<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-2700
------------------------
EL PASO NATURAL GAS COMPANY
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 74-0608280
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
EL PASO ENERGY BUILDING
1001 LOUISIANA, HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (713) 757-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING
----- -----------
<S> <C>
Common Stock, par value $3.00 per share
as of August 11, 1997 59,341,964 shares
</TABLE>
================================================================================
<PAGE> 2
GLOSSARY
The following abbreviations, acronyms, or defined terms used in this Form
10-Q are defined below:
<TABLE>
<CAPTION>
DEFINITIONS
-----------
<S> <C>
CAPSA................. Companias Asociadas Petroleras SA, a privately held integrated energy
company in Argentina
Company............... El Paso Natural Gas Company and its subsidiaries
Cornerstone........... Cornerstone Natural Gas, Inc.
Court of Appeals...... United States Court of Appeals for the District of Columbia Circuit
Distributions......... Various intercompany transfers and distributions which restructured,
divided and separated the businesses, assets and liabilities of Old
Tenneco and its subsidiaries so that all the assets, liabilities and
operations related to the automotive parts, packaging and administrative
services businesses and the shipbuilding business were spun-off to Old
Tenneco's then existing common stockholders
EPG................... El Paso Natural Gas Company, unless the context otherwise requires
EPTPC................. El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), an indirect
subsidiary of El Paso Natural Gas Company
FERC.................. The Federal Energy Regulatory Commission
GSR................... Gas supply realignment
Merger................ The acquisition of El Paso Tennessee Pipeline Co. by El Paso Natural Gas
Company in December 1996
MW(s)................. Megawatt(s)
NGL(s)................ Natural gas liquid(s)
New Tenneco........... Tenneco Inc., subsequent to the Merger and Distributions, consisting of
the automotive parts, packaging and administrative services businesses
Old Tenneco........... Tenneco Inc. (renamed El Paso Tennessee Pipeline Co.), prior to its
acquisition by the Company
PCB(s)................ Polychlorinated biphenyl(s)
Pemex................. Pemex Gas Petroquimica Basica, the Mexican state-owned energy company
PRP(s)................ Potentially responsible party(ies)
SFAS.................. Statement of Financial Accounting Standards
TGP................... Tennessee Gas Pipeline Company, a wholly owned subsidiary of El Paso
Tennessee Pipeline Co.
TransAmerican......... TransAmerican Natural Gas Corporation
</TABLE>
i
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EL PASO NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Operating revenues...................................... $ 979 $ 587 $2,810 $1,193
------ ------ ------ ------
Operating expenses
Cost of gas and other products........................ 620 420 2,058 854
Operation and maintenance............................. 156 73 315 147
Employee separation and asset impairment charge....... -- -- -- 99
Depreciation, depletion, and amortization............. 57 21 124 43
Taxes, other than income taxes........................ 21 11 49 21
------ ------ ------ ------
854 525 2,546 1,164
------ ------ ------ ------
Operating income........................................ 125 62 264 29
------ ------ ------ ------
Other (income) and expense
Interest and debt expense............................. 59 25 120 48
Other -- net.......................................... (14) (3) (24) (1)
------ ------ ------ ------
45 22 96 47
------ ------ ------ ------
Income (loss) before income taxes and minority
interest.............................................. 80 40 168 (18)
Income tax expense (benefit)............................ 31 16 65 (7)
------ ------ ------ ------
Income (loss) before minority interest.................. 49 24 103 (11)
Minority interest
Preferred stock dividend requirement of subsidiary.... 6 -- 12 --
------ ------ ------ ------
Net income (loss)....................................... $ 43 $ 24 $ 91 $ (11)
====== ====== ====== ======
Earnings (loss) per common share........................ $ .75 $ .69 $ 1.60 $ (.31)
====== ====== ====== ======
Average common shares outstanding....................... 57.3 35.5 56.4 35.3
====== ====== ====== ======
Dividends declared per common share..................... $.3650 $.3475 $.7300 $.6950
====== ====== ====== ======
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
1
<PAGE> 4
EL PASO NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- ------------
<S> <C> <C>
Current assets
Cash and temporary investments............................ $ 78 $ 200
Accounts and notes receivable, net........................ 889 1,273
Inventories............................................... 77 87
Deferred income tax benefit............................... 113 141
Other..................................................... 285 395
------ ------
Total current assets.............................. 1,442 2,096
Property, plant, and equipment, net......................... 6,385 5,938
Other....................................................... 827 809
------ ------
Total assets...................................... $8,654 $8,843
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 726 $1,089
Short-term borrowings (including current maturities of
long-term debt)........................................ 510 841
Accrual for regulatory issues............................. 201 309
Other..................................................... 613 604
------ ------
Total current liabilities......................... 2,050 2,843
------ ------
Long-term debt, less current maturities..................... 2,188 2,215
------ ------
Deferred income taxes....................................... 1,399 1,092
------ ------
Other....................................................... 814 720
------ ------
Minority interest
Preferred stock of subsidiary............................. 300 296
------ ------
Other minority interest................................... 40 39
------ ------
Commitments and contingencies (See Note 2)
Stockholders' equity
Common stock, par value $3 per share; authorized
100,000,000 shares; issued 60,783,803 and 56,726,734
shares................................................. 182 170
Additional paid-in capital................................ 1,537 1,355
Retained earnings......................................... 273 227
Less: Treasury stock (at cost) 1,465,104 and 1,451,922
shares.............................................. 45 45
Deferred compensation.............................. 84 69
------ ------
Total stockholders' equity........................ 1,863 1,638
------ ------
Total liabilities and stockholders' equity........ $8,654 $8,843
====== ======
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
2
<PAGE> 5
EL PASO NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------
1997 1996
------- -----
<S> <C> <C>
Cash flows from operating activities
Net income (loss)......................................... $ 91 $ (11)
Adjustments to reconcile net income (loss) to net cash
from operating activities
Depreciation, depletion, and amortization.............. 124 43
Deferred income tax expense (benefit).................. 178 (24)
Net employee separation and asset impairment charge.... -- 79
Working capital changes................................ (127) 49
Other.................................................. (23) 4
------- -----
Net cash provided by operating activities......... 243 140
------- -----
Cash flows from investing activities
Capital expenditures...................................... (77) (45)
Investment in equity securities........................... (139) (48)
Net cash flow impact of acquisitions...................... -- (99)
Collection of note receivable from partnership............ 53 --
Other..................................................... 15 18
------- -----
Net cash used in investing activities............. (148) (174)
------- -----
Cash flows from financing activities
Net commercial paper proceeds/(payments).................. 69 (66)
Revolving credit borrowings............................... -- 263
Revolving credit repayments............................... (1,200) (163)
Retirement of long-term debt.............................. (105) (16)
Net proceeds from long-term debt issuance................. 883 --
Net proceeds from equity offering......................... 152 --
Dividends paid on common stock............................ (35) (24)
Other..................................................... 19 51
------- -----
Net cash provided by (used in) financing
activities...................................... (217) 45
------- -----
Increase (decrease) in cash and temporary investments....... (122) 11
Cash and temporary investments
Beginning of period............................... 200 39
------- -----
End of period..................................... $ 78 $ 50
======= =====
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE> 6
EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The 1996 Annual Report on Form 10-K for the Company includes a summary of
significant accounting policies and other disclosures and should be read in
conjunction with this Form 10-Q. The condensed consolidated financial statements
at June 30, 1997, and for the six months and quarters ended June 30, 1997, and
1996, are unaudited. The condensed balance sheet at December 31, 1996, is
derived from audited financial statements. These financial statements do not
include all disclosures required by generally accepted accounting principles. In
the opinion of management, all material adjustments necessary to present fairly
the results of operations for such periods have been included. All such
adjustments are of a normal recurring nature. Results of operations for any
interim period are not necessarily indicative of the results of operations for
the entire year due to the cyclical nature of the Company's businesses.
Financial statements for the previous periods include certain reclassifications
which were made to conform to current presentation. Such reclassifications have
no effect on reported net income or stockholders' equity.
Derivative Financial Instruments
The Company utilizes derivative financial instruments to manage price risks
associated with certain energy commodities and interest and foreign currency
exchange rates. In its price risk management activities, the Company engages in
both trading and non-trading activities. The financial instruments used include
swap agreements, futures, options and hedge contracts.
Activities for trading purposes generally consist of services provided to
the energy sector and are accounted for using the mark-to-market method. Such
trading activities are conducted through a variety of financial instruments,
including forward contracts involving cash settlements or physical delivery of
an energy commodity, swap contracts which require payments to (or receipt of
payments from) counterparties based on the differential between a fixed and
variable price for the commodity, options, and other contractual arrangements.
Under mark-to-market accounting, financial instruments with third parties
are reflected at estimated market value, with resulting unrealized gains and
losses recorded in operating income in the Consolidated Statements of Income.
The net gains or losses recognized in the current period result primarily from
transactions originating within the period and the impact of price movements on
transactions originating in previous periods. The assets and liabilities
resulting from mark-to-market accounting are presented as other current assets
and other current liabilities in the Consolidated Balance Sheets. Terms
regarding cash settlement of the contracts vary with respect to the actual
timing of cash receipts and payments. Receivables and payables resulting from
these timing differences are presented in accounts and notes receivable, net,
and accounts payable in the Consolidated Balance Sheets. Cash inflows and
outflows associated with these price risk management activities are recognized
in operating cash flow as the settlement of transactions occur.
The market prices used to value these financial instruments reflect
management's best estimate considering various factors including exchange and
over-the-counter quotations, time value and volatility factors underlying the
commitments. The values are adjusted to reflect the potential impact of
liquidating the Company's position in an orderly manner over a reasonable period
of time under present market conditions.
Activities for non-trading purposes consist of transactions entered into by
the Company to hedge the impact of market fluctuations on assets, liabilities,
production, or other contractual commitments. In order to meet the requirements
of a hedge, the transactions must be designated as a hedge, meet certain
correlation criteria, and reduce price risk. The Company uses forwards, swaps,
and other contracts to hedge the impact of market fluctuations. Changes in the
market value of these financial instruments are deferred until the gains or
losses on the hedged item are recognized. Cash inflows and outflows are
recognized in operating cash flow as the settlement of transactions occurs. Upon
maturity, the gain or loss on derivatives designated as a hedge is
4
<PAGE> 7
recognized when the underlying transaction gain or loss is recognized. When the
underlying asset being hedged is sold, deferred gains or losses are recognized
at the time of the sale of the underlying asset. Deferred gains or losses are
also recognized at the time it becomes probable that an anticipated transaction
or a portion thereof will not occur.
2. COMMITMENTS AND CONTINGENCIES
Rates and Regulatory Matters
TGP -- In February 1997, TGP filed with FERC a settlement of all issues
related to the recovery by TGP of its GSR and other transition costs and related
proceedings (the "GSR Stipulation and Agreement"). On April 16, 1997, FERC
approved the settlement and TGP implemented the settlement on May 1, 1997. Under
the terms of the GSR Stipulation and Agreement, TGP will be entitled to collect
from customers a total of up to $770 million, of which approximately $647
million has been collected as of June 30, 1997. TGP is entitled to recover
additional transition costs, up to the remaining $123 million, through a demand
transportation surcharge and an interruptible transportation surcharge. The
demand transportation surcharge portion is scheduled to be recovered over a
period extending through December 1998. There is no time limit for collection of
the interruptible transportation surcharge portion. The terms of the GSR
Stipulation and Agreement also provides for a rate case moratorium through
November 2000 (subject to certain limited exceptions) and provides an escalating
rate cap, indexed to inflation, through October 2005, for certain of TGP's
customers.
In January 1995, FERC accepted TGP's rate case which was filed in December
1994, suspended its effectiveness for the maximum period of five months pursuant
to the normal regulatory process, and set the matter for hearing. On July 1,
1995, TGP began collecting rates, subject to refund, reflecting an $87 million
increase in TGP's annual revenue requirement. A stipulation was filed with an
Administrative Law Judge in this proceeding in April 1996. This stipulation
resolves the rates that are the subject of the December 1994 rate case,
including a structural rate design change that results in a larger proportion of
TGP's transportation revenues being dependent upon throughput. In October 1996,
FERC approved the stipulation with certain modifications and clarifications
which are not material. In January 1997, FERC issued an order denying requests
for rehearing of the October 1996 order. Under the stipulation, TGP's refund
obligation was approximately $185 million, inclusive of interest, of which $161
million was refunded to customers in March and June 1997 with the remaining $24
million refund obligation offset against GSR recoveries in accordance with
particular customer elections. TGP had provided a reserve for these rate refunds
as revenues were collected. One party to the rate proceeding, a competitor of
TGP, filed with the Court of Appeals a Petition for Review of the FERC orders
approving the stipulation. The Company believes the FERC orders will be upheld.
