<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
______________
Date of Report: March 3, 1995
Date of Earliest Event Reported: March 3, 1995
PANHANDLE EASTERN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation)
1-8157
(Commission File
Number)
74-2150460
(I.R.S. Employer
Identification Number)
5400 Westheimer Court
P.O. Box 1642
Houston, Texas 77251-1642
(Address, including zip code, of principal executive office)
______________
Registrant's telephone number, including area code:
(713) 627-5400
<PAGE> 2
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
23 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule for December 31, 1994.
27.2 Restated Financial Data Schedule for September 30, 1994.
99.1 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
99.2 Independent Auditors' Report -- KPMG Peat Marwick LLP.
99.3 Audited Consolidated Balance Sheet of Panhandle Eastern Corporation
as of December 31, 1994 and 1993 and Consolidated Statements of
Income, Common Stockholders' Equity and Cash Flows for each of the
years in the three year period ended December 31, 1994, and Notes
to Consolidated Financial Statements.
99.4 Consolidated Quarterly Financial Data.
99.5 Summary of Selected Consolidated Financial and Operating Data.
<PAGE> 3
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.
PANHANDLE EASTERN CORPORATION
/s/ PAUL F. FERGUSON, JR.
By: _________________________________
Paul F. Ferguson, Jr.
Vice President, Finance &
Accounting, and Treasurer
Date: March 3, 1995
3
<PAGE> 4
Exhibit List
23 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule for December 31, 1994.
27.2 Restated Financial Data Schedule for September 30, 1994.
99.1 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
99.2 Independent Auditors' Report -- KPMG Peat Marwick LLP.
99.3 Audited Consolidated Balance Sheet of Panhandle Eastern Corporation
as of December 31, 1994 and 1993 and Consolidated Statements of
Income, Common Stockholders' Equity and Cash Flows for each of the
years in the three year period ended December 31, 1994, and Notes
to Consolidated Financial Statements.
99.4 Consolidated Quarterly Financial Data.
99.5 Summary of Selected Consolidated Financial and Operating Data.
<PAGE> 1
EXHIBIT 23
The Board of Directors
Panhandle Eastern Corporation:
We consent to incorporation by reference in the Registration Statements
listed below of Panhandle Eastern Corporation of our report dated January 17,
1995, relating to the consolidated balance sheet of Panhandle Eastern
Corporation and Subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, common stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1994, which
report is included herein. Such report refers to changes in the Company's
methods of accounting for postretirement benefits other than pensions and
postemployment benefits.
1. Form S-8 Registration Statements for the following:
(A) 1989 Nonemployee Directors Stock Option Plan (No. 33-28912)
(B) 1977 Non-Qualified Stock Option Plan (No. 2-61225)
(C) 1982 Key Employee Stock Option Plan (No. 2-79180)
(D) Special Recognition Bonus Plan (No. 33-35253)
(E) 1990 Long Term Incentive Plan (No. 33-35251)
(F) Employees' Savings Plan (No. 33-36698)
(G) Employees' Savings Plan (No. 33-41079)
(H) 1994 Long Term Incentive Plan (No. 33-55119)
2. Form S-3 Registration Statements for the following:
(A) Dividend Reinvestment and Stock Purchase Plan (No. 33-28914)
(B) Debt Securities (No. 33-56337)
KPMG PEAT MARWICK LLP
Houston, Texas
March 3, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 1994
Annual Report to Stockholders' of Panhandle Eastern Corporation and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000351696
<NAME> PANHANDLE EASTERN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 33,300
<SECURITIES> 0
<RECEIVABLES> 368,600
<ALLOWANCES> 0
<INVENTORY> 124,100
<CURRENT-ASSETS> 811,200
<PP&E> 8,039,900
<DEPRECIATION> 3,032,100
<TOTAL-ASSETS> 7,507,500
<CURRENT-LIABILITIES> 946,100
<BONDS> 2,363,700
<COMMON> 149,100
0
0
<OTHER-SE> 1,886,100
<TOTAL-LIABILITY-AND-EQUITY> 7,507,500
<SALES> 3,044,000
<TOTAL-REVENUES> 4,585,100
<CGS> 2,829,400
<TOTAL-COSTS> 3,382,700
<OTHER-EXPENSES> 336,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 245,000
<INCOME-PRETAX> 386,600
<INCOME-TAX> 161,400
<INCOME-CONTINUING> 225,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225,200
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information for the quarter
ended September 30, 1994, restated for the Associated merger, and is qualified
in its entirety.
</LEGEND>
<RESTATED>
<CIK> 0000351696
<NAME> PANHANDLE EASTERN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 110,800
<SECURITIES> 0
<RECEIVABLES> 383,800
<ALLOWANCES> 0
<INVENTORY> 125,400
<CURRENT-ASSETS> 952,900
<PP&E> 7,919,100
<DEPRECIATION> 2,973,800
<TOTAL-ASSETS> 7,558,600
<CURRENT-LIABILITIES> 1,232,700
<BONDS> 2,165,100
<COMMON> 149,000
0
0
<OTHER-SE> 1,855,200
<TOTAL-LIABILITY-AND-EQUITY> 7,558,600
<SALES> 2,272,400
<TOTAL-REVENUES> 3,416,700
<CGS> 2,111,900
<TOTAL-COSTS> 2,524,600
<OTHER-EXPENSES> 250,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 178,900
<INCOME-PRETAX> 291,800
<INCOME-TAX> 119,800
<INCOME-CONTINUING> 172,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,000
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
<PAGE> 1
EXHIBIT 99.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information is provided to facilitate increased
understanding of the 1994, 1993 and 1992 consolidated financial
statements and accompanying notes of Panhandle Eastern Corporation
(PEC) and subsidiaries (the Company). The discussion of the Company's
Operating Environment and Outlook addresses key trends and future
plans. Material period-to-period variances in the consolidated income
statement are discussed under Results of Operations. The Capital
Resources, Liquidity and Financial Position section analyzes cash
flows and financial position. Throughout these discussions, management
addresses items that are reasonably likely to materially affect future
liquidity or earnings.
OPERATING ENVIRONMENT AND OUTLOOK
1994 was the first full year of restructured services under FERC
(Federal Energy Regulatory Commission) Order 636 for the Company's
four interstate natural gas pipelines--Texas Eastern Transmission
Corporation (TETCO), Algonquin Gas Transmission Company (Algonquin),
Panhandle Eastern Pipe Line Company (PEPL) and Trunkline Gas Company
(Trunkline).
As a result of Order 636, all traditional pipeline sales
services ceased by the fourth quarter of 1994 when Trunkline's
unbundled sales contracts expired. In addition, the straight
fixed-variable (SFV) rate design required by Order 636 has resulted in
pipeline earnings generally being more evenly distributed throughout
the year. The Company's pipelines continue to offer selective
discounting to maximize revenues from existing capacity.
During the third quarter of 1994, TETCO implemented a
FERC-approved settlement that resolved regulatory issues related
primarily to Order 636 transition costs and a number of other issues
related to services prior to Order 636. This settlement and other
Order 636 transition issues are further discussed under Capital
Resources, Liquidity and Financial Position.
In December 1994, the Company merged with Associated Natural
Gas Corporation (Associated). Associated is engaged in the purchasing,
gathering, processing and intrastate transportation of natural gas,
natural gas liquids (NGLs) and crude oil, as well as the marketing of
those products to industrial end-users, local distribution companies,
liquid petroleum gas wholesalers, retailers and refiners. The merger
has been accounted for under the pooling of interests method of
accounting for a business combination and, accordingly, PEC's
consolidated financial statements have been restated to include the
accounts of Associated.
