FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 2-35965
NORTH SHORE GAS COMPANY
(Exact name of registrant as specified in its charter)
Illinois 36-1558720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24th Floor, 130 East Randolph Drive, Chicago, Illinois 60601-6207
(Address of principal executive offices) (Zip Code)
(312) 240-4000
(Registrant's telephone number, including area code)
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 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:
3,625,887 shares of Common Stock, without par value, outstanding at
April 30, 1997.
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
North Shore Gas Company
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Six Twelve
Months Ended Months Ended Months Ended
March 31, March 31, March 31,
------------- ------------- --------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Gas sales $71,839 $65,112 $118,432 $103,965 $163,038 $137,288
Transportation 5,511 4,581 9,738 8,699 15,250 13,732
Other 231 274 460 461 1,026 884
------- ------- -------- -------- -------- --------
Total Operating Revenues 77,581 69,967 128,630 113,125 179,314 151,904
------- ------- -------- -------- -------- --------
OPERATING EXPENSES:
Gas costs 48,670 39,772 76,618 61,530 101,392 78,443
Operation 5,553 6,867 11,292 12,254 24,931 23,923
Maintenance 732 777 1,472 1,541 3,167 3,062
Depreciation 1,868 1,922 3,911 3,713 7,827 7,409
Taxes - Income 5,464 5,371 9,087 8,575 8,916 7,323
- State & local revenue 4,890 4,803 8,285 7,785 11,251 10,422
- Other 549 554 1,064 1,045 2,166 2,158
------- ------- -------- -------- -------- --------
Total Operating Expenses 67,726 60,066 111,729 96,443 159,650 132,740
------- ------- -------- -------- -------- --------
OPERATING INCOME 9,855 9,901 16,901 16,682 19,664 19,164
------- ------- -------- -------- -------- --------
OTHER INCOME AND (DEDUCTIONS):
Interest income 137 45 155 160 409 656
Interest on long-term debt (1,157) (1,227) (2,314) (2,621) (4,631) (5,556)
Other interest expense (172) (294) (361) (617) (547) (1,300)
Income taxes (61) (607) (70) (667) (1,153) (862)
Miscellaneous - net (2) 1,482 (12) 1,543 2,423 1,548
------- ------- -------- -------- -------- --------
Total Other Income
and Deductions (1,255) (601) (2,602) (2,202) (3,499) (5,514)
------- ------- -------- -------- -------- --------
NET INCOME APPLICABLE TO
COMMON STOCK $ 8,600 $ 9,300 $ 14,299 $ 14,480 $ 16,165 $ 13,650
======= ======= ======== ======== ======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
<TABLE>
North Shore Gas Company
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, March 31,
1997 September30, 1996
(Unaudited) 1996 (Unaudited)
----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
PROPERTIES AND OTHER ASSETS
CAPITAL INVESTMENTS:
Property, plant and equipment,
at original cost $288,784 $284,896 $278,866
Less - Accumulated depreciation 97,513 93,821 90,326
-------- -------- --------
Net property, plant and equipment 191,271 191,075 188,540
Other investments 20 113 100
-------- -------- --------
TOTAL CAPITAL INVESTMENTS - NET 191,291 191,188 188,640
-------- -------- --------
CURRENT ASSETS:
Cash 2,023 389 1,017
Cash equivalents 3,115 -- 4,490
Receivables -
Customers, net of allowance for
uncollectible accounts of $1,002,
$932, and $959, respectively 23,210 5,523 21,980
Other 1,788 3,421 8,803
Accrued unbilled revenues 7,730 3,780 8,570
Materials and supplies, at average cost 2,573 2,109 1,624
Gas in storage, at last-in, first-out cost 2,546 9,627 6,487
Gas costs recoverable through rate adjustments -- 2,500 2,246
Prepayments 411 371 634
-------- -------- --------
TOTAL CURRENT ASSETS 43,396 27,720 55,851
-------- -------- --------
OTHER ASSETS:
Regulatory assets 10,963 15,322 9,319
Deferred charges 2,866 3,270 2,872
-------- -------- --------
TOTAL OTHER ASSETS 13,829 18,592 12,191
-------- -------- --------
TOTAL PROPERTIES AND OTHER ASSETS $248,516 $237,500 $256,682
======== ======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
<TABLE>
North Shore Gas Company
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, March 31,
1997 September 30, 1996
(Unaudited) 1996 (Unaudited)
---------- ------------ -----------
(Thousands of Dollars)
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common Stockholder's Equity:
Common stock, without par value
Authorized - 5,000,000 shares
Outstanding - 3,625,887 shares $ 24,757 $ 24,757 $ 24,757
Retained earnings 75,556 66,623 71,175
-------- -------- --------
Total Common Stockholder's Equity 100,313 91,380 95,932
Long-term debt, exclusive of sinking fund
payments and maturities due within one year 64,639 64,664 64,704
-------- -------- --------
TOTAL CAPITALIZATION 164,952 156,044 160,636
-------- -------- --------
CURRENT LIABILITIES:
Interim loans -- 1,925 8,000
Accounts payable 17,618 26,929 23,052
Dividends payable on common stock 2,647 3,372 2,755
Customer gas service and credit deposits 2,138 5,269 2,640
Accrued taxes 8,219 2,297 8,164
Gas sales revenue refundable through
rate adjustments 3,090 3,188 1,790
Accrued interest 2,026 2,038 2,100
Temporary LIFO liquidation credit 11,181 -- 11,600
-------- -------- --------
TOTAL CURRENT LIABILITIES 46,919 45,018 60,101
-------- -------- --------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes - primarily
accelerated depreciation 20,118 19,688 19,589
Investment tax credits being amortized
over the average lives of related property 3,668 3,743 3,826
Other 12,859 13,007 12,530
-------- -------- --------
TOTAL DEFERRED CREDITS AND
OTHER LIABILITIES 36,645 36,438 35,945
-------- -------- --------
TOTAL CAPITALIZATION AND LIABILITIES $248,516 $237,500 $256,682
======== ======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
<TABLE>
North Shore Gas Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
March 31,
-----------------
1997 1996
---- ----
(Thousands of Dollars)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $14,299 $14,480
Adjustments to reconcile net income to net cash:
Depreciation 3,911 3,713
Deferred income taxes and investment tax credits - net 188 238
Change in deferred credits and other liabilities 19 13
Change in other assets 4,764 436
Other -- 4
Change in current assets and liabilities:
Receivables - net (16,054) (25,615)
Accrued unbilled revenues (3,950) (5,854)
Gas in storage 7,081 11,909
Gas costs recoverable 2,500 1,827
Accounts payable (9,311) 8,763
Customer gas service and credit deposits (3,131) (2,924)
Accrued taxes 5,922 6,895
Gas sales revenue refundable (98) (9,154)
Accrued interest (12) 328
Temporary LIFO liquidation credit 11,181 11,600
Other (504) 288
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,805 16,947
------- -------
INVESTING ACTIVITIES:
Capital expenditures - construction (4,403) (6,662)
Other assets 388 328
------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,015) (6,334)
------- --------
FINANCING ACTIVITIES:
Bank loan -- 8,000
Interim loans - net (1,925) --
Retirement of long-term debt (25) (12,020)
Dividends paid on common stock (6,091) (4,170)
------- --------
NET CASH USED IN FINANCING ACTIVITIES (8,041) (8,190)
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,749 2,423
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 389 3,084
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,138 $ 5,507
======= ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
North Shore Gas Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared by North Shore Gas Company (Company) in conformity with
the rules and regulations of the Securities and Exchange Commission
(SEC) and reflect all adjustments that are, in the opinion of
management, necessary to present fairly the results for the interim
periods herein and to prevent the information from being
misleading.
