<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 MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4101
---------------------
TENNESSEE GAS PIPELINE COMPANY
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 74-1056569
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
EL PASO ENERGY BUILDING
1001 LOUISIANA, HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (713) 420-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING
----- -----------
<S> <C>
Common Stock, par value $5.00 per share,
as of May 14, 1998 208 shares
</TABLE>
TENNESSEE GAS PIPELINE COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A REDUCED
DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.
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<PAGE> 2
GLOSSARY
The following abbreviations, acronyms, or defined terms used in this Form
10-Q are defined below:
<TABLE>
<CAPTION>
DEFINITIONS
-----------
<S> <C>
ALJ......................... Administrative Law Judge
Company..................... Tennessee Gas Pipeline Company and its subsidiaries
Court of Appeals............ United States Court of Appeals for the District of Columbia
Circuit
EPA......................... United States Environmental Protection Agency
EPG......................... El Paso Natural Gas Company
EPTPC....................... El Paso Tennessee Pipeline Co. an indirect subsidiary of El
Paso Natural Gas Company
FERC........................ The Federal Energy Regulatory Commission
GSR......................... Gas supply realignment
PCB(s)...................... Polychlorinated biphenyl(s)
PLN......................... Perusahaan Listrik Negra, the Indonesian government-owned
electric utility
PRP(s)...................... Potentially responsible party(ies)
SFAS........................ Statement of Financial Accounting Standards
TGP......................... Tennessee Gas Pipeline Company, a wholly owned subsidiary of
El Paso Tennessee Pipeline Co.
</TABLE>
i
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENNESSEE GAS PIPELINE COMPANY
CONDENSED COMBINED STATEMENTS OF INCOME
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED MARCH 31,
------------------
1998 1997
------ ------
PRE-CONTRIBUTION
COMBINED
<S> <C> <C>
Operating revenues.......................................... $1,455 $1,595
------ ------
Operating expenses
Cost of gas and other products............................ 1,210 1,385
Operation and maintenance................................. 106 94
Depreciation, depletion, and amortization................. 39 44
Taxes, other than income taxes............................ 13 16
------ ------
1,368 1,539
------ ------
Operating income............................................ 87 56
------ ------
Other (income) and expense
Interest and debt expense................................. 31 13
Other -- net.............................................. (13) (17)
------ ------
18 (4)
------ ------
Income before income taxes.................................. 69 60
Income tax expense.......................................... 23 23
------ ------
Net income.................................................. $ 46 $ 37
====== ======
Comprehensive income........................................ $ 45 $ 37
====== ======
</TABLE>
The accompanying Notes are an integral part of these
Condensed Consolidated and Combined Financial Statements.
1
<PAGE> 4
TENNESSEE GAS PIPELINE COMPANY
CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------------- ----------------
POST-CONTRIBUTION PRE-CONTRIBUTION
CONSOLIDATED COMBINED
<S> <C> <C>
Current assets
Cash and temporary investments............................ $ 21 $ 34
Accounts and notes receivable, net........................ 992 1,047
Inventories............................................... 25 41
Deferred income tax benefit............................... 100 100
Other..................................................... 299 275
------ ------
Total current assets.............................. 1,437 1,497
Property, plant, and equipment, net......................... 4,773 4,833
Other....................................................... 409 379
------ ------
Total assets...................................... $6,619 $6,709
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable.......................................... $ 711 $ 836
Short-term borrowings (including current maturities of
long-term debt)........................................ 424 425
Note payable to EPG....................................... 125 125
Other..................................................... 487 509
------ ------
Total current liabilities......................... 1,747 1,895
------ ------
Long-term debt, less current maturities..................... 977 976
------ ------
Deferred income taxes....................................... 1,167 1,150
------ ------
Other....................................................... 793 798
------ ------
Commitments and contingencies (See Note 4)
Minority Interest........................................... 25 25
------ ------
Stockholder's equity
Common stock, par value $5 per share; authorized 300
shares; issued 208 shares.............................. -- --
Additional paid-in capital................................ 1,873 1,872
Retained earnings......................................... 45 --
Accumulated other comprehensive income.................... (8) (7)
------ ------
Total stockholder's equity........................ 1,910 1,865
------ ------
Total liabilities and stockholder's equity........ $6,619 $6,709
====== ======
</TABLE>
The accompanying Notes are an integral part of these
Condensed Consolidated and Combined Financial Statements.
2
<PAGE> 5
TENNESSEE GAS PIPELINE COMPANY
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED MARCH 31,
----------------
1998 1997
----- -----
PRE-CONTRIBUTION
COMBINED
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 46 $ 37
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation, depletion, and amortization.............. 39 44
Deferred income taxes.................................. 19 44
Other.................................................. (4) (2)
Working capital changes................................... (91) 115
Other..................................................... 12 (12)
----- -----
Net cash provided by operating activities......... 21 226
----- -----
Cash flows from investing activities
Capital expenditures...................................... (19) (16)
Investment in joint ventures and equity investees......... (23) --
Net changes in advances to EPG............................ 1 (211)
Collection of note receivable from partnership............ -- 53
Other..................................................... 7 3
----- -----
Net cash used in investing activities............. (34) (171)
----- -----
Cash flows from financing activities
Net proceeds from long-term debt issuance................. -- 883
Dividend to EPTPC......................................... -- (889)
Repayment of note payable to EPG.......................... -- (45)
----- -----
Net cash used in financing activities............. -- (51)
----- -----
Increase (decrease) in cash and temporary investments....... (13) 4
Cash and temporary investments
Beginning of period............................... 34 19
----- -----
End of period..................................... $ 21 $ 23
===== =====
</TABLE>
The accompanying Notes are an integral part of these
Condensed Consolidated and Combined Financial Statements.
3
<PAGE> 6
TENNESSEE GAS PIPELINE COMPANY
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. CHANGE IN REPORTING ENTITY
In March 1998, El Paso Management Company, a subsidiary of EPG and parent
of EPTPC, exchanged all the common stock of El Paso Marketing Services Company
("EPMSC") for approximately 934,000 shares of 6 1/4% Cumulative Junior Preferred
Stock, Series C ("Series C Preferred Stock") of EPTPC for a total value of $47
million representing the net book value of EPMSC at the exchange date. EPTPC, in
turn, contributed the common stock of EPMSC to TGP. This exchange resulted in a
change in reporting entity as defined in Accounting Principles Board Opinion No.
