-----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, CbhFxTb1zHT0xBMjatTDOsKl4eUfv3GoUwr4O3fHUjX5Lpk8ByAuBMlk0dgLBI1M K3uT2xbUfwjSg6Z6ji3MnQ== 0000950137-99-002780.txt : 19990811 0000950137-99-002780.hdr.sgml : 19990811 ACCESSION NUMBER: 0000950137-99-002780 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990803 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: SEC FILE NUMBER: 001-12387 FILM NUMBER: 99677149 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 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1999 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 offices) (Zip Code)
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: 170,409,064 shares as of June 30, 1999. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I--FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Tenneco Inc. and Consolidated Subsidiaries-- Statements of Income (Loss)....................... 2 Statements of Cash Flows.......................... 3 Balance Sheets.................................... 4 Statements of Changes in Shareowners' Equity...... 5 Statements of Comprehensive Income (Loss)......... 6 Notes to Financial Statements..................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................... * 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............................................... 25 Item 5. Other Information.............................. * Item 6. Exhibits and Reports on Form 8-K............... 25
- ------------ * No response to this item is included herein for the reason that it is inapplicable or the answer to such item is negative. CAUTIONARY STATEMENT AND "SAFE HARBOR" OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Quarterly Report on Form 10-Q contains forward-looking statements regarding: (i) strategic alternatives, including the expected timing and tax-free nature of the spin-off, the planned sale of the containerboard interest in the joint venture and the packaging and automotive companies after the spin-off; (ii) the restructuring plan; (iii) capital resources; and (iv) the Year 2000 issue (relating to potential equipment and computer failures by or at the change in the century). See "Strategic Alternatives Analysis," "Restructuring and Other Charges," "Liquidity and Capital Resources -- Capitalization," and "Year 2000" under "Management's Discussion and Analysis of Financial Condition and Results of Operations." These forward-looking statements are based on the current expectations of Tenneco (as defined below). Because forward-looking statements involve risks and uncertainties, the plans, actions and actual results could differ materially. Among the factors that could cause plans, actions and results to differ materially from current expectations are: (i) the general economic, political and competitive conditions in markets and countries where Tenneco operates, including currency fluctuations and other risks associated with operating in foreign countries and changes in distribution channels; (ii) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals; (iii) changes in capital availability or costs; (iv) results of analysis regarding strategic alternatives; (v) changes in consumer demand and prices, including decreases in demand for Tenneco products and its customers' products and the resulting negative impact on revenues and margins from such products; (vi) the cost of compliance with changes in regulations, including environmental regulations; (vii) workforce factors such as strikes or labor interruptions; (viii) material substitutions or increases in the costs of raw materials; (ix) Tenneco's ability to integrate operations of acquired businesses quickly and in a cost-effective manner; (x) new technologies; (xi) the ability of Tenneco and those with whom it conducts business to timely resolve the Year 2000 issue, unanticipated costs of, problems with or delays in resolving the Year 2000 issue, and the costs and impacts if the Year 2000 issue is not timely resolved; (xii) changes by the Financial Accounting Standards Board or other accounting regulatory bodies of authoritative generally accepted accounting principles or policies; and (xiii) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond Tenneco's control. 1 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- (MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS) REVENUES Net sales and operating revenues -- Automotive.................................. $ 868 $ 864 $ 1,657 $ 1,664 Specialty Packaging......................... 738 731 1,404 1,361 Other....................................... -- 7 -- 10 ----------- ----------- ----------- ----------- 1,606 1,602 3,061 3,035 Other income -- Gain (loss) on sale of businesses and assets, net............................... (5) (5) (24) (11) Other income, net........................... 7 9 13 26 ----------- ----------- ----------- ----------- 1,608 1,606 3,050 3,050 ----------- ----------- ----------- ----------- COSTS AND EXPENSES Cost of sales (exclusive of depreciation shown below)......................................... 1,106 1,086 2,135 2,092 Engineering, research, and development........... 27 9 45 26 Selling, general, and administrative............. 197 202 409 392 Depreciation and amortization.................... 82 81 165 160 ----------- ----------- ----------- ----------- 1,412 1,378 2,754 2,670 ----------- ----------- ----------- ----------- INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST.................................. 196 228 296 380 Interest expense (net of interest capitalized)... 54 51 109 97 Income tax expense............................... 51 55 68 92 Minority interest................................ 8 8 14 16 ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS.................... 83 114 105 175 Income (loss) from discontinued operations, net of income tax......................................... 9 23 (163) 37 ----------- ----------- ----------- ----------- Income (loss) before extraordinary loss.............. 92 137 (58) 212 Extraordinary loss, net of income tax................ -- -- (7) -- ----------- ----------- ----------- ----------- Income (loss) before cumulative effect of change in accounting principle............................... 92 137 (65) 212 Cumulative effect of change in accounting principle, net of income tax.................................. -- -- (134) -- ----------- ----------- ----------- ----------- NET INCOME (LOSS).................................... $ 92 $ 137 $ (199) $ 212 =========== =========== =========== =========== EARNINGS (LOSS) PER SHARE Average shares of common stock outstanding -- Basic............................................ 167,119,483 169,174,444 166,937,362 169,341,555 Diluted.......................................... 167,501,881 169,869,703 167,319,412 169,936,676 Basic earnings (loss) per share of common stock -- Continuing operations............................ $ .50 $ .67 $ .63 $ 1.03 Discontinued operations.......................... .05 .14 (.98) .22 Extraordinary loss............................... -- -- (.04) -- Cumulative effect of change in accounting principle...................................... -- -- (.80) -- ----------- ----------- ----------- ----------- $ .55 $ .81 $ (1.19) $ 1.25 =========== =========== =========== =========== Diluted earnings (loss) per share of common stock -- Continuing operations............................ $ .50 $ .67 $ .63 $ 1.03 Discontinued operations.......................... .05 .14 (.98) .22 Extraordinary loss............................... -- -- (.04) -- Cumulative effect of change in accounting principle...................................... -- -- (.80) -- ----------- ----------- ----------- ----------- $ .55 $ .81 $ (1.19) $ 1.25 =========== =========== =========== =========== Cash dividends per share of common stock............. $ .30 $ .30 $ .60 $ .60 =========== =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements of income (loss). 2 4 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------- 1999 1998 ------- ----- (MILLIONS) OPERATING ACTIVITIES Income from continuing operations........................... $ 105 $ 175 Adjustments to reconcile income from continuing operations to cash provided (used) by operating activities -- Depreciation and amortization.......................... 165 160 Deferred income taxes.................................. 83 77 (Gain) loss on sale of businesses and assets, net...... 24 11 Changes in components of working capital -- (Increase) decrease in receivables................ (215) (180) (Increase) decrease in inventories................ (55) (27) (Increase) decrease in prepayments and other current assets................................... (10) (11) Increase (decrease) in payables................... (19) (7) Increase (decrease) in taxes accrued.............. (55) 3 Increase (decrease) in interest accrued........... 2 -- Increase (decrease) in other current liabilities...................................... (40) (64) Other.................................................. (104) (67) ------- ----- Cash provided (used) by continuing operations............... (119) 70 Cash provided (used) by discontinued operations............. (62) 108 ------- ----- Net cash provided (used) by operating activities............ (181) 178 ------- ----- INVESTING ACTIVITIES Net proceeds related to the sale of discontinued operations................................................ 306 -- Net proceeds from sale of assets............................ 36 17 Expenditures for plant, property, and equipment............. (145) (181) Acquisition of businesses................................... (37) (58) Expenditures for plant, property, and equipment -- discontinued operations...................... (1,129) (51) Investments and other....................................... 4 (41) ------- ----- Net cash provided (used) by investing activities............ (965) (314) ------- ----- FINANCING ACTIVITIES Issuance of common and treasury shares...................... 20 27 Purchase of common stock.................................... (4) (82) Issuance of long-term debt.................................. 1,761 3 Retirement of long-term debt................................ (29) (15) Net increase (decrease) in short-term debt excluding current maturities on long-term debt............................................ (478) 294 Dividends (common).......................................... (100) (102) ------- ----- Net cash provided (used) by financing activities............ 1,170 125 ------- ----- Effect of foreign exchange rate changes on cash and temporary cash investments................................ (2) -- ------- ----- Increase (decrease) in cash and temporary cash investments............................................... 22 (11) Cash and temporary cash investments, January 1.............. 36 41 ------- ----- Cash and temporary cash investments, June 30 (Note)......... $ 58 $ 30 ======= ===== Cash paid during the period for interest.................... $ 126 $ 127 Cash paid during the period for income taxes (net of refunds).................................................. $ 31 $ (5) NON-CASH INVESTING AND FINANCING ACTIVITIES Common equity interest received related to the sale of containerboard operations................................. $ 194 $ -- Principal amount of long-term debt assumed by buyers of containerboard operations................................................ $(1,760) $ --
- ------------------------- 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 5 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, JUNE 30, --------- ------------ --------- 1999 1998 1998 --------- ------------ --------- (MILLIONS) ASSETS Current assets: Cash and temporary cash investments..................... $ 58 $ 36 $ 30 Receivables -- Customer notes and accounts, net................... 912 766 875 Income taxes....................................... 7 18 22 Other.............................................. 44 64 48 Inventories -- Finished goods..................................... 499 467 464 Work in process.................................... 136 130 112 Raw materials...................................... 123 136 134 Materials and supplies............................. 89 93 87 Deferred income taxes................................... 87 46 73 Prepayments and other................................... 114 182 254 ------ ------ ------ 2,069 1,938 2,099 ------ ------ ------ Other assets: Long-term notes receivable, net......................... 42 45 46 Goodwill and intangibles, net........................... 1,538 1,551 1,534 Deferred income taxes................................... 42 37 54 Pension assets.......................................... 891 843 796 Other................................................... 202 344 313 ------ ------ ------ 2,715 2,820 2,743 ------ ------ ------ Plant, property, and equipment, at cost..................... 3,928 4,001 3,797 Less -- Reserves for depreciation and amortization...... 1,384 1,351 1,239 ------ ------ ------ 2,544 2,650 2,558 ------ ------ ------ Net assets of discontinued operations....................... 133 366 382 ------ ------ ------ $7,461 $7,774 $7,782 ====== ====== ====== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Short-term debt (including current maturities on long-term debt)....................................... $ 573 $ 900 $ 503 Trade payables.......................................... 608 592 581 Taxes accrued........................................... 92 45 67 Accrued liabilities..................................... 381 368 295 Other................................................... 151 142 208 ------ ------ ------ 1,805 2,047 1,654 ------ ------ ------ Long-term debt.............................................. 2,326 1,983 2,235 ------ ------ ------ Deferred income taxes....................................... 417 387 495 ------ ------ ------ Postretirement benefits..................................... 280 302 235 ------ ------ ------ Deferred credits and other liabilities...................... 86 130 182 ------ ------ ------ Commitments and contingencies Minority interest........................................... 425 421 422 ------ ------ ------ Shareowners' equity: Common stock............................................ 2 2 2 Premium on common stock and other capital surplus....... 2,718 2,710 2,699 Accumulated other comprehensive income (loss)........... (194) (91) (142) Retained earnings (accumulated deficit)................. (157) 142 199 ------ ------ ------ 2,369 2,763 2,758 Less -- Shares held as treasury stock, at cost.......... 247 259 199 ------ ------ ------ 2,122 2,504 2,559 ------ ------ ------ $7,461 $7,774 $7,782 ====== ====== ======
