<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-4101
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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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
TENNECO ENERGY BUILDING, HOUSTON, 77002
TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 757-2131
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE. Common Stock, par value $5 per
share, 200 shares as of September 30, 1996.
TENNESSEE GAS PIPELINE COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION
H(1)(A) AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A
REDUCED DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I--Financial Information
Tennessee Gas Pipeline Company and Consolidated Subsidiaries--
Statements of Income.................................................. 2
Statements of Cash Flows.............................................. 3
Balance Sheets........................................................ 4
Statements of Changes in Shareowner's Equity.......................... 6
Notes to Financial Statements......................................... 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 15
Part II--Other Information
Item 1. Legal Proceedings............................................... 23
Item 2. Changes in Securities........................................... *
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. *
Item 5. Other Information............................................... 25
Item 6. Exhibits and Reports on Form 8-K................................ 26
</TABLE>
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* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
1
<PAGE>
PART I--FINANCIAL INFORMATION
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Net sales and operating revenues--
Automotive................................. $ 747 $ 586 $2,182 $1,823
Energy..................................... 627 427 1,993 1,364
Packaging.................................. 860 665 2,623 1,983
Shipbuilding............................... 522 445 1,437 1,290
Other...................................... (1) (2) (7) (6)
------ ------ ------ ------
2,755 2,121 8,228 6,454
Other income--
Interest income--
Affiliated companies..................... 74 91 241 271
Other.................................... 9 9 23 29
Equity in net income of affiliated
companies................................. 6 14 25 52
Gain (loss) on sale of businesses and as-
sets, net................................. 3 (1) 69 6
Other income, net.......................... 44 4 67 30
------ ------ ------ ------
2,891 2,238 8,653 6,842
------ ------ ------ ------
Costs and Expenses:
Cost of sales (exclusive of depreciation
shown below)................................ 1,645 1,293 4,717 3,820
Cost of gas sold............................. 360 178 1,155 671
Operating expenses........................... 115 99 375 292
Selling, general and administrative.......... 252 175 742 531
Depreciation, depletion and amortization..... 149 112 429 321
------ ------ ------ ------
2,521 1,857 7,418 5,635
------ ------ ------ ------
Income Before Interest Expense, Income Taxes
and Minority Interest......................... 370 381 1,235 1,207
------ ------ ------ ------
Interest Expense (net of interest capitalized):
Affiliated companies......................... 37 41 113 112
Other........................................ 19 27 68 100
------ ------ ------ ------
56 68 181 212
------ ------ ------ ------
Income Before Income Taxes and Minority Inter-
est........................................... 314 313 1,054 995
Income Tax Expense............................. 120 125 388 403
------ ------ ------ ------
Income Before Minority Interest................ 194 188 666 592
Minority Interest.............................. 9 8 24 26
------ ------ ------ ------
Income From Continuing Operations.............. 185 180 642 566
Income (Loss) From Discontinued Operations, Net
of Income Tax................................. -- (35) 37 (30)
------ ------ ------ ------
Income Before Extraordinary Loss............... 185 145 679 536
Extraordinary Loss, Net of Income Tax.......... (1) -- (1) --
------ ------ ------ ------
Net Income..................................... $ 184 $ 145 $ 678 $ 536
====== ====== ====== ======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
statements of income.)
2
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS)
NINE MONTHS
ENDED
SEPTEMBER 30,
------------------
1996 1995
----- ------
<S> <C> <C>
Cash Flows From Operating Activities:
Income from continuing operations....................... $ 642 $ 566
Adjustments to reconcile income from continuing
operations to cash provided (used) by continuing
operations--
Depreciation, depletion and amortization.............. 429 321
Equity in net income of affiliated companies, net of
dividends............................................ (3) (7)
Deferred income taxes................................. (51) 12
Gain on sale of businesses and assets, net............ (69) (6)
Changes in components of working capital--
(Increase) decrease in receivables.................. (215) (170)
(Increase) decrease in inventories.................. (17) (205)
(Increase) decrease in prepayments and other current
assets............................................. (8) (23)
Increase (decrease) in payables..................... (164) (380)
Increase (decrease) in taxes accrued................ 78 41
Increase (decrease) in interest accrued............. (9) (7)
Increase (decrease) in natural gas pipeline revenue
reservation........................................ 23 (169)
Increase (decrease) in other current liabilities.... (142) (59)
Gas supply litigation payments........................ (318) --
Other................................................. (170) 117
----- ------
Cash provided (used) by continuing operations....... 6 31
Cash provided (used) by discontinued operations..... -- 24
----- ------
Net Cash Provided (Used) by Operating Activities.......... 6 55
----- ------
Cash Flows From Investing Activities:
Net proceeds (expenditures) related to the sale of
discontinued operations................................ 24 712
Net proceeds from sale of businesses and assets......... 416 48
Expenditures for plant, property and equipment--
Continuing operations................................. (651) (565)
Discontinued operations............................... -- (4)
Acquisitions of businesses.............................. (400) (323)
(Increase) decrease in Tenneco Inc. receivables......... 935 447
(Increase) decrease in notes receivable from other
affiliates............................................. (1) --
Investments and other................................... (67) 15
----- ------
Net Cash Provided (Used) by Investing Activities.......... 256 330
----- ------
Cash Flows From Financing Activities:
Capital contribution from (distribution to) affiliates,
net.................................................... -- 5
Issuance of long-term debt.............................. 5 --
Retirement of long-term debt............................ (337) (153)
Net increase (decrease) in short-term debt excluding
current maturities on long-term debt................... (8) 4
----- ------
Net Cash Provided (Used) by Financing Activities.......... (340) (144)
----- ------
Effect of Foreign Exchange Rate Changes on Cash and
Temporary Cash Investments............................... (1) 6
----- ------
Increase (Decrease) in Cash and Temporary Cash
Investments.............................................. (79) 247
Cash and Temporary Cash Investments, January 1............ 193 459
----- ------
Cash and Temporary Cash Investments, September 30 (Note).. $ 114 $ 706
===== ======
Cash Paid During the Period for Interest.................. $ 183 $ 213
Cash Paid During the Period for Income Taxes (net of
refunds)................................................. $ 372 $ 395
</TABLE>
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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.)
3
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
ASSETS 1996 1995 1995
------ ------------- ------------ -------------
<S> <C> <C> <C>
Current Assets:
Cash and temporary cash investments. $ 114 $ 193 $ 706
Receivables--
Customer notes and accounts (net). 585 465 474
Affiliated companies.............. 795 757 491
Gas transportation and exchange... 144 64 145
Other............................. 390 486 254
Notes receivable from Tenneco Inc... 2,419 3,354 2,754
Inventories--
Finished goods.................... 374 395 312
Work in process................... 117 101 96
Long-term contracts in progress,
less progress billings........... 298 264 227
Raw materials..................... 264 248 212
Materials and supplies............ 156 166 152
Deferred income taxes............... 76 18 79
Prepayments and other............... 287 253 250
------- ------- -------
6,019 6,764 6,152
------- ------- -------
Investments and Other Assets:
Investment in affiliated companies.. 284 286 418
Long-term receivables--
Notes and other (net)............. 31 105 138
Affiliated companies.............. 17 1 1
Investment in subsidiaries in excess
of fair value of net assets at date
of acquisition, less amortization.. 926 616 325
Deferred income taxes............... 61 52 53
Other............................... 1,730 1,656 1,303
------- ------- -------
3,049 2,716 2,238
------- ------- -------
Plant, Property and Equipment, at
cost................................. 12,340 11,824 10,908
Less--Reserves for depreciation,
depletion and amortization......... 5,850 5,611 5,598
------- ------- -------
6,490 6,213 5,310
------- ------- -------
$15,558 $15,693 $13,700
======= ======= =======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
balance sheets.)
4
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
LIABILITIES AND SHAREOWNER'S EQUITY 1996 1995 1995
----------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Current Liabilities:
Short-term debt (including current
maturities on long-term debt).......... $ 342 $ 346 $ 422
Payables--
Trade................................. 983 1,065 776
Affiliated companies.................. 136 216 46
Gas transportation and exchange....... 103 28 117
Taxes accrued........................... 316 391 159
Interest accrued........................ 33 27 55
Natural gas pipeline revenue
reservation............................ 73 27 13
Other................................... 780 1,020 891
------- ------- -------
2,766 3,120 2,479
------- ------- -------
Long-term Debt............................ 244 550 536
------- ------- -------
Deferred Income Taxes..................... 962 989 1,251
------- ------- -------
Postretirement Benefits................... 643 609 597
------- ------- -------
Deferred Credits and Other Liabilities.... 487 623 631
------- ------- -------
Commitments and Contingencies
Minority Interest......................... 479 492 485
------- ------- -------
Shareowner's Equity:
Common stock, par value $5 per share,
authorized, issued and outstanding 200
shares................................. -- -- --
Premium on common stock and other
capital surplus........................ 4,906 4,903 3,499
Cumulative translation adjustments...... 18 32 47
Retained earnings....................... 5,053 4,375 4,175
------- ------- -------
9,977 9,310 7,721
------- ------- -------
$15,558 $15,693 $13,700
======= ======= =======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
balance sheets.)
5
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREOWNER'S EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS EXCEPT SHARE
AMOUNTS)
NINE MONTHS ENDED SEPTEMBER
30,
----------------------------
1996 1995
------------- -------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Common Stock:
Balance January 1 and September 30............. 200 $ -- 200 $ --
===== ------ ===== ------
Premium on Common Stock and Other Capital
Surplus:
Balance January 1 ............................. 4,903 3,494
Capital contribution from (distribution to)
affiliates, (net)........................... 3 5
------ ------
Balance September 30........................... 4,906 3,499
------ ------
Cumulative Translation Adjustments:
Balance January 1.............................. 32 (174)
Translation of foreign currency statements... (14) 28
Sale of investment in foreign subsidiaries... -- 193
------ ------
Balance September 30........................... 18 47
------ ------
Retained Earnings:
Balance January 1.............................. 4,375 3,639
Net income................................... 678 536
------ ------
Balance September 30........................... 5,053 4,175
------ ------
Total...................................... $9,977 $7,721
====== ======
</TABLE>
(The accompanying notes to financial statements are an integral part of these
statements of changes in shareowner's equity.)
6
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) In the opinion of Tennessee Gas Pipeline Company (the "Company"), the
accompanying unaudited financial statements of Tennessee Gas Pipeline Company
and consolidated subsidiaries ("Tennessee") contain all adjustments necessary
to present fairly the financial position as of September 30, 1996, and the
results of operations; changes in shareowner's equity; and cash flows for the
periods indicated. The financial statements of Tennessee include all majority-
owned subsidiaries. Investments in 20% to 50% owned companies where Tennessee
has the ability to exert significant influence over operating and financial
policies are carried at cost plus equity in undistributed earnings since date
of acquisition and cumulative translation adjustments.