Certain footnote disclosures and other information, normally
included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or
omitted from these interim financial statements, pursuant to SEC
rules and regulations. Therefore, the statements should be read in
conjunction with the consolidated financial statements and related
notes contained in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996. Certain items previously
reported for the prior periods have been reclassified to conform
with the presentation in the current periods.
The business of the Company is influenced by seasonal weather
conditions because a large element of the Company's customer load
consists of gas used for space heating. Weather-related deliveries
can, therefore, have a significant positive or negative impact on
net income. Accordingly, the results of operations for the interim
periods presented are not indicative of the results to be expected
for all or any part of the balance of the current fiscal year.
2. SIGNIFICANT ACCOUNTING POLICIES
2A Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2B Revenue Recognition
Gas sales revenues are recorded on the accrual basis for all
gas delivered during the month, including an estimate for gas
delivered but unbilled at the end of each month.
2C Regulated Operations
The Company's utility operations are subject to regulation by
the Illinois Commerce Commission (Commission). Regulated
operations are accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the
Effects of Certain Types of Regulation." This standard controls
the application of generally accepted accounting principles for
companies whose rates are determined by an independent regulator
such as the Commission. Regulatory assets represent certain costs
that are expected to be recovered from customers through the
ratemaking process. When incurred, such costs are deferred as
assets in the balance sheet and subsequently recorded as expenses
when those same amounts are reflected in revenues.
2D Income Taxes
The Company follows the liability method of accounting for
deferred income taxes. Under the liability method, deferred
income taxes have been recorded using currently enacted tax rates
for the differences between the tax basis of assets and
liabilities and the basis reported in the financial statements.
Due to the effects of regulation on the Company, certain
adjustments made to deferred income taxes are, in turn, debited or
credited to regulatory assets or liabilities.
2E Statement of Cash Flows
For purposes of the balance sheet and the statement of cash
flows, the Company considers all short-term liquid investments
with maturities of three months or less to be cash equivalents.
<TABLE>
Income taxes and interest paid (excluding capitalized
interest) were as follows:
<CAPTION>
For the six months
ended March 31, 1997 1996
----------------------------------------------
(Thousands)
<S> <C> <C>
Income taxes paid $5,520 $4,823
Interest paid 2,587 2,640
</TABLE>
2F Recovery of Gas Costs, Including Charges for Transition Costs
Under the tariffs of the Company, the difference for any month
between costs recoverable through the Gas Charge and revenues
billed to customers under the Gas Charge is refunded to or
recovered from customers. Consistent with these tariff
provisions, such difference for any month is recorded either as a
current liability or as a current asset (with a contra entry to
Gas Costs).
The Commission conducts annual proceedings regarding, for each
gas utility, the reconciliation of revenues from the Gas Charge
and related costs incurred for gas. In such proceedings, costs
recovered by a utility through the Gas Charge are subject to
challenge. Such proceedings, regarding the Company for fiscal
years 1995 and 1996, are currently pending before the Commission.
Pursuant to Federal Energy Regulatory Commission (FERC) Order
636 and successor orders, pipelines are allowed to recover from
their customers so-called transition costs. These costs arise
from the restructuring of pipeline service obligations required by
the 636 Orders. The Company is currently recovering pipeline
charges for transition costs through the Gas Charge. (See Notes
3A and 3B.)
3. RATES AND REGULATION
3A Utility Rate Proceedings
Rate Order. On November 8, 1995, the Commission issued an order
approving changes in rates of the Company that were designed to
increase annual revenues by approximately $5.6 million, exclusive
of additional charges for revenue taxes. The Company was allowed
a rate of return on original-cost rate base of 9.75 per cent,
which reflected an 11.30 per cent cost of common equity. The new
rates were implemented on November 14, 1995. A group of
industrial transportation customers has appealed the Commission's
order to the Illinois Appellate Court. Any change made by the
Appellate Court would have a prospective effect only.
FERC Order 636 Cost Recovery. In 1994, the Commission issued
orders providing for the full recovery of pipeline charges for FERC
Order 636 transition costs from the Company's gas service
customers. The Commission directed that gas supply realignment
(GSR) costs (one of the four categories of transition costs) be
recovered on a uniform volumetric basis from all transportation and
sales customers. A group of industrial transportation customers
has filed a petition with the Illinois Supreme Court appealing the
Commission's orders. If the Illinois Supreme Court accepts the
appeal, any changes made by it to the Commission's orders would
have a prospective effect only. (See Notes 2F and 3B.)
3B FERC Orders 636, 636-A, and 636-B
FERC Order 636 and successor orders require pipelines to make
separate rate filings to recover transition costs. The Company is
subject to charges for transition cost recovery by Natural Gas
Pipeline Company of America (Natural). Under a Stipulation and
Agreement filed by Natural and approved by FERC, Natural's charges
to the Company for GSR transition costs (the largest category of
such costs for the Company) are subject to a cap of approximately
$25 million. The Company is currently recovering transition costs
through the Gas Charge. At March 31, 1997, the Company has made
payments of $20.4 million, and has accrued an additional $4.6
million, toward the cap.
The 636 Orders are not expected to have a material effect on
financial position or results of operations of the Company. (See
Notes 2F and 3A.)
4. ENVIRONMENTAL MATTERS
4A Former Manufactured Gas Plant Sites
The Company, its predecessors, and certain former affiliates
operated facilities in the past at multiple sites for the purpose
of manufacturing gas and storing manufactured gas (Manufactured
Gas Sites). In connection with manufacturing and storing gas,
various by-products and waste materials were produced, some of
which might have been disposed of rather than sold. Under certain
laws and regulations relating to the protection of the
environment, the Company might be required to undertake remedial
action with respect to some of these materials. One of the
Manufactured Gas Sites is discussed in more detail below. The
Company, under the supervision of the Illinois Environmental
Protection Agency (IEPA), is conducting investigations of an
additional two Manufactured Gas sites. These investigations may
require the Company to perform additional investigation and
remediation. The investigations are in a preliminary stage and
are expected to occur over an extended period of time.
In 1990, the Company entered into an Administrative Order on
Consent (AOC) with the United States Environmental Protection
Agency (EPA) and the IEPA to implement and conduct a remedial
investigation/feasibility study (RI/FS) of a Manufactured Gas site
located in Waukegan, Illinois, where manufactured gas and coking
operations were formerly conducted (Waukegan Site). The RI/FS is
comprised of an investigation to determine the nature and extent of
contamination at the Waukegan site and a feasibility study to
develop and evaluate possible remedial actions. The Company
entered into the AOC after being notified by the EPA that the
Company, General Motors Corporation (GMC) and Outboard Marine
Corporation were each a potentially responsible party (PRP) under
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (CERCLA) with respect to the
Waukegan Site. A PRP is potentially liable for the cost of any
investigative and/or remedial work that the EPA determines is
necessary. Other parties identified as PRPs did not enter into the
AOC.
