-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A6iVLuP7gAD79BOyfj5SFvxHKpeKS/Ntd9YA/Bfb2e/iANUJStiFzHgCo/sbGVJd nmJ74Prp6ekszpTOsYFX8g== 0000899243-97-001629.txt : 19970815 0000899243-97-001629.hdr.sgml : 19970815 ACCESSION NUMBER: 0000899243-97-001629 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENNECO INC /DE CENTRAL INDEX KEY: 0001024725 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 760515284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12387 FILM NUMBER: 97661264 BUSINESS ADDRESS: STREET 1: 1275 KING STREET CITY: GREENWICH STATE: CT ZIP: 06831 BUSINESS PHONE: 2038631000 MAIL ADDRESS: STREET 1: 1010 MILAM STREET STREET 2: ROOM T 2560B CITY: HOUSTON STATE: TX ZIP: 77002 FORMER COMPANY: FORMER CONFORMED NAME: NEW TENNECO INC DATE OF NAME CHANGE: 19961011 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q (mark one) [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-12387 ---------------- TENNECO INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0515284 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1275 KING STREET, GREENWICH, CT 06831 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 863-1000 ---------------- 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 $.01 PER SHARE: 169,879,345 SHARES AS OF JUNE 30, 1997. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I--FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Tenneco Inc. and Consolidated Subsidiaries-- Statements of Income.................................................. 2 Statements of Cash Flows.............................................. 3 Balance Sheets........................................................ 4 Statements of Changes in Shareowners' Equity.......................... 5 Notes to Financial Statements......................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 8 PART II--OTHER INFORMATION Item 1. Legal Proceedings............................................... * Item 2. Changes in Securities........................................... * Item 3. Defaults Upon Senior Securities................................. * Item 4. Submission of Matters to a Vote of Security Holders............. 13 Item 5. Other Information............................................... * Item 6. Exhibits and Reports on Form 8-K................................ 13
- -------- * No response to this item is included herein for the reason that it is inapplicable or the answer to such item is negative. GENERAL INFORMATION This Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, represents Tenneco Inc.'s second quarterly report following the completion of a series of restructuring transactions completed in December 1996. As a result of those transactions, Tenneco Inc. now consists of a global manufacturing company with interests in the automotive parts ("Tenneco Automotive") and packaging ("Tenneco Packaging") industries and an administrative services business ("Tenneco Business Services"). Note 1 to the financial statements, and Management's Discussion and Analysis which follows the financial statements and footnotes, contain a description of the transaction as well as a discussion of the results of operations for the quarter and year to date. CAUTIONARY STATEMENT AND "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Quarterly Report on Form 10-Q contains forward-looking statements regarding (i) the implementation of price increases for Tenneco's paperboard packaging products and (ii) the recovery of increases in resin costs. See "Revenues" and "Income Before Interest Expense, Income Taxes and Minority Interest ("Operating Income")" under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Continuing Operations for the Quarter Ended June 30, 1997" and "Revenues" and "Operating Income" under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Continuing Operations for the Six Months Ended June 30, 1997." These forward-looking statements are made in good faith, and on a basis and with assumptions which Tenneco believes are reasonable; however, assumed facts or basis may vary from actual results and the differences between assumed facts or basis and actual results can be material, depending upon the circumstances. There can be no assurance that the expectations set forth in the forward-looking statements will be achieved or accomplished. Actual results could differ from those in the forward-looking statements as a result of various factors, including market conditions placing downward pressure on industry prices for linerboard and medium and other packaging products. In addition to the foregoing, Tenneco's future results may be adversely impacted by a number of other matters and uncertainties, including: (i) changes in consumer demand and prices; (ii) potential legislation or regulatory changes; (iii) material substitution and changes in the prices of raw materials; (iv) possible labor interruptions; (v) certain risks associated with operating in foreign countries, such as devaluations and fluctuations in currency exchange rates; (vi) new technologies; (vii) changes in distribution channels or competitive conditions in the markets and countries where Tenneco operates; (viii) increases in the cost of compliance with regulations, including environmental regulations, and environmental liabilities in excess of the amount reserved; (ix) changes in capital availability or costs, such as changes in interest rates or ratings of securities; and (x) changes by the Financial Accounting Standards Board or the Securities and Exchange Commission to authoritative generally accepted accounting principles or policies. 