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 June 30, 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
July 31, 1997.
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
North Shore Gas Company
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Nine Twelve
Months Ended Months Ended Months Ended
June 30, June 30, June 30,
---------------- ------------------ ------------------
1997 1996 1997 1996 1997 1996
------- ------- -------- -------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Gas sales $22,509 $29,259 $140,942 $133,224 $156,288 $145,387
Transportation 2,850 3,017 12,587 11,716 15,082 13,936
Other 289 308 749 770 1,007 944
------- ------- -------- -------- -------- --------
Total Operating Revenues 25,648 32,584 154,278 145,710 172,377 160,267
------- ------- -------- -------- -------- --------
OPERATING EXPENSES:
Gas costs 10,774 16,981 87,391 78,511 95,184 84,194
Operation 5,017 6,357 16,309 18,612 23,591 24,895
Maintenance 654 813 2,127 2,354 3,008 3,178
Depreciation 1,934 1,961 5,845 5,673 7,801 7,553
Taxes - Income 1,451 970 10,538 9,545 9,397 7,996
- State & local revenue 1,686 1,972 9,971 9,756 10,966 10,712
- Other 517 542 1,581 1,588 2,140 2,178
------- ------- -------- -------- -------- --------
Total Operating Expenses 22,033 29,596 133,762 126,039 152,087 140,706
------- ------- -------- -------- -------- --------
OPERATING INCOME 3,615 2,988 20,516 19,671 20,290 19,561
------- ------- -------- -------- -------- --------
OTHER INCOME AND (DEDUCTIONS):
Interest income 150 130 305 290 429 476
Interest on long-term debt (1,157) (1,158) (3,471) (3,779) (4,629) (5,246)
Other interest expense (39) (124) (400) (742) (462) (1,039)
Income taxes (53) (708) (123) (1,375) (498) (1,449)
Miscellaneous - net (26) 1,633 (38) 3,177 764 3,180
------- ------- -------- -------- -------- --------
Total Other Income
and Deductions (1,125) (227) (3,727) (2,429) (4,396) (4,078)
------- ------- -------- -------- -------- --------
NET INCOME APPLICABLE TO
COMMON STOCK $ 2,490 $ 2,761 $ 16,789 $ 17,242 $ 15,894 $ 15,483
======= ======= ======== ======== ======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
<TABLE>
North Shore Gas Company
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, June 30,
1997 September 30, 1996
(Unaudited) 1996 (Unaudited)
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
PROPERTIES AND OTHER ASSETS
CAPITAL INVESTMENTS:
Property, plant and equipment,
at original cost $291,297 $284,896 $281,072
Less - Accumulated depreciation 99,336 93,821 92,105
-------- -------- --------
Net property, plant and equipment 191,961 191,075 188,967
Other investments 20 113 96
-------- -------- --------
TOTAL CAPITAL INVESTMENTS - NET 191,981 191,188 189,063
-------- -------- --------
CURRENT ASSETS:
Cash 588 389 174
Cash equivalents 13,330 -- 8,691
Receivables -
Customers, net of allowance for
uncollectible accounts of $1,019,
$932, and $1,017, respectively 9,331 5,523 12,777
Other 2,463 3,421 7,072
Accrued unbilled revenues 2,145 3,780 2,210
Materials and supplies, at average cost 2,414 2,109 1,650
Gas in storage, at last-in, first-out cost 4,596 9,627 4,601
Gas costs recoverable through rate adjustments 353 2,500 2,190
Prepayments 301 371 498
-------- -------- --------
TOTAL CURRENT ASSETS 35,521 27,720 39,863
-------- -------- --------
OTHER ASSETS:
Regulatory assets 9,560 15,322 11,684
Deferred charges 2,793 3,270 2,674
-------- -------- --------
TOTAL OTHER ASSETS 12,353 18,592 14,358
-------- -------- --------
TOTAL PROPERTIES AND OTHER ASSETS $239,855 $237,500 $243,284
======== ======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
<TABLE>
North Shore Gas Company
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, June 30,
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 75,399 66,623 70,890
-------- -------- --------
Total Common Stockholder's Equity 100,156 91,380 95,647
Long-term debt, exclusive of sinking fund
payments and maturities due within one year 64,639 64,664 64,704
-------- -------- --------
TOTAL CAPITALIZATION 164,795 156,044 160,351
-------- -------- --------
CURRENT LIABILITIES:
Interim loans -- 1,925 4,000
Accounts payable 17,597 26,929 17,563
Dividends payable on common stock 2,647 3,372 3,046
Customer gas service and credit deposits 2,548 5,269 2,347
Accrued taxes 5,411 2,297 8,208
