines for
the periods indicated:
<TABLE>
<CAPTION>
1993* 1992* 1991*
----- ----- -----
<S> <C> <C> <C>
Surfactants............................................. 39% 42% 47%
Phosphorus chemicals.................................... 36 37 37
Specialty chemicals..................................... 25 21 16
--- --- ---
Totals................................................ 100% 100% 100%
=== === ===
</TABLE>
- --------
* Sales by Albright & Wilson's pulp chemicals business, which was sold in 1992
have not been included.
Albright & Wilson has a 50% interest in a joint venture that owns and
operates a purified wet-process phosphoric acid plant in Aurora, North
Carolina, which has largely displaced the use of phosphorus as a feedstock for
phosphoric acid manufactured by Albright & Wilson in North America.
OTHER
Tennessee has several wholly-owned finance subsidiaries which purchase
interest-bearing and noninterest-bearing trade receivables from its operating
subsidiaries. Tenneco International Finance Limited purchases wholesale
receivables primarily generated by the sale or lease of Case farm and
construction equipment to its foreign dealers. Tenneco International Finance
Limited is funded primarily through private debt markets.
BUSINESS STRATEGY
Since September 1991 Tenneco Inc. ("Tenneco"), Tennessee's parent company,
has focused on various initiatives and taken steps designed to strengthen its
financial results and improve its financial flexibility and thereby generate
greater returns to its shareholders. Asset evaluation and redeployment have
been and will continue to be important parts of this strategy. Tenneco
continues to study opportunities for the strategic repositioning and
restructuring of the operations conducted by its subsidiaries, including
Tennessee and its subsidiaries (including through acquisitions, dispositions,
divestitures, spin-offs and joint venture participation, wholly and partially,
of various businesses).
13
<PAGE>
ENVIRONMENTAL MATTERS
The Company estimates that its subsidiaries will make capital expenditures
for environmental matters of approximately $85 million in 1994 and such
expenditures will range from approximately $180 million to $200 million in the
aggregate for the years 1995 through 2005.
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 14 "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."
ITEM 2. PROPERTIES.
Reference is made to Item 1 for a description of Tennessee's properties.
Tennessee believes that substantially all of its plants and equipment are, in
general, well maintained and in good operating condition. They are considered
adequate for present needs and as supplemented by planned construction are
expected to remain adequate for the near future.
During 1993, certain Case facilities were underutilized in varying degrees as
their production capabilities exceeded the market demand for construction and
agricultural equipment produced by such facilities. In 1993 Case curtailed
production in an effort to further reduce existing inventory levels. For
additional information concerning restructuring measures affecting facilities,
see Note 2 to the Financial Statements of Tennessee Gas Pipeline Company and
Consolidated Subsidiaries.
Tennessee is of the opinion that its subsidiaries have generally satisfactory
title to the properties owned and used in their respective businesses, subject
to liens for current taxes and easements, restrictions and other liens which do
not materially detract from the value of such property or the interests therein
or the use of such properties in their businesses.
ITEM 3. LEGAL PROCEEDINGS.
(1) Martin Litigation.
On November 19, 1993, the Supreme Court of the State of Louisiana denied a
writ of certiorari which had the effect of affirming the decision of the
Louisiana Court of Appeals holding in the case of Louisiana Intrastate Gas
Corporation v. Martin Intrastate Gas Company, originally brought in the 22nd
Judicial District Court for St. Tammany Parish, Louisiana, on October 25, 1991.
The case involved a dispute between Louisiana Intrastate Gas Corporation
("LIG") and Martin Intrastate Gas Company ("Martin Intrastate"), of which
Kenneth G. Martin is President, as to the nature and extent of Martin
Intrastate's right to compel LIG to purchase natural gas under a 1978 gas
purchase contract entered into by another affiliate of Kenneth G. Martin which
subsequently filed for bankruptcy. The seller's rights under the contract were
later purportedly assigned to Martin Intrastate. The original party seller was
Martin Exploration Company, now a subsidiary of the Company. Tennessee's
involvement in the case arose from Tenneco Inc.'s agreement to retain certain
LIG liabilities in connection with its sale of LIG in 1989.
In essence, Martin Intrastate originally claimed that it had been validly
assigned all of seller's rights under the contract, that the contract was
"statewide," covering all available gas that Martin Intrastate owned,
controlled or had the right to sell, for its own account or for the account of
others, and that the contract provided for a purchase price of about six times
the current wellhead price.
The Louisiana Court of Appeals held that Martin Exploration Company (the
Company's subsidiary) holds the rights to sell gas to LIG under the "statewide"
gas purchase contract. As a result of the denial of
14
<PAGE>
writ, the decision of the Louisiana Court of Appeals is final and
nonappealable, and the case has been concluded without a material adverse
effect on the financial condition or results of operations of Tennessee Gas
Pipeline Company and its consolidated subsidiaries.
(2) Environmental Proceedings.
The Company is a party in proceedings involving federal and state authorities
regarding the past use by the Company of a lubricant containing polychlorinated
biphenyls ("PCBs") in its starting air systems.
On January 13, 1992, the United States Environmental Protection Agency
("EPA") filed an administrative complaint alleging that the Company violated
the Toxic Substances Control Act between 1980 and 1990 by engaging in the
unauthorized use and disposal of materials containing PCBs. The complaint
addresses PCB-related activity at 26 compressor stations in five states
(Alabama, Mississippi, Kentucky, Tennessee and Ohio). A civil penalty of
$15,678,000 was sought. The Company and the EPA have reached an agreement in
principle under which the Company will make a specified payment in full
settlement of civil penalties under the Toxic Substances Control Act arising
from the Company's prior use of PCBs at compressor stations throughout its
system. This agreement covers 42 Company compressor stations in nine states and
five EPA regions. The agreement in principle is contingent upon the completion
of the Company's negotiations with EPA on the remediation of its compressor
stations in Regions IV, V and VI. With respect to the nine stations in Regions
II and III, EPA has advised the Company that it is deferring to the
Pennsylvania and New York environmental agencies to specify the remediation
requirements applicable to the Company. The Company anticipates that it will
soon reach an agreement with the Pennsylvania Department of Environmental
Resources ("PaDER") and will enter into a consent order on remediation at the
Pennsylvania stations (under which the Company also agrees to pay a civil
penalty and to make a contribution for environmental projects); meanwhile, the
Company will continue its negotiations with the New York Department of
Environmental Conservation on remediation at the New York stations. The
agreements with the EPA and PaDER are expected to be entered into in the first
quarter of 1994. Tennessee believes that the ultimate resolution of this matter
will not have a material adverse effect on the financial condition or results
of operations of the Company and its consolidated subsidiaries. See Note 14 to
"Notes to Financial Statements" for additional information.
In Commonwealth of Kentucky, Natural Resources and Environmental Protection
Cabinet v. Tennessee Gas Pipeline Co. (Franklin County Circuit Court, Docket
No. 88-C1-1531, November 16, 1988), the Kentucky environmental agency alleges
that the Company discharged pollutants into the waters of the state without a
permit and seeks an injunction against future discharges and a civil penalty.
Counsel for Tennessee are unable to express an opinion as to its ultimate
outcome.
A subsidiary of the Company 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.
In early 1992, Iroquois was informed by U.S. Attorney's Offices for the
Northern, Southern, and Eastern Districts of New York that a civil
investigation had been initiated to determine whether Iroquois committed civil
environmental violations during construction of the pipeline. In February 1992,
26 alleged violations were identified to Iroquois in writing. In response,
Iroquois denied that such violations had occurred and
asserted that all concerns raised by governmental authorities during
construction had been fully addressed. Iroquois subsequently was informed that
the alleged violations included certain field reports prepared by a
Federal/State Inter-Agency Task Force which surveyed the right-of-way in
connection with the right-of-way restoration program. Iroquois responded to the
appropriate U.S. Attorneys' Offices that none of the matters referenced in
field reports issued to date represent violations of any law or governmental
authorization. As of March 11, 1994, no formal civil demand in connection with
this civil investigation has been made on Iroquois by the federal government.
15
<PAGE>
On December 3, 1993, Iroquois received notification from the Enforcement
Staff of the Federal Energy Regulatory Commission's Office of the General
Counsel ("Enforcement") that Enforcement has commenced a preliminary, non-
public investigation concerning Iroquois' construction of certain of its
pipeline facilities. That office has requested certain information regarding
such construction. In addition, on December 27, 1993, Iroquois received a
similar request for information from the Army Corps of Engineers requesting
certain information regarding permit compliance in connection with certain
aspects of the pipeline's construction. Iroquois is evaluating and responding
to these requests for information. No proceedings have been commenced against
Iroquois in connection with these agency inquiries.
A criminal investigation has been initiated against Iroquois and its
environmental consultant by the U.S. Attorneys' Office for the Northern
District of New York in conjunction with the U.S. Environmental Protection
Agency ("EPA") and the Federal Bureau of Investigation ("FBI"). According to a
press release issued by the FBI in June 1992, areas under investigation include
possible environmental violations, wire fraud, mail fraud and providing false
information or concealment of information from Federal agencies in conjunction
with construction of the pipeline. To date, no criminal charges have been filed
and the Assistant U.S. Attorney in charge of the investigation has stated that
he is not yet ready to meet with Iroquois' attorneys to discuss the specifics
of the matter.
As a general partner, the Company's subsidiary may be jointly and severally
liable with the other partners for the liabilities of Iroquois. The Company has
a contract to provide gas dispatching as well as post-construction field
operation and maintenance services for the operator of Iroquois, but the
Company is not the operator of Iroquois and is not an affiliate of the
operator. Moreover, the foregoing proceedings and investigations have not
affected pipeline operations. Based upon information available to Tennessee at
March 11, 1994 concerning the above investigations and proceedings involving
Iroquois, Tennessee believes that neither the Company nor any of its
subsidiaries is the target of the investigation described above and that the
ultimate resolution of these matters will not have a material adverse effect on
the financial condition or results of operations of the Company and its
consolidated subsidiaries.
On August 2, 1993, the Department of Justice filed suit against Packaging
Corporation of America ("PCA") in the Federal District Court for the Northern
District of Indiana, alleging that wastewater from PCA's molded fibre products
plant in Griffith, Indiana interfered with or damaged the Town of Griffith's
municipal sewage pumping station on two occasions in 1991 and 1993, resulting
in discharges by the Town of untreated wastewater into a river. PCA has denied
responsibility for the Town's wastewater discharges. The violations alleged by
the Department of Justice could result in the assessment of statutory penalties
in excess of $100,000; however, the Company does not believe that its ultimate
resolution will have a material adverse effect upon its consolidated financial
condition or results of operations.
(3) Potential Superfund Liability.
At December 31, 1993, Tennessee has been designated as a potentially
responsible party in 70 "Superfund" sites. With respect to its pro rata share
of the remediation costs of certain sites, Tennessee is fully indemnified by
third parties. With respect to certain other sites, Tennessee has sought to
resolve its liability through payments to the other potentially responsible
parties. For the remaining sites, Tennessee has estimated its share of the
remediation costs to be between $10 million and $70 million or 0.4% to 2.5% of
the total remediation costs for those sites and has provided reserves that it
believes are adequate for such costs. Because the clean-up costs are estimates
and are subject to revision as more information becomes available about the
extent of remediation required, Tennessee'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 Tennessee could be required to pay in excess of its pro rata share
of remediation costs. Tennessee's understanding of the financial strength of
other potentially responsible parties has been considered, where appropriate,
in Tennessee's determination of its estimated liability. Tennessee does not
believe that the costs associated with its current status as a potentially
responsible party in the Superfund sites described above will be material to
its financial position or results of operations.
16
<PAGE>
For additional information concerning environmental matters, see the caption
"Environmental Matters" under Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and the caption "Environmental
Matters" under Note 14 to the Financial Statements of Tennessee Gas Pipeline
Company and Consolidated Subsidiaries.
(4) Other Matters.
The Company and its subsidiaries are parties to numerous legal proceedings
arising from their operations. The Company believes that the outcome of these
proceedings, individually and in the aggregate, will have no material effect on
Tennessee's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year ended December 31, 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
All of the capital stock of the Company is owned by Tenneco Inc. and,
therefore, there is no trading market for such securities.
Except as set forth below, such dividends as may be determined by the Board
of Directors may be declared and paid on the Common Stock from time to time out
of any funds legally available therefor.
Agreements under which certain indebtedness of the Company is outstanding
contain provisions restricting the Company's right to pay dividends and make
other distributions on its Common Stock. At December 31, 1993, under its most
restrictive dividend provision, the Company had approximately $2.5 billion of
retained earnings available for the payment of dividends on its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
Item 6, "Selected Financial Data", has been omitted from this report pursuant
to the reduced disclosure format permitted by General Instruction J to Form 10-
K.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
YEARS 1993 AND 1992
RESTRUCTURING PROGRAMS--CASE OPERATIONS
1991 Restructuring Program
In late 1991 and 1992, aggressive measures were taken at Tennessee's farm and
construction equipment segment ("Case") to respond to depressed market
conditions facing the farm and construction equipment industries and to improve
Case's performance. In late 1991, Tennessee identified measures that resulted
in a pre-tax restructuring charge of $482 million of which $403 million was
taken at Case to reflect estimated costs for work force reductions, plant
closings and product line rationalizations initiated in that year. As of
December 31, 1993, $33 million of the 1991 restructuring charge remained on the
balance sheet as a current liability. Management believes that this balance is
adequate to complete the remaining actions required under this program.
While the measures taken at Case since September 1991 under this program
resulted in significant improvements in Case's performance, the worldwide farm
and construction equipment market continued to deteriorate during 1992, and
Tenneco Management and the Tenneco Board of Directors determined that major
structural and strategic changes were necessary in order to strengthen Case's
competitive position in the global marketplace and to enhance Case's return to
a sustained level of profitability.
1992 Restructuring Program
Consequently, on March 21, 1993, the Board of Directors of Tenneco Inc.
adopted a comprehensive restructuring program for Case (the "Case Restructuring
Program") in order to strengthen Case's competitive position in the global
marketplace and to enhance Case's return to a sustained level of profitability.
Adoption of the Case Restructuring Program resulted in a pre-tax charge of $241
million ($240 million after tax), all of which was reflected in the 1992 income
from continuing operations before interest expense and income taxes.
This restructuring program is expected to be substantially completed during
1996. The program addresses four fundamental issues which were adversely
impacting Case's operating results and the industry at large, which has been
characterized by unrelenting global competition and flat to declining markets
for agricultural and construction equipment:
. Excess Manufacturing Capacity. Continued weakness in markets, from
previous historical levels, particularly for worldwide agricultural
equipment has led to substantial under utilization of Case's component
manufacturing and final assembly capacity.
. Overly Integrated Component Production. Case adopted a program to put in
place new, more cost effective arrangements for selected components that
will reduce investment requirements, provide greater access to industry
technology developments and result in lower per unit costs.
. Unprofitable, Highly-Proliferated Products. Case believes there are
significant advantages to focusing its financial, technical, manufacturing
and marketing resources on those products where it has a current or
potential leadership position and which collectively provide a solid and
sustainable core business.
. Marketing and Distribution Inefficiencies. Case's distribution system
includes both independent dealers and company-owned stores. Case believes
that, in many cases, company-owned stores are not as effective in
marketing its products as its independent dealers. Improvements to the
parts distribution network are expected to improve efficiency and customer
responsiveness.
The pre-tax charge included estimates of $141 million attributable to
rationalizing production of selected components; $46 million for consolidating
and resizing production capacity; $8 million for discontinuing or replacing
unprofitable products; and $46 million for privatization of Case-owned retail
stores, restructuring the parts distribution network and other associated costs
of restructuring.
18
<PAGE>
In 1993, the following restructuring actions were implemented and are at
various stages of completion:
. Assembly of combine and cotton picker transmissions was relocated from
Doncaster, England to Racine, Wisconsin. Final assembly of combines and
cotton pickers remains at Case's East Moline, Illinois plant.
. The Meltham, England facility, which manufactured gears and other
selected components, primarily for discontinued products, was sold.
Approximately 90 employees worked at Meltham.
. Case announced its intent to cease engine and component production and
close the tractor manufacturing facility in Neuss, Germany following
termination of production of the current Maxxum tractor models, which is
expected to occur by the second quarter of 1996. Case also announced its
intent to close the foundry located in Neuss, Germany during the fourth
quarter of 1994. The terms and conditions related to the closing of the
Neuss facilities are the subject of a compromise of interest and social
plan between Case and the Neuss Works Council which was executed during
the first quarter of 1994. As of December 31, 1993, Case employed
approximately 1,100 people at the Neuss facilities.
