ITEM 1. Business.
Tenneco Credit Corporation (the "Company") was incorporated in 1981 under the laws of the State of Delaware and commenced operations on October 1, 1984. All of the issued and outstanding capital stock of the Company is owned by Tenneco Inc. The business of the Company relates primarily to financing, on a nonrecourse basis, receivables of Tenneco Inc. and its subsidiaries ("Tenneco").
The Company's headquarters are located at 1010 Milam, Houston, Texas 77002. The Company has no employees, and employees of Tenneco Management Company, a subsidiary of Tenneco Inc., render all services to the Company that are necessary for the conduct of its operations.
Purchase of Receivables
The Company has entered into an agreement (the "Operating Agreement") with subsidiaries of Tenneco Inc. ("Tenneco Subsidiaries") pursuant to which it buys trade receivables generated by the Tenneco Subsidiaries from the sale of goods or services. Each Tenneco Subsidiary, as the Company's agent, makes collections of, and otherwise services, receivables sold by it to the Company. Tenneco Inc., the parent of the Company, has entered into a Performance Agreement for the benefit of the Company in which it agreed to cause the Tenneco Subsidiaries to perform their obligations under the Operating Agreement. Additionally, pursuant to an Investment Agreement between the Company and Tenneco Inc., Tenneco Inc. agreed to provide financial support to the Company if the Company does not satisfy certain financial tests. For additional information concerning these agreements, see "Relationship with Tenneco Inc.--Performance Agreement" and "--Investment Agreement." Because a significant amount of the long- term debt owed by the Company will mature after the maturity of a significant amount of the long-term receivables held by the Company, the Company believes that it will be necessary for Tenneco Inc. to provide financial support, under the provisions of the contractual agreements, in future periods.
The Company has also purchased from time to time receivables and other assets from subsidiaries of Tenneco Inc. on terms different from those set forth in the Operating Agreement.
Prior to June 1994, Case Corporation ("Case") sold all of its domestic retail receivables to the Company. Those receivables arose from sales by stores owned by Case and sales through independent dealers. As an incentive to dealers to assist in assuring the collectibility of their receivables, the purchase price discount included an amount for possible losses that may arise from their receivables. This portion of the discount became payable to the dealers as their receivables were collected and was recorded by the Company as a dealers' reserve. Any loss arising from the uncollectibility of a dealer's receivables was charged against this dealer's reserve to the extent of the reserve; any losses in excess of the dealer's reserve are recorded as a loss by the Company. During the years 1991 through 1995, there were no credit losses recorded by the Company in excess of the dealer's reserve.
Prior to June 1994, Case and its subsidiaries were wholly-owned subsidiaries of Tenneco Inc. On June 23, 1994, pursuant to a Reorganization Agreement dated as of that date, Case acquired the business and assets of the farm and construction equipment business of Tenneco (the "Reorganization") and Tenneco Inc. and certain of its subsidiaries acquired all of the outstanding common stock of Case and (subject to a legally binding commitment to sell) 100% of Case's Series A Cumulative Convertible Preferred Stock. Subsequent to the Reorganization, Tenneco Inc. and its subsidiaries sold an aggregate of approximately 79% of the outstanding shares of Case in an initial public offering and two secondary public offerings. Also, in June 1994, the subsidiaries of Tenneco Inc. that owned the Series A Cumulative Convertible Preferred Stock sold such shares to unaffiliated investors in a private offering. In March 1996, Tenneco Inc. and its subsidiaries sold all their remaining Case shares.
As part of the Reorganization, the Company retained ownership of approximately $1.2 billion of Case's United States retail receivables and related debt existing at the time of the Reorganization that is not redeemable prior to maturity. Since the Reorganization, United States retail finance activity has been conducted by Case's United States finance subsidiary. Case services the retail receivables retained by the Company, for which it receives a monthly servicing fee based on the amount of net receivables outstanding at the beginning of each month. At December 31, 1995, approximately $509 million of the retail receivables related to Case remained outstanding.
Under the Operating Agreement, the Company purchases trade receivables at prices agreed to by it and the Tenneco Subsidiaries at the time of sale. The purchase prices have historically been primarily as follows:
Case. The purchase prices for Case retail receivables were set at levels intended to provide an appropriate market yield to the Company above the Company's cost of funds. The average yield for 1995 on retail receivables purchased from Case was 10.4%, up from 10.1% in 1994.
Other Tenneco Subsidiaries. The face amount of the trade receivables purchased less a discount based upon the prime rate plus 25 basis points. The discount rate charged on short-term trade receivables purchased from Tenneco ranged from 8.75% to 9.25% during 1995 and from 5.75% to 8.75% during 1994.
Maturities of receivables purchased by the Company, which are not restricted by the Operating Agreement, are primarily as follows:
Case. Retail receivables purchased from Case generally had original maturities ranging from 24 months to 60 months. As of December 31, 1995, the weighted average remaining life to maturity of retail receivables purchased from Case was approximately 28 months. The Case receivables retained by the Company will be substantially liquidated by 1999.
Other Tenneco Subsidiaries. Most trade accounts receivable purchased from other Tenneco Subsidiaries mature in 30 to 60 days.
As stated above, the Company believes that it will be necessary for Tenneco Inc. to provide financial support, under the provisions of the contractual agreements, in future periods.
Sales of receivables to the Company under the Operating Agreement are without recourse to the selling Tenneco Subsidiaries. Reference is made to the caption "Tenneco Subsidiaries and Case" for a discussion of the businesses which generate the trade receivables purchased by the Company.
As of December 31, 1995, and December 31, 1994, the Company held the following trade notes and accounts receivable generated by (i) Case and (ii) Tenneco business segments:
See Note 4 to the Financial Statements of Tenneco Credit Corporation and Consolidated Subsidiaries for an analysis of the maturities of the trade notes and accounts receivable held by the Company on December 31, 1995. See also the "Outlook" section of Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," for a discussion of the Company's assessment of its viability following the liquidation of substantially all of the Case retail receivables in 1999.
In addition to purchasing trade receivables under the Operating Agreement, the Company has acquired, and may acquire in the future, various long-term receivables from non-affiliated companies. Purchases of these long-term receivables are negotiated on an arm's length basis by the Company and the seller at the time of purchase.
Tenneco Subsidiaries and Case
As of December 31, 1995, the Company held trade notes and accounts receivable purchased under the Operating Agreement from eleven Tenneco Subsidiaries, including subsidiaries in Tenneco's Energy, Automotive and Packaging divisions. The information below is provided with respect to those Tenneco Subsidiaries from which the Company has purchased or expects to purchase a substantial amount of accounts and notes receivable.
The principal business operations of Tenneco's Automotive division are Walker Manufacturing Company and Monroe Auto Equipment Company. Walker Manufacturing Company and its affiliates ("Walker") manufacture a variety of automotive exhaust systems and emission control products. Walker's products are sold to automotive manufacturers for use as original equipment and to wholesalers and retailers for sale as replacement equipment. Monroe Auto Equipment Company and its affiliates are engaged principally in the design, manufacture and distribution of original equipment and replacement ride control products.
Tenneco's Energy division principally consists of Tennessee Gas Pipeline Company ("Tennessee") and other subsidiaries who transport gas for, or sell gas to, primarily transmission and distribution companies. Its multiple-line interstate natural gas transmission system begins in the gas-producing areas of Texas and Louisiana, including the continental shelf of the Gulf of Mexico, and extends into the northeastern section of the United States, including the New York City and Boston metropolitan areas.
Tenneco's Packaging division is involved in the manufacture and sale of containerboard, paperboard, corrugated shipping containers, folding cartons, disposable plastic and aluminum containers, molded fiber products and other related products. Its shipping container products are used in the packaging of food, paper products, metal products, rubber and plastics, automotive products and point of purchase displays. Its folding cartons are used in the packaging of soap and detergent, food products and a wide range of other consumer goods. Uses for its molded fiber products include produce and egg packaging, food service items and institutional and consumer disposable dinnerware, as well as a wide range of other consumer and industrial goods. Its disposable plastic and aluminum containers are sold to the food service, food processing and related industries.