The accompanying notes to financial statements are an integral part of these balance sheets. 4 6 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------------------------- 1999 1998 -------------------- -------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------ ----------- ------ (MILLIONS EXCEPT SHARE AMOUNTS) COMMON STOCK Balance January 1.................................. 173,670,197 $ 2 172,569,889 $ 2 Issued pursuant to benefit plans.............. 334,816 -- 539,220 -- ----------- ------ ----------- ------ Balance June 30.................................... 174,005,013 2 173,109,109 2 =========== ------ =========== ------ PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS Balance January 1.................................. 2,710 2,679 Premium on common stock issued pursuant to benefit plans............................... 8 20 ------ ------ Balance June 30.................................... 2,718 2,699 ------ ------ ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance January 1.................................. (91) (122) Other comprehensive income (loss)............. (103) (20) ------ ------ Balance June 30.................................... (194) (142) ------ ------ RETAINED EARNINGS (ACCUMULATED DEFICIT) Balance January 1.................................. 142 89 Net income (loss)............................. (199) 212 Dividends on common stock..................... (100) (102) ------ ------ Balance June 30.................................... (157) 199 ------ ------ LESS -- COMMON STOCK HELD AS TREASURY STOCK, AT COST Balance January 1.................................. 6,757,678 259 2,928,189 120 Shares acquired............................... 121,867 4 2,202,423 88 Shares issued pursuant to benefit and dividend reinvestment plans.......................... (417,961) (16) (219,711) (9) ----------- ------ ----------- ------ Balance June 30.................................... 6,461,584 247 4,910,901 199 =========== ------ =========== ------ Total......................................... $2,122 $2,559 ====== ======
The accompanying notes to financial statements are an integral part of these statements of changes in shareowners' equity. 5 7 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, ------------------------------------------------------------- 1999 1998 ----------------------------- ----------------------------- ACCUMULATED ACCUMULATED OTHER OTHER COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE INCOME INCOME INCOME INCOME ------------- ------------- ------------- ------------- (MILLIONS) NET INCOME (LOSS)........................ $ 92 $137 ----- ---- ACCUMULATED OTHER COMPREHENSIVE INCOME CUMULATIVE TRANSLATION ADJUSTMENT Balance April 1........................ $(159) $(145) Translation of foreign currency statements........................ (26) (26) 3 3 ----- ----- Balance June 30........................ (185) (142) ----- ----- ADDITIONAL MINIMUM PENSION LIABILITY ADJUSTMENT Balance April 1........................ (9) -- Additional minimum pension liability adjustment........................ -- -- -- -- ----- ----- Balance June 30........................ (9) -- ----- ----- Balance June 30.......................... $(194) $(142) ===== ===== ----- ---- Other comprehensive income (loss)........ (26) 3 ----- ---- COMPREHENSIVE INCOME (LOSS).............. $ 66 $140 ===== ====
SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------- 1999 1998 ----------------------------- ----------------------------- ACCUMULATED ACCUMULATED OTHER OTHER COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE INCOME INCOME INCOME INCOME ------------- ------------- ------------- ------------- (MILLIONS) NET INCOME (LOSS)........................ $(199) $212 ----- ---- ACCUMULATED OTHER COMPREHENSIVE INCOME CUMULATIVE TRANSLATION ADJUSTMENT Balance January 1...................... $ (82) $(122) Translation of foreign currency statements........................ (103) (103) (20) (20) ----- ----- Balance June 30........................ (185) (142) ----- ----- ADDITIONAL MINIMUM PENSION LIABILITY ADJUSTMENT Balance January 1...................... (9) -- Additional minimum pension liability adjustment........................ -- -- -- -- ----- ----- Balance June 30........................ (9) -- ----- ----- Balance June 30.......................... $(194) $(142) ===== ===== ----- ---- Other comprehensive income (loss)........ (103) (20) ----- ---- COMPREHENSIVE INCOME (LOSS).............. $(302) $192 ===== ====
The accompanying notes to financial statements are an integral part of these statements of comprehensive income (loss). 6 8 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) In the opinion of Tenneco Inc. (the "Company"), the accompanying unaudited 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, results of operations, cash flows, changes in shareowners' equity, and comprehensive income 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. Prior year's financial statements have been reclassified where appropriate to conform to 1999 presentations. (2) In July 1998, Tenneco's Board of Directors authorized management to develop a broad range of strategic alternatives which could result in the separation of the automotive, paperboard packaging, and specialty packaging businesses. As part of that strategic alternatives analysis, Tenneco has taken the following actions: - In January 1999, Tenneco reached an agreement to contribute the containerboard assets of its paperboard packaging segment to a new joint venture with an affiliate of Madison Dearborn Partners, Inc. The contribution to the joint venture was completed in April 1999. Tenneco received consideration of cash and debt assumption totaling approximately $2 billion and a 45 percent common equity interest in the joint venture (now 43 percent due to subsequent management equity issuances) valued at approximately $200 million. - In April 1999, Tenneco reached an agreement to sell the paperboard packaging segment's other assets, its folding carton operation, to Caraustar Industries. This transaction closed in June 1999. - Also in April 1999, Tenneco announced that its Board of Directors had approved the separation of its automotive and packaging businesses into two separate, independent companies. - In June 1999, Tenneco's Board of Directors approved a plan to sell Packaging's remaining interest in its containerboard joint venture. Tenneco expects the sale to be completed before the spin-off discussed below. As a result of the decision to sell Tenneco's remaining interest in the containerboard joint venture, Tenneco's paperboard packaging segment is presented as a discontinued operation in the accompanying financial statements. Reference is made to Note 3 for information related to discontinued operations. The separation of Tenneco's automotive and packaging businesses will be accomplished by the spin-off of the common stock of Tenneco Packaging to Tenneco shareowners (the "Spin-off"). At the time of the Spin-off, Packaging will include Tenneco's specialty packaging business, Tenneco's administrative services operations and the remaining interest in the containerboard joint venture if the sale has not been completed. Tenneco and Tenneco Packaging are, however, currently analyzing the alternatives with respect to the administrative services operations. Before the Spin-off, Tenneco will realign substantially all of its existing debt through some combination of tender offers, exchange offers, prepayments, and other refinancings. This debt realignment will be financed by internally generated cash, borrowings by Tenneco under a new credit facility, the issuance by Tenneco of subordinated debt, and borrowings by Packaging under a new credit facility. Also before the Spin-off, Tenneco will restructure its existing businesses, assets, and liabilities through a series of corporate restructuring transactions. As Tenneco is currently organized, ownership of its subsidiaries 7 9 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) is based on geographic location and tax considerations rather than on the businesses in which the subsidiaries are involved. Therefore, Tenneco will need to restructure its existing businesses so that the assets, liabilities, and operations of its packaging business and administrative services operations will be owned by Tenneco Packaging, and the assets, liabilities, and operations of its automotive businesses will be owned by Tenneco. The Spin-off is subject to conditions, including formal declaration of the Spin-off by the Tenneco Board of Directors, a favorable determination that the Spin-off will be tax-free for U.S. federal income tax purposes, and the successful completion of the debt realignment and corporate restructuring transactions. Tenneco has requested a favorable ruling from the Internal Revenue Service on the tax-free nature of the Spin-off. (3) In January 1999, Tenneco reached an agreement to contribute the containerboard assets of its paperboard packaging segment to a new joint venture with an affiliate of Madison Dearborn Partners, Inc. The contribution to the joint venture was completed in April 1999. Tenneco received consideration of cash and debt assumption totaling approximately $2 billion plus a 45 percent common equity interest in the joint venture (now 43 percent due to subsequent management equity issuances) valued at approximately $200 million. The containerboard assets contributed to the joint venture represented substantially all of the assets of Tenneco's paperboard packaging segment and included four mills, 67 corrugated products plants, and an ownership or leasehold interest in approximately 950,000 acres of timberland. Prior to the transaction, Tenneco Packaging borrowed approximately $1.8 billion and used approximately $1.2 billion of those borrowings to acquire assets used by the containerboard business under operating leases and timber cutting rights and to purchase containerboard business accounts receivable that had previously been sold to a third party. The remainder of the borrowings was remitted to Tenneco and used to repay a portion of Tenneco's short-term debt. Tenneco Packaging then contributed the containerboard business assets (subject to the new indebtedness and the containerboard business liabilities) to the joint venture in exchange for $247 million in cash and the 45 percent interest in the joint venture. As a result of the transaction, Tenneco recognized a pre-tax loss of $293 million, $178 million after-tax or $1.07 per diluted common share, in the first quarter of 1999, based on the amount by which the carrying amount of the containerboard assets exceeded the fair value of those assets, less cost to sell. The estimate of fair value of the containerboard assets was based on the fair value of the consideration received by Tenneco from the joint venture. In June 1999, Tenneco's Board of Directors approved a plan to sell Packaging's remaining interest in its containerboard joint venture. Tenneco expects the sale to be completed before the Spin-off. As a result of the decision to sell the remaining interest in the containerboard joint venture, Tenneco's paperboard packaging segment is presented as a discontinued operation in the accompanying financial statements. In April 1999, Tenneco reached an agreement to sell the paperboard packaging segment's other assets, its folding carton operation, to Caraustar Industries. Tenneco received cash proceeds of $73 million from this transaction which closed in June 1999. As a result of the sale transaction, Tenneco recognized a pre-tax gain of $14 million, $9 million after-tax or $.05 per diluted share and is included in discontinued operations in the second quarter of 1999. 8 10 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) Revenues and income for the paperboard packaging discontinued operations are shown in the following table:
THREE MONTHS ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, ------------- -------------- 1999 1998 1999 1998 ----- ----- ------ ----- Net sales and operating revenues........................ $53 $394 $ 445 $770 === ==== ===== ==== Income before income taxes and interest allocation...... $ 4 $ 32 $ 22 $ 66 Income tax (expense) benefit............................ (4) (12) (11) (26) --- ---- ----- ---- Income before interest allocation....................... -- 20 11 40 Allocated interest expense, net of income tax........... -- (6) (5) (12) --- ---- ----- ---- Income from discontinued operations before disposition........................................... -- 14 6 28 Gain (loss) on disposition, net of income tax........... 9 9 (169) 9 --- ---- ----- ---- Income (loss) from discontinued operations.............. $ 9 $ 23 $(163) $ 37 === ==== ===== ====
