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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 MARCH 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4101
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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 March 31, 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................................................ 11
Part II--Other Information
Item 1. Legal Proceedings............................................... 16
Item 2. Changes in Securities........................................... *
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. *
Item 5. Other Information............................................... 18
Item 6. Exhibits and Reports on Form 8-K................................ 18
</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
ENDED MARCH 31,
-----------------
1996 1995
----- -----
<S> <C> <C> <C>
Revenues:
Net sales and operating revenues--
Automotive............................................... $ 669 $ 589
Energy................................................... 744 505
Packaging................................................ 853 636
Shipbuilding............................................. 438 421
Other.................................................... (2) (1)
----- -----
2,702 2,150
Other income--
Interest income--
Affiliated companies................................... 85 84
Other.................................................. 7 8
Equity in net income of affiliated companies............. 10 16
Gain on sale of businesses and assets, net............... 11 14
Other income, net........................................ 4 9
----- -----
2,819 2,281
----- -----
Costs and Expenses:
Cost of sales (exclusive of depreciation shown below)...... 1,477 1,242
Cost of gas sold........................................... 434 272
Operating expenses......................................... 141 99
Selling, general and administrative........................ 235 175
Depreciation, depletion and amortization................... 138 102
----- -----
2,425 1,890
----- -----
Income Before Interest Expense, Income Taxes and Minority In-
terest...................................................... 394 391
----- -----
Interest Expense (net of interest capitalized):
Affiliated companies....................................... 38 28
Other...................................................... 25 37
----- -----
63 65
----- -----
Income Before Income Taxes and Minority Interest............. 331 326
Income Tax Expense........................................... 109 133
----- -----
Income Before Minority Interest.............................. 222 193
Minority Interest............................................ 6 8
----- -----
Income From Continuing Operations............................ 216 185
Income From Discontinued Operations, Net of Income Tax....... 37 --
----- -----
Net Income................................................... $ 253 $ 185
===== =====
</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)
THREE MONTHS
ENDED
MARCH 31,
---------------
1996 1995
---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Income from continuing operations.......................... $216 $185
Adjustments to reconcile income from continuing operations
to cash provided (used) by continuing operations--
Depreciation, depletion and amortization................. 138 102
Equity in net (income) loss of affiliated companies, net
of dividends............................................ (6) (16)
Deferred income taxes.................................... (65) 14
Gain on sale of businesses and assets, net............... (11) (14)
Changes in components of working capital--
(Increase) decrease in receivables..................... (89) (103)
(Increase) decrease in inventories..................... (68) (155)
(Increase) decrease in prepayments and other current
assets................................................ (12) (5)
Increase (decrease) in payables........................ (198) (225)
Increase (decrease) in taxes accrued................... 147 96
Increase (decrease) in interest accrued................ 1 (3)
Increase (decrease) in natural gas pipeline revenue
reservation........................................... 17 (177)
Increase (decrease) in other current liabilities....... (77) 3
Take-or-pay (refunds to customers) recoupments, net...... 1 14
Other.................................................... (19) 73
---- ----
Cash provided (used) by continuing operations.......... (25) (211)
Cash provided (used) by discontinued operations........ -- 61
---- ----
Net Cash Provided (Used) by Operating Activities............. (25) (150)
---- ----
Cash Flows From Investing Activities:
Net proceeds (expenditures) related to the sale of
discontinued operations................................... 33 703
Net proceeds from sale of businesses and assets............ 242 34
Expenditures for plant, property and equipment--
Continuing operations.................................... (170) (117)
Discontinued operations.................................. -- (4)
Acquisitions of businesses................................. (14) (3)
(Increase) decrease in Tenneco Inc. receivables............ (10) (126)
(Increase) decrease in notes receivable from other
affiliates................................................ -- (271)
Investments and other...................................... (25) 12
---- ----
Net Cash Provided (Used) by Investing Activities............. 56 228
---- ----
Cash Flows From Financing Activities:
Capital distribution to affiliate.......................... -- (28)
Retirement of long-term debt............................... (2) (15)
Net increase (decrease) in short-term debt excluding
current maturities on long-term debt...................... 1 (17)
---- ----
Net Cash Provided (Used) by Financing Activities............. (1) (60)
---- ----
Effect of Foreign Exchange Rate Changes on Cash and Temporary
Cash Investments............................................ -- 5
---- ----
Increase (Decrease) in Cash and Temporary Cash Investments... 30 23
Cash and Temporary Cash Investments, January 1............... 193 459
---- ----