During 1995, Tenneco's Packaging division acquired the plastics division of Mobil Corporation. The plastics business is the largest North American producer of polyethylene and polystyrene consumer and food service packaging products. Subsequent to the acquisition, certain receivables of the plastics business have been purchased by the Company under the terms of the Operating Agreement.
Case and its subsidiaries, which are no longer subsidiaries of the Company, manufacture a full line of farm equipment and light- and medium- sized construction equipment. Prior to June 30, 1994, Case and its subsidiaries were wholly-owned subsidiaries of Tenneco Inc. See "Purchase of Receivables" above. As part of the Reorganization, the Company retained ownership of approximately $1.2 billion of Case's United States retail receivables and related debt existing at the time of the Reorganization that is not redeemable prior to maturity. Since the Reorganization, United States retail finance activity has been conducted by Case's United States finance subsidiary.
Other Investments
The Company owns a 95% limited partner interest in a partnership that owns a multifuel boiler that is leased to Tenneco Packaging for use in its paper mill at Counce, Tennessee, pursuant to an agreement designed to return to the Company its investment and a return on investment during the term of the lease. The remaining 5% interest in this partnership is owned by Tenneco InterAmerica Inc., an indirect wholly-owned subsidiary of Tenneco Inc., which is also the general partner of this partnership.
Relationship with Tenneco Inc.
The Company's business is substantially dependent upon the level of operations conducted by the Tenneco Subsidiaries. Accordingly, lower levels of sales from such operations could result in a reduction in the level of finance operations of the Company. See "Purchase of Receivables" above.
The agreements described below have been entered into by or among Tenneco Inc., the Company and the Tenneco Subsidiaries and relate to the operations of the Company. These agreements, which are governed by New York law, are enforceable by holders of the Unaffiliated Debt (as defined in the Investment Agreement described below). The following are summaries of certain provisions contained in such agreements, copies of which are filed as exhibits to this annual report. Such summaries do not purport to be complete descriptions of all the terms and provisions of such agreements, and reference is made to such agreements for the complete terms and provisions thereof.
Operating Agreement
The Operating Agreement, as amended and restated as of June 15, 1988, provides that purchases from the Tenneco Subsidiaries of notes and accounts receivable owed to the Tenneco Subsidiaries by third parties will be made by the Company at a purchase price equal to the amount of such receivables less a discount determined by the parties at the time of the sale. Historically, the discount rate has been based on the prevailing prime rate at the time of sale plus 25 basis points. Under the Operating Agreement, the selling Tenneco Subsidiaries are required to collect the receivables on behalf of the Company and remit the proceeds to it promptly after collection. From time to time, additional subsidiaries of Tenneco Inc. may become parties to the Operating Agreement and begin selling receivables to the Company.
The Operating Agreement contains representations and warranties of the Tenneco Subsidiaries to the effect that (i) the amount of receivables purchased will be true and correct at the time of purchase; (ii) at the time of assignment, each receivable will be recorded on the books of
the selling Tenneco Subsidiary as an account receivable and will represent a valid and legally enforceable obligation incurred in connection with the sale or lease of a product or service; (iii) each assignment of receivables to the Company will vest in the Company the right, title and interest in and to such receivables and the proceeds of collection therefrom free and clear from claims of third persons; (iv) at the time of assignment, beneficial ownership of such assigned receivable will not have been conveyed to any other person; (v) the receivables assigned to the Company will be free and clear of all liens and encumbrances and will not be subject to any setoff or counterclaim, except as provided by law; (vi) each receivable assigned to the Company will conform with any and all applicable laws and governmental rules and regulations; and (vii) all obligations to be performed by or on behalf of the selling Tenneco Subsidiary in connection with such receivables will have been or will be promptly fulfilled. Each Tenneco Subsidiary has agreed to indemnify the Company for any loss that it sustains as a result of any breach of a representation or warranty. Although each Tenneco Subsidiary has made the foregoing representations, it has not warranted the ultimate collectibility of receivables that it sells to the Company. These representations and warranties do not apply to sales of receivables by Tenneco Subsidiaries that are sold outside of the Operating Agreement.
Performance Agreement
Tenneco Inc. has agreed, pursuant to a Performance Agreement dated as of June 15, 1988 (the "Performance Agreement"), to guarantee to the Company the due and punctual performance of the obligations of each of the Tenneco Subsidiaries under the Operating Agreement when and as the same shall become due and payable or performable. The obligations of Tenneco Inc. under the Performance Agreement are continuing, absolute and unconditional and are not subject to any defense that might otherwise be available to the selling Tenneco Subsidiary.
Investment Agreement
Tenneco Inc. and the Company have entered into an Investment Agreement dated as of June 15, 1988, pursuant to which Tenneco Inc. agreed to own, directly or indirectly, all of the capital stock of the Company having the right to vote for directors so long as the Company has any debt outstanding that is held by persons other than Tenneco Inc. or any of its affiliates ("Unaffiliated Debt"). Tenneco Inc. has also agreed to maintain an investment in the Company (either in the form of subordinated debt or stockholder's equity) at least equal to 20% of the sum of the Company's debt and stockholder's equity and to pay with respect to each month a fee to the Company equal to the amount, if any, by which the cumulative earnings of the Company and its consolidated subsidiaries for the period from the beginning of the calendar year to the end of such month, before deduction of interest, other fixed charges and income taxes are less than 25% of interest and other fixed charges. Under the Investment Agreement, the Company will not sell or otherwise dispose of its assets (other than in the ordinary course of business) or incur any Unaffiliated Debt unless after such disposition or incurrence the Company will own assets in an amount at least equal to 125% of the Unaffiliated Debt (other than debt that is expressly subordinated). Furthermore, the Company will not declare or pay any dividends or make any distribution with respect to its capital stock if the Company would thereafter be unable to pay the principle of, or interest or premium, if any, on the Unaffiliated Debt.
A service charge of $234,000 was paid by Tenneco Inc. for the month of January 1994. No service charge was required for any months prior to or following January 1994.
Amendments
The Operating Agreement, Performance Agreement and Investment Agreement may each be amended or modified at any time by the parties thereto; provided, that (i) no amendment or modification which adversely affects the rights of holders of Senior Debt or Subordinated Debt, other than Affiliated Debt, outstanding at the time of execution thereof shall be binding on or in any manner become effective with respect to such Senior Debt or Subordinated Debt at the time outstanding except with the prior written consent of (a) the holders of not less than 66 2/3% in principal
amount of the Senior Debt at the time outstanding if such holders would be adversely affected thereby and (b) the holders of not less than 66 2/3% in principal amount of the Subordinated Debt, other than Affiliated Debt, at the time outstanding if such holders would be adversely affected thereby.
Relationship with Tennessee
Tennessee is a party to a Performance Agreement and an Investment Agreement that are substantially identical to the Performance Agreement and Investment Agreement of Tenneco Inc. These agreements were originally entered into in 1984 at the time the Company commenced operations (at which time Tennessee was the parent of the Company). The original Performance Agreement of Tennessee has been modified so that Tennessee's obligations only relate to the Tenneco Subsidiaries that are also subsidiaries of Tennessee, and the original Investment Agreement was amended so that it enured to the benefit of holders of Unaffiliated Debt outstanding on January 14, 1987. The Company, Tenneco Inc. and Tennessee are also parties to an Investment Agreement that enures to the benefit of holders of Unaffiliated Debt issued after January 14, 1987, and prior to June 14, 1988, and certain holders of Unaffiliated Debt outstanding on January 14, 1987. The principal differences between the two Investment Agreements to which Tennessee is a party relate to technical differences in the definitions of debt and fixed charges.
ITEM 2.