20, Accounting Changes, requiring a restatement in order to show financial
information for the new reporting entity for all periods presented. The
condensed consolidated balance sheet at March 31, 1998, contained herein
reflects the contribution of EPMSC and is referred to as "Post-Contribution
Consolidated". The combined financial statements of the Company for periods
prior to March 31, 1998, are referred to as "Pre-Contribution Combined." The
pre-contribution combined financial statements have been prepared as though the
exchange had occurred January 1, 1997, and the value assigned to the Series C
Preferred Stock was $58 million, the book value of the net assets of EPMSC at
January 1, 1997. Earnings in each respective period from January 1, 1997, to the
exchange date are reflected as an increase or decrease in the assigned value of
Series C Preferred Stock. Net income excluding the effects of the exchange of
EPMSC for the quarters ended March 31, 1998 and 1997, would have been $45
million and $48 million, respectively.
2. BASIS OF PRESENTATION
The 1997 Annual Report on Form 10-K for the Company includes a summary of
significant accounting policies and other disclosures and should be read in
conjunction with this Form 10-Q. The condensed consolidated and combined
financial statements at March 31, 1998 and December 31, 1997, and for the
quarters ended March 31, 1998, and 1997, are unaudited. These financial
statements do not include all disclosures required by generally accepted
accounting principles. In the opinion of management, all material adjustments
necessary to present fairly the results of operations for such periods have been
included. All such adjustments are of a normal recurring nature. Results of
operations for any interim period are not necessarily indicative of the results
of operations for the entire year due to the seasonal nature of the Company's
businesses.
Comprehensive Income
In compliance with SFAS No. 130, Reporting Comprehensive Income, the
Company has displayed comprehensive income in the Condensed Combined Statements
of Income. The only component of comprehensive income is the cumulative
translation adjustment which results from differences in the translation of
foreign currencies. This amount is reflected as accumulated other comprehensive
income in the Condensed Consolidated and Combined Balance Sheets.
3. SEGMENTS
The Company has elected to adopt the standards outlined in SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, effective
January 1, 1998. The adoption of SFAS No. 131 did not cause the Company's
aggregation of business activities into segments to change from previously
reported periods.
The Regulated segment includes the interstate pipeline systems of TGP,
Midwestern Gas Transmission Company, and East Tennessee Natural Gas Company. The
segment transports natural gas to the northeast section of the United States
including the states of Tennessee, Virginia, and Georgia as well as New York
City, Chicago, and Boston metropolitan areas. The Non-Regulated segment provides
natural gas gathering, products extraction, dehydration, purification,
compression and intrastate transmission services. The
4
<PAGE> 7
Non-Regulated segment also markets and trades natural gas, power, and petroleum
products, and develops and operates energy infrastructure facilities worldwide.
The accounting policies of the individual segments are the same as those of the
Company, as a whole, as summarized in Note 2, Basis of Presentation.
<TABLE>
<CAPTION>
SEGMENTS
FOR THE QUARTER ENDED MARCH 31, 1998
------------------------------------
NON-
REGULATED REGULATED TOTAL
--------- --------- ------
(IN MILLIONS) PRE-CONTRIBUTION COMBINED
<S> <C> <C> <C>
Revenues from external customers................... $ 203 $1,252 $1,455
Intersegment revenue............................... 9 -- 9
Operating income (loss)............................ 94 (7) 87
</TABLE>
<TABLE>
<CAPTION>
POST-CONTRIBUTION CONSOLIDATED
<S> <C> <C> <C>
Segment assets..................................... 5,294 1,213 6,507
</TABLE>
<TABLE>
<CAPTION>
SEGMENTS
FOR THE QUARTER ENDED MARCH 31, 1997
------------------------------------
NON-
REGULATED REGULATED TOTAL
--------- --------- ------
(IN MILLIONS) PRE-CONTRIBUTION COMBINED
<S> <C> <C> <C>
Revenues from external customers................... $ 205 $1,390 $1,595
Intersegment revenue............................... 10 -- 10
Operating income (loss)............................ 80 (24) 56
Segment Assets..................................... 4,802 1,323 6,125
</TABLE>
The reconciliations of operating income to income before income taxes are
presented below for the quarters ended March 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN MILLIONS)
PRE-CONTRIBUTION
COMBINED
<S> <C> <C>
Operating income............................................ $ 87 $ 56
Interest and debt expense................................... (31) (13)
Other -- net................................................ 13 17
---- ----
Income before income taxes.................................. $ 69 $ 60
==== ====
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
Indonesian Economic Difficulties
The Company owns a 47.5 percent interest in a power generating plant in
Sengkang, South Sulawesi, Indonesia, with a book value at March 31, 1998 of
approximately $20 million. Current economic events in Indonesia have resulted in
the devaluation of the Indonesian Rupiah and delays or cancellations of certain
infrastructure power projects in that country. The Company has met with PLN and
the Indonesian Minister of Finance to discuss the terms of its power sales
agreement in light of the current Indonesian economic problems. While the
Company cannot predict the ultimate outcome of Indonesia's financial
difficulties or the impact of such matters to the Company, it believes PLN, with
the backing of the Office of the Minister of Finance, will honor all obligations
on the Sengkang project in full. The Company believes the current economic
difficulties in Indonesia will not have a material adverse effect on the
Company's financial position, results of operations, or cash flows. As of April
30, 1998, all amounts billed and due had been paid in full.
Rates and Regulatory Matters
In February 1997, TGP filed with FERC a settlement of all issues related to
the recovery of its GSR and other transition costs and related proceedings (the
"GSR Stipulation and Agreement"). In April 1997, FERC approved the settlement
and TGP implemented the settlement on May 1, 1997. Under the terms of the GSR
Stipulation and Agreement, TGP is entitled to collect from customers up to $770
million, of which
5
<PAGE> 8
approximately $701 million has been collected as of March 31, 1998. TGP is
entitled to recover additional transition costs, up to the remaining $69
million, through a demand transportation surcharge and an interruptible
transportation surcharge. The demand transportation surcharge portion is
scheduled to be recovered over a period extending through December 1998. There
is no time limit for collection of the interruptible transportation surcharge
portion. The terms of the GSR Stipulation and Agreement also provide for a rate
case moratorium through November 2000 (subject to certain limited exceptions)
and an escalating rate cap, indexed to inflation, through October 2005, for
certain of TGP's customers.