Gas sales revenue refundable through
rate adjustments 937 3,188 --
Accrued interest 903 2,038 956
Temporary LIFO liquidation credit 8,118 -- 10,790
-------- -------- --------
TOTAL CURRENT LIABILITIES 38,161 45,018 46,910
-------- -------- --------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes - primarily
accelerated depreciation 20,640 19,688 19,820
Investment tax credits being amortized
over the average lives of related property 3,631 3,743 3,786
Other 12,628 13,007 12,417
-------- -------- --------
TOTAL DEFERRED CREDITS AND
OTHER LIABILITIES 36,899 36,438 36,023
-------- -------- --------
TOTAL CAPITALIZATION AND LIABILITIES $239,855 $237,500 $243,284
======== ======== ========
<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)
Nine Months Ended
June 30,
-----------------
1997 1996
------- -------
(Thousands of Dollars)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $16,789 $17,242
Adjustments to reconcile net income to net cash:
Depreciation 5,845 5,673
Deferred income taxes and investment tax credits - net 593 340
Change in deferred credits and other liabilities (131) (11)
Change in other assets 6,239 (2,426)
Other -- 8
Change in current assets and liabilities:
Receivables - net (2,849) (13,985)
Gas in storage 5,030 13,795
Gas costs recoverable 2,147 1,883
Accounts payable (9,332) 3,274
Customer gas service and credit deposits (2,721) (3,217)
Accrued taxes 3,114 6,938
Gas sales revenue refundable (2,251) (10,944)
Accrued interest (1,135) (816)
Temporary LIFO liquidation credit 8,118 10,790
Other 1,400 904
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 30,856 29,448
------- -------
INVESTING ACTIVITIES:
Capital expenditures - construction (7,192) (9,134)
Other assets 553 412
------- -------
NET CASH USED IN INVESTING ACTIVITIES (6,639) (8,722)
------- -------
FINANCING ACTIVITIES:
Interim loans - net (1,925) --
Bank Loans -- 4,000
Retirement of long-term debt (25) (12,020)
Dividends paid on common stock (8,738) (6,925)
-------- -------
NET CASH USED IN FINANCING ACTIVITIES (10,688) (14,945)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,529 5,781
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 389 3,084
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,918 $ 8,865
======= =======
<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 nine months
ended June 30, 1997 1996
---------------------------------------------
(Thousands)
<S> <C> <C>
Income taxes paid $6,777 $4,823
Interest paid 4,858 5,014
</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 through 1997, 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.)
2G Recovery of Costs of Environmental Activities Relating to
Former Manufactured Gas Operations
The Company is recovering the costs of environmental activities
relating to its former manufactured gas operations, including
carrying charges on the unrecovered balances, under rate
mechanisms approved by the Commission. The Commission conducts
annual proceedings regarding, for each utility with such a rate
mechanism, the reconciliation of revenues from the rate mechanism
and related costs. In such proceedings, costs recovered by a
utility through the rate mechanism are subject to challenge. Such
proceedings regarding the Company for fiscal years 1994, 1995 and
1996 are currently pending before the Commission. (See Note 4A.)
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 appealed the Commission's
order to the Illinois Appellate Court, but on June 27, 1997, the
Appellate Court affirmed the Commission's order. All proceedings
regarding this case have concluded.
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 June 30, 1997, the Company had made
payments of $22.0 million and had accrued an additional $3.0
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 June 30, 1997, the total
of the costs deferred by the Company, net of recoveries and amounts
billed to other entities, was $6.3 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 June 30, 1997, have not been
reduced to reflect recoveries from insurance carriers.
The Company believes that costs incurred by it for
environmental activities relating to former manufactured gas
operations are recoverable 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
June 30, 1997, it had recovered $6.6 million of such costs through
rates. (See Note 2G.)