Cash and Temporary Cash Investments, March 31 (Note)......... $223 $482
==== ====
Cash Paid During the Period for Interest..................... $ 59 $ 66
Cash Paid During the Period for Income Taxes (net of
refunds).................................................... $ 27 $ 23
</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)
MARCH 31, DECEMBER 31, MARCH 31,
ASSETS 1996 1995 1995
------ --------- ------------ ---------
<S> <C> <C> <C>
Current Assets:
Cash and temporary cash investments......... $ 223 $ 193 $ 482
Receivables--
Customer notes and accounts (net)......... 608 465 465
Affiliated companies...................... 700 757 391
Gas transportation and exchange........... 115 64 221
Other..................................... 252 486 208
Notes receivable from Tenneco Inc........... 3,364 3,354 3,327
Inventories--
Finished goods............................ 434 395 268
Work in process........................... 100 101 90
Long-term contracts in progress, less
progress billings........................ 299 264 207
Raw materials............................. 251 248 224
Materials and supplies.................... 161 166 142
Deferred income taxes....................... 36 18 69
Prepayments and other....................... 289 253 262
------- ------- -------
6,832 6,764 6,356
------- ------- -------
Investments and Other Assets:
Investment in affiliated companies.......... 242 286 441
Long-term receivables--
Notes and other (net)..................... 65 105 145
Affiliated companies...................... 18 1 271
Investment in subsidiaries in excess of fair
value of net assets at date of acquisition,
less amortization.......................... 575 616 309
Deferred income taxes....................... 61 52 55
Other....................................... 1,653 1,656 1,289
------- ------- -------
2,614 2,716 2,510
------- ------- -------
Plant, Property and Equipment, at cost........ 11,986 11,824 10,210
Less--Reserves for depreciation, depletion
and amortization........................... 5,714 5,611 5,428
------- ------- -------
6,272 6,213 4,782
------- ------- -------
$15,718 $15,693 $13,648
======= ======= =======
</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)
MARCH 31, DECEMBER 31, MARCH 31,
LIABILITIES AND SHAREOWNER'S EQUITY 1996 1995 1995
----------------------------------- --------- ------------ ---------
<S> <C> <C> <C>
Current Liabilities:
Short-term debt (including current maturities on
long-term debt)................................ $ 574 $ 346 $ 295
Payables--
Trade......................................... 1,000 1,065 779
Affiliated companies.......................... 59 216 119
Gas transportation and exchange............... 77 28 160
Taxes accrued................................... 496 391 283
Interest accrued................................ 38 27 56
Natural gas pipeline revenue reservation........ 45 27 5
Other........................................... 792 1,020 1,005
------- ------- -------
3,081 3,120 2,702
------- ------- -------
Long-term Debt.................................... 302 550 782
------- ------- -------
Deferred Income Taxes............................. 901 989 1,237
------- ------- -------
Postretirement Benefits........................... 617 609 601
------- ------- -------
Deferred Credits and Other Liabilities............ 779 623 546
------- ------- -------
Commitments and Contingencies
Minority Interest................................. 491 492 479
------- ------- -------
Shareowner's Equity:
Common stock, par value $5 per share,
authorized, issued and outstanding 200 shares.. -- -- --
Premium on common stock and other capital
surplus........................................ 4,903 4,903 3,466
Cumulative translation adjustments.............. 16 32 11
Retained earnings............................... 4,628 4,375 3,824
------- ------- -------
9,547 9,310 7,301
------- ------- -------
$15,718 $15,693 $13,648
======= ======= =======
</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)
THREE MONTHS ENDED MARCH
31,
----------------------------
1996 1995
------------- -------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Common Stock:
Balance January 1 and March 31................ 200 $ -- 200 $ --
=== ------ === ------
Premium on Common Stock and Other Capital
Surplus:
Balance January 1 ............................ 4,903 3,494
Capital distribution to affiliate........... -- (28)
------ ------
Balance March 31.............................. 4,903 3,466
------ ------
Cumulative Translation Adjustments:
Balance January 1............................. 32 (174)
Translation of foreign currency statements.. (16) 58
Sale of investment in foreign subsidiary.... -- 127
------ ------
Balance March 31.............................. 16 11
------ ------
Retained Earnings:
Balance January 1............................. 4,375 3,639
Net income.................................. 253 185
------ ------
Balance March 31.............................. 4,628 3,824
------ ------
Total..................................... $9,547 $7,301
====== ======
</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 March 31, 1996, and the results
of operations; changes in shareowner's equity; and cash flows for the periods
indicated.
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) Pursuant to Order 636 issued by the Federal Energy Regulatory Commission
("FERC") on April 8, 1992, 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 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 gas supply realignment
("GSR") costs resulting from remaining gas purchase obligations, costs related
to its Bastian Bay facilities, the remaining unrecovered balance of purchased
gas ("PGA") costs and the "stranded" cost of 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
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 refunds had no material effect on
Tennessee's reported net income. The Company is appealing this decision and
believes such appeal will likely be successful.
7
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 and believes that this decision will not impair the Company's
recovery of the costs resulting from this contract. The FERC has committed to
issuing a final order by December 31, 1996.