In December 1994, TGP filed for a general rate increase with FERC and in
October 1996, FERC approved the settlement resolving that proceeding. The
settlement included a structural rate design change that results in a larger
portion of TGP's transportation revenues being dependent upon throughput. Under
the settlement, TGP's refund obligation was approximately $185 million,
inclusive of interest, of which $161 million was refunded to customers in March
1997 and June 1997 with the remaining $24 million refund obligation offset
against GSR recoveries in accordance with particular customer elections. TGP had
provided a reserve for these rate refunds as revenues were collected. One party,
a competitor of TGP, filed with the Court of Appeals a Petition for Review of
the FERC orders.
In July 1997, FERC issued an order on rehearing of its July 1996 order
addressing cost allocation and rate design issues of TGP's 1991 general rate
proceeding. All cost of service issues were previously resolved pursuant to a
settlement that was approved by FERC. In the July 1996 order, FERC remanded to
the presiding ALJ the issue of proper allocation of TGP's New England lateral
costs. In the July 1997 order on rehearing, FERC clarified, among other things,
that although the ultimate resolution as to the proper allocation of costs will
be applied retroactively to July 1, 1995, the cost of service settlement does
not allow TGP to recover from other customers amounts that TGP may ultimately be
required to refund. TGP has filed with the Court of Appeals a Petition for
Review of the FERC orders on this issue. In December 1997, the ALJ issued his
decision on the proper allocation of the New England lateral costs. The decision
adopts a methodology that economically approximates TGP's current methodology.
The ALJ's decision is pending before FERC.
In October 1997, TGP filed its cashout report for the period September 1995
through August 1996. TGP previously filed cashout reports for the period
September 1993 through August 1995. TGP's October 1997 filing showed a
cumulative loss of $11 million that would be rolled forward to the next cashout
period pursuant to its tariff. FERC has requested additional information and
justification from TGP as to its cashout methodology and reports. TGP's cashout
methodology and reports are currently pending before FERC.
Substantially all of the revenues of TGP are generated under long-term gas
transmission contracts. Contracts representing approximately 70 percent of TGP's
firm transportation capacity will be expiring over the next three years,
principally in November 2000. Although TGP cannot predict how much capacity will
be resubscribed, a majority of the expiring contracts cover service to
northeastern markets, where there is currently little excess capacity. Several
projects, however, have been proposed to deliver incremental volumes to these
markets. Although TGP is actively pursuing the renegotiation, extension and/or
replacement of these contracts, there can be no assurance as to whether TGP will
be able to extend or replace these contracts (or a substantial portion thereof)
or that the terms of any renegotiated contracts will be as favorable to TGP as
the existing contracts.
Management believes the ultimate resolution of the aforementioned rate and
regulatory matters, which are in various stages of finalization, will not have a
material adverse effect on the Company's financial position, results of
operations, or cash flows.
Environmental Matters
As of March 31, 1998, the Company had a reserve of approximately $245
million to cover environmental assessments and remediation activities discussed
below.
Since 1988, TGP has been engaged in an internal project to identify and
deal with the presence of PCBs and other substances of concern, including
substances on the EPA List of Hazardous Substances, at
6
<PAGE> 9
compressor stations and other facilities operated by both its interstate and
intrastate natural gas pipeline systems. While conducting this project, TGP has
been in frequent contact with federal and state regulatory agencies, both
through informal negotiation and formal entry of consent orders, to assure that
its efforts meet regulatory requirements.
In May 1995, following negotiations with its customers, TGP filed with FERC
a separate Stipulation and Agreement (the "Environmental Stipulation") that
establishes a mechanism for recovering a substantial portion of the
environmental costs identified in the internal project. In November 1995, FERC
issued an order approving the Environmental Stipulation. Although one shipper
filed for rehearing, FERC denied rehearing of its order in February 1996. The
Environmental Stipulation was effective July 1, 1995. As of March 31, 1998, a
balance of $20 million remains to be collected under the stipulation.
The Company and certain of its subsidiaries have been designated, have
received notice that they may be designated, or have been asked for information
to determine whether they could be designated as a PRP with respect to 29 sites
under the Comprehensive Environmental Response, Compensation and Liability Act
or state equivalents. The Company has sought to resolve its liability as a PRP
with respect to these sites through indemnification by third parties and/or
settlements which provide for payment of the Company's allocable share of
remediation costs. Because the clean-up costs are estimates and are subject to
revision as more information becomes available about the extent of remediation
required, and because in some cases the Company has asserted a defense to any
liability, the Company's estimate of its share of remediation costs could
change. Moreover, liability under the federal Superfund statute is joint and
several, meaning that the Company could be required to pay in excess of its pro
rata share of remediation costs. The Company's understanding of the financial
strength of other PRPs has been considered, where appropriate, in its
determination of its estimated liability as described herein. The Company
presently believes that the costs associated with the current status of such
entities as PRPs at the sites referenced above will not have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
The Company has initiated proceedings against its historic liability
insurers seeking payment or reimbursement of costs and liabilities associated
with environmental matters. In these proceedings, the Company contends that
certain environmental costs and liabilities associated with various entities or
sites, including costs associated with former operating sites, must be paid or
reimbursed by certain of its historic insurers. The proceedings are in their
initial stages and, accordingly, it is not possible to predict the outcome.
It is possible that new information or future developments could require
the Company to reassess its potential exposure related to environmental matters.
The Company may incur significant costs and liabilities in order to comply with
existing environmental laws and regulations. It is also possible that other
developments, such as increasingly strict environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property, employees,
other persons and the environment resulting from current or discontinued
operations, could result in substantial costs and liabilities in the future. As
such information becomes available, or developments occur, related accrual
amounts will be adjusted accordingly. While there are still uncertainties
relating to the ultimate costs which may be incurred, based upon the Company's
evaluation and experience to date, the Company believes the recorded reserve is
adequate.