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. Salomon has appealed 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 $477,000 for the 12-months
ended June 30, 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 in total amount 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 $140,000, or
$105,000 after income taxes, for the 12-months ended June 30, 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
June 30, 1997, such restrictions amounted to $11.6 million out of
the Company's total retained earnings of $75.4 million.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Net Income
Net income applicable to common stock decreased $271,000, to
$2.5 million, and $453,000, to $16.8 million, for the three- and
nine-months ended June 30, 1997, due to the recognition in the
year-ago periods of gains associated with the expiration of certain
natural gas storage contracts (see Note 5 of the Notes to
Consolidated Financial Statements). Partially offsetting this
effect were reductions in operation and maintenance expenses.
Net income applicable to common stock rose $411,000, to $15.9
million, for the 12-months ended June 30, 1997, due primarily to
the full 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.) Also benefiting the period
were decreased operation and maintenance expenses and a decrease in
interest expense. Partially offsetting these beneficial effects
were the prior period's gain associated with the expiration of
certain natural gas storage contracts (see Note 5 of the Notes
to Consolidated Financial Statements) and decreased interest income.
<TABLE>
A summary of variations affecting income between periods is
presented below, with explanations of significant differences
following:
<CAPTION>
Three Months Ended Nine Months Ended 12 Months Ended
June 30, 1997 June 30,1997 June 30, 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) $(443) (3.2) $(527) (0.9) $866 1.3
Operation and
maintenance expenses (1,499) (20.9) (2,530) (12.1) (1,474) (5.3)
Depreciation expense (27) (1.4) 172 3.0 248 3.3
Income taxes 481 49.6 993 10.4 1,401 17.5
Other income and deductions (898) (395.6) (1,298) (53.4) (318) (7.8)
Net Income Applicable
to Common Stock (271) (9.8) (453) (2.6) 411 2.7
<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 $443,000, to $13.2 million, in
the current quarter, due primarily to a reduction in environmental
costs recovered through rates.
Net operating revenues decreased $527,000, to $56.9 million, for
the nine-month period ending June 30, 1997, due mainly to warmer
weather and lower environmental costs recovered through rates.
However, these effects were partially offset by the full effect of
the Company's rate increase.
Net operating revenues increased $866,000, to $66.2 million, for
the current 12-month period, primarily due to the aforementioned
rate increase. Warmer weather during the current period partially
offset the beneficial effect of the rate increase.
See Other Matters - Operating Statistics for details of selected
financial and operating information by customer classification.
Operation and Maintenance Expenses
Operation and maintenance expenses decreased $1.5 million, to
$5.7 million, in the current quarter, due primarily to decreases in
costs associated with injuries and damages ($536,000),
environmental costs recovered through rates ($402,000), the cost of
outside services ($127,000), and pension costs ($125,000).
Operation and maintenance expenses decreased $2.5 million, to
$18.4 million, in the current 9-month period, due mainly to
decreases in injuries and damages expenses ($516,000), pension
costs ($375,000), reengineering expenses ($298,000), the costs of
outside services ($225,000), and environmental costs recovered
through rates ($230,000).
Operation and maintenance expenses for the current 12-month
period decreased $1.5 million, to $26.6 million, primarily due to a
decrease of $598,000 in group insurance expenses, a decrease of
$467,000 in costs associated with injuries and damages, lower
reengineering expenses ($362,000), and a reduction of the cost of
outside services.
Depreciation Expense
Depreciation expense decreased $27,000, to $1.9 million, in the
three-month period due to a decrease in net dismantling charges.
However, for the nine- and 12-month periods, depreciation expense
increased by $172,000, to $5.8 million, and $248,000, 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 $481,000, to $1.5 million, $993,000, to
$10.5 million, and $1.4 million, to $9.4 million, for the current
three-, nine-, and 12-month periods, respectively, due mainly to
higher pre-tax income.
Other Income and Deductions
Other income and deductions increased $898,000 for the
three-month period, due chiefly to the prior year's gain of
$909,000, after income taxes, associated with the expiration of
certain natural gas storage contracts. (See Note 5 of the Notes to
Consolidated Financial Statements.) Lower interest expense in the
current period partially offset the effect of the prior period's
gain.