ITEM 2. Properties.
The Company believes that the multifuel boiler leased to Tenneco Packaging Inc. is well maintained and in good operating condition. This boiler is subject to a mortgage and other security interests that secure indebtedness assumed by a subsidiary of the Company in connection with the acquisition of the boiler.
ITEM 3.

ITEM 3. Legal Proceedings.
The Company is not a party to any material legal proceedings.
ITEM 4.

ITEM 4. Submission of Matters to a Vote of Security Holders.
Item 4, "Submission of Matters to a Vote of Security Holders", has been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction J to Form 10-K.
PART II
ITEM 5.

ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
All of the capital stock of the Company is owned by Tenneco Inc. and, therefore, there is no trading market for such securities. See Note 1 to the Financial Statements of Tenneco Credit Corporation and Consolidated Subsidiaries. During 1995, the Company declared and paid $300 million in dividends. The Company paid no dividends in 1994 and 1993. The Company may pay additional dividends to Tenneco Inc. from time to time depending upon the profitability, liquidity and capital and contractual requirements of the Company. See "Relationship with Tenneco Inc.--Investment Agreement" under Item 1 for information concerning restrictions on the Company's ability to pay dividends.
ITEM 6.

ITEM 6. Selected Financial Data
Item 6, "Selected Financial Data", has been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction J to Form 10-K.
ITEM 7.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Pursuant to paragraph (2)(a) of General Instruction J to Form 10-K, the following analysis explains the reasons for material changes in the amount of revenue and expense items between 1995 and 1994.
Revenues
Tenneco Credit Corporation and its consolidated subsidiaries (the "Company") reported total revenues of $134.1 million for 1995, down $25.8 million or 16% from 1994. The decrease is primarily attributable to the continuing liquidation of retail receivables related to Case.
Presented below are the percentages of revenues from the various sources for the years ended December 31:
The average yield on Case Corporation ("Case") retail receivables for 1995 was 10.4% compared to 10.1% for 1994. The discount rate charged on short-term trade receivables purchased from subsidiaries of Tenneco Inc. ranged from 8.75% to 9.25% during 1995 compared to ranges of 5.75% to 8.75% in 1994.
The Company's only leasing activity is the multifuel boiler facility leased to Tenneco Packaging Inc., an affiliate of the Company. Leasing activities provided $5.7 million of revenues in each of the years 1995 and 1994.
Interest income from notes receivable increased $9.4 million during 1995 compared to 1994 primarily due to the purchase of the Case Corporation subordinated note receivable from Tenneco Inc. in July 1995. The note was subsequently sold to Tenneco Equipment Corporation, a subsidiary of Tenneco Inc., in December 1995. See Note 4 in Notes to Financial Statements for additional information.
Under an Investment Agreement dated June 15, 1988, between the Company and Tenneco Inc. (the "Investment Agreement"), the Company is to receive a service charge from Tenneco Inc. for each month equal to the amount, if any, by which the cumulative earnings of the Company for the period from the beginning of the calendar year to the end of such month, before deduction of fixed charges and federal income taxes, are less than 125% of the Company's fixed charges, as defined therein. A service charge of $234,000 was paid by Tenneco Inc. for the month of January 1994. No service charge was required for any months prior or subsequent to January 1994.
Subsequent to the Case reorganization in June 1994, the Case retail financing activities have been conducted by Case's United States finance subsidiary. As the Company no longer purchases Case retail receivables, future revenues and income will continue to decline as the remaining retail receivables balance is collected. See Note 2 in Notes to Financial Statements for additional information.
Expenses
Interest expense of $86.3 million for 1995 represented a decrease of 26% or $31.0 million from 1994. This decrease resulted from lower levels of long-term and short-term debt. The average interest rate was 10.1% and 9.8% for 1995 and 1994, respectively. Operating and administrative expenses increased $1.1 million primarily due to fees paid to Case to service Case retail receivables retained by the Company (See Note 2 in Notes to Financial Statements for additional information).
Other Income (Loss)
Other income (loss) for 1995 principally consists of a $1.3 million loss, recorded in December 1995, to reserve for a doubtful note receivable from a third party. During 1994, the Company received net proceeds of $555 million from the sale of certain retail farm and construction equipment receivables to limited purpose business trusts, which utilized the receivables as collateral for the issuance of asset-backed securities to the public. The net book value of the receivables sold was $530 million and accordingly, the Company recognized a pre-tax gain of $25 million in February 1994 due to the sale. In addition, the Company recognized a gain on the sale of dealer owned rental yard receivables to Case in 1994.
Net Income
Net income for 1995 was $21.5 million, a decrease of $19.9 million or 48% compared with 1994. The decrease is primarily attributable to lower revenues from Case retail receivables and lower income from sale of receivables offset by decreased interest expense and income taxes.
Assets
The Company had total assets of $1,000.3 million at December 31, 1995, compared to $1,516.1 million at December 31, 1994. The 34% decrease from year-end 1994 was due primarily to the continuing liquidation of the Case retail receivables (See Notes 2 and 4 in Notes to Financial Statements for additional information).
As of December 31, 1995, the Company held net trade notes and accounts receivable purchased from affiliates totaling $702.8 million, which accounted for 70% of the Company's total assets. This compares to $1,379.5 million, or 91%, of assets as of December 31, 1994. Details of these receivables are shown as follows:
Case net trade notes and accounts receivable are $300 million lower at December 31, 1995, compared to December 31, 1994, primarily due to the continuing liquidation of the Case retail receivables.
Net notes receivable from non-affiliated companies was zero at December 31, 1995, down from $67.2 million at December 31, 1994. The decrease from 1994 was primarily due to the pre-payment of a long-term note from a third party. In addition, the Company established a loss provision for its remaining $1.3 million in notes receivable from non-affiliated companies. Notes receivable from affiliated companies was $25 million at December 31, 1995, which was attributable to borrowings under a credit facility provided by the Company to an affiliate. See Note 4 in the Financial Statements for additional information.
At December 31, 1995, the Company had a $49 million net investment in a multifuel boiler leased to Tenneco Packaging Inc., an indirect, wholly- owned subsidiary of Tenneco Inc. The leased facility represented 5% of the Company's total assets at December 31, 1995.
Capitalization and Capital Resources
Pursuant to the Investment Agreement, Tenneco Inc. is required to maintain an investment in the Company as necessary to assure that at all times the sum of the Company's subordinated debt plus stockholder's equity will be at least equal to 20% of the Company's total debt plus stockholder's equity.
Subsequent to December 31, 1995, substantially all of the proceeds from the maturity of the Company's temporary cash investments at year-end 1995 was loaned to its parent, Tenneco Inc.
The Company's capital requirements have been financed through the issuance of commercial paper, short-term bank loans and advances and equity capital from Tenneco Inc. plus earnings retained in the business.
The Company's total capitalization was $956.8 million at December 31, 1995, and $1,469.3 million at December 31, 1994. The components of capitalization at such dates are set forth in the following table:
Outlook
As previously discussed, the Case retail receivables have a weighted average remaining life to maturity of approximately 28 months and will be substantially liquidated by 1999. However, a significant portion of the Company's Senior Debt matures in the year 2001. Following is an analysis of the maturities of the Company's trade receivable portfolio (including rentals receivable under the operating leases) compared to the maturities of its total debt portfolio:
Pursuant to the Investment Agreement, Tenneco Inc. is required to cause the Company's consolidated assets to be at least equal to 125% of all its consolidated Senior Debt outstanding. Further, Tenneco Inc. is required to pay the Company a monthly service charge equal to the amount by which pre-interest, pre-tax earnings are less than 125% of fixed charges, as defined. Because a significant amount of the long-term debt owed by the Company will mature after the maturity of a significant amount of the long-term trade receivables held by the Company, the Company believes that it will be necessary for Tenneco Inc. to provide financial support, under the provisions of this contractual agreement, in future periods. The Company also is contractually restricted from declaring or paying dividends or making any other capital distributions if such action would render the Company unable to meet its debt service obligations on unaffiliated debt. As a result, the Company believes that the continuing liquidation of the Case retail receivable portfolio will not impact the Company's ability to meet the maturities of its debt portfolio which are due after these receivables are substantially liquidated.
On an ongoing basis, the Company expects that the scope of its operations will be substantially reduced as the Case retail receivables are liquidated. As a result, earnings, assets and total capitalization are expected to continue to decrease throughout the foreseeable future.
ITEM 8.