Legal Proceedings
On February 12, 1998, the United States and the State of Texas filed in a
United States District Court a Comprehensive Environmental Response,
Compensation and Liability Act cost recovery action, United States v. Atlantic
Richfield Co., et al against fourteen companies including the following
affiliates of EPG: TGP, EPTPC, EPEC Corporation, EPEC Polymers, Inc. and the
dissolved Petro-Tex Chemical Corporation, relating to the Sikes Disposal Pits
Superfund Site ("Sikes") located in Harris County, Texas. Sikes was an
unpermitted waste disposal site during the 1960s that accepted waste hauled from
numerous Houston Ship Channel industries. The suit alleges that the former
Tenneco Chemicals, Inc. and Petro-Tex Chemical Corporation arranged for disposal
of hazardous substances at Sikes. TGP, EPTPC, EPEC Corporation and EPEC
Polymers, Inc. are alleged to be derivatively liable as successors or as parent
corporations. The suit claims that the United States and the State of Texas have
expended over
7
<PAGE> 10
$125 million in remediating the site, and seeks to recover that amount plus
interest. Other companies named as defendants include Atlantic Richfield
Company, Crown Central Petroleum Corporation, Occidental Chemical Corporation,
Exxon Corporation, Goodyear Tire & Rubber Company, Rohm & Haas Company, Shell
Oil Company and Vacuum Tanks, Inc. These defendants have filed their answers and
third-party complaints have been filed seeking contribution from twelve other
entities believed to be PRPs at Sikes. Although factual investigation relating
to Sikes is in very preliminary stages, the Company believes that the amount of
material disposed at Sikes from the Tenneco Chemicals, Inc. or Petro-Tex
Chemical Corporation facilities, if any, was small, possibly de minimis.
However, the government plaintiffs have alleged that the defendants are each
jointly and severally liable for the entire remediation costs and have also
sought a declaration of liability for future response costs such as groundwater
monitoring. While the outcome of this matter cannot be predicted with certainty,
management does not expect this matter to have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
TGP is a party in proceedings involving federal and state authorities
regarding the past use by TGP of a lubricant containing PCBs in its starting air
systems. TGP has executed a consent order with the EPA governing the remediation
of certain of its compressor stations and is working with the relevant states
regarding those remediation activities. TGP is also working with the
Pennsylvania and New York environmental agencies to specify the remediation
requirements at the Pennsylvania and New York stations. Remediation activities
in Pennsylvania are complete with the exception of some long-term groundwater
monitoring requirements. Remediation and characterization work at the compressor
stations under its consent order with the EPA and the jurisdiction of the New
York Department of Environmental Conservation is ongoing. Management believes
that the ultimate resolution of these matters will not have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
In Commonwealth of Kentucky, Natural Resources and Environmental Protection
Cabinet v. Tennessee Gas Pipeline Company (Franklin County Circuit Court, Docket
No. 88-C1-1531, November 16, 1988), the Kentucky environmental agency alleged
that TGP discharged pollutants into the waters of the state without a permit and
disposed of PCBs without a permit. The agency sought an injunction against
future discharges, sought an order to remediate or remove PCBs, and sought a
civil penalty. TGP has entered into agreed orders with the agency to resolve
many of the issues raised in the original allegations, has received water
discharge permits for its Kentucky stations from the agency, and continues to
work to resolve the remaining issues. The relevant Kentucky compressor stations
are scheduled to be characterized and remediated under the consent order with
the EPA. Management believes that the resolution of this issue will not have a
material adverse effect on the Company's financial position, results of
operations, or cash flows.
The Company is a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of business.
While the outcome of such lawsuits or other proceedings against the Company
cannot be predicted with certainty, management currently does not expect these
matters to have a material adverse effect on the Company's financial position,
results of operations, or cash flows.
Year 2000
The Company has established an executive steering committee and a project
team to coordinate the assessment, remediation, testing and implementation of
the necessary modifications to its key computer applications (which consist of
internally developed computer applications, third party software, hardware and
embedded chip systems) to assure that such systems and related processes will
remain functional.
The assessment phase related to internally developed computer applications
has been completed and the cost estimate for making the necessary changes to
such systems, including implementation and testing efforts, is approximately $4
million to be spent in 1998 and 1999. These estimates were based on various
factors including availability of internal and external resources and complexity
of the software applications. The recent upgrade of various systems,
particularly the financial systems, to a Year 2000 compliant client/server
platform has greatly reduced or eliminated concerns in those areas.
8
<PAGE> 11
The assessment phase for the third party software, hardware, and embedded
chip systems impacts is continuing, with completion of that phase and an
estimate of costs necessary to modify or replace those systems to be available
in the second quarter of 1998. Included in this phase of the project is the
effort to obtain representations and assurances from third party vendors that
their software, hardware products, and embedded chip systems being used by the
Company are or will be Year 2000 compliant. Implementation and testing phases
are expected to be completed by mid 1999.
It is the Company's goal to ensure that all of the critical systems and
processes which are under its direct control remain functional. However, because
certain systems may be interrelated with systems outside the control of the
Company, there can be no assurance that all implementations will be successful.
Management does not expect the costs to modify its systems or to correct any
unsuccessful system implementations to have a material adverse impact on the
Company's financial position, results of operations, or cash flows.
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at March 31, 1998, and December 31, 1997,
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
(IN MILLIONS)
<CAPTION>
POST-CONTRIBUTION PRE-CONTRIBUTION
CONSOLIDATED COMBINED
<S> <C> <C>
Property, plant, and equipment, at cost............... $2,504 $2,534
Less accumulated depreciation and depletion........... 150 125
------ ------
2,354 2,409
Additional acquisition cost assigned to utility plant,
net of accumulated amortization..................... 2,419 2,424
------ ------
Total property, plant, and equipment, net... $4,773 $4,833
====== ======
</TABLE>
6. INVENTORIES
Inventories at March 31, 1998, and December 31, 1997, consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
(IN MILLIONS)
<CAPTION>
POST-CONTRIBUTION PRE-CONTRIBUTION
CONSOLIDATED COMBINED
<S> <C> <C>
Materials and supplies.............................. $16 $16
Gas in storage...................................... 9 25
--- ---
$25 $41
=== ===
</TABLE>
Materials and supplies and gas in storage are valued at the lower of cost
or market, with cost determined using the average cost method.