In July 1997, FERC issued an order on rehearing of its July 1996 order
addressing cost allocation and rate design issues of TGP's 1991 general rate
proceeding. All cost of service issues were previously resolved pursuant to a
settlement that was approved by FERC. In the July 1996 order, FERC remanded to
the presiding Administrative Law Judge the issue of proper allocation of TGP's
New England lateral costs. In the July 1997 order on rehearing, FERC clarified
among other things, that although the ultimate resolution as to the proper
allocation of costs will be applied retroactively to July 1, 1995, the cost of
service settlement does not allow TGP to recover from other customers amounts
that TGP may ultimately be required to refund. TGP will seek rehearing of this
order. Management believes that the resolution of this issue will not have a
material impact on the financial position or results of operations of the
Company.
EPG -- In January 1997, the Chief Administrative Law Judge certified EPG's
March 1996 settlement to FERC and severed contesting parties. In April 1997,
FERC approved EPG's settlement as filed and determined that only Southern
California Edison Company should be severed for separate determination of the
rates it pays EPG. Hearings to determine Southern California Edison Company's
rates are scheduled to begin January 1998. In July 1997, FERC issued an order
denying the requests for rehearing of the April 1997 order. Southern California
Edison Company has filed with the Court of Appeals a petition for review of
FERC's July 1997 order. Revenues collected subject to refund through June 30,
1997, were $185 million,
5
<PAGE> 8
including interest. It is anticipated that refunds to the customers that were
parties to the settlement will be made in the third quarter of 1997. Settlement
rates for the settled parties were effective July 1, 1997. EPG provided a
reserve for rate refunds as revenues were collected and will continue to provide
a reserve for rate refunds for non-settled parties.
Under FERC procedures, take-or-pay cost recovery filings may be challenged
by pipeline customers on prudence and certain other grounds. Certain parties
sought review in the Court of Appeals of FERC's determination in the October
1992 order that certain buy-down/buy-out costs were eligible for recovery. In
January 1996, the Court of Appeals remanded the order to FERC with direction to
clarify the basis for its decision that the take-or-pay buy-down/buy-out costs
were eligible for recovery. In March 1996, FERC issued an order to the effect
that categories of costs which had been determined to be eligible for recovery
might in fact be ineligible for recovery and established a technical conference
which was held in May 1996. In March 1997, following a technical conference and
the submission of statements of position and replies, FERC issued an order
determining that the costs related to all but one of EPG's disputed contracts
were eligible for recovery. The costs ruled ineligible for recovery totaled
approximately $3 million, including interest, and were refunded to customers in
the second quarter of 1997. The contesting parties, who contended that EPG
should have been ordered to refund up to $42 million plus interest, have filed a
request for rehearing of FERC's March 1997 order.
Environmental Matters
As of June 30, 1997, the Company had a reserve of approximately $236
million related to the environmental assessments and remediation activities
discussed below.
Since 1988, TGP has been engaged in an internal project to identify and
deal with the presence of PCBs and other substances on the United States
Environmental Protection Agency List of Hazardous Substances, at compressor
stations and other facilities operated by both its interstate and intrastate
natural gas pipeline systems. While there are still uncertainties relating to
the ultimate costs which may be incurred, based upon the Company's evaluation
and experience to date, the Company believes that the recorded estimate for the
reserve is adequate.
In May 1995, following negotiations with its customers, TGP filed with FERC
a separate Stipulation and Agreement (the "Environmental Stipulation") that
established a mechanism for recovering a substantial portion of the
environmental costs identified in the internal project. In November 1995, FERC
issued an order approving the Environmental Stipulation. Although one shipper
filed for rehearing, FERC denied rehearing of its order in February 1996. This
shipper filed a Petition of Review in April 1996 in the Court of Appeals; TGP
believes the FERC order approving the Environmental Stipulation will be upheld
on appeal. The Environmental Stipulation was effective July 1, 1995. As of June
30, 1997, a balance of $37 million remains to be collected under this agreement.
The Company and certain of its subsidiaries have been designated, have
received notice that they should be designated, or have been asked for
information to determine whether they could be designated as a PRP with respect
to 32 sites under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA or Superfund) or state equivalents. The Company has sought
to resolve its liability as a PRP with respect to these Superfund sites through
indemnification by third parties and/or settlements which provide for the
payment of the Company's allocable share of remediation costs. Because the
clean-up costs are estimates and are subject to revision as more information
becomes available about the extent of remediation required, the Company's
estimate of its share of remediation costs could change. Moreover, liability
under the federal Superfund statute is joint and several, meaning that the
Company could be required to pay in excess of its pro rata share of remediation
costs if other parties are unable to pay. The Company's understanding of the
financial strength of other PRPs has been considered, where appropriate, in its
determination of its estimated liability as described herein. The Company
presently believes that the recorded estimate for the reserve associated with
the Superfund sites is adequate.
6
<PAGE> 9
In addition, the Company has identified a number of formerly owned or
leased sites, and certain other sites associated with its discontinued
operations, where environmental remediation may be required. The Company
presently believes that the recorded estimate for the reserve associated with
these sites is adequate.
Legal Proceedings
In November 1993, TransAmerican filed a complaint in a Texas state court,
TransAmerican Natural Gas Corporation v. El Paso Natural Gas Company, et al.,
alleging fraud, tortious interference with contractual relationships, economic
duress, civil conspiracy, and violation of state antitrust laws arising from a
settlement agreement entered into by EPG, TransAmerican, and others in 1990 to
settle litigation then pending and other potential claims. The complaint, as
amended, seeks unspecified actual and exemplary damages. EPG is defending the
matter in the State District Court of Dallas County, Texas. In April 1996, a
former employee of TransAmerican filed a related case in Harris County, Texas,
Vickroy Stone v. Godwin & Carlton, P.C., et al. (including EPG), seeking
indemnification and other damages in unspecified amounts relating to litigation
consulting work allegedly performed for various entities, including EPG, in
cases involving TransAmerican. The trials in TransAmerican and Stone are set to
commence in May 1998 and September 1998, respectively. Based on information
available at this time, management believes that the claims asserted against it
in both cases have no factual or legal basis and that the ultimate resolution of
these matters will not have a materially adverse effect on the Company's
financial position or results of operations.
In July 1996, EPG and TGP were served with a complaint in the matter of
Jack J. Grynberg v. Alaska Pipeline Co., et al., filed in the U.S. District
Court for the District of Columbia (the "Court"). The plaintiff filed this
action under the False Claims Act against most interstate pipelines and others
alleging that the defendants mismeasured natural gas produced from federal and
Indian land, which deprived the United States of royalties otherwise due it.
Among other things, the plaintiff sought to recover unspecified treble damages
on behalf of the United States. The plaintiff also sought to recover his
finder's fee and attorneys' fees. In response to motions filed by most
defendants, the Court, in March 1997, issued an order dismissing the complaint.
EPG and TGP cannot predict what action the plaintiff will take in response to
the Court's order. Based on information available at this time, EPG and TGP do
not believe that the ultimate resolution of this matter will have a materially
adverse effect on the Company's financial position or results of operations.
In Commonwealth of Kentucky, Natural Resources and Environmental Protection
Cabinet v. Tennessee Gas Pipeline Company (Franklin County Circuit Court, Docket
No. 88-C1-1531, November 16, 1988), the Kentucky environmental agency alleged
that TGP discharged pollutants into the waters of the state without a permit and
disposed of PCBs without a permit. The agency sought an injunction against
future discharges, sought an order to remediate or remove PCBs, and sought a
civil penalty. TGP has entered into agreed orders with the agency to resolve
many of the issues raised in the original allegations, has received water
discharge permits for its Kentucky stations from the agency, and continues to
work to resolve the remaining issues. Management believes that the resolution of
this issue will not have a materially adverse effect on the Company's financial
position or results of operations.
The Company is a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of business.
While the outcome of such lawsuits or other proceedings against the Company
cannot be predicted with certainty, management currently does not expect these
matters to have a materially adverse effect on the Company's financial position
or results of operations.
7
<PAGE> 10
3. FINANCING TRANSACTIONS
The Company had short-term borrowings, including current maturities of long
term debt, at June 30, 1997 and December 31, 1996, as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
EPG Revolving Credit Facility............................... $ -- $ 17
EPTPC Revolving Credit Facility............................. 417 700
Commercial paper............................................ 69 --
Current maturities of long term debt........................ 24 124
---- ----
$510 $841
==== ====
</TABLE>
At December 31, 1996, EPTPC had an additional $900 million outstanding
under its credit facility which was reflected as long-term debt because it was
expected to be refinanced with long-term debt during the first quarter of 1997.
In January 1997, EPG's 6.90% notes, which had an aggregate principal amount
of $100 million, matured and were retired.
In February 1997, EPG issued an additional 3 million shares of common
stock. Proceeds of approximately $152 million, net of issuance costs, were used
to repay a portion of EPTPC's credit facility and for general corporate
purposes.
In March 1997, TGP closed the sale of $300 million aggregate principal of
7 1/2% debentures due 2017, $300 million aggregate principal of 7% debentures
due 2027, and $300 million aggregate principal of 7 5/8% debentures due 2037.
Proceeds of approximately $883 million, net of issuance costs, were used to
repay a portion of EPTPC's credit facility and for general corporate purposes.
During the first six months of 1997, the Company made payments of $150
million on EPTPC's credit facilities out of operating cash flows.
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at June 30, 1997, and December 31, 1996,
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Property, plant, and equipment, at cost..................... $5,489 $5,474
Less accumulated depreciation and depletion................. 1,300 1,207
------ ------
4,189 4,267
Additional acquisition cost assigned to utility plant, net
of accumulated amortization............................... 2,196 1,671
------ ------
Total property, plant, and equipment, net......... $6,385 $5,938
====== ======
</TABLE>
The increase in additional acquisition cost assigned to plant is a result
of the Company's continuing efforts to evaluate the fair market value of the
assets and liabilities acquired in conjunction with the Merger.
5. INVENTORIES
Inventories at June 30, 1997, and December 31, 1996, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Materials and supplies...................................... $50 $51
Gas in storage.............................................. 27 36
--- ---
$77 $87
=== ===
</TABLE>
8
<PAGE> 11
Materials and supplies and gas in storage are valued at the lower of cost
or market, with cost determined using the average cost method.
6. ACCOUNTING FOR REGULATED OPERATIONS
The Company's businesses that are subject to the regulations and accounting
requirements of FERC have followed the accounting requirements of SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation, which may differ from
those accounting methods used by non-regulated entities. Changes in the
regulatory and economic environment may, at some point in the future, create
circumstances in which the application of regulatory accounting principles would
no longer be appropriate. During the first quarter of 1997, FERC approved TGP's
GSR Stipulation and Agreement and EPG's settlement (discussed previously in
Rates and Regulatory Matters of Note 2). The Company is currently evaluating the
impact the FERC approvals may have on the continued application of regulatory
accounting principles. If these accounting principles should no longer be
applied, an amount would be charged to earnings as an extraordinary item in
accordance with SFAS No. 101, Regulated Enterprises -- Accounting for
Discontinuation of Application of SFAS No. 71. At June 30, 1997, this amount was
estimated to be approximately $89 million, net of income taxes. Any potential
charge would be non-cash and would not have a direct effect on the regulated
companies' ability to seek recovery of the underlying deferred costs in their
future rate proceedings or on their ability to collect the rates set thereby.
7. RECENT PRONOUNCEMENTS
Earnings per share
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which establishes new guidelines for calculating
earnings per share. The pronouncement is effective for reporting periods ending
after December 15, 1997, with earlier application not permitted. SFAS No. 128
will require companies to present both a basic and diluted earnings per share
amount on the face of the statement of income and to restate prior period
earnings per share amounts. Pro forma basic and diluted earnings per share
amounts calculated in accordance with SFAS No. 128 are presented below for the
six months and quarters ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
--------------------------------- ---------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED BASIC DILUTED
----- ------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In millions, except per common
share amounts)
Net income (loss).................. $ 43 $ 43 $ 24 $ 24 $ 91 $ 91 $ (11) $ (11)
===== ===== ===== ===== ===== ===== ===== =====
Average common shares
outstanding...................... 57.3 57.3 35.5 35.5 56.4 56.4 35.3 35.3
Effect of dilutive securities
Stock options............ -- 1.5 -- -- -- 1.4 -- --
----- ----- ----- ----- ----- ----- ----- -----
Adjusted average common shares
outstanding...................... 57.3 58.8 35.5 35.5 56.4 57.8 35.3 35.3
===== ===== ===== ===== ===== ===== ===== =====
Earnings (loss) per common
share............................ $ .75 $ .74 $ .69 $ .69 $1.60 $1.56 $(.31) $(.31)
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Capital structure
In March 1997, the Financial Accounting Standards Board issued SFAS No.