Prior year's financial statements have been reclassified where appropriate
to conform to 1996 presentations. Also, prior year's financial statements have
been restated where appropriate to reflect the farm and construction equipment
segment as discontinued operations. See Note 5 for additional information.
(2) On April 8, 1992, the Federal Energy Regulatory Commission ("FERC")
issued Order 636 which restructured the natural gas industry by requiring
mandatory unbundling of pipeline sales and transportation services. Numerous
parties appealed, to the U.S. Court of Appeals for the D.C. Circuit Court, the
legality of Order 636 generally, as well as the legality of specific
provisions of Order 636. On July 16, 1996, the U.S. Court of Appeals for the
D.C. Circuit issued its decision upholding, in large part, Order 636. The
Court remanded to the FERC several issues for further explanation, including
further explanation of the FERC's decision to allow pipelines to recover 100%
of their gas supply realignment ("GSR") costs.
The Company implemented revisions to its tariff, effective on September 1,
1993, which restructured its transportation, storage and sales services to
convert the Company from primarily a merchant to primarily a transporter of
gas as required by Order 636. As a result of this restructuring, the Company's
gas sales declined while certain obligations to producers under long-term gas
supply contracts continued, causing the Company to incur significant
restructuring transition costs. Pursuant to the provisions of Order 636
allowing for the recovery of transition costs related to the restructuring,
the Company has made filings to recover GSR costs resulting from remaining gas
purchase obligations, costs related to its Bastian Bay facilities, the
remaining unrecovered balance of purchased gas ("PGA") costs and the
"stranded" cost of the Company's continuing contractual obligation to pay for
capacity on other pipeline systems ("TBO costs").
The Company's filings to recover costs related to its Bastian Bay facilities
have been rejected by the FERC based on the continued use of the gas
production from the field; however, the FERC recognized the ability of the
Company to file for the recovery of losses upon disposition of these assets.
The Company has filed for appellate review of the FERC actions and is
confident that the Bastian Bay costs will ultimately be recovered as
transition costs under Order 636; the FERC has not contested the ultimate
recoverability of these costs.
The filings implementing the Company's recovery mechanisms for the following
transition costs were accepted by the FERC effective September 1, 1993;
recovery was made subject to refund pending FERC review and approval for
eligibility and prudence: 1) direct-billing of unrecovered PGA costs to its
former sales customers over a twelve-month period; 2) recovery of TBO costs,
which the Company is obligated to pay under existing contracts, through a
surcharge from firm transportation customers, adjusted annually; and 3) GSR
cost recovery of 90% of such costs over a period of up to 36 months from firm
transportation customers and recovery of 10% of such costs from interruptible
transportation customers over a period of up to 60 months.
Following negotiations with its customers, the Company filed in July 1994
with the FERC a Stipulation and Agreement (the "PGA Stipulation"), which
provides for the recovery of PGA costs of approximately $100 million and the
recovery of costs associated with the transfer of storage gas inventory to new
storage customers in the Company's restructuring proceeding. The PGA
Stipulation eliminates all challenges to the PGA costs, but establishes a cap
on the charges that may be imposed upon former sales customers. On November
15, 1994, the FERC issued an order approving the PGA Stipulation and resolving
all outstanding issues. On April 5, 1995, the FERC issued its order on
rehearing affirming its initial approval of the PGA Stipulation. The Company
7
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
implemented the terms of the PGA Stipulation and made refunds in May 1995. The
refunds had no material effect on Tennessee's reported net income. The orders
approving the PGA Stipulation have been appealed to the D.C. Circuit Court of
Appeals by certain customers. The Company believes the FERC orders approving
the PGA Stipulation will be upheld on appeal.
The Company is recovering through a surcharge, subject to refund, TBO costs
formerly incurred to perform its sales function. The FERC subsequently issued
an order requiring the Company to refund certain costs from this surcharge and
refunds were made in May 1996. The Company is appealing this decision and
believes such appeal will likely be successful.
With regard to the Company's GSR costs, the Company, along with three other
pipelines, executed four separate settlement agreements with Dakota
Gasification Company and the U.S. Department of Energy and initiated four
separate proceedings at the FERC seeking approval to implement the settlement
agreements. The settlement resolved litigation concerning purchases made by
the Company of synthetic gas produced from the Great Plains Coal Gasification
plant ("Great Plains"). The FERC previously ruled that the costs related to
the Great Plains project are eligible for recovery through GSR and other
special recovery mechanisms and that the costs are eligible for recovery for
the duration of the term of the original gas purchase agreements. On October
18, 1994, the FERC consolidated the four proceedings and set them for hearing
before an administrative law judge ("ALJ"). The hearing, which concluded in
July 1995, was limited to the issue of whether the settlement agreements are
prudent. The ALJ concluded, in his initial decision issued in December 1995,
that the settlement was imprudent. The Company has filed exceptions to this
initial decision. Tennessee believes that this decision will not impair the
Company's recovery of the costs resulting from this contract. Oral arguments
were held before the full FERC on September 25, 1996. A decision by the FERC
is expected by the end of the year.
Also related to the Company's GSR costs, in June 1996, the Company settled
certain litigation with ICA Energy, Inc. ("ICA") and TransTexas Gas
Corporation ("TransTexas") by making a payment of $125 million. This payment
is included in the deferred GSR costs described below. In the settlement, ICA
and TransTexas agreed to terminate the contract, release the Company from
liability under the contract, and indemnify the Company against certain future
claims, including royalty owner claims. In July 1996, certain royalty interest
owners filed a claim against the Company in Webb County, Texas, alleging that
they are sellers entitled to tender gas to the Company under the settled
contract. This claim falls under the indemnification provisions of the
settlement agreement, which requires TransTexas and ICA to defend and
indemnify the Company on this claim.
In a separate declaratory judgment action relating to another gas purchase
contract, the Texas Supreme Court affirmed a ruling of the Court of Appeals
favorable to the Company on August 1, 1995. On April 18, 1996, the Texas
Supreme Court withdrew its initial opinion and issued an opinion reversing the
Court of Appeals opinion on the matter which was favorable to the Company.
That Texas Supreme Court ruling, however, explicitly preserves the Company's
defenses based on bad faith conduct of the producers. In June 1996, the
Company filed a motion for rehearing with the Texas Supreme Court. On August
16, 1996, the Texas Supreme Court denied the Company's motion. Nothing in the
Supreme Court's decision affects the Company's ability to seek recovery from
its customers of its above-market costs of purchasing gas under the contract
as GSR costs in the phased proceedings currently pending before the FERC. In
addition, the Company has initiated two lawsuits against the holders of this
gas purchase contract seeking damages related to their conduct in connection
with that contract.
During the declaratory judgment lawsuit, the Company had either paid, or
provided for the payment of, amounts it believes were appropriate to cover the
resolution of its contract reformation litigation, including providing a bond
in the amount of $206 million. On September 30, 1996, the Company paid
approximately $193 million to the producers and the producers agreed to
release all but approximately $2 million of the bonded
8
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
amount. On November 1, 1996, a final order was issued which assessed only
$456,000 of the $2 million to the Company and the Company will request release
from this remaining bond amount. On October 1, 1996, the Company filed to
recover the pricing differential portion of this payment from its customers.
It is anticipated that the Company will also continue to pay the above-market
contract price for the gas tendered by the producers through the expiration of
the contract in 1999, and will seek recovery of those amounts from its
customers in the FERC proceedings as well. The Company plans to amend its
complaint in one of the separate lawsuits pending against the producers to
seek recovery of amounts the Company believes it is entitled to recover as a
result of the producers' bad faith conduct.
As of September 30, 1996, the Company has deferred GSR costs yet to be
recovered from its customers of approximately $527 million, net of $414
million previously recovered from its customers, subject to refund. A phased
proceeding is underway at the FERC with respect to the recovery of the
Company's GSR costs. Testimony has been completed in connection with Phase I
of that proceeding relating to the eligibility of GSR cost recovery; oral
argument on eligibility issues was originally set by a FERC ALJ for late
October 1996. The Chief Judge of the FERC has since issued orders (i)
canceling the October oral argument, (ii) convening settlement discussions
which commenced on October 9, 1996, and (iii) postponing scheduling oral
argument on eligibility issues. Phase II of the proceeding on the prudency of
the costs to be recovered and on certain contract specific eligibility issues
has not yet been scheduled, but will likely occur sometime after the ALJ's
decision in Phase I is issued.
The FERC has generally encouraged pipelines to settle such issues through
negotiations with customers. Although the Order 636 transition cost recovery
mechanism provides for complete recovery by pipelines of eligible and
prudently incurred transition costs, certain customers have challenged the
prudence and eligibility of the Company's GSR costs and the Company has
engaged in settlement discussions with its customers concerning the amount of
such costs in response to the FERC statements acknowledging the desirability
of such settlements. However, as described under Note 6, El Paso Natural Gas
Company ("El Paso") has reached, contingent upon consummation of the Merger
(as defined in Note 6) and various other conditions (including approval by the
FERC), a preliminary understanding with certain of the Company's customers
regarding the customers' challenges to the Company's ability to recover GSR
and other costs from its customers (the "El Paso Preliminary GSR
Understanding").
Given the uncertainty over the results of ongoing discussions between the
Company and its customers related to the recovery of GSR costs and the
uncertainty related to predicting the outcome of its gas purchase contract
reformation efforts and the associated litigation, Tennessee is unable to
predict the timing or the ultimate impact that the resolution of these issues
will have on its consolidated financial position or results of operations.
On December 30, 1994, the Company filed for a general rate increase (the
"1995 Rate Case"). On January 25, 1995, the FERC accepted the filing,
suspended its effectiveness for the maximum period of five months pursuant to
normal regulatory process, and set the matter for hearing. On July 1, 1995,
the Company began collecting rates, subject to refund, reflecting an $87
million increase in the Company's annual revenue requirement. A Stipulation
and Agreement was filed with an ALJ in this proceeding on April 5, 1996. This
Stipulation proposed to resolve the rates subject to the 1995 Rate Case,
including structural rate design changes and increased revenue requirements.
On October 30, 1996, the FERC approved the Stipulation for the settlement of
the 1995 Rate Case, with certain modifications and clarifications which are
not material and which should not cause changes which are adverse to the
Company. The Company has reserved revenues it believes adequate to cover the
income impact of any refunds that may be required.