. Case announced that production of a number of non-core products would be
discontinued. In 1993, Case ceased production of the "A" family
agricultural tractors.
The specific restructuring measures were based on management's best business
judgment under prevailing circumstances and on assumptions which may be revised
over time and as circumstances change. As the initial actions were implemented
and plans progressed for measures to be taken over the next three years,
Tenneco Inc. determined that it was appropriate to reallocate its estimate of
the overall pre-tax restructuring charge among the companies in the Tenneco
Inc. farm and construction equipment group, not all of which are subsidiaries
of Tennessee. This resulted in a $62 million reduction of the $241 million pre-
tax charge recorded by Tennessee in 1992 with a corresponding increase in the
amounts attributable to other Tenneco Inc. farm and construction equipment
group affiliates which are not included in the Tennessee Gas Pipeline Company
consolidation. The estimated costs may require further revision in the future.
As of December 31, 1993, approximately $148 million of the actions necessary
to complete the program remained to be implemented over the next three years.
The Case Restructuring Program is highly complex, and effectively
implementing it continues to be a major undertaking. While Case is committed to
successfully completing the program, there can be no assurance that all of the
objectives of the program will be achieved.
REVENUES
Revenues for 1993 were $10.36 billion, down slightly from $10.38 billion in
1992. An increase in natural gas pipeline revenues, up $679 million or 31
percent, due to higher gas volumes, was offset by decreased revenues in all
other divisions except automotive parts where revenues were slightly ahead of
1992. Shipbuilding reported a $404 million or 18 percent decrease in revenues
due to a declining backlog as a result of reductions in defense spending.
Revenues for farm and construction equipment were down $242 million or 19
percent primarily due to weak construction and agricultural equipment markets
in Europe. Revenues also decreased for packaging, down $36 million or two
percent due to lower commodity prices, and for chemicals, down $37 million or
four percent compared to 1992.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES (OPERATING INCOME)
Operating income for 1993 was $1,312 million, a decrease of $161 million from
1992, excluding gains of $118 million from 1993 disposition of assets and
investments and the farm and construction equipment restructuring charges of
$241 million recorded in 1992 and the 1993 reduction of restructuring charges
of $62 million as discussed above. Reference is made to Note 2 "Restructuring
Costs" and Note 4 "Discontinued Operations, Disposition of Assets, and
Extraordinary Loss" in the "Notes to Financial Statements" for additional
information.
19
<PAGE>
Natural gas pipelines operating income for 1993 was $411 million compared
with $360 million in 1992. Revenues increased to $2,862 million in 1993 from
$2,183 million in 1992 due primarily to higher gas volumes as a result of the
acquisition in December 1992 of EnTrade Corporation, a natural gas marketing
firm. Transportation volumes increased due to a return to normal weather and
increased market demand. Partially offsetting these revenue increases were
higher gas purchase costs, higher depreciation relating to capital additions
placed in service in late 1992 and increased pipeline maintenance expenses. The
1993 operating income includes $31 million in gains on asset sales and $34
million from a favorable rate decision that allows collection from customers of
the transition obligation that was established at the time the Company adopted
Statement of Financial Accounting Standards ("FAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." These gains were
partially offset by a reserve of $10 million established for gas costs as well
as by litigation settlements related to divested operations and a one-time
expense related to a gas inventory charge.
In 1992, the Federal Energy Regulatory Commission ("FERC") issued Order Nos.
636, 636-A and 636-B (the "FERC Restructuring Orders"). Taken together, the
FERC Restructuring Orders directed a further sweeping restructuring of the
interstate gas pipeline industry. The FERC Restructuring Orders required
pipelines to: "unbundle" their transportation and storage services from their
sales services; increase pipeline customers' flexibility to change receipt and
delivery points under transportation contracts and to allow release of capacity
under those contracts for use by others; and separate interstate pipeline gas
sales organizations from interstate pipeline transportation and storage
business units. Under the FERC Restructuring Orders, rates for pipeline
transportation and storage generally remain subject to traditional cost-of-
service regulation but under a rate design which is relatively insensitive to
throughput and hence less sensitive to seasonal variation. Sales of natural gas
by interstate pipelines occur pursuant to a blanket sales certificate under
which price and other terms of sale are set by market forces. After a series of
FERC orders and compliance filings, Tennessee implemented its Order No. 636
tariff commencing on September 1, 1993, restructuring its transportation,
storage and sales services.
The Company has made multiple filings to begin recovery of certain of the
transition costs already paid or obligated to be paid in connection with the
FERC Restructuring Orders. Given the fact that the FERC Restructuring Orders
contemplate complete recovery by pipelines of qualified transition costs,
Tennessee believes that the Company's Order No. 636 restructuring (together
with the Order No. 636 restructuring of Tennessee's other interstate pipelines)
will not have a material effect on Tennessee's consolidated financial position
or results of operations.
Reference is made to Note 9 "Federal Energy Regulatory Commission ("FERC")
Regulatory Matters" in "Notes to Financial Statements" for additional
information on the FERC Restructuring Orders and other rate-related matters.
Farm and construction equipment reported operating loss of $13 million in
1993, a $10 million improvement over the $23 million operating loss in 1992,
excluding restructuring charges of $241 million recorded in 1992 and the 1993
reduction of restructuring charges of $62 million as discussed above. The
$10 million improvement in 1993 results (excluding the restructuring charges)
came despite a $242 million drop in revenues compared to the prior year. The
decreased revenues were driven by continued weakness in European markets and
loss of sales from products discontinued under the Case restructuring programs.
Lower worldwide sales volumes in 1993 were more than offset by savings in
several critical operating areas. Improved price realization was the major
profit driver as Case continued its value-based pricing strategy of lower
discounts and higher pricing. The company-wide focus on operating cost
reductions and manufacturing performance improvements also contributed to 1993
results. For the year 1993, Case's retail sales of major (100 horsepower or
greater) agricultural equipment were down 13 percent for the year, the result
of continued economic weakness in Europe. In 1994, European unit sales of farm
and construction equipment are expected to be down compared to 1993.
20
<PAGE>
Automotive parts operating income for 1993 declined $12 million to $191
million compared with $203 million in 1992, a 6 percent decrease. Revenues were
slightly ahead of 1992. Higher revenues were led by an increase in North
American original equipment sales relating to Walker exhaust products and
Monroe ride control products due to increased new car and light truck
production. North American exhaust aftermarket sales also increased. Offsetting
the increased revenues were lower revenues in European original equipment and
aftermarkets due to the continuing recession in Europe and lower sales in the
North American ride control aftermarket due to sluggish demand and stiff price
competition. Improvements in 1993 operating income from the higher North
American original equipment market and aftermarket exhaust revenues, combined
with aggressive cost management and quality program initiatives were more than
offset by the effects of the weaker North American ride control aftermarket
conditions, unfavorable foreign exchange rates and the recessionary conditions
in Europe.
Shipbuilding's 1993 operating income was $225 million compared with $249
million in 1992. Revenues decreased $404 million or 18 percent in 1993 due to a
declining backlog resulting from lower defense spending. The 1993 operating
income includes a $15 million gain on the sale of the Sperry Marine business
and a $12 million benefit from the recognition of the recovery of a portion of
the postretirement benefit costs reserve that was established when FAS No. 106
was adopted in 1992. Excluding the gain on the sale of the Sperry Marine
business and the recovery of a portion of the postretirement benefit costs,
operating income decreased from 1992 due to the declining backlog. Partially
offsetting the lower operating income were the effects of several management
initiatives undertaken in 1993 and 1992, which included headcount reductions
and organization changes that improved operating efficiencies. The backlog at
the shipyard at the end of 1993 was $3.7 billion compared with $4.7 billion at
the end of 1992. The 1993 backlog included five Los Angeles class submarines,
two Nimitz class aircraft carriers (John C. Stennis and United States), the
overhaul and refueling contract for the aircraft carrier Enterprise and the
Sealift conversion contract involving two ships. In the absence of new orders,
this existing backlog will decline as two submarines per year, on average, are
delivered through 1996, and the aircraft carriers are delivered in 1995 and
1998. The Enterprise work will be completed in 1994 and the Sealift conversion
ships will be delivered in 1995. Newport News is aggressively pursuing new
business opportunities and attempting to expand its business base in light of
the declining Naval backlog, but there is no assurance that it will be able to
do so to a material extent. While the U.S. Navy will continue to be the leading
customer of the shipyard, the mix of jobs between Navy and commercial work is
expected to change. The shipyard is actively pursuing design and construction
work on the next carrier contract (CVN 76), a major overhaul and refueling work
and commercial work.
Packaging ended the year with $139 million in operating income, down from
$221 million in 1992. Revenues decreased only slightly by $36 million or two
percent, as higher containerboard volumes were more than offset by lower
linerboard prices which fell from an average price of approximately $345 per
ton in 1992 to an average price of $295 per ton in 1993. Earnings were
depressed by weak linerboard prices in the commodity business where
profitability fell from $93 million in 1992 to $19 million in 1993. The
specialty businesses ended the year at $120 million in operating income, which
included gains from asset sales partially offset by asset realignment costs of
$29 million, versus operating income of $128 million for 1992, in spite of
extreme pricing pressures in molded fibre and paperboard markets. Offsetting
some of the pricing and market conditions were operating cost reductions and
favorable purchasing initiatives.
Operating income for 1993 for the chemicals segment improved to $78 million
from $72 million in 1992. This increase in earnings was due to higher sales
volumes and margin improvements from cost reduction and productivity programs
partially offset by an unfavorable foreign exchange impact. In local
currencies, sales rose by 9 percent, but were more than offset by the movement
in European currencies against the U.S. dollar. With the exception of the
surfactants group, whose products go into more economically sensitive
merchandise, all segments achieved higher year-over-year operating income.
Operating income from the phosphates business group rose 36 percent, and
operating income from the specialty chemicals business group increased 63
percent over 1992 levels as both segments were successful in moving downstream
into higher-margin products. Chemicals is emphasizing the development of high
margin specialty products, such as biocides and flame retardants, where growth
prospects are good.
21
<PAGE>
Tennessee's other operations reported operating income of $219 million for
1993, compared to $211 million in 1992. Other operating income is primarily
attributable to affiliated interest income.
INTEREST EXPENSE
Interest incurred declined $81 million, from $362 million in 1992 to $281
million in 1993, due primarily to lower debt levels from the retirement of $1.1
billion in debt. Interest capitalized decreased to $4 million in 1993 from $8
million in 1992 due to lower levels of major capital projects. Finance charges
(interest expense related to finance subsidiaries classified as an operating
expense) were $22 million in 1993 versus $62 million in 1992. This lower
expense was due to lower average debt levels as well as lower interest rates.
INCOME TAXES
Income tax expense for 1993 was $342 million versus $341 million reported for
1992. The increased tax expense in 1993 was attributable to higher pre-tax
income and the increase in the U.S. corporate tax rate from 34 percent to 35
percent. Partially offsetting these increases was a $48 million tax benefit
from a tax realignment of Tennessee's operations in Germany and a lower level
of unbenefitted foreign losses. Reference is made to Note 10 "Income Taxes" in
the "Notes to Financial Statements" for additional information.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
Extraordinary loss for 1993 of $24 million, net of tax benefit of $12
million, and for 1992 of $9 million, net of tax benefit of $5 million, were
attributable to redemption premiums related to the prepayment of higher
interest-bearing long-term debt.
Income from discontinued operations in 1992 of $81 million, net of income tax
expense of $51 million, was attributable to the sales of Tennessee's minerals
and pulp chemicals businesses. The sales of these businesses resulted in a $96
million gain, net of $45 million income tax expense, from the sale of the
minerals business, and a $25 million loss from the sale of the pulp chemicals
business (no tax effect). Net income from minerals operations was $9 million,
net of tax expense of $5 million, and net income from pulp chemicals operations
was $1 million, net of income tax expense of $1 million.
Reference is made to Note 4 "Discontinued Operations, Disposition of Assets,
and Extraordinary Loss" in "Notes to Financial Statements" for additional
information regarding the preceding items.
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1992, Tennessee elected early adoption of FAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, for its
domestic operations and FAS No. 109, Accounting for Income Taxes. Both
standards were adopted using the cumulative catch-up method. As a result of the
adoption of these two statements, the 1992 Statement of Income (Loss) includes
an after-tax charge of $436 million for the cumulative effect of the accounting
changes consisting of $199 million for FAS No. 106, and $237 million for FAS
No. 109. Reference is made to Note 1 "Control and Summary of Accounting
Policies--Changes in Accounting Principles", Note 10 "Income Taxes" and Note 11
"Postretirement and Postemployment Benefits" for further information regarding
these changes.
CAPITAL EXPENDITURES
Expenditures for plant, property and equipment from continuing operations for
1993 were $493 million compared to $510 million for the same period in 1992.
Increased expenditures for automotive parts ($30 million) and packaging ($27
million) were offset by declines for natural gas pipelines ($81 million). See
Note 13 "Segment and Geographic Area Information" in the "Notes to Financial
Statements" for a complete breakdown of capital expenditures by operating
segment.
22
<PAGE>
ENVIRONMENTAL MATTERS
In 1988, the Company initiated an internal project to identify and deal with
the presence of polychlorinated biphenyls at compressor stations operated by
both its interstate and intrastate natural gas pipeline systems. The Company
recorded a reserve in September 1991, for estimated future environmental
expense of $260 million. As of December 31, 1993, $64 million has been charged
against the environmental reserve. The remaining reserve of $196 million is
reflected on the balance sheet under "Payables-Trade" ($41 million) and
"Deferred Credits and Other Liabilities" ($155 million).
Tennessee believes that a substantial portion of these costs, which will be
expended over the next five to ten years, will be recovered through rates
charged to customers of its natural gas pipelines. The estimated costs expected
to be recovered, amounting to $230 million, were recorded in 1991 as an asset
($30 million in "Current Assets" and $200 million in "Investments and Other
Assets"). The estimated unrecoverable portion, amounting to $30 million, was
charged against income and reflected in "Operating expenses" in 1991. The
Company is currently recovering environmental expenses annually in its rates. A
significant portion of these expenses remains subject to review and refund in
the Company's pending rate case. As of December 31, 1993, the asset balance is
$167 million ($37 million in "Current Assets" and $130 million in "Investments
and Other Assets").
Reference is made to Note 14 "Commitments and Contingencies--Environmental
Matters" in the "Notes to Financial Statements" for additional information.
FEDERAL ENERGY REGULATORY COMMISSION MATTERS
Following issuance of the final order by the FERC approving the Company's
partial settlement of its current rate case, the Company will be required to
make refunds to its customers related to rates collected since February 1,
1992. The Company estimates these refunds will total approximately $400 million
and be payable in installments over the second and third quarters of 1994.
To minimize the cash flow requirements associated with the implementation of
FERC Restructuring Orders, Tennessee plans to utilize various financing
arrangements to manage the timing between recovery from pipeline customers and
payments for transition costs. The actual cash flows will depend upon
negotiations between the Company, its customers and suppliers, and developments
in the restructuring proceedings with the FERC as the FERC Restructuring Orders
undergo clarification and judicial review. Until these issues are resolved, the
Company cannot finally determine the ultimate amount of one-time realignment
costs or other related annual costs it will incur, nor the amounts which will
be recovered from customers. The Company believes that one-time realignment
costs will not exceed $700 million; at December 31, 1993, the Company recorded
and deferred approximately $120 million of such one-time costs which are
recoverable from its customers. The Company believes that other related annual
costs will not exceed $100 million in 1994, decreasing thereafter over the
length of the contracts involved. Changes in the structure of the natural gas
industry in an Order No. 636 environment are anticipated to reduce working
capital requirements over the next several years.
OTHER MATTERS
In 1992, the FASB issued FAS No. 112 which 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
at present, for fiscal years beginning after December 15, 1993. Tennessee will
adopt the new standard as a one-time adjustment in the first quarter of 1994.
Implementation of this new accounting method will result in a one-time charge
of approximately $12 million, net of income taxes.