129, Disclosure of Information about Capital Structure, which consolidates
capital structure reporting requirements previously required by other accounting
standards. This pronouncement, which will become effective for reporting periods
ending after December 15, 1997, will have no impact on the Company's disclosure
of capital structure information.
9
<PAGE> 12
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This pronouncement is
effective for fiscal years beginning after December 15, 1997. The Company is
currently evaluating the impact of this pronouncement.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
establishes the way that public business enterprises report information about
operating segments in annual and interim financial statements issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This pronouncement
is effective for financial statements for periods beginning after December 15,
1997. The Company is currently evaluating the impact of this pronouncement.
Derivative Disclosure
The Securities and Exchange Commission recently issued Financial Reporting
Release No. 48, Disclosure of Derivative and Other Financial Instruments, which
requires enhanced disclosure related to accounting policies for derivatives and
quantitative and qualitative disclosure concerning market risk inherent in
derivatives and other financial instruments.
The effective date for the enhanced-accounting policy disclosure
requirements is for fiscal periods ending after June 15, 1997 (see Note 1). The
requirements for quantitative and qualitative disclosures about market risks are
effective for the Company for December 31, 1997. The Company is currently
evaluating the impact of this pronouncement.
Other
The Company adopted SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, SFAS No. 127, Deferral of
the Effective Date of Certain Provisions of FASB Statement No. 125, and
Statement of Position No. 96-1, Environmental Remediation Liabilities, effective
January 1, 1997. These pronouncements did not have a material impact on the
Company's financial position or results of operations.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in Item 2 updates, and should be read in
conjunction with, information set forth in Part II, Items 7 and 8, in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, in
addition to the interim consolidated financial statements and accompanying notes
presented in Item 1 of this Form 10-Q.
RESULTS OF OPERATIONS
NATURAL GAS TRANSMISSION
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
--------------- -------------
1997 1996 1997 1996
----- ----- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Operating revenues................................. $316 $126 $659 $254
Operating expenses................................. 175 76 376 157
---- ---- ---- ----
Operating income................................... $141 $ 50 $283 $ 97
==== ==== ==== ====
</TABLE>
Second Quarter 1997 Compared to Second Quarter 1996
Operating revenues for the quarter ended June 30, 1997, were $190 million
higher than for the same period of 1996 primarily due to the acquisition of
EPTPC.
Operating expenses for the quarter ended June 30, 1997, were $99 million
higher than for the same period of 1996 primarily due to the acquisition of
EPTPC. This increase in operating expenses was partially offset by lower
operation and maintenance expense, specifically the cost of labor and benefits,
as a result of the reduction in staffing levels during 1996.
Six Months Ended 1997 Compared with Six Months Ended 1996
Operating revenues for the six months ended June 30, 1997, were $405
million higher than for the same period of 1996 primarily due to the acquisition
of EPTPC.
Operating expenses for the six months ended June 30, 1997, were $219
million higher than for the same period of 1996 primarily due to the acquisition
of EPTPC. This increase in operating expenses was partially offset by lower
operation and maintenance expense, specifically the cost of labor and benefits,
as a result of the reduction in staffing levels during 1996.
FIELD AND MERCHANT SERVICES
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
--------------- -------------
1997 1996 1997 1996
----- ----- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Gathering and treating margin......................... $23 $18 $59 $37
Processing margin..................................... 13 11 32 17
Marketing margin...................................... (2) 10 (7) 30
Other................................................. 3 3 4 3
--- --- --- ---
Total gross margin.......................... 37 42 88 87
Operating expenses.................................... 42 28 83 55
--- --- --- ---
Operating income...................................... $(5) $14 $ 5 $32
=== === === ===
</TABLE>
Second Quarter 1997 Compared to Second Quarter 1996
Total gross margin (revenue less cost of sales) for the quarter ended June
30, 1997, was $5 million lower than for the same period of 1996. The decrease
was primarily the result of generally lower industry-wide gas
11
<PAGE> 14
marketing margins. The lower marketing margins were partially offset by higher
gathering and treating margins due to an increase in volumes arising from the
Cornerstone and EPTPC acquisitions.
Operating expenses for the quarter ended June 30, 1997, were $14 million
higher than for the same period of 1996 primarily due to the acquisitions of
Cornerstone and EPTPC.
Six Months Ended 1997 Compared with Six Months Ended 1996
Total gross margin for the six months ended June 30, 1997, was $1 million
higher than for the same period of 1996. The increases experienced in the
gathering and treating margin and the processing margin were primarily the
result of higher natural gas prices in the San Juan Basin, slightly higher NGL
prices, an increase in gathering and treating volumes due to the acquisitions of
Cornerstone and EPTPC, and an increase in NGLs attributable to the Chaco
cryogenic plant, which began processing in the second quarter of 1996. Partially
offsetting the increase in total gross margin was a decrease in the marketing
margin resulting from generally lower industry-wide gas marketing margins in the
second quarter of 1997, as well as extreme market volatility which negatively
impacted natural gas marketing activities and trading positions during the first
quarter of 1997.
Operating expenses for the six months ended June 30, 1997, were $28 million
higher than for the same period of 1996 primarily due to the acquisitions of
Cornerstone and EPTPC.
CORPORATE AND OTHER
The operating loss for the quarter ended June 30, 1996, was $10 million
higher than for the same period of 1996 due to costs related to discontinued
operations assumed as part of the EPTPC acquisition and additional development
expenses related to the Company's international operations.
The operating loss for the six months ended June 30, 1997, was $75 million
less than for the same period in 1996 primarily as a result of the $99 million
employee separation and asset impairment charge recorded in March 1996.
OTHER INCOME AND EXPENSE
Second Quarter 1997 Compared to Second Quarter 1996
Interest and debt expense for the quarter ended June 30, 1997, was $34
million higher than for the same period of 1996 due primarily to the debt
assumed in connection with the acquisition of EPTPC and the Company's debt and
capital realignment efforts.
Other income for the quarter ended June 30, 1997, was $11 million higher
than for the same period of 1996 primarily due to an increase in equity income
from unconsolidated subsidiaries resulting from the acquisition of EPTPC.
Six Months Ended 1997 Compared to Six Months Ended 1996
Interest and debt expense for the six months ended June 30, 1997, was $72
million higher than for the same period of 1996 due primarily to the debt
assumed in connection with the acquisition of EPTPC.
Other income for the six months ended June 30, 1997, was $23 million higher
than for the same period of 1996 primarily due to an increase in equity income
from unconsolidated subsidiaries which were acquired in connection with the
acquisition of EPTPC.
12
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Cash From Operating Activities
Net cash provided by operating activities was $103 million higher for the
six months ended June 30, 1997, compared to the same period of 1996. This
increase was primarily a result of the acquisition of EPTPC, an income tax
refund in 1997, and other working capital changes. The increase was partially
offset by higher interest payments resulting from debt assumed in the
acquisition of EPTPC, dividends on EPTPC's Series A Preferred Stock, and a rate
refund to TGP's customers in March 1997.
Cash From Investing Activities
Net cash used in investing activities was $26 million lower for the six
months ended June 30, 1997, compared to the same period of 1996. The decrease
was attributable to the collection of a $53 million note receivable for the
Company's partnership in a 103 MW cogeneration plant near Bartow, Florida and
the June 1996 acquisition of Cornerstone for approximately $99 million. Higher
expenditures for equity investments and capital expenditures offset the decrease
in net cash used in investing activities. Expenditures related to equity
investments were primarily attributed to the Company's international operations.
The increase in capital expenditures was due to activities on EPTPC's pipeline
systems.
Future funding for capital expenditures, acquisitions, and other investing
expenditures is expected to be provided by internally generated funds,
commercial paper issuances, and/or available capacity under existing credit
facilities.
Cash From Financing Activities
Net cash used in financing activities was $262 million higher for the six
months ended June 30, 1997, compared to the same period of 1996 due in large
part to the Company's efforts to realign its debt and capital structure
following the EPTPC acquisition. Specifically, this change was primarily a
result of increased credit facility repayments. Funds used to repay the credit
facility were provided by internally generated cash flows, the net proceeds of
$883 million received from the issuance of long-term debt, and the net proceeds
of $152 million from the issuance of an additional 3 million shares of common
stock. Also contributing to the change were the retirement of EPG's 6.90% notes
in January 1997, increased common stock dividends, and a reduction in revolving
credit borrowings.
During the second quarter of 1997, the Company issued commercial paper for
general corporate purposes, with $69 million outstanding at June 30, 1997.
The following table reflects quarterly dividends declared and paid on EPG's
common stock:
<TABLE>
<CAPTION>
AMOUNT PER
DECLARATION DATE COMMON SHARE PAYMENT DATE TOTAL AMOUNT
---------------- ------------ ------------ -------------
(IN MILLIONS)
<S> <C> <C> <C>
October 11, 1996....................... 0$.3475 January 2, 1997 $13
January 22, 1997....................... 0$.3650 April 1, 1997 $22
April 23, 1997......................... 0$.3650 July 1, 1997 $22
</TABLE>
On July 18, 1997, the Board declared a quarterly dividend of $.3650 per
share on EPG's common stock, payable on October 1, 1997, to stockholders of
record on September 5, 1997.
Future funding for long-term debt retirements, dividends, and other
financing expenditures are expected to be provided by internally generated
funds, commercial paper issuances, and/or available credit facilities.
At June 30, 1997, the Company had $1 billion available under its revolving
credit facilities. The availability of borrowings under the Company's credit
facilities is subject to certain specified conditions, which management believes
it currently meets.
13
<PAGE> 16
COMMITMENTS AND CONTINGENCIES
Rates and Regulatory Matters
See Part I, Financial Information, Note 2, which is incorporated herein by
reference.
Legal Proceedings
See Part I, Financial Information, Note 2, which is incorporated herein by
reference.
Environmental Matters
See Part I, Financial Information, Note 2, which is incorporated herein by
reference.
OTHER
Ongoing and Future Investment and Capital Projects
Significant events during the first six months of 1997 impacting the
Company's development projects are discussed below.
International Operations
Australia Project. The Company's 30 percent owned Australian joint venture
was selected to construct the 270 mile expansion project on the Dampier to
Bunburry natural gas pipeline in Western Australia at an estimated cost of $250
million. The joint venture is evaluating project financing options and
anticipates completion of financing in early 1998. The expansion project is
expected to be operational in the third quarter of 1999.
Czech Republic Project. As of June 1997, the Company has acquired a 31.2
percent interest in a $401 million project to expand to 343 MW, an existing gas
and coal-fired power plant located in Kladno, Czech Republic. Project financing
was finalized in June 1997 for approximately $300 million of the $401 million
expansion cost.
Mexico Project. During the second quarter, both FERC and the Comision
Reguladora de Energia of Mexico issued permits allowing construction, operation
and maintenance of the 45 mile pipeline expansion which connects EPG's existing
pipeline system in west Texas to Pemex's pipeline system in northern Mexico.
Construction is anticipated to begin in the third quarter of 1997 with
completion expected by December 1997.
Hungary Project. The Company's $26 million acquisition of a 50 percent
interest in an operating 70 MW power plant located in Dunaujvaros, Hungary,
closed in the second quarter of 1997. The acquisition did not involve any
financing. Political risk insurance has been obtained from the Overseas Private
Investment Corporation.
CAPSA. In March 1997, the Company acquired an interest in CAPSA consisting
of a 10.5 percent acquisition of CAPSA stock and an equity swap for an
additional 18.5 percent of CAPSA stock. The total 29 percent interest is valued
at $157 million. The assets of CAPSA include an interest in CAPEX, a company
publicly traded on the Argentine and Luxembourg stock exchanges which owns
certain power plants and gas and oil reserves in Argentina.
Aguaytia Project. During the first quarter of 1997, the Aguaytia project
consortium completed loan negotiations with the Inter-American Development Bank
which reduced the project equity requirements from 60 percent to approximately
40 percent. In addition, the Company increased its economic interest in the
Aguaytia project by approximately 2 percent to 26 percent in April 1997.
Natural Gas Transmission Operations
Eastern Express Project. TGP has announced that it is pursuing various
market and expansion opportunities in the northeast and mid-Atlantic regions of
the United States. TGP held an open season, which concluded in June 1997, to
gauge interest in the TGP Eastern Express Project designed to provide service to
14
<PAGE> 17
these markets in 1999. TGP is pursuing discussions with customers that
participated in the open season to determine if their needs can be met by TGP.
The Company also announced a second phase of the Eastern Express Project to meet
the needs of shippers that expressed interest in alternate markets and/or
service commencing in the year 2000.