(4) In the fourth quarter of 1998, Tenneco's Board of Directors approved an extensive restructuring plan designed to reduce administrative and operational overhead costs in every part of Tenneco's business. Tenneco recorded a pre-tax charge to income from continuing operations of $86 million, $55 million after-tax or $.33 per diluted common share. Of the pre-tax charge, for operational restructuring plans, $36 million related to the consolidation of the manufacturing and distribution operations of Automotive's North American aftermarket business and $10 million was recorded in the Specialty Packaging business. A staff and related cost reduction plan, which covers employees in both the operating units and at corporate, is expected to cost $40 million. The Automotive aftermarket restructuring involves closing two plant locations and five distribution centers, with the elimination of 302 positions at those locations. The Specialty Packaging restructuring plans involve the elimination of production lines at two plants resulting in the elimination of 104 positions. Additionally, Specialty Packaging will exit four joint ventures. The staff and related cost reduction plan involves the elimination of 638 administrative positions in Tenneco's two business units and its corporate operations. The fixed assets at the locations to be closed and for the production lines to be eliminated, as well as the joint venture investments, were written down to their estimated fair value. No significant cash proceeds are expected to be received from the ultimate disposal of these assets. As of June 30, 1999, approximately 902 employees have been terminated. To address customer service issues, the closure of one Automotive aftermarket distribution center has been delayed until the second quarter of 2000. All other restructuring actions are being executed according to the initial plan and are expected to be complete by the fourth quarter of 1999. During the six months ended June 30, 1999, the Automotive aftermarket business closed one plant location and four distribution centers. In the first quarter of 1999, in connection with the sale of the containerboard assets, Tenneco adopted a plan to realign its headquarters functions. This plan involves the severance of approximately 40 employees, and the closing of the Greenwich, Connecticut, headquarters facility. The charge was recorded in Tenneco's "Other" segment in the amount of $29 million pre-tax, $17 million after-tax or $.10 per diluted common share. Assets were written down to net realizable value. Tenneco collected approximately $30 million in the second quarter of 1999 related to the sale of these assets. 9 11 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) Amounts related to the restructuring plan are shown in the following table:
SIX MONTHS ENDED JUNE 30, 1999 ----------------------------------- DECEMBER 31, 1998 CHARGED BALANCE AT RESTRUCTURING RESTRUCTURING CASH TO ASSET JUNE 30, CHARGE BALANCE CHARGE PAYMENTS ACCOUNTS 1999 ----------------- ------------- -------- -------- ---------- (MILLIONS) Severance............................ $30 $16 $18 $-- $28 Asset impairments.................... -- 13 -- 13 -- Facility exit costs.................. 2 -- 1 -- 1 --- --- --- --- --- $32 $29 $19 $13 $29 === === === === ===
(5) 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. (6) 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 position or results of operations. (7) In the first quarter of 1999, Tenneco recorded an extraordinary loss for extinguishment of debt of $7 million (net of a $3 million income tax benefit), or $.04 per diluted common share. The loss related to early retirement of debt in connection with the sale of the containerboard assets. (8) In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new accounting and reporting standards requiring that all derivative instruments (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. This statement cannot be applied retroactively and is effective for all fiscal years beginning after June 15, 2000. Tenneco is currently evaluating the new standard but has not yet determined the impact it will have on its financial position or results of operations. In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," which requires costs of start-up activities to be expensed as incurred. This statement is effective for fiscal years beginning after December 15, 1998. The statement requires previously capitalized costs related to start-up activities to be expensed as a cumulative effect of a change in accounting principle when the statement is adopted. Prior to January 1, 1999, Tenneco capitalized certain costs related to start-up activities, primarily engineering costs for new automobile original equipment platforms. Tenneco adopted SOP 98-5 on January 1, 1999, and recorded an after-tax charge for the cumulative effect of this change in accounting principle of $102 million (net of a $50 million tax benefit), or $.61 per diluted common share. The change in accounting principle decreased income from 10 12 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) continuing operations by $2 million (net of a $1 million tax benefit), or $.01 per diluted common share for the six months ended June 30, 1999. If the new accounting method had been applied retroactively, income from continuing operations for the six months ended June 30, 1998, would have been lower by $13 million (net of a $8 million tax benefit), or $.08 per diluted common share. The change in accounting principle had no impact on the three months ended June 30, 1999. If the new accounting method had been applied retroactively, income from continuing operations for the three months ended June 30, 1998, would have been lower by $6 million (net of a $4 million tax benefit), or $.04 per diluted common share. In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which establishes new accounting and reporting standards for the costs of computer software developed or obtained for internal use. This statement requires prospective application for fiscal years beginning after December 15, 1998. Tenneco adopted SOP 98-1 on January 1, 1999. The impact of this new standard did not have a significant effect on Tenneco's financial position or results of operations. Effective January 1, 1999, Tenneco changed its method of accounting for customer acquisition costs from a deferral method to an expense-as-incurred method. In connection with Tenneco's decision to separate its automotive and specialty packaging businesses into independent public companies, Tenneco determined that a change to an expense-as-incurred method of accounting for automotive aftermarket customer acquisition costs was preferable in order to permit improved comparability of stand-alone financial results with its aftermarket industry competitors. Tenneco recorded an after-tax charge for the cumulative effect of this change in accounting principle of $32 million (net of a $22 million tax benefit), or $.19 per diluted common share. The change in accounting principle increased income from continuing operations by $5 million (net of $4 million in income tax expense), or $.03 per diluted common share for the six months ended June 30, 1999. If the new accounting principle had been applied retroactively, income from continuing operations for the six months ended June 30, 1998, would have been lower by $2 million (net of a $1 million tax benefit), or $.01 per diluted common share. For the three months ended June 30, 1999, the change in accounting principle increased income from continuing operations by $2 million (net of $2 million in income tax expense), or $.01 per diluted common share. If the new accounting principle had been applied retroactively, income from continuing operations for the three months ended June 30, 1998, would have been higher by $2 million (net of $2 million in income tax expense), or $.01 per diluted common share. 11 13 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) (9) Earnings from continuing operations per share of common stock outstanding were computed as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ----------- ----------- (MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS) Basic Earnings Per Share -- Income from continuing operations........... $ 83 $ 114 $ 105 $ 175 =========== =========== =========== =========== Average shares of common stock outstanding.......... 167,119,483 169,174,444 166,937,362 169,341,555 =========== =========== =========== =========== Earnings from continuing operations per average share of common stock......... $ .50 $ .67 $ .63 $ 1.03 =========== =========== =========== =========== Diluted Earnings Per Share-- Income from continuing operations........... $ 83 $ 114 $ 105 $ 175 =========== =========== =========== =========== Average shares of common stock outstanding.......... 167,119,483 169,174,444 166,937,362 169,341,555 Effect of dilutive securities: Restricted stock........... 64,370 52,224 64,831 39,512 Stock options..... -- 364,170 -- 296,498 Performance shares.......... 318,028 278,865 317,219 259,111 ----------- ----------- ----------- ----------- Average shares of common stock outstanding including dilutive securities........... 167,501,881 169,869,703 167,319,412 169,936,676 =========== =========== =========== =========== Earnings from continuing operations per average share of common stock......... $ .50 $ .67 $ .63 $ 1.03 =========== =========== =========== ===========
(10) Tenneco is a global manufacturer with the following major operating segments: Automotive -- Manufacture and sale of exhaust and ride control systems for both the original equipment and replacement markets. Specialty Packaging -- Manufacture and sale of specialty and protective packaging products for consumer, institutional, and industrial markets. Tenneco evaluates business segment operating performance based primarily on income before interest expense, income taxes, and minority interest, exclusive of restructuring charges and other unusual items. Individual operating segments have not been aggregated within these reportable segments. Products are transferred between segments on a basis intended to reflect as nearly as possible the "market value" of the products. 12 14 TENNECO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) The following table summarizes certain segment information of Tenneco's businesses:
SEGMENT ------------------------------- RECLASS SPECIALTY & AUTOMOTIVE PACKAGING OTHER ELIMS CONSOLIDATED ---------- --------- ------ ------- ------------ (MILLIONS) FOR THE THREE MONTHS ENDED JUNE 30, 1999 Revenues from external customers............. $ 868 $ 738 $ -- $ -- $1,606 Income (loss) before interest, income taxes, and minority interest...................... 99 107 (10) -- 196 FOR THE THREE MONTHS ENDED JUNE 30, 1998 Revenues from external customers............. $ 864 $ 731 $ 7 $ -- $1,602 Income (loss) before interest, income taxes, and minority interest...................... 130 101 (3) -- 228 AT JUNE 30, 1999, AND FOR THE SIX MONTHS THEN ENDED Revenues from external customers............. $1,657 $1,404 $ -- $ -- $3,061 Income (loss) before interest, income taxes, and minority interest...................... 156 190 (50) -- 296 Extraordinary loss........................... -- -- (7) -- (7) Cumulative effect of change in accounting principle.................................. (101) (17) (16) -- (134) Total assets (Note).......................... 2,765 3,296 1,601 (201) 7,461 Net assets of discontinued operations........ -- -- 133 -- 133 AT JUNE 30, 1998, AND FOR THE SIX MONTHS THEN ENDED Revenues from external customers............. $1,664 $1,361 $ 10 $ -- $3,035 Income (loss) before interest, income taxes, and minority interest...................... 219 175 (14) -- 380 Total assets (Note).......................... 2,796 3,373 1,740 (127) 7,782 Net assets of discontinued operations........ -- -- 382 -- 382
- ------------------------- Note: The Other segment's total assets includes pension assets retained by Tenneco related to certain employees of Tenneco's discontinued operations as well as the net assets of discontinued operations. The above notes are an integral part of the foregoing financial statements. 13 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STRATEGIC ALTERNATIVES ANALYSIS In July 1998, Tenneco's Board of Directors authorized management to develop a broad range of strategic alternatives which could result in the separation of the automotive, paperboard packaging, and specialty packaging businesses. As part of that strategic alternatives analysis, Tenneco has taken the following actions: - In January 1999, Tenneco reached an agreement to contribute the containerboard assets of its paperboard packaging segment to a new joint venture with an affiliate of Madison Dearborn Partners, Inc. The contribution of the containerboard assets to the joint venture was completed in April 1999. Tenneco received consideration of cash and debt assumption totaling approximately $2 billion and a 45 percent common equity interest in the joint venture (now 43 percent due to subsequent management equity issuances) valued at approximately $200 million. - In April 1999, Tenneco reached an agreement to sell the paperboard packaging segment's other assets, its folding carton operations, to Caraustar Industries. This transaction closed in June 1999. - Also in April 1999, Tenneco announced that its Board of Directors had approved the separation of its automotive and specialty packaging businesses into two separate, independent companies. - In June 1999, Tenneco's Board of Directors approved a plan to sell Packaging's remaining interest in its containerboard joint venture. Tenneco expects the sale to be completed before the spin-off of the new packaging company discussed below. The containerboard assets contributed to the joint venture represented substantially all of the assets of the paperboard packaging segment and included four mills, 67 corrugated products plants, and an ownership or controlling interest in approximately 950,000 acres of timberland. Before the transaction, Tenneco Packaging borrowed approximately $1.8 billion and used approximately $1.2 billion to acquire assets used by the containerboard business under operating leases and timber cutting rights and to purchase containerboard business accounts receivable that had previously been sold to a third party. The remainder of the borrowings was remitted to Tenneco and used to repay a portion of short-term debt. Tenneco Packaging then contributed the containerboard business assets (subject to the new indebtedness and the containerboard business liabilities) to the joint venture in exchange for $247 million in cash and the 45 percent interest in the joint venture. As a result of the sale transaction, Tenneco recognized a pre-tax loss of $293 million, $178 million after-tax or $1.07 per diluted common share in the first quarter of 1999. As a result of the decision to sell the remaining interest in the containerboard joint venture, Tenneco's paperboard packaging segment is presented as a discontinued operation in the accompanying financial statements. Refer to Note 3 to the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries contained elsewhere in this document for further information. The separation of the automotive and packaging businesses will be accomplished by the spin-off of the common stock of Tenneco Packaging to Tenneco shareowners (the "Spin-off"). At the time of the Spin-off, the new Packaging company will include Tenneco's specialty packaging business, Tenneco's administrative services operations and the remaining interest in the containerboard joint venture if the sale has not been completed. Tenneco and Tenneco Packaging are, however, currently analyzing the alternatives with respect to the administrative services operations. Before the Spin-off, Tenneco will realign substantially all of its existing debt through some combination of tender offers, exchange offers, prepayments, and other refinancings. This debt realignment will be financed by internally generated cash, borrowings by Tenneco under a new credit facility, the issuance by Tenneco of subordinated debt, and borrowings by the new packaging company under a new credit facility. Tenneco currently expects that, subject to discussions with debt rating agencies, the debt of the new Packaging company will be rated investment grade and the debt of the automotive company will be rated non-investment grade. Also before the Spin-off, Tenneco will restructure its existing businesses, assets, and liabilities through a series of corporate restructuring transactions. As Tenneco is currently organized, ownership of its subsidiaries 14 16 is based on geographic location and tax considerations rather than on the businesses in which the subsidiaries are involved. Therefore, Tenneco will need to restructure its existing businesses so that the assets, liabilities, and operations of its packaging business and administrative services operations will be owned by Tenneco Packaging, and the assets, liabilities, and operations of its automotive businesses will be owned by Tenneco. The Spin-off is subject to conditions, including formal declaration of the Spin-off by the Tenneco Board of Directors, a favorable determination that the Spin-off will be tax-free for U.S. federal income tax purposes, and the successful completion of the debt realignment and corporate restructuring transactions. Tenneco has requested a favorable ruling from the Internal Revenue Service on the tax-free nature of the Spin-off. RESULTS OF CONTINUING OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999 AND 1998 NET SALES AND OPERATING REVENUES