(3) Reference is made to Note 2 for information concerning gas supply
litigation. The Company and its subsidiaries are parties to numerous other
legal proceedings arising from their operations. The Company believes that the
outcome of these other proceedings, individually and in the aggregate, will
have no material effect on Tennessee's financial position or results of
operations.
9
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) Since 1988, the Company has been engaged in an internal project to
identify and deal with the presence of polychlorinated biphenyls ("PCBs") and
other substances of concern, including substances on the U.S. Environmental
Protection Agency ("EPA") List of Hazardous Substances ("HS List") at
compressor stations and other facilities operated by both its interstate and
intrastate natural gas pipeline systems. While conducting this project, the
Company has been in frequent contact with federal and state regulatory
agencies, both through informal negotiation and formal entry of consent
orders, in order to assure that its efforts meet regulatory requirements.
Tennessee has established a reserve for the Company's environmental
expenses, which includes: 1) expected remediation expense and associated
onsite, offsite and groundwater technical studies, 2) legal fees and 3)
settlement of third party and governmental litigation, including civil
penalties. Through September 30, 1996, Tennessee has charged approximately
$160 million against the environmental reserve, excluding recoveries related
to the Company's environmental settlement as discussed below. Of the remaining
reserve at September 30, 1996, $24 million has been recorded on the balance
sheet under "Payables-trade" and $128 million under "Deferred credits and
other liabilities."
Due to the current uncertainty regarding the further activity necessary for
the Company to address the presence of the PCBs, the substances on the HS List
and other substances of concern on its sites, including the requirements for
additional site characterization, the actual amount of such substances at the
sites, and the final, site-specific cleanup decisions to be made with respect
to cleanup levels and remediation technologies, the Company cannot at this
time accurately project what additional costs, if any, may arise from future
characterization and remediation activities. While there are still many
uncertainties relating to the ultimate costs which may be incurred, based upon
the Company's evaluation and experience to date, Tennessee continues to
believe that the recorded estimate for the reserve is adequate.
Following negotiations with its customers, the Company in May 1995 filed
with the FERC a separate Stipulation and Agreement (the "Environmental
Stipulation") that establishes a mechanism for recovering a substantial
portion of the environmental costs. In November 1995, the FERC issued an order
approving the Environmental Stipulation. Although one shipper filed for
rehearing, the FERC denied rehearing of its order on February 20, 1996. This
shipper filed a Petition for Review on April 22, 1996 in the D.C. Circuit
Court of Appeals; the Company believes the FERC Order approving the
Environmental Stipulation will be upheld on appeal. The effects of the
Environmental Stipulation, which was effective as of July 1, 1995, have been
recorded with no material effect on Tennessee's financial position or results
of operations. As of September 30, 1996, the balance of the regulatory asset
is $54 million.
Tennessee has completed settlements with and has received payments from the
majority of its liability insurance policy carriers for remediation costs and
related claims. Tennessee believes that the likelihood of recovery of a
portion of its remediation costs and claims against the remaining carriers in
its pending litigation is reasonably possible. In addition, the Company has
settled its pending litigation against and received payment from the
manufacturer of the PCB-containing lubricant. These recoveries have been
considered in the Company's recording of its environmental settlement with its
customers.
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. Tennessee believes that the provisions recorded for
environmental exposures are adequate based on current estimates.
(5) In March 1996, Tenneco Inc. ("Tenneco") and consolidated subsidiaries
("Tenneco Consolidated") sold its remaining ownership of 15.2 million shares
of common stock of Case Corporation in a public offering at
10
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
$53.75 per share. Of the 15.2 million shares sold, approximately 690,800
shares were owned by Tennessee. In connection with the offering, Tennessee
received net proceeds of $36 million and recognized a gain of $37 million,
including $29 million of income tax benefit. Tenneco Consolidated in the
aggregate recorded a gain of $340 million, net of $83 million in income tax
expense. As a result of this sale, the financial statements have been restated
to reflect the operating results and the gains or losses on the sale of the
farm and construction equipment segment as "discontinued operations" for all
periods presented.
(6) As part of the ongoing strategic realignment of its businesses, on June
19, 1996, Tenneco's Board of Directors approved a plan to reorganize Tenneco
(the "Transaction") pursuant to which (i) Tenneco will restructure (the "Debt
Realignment") its and certain of its consolidated subsidiaries' debt through a
series of tender offers, exchange offers, payments, redemptions, prepayments
and defeasances involving Tenneco, New Tenneco Inc., a newly formed, wholly
owned subsidiary of Tenneco ("New Tenneco"), and Newport News Shipbuilding
Inc., a wholly owned subsidiary of Tenneco ("Newport News"); (ii) Tenneco and
its subsidiaries will, pursuant to a distribution agreement (the "Distribution
Agreement") among Tenneco, New Tenneco and Newport News, undertake various
intercompany transfers and distributions (collectively, the "Corporate
Restructuring Transactions") designed to restructure, divide and separate
their various businesses and assets so that substantially all of the assets,
liabilities and operations of (A) their automotive parts, packaging and
administrative services businesses ("Industrial Business") are owned and
operated by New Tenneco and (B) their shipbuilding business ("Shipbuilding
Business") is owned and operated by Newport News; (iii) Tenneco will then
distribute (the "Distributions") pro rata to holders of Tenneco common stock,
all of the outstanding common stock of New Tenneco (the "New Tenneco Common
Stock") and Newport News (the "Newport News Common Stock"); and (iv)
thereafter an indirect wholly owned subsidiary of El Paso will merge with and
into Tenneco (the "Merger"), which will then consist of the remaining assets,
liabilities and operations of Tenneco and its subsidiaries other than those
relating to the Industrial Business or the Shipbuilding Business, including
the transmission and marketing of natural gas (collectively, the "Energy
Business" or "Tenneco Energy") pursuant to an Amended and Restated Agreement
and Plan of Merger dated as of June 19, 1996 between El Paso and Tenneco. The
Transaction will include the restructuring and reorganization of the assets,
liabilities, operations and businesses of the Company.
For the past several years, Tenneco Consolidated has been undergoing a
corporate transformation from a highly diversified industrial corporation to a
global manufacturing company focused on its automotive and packaging
businesses. The Transaction is designed to complete this process. Consummation
of the Transaction is conditioned upon, among other things, the approval by
Tenneco shareowners of the Transaction and a favorable ruling from the
Internal Revenue Service ("IRS") regarding the tax-free nature of certain
components of the Transaction. Tenneco received a favorable ruling from the
IRS regarding the applicable components of the Transaction on October 30,
1996. The Transaction will be submitted as a single, unified proposal at a
special meeting of Tenneco shareowners, presently scheduled to be held on
December 10, 1996.
As a part of the Transaction, Tenneco will specifically undertake the
following actions:
. New Preferred Stock Issuance. Tenneco will issue in a registered public
offering shares of one or more new series of junior preferred stock of
Tenneco (the "Tenneco Junior Preferred Stock") in an amount calculated, to
the extent possible, to have an aggregate value equal to approximately 25%
of the total value of all shares of Tenneco capital stock outstanding upon
consummation of the Merger (the "NPS Issuance"). The proceeds (the "NPS
Issuance Proceeds") to Tenneco from the sale of the Tenneco Junior
Preferred Stock in the NPS Issuance (which are currently estimated to be
approximately $300 million) will, net of underwriting commissions and other
expenses, be used to repay certain existing indebtedness of Tenneco and
certain of its subsidiaries in connection with the Debt Realignment.
. Debt Realignment. Pursuant to the Debt Realignment, indebtedness for
borrowed money of Tenneco and certain of its consolidated subsidiaries
("Tenneco Consolidated Debt") will be restructured and refinanced through a
series of tender offers, exchange offers, payments, redemptions,
prepayments and defeasances.
11
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Debt Realignment is intended to reduce the total amount of Tenneco
Consolidated Debt to an amount that, when added to the total amount of
certain other liabilities and obligations of Tenneco Energy outstanding as
of the effective time of the Merger ("Actual Energy Debt Amount") equals
$2.65 billion, less the NPS Issuance Proceeds and subject to certain other
adjustments (the "Base Debt Amount"). If the Actual Energy Debt Amount
varies from the Base Debt Amount, the amount of such variance will be
accounted for in a post-Transaction cash adjustment. If the Transaction had
been consummated on September 30, 1996, on a pro forma basis (assuming 100%
acceptance of the Cash Tender Offers and Exchange Offers, as defined
below), Tenneco and New Tenneco would have had indebtedness for money
borrowed of approximately $2,519 million, ($1,819 million after giving
effect to the Refinancing Transactions described below) and $2,200 million,
respectively.
. Cash Realignment. The total amount of cash and cash equivalents of Tenneco
and its consolidated subsidiaries at the time of the Merger will be
allocated $25 million to Tenneco (subject to certain adjustments), $5
million to Newport News and the balance to New Tenneco.
. Charter Amendment. Prior to the Merger, Tenneco will file an amendment to
eliminate specified rights, powers and preferences of its junior preferred
stock (certain of which may be preserved or modified in the certificates of
designation for the Tenneco Junior Preferred Stock to be issued in the NPS
Issuance) contained in the Tenneco Certificate of Incorporation, as
amended.
. The Distributions. On the effective date of the Distributions, Tenneco will
distribute to all holders of Tenneco common stock, par value $5.00 per
share, of record as of the close of business on November 6, 1996, (i) one
share of New Tenneco Common Stock, $.01 par value per share, for every
share of Tenneco common stock held, and (ii) one share of Newport News
Common Stock, $.01 par value per share, for every five shares of Tenneco
common stock held. Cash will be paid in lieu of fractional shares. The
Distribution Agreement and various agreements to be entered into in
connection therewith will govern the post-Transaction allocation of various
other rights and obligations among Tenneco, New Tenneco and Newport News.
. The Merger. El Paso Merger Company, an indirect wholly owned subsidiary of
El Paso, will be merged with and into Tenneco, which will then consist
solely of the Energy Business. Tenneco will survive the Merger, with 100%
of its common equity and approximately 75% of its combined equity value at
that time held indirectly by El Paso (and the remainder held by the holders
of the Tenneco Junior Preferred Stock issued pursuant to the NPS Issuance).
Tenneco Consolidated expects to incur an extraordinary charge as a result of
Debt Realignment. Tenneco Consolidated estimates that this cost will be
approximately $300 million after tax based on current market rates of
interest. Certain other costs will also be incurred in connection with the
Corporate Restructuring Transactions and the Distributions which Tenneco
Consolidated estimates will be approximately $100 million after tax.