Under terms of the merger with Associated, the Company
exchanged 28.4 million shares of its common stock for 100% of
Associated's outstanding common stock. The Company expects minor
dilution to 1995 earnings per share as a result of the transaction.
The merger with Associated resulted from growth opportunities
created by the post-Order 636 environment, which were assisted during
the second quarter of 1994 when FERC announced it would not exercise
jurisdiction over natural gas gathering activities operated separately
from natural gas pipeline activities. Prior to this announcement,
regulated providers of natural gas gathering, processing, storage and
marketing services had been at a competitive disadvantage to service
providers not regulated by FERC.
(GRAPH)
The market and supply services segment generated 63% of the
Company's total consolidated revenues in 1994. This segment should
continue to contribute the majority of the Company's revenues as it
expands in the future.
The Company's expansion into market and supply services was
also enhanced by the purchases of the Winnie Pipeline and Spindletop
Storage facilities and of another southeast Texas pipeline segment
during 1994. The Company plans to further expand its infrastructure in
this region during 1995. Significant progress was also made during
1994 toward expanding the interstate natural gas pipeline network to
provide firm transportation service to new customers and toward
developing new services. See further discussion of capital
expenditures under Investing Cash Flow.
The changing environment resulting from the restructuring of
the natural gas industry has spurred some industry consolidations and
additional growth opportunities for the Company, particularly in the
market and supply services
1
<PAGE> 2
segment. The Company plans to pursue strategic opportunities that
emerge via joint ventures, major projects and acquisitions.
RESULTS OF OPERATIONS
The Company reported 1994 consolidated net income of $225.2 million,
or $1.51 per share. This compares with consolidated net income in
1993 of $171.6 million, or $1.21 per share, and $202 million, or $1.50
per share, in 1992.
The continued strong performance of the natural gas pipeline
segment and reduced interest expense helped the Company achieve a 31%
increase in net income in 1994 as compared to 1993.
OPERATING INCOME ANALYSIS
CONSOLIDATED OPERATING INCOME BY SEGMENT
<TABLE>
<CAPTION>
1994 1993 1992
Millions (as restated)(1) (as restated)(1)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gas Transmission
TETCO $264.8 $182.0(2) $277.8
Algonquin 65.9 56.0 47.9
PEPL 145.6 119.8 101.3
Trunkline 47.7 53.3 49.7(3)
Other 5.4 4.9 5.9
-----------------------------------------------
Total 529.4 416.0 482.6
-----------------------------------------------
Market and Supply Services
Field Services 61.1 62.3 50.4
Gas Services 13.7 10.9 9.0
-----------------------------------------------
Total 74.8 73.2 59.4
-----------------------------------------------
Parent and Other (18.9)(4) 2.6 106.5(3)
-----------------------------------------------
Total Operating Income $585.3 $491.8 $648.5
=========================================================================================
</TABLE>
(1) Restated to reflect the merger with Associated.
(2) Includes a $100 million charge reflecting TETCO's settlement
of Order 636 implementation and other issues.
(3) Includes earnings for the liquefied natural gas (LNG) project
settlement of $88.6 million ($19.9 million-Trunkline, $68.7
million-LNG project).
(4) Includes nonrecurring merger costs of $16.2 million.
Although the rate of inflation in the United States has been
relatively low in 1994 and recent years, its potential impact should
be considered when analyzing historical financial information. Under
the ratemaking process applicable to regulated portions of the
Company's business, recovery of plant costs through depreciation and
the allowed return on plant investment is limited to historical cost,
which is significantly less than current replacement cost.
NATURAL GAS TRANSMISSION
Operating income from the natural gas transmission segment totaled
$529.4 million in 1994, representing a $113.4 million increase from
1993's operating income, which was $66.6 million lower than 1992
results.
The natural gas transmission segment has experienced declining
revenue over the last three years due to the elimination of merchant
services, resulting in an 86% decrease in gross sales revenue and a
related reduction in cost of natural gas sold. This revenue reduction
has been partially offset by increases in revenues from transportation
and storage services, as well as reduced expenses for gas purchases
and other sales-related costs.
(GRAPH)
TETCO, Algonquin, PEPL and Trunkline are subject to the
accounting requirements of Statement of Financial Accounting Standards
No. 71, "Accounting for the Effects of Certain Types of Regulation."
Accordingly, certain costs have been deferred as regulatory assets for
amounts recoverable from customers, including costs related to
environmental matters, Order 636 transition, take-or-pay, certain
employee benefits and early retirement of debt.
TEXAS EASTERN TRANSMISSION CORPORATION
<TABLE>
<CAPTION>
$ Millions 1994 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transportation Revenue $719.2 $574.3 $391.2
---------------------------------------------
Sales Revenue -- 225.8 559.8
Gas Purchased -- 96.2 214.5
---------------------------------------------
Net Sales Revenue -- 129.6 345.3
Storage and Other Revenue 107.5 105.5 132.5
---------------------------------------------
TOTAL NET REVENUES 826.7 809.4 869.0
Operating Expenses 420.8 486.6 455.1
Depreciation and Amortization 141.1 140.8 136.1
---------------------------------------------
OPERATING INCOME $264.8 $182.0 $277.8
--------------------------------------------------------------------------------------
VOLUMES (BCF)(1)
Market-area Transports 1,014 927 770
Sales -- 33 97
---------------------------------------------
Total Market Area 1,014 960 867
Supply-area Transports 141 118 154
---------------------------------------------
Total Deliveries 1,155 1,078 1,021
======================================================================================
</TABLE>
(1) Billion cubic feet
2
<PAGE> 3
Operating income for this pipeline increased $82.8 million in
1994 as compared with 1993. Operating income in 1993 included a charge
of $100 million for the FERC-approved settlement that resolved issues
related primarily to Order 636 transition costs and bundled merchant
services. This increase was partially offset by reduced interruptible
transportation revenues. During 1994, the percentage of TETCO's
throughput related to firm transportation contracts was 85%, versus
68% in 1993.
The $17.3 million increase in net revenues in 1994 compared
with 1993 was primarily attributable to transition cost recoveries,
net of the reduction in interruptible transportation revenues. These
transition cost recoveries were offset by related increases in
expenses in 1994.
TETCO's 1993 operating income increased $4.2 million as
compared with 1992, excluding the transition cost provision. This
increase resulted from revenues related to incremental projects which
were placed in service in late 1992.
ALGONQUIN GAS TRANSMISSION COMPANY
<TABLE>
<CAPTION>
$ Millions 1994 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transportation Revenue $132.0 $109.9 $ 80.5
---------------------------------------------
Sales Revenue -- 59.6 205.9
Gas Purchased -- 46.8 170.6
---------------------------------------------
Net Sales Revenue -- 12.8 35.3
Storage and Other Revenue 12.4 13.0 20.8
---------------------------------------------
TOTAL NET REVENUES 144.4 135.7 136.6
Operating Expenses 54.5 56.9 68.0
Depreciation and Amortization 24.0 22.8 20.7
---------------------------------------------
OPERATING INCOME $ 65.9 $ 56.0 $ 47.9
--------------------------------------------------------------------------------------
VOLUMES (BCF)
Market-area Transports 279 236 237
Sales -- 2 20
---------------------------------------------
Total Deliveries 279 238 257
======================================================================================
</TABLE>
Algonquin's 1994 operating income rose $9.9 million from 1993.
This increase reflected an $8.7 million rise in net revenues including
$8 million related to the settlement of a prior-year rate case and
certain other regulatory issues. Net revenues generated from new
incremental projects more than offset revenue declines related to
restructured services. During 1994, 88% of Algonquin's throughput was
related to firm contracts, compared with 55% in 1993.
