-----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, NCOvxlyxhqoJNIFQZ9kZxQxbNTui1b+i0rTSW/1ZIY1t7A7mtdnQCqx5JaqeI+EK DtM9kDXHLxmhF4XV6k/RAQ== 0000950129-98-002197.txt : 19980518 0000950129-98-002197.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950129-98-002197 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENNESSEE GAS PIPELINE CO CENTRAL INDEX KEY: 0000097142 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 741056569 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04101 FILM NUMBER: 98625360 BUSINESS ADDRESS: STREET 1: 1001 LOUISIANA STREET 2: EL PASO ENERGY BLDG CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7137572131 MAIL ADDRESS: STREET 1: 1001 LOUISIANA STREET 2: EL PASO ENERGY BLDG CITY: HOUSTON STATE: TX ZIP: 77002 FORMER COMPANY: FORMER CONFORMED NAME: TENNECO INC DATE OF NAME CHANGE: 19871227 FORMER COMPANY: FORMER CONFORMED NAME: TENNESSEE GAS TRANSMISSION CO DATE OF NAME CHANGE: 19680411 10-Q 1 TENNESSEE GAS PIPELINE COMPANY 1 ================================================================================ UNITED STATES 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 MARCH 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-4101 --------------------- TENNESSEE GAS PIPELINE COMPANY (Exact Name of Registrant as Specified in its Charter) DELAWARE 74-1056569 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) EL PASO ENERGY BUILDING 1001 LOUISIANA, HOUSTON, TEXAS 77002 (Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (713) 420-2131 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.
CLASS OUTSTANDING ----- ----------- Common Stock, par value $5.00 per share, as of May 14, 1998 208 shares
TENNESSEE GAS PIPELINE COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A REDUCED DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION. ================================================================================ 2 GLOSSARY The following abbreviations, acronyms, or defined terms used in this Form 10-Q are defined below:
DEFINITIONS ----------- ALJ......................... Administrative Law Judge Company..................... Tennessee Gas Pipeline Company and its subsidiaries Court of Appeals............ United States Court of Appeals for the District of Columbia Circuit EPA......................... United States Environmental Protection Agency EPG......................... El Paso Natural Gas Company EPTPC....................... El Paso Tennessee Pipeline Co. an indirect subsidiary of El Paso Natural Gas Company FERC........................ The Federal Energy Regulatory Commission GSR......................... Gas supply realignment PCB(s)...................... Polychlorinated biphenyl(s) PLN......................... Perusahaan Listrik Negra, the Indonesian government-owned electric utility PRP(s)...................... Potentially responsible party(ies) SFAS........................ Statement of Financial Accounting Standards TGP......................... Tennessee Gas Pipeline Company, a wholly owned subsidiary of El Paso Tennessee Pipeline Co.
i 3 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TENNESSEE GAS PIPELINE COMPANY CONDENSED COMBINED STATEMENTS OF INCOME (IN MILLIONS) (UNAUDITED)
FIRST QUARTER ENDED MARCH 31, ------------------ 1998 1997 ------ ------ PRE-CONTRIBUTION COMBINED Operating revenues.......................................... $1,455 $1,595 ------ ------ Operating expenses Cost of gas and other products............................ 1,210 1,385 Operation and maintenance................................. 106 94 Depreciation, depletion, and amortization................. 39 44 Taxes, other than income taxes............................ 13 16 ------ ------ 1,368 1,539 ------ ------ Operating income............................................ 87 56 ------ ------ Other (income) and expense Interest and debt expense................................. 31 13 Other -- net.............................................. (13) (17) ------ ------ 18 (4) ------ ------ Income before income taxes.................................. 69 60 Income tax expense.......................................... 23 23 ------ ------ Net income.................................................. $ 46 $ 37 ====== ====== Comprehensive income........................................ $ 45 $ 37 ====== ======
The accompanying Notes are an integral part of these Condensed Consolidated and Combined Financial Statements. 1 4 TENNESSEE GAS PIPELINE COMPANY CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE AMOUNTS) (UNAUDITED) ASSETS
MARCH 31, DECEMBER 31, 1998 1997 ----------------- ---------------- POST-CONTRIBUTION PRE-CONTRIBUTION CONSOLIDATED COMBINED Current assets Cash and temporary investments............................ $ 21 $ 34 Accounts and notes receivable, net........................ 992 1,047 Inventories............................................... 25 41 Deferred income tax benefit............................... 100 100 Other..................................................... 299 275 ------ ------ Total current assets.............................. 1,437 1,497 Property, plant, and equipment, net......................... 4,773 4,833 Other....................................................... 409 379 ------ ------ Total assets...................................... $6,619 $6,709 ====== ====== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable.......................................... $ 711 $ 836 Short-term borrowings (including current maturities of long-term debt)........................................ 424 425 Note payable to EPG....................................... 125 125 Other..................................................... 487 509 ------ ------ Total current liabilities......................... 1,747 1,895 ------ ------ Long-term debt, less current maturities..................... 977 976 ------ ------ Deferred income taxes....................................... 1,167 1,150 ------ ------ Other....................................................... 793 798 ------ ------ Commitments and contingencies (See Note 4) Minority Interest........................................... 25 25 ------ ------ Stockholder's equity Common stock, par value $5 per share; authorized 300 shares; issued 208 shares.............................. -- -- Additional paid-in capital................................ 1,873 1,872 Retained earnings......................................... 45 -- Accumulated other comprehensive income.................... (8) (7) ------ ------ Total stockholder's equity........................ 1,910 1,865 ------ ------ Total liabilities and stockholder's equity........ $6,619 $6,709 ====== ======