On February 11, 1994, TERC, a subsidiary of the Company, announced the sale
of original issue stock to Ruhrgas AG, through a transaction, certain terms of
which are to be finalized by February 1995, resulting in dilution of the
Company's ownership in that subsidiary from 100% to 80%. At the same time,
Tennessee entered into an agreement with the buyer to pursue joint
opportunities in the European gas industry.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS OF TENNESSEE GAS PIPELINE COMPANY
AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent public accountants.................................. 25
Statements of income (loss) for each of the three years in the period
ended December 31, 1993.................................................. 26
Statements of cash flows for each of the three years in the period ended
December 31, 1993........................................................ 27
Balance sheets--December 31, 1993 and 1992................................ 28
Statements of changes in stockholder's equity for each of the three years
in the period ended
December 31, 1993........................................................ 30
Notes to financial statements............................................. 31
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tennessee Gas Pipeline Company:
We have audited the accompanying balance sheets of Tennessee Gas Pipeline
Company (a Delaware corporation and a wholly-owned subsidiary of Tenneco Inc.)
and Tennessee Gas Pipeline Company and consolidated subsidiaries as of December
31, 1993 and 1992, and the related statements of income (loss), cash flows and
changes in stockholder's equity for each of the three years in the period ended
December 31, 1993. These financial statements and the schedules referred to
below are the responsibility of Tennessee Gas Pipeline Company'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 Tennessee Gas Pipeline Company
and Tennessee Gas Pipeline Company and consolidated subsidiaries as of December
31, 1993 and 1992, and the results of their operations, cash flows and changes
in stockholder's equity for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective January 1,
1992, Tennessee Gas Pipeline Company changed its methods of accounting for
income taxes and postretirement benefits other than pensions.
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 Item 14 relating to Tennessee Gas Pipeline Company 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 Tennessee Gas
Pipeline Company and consolidated subsidiaries taken as a whole.
ARTHUR ANDERSEN & CO.
Houston, Texas
February 14, 1994
25
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
(MILLIONS)
YEARS ENDED DECEMBER
31,
-------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Revenues:
Net sales and operating revenues--
Natural gas pipelines........................... $ 2,862 $ 2,183 $ 2,183
Farm and construction equipment................. 1,014 1,256 3,616
Automotive parts................................ 1,676 1,655 1,693
Shipbuilding.................................... 1,861 2,265 2,216
Packaging....................................... 2,042 2,078 1,934
Chemicals....................................... 914 951 916
Other........................................... (7) (4) 20
------- ------- -------
10,362 10,384 12,578
Other income--
Interest income................................. 241 306 266
Gain on sale of businesses and assets, net...... 118 6 311
Other income, net............................... 49 62 56
------- ------- -------
10,770 10,758 13,211
------- ------- -------
Costs and Expenses:
Cost of sales (exclusive of depreciation shown be-
low)............................................. 6,033 6,583 8,814
Operating expenses................................ 2,266 1,629 1,575
Selling, general and administrative............... 783 770 1,491
Finance charges of Tennessee's finance subsidiar-
ies.............................................. 22 62 211
Depreciation, depletion and amortization.......... 416 421 492
Restructuring costs (benefit)..................... (62) 241 482
------- ------- -------
9,458 9,706 13,065
------- ------- -------
Income Before Interest Expense and Income Taxes..... 1,312 1,052 146
Interest Expense (net of interest capitalized)...... 277 354 399
------- ------- -------
Income (Loss) Before Income Taxes................... 1,035 698 (253)
Income Tax Expense.................................. 342 341 67
------- ------- -------
Income (Loss) From Continuing Operations............ 693 357 (320)
Income (Loss) From Discontinued Operations, Net of
Income Tax......................................... -- 81 (22)
------- ------- -------
Income (Loss) Before Extraordinary Loss............. 693 438 (342)
Extraordinary Loss, Net of Income Tax............... (24) (9) --
------- ------- -------
Income (Loss) Before Cumulative Effect of Changes in
Accounting Principles.............................. 669 429 (342)
Cumulative Effect of Changes in Accounting Princi-
ples, Net of Income Tax............................ -- (436) --
------- ------- -------
Net Income (Loss)................................... $ 669 $ (7) $ (342)
======= ======= =======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
statements of income (loss).)
26
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(MILLIONS)
YEARS ENDED DECEMBER
31,
----------------------
1993 1992 1991
------ ------- -----
<S> <C> <C> <C>
Operating Activities:
Income (loss) from continuing operations..... $ 693 $ 357 $(320)
Adjustments to reconcile income (loss) from
continuing operations to cash provided
(used) by continuing operations--
Depreciation, depletion and amortization... 416 421 492
Deferred income taxes...................... 15 (388) (89)
Gain on sale of businesses and assets, net. (118) (6) (311)
Changes in components of working capital--
(Increase) decrease in receivables....... 384 (104) 171
(Increase) decrease in Tenneco Inc.
receivables............................. 472 357 185
(Increase) decrease in inventories....... 40 109 134
(Increase) decrease in prepayments and
other current assets.................... 21 17 (15)
Increase (decrease) in payables.......... (195) (245) (122)
Increase (decrease) in taxes accrued..... (21) 93 (12)
Increase (decrease) in interest accrued.. (29) (20) 25
Increase (decrease) in restructuring
liability............................... (93) (108) 382
Increase (decrease) in natural gas
pipeline revenue reservation............ 136 144 --
Increase (decrease) in other current
liabilities............................. (9) 109 286
(Increase) decrease in long-term notes and
receivables............................... 3 34 47
Take-or-pay (refunds to customers)
recoupments, net.......................... (34) 92 127
Other...................................... (68) 71 (129)
------ ------- -----
Cash provided (used) by continuing
operations................................ 1,613 933 851
Cash provided (used) by discontinued
operations................................ (5) (102) 66
------ ------- -----
Net Cash Provided (Used) by Operating
Activities.................................... 1,608 831 917
------ ------- -----
Investing Activities:
Net proceeds (expenditures) related to the
sale of discontinued operations............. (54) 653 (25)
Proceeds from sale of businesses and assets.. 249 105 450
Expenditures for plant, property and
equipment--
Continuing operations...................... (493) (510) (721)
Discontinued operations.................... -- (26) (148)
Acquisitions of businesses................... (33) (10) (26)
Investments and other........................ (24) 16 (154)
------ ------- -----
Net Cash Provided (Used) by Investing
Activities.................................... (355) 228 (624)
------ ------- -----
Financing Activities:
Capital contribution from Tenneco Inc........ -- 100 --
Issuance of long-term debt................... 3 -- 557
Retirement of long-term debt................. (977) (637) (163)
Net increase (decrease) in short-term debt
excluding current maturities on long-term
debt........................................ (163) (474) (715)
Dividends.................................... -- (75) --
------ ------- -----
Net Cash Provided (Used) by Financing
Activities.................................... (1,137) (1,086) (321)
------ ------- -----
Effect of Foreign Exchange Rate Changes on Cash
and Temporary Cash Investments................ (4) (18) --
------ ------- -----
Increase (Decrease) in Cash and Temporary Cash
Investments................................... 112 (45) (28)
Cash and Temporary Cash Investments, January 1. 108 153 181
------ ------- -----
Cash and Temporary Cash Investments, December
31 (Note)..................................... $ 220 $ 108 $ 153
====== ======= =====
Cash Paid During the Year for Interest......... $ 330 $ 440 $ 604
Cash Paid During the Year for Income Taxes (net
of refunds)................................... $ 334 $ 862 $ 209
</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.)
27
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
(MILLIONS)
DECEMBER 31,
---------------
ASSETS 1993 1992
------ ------- -------
<S> <C> <C>
Current Assets:
Cash and temporary cash investments...................... $ 220 $ 108
Receivables--
Customer notes and accounts (net)...................... 783 1,206
Affiliated companies................................... 716 528
Gas transportation and exchange........................ 228 342
Other.................................................. 88 113
Interest-bearing notes receivable from Tenneco Inc....... 447 919
Demand notes receivable from Tenneco Inc................. 298 298
Inventories.............................................. 932 1,040
Deferred income taxes.................................... 26 61
Prepayments and other.................................... 321 300
------- -------
4,059 4,915
------- -------
Investments and Other Assets:
Investment in affiliated companies....................... 410 421
Other investments, at cost............................... 60 105
Long-term notes and other receivables (net).............. 221 220
Notes receivable from other affiliates................... 1,770 1,921
Investment in subsidiaries in excess of net assets at
date of acquisition, less amortization.................. 273 205
Deferred income taxes.................................... 38 --
Other.................................................... 901 792
------- -------
3,673 3,664
------- -------
Plant, Property and Equipment, at cost..................... 10,345 10,209
Less--Reserves for depreciation, depletion and
amortization............................................ 5,573 5,452
------- -------
4,772 4,757
------- -------
$12,504 $13,336
======= =======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
balance sheets.)
28
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
(MILLIONS)
DECEMBER 31,
----------------
LIABILITIES AND STOCKHOLDER'S EQUITY 1993 1992
------------------------------------ ------- -------
<S> <C> <C>
Current Liabilities:
Short-term debt........................................ $ 121 $ 348
Payables--
Trade................................................ 1,005 1,114
Affiliated companies................................. 263 277
Gas transportation and exchange...................... 136 243
Taxes accrued.......................................... 218 228
Interest accrued....................................... 43 70
Restructuring liability................................ 95 112
Natural gas pipeline revenue reservation............... 291 156
Other.................................................. 815 915
------- -------
2,987 3,463
------- -------
Long-term Debt........................................... 1,086 1,991
------- -------
Deferred Income Taxes.................................... 1,262 1,236
------- -------
Deferred Credits and Other Liabilities................... 823 890
------- -------
Commitments and Contingencies
Stockholder's Equity:
Common stock, par value $5 per share, authorized,
issued and outstanding
200 shares............................................ -- --
Premium on common stock and other capital surplus...... 3,494 3,494
Cumulative translation adjustments..................... (297) (218)
Retained earnings...................................... 3,149 2,480
------- -------
6,346 5,756
------- -------
$12,504 $13,336
======= =======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
balance sheets.)
29
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
(MILLIONS EXCEPT SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
------------- ------------- -------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Balance January 1 and December
31............................. 200 $ -- 200 $ -- 200 $ --
=== ------ === ------ === ------
Premium on Common Stock and Other
Capital Surplus:
Balance January 1............... 3,494 3,394 3,394
Capital contribution from
Tenneco Inc.................. -- 100 --
------ ------ ------
Balance December 31............. 3,494 3,494 3,394
------ ------ ------
Cumulative Translation
Adjustments:
Balance January 1............... (218) (26) 17
Translation of foreign
currency statements.......... (83) (211) (46)
Hedges of net investment in
foreign subsidiaries (net of
income taxes)................ 4 19 3
------ ------ ------
Balance December 31............. (297) (218) (26)
------ ------ ------
Retained Earnings:
Balance January 1............... 2,480 2,562 2,904
Net income (loss)............. 669 (7) (342)
Dividends..................... -- (75) --
------ ------ ------
Balance December 31............. 3,149 2,480 2,562
------ ------ ------
Total....................... $6,346 $5,756 $5,930
====== ====== ======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
statements of changes in stockholder's equity.)
30
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) CONTROL AND SUMMARY OF ACCOUNTING POLICIES
Control
All of the outstanding common stock of Tennessee Gas Pipeline Company (the
"Company") is owned by Tenneco Inc. Tennessee Gas Pipeline Company and
consolidated subsidiaries ("Tennessee") are thus members of an operating group
under the control of Tenneco Inc. As such, Tennessee engages in transactions
characteristic of group administration and operation with other members of the
group.
Consolidation and Presentation
The financial statements of Tennessee include all majority-owned subsidiaries
including wholly-owned finance subsidiaries. Companies in which at least a 20%
to a 50% voting interest is owned are carried at cost plus equity in
undistributed earnings since date of acquisition and cumulative translation
adjustments. At December 31, 1993, equity in undistributed earnings and
cumulative translation adjustments amounted to $67 million and $(27) million,
respectively; at December 31, 1992, the corresponding amounts were $65 million
and $(16) million, respectively. All significant intercompany transactions have
been eliminated.
Reference is made to Note 15 for summarized financial information of
Tennessee's finance subsidiaries.
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 Environmental Protection Agency or other organizations.
These liabilities are included in the balance sheet at their undiscounted
amounts. Recoveries are evaluated separately from the liability and, if
appropriate, are recorded separately from the associated liability in the
financial statements.
For further information on this subject, reference is made to Note 14,
"Commitments and Contingencies--Environmental Matters" and to Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Depreciation and Amortization
Depreciation of Tennessee'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 net assets at date of
acquisition is being amortized over a 40-year period. Such amortization
relative to continuing operations amounted to $10 million for 1993, $6 million
for 1992 and $10 million for 1991 and is included in the income statement
caption, "Other income, net."
Revenue Recognition
Newport News Shipbuilding and Dry Dock Company, a 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.
31
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 is included in
income in the period the revisions are made.
Sales by the Farm and construction equipment segment to independent dealers
are recorded at the time of shipment to those dealers. Sales through company-
owned retail stores are recorded at time of sale to retail customers. The Farm
and construction equipment segment grants certain sales incentives to stimulate
sales of the farm and construction equipment products to retail customers. The
expense for such incentive programs is recorded at the time of sale.
Tennessee's other divisions recognize revenue on the accrual method when
title passes to the customer or when the service is performed.
Changes in Accounting Principles
Tennessee elected early adoption of Statement of Financial Accounting
Standards ("FAS") No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," for its domestic operations and FAS No. 109, "Accounting
for Income Taxes." Both standards were adopted effective January 1, 1992, using
the cumulative catch-up method.
Under FAS No. 106, Tennessee is required to accrue the estimated costs of
retiree benefits other than pensions (primarily health care benefits and life
insurance) during the employees' active service period. Prior to 1992,
Tennessee expensed the cost of these benefits as medical and insurance claims
were paid. Tennessee expects to adopt the new standard for its non-U.S. plans
in the first quarter of 1995 and estimates that the adoption will reduce pre-
tax income by approximately $10 million.
The adoption of FAS No. 109 changed Tennessee's method of accounting for
income taxes from the deferred method to the liability method. The liability
method requires the recognition of deferred tax assets and liabilities for the
future tax consequences of temporary differences between the financial
statement basis and the tax basis of assets and liabilities.
In 1992, Tennessee recorded an after-tax charge of $436 million for the
cumulative effect of the accounting changes consisting of $199 million for FAS
No. 106 and $237 million for FAS No. 109. Reference is made to Note 10, "Income
Taxes," and Note 11, "Postretirement and Postemployment Benefits" for further
information regarding these changes.
Inventories
At December 31, 1993 and 1992, inventory by major classification was as
follows:
<TABLE>
<CAPTION>
(MILLIONS)
1993 1992
------ ------
<S> <C> <C>
Finished goods................................................... $ 433 $ 481
Work in process.................................................. 104 97
Long-term contracts in progress, less progress billings.......... 66 113
Raw materials.................................................... 180 192
Materials and supplies........................................... 149 157
------ ------
$ 932 $1,040
====== ======
</TABLE>
Inventories generally are valued at the lower of cost, determined on the
"first-in, first-out" or "average" methods, or market based on estimated
realizable value.
32
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Notes Receivable
Short-term notes receivable of $139 million and $146 million were outstanding
at December 31, 1993 and 1992, respectively. These notes receivable are
presented net of unearned finance charges of $5 million and $13 million at
December 31, 1993 and 1992, respectively. At December 31, 1993 and 1992,
unearned finance charges related to long-term notes and other receivables were
$4 million for both periods.
Allowance for Doubtful Accounts and Notes Receivable
At December 31, 1993 and 1992, the allowance for doubtful accounts and notes
receivable was $66 million and $51 million, respectively.
Restrictions on Payment of Dividends
At December 31, 1993, under its most restrictive dividend provision contained
in indentures under which certain of its notes and debentures have been issued,
the Company has approximately $2.5 billion of retained earnings available for
the payment of dividends on common stock.
Certain of the Company's subsidiaries have provisions under financing
arrangements and statutory requirements which limit the amount of their
retained earnings available for dividends. The restriction of the ability to
pay dividends by such subsidiaries would not affect the amount of retained
earnings of the Company available for dividends on common stock.
Reclassifications
Prior years' financial statements have been reclassified to conform to 1993
presentations.