New Tenneco after the Transaction
Although the separation of the Industrial Business from the remainder of the
businesses, operations and companies currently constituting the "Tenneco
Group" has been structured as a "spin-off" of New Tenneco for legal, tax and
other reasons, New Tenneco will succeed to certain important aspects of the
existing Tenneco business, organization and affairs, namely: (i) New Tenneco
will be renamed "Tenneco Inc." upon the consummation of the Merger; (ii) New
Tenneco will be headquartered at Tenneco's current headquarters in Greenwich,
Connecticut; (iii) New Tenneco's Board of Directors will consist of those
persons currently constituting the Tenneco Board of Directors; (iv) New
Tenneco's executive management will consist substantially of the current
Tenneco executive management; and (v) the Industrial Business to be conducted
by New Tenneco will consist largely of Tenneco Automotive and Tenneco
Packaging, which combined represent over half of the assets, revenues and
operating income of the businesses, operations and companies presently
12
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
constituting the "Tenneco Group." Consequently, pending approval of the
Transaction by Tenneco shareowners, New Tenneco will reflect the spin-off of
Newport News and the Merger of the Energy Business with El Paso as
discontinued operations in its financial statements.
As part of the Debt Realignment, New Tenneco will offer to exchange (the
"Debt Exchange Offers") $1,950 million aggregate principal amount of new,
publicly traded debt securities of New Tenneco for an equal amount of Tenneco
Consolidated Debt. New Tenneco debt will have similar maturities, but higher
interest rates than the Tenneco Consolidated Debt for which it is being
exchanged. Upon consummation of the Debt Exchange Offers, Tenneco will
purchase (and thereafter extinguish) the Tenneco Consolidated Debt held by New
Tenneco, and New Tenneco will then distribute such proceeds as a dividend to
Tenneco.
Additionally, the Debt Realignment will include tender offers by Tenneco
(the "Cash Tender Offers") to purchase for cash approximately $1,580 million
aggregate principal amount of current Tenneco Consolidated Debt. The Tenneco
Consolidated Debt acquired in the Cash Tender Offers will be extinguished. The
Cash Tender Offers and other cash components of the Debt Realignment will
principally be financed by internally generated cash, the NPS Issuance
Proceeds and borrowings under several new credit facilities and other
financing arrangements as discussed below.
In addition, New Tenneco will enter into a $1,750 million revolving credit
facility (the "New Tenneco Credit Facility"). New Tenneco will use the New
Tenneco Credit Facility for working capital, acquisitions and other general
corporate purposes; in addition, New Tenneco is likely to borrow funds under
the New Tenneco Credit Facility and declare and pay a dividend to Tenneco in
connection with the Debt Realignment.
Newport News after the Transaction
Upon completion of the Distributions, Newport News will be an independent,
publicly-held holding company which will conduct substantially all of its
operations through its direct and indirect consolidated subsidiaries.
Immediately following the Distributions, Tenneco will not have an ownership
interest in Newport News. In connection with the Distributions and to provide
for working capital needs, Newport News intends to issue $200 million of
Senior Notes due 2006 (the "Senior Notes") and $200 million of Senior
Subordinated Notes due 2006 (the "Senior Subordinated Notes" and together with
the Senior Notes, the "Notes"). In addition, Newport News recently entered
into a $415 million secured senior credit facility (the "Senior Credit
Facility") comprised of a $200 million six-year amortizing term loan (the
"Term Loan") and a $215 million six-year revolving credit facility (the
"Revolving Credit Facility"), of which $125 million may be used for advances
and letters of credit and $90 million may be used for standby letters of
credit. In addition, Newport News will utilize the proceeds of the Notes and
Term Loan and borrowings of $14 million under the Revolving Credit Facility to
distribute (i) $600 million as a dividend to Tenneco or one or more of its
subsidiaries for use in retiring Tenneco Consolidated Debt and (ii) $14
million in payment of certain fees and expenses incurred in connection with
Senior Credit Facility and the Notes.
Energy Business after the Transaction
In connection with the cash funding requirements of the Debt Realignment,
Tenneco will enter into a $3 billion credit facility (the "Tenneco Credit
Facility") which will consist of a 364-day revolving credit facility with a
two-year term thereafter. The Tenneco Credit Facility, and the borrowings
thereunder, will continue to be part of the Energy Business subsequent to the
Transaction.
El Paso is currently engaged in a comprehensive review of the business and
operations of the Energy Business. Following the completion of such review and
the consummation of the Merger, El Paso has indicated
13
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
that it plans to integrate, for the most part, the operations of the Energy
Business with those of El Paso in order to increase operating and
administrative efficiency through consolidation and reengineering of
facilities, workforce reductions and coordination of purchasing, sales and
marketing activities. El Paso has indicated that it anticipates that the
complementary interstate and intrastate pipeline operations and gas marketing
activities of El Paso and the Energy Business should provide the combined
company with increased operating flexibility and access to additional
customers and markets.
El Paso has indicated that it intends to undertake various transactions with
respect to the Energy Business (the "Refinancing Transactions") in order to
reduce the amount of Tenneco debt that would otherwise be outstanding after
consummation of the Transaction including (i) the monetization of certain
assets of the Energy Business for anticipated net proceeds of approximately
$500 million, and (ii) a public equity offering by El Paso of approximately
$200 million and the use of the net proceeds thereof to purchase a
subordinated series of junior preferred stock (the "Subordinated Tenneco
Preferred Stock") from Tenneco. The cash proceeds received by Tenneco from El
Paso's purchase of the Subordinated Tenneco Preferred Stock will be used by
Tenneco to repay a portion of its post-Transaction debt. In addition, as
market conditions allow, El Paso may refinance Tenneco's remaining post-
Transaction debt through the sale of senior debt of Tenneco and/or the
Company.
On October 23, 1996, in anticipation of consummation of the Merger, El Paso
reached a preliminary understanding with certain of the Company's customers
("the El Paso Preliminary GSR Understanding"). Under the El Paso Preliminary
GSR Understanding, if the Merger is consummated prior to April 1, 1997, then
El Paso will settle the customers' challenges to the Company's GSR and other
transition costs, effective January 1, 1997. It is unlikely that the El Paso
Preliminary GSR Understanding will be finalized and filed with the FERC prior
to December 31, 1996. Finalization of the El Paso Preliminary GSR
Understanding is subject to consummation of the Merger before April 1, 1997,
and certain other conditions. If the Merger is not consummated prior to April
1, 1997, then the Company has the option to terminate the El Paso Preliminary
GSR Understanding.
Assuming the El Paso Preliminary GSR Understanding is finalized and filed
with the FERC, non-consenting customers will have the opportunity to object to
the proposed settlement.
(7) In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
establishes new accounting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The statement is effective for
transactions occurring after December 31, 1996. The impact of the adoption of
the new standard has not been quantified.
(The above notes are an integral part of the foregoing financial statements.)
14
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PROPOSED SPIN-OFFS AND MERGER WITH EL PASO NATURAL GAS COMPANY
As part of the ongoing strategic realignment of its businesses, on June 19,
1996, Tenneco's Board of Directors approved a plan to reorganize Tenneco (the
"Transaction") pursuant to which (i) Tenneco will restructure (the "Debt
Realignment") its and certain of its consolidated subsidiaries' debt through a
series of tender offers, exchange offers, payments, redemptions, prepayments
and defeasances involving Tenneco, New Tenneco Inc., a newly formed, wholly
owned subsidiary of Tenneco ("New Tenneco"), and Newport News Shipbuilding
Inc., a wholly owned subsidiary of Tenneco ("Newport News"); (ii) Tenneco and
its subsidiaries will, pursuant to a distribution agreement (the "Distribution
Agreement") among Tenneco, New Tenneco and Newport News, undertake various
intercompany transfers and distributions (collectively, the "Corporate
Restructuring Transactions") designed to restructure, divide and separate
their various businesses and assets so that substantially all of the assets,
liabilities and operations of (A) their automotive parts, packaging and
administrative services businesses ("Industrial Business") are owned and
operated by New Tenneco and (B) their shipbuilding business ("Shipbuilding
Business") is owned and operated by Newport News; (iii) Tenneco will then
distribute (the "Distributions") pro rata to holders of Tenneco common stock,
all of the outstanding common stock of New Tenneco (the "New Tenneco Common
Stock") and Newport News (the "Newport News Common Stock"); and (iv)
thereafter an indirect wholly owned subsidiary of El Paso will merge with and
into Tenneco (the "Merger"), which will then consist of the remaining assets,
liabilities and operations of Tenneco and its subsidiaries other than those
relating to the Industrial Business or the Shipbuilding Business, including
the transmission and marketing of natural gas (collectively, the "Energy
Business" or "Tenneco Energy") pursuant to an Amended and Restated Agreement
and Plan of Merger dated as of June 19, 1996 between El Paso and Tenneco. The
Transaction will include the restructuring and reorganization of the assets,
liabilities, operations and businesses of the Company.
For the past several years, the Company has been undergoing a corporate
transformation from a highly diversified industrial corporation to a global
manufacturing company focused on its automotive and packaging businesses. The
Transaction is designed to complete this process. Consummation of the
Transaction is conditioned upon, among other things, the approval by Tenneco
shareowners of the Transaction and a favorable ruling from the Internal
Revenue Service ("IRS") regarding the tax-free nature of certain components of
the Transaction. Tenneco received a favorable ruling from the IRS regarding
the applicable components of the Transaction on October 30, 1996. The
Transaction will be submitted as a single, unified proposal at a special
meeting of Tenneco shareowners, presently scheduled to be held on December 10,
1996. (For details of the transactions, see Note 6 in the "Notes to Financial
Statements" for additional information.)
Tenneco Consolidated expects to incur an extraordinary charge as a result of
the Debt Realignment. Tenneco Consolidated estimates that this cost will be
approximately $300 million after tax based on current market rates of
interest. Certain other costs will also be incurred in connection with the
Corporate Restructuring Transactions and the Distributions which Tenneco
Consolidated estimates will be approximately $100 million after tax.
OTHER STRATEGIC ACTIONS
In the 1996 third quarter, Tennessee completed the acquisition of the
following new businesses:
.Tenneco Automotive acquired The Pullman Company and its Clevite products
division ("Clevite") for approximately $330 million. Clevite is a leading
original equipment manufacturer of automotive vibration control components,
including bushings and engine mounts for the auto, light truck and heavy
truck markets. Clevite will be integrated into Monroe to form an operation
with all of the components necessary to design, manufacture, test and sell
a complete automotive suspension system.