The accompanying Notes are an integral part of these Condensed Consolidated and Combined Financial Statements. 2 5 TENNESSEE GAS PIPELINE COMPANY CONDENSED COMBINED STATEMENTS OF CASH FLOWS (IN MILLIONS) (UNAUDITED)
FIRST QUARTER ENDED MARCH 31, ---------------- 1998 1997 ----- ----- PRE-CONTRIBUTION COMBINED Cash flows from operating activities Net income................................................ $ 46 $ 37 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion, and amortization.............. 39 44 Deferred income taxes.................................. 19 44 Other.................................................. (4) (2) Working capital changes................................... (91) 115 Other..................................................... 12 (12) ----- ----- Net cash provided by operating activities......... 21 226 ----- ----- Cash flows from investing activities Capital expenditures...................................... (19) (16) Investment in joint ventures and equity investees......... (23) -- Net changes in advances to EPG............................ 1 (211) Collection of note receivable from partnership............ -- 53 Other..................................................... 7 3 ----- ----- Net cash used in investing activities............. (34) (171) ----- ----- Cash flows from financing activities Net proceeds from long-term debt issuance................. -- 883 Dividend to EPTPC......................................... -- (889) Repayment of note payable to EPG.......................... -- (45) ----- ----- Net cash used in financing activities............. -- (51) ----- ----- Increase (decrease) in cash and temporary investments....... (13) 4 Cash and temporary investments Beginning of period............................... 34 19 ----- ----- End of period..................................... $ 21 $ 23 ===== =====
The accompanying Notes are an integral part of these Condensed Consolidated and Combined Financial Statements. 3 6 TENNESSEE GAS PIPELINE COMPANY NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED) 1. CHANGE IN REPORTING ENTITY In March 1998, El Paso Management Company, a subsidiary of EPG and parent of EPTPC, exchanged all the common stock of El Paso Marketing Services Company ("EPMSC") for approximately 934,000 shares of 6 1/4% Cumulative Junior Preferred Stock, Series C ("Series C Preferred Stock") of EPTPC for a total value of $47 million representing the net book value of EPMSC at the exchange date. EPTPC, in turn, contributed the common stock of EPMSC to TGP. This exchange resulted in a change in reporting entity as defined in Accounting Principles Board Opinion No. 20, Accounting Changes, requiring a restatement in order to show financial information for the new reporting entity for all periods presented. The condensed consolidated balance sheet at March 31, 1998, contained herein reflects the contribution of EPMSC and is referred to as "Post-Contribution Consolidated". The combined financial statements of the Company for periods prior to March 31, 1998, are referred to as "Pre-Contribution Combined." The pre-contribution combined financial statements have been prepared as though the exchange had occurred January 1, 1997, and the value assigned to the Series C Preferred Stock was $58 million, the book value of the net assets of EPMSC at January 1, 1997. Earnings in each respective period from January 1, 1997, to the exchange date are reflected as an increase or decrease in the assigned value of Series C Preferred Stock. Net income excluding the effects of the exchange of EPMSC for the quarters ended March 31, 1998 and 1997, would have been $45 million and $48 million, respectively. 2. BASIS OF PRESENTATION The 1997 Annual Report on Form 10-K for the Company includes a summary of significant accounting policies and other disclosures and should be read in conjunction with this Form 10-Q. The condensed consolidated and combined financial statements at March 31, 1998 and December 31, 1997, and for the quarters ended March 31, 1998, and 1997, are unaudited. These financial statements do not include all disclosures required by generally accepted accounting principles. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included. All such adjustments are of a normal recurring nature. Results of operations for any interim period are not necessarily indicative of the results of operations for the entire year due to the seasonal nature of the Company's businesses. Comprehensive Income In compliance with SFAS No. 130, Reporting Comprehensive Income, the Company has displayed comprehensive income in the Condensed Combined Statements of Income. The only component of comprehensive income is the cumulative translation adjustment which results from differences in the translation of foreign currencies. This amount is reflected as accumulated other comprehensive income in the Condensed Consolidated and Combined Balance Sheets. 3. SEGMENTS The Company has elected to adopt the standards outlined in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, effective January 1, 1998. The adoption of SFAS No. 131 did not cause the Company's aggregation of business activities into segments to change from previously reported periods. The Regulated segment includes the interstate pipeline systems of TGP, Midwestern Gas Transmission Company, and East Tennessee Natural Gas Company. The segment transports natural gas to the northeast section of the United States including the states of Tennessee, Virginia, and Georgia as well as New York City, Chicago, and Boston metropolitan areas. The Non-Regulated segment provides natural gas gathering, products extraction, dehydration, purification, compression and intrastate transmission services. The 4 7 Non-Regulated segment also markets and trades natural gas, power, and petroleum products, and develops and operates energy infrastructure facilities worldwide. The accounting policies of the individual segments are the same as those of the Company, as a whole, as summarized in Note 2, Basis of Presentation.