Liquefied Natural Gas Peaking Service Joint Venture. The new venture,
Continental States Peaking Services L.L.C., will be equally owned by TGP and MCN
Investment Corporation, a subsidiary of MCN Energy Group Inc. The proposed $40
to $50 million project would provide liquefaction, storage and vaporization
services at a facility to be built on the Delmarva Peninsula, near Delaware's
border with Maryland. The project's size, and feasibility will be based upon the
results of an open season. Services are expected to begin in early 2000.
DOMAC Lateral Project. TGP proposes to construct a meter station and
pipeline extension from DOMAC's liquefied natural gas plant in Everett,
Massachusetts to a point on TGP's existing Revere Lateral in Saugus,
Massachusetts. TGP will transport up to 90,000 decatherms per day from the
liquefied natural gas plant to customers on the TGP system. The estimated total
cost of the proposed facilities is $25.9 million.
TransColorado. In late June 1997, EPG and its partners in the TransColorado
Pipeline Project ("TransColorado") announced a restructured partnership
arrangement for the project. Formerly, TransColorado was an equal one-third
partnership among affiliates of EPG, Questar Corporation and KN Energy, Inc.
Under the new arrangement, the affiliates of Questar Corporation and KN Energy,
Inc. will each retain a 50 percent interest in TransColorado, and EPG will
continue as the operator and a revenue participant in the constructed facilities
of Phase I which includes 25 miles of pipe from the discharge of Coyote Gulch
Gas Plant to EPG's pipeline at Blanco, New Mexico. EPG's participation in the
project under the new arrangement will cease upon the completion of the
additional Phase II facilities.
Field and Merchant Services Operations
San Juan Global Compression Project. In June 1997, the Company entered into
contracts with three of its major natural gas producers in the San Juan Basin,
providing for new global compression services to reduce field delivery pressures
and increase production by an estimated 130 million cubic feet per day. The
project cost is $50 million and includes the installation of approximately
36,000 horsepower of new field compression and construction of an additional 56
miles of pipeline system. The project is expected to be in service by October
1998.
Viosca Knoll. During the second quarter of 1997, Viosca Knoll Gathering
Company, the Company's fifty-fifty joint venture with a subsidiary of Leviathan
Gas Pipeline Partners, L.P., announced its intent to construct, at a cost of $25
million, additional facilities to accommodate incremental capacity requirement
on its system, including a new 25 mile, 20-inch diameter pipeline from Main Pass
Block 261 to Viosca Knoll Block 817. Construction is expected to be completed by
the fourth quarter of 1997.
Purchase Price Allocation
The Company is continuing to evaluate the fair market value of the assets
and liabilities acquired in conjunction with the Merger. Management believes
that the final adjustments to the purchase price allocation will not have a
material impact on the Company's financial position or results of operations.
Accounting for Regulated Operations
The Company's interstate pipelines are subject to the regulations and
accounting procedures of FERC, and therefore, continue to follow the reporting
and accounting requirements of SFAS No. 71, Accounting for the Effects of
Certain Types of Regulation. For a further discussion, see Part I, Financial
Information, Note 6, which is incorporated herein by reference.
Recent Pronouncements
See Part I, Financial Information, Note 7, which is incorporated herein by
reference.
15
<PAGE> 18
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Where any such forward-looking
statement includes a statement of the assumptions or bases underlying such
forward-looking statement, the Company cautions that, while such assumptions or
bases are believed to be reasonable and are made in good faith, assumed facts or
bases almost always vary from the actual results, and the differences between
assumed facts or bases and actual results can be material, depending upon the
circumstances. Where, in any forward-looking statement, the Company or its
management expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions may
identify forward-looking statements.
Taking into account the foregoing, the following are identified as
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company:
Highly Competitive Industry
The ability to maintain or increase current transmission, gathering,
processing, and sales volumes, or to remarket unsubscribed capacity, can be
subject to the impact of future weather conditions, including those that favor
hydroelectric generation or other alternative energy sources; price competition;
drilling activity and supply availability; and service competition, especially
due to excess pipeline capacity into California. Future profitability also may
be affected by the Company's ability to compete with the services offered by
other energy enterprises which may be larger, offer more services, and possess
greater resources. The ability of TGP to negotiate new contracts and to
renegotiate existing contracts (70 percent of which are expiring over the next
four years, principally in November 2000) could be adversely affected by the
proposed construction by other parties of additional pipeline capacity in the
Northeast U.S., the viability of the Company's expansion projects, reduced
demand due to higher gas prices, the availability of alternative energy sources,
and other factors that are not within its control.
Impact of Natural Gas and Natural Gas Liquids Prices
The value of natural gas transmission services is based on an all-in cost,
including the cost of the natural gas. Therefore, the Company's ability to
compete with other transporters is impacted by natural gas prices in the supply
basins connected to its pipeline systems compared to prices in other gas
producing regions, especially Canada. Additionally, revenues generated by the
Company from its gathering and processing contracts are dependent upon volumes
and rates, both of which can be affected by the prices of natural gas and
natural gas liquids. Fluctuations in energy prices are caused by a number of
factors, including regional, domestic and international demand, availability and
adequacy of transportation facilities, energy legislation, federal or state
taxes, if any, on the sale or transportation of natural gas and natural gas
liquids and the price and abundance of supplies of alternative energy sources.
Use of Derivative Financial Instruments
In the ordinary course and conduct of its business, some of the Company's
non-regulated subsidiaries are engaged in the gathering, processing and
marketing of natural gas and other energy commodities and utilize futures and
option contracts traded on the New York Mercantile Exchange and over-the-counter
options and price and basis swaps with other gas merchants and financial
institutions. The Company could incur financial losses in future periods as a
result of volatility in the market values of the underlying commodities or if
one of its counterparties fails to perform under a contract.
16
<PAGE> 19
Acquisitions and Investments
Opportunities for growth through acquisitions and investments in joint
ventures and the future operating results and success of such acquisitions and
joint ventures within and outside the U.S. may be subject to the effects of, and
changes in, U.S. and foreign trade and monetary policies, laws and regulations,
political and economic developments, inflation rates, and the effects of taxes
and operating conditions. Activities in areas outside the U.S. also are subject
to the risks inherent in foreign operations, including loss of revenue, property
and equipment as a result of hazards such as expropriation, nationalization,
wars, insurrection and other political risks, and the effects of currency
fluctuations and exchange controls. Such legal and regulatory delays and other
unforeseeable obstacles may be beyond the Company's control or ability to
manage.
Potential Environmental Liabilities
The Company may incur significant costs and liabilities in order to comply
with existing environmental laws and regulations. It is also possible that other
developments, such as increasingly strict environmental laws, regulation and
enforcement polices thereunder, and claims for damages to property, employees,
other persons and the environment resulting from current or discontinued
operations, could result in substantial costs and liabilities in the future.
Operating Hazards and Uninsured Risks
While the Company maintains insurance against certain of the risks normally
associated with the transportation, gathering and processing of natural gas,
including explosions, pollution and fires, the occurrence of a significant event
that is not fully insured against could have a material adverse effect on the
Company.
Potential Liabilities Related to the Merger
The amount of the actual and contingent liabilities of EPTPC, which
remained the liabilities of the Company after the Merger, could vary materially
from the amount estimated by the Company, which was based upon assumptions which
could prove to be inaccurate. If New Tenneco or Newport News Shipbuilding Inc.
were unable or unwilling to pay their respective liabilities, a court could
require the Company, under certain legal theories which may or may not be
applicable to the situation, to assume responsibility for such obligations,
which could have a material adverse effect on the Company.
Uncertainty Surrounding Integration of Operations
The Company has begun to integrate the business and operations of EPTPC and
its subsidiaries to increase operating and administrative efficiency through
consolidation and reengineering of facilities, workforce reductions and
coordination of purchasing, sales and marketing activities. Management
anticipates that the complementary interstate and intrastate pipeline operations
and energy marketing activities of the combined company should provide increased
operating flexibility and access to additional customers and markets, although
the amount and timing of the realization of such benefits will depend upon the
Company's ability to integrate successfully the businesses and operations of the
companies, and the time period over which such integration is effected.
Potential Federal Income Tax Liabilities
In connection with the Merger and Distributions, the Internal Revenue
Service issued a private letter ruling to Old Tenneco, in which the Internal
Revenue Service ruled that for U.S. federal income tax purposes (i) the
Distributions would be tax-free to Old Tenneco and, except to the extent cash
was received in lieu of fractional shares, to its then existing stockholders,
(ii) the Merger would constitute a tax-free reorganization, and (iii) that
certain other transactions effected in connection with the Merger and
Distributions would be tax-free. If the Distributions were not to qualify as
tax-free distributions, then a corporate level federal income tax would be
assessed to the consolidated group of which Old Tenneco was the common parent.
This corporate level federal income tax would be payable by EPTPC. Under certain
limited circumstances, however,
17
<PAGE> 20
New Tenneco and Newport News Shipbuilding Inc. have agreed to indemnify EPTPC
for a defined portion of such tax liabilities.
Refinancing and Interest Rate Exposure Risks
The business and operating results of the Company can be adversely affected
by factors such as the availability or cost of capital, changes in interest
rates, changes in the tax rates due to new tax laws, market perceptions of the
natural gas industry or the Company, or credit ratings.
Potential for Changes in Accounting Standards
Authoritative generally accepted accounting principles or policy changes
from such standard setting bodies as the Financial Accounting Standards Board,
FERC, and the Securities and Exchange Commission may affect the Company's
results of operations or financial position.
18
<PAGE> 21
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Financial Information, Note 2, which is incorporated herein by
reference.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
EPG held its annual meeting of stockholders on April 22, 1997. Proposals
presented for a stockholders vote included the election of eight directors and
the ratification of the appointment of the Company's independent certified
public accountants for the fiscal year 1997.
Each of the eight incumbent directors nominated by EPG were elected with
the following voting results:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- ----------
<S> <C> <C>
Byron Allumbaugh............................................ 49,656,335 170,213
Peter T. Flawn.............................................. 49,637,214 189,334
Eugenio Garza Laguera....................................... 42,930,646 6,895,902
James F. Gibbons............................................ 49,656,445 170,103
Ben F. Love................................................. 49,640,174 186,374
Kenneth L. Smalley.......................................... 49,664,358 162,190
Malcolm Wallop.............................................. 49,617,669 208,879
William A. Wise............................................. 49,658,685 167,864
</TABLE>
The appointment of Coopers & Lybrand L.L.P. as the Company's independent
certified public accountants for the fiscal year 1997 was ratified with the
following voting results:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- ---------- ----------
<S> <C> <C> <C>
Ratification of the appointment Coopers
& Lybrand L.L.P. .................... 49,638,243 94,574 93,731
</TABLE>
There were no broker non-votes for the election of directors or for the
ratification of Coopers & Lybrand L.L.P.
ITEM 5. OTHER INFORMATION
On July 18, 1997, the Board of Directors of EPG adopted a resolution
amending its By-laws to add certain procedures governing stockholder nominations
for directors and the conduct of business at annual meetings.
ITEM. 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Each exhibit identified below is filed as a part of this report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.B -- By-laws of EPG, as amended July 18, 1997.
11 -- Computation of Earnings per Common Share.
27 -- Financial Data Schedule.