Under the terms of the AOC, the Company is responsible for the
cost of the RI/FS. The Company believes, however, that it will
recover a significant portion of the costs of the RI/FS from other
entities. GMC has agreed to share equally with the Company in funding
of the RI/FS cost, without prejudice to GMC's or the Company's right
to seek a lesser cost responsibility at a later date.
The Company is accruing and deferring the costs it incurs in
connection with all of the Manufactured Gas Sites, including
related legal expenses, pending recovery through rates or from
insurance carriers or other entities. At March 31, 1997, the total
of the costs deferred by the Company, net of recoveries and amounts
billed to other entities, was $6.1 million. This amount includes
an estimate of the costs of completing the studies required by the
EPA at the Waukegan Site and the investigations being conducted
under the supervision of the IEPA referred to above. The amount
also includes an estimate of the costs of remediation at the
Waukegan Site at the minimum amount of the current estimated range
of such costs. The costs of remediation at the other sites cannot
be determined at this time. While the Company intends to seek
contributions from other entities for the costs incurred at the
sites, the full extent of such contributions cannot be determined
at this time.
The Company has filed suit against a number of insurance
carriers for the recovery of environmental costs relating to its
former manufactured gas operations. The suit asks the court to
declare that the insurers are liable under policies in effect
between 1937 and 1986 for costs incurred or to be incurred by the
Company in connection with two of its Manufactured Gas sites in
Waukegan. The Company is also asking the court to award damages
stemming from the insurers' breach of their contractual obligation
to defend and indemnify the Company against these costs. At this
time, management cannot determine the timing and extent of the
Company's recovery of costs from its insurance carriers.
Accordingly, the costs deferred at March 31, 1997, have not been
reduced to reflect recoveries from insurance carriers.
Costs incurred by the Company for environmental activities
relating to former manufactured gas operations will be recovered
from insurance carriers or other entities or through rates for
utility service. Accordingly, management believes that the costs
incurred by the Company in connection with former manufactured gas
operations will not have a material adverse effect on the
financial position or results of operations of the Company. The
Company is recovering the costs of environmental activities
relating to its former manufactured gas operations, including
carrying charges on the unrecovered balances, under a rate
mechanism approved by the Commission. At March 31, 1997, it had
recovered $6.6 million of such costs through rates.
4B Former Mineral Processing Site in Denver, Colorado
In 1994, the Company received a demand from the S.W. Shattuck
Chemical Company, Inc. (Shattuck), a responsible party under
CERCLA, for reimbursement, indemnification and contribution for
response costs incurred at a former mineral processing site in
Denver, Colorado. Shattuck is a wholly owned subsidiary of
Salomon, Inc. (Salomon). The demand alleges that the Company is a
successor-in-interest to certain companies that were allegedly
responsible during the period 1934-1941 for the disposal of
mineral processing wastes containing radium and other hazardous
substances at the site. The cost of the remedy at the site has
been estimated by Shattuck to be approximately $31 million.
Salomon has provided financial assurance for the performance of
the remediation at the site.
The Company filed a declaratory judgment action against Salomon
in the District Court for the Northern District of Illinois. The
suit asked the court to declare that the Company is not liable for
response costs incurred or to be incurred at the Denver site.
Salomon filed a counterclaim for costs to be incurred by Salomon
and Shattuck with respect to the site. On March 7, 1997, the
District Court granted the Company's motion for summary judgment,
declaring that the Company is not liable for any response costs in
connection with the Denver site. On May 5, 1997, the District
Court denied Salomon's request to alter or amend its ruling.
Salomon may appeal the ruling of the district court to the United
States Court of Appeals, Seventh Circuit.
The Company does not believe that it has liability for the
response costs, but cannot determine the matter with certainty.
At this time, the Company cannot reasonably estimate what range of
loss, if any, may occur. In the event that the Company incurred
liability, it would pursue reimbursement from insurance carriers,
other responsible parties, if any, and through its rates for
utility service.
4C Gasoline Release in Wheeling, Illinois
In June 1995, the Company received a letter from the IEPA
informing the Company that it was not in compliance with certain
provisions of the Illinois Environmental Protection Act which
prohibit water pollution within the State of Illinois. On November
14, 1995, the Illinois Attorney General filed a complaint in the
Circuit Court of Cook County naming the Company and four other
parties as defendants. The complaint alleges that the violations
are the result of a gasoline release that occurred in Wheeling,
Illinois in June 1992 when a contractor who was installing a
pipeline for the Company accidentally struck a gasoline pipeline
owned by West Shore Pipeline Company. The Company is contesting
this suit. Management does not believe the outcome of this suit
will have a material adverse effect on financial position or
results of operations of the Company.
5. EXPIRATION OF GAS STORAGE CONTRACTS
The Company had certain natural gas storage contracts with
Natural that expired on or before December 1, 1995. Associated
with the expiration of the contracts, the Company realized a gain,
after income taxes, of approximately $1.4 million for the 12-months
ended March 31, 1997.
6. TAX MATTERS
On September 30, 1993, the Company received notification from
the Internal Revenue Service (IRS) that settlement of past income
tax returns had been reached for fiscal years 1978 through 1990.
The IRS settlement resulted in payments of principal and interest
to the Company in 1994 of approximately $3 million, or $2.2
million after income taxes. The Company received regulatory
authorization to defer the recognition of the settlement amount in
income for fiscal year 1993, and to recognize the settlement
amount in income for fiscal years 1994 and 1995. The Company
represented to the Commission that, having received this
accounting authorization, it would not file a request for an
increase in base rates before December 1994.
As a result of the Commission's accounting authorization, the
Company amortized to operation expense approximately $381,000, or
$286,000 after income taxes, for the 12-months ended
March 31, 1996. The effect was to offset increases in costs that
the Company incurred during the period.
7. BONDS REDEEMED
On February 1, 1996, the Company redeemed $8 million aggregate
principal amount of its Series I First Mortgage Bonds using the
proceeds of a short-term bank loan as well as other monies of the
Company. The final payment on the short-term bank loan was made
by the Company on August 1, 1996.
8. COVENANTS REGARDING RETAINED EARNINGS
The Company's indenture relating to its first mortgage bonds
contains provisions and covenants restricting the payment of cash
dividends and the purchase or redemption of capital stock. At
March 31, 1997, such restrictions amounted to $11.6 million out of
the Company's total retained earnings of $75.6 million.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Net Income
Net income decreased $700,000, to $8.6 million, for the
three-months ended March 31, 1997, from the results of last year's
like quarter due to the prior periods' recognition of a gain
associated with the expiration of certain natural gas storage
contracts (see Note 5 of the Notes to Consolidated Financial
Statements) and reduced gas deliveries attributable to warmer
weather and conservation.
Net income decreased $181,000, to $14.3 million, for the
six-months ended March 31, 1997, from the prior year's like period
due to the aforementioned gain associated with the expiration of
certain natural gas storage contracts, decreased gas deliveries due
to the current period's warmer temperatures and conservation. Net
income for the current six-month period benefited from the full
six-month effect of the Company's rate increase that went into
effect on November 14, 1995. (See Note 3A of the Notes to
Consolidated Financial Statements.) The current six month period
also benefited from lower interest expense.