Also related to the Company's GSR costs, on October 14, 1993, the Company
was sued in the State District Court of Ector County, Texas, by ICA Energy,
Inc. ("ICA") and TransTexas Gas Corporation ("TransTexas"). In that suit, ICA
and TransTexas contended that the Company had an obligation to purchase gas
production which TransTexas thereafter attempted to add unilaterally to the
reserves originally dedicated to a 1979 gas contract. An amendment to the
pleading seeks $1.5 billion from the Company for alleged damages caused by the
Company's refusal to purchase gas produced from the TransTexas leases covering
the new production and lands. Neither ICA nor TransTexas were original parties
to that contract. However, they contend that any stranger acquiring a
fractional interest in the original committed reserves thereby obtains a right
to add to the contract unlimited volumes of gas production from locations in
South Texas. The Company filed a motion for partial summary judgment,
asserting that the Texas statutes of frauds precluded the plaintiffs from
adding new production or acreage to the contract. On May 4, 1995, the trial
court granted the Company's motion for partial summary judgment; the
plaintiffs have filed a notice of appeal and oral arguments were conducted on
March 28, 1996. ICA and TransTexas filed a motion for partial summary judgment
on a separate issue involving the term "committed reserves" and whether the
Company has a contractual obligation to purchase gas produced from a lease not
described in the gas contract. On November 8, 1995, the trial court granted
ICA's and TransTexas' motion in part. That order, which would be finalized
upon conclusion of the trial, also held that ICA's and TransTexas' rights are
subject to certain limitations of the Texas Business and Commerce Code. In
addition to these defenses, which are to be resolved at trial, the Company has
other defenses which it has asserted and intends to pursue. The Company filed
a Motion to Clarify the November 8, 1995 order together with a new motion for
partial summary judgment concerning the committed reserve issue. On February
22, 1996, the trial court clarified its November 8, 1995 order, but denied the
Company's new motion for partial summary judgment. The November 8, 1995 and
February 22, 1996 rulings do not affect the trial court's previous May 4, 1995
order granting summary judgment to the Company.
The Company has been engaged in other settlement and contract reformation
discussions with other holders of certain gas purchase contracts who have sued
the Company. On August 1, 1995, the Texas Supreme Court affirmed a ruling of
the Court of Appeals favorable to the Company in one of these matters and
indicated that it would remand the case to the trial court. On April 18, 1996,
however, the Texas Supreme Court withdrew its initial opinion and issued an
opinion reversing the Court of Appeals opinion on the matter which was
favorable to the Company. The Company will file a motion for rehearing with
the Texas Supreme Court in June 1996. The Supreme Court's ruling explicitly
preserves the Company's defenses based on bad faith conduct of the producers.
In addition, nothing in the Supreme Court's decision affects the Company's
ability to seek recovery of its above-market costs of purchasing gas under the
contract from its customers as gas supply restructuring costs in proceedings
currently pending before the Federal Energy Regulatory Commission. 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. Tennessee has accrued amounts which it believes are
appropriate to cover the resolution of the litigation associated with its
contract reformation efforts.
8
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As of March 31, 1996, the Company has deferred GSR costs yet to be recovered
from its customers of approximately $455 million, net of $342 million
previously recovered from its customers, subject to refund. Phase I of the
proceeding before a FERC ALJ on the eligibility of the costs to be recovered
has been completed. The ALJ's decision of this Phase is expected in October
1996. Phase II of the proceeding on the prudency of the costs to be recovered
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 Order 636
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 and customer statements acknowledging the desirability
of such settlements.
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 and increased revenue requirements, and
Tennessee is reserving revenues it believes adequate to cover any refunds that
may be required upon final settlement of this proceeding.
(3) Reference is made to Note 2 for information concerning gas supply
litigation. Tennessee Gas Pipeline Company and its subsidiaries are parties to
numerous other legal proceedings arising from their operations. Tennessee Gas
Pipeline Company believes that the outcome of these other proceedings,
individually and in the aggregate, will have no material effect on the
financial position or results of operations of Tennessee Gas Pipeline Company
and its consolidated subsidiaries.
(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 March 31, 1996, Tennessee has charged approximately $152
million against the environmental reserve, excluding recoveries related to the
Company's environmental settlement as discussed below. Of the remaining
reserve, $46 million has been recorded on the balance sheet under "Payables-
trade" and $114 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
9
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 addresses the recovery of environmental costs currently
being recovered in its rates and also establishes a mechanism for recovering a
substantial portion of the environmental costs that will be expended in the
future. In November 1995, the FERC issued an order approving the Environmental
Stipulation. Although one shipper 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 March 31, 1996, the balance
of the regulatory asset is $68 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 sold its remaining ownership of 15.2 million
shares of common stock of Case Corporation in a public offering at $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 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 on the sale of the farm and construction equipment
segment as "discontinued operations" for all periods presented.
(6) In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 which establishes new accounting
standards for the impairment of long-lived assets and for long-lived assets to
be disposed of. Tennessee adopted the new standard in the first quarter of
1996 with no material effect on Tennessee's consolidated financial position or
results of operations.