</TABLE>
19
<PAGE> 22
Undertaking
The undersigned hereby undertakes, pursuant to Regulation S-K, Item
601(b), paragraph (4)(iii), to furnish to the Securities and Exchange
Commission upon request all constituent instruments defining the rights
of holders of long-term debt of EPG and its consolidated subsidiaries
not filed herewith for the reason that the total amount of securities
authorized under any of such instruments does not exceed 10 percent of
the total consolidated assets of EPG and its consolidated subsidiaries.
b. Reports on Form 8-K
None.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO NATURAL GAS COMPANY
Date: August 13, 1997 /s/ H. BRENT AUSTIN
------------------------------------
H. Brent Austin
Executive Vice President and
Chief Financial Officer
Date: August 13, 1997 /s/ JEFFREY I. BEASON
------------------------------------
Jeffrey I. Beason
Vice President, Controller, and
Chief Accounting Officer
21
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
3.B By-laws of EPG, as amended July 18, 1967
11 Computation of Earnings per Common Shares
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.B
BY-LAWS
OF
EL PASO NATURAL GAS COMPANY
As amended July 18, 1997
<PAGE> 2
BY-LAWS
OF
EL PASO NATURAL GAS COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1 - Registered Office and Agent . . . . . . . . . . . . . 1
Section 2 - Other Offices . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1 - Annual Meetings . . . . . . . . . . . . . . . . . . . 1
Section 2 - Special Meetings . . . . . . . . . . . . . . . . . . . 1
Section 3 - Place of Meetings . . . . . . . . . . . . . . . . . . 2
Section 4 - Notice of Meetings . . . . . . . . . . . . . . . . . . 2
Section 5 - Fixing of Record Date for
Determining Stockholders . . . . . . . . . . . . . . 2
Section 6 - Quorum . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 7 - Organization . . . . . . . . . . . . . . . . . . . . . 3
Section 8 - Voting . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9 - Inspectors . . . . . . . . . . . . . . . . . . . . . . 5
Section 10 - List of Stockholders . . . . . . . . . . . . . . . . . 5
Section 11 - Stockholder Proposals . . . . . . . . . . . . . . . . 5
ARTICLE III. BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . 6
Section 1 - Number, Qualification and Term of Office . . . . . . . 6
Section 2 - Vacancies . . . . . . . . . . . . . . . . . . . . . . 6
Section 3 - Nominations of Directors . . . . . . . . . . . . . . . 7
Section 4 - Resignations . . . . . . . . . . . . . . . . . . . . . 8
Section 5 - Removals . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6 - Place of Meetings; Books and Records . . . . . . . . . 8
Section 7 - Annual Meeting of the Board . . . . . . . . . . . . . 8
Section 8 - Regular Meetings . . . . . . . . . . . . . . . . . . . 9
Section 9 - Special Meetings . . . . . . . . . . . . . . . . . . . 9
Section 10 - Quorum and Manner of Acting . . . . . . . . . . . . . 9
Section 11 - Organization . . . . . . . . . . . . . . . . . . . . . 9
Section 12 - Consent of Directors in Lieu of Meeting . . . . . . . 10
Section 13 - Telephonic Meetings . . . . . . . . . . . . . . . . . 10
Section 14 - Compensation . . . . . . . . . . . . . . . . . . . . . 10
Section 15 - Interested Directors . . . . . . . . . . . . . . . . . 10
</TABLE>
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<TABLE>
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ARTICLE IV. COMMITTEES OF THE BOARD OF DIRECTORS . . . . . . . . . . . . . 11
Section 1 - Executive Committee . . . . . . . . . . . . . . . . . 11
Section 2 - Finance Committee . . . . . . . . . . . . . . . . . . 11
Section 3 - Audit Committee . . . . . . . . . . . . . . . . . . . 11
Section 4 - Compensation Committee . . . . . . . . . . . . . . . . 12
Section 5 - Committee Chairman, Books and Records . . . . . . . . 12
Section 6 - Alternates . . . . . . . . . . . . . . . . . . . . . . 12
Section 7 - Other Committees . . . . . . . . . . . . . . . . . . . 12
Section 8 - Quorum and Manner of Acting . . . . . . . . . . . . . 13
ARTICLE V. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1 - Number . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2 - Election . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3 - Resignations . . . . . . . . . . . . . . . . . . . . . 13
Section 4 - Removals . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5 - Vacancies . . . . . . . . . . . . . . . . . . . . . . 14
Section 6 - Chairman of the Board . . . . . . . . . . . . . . . . 14
Section 7 - Chief Executive Officer . . . . . . . . . . . . . . . 16
Section 8 - President . . . . . . . . . . . . . . . . . . . . . . 16
Section 9 - Vice Chairman of the Board . . . . . . . . . . . . . . 16
Section 10 - Chief Operating Officer . . . . . . . . . . . . . . . 17
Section 11 - Chief Financial Officer . . . . . . . . . . . . . . . 17
Section 12 - Vice Presidents . . . . . . . . . . . . . . . . . . . 17
Section 13 - General Counsel . . . . . . . . . . . . . . . . . . . 18
Section 14 - Secretary . . . . . . . . . . . . . . . . . . . . . . 18
Section 15 - Treasurer . . . . . . . . . . . . . . . . . . . . . . 18
Section 16 - Controller . . . . . . . . . . . . . . . . . . . . . . 19
Section 17 - Absence or Disability of Officers . . . . . . . . . . 19
ARTICLE VI. STOCK CERTIFICATES AND TRANSFER THEREOF . . . . . . . . . . . 19
Section 1 - Stock Certificates . . . . . . . . . . . . . . . . . . 19
Section 2 - Transfer of Stock . . . . . . . . . . . . . . . . . . 19
Section 3 - Transfer Agents and Registrars . . . . . . . . . . . . 20
Section 4 - Additional Regulations . . . . . . . . . . . . . . . . 20
Section 5 - Lost, Stolen or Destroyed Certificates . . . . . . . . 20
ARTICLE VII. DIVIDENDS, SURPLUS, ETC. . . . . . . . . . . . . . . . . . . 20
ARTICLE VIII. SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IX. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE X. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 1 - Right to Indemnification . . . . . . . . . . . . . . . 21
Section 2 - Right of Indemnitee to Bring Suit . . . . . . . . . . 22
</TABLE>
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Section 3 - Nonexclusivity of Rights . . . . . . . . . . . . . . . 22
Section 4 - Insurance, Contracts and Funding . . . . . . . . . . . 22
Section 5 - Wholly Owned Subsidiaries . . . . . . . . . . . . . . 23
Section 6 - Indemnification of Agents of the Corporation . . . . . 23
ARTICLE XI. CHECKS, DRAFTS, BANK ACCOUNTS, ETC. . . . . . . . . . . . . . 23
Section 1 - Checks, Drafts, Etc.; Loans . . . . . . . . . . . . . 23
Section 2 - Deposits . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XII. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
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<PAGE> 5
BY-LAWS
OF
EL PASO NATURAL GAS COMPANY
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE AND AGENT
The registered office of the corporation is located at Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle,
State of Delaware, and the name of its registered agent at such address is The
Corporation Trust Company.
SECTION 2. OTHER OFFICES
The corporation may have offices at such other places both within and
without the State of Delaware as the Board of Directors (the "Board") may from
time to time determine or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS
A meeting of the stockholders for the purpose of electing Directors and for
the transaction of such other business as may properly be brought before the
meeting shall be held annually at 9:00 o'clock A.M. on the third Thursday of
April, or at such other time on such other date as shall be fixed by resolution
of the Board. If the day fixed for the annual meeting shall be a legal holiday
such meeting shall be held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS
Special meetings of the stockholders for any purpose or purposes may be
called only by a majority of the Board, the Chairman of the Board, the Chief
Executive Officer, the President or the Vice Chairman of the Board.
<PAGE> 6
SECTION 3. PLACE OF MEETINGS
The annual meeting of the stockholders of the corporation shall be held at
the general offices of the corporation in the City of Houston, State of Texas,
or at such other place in the United States as may be stated in the notice of
the meeting. All other meetings of the stockholders shall be held at such
places within or without the State of Delaware as shall be stated in the notice
of the meeting.
SECTION 4. NOTICE OF MEETINGS
4.1 GIVING OF NOTICE. Except as otherwise provided by statute, written
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting. If mailed, notice shall
be given when deposited in the United States mails, postage prepaid, directed
to such stockholder at his address as it appears in the stock ledger of the
corporation. Each such notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called.
4.2 NOTICE OF ADJOURNED MEETINGS. When a meeting is adjourned to another
time and place, notice of the adjourned meeting need not be given if the time
and place thereof are announced at the meeting at which the adjournment is
given. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
4.3 WAIVER OF NOTICE
4.3.1 Whenever any notice is required to be given to any stockholder under
the provisions of these By-laws, the Restated Certificate of Incorporation or
the general Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice.
4.3.2 The attendance of a stockholder at a meeting shall constitute a
waiver of notice of such meeting, except when a stockholder attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 5. FIXING OF RECORD DATE FOR DETERMINING STOCKHOLDERS
5.1 MEETINGS. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board, and
which record date shall not be more than sixty nor less than ten days before
the date of such meeting. If no record date is fixed by the Board, the record
date for determining stockholders shall be at the close of business on the day
next preceding the day on
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which notice is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at the meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
5.2 DIVIDENDS, DISTRIBUTIONS AND OTHER RIGHTS. For the purpose of
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than sixty
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board adopts the resolution relating thereto.
SECTION 6. QUORUM
A majority of the outstanding shares of stock of the corporation entitled to
vote, present in person or represented by proxy, shall constitute a quorum at a
meeting of the stockholders; provided that where a separate vote by a class or
classes or by a series of a class is required, a majority of the outstanding
shares of such class or classes or of such series of a class, present in person
or represented by proxy at the meeting, shall constitute a quorum entitled to
take action with respect to the vote on that matter. Shares of stock will be
counted toward a quorum if they are either (i) present in person at the meeting
or (ii) represented at the meeting by a valid proxy, whether the instrument
granting such proxy is marked as casting a vote or abstaining, is left blank or
does not empower such proxy to vote with respect to some or all matters to be
voted upon at the meeting. If less than a majority of the outstanding shares
entitled to vote are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
If a quorum is present or represented at a reconvened meeting following such an
adjournment, any business may be transacted that might have been transacted at
the meeting as originally called. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum.
SECTION 7. ORGANIZATION
At each meeting of the stockholders, the Chairman of the Board, or in his
absence the Chief Executive Officer, the President or the Vice Chairman of the
Board, or if all of the said officers are absent, a person designated by the
Board, the Chairman of the Board, the Chief Executive Officer, the President or
the Vice Chairman of the Board, or in the absence of such designated person, a
person elected by the holders of a majority in number of shares of stock
present in person or represented by proxy and entitled to vote, shall act as
chairman of the meeting.
The Secretary, or in his absence or in the event he shall be presiding over
the meeting in accordance with the provisions of this Section, an Assistant
Secretary or, in the absence of
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<PAGE> 8
the Secretary and all of the Assistant Secretaries, any person appointed by the
chairman of the meeting, shall act as secretary of the meeting.
SECTION 8. VOTING
8.1 GENERAL PROVISIONS. Unless otherwise provided in the Restated
Certificate of Incorporation or a resolution of the Board creating a series of
stock, at each meeting of the stockholders, each holder of any share of any
series or class of stock entitled to vote at such meeting shall be entitled to
one vote for each share of stock having voting power in respect of each matter
upon which a vote is to be taken, standing in his name on the stock ledger of
the corporation on the record date fixed as provided in these By-laws for
determining the stockholders entitled to vote at such meeting. In all matters
other than the election of Directors, if a quorum is present, the affirmative
vote of the majority of the shares present in person or represented by proxy at
the meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the vote of a greater number is required by these By-laws,
the Restated Certificate of Incorporation or the General Corporation Law of the
State of Delaware. In determining the number of votes cast for or against a
proposal, shares abstaining from voting on a matter (including elections) will
not be treated as a vote for or against the proposal. A non-vote by a broker
will be treated as if the broker never voted, but a non-vote by a stockholder
will be counted as a vote "for" the management's position. Where a separate
vote by a class or classes or by a series of a class is required, if a quorum
is present, the affirmative vote of the majority of shares of such class or
classes or series of a class present in person or represented by proxy at the
meeting shall be the act of such class or classes or series of a class. The
provisions of this Section will govern with respect to all votes of
stockholders except as otherwise provided for in these By-laws, the Restated
Certificate of Incorporation or the General Corporation Law of the State of
Delaware.
8.2 VOTING FOR DIRECTORS. At each election of Directors the voting shall
be by written ballot. Directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of Directors.
8.3 SHARES HELD OR CONTROLLED BY THE CORPORATION. Shares of its own
capital stock belonging to the corporation, or to another corporation if a
majority of the shares entitled to vote in the election of Directors of such
other corporation is held by the corporation, shall neither be entitled to vote
nor counted for quorum purposes.
8.4 PROXIES. A stockholder may vote by proxy executed in writing by the
stockholder or by his attorney-in-fact. Such proxy shall be filed with the
Secretary of the corporation before or at the time of the meeting. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the corporation. A proxy shall become invalid three years after the date of
its execution, unless otherwise provided in the proxy. A proxy with respect to
a specified meeting shall entitle the holder thereof to vote at any reconvened
meeting following adjournment of such meeting but shall not be valid after the
final adjournment thereof.
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SECTION 9. INSPECTORS
Prior to each meeting of stockholders, the Board shall appoint at least one
Inspector who is not a Director, candidate for Director or officer of the
corporation, who shall receive and determine the validity of proxies and the
qualifications of voters, and receive, inspect, count and report to the meeting
in writing the votes cast on all matters submitted to a vote at such meeting.
In case of failure of the Board to make such appointments or in case of failure
of any Inspector so appointed to act, the Chairman of the Board shall make such
appointment or fill such vacancies. Each Inspector, immediately before
entering upon his duties, shall subscribe to an oath or affirmation faithfully
to execute the duties of Inspector at such meeting with strict impartiality and
according to the best of his ability.
SECTION 10. LIST OF STOCKHOLDERS
The Secretary or other officer or agent having charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares of each class and series registered in the
name of each such stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. Such list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present. The stock ledger shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by this section, or the books of the corporation, or
to vote in person or by proxy at any such meeting.