Algonquin's operating income increased $8.1 million, or 17%,
comparing 1993 with 1992. The increase was primarily a result of
higher transportation revenues related to incremental market projects
and increased demand revenue.
PANHANDLE EASTERN PIPE LINE COMPANY
<TABLE>
<CAPTION>
$ Millions 1994 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transportation Revenue $315.3 $276.8 $252.8
---------------------------------------------
Sales Revenue -- 98.7 273.7
Gas Purchased -- 42.7 172.8
---------------------------------------------
Net Sales Revenue -- 56.0 100.9
Storage and Other Revenue 72.5 54.9 15.1
---------------------------------------------
TOTAL NET REVENUES 387.8 387.7 368.8
Operating Expenses 215.4 237.4 228.5
Depreciation and Amortization 26.8 30.5 39.0
---------------------------------------------
OPERATING INCOME $145.6 $119.8 $101.3
--------------------------------------------------------------------------------------
VOLUMES (BCF)
Market-area Transports 579 538 584
Sales -- 22 62
---------------------------------------------
Total Market Area 579 560 646
Supply-area Transports 41 43 60
---------------------------------------------
Total Deliveries 620 603 706
======================================================================================
</TABLE>
PEPL's 1994 operating income increased $25.8 million over
1993, reflecting increased firm transportation contracts (including
several new long-term contracts), the partial resolution of several
prior-year regulatory and gas supply issues, as well as reduced
expenses. These improvements were partially offset by the impact of
the elimination of seasonal rates effective May 1, 1993.
Contributing to the transportation revenue increase in 1994 as
compared with 1993 was $21.1 million related to the partial resolution
of two prior-year regulatory proceedings. Operating expenses decreased
primarily as a result of cost containment efforts and the 1994
reversal of $13.4 million of provisions established for regulatory and
gas supply matters that were partially resolved.
PEPL's operating income increased $37.3 million comparing 1993
with 1992, excluding an $18.8 million benefit in 1992 for the
settlement of a prior-year regulatory proceeding. This increase
primarily resulted from rate changes in May 1993 which generated
higher revenues during the summer season. The sale of the Wattenberg
system in the first quarter of 1993 resulted in a reduction in 1993
depreciation expense and throughput. In addition, 1992 throughput
included the sale of natural gas storage inventories in preparation
for implementation of Order 636.
3
<PAGE> 4
TRUNKLINE GAS COMPANY
<TABLE>
<CAPTION>
$ Millions 1994 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transportation Revenue $166.2 $138.7 $114.8
---------------------------------------------
Sales Revenue 177.9 293.4 318.8
Gas Purchased 177.9 238.6 211.8
---------------------------------------------
Net Sales Revenue -- 54.8 107.0
Storage and Other Revenue 9.9 10.0 34.7
---------------------------------------------
TOTAL NET REVENUES 176.1 203.5 256.5
Operating Expenses 106.8 128.5 175.6
Depreciation and Amortization 21.6 21.7 31.2
---------------------------------------------
OPERATING INCOME $ 47.7 $ 53.3 $ 49.7
--------------------------------------------------------------------------------------
VOLUMES (BCF)
Market-area Transports 434 389 351
Sales(*) -- 66 94
---------------------------------------------
Total Market Area 434 455 445
Supply-area Transports 97 147 136
---------------------------------------------
Total Deliveries 531 602 581
======================================================================================
</TABLE>
(*) Excludes 89 Bcf and 41 Bcf for 1994 and 1993, respectively, which
are reported as transports.
Operating income for Trunkline was $47.7 million in 1994. The
$5.6 million decrease compared with 1993 was primarily attributable to
reduced interruptible transportation revenues and volumes in the
supply area.
Trunkline's sales revenues have diminished as a result of the
expiration of its unbundled sales contracts on October 31, 1994, as
well as a $15.5 million rate settlement benefit recognized in 1993.
The effect of the rate settlement was partially offset by a $13
million charge related to a fixed-price gas sales contract which
expired in 1994. During 1993, the Company purchased natural gas
futures, options and swaps to mitigate the financial impact of its
unbundled sales contracts.
Trunkline's 1993 operating income rose $3.6 million as
compared with 1992. In November 1992, Trunkline implemented a new rate
structure that generated a 21% increase in 1993 transportation
revenues. This increase was partially offset by 1992 earnings related
to the liquefied natural gas (LNG) project settlement. As a result of
the settlement, 1992 revenues included earnings of $19.9 million and
1993 expenses decreased by $56.6 million.
MARKET AND SUPPLY SERVICES
Operating income for the market and supply services segment in 1994
was $74.8 million, representing 13% of consolidated operating income
for the year. Associated's operations, merged with the Company in
1994, more than doubled the operating income of the Company's market
and supply services segment in 1992, 1993 and 1994.
In addition to providing gathering, processing and storage
services, this segment also markets natural gas and petroleum
products. This marketing activity generates significant revenue
related to the cost of the product sold. The financial information in
the accompanying tables identifies the revenues, net of product costs,
related to both the field services and gas services operations.
(GRAPH)
RISK MANAGEMENT. The Company manages the risk associated with
market fluctuations in the price and transportation costs of natural
gas and petroleum products through commodity futures, swaps and
options. The Company's market exposure arises from inventory balances
and fixed-price purchase and sale commitments that extend for periods
of up to 24 months which are entered into to support the Company's
marketing and supply activities. The Company's general strategy is to
hedge fixed-price commitments with commodity futures, swaps and
options; however, net open positions can occur in the ordinary course
of business. In conjunction with the hedging activities, the Company
also engages in limited trading of such instruments. The Company
adheres to policies which limit its exposure to market risk from open
positions and monitors daily its exposure from open positions.
New York Mercantile Exchange (Exchange) traded futures and
option contracts are guaranteed by the Exchange and have nominal
credit risk. On all other transactions, the Company is exposed to
credit risk in the event of nonperformance by the counterparties. For
each counterparty, the Company analyzes the credit positions prior to
entering into an agreement and establishes credit limits.
4
<PAGE> 5
FIELD SERVICES
<TABLE>
<CAPTION>
$ Millions 1994 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $1,310.4 $1,129.6 $853.9
Products Purchased 1,111.6 953.0 704.2
---------------------------------------------
NET REVENUE 198.8 176.6 149.7
Operating Expenses 107.4 92.2 78.9
Depreciation and
Amortization 30.3 22.1 20.4
---------------------------------------------
OPERATING INCOME $ 61.1 $ 62.3 $ 50.4
--------------------------------------------------------------------------------------
VOLUMES
Natural Gas Gathered/
Processed (Bcf/d)(1) 1.6 1.4 1.2
Natural Gas Marketed (Bcf/d) 0.4 0.2 0.1
NGLs Production
(thousand barrels/day) 49 42 33
Helium Production (MMcf/d)(2) 1.9 1.8 1.5
Crude Oil and Natural Gas
Liquids Pipeline Volumes
(thousand barrels/day) 68 36 13
======================================================================================
</TABLE>
(1) Billion cubic feet per day
(2) Million cubic feet per day
Operating income for field services was down slightly in 1994
from 1993. Higher revenues from increased volumes and higher crude oil
margins were offset by higher depreciation expense resulting from
certain acquisitions. The rise in volumes related to a 14% growth in
natural gas gathered/processed, increased crude oil and NGL pipeline
volumes, and higher NGL production. NGL production in 1994 included a
full year of operations at the Oklahoma Hillsboro plant as well as
increases at the National Helium plant and the Weld County, Colorado
facility. These increases were partially offset by lower NGL prices in
1994 as compared with 1993.