Net income increased $2.5 million, to $16.2 million, for the
12-months ended March 31, 1997, from the prior year's results,
primarily due to the full effect of the Company's aforementioned
rate increase decreased interest expense and a gain associated with
the expiration of certain gas storage contracts.
<TABLE>
A summary of variations affecting income between periods is
presented below, with explanations of significant differences
following:
<CAPTION>
Three Months Ended Six Months Ended 12-Months Ended
March 31, 1997 March 31,1997 March 31, 1997
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
from Prior Period from Prior Period from Prior Period
-------------------- ------------------- -------------------
(Thousands of dollars) Amount % Amount % Amount %
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net operating revenues (a) $(1,371) (5.4) $ (83) (.2) $ 3,632 5.8
Operation and
maintenance expenses (1,359) (17.8) (1,031) (7.5) 1,113 4.1
Depreciation expense (54) (2.8) 198 5.3 418 5.6
Income taxes 93 1.7 512 6.0 1,593 21.8
Other income and deductions 654 108.8 400 18.2 (2,015) (36.5)
Net Income Applicable
to Common Stock (700) (7.5) (181) (1.3) 2,515 18.4
- --------------------------------------------------------------------------------------------
<FN>
(a) Operating revenues, net of gas costs and revenue taxes.
</TABLE>
Net Operating Revenues
Gross revenues of the Company are affected by changes in the
unit cost of the Company's gas purchases and do not include the
cost of gas supplies for customers who purchase gas directly from
producers and marketers rather than from the Company. The direct
customer purchases have no effect on net income because the Company
provides transportation service for such gas volumes and recovers
margins similar to those applicable to conventional gas sales.
Changes in the unit cost of gas do not significantly affect net
income because the Company's tariffs provide for dollar-for-dollar
recovery of gas costs. (See Note 2F of the Notes to Consolidated
Financial Statements.) The Company's tariffs also provide for
dollar-for-dollar recovery of the cost of revenue taxes imposed by
the State and various municipalities.
Since income is not significantly affected by changes in revenue
from customers' gas purchases from producers or marketers rather
than from the Company, changes in gas costs, or changes in revenue
taxes, the discussion below pertains to "net operating revenues"
(operating revenues, net of gas costs and revenue taxes). The
Company considers net operating revenues to be a more pertinent
measure of operating results than gross revenues.
Net operating revenues decreased $1.4 million, to $24.0 million,
for the current three-month period, due chiefly to this quarter's
warmer weather as well as conservation.
Net operating revenues decreased $83,000, to $43.7 million, for
the current six-month period, due to the period's warmer weather as
well as conservation. However, these effects were partially offset
by the full effect of the aforementioned rate increase.
Net operating revenues increased $3.6 million, to $66.7 million,
for the current 12-month period, due to the full effect of the
aforementioned rate increase. The current period's warmer weather
and increased conservation partially offset the impact of the rate
increase.
See Other Matters - Operating Statistics for details of selected
financial and operating information by gas service classification.
Operation and Maintenance Expenses
Operation and maintenance expenses decreased $1.4 million, to
$6.3 million for the current three-month period due mainly to a
decrease in the amortization of environmental costs of $494,000, a
decrease in pension expense of $250,000 and a decrease in
reengineering costs of $224,000.
Operation and maintenance expenses decreased $1.0 million, to
$12.8 million for the current six-month period due mainly to a
decrease in pension expense of $250,000, a decrease in
reengineering costs of $204,000, and a decrease in other non-labor
general and administrative expenses.
Operation and maintenance expenses increased $1.1 million, to
$28.1 million, for the current 12-month period, due to an increase
in the amortization of environmental costs of $742,000, an increase
in injuries and damages expense of $512,000, and an increase in
labor expense of $414,000. These effects were partially offset by a
decrease of $365,000 in reengineering costs and $361,000 in group
insurance expenses.
Depreciation Expense
Depreciation expense decreased $54,000, to $1.9 million, in the
three-month period due to a decrease in net dismantling charges.
However, for the six- and 12-month periods, depreciation expense
increased by $198,000, to $3.9 million, and $418,000, to $7.8
million, respectively. These increases were primarily due to
depreciable property additions.
Income Taxes
Income taxes, exclusive of income taxes included in other income
and deductions, increased $93,000, to $5.5 million, $512,000, to
$9.1 million, and $1.6 million, to $8.9 million, for the current
three-, six-, and 12-month periods, respectively, due mainly to
higher pre-tax income.
Other Income and Deductions
Other income and deductions increased $654,000 for the
three-month period, due chiefly to the prior year's gain of
$856,000, after income taxes, associated with the expiration of
certain natural gas storage contracts. (See Note 8 of the Notes to
Consolidated Financial Statements.) Also, the period reflects
lower interest expense.
Other income and deductions increased $400,000 for the six-month
period, due primarily to the prior year's gain of $856,000, after
income taxes, associated with the expiration of certain natural gas
storage contracts. However, the period also reflected lower
interest expense of $560,000 due to a reduction in long-term debt
outstanding and a reduction in net amounts refundable to customers.
Other income and deductions decreased $2.0 million, for the
current 12-month period, due to the realization of a gain of
$531,000, net of income taxes, from the expiration of certain
natural gas storage contracts, and lower interest expense of
$1,668,000, due primarily to a reduction in the amount of long-term
debt outstanding and to a reduction in the amount refundable to
customers. These positive effects were partially offset by a
reduction in interest income.
Other Matters
Effect of Weather. Weather variations affect the volumes of gas
delivered for heating purposes and, therefore, can have a
significant positive or negative impact on net income, cash
position, and coverage ratios.
Accounting Standards. In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of ". This statement requires recognition of impairment
losses on long-lived assets when an asset's book value may not be
recoverable. For regulated companies, the statement requires that
regulatory assets be probable of recovery at every balance sheet
date. This statement requires adoption no later than the Company's
1997 fiscal year. The Company does not expect the adoption of SFAS
No. 121 to have a material effect on its financial position or
results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". This statement requires companies to
either recognize compensation costs measured at fair value
attributable to employee stock options or similar equity
instruments at the grant date in net income, or, in the
alternative, provide pro forma footnote disclosure on net income
and earnings per share. This statement requires adoption no later
than the Company's 1997 fiscal year. The Company anticipates
electing the pro forma footnote disclosure provisions of this
statement in 1997.
FERC Order 636 Costs. In 1992, the FERC issued Order 636 and
successor orders that required substantial restructuring of the
service obligations of interstate pipelines. (See Notes 2F, 3A,
and 3B of the Notes to Consolidated Financial Statements.)
In 1994, the Commission entered orders providing for full
recovery by the Company of FERC Order 636 transition costs from the
Company's gas service customers. The Commission's orders have been
appealed to the Illinois Supreme Court. (See Notes 2F, 3A, and 3B
of the Notes to Consolidated Financial Statements.)