7. RECENT PRONOUNCEMENTS
Pensions and Other Postretirement Benefits Disclosures
In February 1998, SFAS No. 132, Employer's Disclosures about Pensions and
Other Postretirement Benefits, was issued by the Financial Accounting Standards
Board to standardize related disclosure requirements. SFAS No. 132 requires that
additional information be disclosed regarding changes in the benefit obligation
and fair values of plan assets, and eliminates certain disclosures no longer
considered useful, including general descriptions of the plans. Aggregation of
information about certain plans is also permitted. This statement does not
change the requirements for the measurement and recognition of those plans. It
is effective for fiscal years beginning after December 15, 1997. The Company is
currently evaluating the effects of this pronouncement.
9
<PAGE> 12
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This statement provides guidance for
accounting of such costs, and also defines internal-use computer software. It is
effective for fiscal years beginning after December 15, 1998. The Company is
currently evaluating the effects of this pronouncement.
Reporting on the Costs of Start-Up Activities
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities. The statement defines start-up activities and requires start-up and
organization costs to be expensed as incurred. It is effective for fiscal years
beginning after December 15, 1998. The Company is currently evaluating the
effects of this pronouncement.
10
<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, 7A, and 8, in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, in
addition to the interim condensed consolidated and combined financial statements
and accompanying notes presented in Item 1 of this Form 10-Q.
CHANGE IN REPORTING ENTITY
In March 1998, El Paso Management Company, a subsidiary of EPG and the
parent of EPTPC, exchanged all the common stock of EPMSC for approximately
934,000 shares of Series C Preferred Stock of EPTPC for a total value of $47
million. EPTPC, in turn, contributed the common stock of EPMSC to TGP. This
contribution resulted in a change in reporting entity as defined in Accounting
Principles Board Opinion No. 20, Accounting Changes, requiring a restatement in
order to show financial information for the new reporting entity for all periods
presented. The management's discussion and analysis of financial condition and
results of operations below is based on restated information for the new
reporting entity.
RESULTS OF OPERATIONS
GENERAL
The Company has elected to adopt the standards outlined in SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information, effective
January 1, 1998. The adoption of SFAS No. 131 did not cause the Company's
aggregation of business activities into segments to change from previously
reported periods. Operating revenues by segment include intersegment sales which
are eliminated in consolidation. For a further discussion of the individual
segments, see Note 3 of Item 1, Financial Statements.
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
SEGMENT RESULTS
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED
MARCH 31,
--------------
1998 1997
---- ----
(IN MILLIONS)
PRE-CONTRIBUTION
COMBINED
--------------
<S> <C> <C>
OPERATING INCOME
Regulated................................................... $ 94 $ 80
Non Regulated............................................... (7) (24)
---- ----
Total operating income............................ $ 87 $ 56
==== ====
</TABLE>
Operating income for the quarter ended March 31, 1998, was $31 million
higher than for the same period of 1997 as discussed below.
11
<PAGE> 14
Regulated Operations
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED MARCH 31,
---------------
1998 1997
----- -----
<S> <C> <C>
(IN MILLIONS)
<CAPTION>
PRE-CONTRIBUTION
COMBINED
<S> <C> <C>
Operating revenues.......................................... $ 212 $ 215
Operating expenses.......................................... (118) (135)
----- -----
Operating income.......................................... $ 94 $ 80
===== =====
</TABLE>
Operating revenues for the quarter ended March 31, 1998 were $3 million
lower than for the same period of 1997 primarily because of lower transportation
volumes resulting from warmer average temperatures in the northeastern and
midwestern markets.
Operating expenses for the quarter ended March 31, 1998 were $17 million
lower than for the same period of 1997 primarily due to lower fuel costs
associated with the change in throughput attributable to warmer average
temperatures in the northeast and midwest in the first quarter of 1998. Also
contributing to the decrease in operating expenses were lower labor costs,
benefit costs, and payroll taxes which resulted from the reduction in staffing
levels which occurred during the first quarter of 1997. Depreciation expense was
also lower in the first quarter of 1998 due to the finalization of the
adjustments to the purchase price amount allocated to property, plant and
equipment based on the completion of an independent asset appraisal in the
fourth quarter of 1997.
Non-Regulated Operations
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED MARCH 31,
----------------
1998 1997
----- -----
(IN MILLIONS)
PRE-CONTRIBUTION
COMBINED
<S> <C> <C>
Gathering and treating margin............................... $ 3 $ 2
Processing margin........................................... 1 3
Natural gas and petroleum marketing margin.................. 6 (5)
Power margin................................................ 7 --
--- ----
Total gross margin................................ 17 --
Other revenues.............................................. 15 --
Operating expenses.......................................... 39 24
--- ----
Operating loss.............................................. $(7) $(24)
=== ====
</TABLE>
Total gross margin (revenue less cost of sales) for the quarter ended March
31, 1998 was $17 million higher than for the same period of 1997. The increase
is primarily due to the income recognition from long-term natural gas and
electric power contracts closed during the quarter. The Company's energy
marketing operations have been negatively impacted by low natural gas and power
trading margins, which are expected to continue.
Other revenues for the quarter ended March 31, 1998, were $15 million
higher than for the same period of 1997. The increase was due primarily to the
acquisition of a controlling interest in the EMA Power project in June 1997.
12
<PAGE> 15
Operating expenses for the quarter ended March 31, 1998, were $15 million
higher than for the same period of 1997 primarily due to costs related to the
EMA Power project, increased costs associated with the Company's marketing
activities, and higher international project development costs.
OTHER INCOME AND EXPENSE
Other expense for the quarter ended March 31, 1998, was $22 million higher
than for the same period of 1997. The increase was due primarily to the increase
in average debt outstanding during the first quarter of 1998 as a result of the
March 1997 issuance of long-term debt of approximately $883 million.