1 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------ 1997 1996 1997 1996 ----------- ----------- ----------- ----------- (MILLIONS EXCEPT SHARE AMOUNTS) REVENUES Net sales and operating revenues-- Automotive.............. $ 873 $ 780 $ 1,651 $ 1,463 Packaging............... 1,019 916 1,871 1,775 Intergroup sales and other.................. -- (2) (1) (5) ----------- ----------- ----------- ----------- 1,892 1,694 3,521 3,233 Other income, net......... 1 57 41 71 ----------- ----------- ----------- ----------- 1,893 1,751 3,562 3,304 ----------- ----------- ----------- ----------- COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)................... 1,338 1,192 2,529 2,303 Engineering, research and development.............. 18 23 34 44 Selling, general and administrative........... 234 206 445 396 Depreciation, depletion and amortization......... 91 77 183 147 ----------- ----------- ----------- ----------- 1,681 1,498 3,191 2,890 ----------- ----------- ----------- ----------- INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST.......... 212 253 371 414 Interest expense (net of interest capitalized).... 53 53 98 100 Income tax expense........ 49 77 82 126 Minority interest......... 6 5 11 10 ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS................. 104 118 180 178 Income from discontinued operations, net of income tax........................ -- 43 -- 478 ----------- ----------- ----------- ----------- NET INCOME.................. 104 161 180 656 Preferred stock dividends... -- 2 -- 5 ----------- ----------- ----------- ----------- NET INCOME TO COMMON STOCK.. $ 104 $ 159 $ 180 $ 651 =========== =========== =========== =========== PER SHARE Average number of shares of common stock outstanding... 169,907,499 170,264,386 170,673,360 170,351,740 Earnings per average share of common stock-- Continuing operations..... $ .61 $ .70 $ 1.05 $ 1.04 Discontinued operations... -- .23 -- 2.78 ----------- ----------- ----------- ----------- $ .61 $ .93 $ 1.05 $ 3.82 =========== =========== =========== =========== Cash dividends per share of common stock............... $ .30 $ .45 $ .60 $ .90 =========== =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements of income. 2 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1997 1996 ------ ------ (MILLIONS) OPERATING ACTIVITIES Income from continuing operations......................... $ 180 $ 178 Adjustments to reconcile income from continuing operations to cash provided (used) by continuing operations-- Depreciation, depletion and amortization................ 183 147 Deferred income taxes................................... 71 37 (Gain) loss on sale of businesses and assets, net....... 10 (49) Changes in components of working capital-- (Increase) decrease in receivables.................... (126) (110) (Increase) decrease in inventories.................... (20) 18 (Increase) decrease in prepayments and other current assets............................................... (54) (19) Increase (decrease) in payables....................... (88) (13) Increase (decrease) in taxes accrued.................. (20) 23 Increase (decrease) in interest accrued............... 28 -- Increase (decrease) in other current liabilities...... (90) (43) Other................................................... (60) (33) ------ ------ Cash provided (used) by continuing operations............. 14 136 Cash provided (used) by discontinued operations........... -- (351) ------ ------ Net cash provided (used) by operating activities.......... 14 (215) ------ ------ INVESTING ACTIVITIES Net proceeds related to the sale of discontinued operations............................................... -- 1,051 Net proceeds from sale of businesses and assets........... 7 10 Expenditures for plant, property and equipment-- Continuing operations................................... (202) (274) Discontinued operations................................. -- (190) Acquisitions of businesses................................ (289) (24) Investments and other..................................... (52) (68) ------ ------ Net cash provided (used) by investing activities.......... (536) 505 ------ ------ FINANCING ACTIVITIES Issuance of common, treasury and SECT shares.............. 20 46 Purchase of common shares................................. (90) (122) Redemption of preferred stock............................. -- (20) Issuance of long-term debt................................ 593 2 Retirement of long-term debt.............................. (5) (302) Net increase (decrease) in short-term debt excluding current maturities on long-term debt..................... 126 141 Dividends (common and preferred).......................... (102) (158) ------ ------ Net cash provided (used) by financing activities.......... 542 (413) ------ ------ Effect of foreign exchange rate changes on cash and temporary cash investments............................... (1) (2) ------ ------ Increase (decrease) in cash and temporary cash investments.............................................. 19 (125) Cash and temporary cash investments, January 1............ 62 354 ------ ------ Cash and temporary cash investments, June 30 (Note)....... $ 81 $ 229 ====== ====== Cash paid during the period for interest.................. $ 80 $ 224 Cash paid during the period for income taxes (net of refunds)................................................. $ 42 $ 621