Field services operating income increased from $50.4 million
in 1992 to $62.3 million in 1993, attributable to increases in natural
gas system supply, crude oil pipeline volumes, and NGL and helium
production. The 1993 acquisitions of the Oklahoma Osage and Glenpool
systems, and construction of the Hillsboro natural gas processing
plant, contributed to the increased volumes.
GAS SERVICES
<TABLE>
<CAPTION>
$ Millions 1994 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $1,644.3 $1,323.0 $798.5
Gas Purchased 1,587.3 1,275.3 745.1
-----------------------------------------------
NET REVENUE 57.0 47.7 53.4
Operating Expenses 40.3 34.2 41.7
Depreciation and
Amortization 3.0 2.6 2.7
-----------------------------------------------
OPERATING INCOME $ 13.7 $ 10.9 $ 9.0
--------------------------------------------------------------------------------------
Natural Gas Marketed (Bcf/d) 2.7 2.1 1.7
======================================================================================
</TABLE>
Operating income increased $2.8 million in 1994 from 1993 as
volumes aggregated and marketed rose 29%. The growth in volumes was
attributable to increased activity in the Midwest, as well as the
expanding operations of Associated's subsidiary, Grand Valley Gas
Company (Grand Valley), a natural gas marketing company with a
marketing emphasis in the western United States and Canada.
Operating income increased 21% from 1992 to 1993 as volumes
aggregated and marketed exceeded 2 Bcf/d in 1993.
OTHER
LNG PROJECT. Operating income for the LNG Project decreased $6.6
million in 1994 compared to 1993. This decrease was primarily the
result of lower LNG tanker charter revenues.
The LNG Project's operating income decreased $98.3 million in
1993 compared to 1992, primarily resulting from earnings attributable
to the LNG project settlement in 1992. As a result of this settlement,
one-time earnings of $68.7 million were recorded in 1992 and future
minimum bill revenue from Trunkline was eliminated effective in the
fourth quarter of 1992. In 1993, results benefited from the chartering
of the Company's second LNG tanker in the last quarter.
ELIMINATIONS. Included in the amounts outlined above are
intercompany transactions that do not impact consolidated operating
income.
OTHER INCOME AND DEDUCTIONS. The decrease of $34.9 million in
net other income in 1994 compared with 1993 was primarily the result
of a $48.2 million gain on the sale of a partial interest in Northern
Border Pipeline Company (Northern Border) in 1993 and resulting lower
equity in earnings from Northern Border in 1994. In addition, 1994
results include the write-off of costs expended on the Liberty
Pipeline Project. Partially offsetting the declines were $23 million
in higher earnings from National Methanol Company, reflecting higher
methanol margins during 1994.
The increase of $84.8 million in net other income in 1993
compared with 1992 was primarily the result of the $48.2 million gain
on the sale of a partial interest in Northern Border in 1993 and
nonrecurring charges in 1992 related to the sale or write-down of
certain assets. Also contributing to the increase were higher earnings
from investments in affiliates and interest income earned on the LNG
project settlement receivables prior to the sale of these receivables
in the second and third quarters of 1993.
5
<PAGE> 6
INTEREST EXPENSE. Consolidated interest expense decreased
$37.5 million in 1994 compared with 1993. This reduction reflected
the effects of lower interest rates and reduced average debt balances
outstanding between 1994 and 1993. Proceeds from the sale of assets
and common stock were used for the early retirement of four issues of
relatively high-interest debt in the last nine months of 1993. Also
contributing to the decrease was interest on customer refunds in 1993.
(GRAPH)
Consolidated interest expense decreased $42.2 million
comparing 1993 with 1992, excluding a $17.5 million benefit recognized
in 1992 related to the LNG project settlement. The decrease reflects
reduced interest and other expenses related to lower average debt
balances.
INCOME TAX. The effective tax rates for 1994, 1993 and 1992
differed from the statutory federal income tax rates primarily because
of the effect of state income taxes.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL POSITION
OPERATING CASH FLOW
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
Millions (as restated) (as restated)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Cash Flows Provided by
Operating Activities $448.0 $769.5 $147.6
----------------------------------------------------------------------------------------
</TABLE>
HISTORICAL ANALYSIS. After implementation of the SFV rate
design required by Order 636 and the resulting termination of seasonal
rates, historical first and fourth quarter seasonal variances in
financial results for natural gas transmission operations have
diminished. In addition to reduced seasonal variances, the SFV rate
design and the Order 636 environment have mitigated revenue
fluctuations such as those caused by interruptible transportation
service.
Operating cash flows decreased $321.5 million from 1993 to
1994. This decrease reflected the 1993 sales of inventory and $173.5
million of LNG project settlement receivables, along with net cash
outflows related to transition cost payments and recoveries. These
decreases were partially offset by lower interest costs in 1994.
The $621.9 million increase in operating cash flows from 1992
to 1993 primarily resulted from the 1993 sales of the LNG project
settlement receivables, sales of natural gas inventory and collections
of purchased gas costs. Also contributing to the increase were 1992
payments for a TETCO rate refund of $170 million.
ORDER 636 TRANSITION COSTS. With implementation of Order 636
and the resulting elimination of pipeline merchant services, the
Company's natural gas pipelines are incurring certain costs related to
transition, primarily TETCO's gas purchase contract commitments. At
December 31, 1994, the Company's gross commitments under gas purchase
contracts that do not contain market-sensitive pricing provisions were
approximately $160 million, $95 million, $70 million, $55 million and
$25 million for the years 1995 through 1999, respectively, with no
significant amounts thereafter. These estimates reflect significant
assumptions regarding deliverability and escalation clauses.
(GRAPH)
On August 1, 1994, TETCO implemented a FERC-approved
settlement that resolved regulatory issues related primarily to Order
636 transition costs and a number of other issues related to services
prior to Order 636. TETCO's final and nonappealable settlement
provides for the recovery of certain transition costs through
volumetric and reservation charges through the year 2002. Pursuant to
the settlement, TETCO will absorb a certain portion of the transition
costs, the amount of which is dependent upon natural gas prices and
deliverability levels. In December 1993, the Company established an
additional provision of $100 million ($60.2 million after tax) to
reflect the impact of the settlement. PEPL's and Trunkline's
transition cost recoveries, which are subject to certain challenges
pending before FERC, will occur over the next three years.
During the following two to three years, above-market gas
purchase contract payments by the pipelines are expected to exceed
transition cost collections from customers. Net cash receipts related
to transition costs are expected to occur in periods beyond 1996 or
1997. Cash requirements related to transition costs will be funded by
cash from operations and/or available credit facilities.
At December 31, 1994 and 1993, the Company's interstate
pipelines had recorded approximately $35 million and $300 million
(1994), and $25 million and $365 million (1993) of current and
long-term regulatory assets, respectively,
6
<PAGE> 7
representing transition costs incurred or estimated to be incurred
that will be recovered from customers. At December 31, 1994 and 1993,
the Company had recorded estimated current and long-term liabilities
related to Order 636 transition costs of approximately $125 million
and $105 million (1994), and $100 million and $290 million (1993),
respectively. In addition, the Company refunded $84 million in
December 1994 pursuant to certain provisions of TETCO's settlement.
The Company believes the exposure associated with gas purchase
contract commitments and the termination of the Company's pipeline
merchant services are substantially mitigated by transition cost
recovery pursuant to TETCO's settlement, Order 636 and other
mechanisms.
ENVIRONMENTAL MATTERS. TETCO is currently conducting PCB
(polychlorinated biphenyl) characterization (assessment) and cleanup
programs at certain of its compressor station sites under conditions
stipulated by a U.S. Consent Decree and agreements reached with
certain states. Work provided for by the Consent Decree and state
agency agreements is expected to continue until 2000. The cleanup
programs are not expected to interrupt or diminish TETCO's operational
ability to deliver natural gas to customers.