.Tenneco Automotive also acquired Luis Minuzzi e Hijos, an Argentinean
exhaust system manufacturer ("Minuzzi"). The acquisition will expand
Walker's presence in the rapidly growing Argentinean and South American
automobile markets.
15
<PAGE>
THREE MONTHS RESULTS
Tennessee's income from continuing operations for the 1996 third quarter was
$185 million, an improvement of three percent compared with $180 million in
the year ago quarter. Both Tenneco Automotive and Tenneco Energy contributed
to this improvement.
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
THIRD QUARTER
--------------
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Automotive................................................ $ 747 $ 586
Energy.................................................... 627 427
Packaging................................................. 860 665
Shipbuilding.............................................. 522 445
Other..................................................... (1) (2)
------ ------
$2,755 $2,121
====== ======
</TABLE>
Third quarter 1996 revenues increased $634 million or 30 percent, as all
operating divisions achieved double digit revenue growth. Tenneco Automotive's
revenues increased in both the exhaust and ride control operations. Tenneco
Packaging's improvement resulted primarily from the less cyclical specialty
acquisitions made in 1995 offset in part by lower pricing from paperboard
packaging. Tenneco Energy's revenue increase was generated primarily from
higher gas prices and gas volumes in both the nonregulated and regulated
operations. The results of each business are discussed in detail below.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING
INCOME)
<TABLE>
<CAPTION>
THIRD QUARTER
-------------
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Automotive.................................................. $ 81 $ 61
Energy...................................................... 97 81
Packaging................................................... 92 117
Shipbuilding................................................ 36 35
Other....................................................... 64 87
------ ------
$370 $381
====== ======
</TABLE>
Tennessee's operating income for the 1996 third quarter decreased by $11
million compared with the 1995 period. Tenneco Energy benefited from favorable
market conditions in the gas industry and Tenneco Automotive benefited from
improved results in both the exhaust and ride control sectors and operating
earnings from recent acquisitions. These increases were partially offset by
lower operating income at Tenneco Packaging due to lower paperboard prices.
The results of each business are discussed in detail below.
TENNECO AUTOMOTIVE
<TABLE>
<CAPTION>
THIRD QUARTER
-------------
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Revenues.................................................... $ 747 $ 586
Operating income............................................ 81 61
</TABLE>
Operating income from the exhaust operations improved 20 percent to $48
million, excluding last year's $10 million charge for start-up costs related
to hydroforming, primarily due to increased volumes, recent acquisitions, and
improved manufacturing efficiencies, along with lower distribution costs. Ride
control's operating income increase of $2 million was generated primarily by
recent acquisitions.
16
<PAGE>
Tenneco Automotive's revenues in the third quarter rose 27 percent to set a
record for twelve consecutive quarters of quarter over quarter improvement.
Revenues from recent acquisitions contributed slightly over 70 percent of the
revenue improvement including Clevite which contributed $57 million.
Exhaust revenues increased 20 percent to $423 million primarily due to
increased North American and European original equipment volumes driven by new
vehicle production and recent acquisitions. Aftermarket volumes also increased
in Europe primarily due to the recent Fonos acquisition.
Ride control reported increased revenues of $91 million, up 39 percent. Ride
control's North American original equipment revenues more than doubled to $83
million due to the third quarter acquisition of Clevite. European original
equipment revenues improved 53 percent driven by widespread dealer incentives,
new vehicle production, and the recent Ateso acquisition. In addition,
revenues in Australia increased as a result of the acquisition of National
Springs.
TENNECO ENERGY
<TABLE>
<CAPTION>
THIRD QUARTER
-------------
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Revenues.................................................... $ 627 $ 427
Operating income............................................ 97 81
</TABLE>
Tenneco Energy reported a 20 percent increase in operating income for the
1996 third quarter as compared with the same period a year ago. In addition,
revenues rose 47 percent to $627 million from $427 million in the 1995 third
quarter.
Nonregulated revenues increased $184 million or 82 percent, primarily due to
higher natural gas prices and volumes. Regulated revenues increased $16
million as a result of transportation volume increases and other regulatory
adjustments.
Nonregulated operating income increased to $12 million from $7 million in
the 1995 third quarter. This increase was primarily due to improved power
marketing margins, as well as higher volumes and improved pricing in
gathering, processing and oil and gas production. Regulated operating income
increased to $85 million compared with $74 million in the year ago period. The
improvement resulted from higher transportation volumes, operating
efficiencies and legal settlements. The prior year results included $8 million
in operating income from the Kern River pipeline, which was sold in the fourth
quarter last year.
TENNECO PACKAGING
<TABLE>
<CAPTION>
THIRD
QUARTER
-----------
1996 1995
----- -----
(MILLIONS)
<S> <C> <C>
Revenues...................................................... $ 860 $ 665
Operating income.............................................. 92 117
</TABLE>
Operating income for Tenneco Packaging for the 1996 third quarter was $92
million compared with $117 million in the year ago quarter. The specialty
packaging unit's operating income increased to $62 million from $9 million in
the year ago quarter. Volume growth, primarily from the November 1995 plastics
acquisition, and lower raw materials costs were key factors in operating
income improvement. This recently acquired plastics business contributed $38
million in operating income on revenues of $274 million in the 1996 third
quarter.
17
<PAGE>
The paperboard packaging operations' operating income was $30 million
compared with $108 million in the prior year quarter. Linerboard and
corrugating medium prices averaged $340 per ton and $280 per ton compared with
$530 per ton and $520 per ton, respectively in the year ago period.
In the paperboard business, revenues were down $84 million to $400 million
compared with the 1995 third quarter. Operating income in the paperboard
business declined $78 million to $30 million compared with the 1995 third
quarter. Operating income and revenues were reduced by lower price
realizations due to the weaker market conditions compared with record levels a
year ago.
Revenues in Tenneco Packaging's specialty packaging business increased $279
million to $460 million compared with the 1995 third quarter, primarily as a
result of the recently acquired plastics businesses. The specialty packaging
business, which included the strong results of the November 1995 plastics
acquisition, earned $62 million in operating income for the 1996 third
quarter, a $53 million increase compared with the year ago results. Operating
margins in the specialty packaging business increased to 13 percent from five
percent in the year ago quarter.
NEWPORT NEWS SHIPBUILDING
<TABLE>
<CAPTION>
THIRD
QUARTER
-----------
1996 1995
----- -----
(MILLIONS)
<S> <C> <C>
Revenues...................................................... $ 522 $ 445
Operating income.............................................. 36 35
</TABLE>
Third quarter operating income for Shipbuilding increased $1 million over
the prior year quarter due to higher volume and productivity improvements on
the Eisenhower overhaul, partially offset by lower submarine construction
income due to the conclusion of the Los Angeles-class program and lower
margins on commercial and conversion work. The third quarter 1996 results
included a charge of $31 million to cover estimated contract losses related to
construction of commercial product tankers compared with a $14 million charge
recorded in the year ago period.
Shipbuilding revenues for the 1996 third quarter increased $77 million to
$522 million compared with the 1995 period primarily due to increased activity
on carrier construction and the Eisenhower overhaul partially offset by lower
submarine and conversion program revenues. Construction activity on the Los
Angeles-class submarines was completed in August with the delivery of
Cheyenne.
The shipyard's backlog was $3.7 billion at September 30, 1996, substantially
all of which is U.S. Navy-related. The backlog at September 30, 1995 was $4.9
billion.
The backlog at September 30, 1996 included two Nimitz-class aircraft
carriers (Harry S. Truman and Ronald Reagan), surface ship overhaul contracts
and contracts to construct nine "Double Eagle" product tankers. In addition,
Newport News has ongoing engineering contracts related to submarine and
carrier work. Subject to new orders, this backlog will decline as the
remaining aircraft carriers are delivered in 1998 and 2002.
OTHER
Tennessee's other operations reported operating income of $64 million for
the 1996 third quarter compared with operating income of $87 million in the
1995 third quarter. This decrease in operating income resulted from lower
interest income from affiliated companies and other investments.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Interest expense decreased from $68 million in the 1995 third quarter to $56
million in the 1996 third quarter. The decrease was primarily attributable to
lower debt levels. Interest capitalized increased from $2 million in the 1995
third quarter to $3 million in the 1996 third quarter due to increased capital
spending.
18
<PAGE>
INCOME TAXES
Income tax expense for the third quarter of 1996 was $120 million compared
with $125 million for the 1995 third quarter. The effective tax rate for the
third quarter of 1996 was 38 percent compared with 40 percent in the prior
year quarter.
DISCONTINUED OPERATIONS
Loss from discontinued operations in the 1995 third quarter of $35 million
was attributable to the farm and construction equipment segment.
EXTRAORDINARY LOSS
An extraordinary loss of $1 million (net of tax) was recorded in the 1996
third quarter related to a prepayment penalty on early debt retirement.
NINE MONTHS RESULTS
Tennessee's income from continuing operations for the first nine months of
1996 was $642 million, an improvement of 13 percent compared with $566 million
in the year ago period. Both Tenneco Automotive and Tenneco Energy contributed
to this improvement.
Net income was $678 million compared with net income of $536 million in the
first nine months of 1995. The first nine months of 1996 net income included
income from discontinued operations of $37 million compared with a $30 million
loss from discontinued operations in the 1995 first nine months. The 1996
period included an extraordinary loss of $1 million related to the prepayment
penalty associated with the early debt retirement.
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
-------- --------
(MILLIONS)
<S> <C> <C>
Automotive............................................ $ 2,182 $ 1,823
Energy................................................ 1,993 1,364
Packaging............................................. 2,623 1,983
Shipbuilding.......................................... 1,437 1,290
Other................................................. (7) (6)
-------- --------
$8,228 $ 6,454
======== ========
</TABLE>
Net sales and operating revenues for the first nine months of 1996 were
$8.23 billion, up 27 percent from $6.45 billion reported in 1995 due to higher
gas prices and increased demand in Tenneco Energy's nonregulated business and
increased rates and volume in the regulated business along with revenues from
recent acquisitions. Higher revenues were reported by all divisions: Tenneco
Packaging (up $640 million or 32 percent), Tenneco Automotive (up $359 million
or 20 percent), Tenneco Energy (up $629 million or 46 percent), and
Shipbuilding (up $147 million or 11 percent).
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING
INCOME)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
-------- --------
(MILLIONS)
<S> <C> <C>
Automotive.............................................. $ 241 $ 191
Energy.................................................. 282 229
Packaging............................................... 362 374
Shipbuilding............................................ 117 125
Other................................................... 233 288
-------- --------
$1,235 $ 1,207
======== ========
</TABLE>
19
<PAGE>
Operating income for the first nine months of 1996 improved $28 million, or
two percent to $1,235 million. Tenneco Energy benefited from favorable market
conditions in the gas industry and Tenneco Automotive benefited from improved
results in both the exhaust and ride control sectors and from recent
acquisitions. These increases were partially offset by lower operating income
at Tenneco Packaging due to lower paperboard prices and at Shipbuilding due to
higher costs associated with conversion work and commercial product tankers.