ITEM 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS OF TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Credit Corporation:
We have audited the accompanying balance sheets of Tenneco Credit Corporation (a Delaware corporation and a wholly-owned subsidiary of Tenneco Inc.) and consolidated subsidiaries as of December 31, 1995 and 1994, and the related statements of income, cash flows and changes in stockholder's equity for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of Tenneco Credit Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tenneco Credit Corporation and consolidated subsidiaries as of December 31, 1995 and 1994, and the results of their operations, cash flows and changes in stockholder's equity for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas February 8, 1996
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(Thousands Except Share Amounts)
(The accompanying notes to financial statements are an integral part of these balance sheets.)
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(Thousands)
(The accompanying notes to financial statements are an integral part of these statements of income.)
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Thousands)
Note: Cash and cash equivalents include highly liquid investments with a maturity of three months or less at date of purchase.
(The accompanying notes to financial statements are an integral part of these statements of cash flows.)
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Thousands)
(The accompanying notes to financial statements are an integral part of these statements of changes in stockholder's equity.)
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) CONTROL AND SUMMARY OF ACCOUNTING POLICIES
Control
All of the outstanding common stock of Tenneco Credit Corporation is owned by Tenneco Inc. Tenneco Credit Corporation and consolidated subsidiaries ("TCC" or the "Company") are thus members of an operating group under the control of Tenneco Inc. As such, TCC engages in transactions characteristic of group administration and operation with other members of the group. The primary purpose of TCC is to finance, on a nonrecourse basis, receivables of Tenneco Inc. and its subsidiaries.
Consolidation
The consolidated financial statements include the accounts of Tenneco Credit Corporation, its majority-owned subsidiaries, Counce Limited Partnership and subsidiary, and its wholly-owned subsidiary, TenFac Corporation. Counce Limited Partnership was organized to construct a multifuel steam boiler and turbine generator facility for lease to Tenneco Packaging Inc., an indirect wholly-owned subsidiary of Tenneco Inc.
All significant intercompany items have been eliminated in consolidation.
Revenue Recognition
Finance charges are recognized as income on the accrual method in the period in which they are earned. Finance charges earned on purchased trade and other receivables in 1995, 1994 and 1993 were approximately $128 million, $154 million and $227 million, respectively. Finance charges on the trade receivables purchased from affiliates are charged by TCC to these affiliates at mutually agreed amounts. Historically, the discount rate has been based upon the prevailing prime rate plus 25 basis points. Rates charged on short-term trade receivables purchased from subsidiaries of Tenneco Inc. ranged from 8.75% to 9.25% during 1995 as compared to ranges of 5.75% to 8.75% and 5.75% to 6.50% for 1994 and 1993, respectively. The average yield on Case Corporation ("Case") retail receivables for 1995 was 10.4%, up from 10.1% in 1994 and down from 11.4% in 1993.
Revenue from the operating lease covering the boiler facility is recognized monthly on a pro rata basis over the terms of the related contract.
Related Party Transactions
The Company has entered into an agreement (the "Operating Agreement") with several subsidiaries of Tenneco Inc. ("Tenneco Subsidiaries") pursuant to which the Company buys trade receivables generated by the Tenneco Subsidiaries from the sale of goods and services. Each Tenneco Subsidiary, as the Company's agent, makes all collections and services the receivables sold by it to the Company. The Company also may purchase receivables and other assets from Tenneco Subsidiaries on terms different from those set forth in the Operating Agreement. Gross receivables purchased from affiliates at December 31, 1995 and 1994, totaled $.8 billion and $1.5 billion, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in determining the reported amounts of the Company's assets, liabilities, revenues and expenses. The Company's financial statements include estimates regarding the collectibility of its accounts and notes receivable and the useful life of its equipment under operating lease. These estimates could change in future periods depending upon new facts or circumstances.
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reclassification
Certain reclassifications have been made to prior year amounts to conform with the current year's presentation.
(2) REORGANIZATION OF CASE FINANCING ACTIVITIES
Prior to June 1994, Case sold all of its domestic retail receivables to the Company. Those receivables arose from sales by stores owned by Case and sales through independent dealers. As an incentive to dealers to assist in assuring the collectibility of their receivables, the purchase price discount included an amount for possible losses that may arise from their receivables. This portion of the discount became payable to the dealers as their receivables were collected and was recorded by the Company as a dealers' reserve. Any loss arising from the uncollectibility of a dealer's receivables was charged against this dealer's reserve to the extent of the reserve; any losses in excess of the dealer's reserve are recorded as a loss by the Company. During the years 1991 through 1995, there were no credit losses recorded by the Company in excess of the dealer's reserve.
On June 23, 1994, pursuant to a reorganization agreement dated as of that date, Case acquired the business and assets of the farm and construction equipment business of Tenneco Inc. and subsidiaries (the "Reorganization") and Tenneco Inc. and certain of its subsidiaries acquired all of the outstanding common stock of Case. Subsequent to the Reorganization, Tenneco Inc. and certain of its subsidiaries have sold an aggregate of approximately 79% of the outstanding shares of Case in an initial public offering and two secondary public offerings. As part of the Reorganization, the Company retained ownership of approximately $1.2 billion of Case's United States retail receivables and related debt existing at the time of the Reorganization that is not redeemable prior to maturity. The Company also sold Case-related notes and accounts receivable of approximately $395 million back to Case. Since the Reorganization, United States retail finance activity has been conducted by Case's United States finance subsidiary. Case continues to service the retail receivables retained by the Company, for which it receives a monthly servicing fee based on the amount of net receivables outstanding at the beginning of each month. At December 31, 1995, approximately $509 million of the Case retail receivables remained outstanding. It is estimated that the Case receivables retained by the Company will be substantially liquidated by 1999 (See Note 4).
As a result of the Reorganization and subsequent initial public offering of Case common stock, the applicable dealers' reserve was transferred to Case. In addition, due to Case's use of its finance subsidiary to conduct retail finance activity, the Company no longer purchases Case receivables. Consequently, the Company's revenues and interest expense will decline as the existing Case receivables are collected and the associated debt is retired. The reduction in receivables and debt will also reduce the Company's future net income.
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) INCOME TAXES
TCC and Tenneco Inc., together with certain of their respective subsidiaries which are owned 80% or more, have entered into an agreement to file a consolidated U.S. federal income tax return. Such agreement provides, among other things, that (i) each company in a taxable income position will be currently charged with an amount equivalent to its federal income tax computed on a separate return basis and (ii) each company in a tax loss position will be currently reimbursed to the extent its deductions and tax credits are utilized in the consolidated return.
The Company utilizes the liability method of accounting for income taxes whereby it recognizes deferred tax assets and liabilities for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company's pre-tax income is principally domestic and subject to taxation under U.S. federal and applicable state jurisdictions.
The components of total income tax expense are as follows:
The difference between income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes is primarily due to state income taxes of $1 million, $1 million and $6 million in 1995, 1994 and 1993, respectively, net of federal income tax benefit. In addition, 1995 income tax expense was reduced by a revision to estimated federal income taxes provided in 1994.
The components of net deferred tax liability at December 31, 1995 and 1994, were as follows:
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) NOTES AND ACCOUNTS RECEIVABLE
Contractual maturities of notes and accounts receivable purchased from affiliates as of December 31, 1995, are as follows:
During 1994 and 1993, TCC received net proceeds of $555 million and $877 million, respectively, from the sale of certain retail farm and construction equipment receivables to limited purpose business trusts, which utilized the notes as collateral for the issuance of asset-backed securities to the public. The net book value of the receivables sold was $530 million and $834 million for 1994 and 1993, respectively, and accordingly, TCC recognized pre-tax gains on the transactions of $25 million and $43 million for 1994 and 1993, respectively. In addition, the Company recognized a gain of $1 million and $6 million from the sale of trade receivables to Asset Securitization Cooperative Corporation in 1994 and 1993, respectively. These receivables originated with Tenneco Inc.'s packaging, automotive parts and energy subsidiaries. The gains on sale of receivables were recorded in "Other income (loss)" in the Statements of Income.
In July 1995, the Company purchased the Case Corporation 10 1/2% Subordinated Note (the "Subordinated Note") at fair market value from Tenneco Inc., its parent, for $310.8 million in cash. The Company recorded this receivable at Tenneco Inc.'s historical cost of $279.7 million. The $31.1 million premium paid on the note is included in the Statement of Changes in Stockholder's Equity caption "Capital contribution from (distribution to) affiliate, net." In December 1995, the Company sold the Subordinated Note to a subsidiary of Tenneco Inc. for $326 million in cash. At the date of sale, the Company's carrying value for the Subordinated Note was $292 million, and the difference between the cash proceeds and carrying value is also included in the Statement of Changes in Stockholder's Equity caption "Capital contribution from (distribution to) affiliate, net."
During 1995, gross notes receivable from non-affiliated companies decreased $66 million, principally due to the pre-payment of a long-term note by a third party.
Tenneco International Holding Corp. ("TIHC"), an indirect subsidiary of Tenneco Inc., has arranged a $50 million committed line of credit with the Company to provide short-term financing which provides for borrowings at various market rates. At December 31, 1995, the Company had made loans of $25 million to TIHC related to this line of credit.
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) COMMERCIAL PAPER AND LINES OF CREDIT
TCC sells commercial paper on a short-term unsecured basis. Information regarding commercial paper as of and for the years ended December 31, 1995 and 1994 follows:
TCC also has available total lines of credit of $400 million with various banks which are committed through November 1999. Borrowings are available as either domestic loans or as Eurodollar loans. The agreements provide for facility fees of 0.1875% on the entire amount of the commitment. At December 31, 1995, TCC had no amounts outstanding under these lines of credit.
(6) SENIOR AND SUBORDINATED DEBT
A summary of Senior and Subordinated Debt outstanding is set forth in the following tabulation (in thousands):
At December 31, 1995, approximately $49 million net book value of equipment under lease was pledged as collateral to secure $28 million of senior notes.
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities applicable to the notes outstanding at December 31, 1995, are $158 million, $176 million, $73 million, $4 million and $5 million for 1996, 1997, 1998, 1999 and 2000, respectively.
(7) EQUIPMENT UNDER OPERATING LEASE TO AFFILIATES
At December 31, 1995, Counce Limited Partnership had a long-term operating lease with Tenneco Packaging Inc., covering equipment with a net book value of $49 million. The lease requires Tenneco Packaging Inc. to pay all operating, maintenance and insurance costs. The aggregate minimum future annual rentals receivable under the operating lease at December 31, 1995, are as follows:
Depreciation of the equipment under lease is provided on a straight-line basis in amounts which, in the opinion of management, are adequate to allocate the cost of the property over its estimated useful life.
(8) FINANCIAL INSTRUMENTS
The estimated fair values of TCC's financial instruments at December 31, 1995 and 1994, were estimated as follows:
The following methods and assumptions were used to estimate the fair value of financial instruments:
Cash and Cash Equivalents--The fair value of cash and other cash investments was considered to be the same as or was not determined to be materially different from the carrying amount.
Receivables--TCC believes that in the aggregate, the carrying amount of its trade receivables, purchased from Tenneco Subsidiaries, was not materially different from the fair value of those receivables. Fair value of the long-term receivables was based on the market value of receivables with similar maturities and interest rates. Customer notes and accounts receivable purchased from affiliates are concentrated 62% in the farm and construction business, 17% in energy businesses, 11% in automotive parts businesses and 10% in packaging businesses.
Senior and Subordinated Notes--The fair value of fixed-rate long-term debt was based on the market value of debt with similar maturities and interest rates.
TENNECO CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(9) INVESTMENT AGREEMENT
Under the terms of the Investment Agreement between TCC and Tenneco Inc., the companies have agreed, among other terms, that:
(a) Tenneco Inc. will own, directly or indirectly, all the outstanding shares of TCC stock.
(b) TCC's consolidated assets must equal at least 125% of all consolidated "senior debt" (commercial paper and senior notes) outstanding.
(c) TCC will not declare or pay any dividends or make any capital distributions if such action would render TCC unable to meet any of its requirements for the payment of principal of, or interest or premium, if any, on unaffiliated debt.
(d) Tenneco Inc.'s investment in TCC (either directly or through its subsidiary companies) and subordinated debt must equal at least 20% of TCC's total consolidated debt plus stockholder's equity.
(e) Tenneco Inc. will pay to TCC a service charge for each month during the term of the Investment Agreement equal to the amount, if any, by which the cumulative consolidated earnings of TCC and its consolidated subsidiaries for the period from the beginning of the calendar year to the end of such month, before deduction of fixed charges (interest expense) and income taxes (but including in earnings all such service charges previously paid by Tenneco Inc. for such year) are less than 125% of the fixed charges. A service charge of $234,000 was paid by Tenneco Inc. for the month of January 1994. No service charge was required for any months prior to or following January 1994.
Because a significant amount of the long-term debt owed by the Company will mature after the maturity of a significant amount of the long-term trade receivables held by the Company, the Company believes that it will be necessary for Tenneco Inc. to provide financial support, under the provisions of the Investment Agreement, in future periods. The Company was in compliance with these covenants during the years ended and as of December 31, 1995, 1994 and 1993.
(10) QUARTERLY FINANCIAL DATA (UNAUDITED)
____________
Note: See Notes 2 and 4 for items affecting comparability between the quarters presented above.
(The above notes are an integral part of the foregoing financial statements.)
ITEM 9.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There has been no change in accountants during 1995 or 1994, nor has there been any disagreement on any matter of accounting principles or practices or financial disclosure which in either case is required to be reported pursuant to this Item 9.
PART III
Item 10, "Directors and Executive Officers of the Registrant", Item 11, "Executive Compensation", Item 12, "Security Ownership of Certain Beneficial Owners and Management", and Item 13, "Certain Relationships and Related Transactions", have been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction J to Form 10-K.
PART IV
ITEM 14.