<TABLE>
Operating Statistics. The following table represents gas
distribution margin components:
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
------------------- ----------------- -------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues (thousands):
Gas sales
Residential $59,952 $53,939 $ 99,651 $ 87,180 $137,973 $116,137
Commercial 9,517 9,006 15,103 13,542 20,330 17,072
Industrial 2,370 2,167 3,678 3,243 4,735 4,079
------- ------- -------- -------- -------- --------
71,839 65,112 118,432 103,965 163,038 137,288
Transportation
Residential 1,166 492 1,839 892 2,799 1,349
Commercial 1,815 2,399 3,409 4,596 5,120 6,981
Industrial 1,483 1,690 3,051 3,211 5,522 5,402
Contract Pooling 1,047 -- 1,439 -- 1,809 --
------- ------- -------- -------- -------- --------
5,511 4,581 9,738 8,699 15,250 13,732
------- ------- -------- -------- -------- --------
Other Revenues 231 274 460 461 1,026 884
------- ------- -------- -------- -------- --------
Total Operating Revenues 77,581 69,967 128,630 113,125 179,314 151,904
Less - Gas Costs 48,670 39,772 76,618 61,350 101,392 78,443
- Revenues Taxes 4,890 4,803 8,285 7,785 11,251 10,422
------- ------- -------- -------- -------- --------
Net Operating Revenues $24,021 $25,392 $ 43,727 $ 43,990 $ 66,671 $ 63,039
======= ======= ======== ======== ======== ========
Deliveries (MDth):
Gas Sales
Residential 9,641 10,466 16,663 17,499 21,952 22,457
Commercial 1,634 1,853 2,693 2,880 3,511 3,577
Industrial 432 478 700 744 885 928
------- ------- -------- -------- -------- --------
11,707 12,797 20,056 21,123 26,348 26,962
------- ------- -------- -------- -------- --------
Transportation (a)
Residential 1,291 431 1,859 640 2,635 811
Commercial 1,631 2,149 2,896 4,078 3,963 5,687
Industrial 1,823 1,837 3,589 3,589 6,272 6,300
------- ------- -------- -------- -------- --------
4,745 4,417 8,344 8,307 12,870 12,798
------- ------- -------- -------- -------- --------
Total Gas Sales
and Transportation 16,452 17,214 28,400 29,430 39,218 39,760
======= ======= ======== ======== ======== ========
Margin per Dth
delivered $1.46 $1.48 $1.54 $1.49 $1.70 $1.59
<FN>
(a)Volumes associated with contract pooling revenues are
included in their respective customer classes.
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Indenture Restrictions. The Company's indenture relating to its
first mortgage bonds contains provisions and covenants restricting
the payment of cash dividends and the purchase or redemption of
capital stock. At March 31, 1997, such restrictions amounted to
$11.6 million out of the Company's total retained earnings of $75.6
million. (See Note 8 of the Notes to Consolidated Financial
Statements.)
Rate Order. On November 8, 1995, the Commission issued orders
approving changes in rates of the Company. (See Note 3A of the
Notes to Consolidated Financial Statements.)
Environmental Matters. The Company is conducting environmental
investigations and work at certain sites that were the location of
former manufactured gas operations. (See Note 4A of the Notes to
Consolidated Financial Statements.)
In 1994, the Company received a demand from a responsible party
under CERCLA for reimbursement, indemnification and contribution
for response costs incurred at a former mineral processing site in
Denver, Colorado. The Company filed a declaratory judgment action
asking the court to declare that the Company is not liable for
response costs relating to the site. Salomon filed a counterclaim
for costs to be incurred by Salomon and Shattuck with respect to
the site. On March 7, 1997, the District Court granted the
Company's motion for summary judgment, declaring that the Company
is not liable for any response costs in connection with the Denver
site. On May 5, 1997, the District Court denied Salomon's request
to alter or amend its ruling. Salomon may appeal the ruling of the
district court to the United States Court of Appeals, Seventh
Circuit. (See Note 4B of the Notes to Consolidated Financial
Statements.)
On November 14, 1995, the Illinois Attorney General filed a
complaint in the Circuit Court of Cook County naming the Company
and four other parties as defendants. The complaint alleges
violations arising out of a gasoline release that occurred in
Wheeling, Illinois in June 1992 when a contractor who was
installing a pipeline for the Company accidentally struck a
gasoline pipeline owned by West Shore Pipeline Company. The
Company is currently contesting this suit. (See Note 4C of the
Notes to Consolidated Financial Statements.)
Bonds Redeemed. On February 1, 1996, the Company redeemed $8
million aggregate principal amount of its Series I First Mortgage
Bonds using the proceeds of a short-term bank loan as well as other
monies of the Company. (See Note 7 of the Notes to Consolidated
Financial Statements.)
Credit Lines. The Peoples Gas Light and Coke Company (Peoples Gas)
has lines of credit of $129.4 million of which the Company may
borrow up to $30 million to cover its projected short-term needs.
At March 31, 1997, Peoples Gas had unused credit available of
$128.6 million.
Interest Coverage. The fixed charges coverage ratios for the
Company for the 12-months ended March 31, 1997, and for fiscal 1996
and 1995 were 6.07, 5.62, and 2.93, respectively.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See Note 4 of the Notes to Consolidated Financial Statements for
a discussion pertaining to environmental matters.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
a. On March 27, 1997, the following persons were elected
Directors of the Company and comprise the entire
Board of Directors of the Company: Kenneth S.
Balaskovits, J. Bruce Hasch, James Hinchliff, Thomas
M. Patrick, Michael S. Reeves, and Richard E. Terry.
b. The following matter was voted upon at the annual
meeting of shareholders. There were no broker non-votes
with respect to the matters voted upon.
1. The election of nominees for directors who will
serve for a one-year term or until their
respective successors shall be duly elected. The
nominees, all of whom were elected, were as
follows: Kenneth S. Balaskovits, J. Bruce Hasch,
James Hinchliff, Thomas M. Patrick, Michael S. Reeves,
and Richard E. Terry. The Secretary of the Company
certified the following vote tabulations:
FOR WITHHELD
Kenneth S. Balaskovits . . . . . . . . 3,625,887 0
J. Bruce Hasch . . . . . . . . . . . . . . 3,625,887 0
James Hinchliff . . . . . . . . . . . . . 3,625,887 0
Thomas M. Patrick . . . . . . . . . . . 3,625,887 0
Michael S. Reeves . . . . . . . . . . . . 3,625,887 0
Richard E. Terry . . . . . . . . . . . . . 3,625,887 0
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
Exhibit
Number Description of Document
-------- --------------------------
3(a) Amendment to the By-Laws of the Registrant dated
March 26, 1997.
3(b) By-Laws of the Registrant, as amended,
dated March 26, 1997
27 Financial Data Schedule
b. Reports on Form 8-K filed during the quarter ended
March 31, 1997.
Date of Report - March 24, 1997
Item 5. Other Events
Environmental Matters
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
North Shore Gas Company
-------------------------
(Registrant)
May 13, 1997 By: /s/ K. S. BALASKOVITS
--------------- ------------------------------
(Date) K. S. Balaskovits
Vice President and Controller
(Same as above)
------------------------------
Principal Accounting Officer
Exhibit 3(a)
NORTH SHORE GAS COMPANY
ACTION OF THE BOARD OF DIRECTORS
BY WRITTEN CONSENT IN LIEU OF MEETING
The Board of Directors of the Company has taken the
following action by unanimous written consent:
RESOLVED, That, effective as of the
close of business on March 26, 1997, the
By-Laws of the Company be, and they hereby
are, amended by replacing Section 3.1 of
Article III of the By-Laws in its entirety
with the following:
ARTICLE III
Directors and Committees
SECTION 3.1. Number and Election.