(2) RESTRUCTURING COSTS
During 1991, Tennessee identified restructuring measures which resulted in a
pre-tax restructuring charge of $482 million which was recorded as part of
continuing operations. The charge reflected estimated costs of $242 million
attributable to a 6,000 personnel reduction program; $105 million to plant
closings; and $135 million for the rationalization or discontinuance of farm
and construction equipment product lines, including costs associated with
dealer discounts, other incentive programs and inventory writedowns to net
realizable value. Of the total charge, $403 million was taken at Tennessee's
Farm and construction equipment segment ("Case").
The 1991 restructuring charge was in part attributable to aggressive measures
taken in September 1991 to respond to depressed market conditions facing the
farm and construction equipment business and to improve Case's performance.
While the measures taken at Case since September 1991 resulted in significant
improvement in Case's performance, the worldwide farm and construction
equipment market continued to deteriorate during 1992, and Tenneco Inc.
Management and the Board of Directors determined that major structural and
strategic changes were necessary in order to (1) rationalize certain component
production operations to reduce the fixed cost portion of the manufacturing
process; (2) reduce excess capacity; (3) focus, discontinue or replace
unprofitable and noncompetitive product lines; and (4) restructure and refocus
product and component parts distribution to strengthen Case's competitive
position in the global marketplace.
Consequently, on March 21, 1993, the Board of Directors of Tenneco Inc.
adopted a comprehensive restructuring program for Case. Adoption of this
program resulted in a pre-tax restructuring charge of $241 million, all of
which was reflected in the 1992 income from continuing operations before
interest expense and income taxes. The $241 million pre-tax charge was recorded
as a $104 million reduction of net plant, property and equipment, an $11
million reduction of inventory, a $5 million reduction of intangibles and other
33
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
accounts, and a $121 million reserve for the future cost of implementing the
various restructuring actions. Of this reserve, $13 million was recorded as a
current liability and $108 million was recorded in "Deferred Credits and Other
Liabilities."
The specific restructuring measures were based on management's best business
judgement under prevailing circumstances and on assumptions which may be
revised over time and as circumstances change. As the initial actions were
implemented and plans progressed for measures to be taken over the next three
years, Tenneco Inc. determined that it was appropriate to reallocate its
estimate of the overall pre-tax restructuring charge among the companies in the
Tenneco Inc. Farm and construction equipment group, not all of which are
subsidiaries of Tennessee. This resulted in a $62 million reduction of the $241
million pre-tax charge recorded by Tennessee in 1992 with a corresponding
increase in the amounts attributable to other Tenneco Inc. Farm and
construction equipment group affiliates which are not included in the Tennessee
Gas Pipeline Company consolidation. The estimated costs may require further
revision in the future.
As of December 31, 1993, approximately $31 million of the actions necessary
to complete the program had been implemented leaving $148 million to be
implemented over the next three years. Of the remaining actions to be
implemented $138 million is reflected as a reserve for future costs of
implementing various restructuring actions with the remaining $10 million
pertaining to plant, property and equipment, intangibles and other accounts. Of
the reserve, $45 million is recorded as a current liability and $93 million is
recorded in "Deferred Credits and Other Liabilities" on the balance sheet as of
December 31, 1993. The restructuring actions taken during 1993 are described in
detail in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
In addition, $33 million of the 1991 restructuring charge remained on the
balance sheet as a current liability at December 31, 1993.
(3) ACQUISITIONS
In January 1991, Georgia-Pacific Corporation ("Georgia-Pacific"), Tenneco
Inc. and General Electric Capital Corporation ("GECC"), completed the sale by
Georgia-Pacific (a) to GECC of the buildings, machinery and equipment at two
containerboard mills; (b) to Packaging Corporation of America ("PCA") and other
subsidiaries of Tennessee of the land and certain equipment at such mills, 19
corrugated container plants, two short-line railroads that serve the mills, and
leasehold interests in approximately 100,000 acres of leased timberlands; and
(c) to John Hancock Mutual Life Insurance Company ("John Hancock") and
Metropolitan Life Insurance Company ("Metropolitan Life") of approximately
540,000 acres of fee timberlands. The assets purchased by GECC and the
timberlands purchased by John Hancock and Metropolitan Life have been leased to
PCA. The aggregate price paid to Georgia-Pacific was $727 million. Of that
amount, GECC paid $500 million, John Hancock and Metropolitan Life paid $173
million and PCA and another Tenneco Inc. affiliate paid an aggregate of $54
million. The accompanying financial statements for 1991 include $371 million in
net sales from these assets since the date the purchases and lease arrangements
were completed. Reference is made to Note 14, "Commitments and Contingencies--
Lease Commitments," for further information regarding these lease commitments.
(4) DISCONTINUED OPERATIONS, DISPOSITION OF ASSETS, AND EXTRAORDINARY LOSS
Discontinued Operations
During 1992, Tennessee sold its minerals and pulp chemicals operations for
proceeds of $500 million and $202 million, respectively. The sales of these
discontinued operations resulted in a gain (loss) of $96 million and $(25)
million, net of income tax expense of $45 million and $0, respectively.
Revenues for the minerals discontinued operations were $55 million for 1992
and $124 million for 1991. Net income was $9 million and $22 million, net of
income tax expense of $5 million and $6 million for 1992 and 1991,
respectively.
34
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenues for the pulp chemicals discontinued operations were $54 million and
$120 million for 1992 and 1991, respectively. Net income was $1 million and $14
million, net of income tax expense of $1 million and $7 million for 1992 and
1991, respectively.
A loss of $58 million from discontinued operations, net of a $31 million tax
benefit, was recorded in 1991 to reflect additional costs estimated to be
incurred in connection with the sale of Tennessee's oil and gas businesses in
1988. The costs are primarily attributable to (a) the settlement in December
1991 of litigation instituted by approximately 380 employees of Tennessee's
former oil and gas businesses claiming additional compensation and damages as a
result of the sale of such businesses; (b) the excess of presently estimated
settlement costs of additional claims by the purchasers and others arising out
of the sales of such businesses over reserves initially established for such
claims; and (c) a July 1991 decision of a federal appellate court refusing to
reconsider a ruling that lessors under oil and gas leases are entitled to
royalty payments on compression, gathering and other miscellaneous charges
collected by natural gas producers pursuant to Federal Energy Regulatory
Commission Order No. 94, against which royalty payments Tennessee has agreed to
indemnify the purchasers of certain of its oil and gas assets.
Disposition of Assets
During 1993, Tennessee disposed of a number of assets and investments
including its Newport News' Sperry Marine business; several PCA operations; two
wholly-owned pipeline companies, Viking Gas Transmission Company and Dean
Pipeline Company; and facilities and land of two foreign Case operations. The
proceeds from dispositions were $249 million and the pre-tax gain was $118
million.
In 1991, Tennessee sold its natural gas liquids business including its
interest in an MTBE plant under construction in La Porte, Texas, in a
transaction valued at $632 million resulting in a pre-tax gain of $265 million.
The terms of the sale included the assumption by the purchaser of costs
associated with the construction of the MTBE plant. Also, Tennessee sold three
short-line railroads for a total of $54 million and a pre-tax gain of $42
million.
On November 30, 1991, Tenneco Corporation, a wholly-owned subsidiary, sold
its investment in Kern County Land Company ("Kern"), a wholly-owned holding
company, to Tenneco Inc. at net book value, after the capitalization of $267
million of advances from Tenneco Corporation. Kern holds the investments in the
U.S. and Canadian farm and construction equipment subsidiaries and Canadian
automotive parts subsidiaries. Kern also holds investments in certain Brazilian
farm and construction equipment subsidiaries and in certain Brazilian
automotive parts subsidiaries. Additionally, Kern indirectly owns a U.S.
finance subsidiary and a Canadian finance subsidiary. At December 31, 1993,
Tennessee held $1,770 million in demand notes receivable from Kern County Land
Company and consolidated subsidiaries.
For the eleven months ended November 30, 1991, the results of operations of
Kern County Land Company and consolidated subsidiaries were as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED
NOVEMBER 30, 1991
-------------------
<S> <C>
Net sales and operating revenues............................ $ 2,934
=======
Income (loss) before interest expense and income taxes...... $ (568)
=======
Loss from continuing operations............................. $ (530)
=======
</TABLE>
Extraordinary Loss
In April 1993, the Company's parent, Tenneco Inc., issued 23.5 million shares
of common stock for approximately $1.1 billion, a portion of which was loaned
to the Company and used to retire approximately $688 million of long-term debt.
In November 1993, Tennessee retired DM250 million bonds. The redemption premium
related to the retirement of long-term debt resulting from these two
transactions ($24 million, net of income tax benefits of $12 million) was
recorded as an extraordinary loss.
35
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In December 1992, Tennessee deposited cash with a trustee to defease $310
million of its high interest-bearing long-term debt. Accordingly, this amount
has been excluded from long-term debt on the balance sheet at December 31,
1992. This debt was prepaid in January and February 1993. Tennessee recorded an
extraordinary loss of $9 million (net of income tax benefit of $5 million) for
the redemption premium resulting from this transaction.
(5) FOREIGN OPERATIONS
At December 31, 1993, 1992 and 1991, and for the years then ended, the
results of operations and combined net assets of foreign subsidiaries were as
follows:
<TABLE>
<CAPTION>
(MILLIONS)
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Net sales and operating revenues.................... $ 2,644 $ 3,019 $ 3,297
======= ======= =======
Income (loss) from continuing operations............ $ 251 $ (208) $ (388)
======= ======= =======
Assets.............................................. $ 2,659 $ 2,899 $ 3,758
Liabilities......................................... (1,233) (1,607) (2,098)
------- ------- -------
Net assets.......................................... $ 1,426 $ 1,292 $ 1,660
======= ======= =======
</TABLE>
(6) PLANT, PROPERTY AND EQUIPMENT, AT COST
At December 31, 1993 and 1992, plant, property and equipment, at cost, by
major segment was as follows:
<TABLE>
<CAPTION>
(MILLIONS)
1993 1992
------- -------
<S> <C> <C>
Natural gas pipelines.......................................... $ 5,246 $ 5,182
Farm and construction equipment................................ 348 368
Automotive parts............................................... 910 857
Shipbuilding................................................... 1,527 1,555
Packaging...................................................... 1,468 1,398
Chemicals...................................................... 739 708
Other.......................................................... 107 141
------- -------
$10,345 $10,209
======= =======
</TABLE>
(7) LONG-TERM DEBT, SHORT-TERM DEBT AND FINANCING ARRANGEMENTS
Long-Term Debt
A summary of long-term debt outstanding at December 31, 1993, is set forth in
the following table:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Tennessee Gas Pipeline Company--
Debentures due 2011, effective interest rate 15.1% (net of $222
million of unamortized discount)................................. $ 178
Notes due 1995 through 1997, average effective interest rate 10.1%
(net of $11 million of unamortized discount)..................... 805
Tenneco International Finance Ltd.--
Notes due 1994 through 1996, average interest rate 5.5%........... 123
Other subsidiaries due 1994 through 2014, average effective interest
rate 6.2% (net of $20 million of unamortized discount)............. 24
------
1,130
Less--Current maturities............................................ 44
------
$1,086
======
</TABLE>
36
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1993, approximately $66 million of gross plant, property and
equipment was pledged as collateral to secure $1 million principal amount of
long-term debt.
The aggregate maturities and sinking fund requirements applicable to the
issues outstanding at December 31, 1993, are $44 million, $279 million, $306
million, $327 million and $1 million for 1994, 1995, 1996, 1997 and 1998,
respectively.
Short-Term Debt
Information for the year ended December 31, 1993, regarding lines of credit,
including borrowings under both committed and uncommitted lines of credit and
similar arrangements, follows:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Outstanding borrowings at end of year............................... $ 77
Average interest rate on outstanding borrowings at end of year...... 7.2%
Approximate maximum month-end outstanding borrowings during year.... $154
Approximate average month-end outstanding borrowings during year.... $121
Weighted average interest rate on approximate average month-end
outstanding borrowings during year................................. 7.4%
</TABLE>
Financing Arrangements
Tennessee has arranged $402 million of committed lines of credit ($101
million of which expire in 1994) with various banks to provide short-term
financing which provide for borrowings at various rates. The credit facilities
generally provide for commitment fees on the unused portion of the total
commitment and some credit facilities also provide for facility fees on the
total commitment. In addition, Tennessee has arranged for $194 million of
uncommitted lines of credit.
(8) FINANCIAL INSTRUMENTS
The estimated fair values of Tennessee's financial instruments at December
31, 1993 and 1992, were as follows:
<TABLE>
<CAPTION>
(MILLIONS)
1993 1992
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Cash and temporary cash investments.......... $ 220 $ 220 $ 108 $ 108
Receivables (customer and long-term)......... 1,004 1,004 1,426 1,426
Other investments............................ 60 60 105 105
Short-term debt (excluding current
maturities)................................. 77 77 110 110
Long-term debt (including current maturities
of $44 and $78 million)..................... 1,130 1,399 2,069 2,318
Interest rate swaps:
In a net receivable position............... -- -- -- --
In a net payable position.................. -- (76) -- (68)
Foreign currency contracts (including the net
value of currency/interest rate swaps)...... (1) (1) 6 (4)
</TABLE>
The following methods and assumptions were used to estimate the fair value of
financial instruments:
CASH AND TEMPORARY CASH INVESTMENTS--Fair value was considered to be the same
as the carrying amount.
37
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
RECEIVABLES--Tennessee believes that in the aggregate, the carrying amount of
its receivables, both current and non-current, was not materially different
from the fair value of those receivables. Customer notes and accounts
receivable are concentrated in the Farm and construction equipment and
Shipbuilding segments which accounted for 36% and 20%, respectively, of total
customer receivables at December 31, 1993. At December 31, 1992, Tennessee's
Farm and construction equipment segment accounted for 45% and its Shipbuilding
segment accounted for 15% of total customer receivables.
OTHER INVESTMENTS--At December 31, 1993, these investments included preferred
stock ($17 million) in Steerage Corporation (the acquiror of Newport News'
Sperry Marine Business), venture capital investments ($8 million) and several
tracts of undeveloped land ($17 million). At December 31, 1992, these
investments included Tennessee's share of several partnerships established to
develop gas reserves ($41 million), venture capital investments ($12 million)
and several tracts of undeveloped land ($18 million). Because of the nature of
these investments, it was not practicable to estimate their fair value.
SHORT-TERM DEBT--Fair value was considered to be the same as the carrying
amount.
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 long-term debt was assumed to approximate its fair
value.
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, 1993 and 1992, Tennessee was a party to swaps
with a notional value of $750 million which were in a net payable position and
none which were in a net receivable position. The differential paid or received
on interest rate swap agreements was recognized as an adjustment to interest
expense.
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, 1993 and 1992, would have been immaterial.
FOREIGN CURRENCY CONTRACTS--At December 31, 1993 and 1992, Tennessee had
entered into currency/interest rate swaps totaling $59 million and $61 million,
respectively. Additionally, at December 31, 1992, Tennessee had a long-term
foreign debt obligation of $154 million. These instruments hedge certain
translation effects of Tennessee's investment in net assets in certain foreign
countries, primarily Great Britain and Germany. Pursuant to these arrangements,
Tennessee recognized aggregate after-tax translation gains of $4 million, $19
million and $3 million for 1993, 1992 and 1991, respectively, which have been
included in the balance sheet caption "Cumulative translation adjustments."
In the normal course of business, Tennessee and its foreign subsidiaries
routinely enter into various foreign currency purchase and sale contracts to
minimize the transaction effect of exchange rate movements on receivables and
payables denominated in foreign currencies. These contracts generally mature in
one year or less. At December 31, 1993, Tennessee had net purchase contracts
(primarily the Belgian Franc and U.S. Dollar) with a notional value of $177
million and net sale contracts (primarily the German Mark, Australian Dollar
and British Pound) with a notional value of $176 million. At December 31, 1992,
Tennessee had net purchase contracts (primarily the U.S. Dollar, Swedish Krona,
Netherlands Guilder, Italian Lira, British Pound, Danish Krone and Belgian
Franc) with a notional value of $410 million and net sale contracts (primarily
the French Franc, Spanish Peseta, German Mark and Canadian Dollar) with a
notional value of $403 million. Based on exchange rates at December 31, 1993
and 1992, the cost of replacing these contracts in the event of non-performance
by the counterparties would not have been material.
38
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
GUARANTEES--At December 31, 1993 and 1992, Tennessee had guaranteed payment
and performance of approximately $85 million and $30 million, respectively,
primarily with respect to guarantees supporting various financing and operating
activities.