Other income and deductions increased $1.3 million for the
nine-month period, due primarily to the prior year's gain of $1.8
million, after income taxes, associated with the expiration of
certain natural gas storage contracts and to lower interest income.
Partially offsetting the effect of these factors was lower interest
expense of $616,000 due primarily to a reduction in long-term debt
outstanding, a reduction in amounts refundable to customers, and
lower interest on notes payable.
Other income and deductions increased $318,000, for the current
12-month period, due to the prior period's realization of a gain of
$1.3 million, net of income taxes, from the expiration of certain
natural gas storage contracts and to lower interest income.
Partially offsetting these effects was lower interest expense of
$1.1 million, in the current period, due primarily to a reduction
in the amount of long-term debt outstanding and to a reduction in
the amounts refundable to customers.
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 adverse 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.)
Large Volume Gas Service Agreement. The Company has entered into a
gas service contract with a large volume customer under a specific
rate schedule approved by the Commission. This contract was
negotiated to overcome the potential threat of bypassing the
utility's distribution system. The contract will not have a
material adverse effect on the financial position or results of
operations of the Company.
<TABLE>
Operating Statistics. The following table represents gas
distribution margin components:
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------- ------------------ ---------------------
1997 1996 1997 1996 1997 1996
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues (thousands):
Gas sales
Residential $19,139 $25,076 $118,791 $112,257 $132,035 $123,008
Commercial 2,798 3,411 17,900 16,953 19,717 18,139
Industrial 572 772 4,251 4,014 4,536 4,240
------- ------- -------- -------- --------- --------
22,509 29,259 140,942 133,224 156,288 145,387
Transportation
Residential 567 607 2,405 1,498 2,759 1,682
Commercial 972 1,056 4,381 5,652 5,035 6,634
Industrial 1,039 1,292 4,090 4,504 5,269 5,558
Contract Pooling 272 62 1,711 62 2,019 62
------- ------- -------- -------- -------- --------
2,850 3,017 12,587 11,716 15,082 13,936
------- ------- -------- -------- -------- --------
Other Revenues 289 308 749 770 1,007 944
------- ------- -------- -------- -------- --------
Total Operating Revenues 25,648 32,584 154,278 145,710 172,377 160,267
Less - Gas Costs 10,774 16,981 87,391 78,511 95,184 84,194
- Revenues Taxes 1,686 1,972 9,971 9,756 10,966 10,712
-------- -------- --------- --------- --------- --------
Net Operating Revenues $13,188 $13,631 $ 56,916 $ 57,443 $ 66,227 $ 65,361
======== ======== ========= ========= ========= ========
Deliveries (MDth):
Gas Sales
Residential 3,546 3,710 20,209 21,208 21,789 22,780
Commercial 596 558 3,289 3,438 3,550 3,647
Industrial 133 137 833 882 880 932
------- ------- -------- --------- --------- --------
4,275 4,405 24,331 25,528 26,219 27,359
------- ------- -------- --------- --------- --------
Transportation (a)
Residential 568 527 2,427 1,167 2,676 1,221
Commercial 693 739 3,589 4,817 3,917 5,375
Industrial 1,382 1,381 4,971 4,970 6,272 6,307
------- -------- -------- -------- -------- --------
2,643 2,647 10,987 10,954 12,865 12,903
------- -------- -------- -------- -------- --------
Total Gas Sales
and Transportation 6,918 7,052 35,318 36,482 39,084 40,262
======= ======== ======== ======== ======== ========
Margin per Dth
delivered $1.91 $1.93 $1.61 $1.57 $1.69 $1.62
<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 June 30, 1997, such restrictions amounted to
$11.6 million out of the Company's total retained earnings of $75.4
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. Salomon has appealed 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 $114.4 million of which the Company may
borrow up to $25 million to cover its projected short-term needs.
At June 30, 1997, Peoples Gas had unused credit available of $114.4
million.
Interest Coverage. The fixed charges coverage ratios for the
Company for the 12-months ended June 30, 1997, and for fiscal 1996
and 1995 were 6.06, 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 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
June 30, 1997.
None.
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)
August 12, 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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