- -------- Note: Cash and temporary cash investments include highly liquid investments with a maturity of three months or less at the date of purchase. The accompanying notes to financial statements are an integral part of these statements of cash flows. 3 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, JUNE 30, -------- ------------ -------- ASSETS 1997 1996 1996 ------ -------- ------------ -------- (MILLIONS) Current assets: Cash and temporary cash investments............... $ 81 $ 62 $ 229 Receivables-- Customer notes and accounts, net................ 808 561 477 Affiliated companies............................ -- -- 114 Income taxes.................................... -- -- 52 Other........................................... 35 138 186 Inventories-- Finished goods.................................. 500 408 381 Work in process................................. 95 118 100 Raw materials................................... 227 245 249 Materials and supplies.......................... 114 107 90 Deferred income taxes............................. 86 95 28 Prepayments and other............................. 201 189 196 ------ ------ ------ 2,147 1,923 2,102 ------ ------ ------ Other assets: Long-term notes receivable........................ 41 20 16 Goodwill and intangibles, net..................... 1,578 1,341 965 Deferred income taxes............................. 113 60 61 Pension assets.................................... 681 547 444 Other............................................. 415 444 287 ------ ------ ------ 2,828 2,412 1,773 ------ ------ ------ Plant, property and equipment, at cost.............. 5,029 4,870 4,332 Less--Reserves for depreciation, depletion and amortization..................................... 1,747 1,618 1,584 ------ ------ ------ 3,282 3,252 2,748 ------ ------ ------ Net assets of discontinued operations............... -- -- 1,301 ------ ------ ------ $8,257 $7,587 $7,924 ====== ====== ====== LIABILITIES AND SHAREOWNERS' EQUITY ----------------------------------- Current liabilities: Short-term debt (including current maturities on long-term debt).................................. $ 437 $ 236 $ 530 Payables-- Trade........................................... 603 651 599 Affiliated companies............................ -- -- 23 Taxes accrued..................................... 72 91 74 Accrued liabilities............................... 282 308 242 Other............................................. 293 335 242 ------ ------ ------ 1,687 1,621 1,710 ------ ------ ------ Long-term debt...................................... 2,663 2,067 1,573 ------ ------ ------ Deferred income taxes............................... 519 476 451 ------ ------ ------ Postretirement benefits............................. 211 168 161 ------ ------ ------ Deferred credits and other liabilities.............. 326 305 159 ------ ------ ------ Commitments and contingencies Minority interest................................... 313 304 301 ------ ------ ------ Shareowners' equity: Common stock...................................... 2 2 957 Stock Employee Compensation Trust (common stock held in trust)................................... -- -- (58) Premium on common stock and other capital surplus. 2,659 2,642 3,605 Cumulative translation adjustments................ (91) 23 4 Retained earnings (accumulated deficit)........... 56 (21) 26 ------ ------ ------ 2,626 2,646 4,534 Less--Shares held as treasury stock, at cost...... 88 -- 965 ------ ------ ------ 2,538 2,646 3,569 ------ ------ ------ $8,257 $7,587 $7,924 ====== ====== ======
The accompanying notes to financial statements are an integral part of these balance sheets. 4 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------------------------------- 1997 1996 ------------------- ------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------ ----------- ------ (MILLIONS EXCEPT SHARE AMOUNTS) COMMON STOCK Balance January 1.................... 171,567,658 $ 2 191,351,615 $ 957 Issued pursuant to benefit plans.... 534,867 -- 3,986 -- ----------- ------ ----------- ------ Balance June 30...................... 172,102,525 2 191,355,601 957 =========== ------ =========== ------ STOCK EMPLOYEE COMPENSATION TRUST (SECT) Balance January 1.................... -- (215) Shares issued....................... -- 161 Adjustment to market value.......... -- (4) ------ ------ Balance June 30...................... -- (58) ------ ------ PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS Balance January 1.................... 2,642 3,602 Premium on common stock issued pursuant to benefit plans.......... 17 -- Dividends on shares held by SECT.... -- 3 Adjustment of SECT to market value.. -- 4 Other............................... -- (4) ------ ------ Balance June 30...................... 2,659 3,605 ------ ------ CUMULATIVE TRANSLATION ADJUSTMENTS Balance January 1.................... 23 26 Translation of foreign currency statements......................... (127) (21) Hedges of net investment in foreign subsidiaries (net of income taxes)............................. 13 (1) ------ ------ Balance June 30...................... (91) 4 ------ ------ RETAINED EARNINGS (ACCUMULATED DEFICIT) Balance January 1.................... (21) (469) Net income.......................... 180 656 Dividends-- Preferred stock................... -- (3) Common stock...................... (103) (156) Accretion of excess of redemption value of preferred stock over fair value at date of issue............. -- (2) ------ ------ Balance June 30...................... 56 26 ------ ------ LESS--COMMON STOCK HELD AS TREASURY STOCK, AT COST Balance January 1.................... -- -- 16,422,619 753 Shares acquired..................... 2,288,200 90 4,184,368 217 Shares issued pursuant to benefit and dividend reinvestment plans.... (65,020) (2) (117,107) (5) ----------- ------ ----------- ------ Balance June 30...................... 2,223,180 88 20,489,880 965 =========== ------ =========== ------ Total............................... $2,538 $3,569 ====== ======