(7) On March 21, 1996, Tenneco announced that it intends to spin off Newport
News Shipbuilding and Dry Dock Company to its shareholders in a tax-free
transaction, and is developing strategic options to separate Tenneco Energy
from its packaging and automotive parts divisions and to maximize shareowner
value through a tax-free spinoff, a sale, strategic alliance or other action.
The development of these options related to Tenneco Energy is expected to be
completed during the second quarter of 1996. The spinoff of Newport News
Shipbuilding and Dry Dock Company is targeted to be completed late in 1996,
but remains subject to a number of conditions including the receipt of a
favorable ruling from the Internal Revenue Service on the tax-free nature of
the proposed transaction and authorization by Tenneco's board of directors.
(The above notes are an integral part of the foregoing financial statements.)
10
<PAGE>
TENNESSEE GAS PIPELINE COMPANY AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1996 STRATEGIC ACTIONS
On March 21, 1996, Tenneco Inc. announced that the board of directors
approved steps to focus Tenneco on its packaging and automotive parts
businesses. These actions will impact one, two or all of Tennessee's
businesses.
These actions included:
.A tax-free spinoff of Newport News Shipbuilding to Tenneco's shareowners,
and
.The development of strategic options to separate Tenneco Energy from the
packaging and automotive parts divisions through a tax-free spinoff, a
sale, strategic alliance or other action. The development of these options
is expected to be completed during the second quarter of 1996.
Following a spinoff of Newport News Shipbuilding and should a separation of
Tenneco Energy be effected, Tenneco would then consist of two industrial
manufacturing businesses, Tenneco Packaging and Tenneco Automotive, both of
which reported record earnings and revenues in 1995, and Tenneco Business
Services, the company's administrative services unit.
The spinoff of Newport News Shipbuilding from Tenneco is targeted to be
completed late in 1996, but remains subject to a number of conditions including
the receipt of a favorable ruling from the Internal Revenue Service on the tax-
free nature of the proposed transaction and authorization by Tenneco's board of
directors.
In the first quarter of 1996, Tennessee continued its strategy to redeploy
capital to faster-growing, more profitable and less cyclical business
opportunities. One of the largest sales in this asset redeployment program was
completed in March with the sale of Tenneco's remaining 21 percent ownership of
Case Corporation. The sale resulted in an after-tax gain of $340 million and
generated net proceeds of approximately $788 million. Of the 15.2 million
shares sold, Tennessee owned approximately 690,800 shares. Tennessee's net
proceeds from the offering were $36 million, resulting in a gain of $37
million, including $29 million of income tax benefit.
THREE MONTHS RESULTS
Tennessee's income from continuing operations for the first quarter of 1996
of $216 million improved by 17 percent compared with $185 million in the first
quarter of 1995. Tenneco Energy and Tenneco Automotive contributed to this
improvement in income. Partially offsetting these improvements was lower
operating income at Tenneco Packaging and Newport News Shipbuilding, all of
which are discussed below.
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
FIRST QUARTER
--------------
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Automotive................................................ $ 669 $ 589
Energy.................................................... 744 505
Packaging................................................. 853 636
Shipbuilding.............................................. 438 421
Other..................................................... (2) (1)
------ ------
$2,702 $2,150
====== ======
</TABLE>
Tennessee's first quarter 1996 revenues increased $552 million or 26 percent,
and have benefited from strong market conditions in the gas industry along with
revenues from acquisitions made in late 1994 and 1995. The results of each
business are discussed in detail below.
11
<PAGE>
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING
INCOME)
<TABLE>
<CAPTION>
FIRST
QUARTER
-----------
1996 1995
----- -----
(MILLIONS)
<S> <C> <C>
Automotive.................................................... $ 57 $ 53
Energy........................................................ 98 80
Packaging..................................................... 113 116
Shipbuilding.................................................. 41 44
Other......................................................... 85 98
----- -----
$394 $ 391
===== =====
</TABLE>
Tennessee's operating income for the first quarter of 1996 increased by $3
million compared with the 1995 period. Tenneco Energy benefited from favorable
market conditions in the gas industry and Tenneco Automotive benefited from
improved market conditions in the exhaust aftermarket. These increases were
offset by lower operating income at Tenneco Packaging due to lower paperboard
prices and at Newport News Shipbuilding due in part to the settlement of a
dispute on a cruise ship repair contract and higher material costs related to
commercial product tankers. The results of each business are discussed in
detail below.
TENNECO AUTOMOTIVE
<TABLE>
<CAPTION>
FIRST
QUARTER
-----------
1996 1995
----- -----
(MILLIONS)
<S> <C> <C>
Revenues...................................................... $ 669 $ 589
Operating income.............................................. 57 53
</TABLE>
Revenues for automotive parts increased during the first quarter of 1996 by
$80 million to $669 million. North American and European original equipment
volumes were up significantly in the first quarter of 1996 driven by a record
number of new product launches and an excellent market mix. Over 60 percent of
Tenneco Automotive's original equipment sales are for use on light trucks,
minivans and sport utility vehicles. Aftermarket revenues also increased
during the first quarter of 1996 over the same period last year driven by a
significant number of major new customers and strong marketing programs in
North America.