SECTION 11. STOCKHOLDER PROPOSALS
At an annual meeting of stockholders, only such business shall be conducted,
and only such proposals shall be acted upon, as shall have been properly
brought before the annual meeting of stockholders (a) by, or at the direction
of, the Board or (b) by a stockholder of the corporation who complies with the
procedures set forth in this Section 11. For business or a proposal to be
properly brought before an annual meeting of stockholders by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation
not less than 60 days nor more than 90 days prior to the scheduled date of the
annual meeting, regardless of any postponement, deferral or adjournment of that
meeting to a later date; provided, however, that if less than 70 days' notice
or prior public disclosure of the date of the annual meeting is given or made
to stockholders, notice by the stockholder to be timely must be so delivered or
received not later than the close of business on the 10th day following the
earlier of (i) the day on which such notice of the date of the meeting was
mailed or (ii) the day on which such public disclosure was made.
5
<PAGE> 10
A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before an annual meeting of stockholders (i)
a description, in 500 words or less, of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and address, as they appear on the corporation's
books, of the stockholders known by such stockholder to be supporting such
proposal, (iii) the class and number of shares of the corporation which are
beneficially owned by such stockholder on the date of such stockholder's notice
and by any other stockholders known by such stockholder to be supporting such
proposal on the date of such stockholder's notice, (iv) a description, in 500
words or less, of any interest of the stockholder in such proposal, and (v) a
representation that the stockholder is a holder of record of stock of the
corporation and intends to appear in person or by proxy at the meeting to
present the proposal specified in the notice. Notwithstanding anything in
these By-laws to the contrary, no business shall be conducted at a meeting of
stockholders except in accordance with the procedures set forth in this Section
11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that the business was not properly brought before the
meeting in accordance with the procedures prescribed by this Section 11, and if
he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing, nothing in this Section 11 shall be interpreted
or construed to require the inclusion of information about any such proposal in
any proxy statement distributed by, at the direction of, or on behalf of, the
Board.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. NUMBER, QUALIFICATION AND TERM OF OFFICE
The business, property and affairs of the corporation shall be managed by a
Board consisting of not less than one Director. The Board shall from time to
time by a vote of a majority of the Directors then in office fix the specific
number of Directors to constitute the Board. At each annual meeting of
stockholders a Board shall be elected by the stockholders for a term of one
year. Each Director shall serve until his successor is duly elected and shall
qualify.
SECTION 2. VACANCIES
Vacancies in the Board and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a vote of the
majority of the Directors then in office, although less than a quorum, or by a
sole remaining Director, at any regular or special meeting of the Board.
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SECTION 3. NOMINATIONS OF DIRECTORS
Subject to the rights, if any, of the holders of any series of preferred
stock then outstanding, only persons nominated in accordance with the
procedures set forth in this Section 3 shall be eligible for election as
Directors. Nominations of persons for election to the Board may be made at an
annual meeting of stockholders or special meeting of stockholders called by the
Board for the purpose of electing Directors (i) by or at the direction of the
Board or (ii) by any stockholder of the corporation entitled to vote for the
election of Directors at such meeting who complies with the notice procedure
set forth in this Section 3. Such nominations, other than those made by or at
the direction of the Board, shall be made pursuant to timely notice in writing
to the Secretary of the corporation. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal executive offices of
the corporation not less than 60 days nor more than 90 days prior to the
scheduled date of the meeting, regardless of any postponement, deferral or
adjournment of that meeting to a later date; provided, however, that if less
than 70 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be
so delivered or received not later than the close of business on the 10th day
following the earlier of (i) the day on which such notice of the date of the
meeting was mailed or (ii) the day on which such public disclosure was made.
A stockholder's notice to the Secretary shall set forth (i) as to each
person whom the stockholder proposes to nominate for election or reelection as
a Director (a) the name, age, business address and residence address of such
person, (b) the principal occupation or employment of such person, (c) the
class and number of shares of the corporation which are beneficially owned by
such person on the date of such stockholder's notice and (d) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, or any successor statute thereto (the "Exchange Act")
(including without limitation such person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if elected); (ii)
as to the stockholder giving the notice (a) the name and address, as they
appear on the corporation's (or its agent's) books, of such stockholder and any
other stockholders known by such stockholder to be supporting such nominee(s),
(b) the class and number of shares of the corporation which are beneficially
owned by such stockholder on the date of such stockholder's notice and by any
other stockholders known by such stockholder to be supporting such nominee(s)
on the date of such stockholder's notice (c) a representation that the
stockholder is a holder of record of stock of the corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; and (iii) a description
of all arrangements or understandings between the stockholder and each nominee
and other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder.
No person shall be eligible for election as a Director of the corporation
unless nominated in accordance with the procedures set forth in this Section 3.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in
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accordance with the procedures prescribed by this Section and if he should so
determine, he shall so declare to the meeting and the defective nomination
shall be disregarded.
SECTION 4. RESIGNATIONS
Any Director may resign at any time upon written notice to the Board, the
Chairman of the Board, the Chief Executive Officer, the President, the Vice
Chairman of the Board or the Secretary of the corporation. Such resignation
shall take effect on the date of receipt of such notice or at any later time
specified therein; and the acceptance of such resignation, unless otherwise
required by the terms thereof, shall not be necessary to make it effective.
When one or more Directors shall resign effective at a future date, a majority
of the Directors then in office, including those who have resigned, shall have
power to fill such vacancy or vacancies to take effect when such resignation or
resignations shall become effective.
SECTION 5. REMOVALS
Any Director may be removed, with or without cause, at any special meeting
of the stockholders called for that purpose, by the affirmative vote of the
holders of a majority in number of shares of the corporation entitled to vote
for the election of such Director, and the vacancy in the Board caused by any
such removal may be filled by the stockholders at such a meeting.
SECTION 6. PLACE OF MEETINGS; BOOKS AND RECORDS
The Board may hold its meetings, and have an office or offices, at such
place or places within or without the State of Delaware as the Board from time
to time may determine.
The Board, subject to the provisions of applicable statutes, may authorize
the books and records of the corporation, and offices or agencies for the
issue, transfer and registration of the capital stock of the corporation, to be
kept at such place or places outside of the State of Delaware as, from time to
time, may be designated by the Board.
SECTION 7. ANNUAL MEETING OF THE BOARD
The first meeting of each newly elected Board, to be known as the Annual
Meeting of the Board, for the purpose of electing officers, designating
committees and the transaction of such other business as may come before the
Board, shall be held as soon as practicable after the adjournment of the annual
meeting of stockholders, and no notice of such meeting shall be necessary to
the newly elected Directors, provided a quorum shall be present. In the event
such meeting is not held due to the absence of a quorum, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board, or as shall be
specified in a written waiver signed by all of the newly elected Directors.
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SECTION 8. REGULAR MEETINGS
The Board shall provide for regular meetings of the Board at such times and
at such places as it deems desirable. Notice of regular meetings need not be
given.
SECTION 9. SPECIAL MEETINGS
Special meetings of the Board may be called by the Chairman of the Board,
the Chief Executive Officer, the President or the Vice Chairman of the Board
and shall be called by the Secretary on the written request of three Directors
on such notice as the person or persons calling the meeting shall deem
appropriate in the circumstances. Notice of each such special meeting shall be
mailed to each Director or delivered to him by telephone, telegraph or any
other means of electronic communication, in each case addressed to his
residence or usual place of business, or delivered to him in person or given to
him orally. The notice of meeting shall state the time and place of the
meeting but need not state the purpose thereof. Whenever any notice is
required to be given to any Director under the provisions of these By-laws, the
Restated Certificate of Incorporation or the General Corporation Law of the
State of Delaware, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
or any committee appointed by the Board need be specified in the waiver of
notice of such meeting. Attendance of a Director at any meeting shall
constitute a waiver of notice of such meeting except when a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting was not lawfully called or convened.
SECTION 10. QUORUM AND MANNER OF ACTING
Except as otherwise provided by statute, the Restated Certificate of
Incorporation, or these By-laws, the presence of a majority of the total number
of Directors shall constitute a quorum for the transaction of business at any
regular or special meeting of the Board, and the act of a majority of the
Directors present at any such meeting at which a quorum is present shall be the
act of the Board. In the absence of a quorum, a majority of the Directors
present may adjourn the meeting, from time to time, until a quorum is present.
Notice of any such adjourned meeting need not be given.
SECTION 11. ORGANIZATION
At every meeting of the Board, the Chairman of the Board or in his absence
the Chief Executive Officer, the President or the Vice Chairman of the Board,
or if all of the said officers are absent, a chairman chosen by a majority of
the Directors present shall act as chairman of the meeting. The Secretary, or
in his absence, an Assistant Secretary, or in the absence of the Secretary and
all the Assistant Secretaries, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting.
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SECTION 12. CONSENT OF DIRECTORS IN LIEU OF MEETING
Unless otherwise restricted by the Restated Certificate of Incorporation or
by these By-laws, any action required or permitted to be taken at any meeting
of the Board, or any committee designated by the Board, may be taken without a
meeting if all members of the Board or committee consent thereto in writing,
and such written consent is filed with the minutes of the proceedings of the
Board or committee.
SECTION 13. TELEPHONIC MEETINGS
Members of the Board, or any committee designated by the Board, may
participate in any meeting of the Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in such a
meeting shall constitute presence in person at such meeting.
SECTION 14. COMPENSATION
Each Director, who is not a full-time salaried officer of the corporation or
any of its wholly owned subsidiaries, when authorized by resolution of the
Board, may receive as a Director a stated salary or an annual retainer, and any
other benefits as the Board may determine, and in addition may be allowed a
fixed fee or reimbursement of his reasonable expenses for attendance at each
regular or special meeting of the Board or any committee thereof.
SECTION 15. INTERESTED DIRECTORS
No contract or transaction between the corporation and one or more of its
Directors or officers, or between the corporation and any other corporation,
partnership, association or other organization in which one or more of its
Directors or officers are Directors or officers of this corporation, or have a
financial interest in such contract or transaction, shall be void or voidable
solely for this reason, or solely because the Director or officer is present at
or participates in the meeting of the Board or committee thereof which
authorizes the contract or transaction, or solely because his or their votes
are counted for such purpose, if: (1) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested Directors, even though the disinterested
Directors be less than a quorum; or (2) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (3) the contract or transaction is fair as to the corporation as of the time
it is authorized, approved or ratified by the Board, a committee thereof or the
stockholders. Common or interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board or of a committee which
authorizes the contract or transaction.
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ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. EXECUTIVE COMMITTEE
The Board may, in its discretion, designate an Executive Committee,
consisting of such number of Directors as the Board may from time to time
determine. The committee shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it, but the committee shall have no power or authority
to amend the Restated Certificate of Incorporation (except that the committee
may, to the extent authorized in the resolution or resolutions providing for
the issuance of shares of stock adopted by the Board, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series). The committee
shall have such other powers as the Board may from time to time prescribe.
SECTION 2. FINANCE COMMITTEE
The Board may, in its discretion, designate a Finance Committee, consisting
of such number of Directors as the Board may from time to time determine. The
committee shall monitor, review, appraise and recommend to the Board
appropriate action with respect to the corporation's capital structure, its
source of funds and its financial position; review and recommend appropriate
delegations of authority to management on expenditures and other financial
commitments; review terms and conditions of financing plans; develop and
recommend dividend policies and recommend to the Board specific dividend
payments; and review the performance of the trustee of the corporation's
pension trust fund, and any proposed change in the investment policy of the
trustee with respect to such fund. The committee shall have such other duties,
functions and powers as the Board may from time to time prescribe.
SECTION 3. AUDIT COMMITTEE
The Board shall designate annually an Audit Committee consisting of not less
than two Directors as it may from time to time determine, none of whom shall be
officers or employees of the corporation. The committee shall review with the
independent accountants the corporation's financial statements, basic
accounting and financial policies and practices, adequacy of controls, standard
and special tests used in verifying the corporation's statements of account and
in determining the soundness of the corporation's financial condition, and the
committee shall report to the Board the results of such reviews; review the
policies and practices pertaining to publication of quarterly and annual
statements to assure consistency with audited results and the implementation of
policies and practices recommended by the independent accountants; ensure that
suitable independent audits are made of the operations and results of
subsidiary corporations
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and affiliates; and monitor compliance with the corporation's code of business
conduct. The committee shall have such other duties, functions and powers as
the Board may from time to time prescribe.