The accompanying notes to financial statements are an integral part of these statements of changes in shareowners' equity. 5 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) In the opinion of Tenneco Inc. (the "Company"), the accompanying unaudited consolidated financial statements of Tenneco Inc. and its consolidated subsidiaries ("Tenneco") contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, and the results of operations, changes in shareowners' equity, and cash flows for the periods indicated. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements of Tenneco include all majority-owned subsidiaries of the Company. Investments in 20% to 50% owned companies where the Company has the ability to exert significant influence over operating and financial policies are carried at cost plus equity in undistributed earnings and cumulative translation adjustments since date of acquisition. The Company was spun-off from the company previously known as Tenneco Inc. ("Old Tenneco") on December 11, 1996, following a series of transactions undertaken to realign the assets, liabilities and operations of Old Tenneco such that the automotive parts ("Tenneco Automotive"), packaging ("Tenneco Packaging") and the administrative services ("Tenneco Business Services") businesses were owned by the Company and the shipbuilding business was owned by Newport News Shipbuilding Inc. ("Newport News"). Old Tenneco distributed the shares of the Company and Newport News to its shareowners on December 11, 1996. On December 12, 1996, Old Tenneco, which then consisted primarily of the energy business and certain previously discontinued operations of Old Tenneco, merged with a subsidiary of El Paso Natural Gas Company. Although the separation of Tenneco from Old Tenneco was structured as a spin-off for legal, tax and other reasons, Tenneco kept certain important aspects of Old Tenneco, including its executive management, Board of Directors and headquarters. Most importantly, the combined assets, revenues, and operating income of Tenneco Automotive and Tenneco Packaging represented more than half the assets, revenues and operating income of Old Tenneco prior to the spin-offs and merger. Consequently, Tenneco's financial statements for periods prior to the spin-offs and merger present the net assets and results of operations of Old Tenneco's shipbuilding and energy businesses, as well as its farm and construction equipment business which was disposed of prior to the spin-offs and merger, as discontinued operations. Prior year's financial statements have been reclassified where appropriate to conform to 1997 presentations. (2) Tenneco is a party to various legal proceedings arising from its operations. Tenneco believes that the outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on its financial position or results of operations. (3) Tenneco is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. Tenneco has provided reserves for compliance with these laws and regulations where it is probable that a liability exists and where Tenneco can make a reasonable estimate of the liability. The estimated liabilities recorded are subject to change as more information becomes available regarding the magnitude of possible cleanup costs and the timing, varying costs, and effectiveness of alternative cleanup technologies. However, Tenneco believes that any additional costs which may arise as more information becomes available will not have a material adverse effect on its financial condition or results of operations. 6 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (UNAUDITED) (4) In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("FAS") No. 128, Earnings Per Share, which establishes new standards for computing and presenting earnings per share. The provisions of the statement are effective for fiscal years ending after December 15, 1997. If the provisions of FAS No. 128 had been adopted in the second quarter of 1997 and 1996, basic and diluted earnings per share would not have been materially different from primary and fully diluted earnings per share, respectively, as calculated in accordance with Accounting Principles Board Opinion No. 15. (5) Tenneco uses derivative financial instruments, principally foreign currency forward purchase and sale contracts with terms of less than one year, to hedge its exposure to changes in foreign currency exchange rates. Tenneco's primary exposure to changes in foreign currency rates results from intercompany loans made between Tenneco affiliates to minimize the need for borrowings from third parties. Net gains or losses on these foreign currency exchange contracts which are designated as hedges are recognized in the income statement to offset the foreign currency gain or loss on the underlying transaction. Additionally, Tenneco enters into foreign currency forward purchase and sale contracts to mitigate its exposure to changes in exchange rates on intercompany and third party trade receivables and payables. Since these anticipated transactions are not firm commitments, Tenneco marks these forward contracts to market each period and records any gain or loss in the income statement. Tenneco has from time to time also entered into forward contracts to hedge its net investment in foreign subsidiaries. The after-tax net gains or losses on these contracts are recognized on the accrual basis in the balance sheet caption "Cumulative translation adjustments". In the statement of cash flows, cash receipts or payments related to these exchange contracts are classified consistent with the cash flows from the transaction being hedged. Tenneco does not currently enter into derivative financial instruments for speculative purposes. The above notes are an integral part of the foregoing financial statements. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF CONTINUING OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1997 Tenneco Inc. and its consolidated subsidiaries ("Tenneco") reported income from continuing operations of $104 million, or 61 cents per share, for the second quarter of 1997 compared to $118 million, or 70 cents per share, for the same period in 1996. The 1996 results include a $50 million gain ($30 million after-tax or 18 cents per share) on the sale of certain recycled paperboard assets to a joint venture with Caraustar Industries. The 18 percent improvement in income from continuing operations excluding this 1996 gain resulted from record performance at both Tenneco Automotive and Tenneco Packaging's specialty packaging business as well as a lower effective tax rate in 1997. Tenneco was spun-off from the company previously known as Tenneco Inc. ("Old Tenneco") on December 11, 1996, following a series of transactions undertaken to realign the assets, liabilities and operations of Old Tenneco such that the automotive parts ("Tenneco Automotive"), packaging ("Tenneco Packaging") and the administrative services ("Tenneco Business Services") businesses were owned by Tenneco and the shipbuilding business was owned by Newport News Shipbuilding Inc. ("Newport News"). Old Tenneco distributed the shares of Tenneco and Newport News to its shareowners on December 11, 1996. On December 12, 1996, Old Tenneco, which then consisted primarily of the energy business ("Energy") and certain previously discontinued operations of Old Tenneco, merged with a subsidiary of El Paso Natural Gas Company. Although the separation of Tenneco from Old Tenneco was structured as a spin-off for legal, tax and other reasons, Tenneco kept certain important aspects of Old Tenneco, including its executive management, Board of Directors and headquarters. Most importantly, the combined assets, revenues, and operating income of Tenneco Automotive and Tenneco Packaging represented more than half the assets, revenues and operating income of Old Tenneco prior to the spin-offs and merger. Consequently, this management's discussion and analysis and Tenneco's financial statements for periods prior to the spin-offs and merger present the net assets and results of operations of Old Tenneco's shipbuilding and energy businesses, as well as its farm and construction equipment business which was disposed of prior to the spin-offs and merger, as discontinued operations. Revenues
SECOND QUARTER ------------- 1997 1996 ------ ------ (MILLIONS) Tenneco Automotive......................................... $ 873 $ 780 Tenneco Packaging.......................................... 1,019 916 Intergroup sales and other................................. -- (2) ------ ------ $1,892 $1,694 ====== ======
Tenneco Automotive earned record revenues in the second quarter, its fifteenth consecutive quarter of quarter-over-quarter improvement. The revenue increase of 12 percent resulted primarily from acquisitions made since the second quarter of 1996, which contributed $88 million in revenues for the quarter. Increased volumes and new business contributed $29 million in revenue growth in the quarter while the U.S. dollar equivalent of revenues earned overseas decreased by $30 million due to the strength of the dollar in foreign markets. Tenneco Packaging's 11 percent growth in quarterly revenue compared to the second quarter of 1996 resulted from a $172 million increase in specialty packaging business revenues, partially offset by a decline in paperboard packaging business revenues of $69 million. Specialty packaging's increase resulted primarily from $154 million in revenues from acquisitions made since the second quarter of 1996 as well as unit sales growth in 8 consumer products. Hefty OneZip(R) bag sales increased by more than 50% over the same period last year, Hefty(R) trash bags recorded strong unit volume and market share gains, and sales of clear plastic and foam containers to supermarkets and the foodservice industry were up 11 percent over the year-ago period. The paperboard packaging business revenue decline was due to lower prices in the 1997 second quarter compared to the same period in the prior year. Industry linerboard prices were 17 percent lower and medium prices were 26 percent lower than the second quarter of 1996, and were 5 percent and 6 percent, respectively, lower than the first quarter of 1997. Tenneco Packaging implemented a June price increase of $40 per ton for medium and announced an additional $40 per ton increase for August 1, which is expected to hold. Income Before Interest Expense, Income Taxes and Minority Interest ("Operating Income")
SECOND QUARTER ------------ 1997 1996 ----- ----- (MILLIONS) Tenneco Automotive.......................................... $ 131 $ 104 Tenneco Packaging........................................... 82 150 Other....................................................... (1) (1) ----- ----- $212 $ 253 ===== =====