The business and affairs of the Company shall
be managed and controlled by a board of
directors, six (6) in number, none of whom
needs to be a shareholder. The directors
shall be elected by the shareholders entitled
to vote at the annual meeting of such
shareholders and each director shall be
elected to serve for a term of one (1) year
and thereafter until his successor shall be
elected and shall qualify. The Board of
Directors may fill one or more vacancies
arising between meetings of shareholders by
reason of an increase in the number of
directors or otherwise.
RESOLVED FURTHER, That the
Secretary of the Company be, and he hereby
is, directed to initial a copy of the
amended By-Laws presented at this meeting
and place it with the important papers of
this meeting.
IN WITNESS WHEREOF, the Board of Directors of NORTH
SHORE GAS COMPANY has executed this Written Consent as of March 26,
1997.
/s/ R. E. Terry /s/ J.Hinchliff
- ---------------------- ----------------------
/s/ J. B. Hasch /s/ K. S. Balaskovits
- ---------------------- -----------------------
/s/ M. S. Reeves
- ----------------------
Exhibit 3(b)
BY-LAWS
OF
NORTH SHORE GAS COMPANY
AMENDED MARCH 26, 1997
NORTH SHORE GAS COMPANY
BY-LAWS
ARTICLE I - OFFICES
ARTICLE II - MEETINGS OF SHAREHOLDERS
ARTICLE III - DIRECTORS AND COMMITTEES
ARTICLE IV - OFFICERS
ARTICLE V - INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
ARTICLE VI - CERTIFICATES OF STOCK AND THEIR
TRANSFER
ARTICLE VII - MISCELLANEOUS (CONTRACTS)
ARTICLE VIII - AMENDMENT OR REPEAL OF BY-LAWS
NORTH SHORE GAS COMPANY
INDEX
PAGE
A
Amendment of By-Laws 15
Appointment of Officers 7
Assistant Controller, Duties of 10
Assistant General Counsel, Duties of 10
Assistant Secretary, Duties of 10
Assistant Treasurer, Duties of 10
Assistant Vice President, Duties of 8
B
Board of Directors 4
C
Certificates of Stock and Their Transfer 12
Chairman of the Board, Duties of 8
Committees 5
Controller, Duties of 9
Contracts, Execution of 14
D
Directors and Committees 4
E
Election of Directors 4
Election of Officers 6
F
Fees and Compensation of Directors 6
G
General Counsel, Duties of 10
NORTH SHORE GAS COMPANY
PAGE
I
Indemnification of Directors, Officers, Employees
and Agents 10
M
Meetings
Directors 4
Action Without Meeting 6
Shareholders 1
N
Notice of Meetings
Directors 4
Shareholders 2
O
Officers
Appointed 7
Elected 6
Offices, Two or More Held By One Person 7
P
President, Duties of 8
Presiding Officer
Board Meetings 5
Shareholders Meetings 3
Proxies 3
Q
Quorum
Board 5
Shareholders 2
NORTH SHORE GAS COMPANY
PAGE
S
Secretary, Duties of 9
Signatures to Checks, Drafts, etc. 14
Stock, Certificates of and their Transfer 12
T
Treasurer, Duties of 9
V
Vice President, Duties of 8
Voting
Shareholders 3
Stock Owned by Company 15
BY-LAWS
OF
NORTH SHORE GAS COMPANY
ARTICLE I
Offices
SECTION 1.1.
Principal Office. The principal office of the Company shall be in
the City of Chicago, County of Cook and State of Illinois.
SECTION 1.2.
Other Offices. The Company may also have offices at such other
places both within and without the State of Illinois as the Board
of Directors may from time to time determine or the business of the
Company may require.
ARTICLE II
Meetings of Shareholders
SECTION 2.1.
Annual Meeting. The annual meeting of the shareholders shall be
held on the last Thursday of the month of March in each year, if
not a legal holiday, or, if a legal holiday, then on the next
preceding business day, for the purpose of electing directors and
for the transaction of such other business as may come before the
meeting. If the election of directors shall not be held on the day
herein designated for the annual meeting, or at any adjournment
thereof, the Board of Directors shall cause such election to be
held at a special meeting of the shareholders as soon thereafter as
convenient.
SECTION 2.2.
Special Meetings. Except as otherwise prescribed by statute,
special meetings of the shareholders for any purpose or purposes,
may be
called by the Chairman of the Board, the President, a majority of
the Board of Directors or shareholders owning capital stock of the
Company having not less than 20% of the total voting power. Such
request shall state the purpose or purposes of the proposed
meeting.
SECTION 2.3.
Place of Meetings. Each meeting of the shareholders for the
election of directors shall be held at the principal office of the
Company in the City of Chicago, Illinois, unless the Board of
Directors shall by resolution designate another place as the place
of such meeting. Meetings of shareholders for any other purpose
may be held at such place, and at such time as shall be determined
by the Chairman of the Board, or the President, or in their
absence, by the Secretary, and stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
SECTION 2.4.
Notice of Meetings. Written or printed notice stating the place,
date and hour of each annual or special meeting of the
shareholders, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given not less
than 10 or more than 60 days before the date of the meeting, except
as otherwise provided by statute. Notice of any meeting of the
shareholders may be waived by any shareholder.
SECTION 2.5.
Quorum. The holders of a majority of the shares issued and
outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite for, and shall constitute,
a quorum at all meetings of the shareholders of the Company for the
transaction of business, except as otherwise provided by statute or
these by-laws. If a quorum shall not be present or represented at
any meeting of the shareholders, the shareholders entitled to vote
thereat, present in person or represented by proxy, shall have power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting if the adjournment is for thirty days or
less or unless after the adjournment a new record date is fixed, until a
quorum shall be present or represented. At such adjourned meeting,
at which a quorum shall be present or represented, any business may
be transacted which might have been transacted at the meeting as
originally noticed.
SECTION 2.6.
Proxies. At every meeting of the shareholders, each shareholder
having the right to vote thereat shall be entitled to vote in
person or by proxy. Such proxy shall be appointed by an instrument
in writing subscribed by such shareholder and bearing a date not
more than eleven months prior to such meeting, unless such proxy
provides for a longer period, and shall be filed with the Secretary
of the Company before, or at the time of, the meeting.
SECTION 2.7.
Voting. At each meeting of the shareholders, each shareholder
shall be entitled to one vote for each share of stock entitled to
vote thereat which is registered in the name of such shareholder on
the books of the Company. At all elections of directors of the
Company, the holders of shares of stock of the Company shall be
entitled to cumulative voting. When a quorum is present at any
meeting of the shareholders, the vote of the holders of a majority
of the shares present in person or represented by proxy and
entitled to vote at the meeting shall be sufficient for the
transaction of any business, unless otherwise provided by statute
or these by-laws.