SEGMENTS FOR THE QUARTER ENDED MARCH 31, 1998 ------------------------------------ NON- REGULATED REGULATED TOTAL --------- --------- ------ (IN MILLIONS) PRE-CONTRIBUTION COMBINED Revenues from external customers................... $ 203 $1,252 $1,455 Intersegment revenue............................... 9 -- 9 Operating income (loss)............................ 94 (7) 87
POST-CONTRIBUTION CONSOLIDATED Segment assets..................................... 5,294 1,213 6,507
SEGMENTS FOR THE QUARTER ENDED MARCH 31, 1997 ------------------------------------ NON- REGULATED REGULATED TOTAL --------- --------- ------ (IN MILLIONS) PRE-CONTRIBUTION COMBINED Revenues from external customers................... $ 205 $1,390 $1,595 Intersegment revenue............................... 10 -- 10 Operating income (loss)............................ 80 (24) 56 Segment Assets..................................... 4,802 1,323 6,125
The reconciliations of operating income to income before income taxes are presented below for the quarters ended March 31:
1998 1997 ---- ---- (IN MILLIONS) PRE-CONTRIBUTION COMBINED Operating income............................................ $ 87 $ 56 Interest and debt expense................................... (31) (13) Other -- net................................................ 13 17 ---- ---- Income before income taxes.................................. $ 69 $ 60 ==== ====
4. COMMITMENTS AND CONTINGENCIES Indonesian Economic Difficulties The Company owns a 47.5 percent interest in a power generating plant in Sengkang, South Sulawesi, Indonesia, with a book value at March 31, 1998 of approximately $20 million. Current economic events in Indonesia have resulted in the devaluation of the Indonesian Rupiah and delays or cancellations of certain infrastructure power projects in that country. The Company has met with PLN and the Indonesian Minister of Finance to discuss the terms of its power sales agreement in light of the current Indonesian economic problems. While the Company cannot predict the ultimate outcome of Indonesia's financial difficulties or the impact of such matters to the Company, it believes PLN, with the backing of the Office of the Minister of Finance, will honor all obligations on the Sengkang project in full. The Company believes the current economic difficulties in Indonesia will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. As of April 30, 1998, all amounts billed and due had been paid in full. Rates and Regulatory Matters In February 1997, TGP filed with FERC a settlement of all issues related to the recovery of its GSR and other transition costs and related proceedings (the "GSR Stipulation and Agreement"). In April 1997, FERC approved the settlement and TGP implemented the settlement on May 1, 1997. Under the terms of the GSR Stipulation and Agreement, TGP is entitled to collect from customers up to $770 million, of which 5 8 approximately $701 million has been collected as of March 31, 1998. TGP is entitled to recover additional transition costs, up to the remaining $69 million, through a demand transportation surcharge and an interruptible transportation surcharge. The demand transportation surcharge portion is scheduled to be recovered over a period extending through December 1998. There is no time limit for collection of the interruptible transportation surcharge portion. The terms of the GSR Stipulation and Agreement also provide for a rate case moratorium through November 2000 (subject to certain limited exceptions) and an escalating rate cap, indexed to inflation, through October 2005, for certain of TGP's customers. In December 1994, TGP filed for a general rate increase with FERC and in October 1996, FERC approved the settlement resolving that proceeding. The settlement included a structural rate design change that results in a larger portion of TGP's transportation revenues being dependent upon throughput. Under the settlement, TGP's refund obligation was approximately $185 million, inclusive of interest, of which $161 million was refunded to customers in March 1997 and June 1997 with the remaining $24 million refund obligation offset against GSR recoveries in accordance with particular customer elections. TGP had provided a reserve for these rate refunds as revenues were collected. One party, a competitor of TGP, filed with the Court of Appeals a Petition for Review of the FERC orders. In July 1997, FERC issued an order on rehearing of its July 1996 order addressing cost allocation and rate design issues of TGP's 1991 general rate proceeding. All cost of service issues were previously resolved pursuant to a settlement that was approved by FERC. In the July 1996 order, FERC remanded to the presiding ALJ the issue of proper allocation of TGP's New England lateral costs. In the July 1997 order on rehearing, FERC clarified, among other things, that although the ultimate resolution as to the proper allocation of costs will be applied retroactively to July 1, 1995, the cost of service settlement does not allow TGP to recover from other customers amounts that TGP may ultimately be required to refund. TGP has filed with the Court of Appeals a Petition for Review of the FERC orders on this issue. In December 1997, the ALJ issued his decision on the proper allocation of the New England lateral costs. The decision adopts a methodology that economically approximates TGP's current methodology. The ALJ's decision is pending before FERC. In October 1997, TGP filed its cashout report for the period September 1995 through August 1996. TGP previously filed cashout reports for the period September 1993 through August 1995. TGP's October 1997 filing showed a cumulative loss of $11 million that would be rolled forward to the next cashout period pursuant to its tariff. FERC has requested additional information and justification from TGP as to its cashout methodology and reports. TGP's cashout methodology and reports are currently pending before FERC. Substantially all of the revenues of TGP are generated under long-term gas transmission contracts. Contracts representing approximately 70 percent of TGP's firm transportation capacity will be expiring over the next three years, principally in November 2000. Although TGP cannot predict how much capacity will be resubscribed, a majority of the expiring contracts cover service to northeastern markets, where there is currently little excess capacity. Several projects, however, have been proposed to deliver incremental volumes to these markets. Although TGP is actively pursuing the renegotiation, extension and/or replacement of these contracts, there can be no assurance as to whether TGP will be able to extend or replace these contracts (or a substantial portion thereof) or that the terms of any renegotiated contracts will be as favorable to TGP as the existing contracts. Management believes the ultimate resolution of the aforementioned rate and regulatory matters, which are in various stages of finalization, will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. Environmental Matters As of March 31, 1998, the Company had a reserve of approximately $245 million to cover environmental assessments and remediation activities discussed below. Since 1988, TGP has been engaged in an internal project to identify and deal with the presence of PCBs and other substances of concern, including substances on the EPA List of Hazardous Substances, at 6 9 compressor stations and other facilities operated by both its interstate and intrastate natural gas pipeline systems. While conducting this project, TGP has been in frequent contact with federal and state regulatory agencies, both through informal negotiation and formal entry of consent orders, to assure that its efforts meet regulatory requirements. In May 1995, following negotiations with its customers, TGP filed with FERC a separate Stipulation and Agreement (the "Environmental Stipulation") that establishes a mechanism for recovering a substantial portion