SECOND QUARTER ---------------------------- 1999 1998 % CHANGE ------ ------ -------- (MILLIONS) Automotive.......................................... $ 868 $ 864 --% Specialty Packaging................................. 738 731 1 Intergroup sales and other.......................... -- 7 NM ------ ------ $1,606 $1,602 --% ====== ======
Tenneco Automotive's global revenue was $868 million for the second quarter of 1999, essentially flat with the $864 million recorded in the 1998 second quarter. Original equipment revenue increased 10 percent versus the prior year's quarter. Increases were achieved in North America, Europe and Asia/Pacific of $45 million, $6 million and $5 million, respectively as Tenneco Automotive placed its products on 20 new vehicle launches worldwide. Revenue in South America declined by $8 million primarily as a result of a currency devaluation in Brazil and troubled economic conditions in Brazil and Argentina. Worldwide aftermarket revenues declined by $44 million compared to the previous year's second quarter. Revenue declined by $23 million in North America as Tenneco Automotive discontinued some of its aftermarket sales programs and as aftermarket replacement rates declined. In the European market, high customer inventories and economic weakness in Russia and Eastern Europe contributed to lower revenues of $16 million. The decline of $6 million in South America was primarily attributable to the economic conditions in Brazil and Argentina and the currency devaluation in Brazil noted above. Specialty Packaging's revenue increased by 1 percent over last year's second quarter. The second-half 1998 acquisitions of Sentinel and Champion International's Belvidere, Illinois dual-ovenable paperboard tray manufacturing facility generated $10 million of revenue in the current quarter. Excluding these acquisitions, revenue was essentially flat as pricing declined in most products to reflect lower raw material costs. The lower pricing was offset by overall unit volume growth of 6 percent. The largest volume increases were in North American protective packaging, Hefty OneZip(R) bags, food service containers, disposable tableware, and industrial products. INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING INCOME) RESTRUCTURING AND OTHER CHARGES In the fourth quarter of 1998, Tenneco's Board of Directors approved an extensive restructuring plan designed to reduce administrative and operational overhead costs in every part of Tenneco's business. Tenneco recorded a pre-tax charge to income from continuing operations of $86 million, $55 million after-tax or $.33 per diluted common share. Of the pre-tax charge, for operational restructuring plans, $36 million related to the consolidation of the manufacturing and distribution operations of Automotive's North American aftermarket 15 17 business and $10 million was recorded in the Specialty Packaging business. A staff and related cost reduction plan, which covers employees in both the operating units and at corporate, is expected to cost $40 million. The Automotive aftermarket restructuring involves closing two plant locations and five distribution centers, with the elimination of 302 positions at those locations. The Specialty Packaging restructuring plans involve the elimination of production lines at two plants resulting in the elimination of 104 positions. Additionally, Specialty Packaging will exit four joint ventures. The staff and related cost reduction plan involves the elimination of 638 administrative positions in Tenneco's two business units and its corporate operations. The fixed assets at the locations to be closed and for the production lines to be eliminated, as well as the joint venture investments, were written down to their estimated fair value. No significant cash proceeds are expected to be received from the ultimate disposal of these assets. As of June 30, 1999, approximately 902 employees have been terminated. To address customer service issues, the closure of one Automotive aftermarket distribution center has been delayed until the second quarter of 2000. All other restructuring actions are being executed according to the initial plan and are expected to be complete by the fourth quarter of 1999. During the six months ended June 30, 1999, the Automotive aftermarket business closed one plant location and four distribution centers. In the first quarter of 1999, in connection with the sale of the containerboard assets, Tenneco adopted a plan to realign its headquarters functions. This plan involves the severance of approximately 40 employees, and the closing of the Greenwich, Connecticut, headquarters facility. The charge was recorded in Tenneco's "Other" segment in the amount of $29 million pre-tax, $17 million after-tax or $.10 per diluted common share. Assets were written down to net realizable value. Tenneco collected approximately $30 million in the second quarter of 1999 related to the sale of these assets. Amounts related to the restructuring plan are shown in the following table:
SIX MONTHS ENDED JUNE 30, 1999 ------------------------------------- DECEMBER 31, 1998 CHARGED BALANCE AT RESTRUCTURING RESTRUCTURING CASH TO ASSET JUNE 30, CHARGE BALANCE CHARGE PAYMENTS ACCOUNTS 1999 ----------------- ------------- -------- -------- ---------- (MILLIONS) Severance............................ $30 $16 $18 $-- $28 Asset impairments.................... -- 13 -- 13 -- Facility exit costs.................. 2 -- 1 -- 1 --- --- --- --- --- $32 $29 $19 $13 $29 === === === === ===
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST ("OPERATING INCOME")
SECOND QUARTER ------------------------ 1999 1998 % CHANGE ---- ---- -------- (MILLIONS) Automotive............................................. $ 99 $130 (24)% Specialty Packaging.................................... 107 101 6 Other.................................................. (10) (3) NM ---- ---- $196 $228 (14)% ==== ====
Automotive's operating income was $31 million lower for 1999's second quarter than for the comparable period of 1998. The decline was primarily attributable to soft North American and European aftermarkets and a higher level of research and development investment in the European original equipment business. Aftermarket operating income declined by 42 percent compared to 1998's second quarter. Unfavorable currency impacts reduced operating income by $5 million. The balance of the reduction in income was primarily attributable to the lower level of revenue as discussed above. 16 18 Specialty Packaging's operating income increased by $6 million versus the same quarter in the prior year. The second-half 1998 acquisitions of Sentinel and Champion International's Belvidere, Illinois dual-ovenable paperboard tray manufacturing facility contributed $2 million. Also included in the current year's quarter was $3 million of non-recurring Year 2000 remediation costs, and $3 million of overhead costs that Specialty Packaging incurred related to the separation of the Paperboard business. Adjusting for these two items, Specialty Packaging's operating income improved by 12 percent for the quarter. This improvement was primarily driven by lower manufacturing costs as strong unit volumes were offset by a temporary lag in passing through rising raw material costs during the quarter. Tenneco's "Other" operating loss for both periods reflects unallocated corporate overhead and costs at Tenneco's administrative services operations. INTEREST EXPENSE (NET OF INTEREST CAPITALIZED) For the quarter ended June 30, 1998, Tenneco allocated $10 million of pre-tax interest expense to the discontinued paperboard operations. Adjusting for this allocation, interest expense was $7 million lower in the second quarter of 1999 than the comparable period in 1998. The lower interest expense is primarily attributable to debt reduction from the proceeds of the sale of Tenneco's containerboard interest early in the second quarter of 1999. INCOME TAXES Tenneco's effective tax rate for the second quarter of 1999 was 36 percent compared to 31 percent in the second quarter last year. The 1998 second quarter rate was lower as a result of certain non-recurring state tax benefits in that quarter. MINORITY INTEREST Minority interest is primarily composed of dividends on the preferred stock of a U.S. subsidiary. DISCONTINUED OPERATIONS In June 1999, Tenneco's Board of Directors approved a plan to sell Packaging's remaining interest in its containerboard joint venture. Tenneco expects the sale to be completed before the Spin-off. As a result, Tenneco's paperboard packaging operations have been reflected as discontinued operations. Revenues and income for the paperboard packaging discontinued operations are shown in the following table:
THREE MONTHS ENDED JUNE 30, ------------ 1999 1998 ---- ---- Net sales and operating revenues............................ $53 $394 === ==== Income before income taxes and interest allocation.......... $ 4 $ 32 Income tax (expense) benefit................................ (4) (12) --- ---- Income before interest allocation........................... -- 20 Allocated interest expense, net of income tax............... -- (6) --- ---- Income from discontinued operations before disposition...... -- 14 Gain (loss) on disposition, net of income tax............... 9 9 --- ---- Income (loss) from discontinued operations.................. $ 9 $ 23 === ====
CHANGES IN ACCOUNTING PRINCIPLES In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which establishes new accounting and reporting standards for the costs of computer software developed or obtained for internal use. This statement requires prospective application for fiscal years beginning after 17 19 December 15, 1998. Tenneco adopted SOP 98-1 on January 1, 1999. The impact of this new standard did not have a significant effect on Tenneco's financial position or results of operations. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," which requires costs of start-up activities to be expensed as incurred. This statement is effective for fiscal years beginning after December 15, 1998. This statement requires previously capitalized costs related to start-up activities to be expensed as a cumulative effect of a change in accounting principle when the statement is adopted. Prior to January 1, 1999, Tenneco capitalized certain costs related to start-up activities, primarily engineering costs for new automobile original equipment platforms. Tenneco adopted SOP 98-5 on January 1, 1999, and recorded an after-tax charge for the cumulative effect of this change in accounting principle of $102 million (net of a $50 million tax benefit), or $.61 per diluted common share. The change in accounting principle decreased income from continuing operations by $2 million (net of a $1 million tax benefit), or $.01 per diluted common share for the six months ended June 30, 1999. If the new accounting method had been applied retroactively, income from continuing operations for the six months ended June 30, 1998, would have been lower by $13 million (net of an $8 million tax benefit), or $.08 per diluted common share. The change in accounting principle had no impact on the three months ended June 30, 1999. If the new accounting method had been applied retroactively, income from continuing operations for the three months ended June 30, 1998, would have been lower by $6 million (net of a $4 million tax benefit), or $.04 per diluted common share. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new accounting and reporting standards requiring that all derivative instruments (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. This statement cannot be applied retroactively and is effective for all fiscal years beginning after June 15, 2000. Tenneco is currently evaluating the new standard but has not yet determined the impact it will have on its financial position or results of operations. Effective January 1, 1999, Tenneco changed its method of accounting for customer acquisition costs from a deferral method to an expense-as-incurred method. In connection with Tenneco's decision to separate its automotive and specialty packaging businesses into independent public companies, Tenneco determined that a change to an expense-as-incurred method of accounting for automotive aftermarket customer acquisition costs was preferable in order to permit improved comparability of stand-alone financial results with its aftermarket industry competitors. Tenneco recorded an after-tax charge for the cumulative effect of this change in accounting principles of $32 million (net of a $22 million tax benefit), or $.19 per diluted common share. The change in accounting principle increased income from continuing operations by $5 million (net of $4 million in income tax expense), or $.03 per diluted common share for the six months ended June 30, 1999. If the new accounting principle had been applied retroactively, income from continuing operations for the six months ended June 30, 1998, would have been lower by $2 million (net of a $1 million tax benefit), or $.01 per diluted common share. For the three months ended June 30, 1999, the change in accounting principle increased income from continuing operations by $2 million (net of $2 million in income tax expense), or $.01 per diluted common share. If the new accounting principle had been applied retroactively, income from continuing operations for the three months ended June 30, 1998, would have been higher by $2 million (net of $2 million in income tax expense), or $.01 per diluted common share. EARNINGS PER SHARE Income from continuing operations was $.50 per diluted common share for the second quarter of 1999, compared to $.67 per diluted common share for last year's quarter. Discontinued operations generated income of $.05 per diluted common share during this year's quarter compared to income of $.14 per diluted common 18 20 share for the prior year's quarter. Net income was $.55 per diluted common share for the second quarter of 1999, compared to $.81 per diluted common share in last year's quarter. RESULTS OF CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 NET SALES AND OPERATING REVENUES