At December 31, 1994 and 1993, TETCO had recorded current and
long-term liabilities of $56.4 million and $289.1 million (1994) and
$93 million and $298.7 million (1993), respectively, for remaining
estimated cleanup costs. These cost estimates represent gross cleanup
costs expected to be incurred by TETCO, have not been reduced by
customer or insurance recoveries and do not include fines, penalties
or third-party claims. TETCO is recovering 57.5% of cleanup costs in
rates pursuant to a stipulation and agreement approved by FERC in
1992. At December 31, 1994 and 1993, TETCO had recorded current and
long-term regulatory assets of $18.6 million and $177.1 million (1994)
and $31.1 million and $196.3 million (1993), respectively,
representing costs to be recovered from customers.
In addition, the Company has identified environmental
contamination at up to 53 sites on the PEPL and Trunkline systems and
is undertaking remediation (cleanup) programs at these sites. The
contamination resulted from the past use of lubricants containing PCBs
and the prior use of wastewater collection facilities and other
on-site disposal areas. Soil and sediment testing, to date, has
detected no significant off-site contamination. The Company has
communicated with the Environmental Protection Agency (EPA) and
appropriate state regulatory agencies on these matters. The
environmental cleanup programs are expected to continue until 2002.
At December 31, 1994 and 1993, the Company had recorded
liabilities of $70 million and $33 million, respectively, relating to
PEPL and Trunkline PCB, wastewater and disposal area cleanup programs
and had recorded regulatory assets of $82.4 million and $33 million,
respectively, representing costs to be recovered from customers.
The Company believes it will be able to fund the TETCO, PEPL
and Trunkline PCB and other cleanup costs from customer recoveries and
other cash flows.
LITIGATION. In connection with a rupture and fire that
occurred on TETCO's 36-inch natural gas pipeline on March 23, 1994 in
Edison, New Jersey, numerous lawsuits have been filed against the
Company and other defendants in the Superior Court of New Jersey,
Middlesex County, on behalf of hundreds of individuals seeking
unspecified compensatory damages for personal injuries and property
losses, as well as punitive damages. Currently, the parties are
engaged in the discovery process. The Company has also been contacted
by attorneys claiming to represent hundreds of additional individuals
with unspecified claims against the Company. In addition, Quality
Materials, Inc., the owner of the asphalt plant located at the site of
the rupture, has filed suit in the U.S. District Court for the
District of New Jersey against TETCO seeking to recover unspecified
property damages, lost income and punitive damages. TETCO has filed a
counterclaim against Quality Materials, Inc.
The findings of an investigation of the incident by the
Company and the National Transportation Safety Board (NTSB) indicate
third-party damage to be the cause of the rupture. Additionally, an
NTSB report found that TETCO's pipeline operations met or exceeded
federal safety regulations. The Company recorded a $5 million
after-tax charge in 1994 for costs related to this incident that are
not recoverable under the Company's insurance policies.
OTHER MATTERS. The U.S. Department of the Interior has
announced its intention to seek additional royalties from gas
producers as a result of payments received by such producers in
connection with past take-or-pay settlements, and buyouts and
buydowns of gas sales contracts with natural gas pipelines. The
Company's pipelines, with respect to certain producer contract
settlements, may be contractually required to reimburse or, in some
instances, to indemnify producers against such royalty claims. If the
Company's pipelines ultimately have to reimburse or indemnify the
producers, the potential exists for some recovery from pipeline
customers. The potential liability of the producers to the government
and of the pipelines to the producers involves complex issues of law
and fact which are likely to take a substantial period of time to
resolve.
7
<PAGE> 8
In connection with the sale of Petrolane Incorporated
(Petrolane) in 1989, Texas Eastern Corporation (TEC), a subsidiary of
PEC, agreed to indemnify Petrolane against certain liabilities.
Petrolane was named in a suit filed by the city of Fresno, California
(the City) seeking contribution from 22 parties for characterization
and remediation costs related to the Fresno Sanitary Landfill (the
Landfill). The City, under a mandate from the EPA, is obligated to
characterize and remediate environmental contamination at the
Landfill, which is on the National Priorities List. One of Petrolane's
former subsidiaries is alleged to have disposed of hazardous
substances at the Landfill. Since characterization of the Landfill has
not been completed, the Company is unable at this time to estimate its
share of cleanup costs or the timing of such costs.
The Company fully utilized its federal income tax net
operating loss carryforward in 1993. The Company expects to generate
sufficient future taxable income from operations to fully utilize
deferred tax assets, net of valuation allowance, including the
investment tax credit (ITC) carryforward. However, if needed, the
Company could implement tax-planning strategies to accelerate
approximately $140 million of taxable income prior to expiration of
the ITC. The ITC accumulated as of December 31, 1994, which is
expected to be fully utilized, will expire as follows: 1996-$9.3
million; 1997-$46.8 million; thereafter-$15.6 million.
The consolidated balance sheet includes in-kind balances as a
result of differences in gas volumes received and delivered. At
December 31, 1994 and 1993, other current assets and other current
liabilities included $35 million and $11.5 million (1994) and $78.3
million and $72.8 million (1993), respectively, for these imbalances.
The Company believes the regulatory, environmental and legal
issues discussed above will not have a material adverse effect on
consolidated results of operations, financial position or liquidity.
During 1995, cash requirements for operations are expected to be
funded by cash from operations, debt issuances, periodic sales of
trade receivables with limited recourse and/or available credit
facilities.
INVESTING CASH FLOW
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
Millions (as restated) (as restated)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Cash Flows Used in
Investing Activities $584.0 $156.1 $338.4
----------------------------------------------------------------------------------------
</TABLE>
Although capital expenditures have been increasing over the
last three years, cash used in investing activities decreased in 1993
compared with 1994 and 1992 as a result of net proceeds received in
1993 of approximately $147 million from the sale of a partial interest
in Northern Border and $40 million from the sale of the Wattenberg
system, a non-contiguous natural gas supply system in Colorado.
(GRAPH)
CAPITAL EXPENDITURES-1994. Capital expenditures totaled $555.3
million in 1994, compared with $366.8 million for 1993. TETCO and
Algonquin customer-supported market expansion projects included a
portion of the Integrated Transportation Program (ITP), TETCO's Flex-X
and Algonquin's AFT-5 programs, all of which were placed in service in
November 1994. Algonquin's Open Season program is scheduled to be
placed in service in early 1995. Other market expansion expenditures
included PEPL's project to provide firm transportation and storage
services to Dayton Power & Light Company and Trunkline's project to
provide firm transportation to the Memphis market. Capital
expenditures also included the purchase of certain intrastate natural
gas pipeline, storage and processing facilities in south Texas for
more than $100 million.
CAPITAL EXPENDITURES-1995 AND BEYOND. The Company's 1995
capital expenditures are expected to approximate $500 million, with
approximately 65% for the natural gas transmission segment and 35% for
the market and supply services segment. Total market expansion
projects are expected to approximate $300 million, or 60%, of the
total 1995 capital budget.
Capital expenditures in 1995 for the natural gas transmission
segment will include costs to place in service additional firm
transportation for the Flex-X and ITP programs, both of which utilize
all four of the Company's fully interconnected pipelines. Total market
expansion projects for the natural gas transmission segment are
expected to approximate $180 million, with remaining capital
expenditures primarily related to further enhancement of the pipeline
network's integrity and reliability.