(9) FEDERAL ENERGY REGULATORY COMMISSION ("FERC") REGULATORY MATTERS
On August 1, 1991, the Company filed for a general rate increase. On August
31, 1991, the FERC accepted the filing, suspended its effectiveness for the
maximum period of five months pursuant to the normal regulatory process and set
the matter for hearing. With minor modifications, the Company's proposed rates
were placed into effect on February 1, 1992, subject to refund. The rates
finally determined under Docket No. RP91-203 will be effective retroactive to
February 1, 1992, and will continue until the rates are changed by a filing by
the Company or pursuant to a subsequent proceeding convened by the FERC. On
June 2, 1993, the Company filed a Stipulation and Agreement that resolved
several significant issues in this rate proceeding and established procedures
for resolving the remaining issues, including the recovery of certain
environmental expenditures. The Company is currently collecting these
environmental costs in its rates subject to further review in the rate case and
possible refund. The Company intends to pursue full recovery of these costs.
The Stipulation and Agreement was approved by an initial order of the FERC on
October 29, 1993, and the Company has recorded a liability which is adequate to
cover these refunds. The Company anticipates a final order on the Stipulation
and Agreement from the FERC in early 1994, pursuant to which the Company will
disburse agreed-upon refunds.
Among the issues confirmed by the Stipulation and Agreement is the ability of
the Company to collect from customers, on an accrual basis, the costs of
providing benefits other than pensions to retirees. These costs were previously
collected from customers on a "pay-as-you-go" basis. The Stipulation and
Agreement allowed the Company to collect over a 20-year period the transition
obligation related to postretirement benefit costs. The Company had previously
expensed these amounts when FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," was adopted in 1992. As a result
of this Stipulation and Agreement, the Company has established a regulatory
asset of $34 million and has included the income effect of this favorable
regulatory development in the income statement caption, "Other income, net."
On June 25, 1992, the FERC approved a settlement allowing the Company to
recover from its customers up to $650 million of excess gas supply costs
incurred through July 1, 1992, in resolving take-or-pay costs and payments to
producers to suspend or terminate contracts or to reduce contract prices to
market levels. The settlement also allowed the Company to place into effect, as
of July 1, 1992, a Gas Inventory Charge providing a mechanism for the recovery
of these excess gas supply costs until September 1, 1993, the effective date of
the Company's implementation of Order No. 636. The Company charged to operating
expenses that portion of excess gas supply costs incurred prior to the
implementation of Order No. 636 that it cannot recover from customers.
On April 8, 1992, the FERC issued Order No. 636 which, together with
subsequently issued clarifying Order Nos. 636-A and 636-B (the "FERC
Restructuring Orders"), directed a further sweeping restructuring of the
interstate gas pipeline industry. The FERC Restructuring Orders required
pipelines to: 1) "unbundle" their transportation and storage services from
their sales services, 2) increase pipeline customers' flexibility to change
receipt and delivery points under transportation contracts and to allow release
of capacity under those contracts for use by others and 3) separate interstate
pipeline gas sales organizations from interstate pipeline transportation and
storage business units. Under the FERC Restructuring Orders, rates for pipeline
transportation and storage generally remain subject to traditional cost-of-
service regulation but under a rate design which is relatively insensitive to
throughput and hence less sensitive to seasonal variation. Sales of natural gas
by interstate pipelines occur pursuant to a blanket sales certificate under
which price and other
39
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
terms of sale are set by market forces. After a series of FERC orders and
compliance filings, the Company implemented its Order No. 636 tariff commencing
on September 1, 1993, restructuring its transportation, storage and sales
services.
The FERC Restructuring Orders recognized that transition costs, including gas
supply realignment costs, may result from this restructuring and provided
mechanisms for the full recovery of such qualified costs. Pipelines were
encouraged to propose various mechanisms in the restructuring proceedings to
reduce transition costs, including assignment of gas supply contracts and
phasing in of the conversions of the pipeline sales service. The FERC
Restructuring Orders specified that pipelines would be allowed to make special
filings to recover many types of transition costs.
The Company has made multiple filings to begin recovery of certain transition
costs already paid or obligated to be paid in connection with the FERC
Restructuring Orders. The Company's filings request authority to: 1) recover,
through a monthly surcharge, one-time gas supply realignment costs and certain
related costs incurred to date over a twelve-month period, 2) direct-bill
customers for unrecovered gas costs over a twelve-month period and 3) track and
recover, through an annual surcharge, upstream transportation costs from
customers. The filings were accepted effective September 1, 1993, and made
subject to refund pending review. Hearings have been instituted to review the
recovery of the gas supply realignment costs and the direct billing of
unrecovered gas costs. The Company's filings to recover production costs
related to its Bastian Bay facilities have been rejected by the FERC based on
the continued use of the gas production from the field, however, the FERC
recognized the ability of the Company to file for the recovery of losses upon
disposition of these assets. The Company will seek appellate review of the FERC
actions. The Company is confident that the Bastian Bay costs will ultimately be
recovered as transition costs directly related to Order No. 636, and no FERC
order has questioned the ultimate recoverability of these costs.
The total amount of transition costs that will be incurred by the Company
will depend upon: 1) developments in restructuring proceedings involving the
Company, its customers and other affected parties, 2) the resolution of pending
litigation and 3) the terms of multiple negotiations with individual suppliers.
Until these issues are resolved, the Company cannot finally determine the
ultimate amount of one-time realignment costs or other related annual costs it
will incur, nor the amounts which will be recovered from customers. The Company
believes that one-time realignment costs will not exceed $700 million. At
December 31, 1993, the Company recorded and deferred approximately $120 million
of such one-time costs which are recoverable from its customers. The Company
believes that other related annual costs will not exceed $100 million in 1994,
decreasing thereafter over the length of the contracts involved.
The FERC Restructuring Orders will undergo judicial review, clarifications
and formulation of cost recovery details as the restructuring process proceeds.
However, the Company believes that it is entitled to full recovery of all
transition costs it will incur. Given the fact that the FERC Restructuring
Orders contemplate complete recovery by pipelines of qualified transition
costs, Tennessee believes that the Company's Order No. 636 restructuring
(together with the Order No. 636 restructuring of Tennessee's other interstate
pipelines) will not have a material effect on Tennessee's consolidated
financial position or results of operations.
(10) INCOME TAXES
Tennessee Gas Pipeline Company and its parent, Tenneco Inc., together with
certain of their 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.
40
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Effective January 1, 1992, Tennessee changed its method of accounting for
income taxes from the deferred method to the liability method required by FAS
No. 109, "Accounting for Income Taxes" using the cumulative catch-up method.
This new standard requires that a deferred tax be recorded to reflect the tax
expense (benefit) resulting from the recognition of temporary differences.
Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that will
result in differences between income for tax purposes and income for financial
statement purposes in future years. No provision has been made for U.S. income
taxes on unremitted earnings of foreign subsidiaries ($1.03 billion at December
31, 1993) since it is the present intention of management to reinvest a major
portion of such unremitted earnings in foreign operations.
The components of income (loss) from continuing operations before income
taxes are as follows:
<TABLE>
<CAPTION>
(MILLIONS)
YEARS ENDED DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
U.S. income before income taxes..................... $ 796 $ 833 $ 109
Foreign income (loss) before income taxes........... 239 (135) (362)
-------- ------- -------
Income (loss) before income taxes................. $ 1,035 $ 698 $ (253)
======== ======= =======
</TABLE>
Following is an analysis of the components of consolidated income tax expense
applicable to continuing operations:
<TABLE>
<CAPTION>
(MILLIONS)
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Current--
U.S............................................... $ 221 $ 599 $ 100
State and local................................... 47 71 --
Foreign........................................... 60 69 56
------- -------- -------
328 739 156
------- -------- -------
General business credits (U.S.)--
Current........................................... (1) (10) --
Deferred.......................................... -- 10 (2)
------- -------- -------
(1) -- (2)
------- -------- -------
Deferred--
U.S............................................... 49 (378) (57)
State and local................................... 11 (23) --
Foreign........................................... (45) 3 (30)
------- -------- -------
15 (398) (87)
------- -------- -------
Income tax expense.................................. $ 342 $ 341 $ 67
======= ======== =======
</TABLE>
41
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In August 1993, the U.S. federal income tax rate was increased from 34% to
35%, retroactive to January 1, 1993. For 1992 and 1991, this rate was 34%.
Following is a reconciliation of income taxes computed at the U.S. federal
income tax rate to the income tax expense from continuing operations reflected
in the Statements of Income (Loss):
<TABLE>
<CAPTION>
(MILLIONS)
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Tax expense (benefit) computed at the U.S.
federal income tax rate......................... $362 $237 $ (86)
Increases (reductions) in income tax expense
resulting from:
Foreign income taxed at different rates and
foreign losses with no tax benefit............ (17) 43 61
Restructuring costs............................ -- 33 88
State and local taxes on income, net of U.S.
federal income tax benefit.................... 37 32 --
U.S. federal income tax rate change............ 12 -- --
Realization of deferred tax assets resulting
from consolidation of Tennessee's German
operations.................................... (37) -- --
Other.......................................... (15) (4) 4
-------- -------- --------
Income tax expense............................... $ 342 $341 $ 67
======== ======== ========
</TABLE>
The components of Tennessee's net deferred tax liability at December 31, 1993
and 1992 , were as follows:
<TABLE>
<CAPTION>
(MILLIONS)
1993 1992
------ ------
<S> <C> <C>
Deferred tax assets--
Net operating loss carryforwards............................. $ 211 $ 245
Restructuring costs.......................................... 61 132
Postretirement benefits...................................... 90 102
Environmental reserve........................................ 82 86
Accrued vacation............................................. 20 21
Other........................................................ 116 76
Valuation allowance.......................................... (188) (279)
------ ------
Total deferred tax asset................................... 392 383
------ ------
Deferred tax liabilities--
Tax over book depreciation................................... 749 781
Asset related to environmental costs relative to operations
regulated by the FERC....................................... 59 72
Pension...................................................... 132 127
Long-term shipbuilding contracts............................. 91 62
Interest capitalized......................................... 28 26
Debt related items........................................... 44 38
Book versus tax gains and losses on asset disposals.......... 306 284
Other........................................................ 181 168
------ ------
Total deferred tax liability............................... 1,590 1,558
------ ------
Net deferred tax liability..................................... $1,198 $1,175
====== ======
</TABLE>
42
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As reflected in the table above, Tennessee had potential tax benefits of $188
million and $279 million which were not recognized in the Statements of Income
(Loss) at December 31, 1993 and 1992, respectively. These benefits resulted
primarily from operating loss carryforwards which are available to reduce
future tax liabilities of certain foreign entities. During 1993, $37 million
was realized as a result of the consolidation of Tennessee's German operations.
The remainder of the change in these tax benefits from 1992 to 1993 resulted
from the reduction in deferred tax assets, primarily related to restructuring.
At December 31, 1993, Tennessee had operating loss carryforwards of $211
million of which $189 million will carryforward indefinitely while the
remaining amounts expire at various dates from 1994 through 1998.
Prior to adoption of FAS No. 109, Tennessee recorded deferred federal income
tax expense (benefit) based on timing differences in the recognition of
revenues and expenses for tax and financial reporting purposes. A description
of the differences and the related tax effect on continuing operations are as
follows:
<TABLE>
<CAPTION>
(MILLIONS)
YEAR ENDED
DECEMBER 31,
1991
------------
<S> <C>
Recognition of income on long-term shipbuilding contracts. $ 70
Transactions reported on the installment basis for tax
purposes................................................. (18)
Recognition of expenses relative to employee compensation
and benefit plans........................................ (7)
Restructuring costs....................................... (47)
Decrease (increase) in other reserves not deductible until
paid..................................................... (31)
Alternative minimum tax................................... (6)
Foreign................................................... (24)
Other..................................................... (24)
----
(87)
General business credits utilized (generated)............. (2)
----
Deferred income tax expense (benefit)..................... $(89)
====
</TABLE>
(11) POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Postretirement Benefits
Tennessee 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 Tennessee on or after attaining age 55 who have
had at least 10 years service with Tennessee after attaining age 45. The
salaried plans were amended during 1993 to reduce the cost of providing future
benefits. For hourly employees, the postretirement benefit plans generally
cover employees who retire pursuant to one of Tennessee's hourly employee
retirement plans. All of these benefits may be subject to deductibles,
copayment provisions and other limitations, and Tennessee has reserved the
right to change these benefits.
Effective January 1, 1992, for its domestic operations, Tennessee adopted FAS
No. 106 which requires employers to account for the cost of these
postretirement benefits on the accrual basis rather than on the "pay-as-you-go"
basis which was Tennessee's previous practice. Tennessee elected to recognize
this change in accounting principle on the cumulative catch-up basis. The
effect on 1992 income of immediately recognizing the transition obligation was
as follows:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Accumulated postretirement benefit obligation.................. $ 302
Income tax benefit............................................. (103)
-----
Decrease in net income......................................... $ 199
=====
</TABLE>
43
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Tennessee plans to adopt FAS No. 106 for its international operations in the
first quarter of 1995. The estimated pre-tax transition obligation for
Tennessee's international operations is approximately $10 million.
Currently, Tennessee's postretirement benefit plans are not funded. The
obligation of the domestic plans reconciles with amounts recognized on the
balance sheet at December 31, 1993 and 1992, as follows:
<TABLE>
<CAPTION>
(MILLIONS)
1993 1992
----- -----
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation at September 30:
Retirees....................................................... $ 247 $ 227
Fully eligible active plan participants........................ 54 31
Other active plan participants................................. 68 48
----- -----
Total accumulated postretirement benefit obligation.............. 369 306
Plan assets at fair value at September 30........................ -- --
----- -----
Accumulated postretirement benefit obligation in excess of plan
assets at September 30.......................................... (369) (306)
Claims paid during the fourth quarter............................ 7 --
Unrecognized reduction of prior service obligations resulting
from plan amendments............................................ (35) --
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions........................................ 89 --
----- -----
Accrued postretirement benefit cost at December 31............... $(308) $(306)
===== =====
</TABLE>
The net periodic postretirement benefit costs from continuing operations for
the years 1993 and 1992 consist of the following components:
<TABLE>
<CAPTION>
(MILLIONS)
1993 1992
----- -----
<S> <C> <C>
Service cost for benefits earned during the year................... $ 9 $ 7
Interest cost on accumulated postretirement benefit obligation..... 31 24
Net amortization of unrecognized amounts........................... (2) --
----- -----
Net periodic postretirement benefit cost........................... $ 38 $ 31
===== =====
</TABLE>
Curtailments, settlements and special termination benefits under these plans
were not significant for 1993 or 1992.
The weighted average assumed health care cost trend rate used in determining
the 1993 accumulated postretirement benefit obligation was 9% in 1993 declining
to 5% in 1997 and remaining at that level thereafter. The weighted average
assumed health care cost trend rate used in determining the 1992 accumulated
postretirement benefit obligation was 12% in 1992 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 accumulated postretirement benefit obligation as
of September 30, 1993, and September 30, 1992, by approximately $19 million and
$47 million, respectively, and would increase the aggregate of the service cost
and interest cost components of the net postretirement benefit cost for 1993
and 1992 by approximately $4 million and $6 million, respectively.
The discount rates (which are based on long-term market rates) used in
determining the 1993 and 1992 accumulated postretirement benefit obligations
were 7.50% and 8.75%, respectively.
44
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Postemployment Benefits
Tennessee will adopt FAS No. 112, "Employers' Accounting for Postemployement
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 as at present. Tennessee has determined that
implementation of this new rule will reduce 1994 net income by $12 million
which will be reported as the cumulative effect of a change in accounting
principle.
(12) PENSION PLANS
Tennessee 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. Tennessee'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.