SECTION 4. COMPENSATION COMMITTEE
The Board shall designate annually a Compensation Committee consisting of
not less than two Directors as it may from time to time determine, none of whom
shall be officers or employees of the corporation. The committee shall
administer the corporation's executive compensation plans and programs. In
addition, the committee shall consider proposals with respect to the creation
of and changes to executive compensation plans and will review appropriate
criteria for establishing certain performance measures and determining annual
corporate and executive performance ratings under applicable corporation plans
and programs. The committee shall have such other duties, functions and powers
as the Board may from time to time prescribe.
SECTION 5. COMMITTEE CHAIRMAN, BOOKS AND RECORDS
Each committee shall elect a chairman to serve for such term as it may
determine, shall fix its own rules of procedure and shall meet at such times
and places and upon such call or notice as shall be provided by such rules. It
shall keep a record of its acts and proceedings, and all action of the
committee shall be reported to the Board at the next meeting of the Board.
SECTION 6. ALTERNATES
Alternate members of the committees prescribed by this Article IV may be
designated by the Board from among the Directors to serve as occasion may
require. Whenever a quorum cannot be secured for any meeting of any such
committee from among the regular members thereof and designated alternates, the
member or members of such committee present at such meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of such absent or disqualified member.
Alternative members of such committees shall receive a reimbursement for
expenses and compensation at the same rate as regular members of such
committees.
SECTION 7. OTHER COMMITTEES
The Board may designate such other committees, consisting of such number of
Directors as the Board may from time to time determine, and each such committee
shall serve for such term and shall have and may exercise, during intervals
between meetings of the Board, such duties, functions and powers as the Board
may from time to time prescribe.
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SECTION 8. QUORUM AND MANNER OF ACTING
At each meeting of any committee the presence of a majority of the members
of such committee, whether regular or alternate, shall be necessary to
constitute a quorum for the transaction of business, and if a quorum is present
the concurrence of a majority of those present shall be necessary for the
taking of any action; provided, however, that no action may be taken by the
Executive Committee or the Finance Committee when one or more officers of the
corporation are present as members at a meeting of either such committee unless
such action shall be concurred in by the vote of at least one member of such
committee who is not an officer of the corporation.
ARTICLE V
OFFICERS
SECTION 1. NUMBER
The officers of the corporation shall consist of such of the following as
the Board may from time to time elect or appoint, or as the Chairman of the
Board may from time to time appoint pursuant to Section 6 of this Article V: a
Chairman of the Board, a Chief Executive Officer, a President, a Vice Chairman
of the Board, a Chief Operating Officer, a Chief Financial Officer, a General
Counsel, a Secretary, a Treasurer, a Controller and one or more of the
following: Executive Vice President, Senior Vice President, Vice President,
Assistant Vice President, Associate or Assistant General Counsel, Assistant
Secretary, Assistant Treasurer, Assistant Controller and such other officers
with such titles and powers and/or duties as the Board or the Chairman of the
Board, as the case may be, shall from time to time determine. Officers of the
corporation may simultaneously serve as officers of subsidiaries or divisions
thereof. Any number of offices may be held by the same person.
SECTION 2. ELECTION
The officers of the corporation, except those who may be appointed by the
Chairman of the Board as provided in Section 6 of this Article V, shall be
elected or appointed as soon as practicable after the annual meeting of
stockholders in each year to hold office until the first meeting of the Board
after the annual meeting of stockholders next succeeding his election, or until
his successor is elected and qualified or until his earlier death, resignation
or removal..
SECTION 3. RESIGNATIONS
Any elected or appointed officer may resign at any time upon written notice
to the Chairman of the Board or the Secretary of the corporation. Such
resignation shall take effect upon the date of its receipt or at such later
time as may be specified therein, and unless otherwise required by the terms
thereof, no acceptance of such resignation shall be necessary to make it
effective.
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SECTION 4. REMOVALS
Any elected or appointed officer may be removed, with or without cause, by
the Board at any regular or special meeting of the Board, and in the case of an
officer appointed pursuant to Section 6 of this Article V, may be so removed by
the Chairman of the Board. Any such removal shall be without prejudice to the
contractual rights of such officer, if any, with the corporation, but the
election or appointment of any officer shall not of itself create contractual
rights.
SECTION 5. VACANCIES
Any vacancy occurring in any office by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board at
any regular or special meeting or as otherwise provided in these By-laws.
SECTION 6. CHAIRMAN OF THE BOARD
The Chairman of the Board shall, when present, preside at all meetings of
the stockholders and the Board; have authority to call special meetings of the
stockholders and of the Board; have authority to sign and acknowledge in the
name and on behalf of the corporation all stock certificates, contracts or
other documents and instruments except where the signing thereof shall be
expressly delegated to some other officer or agent by the Board or required by
law to be otherwise signed or executed and, unless otherwise provided by law or
by the Board may authorize any officer, employee or agent of the corporation to
sign, execute and acknowledge in his place and stead all such documents and
instruments; he shall fix the compensation of officers of the corporation,
other than his own compensation, and the compensation of officers of its
principal operating subsidiaries reporting directly to him unless such
authority is otherwise reserved to the Board or a committee thereof; and he
shall approve proposed employee compensation and benefit plans of subsidiary
companies not involving the issuance or purchase of capital stock of the
corporation. He shall have the power to appoint and remove any Vice President,
Controller, General Counsel, Secretary or Treasurer of the corporation. He
shall also have the power to appoint and remove such associate or assistant
officers of the corporation with such titles and duties as he may from time to
time deem necessary or appropriate. He shall have such other powers and
perform such other duties as from time to time may be assigned to him by the
Board or the Executive Committee.
The Chairman of the Board is hereby authorized, without further approval of
the Finance Committee or the Board:
(a) To approve individual expenditures by the corporation of up to
$10 million each for individual expenditures in categories not
presented to the Board in the annual budget or plan, including
but not limited to individual expenditures pertaining to
operating expenses, purchases, leases, options to purchase or
lease assets, investments, business acquisitions, land
purchases, products or services acquisitions, bid or
performance bonds (provided however, that the authority to
issue such a bond shall not be deemed to
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authorize the activity covered thereby unless such activity
would itself be authorized hereunder), litigation settlements,
charitable donations and political contributions.
(b) To approve expenditures by the corporation for the amounts
(subject to subparagraph (c) below) presented to the Board in
the annual budget or plan, including but not limited to
individual expenditures pertaining to operating and capital
expenses, purchases, leases, options to purchase or lease
assets, investments, business acquisitions, land purchases,
products or services acquisitions, bid or performance bonds
(provided however, that the authority to issue such a bond
shall not be deemed to authorize the activity covered thereby
unless such activity would itself be authorized hereunder),
litigation settlements, charitable donations and political
contributions.
(c) To approve individual cost overruns of up to 10% of any amounts
approved by or presented to the Board.
(d) To enter into leases or extensions thereof and other agreements
with respect to the assets of the corporation, including
interests in minerals and real estate, for a term of not more
than 10 years or for an unlimited term if the aggregate initial
rentals, over the term of the lease, including renewal options,
do not exceed $20 million.
(e) To approve capital contributions to the corporation's
subsidiaries and to enter into performance and financial
guarantees for the benefit of the corporation's subsidiaries.
(f) To approve disposition of assets and interests in securities of
subsidiaries or related commitments, provided that the
aggregate market value of the assets being disposed of in any
one such transaction does not exceed $20 million.
(g) To approve increases in the capital budgets of the
corporation's operating subsidiaries provided such increases in
the aggregate do not exceed 10% of the corporation's capital
budget for the fiscal year.
(h) To approve in emergency situations commitments in excess of the
above-described limits provided they are in the interests of
the corporation.
The above delegation of authority does not authorize the corporation or its
subsidiaries to make a significant change in its business or to issue the
corporation's capital stock without the specific approval of the Board.
Notwithstanding the foregoing limitations, the Chairman of the Board shall have
such power and authority as is usual, customary and desirable to perform all
the duties of the office (including, but not limited to, the approval of
payments or arrangements made in connection with the corporation's debt,
interest, tax, contractual, and regulatory obligations) necessary to, and
consistent with, the businesses of the corporation and its subsidiaries.
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SECTION 7. CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall assist the Chairman of the Board in the
performance of his duties and shall perform those duties assigned to him in
other provisions of the By-laws and such other duties as may from time to time
be assigned to him by the Board or the Chairman of the Board. In the absence
or disability of the Chairman of the Board, or at his request, the Chief
Executive Officer may preside at any meeting of the stockholders or of the
Board and, in such circumstances, may exercise any of the other powers or
perform any of the other duties of the Chairman of the Board. Subject to
delegations by the Chairman of the Board pursuant to Section 6 of this Article
V, the Chief Executive Officer may sign or execute, in the name of the
corporation, all stock certificates, deeds, mortgages, bonds, contracts or
other documents and instruments, except in cases where the signing or execution
thereof shall be required by law or shall have been expressly delegated by the
Board or these By-laws to some other officer or agent of the corporation.
SECTION 8. PRESIDENT
The President shall have general authority over the property, business and
affairs of the corporation, and over all subordinate officers, agents and
employees of the corporation, subject to the control and direction of the
Board, the Executive Committee, the Chairman of the Board and the Chief
Executive Officer, including the power to sign and acknowledge in the name and
on behalf of the corporation all stock certificates, deeds, mortgages, bonds,
contracts or other documents and instruments except when the signing thereof
shall be expressly delegated to some other officer or agent by the Board or
required by law to be otherwise signed or executed and, unless otherwise
provided by law or by the Board, may delegate to any officer, employee or agent
of the corporation authority to sign, execute and acknowledge in his place and
stead all such documents and instruments.
SECTION 9. VICE CHAIRMAN OF THE BOARD
The Vice Chairman of the Board shall assist the Chairman of the Board, the
Chief Executive Officer and the President, in the performance of their duties
and shall perform those duties assigned to him in other provisions of the By-
laws and such other duties as may from time to time be assigned to him by the
Board, the Chairman of the Board, the Chief Executive Officer or the President.
In the absence or disability of the Chairman of the Board, the Chief Executive
Officer or the President, or at the request of any of them, the Vice Chairman
of the Board may preside at any meeting of the stockholders or of the Board
and, in such circumstances, may exercise any of the other powers or perform any
of the other duties of the Chairman of the Board, the Chief Executive Officer
or the President. Subject to delegations by the Chairman of the Board pursuant
to Section 6 of this Article V, the Vice Chairman of the Board may sign or
execute, in the name of the corporation, all stock certificates, deeds,
mortgages, bonds, contracts or other documents and instruments, except in cases
where the signing or execution thereof shall be required by law or shall have
been expressly delegated by the Board or these By-laws to some other officer or
agent of the corporation.
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SECTION 10. CHIEF OPERATING OFFICER
The Chief Operating Officer shall have direct management responsibility for
the general business operations of the corporation, and he shall have such
powers and perform such duties as may be incident to the office of chief
operating officer of a corporation, those duties assigned to him by other
provisions of the By-laws, and such other duties as may from time to time be
assigned to him either directly or indirectly by the Board, the Chairman of the
Board, the Chief Executive Officer, the President or the Vice Chairman of the
Board. Subject to delegations by the Chairman of the Board pursuant to Section
6 of this Article V, the Chief Operating Officer may sign or execute, in the
name of the corporation, all stock certificates, deeds, mortgages, bonds,
contracts or other documents and instruments, except in cases where the signing
or execution thereof shall be required by law or shall have been expressly
delegated by the Board or these By-laws to some other officer or agent of the
corporation.
SECTION 11. CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall have responsibility for development and
administration of the corporation's financial plans and all financial
arrangements, its cash deposits and short term investments, its accounting
policies and its federal and state tax returns. The Chief Financial Officer
shall also be responsible for the corporation's internal control procedures and
for its relationship with the financial community. The Chief Financial Officer
shall perform all the duties incident to the office of chief financial officer
of a corporation, those duties assigned to him by other provisions of these By-
laws and such other duties as may be assigned to him either directly or
indirectly by the Board, the Chairman of the Board, the Chief Executive
Officer, the President, the Vice Chairman of the Board or the Chief Operating
Officer, or as may be provided by law.
SECTION 12. VICE PRESIDENTS
Each Executive Vice President, Senior Vice President and Vice President
shall have such powers and perform such duties as may from time to time be
assigned to him, directly or indirectly, either generally or in specific
instances, by the Board, the Chairman of the Board, the Chief Executive
Officer, the President, the Vice Chairman of the Board or the Chief Operating
Officer.
Subject to delegations by the Chairman of the Board pursuant to Section 6 of
this Article V, each Executive Vice President, Senior Vice President and Vice
President shall perform all duties incident to the office of vice president of
a corporation and shall have authority to sign or execute, in the name of the
corporation, all stock certificates, deeds, mortgages, bonds, contracts or
other documents or instruments, except in cases where the signing or execution
thereof shall have been expressly delegated by the Board or these By-laws to
some other officer or agent of the corporation.