of the environmental costs identified in the internal project. In November 1995, FERC issued an order approving the Environmental Stipulation. Although one shipper filed for rehearing, FERC denied rehearing of its order in February 1996. The Environmental Stipulation was effective July 1, 1995. As of March 31, 1998, a balance of $20 million remains to be collected under the stipulation. The Company and certain of its subsidiaries have been designated, have received notice that they may be designated, or have been asked for information to determine whether they could be designated as a PRP with respect to 29 sites under the Comprehensive Environmental Response, Compensation and Liability Act or state equivalents. The Company has sought to resolve its liability as a PRP with respect to these sites through indemnification by third parties and/or settlements which provide for payment of the Company's allocable share of remediation costs. Because the clean-up costs are estimates and are subject to revision as more information becomes available about the extent of remediation required, and because in some cases the Company has asserted a defense to any liability, the Company's estimate of its share of remediation costs could change. Moreover, liability under the federal Superfund statute is joint and several, meaning that the Company could be required to pay in excess of its pro rata share of remediation costs. The Company's understanding of the financial strength of other PRPs has been considered, where appropriate, in its determination of its estimated liability as described herein. The Company presently believes that the costs associated with the current status of such entities as PRPs at the sites referenced above will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. The Company has initiated proceedings against its historic liability insurers seeking payment or reimbursement of costs and liabilities associated with environmental matters. In these proceedings, the Company contends that certain environmental costs and liabilities associated with various entities or sites, including costs associated with former operating sites, must be paid or reimbursed by certain of its historic insurers. The proceedings are in their initial stages and, accordingly, it is not possible to predict the outcome. It is possible that new information or future developments could require the Company to reassess its potential exposure related to environmental matters. The Company may incur significant costs and liabilities in order to comply with existing environmental laws and regulations. It is also possible that other developments, such as increasingly strict environmental laws, regulations and enforcement policies thereunder, and claims for damages to property, employees, other persons and the environment resulting from current or discontinued operations, could result in substantial costs and liabilities in the future. As such information becomes available, or developments occur, related accrual amounts will be adjusted accordingly. While there are still uncertainties relating to the ultimate costs which may be incurred, based upon the Company's evaluation and experience to date, the Company believes the recorded reserve is adequate. Legal Proceedings On February 12, 1998, the United States and the State of Texas filed in a United States District Court a Comprehensive Environmental Response, Compensation and Liability Act cost recovery action, United States v. Atlantic Richfield Co., et al against fourteen companies including the following affiliates of EPG: TGP, EPTPC, EPEC Corporation, EPEC Polymers, Inc. and the dissolved Petro-Tex Chemical Corporation, relating to the Sikes Disposal Pits Superfund Site ("Sikes") located in Harris County, Texas. Sikes was an unpermitted waste disposal site during the 1960s that accepted waste hauled from numerous Houston Ship Channel industries. The suit alleges that the former Tenneco Chemicals, Inc. and Petro-Tex Chemical Corporation arranged for disposal of hazardous substances at Sikes. TGP, EPTPC, EPEC Corporation and EPEC Polymers, Inc. are alleged to be derivatively liable as successors or as parent corporations. The suit claims that the United States and the State of Texas have expended over 7 10 $125 million in remediating the site, and seeks to recover that amount plus interest. Other companies named as defendants include Atlantic Richfield Company, Crown Central Petroleum Corporation, Occidental Chemical Corporation, Exxon Corporation, Goodyear Tire & Rubber Company, Rohm & Haas Company, Shell Oil Company and Vacuum Tanks, Inc. These defendants have filed their answers and third-party complaints have been filed seeking contribution from twelve other entities believed to be PRPs at Sikes. Although factual investigation relating to Sikes is in very preliminary stages, the Company believes that the amount of material disposed at Sikes from the Tenneco Chemicals, Inc. or Petro-Tex Chemical Corporation facilities, if any, was small, possibly de minimis. However, the government plaintiffs have alleged that the defendants are each jointly and severally liable for the entire remediation costs and have also sought a declaration of liability for future response costs such as groundwater monitoring. While the outcome of this matter cannot be predicted with certainty, management does not expect this matter to have a material adverse effect on the Company's financial position, results of operations, or cash flows. TGP is a party in proceedings involving federal and state authorities regarding the past use by TGP of a lubricant containing PCBs in its starting air systems. TGP has executed a consent order with the EPA governing the remediation of certain of its compressor stations and is working with the relevant states regarding those remediation activities. TGP is also working with the Pennsylvania and New York environmental agencies to specify the remediation requirements at the Pennsylvania and New York stations. Remediation activities in Pennsylvania are complete with the exception of some long-term groundwater monitoring requirements. Remediation and characterization work at the compressor stations under its consent order with the EPA and the jurisdiction of the New York Department of Environmental Conservation is ongoing. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. In Commonwealth of Kentucky, Natural Resources and Environmental Protection Cabinet v. Tennessee Gas Pipeline Company (Franklin County Circuit Court, Docket No. 88-C1-1531, November 16, 1988), the Kentucky environmental agency alleged that TGP discharged pollutants into the waters of the state without a permit and disposed of PCBs without a permit. The agency sought an injunction against future discharges, sought an order to remediate or remove PCBs, and sought a civil penalty. TGP has entered into agreed orders with the agency to resolve many of the issues raised in the original allegations, has received water discharge permits for its Kentucky stations from the agency, and continues to work to resolve the remaining issues. The relevant Kentucky compressor stations are scheduled to be characterized and remediated under the consent order with the EPA. Management believes that the resolution of this issue will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. The Company is a named defendant in numerous lawsuits and a named party in numerous governmental proceedings arising in the ordinary course of business. While the outcome of such lawsuits or other proceedings against the Company cannot be predicted with certainty, management currently does not expect these matters to have a material adverse effect on the Company's financial position, results of operations, or cash flows. Year 2000 The Company has established an executive steering committee and a project team to coordinate the assessment, remediation, testing and implementation of the necessary modifications to its key computer applications (which consist of internally developed computer applications, third party software, hardware and embedded chip systems) to assure that such systems and related processes will remain functional. The assessment phase related to internally developed computer applications has been completed and the cost estimate for making the necessary changes to such systems, including implementation and testing efforts, is approximately $4 million to be spent in 1998 and 1999. These estimates were based on various factors including availability of internal and external resources and complexity of the software applications. The recent upgrade of various systems, particularly the financial systems, to a Year 2000 compliant client/server platform has greatly reduced or eliminated concerns in those areas. 