13
<PAGE> 16
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Where any such forward-looking
statement includes a statement of the assumptions or bases underlying such
forward-looking statement, the Company cautions that, while such assumptions or
bases are believed to be reasonable and are made in good faith, assumed facts or
bases almost always vary from the actual results, and the differences between
assumed facts or bases and actual results can be material, depending upon the
circumstances. Where, in any forward-looking statement, the Company or its
management expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions may
identify forward-looking statements.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements herein include increasing competition
within the Company's industry, the timing and extent of changes in commodity
prices for natural gas and power, uncertainties associated with acquisitions and
joint ventures, potential environmental liabilities, potential contingent
liabilities and tax liabilities related to acquisitions, including EPG's
acquisition of the Company, political and economic risks associated with current
and future operations in foreign countries, conditions of the equity and other
capital markets during the periods covered by the forward-looking statements,
and other risks, uncertainties and factors discussed more completely in the
Company's other filings with the Securities and Exchange Commission, including
its Annual Report on Form 10-K for the year ended December 31, 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
14
<PAGE> 17
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Financial Information, Note 4, which is incorporated herein by
reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Each exhibit identified below is filed as a part of this report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.B -- By-laws of TGP, as amended March 1, 1998.
27 -- Financial Data Schedule.
</TABLE>
Undertaking
The undersigned, TGP, hereby undertakes, pursuant to Regulation S-K,
Item 601(b), paragraph (4)(iii), to furnish to the Securities and Exchange
Commission upon request all constituent instruments defining the rights of
holders of long-term debt of TGP and its consolidated subsidiaries not
filed herewith for the reason that the total amount of securities
authorized under any of such instruments does not exceed 10 percent of the
total consolidated assets of TGP and its consolidated subsidiaries.
b. Reports on Form 8-K
None
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TENNESSEE GAS PIPELINE COMPANY
Date: May 15, 1998 /s/ H. BRENT AUSTIN
------------------------------------
H. Brent Austin
Executive Vice President
Date: May 15, 1998 /s/ JEFFREY I. BEASON
------------------------------------
Jeffrey I. Beason
Vice President and Controller
(Chief Accounting Officer)
16
<PAGE> 1
EXHIBIT 3.B
TENNESSEE GAS PIPELINE COMPANY
(A DELAWARE CORPORATION)
BY-LAWS
Adopted March 1, 1998
<PAGE> 2
BY-LAWS
OF
TENNESSEE GAS PIPELINE COMPANY
ARTICLE I
OFFICES
SECTION 1.1. REGISTERED OFFICE AND AGENT. The registered office of the
corporation is located at Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle, State of Delaware, and the name of its
registered agent at such address is The Corporation Trust Company.
SECTION 1.2. OTHER OFFICES. The corporation may have offices at such other
places both within and without the State of Delaware as the Board of Directors
(the "Board") may from time to time determine or the business of the corporation
may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETINGS. The annual meeting of the stockholders shall
be held for the election of directors on the second Tuesday in June of each
year, if such day be not a legal holiday, in the state where such meeting is to
be held, or, if a legal holiday, then at the same time on such next succeeding
business day at the principal office of the Corporation in the State of Delaware
or at such other date, time or place either within or without the State of
Delaware as may be designated by the Board of Directors from time to time. Any
other proper business may be transacted at the annual meeting.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of stockholders, to be
held at the principal office of the Corporation in the State of Delaware or at
such other place within or without the State of Delaware and at such date and
time as may be stated in the notice of the meeting, and for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the Board of
Directors, the Chairman of the Board, or the President, and shall be called by
the Chairman of the Board, the President or the Secretary at the request in
writing of stockholders owning a majority of the issued and outstanding shares
of capital stock of the Corporation of the class or classes which would be
entitled to vote on the matter or matters
<PAGE> 3
proposed to be acted upon at such special meeting of stockholders. Any such
request shall state the purpose or purposes of the proposed meeting.
SECTION 2.3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation.
SECTION 2.4. ADJOURNMENTS. Any meeting of stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 2.5. QUORUM. At any meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum. For purposes of the foregoing, two or more classes or
series of stock shall be considered a single class if the holders thereof are
entitled to vote together as a single class at the meeting. In the absence of a
quorum the stockholders so present may, by majority vote, adjourn the meeting
from time to time in the manner provided by Section 2.4 of these by-laws until a
quorum shall attend. Shares of its own capital stock belonging on the record
date for the meeting to the Corporation or to another corporation, if a majority
of the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
SECTION 2.6. ORGANIZATION. Meetings of stockholders shall be presided over
by the Chairman of the Board, or in his absence, by the President, any Executive
Vice President, Senior Vice President or Vice President, or in the absence of
the foregoing persons by a chairman designated by the Board of Directors, or in
the absence of such designation by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his absence the
presiding chairman of the meeting may appoint any person to act as secretary of
the meeting.
-2-
<PAGE> 4
SECTION 2.7. VOTING; PROXIES. Unless otherwise provided in the certificate
of incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by him
which has voting power upon the matter in question. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. The vote for directors and,
upon the demand of any stockholder, the vote upon any question before the
meeting shall be by written ballot. All elections shall be had and all questions
decided, unless otherwise provided by law, the certificate of incorporation or
these by-laws, by a plurality vote.
SECTION 2.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
nor less than ten days before the date of such meeting, nor more than sixty days
prior to any other action. If no record date is fixed: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board is necessary, shall
be on the day on which the first written consent is expressed; and (3) the
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
SECTION 2.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place
-3-
<PAGE> 5
shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. POWERS; NUMBERS; QUALIFICATIONS. The business, affairs,
operations and property of the Corporation shall be managed by or under the
direction of the Board of Directors, except as may be otherwise provided by law
or in the certificate of incorporation. The number of directors constituting the
entire Board shall be not less than one. The number of directors shall be as
determined from time to time by resolution of the Board of Directors or by the
stockholders at the Annual Meeting. Directors need not be stockholders.