Tenneco Automotive set a record for quarterly operating income. Of the $27 million increase in operating income, $19 million came from acquisitions made since the second quarter of 1996. Cost reductions and lower selling expenses contributed $15 million to second quarter 1997 results. A change in the mix of products from the higher margin aftermarket to the original equipment market offset the positive effects of the volume improvements discussed above. The strong U.S. dollar reduced operating income by $5 million for the quarter, while the impact of the labor strikes at GM and Chrysler accounted for the balance of the change in operating income. Tenneco Packaging's specialty packaging business reported operating income of $88 million an improvement of $23 million over the second quarter of 1996. This improvement was largely driven by businesses acquired since the second quarter of 1996. The positive impact of the increase in volumes discussed under Revenues above was offset by resin cost increases, which are expected to be recovered later this year, and weak stretch film margins. Excluding the 1996 gain discussed above, the paperboard packaging business reported a $41 million decline in operating income in the second quarter of 1997 compared to 1996. This was primarily the result of the pricing declines discussed above, somewhat offset by containerboard mill cost reductions and productivity improvements. Significantly, despite the price declines experienced in the second quarter of 1997 compared to the first quarter, the paperboard packaging operating loss was $6 million in both periods, before the one-time portion of a mill lease refinancing gain in the first quarter of 1997, discussed below. Interest Expense Interest expense was $53 million in the second quarter of both 1997 and 1996. Tenneco realized a benefit from lower long-term borrowing rates as a result of the December 1996 realignment of Tenneco's debt obligations undertaken in connection with the spin-off and merger transactions. Offsetting this benefit was a higher level of debt outstanding during the first half of 1997, primarily reflecting acquisitions made since the second quarter of 1996. Income Taxes Tenneco's effective tax rate for the second quarter of 1997 was 31 percent compared to 39 percent in 1996. The lower tax rate resulted primarily from non-recurring foreign tax benefits recognized in the second quarter of 1997. 9 RESULTS OF CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 Tenneco earned income from continuing operations of $180 million, or $1.05 per share, for the first six months of 1997 compared to $178 million, or $1.04 per share, for the same period in 1996. Revenues
SIX MONTHS -------------- 1997 1996 ------ ------ (MILLIONS) Tenneco Automotive........................................ $1,651 $1,463 Tenneco Packaging......................................... 1,871 1,775 Intergroup sales and other................................ (1) (5) ------ ------ $3,521 $3,233 ====== ======
Tenneco Automotive's year to date revenue improvement of 13 percent is due to the same reasons as the second quarter improvement. Revenues from recent acquisitions added $176 million in the first half of 1997. Volume growth and new business contributed $60 million in additional revenue for the first half of 1997. The strong dollar reduced first half revenues by $58 million compared to the same period in 1996. Tenneco Packaging's revenue growth of 5 percent is attributable to the specialty packaging business where revenues increased by $258 million to $1,130 million. Of the increase, $220 million resulted from revenues from acquisitions made since the first half of 1996 and the remainder was primarily due to unit sales growth as discussed under second quarter results above. The paperboard packaging business experienced a decline in revenues for the first half of 1997 of $162 million. The decline was primarily attributable to lower pricing for linerboard and medium, as discussed in the second quarter analysis above. Operating Income
SIX MONTHS -------------- 1997 1996 ------ ------ (MILLIONS) Tenneco Automotive....................................... $ 211 $ 163 Tenneco Packaging........................................ 162 256 Other.................................................... (2) (5) ------ ------ $ 371 $ 414 ====== ======
Tenneco Automotive's 29 percent improvement in operating income resulted primarily from recent acquisitions, which contributed $28 million, and cost reductions of $28 million. For the year to date, the effect of the strong U.S. dollar reduced operating income by less than $8 million. Tenneco Packaging's specialty packaging business contributed a $28 million increase in operating income, primarily due to recent acquisitions, offset somewhat by the weak stretch film margins and resin cost increases discussed under second quarter results above. The paperboard packaging business results for the first half of 1996 included the $50 million gain discussed under second quarter results above. The first half of 1997 included $38 million related to the one-time portion of a mill lease refinancing gain. Excluding these two items, the paperboard packaging business experienced a 10 decline in operating income of $110 million in the first half of 1997. Like the second quarter, this decline was largely due to lower prices for linerboard and medium in 1997. Interest Expense Interest expense decreased by $2 million for the first half of 1997 compared to 1996, due to the lower long-term borrowing rates which resulted from the December 1996 debt realignment, offset by higher debt levels due to acquisitions. Income Taxes The effective tax rate for the first half of 1997 was 30 percent compared to 40 percent in the same period of 1996, reflecting non-recurring foreign tax benefits recognized in 1997. RESULTS OF DISCONTINUED OPERATIONS The 1996 after-tax income from discontinued operations resulted from Tenneco's disposition of its remaining interest in its former farm and construction equipment subsidiary, Case Corporation, in March 1996, and the operations of the energy and shipbuilding businesses prior to the spin-off and merger transactions in December 1996.