8 11 The assessment phase for the third party software, hardware, and embedded chip systems impacts is continuing, with completion of that phase and an estimate of costs necessary to modify or replace those systems to be available in the second quarter of 1998. Included in this phase of the project is the effort to obtain representations and assurances from third party vendors that their software, hardware products, and embedded chip systems being used by the Company are or will be Year 2000 compliant. Implementation and testing phases are expected to be completed by mid 1999. It is the Company's goal to ensure that all of the critical systems and processes which are under its direct control remain functional. However, because certain systems may be interrelated with systems outside the control of the Company, there can be no assurance that all implementations will be successful. Management does not expect the costs to modify its systems or to correct any unsuccessful system implementations to have a material adverse impact on the Company's financial position, results of operations, or cash flows. 5. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment at March 31, 1998, and December 31, 1997, consisted of the following:
1998 1997 ----------------- ---------------- (IN MILLIONS) POST-CONTRIBUTION PRE-CONTRIBUTION CONSOLIDATED COMBINED Property, plant, and equipment, at cost............... $2,504 $2,534 Less accumulated depreciation and depletion........... 150 125 ------ ------ 2,354 2,409 Additional acquisition cost assigned to utility plant, net of accumulated amortization..................... 2,419 2,424 ------ ------ Total property, plant, and equipment, net... $4,773 $4,833 ====== ======
6. INVENTORIES Inventories at March 31, 1998, and December 31, 1997, consisted of the following:
1998 1997 ----------------- ---------------- (IN MILLIONS) POST-CONTRIBUTION PRE-CONTRIBUTION CONSOLIDATED COMBINED Materials and supplies.............................. $16 $16 Gas in storage...................................... 9 25 --- --- $25 $41 === ===
Materials and supplies and gas in storage are valued at the lower of cost or market, with cost determined using the average cost method. 7. RECENT PRONOUNCEMENTS Pensions and Other Postretirement Benefits Disclosures In February 1998, SFAS No. 132, Employer's Disclosures about Pensions and Other Postretirement Benefits, was issued by the Financial Accounting Standards Board to standardize related disclosure requirements. SFAS No. 132 requires that additional information be disclosed regarding changes in the benefit obligation and fair values of plan assets, and eliminates certain disclosures no longer considered useful, including general descriptions of the plans. Aggregation of information about certain plans is also permitted. This statement does not change the requirements for the measurement and recognition of those plans. It is effective for fiscal years beginning after December 15, 1997. The Company is currently evaluating the effects of this pronouncement. 9 12 Accounting for the Costs of Computer Software Developed or Obtained for Internal Use In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement provides guidance for accounting of such costs, and also defines internal-use computer software. It is effective for fiscal years beginning after December 15, 1998. The Company is currently evaluating the effects of this pronouncement. Reporting on the Costs of Start-Up Activities In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities. The statement defines start-up activities and requires start-up and organization costs to be expensed as incurred. It is effective for fiscal years beginning after December 15, 1998. The Company is currently evaluating the effects of this pronouncement. 10 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in Item 2 updates, and should be read in conjunction with, information set forth in Part II, Items 7, 7A, and 8, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, in addition to the interim condensed consolidated and combined financial statements and accompanying notes presented in Item 1 of this Form 10-Q. CHANGE IN REPORTING ENTITY In March 1998, El Paso Management Company, a subsidiary of EPG and the parent of EPTPC, exchanged all the common stock of EPMSC for approximately 934,000 shares of Series C Preferred Stock of EPTPC for a total value of $47 million. EPTPC, in turn, contributed the common stock of EPMSC to TGP. This contribution resulted in a change in reporting entity as defined in Accounting Principles Board Opinion No. 20, Accounting Changes, requiring a restatement in order to show financial information for the new reporting entity for all periods presented. The management's discussion and analysis of financial condition and results of operations below is based on restated information for the new reporting entity. RESULTS OF OPERATIONS GENERAL The Company has elected to adopt the standards outlined in SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, effective January 1, 1998. The adoption of SFAS No. 131 did not cause the Company's aggregation of business activities into segments to change from previously reported periods. Operating revenues by segment include intersegment sales which are eliminated in consolidation. For a further discussion of the individual segments, see Note 3 of Item 1, Financial Statements. FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997 SEGMENT RESULTS
FIRST QUARTER ENDED MARCH 31, -------------- 1998 1997 ---- ---- (IN MILLIONS) PRE-CONTRIBUTION COMBINED -------------- OPERATING INCOME Regulated................................................... $ 94 $ 80 Non Regulated............................................... (7) (24) ---- ---- Total operating income............................ $ 87 $ 56 ==== ====
Operating income for the quarter ended March 31, 1998, was $31 million higher than for the same period of 1997 as discussed below. 11 14 Regulated Operations
FIRST QUARTER ENDED MARCH 31, --------------- 1998 1997 ----- ----- (IN MILLIONS) PRE-CONTRIBUTION COMBINED Operating revenues.......................................... $ 212 $ 215 Operating expenses.......................................... (118) (135) ----- ----- Operating income.......................................... $ 94 $ 80 ===== =====
Operating revenues for the quarter ended March 31, 1998 were $3 million lower than for the same period of 1997 primarily because of lower transportation volumes resulting from warmer average temperatures in the northeastern and midwestern markets. Operating expenses for the quarter ended March 31, 1998 were $17 million lower than for the same period of 1997 primarily due to lower fuel costs associated with the change in throughput attributable to warmer average temperatures in the northeast and midwest in the first quarter of 1998. Also contributing to the decrease in operating expenses were lower labor costs, benefit costs, and payroll taxes which resulted from the reduction in staffing levels which occurred during the first quarter of 1997. Depreciation expense was also lower in the first quarter of 1998 due to the finalization of the adjustments to the purchase price amount allocated to property, plant and equipment based on the completion of an independent asset appraisal in the fourth quarter of 1997. Non-Regulated Operations