SECTION 2.8.
Presiding Officer. The presiding officer of any meeting of the
shareholders shall be the Chairman of the Board or, in the case of
the absence of the Chairman of the Board, the President.
ARTICLE III
Directors and Committees
SECTION 3.1.
Number and Election. The business and affairs of the Company shall
be managed and controlled by a board of directors, six (6) in
number, none of whom needs to be a shareholder. The directors
shall be elected by the shareholders entitled to vote at the annual
meeting of such shareholders and each director shall be elected to
serve for a term of one (1) year and thereafter until his successor
shall be elected and shall qualify. The Board of Directors may
fill one or more vacancies arising between meetings of shareholders
by reason of an increase in the number of directors or otherwise.
SECTION 3.2.
Regular Meetings. A regular meeting of the Board of Directors
shall be held immediately, or as soon as practicable, after the
annual meeting of the shareholders in each year for the purpose of
electing officers and for the transaction of such other business as
may be deemed necessary, and regular meetings of the Board shall be
held at such date and time and at such place as the Board of
Directors may from time to time determine. Not less than two days'
notice of all regular meetings of the Board, except the meeting to
be held after the annual meeting of shareholders which shall be
held without other notice than this by-law, shall be given to each
director personally or by mail or telegram.
SECTION 3.3.
Special Meetings. Special meetings of the Board may be called at
any time by the Chairman of the Board, the President, or by any two
directors, by causing the Secretary to mail to each director, not
less than three days before the time of such meeting, a written
notice stating the time and place of such meeting. Notice of any
meeting of the Board may be waived by any director.
SECTION 3.4.
Quorum. At each meeting of the Board of Directors, the presence of
not less than a majority of the total number of directors specified
in Section 3.1 hereof shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of
a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute. If a quorum
shall not be present at any meeting of directors, the directors
present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall
be present. In determining the presence of a quorum at a meeting
of the directors or a committee thereof for the purpose of
authorizing a contract or transaction between the Company and one
or more of its directors, or between the Company and any other
corporation, partnership, association, or other organization in
which one or more of the directors of this Company are directors or
officers, or have a financial interest in such other organization,
such interested directors may be counted in determining a quorum.
SECTION 3.5.
Presiding Officer. The presiding officer of any meeting of the
Board of Directors shall be the Chairman of the Board or, in his
absence, the President or, in his absence, any other director
elected chairman of the meeting by vote of a majority of the
directors present at the meeting.
SECTION 3.6.
Committees. The Board may appoint committees, standing or special,
from time to time from among its own members or otherwise, and may
confer such powers on such committees as the Board may determine
and may revoke such powers and terminate the existence of such
committees at its pleasure.
SECTION 3.7.
Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors, or 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 such writing or writings are filed with the minutes of
the proceedings of the Board or such committee.
SECTION 3.8.
Fees and Compensation of Directors. Directors shall not receive
any stated salary for their services as such; but, by resolution of
the Board of Directors, reasonable fees, with or without expenses
of attendance, may be allowed. Members of the Board shall be
allowed their reasonable traveling expenses when actually engaged
in the business of the Company, to be audited and allowed as in
other cases of demands against the Company. Members of standing or
special committees may be allowed fees and expenses for attending
committee meetings. Nothing herein contained shall be construed to
preclude any director from serving the Company in any other
capacity and receiving compensation therefor.
ARTICLE IV
Officers
SECTION 4.1.
Election of Officers. There shall be elected by the Board of
Directors in each year the following officers: a Chairman of the
Board; a President; such number of Senior Vice Presidents, such
number of Executive Vice Presidents, such number of Vice Presidents
and such number of Assistant Vice Presidents as the Board at the
time may decide upon; a Secretary; such number of Assistant
Secretaries as the Board at the time may decide upon; a Treasurer;
such number of Assistant Treasurers as the Board at the time may
decide upon; a Controller; and such number of Assistant Controllers
as the Board at the time may decide upon; and, if the Board may
decide, a General Counsel; and such number of Deputy General
Counsel and such number of Assistant General Counsel as the Board
at the time may decide upon. Any two or more offices may be held
by one person, except that the offices of President and Secretary
may not be held by the same person. All officers shall hold their
respective offices during the pleasure of the Board.
SECTION 4.2.
Appointment of Officers. The Board of Directors, the Chairman of
the Board, or the President may from time to time appoint such
other officers as may be deemed necessary, including one or more
Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, one or
more Assistant Controllers, one or more Assistant General Counsel,
and such other agents, employees and attorneys-in-fact of the
Company as may be deemed proper. Such officers, agents, employees
and attorneys-in-fact shall have such authority, (which may include
the authority to execute and deliver on behalf of the Company
contracts and other instruments in writing of any nature), perform
such duties and receive such compensation as the Board of Directors
or, in the case of appointments made by the Chairman of the Board
or the President, as the Chairman of the Board or the President,
may from time to time prescribe and determine. The Board of
Directors may from time to time authorize any officer to appoint
and remove agents and employees, to prescribe their powers and
duties and to fix their compensation therefor.
SECTION 4.3.
Duties of Chairman of the Board. The Chairman of the Board shall
be the chief executive officer of the Company and shall have
control and direction of the management and affairs of the Company
and may execute all contracts, deeds, assignments, certificates,
bonds or other obligations for and on behalf of the Company, and
sign certificates of stock and records of certificates required by
law to be signed by the Chairman of the Board. When present, the
Chairman of the Board shall preside at all meetings of the Board
and of the shareholders.
SECTION 4.4.
Duties of President. Subject to the control and direction of the
Chairman of the Board, and to the control of the Board, the
President shall have general management of all the business of the
Company, and he shall have such other powers and perform such other
duties as may be prescribed for him by the Board or be delegated to
him by the Chairman of the Board. He shall possess the same power
as the Chairman of the Board to sign all certificates, contracts
and other instruments of the Company. In case of the absence or
disability of the President, or in case of his death, resignation
or removal from office, the powers and duties of the President
shall devolve upon the Chairman of the Board during absence or
disability, or until the vacancy in the office of President shall
be filled.
SECTION 4.5.
Duties of Vice President. Each of the Senior Vice Presidents,
Executive Vice Presidents, Vice Presidents and Assistant Vice
Presidents shall have such powers and duties as may be prescribed
for him by the Board, or be delegated to him by the Chairman of the
Board or by the President. Each of such officers shall possess the
same power as the President to sign all certificates, contracts and
other instruments of the Company.
SECTION 4.6.
Duties of Secretary. The Secretary shall have the custody and care
of the corporate seal, records and minute books of the Company. He
shall attend the meetings of the Board, and of the shareholders,
and duly record and keep the minutes of the proceedings, and file
and take charge of all papers and documents belonging to the
general files of the Company, and shall have such other powers and
duties as are commonly incident to the office of Secretary or as
may be prescribed for him by the Board, or be delegated to him by
the Chairman of the Board or by the President.
SECTION 4.7.