SIX MONTHS ENDED JUNE 30, ---------------------------- 1999 1998 % CHANGE ------ ------ -------- (MILLIONS) Automotive.......................................... $1,657 $1,664 --% Specialty Packaging................................. 1,404 1,361 3 Intergroup sales and other.......................... -- 10 NM ------ ------ $3,061 $3,035 1% ====== ======
Tenneco Automotive's global revenue was $1,657 million for the first half of 1999, essentially flat with the $1,664 million recorded in the comparable period of 1998. Original equipment revenue increased 9 percent versus the first half of the prior year. Increases were achieved in North America, Europe and Asia/Pacific of $65 million, $31 million and $6 million, respectively as Tenneco Automotive continued to place its products on many of the world's best selling vehicles, including the top 10 selling light trucks and sport utility vehicles in North America. Revenue in South America declined by $15 million primarily as a result of troubled economic conditions in Brazil and Argentina and a currency devaluation in Brazil. Worldwide aftermarket revenues declined by $94 million compared to the previous year's first half. Decreases of $57 million in North America and $26 million in Europe were primarily attributable to overall softness during the quarter while North America was further impacted by a reduction in customer incentive programs. The decline of $13 million in South America was primarily attributable to the economic conditions in Brazil and Argentina and the currency devaluation in Brazil noted above. Specialty Packaging's revenue increased by 3 percent over the first half of 1998. The second-half 1998 acquisitions of Sentinel and Champion International's Belvidere, Illinois dual-ovenable paperboard tray manufacturing facility generated $21 million of the revenue increase. Lower prices due to lower raw material costs were offset by overall unit volume growth of 8 percent. The largest increases were in North American protective packaging, Hefty OneZip(R) bags, foodservice containers, disposable tableware and industrial products. OPERATING INCOME
SIX MONTHS ENDED JUNE 30, ---------------------------- 1999 1998 % CHANGE ---- ---- -------- (MILLIONS) Automotive........................................... $156 $219 (29)% Specialty Packaging.................................. 190 175 9 Other................................................ (50) (14) NM ---- ---- $296 $380 (22)% ==== ====
Automotive's operating income was $63 million lower for 1999's first half than for the comparable period of 1998. Original equipment operating income was down 14 percent from 1998's first half. Higher costs related to a first quarter 1999 change in accounting for platform start-up costs from a capitalization to an expense basis and unfavorable currency impacts lowered income by $4 million and $6 million, respectively. The balance of the decline in original equipment income was attributable to pricing actions and product mix. Aftermarket operating income declined by 46 percent compared to 1998's first half. Unfavorable currency impacts reduced income by $6 million. The balance of the reduction in income was attributable to the lower level of revenue as discussed above. 19 21 Specialty Packaging's operating income increased by $15 million over the comparable period of 1998. The second half acquisitions of Sentinel and Champion International's Belvidere, Illinois dual-ovenable paperboard tray manufacturing facility produced $4 million during the first half of 1999. First half operating income also reflected $5 million of non-recurring Year 2000 and systems implementation costs, and $3 million of overhead costs related to the separation of the Paperboard business. Adjusting for these two items, Specialty Packaging's operating income improved by 13 percent. This improvement was driven by lower manufacturing costs and strong unit volumes partially offset by lags in passing through rising raw material costs. Tenneco's "Other" operating loss for both periods reflects unallocated corporate overhead and costs at Tenneco's data center and administrative service center operations. In addition, the first half of 1999 includes a $29 million charge recorded in the first quarter to realign Tenneco's headquarters functions as discussed above in the Restructuring and Other Charges section. INTEREST EXPENSE (NET OF INTEREST CAPITALIZED) For the six months ended June 30, 1998, Tenneco allocated $20 million in interest expense to the discontinued paperboard operations. For the comparable period in 1999, $8 million in interest expense was allocated to discontinued operations. Including the allocations, interest expense was the same in the first six months of 1998 and 1999. The second quarter 1999 interest savings generated from the use of the proceeds from the sale of the containerboard business was offset by borrowings made since June 30, 1998 to finance capital expenditures, acquisitions, net share repurchases and other investments which were in excess of cash provided by operations. INCOME TAXES Tenneco's effective tax rate for the first half of 1999 was 36 percent compared to 33 percent in the first half of last year. The 1998 first half rate was lower as a result of certain non-recurring state tax benefits. MINORITY INTEREST Minority interest is primarily composed of dividends on the preferred stock of a U.S. subsidiary. The $2 million favorable variance versus last year's first half, however, is primarily attributable to lower earnings in Tenneco Automotive's joint venture. DISCONTINUED OPERATIONS In June 1999, Tenneco's Board of Directors approved a plan to sell Packaging's remaining interest in its containerboard joint venture. Tenneco expects the sale to be completed before the Spin-off. As a result, Tenneco's paperboard packaging operations have been reflected as discontinued operations. Revenues and income for the paperboard packaging discontinued operations are shown in the following table:
SIX MONTHS ENDED JUNE 30, -------------- 1999 1998 ------ ----- Net sales and operating revenues............................ $ 445 $770 ===== ==== Income before income taxes and interest allocation.......... $ 22 $ 66 Income tax (expense) benefit................................ (11) (26) ----- ---- Income before interest allocation........................... 11 40 Allocated interest expense, net of income tax............... (5) (12) ----- ---- Income from discontinued operations before disposition...... 6 28 Gain (loss) on disposition, net of income tax............... (169) 9 ----- ---- Income (loss) from discontinued operations.................. $(163) $ 37 ===== ====
20 22 EARNINGS PER SHARE Income from continuing operations was $.63 per diluted common share for the first half of 1999, compared to $1.03 per diluted common share in the same period last year. Discontinued operations generated a loss of $.98 per diluted common share during the first 6 months of 1999 compared to income of $.22 per diluted common share for the prior year period. The current year period also included a $.04 per diluted common share extraordinary loss on early retirement of debt in connection with the sale of the containerboard assets, and $.80 per diluted common share of charges related to the cumulative effect of changes in accounting principles noted above. Net loss was $1.19 per diluted common share for the first half of 1999, compared to net income of $1.25 per diluted common share in the comparable period of 1998. LIQUIDITY AND CAPITAL RESOURCES CAPITALIZATION
JUNE 30, DECEMBER 31, 1999 1998 % CHANGE -------- ------------ -------- (MILLIONS) Short-term debt and current maturities.......... $ 573 $ 900 Long-term debt.................................. 2,326 1,983 Debt allocated to discontinued operations....... -- 548 ------ ------ Total debt...................................... 2,899 3,431 (15)% Minority interest............................... 425 421 1 Common shareowners' equity...................... 2,122 2,504 (15) ------ ------ Total capitalization.................. $5,446 $6,356 (14)% ====== ======
Tenneco's debt to capitalization ratio was 53.2 percent at June 30, 1999, compared to 54.0 percent at December 31, 1998. The decrease in the ratio is attributable to lower debt resulting from the use of the proceeds from the April 1999 containerboard transaction to reduce short-term debt. The effect on the ratio of the debt reduction was, however, partially offset by an equity decline. The equity decline resulted from the net loss for the first six months of 1999 of $199 million, common stock dividends of $100 million, and adverse changes in the cumulative translation adjustment of $103 million. Tenneco issued $20 million in common stock during the six month period for employee benefit and dividend reinvestment plans. Following Tenneco's series of announcements regarding its strategic alternatives, Standard and Poor's and Moody's debt rating agencies are continuing to review the ratings on Tenneco's debt pending further information about the debt profile of the new companies. In consideration of the rating agency actions and the requirement to realign Tenneco's long-term debt to accomplish the Spin-off, Tenneco continues to finance its requirements with short-term debt. Tenneco believes that its existing committed credit facility is adequate to meet its 1999 capital requirements, including scheduled long-term debt retirements of $250 million. Additional credit facilities will be required in order to accomplish the debt realignment. Tenneco believes it can obtain the necessary credit arrangements to complete the debt realignment at commercially reasonable rates. 21 23 CASH FLOWS
SIX MONTHS ENDED JUNE 30, --------------- 1999 1998 ------ ----- (MILLIONS) Cash provided (used) by: Operating activities...................................... $ (181) $ 178 Investing activities...................................... (965) (314) Financing activities...................................... 1,170 125
OPERATING ACTIVITIES Cash flow provided by continuing operating activities declined by $189 million for the first six months of 1999 compared to the comparable 1998 period. Tenneco invested $106 million more in working capital for the six months ended June 30, 1999 compared to the 1998 period. This was attributable to increased receivables, a seasonal build in inventories, and higher tax payments during the 1999 period. A lower level of income before non-cash charges for depreciation and deferred income taxes and gains on asset sales accounted for the majority of the remaining change. Cash provided by Tenneco's discontinued paperboard operations declined by $170 million in the first six months of 1999 compared to the 1998 period. This is primarily attributable to the purchase of containerboard business accounts receivable in contemplation of the sale of the containerboard business in April. Additionally, lower linerboard and medium prices resulted in lower operating cash flow for the containerboard business. INVESTING ACTIVITIES Excluding the effects of the discontinued paperboard operations, cash used by investing activities was lower during the first six months of 1999 by $121 million compared to the first six months of 1998. Reduced capital spending, lower systems related expenditures and lower acquisition activity contributed to the decline. During the second quarter of 1999, Tenneco acquired for approximately $1.1 billion certain assets previously used by the containerboard business under operating leases and timber cutting rights. This was required in order to complete the April containerboard sale. The source of the funds for these capital expenditures was borrowings by Tenneco Packaging prior to the containerboard sale. See "Financing Activities" below. Tenneco also received approximately $300 million in proceeds related to the containerboard and folding carton sale transactions. FINANCING ACTIVITIES Absent the borrowings required to complete the containerboard sale transaction, cash used by financing activities was $590 million for the first six months of 1999. This primarily reflected the use of the net proceeds of the containerboard sale transaction to reduce Tenneco's short-term debt. Before the containerboard sale transaction, Tenneco Packaging borrowed approximately $1.8 billion. These borrowings were used to acquire the assets used under operating leases and timber cutting rights described under "Investing Activities" above, and to purchase the containerboard business accounts receivable described under "Operating Activities" above. Tenneco Packaging remitted the balance of the borrowings to Tenneco