FIRST QUARTER ENDED MARCH 31, ---------------- 1998 1997 ----- ----- (IN MILLIONS) PRE-CONTRIBUTION COMBINED Gathering and treating margin............................... $ 3 $ 2 Processing margin........................................... 1 3 Natural gas and petroleum marketing margin.................. 6 (5) Power margin................................................ 7 -- --- ---- Total gross margin................................ 17 -- Other revenues.............................................. 15 -- Operating expenses.......................................... 39 24 --- ---- Operating loss.............................................. $(7) $(24) === ====
Total gross margin (revenue less cost of sales) for the quarter ended March 31, 1998 was $17 million higher than for the same period of 1997. The increase is primarily due to the income recognition from long-term natural gas and electric power contracts closed during the quarter. The Company's energy marketing operations have been negatively impacted by low natural gas and power trading margins, which are expected to continue. Other revenues for the quarter ended March 31, 1998, were $15 million higher than for the same period of 1997. The increase was due primarily to the acquisition of a controlling interest in the EMA Power project in June 1997. 12 15 Operating expenses for the quarter ended March 31, 1998, were $15 million higher than for the same period of 1997 primarily due to costs related to the EMA Power project, increased costs associated with the Company's marketing activities, and higher international project development costs. OTHER INCOME AND EXPENSE Other expense for the quarter ended March 31, 1998, was $22 million higher than for the same period of 1997. The increase was due primarily to the increase in average debt outstanding during the first quarter of 1998 as a result of the March 1997 issuance of long-term debt of approximately $883 million. 13 16 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that, while such assumptions or bases are believed to be reasonable and are made in good faith, assumed facts or bases almost always vary from the actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, the Company or its management expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. The words "believe," "expect," "estimate," "anticipate" and similar expressions may identify forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include increasing competition within the Company's industry, the timing and extent of changes in commodity prices for natural gas and power, uncertainties associated with acquisitions and joint ventures, potential environmental liabilities, potential contingent liabilities and tax liabilities related to acquisitions, including EPG's acquisition of the Company, political and economic risks associated with current and future operations in foreign countries, conditions of the equity and other capital markets during the periods covered by the forward-looking statements, and other risks, uncertainties and factors discussed more completely in the Company's other filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 1997. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes from the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 14 17 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Part I, Financial Information, Note 4, which is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits Each exhibit identified below is filed as a part of this report.
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.B -- By-laws of TGP, as amended March 1, 1998. 27 -- Financial Data Schedule.
Undertaking The undersigned, TGP, hereby undertakes, pursuant to Regulation S-K, Item 601(b), paragraph (4)(iii), to furnish to the Securities and Exchange Commission upon request all constituent instruments defining the rights of holders of long-term debt of TGP and its consolidated subsidiaries not filed herewith for the reason that the total amount of securities authorized under any of such instruments does not exceed 10 percent of the total consolidated assets of TGP and its consolidated subsidiaries. b. Reports on Form 8-K None 15 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TENNESSEE GAS PIPELINE COMPANY Date: May 15, 1998 /s/ H. BRENT AUSTIN ------------------------------------ H. Brent Austin Executive Vice President Date: May 15, 1998 /s/ JEFFREY I. BEASON ------------------------------------ Jeffrey I. Beason Vice President and Controller (Chief Accounting Officer) 16 EX-3.B 2 BY-LAWS OF TENNESSEE GAS PIPELINE 1 EXHIBIT 3.B TENNESSEE GAS PIPELINE COMPANY (A DELAWARE CORPORATION) BY-LAWS Adopted March 1, 1998 2 BY-LAWS OF TENNESSEE GAS PIPELINE COMPANY ARTICLE I OFFICES SECTION 1.1. REGISTERED OFFICE AND AGENT. The registered office of the corporation is located at Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, State of Delaware, and the name of its registered agent at such address is The Corporation Trust Company. SECTION 1.2. OTHER OFFICES. The corporation may have offices at such other places both within and without the State of Delaware as the Board of Directors (the "Board") may from time to time determine or the business of the corporation may require. ARTICLE II STOCKHOLDERS SECTION 2.1. ANNUAL MEETINGS. The annual meeting of the stockholders shall be held for the election of directors on the second Tuesday in June of each year, if such day be not a legal holiday, in the state where such meeting is to be held, or, if a legal holiday, then at the same time on such next succeeding business day at the principal office of the Corporation in the State of Delaware or at such other date, time or place either within or without the State of Delaware as may be designated by the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. SECTION 2.2. SPECIAL MEETINGS. Special meetings of stockholders, to be held at the principal office of the Corporation in the State of Delaware or at such other place within or without the State of Delaware and at such date and time as may be stated in the notice of the meeting, and for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Board of Directors, the Chairman of the Board, or the President, and shall be called by the Chairman of the Board, the President or the Secretary at the request in writing of stockholders owning a majority of the issued and outstanding shares of capital stock of the Corporation of the class or classes which would be entitled to vote on the matter or matters 3 proposed to be acted upon at such special meeting of stockholders. Any such request shall state the purpose or purposes of the proposed meeting. SECTION 2.3. NOTICE OF MEETINGS. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. SECTION 2.4. ADJOURNMENTS. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 2.5. QUORUM. At any meeting of stockholders, except where otherwise provided by law or the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of each class of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. For purposes of the foregoing, two or more classes or series of stock shall be considered a single class if the holders thereof are entitled to vote together as a single class at the meeting. In the absence of a quorum the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided by Section 2.4 of these by-laws until a quorum shall attend. Shares of its own capital stock belonging on the record date for the meeting to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. SECTION 2.6. ORGANIZATION. Meetings of stockholders shall be presided over by the Chairman of the Board, or in his absence, by the President, any Executive Vice President, Senior Vice President or Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the presiding chairman of the meeting may appoint any person to act as secretary of the meeting. -2- 4 SECTION 2.7. VOTING; PROXIES. Unless otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. The vote for directors and, upon the demand of any stockholder, the vote upon any question before the meeting shall be by written ballot. All elections shall be had and all questions decided, unless otherwise provided by law, the certificate of incorporation or these by-laws, by a plurality vote. SECTION 2.