The funded status of Tennessee's plans reconciles with amounts recognized on
the balance sheet at December 31, 1993 and 1992, as follows:
<TABLE>
<CAPTION>
(MILLIONS)
PLANS IN WHICH PLANS IN WHICH
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS ALL PLANS (NOTE)
---------------- ---------------- ------------------
1993 1992 1993 1992 1993 1992
------- ------- ------- ------- -------- --------
<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........... $ 1,879 $ 1,577 $ 118 $ 98 $ 1,997 $ 1,675
Non-vested benefit
obligation........... 89 50 3 4 92 54
------- ------- ------- ------- -------- --------
Accumulated benefit
obligation........... 1,968 1,627 121 102 2,089 1,729
Additional amounts
related to projected
salary increases....... 247 237 5 4 252 241
------- ------- ------- ------- -------- --------
Total projected benefit
obligation at September
30..................... 2,215 1,864 126 106 2,341 1,970
Plan assets at fair
value at September 30.. 2,584 2,310 33 13 2,617 2,323
------- ------- ------- ------- -------- --------
Plan assets in excess of
(less than) total
projected benefit
obligation at September
30..................... 369 446 (93) (93) 276 353
Contributions during the
fourth quarter......... 3 2 1 -- 4 2
Unrecognized net (gain)
loss resulting from
plan experience and
changes in actuarial
assumptions............ 48 5 3 (7) 51 (2)
Unrecognized prior
service obligations
resulting from plan
amendments............. 158 154 4 2 162 156
Remaining unrecognized
net obligation (asset)
at initial application. (189) (216) 2 5 (187) (211)
Adjustment recorded to
recognize minimum
liability.............. -- -- (10) (4) (10) (4)
------- ------- ------- ------- -------- --------
Prepaid (accrued)
pension cost at
December 31............ $ 389 $ 391 $ (93) $ (97) $ 296 $ 294
======= ======= ======= ======= ======== ========
</TABLE>
- --------
NOTE: Assets of one plan may not be utilized to pay benefits of other plans.
45
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net pension costs (income) from continuing operations for Tennessee for the
years 1993, 1992 and 1991 consist of the following components:
<TABLE>
<CAPTION>
(MILLIONS)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the
year...................................... $ 69 $ 64 $ 60
Interest accrued on prior year's projected
benefit obligation........................ 169 159 154
Expected return on plan assets--
Actual (return) loss..................... (418) (194) (492)
Less: Unrecognized excess (deficiency) of
actual return over expected return...... 192 (24) 283
---- ---- ----
(226) (218) (209)
Net amortization of unrecognized amounts... (9) (12) (14)
---- ---- ----
Net pension costs (income)................. $ 3 $ (7) $ (9)
==== ==== ====
</TABLE>
Curtailments, settlements and special termination benefits under these plans
were not significant in 1993, 1992 and 1991.
The weighted average discount rates (which are based on long-term market
rates) used in determining the 1993, 1992 and 1991 actuarial present value of
the benefit obligations were 7.7%, 8.9% and 9.2%, respectively. The rate of
increase in future compensation was 5.1%, 6.6% and 6.6% for 1993, 1992 and
1991, respectively. The weighted average expected long-term rate of return on
plan assets was 9.8%, 10.0% and 10.1% for 1993, 1992 and 1991, respectively.
As a result of the 1991 sale of Kern County Land Company and consolidated
subsidiaries, the plan assets and liabilities related to Kern County Land
Company and consolidated subsidiaries are not reflected in the above 1991
amounts. See Note 4 for further information.
46
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(13) SEGMENT AND GEOGRAPHIC AREA INFORMATION
<TABLE>
<CAPTION>
(MILLIONS)
--------------------------------------------------------------------------------------------------
SEGMENT
------------------------------------------------------------------------
NATURAL FARM AND RECLASS.
GAS CONSTRUCTION AUTOMOTIVE AND
PIPELINES EQUIPMENT(C) PARTS(C) SHIPBUILDING PACKAGING CHEMICALS OTHER ELIMINATION CONSOLIDATED
--------- ------------ ---------- ------------ --------- --------- ----- ----------- ------------
<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)........ $2,862 $1,014 $1,676 $1,861 $2,042 $ 914 $ (7) $ -- $10,362
====== ====== ====== ====== ====== ===== ===== ===== =======
Operating profit.... 425 49 199 238 148 83 219 -- 1,361
General corporate
expenses........... (14) -- (8) (13) (9) (5) -- -- (49)
------ ------ ------ ------ ------ ----- ----- ----- -------
Income before
interest expense
and income taxes... 411 49 191 225 139 78 219 -- 1,312
====== ====== ====== ====== ====== ===== ===== ===== =======
Identifiable assets. 2,953 911 1,113 1,277 1,712 815 3,392 (79) 12,094
Investment in
affiliated
companies.......... 307 (44) 4 -- 6 62 75 -- 410
------ ------ ------ ------ ------ ----- ----- ----- -------
Total assets..... 3,260 867 1,117 1,277 1,718 877 3,467 (79) 12,504
====== ====== ====== ====== ====== ===== ===== ===== =======
Depreciation,
depletion and
amortization....... 166 16 49 72 77 33 3 -- 416
====== ====== ====== ====== ====== ===== ===== ===== =======
Capital expenditures
for continuing
operations......... 170 11 92 36 124 59 1 -- 493
====== ====== ====== ====== ====== ===== ===== ===== =======
AT DECEMBER 31,
1992, AND FOR THE
YEAR THEN ENDED
Net sales and
operating
revenues(a)........ $2,183 $1,256 $1,655 $2,265 $2,078 $ 951 $ (4) $ -- $10,384
====== ====== ====== ====== ====== ===== ===== ===== =======
Operating profit
(loss)............. 374 (264) 210 262 229 78 211 -- 1,100
General corporate
expenses........... (14) -- (7) (13) (8) (6) -- -- (48)
------ ------ ------ ------ ------ ----- ----- ----- -------
Income (loss) before
interest expense
and income taxes... 360 (264) 203 249 221 72 211 -- 1,052
====== ====== ====== ====== ====== ===== ===== ===== =======
Identifiable assets. 3,119 1,391 930 1,469 1,406 724 3,983 (107) 12,915
Investment in
affiliated
companies.......... 296 (34) 1 -- 23 61 74 -- 421
------ ------ ------ ------ ------ ----- ----- ----- -------
Total assets..... 3,415 1,357 931 1,469 1,429 785 4,057 (107) 13,336
====== ====== ====== ====== ====== ===== ===== ===== =======
Depreciation,
depletion and
amortization....... 156 32 45 74 73 38 3 -- 421
====== ====== ====== ====== ====== ===== ===== ===== =======
Capital expenditures
for continuing
operations......... 251 5 62 35 97 58 2 -- 510
====== ====== ====== ====== ====== ===== ===== ===== =======
AT DECEMBER 31,
1991, AND FOR THE
YEAR THEN ENDED
Net sales and
operating
revenues(a)........ $2,183 $3,616 $1,693 $2,216 $1,934 $ 916 $ 20 $ -- $12,578
====== ====== ====== ====== ====== ===== ===== ===== =======
Operating profit
(loss)............. 582 (926) 193 242 148 (63) 76 -- 252
General corporate
expenses........... (21) (25) (10) (17) (9) (7) (17) -- (106)
------ ------ ------ ------ ------ ----- ----- ----- -------
Income (loss) before
interest expense
and income taxes... 561 (951) 183 225 139 (70) 59 -- 146
====== ====== ====== ====== ====== ===== ===== ===== =======
Identifiable assets. 2,975 1,945 949 1,529 1,366 782 4,196 (50) 13,692
Investment in
affiliated
companies.......... 249 (25) 3 -- 19 55 44 -- 345
Identifiable assets
related to the
discontinued
operations of
minerals and pulp
chemicals.......... -- -- -- -- -- 667 -- -- 667
------ ------ ------ ------ ------ ----- ----- ----- -------
Total assets..... 3,224 1,920 952 1,529 1,385 1,504 4,240 (50) 14,704
====== ====== ====== ====== ====== ===== ===== ===== =======
Depreciation,
depletion and
amortization....... 134 117 56 72 68 39 6 -- 492
====== ====== ====== ====== ====== ===== ===== ===== =======
Capital expenditures
for continuing
operations......... 278 82 81 64 127 69 20 -- 721
====== ====== ====== ====== ====== ===== ===== ===== =======
</TABLE>
(See notes on the following page.)
47
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
- --------
NOTES: (a) Contracts with U.S. government agencies (primarily shipbuilding
contracts with the U.S. Navy) accounted for $1.8 billion, $2.2
billion and $2.3 billion for 1993, 1992 and 1991, 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) In 1991 Tennessee sold certain U.S., Canadian and Brazilian farm and
construction equipment and automotive parts subsidiaries to Tenneco
Inc. See Note 4 for further information.
Tennessee 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 1993 1992 1991
--------------- ------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Canada.................. Farm and construction equipment for 1991,
exhaust and ride control systems, natural gas,
paperboard products, molded and pressed pulp
goods, corrugated boxes $ 68 $ 65 $313
European Community...... Navigation aids, farm and construction
equipment for 1991, molded and pressed
pulp goods, paperboard products 44 58 105
Other Foreign........... Farm and construction equipment for 1991,
ride control systems, molded and pressed
pulp goods, paperboard products,
corrugated boxes 79 70 183
---- ---- ----
Total Export Sales..... $191 $193 $601
==== ==== ====
</TABLE>
48
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
(MILLIONS)
-----------------------------------------------------------------
GEOGRAPHIC AREA
----------------------------------------
RECLASS.
UNITED EUROPEAN OTHER AND
STATES(C) CANADA(C) COMMUNITY FOREIGN(C) ELIMINATION CONSOLIDATED
--------- --------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1993,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues:
External(a)............ $7,812 $ 74 $2,095 $381 $ -- $10,362
Intergeographic
area(b)............... 31 40 98 27 (196) --
------ ---- ------ ---- ---- -------
Total.................. 7,843 114 2,193 408 (196) 10,362
====== ==== ====== ==== ==== =======
Operating profit........ 1,118 14 155 74 -- 1,361
General corporate
expenses............... (45) -- (3) (1) -- (49)
------ ---- ------ ---- ---- -------
Income before interest
expense and income
taxes.................. 1,073 14 152 73 -- 1,312
====== ==== ====== ==== ==== =======
Identifiable assets..... 9,540 71 2,085 439 (41) 12,094
Investment in affiliated
companies.............. 339 -- 32 39 -- 410
------ ---- ------ ---- ---- -------
Total assets........... 9,879 71 2,117 478 (41) 12,504
====== ==== ====== ==== ==== =======
AT DECEMBER 31, 1992,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues:
External(a)............ $7,458 $ 65 $2,511 $350 $ -- $10,384
Intergeographic
area(b)............... 22 38 108 27 (195) --
------ ---- ------ ---- ---- -------
Total.................. 7,480 103 2,619 377 (195) 10,384
====== ==== ====== ==== ==== =======
Operating profit (loss). 1,208 4 (130) 18 -- 1,100
General corporate
expenses............... (43) -- (4) (1) -- (48)
------ ---- ------ ---- ---- -------
Income (loss) before
interest expense and
income taxes........... 1,165 4 (134) 17 -- 1,052
====== ==== ====== ==== ==== =======
Identifiable assets..... 10,159 109 2,335 362 (50) 12,915
Investment in affiliated
companies.............. 321 -- 22 78 -- 421
------ ---- ------ ---- ---- -------
Total assets........... 10,480 109 2,357 440 (50) 13,336
====== ==== ====== ==== ==== =======
AT DECEMBER 31, 1991,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues:
External(a)............ $9,393 $586 $2,163 $436 $ -- $12,578
Intergeographic
area(b)............... 361 52 72 29 (514) --
------ ---- ------ ---- ---- -------
Total.................. 9,754 638 2,235 465 (514) 12,578
====== ==== ====== ==== ==== =======
Operating profit (loss). 552 (23) (299) 22 -- 252
General corporate
expenses............... (99) (1) (5) (1) -- (106)
------ ---- ------ ---- ---- -------
Income (loss) before
interest expense and
income taxes........... 453 (24) (304) 21 -- 146
====== ==== ====== ==== ==== =======
Identifiable assets..... 10,247 160 2,941 383 (39) 13,692
Investment in affiliated
companies.............. 278 -- 13 54 -- 345
Identifiable assets
related to the
discontinued operations
of minerals and pulp
chemicals.............. 449 218 -- -- -- 667
------ ---- ------ ---- ---- -------
Total assets........... 10,974 378 2,954 437 (39) 14,704
====== ==== ====== ==== ==== =======
</TABLE>
(See notes on the previous page.)
49
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(14) COMMITMENTS AND CONTINGENCIES
Capital Commitments
Tennessee estimates that expenditures aggregating $600 million will be
required after December 31, 1993, 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,
Tennessee has entered into unconditional purchase obligations for products and
services of $197 million ($152 million on a present value basis). Tennessee's
annual obligations under these agreements are $26 million for 1994 and 1995,
$25 million for 1996, $23 million for 1997 and $22 million for 1998. Payments
under such obligations, including additional purchases in excess of contractual
obligations, were $31 million, $33 million and $35 million for the years 1993,
1992 and 1991, 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 16 years.
Lease Commitments
Tennessee 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 $161 million, $150 million, $129
million, $125 million and $123 million for the years 1994, 1995, 1996, 1997 and
1998, respectively, and $1,151 million for subsequent years. Of these amounts,
$78 million for each of the years 1994, 1995 and 1996, $81 million for 1997,
$89 million for 1998 and $872 million for subsequent years are lease payment
commitments to GECC, John Hancock and Metropolitan Life for assets purchased
from Georgia-Pacific in January 1991 and leased to Tennessee. Commitments under
capital leases were not significant to the accompanying financial statements.
Total rental expense for continuing operations for the years 1993, 1992 and
1991, was $183 million, $186 million and $210 million, respectively, including
minimum rentals under non-cancelable operating leases of $175 million, $177
million and $197 million for the corresponding periods.
Litigation
On November 19, 1993, the Supreme Court of the State of Louisiana denied a
writ of certiorari which had the effect of affirming the decision of the
Louisiana Court of Appeals holding in the case of Louisiana Intrastate Gas
Corporation v. Martin Intrastate Gas Company, originally brought in the 22nd
Judicial District Court for St. Tammany Parish, Louisiana, on October 25, 1991.
The case involved a dispute between Louisiana Intrastate Gas Corporation
("LIG") and Martin Intrastate Gas Company ("Martin Intrastate"), of which
Kenneth G. Martin is President, as to the nature and extent of Martin
Intrastate's right to compel LIG to purchase natural gas under a 1978 gas
purchase contract entered into by another affiliate of Kenneth G. Martin which
subsequently filed for bankruptcy. The seller's rights under the contract were
later purportedly assigned to Martin Intrastate. The original party seller was
Martin Exploration Company, now a subsidiary of the Company. Tennessee's
involvement in the case arose from Tenneco Inc.'s agreement to retain certain
LIG liabilities in connection with its sale of LIG in 1989.
In essence, Martin Intrastate originally claimed that it had been validly
assigned all of seller's rights under the contract, that the contract was
"statewide," covering all available gas that Martin Intrastate owned,
controlled or had the right to sell, for its own account or for the account of
others, and that the contract provided for a purchase price of about six times
the current wellhead price.
50
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Louisiana Court of Appeals held that Martin Exploration Company, the
Company's subsidiary, holds the rights to sell gas to LIG under the "statewide"
gas purchase contract. As a result of the denial of writ, the decision of the
Louisiana Court of Appeals is final and nonappealable, and the case has been
concluded without a material adverse effect on the financial condition or
results of operations of Tennessee Gas Pipeline Company and its consolidated
subsidiaries.
Tennessee Gas Pipeline Company and its subsidiaries are parties to numerous
other legal proceedings arising from their operations. Tennessee Gas Pipeline
Company 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 Tennessee Gas Pipeline Company and its consolidated subsidiaries.
Environmental Matters
In 1988, the Company initiated an internal project to identify and deal with
the presence of polychlorinated biphenyls (PCBs) at compressor stations
operated by both its interstate and intrastate natural gas pipeline systems.
This situation arose as a result of the use of a PCB-containing lubricant,
purchased between 1953 and the early 1970's, in air compressors which are used
to start the main gas compressor engines (lubricants containing PCBs were not
used in the main gas compressor engines themselves). The project was
subsequently expanded to include a full screening for the presence of other
substances included on the U.S. Environmental Protection Agency List of
Hazardous Substances. The Company conducted the project with frequent contact
with federal and state regulatory agencies, both through informal negotiation
and formal entry of consent orders, in order to assure that site
characterization efforts met regulatory requirements.
At the conclusion of a comprehensive study to estimate remediation costs for
its compressor sites and all other sites on the Company's interstate and
intrastate pipeline systems at which listed substances had been identified,
Tennessee recorded a reserve of $260 million for estimated future environmental
expenses including: 1) expected remediation expense and associated onsite,
offsite and groundwater technical studies, 2) legal fees and 3) settlement of
third party and governmental litigation, including civil penalties. Through
December 31, 1993, Tennessee has charged $64 million against this environmental
reserve. Based upon the Company's continuing evaluation and experience to date,
Tennessee believes the amount of the reserve is still appropriate. Of the
remaining reserve, $41 million has been recorded on the balance sheet under
"Payables-Trade" and $155 million under "Deferred Credits and Other
Liabilities."