The results of each business are discussed in detail below.
TENNECO AUTOMOTIVE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
-------- --------
(MILLIONS)
<S> <C> <C>
Revenues................................................ $ 2,182 $ 1,823
Operating income........................................ 241 191
</TABLE>
Tenneco Automotive's revenues increased in both the exhaust and ride control
operations. Revenues for exhaust increased 17 percent to $1,270 million. North
American and European original equipment revenues were up, driven by a record
number of new product launches, new vehicle production and recent
acquisitions. Exhaust aftermarket volumes also increased in North America and
Europe.
Ride control reported increased revenues of $172 million or 23 percent.
North American and European original equipment revenues increased as the
result of the Clevite and Ateso acquisitions and new vehicle production. Ride
control's aftermarket revenues also increased in North America due to improved
product mix.
Exhaust's operating income for the first nine months of 1996 improved 40
percent to $122 million primarily due to increased volumes, improved
manufacturing efficiencies and recent acquisitions. Ride control's operating
income increase of $15 million was due primarily to higher sales volumes,
improved product mix and recent acquisitions including Clevite.
TENNECO ENERGY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
-------- --------
(MILLIONS)
<S> <C> <C>
Revenues................................................ $ 1,993 $ 1,364
Operating income........................................ 282 229
</TABLE>
Tenneco Energy revenues increased 46 percent to $1,993 million compared with
the prior year. Nonregulated revenues increased 67 percent to $1,352 million
primarily due to higher natural gas prices and volumes. In addition, the South
Australia Pipeline acquired in June 1995 and new processing and gathering
projects contributed $38 million to the revenue increase. Regulated revenues
increased 16 percent to $641 million primarily due to increased transportation
volumes, the benefits derived from a new rate structure that occurred July 1,
1995 and regulatory adjustments, the majority of which had no material
operating income impact.
Tenneco Energy operating income increased 23 percent to $282 million for the
first nine months of 1996 as compared with the year ago period. Nonregulated
operating income increased to $31 million or 48 percent due to a full nine
months operating income from the June 1995 acquisition of the South Australia
Pipeline, increased operating income of $14 million from Tenneco Ventures' oil
and gas production partially offset by lower margins from marketing activities
and legal settlements. Regulated operating income increased to $251 million or
21 percent primarily due to implementation of a new rate structure that
occurred July 1, 1995, favorable legal settlements, the gain on the sale of
Tenneco's interest in Iroquois Gas Transmission, L.P. and improved operating
efficiencies. Partially offsetting these increases were earnings lost from the
sale of the Kern River pipeline in December 1995.
20
<PAGE>
TENNECO PACKAGING
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
-------- --------
(MILLIONS)
<S> <C> <C>
Revenues................................................ $ 2,623 $ 1,983
Operating income........................................ 362 374
</TABLE>
Tenneco Packaging's operating income decreased $12 million, or three percent
in the nine month period compared with the 1995 period. Revenues increased
$640 million, or 32 percent compared with the nine months of 1995. Higher
revenues from the specialty operations were primarily the result of the
November 1995 plastics acquisition. This increase was partially offset by
lower revenues in the paperboard business. Specialty packaging earned $170
million in operating income for the nine month period in 1996 compared with
$34 million in the year ago period. Of this increase of $136 million, $111
million was the result of the late 1995 plastics acquisition. In Tenneco
Packaging's paperboard business, revenues and operating income declined due to
lower volumes and price realizations resulting from weak market conditions in
both linerboard and corrugating medium. Operating income included a $50
million pre-tax gain in the 1996 second quarter from the sale of the two
recycled paperboard mills and a recovered fiber recycling and brokerage
business to form a joint venture with Caraustar. The 1995 period included a
$14 million gain on the sale of a North Carolina mill.
NEWPORT NEWS SHIPBUILDING
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Revenues.................................................... $1,437 $1,290
Operating income............................................ 117 125
</TABLE>
Shipbuilding reported operating income of $117 million in the first nine
months of 1996 compared with $125 million in the 1995 period. Revenues were
$1,437 million for the nine months of 1996 compared with $1,290 million in the
year ago period. Revenues increased due to higher volume on carrier
construction and the Eisenhower overhaul, partially offset by lower activity
on conversion work and submarine construction. Operating income declined due
to additional costs of $30 million in the first nine months of 1996 compared
with the prior year associated with conversion work and $57 million of higher
than expected costs associated with the production of commercial product
tankers, an increase of $43 million over the comparable prior year period.
These reductions were partially offset by increased activity on the Eisenhower
overhaul and productivity improvements.
OTHER
Tenneco's other operations reported operating income of $233 million for the
1996 first nine months compared with operating income of $288 million in the
year-ago period. The decrease in operating income was due to lower interest
income from affiliated companies and other investments.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Interest expense decreased from $212 million in the first nine months of
1995 to $181 million in the first nine months of 1996, while interest
capitalized was $14 million in the first nine months of 1996 compared with $5
million in the 1995 period. The year-to-year change in these items was due to
the same reasons discussed under "Three Months Results" above.
INCOME TAXES
Income tax expense for the 1996 first nine months was $388 million compared
with $403 million in the same period of 1995.
21
<PAGE>
DISCONTINUED OPERATIONS
Income from discontinued operations for the first nine months of 1996 of $37
million was attributable to the farm and construction equipment segment. Loss
from discontinued operations in the 1995 period of $30 million also related to
the farm and construction equipment operations.
EXTRAORDINARY LOSS
An extraordinary loss of $1 million (net of tax) was recorded in the 1996
first nine months related to a prepayment penalty on early debt retirement.
CAPITAL EXPENDITURES
Tennessee invested $651 million in capital expenditures in its existing
businesses during the first nine months of 1996. Capital expenditures during
the first nine months of 1996 included $116 million for Automotive, $255
million for Energy, $213 million for Packaging, $55 million for Shipbuilding
and $12 million related to Tennessee's other operations. Capital expenditures
were higher at Packaging, Energy and Shipbuilding during the first nine months
of 1996, while Automotive capital expenditures decreased from 1995. During the
first nine months of 1995, capital expenditures were $565 million for
continuing operations.
22
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
(1) 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. The Company
has executed a consent order with the EPA governing the remediation of certain
of its compressor stations and is working with the Pennsylvania and New York
environmental agencies to specify the remediation requirements at the
Pennsylvania and New York stations. Remediation activities in Pennsylvania are
essentially complete; in addition, pursuant to the Consent Order dated August
1, 1995, between the Company and the Pennsylvania Department of Environmental
Protection, the Company paid the full amount of a civil penalty agreed upon
with the Pennsylvania Department of Environmental Protection and funded an
environmentally beneficial project for $450,000 in April 1996. Tennessee
believes that the ultimate resolution of this matter will not have a material
adverse effect on the financial position or results of operations of the
Company and its consolidated subsidiaries.
In Commonwealth of Kentucky, Natural Resources and Environmental Protection
Cabinet v. Tennessee Gas Pipeline Company (Franklin County Circuit Court,
Docket No. 88-C1-1531, November 16, 1988), the Kentucky environmental agency
alleged that the Company discharged pollutants into the waters of the state
without a permit, and disposed of PCBs without a permit. The agency sought an
injunction against future discharges, sought an order to remediate or remove
PCBs and sought a civil penalty. The Company has entered into agreed orders
with the agency to resolve many of the issues raised in the original
allegations, has received water discharge permits for its Kentucky stations
from the agency and continues to work to resolve the remaining issues. Counsel
for Tennessee are unable to express an opinion as to its ultimate outcome.
Tennessee believes that the resolution of this issue will not have a material
adverse effect on its consolidated financial position or results of
operations.
The Company sold its subsidiary which owns a 13.2% general partnership
interest in Iroquois Gas Transmission System, L.P. ("Iroquois") to ANR
Iroquois Inc., a subsidiary of The Coastal Corporation. Iroquois owns an
interstate gas pipeline from the Canadian border through the states of New
York and Connecticut to Long Island. The Company is still under 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 and is not an affiliate of the operator of Iroquois' pipeline system.
A global settlement was entered into during the second quarter of 1996 by
Iroquois and the operator of Iroquois' pipeline system with the Federal and
New York state authorities resolving all criminal, civil and administrative
enforcement actions contemplated by such authorities as a result of their
investigation of alleged environmental violations which occurred during the
construction of the pipeline. Due to the sale of the Company's interest in
Iroquois, Tennessee believes that any environmental matters relating to the
construction and operation of the pipeline system by Iroquois will not have a
material adverse effect on the financial position or results of operations of
the Company and its consolidated subsidiaries.
On August 2, 1993, the Department of Justice filed suit against Tenneco
Packaging Inc. ("Tenneco Packaging") in the Federal District Court for the
Northern District of Indiana, alleging that wastewater from Tenneco
Packaging's molded fiber 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 Griffith of
untreated wastewater into a river. Tenneco Packaging and the Department of
Justice have executed a consent decree, which has been lodged with the court
and published for public notice and comment. Tennessee believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operations of the Company and its
consolidated subsidiaries.
In 1993 and 1995, the EPA issued notices of violation for particulate and
opacity violations at the three coal-fired boilers of the Rittman, Ohio
paperboard mill (owned by Tenneco Packaging until June 1996). Tenneco
23
<PAGE>
Packaging filed responses disputing the alleged violations. Stack testing has
demonstrated Tenneco Packaging's compliance. In July 1996, Tenneco Packaging
received an EPA administrative complaint seeking a $126,997 penalty for
alleged emissions violations. Tenneco Packaging has filed its answer to the
complaint. Tennessee believes that the 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.
(2) Potential Superfund Liability.
At September 30, 1996, Tennessee has been designated as a potentially
responsible party in 37 "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 $64 million or 0.4% to 2.3% 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 believes that the costs associated with its current status as a
potentially responsible party in the Superfund sites described above will not
be material to its consolidated financial position or results of operations.
(3) Other Proceedings.
In June 1996, the Company settled certain litigation with ICA Energy, Inc.