Automotive operating income for the first quarter of 1996 increased $4
million over the same period last year. The positive impact of higher
aftermarket sales volumes in North America and Europe, and continued strong
marketing programs contributed to the increase in operating income. This was
partially offset by a higher level of costs related to a new process,
hydroforming. Hydroforming is a liquid, high-pressure process for bending and
shaping metal parts not available with traditional manufacturing technology.
Reductions in shipments related to the labor strike at General Motors also
reduced operating income.
TENNECO ENERGY
<TABLE>
<CAPTION>
FIRST
QUARTER
-----------
1996 1995
----- -----
(MILLIONS)
<S> <C> <C>
Revenues...................................................... $ 744 $ 505
Operating income.............................................. 98 80
</TABLE>
Tenneco Energy achieved first quarter 1996 operating income of $98 million,
a 23 percent increase from the $80 million posted in the 1995 first quarter.
In addition, revenues rose 47 percent, to $744 million from $505 million.
12
<PAGE>
Revenues from the non-regulated business increased 75 percent to $518
million, the result of higher gas prices and a 17 percent increase in gas
volumes. Regulated revenues increased to $226 million, or eight percent, due
to a new pipeline rate structure and a 12 percent increase in volumes.
Operating income from the non-regulated business increased to $18 million in
the 1996 first quarter from $6 million which included Venture's natural gas
producing properties, the South Australia pipeline, and marketing and
intrastate activities. The Ventures group increased production 70 percent from
the year-ago level and contributed $5 million in operating income.
Operating income from regulated pipelines in the U.S. rose $6 million to $80
million. The increase was achieved despite the sale last December of Energy's
50 percent interest in the Kern River pipeline, which contributed $8 million
to operating income in the year-ago quarter. The benefits derived from the
Tennessee Gas Pipeline Company (the "Company") rate case implementation
contributed to the improvement.
On April 18, 1996, the Texas Supreme Court issued a decision adverse to the
Company in a proceeding involving a gas supply contract containing a "take-or-
pay" provision and above-market pricing terms. The decision reversed an
earlier opinion of the Texas Supreme Court which held that the contract in
question was an "output" contract under the Texas Business and Commerce Code
and therefore subject to the requirement that any increase in production under
the contract must be made in good faith and in reasonable proportion to
historical levels. The Company intends to ask the court to again rehear the
issue. The Supreme Court's ruling explicitly preserves the Company's defenses
based on bad faith conduct of the producers. In addition, nothing in the
Supreme Court's decision affects the Company's ability to seek recovery of its
above-market costs of purchasing gas under the contract from its customers as
gas supply restructuring costs in proceedings currently pending before the
Federal Energy Regulatory Commission. Reference is made to Note 2 in the
"Notes to Financial Statements" for additional information concerning these
gas purchase agreements.
TENNECO PACKAGING
<TABLE>
<CAPTION>
FIRST
QUARTER
-----------
1996 1995
----- -----
(MILLIONS)
<S> <C> <C>
Revenues...................................................... $ 853 $ 636
Operating income.............................................. 113 116
</TABLE>
Tenneco Packaging had a strong quarter despite an average decline of 10
percent in linerboard prices from the year-ago quarter. The results were
driven by strong performance from its plastics business. The recently acquired
plastics business contributed $31 million in operating income on revenues of
$230 million in the 1996 first quarter. In the first quarter of 1995, when not
part of Tennessee, this recently acquired plastics business earned $15 million
from operations.
In Tenneco Packaging's paperboard business, revenues were down $20 million
to $455 million compared with the 1995 first quarter. Operating income in the
paperboard business declined $31 million to $62 million compared with the 1995
first quarter, excluding the 1995 first quarter $14 million pre-tax gain on
the sale of a North Carolina mill. Earnings and sales were reduced by lower
volumes and price realizations in both linerboard and corrugated medium.
Revenues in Tenneco Packaging's specialty packaging business increased $237
million to $398 million compared with the 1995 first quarter, primarily as a
result of the recently acquired plastics business.
The specialty packaging business earned $51 million in operating income for
the 1996 first quarter, a $42 million increase compared with the 1995 first
quarter results. The strong results of the recently acquired plastics business
generated $31 million of this improvement. The plastics and molded fiber
businesses continued to improve but these results were partially offset by
weaker aluminum operations.
13
<PAGE>
A $30 million restructuring program to reduce costs in aluminum and molded
fiber operations was announced and accounted for in the fourth quarter of
1995. These actions should result in improved performance in the second half
of this year.
NEWPORT NEWS SHIPBUILDING
<TABLE>
<CAPTION>
FIRST
QUARTER
-----------
1996 1995
----- -----
(MILLIONS)
<S> <C> <C>
Revenues...................................................... $ 438 $ 421
Operating income.............................................. 41 44
</TABLE>
Shipbuilding revenues for the 1996 first quarter increased slightly compared
with the 1995 period due to greater levels of activity on the surface ship
overhaul program, partially offset by lower submarine program revenues.