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be on the day on which the first written consent is expressed; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. SECTION 2.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place -3- 5 shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. ARTICLE III BOARD OF DIRECTORS SECTION 3.1. POWERS; NUMBERS; QUALIFICATIONS. The business, affairs, operations and property of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the certificate of incorporation. The number of directors constituting the entire Board shall be not less than one. The number of directors shall be as determined from time to time by resolution of the Board of Directors or by the stockholders at the Annual Meeting. Directors need not be stockholders. SECTION 3.2. ELECTION; TERM OF OFFICE; RESIGNATION; VACANCIES. Each director shall hold office until the annual meeting of stockholders next succeeding his election and until his successor is elected and qualified or until his earlier resignation or removal. Any director may resign at any time upon written notice to the Board of Directors, to the Chairman of the Board, to the President or to the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Unless otherwise provided in the certificate of incorporation or these by-laws, vacancies and newly created directorships resulting from any increase in the authorized number of directors or from any other cause may be filled by a majority of the directors then in office, although less than a quorum. SECTION 3.3. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given. SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, the President or by any two directors. Reasonable notice thereof shall be given by the person or persons calling the meeting. SECTION 3.5. TELEPHONIC MEETINGS PERMITTED. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. -4- 6 SECTION 3.6. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the Board of Directors, directors constituting a majority of the entire Board shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the certificate of incorporation or these by-laws shall require a vote of a greater number; provided, however, that whenever any meeting of the Board shall be held outside of the United States of America, no action taken at such meeting shall be effective unless concurred in by a majority of the entire Board. In case at any meeting of the Board a quorum shall not be present, the members of the Board present may adjourn the meeting from time to time until a quorum shall attend. SECTION 3.7. ORGANIZATION. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or in his absence, by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the presiding chairman of the meeting may appoint any person to act as secretary of the meeting. SECTION 3.8. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 3.9. ADVISORY DIRECTORS. The Board of Directors may, from time to time, elect one or more Advisory Directors, each of whom shall serve until the first meeting of the Board next following the Annual Meeting of Stockholders or until his earlier resignation or removal by the Board. Advisory Directors shall serve as advisors and consultants to the Board of Directors, shall be invited to attend all meetings of the Board and may participate in all discussions occurring during such meetings. Advisory Directors shall not be privileged to vote on matters brought before the Board and shall not be counted for the purpose of determining whether a quorum of the Board is present. ARTICLE IV COMMITTEES SECTION 4.1. COMMITTEES OF THE BOARD. The Board of Directors may, by resolution passed by a majority of the entire Board, designate one or more committees, each committee to consist of one or more of the directors. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Vacancies in any such committee shall be filled by the Board, but in the absence or disqualification of a member of such committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, -5- 7 and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), adopting an agreement of merger or consolidation under Sections 251 or 252 of the Delaware General Corporation Law, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, or amending these by-laws, and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. SECTION 4.2. COMMITTEE RULES. Unless the Board of Directors otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects such committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these by-laws. ARTICLE V OFFICERS SECTION 5.1. OFFICERS; GENERAL PROVISIONS. The officers of the Corporation shall consist of such of the following as the Board of Directors may from time to time elect: a Chairman of the Board, a President, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Secretary, a Treasurer and a Controller. The Chairman of the Board shall be chosen from among the directors. The Board may also elect one or more Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant Controllers, and such other officers with such titles and powers and/or duties as the Board shall from time to time determine. Officers may be designated for particular areas of responsibility and simultaneously serve as officers of subsidiaries or divisions. The foregoing officers shall be elected as soon as practicable after the annual meeting of stockholders in each year to hold office until the first meeting of the Board after the annual meeting of stockholders next succeeding his election, and until his successor is elected and qualified or until his earlier resignation or removal. Any officer so elected may resign at any time upon written notice to the Board, the Chairman of the Board, the President or the Secretary. Such resignation shall take effect at the time specified therein, and unless -6- 8 otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any officer may be removed, with or without cause, by vote of a majority of the entire Board of Directors at a meeting called for that purpose. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election or appointment of any officer shall not of itself create contractual rights. Any number of offices may be held by the same person. Any vacancy occurring in any office by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board at any regular or special meeting. SECTION 5.2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, when present, preside at all meetings of the stockholders and the Board; have authority to call special meetings of the stockholders and of the Board; have authority to sign and acknowledge in the name and on behalf of the corporation all stock certificates, contracts or other documents and instruments except where the signing thereof shall be expressly delegated to some other officer or agent by the Board or required by law to be otherwise signed or executed and, unless otherwise provided by law or by the Board may authorize any officer, employee or agent of the corporation to sign, execute and acknowledge in his place and stead all such documents and instruments; he shall fix the compensation of officers of the corporation, other than his own compensation, and the compensation of officers of its principal operating subsidiaries reporting directly to him unless such authority is otherwise reserved to the Board or a committee thereof; and he shall approve proposed employee compensation and benefit plans of subsidiary companies not involving the