Capital expenditures in 1995 for the market and supply
services segment will include approximately $120 million for market
expansion projects. These expenditures will include costs to complete
the 1994 purchase of certain storage facilities and to construct
additional facilities related to this purchase, enabling the Company
to provide expanded
8
<PAGE> 9
services for natural gas producers and other customers in the Gulf
Coast region.
The Company has submitted plans to the appropriate state
and/or federal agencies in order to fully comply with the Clean Air
Act Amendments of 1990 (the Amendments). While regulatory review of
these plans is currently underway, the Company estimates that capital
expenditures necessary to comply with the requirements of the
Amendments and associated regulations are approximately $50 million.
Approximately $10 million of the Company's 1994 capital expenditures
related to these requirements, with an estimated $25 million to be
spent in 1995. Management believes any expenditures necessary will be
eligible for recovery in rates.
INVESTMENT PROJECTS. Liberty Pipeline Company (Liberty), in
which a TETCO subsidiary owns a 30% interest, has postponed
indefinitely the proposed $162 million Liberty pipeline as a result of
two customers withdrawing from the project. TETCO's planned expansion
to deliver natural gas to Liberty also has been postponed pending
redefinition of the project.
A PEPL subsidiary formed a joint venture with a subsidiary of
Western Gas Resources, Inc. that will provide gathering, processing
and marketing services for natural gas producers. The companies will
each contribute to the venture certain pipeline and gas processing
facilities within Oklahoma, subject to FERC approval.
ASSET SALES. In 1990, the Internal Revenue Service (IRS)
issued regulations which disallow for tax purposes losses incurred in
the Company's 1989 sales of certain TEC assets. Consequently, the
Company established a provision in 1990 for this and certain other
issues, resulting in an increase in goodwill and the deferred income
tax liability. During 1994, upon completion of the IRS field
examination, the Company revised its estimate and reduced the related
goodwill and deferred income tax liability by approximately $200
million. Investing cash flows for 1994 include the Company's $41
million payment with respect to prior year tax liabilities.
FINANCING CASH FLOW
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
Millions (as restated) (as restated)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Cash Flows Provided by (Used in)
Financing Activities $208.3 $(578.0) $185.4
----------------------------------------------------------------------------------------
</TABLE>
Cash flows provided by financing activities increased $786.3
million from 1993 to 1994. During 1993, significant debt retirements
were made, including early redemption of $500 million of high-interest
rate long-term debt and retirement of amounts outstanding under
certain revolving credit agreements. Proceeds from the sale of the
Wattenberg system, LNG settlement receivables and a partial interest
in Northern Border, along with proceeds from the 1993 issuance of 10
million shares of common stock discussed below and other cash
available, were used to retire this debt.
During 1994, the Company issued $340 million in long-term
debt, excluding bank credit facility borrowings. Proceeds were used
for general corporate purposes which included debt retirements and
capital expenditures.
DEBT AND CREDIT FACILITIES. PEC entered into a new
variable-rate, bank credit agreement, dated December 1, 1994, that
permits PEC to borrow up to $600 million. TETCO and PEPL also entered
into new variable-rate, bank credit agreements that permit these
subsidiaries to borrow up to $200 million on a combined basis. The
bank commitments under the credit agreements will terminate December
9, 1999. Also in December 1994, Associated canceled its $150 million
bank credit agreement in connection with the PEC merger and retired
the $83 million balance outstanding.
(GRAPH)
COMMON STOCKHOLDERS' EQUITY. In 1993, PEC sold 10 million
shares of common stock priced at $21.25 per share, resulting in net
proceeds to the Company of $204.5 million, which was applied toward
the early redemption of debt. In the determination of the amount of
dividends to be paid to common stockholders, management and the board
of directors regularly review, among other factors, the Company's
projected operating results, cash flows and financial position. The
board of directors increased the quarterly dividend from $0.20 to
$0.21 effective with the 1994 first quarter. Under the most
restrictive covenants contained in the Company's debt agreements,
$727.5 million of PEC's consolidated common stockholders' equity was
available for the payment of dividends at December 31, 1994.
FINANCING REQUIREMENTS. Dividends and debt repayments for the
next year, along with operating and investing requirements, are
expected to be funded by cash from operations, debt issuances and/or
available credit facilities. As of the date of this report, PEC, TETCO
and PEPL each have effective shelf registration statements with the
Securities and Exchange Commission for the issuance of $100 million of
unsecured debt securities.
9
<PAGE> 10
APPENDIX TO EXHIBIT 99.1
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
Descriptions of Graphics Contained Within
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Located on page 1, a bar chart titled "Market and Supply Services Operating
Income" depicts 1994 operating income of $30 million excluding Associated
Natural Gas Corporation (Associated) and $75 million including Associated. The
following caption appears below the chart: "The market and supply services
segment's 1994 operating income rose significantly with the Associated merger."
Located on page 2, a bar chart titled "Natural Gas Transmission Operating
Income as a Percentage of Revenues" depicts percentages of 21%, 27% and 31% for
the years 1992, 1993 and 1994, respectively. The title of the chart is
referenced to the following footnote: "Excludes nonrecurring revenues of $19.9
million in 1992 and a special charge of $100 million in 1993." The following
caption appears below the chart: "Natural gas transmission segment operating
income continues to grow despite declining revenue from the elimination of
merchant services."
Located on page 4, a bar chart titled "Market and Supply Services Revenues"
depicts operating revenues of $1,647 million, $2,452 million and $2,953 million
for the years 1992, 1993 and 1994, respectively. The following caption appears
below the chart: "Increasing volumes, primarily related to marketing
activities, have contributed to significant revenue growth."
Located on page 6, a bar chart titled "Interest Expense" depicts interest
expense for the years 1992, 1993 and 1994. Each bar contains two sections,
representing interest expense on Long-term and Other as follows: $281 million
and $26 million (1992); $252 million and $31 million (1993); and $218 million
and $27 million (1994), respectively. The following caption appears below the
chart: "Reduced levels of debt and lower interest rates have strengthened
financial position and decreased interest costs."
Also located on page 6, a line chart titled "Natural Gas Transmission
Quarterly Operating Income" depicts operating income for 1994, 1993 and 1992.
Each year is a continuous line plotted by quarter. Operating income for the
first, second, third and fourth quarters was as follows: $140 million, $126
million, $126 million and $137 million (1994); $173 million, $109 million, $104
million and $130 million (1993); and $172 million, $80 million, $72 million and
$139 million (1992), respectively. The title of the chart is referenced to the
following footnote: "Excludes nonrecurring earnings of $19.9 million and a
special charge of $100 million in the fourth quarter of 1992 and 1993,
respectively." The following caption appears below the chart: "Historical
first- and fourth-quarter seasonal variances for the natural gas transmission
segment have diminished under the SFV rate design required by Order 636."
Located on page 8, a bar chart titled "Capital Expenditures" depicts capital
expenditures for the years 1992, 1993 and 1994 and for the 1995 budget. Each
bar contains sections representing the Natural Gas Transmission segment, the
Market and Supply Services segment and Other. The sections of the bars are
proportioned, in the order previously described, as follows: $261 million, $95
million and $0 million (1992); $292 million, $72 million and $3 million (1993);
$301 million, $251 million and $3 million (1994); and $315 million, $174
million and $11 million (1995 Budget), respectively. The following caption
appears below the chart: "Acquired and expanded Gulf Coast facilities have
significantly increased market and supply services' expenditures."
Located on page 9, a bar chart titled "Capitalization" depicts capitalization
as of December 31, 1992, 1993 and 1994. Each bar contains two sections
representing Debt and Equity as follows: $2,853 million and $1,557 million
(1992); $2,171 million and $1,879 million (1993); and $2,368 million and $2,035
million (1994), respectively. The following caption appears below the chart:
"Equity as a percentage of capitalization remained at 46% at the end of 1994."