Construction activity on the Los Angeles-class submarines declined in the 1996
first quarter as this program nears completion.
Operating income for Shipbuilding decreased for the 1996 first quarter due
in part to the settlement of a dispute on a cruise ship repair contract and
higher material costs related to commercial product tankers.
The shipyard's backlog was $4.4 billion at March 31, 1996 substantially all
of which is U.S. Navy-related. This compared with $5.3 billion at March 31,
1995.
The backlog at the end of the 1996 first quarter included one Los Angeles-
class submarine, two Nimitz-class aircraft carriers (Harry S. Truman and
Ronald Reagan), the two ship Sealift conversion contract, surface ship
overhaul contracts and contracts to construct nine "Double Eagle" product
tankers. In addition, Newport News has ongoing engineering contracts as the
lead design yard for the Los Angeles-class and Seawolf-class submarines.
Subject to new orders, this backlog will decline as the remaining submarine is
delivered in 1996 and the aircraft carriers are delivered in 1998 and 2002.
OTHER
Tennessee's other operations reported operating income of $85 million during
the first quarter of 1996 compared with operating income of $98 million in the
1995 first quarter. This decrease in operating income was due primarily to
lower affiliated interest income.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Interest expense decreased from $65 million in the 1995 first quarter to $63
million in the 1996 first quarter. Interest capitalized increased from $1
million in the 1995 first quarter to $6 million in the 1996 first quarter due
to an increase of major projects under construction.
INCOME TAXES
Income tax expense for the first quarter of 1996 was $109 million compared
with $133 million for the 1995 first quarter.
DISCONTINUED OPERATIONS
Income from discontinued operations in the first quarter of 1996 of $37
million (net of income tax benefits of $29 million) was attributable to the
farm and construction equipment segment.
14
<PAGE>
CAPITAL EXPENDITURES
Tennessee invested $170 million in capital expenditures in its existing
businesses during the 1996 first quarter. Capital expenditures during the 1996
first quarter included $40 million for Automotive, $44 million for Energy, $62
million for Packaging, $13 million for Shipbuilding and $11 million related to
Tennessee's other operations. Capital expenditures were higher at Automotive,
Packaging and Energy during the 1996 first quarter while Shipbuilding capital
expenditures were approximately the same as the prior year quarter. During the
1995 first quarter, capital expenditures were $117 million for continuing
operations.
15
<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 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.
A subsidiary of the Company owns a 13.2% general partnership interest in
Iroquois Gas Transmission System, L.P. ("Iroquois"), which owns an interstate
natural gas pipeline from the Canadian border through the states of New York
and Connecticut to Long Island. The operator of the pipeline is Iroquois
Pipeline Operating Company (the "Operator"), which, as of May 1996, is a
subsidiary of TransCanada Pipelines, Ltd., an affiliate of TransCanada
Iroquois, Ltd., which is also a partner in Iroquois. The Company has a
contract to provide gas dispatching as well as post-construction field
operation and maintenance services for the Operator of Iroquois, but the
Company is not the Operator and is not an affiliate of the Operator.
Iroquois has been informed of investigations and allegations regarding
alleged environmental violations which occurred during the construction of the
pipeline. Communications have been received from U.S. Attorneys' Offices, the
Enforcement Staff of the FERC's Office of the General Counsel, the Army Corps
of Engineers, the Public Service Commission of the State of New York, the EPA
and the Federal Bureau of Investigation. Iroquois is in the process of
negotiating a settlement with the Government regarding certain environmental
and safety allegations asserted by the Government. The Company anticipates
that a global settlement will be reached in the second quarter of 1996 that
will resolve all criminal, civil and administrative enforcement actions
contemplated by federal and state authorities respecting the pending
investigations.
As a general partner, the Company's subsidiary may be jointly and severally
liable with the other partners for the liabilities of Iroquois. The foregoing
proceedings and investigations have not affected pipeline operations. Based
upon information available to the Company, the Company believes that neither
it nor any of its subsidiaries is a target of the criminal investigation
described above. Further, while a global resolution of these inquiries could
have a material adverse effect on the financial condition of Iroquois,
Tennessee believes that the ultimate resolution of these matters 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
16
<PAGE>
Tenneco Packaging's molded fiber products plant in Griffith, Indiana,
interfered with or damaged the Town of Griffith's municipal sewage pumping
stations 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 agreed in principle to settle the suit. A
consent decree is being negotiated by Tenneco Packaging and the Department of
Justice. 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.
(2) Potential Superfund Liability.
At March 31, 1996, Tennessee has been designated as a potentially
responsible party in 57 "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 $65 million or 0.4% to 2.4% 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.