issuance or purchase of capital stock of the corporation. He shall have the power to appoint and remove any Vice President, Controller, General Counsel, Secretary or Treasurer of the corporation. He shall also have the power to appoint and remove such associate or assistant officers of the corporation with such titles and duties as he may from time to time deem necessary or appropriate. He shall have such other powers and perform such other duties as from time to time may be assigned to him by the Board or the Executive Committee. SECTION 5.3. PRESIDENT. The President shall have general control of the business, affairs, operations and property of the Corporation, subject to the Chairman of the Board and the Board of Directors. He may sign or execute, in the name of the Corporation, all deeds, mortgages, bonds, contracts or other undertakings or instruments, except in cases where the signing or execution thereof shall have been expressly delegated by the Chairman of the Board or the Board to some other officer or agent of the Corporation. He shall have and may exercise such powers and perform such duties as may be provided by law or as are incident to the office of President of a corporation and such other duties as are assigned by these by-laws and as may from time to time be assigned by the Chairman of the Board or the Board. SECTION 5.4. VICE PRESIDENTS. Each Executive Vice President, Senior Vice President, Vice President and Assistant Vice President shall have such powers and perform such duties as may be provided by law or as may from time to time be assigned to him, either generally or in specific instances, by the Board of Directors, the Chairman of the Board or the President. -7- 9 Any Executive Vice President or Senior Vice President may perform any of the duties or exercise any of the powers of the Chairman of the Board or the President at the request of, or in the absence or disability of, the Chairman of the Board or the President or otherwise as occasion may require in the administration of the business and affairs of the Corporation. Each Executive Vice President, Senior Vice President, Vice President and Assistant Vice President shall have authority to sign or execute all deeds, mortgages, bonds, contracts or other instruments on behalf of the Corporation, except in cases where the signing or execution thereof shall have been expressly delegated by the Board of Directors or these by-laws to some other officer or agent of the Corporation. SECTION 5.5. SECRETARY. The Secretary shall keep the minutes of meetings of the stockholders and of the Board of Directors in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of these by-laws, or as required by law; he shall be custodian of the records and of the corporate seal or seals of the Corporation; he shall see that the corporate seal is affixed to all documents requiring same, the execution of which, on behalf of the Corporation, under its seal, is duly authorized, and when said seal is so affixed he may attest same; and, in general, he shall perform all duties incident to the office of the secretary of a corporation, and such other duties as from time to time may be assigned to him by the Board, the Chairman of the Board or the President or as may be provided by law. Any Assistant Secretary may perform any of the duties or exercise any of the powers of the Secretary at the request of, or in the absence or disability of, the Secretary or otherwise as occasion may require in the administration of the business and affairs of the Corporation. SECTION 5.6. TREASURER. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositaries as shall, from time to time, be selected by or under authority of the Board of Directors; if required by the Board, he shall give a bond for the faithful discharge of his duties, with such surety or sureties as the Board may determine; he shall keep or cause to be kept full and accurate records of all receipts and disbursements in books of the Corporation and shall render to the Chairman of the Board, the President and the Board, whenever requested, an account of the financial condition of the Corporation; and, in general, he shall perform all the duties incident to the office of treasurer of a corporation, and such other duties as may be assigned to him by the Board, the Chairman of the Board or the President or as may be provided by law. SECTION 5.7. CONTROLLER. The Controller shall be the chief accounting officer of the Corporation. He shall keep full and accurate accounts of the assets, liabilities, commitments, receipts, disbursements and other financial transactions of the Corporation; shall cause regular audits of the books and records of account of the Corporation and supervise the preparation of the Corporation's financial statements; and, in general, he shall perform the duties incident to the office of controller of a corporation and such other duties as may be assigned to him by the Board, the Chairman of the Board or the President or as may be provided by law. If no Controller is elected by the Board of Directors, the Treasurer shall perform the duties of the office of controller. -8- 10 ARTICLE VI STOCK SECTION 6.1. CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board, the President or by any Executive Vice President, Senior Vice President or Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 6.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW CERTIFICATES. The Corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. ARTICLE VII MISCELLANEOUS SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall end on the thirty-first day of December in each year, or on such other day as may be fixed from time to time by the Board of Directors. SECTION 7.2. SEAL. The Corporation may have a corporate seal which shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. SECTION 7.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES. Whenever notice is required to be given by law or under any provision of the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of -9- 11 directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these by-laws. SECTION 7.4. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. The Corporation shall indemnify to the full extent authorized by law any person made or threatened to be made a party to any action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate, is or was a director, officer or employee of the Corporation or any predecessor of the Corporation or serves or served any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor of the Corporation. In the event that the Board of Directors or stockholders refuse or fail to provide indemnity, a person may seek indemnity from the Corporation in court and have the court substitute its judgment as to the propriety of indemnity, or determine such propriety in the absence of any determination thereof by the Board or by stockholders. SECTION 7.5. INTERESTED DIRECTORS; QUORUM. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction. SECTION 7.6. FORM OF RECORDS. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. SECTION 7.7. AMENDMENT OF BY-LAWS. These by-laws may be altered or repealed, and new by-laws made, by the affirmative vote of a majority of the entire Board of Directors, but the stockholders may make additional by-laws and may alter or repeal any by-laws whether or not adopted by them. -10- 12 SECTION 7.8. GENDER REFERENCES. All references and uses herein of the masculine pronouns "he" or "his" shall have equal applicability to and shall also mean their feminine counterpart pronouns, such as "she" or "her." -11- EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS. 1,000,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 21 0 992 0 25 1,437 4,773 0 6,619 1,747 977 0 0 0 1,910 6,619 0 1,455 0 1,368 0 0 31 69 23 46 0 0 0 46 0 0 NOT SEPARATELY IDENTIFIED IN THE CONSOLIDATED FINANCIAL STATEMENTS OR ACCOMPANYING NOTES THERETO.
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