SECTION 3.2. ELECTION; TERM OF OFFICE; RESIGNATION; VACANCIES. Each
director shall hold office until the annual meeting of stockholders next
succeeding his election and until his successor is elected and qualified or
until his earlier resignation or removal. Any director may resign at any time
upon written notice to the Board of Directors, to the Chairman of the Board, to
the President or to the Secretary of the Corporation. Such resignation shall
take effect at the time specified therein, and unless otherwise specified
therein no acceptance of such resignation shall be necessary to make it
effective. Unless otherwise provided in the certificate of incorporation or
these by-laws, vacancies and newly created directorships resulting from any
increase in the authorized number of directors or from any other cause may be
filled by a majority of the directors then in office, although less than a
quorum.
SECTION 3.3. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
times as the Board may from time to time determine, and if so determined notice
thereof need not be given.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the Chairman of the Board, the President or by any two
directors. Reasonable notice thereof shall be given by the person or persons
calling the meeting.
SECTION 3.5. TELEPHONIC MEETINGS PERMITTED. Unless otherwise restricted by
the certificate of incorporation or these by-laws, members of the Board of
Directors, or any committee designated by the Board, may participate in a
meeting of the Board or of such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this by-law shall constitute presence in person at such
meeting.
-4-
<PAGE> 6
SECTION 3.6. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the
Board of Directors, directors constituting a majority of the entire Board shall
constitute a quorum for the transaction of business. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board unless the certificate of incorporation or these by-laws shall
require a vote of a greater number; provided, however, that whenever any meeting
of the Board shall be held outside of the United States of America, no action
taken at such meeting shall be effective unless concurred in by a majority of
the entire Board. In case at any meeting of the Board a quorum shall not be
present, the members of the Board present may adjourn the meeting from time to
time until a quorum shall attend.
SECTION 3.7. ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his absence, by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the presiding chairman of the meeting may appoint any person to
act as secretary of the meeting.
SECTION 3.8. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
SECTION 3.9. ADVISORY DIRECTORS. The Board of Directors may, from time to
time, elect one or more Advisory Directors, each of whom shall serve until the
first meeting of the Board next following the Annual Meeting of Stockholders or
until his earlier resignation or removal by the Board. Advisory Directors shall
serve as advisors and consultants to the Board of Directors, shall be invited to
attend all meetings of the Board and may participate in all discussions
occurring during such meetings. Advisory Directors shall not be privileged to
vote on matters brought before the Board and shall not be counted for the
purpose of determining whether a quorum of the Board is present.
ARTICLE IV
COMMITTEES
SECTION 4.1. COMMITTEES OF THE BOARD. The Board of Directors may, by
resolution passed by a majority of the entire Board, designate one or more
committees, each committee to consist of one or more of the directors. The Board
may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
Vacancies in any such committee shall be filled by the Board, but in the absence
or disqualification of a member of such committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation,
-5-
<PAGE> 7
and may authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have power or authority in reference
to amending the certificate of incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation), adopting an agreement of merger or consolidation under Sections
251 or 252 of the Delaware General Corporation Law, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of dissolution, or amending these
by-laws, and, unless the resolution or the certificate of incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law.
SECTION 4.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects such committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these by-laws.
ARTICLE V
OFFICERS
SECTION 5.1. OFFICERS; GENERAL PROVISIONS. The officers of the Corporation
shall consist of such of the following as the Board of Directors may from time
to time elect: a Chairman of the Board, a President, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Secretary, a Treasurer and a Controller. The Chairman of the Board shall be
chosen from among the directors. The Board may also elect one or more Assistant
Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant
Controllers, and such other officers with such titles and powers and/or duties
as the Board shall from time to time determine. Officers may be designated for
particular areas of responsibility and simultaneously serve as officers of
subsidiaries or divisions. The foregoing officers shall be elected as soon as
practicable after the annual meeting of stockholders in each year to hold office
until the first meeting of the Board after the annual meeting of stockholders
next succeeding his election, and until his successor is elected and qualified
or until his earlier resignation or removal. Any officer so elected may resign
at any time upon written notice to the Board, the Chairman of the Board, the
President or the Secretary. Such resignation shall take effect at the time
specified therein, and unless
-6-
<PAGE> 8
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective. Any officer may be removed, with or without cause, by vote
of a majority of the entire Board of Directors at a meeting called for that
purpose. Any such removal shall be without prejudice to the contractual rights
of such officer, if any, with the Corporation, but the election or appointment
of any officer shall not of itself create contractual rights. Any number of
offices may be held by the same person. Any vacancy occurring in any office by
death, resignation, removal or otherwise may be filled for the unexpired portion
of the term by the Board at any regular or special meeting.
SECTION 5.2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, when
present, preside at all meetings of the stockholders and the Board; have
authority to call special meetings of the stockholders and of the Board; have
authority to sign and acknowledge in the name and on behalf of the corporation
all stock certificates, contracts or other documents and instruments except
where the signing thereof shall be expressly delegated to some other officer or
agent by the Board or required by law to be otherwise signed or executed and,
unless otherwise provided by law or by the Board may authorize any officer,
employee or agent of the corporation to sign, execute and acknowledge in his
place and stead all such documents and instruments; he shall fix the
compensation of officers of the corporation, other than his own compensation,
and the compensation of officers of its principal operating subsidiaries
reporting directly to him unless such authority is otherwise reserved to the
Board or a committee thereof; and he shall approve proposed employee
compensation and benefit plans of subsidiary companies not involving the
issuance or purchase of capital stock of the corporation. He shall have the
power to appoint and remove any Vice President, Controller, General Counsel,
Secretary or Treasurer of the corporation. He shall also have the power to
appoint and remove such associate or assistant officers of the corporation with
such titles and duties as he may from time to time deem necessary or
appropriate. He shall have such other powers and perform such other duties as
from time to time may be assigned to him by the Board or the Executive
Committee.
SECTION 5.3. PRESIDENT. The President shall have general control of the
business, affairs, operations and property of the Corporation, subject to the
Chairman of the Board and the Board of Directors. He may sign or execute, in the
name of the Corporation, all deeds, mortgages, bonds, contracts or other
undertakings or instruments, except in cases where the signing or execution
thereof shall have been expressly delegated by the Chairman of the Board or the
Board to some other officer or agent of the Corporation. He shall have and may
exercise such powers and perform such duties as may be provided by law or as are
incident to the office of President of a corporation and such other duties as
are assigned by these by-laws and as may from time to time be assigned by the
Chairman of the Board or the Board.