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
FINANCIAL STATEMENTS INCLUDED IN ITEM 8
See "Index to Financial Statements of Tenneco Credit Corporation and Consolidated Subsidiaries" set forth in Item 8, "Financial Statements and Supplementary Data."
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES INCLUDED IN ITEM 14
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE Schedule I -- Condensed financial information of registrant Schedule II -- Valuation and qualifying accounts--three years ended December 31, 1995 Schedule III -- Real estate and accumulated depreciation Schedule IV -- Mortgage loans on real estate Schedule V -- Supplemental information concerning property--casualty insurance operations
REPORTS ON FORM 8-K
During the fourth quarter of the fiscal year ended December 31, 1995, the Company did not file with the Securities and Exchange Commission any Current Reports on Form 8-K.
EXHIBITS
Exhibits not incorporated by reference to a prior filing are designated by an asterisk; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TENNECO CREDIT CORPORATION
By Robert T. Blakely Robert T. Blakely President
Date: March 13, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
Exhibits not incorporated by reference to a prior filing are designated by an asterisk; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated.
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ------------------------
3(a) -- Certificate of Incorporation of Tenneco Credit Corporation dated August 6, 1981 (Exhibit 3(a) to Form 10 Registration Statement of Tenneco Credit Corporation, File No. 0-15095). 3(b) -- By-Laws of Tenneco Credit Corporation, amended as of March 1, 1987 (Exhibit 3(b) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1989, File No. 0-15095). 4(a) -- Included in Exhibits 3(a) and 3(b). 4(b)(1) -- Indenture between Tenneco Credit Corporation and The Chase Manhattan Bank (National Association) dated as of January 15, 1987 (Exhibit 4(b) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1986, File No. 0-15095). 4(b)(2) -- First Supplemental Indenture between Tenneco Credit Corporation and The Chase Manhattan Bank (National Association) dated as of January 16, 1987 (Exhibit 4(c) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1986, File No. 0-15095). 4(b)(3) -- Second Supplemental Indenture between Tenneco Credit Corporation and The Chase Manhattan Bank (National Association) dated as of February 1, 1987 (Exhibit 4(d) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1986, File No. 0-15095). 4(b)(4) -- Third Supplemental Indenture between Tenneco Credit Corporation and The Chase Manhattan Bank (National Association) dated as of August 1, 1987 (Exhibit 4(e) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1987, File No. 0-15095). 4(b)(5) -- Fourth Supplemental Indenture between Tenneco Credit Corporation and The Chase Manhattan Bank (National Association) dated as of June 15, 1988 (Exhibit 4(b)(5) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1988, File No. 0-15095). 4(b)(6) -- Fifth Supplemental Indenture between Tenneco Credit Corporation and The Chase Manhattan Bank (National Association) dated as of June 28, 1988 (Exhibit 4(c) to Form 8-K of Tenneco Credit Corporation dated June 28, 1988, File No. 0-15095). 4(b)(7) -- Sixth Supplemental Indenture between Tenneco Credit Corporation and The Chase Manhattan Bank (National Association) dated as of July 15, 1989 (Exhibit 4(b)(7) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1989, File No. 0-15095). 4(b)(8) -- Seventh Supplemental Indenture between Tenneco Credit Corporation and The Chase Manhattan Bank (National Association) dated as of August 16, 1989 (Exhibit 4(b)(8) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1989, File No. 0-15095). 4(b)(9) -- Eighth Supplemental Indenture between Tenneco Credit Corporation and The Chase Manhattan Bank (National Association) dated as of November 1, 1989 (Exhibit 4(b)(9) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1989, File No. 0-15095). /TABLE
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- -----------------------
4(b)(10) -- Ninth Supplemental Indenture between Tenneco Credit Corporation and The Chase Manhattan Bank (National Association) dated as of December 1, 1990 (Exhibit 4(b) to Form 8-K of Tenneco Credit Corporation dated December 4, 1990, File No. 0-15095). 4(c)(1) -- Indenture between Tenneco Credit Corporation and The First National Bank of Boston dated as of June 15, 1988 (Exhibit 4(c)(1) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1988, File No. 0-15095). 4(c)(2) -- First Supplemental Indenture between Tenneco Credit Corporation and The First National Bank of Boston dated as of June 15, 1988 (Exhibit 4(d) to Form 8-K of Tenneco Credit Corporation dated June 28, 1988, File No. 0-15095). 9 -- None. 10(a) -- Operating Agreement between Tenneco Credit Corporation and various subsidiaries of Tenneco Inc. as amended and restated as of June 15, 1988 (Exhibit 10(a) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1988, File No. 0-15095). 10(b) -- Investment Agreement among Tenneco Credit Corporation, Tennessee Gas Pipeline Company and Tenneco Inc. amended and restated as of November 1, 1988 (Exhibit 10(b) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1988, File No. 0-15095). 10(c) -- Performance Agreement of Tennessee Gas Pipeline Company as amended and restated as of June 14, 1988 (Exhibit 10(c) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1988, File No. 0-15095). 10(d) -- Investment Agreement between Tenneco Credit Corporation and Tennessee Gas Pipeline Company (formerly Tenneco Inc.) dated as of October 15, 1984; together with an amendment thereto dated January 14, 1987 (Exhibit 10(d) to Form 8 of Tenneco Credit Corporation dated January 14, 1987, File No. 0-15095). 10(e) -- Investment Agreement between Tenneco Credit Corporation and Tenneco Inc. dated as of June 15, 1988 (Exhibit 10(e) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1988, File No. 0-15095). 10(f) -- Performance Agreement dated as of June 15, 1988 from Tenneco Inc. (Exhibit 10(f) to Form 10-K of Tenneco Credit Corporation for the fiscal year ended December 31, 1988, File No. 0-15095). 11 -- None. *12 -- Statement re computation of ratio of earnings to fixed charges. 13 -- None. 16 -- None. 18 -- None. 21 -- Omitted pursuant to the reduced disclosure format permitted by General Instruction J to Form 10-K. 22 -- None. 23 -- None. 24 -- None. *27 -- Financial data schedule. 28 -- None. 99 -- None.
/TABLE