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SECTION 13. GENERAL COUNSEL
The General Counsel shall be the chief legal advisor of the corporation and
shall have responsibility for the management of the legal affairs and
litigation of the corporation and, in general, he shall perform the duties
incident to the office of general counsel of a corporation and such other
duties as may be assigned to him either directly or indirectly by the Board,
the Chairman of the Board, the Chief Executive Officer, the President or the
Vice Chairman of the Board, or as may be provided by law.
SECTION 14. SECRETARY
The Secretary shall keep the minutes of meetings of the stockholders and of
the Board in books provided for the purpose; he shall see that all notices are
duly given in accordance with the provisions of these By-laws or as required by
law; he shall be custodian of the records and of the corporate seal or seals of
the corporation; he shall see that the corporate seal is affixed to all
documents requiring same, the execution of which, on behalf of the corporation,
under its seal, is duly authorized, and when said seal is so affixed he may
attest same; and, in general, he shall perform all duties incident to the
office of the secretary of a corporation, and such other duties as from time to
time may be assigned to him directly or indirectly by the Board, the Chairman
of the Board, the Chief Executive Officer, the President, the Vice Chairman of
the Board or the General Counsel, or as may be provided by law. Any Assistant
Secretary may perform any of the duties or exercise any of the powers of the
Secretary at the request of, or in the absence or disability of, the Secretary
or otherwise as occasion may require in the administration of the business and
affairs of the corporation.
SECTION 15. TREASURER
The Treasurer shall have charge of and be responsible for all funds,
securities, receipts and disbursements of the corporation, and shall deposit,
or cause to be deposited, in the name of the corporation, all moneys or other
valuable effects in such banks, trust companies or other depositaries as shall,
from time to time, be selected by or under authority of the Board; if required
by the Board, he shall give a bond for the faithful discharge of his duties,
with such surety or sureties as the Board may determine; he shall keep or cause
to be kept full and accurate records of all receipts and disbursements in books
of the corporation; and, in general, he shall perform the duties incident to
the office of treasurer of a corporation and such other duties as may be
assigned to him directly or indirectly by the Board, the Chairman of the Board,
the Chief Executive Officer, the President, the Vice Chairman of the Board, the
Chief Operating Officer or the Chief Financial Officer, or as may be provided
by law. Any Assistant Treasurer may perform any of the duties or exercise any
of the powers of the Treasurer at the request of, or in the absence or
disability of, the Treasurer or otherwise as occasion may require in the
administration of the business and affairs of the corporation.
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SECTION 16. CONTROLLER
The Controller shall be the chief accounting officer of the corporation. He
shall keep full and accurate accounts of the assets, liabilities, commitments,
receipts, disbursements and other financial transactions of the corporation;
shall cause regular audits of the books and records of account of the
corporation and shall supervise the preparation of the corporation's financial
statements; and, in general, he shall perform the duties incident to the office
of controller of a corporation and such other duties as may be assigned to him
directly or indirectly by the Board, the Audit Committee, the Chairman of the
Board, the Chief Executive Officer, the President, the Vice Chairman of the
Board, the Chief Operating Officer or the Chief Financial Officer, or as may be
provided by law.
SECTION 17. ABSENCE OR DISABILITY OF OFFICERS
In the absence or disability of the Chairman of the Board, the Chief
Executive Officer, the President or the Vice Chairman of the Board, the Board
or a committee thereof may designate individuals to perform the duties of those
absent or disabled.
ARTICLE VI
STOCK CERTIFICATES AND TRANSFER THEREOF
SECTION 1. STOCK CERTIFICATES
Except as otherwise permitted by statute, the Restated Certificate of
Incorporation or resolution or resolutions of the Board, every holder of stock
in the corporation shall be entitled to have a certificate, signed by or in the
name of the corporation by the Chairman of the Board, the Chief Executive
Officer, the President, the Vice Chairman of the Board, the Chief Operating
Officer, the Chief Financial Officer or any Vice President and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation, certifying the number of shares, and the class and series thereof,
owned by him in the corporation. Any and all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue. The Board or the Chairman of the Board shall determine the form of
stock certificate of the corporation.
SECTION 2. TRANSFER OF STOCK
Transfer of shares of the capital stock of the corporation shall be made
only on the books (whether physically or electronically) of the corporation by
the holder thereof, or by his attorney duly authorized, and on surrender of the
certificate or certificates for such shares. A person in whose name shares of
stock stand on the books of the corporation shall be deemed the owner
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thereof as regards the corporation, and the corporation shall not, except as
expressly required by statute, be bound to recognize any equitable or other
claim to, or interest in, such shares on the part of any other person whether
or not it shall have express or other notice thereof.
SECTION 3. TRANSFER AGENTS AND REGISTRARS
The Board or the Chairman of the Board, as appropriate, may appoint
responsible banks or trust companies from time to time to act as transfer
agents and registrars of the stock of the corporation, as may be required by
and in accordance with applicable laws, rules and regulations. Except as
otherwise provided by the Board or the Chairman of the Board, as appropriate,
in respect of temporary certificates, no certificates for shares of capital
stock of the corporation shall be valid unless countersigned by a transfer
agent and registered by one of such registrars.
SECTION 4. ADDITIONAL REGULATIONS
The Board or the Chairman of the Board, as appropriate, may make such
additional rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of the capital stock of
the corporation.
SECTION 5. LOST, STOLEN OR DESTROYED CERTIFICATES
The Board or the Chairman of the Board may provide for the issuance of new
certificates of stock to replace certificates of stock lost, stolen or
destroyed, or alleged to be lost, stolen or destroyed, upon such terms and in
accordance with such procedures as the Board or the Chairman of the Board shall
deem proper and prescribe.
ARTICLE VII
DIVIDENDS, SURPLUS, ETC.
Except as otherwise provided by statute or the Restated Certificate of
Incorporation, the Board may declare dividends upon the shares of its capital
stock either (1) out of its surplus, or (2) in case there shall be no surplus,
out of its net profits for the fiscal year, whenever, and in such amounts as,
in its opinion, the condition of the affairs of the corporation shall render it
advisable. Dividends may be paid in cash, in property, or in shares of the
capital stock of the corporation.
ARTICLE VIII
SEAL
The corporation may have a corporate seal which shall have inscribed thereon
the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." The
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corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of January
of each year, or on such other day as may be fixed from time to time by the
Board.
ARTICLE X
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION
Each person who was or is made a party or is threatened to be made a party
to or is involved (including, without limitation, as a witness) in any actual
or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he is or was a Director, officer or employee of the corporation or is
or was serving at the request of the corporation as a Director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, officer,
employee or agent or in any other capacity while serving as such a Director,
officer, employee or agent, shall be indemnified and held harmless by the
corporation to the full extent authorized by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment), or by other applicable law
as then in effect, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
to be paid in settlement) actually and reasonably incurred or suffered by such
indemnitee in connection therewith and such indemnification shall continue as
to an indemnitee who has ceased to be a Director, officer, employee or agent
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators; provided, however, that except as provided in Section 2 of this
Article with respect to proceedings seeking to enforce rights to
indemnification, the corporation shall indemnify any such indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by the
Board of the corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
corporation the expenses incurred in defending any such proceeding in advance
of its final disposition (hereinafter an "advancement of expenses"); further
provided, however, that, if the General Corporation Law of the State of
Delaware requires, an advancement of expenses incurred by an indemnitee in his
capacity as a
21
<PAGE> 26
Director, officer or employee (and not in any other capacity in which service
was or is rendered by such indemnitee while a Director, officer or employee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the corporation of an undertaking, by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined that such indemnitee is not entitled to be indemnified under this
Section 1, or otherwise.
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under Section 1 of this Article is not paid in full by the
corporation within sixty days after a written claim has been received by the
corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, to the extent successful in whole or in part, the
indemnitee shall be entitled to be paid also the expense of prosecuting such
suit. The indemnitee shall be presumed to be entitled to indemnification under
this Article upon submission of a written claim (and, in an action brought to
enforce a claim for an advancement of expenses, where the required undertaking,
if any is required, has been tendered to the corporation), and thereafter the
corporation shall have the burden of proof to overcome the presumption that the
indemnitee is not so entitled. Neither the failure of the corporation
(including its Board, independent legal counsel, or its stockholders), to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances, nor an actual
determination by the corporation (including its Board, independent legal
counsel or its stockholders) that the indemnitee is not entitled to
indemnification, shall be a defense to the suit or create a presumption that
the indemnitee is not so entitled.
SECTION 3. NONEXCLUSIVITY OF RIGHTS
The rights to indemnification and to the advancement of expenses conferred
in this Article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Restated
Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested Directors or otherwise.
SECTION 4. INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the corporation would have the power
to indemnify such person against such expense, liability or loss under the
General Corporation Law of the State of Delaware. The corporation may enter
into contracts with any indemnitee in furtherance of the provisions of this
Article and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided in
this Article.
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<PAGE> 27
SECTION 5. WHOLLY OWNED SUBSIDIARIES
Any person who is or was serving as a Director of a wholly owned subsidiary
of the corporation shall be deemed, for purposes of this Article only, to be a
Director, officer or employee of the corporation entitled to indemnification
under this Article.
SECTION 6. INDEMNIFICATION OF AGENTS OF THE CORPORATION
The corporation may, by action of the Board from time to time, grant rights
to indemnification and advancement of expenses to agents of the corporation
with the same scope and effect as the provisions of this Article with respect
to the indemnification and advancement of expenses of Directors, officers and
employees of the corporation.
ARTICLE XI
CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. CHECKS, DRAFTS, ETC.; LOANS
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall, from time to time, be determined by resolution of the Board.
No loans shall be contracted on behalf of the corporation unless authorized by
the Board. Such authority may be general or confined to specific
circumstances.
SECTION 2. DEPOSITS
All funds of the corporation shall be deposited, from time to time, to the
credit of the corporation in such banks, trust companies or other depositories
as the Board may select, or as may be selected by any officer or officers,
agent or agents of the corporation to whom such power may, from time to time,
be delegated by the Board; and for the purpose of such deposit, the Chairman of
the Board, the Chief Executive Officer, the President, the Vice Chairman of the
Board, any Executive Vice President, any Senior Vice President, any Vice
President, the Treasurer or any Assistant Treasurer, or any other officer or
agent to whom such power may be delegated by the Board, may endorse, assign and
deliver checks, drafts and other order for the payment of money which are
payable to the order of the corporation.
ARTICLE XII
AMENDMENTS
These By-laws may be altered or repealed and new By-laws may be made by the
affirmative vote, at any meeting of the Board, of a majority of the entire
Board, subject to the rights of the
23
<PAGE> 28
stockholders of the corporation to amend or repeal By-laws made or amended by
the Board by the affirmative vote of the holders of record of a majority in
number of shares of the outstanding stock of the corporation present or
represented at any meeting of the stockholders and entitled to vote thereon,
provided that notice of the proposed action be included in the notice of such
meeting.
ARTICLE XIII
MISCELLANEOUS
All references and uses herein of the masculine pronouns "he" or "his" shall
have equal applicability to and shall also mean their feminine counterpart
pronouns, such as "she" or "her."
24
<PAGE> 1
EL PASO NATURAL GAS COMPANY
EARNINGS PER COMMON SHARE
Form 10-Q, Exhibit 11
(In Thousands, except earnings per share)
<TABLE>
<CAPTION>
Second Quarter Six Months
----------------------- ------------------------
1997 1996 1997 1996
------- ------- ------- --------
<S> <C> <C> <C> <C>
Income available for common stock dividends $43,194 $24,425 $90,495 $(10,823)
Primary average for common shares outstanding 58,756 35,476 57,849 35,264
Primary earnings per share $0.7351 $0.6885 $1.5643 $(0.3069)
Fully diluted average common shares outstanding 58,756 35,476 57,849 35,264
Fully diluted earnings per common share $0.7351 $0.6885 $1.5643 $(0.3069)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 889
<ALLOWANCES> 0<F1>
<INVENTORY> 77
<CURRENT-ASSETS> 1,442
<PP&E> 6,385
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 8,654
<CURRENT-LIABILITIES> 2,050
<BONDS> 2,188
0
0
<COMMON> 182
<OTHER-SE> 1,681
<TOTAL-LIABILITY-AND-EQUITY> 8,654
<SALES> 0
<TOTAL-REVENUES> 2,810
<CGS> 0
<TOTAL-COSTS> 2,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 168
<INCOME-TAX> 65
<INCOME-CONTINUING> 91
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 0.00
<FN>
<F1>NOT SEPARATELY IDENTIFIED IN THE CONSOLIDATED FINANCIAL STATEMENTS OR
ACCOMPANYING NOTES THERETO.
</FN>
</TABLE>