to retire short-term debt. Tenneco Packaging contributed the containerboard business to the new joint venture subject to the approximately $1.8 billion in new debt. The debt reduction which resulted from this contribution is shown on the Statements of Cash Flows as a non-cash financing activity. YEAR 2000 Many computer software systems, as well as some hardware and equipment utilizing date-sensitive data, were designed to use a two-digit date field. Consequently, these systems will not be able to properly recognize 22 24 dates beyond the year 1999 ("the Year 2000 issue"). Tenneco's significant technology transformation projects have addressed the Year 2000 issue in those areas where replacement systems are being installed for other business reasons. Where existing systems and equipment are expected to remain in place beyond 1999, Tenneco has a detailed process in place to identify and assess Year 2000 issues and to remediate, replace or establish alternative procedures addressing non-Year 2000 compliant systems, hardware, and equipment. Tenneco has substantially completed inventorying its systems and equipment, including computer systems and business applications, as well as date-sensitive technology embedded in its equipment and facilities. Tenneco continues to plan for and undertake remediation, replacement, or establishment of alternative procedures for non-compliant Year 2000 systems and equipment; and test remediated, replaced or alternative procedures for systems and equipment. Tenneco believes that approximately 85 percent of its major business applications systems and approximately 90 to 95 percent of its manufacturing equipment had achieved Year 2000 compliance as of June 30, 1999. Tenneco has confirmed that none of its products are date-sensitive. Remediation, replacement, or establishment of alternative procedures for systems and equipment have been and are being undertaken on a business priority basis. This is ongoing and was completed at some locations in 1998 with the remainder to be completed through the third quarter of 1999. Testing will occur in the same time frame. Tenneco has also contacted its major suppliers, financial institutions, and others with whom it conducts business to determine whether they will be able to resolve in a timely manner Year 2000 problems possibly affecting Tenneco. A majority of these entities, including all critical suppliers, have responded by advising as to the status of their efforts to become Year 2000 compliant. This process is ongoing. Tenneco intends to continue corresponding with critical high risk third parties to obtain updates on their Year 2000 efforts and to assess new suppliers, financial institutions and others with whom it begins to conduct business. Based upon current estimates, Tenneco believes that costs to address Year 2000 issues and implement necessary changes to its existing systems and equipment, including costs incurred to date, will range from $40 to $50 million. As of June 30, 1999, approximately $30 million of the costs had been incurred. These costs are being expensed as they are incurred, except that in some instances Tenneco may determine that replacing existing computer systems or equipment may be more effective and efficient, particularly where additional functionality is available. These replacements would be capitalized and would reduce the estimated expense associated with Year 2000 issues. If Tenneco is unable to complete on a timely and cost-effective basis the remediation or replacement of critical systems or equipment not yet in compliance, or develop alternative procedures, or if those with whom Tenneco conducts business are unsuccessful in implementing timely solutions, Year 2000 issues could have a material adverse effect on Tenneco's financial condition or results of operations. Possible worst case scenarios include interruptions in Tenneco's ability to manufacture its products, process and ship orders, and bill and collect accounts receivable due to internal systems failures or the systems failures of its suppliers or customers. Tenneco believes it will be able to timely resolve its own Year 2000 issues. As part of its planning and readiness activities, Tenneco is developing Year 2000 contingency plans for critical business processes such as banking, data center operations and just-in-time manufacturing operations. Contingency plans are being developed on a business unit basis, where needed, to respond to previously undetected Year 2000 problems and business interruption from suppliers. Contingency plans will include alternative suppliers, as necessary, and assuring the availability of key personnel at year end to address unforeseen Year 2000 problems. EURO CONVERSION The European Monetary Union resulted in the adoption of a common currency, the "Euro," among eleven European nations. The Euro is being adopted over a three-year transition period beginning January 1, 1999. In October 1997, Tenneco established a cross-functional Euro Committee, comprised of representatives of the Company's operational divisions as well as its corporate offices. That Committee had two principal objectives: (i) to determine the impact of the Euro on the Company's business operations, and (ii) to 23 25 recommend and facilitate implementation of those steps necessary to ensure that Tenneco would be fully prepared for the Euro's introduction. As of January 1, 1999, Tenneco implemented those Euro conversion procedures that it had determined to be necessary and prudent to adopt by that date, and is on track to becoming fully "Euro ready" on or before the conclusion of the three-year Euro transition period. Tenneco believes that the costs associated with transitioning to the Euro will not be material to its consolidated financial position or the results of its operations. 24 26 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS The Annual Meeting of Shareowners of the Company was held on May 11, 1999. 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 included: (a) Elections of directors for a term to expire at the year 2002 Annual Meeting of Shareowners:
FOR WITHHELD ----------- --------- Sir David Plastow..................................... 143,386,811 7,277,866 Paul T. Stecko........................................ 146,580,861 4,083,836
(b) To approve the appointment of Arthur Andersen LLP as independent public accountants for Tenneco Inc. for the year 1999:
FOR AGAINST ABSTAINED BROKER NON-VOTE - --------------------- --------- --------- --------------- 148,996,255 1,120,390 583,699 -0-
(c) To approve of a stockholder proposal concerning the election of the Board of Directors:
FOR AGAINST ABSTAINED BROKER NON-VOTE - --------------------- ---------- --------- --------------- 80,473,124 55,265,742 1,758,134 13,203,344
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The exhibits filed herewith are listed in the exhibit index which follows the signature page and immediately precedes the exhibits filed. (b) Reports on Form 8-K. On April 27, 1999, the Company filed a Current Report on Form 8-K to report the contribution of the containerboard assets of its paperboard packaging segment to a new joint venture with an affiliate of Madison Dearborn Partners, Inc. 25 27 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 3, 1999 26 28 EXHIBITS The following exhibits are filed with Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, or incorporated therein by reference (exhibits designated by an asterisk are filed with the Report; all other exhibits are incorporated by reference):
EXHIBIT NUMBER DESCRIPTION - --------- ----------- 2 -- None. 3.1(a) -- Restated Certificate of Incorporation of Tenneco Inc. dated December 11, 1996 (incorporated herein by reference from Exhibit 3.1(a) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). 3.1(b) -- Certificate of Amendment, dated December 11, 1996 (incorporated herein by reference from Exhibit 3.1(c) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). 3.1(c) -- Certificate of Ownership and Merger, dated July 8, 1997 (incorporated herein by reference from Exhibit 3.1(d) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). 3.1(d) -- Certificate of Designation of Series B Junior Participating Preferred Stock dated September 9, 1998 (incorporated herein by reference from Exhibit 3.1(d) of Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-12387). 3.1(e) -- Certificate of Elimination of the Series A Participating Junior Preferred Stock of Tenneco Inc. dated September 11, 1998 (incorporated herein by reference from Exhibit 3.1(e) of Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-12387). 3.2 -- Amended By-laws of Tenneco Inc. (incorporated herein by reference from Exhibit 3.2 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12387). 4.1 -- Form of Specimen Stock Certificate of Tenneco Inc. Common Stock (incorporated herein by reference from Exhibit 4.1 of Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-12387). 4.2 -- Qualified Offer Plan Rights Agreement dated as of September 8, 1998, by and between Tenneco Inc. and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference from Exhibit 4.1 of Tenneco Inc.'s Current Report on Form 8-K dated September 24, 1998, File No. 1-12387). 4.3(a) -- Indenture, dated as of November 1, 1996, between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.1 of Tenneco Inc.'s Form S-4, Registration No. 333-14003). 4.3(b) -- First Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(b) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.3(c) -- Second Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(c) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387).
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EXHIBIT NUMBER DESCRIPTION - --------- ----------- 4.3(d) -- Third Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(d) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.3(e) -- Fourth Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(e) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.3(f) -- Fifth Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(f) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.3(g) -- Sixth Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(g) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.3(h) -- Seventh Supplemental Indenture dated as of December 11, 1996 to Indenture dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.3(h) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 4.3(i) -- Eighth Supplemental Indenture, dated as of April 28, 1997, to Indenture, dated as of November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.1 of Tenneco Inc.'s Current Report on Form 8-K dated April 23, 1997, File No. 1-12387). 4.3(j) -- Ninth Supplemental Indenture, dated as of April 28, 1997, to Indenture, dated as of November 1, 1996, between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.2 of Tenneco Inc.'s Current Report on Form 8-K dated April 23, 1997, File No. 1-12387). 4.3(k) -- Tenth Supplemental Indenture, dated as of July 16, 1997, to Indenture, dated as of November 1, 1996, between Tenneco Inc. (formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee (incorporated herein by reference from Exhibit 4.1 of Tenneco Inc.'s Current Report on Form 8-K dated June 11, 1997, File No. 1-12387). 4.3(l) -- Registration Rights Agreement dated as of August 28, 1998 by and between Tenneco Inc. and Dana G. Mead, Theodore R. Tetzlaff, Paul T. Stecko and Robert T. Blakely, not individually but solely as trustees under that certain Tenneco Inc. Rabbi Trust dated as of August 28, 1998 (incorporated herein by reference from Exhibit 4.3(l) of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12387). 9 -- None. 10.1 -- Distribution Agreement, dated November 1, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 2 of Tenneco Inc.'s Form 10, File No. 1-12387).
28 30
EXHIBIT NUMBER DESCRIPTION - --------- ----------- 10.2 -- Amendment No. 1 to Distribution Agreement, dated as of December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.2 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.3 -- Debt and Cash Allocation Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.3 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.4 -- Benefits Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.4 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.5 -- Insurance Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.), and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.5 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.6 -- Tax Sharing Agreement, dated December 11, 1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Newport News Shipbuilding Inc., Tenneco Inc. (formerly New Tenneco Inc.), and El Paso Natural Gas Company (incorporated herein by reference from Exhibit 10.6 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.7 -- First Amendment to Tax Sharing Agreement, dated as of December 11, 1996 among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco Inc.) and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.7 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.8 -- Transition Services Agreement, dated June 19, 1996, by and among, Tenneco Business Services, Inc., El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.) and El Paso Natural Gas Company (incorporated herein by reference from Exhibit 10.8 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.9 -- Trademark Transition License Agreement, dated December 11, 1996, by and between Newport News Shipbuilding Inc. and Tenneco Inc. (formerly New Tenneco Inc.) (incorporated herein by reference from Exhibit 10.9 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.10 -- Trademark Transition License Agreement, dated December 11, 1996, by and between Tenneco Inc. (formerly New Tenneco Inc.) and El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.) (incorporated herein by reference from Exhibit 10.10 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-12387). 10.11 -- 1997 Tenneco Inc. Board of Directors Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.11 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). 10.12 -- Executive Incentive Compensation Plan (incorporated herein by reference from Exhibit 10.12 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). 10.13 -- Tenneco Inc. Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.13 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387).