Tennessee believes that a substantial portion of these costs, which will be
expended over the next five to ten years, will be recovered through rates
charged to customers of its natural gas pipelines. The estimated costs expected
to be recovered, amounting to $230 million, were recorded in 1991 as an asset
($30 million in "Current Assets" and $200 million in "Investments and Other
Assets"). The estimated unrecoverable portion, amounting to $30 million, was
charged against income and reflected in "Operating expenses" in 1991. The
Company is currently recovering environmental expenses annually in its rates. A
significant portion of these expenses remains subject to review and refund in
the Company's pending rate case. As of December 31, 1993, the asset balance is
$167 million ($37 million in "Current Assets" and $130 million in "Investments
and Other Assets").
Tennessee believes that its liability insurance policies in effect during the
period in which the environmental issues occurred provide coverage for
remediation costs and related claims. In 1991, the Company commenced litigation
in a Louisiana state court against 26 of its insurance carriers during this
period, seeking recovery of losses which the Company incurred. The issues in
dispute involve determining: 1) whether the presence of PCBs and other
substances at each compressor station constituted a separate occurrence for
purposes of the per-occurrence limits of the policies, 2) the applicability of
the pollution
51
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
exclusions in certain policies issued after 1971, 3) the applicability of
provisions which exclude the environmental impacts located solely on the
insured's property, 4) whether the term "property damage" in the policies will
cover the cost of compliance with governmental clean-up directives, 5) the
allocation of costs to the various policies in effect during the period the
environmental impact occurred, 6) the applicability of provisions excluding
pollution that is "expected or intended" and 7) the adequacy of notice of
claims to insurance carriers. This environmental insurance coverage litigation
remains pending. Tennessee has completed settlements with five of the
defendants' carriers and believes that the likelihood of recovery against the
remaining defendant carriers is reasonably possible. While it believes its
legal position to be meritorious, Tennessee has not adjusted its environmental
reserve to reflect any insurance recoveries.
Tennessee 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.
52
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(15) SUMMARIZED FINANCIAL INFORMATION OF TENNESSEE'S FINANCE SUBSIDIARIES
Summarized financial information of Tennessee's finance subsidiaries at
December 31, 1993, 1992 and 1991, and for the years then ended is as follows:
<TABLE>
<CAPTION>
(MILLIONS)
-----------------
1993 1992 1991
---- ---- ------
<S> <C> <C> <C>
Notes and accounts receivable (net)...................... $455 $937 $1,281
Other current assets..................................... 3 21 13
Long-term receivables (net).............................. 75 97 126
Non-current assets....................................... 5 6 8
Short-term debt.......................................... 235 685 1,026
Long-term debt........................................... 130 171 144
Other liabilities........................................ 15 38 63
Equity in net assets..................................... 158 167 195
Interest and other income................................ 71 145 399
Interest, taxes and other expenses....................... 66 134 342
Cumulative effect of change in accounting principle...... -- (1) --
Net income............................................... 5 10 57
Dividends paid to Tennessee.............................. -- -- 16
</TABLE>
In 1991, two finance subsidiaries, Case Finance Company and Tenneco Credit
Canada Corp., were sold to Tenneco Inc. Reference is made to Note 4 for
information regarding this sale.
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS)
---------------------------------------------------------------------------------
INCOME CUMULATIVE
BEFORE EFFECT OF
INTEREST INCOME FROM CHANGES IN
NET SALES EXPENSE INCOME (LOSS) DISCONTINUED ACCOUNTING
AND AND FROM OPERATIONS, EXTRAORDINARY PRINCIPLES, NET
OPERATING INCOME CONTINUING NET OF LOSS, NET OF NET OF INCOME
QUARTER REVENUES TAXES OPERATIONS INCOME TAX INCOME TAX INCOME TAX (LOSS)
------- --------- -------- ------------- ------------ ------------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1993
1st................... $ 2,623 $ 334 $148 $-- $ -- $ -- $ 148
2nd................... 2,657 295 137 -- (22) -- 115
3rd................... 2,519 324 177 -- (2) -- 175
4th................... 2,563 359 (a) 231 (a) -- -- -- 231 (a)
------- ------ ---- --- ---- ----- -----
$10,362 $1,312 $693 $-- $(24) $ -- $ 669
======= ====== ==== === ==== ===== =====
1992
1st................... $ 2,525 $ 317 $151 $ 3 $ -- $(436) $(282)
2nd................... 2,681 340 116 78 -- -- 194
3rd................... 2,572 287 145 -- -- -- 145
4th................... 2,606 108 (b) (55)(b) -- (9) -- (64)(b)
------- ------ ---- --- ---- ----- -----
$10,384 $1,052 $357 $81 $ (9) $(436) $ (7)
======= ====== ==== === ==== ===== =====
</TABLE>
- --------
(a) Includes a reduction of the restructuring charge of $62 million (before and
after tax) resulting from a reallocation of the estimated restructuring
charge recorded in 1992. Reference is made to Note 2, "Restructuring
Costs," for further information.
(b) Includes a pre-tax restructuring charge of $241 million ($240 million after
tax). Reference is made to Note 2, "Restructuring Costs," for further
information.
(The preceding notes are an integral part of the foregoing financial
statements.)
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no change in accountants during 1993 or 1992, nor has there
been any disagreement on any matter of accounting principles or practices or
financial disclosure which is required to be reported pursuant to this Item 9.
PART III
Item 10, "Directors and Executive Officers of the Registrant", Item 11,
"Executive Compensation", Item 12, "Security Ownership of Certain Beneficial
Owners and Management", and Item 13, "Certain Relationships and Related
Transactions", have been omitted from this report pursuant to the reduced
disclosure format permitted by General Instruction J to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM8-K.
FINANCIAL STATEMENTS INCLUDED IN ITEM 8
See "Index to Financial Statements of Tennessee Gas Pipeline Company 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>
Tennessee Gas Pipeline Company--
Statements of income (loss) for the three years ended December 31, 1993. 55
Statements of cash flows for the three years ended December 31, 1993.... 56
Balance Sheets--December 31, 1993 and 1992.............................. 57
Notes to financial statements........................................... 59
Schedules of Tennessee Gas Pipeline Company and Consolidated
Subsidiaries--
Schedule II--Amounts receivable from related parties and underwriters,
promoters and employees other than related parties--three years ended
December 31, 1993...................................................... 60
Schedule V--Plant, property and equipment--three years ended December
31, 1993............................................................... 61
Schedule VI--Accumulated depreciation, depletion and amortization of
plant, property and equipment--three years ended December 31, 1993..... 62
Schedule VIII--Valuation and qualifying accounts--three years ended
December 31, 1993...................................................... 63
Schedule IX--Short-term borrowings--three years ended December 31, 1993. 64
Schedule X--Supplementary income statement information--three years
ended
December 31, 1993...................................................... 65
</TABLE>
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE
Schedule I--Marketable securities--Other investments
Schedule III--Condensed financial information of registrant
Schedule IV--Indebtedness of and to related parties--Not current
Schedule VII--Guarantees of securities of other companies
Schedule XI--Real estate and accumulated depreciation
Schedule XII--Mortgage loans on real estate
Schedule XIII--Other investments
Schedule XIV--Supplemental Information Concerning Property--Casualty
Insurance Operations
54
<PAGE>
TENNESSEE GAS PIPELINE COMPANY
STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
(MILLIONS)
YEARS ENDED DECEMBER
31,
----------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Revenues:
Net sales and operating revenues--
Natural gas pipelines.............................. $1,212 $1,104 $ 982
Automotive parts................................... 575 552 485
------ ------ ------
1,787 1,656 1,467
Gain on sale of investments and other assets......... 11 -- 285
Other income, net.................................... 90 81 106
------ ------ ------
1,888 1,737 1,858
------ ------ ------
Costs and Expenses:
Costs of sales (exclusive of depreciation shown
below).............................................. 378 370 347
Operating expenses................................... 689 592 563
Selling, general and administrative.................. 223 209 230
Depreciation and amortization........................ 174 155 138
Interest expense (net of interest capitalized)....... 250 291 297
------ ------ ------
1,714 1,617 1,575
------ ------ ------
Income From Continuing Operations Before Income Tax
Expense (Benefit) and Equity in Net Income From
Continuing Operations of Affiliated Companies......... 174 120 283
------ ------ ------
Income Tax Expense (Benefit):
Current.............................................. 51 54 98
Deferred............................................. 7 (10) 14
------ ------ ------
58 44 112
------ ------ ------
Equity in Net Income (Loss) From Continuing Operations
of Affiliated Companies............................... 577 281 (491)
------ ------ ------
Income (Loss) From Continuing Operations............... 693 357 (320)
Income (Loss) From Discontinued Operations, Net of
Income Tax............................................ -- 81 (22)
------ ------ ------
Income (Loss) Before Extraordinary Loss................ 693 438 (342)
Extraordinary Loss, Net of Income Tax.................. (24) (9) --
------ ------ ------
Income (Loss) Before Cumulative Effect of Changes in
Accounting Principles................................. 669 429 (342)
Cumulative Effect of Changes in Accounting Principles,
Net of Income Tax..................................... -- (436) --
------ ------ ------
Net Income (Loss)...................................... $ 669 $ (7) $ (342)
====== ====== ======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
statements of income (loss).)
55
<PAGE>
TENNESSEE GAS PIPELINE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(MILLIONS)
YEARS ENDED
DECEMBER 31,
-------------------
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Operating Activities:
Income (loss) from continuing operations................ $ 693 $ 357 $(320)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided (used) by operating
activities--
Depreciation and amortization......................... 174 155 138
Deferred income taxes................................. 7 (10) 14
Undistributed earnings of affiliated companies........ (545) (49) 493
Gain on sale of investments and other assets.......... (11) -- (285)
Changes in components of working capital:
(Increase) decrease in receivables.................. 919 327 (85)
(Increase) decrease in inventories.................. (9) (1) 1
(Increase) decrease in prepayments and other current
assets............................................. 14 49 (39)
Increase (decrease) in payables..................... (258) (337) 193
Increase (decrease) in taxes accrued................ 37 21 --
Increase (decrease) in interest accrued............. (21) (6) 2
Increase (decrease) in natural gas pipeline revenue
reservation........................................ 141 150 (7)
Increase (decrease) in other current liabilities.... (60) 130 99
Take-or-pay (refunds to customers) recoupments, net... (34) 92 127
Other................................................. (59) (115) (27)
----- ----- -----
Net Cash Provided (Used) by Operating Activities.......... 988 763 304
----- ----- -----
Investing Activities:
Proceeds from sale of investments and other assets...... 12 -- 386
Expenditures for plant, property and equipment.......... (174) (261) (286)
Acquisitions of businesses.............................. (10) (10) --
Investments and other................................... (161) (425) (23)
----- ----- -----
Net Cash Provided (Used) by Investing Activities.......... (333) (696) 77
----- ----- -----
Financing Activities:
Capital contribution from Tenneco Inc................... -- 100 --
Retirement of long-term debt............................ (795) (628) (30)
Net increase (decrease) in short-term debt excluding
current maturities on long-term debt................... (76) 152 (130)
Net increase (decrease) in noninterest-bearing advances
from affiliated companies.............................. 213 387 (221)
Dividends............................................... -- (75) --
----- ----- -----
Net Cash Provided (Used) by Financing Activities.......... (658) (64) (381)
----- ----- -----
Increase (Decrease) in Cash and Temporary Cash
Investments.............................................. (3) 3 --
Cash and Temporary Cash Investments, January 1............ 3 -- --
----- ----- -----
Cash and Temporary Cash Investments, December 31.......... $ -- $ 3 $ --
===== ===== =====
Cash Paid During the Year for Interest.................... $ 271 $ 297 $ 294
Cash Paid During the Year for Income Taxes (net of
refunds)................................................. $ 15 $ 46 $ 117
</TABLE>
(The accompanying notes to financial statements are an integral part of these
statements of cash flows.)
56
<PAGE>
TENNESSEE GAS PIPELINE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
(MILLIONS)
DECEMBER 31,
----------------
ASSETS 1993 1992
------ ------- -------
<S> <C> <C>
Current Assets:
Cash and temporary cash investments.......................... $ -- $ 3
Receivables--
Customers................................................... 37 128
Affiliated companies........................................ 156 159
Gas transportation and exchange............................. 199 310
Other....................................................... 31 51
Allowance for doubtful accounts............................. (21) (11)
Interest-bearing note receivable from Tenneco Inc............ 203 919
Inventories--
Raw materials, work in process and finished products........ 45 33
Materials and supplies...................................... 20 23
Gas stored underground....................................... 41 60
Prepayments and other........................................ 91 65
------- -------
802 1,740
------- -------
Investments and Other Assets:
Investment in affiliated companies........................... 11,234 10,555
Other........................................................ 367 331
------- -------
11,601 10,886
------- -------
Plant, Property and Equipment, at cost:
Natural gas pipelines........................................ 4,751 4,631
Automotive parts............................................. 291 280
------- -------
5,042 4,911
Less--Reserves for depreciation and amortization............. 3,154 3,059
------- -------
1,888 1,852
------- -------
$14,291 $14,478
======= =======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
balance sheets.)
57
<PAGE>
TENNESSEE GAS PIPELINE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
(MILLIONS)
DECEMBER 31,
----------------
LIABILITIES AND STOCKHOLDER'S EQUITY 1993 1992
------------------------------------ ------- -------
<S> <C> <C>
Current Liabilities:
Current maturities on long-term debt........................ $ -- $ 53
Noninterest-bearing subordinated demand note payable to
Tenneco Corporation........................................ 4,618 4,694
Payables--
Trade and other............................................ 159 216
Affiliated companies....................................... 53 127
Gas transportation and exchange............................ 106 209
Taxes accrued--
Current.................................................... 93 45
Deferred................................................... 14 20
Interest accrued............................................ 40 60
Natural gas pipeline revenue reservation.................... 290 150
Other....................................................... 143 256
------- -------
5,516 5,830
------- -------
Long-term Debt............................................... 983 1,685
------- -------
Non-interest bearing Advances from Affiliated Companies...... 855 642
------- -------
Deferred Income Taxes........................................ 363 355
------- -------
Deferred Credits and Other Liabilities....................... 228 210
------- -------
Commitments and Contingencies
Stockholder's Equity:
Common stock, par value $5 per share, authorized, issued and
outstanding 200 shares..................................... -- --
Premium on common stock and other capital surplus........... 3,494 3,494
Cumulative translation adjustments.......................... (297) (218)
Retained earnings........................................... 3,149 2,480
------- -------
6,346 5,756
------- -------
$14,291 $14,478
======= =======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
balance sheets.)
58
<PAGE>
TENNESSEE GAS PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
Accounting Policies
The financial statements of Tennessee Gas Pipeline Company should be read in
conjunction with the financial statements of Tennessee Gas Pipeline Company and
Consolidated Subsidiaries presented in this document.
Tennessee Gas Pipeline Company charged corporate overhead expenses to its
subsidiaries in the amount of $36 million, $35 million and $88 million for the
years 1993, 1992 and 1991, respectively.
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, 1993, equity in undistributed earnings and cumulative translation
adjustments amounted to $1,294 million and $(274) million, respectively; at
December 31, 1992, the corresponding amounts were $863 million and $(194)
million, respectively.
Dividends received from companies accounted for on an equity basis amounted
to $32 million, $232 million and $2 million for the years 1993, 1992 and 1991,
respectively.
Income Taxes
Tennessee Gas Pipeline Company's pre-tax earnings from continuing operations
(excluding equity in net income (loss) from continuing operations of affiliated
companies) for the years 1993, 1992 and 1991 are principally domestic. The
differences between the U.S. income tax expense, reflected in the Statements of
Income (Loss), of $58 million, $44 million and $112 million for the years 1993,
1992 and 1991 and the income tax expense (benefit) computed at the U.S. federal
income tax rate of $263 million, $136 million and $(71) million, respectively,
consisted principally of the tax effect of equity in net income from continuing
operations of affiliated companies.
Long-Term Debt and Current Maturities
The aggregate maturities and sinking fund requirements applicable to the
long-term debt issues outstanding at December 31, 1993, are $0, $242 million,
$250 million, $325 million and $0 for 1994, 1995, 1996, 1997 and 1998,
respectively.