On October 14, 1993, the Company was sued in the State District Court of
Ector County, Texas, by ICA Energy, Inc. ("ICA") and TransTexas Gas
Corporation ("TransTexas"). In that suit, ICA and TransTexas contended that
the Company had an obligation to purchase gas production which TransTexas
thereafter attempted to add unilaterally to the reserves originally dedicated
to a 1979 gas contract. An amendment to the pleading seeks $1.5 billion from
the Company for alleged damages caused by the Company's refusal to purchase
gas produced from the TransTexas leases covering the new production and lands.
Neither ICA nor TransTexas were original parties to that contract. However,
they contend that any stranger acquiring a fractional interest in the original
committed reserves thereby obtains a right to add to the contract unlimited
volumes of gas production from locations in South Texas. The Company filed a
motion for partial summary judgment, asserting that the Texas statutes of
frauds precluded the plaintiffs from adding new production or acreage to the
contract. On May 4, 1995, the trial court granted the Company's motion for
partial summary judgment; the plaintiffs have filed a notice of appeal and
oral arguments were conducted on March 28, 1996. ICA and TransTexas filed a
motion for partial summary judgment on a separate issue involving the term
"committed reserves" and whether the Company has a contractual obligation to
purchase gas produced from a lease not described in the gas contract. On
November 8, 1995, the trial court granted ICA's and TransTexas' motion in
part. That order, which would be finalized upon conclusion of the trial, also
held that ICA's and TransTexas' rights are subject to certain limitations of
the Texas Business and Commerce Code. In addition to these defenses, which are
to be resolved at trial, the Company has other defenses which it has asserted
and intends to pursue. The Company filed a Motion to Clarify the November 8,
1995 order together with a new motion for partial summary judgment concerning
the committed reserve issue. On February 22, 1996, the trial court clarified
its November 8, 1995 order, but denied the Company's new motion for partial
summary judgment. The November 8, 1995 and February 22, 1996 rulings do not
affect the trial court's previous May 4, 1995 order granting partial summary
judgment to the Company.
The Company has been engaged in other settlement and contract reformation
discussions with other holders of certain gas purchase contracts who have sued
the Company. On August 1, 1995, the Texas Supreme Court affirmed a ruling of
the Court of Appeals favorable to the Company in one of these matters and
indicated that it would remand the case to the trial court. On April 18, 1996,
however, the Texas Supreme Court withdrew its
17
<PAGE>
initial opinion and issued an opinion reversing the Court of Appeals opinion
on the matter which was favorable to the Company. The Company will file a
motion for rehearing with the Texas Supreme Court in June 1996. 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. Tennessee is unable to predict the ultimate outcome of the
litigation associated with its contract reformation efforts or the impact
which it may have upon its consolidated financial position or results of
operations, however, the Company has accrued amounts which it believes are
appropriate to cover resolution of these matters.
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 consolidated financial position or
results of operations.
ITEM 5. OTHER INFORMATION.
Recent Developments.
On March 21, 1996, Tenneco announced that it intends to spin off Newport
News Shipbuilding and Dry Dock Company to its shareholders in a tax-free
transaction, and is developing strategic options to separate Tenneco Energy
from its packaging and automotive parts divisions and to maximize shareowner
value through a tax-free spinoff, a sale, strategic alliance or other action.
The development of these options related to Tenneco Energy is expected to be
completed during the second quarter of 1996. The spinoff of Newport News
Shipbuilding and Dry Dock Company is expected to be completed late in 1996,
subject to receipt of a favorable ruling from the Internal Revenue Service on
the tax-free nature of the proposed transaction.
On April 18, 1996, the Texas Supreme Court issued a decision adverse to the
Company in a proceeding involving a gas supply contract containing a "take-or-
pay" provision and above-market pricing terms. The decision reversed an
earlier opinion of the Texas Supreme Court which held that the contract in
question was an "output" contract under the Texas Business and Commerce Code
and therefore subject to the requirement that any increase in production under
the contract must be made in good faith and in reasonable proportion to
historical levels. The Company intends to ask the court to again rehear the
issue. The Supreme Court's ruling explicitly preserves the Company's defenses
based on bad faith conduct of the producers. In addition, nothing in the
Supreme Court's decision affects the Company's ability to seek recovery of its
above-market costs of purchasing gas under the contract from its customers as
gas supply restructuring costs in proceedings currently pending before the
Federal Energy Regulatory Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1--Financial Data Schedule.
27.2--Financial Data Schedule for December 31, 1995 (Restated).
27.3--Financial Data Schedule for September 30, 1995 (Restated).
27.4--Financial Data Schedule for June 30, 1995 (Restated).
27.5--Financial Data Schedule for December 31, 1994 (Restated).
27.6--Financial Data Schedule for September 30, 1994 (Restated).
(b) Reports on Form 8-K. Tennessee Gas Pipeline Company did not file any
Current Reports on Form 8-K during the quarter ended March 31, 1996.