29 31
EXHIBIT NUMBER DESCRIPTION - --------- ----------- *10.14 -- Amended and Restated Tenneco Inc. Supplemental Executive Retirement Plan. 10.15 -- Amended and Restated Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives (incorporated herein by reference from Exhibit 10.16 of Tenneco's Form 10, File No. 1-12387). 10.16 -- Amended and Restated Tenneco Benefits Protection Trust (incorporated herein by reference from Exhibit 10.18 of Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter ended 3/31/98, File No. 1-12387). 10.17 -- Employment Agreement, dated March 12, 1992 between Dana G. Mead and Tenneco Inc. (incorporated herein by reference from Exhibit 10.19 of Tenneco's Form 10, File No. 1-12387). 10.18 -- Employment Agreement, dated December 3, 1993 between Paul T. Stecko and Tenneco Packaging Inc. (incorporated herein by reference from Exhibit 10.20 of Tenneco's Form 10, File No. 1-12387). 10.19 -- Agreement, dated September 9, 1992 between Theodore R. Tetzlaff and Tenneco Inc. (incorporated herein by reference from Exhibit 10.21 of Tenneco's Form 10, File No. 1-12387). 10.20 -- 1996, Tenneco Inc. Stock Ownership Plan, as amended (incorporated herein by reference from Exhibit 10.11 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12387). 10.21 -- Professional Services Agreement, dated August 22, 1996, by and between Tenneco Business Services Inc. and Newport News Shipbuilding Inc. (incorporated herein by reference from Exhibit 10.28 of Tenneco Inc.'s Form 10, File No. 1-12387). 10.22 -- Tenneco Inc. Rabbi Trust (incorporated herein by reference from Exhibit 10.22 of Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-12387). *10.23 -- Tenneco Inc. Rabbi Trust Appointment of Successor Trustee dated May 31, 1999. 10.24 -- Letter Agreement dated September 24, 1998 between Robert T. Blakely and Tenneco Inc. (incorporated herein by reference from Exhibit 10.23 of Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-12387). 10.25 -- Letter Agreement dated September 24, 1998 between John J. Castellani and Tenneco Inc. (incorporated herein by reference from Exhibit 10.28 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12387). *10.26 -- Tenneco Benefits Protection Trust Appointment of Successor Trustee dated May 31, 1999. 10.27 -- Contribution Agreement, dated as of January 25, 1999, among Tenneco Packaging Inc., PCA Holdings LLC, and Packaging Corporation of America (incorporated herein by reference from Exhibit 10.30 of Tenneco Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12387). 10.28 -- Letter Agreement (the "Letter Agreement"), dated as of April 12, 1999, among Tenneco Packaging Inc., PCA Holdings LLC and Packaging Corporation of America, amending the Contribution Agreement (incorporated herein by reference from Exhibit 10.31 of Tenneco Inc.'s Current Report on Form 8-K dated April 12, 1999, File No. 1-12387). 10.29 -- Stockholders Agreement, as amended, dated as of April 12, 1999, among Tenneco Packaging Inc., PCA Holdings LLC and Packaging Corporation of America (incorporated herein by reference from Exhibit 10.32 of Tenneco Inc.'s Current Report on Form 8-K dated April 12, 1999, File No. 1-12387). 10.30 -- Registration Rights Agreement, as amended, dated as of April 12, 1999, among Tenneco Packaging Inc., PCA Holdings LLC and Packaging Corporation of America (incorporated herein by reference from Exhibit 10.33 of Tenneco Inc.'s Current Report on Form 8-K dated April 12, 1999, File No. 1-12387).
30 32
EXHIBIT NUMBER DESCRIPTION - --------- ----------- 10.31 -- Agreement, dated as of April 12, 1999, among Tenneco Inc., Tenneco Management Company, Tenneco Packaging Inc., and Paul T. Stecko. (incorporated herein by reference from Exhibit 10.30 of Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 1-12387). 11 -- None. *12 -- Computation of Ratio of Earnings to Fixed Charges. 18 -- None. 22 -- None. 23 -- None. 24 -- None. *27.1 -- Financial Data Schedule for the six months ended June 30, 1997. *27.2 -- Financial Data Schedule, as reclassified where appropriate, for the six months ended June 30, 1998. 28 -- None. 99 -- None.
- ------------------------- Note: Exhibits designated by an asterisk are filed with this Report; all others are incorporated by reference. 31 33 [TENNECO LOGO] EX-10.14 2 AMENDED/RESTATED SUPP. EXECUTIVE RETIREMENT PLAN 1 EX-10.14 TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (As Amended and Restated Generally Effective as of January 1, 1997) PURPOSE ------- The Tenneco Inc. Supplemental Executive Retirement Plan (the "Plan") is maintained by Tenneco Inc. (the "Company") as an unfunded plan for the purpose of providing retirement benefits with respect to certain employees that are equal to retirement benefits lost under the Tenneco Inc. Retirement Plan (the "Retirement Plan" or the "TRP") as a result of the imposition of the limitations contained in the Internal Revenue Code of 1986, as amended (the "Code"). The portion of the Plan that provides for benefits limited by Code Section 415 is maintained as an "excess benefit plan" as described in Section 3(36) of the Employee Retirement Income Security Act of 1974 as amended ("ERISA"). The other benefits provided for under the Plan are only available to a "select group of management or highly compensated employees" as determined by the Tenneco Benefits Committee, and the portion of the Plan providing such benefits is intended to satisfy the ERISA exemption requirements for a plan limited to such a group. THE PLAN -------- 1. Effective Date -------------- The effective date of this amendment and restatement of the Plan is January 1, 1997. The benefit entitlement, if any, under the Plan or under the Tenneco Inc. Benefit Equalization Plan (the "BEP"), which has been merged into this Plan, of any person who separated from service prior to that date shall be governed by the provisions of the Plan or the BEP as either was in effect from time to time prior to that date. 2. Eligibility ----------- An employee shall be eligible for benefits under this Plan if the employee is a participant in the Retirement Plan or is provided a benefit under Section 11 hereof. 3. Amount of Benefit ----------------- The benefit payable under this Plan to a Participant, or to the Participant's Eligible Spouse, Eligible Child(ren), joint annuitant or other beneficiary(ies), all as determined under the provisions of the Retirement Plan, shall equal the excess, if any, of (a) over (b) where: (a) is the benefit that would be paid under the Retirement Plan if the provisions of the Retirement Plan were administered without regard to the limitations imposed by the Code and, only with respect to Participants who, at any time, were participants in the Tenneco Inc. Executive Incentive Compensation Plan ("EICP"), if Final Average Compensation, as computed under the Retirement Plan, were determined on the basis of compensation paid during the three calendar years (of the five calendar year period ending no later than the calendar year immediately preceding his or her termination or retirement) for which such compensation is the highest, and increased by the quotient of (i) the total of the cash bonuses, as defined below, paid to the Participant in the three calendar years (during the -1- 2 same five calendar year period ending no later than the calendar year immediately preceding his or her termination or retirement) for which such total is the highest, divided by (ii) three or such lesser number of calendar years (included in such period) in which such bonuses were paid to the Participant; provided, that the calendar year including his or her termination or retirement shall be included if such event follows the payment of regular bonuses for that year; and provided, that bonuses and salary, respectively, deferred at the election of the Participant shall be counted only in the year that they would have been paid absent such election, and provided further, that, effective with respect to bonuses that relate to the period on and after January 1, 1998, the foregoing language shall be applied to count bonuses which relate to a calendar year as paid in that year, for example, 1998 bonuses will be counted in 1998 notwithstanding the fact that they are actually paid in 1999; and (b) is the benefit that is payable under the Retirement Plan. Notwithstanding the foregoing, if, except as otherwise provided in writing, an employee is granted credit for purposes of benefit accrual under the Retirement Plan for service rendered prior to the time that the employee became a participant in the Retirement Plan, such employee shall be credited with such service under this Plan only if and to the extent determined by the Tenneco Benefits Committee. Unless otherwise provided in writing, no benefit shall be payable under the Plan unless a benefit also is payable under the Retirement Plan. Cash bonus means only cash bonuses paid under the EICP and the cash special bonuses paid in January 1997. 4. Form of Benefit --------------- Any benefit under this Plan shall be paid in the same form and manner as the benefit payments made to, or with respect to, the Participant under the TRP. Notwithstanding the preceding sentence, no benefit is payable hereunder prior to 60 days after the Participant has separated from service, unless the Tenneco Benefits Committee so determines. Prior to the commencement of benefits but, in no event later than 24 months after the Participant has separated from service, and only with respect to a Participant or beneficiary who at any time was a participant in the EICP, such Participant or beneficiary may elect, but only with the approval of the Tenneco Benefits Committee, to receive payment of such benefit in the form of a lump sum or annuity, provided that in cases where a Participant has chosen a lump sum and the exact amount of a Participant's benefit cannot be determined by the date elected for payment, a preliminary lump sum shall be paid with respect to amounts that can be clearly ascertained then, with the remainder to be issued in a subsequent lump sum when that amount is exactly determined by the Tenneco Benefits Committee or its delegee. In addition, with respect to all Plan participants, if the benefit payable from this Plan (expressed as an age 65 life annuity) would be less than $50 per month, the benefit payable from this Plan automatically shall be paid as a lump sum. The actuarial factors set forth in the TRP shall be used to compute benefits hereunder, provided that, for purposes of any lump sum payment that may be payable under the Plan, the interest rate used shall be the annual rate of interest on 30-year Treasury securities as specified by the IRS for the second calendar month preceding the first day of the Plan Year during which the annuity starting date occurs, and the applicable mortality table described in Rev. Rul. 95-6, 1995-1 C.B. (page 80), or in such other formal guidance as may be issued from time to time by the IRS. -2- 3 5. Unfunded Plan ------------- This Plan shall be maintained as an unfunded non-qualified deferred compensation plan. All benefits under this Plan shall be payable from the general assets of Tenneco Inc. No person shall be entitled to receive any benefits under this Plan from the funds of the Retirement Plan. 6. No Assignment ------------- No benefit under this Plan shall be assignable or alienable or subjected, by attachment or otherwise, to the claims of creditors of any person. 7. No Guarantee of Employment -------------------------- This Plan shall not be construed to give any Participant the right to be retained in the employment of Tenneco Inc. or any of its affiliates. 8. Operation and Administration ---------------------------- This Plan shall be operated under the direction of the Compensation and Benefits Committee of the Board of Directors of Tenneco Inc. and administered by the Tenneco Benefits Committee. The Tenneco Benefits Committee's decision in all matters involving the interpretation and application of this Plan shall be final and binding. The Tenneco Benefits Committee shall establish a claims procedure which is consistent with the claims procedure employed under the TRP. 9. Governing Law ------------- To the extent not preempted by federal law, this Plan shall be construed, administered and enforced in accordance with the laws of the State of Delaware. 10. Amendment and Discontinuance ---------------------------- Tenneco Inc. expects to continue this Plan indefinitely but reserves the right, by action of the Compensation and Benefits Committee of its Board of Directors, to amend or discontinue it. However, no such amendment or discontinuance shall impair or adversely affect any benefits accrued under this Plan as of the date of such action. -3- 4 11. Special Appendix ---------------- The Company may from time to time determine to provide certain persons additional supplemental pension benefits, which may be reflected in a Special Appendix hereto or in such other document as the Company shall determine. References in a Special Appendix or such other document to the "Plan" are to this Plan. IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing, Tenneco Inc., a Delaware corporation, has caused these presents to be duly executed in its name and behalf by its proper officers thereunto duly authorized this 9th day of September, 1998. TENNECO INC. By: /s/ Barry R. Schuman ---------------------------------------- Its: Senior Vice President - Human Resources -4- 5 MEAD SPECIAL APPENDIX TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN") This Special Appendix sets forth certain special provisions of the Plan with respect to the benefits of Dana G. Mead ("Mead"). 1. Mead shall be entitled to monthly pension benefits in the amount determined under Section 2 hereof commencing on the first day of the calendar month immediately following the termination of his employment with the Tenneco Management Company (the "Company"). 