Financial Instruments
Tennessee Gas Pipeline Company has agreed to cause and enable Newport News
Shipbuilding and Dry Dock Company (a wholly-owned subsidiary) to perform its
covenants and agreements under certain major shipbuilding contracts.
Tennessee Gas Pipeline Company has guaranteed the performance of certain
affiliates pursuant to arrangements under which receivables are factored on a
nonrecourse basis with Tenneco Credit Corporation and Tenneco Credit Canada
Corporation.
(The preceding notes are an integral part of the foregoing financial
statements.)
59
<PAGE>
SCHEDULE II
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES
OTHER THAN RELATED PARTIES
(THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------
BALANCE AT BALANCE AT
BEGINNING END OF
NAME OF DEBTOR (NOTE) OF YEAR ADDITIONS DEDUCTIONS YEAR
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1993
Short-term notes receivable--
Loans to employees of Albright &
Wilson Ltd..................... $2,624 $ 172 $1,660 $1,136
Loans to employees of J.I. Case
Europe Ltd..................... 151 136 287 --
Loan to employee of Dixie
Container Corporation.......... 98 -- 98 --
------ ------ ------ ------
$2,873 $ 308 $2,045 $1,136
====== ====== ====== ======
Year Ended December 31, 1992
Short-term notes receivable--
Loans to employees of Albright &
Wilson Ltd..................... $4,048 $ 161 $1,585 $2,624
Loans to employees of J.I. Case
Europe Ltd..................... 299 -- 148 151
Loan to employee of Dixie
Container Corporation.......... 98 -- -- 98
------ ------ ------ ------
$4,445 $ 161 $1,733 $2,873
====== ====== ====== ======
Year Ended December 31, 1991
Short-term notes receivable--
Loans to employees of Albright &
Wilson Ltd..................... $3,482 $2,473 $1,907 $4,048
Loan to employee of Case
Corporation.................... 100 -- 100 --
Loans to employees of J.I. Case
Europe Ltd..................... 116 187 4 299
Loan to employee of Dixie
Container Corporation.......... 196 -- 98 98
------ ------ ------ ------
$3,894 $2,660 $2,109 $4,445
====== ====== ====== ======
</TABLE>
- --------
NOTE: Primarily temporary noninterest-bearing home loans.
60
<PAGE>
SCHEDULE V
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE V--PLANT, PROPERTY AND EQUIPMENT (NOTE 1)
(MILLIONS)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN C COLUMN D COLUMN E COLUMN F COLUMN C
- -----------------------------------------------------------------------------------------------------------------------------
OTHER
CHANGES OTHER
ADD CHANGES ADD
BALANCE AT ADDI- RETIRE- (DEDUCT) BALANCE AT ADDI- RETIRE- (DEDUCT) BALANCE AT ADDI-
DECEMBER 31, TIONS MENTS (NOTES 3 DECEMBER 31, TIONS MENTS (NOTES 3, DECEMBER 31, TIONS
CLASSIFICATION 1990 AT COST (NOTE 2) AND 4) 1991 AT COST (NOTE 2) 4, 6 AND 7) 1992 AT COST
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Natural gas
pipelines....... $ 4,817 $278 $141 $ 14 $ 4,968 $251 $ 54 $ 17 $ 5,182 $170
Farm and
construction
equipment....... 2,118 82 53 (1,571)(5) 576 5 42 (171) 368 11
Automotive
parts........... 902 81 20 (113)(5) 850 62 12 (43) 857 92
Shipbuilding.... 1,489 64 15 (2) 1,536 35 16 -- 1,555 36
Packaging....... 1,224 127 27 23 1,347 97 46 -- 1,398 124
Chemicals and
minerals........ 1,424 217 41 (19) 1,581 84 829 (128) 708 59
Other........... 130 20 9 (21)(5) 120 2 1 20 141 1
------- ---- ---- ------- ------- ---- ------ ----- ------- ----
$12,104 $869 $306 $(1,689) $10,978 $536 $1,000 $(305) $10,209 $493
======= ==== ==== ======= ======= ==== ====== ===== ======= ====
<CAPTION>
COLUMN A COLUMN D COLUMN E COLUMN F
- -----------------------------------------------------------------------------------------------------------------------------
OTHER
CHANGES
ADD
RETIRE- (DEDUCT) BALANCE AT
MENTS (NOTES 3 DECEMBER 31,
CLASSIFICATION (NOTE 2) AND 4) 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Natural gas
pipelines....... $137 $ 31 $ 5,246
Farm and
construction
equipment....... 30 (1) 348
Automotive
parts........... 16 (23) 910
Shipbuilding.... 63 (1) 1,527
Packaging....... 48 (6) 1,468
Chemicals and
minerals........ 5 (23) 739
Other........... 34 (1) 107
-------- -------- ------------
$333 $(24) $10,345
======== ======== ============
</TABLE>
- ----
NOTES:
(1) Reference is made to Note 1 to financial statements in Part II for bases
of provision for depreciation and amortization.
(2) Retirements of plant by the Natural gas pipelines group are recorded at
original cost, and retirements of other properties are recorded at cost.
(3) Includes acquired companies at date of acquisition (1991 includes $34
million by the Packaging group and $1 million by the Automotive parts
group, 1992 includes $11 million by the Natural gas pipelines group and
1993 includes $1 million by the Automotive parts group).
(4) Includes FAS No. 52 foreign currency translation changes totaling $(24)
million, $(233) million and $(64) million in 1991, 1992 and 1993,
respectively.
(5) Relates primarily to the sale of Kern County Land Consolidated ($(1,680)
million) to Tenneco Inc. See Note 4 to financial statements in Part II for
additional information.
(6) Includes FAS No. 109 accounting principle changes of $8 million in the
Farm and construction equipment group and $12 million in the Packaging
group. See Note 1 to financial statements in Part II for additional
information.
(7) Includes amounts charged to restructuring expense of $(104) million in the
Farm and construction equipment group. See Note 2 to financial statements
in Part II for additional information.
61
<PAGE>
SCHEDULE VI
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PLANT, PROPERTY AND EQUIPMENT (NOTE 1)
(MILLIONS)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN C COLUMN D COLUMN E COLUMN F COLUMN C
- ----------------------------------------------------------------------------------------------------------------------------
ADDITIONS ADDITIONS OTHER ADDITIONS
CHARGED OTHER CHARGED CHANGES CHARGED
TO COSTS CHANGES TO COSTS ADD TO COSTS
BALANCE AT AND ADD BALANCE AT AND (DEDUCT) BALANCE AT AND
DECEMBER 31, EXPENSES RETIRE- (DEDUCT) DECEMBER 31, EXPENSES RETIRE- (NOTES 2 DECEMBER 31, EXPENSES
DESCRIPTION 1990 (NOTE 4) MENTS (NOTE 2) 1991 (NOTE 4) MENTS AND 5) 1992 (NOTE 4)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Natural gas
pipelines....... $3,027 $134 $ 84 $ 1 $3,078 $156 $ 59 $ 6 $3,181 $166
Farm and
construction
equipment....... 827 117 42 (694)(3) 208 32 24 (28) 188 16
Automotive
parts........... 421 56 14 (57)(3) 406 45 9 (18) 424 49
Shipbuilding.... 504 72 10 -- 566 74 13 -- 627 72
Packaging....... 529 68 14 (1) 582 73 12 (3) 640 77
Chemicals and
minerals........ 530 63 24 (4) 565 51 220 (61) 335 33
Other........... 50 6 5 (5)(3) 46 3 1 9 57 3
------ ---- ---- ----- ------ ---- ---- ---- ------ ----
$5,888 $516 $193 $(760) $5,451 $434 $338 $(95) $5,452 $416
====== ==== ==== ===== ====== ==== ==== ==== ====== ====
<CAPTION>
COLUMN A COLUMN D COLUMN E COLUMN F
- ----------------------------------------------------------------------------------------------------------------------------
OTHER
CHANGES
ADD BALANCE AT
RETIRE- (DEDUCT) DECEMBER 31,
DESCRIPTION MENTS (NOTE 2) 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Natural gas
pipelines....... $134 $ 6 $3,219
Farm and
construction
equipment....... 18 (9) 177
Automotive
parts........... 13 (20) 440
Shipbuilding.... 39 (1) 659
Packaging....... 32 (2) 683
Chemicals and
minerals........ 4 (11) 353
Other........... 18 -- 42
-------- -------- ------------
$258 $(37) $5,573
======== ======== ============
</TABLE>
- ----
NOTES:
(1) Reference is made to Note 1 to financial statements in Part II for bases
of provision for depreciation and amortization.
(2) Includes FAS No. 52 foreign currency translation changes totaling $(7)
million, $(110) million and $(34) million in 1991, 1992 and 1993,
respectively.
(3) Relates primarily to the sale of Kern County Land Consolidated ($(754)
million). See Note 4 to financial statements in Part II for additional
information.
(4) Includes amounts charged to discontinued operations of $24 million for
1991 and $13 million for 1992 in the Chemicals and minerals group.
(5) Includes FAS No. 109 accounting principle changes of $2 million in the
Farm and construction equipment group and $2 million in the Packaging
group. See Note 1 to financial statements in Part II for additional
information.
62
<PAGE>
SCHEDULE VIII
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------
ADDITIONS
-----------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE
BEGINNING AND TO 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,
1993...................... $51 $39 $ 1 $25 $66
=== === === === ===
Year Ended December 31,
1992...................... $57 $22 $ 2 $30 $51
=== === === === ===
Year Ended December 31,
1991...................... $81 $34 $ 9 $67 $57
=== === === === ===
</TABLE>
- --------
NOTE: Uncollectible accounts written off, net of recoveries on accounts
previously written off.
63
<PAGE>
SCHEDULE IX
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS (NOTE)
(MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------------------------------------------------
WEIGHTED MAXIMUM AVERAGE WEIGHTED
AVERAGE MONTH-END MONTH-END AVERAGE
INTEREST AMOUNT AMOUNT INTEREST
BALANCE AT RATE AT OUTSTANDING OUTSTANDING RATE
CATEGORY OF SHORT-TERM END OF END OF DURING THE DURING THE DURING THE
BORROWINGS YEAR YEAR YEAR YEAR YEAR
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1993
Lines of Credit....... $ 77 7.2% $154 $121 7.4%
Current Maturities on
Long-term Debt....... 44
----
Total............... $121
====
Year Ended December 31,
1992
Lines of Credit....... $110 7.3% $ 622 $455 8.2%
Current Maturities on
Long-term Debt....... 78
Other................. 160
----
Total............... $348
====
Year Ended December 31,
1991
Lines of Credit....... $622 7.3% $ 890 $697 9.6%
Commercial Paper...... -- -- 1,165 708 8.5%
Current Maturities on
Long-term Debt....... 244
Other................. 105
----
Total............... $971
====
</TABLE>
- --------
NOTE: See Note 7 to the financial statements in Part II for additional
information.
64
<PAGE>
SCHEDULE X
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B
- --------------------------------------------------------------------------------
CHARGED TO
COSTS AND
EXPENSES
--------------
ITEM 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Maintenance and repairs.......................................... $272 $274 $339
==== ==== ====
Taxes, other than payroll and income taxes....................... $ 91 $206 $165
==== ==== ====
</TABLE>
65
<PAGE>
REPORTS ON FORM 8-K
During the fourth quarter of the fiscal year ended December 31, 1993, the
Company did not file with the Securities and Exchange Commission any Current
Reports on Form 8-K.
EXHIBITS
Exhibits not incorporated by reference to a prior filing are designated by an
asterisk; all exhibits not so designated are incorporated herein by reference
to a prior filing as indicated.
<TABLE>
<C> <S>
3(a)(1) --Copy of Amended and Restated Certificate of Incorporation as
amended and supplemented as of November 2, 1992 (Exhibit 3(a)(1)
to Form 10-K for the fiscal year ended December 31, 1992, File
No. 1-4101).
*3(a)(2) --Copy of Certificate of Ownership and Merger merging Tenneco
Turkiye, Inc. into and with Tennessee Gas Pipeline Company dated
as of February 2, 1993.
3(b) --Copy of By-Laws of Tennessee Gas Pipeline Company as amended
October 2, 1989 (Exhibit 3(b) to Form 10-K for fiscal year ended
December 31, 1992, File No. 1-4101).
4 --Included in Exhibits 3(a) and 3(b).
9 --None.
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 of Tenneco
Inc. 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
of Tenneco Inc. 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 of Tenneco Inc. for the fiscal
year ended December 31, 1990, File No. 1-9864).
11 --None.
12 --None.
13 --None.
16 --None.
18 --None.
21 --None.
22 --Omitted pursuant to the reduced disclosure format permitted by
General Instruction J to Form 10-K.
23 --None.
24 --None.
27 --None.
28 --None.
99 --None.
</TABLE>
UNDERTAKING.
The undersigned, Tennessee Gas Pipeline Company, 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 Tennessee Gas Pipeline
Company 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 Tennessee Gas Pipeline
Company and its consolidated subsidiaries.
66
<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.
Tennessee Gas Pipeline Company
S. D. Chesebro
By___________________________________
S. D. Chesebro,
President and Chief Executive
Officer
Date: March 17, 1994
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
S. D. Chesebro March 17, 1994
- ------------------------------------
S. D. Chesebro Principal Executive Officer
and Director
Robert T. Blakely March 17, 1994
- ------------------------------------
Robert T. Blakely Principal Financial and
Accounting Officer
Dana G. Mead March 17, 1994
- ------------------------------------
Dana G. Mead Director
</TABLE>
67
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
*3(a)(1) --Copy of Amended and Restated Certificate of Incorporation as
amended and supplemented as of November 2, 1992 (Exhibit 3(a)(1) to
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-
4101).
3(a)(2) --Copy of Certificate of Ownership and Merger merging Tenneco
Turkiye, Inc. into and with Tennessee Gas Pipeline Company dated as
of February 2, 1993.
*3(b) --Copy of By-Laws of Tennessee Gas Pipeline Company as amended
October 2, 1989 (Exhibit 3(b) to Form 10-K for fiscal year ended
December 31, 1992, File No. 1-4101).
*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 of Tenneco
Inc. 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 of Tenneco
Inc. 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 of Tenneco Inc. for the fiscal year ended
December 31, 1990, File No.1-9864).
</TABLE>
- --------
* Exhibit incorporated by reference.
<PAGE>
EXHIBIT 3(A)(2)
CERTIFICATE OF
OWNERSHIP AND MERGER MERGING
TENNECO TURKIYE, INC.
INTO AND WITH
TENNESSEE GAS PIPELINE COMPANY
TENNESSEE GAS PIPELINE COMPANY, a corporation organized and existing under
and virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That it is the owner of all the issued and outstanding stock of
TENNECO TURKIYE, INC., a Delaware corporation, incorporated on August 20, 1973.
SECOND: That, in accordance with the provisions of Section 141(f) of the
General Corporation Law of the State of Delaware, the Board of Directors of
TENNESSEE GAS PIPELINE COMPANY, by written consent, adopted the following
resolutions to merge TENNECO TURKIYE, INC. into and with TENNESSEE GAS PIPELINE
COMPANY:
RESOLVED, that the Company merge into itself and it hereby does merge
into itself its wholly-owned subsidiary Tenneco Turkiye, Inc. and assume
all of said corporation's liabilities and obligations; and it is further
RESOLVED, that the proper officers of the Company be, and they hereby
are, authorized, empowered and directed to execute, under the corporate
seal of the Company, a Certificate of Ownership and Merger setting forth a
copy of the resolutions to merge said Tenneco Turkiye, Inc. into the
Company, pursuant to which the Company will assume all of the liabilities
and obligations of the said Tenneco Turkiye, Inc., and to cause the same to
be filed, in the manner provided by law, and to do all acts and things
whatsoever, whether within or without the State of Delaware, which may be
in anywise necessary or proper to effect said merger.
IN WITNESS WHEREOF, said TENNESSEE GAS PIPELINE COMPANY has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by E.J.
Milan, its Vice President, and James D. Gaughan, its Assistant Secretary, as of
February 2, 1993.
TENNESSEE GAS PIPELINE COMPANY
BY: /s/E.J. Milan
---------------------------------
E.J. Milan, Vice President
ATTEST
/s/ James D. Gaughan
- -------------------------------------
James D. Gaughan
Assistant Secretary