<PAGE> 1
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
KPMG PEAT MARWICK LLP, CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Panhandle Eastern Corporation:
We have audited the accompanying consolidated balance sheet of Panhandle
Eastern Corporation and Subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of income, common stockholders' equity
and cash flows for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Panhandle Eastern Corporation and Subsidiaries at December 31, 1994 and
1993, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1994 in conformity
with generally accepted accounting principles.
As discussed in Note 15 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" in 1993, and adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" in 1994.
/s/ KPMG PEAT MARWICK LLP
Houston, Texas
January 17, 1995
<PAGE> 1
EXHIBIT 99.3
CONSOLIDATED STATEMENT OF INCOME
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------
Millions, except per share amounts 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING Sales of natural gas and petroleum products $3,044.0 $3,046.7 $2,841.4
REVENUES Transportation and storage of natural gas 1,432.8 1,181.8 858.7
Other 108.3 73.5 181.2
-------------------------------------------------
OPERATING REVENUES (Note 4) 4,585.1 4,302.0 3,881.3
- ------------------------------------------------------------------------------------------------------------------------------------
COSTS AND Natural gas and petroleum products purchased 2,829.4 2,575.6 2,058.9
EXPENSES Operating and maintenance (Note 4) 553.3 650.6 577.1
General and administrative (Notes 2 and 14) 280.9 254.6 262.4
Depreciation and amortization (Notes 1 and 9) 257.0 250.8 258.9
Miscellaneous taxes 79.2 78.6 75.5
-------------------------------------------------
Total 3,999.8 3,810.2 3,232.8
-------------------------------------------------
OPERATING INCOME 585.3 491.8 648.5
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME Equity in earnings of unconsolidated affiliates (Note 8) 40.9 16.1 5.8
AND DEDUCTIONS Gains (losses) on sales of assets, net (Notes 6 and 8) (4.3) 42.4 (20.5)
Interest and miscellaneous income 21.1 26.9 16.9
Miscellaneous deductions (11.4) (4.2) (5.8)
-------------------------------------------------
Total 46.3 81.2 (3.6)
-------------------------------------------------
GROSS INCOME 631.6 573.0 644.9
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE Interest on long-term debt (Note 10) 218.3 252.1 281.1
AND INCOME TAX Interest on rate refund provisions (Note 4) 12.3 7.9 (5.4)
Other interest 14.4 22.5 31.5
-------------------------------------------------
Total 245.0 282.5 307.2
-------------------------------------------------
INCOME BEFORE INCOME TAX 386.6 290.5 337.7
Income Tax (Note 5) 161.4 118.9 135.7
-------------------------------------------------
NET INCOME $ 225.2 $ 171.6 $ 202.0
====================================================================================================================================
====================================================================================================================================
COMMON SHARES Average common shares outstanding (Note 12) 148.7 142.4 134.6
Earnings per common share $ 1.51 $ 1.21 $ 1.50
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements,
including Note 2 for the restatement resulting from a merger.
1
<PAGE> 2
CONSOLIDATED BALANCE SHEET--ASSETS
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
-----------------------------
Millions 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT ASSETS Cash and cash equivalents $ 33.3 $ 77.6
Accounts and notes receivable (Note 6)
Customers 349.4 424.1
Other 19.2 51.9
Inventory and supplies (Note 7) 124.1 132.4
Current deferred income tax (Note 5) 78.4 131.5
Other (Notes 4, 7 and 13) 206.8 226.0
-----------------------------
Total 811.2 1,043.5
- ---------------------------------------------------------------------------------------------------------------
INVESTMENTS Affiliates 160.1 129.2
Other 72.7 94.6
-----------------------------
Total (Note 8) 232.8 223.8
- ---------------------------------------------------------------------------------------------------------------
PLANT, PROPERTY Original cost 8,039.9 7,523.4
AND EQUIPMENT Accumulated depreciation and amortization (3,032.1) (2,826.7)
-----------------------------
Net plant, property and equipment (Note 9) 5,007.8 4,696.7
- ---------------------------------------------------------------------------------------------------------------
DEFERRED CHARGES Goodwill, net (Notes 1 and 5) 342.4 550.3
Prepaid pension (Note 15) 239.8 222.8
Other (Notes 1, 4 and 13) 873.5 870.7
-----------------------------
Total 1,455.7 1,643.8
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 7,507.5 $ 7,607.8
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements,
including Note 2 for the restatement resulting from a merger.
2
<PAGE> 3
CONSOLIDATED BALANCE SHEET--LIABILITIES AND STOCKHOLDERS' EQUITY
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
--------------------------------
Millions 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES Long-term debt due within one year (Note 10) $ 4.1 $ 66.5
Notes payable -- 18.4
Accounts payable 349.4 351.4
Rate refund provisions (Note 4) 60.2 67.8
Accrued interest 65.0 65.4
Accrued wages and benefits 61.2 56.9
Taxes payable (Note 5) 53.8 70.9
Other (Notes 4, 7 and 13) 352.4 480.2
--------------------------------
Total 946.1 1,177.5
- ------------------------------------------------------------------------------------------------------------------------------------
DEFERRED LIABILITIES Deferred income tax (Note 5) 1,184.5 1,346.6
AND CREDITS Deferred revenue-liquefied natural gas project (Note 4) 69.7 78.1
Other (Notes 4 and 13) 908.3 1,040.7
--------------------------------
Total 2,162.5 2,465.4
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT Notes payable 1,417.3 1,088.5
Debentures 618.4 669.0
Revenue bonds 328.0 328.0
--------------------------------
Total (Note 10) 2,363.7 2,085.5
- ------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND
CONTINGENT LIABILITIES (Notes 4, 5, 6, 8, 11, 13 and 14)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKHOLDERS' Common stock, 149.1 million (1994) and 147.6 million (1993)
EQUITY shares issued and outstanding, 300 million shares authorized,
$1 par value per share 149.1 147.6
Paid-in capital 2,199.8 2,168.2
Retained earnings (deficit) (313.7) (436.4)
--------------------------------
Total 2,035.2 1,879.4
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,507.5 $ 7,607.8
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements,
including Note 2 for the restatement resulting from a merger.
3
<PAGE> 4
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------
Millions, except per share amounts 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK Balance at beginning of year $ 147.6 $ 135.7 $ 132.5
Sale of stock -- 10.0 2.5
Stock issued for purchase of assets 0.5 -- --
Dividend reinvestment and employee stock plans 0.6 1.3 0.1
Stock option plans and awards 0.4 0.7 0.6
Retirement of stock -- (0.1) --
-------------------------------------------------
BALANCE AT END OF YEAR (Note 12) $ 149.1 $ 147.6 $ 135.7
- ------------------------------------------------------------------------------------------------------------------------------------
PAID-IN CAPITAL Balance at beginning of year $ 2,168.2 $ 1,936.2 $ 1,902.8
Excess of proceeds over par value of common stock
Sale of stock -- 194.5 29.2
Stock issued for purchase of assets 9.5 -- --
Dividend reinvestment and employee stock plans 14.3 28.6 2.1
Stock option plans and awards 6.5 9.7 1.4
Unearned compensation 1.3 (1.5) 0.9
Retirement of stock -- (2.0) --
Other items -- 2.7 (0.2)
--------------------------------------------------
BALANCE AT END OF YEAR (Note 12) $ 2,199.8 $ 2,168.2 $ 1,936.2
- ------------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS Balance at beginning of year $ (436.4) $ (515.1) $ (629.0)
(DEFICIT) Net income 225.2 171.6 202.0
Conform fiscal year end of Associated 0.5 -- --
Common stock dividends paid, $0.84 per share in
1994 and $0.80 per share in 1993 and 1992 (103.0) (92.9) (88.1)
--------------------------------------------------
BALANCE AT END OF YEAR (Note 12) $ (313.7) $ (436.4) $ (515.1)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY $ 2,035.2 $ 1,879.4 $ 1,556.8
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements,
including Note 2 for the restatement resulting from a merger.