Item 1. Business
General
Helene Curtis Industries, Inc. (together with its subsidiaries, the "Company") is a holding company incorporated in Delaware on April 16, 1984, whose principal subsidiary, Helene Curtis, Inc., has been operating since January 1928.
The Company develops, manufactures and markets personal care products consisting primarily of consumer brand name hair and skin care products and antiperspirants and deodorants. The Company is one of the largest sellers of hair care products in the United States, mainly with its Suave, Finesse, Salon Selectives and Vibrance hair care brands.
The Company is also the fourth leading seller in the United States of antiperspirant/deodorant products through its Degree and Suave brands, and the third leading seller of hand and body lotion products with its Suave brand.
The Company also develops, manufactures and markets professional hair care products for use and resale by licensed cosmetologists. The Company's Quantum permanent wave is the leading permanent wave brand sold to licensed cosmetologists in the United States.
The Company's products, particularly its Finesse and Salon Selectives brands, are among the market leaders in most countries where the Company has an operating subsidiary and have been introduced through licensees and others in over 100 countries throughout the world. Sales of the Company's products outside the U.S. account for approximately 36 percent of annual volume.
Products
U.S. Consumer Products
The Company markets a wide variety of hair care products to consumers under the Suave, Finesse, Salon Selectives and Vibrance brand names. It markets antiperspirants/deodorants under the Suave and Degree brand names and skin care and baby care products under the Suave brand name.
The Company targets its Suave products to consumers who desire a high quality product priced considerably below premium-priced lines. This positioning has proven successful as Suave is both the best-selling shampoo and the best-selling conditioner in the United States in terms of units sold. The Company sells Suave shampoo, Suave conditioner and Suave styling aids for this price-value segment of the market.
Finesse, the sixth largest hair care brand in the United States on a dollar-sales basis, is marketed as a premium-priced line of products. Finesse conditioner, relying on a unique patented formulation, was launched in 1982 and Finesse shampoo was introduced in 1983. The Company also sells Finesse styling aids, including hair spray, gel and mousse.
The Company's Salon Selectives line of consumer shampoos, conditioners and styling aids is marketed to consumers who are interested in purchasing products which were traditionally available only in beauty salons and which can be customized to their hair and lifestyle needs. Salon Selectives, introduced in 1987, is the third largest hair care brand on a dollar-sales basis, in the United States.
The Company also markets Vibrance hair care products, which were introduced in 1991 and targeted toward consumers who desire strong, healthy looking hair. The line was repositioned at the start of the fiscal year commencing March 1, 1995.
The Company's Degree antiperspirant/deodorant products were introduced in 1990. Degree antiperspirant products provide consumers with additional odor and wetness protection in response to rising body heat. The Company's Suave antiperspirant/deodorant products are targeted to the price-value segment of the market. With its Degree and Suave brands, the Company ranks fourth in antiperspirant/deodorant sales in the United States.
The Company ranks third in the category of hand and body lotion products in the U.S. in units sold. The Company sells these products under its Suave brand. The Company also markets a line of Suave facial care products and a line of Suave baby care products, which build on Suave's brand equity and reputation of offering quality products at a value price.
U.S. Professional Products
The Company develops and markets a wide range of permanent waves and other hair care products to licensed cosmetologists for use in beauty salons and for resale to consumers through salons. Since its founding, the Company has been a technological leader in this industry, pioneering, among other things, the "cold" permanent wave, which is safer and more effective than prior methods of waving hair. Its Quantum permanent wave is applicable for all hair types and is the best-selling permanent wave brand for professional use in the United States.
The Company markets numerous professional product lines, including the following: Quantum, Naturelle and Hair Specifics hair care products; ISO, Catio Therm, Post Impressions, One Better, Impact, Even Heat, Fine Solutions and Luxuriance permanent waves.
International Products
The Company sells its products in over 100 countries through wholly-owned operating subsidiaries in Australia, Canada, Italy, Japan, New Zealand, Sweden (serving Scandinavia) and the United Kingdom and through licensees and authorized distributors in other countries, and export sales from the United States. The Company is among the market leaders in the consumer hair care business in each market in which it has a subsidiary, except Italy, where the business has focused on the sale of professional products.
The Company has introduced Degree antiperspirant/deodorant in Canada, Australia, New Zealand and Scandinavia.
Additionally, in some markets, the Company's subsidiaries have developed and introduced their own brands. For example, the Company's Japanese subsidiary markets Program, a hair care line targeted to women with damaged hair.
The Company's international business is subject to all the risks inherent in operations in foreign countries. The sales, operating profit and identifiable assets attributable to each geographic area for the fiscal years ended in February 1995, 1994 and 1993 are set forth in Note (12) of the Notes to the Consolidated Financial Statements, which Note is incorporated herein by reference.
Competition
The markets for the Company's products are intensely competitive and sensitive to changing consumer preferences and demands. They are characterized by frequent introductions of competitive products, often accompanied by major advertising and promotional programs which can significantly affect sales and earnings of the product sponsor and its competitors. The Company competes primarily on the basis of product quality, price and brand-name recognition built by advertising and promotion.
At least 10 domestic manufacturers, some of which are highly diversified and have significantly greater financial resources than the Company, can be regarded as major competitors in the United States and throughout the world. The Company is a significant competitor in its industry.
Marketing
The Company competes in businesses where growth is achieved largely by gaining market share at the expense of competitors. Accordingly, the Company maintains an aggressive strategy utilizing substantial television advertising, consumer promotion and merchandising support of existing brands, coupled with periodic major investments in new products and line extensions of established brand names. During the fiscal years ended in February 1995, 1994 and 1993, the Company's advertising and media expenses were approximately $150.5 million, $152.3 and $147.6 million, respectively.
The Company believes there is substantial consumer recognition for its major brands and that this recognition is a meaningful contributor to its sales. Significant and repeated advertising and promotion serve to build and retain a brand's position in the marketplace. In order for a brand's position to be sustained for many years, as in the case of the Suave brand which has been marketed for nearly 60 years, product formulas and packaging must continue to be improved. In addition, major advertising expenditures are necessary from time to time to maintain the brand's market share. Although these expenditures may impact the Company's earnings in the year in which they are made, to the extent that they sustain a brand's position, they support the Company's growth.
New product development also plays a significant role in the Company's marketing strategy. The Company relies on its market research and new product development groups to identify consumer needs, to foresee shifts in consumer preferences and to assess the competitive marketplace. The successful introduction of any new product is largely dependent on product positioning, product quality and innovation, packaging, advertising and promotional support and the level of competitive activity. In view of the intensely competitive industry in which the Company competes, new product introductions require substantial advertising and promotional expenditures which are made at a proportionally higher rate relative to sales than expenditures for well-established products. Although these expenditures materially impact earnings in the particular period in which they are made, they foster the Company's growth well beyond that period if the new product is ultimately successful.
Customers and Distribution
In the United States, the Company's products are distributed through wholesalers and directly to major drug chains, mass merchandisers and food outlets and major chains of beauty salons. In international markets, the Company's products are manufactured and marketed through a network of subsidiaries, licensees and distributors.
Approximately 15% of the Company's net sales for the fiscal year ended February 28, 1995 were to one customer. None of the Company's customers has any continuing contractual obligations to make purchases from the Company.
Trademarks and Patents
The Company markets its products under a number of trademarks and trade names (e.g., Helene Curtis, Suave, Finesse, Salon Selectives, Degree, Vibrance and Quantum) which are registered in the United States and many foreign countries. The Company's position in the marketplace is dependent upon the goodwill engendered in these trademarks as well as in the individual performance and price of products using them. The Company considers trademark protection to be of material importance to its business.
The Company is not materially dependent on any patent, license, franchise or concession, whether owned by or licensed to the Company. Although the Company owns certain patents, the loss of any patent would not have a materially adverse effect on the Company's operations as a whole. During the fiscal year ended February 28, 1995, the Company successfully prevented the continued sale of several products that infringed the Company's patent on its ISO permanent wave.
Research and Development
The Company is continuously engaged in the development of new products and maintains an extensive laboratory facility for such purpose. The Company relies principally on its experience in the personal care business in formulating new products and maintains a staff of approximately 230 people for research and development. The Company expended $26.8 million, $22.5 million and $22.0 million during the fiscal years ended in February 1995, 1994 and 1993, respectively, on research activities relating to the development of new products and the improvement of existing personal care products.
Regulation
Government regulation has not materially restricted or impeded the Company's operations. Certain of the Company's products are subject to regulation under the Federal Food, Drug and Cosmetic Act and the Fair Packaging and Labeling Act. The Company is also subject to regulation by the Federal Trade Commission with respect to the content of its advertising, its trade practices and other matters.
Employees
The Company currently employs approximately 3,400 employees. Virtually all of the Company's employees are non-union. The Company considers its relationship with its employees to be good.
Manufacturing and Supplies
Most of the Company's products are manufactured, filled and packaged by the Company at its facilities in Chicago, Illinois and the City of Industry, California, as well as at its subsidiary operation in New Zealand. See "Properties." Some of the Company's products sold in the United States or by its international subsidiaries are manufactured by outside contractors, none of which manufactures a significant portion of the Company's output.
Raw materials used in the Company's products are available from several sources. If any single supplier should be unable to furnish materials, the Company believes that other sources could be obtained without material disruption to or other adverse effect upon its business.
Backlog
As the Company manufactures and ships its products against orders received in a relatively short period of time thereafter, the dollar amount of backlog orders at any given date, or from year to year, is not a material element in the Company's business.
Item 2.