("ICA") and TransTexas Gas Corporation ("TransTexas") by making a payment of
$125 million. This payment is included in the deferred GSR costs described in
Note 2 in the "Notes to Financial Statements". In the settlement, ICA and
TransTexas agreed to terminate the contract, release the Company from
liability under the contract, and indemnify the Company against certain future
claims, including royalty owner claims. In July 1996, certain royalty interest
owners filed a claim against the Company in Webb County, Texas, alleging that
they are sellers entitled to tender gas to the Company under the settled
contract. This claim falls under the indemnification provisions of the
settlement agreement which requires TransTexas and ICA to defend and indemnify
the Company on this claim.
In a separate declaratory judgment action relating to another gas purchase
contract, the Texas Supreme Court affirmed a ruling of the Court of Appeals
favorable to the Company on August 1, 1995. On April 18, 1996, the Texas
Supreme Court withdrew its initial opinion and issued an opinion reversing the
Court of Appeals opinion on the matter which was favorable to the Company.
That Texas Supreme Court ruling, however, explicitly preserves the Company's
defenses based on bad faith conduct of the producers. In June 1996, the
Company filed a motion for rehearing with the Texas Supreme Court. On August
16, 1996, the Texas Supreme Court denied the Company's motion. Nothing in the
Supreme Court's decision affects the Company's ability to seek recovery from
its customers of its above-market costs of purchasing gas under the contract
as GSR costs in the phased proceedings currently pending before the FERC.
However, as described under Note 6, El Paso Natural Gas Company ("El Paso")
has reached, contingent upon consummation of the Merger (as defined in Note 6)
and various other conditions (including approval by the FERC), a preliminary
understanding with certain of the Company's customers regarding the customers'
challenges to the Company's ability to recover GSR and other costs from its
customers (the "El Paso Preliminary GSR Understanding"). In addition, the
Company has initiated two lawsuits against the holders of this gas purchase
contract seeking damages related to their conduct in connection with that
contract.
In July 1996, Tennessee was served with a complaint in the matter of Jack J.
Grynberg v. Alaska Pipeline Co., et al., filed in the U.S. District Court for
the District of Columbia. Plaintiff brings this action under the
24
<PAGE>
False Claims Act against several interstate pipelines and others alleging
Defendants mismeasured natural gas produced from federal and Indian lands,
which deprived the U.S. of royalties otherwise due it. Plaintiff seeks, among
other things, to recover, on behalf of the U.S. unspecified treble damages,
his finder's fee and attorneys' fees. All Defendants were granted an extension
until November 13, 1996 to respond to the complaint. It is believed that there
are valid jurisdictional and procedural defenses to Plaintiff's complaint;
however, even if Plaintiff is ultimately entitled to pursue his claims, the
Company believes that it has substantive defenses, including that the
Company's measurement practices are consistent with industry practice and all
applicable standards, regulations, contracts, and tariffs and that the Company
should not be liable in any event. Based on information available at this
time, Tennessee does not believe that the ultimate resolution of this matter
will have a material adverse effect on the financial condition or results of
operations of the Company and its consolidated subsidiaries.
The Company and its subsidiaries are parties to numerous other legal
proceedings arising from their operations. Tennessee believes that the outcome
of these other proceedings, individually and in the aggregate, will have no
material effect on the Company's consolidated financial position or results of
operations.
ITEM 5. OTHER INFORMATION.
Recent Developments.
(1) Tenneco Inc.'s Board of Directors has called a Special Meeting of
Shareholders on December 10, 1996 for the following purposes:
I. To consider and vote upon a single, unified proposal relating to the
proposed reorganization of Tenneco (the "Transaction"):
A. to approve and adopt the Distribution Agreement, dated as of November
1, 1996, as such may be amended, supplemented or modified from time to time
(the "Distribution Agreement"), among Tenneco, New Tenneco and Newport News
pursuant to which (i) Tenneco and its subsidiaries will undertake various
intercompany transfers and distributions designed to restructure, divide
and separate their existing businesses and assets so that the assets,
liabilities and operations of (A) their automotive parts, packaging and
administrative services businesses are owned and operated by New Tenneco,
and (B) their shipbuilding business is owned and operated by Newport News,
and (ii) Tenneco will subsequently distribute (the "Distributions") pro
rata to holders of Tenneco common stock, par value $5.00 per share (the
"Tenneco Common Stock"), all of the outstanding common stock, $.01 par
value per share, of New Tenneco and all of the outstanding common stock,
$.01 par value per share, of Newport News;
B. to approve and adopt the Amended and Restated Agreement and Plan of
Merger, dated as of June 19, 1996, as such may be amended, supplemented or
modified from time to time (the "Merger Agreement"), among El Paso Natural
Gas Company, a Delaware corporation ("El Paso"), El Paso Merger Company, a
Delaware corporation and an indirect wholly owned subsidiary of El Paso
("El Paso Subsidiary"), and Tenneco pursuant to which (i) El Paso
Subsidiary will be merged with and into Tenneco (the "Merger"), which will
then (as a result of the Distributions) consist only of Tenneco Energy, and
(ii) shares of Tenneco stock (other than certain preferred shares held by
holders entitled to demand and who properly demand appraisal of such shares
and shares of one or more new series of Tenneco junior preferred stock to
be issued prior to the Merger) will be converted into the right to receive
shares of El Paso common stock, par value $3.00 per share, and possibly, in
the case of holders of Tenneco Common Stock, depositary shares representing
interests in shares of a new series of El Paso preferred stock, pursuant to
formulas set forth in the Merger Agreement and described more fully in the
Joint Proxy Statement-Prospectus dated November 4, 1996;
C. to approve the transactions contemplated by the Merger Agreement and
the Distribution Agreement; and
25
<PAGE>
D. to approve an amendment (the "Charter Amendment") to the Certificate
of Incorporation of Tenneco, as amended, which will eliminate the rights,
powers and preferences of the junior preferred stock of Tenneco specified
therein.
II. To transact such other business, including, without limitation, the
adjournment of the Special Meeting (including an adjournment of the Special
Meeting to obtain a quorum, solicit additional votes in favor of proposal I
and/or allow for the fulfillment of certain conditions precedent to the
Transaction), as may properly come before the Special Meeting or any
adjournments or postponements thereof.
The Board action follows receipt by Tenneco Inc. of a favorable Internal
Revenue Service ruling on the tax-free nature of these previously announced
strategic actions and clearance by the Securities and Exchange Commission of
various filings related to the Transaction.
(2) On November 8, 1996, Green Canyon Gathering Company ("GCGC"), a
subsidiary of the Company, entered into a Memorandum of Understanding (the
"MOU") with National Fuel Gas Supply Corporation ("National Fuel") under which
GCGC and National Fuel will negotiate to form a joint venture to construct,
own and operate (i) natural gas pipeline facilities commencing at locations
offshore to gather gas produced in the Green Canyon and other areas located in
the Outer Continental Shelf and terminating onshore in Louisiana and (ii)
natural gas processing facilities to be located at or near the terminus of
those pipeline facilities (collectively the "Project"). The MOU contemplates
that GCGC and National Fuel will each have a 50% ownership interest in
entities that will be created to develop, construct, finance, own and operate
the $200 million Project, which has been under development by GCGC for more
than a year. GCGC contemplates that definitive agreements with National Fuel
relating to the Project will be entered into on or about January 1, 1997, and
that non-recourse project financing will be put in place for a significant
portion of the total Project costs.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3--Certificate of Incorporation as amended and supplemented as of
October 8, 1996
27--Financial Data Schedule.
(b) Reports on Form 8-K. Tennessee Gas Pipeline Company did not file any
Current Reports on Form 8-K during the quarter ended September 30, 1996.
26
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TENNESSEE GAS PIPELINE COMPANY
Robert T. Blakely
By __________________________________
Robert T. Blakely
Senior Vice President--Principal
Financial
and Accounting Officer
Date: November 14, 1996
27
<PAGE>
EXHIBIT 3
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
________________________________
I, MICHAEL RATCHFORD, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
RESTATED CERTIFICATE OF INCORPORATION OF "TENNESSEE GAS PIPELINE COMPANY" FILED
IN THIS OFFICE ON THE SECOND DAY OF NOVEMBER, A.D. 1992, AT 1:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
* * * * * * * * * *
[SEAL OF SECRETARY /S/ MICHAEL RATCHFORD
OF STATE APPEARS HERE] --------------------------------------
MICHAEL RATCHFORD, SECRETARY OF STATE
AUTHENTICATION: *3646261
732307018 DATE: 11/02/1992
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
TENNESSEE GAS PIPELINE COMPANY
ORIGINALLY INCORPORATED AS
TENNESSEE GAS TRANSMISSION COMPANY
ON
JUNE 9, 1947
This Restated Certificate of Incorporation was duly adopted pursuant to
the provisions of Sections 245 and 242 of the General Corporation Law of the
State of Delaware.
FIRST: The name of the Corporation is Tennessee Gas Pipeline Company
(herein sometimes referred to as the "Corporation").
SECOND: The address of its registered office in the state of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is two hundred (200) and the par value of each of such
shares is Five Dollars ($5.00) amounting in the aggregate to One Thousand
Dollars ($1,000).
FIFTH: All corporate powers shall be exercised by the Board of
Directors, except as provided by statute or by this Certificate of
Incorporation, as amended.
The Board of Directors shall have the power to make, amend, alter,
change, add to or repeal by-laws for the Corporation, without any action on the
part of the stockholders. The by-laws made by the Board of Directors may be
amended, altered, changed, added to or repealed by the stockholders.
The number of directors of the Corporation shall be fixed from time to
time by the by-laws and may be altered as the by-laws provide.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statues) outside the State of
Delaware at such
<PAGE>
place or places as may be designated from time to time by the Board of Directors
or in the by-laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
NINTH: A director of this Corporation shall not be liable to the
Corporation or it stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
the law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
IN WITNESS WHEREOF, said TENNESSEE GAS PIPELINE COMPANY has caused this
Restated Certificate of Incorporation to be signed by its Chairman on the Board
and Chief Executive Officer and its corporate seal to be hereunto affixed and
attested by its Corporate Secretary, this 2nd day of November, 1992.
TENNESSEE GAS PIPELINE COMPANY
[SEAL]
BY: /s/ R.C. THOMAS
----------------------------
R.C. Thomas
Chairman of the Board
and Chief Executive Officer
ATTEST:
BY: /s/ KARL A. STEWART
---------------------------
Karl A. Stewart, Secretary
-2-
<PAGE>
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
_______________________________
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP OF TENNESSEE GAS PIPELINE COMPANY, A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, MERGING TENNECO TURKIYE, INC.