SECOND SIX QUARTER MONTHS 1996 1996 ------- ------ (MILLIONS) Case Corporation Gain on disposition...................................... $ -- $ 340 Loss from operations..................................... -- (1) Shipbuilding Income from operations................................... 18 37 Energy Income from operations................................... 25 102 ----- ----- $43 $ 478 ===== ===== LIQUIDITY AND CAPITAL RESOURCES Cash Flow SIX MONTHS -------------- 1997 1996 ------- ------ (MILLIONS) Cash provided (used) by: Operating activities-continuing operations.............. $ 14 $ 136 Investing activities.................................... (536) 505 Financing activities.................................... 542 (413)
Cash flow from continuing operations declined by $122 million for the first six months of 1997 compared to the first six months of 1996. Income before non-cash items was higher; however, the positive cash effect was more than offset by changes in the components of working capital in operating cash flow. These changes result from higher levels of activity, particularly in receivables and inventory, in 1997, the liquidation of certain payables incurred in connection with the December 1996 spin-off and merger transactions and lower levels of 1997 capital expenditures, which contributed to a decrease in payables. Tenneco's discontinued operations used $351 million in cash for the first six months of 1996. Cash flow used for investing activities for the first half of 1997 included $275 million of cash paid for the acquisition of the protective and flexible packaging businesses of NV Koninklijke KNP BT. The total purchase 11 price of the KNP acquisition was approximately $380 million, which included debt assumed in the acquisition and preferred stock of a subsidiary issued to the seller. The acquisition closed in April 1997. Tenneco also used $202 million during the first six months of 1997 for capital expenditures in its continuing operations, compared to $274 million during the same period in 1996. Capital expenditures in the first half of 1996 for discontinued operations totaled $190 million. Also during the first half of 1996, Tenneco received $1,051 million in proceeds from sales of business operations that have been discontinued, primarily the remaining Case investment and Tenneco's 50 percent investment in a pipeline partnership. In the first half of 1997, Tenneco refinanced a portion of its short-term debt by issuing $100 million of 10 year 7 1/2 % notes, $200 million of 30 year 7 7/8% debentures and $300 million of 20 year 7 5/8% debentures. The net proceeds to Tenneco of these debt offerings were $593 million. Tenneco also paid $102 million in dividends in the first half of 1997 and purchased $90 million of its common stock as part of the previously announced share repurchase program. During the first half of 1996, Tenneco retired $302 million in long-term debt, paid $158 million in dividends and repurchased $122 million of its common stock. The net increase in short-term debt in the first half of 1996 was $141 million. Capitalization
JUNE 30, DECEMBER 31, 1997 1996 -------- ------------ (MILLIONS) Short-term debt..................................... $ 437 $ 236 Long-term debt...................................... 2,663 2,067 Minority interest................................... 313 304 Shareowners' equity................................. 2,538 2,646 ------ ------ $5,951 $5,253 ====== ======
Tenneco's debt to capitalization ratio at June 30, 1997 was 52.1 percent compared to 43.8 percent at December 31, 1996. The increase in the ratio is attributable to the additional debt issued as described under Cash Flow above as well as a decline in equity resulting from net income for the first six months being more than offset by dividends, share repurchases and cumulative translation adjustments resulting from the strong US dollar. Tenneco believes it has adequate capital resources available to it to meet its future capital needs, including strategic acquisitions and announced share repurchases. 12 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of the shareholders of the Company was held on May 13, 1997. The following matters were voted upon at the meeting and the votes cast for, against, or withheld, as well as the number of abstentions and broker non-votes, as to each such matter is also listed: (a) Election of Directors for a term to expire at the year 2000 Annual Meeting of Stockholders:
FOR WITHHELD ----------- --------- Mark Andrews......................................... 146,831,571 1,340,458 W. Michael Blumenthal................................ 146,782,990 1,389,039 Belton K. Johnson.................................... 146,904,211 1,267,818 William L. Weiss..................................... 146,922,680 1,249,349
(b) To approve the appointment of Arthur Andersen LLP as independent public accountants for Tenneco Inc. for the year 1997:
FOR AGAINST ABSTAINED BROKER NON-VOTE --- ------- --------- --------------- 147,272,833 474,335 424,861 -0-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 11--Computation of Earnings Per Share of Common Stock 12--Computation of Ratio of Earnings to Fixed Charges 27--Financial Data Schedule (b) Reports on Form 8-K. On April 25, 1997, the Company filed a Current Report on Form 8-K relating to its sale of $100,000,000 aggregate principal amount of its 7 1/2% Notes due April 15, 2007 and $200,000,000 aggregate principal amount of its 7 7/8% Debentures due April 15, 2027 under the Company's existing shelf Registration Statement on Form S-3 (File No. 333-24291). On April 29, 1997, the Company filed a Current Report on Form 8-K with respect to a press release issued on April 29, 1997 announcing the Company's earnings for the quarter ended March 31, 1997 and other matters. On June 13, 1997, the Company filed a Current Report on Form 8-K relating to its sale of $300,000,000 aggregate principal amount of its 7 5/8% Debentures due June 15, 2017 under the Company's existing shelf Registration Statement on Form S-3 (File No. 333-24291). 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TENNECO INC. By /s/ Robert T. Blakely _________________________________ Robert T. Blakely Executive Vice President and Chief Financial Officer Date: August 14, 1997 14 [LOGO OF TENNECO APPEARS HERE] EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 11 Computation of Earnings Per Share of Common Stock 12 Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedule
EX-11 2 EARNINGS PER SHARE EXHIBIT 11 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK (UNAUDITED)
THREE MONTHS ENDED JUNE SIX MONTHS ENDED 30, JUNE 30, ----------------------- ----------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- (MILLIONS EXCEPT SHARE AMOUNTS) COMPUTATION FOR STATEMENTS OF INCOME Earnings Per Share (average shares outstanding): Income from continuing operations................ $ 104 $ 118 $ 180 $ 178 Income from discontinued operations, net of income tax....................... -- 43 -- 478 ----------- ----------- ----------- ----------- Net income................. 104 161 180 656 Preferred stock dividends.. -- 2 -- 5 ----------- ----------- ----------- ----------- Net income to common stock. $ 104 $ 159 $ 180 $ 651 =========== =========== =========== =========== Average shares of common stock outstanding(a)...... 169,907,499 170,264,386 170,673,360 170,351,740 =========== =========== =========== =========== Earnings per average share of common stock: Continuing operations.... $ .61 $ .70 $ 1.05 $ 1.04 Discontinued operations.. -- .23 -- 2.78 ----------- ----------- ----------- ----------- $ .61 $ .93 $ 1.05 $ 3.82 =========== =========== =========== =========== ADDITIONAL COMPUTATIONS(B) Net income to common stock, per above................... $ 104 $ 159 $ 180 $ 651 =========== =========== =========== =========== Primary Earnings Per Share (including common stock equivalents): Average shares of common stock outstanding(a)...... 169,907,499 170,264,386 170,673,360 170,351,740 Incremental common shares applicable to common stock options based on the common stock daily average market price during the period.................... 306,630 642,997 234,122 589,005 Incremental common shares applicable to performance units based upon the attainment of specified goals..................... 83,686 88,125 83,686 88,125 ----------- ----------- ----------- ----------- Average common shares, as adjusted.................. 170,297,815 170,995,508 170,991,168 171,028,870 =========== =========== =========== =========== Earnings per average share of common stock (including common stock equivalents): Continuing operations.... $ .61 $ .70 $ 1.05 $ 1.04 Discontinued operations.. -- .23 -- 2.77 ----------- ----------- ----------- ----------- $ .61 $ .93 $ 1.05 $ 3.81 =========== =========== =========== =========== Fully Diluted Earnings Per Share: Average shares of common stock outstanding(a)...... 169,907,499 170,264,386 170,673,360 170,351,740 Incremental common shares applicable to common stock options based on the more dilutive of the common stock ending or average market price during the period.................... 550,256 642,997 550,256 708,884 Incremental common shares applicable to performance units based upon the attainment of specified goals..................... 83,686 88,125 83,686 88,125 ----------- ----------- ----------- ----------- Average common shares assuming full dilution.... 170,541,441 170,995,508 171,307,302 171,148,749 =========== =========== =========== =========== Fully diluted earnings per average share, assuming conversion of all applicable securities: Continuing operations.... $ .61 $ .70 $ 1.05 $ 1.04 Discontinued operations.. -- .23 -- 2.76 ----------- ----------- ----------- ----------- $ .61 $ .93 $ 1.05 $ 3.80 =========== =========== =========== ===========
- ------- NOTES: (a) In 1992, 12,000,000 shares of common stock were issued to the Tenneco Inc. Stock Employee Compensation Trust ("SECT"). Shares of common stock issued to a related trust are not considered to be outstanding in the computation of average shares of common stock until the shares are utilized to fund the obligations for which the trust was established. For the three months and six months ended June 30, 1996, the SECT utilized 2,517,180 and 3,234,436 shares, respectively. At December 31, 1996, all shares had been utilized. (b) These calculations are submitted in accordance with Securities and Exchange Commission requirements although not required by Accounting Principles Board Opinion No. 15 because they result in dilution of less than 3%. EX-12 3 RATIO OF EARNINGS EXHIBIT 12 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN MILLIONS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------ 1997 1996 ----- ----- Income from continuing operations................................. $ 180 $ 178 Add: Interest........................................................ 98 100 Portion of rentals representative of interest factor............ 26 29 Preferred stock dividend requirements of majority-owned subsidiaries................................................... 10 10 Income tax expense and other taxes on income.................... 82 126 Amortization of interest capitalized............................ 1 1 Undistributed (earnings) losses of affiliated companies in which less than a 50% voting interest is owned....................... (1) -- ----- ----- Earnings as defined........................................... $ 396 $ 444 ===== ===== Interest.......................................................... $ 98 $ 100 Interest capitalized.............................................. 1 4 Portion of rentals representative of interest factor.............. 26 29 Preferred stock dividend requirements of majority-owned subsidiaries on a pre-tax basis.................................. 16 16 ----- ----- Fixed charges as defined...................................... $ 141 $ 149 ===== ===== Ratio of earnings to fixed charges................................ 2.81 2.98 ===== =====
EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TENNECO INC. AND CONSOLIDATED SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 81 0 808 0 936 2,147 5,029 1,747 8,257 1,687 2,663 0 0 2 2,536 8,257 3,521 3,521 2,563 2,563 628 0 98 273 82 180 0 0 0 180 1.05 1.05
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