Item 2. Properties
The principal office of the Company is located at 325 North Wells Street in Chicago, Illinois. The office building, which has approximately 120,000 square feet of space used by the Company, was purchased in 1981 and rehabilitated by the Company.
The Company owns its principal manufacturing plant, which comprises approximately 315,000 square feet, and is located at 4401 West North Avenue, Chicago, Illinois. The Company owns a connecting building and land of approximately 60,500 square feet. An additional 238,000 square feet of land and building adjacent to said plant is leased until 1996. This lease contains five renewal options of five years each, giving the Company the right to extend the term to 2021.
The Company owns approximately 12 acres of property in Chicago adjacent to its principal manufacturing facility. This property includes a building of approximately 587,000 square feet, which is used for offices, manufacturing and warehousing. Approximately one-third of the building has been leased to its former owner for a ten-year period ending in 2001.
The Company owns its principal warehouse and distribution facility, comprising approximately 376,000 square feet of building on 32.5 acres of land, located in Chicago, Illinois. This facility became fully operational in 1989. The Company also owns a warehouse facility comprising approximately 475,000 square feet of building space on 10.5 acres of land at 1657 N. Kilpatrick Avenue, Chicago, Illinois. Additional warehouse and shipping facilities are located at the Company's principal manufacturing plant.
The Company owns a 128,000 square foot manufacturing and warehousing facility in the City of Industry, California, which was constructed in 1982. In addition, in 1989, the Company purchased 8.36 acres of property, including an industrial building of approximately 150,000 square feet, adjacent to the facility.
In March 1995, the Company relocated its research and development operations to an approximately 151,000 square foot facility located in Rolling Meadows, Illinois which is leased until 2012. The building includes offices and laboratories. The relocation will allow for the expansion of the Company's principal manufacturing and operations facility. The lease contains ten (10) renewal options of five (5) years each, giving the Company the right to extend the term until 2062.
The Company also leases or owns other smaller properties and facilities in various locations in the United States and in foreign countries.
Although some of the Company's manufacturing plants were constructed a number of years ago, such plants, together with newer additions, are, in the opinion of management, deemed to be in good condition and sufficient for the Company's current needs.
Item 3.

Item 3. Legal Proceedings
There are no material pending legal proceedings involving the Company.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of fiscal 1995 to a vote of security holders.
Executive Officers of the Registrant:
Title Name Age
Chairman of the Board Gerald S. Gidwitz 88 Vice Chairman of the Board Joseph L. Gidwitz 90 President and Chief Executive Officer Ronald J. Gidwitz 50 Executive Vice President and Chief Operating Officer Michael Goldman 58 Executive Vice President Gilbert P. Smith 58 Senior Vice President Charles G. Cooper 67 Senior Vice President Colin J. Morgan 59 Senior Vice President Eugene Zeffren 53 Vice President and Chief Information Officer Thomas J. Gildea 51 Vice President and Chief Financial Officer Lawrence A. Gyenes 44 Vice President V. James Marino 45 Vice President Robert K. Niles 50 Vice President and Corporate Controller Mary J. Oyer 46 Vice President Robert Sack 58 Vice President, Secretary and General Counsel Roy A. Wentz 45 Treasurer Arthur A. Schneider 48
Foreign-Based Officers:
President and Managing Director, Helene Curtis United Kingdom and Vice President of the Company Robert G. Kelly 51
President, Helene Curtis Ltd. (Canada) and Vice President of the Company Jack D. Pogue 62
Ronald J. Gidwitz is the son of Gerald S. Gidwitz; Joseph L. Gidwitz and Gerald S. Gidwitz are brothers.
All executives have served in the capacities shown for the last five years except as follows: Charles G. Cooper, Michael Goldman, Robert G. Kelly, V. James Marino, Colin J. Morgan, Mary J. Oyer, Jack D. Pogue, Arthur A. Schneider, Gilbert P. Smith, Roy A. Wentz and Eugene Zeffren, all of whom have been employed by the Company in other executive capacities for at least five years and were elected to the positions shown during this five-year period. Prior to joining the Company in 1991, Robert K. Niles served in various capacities for The Quaker Oats Company, most recently as Vice President, Human Resources for its Breakfast Division. Prior to joining the Company in 1994, Lawrence A. Gyenes served in various capacities for G. D. Searle & Co., most recently as Corporate Vice President of Finance.
PART II
Item 5.