18
<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: May 15, 1996
19
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 223
<SECURITIES> 0
<RECEIVABLES> 608
<ALLOWANCES> 0
<INVENTORY> 1,245
<CURRENT-ASSETS> 6,832
<PP&E> 11,986
<DEPRECIATION> 5,714
<TOTAL-ASSETS> 15,718
<CURRENT-LIABILITIES> 3,081
<BONDS> 302
0
0
<COMMON> 0
<OTHER-SE> 9,547
<TOTAL-LIABILITY-AND-EQUITY> 15,718
<SALES> 2,702
<TOTAL-REVENUES> 2,702
<CGS> 2,052
<TOTAL-COSTS> 2,052
<OTHER-EXPENSES> 373
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> 331
<INCOME-TAX> 109
<INCOME-CONTINUING> 216
<DISCONTINUED> 37
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 253
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<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>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 193
<SECURITIES> 0
<RECEIVABLES> 465
<ALLOWANCES> 0
<INVENTORY> 1,174
<CURRENT-ASSETS> 6,764
<PP&E> 11,824
<DEPRECIATION> 5,611
<TOTAL-ASSETS> 15,693
<CURRENT-LIABILITIES> 3,120
<BONDS> 550
0
0
<COMMON> 0
<OTHER-SE> 9,310
<TOTAL-LIABILITY-AND-EQUITY> 15,693
<SALES> 8,840
<TOTAL-REVENUES> 8,840
<CGS> 6,640
<TOTAL-COSTS> 6,640
<OTHER-EXPENSES> 1,197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287
<INCOME-PRETAX> 1,279
<INCOME-TAX> 478
<INCOME-CONTINUING> 768
<DISCONTINUED> (32)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 736
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<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>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 706
<SECURITIES> 0
<RECEIVABLES> 474
<ALLOWANCES> 0
<INVENTORY> 999
<CURRENT-ASSETS> 6,152
<PP&E> 10,908
<DEPRECIATION> 5,598
<TOTAL-ASSETS> 13,700
<CURRENT-LIABILITIES> 2,479
<BONDS> 536
0
0
<COMMON> 0
<OTHER-SE> 7,721
<TOTAL-LIABILITY-AND-EQUITY> 13,700
<SALES> 6,454
<TOTAL-REVENUES> 6,454
<CGS> 4,783
<TOTAL-COSTS> 4,783
<OTHER-EXPENSES> 852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> 995
<INCOME-TAX> 368
<INCOME-CONTINUING> 601
<DISCONTINUED> (65)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 536
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<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>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 165
<SECURITIES> 0
<RECEIVABLES> 456
<ALLOWANCES> 0
<INVENTORY> 972
<CURRENT-ASSETS> 6,136
<PP&E> 10,661
<DEPRECIATION> 5,517
<TOTAL-ASSETS> 13,821
<CURRENT-LIABILITIES> 2,869
<BONDS> 536
0
0
<COMMON> 0
<OTHER-SE> 7,493
<TOTAL-LIABILITY-AND-EQUITY> 13,821
<SALES> 4,333
<TOTAL-REVENUES> 4,333
<CGS> 3,213
<TOTAL-COSTS> 3,213
<OTHER-EXPENSES> 565
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 682
<INCOME-TAX> 278
<INCOME-CONTINUING> 386
<DISCONTINUED> 5
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 391
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<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>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 459
<SECURITIES> 0
<RECEIVABLES> 644
<ALLOWANCES> 0
<INVENTORY> 909
<CURRENT-ASSETS> 6,232
<PP&E> 11,009
<DEPRECIATION> 5,851
<TOTAL-ASSETS> 13,230
<CURRENT-LIABILITIES> 2,793
<BONDS> 793
<COMMON> 0
0
0
<OTHER-SE> 6,959
<TOTAL-LIABILITY-AND-EQUITY> 13,230
<SALES> 8,158
<TOTAL-REVENUES> 8,158
<CGS> 6,319
<TOTAL-COSTS> 6,319
<OTHER-EXPENSES> 899
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262
<INCOME-PRETAX> 1,028
<INCOME-TAX> 325
<INCOME-CONTINUING> 702
<DISCONTINUED> (199)
<EXTRAORDINARY> 0
<CHANGES> (13)
<NET-INCOME> 490
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<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>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 413
<SECURITIES> 0
<RECEIVABLES> 694
<ALLOWANCES> 0
<INVENTORY> 812
<CURRENT-ASSETS> 5,896
<PP&E> 10,484
<DEPRECIATION> 5,614
<TOTAL-ASSETS> 12,778
<CURRENT-LIABILITIES> 2,866
<BONDS> 874
<COMMON> 0
0
0
<OTHER-SE> 6,946
<TOTAL-LIABILITY-AND-EQUITY> 12,778
<SALES> 6,128
<TOTAL-REVENUES> 6,128
<CGS> 4,781
<TOTAL-COSTS> 4,781
<OTHER-EXPENSES> 655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196
<INCOME-PRETAX> 743
<INCOME-TAX> 260
<INCOME-CONTINUING> 483
<DISCONTINUED> (43)
<EXTRAORDINARY> 0
<CHANGES> (13)
<NET-INCOME> 427
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