Duties of Treasurer. The Treasurer shall have charge of, and be
responsible for, the collection, receipt, custody and disbursement
of the funds of the Company, and shall deposit its funds in the
name of the Company in such banks, trust companies or safety
deposit vaults as the Board may direct. He shall have the custody
of the stock record books and such other books and papers as in the
practical business operations of the Company shall naturally belong
in the office or custody of the Treasurer, or as shall be placed in
his custody by the Board, the Chairman of the Board, the President,
or any Vice President, and shall have such other powers and duties
as are commonly incident to the office of Treasurer, or as may be
prescribed for him by the Board, or be delegated to him by the
Chairman of the Board or by the President.
SECTION 4.8.
Duties of Controller. The Controller shall have control over all
accounting records pertaining to moneys, properties, materials and
supplies of the Company. He shall have charge of the bookkeeping
and accounting records and functions, the related accounting
information systems and reports and executive supervision of the
system of internal accounting controls, and such other powers and
duties as are commonly incident to the office of Controller or as
may be prescribed by the Board, or be delegated to him by the
Chairman of the Board or by the President.
SECTION 4.9.
Duties of General Counsel. The General Counsel shall have full
responsibility for all legal advice, counsel and services for the
Company and its subsidiaries including employment and retaining of
attorneys and law firms as shall in his discretion be necessary or
desirable and shall have such other powers and shall perform such
other duties as from time to time may be assigned to him by the
Board, the Chairman of the Board or the President.
SECTION 4.10.
Duties of Assistant Secretary, Assistant Treasurer, Assistant
Controller and Assistant General Counsel. The Assistant Secretary,
Assistant Treasurer, Assistant Controller and Assistant General
Counsel shall assist the Secretary, Treasurer, Controller and
General Counsel, respectively, in the performance of the duties
assigned to each and shall for such purpose have the same powers as
his principal. He shall also have such other powers and duties as
may be prescribed for him by the Board, or be delegated to him by
the Chairman of the Board or by the President.
ARTICLE V
Indemnification of Directors, Officers, Employees and Agents
SECTION 5.1.
Indemnification of Directors, Officers and Employees. The Company
shall indemnify, to the fullest extent permitted under the laws of
the State of Illinois and any other applicable laws, as they now
exist or as they may be amended in the future, any person who was
or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(including, without limitation, an action by or in the right of the
Company), by reason of the fact that he or she is or was a
director, officer or employee of the Company, or is or was serving
at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
SECTION 5.2.
Advancement of Expenses to Directors, Officers and Employees.
Expenses incurred by such a director, officer or employee in
defending a civil or criminal action, suit or proceeding shall be
paid by the Company in advance of the final disposition of such
action, suit or proceeding to the fullest extent permitted under
the laws of the State of Illinois and any other applicable laws, as
they now exist or as they may be amended in the future.
SECTION 5.3.
Indemnification and Advancement of Expenses to Agents. The board
of directors may, by resolution, extend the provisions of this
Article V regarding indemnification and the advancement of expenses
to any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding by reason of the fact he or she is or was an agent of
the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise.
SECTION 5.4.
Rights Not Exclusive. The rights provided by or granted under this
Article V are not exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled.
SECTION 5.5.
Continuing Rights. The indemnification and advancement of expenses
provided by or granted under this Article V shall continue as to a
person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and
administrators of that person.
ARTICLE VI
Certificates of Stock and Their Transfer
SECTION 6.1.
Certificates of Stock. The certificates of stock of the Company
shall be in such form as may be determined by the Board of
Directors, shall be numbered and shall be entered in the books of
the Company as they are issued. They shall exhibit the holder's
name and number of shares and shall be signed by the Chairman of
the Board, the President or a Vice President and also by the
Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary and shall bear the corporate seal or a
facsimile thereof. If a certificate is countersigned by a transfer
agent or registrar, other than the Company itself or its employee,
any other signature or countersignature on the certificate may be
facsimiles. In case any officer of the Company, or any officer or
employee of the transfer agent or registrar, who has signed or
whose facsimile signature has been placed upon such certificate
ceases to be an officer of the Company, or an officer or employee
of the transfer agent or registrar, before such certificate is
issued, said certificate may be issued with the same effect as if
the officer of the Company, or the officer or employee of the
transfer agent or registrar, had not ceased to be such at the date
of issue.
SECTION 6.2.
Transfer of Stock. Upon surrender to the Company of a certificate
for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, and upon payment
of applicable taxes with respect to such transfer, it shall be the
duty of the Company, subject to such rules and regulations as the
Board of Directors may from time to time deem advisable concerning
the transfer and registration of certificates for shares of stock
of the Company, to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon
its books.
SECTION 6.3.
Shareholders of Record. The Company shall be entitled to treat the
holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by statute.
SECTION 6.4.
Lost, Destroyed or Stolen Certificates. The Board of Directors, in
individual cases or by general resolution, may direct a new
certificate or certificates to be issued by the Company as a
replacement for a certificate or certificates for a like number of
shares alleged to have been lost, destroyed or stolen, upon the
making of an affidavit of that fact by the person claiming the
certificate or certificates of stock to be lost, destroyed or
stolen. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of
such lost, destroyed or stolen certificate or certificates, or his
legal representative, to give the Company a bond in such form and
amount as it may direct as indemnity against any claim that may be
made against the Company with respect to the certificate or
certificates alleged to have been lost, destroyed or stolen.
ARTICLE VII
Miscellaneous
SECTION 7.1.
Contracts and Other Instruments. All contracts or obligations of
the Company shall be in writing and shall be signed either by the
Chairman of the Board, the President, any Executive Vice President,
any Vice President, the Treasurer, or any other officer of the
Company, agent, employee or attorney-in-fact as may be designated
by the Board, the Chairman of the Board or the President pursuant
to specific authorizations and, the seal of the Company may be
attached thereto, duly attested by the Secretary or an Assistant
Secretary, except contracts entered into in the ordinary course of
business where the amount involved is less than Five Hundred
Thousand Dollars ($500,000), and except contracts for the
employment of servants or agents, which contracts so excepted may
be entered into by the Chairman of the Board, the President, any
Executive Vice President, any Vice President, the Treasurer, or by
such officers, agents, employees or attorneys-in-fact as the
Chairman of the Board or the President may designate and authorize.
Unless the Board shall otherwise determine and direct, all checks
or drafts and all promissory notes shall be signed by two officers
of the Company. When prescribed by the Board, bonds, promissory
notes, and other obligations of the Company may bear the facsimile
signature of the officer who is authorized to sign such instruments
and, likewise, may bear the facsimile signature of the Secretary or
an Assistant Secretary.
SECTION 7.2.
Voting Stock Owned by Company. Any or all shares of stock owned by
the Company in any other corporation, and any or all voting trust
certificates owned by the Company calling for or representing
shares of stock of any other corporation, may be voted by the
Chairman of the Board, the President, any Vice President, the
Secretary or the Treasurer, either in person or by written proxy
given to any person in the name of the Company at any meeting of
the shareholders of such corporation, or at any meeting of voting
trust certificate holders, upon any question that may be presented
at any such meeting. Any such officer, or anyone so representing
him by written proxy, may on behalf of the Company waive any notice
of any such meeting required by any statute or by-law and consent
to the holding of such meeting without notice.
ARTICLE VIII
Amendment or Repeal of By-Laws
These by-laws may be added to, amended or repealed at any
regular or special meeting of the Board by a vote of a majority of
the membership of the Board.
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