2. The monthly pension benefits to which Mead shall be entitled shall be equal to the greater of (a) or (b), where (a) equals the benefits to which Mead would be entitled under the Tenneco Inc. Retirement Plan (the "TRP") and this Plan, computed using Final Average Earnings, as defined in Section 3 hereof, and Years of Credited Service, as defined in Section 4 hereof, and substituting the rules of Sections 1, 5 and 6 hereof for the generally applicable rules of such plans; and (b) equals 2.48% of Mead's Final Average Earnings, as defined in Section 3 hereof, times his Years of Credited Service, as defined in Section 4 hereof, and substituting the rules of Sections 1, 5 and 6 hereof for the generally applicable rules of such plans. 3. "Final Average Earnings" means the quotient of (i) Mead's Earnings, as defined below, for the 3 calendar years in which his Earnings were the highest in the 5 consecutive calendar year period ending prior to his termination of employment, divided by (ii) 36. "Earnings" means regular base salary plus Executive Incentive Compensation Plan bonus earned (regardless of when paid) with respect to that period. 4. "Years of Credited Service" means the total of (i) 14 2/3 plus (ii) Mead's Actual Tenneco Service, as defined below. "Actual Tenneco Service" means the period, in whole years and fractions thereof with each month or portion thereof counting as one-twelfth of one year, from April 1, 1992 through the date of Mead's termination of employment with the Company. 5. The benefits provided hereunder shall be paid in the joint and 50% survivor form of annuity if Mead is married at the time benefits are to commence -- i.e., to Mead for life and, after his death, 50% of the monthly amount payable during Mead's life continuing to the spouse, if any, to whom he was legally married at the date of the commencement of payment of benefits hereunder and to whom he was so married on the date of his death. There shall be no reduction in the amount of the benefits payable during Mead's life on account of payment in the joint and 50% survivor form. The benefits provided hereunder shall be paid in the life only form of annuity if Mead is not married at the time that benefit 6 payments are to commence. Subject to the rules stated in the immediately following paragraph, Mead may elect to receive such benefits in another form which is the actuarial equivalent of the normal form of benefit specified above for his marital status at the time in question. At Mead's election, the Company will purchase and distribute to him an annuity contract issued by an insurance company acceptable to Mead to provide such benefits. If his termination of employment is effective after he attains age 62 or earlier with the consent of the Company, Mead may elect to receive such benefits in the form of a lump sum distribution. If a lump sum distribution is elected, it shall be computed under the assumptions then in use with respect to the TRP, or its successor; provided, that in no event shall the interest assumption be greater than the Pension Benefit Guaranty Corporation immediate annuity interest rate in effect as of January 1 of the year in which the payment is to be made, and provided further that the mortality table shall be no less favorable to Mead or his Beneficiary than the 1983 group annuity table, 50% male, 50% female mix. Mead may elect that the lump sum benefit be paid at some date certain which is later than the date specified for benefit commencement in Section 1 hereof. Any such election shall be irrevocable and must be filed no later than 90 days prior to the date benefits would otherwise commence hereunder. If he makes such an election, the lump sum amount computed above shall be credited with interest at the prime rate prevailing from time to time from the date specified in Section 1 above until the date of actual payment. 6. If Mead dies before commencing to receive the benefits described hereunder, his Beneficiary will receive a death benefit in a lump sum distribution which is the present value of the benefits which he has accrued hereunder as of the date of his death computed in accordance with the rules set forth herein, including the interest assumption specified in Section 5 hereof. Without limiting the generality of the foregoing, it is specifically provided that the special alternative death benefit called for by the TRP as in effect on December 31, 1994, shall apply if that produces a higher benefit. 7. The benefits provided hereunder are in lieu of any benefits to which Mead might otherwise be entitled under the TRP, Tenneco Inc. Benefit Equalization Plan or this Plan, but shall not adversely affect his entitlement to benefits under any other plan, fund or program maintained by the Company, nor shall benefits provided under any other such plan fund or program be offset against or otherwise reduce the benefits provided for hereunder. 8. For the purpose of calculating Mead's Final Average Earnings, the Company shall determine an amount that shall be used as a cash bonus number (the "Hypothetical Bonus") for any year in which Mead has received something in lieu of a cash bonus. Notwithstanding the foregoing, a Hypothetical Bonus shall be counted only in circumstances in which it would yield larger monthly pension benefits. -2- 7 STECKO SPECIAL APPENDIX TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN") This Special Appendix sets forth certain special provisions of the Plan with respect to the benefits of Paul T. Stecko ("Stecko"). The aggregate monthly pension benefits to which Stecko shall be entitled under the TRP, the Plan and this Special Appendix shall be no less than the amount to which Stecko would have been entitled if Stecko's coverage under International Paper defined benefit plans in effect as of December 3, 1993 had continued from his date of hire with International Paper through October 21, 2002; provided, that (i) assumed final three-year average pay shall be substituted for final five-year average pay; (ii) the Social Security offset shall be disregarded; (iii) he shall be deemed to have attained age 55 except that he shall be deemed to have attained age 58 for purposes of determining early retirement reduction factors; and (iv) adjustment for TRP benefits shall be determined by subtracting TRP normal retirement benefit from the International Paper normal retirement benefit prior to applying early retirement and other factors. If Stecko dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. 8 BLAKELY SPECIAL APPENDIX TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN") This Special Appendix sets forth certain special provisions of the Plan with respect to the benefits of Robert T. Blakely ("Blakely"). The monthly pension benefits to which Blakely shall be entitled hereunder shall be equal to the benefits to which Blakely would be entitled under the Plan, except that, if Blakely retains his position as Executive Vice President and Chief Financial Officer of Tenneco Inc. until the earlier of (i) December 31, 1999 or (ii) the date that the Chief Executive Officer of Tenneco Inc. determines that his services with respect to the strategic review announced in 1998 and related transactions are completed, for all purposes, including without limitation benefit accrual, death benefits, normal retirement and eligibility for early retirement benefits, Blakely shall be deemed to have 25 years of service and 25 years of participation. If Blakely dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. This benefit enhancement is consistent with those provided to other senior executives. 9 TETZLAFF SPECIAL APPENDIX TO THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN") This Special Appendix sets forth certain special provisions of the Plan with respect to the benefits of Theodore R. Tetzlaff ("Tetzlaff"). The monthly pension benefits to which Tetzlaff shall be entitled shall be equal to the benefits to which Tetzlaff would be entitled under the Plan if he were a participant in the Tenneco Inc. Retirement Plan ("TRP"), computed using the following special provisions: (a) Tetzlaff's service and participation will be regarded as beginning July 1, 1992. (b) Tetzlaff's retainer and bonus for each calendar year will be prorated for each month that Tetzlaff performs services for the Company as an officer during the calendar year to arrive at a covered monthly compensation under the TRP formula. (c) If Tetzlaff reaches age 55 while performing services for the Company as an officer, Tetzlaff will be eligible for an early retirement benefit with subsidized reduction factors parallel to the TRP factors, even though Tetzlaff does not have the service or participation required under the TRP provisions. (d) Tetzlaff's guaranteed minimum annual life only benefit will be as follows: Age at Commencement Of Benefits ------------------- Age 55 $100,000 per year Age 60 $200,000 per year Age 65 $300,000 per year with a prorated guaranteed minimum annual life only benefit between the above ages. (e) In all other respects, the provisions of the Plan shall apply. If Tetzlaff dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. 10 J. CASTELLANI BENEFITS UNDER THE TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN") The benefits of John J. Castellani ("Castellani") under the Plan will be adjusted as follows: The monthly normal retirement pension benefits to which Castellani shall be entitled hereunder shall be equal to the normal retirement pension benefits to which Castellani would be entitled under the Plan, deeming him to have a total of 20 years of service and 20 years of participation (including both actual and deemed service and participation), for all purposes (including without limitation benefit accrual, death benefits, normal retirement and eligibility for early retirement benefits). If Castellani dies before commencing to receive the benefits described hereunder, his beneficiary will receive a death benefit which is the present value of the benefits which he has accrued hereunder as of the date of his death. Castellani shall be entitled to benefits hereunder prior to his normal retirement under the following rules. If Castellani becomes entitled to benefits under the Tenneco Inc. Retirement Plan ("TRP") under its generally applicable rules prior to Castellani attaining normal retirement, Castellani shall be entitled to a benefit hereunder equal to the benefit that would be payable under the TRP at the time in question if the benefit stated in the foregoing paragraph were Castellani's normal retirement benefit under the TRP. APPROVED ON THIS 27TH DAY OF MAY, 1999 /s/ Stephen J. Smith - ----------------------------------------- Stephen J. Smith Vice President, Human Resources EX-10.23 3 RABBI TRUST APPOINTMENT OF SUCCESSOR TRUSTEE 1 EXHIBIT 10.23 TENNECO INC. RABBI TRUST APPOINTMENT OF SUCCESSOR TRUSTEE Pursuant to Section Eleven of the Tenneco Inc. Rabbi Trust, we the undersigned Trustees hereby appoint Mr. Karl A. Stewart as Trustee to succeed Mr. Paul T. Stecko, effective upon Mr. Stewart's acceptance. Dated: May 31, 1999 /s/ Dana G. Mead ------------------------ Dana G. Mead /s/ Theodore R. Tetzlaff ------------------------ Theodore R. Tetzlaff /s/ Robert T. Blakely ------------------------ Robert T. Blakely I hereby accept appointment as a Trustee of the Tenneco Inc. Rabbi Trust Dated: May 31, 1999 ------------------------- /s/ Karl A. Stewart - -------------------------------- Karl A. Stewart EX-10.26 4 TENNECO BENEFITS PROTECTION TRUST APPOINTMENT 1 EXHIBIT 10.26 TENNECO BENEFITS PROTECTION TRUST APPOINTMENT OF SUCCESSOR TRUSTEE Pursuant to Article Twelfth of the Tenneco Benefits Protection Trust, we the undersigned Trustees hereby appoint Mr. Karl A. Stewart as Trustee to succeed Mr. Paul T. Stecko, effective upon Mr. Stewart's acceptance. Dated: May 31, 1999 /s/ Dana G. Mead ----------------------------- Dana G. Mead /s/ Theodore R. Tetzlaff ----------------------------- Theodore R. Tetzlaff /s/ Robert T. Blakely ----------------------------- Robert T. Blakely I hereby accept appointment as a Trustee of the Tenneco Benefits Protection Trust Dated: May 31, 1999 ------------------ /s/ Karl A. Stewart - ------------------------ Karl A. Stewart EX-12 5 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 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, ------------ 1999 1998 ---- ---- Income from continuing operations........................... $105 $175 Add: Interest............................................... 109 97 Portion of rentals representative of interest factor... 14 11 Preferred stock dividend requirements of majority-owned subsidiaries.......................................... 13 14 Income tax expense (benefit) and other taxes on income................................................ 68 92 Amortization of interest capitalized................... -- -- Undistributed (earnings) losses of affiliated companies in which less than a 50% voting interest is owned..... -- -- ---- ---- Earnings as defined............................... $309 $389 ==== ==== Interest.................................................... $109 $ 97 Interest capitalized........................................ -- -- Portion of rentals representative of interest factor........ 14 11 Preferred stock dividend requirements of majority-owned subsidiaries on a pre-tax basis........................... 22 22 ---- ---- Fixed charges as defined.......................... $145 $130 ==== ==== Ratio of earnings to fixed charges.......................... 2.13 2.99 ==== ====
EX-27.1 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from 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-31-1999 JAN-01-1999 JUN-30-1999 58 0 912 0 847 2,069 3,928 1,384 7,461 1,805 2,326 0 0 2 2,120 7,461 3,061 3,061 2,180 2,180 574 0 109 187 68 105 (163) (7) (134) (199) (1.19) (1.19)
EX-27.2 7 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from 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-31-1998 JAN-01-1998 JUN-30-1998 30 0 875 0 797 2,099 3,797 1,239 7,782 1,654 2,235 0 0 2 2,557 7,782 3,035 3,035 2,118 2,118 552 0 97 283 92 175 37 0 0 212 1.25 1.25
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