A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE,
PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE,
AS RECEIVED AND FILED IN THIS OFFICE THE EIGHTH DAY OF FEBRUARY, A.D. 1993, AT
10 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
* * * * * * * * * *
[SEAL OF SECRETARY /S/ WILLIAM T. QUILLEN
OF STATE APPEARS HERE] -----------------------------
William T. Quillen, Secretary of State
AUTHENTICATION: *3777535
723039025 DATE: 02/08/1993
<PAGE>
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 by 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.
<PAGE>
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
-----------------------------
ATTEST E. J. Milan, Vice President
/s/ JAMES D. GAUGHAN
- ------------------------------
James D. Gaughan
Assistant Secretary
1.MRG
<PAGE>
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP, WHICH MERGES:
"TENNECO CHINA TRADE INC.", A DELAWARE CORPORATION,
"TENNECO INTERNATIONAL MARKETING & SOURCING, INC.", A DELAWARE CORPORATION,
WITH AND INTO "TENNESSEE GAS PIPELINE COMPANY" UNDER THE NAME OF "TENNESSEE
GAS PIPELINE COMPANY", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF
THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE FIRST DAY OF
FEBRUARY, A.D. 1995, AT 10 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL OF SECRETARY /S/ EDWARD J. FREEL
OF STATE APPEARS HERE] --------------------------------------
Edward J. Freel, Secretary of State
0414109 8100M AUTHENTICATION: 7393632
950024197 DATE: 02-01-95
<PAGE>
CERTIFICATE OF
OWNERSHIP AND MERGER MERGING
TENNECO CHINA TRADE INC.
AND
TENNECO INTERNATIONAL MARKETING & SOURCING, INC.
INTO AND WITH
TENNESSEE GAS PIPELINE COMPANY
TENNESSEE GAS PIPELINE COMPANY, a corporation organized and existing under
and by 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 CHINA TRADE INC., a Delaware corporation, incorporated on January 10,
1986; and TENNECO INTERNATIONAL MARKETING & SOURCING, INC., a Delaware
corporation, incorporated on July 16, 1985.
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 dated as of January 17, 1995,
adopted the following resolutions to merge TENNECO CHINA TRADE INC. and TENNECO
INTERNATIONAL MARKETING & SOURCING, 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 China Trade 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 China Trade Inc. into the
Company, pursuant to which the Company will assume all of the liabilities
and obligations of the said Tenneco China Trade Inc., and to cause the same
to be filed, in the manner provided by law, and to do
<PAGE>
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.
* * *
RESOLVED, that the Company merge into itself and it hereby does merge
into itself its wholly-owned subsidiary Tenneco International Marketing &
Sourcing, 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 International Marketing &
Sourcing, Inc. into the Company, pursuant to which the Company will assume
all of the liabilities and obligations of the said Tenneco International
Marketing & Sourcing, 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.
2
<PAGE>
IN WITNESS WHEREOF, said TENNESSEE GAS PIPELINE COMPANY has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by
Robert G. Simpson, its Vice President, and James D. Gaughan, its Assistant
Secretary, as of January 31, 1995.
TENNESSEE GAS PIPELINE COMPANY
By: /s/ ROBERT G. SIMPSON
-------------------------------------
Robert G. Simpson
Vice President
ATTEST:
/s/ JAMES D. GAUGHAN
- ----------------------------------
James D. Gaughan,
Assistant Secretary
3
<PAGE>
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP, WHICH MERGES:
"TENNECO CHINA TRADE INC.", A DELAWARE CORPORATION,
"TENNECO INTERNATIONAL MARKETING & SOURCING, INC.", A DELAWARE CORPORATION,
WITH AND INTO "TENNESSEE GAS PIPELINE COMPANY" UNDER THE NAME OF "TENNESSEE
GAS PIPELINE COMPANY", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF
THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE FIRST DAY OF
FEBRUARY, A.D. 1995, AT 10 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL OF SECRETARY /S/ EDWARD J. FREEL
OF STATE APPEARS HERE] --------------------------------------
Edward J. Freel, Secretary of State
0414109 8100M AUTHENTICATION: 7393633
950024197 DATE: 02-01-95
<PAGE>
CERTIFICATE OF
OWNERSHIP AND MERGER MERGING
TENNECO CHINA TRADE INC.
AND
TENNECO INTERNATIONAL MARKETING & SOURCING, INC.
INTO AND WITH
TENNESSEE GAS PIPELINE COMPANY
TENNESSEE GAS PIPELINE COMPANY, a corporation organized and existing under
and by 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 CHINA TRADE INC., a Delaware corporation, incorporated on January 10,
1986; and TENNECO INTERNATIONAL MARKETING & SOURCING, INC., a Delaware
corporation, incorporated on July 16, 1985.
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 dated as of January 17, 1995,
adopted the following resolutions to merge TENNECO CHINA TRADE INC. and TENNECO
INTERNATIONAL MARKETING & SOURCING, 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 China Trade 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 China Trade Inc. into the
Company, pursuant to which the Company will assume all of the liabilities
and obligations of the said Tenneco China Trade Inc., and to cause the same
to be filed, in the manner provided by law, and to do
<PAGE>
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.
* * *
RESOLVED, that the Company merge into itself and it hereby does merge into
itself its wholly-owned subsidiary Tenneco International Marketing & Sourcing,
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 International Marketing & Sourcing, Inc. into
the Company, pursuant to which the Company will assume all of the liabilities
and obligations of the said Tenneco International Marketing & Sourcing, 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.
2
<PAGE>
IN WITNESS WHEREOF, said TENNESSEE GAS PIPELINE COMPANY has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by
Robert G. Simpson, its Vice President, and James D. Gaughan, its Assistant
Secretary, as of January 31, 1995.
TENNESSEE GAS PIPELINE COMPANY
By: /s/ ROBERT G. SIMPSON
----------------------------------
Robert G. Simpson
Vice President
ATTEST:
/s/ JAMES D. GAUGHAN
- ------------------------------
James D. Gaughan,
Assistant Secretary
3
<PAGE>
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP,
WHICH MERGES:
"NEW TENN COMPANY", A DELAWARE CORPORATION,
"NEW TENNESSEE GAS PIPELINE COMPANY", A DELAWARE CORPORATION,
WITH AND INTO "TENNESSEE GAS PIPELINE COMPANY" UNDER THE NAME OF "TENNESSEE
GAS PIPELINE COMPANY", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF
THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-FOURTH
DAY OF APRIL, A.D. 1996, AT 9:30 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/S/ EDWARD J. FREEL
[SEAL OF SECRETARY -------------------------------
OF STATE APPEARS HERE] Edward J. Freel,
Secretary of State
0414109 8100M AUTHENTICATION: 7919471
960117693 DATE: 04-24-96
<PAGE>
CERTIFICATE OF
OWNERSHIP AND MERGER MERGING
NEW TENN COMPANY
AND
NEW TENNESSEE GAS PIPELINE COMPANY
INTO AND WITH
TENNESSEE GAS PIPELINE COMPANY
TENNESSEE GAS PIPELINE COMPANY, a corporation organized and existing under
and by 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 NEW
TENN COMPANY, a Delaware corporation, incorporated on December 12, 1984; and NEW
TENNESSEE GAS PIPELINE COMPANY, a Delaware corporation, incorporated on May 10,
1989.
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 dated as of March 29, 1996,
adopted the following resolutions to merge NEW TENN COMPANY and NEW TENNESSEE
GAS PIPELINE COMPANY 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 New Tenn Company and assume
all of said corporation's liabilities and obligations; and it is further.
<PAGE>
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 New Tenn Company into the Company, pursuant to which
the Company will assume all of the liabilities and obligations of the said New
Tenn Company, 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.
* * *
RESOLVED, that the Company merge into itself and it hereby does merge into
itself its wholly-owned subsidiary New Tennessee Gas Pipeline Company 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 New Tennessee Gas Pipeline Company into the Company,
pursuant to which the Company will assume all of the liabilities and obligations
of the said New Tennessee Gas Pipeline Company 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.
2
<PAGE>
IN WITNESS WHEREOF, said TENNESSEE GAS PIPELINE COMPANY has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by
Robert G. Simpson, its Vice President, and James D. Gaughan, its Assistant
Secretary, as of April 12, 1996.
TENNESSEE GAS PIPELINE COMPANY
By: /s/ ROBERT G. SIMPSON
----------------------------------
Robert G. Simpson
Vice President
ATTEST:
/s/ JAMES D. GAUGHAN
- ------------------------------
James D. Gaughan,
Assistant Secretary
3
<PAGE>
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "TENNESSEE GAS PIPELINE COMPANY", FILED IN THIS OFFICE ON THE NINTH DAY OF
OCTOBER, A.D. 1996, AT 12 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/S/ EDWARD J. FREEL
[SEAL OF SECRETARY -------------------------------
OF STATE APPEARS HERE] Edward J. Freel,
Secretary of State
0414109 8100 AUTHENTICATION: 8140724
960293918 DATE: 10-09-96
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TENNESSEE GAS PIPELINE COMPANY
Tennessee Gas Pipeline Company, a corporation duly organized and existing
under the General Corporation Law of the State of Delaware (the "Company"), does
hereby certify that:
1. The Certificate of Incorporation of the Company is hereby amended by
deleting Article FOURTH thereof and inserting the following in lieu thereof:
"FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is three hundred (300) and the par value of
each of such shares is Five Dollars ($5.00) amounting in the aggregate to
One Thousand Five Hundred Dollars ($1,500)."
2. That the foregoing amendment was duly adopted in accordance with the
provisions of Sections 242 and 228 (by the written consent of the sole
stockholder of the Company) of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Tennessee Gas Pipeline Company has caused this
Certificate to be executed by its duly authorized officer on this 8th day of
October, 1996.
TENNESSEE GAS PIPELINE COMPANY
By: /S/ ROBERT G. SIMPSON
----------------------------------
Robert G. Simpson
Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 114
<SECURITIES> 0
<RECEIVABLES> 585
<ALLOWANCES> 0
<INVENTORY> 1,209
<CURRENT-ASSETS> 6,019
<PP&E> 12,340
<DEPRECIATION> 5,850
<TOTAL-ASSETS> 15,558
<CURRENT-LIABILITIES> 2,766
<BONDS> 244
0
0
<COMMON> 0
<OTHER-SE> 9,977
<TOTAL-LIABILITY-AND-EQUITY> 15,558
<SALES> 8,228
<TOTAL-REVENUES> 8,228
<CGS> 6,247
<TOTAL-COSTS> 6,247
<OTHER-EXPENSES> 1,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181
<INCOME-PRETAX> 1,054
<INCOME-TAX> 388
<INCOME-CONTINUING> 642
<DISCONTINUED> 37
<EXTRAORDINARY> (1)
<CHANGES> 0
<NET-INCOME> 678
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