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Incorporated by reference to the Company's Annual Report to Stockholders for the fiscal year ended February 28, 1995, under the caption "Common Stock Data," page 31.
Item 6.

Item 6. Selected Financial Data
Incorporated by reference to the Company's Annual Report to Stockholders for the fiscal year ended February 28, 1995, under the caption "Ten-Year Summary," page 31.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Incorporated by reference to the Company's Annual Report to Stockholders for the fiscal year ended February 28, 1995, under the caption "Management's Discussion and Analysis," pages 22-23.
Item 8.

Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Company's Annual Report to Stockholders for the fiscal year ended February 28, 1995, see index in Part IV, Item 14 (a).
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors is incorporated by reference to the Company's Proxy Statement for the Company's Annual Meeting of Stockholders to be held June 27, 1995, under the captions "Nominees for Directors," "Continuing Directors" and "Compliance with Section 16(a)," pages 6-7 and 21. Information with respect to Executive Officers is set forth in Part I, under the caption "Executive Officers of the Registrant."
Item 11.

Item 11. Executive Compensation
Incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on June 27, 1995, under the caption "Executive Officer Compensation" but excluding information contained under "Compensation Committee Report on Executive Compensation," pages 9-12.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on June 27, 1995, under the captions "Principal Security Holders" and "Security Ownership of Management," pages 2-5.
Changes in Control: The Company knows of no contractual arrangements which may, at a subsequent date, result in a change in control of the Company.
Item 13.

Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on June 27, 1995, under the caption "Compensation Committee Interlocks and Insider Participation" and "Transactions with Affiliated Persons" on pages 16 and 18, respectively.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page in Annual Report to Stockholders --------------- (a) 1. Financial Statements:
Independent Accountants' Report 21
Consolidated Statements of Earnings for the years ended February 28, 1995, 1994 and 1993 24
Consolidated Statements of Stockholders' Equity for the years ended February 28, 1995, 1994 and 1993 24
Consolidated Balance Sheets as of February 28, 1995 and 1994 25
Consolidated Statements of Cash Flows for the years ended February 28, 1995, 1994 and 1993 26
Notes to Consolidated Financial Statements 27-30
(b) Reports on Form 8-K During the last quarter of the fiscal year ended February 28, 1995, the Company did not file any reports on Form 8-K.
(c) Exhibits
3 (i) The Certificate of Incorporation of Helene Curtis Industries, Inc., as amended, incorporated by reference to the Company's Annual Report listed on Form 10-K for the fiscal year ended February 29, 1992, Exhibit 3(a).
(ii) The bylaws of the Company, as amended, effective April 24, 1991. Incorporated by reference to the Company's Annual Report filed on Form 10-K for the fiscal year ended February 28, 1991, Exhibit 3(b).
4 (a) Letter of Credit Agreement dated as of October 1, 1986, between Helene Curtis, Inc. and Harris Trust and Savings Bank, relating to an Industrial Revenue bond refinancing. Incorporated by reference to the Company's Annual Report filed on Form 10-K for the fiscal year ended February 28, 1987, Exhibit 4(a).
(b) Revolving Credit Agreement dated as of September 13, 1990, between Helene Curtis, Inc. and the Harris Trust and Savings Bank; The First National Bank of Chicago; Bank of America National Trust & Savings Association; NBD Bank, N.A.; Mellon Bank, N.A.; Chemical Bank; The Industrial Bank of Japan, Limited; and The Mitsubishi Bank, Limited. Incorporated by reference to the Company's Annual Report filed on Form 10-K for the fiscal year ended February 28, 1991, Exhibit 4(c).
(c) Note Purchase Agreement dated as of January 31, 1992, between Helene Curtis, Inc. and Nationwide Life Insurance Company, West Coast Life Insurance Company, Financial Horizons Life Insurance Company, Farmland Life Insurance Company and Wisconsin Health Care Liability Insurance Plan. Incorporated by reference to the Company's Annual Report filed on Form 10-K for the fiscal year ended February 29, 1992, Exhibit 4(d).
(d) Note Agreement dated as of March 1, 1994, between Helene Curtis, Inc. and Connecticut Mutual Life Insurance Company, Connecticut General Life Insurance Company, Life Insurance Company of North America, Great-West Life and Annuity Insurance Company, Nationwide Life Insurance Company, Financial Horizons Life Insurance Company and Employers Life Insurance Company of Wausau. Incorporated by reference to the Company's Annual Report filed on Form 10-K for the fiscal year ended February 28, 1994, Exhibit 4(d).
10 Executive Compensation Plans and Arrangements
(a) Executive Pension Agreement. Incorporated by reference to the Helene Curtis, Inc. Annual Report filed on Form 10-K for the fiscal year ended February 28, 1981, Exhibit 10(a).
(b) 1983 Stock Option Plan, as amended. Incorporated by reference to the Company's Annual Report filed on Form 10-K for the fiscal year ended February 28, 1989, Exhibit 3(d).
(c) Death Benefit Agreement. Incorporated by reference to the Helene Curtis, Inc. Annual Report filed on Form 10-K for the fiscal year ended February 28, 1982, Exhibit 10(c).
(d) Supplemental Profit Sharing and Retirement Savings Plan.
(e) Directors Stock Option Plan. Incorporated by reference to the Proxy Statement for the Helene Curtis Industries, Inc. Annual Meeting of Stockholders held June 21, 1988.
(f) 1992 Stock Option Plan. Incorporated by reference to the Proxy Statement for the Helene Curtis Industries, Inc. Annual Meeting of Stockholders held June 16, 1992.
(g) 1994 Stock Appreciation Right Plan. Incorporated by reference to the Proxy Statement for the Helene Curtis Industries, Inc. Annual Meeting of Stockholders held June 28, 1994.
(h) Executive Management Incentive Plan. Incorporated by reference to the Proxy Statement for the Helene Curtis Industries, Inc. Annual Meeting of Stockholders held June 28, 1994.
(i) Executive Incentive Plan.
11 Computation of Earnings Per Share.
13 Annual Report to Stockholders, for the fiscal year ended February 28, 1995 (only those portions incorporated by reference in this document are deemed "filed.")
21 List of Subsidiaries.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(REGISTRANT) HELENE CURTIS INDUSTRIES, INC.
BY (SIGNATURE) s/Ronald J. Gidwitz (NAME AND TITLE) Ronald J. Gidwitz, President and Chief Executive Officer DATE May 25, 1995
BY (SIGNATURE) s/Lawrence A. Gyenes (NAME AND TITLE) Lawrence A. Gyenes, Vice President and Chief Financial Officer DATE May 25, 1995
BY (SIGNATURE) s/Mary J. Oyer (NAME AND TITLE) Mary J. Oyer, Vice President and Corporate Controller DATE May 25, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
BY (SIGNATURE) s/Marshall L. Burman (NAME AND TITLE) Marshall L. Burman, Director DATE May 25, 1995
BY (SIGNATURE) s/Frank W. Considine (NAME AND TITLE) Frank W. Considine, Director DATE May 25, 1995
BY (SIGNATURE) s/Charles G. Cooper (NAME AND TITLE) Charles G. Cooper, Director DATE May 25, 1995
BY (SIGNATURE) s/Gerald S. Gidwitz (NAME AND TITLE) Gerald S. Gidwitz, Chairman of the Board; Director DATE May 25, 1995
BY (SIGNATURE) s/Michael Goldman (NAME AND TITLE) Michael Goldman, Director DATE May 25, 1995
BY (SIGNATURE) s/Joseph L. Gidwitz (NAME AND TITLE) Joseph L. Gidwitz, Director DATE May 25, 1995
BY (SIGNATURE) s/Ronald J. Gidwitz (NAME AND TITLE) Ronald J. Gidwitz, President; Principal Executive Officer; Director DATE May 25, 1995
BY (SIGNATURE) s/John C. Stetson (NAME AND TITLE) John C. Stetson, Director DATE May 25, 1995
BY (SIGNATURE) s/Abbie J. Smith (NAME AND TITLE) Abbie J. Smith, Director DATE May 25, 1995
BY (SIGNATURE) s/Gilbert P. Smith (NAME AND TITLE) Gilbert P. Smith, Director DATE May 25, 1995