SECTION 5.4. VICE PRESIDENTS. Each Executive Vice President, Senior Vice
President, Vice President and Assistant Vice President shall have such powers
and perform such duties as may be provided by law or as may from time to time be
assigned to him, either generally or in specific instances, by the Board of
Directors, the Chairman of the Board or the President.
-7-
<PAGE> 9
Any Executive Vice President or Senior Vice President may perform any of
the duties or exercise any of the powers of the Chairman of the Board or the
President at the request of, or in the absence or disability of, the Chairman of
the Board or the President or otherwise as occasion may require in the
administration of the business and affairs of the Corporation.
Each Executive Vice President, Senior Vice President, Vice President and
Assistant Vice President shall have authority to sign or execute all deeds,
mortgages, bonds, contracts or other instruments on behalf of the Corporation,
except in cases where the signing or execution thereof shall have been expressly
delegated by the Board of Directors or these by-laws to some other officer or
agent of the Corporation.
SECTION 5.5. SECRETARY. The Secretary shall keep the minutes of meetings
of the stockholders and of the Board of Directors in books provided for the
purpose; he shall see that all notices are duly given in accordance with the
provisions of these by-laws, or as required by law; he shall be custodian of the
records and of the corporate seal or seals of the Corporation; he shall see that
the corporate seal is affixed to all documents requiring same, the execution of
which, on behalf of the Corporation, under its seal, is duly authorized, and
when said seal is so affixed he may attest same; and, in general, he shall
perform all duties incident to the office of the secretary of a corporation, and
such other duties as from time to time may be assigned to him by the Board, the
Chairman of the Board or the President or as may be provided by law. Any
Assistant Secretary may perform any of the duties or exercise any of the powers
of the Secretary at the request of, or in the absence or disability of, the
Secretary or otherwise as occasion may require in the administration of the
business and affairs of the Corporation.
SECTION 5.6. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositaries as shall, from time to time, be selected by or under
authority of the Board of Directors; if required by the Board, he shall give a
bond for the faithful discharge of his duties, with such surety or sureties as
the Board may determine; he shall keep or cause to be kept full and accurate
records of all receipts and disbursements in books of the Corporation and shall
render to the Chairman of the Board, the President and the Board, whenever
requested, an account of the financial condition of the Corporation; and, in
general, he shall perform all the duties incident to the office of treasurer of
a corporation, and such other duties as may be assigned to him by the Board, the
Chairman of the Board or the President or as may be provided by law.
SECTION 5.7. CONTROLLER. The Controller shall be the chief accounting
officer of the Corporation. He shall keep full and accurate accounts of the
assets, liabilities, commitments, receipts, disbursements and other financial
transactions of the Corporation; shall cause regular audits of the books and
records of account of the Corporation and supervise the preparation of the
Corporation's financial statements; and, in general, he shall perform the duties
incident to the office of controller of a corporation and such other duties as
may be assigned to him by the Board, the Chairman of the Board or the President
or as may be provided by law. If no Controller is elected by the Board of
Directors, the Treasurer shall perform the duties of the office of controller.
-8-
<PAGE> 10
ARTICLE VI
STOCK
SECTION 6.1. CERTIFICATES. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board, the President or by any Executive Vice President,
Senior Vice President or Vice President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation. Any or all the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
SECTION 6.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES. The Corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall end
on the thirty-first day of December in each year, or on such other day as may
be fixed from time to time by the Board of Directors.
SECTION 7.2. SEAL. The Corporation may have a corporate seal which shall
have inscribed thereon the name of the Corporation, the year of its organization
and the words "Corporate Seal, Delaware." The corporate seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
SECTION 7.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of
-9-
<PAGE> 11
directors need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these by-laws.
SECTION 7.4. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. The
Corporation shall indemnify to the full extent authorized by law any person made
or threatened to be made a party to any action, suit or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate, is or was a director, officer or employee of the
Corporation or any predecessor of the Corporation or serves or served any other
enterprise as a director, officer or employee at the request of the Corporation
or any predecessor of the Corporation. In the event that the Board of Directors
or stockholders refuse or fail to provide indemnity, a person may seek indemnity
from the Corporation in court and have the court substitute its judgment as to
the propriety of indemnity, or determine such propriety in the absence of any
determination thereof by the Board or by stockholders.
SECTION 7.5. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board or the committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board or of a committee which authorizes the contract
or transaction.
SECTION 7.6. FORM OF RECORDS. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of account
and minute books, may be kept on or be in the form of, punch cards, magnetic
tape, photographs, microphotographs or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time. The Corporation shall so convert any records so kept
upon the request of any person entitled to inspect the same.
SECTION 7.7. AMENDMENT OF BY-LAWS. These by-laws may be altered or
repealed, and new by-laws made, by the affirmative vote of a majority of the
entire Board of Directors, but the stockholders may make additional by-laws and
may alter or repeal any by-laws whether or not adopted by them.
-10-
<PAGE> 12
SECTION 7.8. GENDER REFERENCES. All references and uses herein of the
masculine pronouns "he" or "his" shall have equal applicability to and shall
also mean their feminine counterpart pronouns, such as "she" or "her."
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 992
<ALLOWANCES> 0<F1>
<INVENTORY> 25
<CURRENT-ASSETS> 1,437
<PP&E> 4,773
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 6,619
<CURRENT-LIABILITIES> 1,747
<BONDS> 977
0
0
<COMMON> 0
<OTHER-SE> 1,910
<TOTAL-LIABILITY-AND-EQUITY> 6,619
<SALES> 0
<TOTAL-REVENUES> 1,455
<CGS> 0
<TOTAL-COSTS> 1,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 69
<INCOME-TAX> 23
<INCOME-CONTINUING> 46
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NOT SEPARATELY IDENTIFIED IN THE CONSOLIDATED FINANCIAL STATEMENTS OR
ACCOMPANYING NOTES THERETO.
</FN>
</TABLE>