4
<PAGE> 5
CONSOLIDATED STATEMENT OF CASH FLOWS
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------
Millions 1994 1993 1992
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING Net income $ 225.2 $ 171.6 $ 202.0
ACTIVITIES Adjustments to reconcile net income to operating cash flows-
Depreciation and amortization 257.0 250.8 258.9
Deferred income tax expense 114.8 15.2 84.6
Liquefied natural gas project settlement 0.5 194.7 (104.0)
Order 636 settlement provision -- 100.0 --
Gain on sale of investments, net -- (49.8) (0.9)
Net pension benefit (20.0) (17.2) (19.1)
Other non-cash items in net income (46.4) 6.7 30.7
Net change in other operating assets
and liabilities (detail below) (83.1) 97.5 (304.6)
------------------------------------------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 448.0 769.5 147.6
- ----------------------------------------------------------------------------------------------------------------------------
INVESTING Additions to plant, property and equipment (555.3) (366.8) (356.0)
ACTIVITIES Net investment decreases (increases) (44.7) 161.6 25.1
Property sales, retirements and other 16.0 49.1 (7.5)
------------------------------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (584.0) (156.1) (338.4)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING Retirement of debt (279.0) (991.0) (741.7)
ACTIVITIES Issuance of debt 574.0 298.3 950.5
Net increase (decrease) in notes payable (18.4) (21.1) 39.5
Common stock issuance 17.6 235.1 34.5
Dividends paid (103.0) (92.9) (88.1)
Other 17.1 (6.4) (9.3)
------------------------------------------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 208.3 (578.0) 185.4
- ----------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH Increase (decrease) in cash and cash equivalents 72.3 35.4 (5.4)
Associated's cash flows for three months ended
December 31, 1994 (116.6) -- --
Cash and cash equivalents, beginning of year 77.6 42.2 47.6
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 33.3 $ 77.6 $ 42.2
============================================================================================================================
NET CHANGE IN OTHER Accounts and notes receivable $ 58.9 $ 19.5 $ 0.3
OPERATING ASSETS Inventory and supplies 4.4 86.9 26.2
AND LIABILITIES Unrecovered purchased gas and related costs -- (6.1) (55.8)
Other current assets 116.4 24.4 32.3
Rate refund provisions 35.0 (18.8) (92.1)
Accounts payable (71.3) (5.1) 6.2
Other current liabilities (105.0) (42.5) (203.3)
Transition cost recoveries (payments), net (104.9) 65.2 --
Other deferred charges and liabilities, net (16.6) (26.0) (18.4)
------------------------------------------
Total $ (83.1) $ 97.5 $ (304.6)
============================================================================================================================
SUPPLEMENTAL Cash paid for interest (net of amount capitalized) $ 221.0 $ 268.4 $ 296.0
DISCLOSURES Cash paid for income tax 46.0 49.9 20.1
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements,
including Note 2 for the restatement resulting from a merger.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
1. Accounting Policies Summary . . . . . . . . . . 6
2. Business Combination . . . . . . . . . . . . . 7
3. Business Segments . . . . . . . . . . . . . . . 8
4. Natural Gas Revenues and Regulatory Matters . . 8
5. Income Tax . . . . . . . . . . . . . . . . . . 10
6. Financial Instruments and Risk Management . . 11
7. Inventory and Gas Imbalances . . . . . . . . . 12
8. Investments . . . . . . . . . . . . . . . . . . 12
9. Plant, Property and Equipment . . . . . . . . . 13
10. Debt and Credit Facilities . . . . . . . . . . 14
11. Leases and Other Commitments . . . . . . . . . 15
12. Common Stock . . . . . . . . . . . . . . . . . 15
13. Environmental Matters . . . . . . . . . . . . . 16
14. Litigation . . . . . . . . . . . . . . . . . . 16
15. Pension and Other Benefits . . . . . . . . . . 17
</TABLE>
1. ACCOUNTING POLICIES SUMMARY
The accounting policies are presented to assist the reader in evaluating
the consolidated financial statements of Panhandle Eastern Corporation
(PEC) and its subsidiaries (the Company). Certain amounts for prior years
have been reclassified in the consolidated financial statements to conform
to the current presentation.
The Company is involved in the interstate transportation and storage
of natural gas, as well as the purchasing, gathering, processing, marketing
and intrastate transportation of natural gas, natural gas liquids (NGLs)
and crude oil.
The interstate gas transmission operations of Texas Eastern
Transmission Corporation (TETCO), Algonquin Gas Transmission Company
(Algonquin), Panhandle Eastern Pipe Line Company (PEPL) and Trunkline Gas
Company (Trunkline), and the liquefied natural gas (LNG) facilities of
Trunkline LNG Company (Trunkline LNG), are subject to the rules,
regulations and accounting procedures of the Federal Energy Regulatory
Commission (FERC). TETCO, Algonquin, PEPL and Trunkline meet the criteria
and, accordingly, follow the reporting and accounting requirements of
Statement of Financial Accounting Standards (Accounting Standard) No. 71,
"Accounting for the Effects of Certain Types of Regulation."
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of PEC and all significant subsidiaries. All
significant intercompany items have been eliminated in consolidation. The
consolidated financial statements have been restated to reflect the merger
in 1994 of a subsidiary of PEC with Associated Natural Gas Corporation
(Associated) accounted for under the pooling of interests method of
accounting for business combinations. See Note 2. Investments in 20% to
50%-owned affiliates and in less than 20%-owned affiliates where the
Company has general partnership interests and significant influence over
operations are accounted for on the equity method. See Note 8.
REVENUE RECOGNITION. The Company recognizes revenues for the
transportation and sale of natural gas and petroleum products in the period
service is provided and in the period of delivery, respectively. When rate
cases are pending final FERC approval, a portion of revenues collected by
each interstate natural gas pipeline is subject to possible refunds. The
Company has established adequate reserves where required for such cases.
See Note 4 for a summary of pending rate cases before FERC and related
regulatory matters.
GAS SUPPLY COSTS. Provisions are made in the consolidated statement of
income for all estimated future losses associated with maintaining pipeline
gas supply, including take-or-pay payments, contract settlements, buyout
and buydown costs, and the costs of contractual pricing provisions in
excess of market. See Note 4 for a discussion of pipeline gas supply and
other costs related to the FERC Order 636 transition.
COMMODITY PRICE RISK MANAGEMENT. Recognized gains and losses related
to commodity futures, options and swaps are included in natural gas and
petroleum products purchased in the consolidated statement of income.
Deferred gains and losses related to such instruments are reported as other
deferred credits or charges, as appropriate, in the consolidated balance
sheet. See Note 6.
CASH AND CASH EQUIVALENTS. All liquid investments with maturities at
date of purchase of three months or less are considered cash equivalents.
PLANT, PROPERTY AND EQUIPMENT. Plant, property and equipment is stated
at original cost, which does not purport to represent replacement or
realizable values.
At the time rate-regulated properties are retired, the original cost
plus the cost of retirement, less salvage, is charged to accumulated
depreciation and amortization. When entire rate-regulated operating units
are sold or nonregulated properties are retired or sold, the plant and
related accumulated depreciation and amortization accounts are reduced and
any gain or loss is credited or charged to income.
6
<PAGE> 7
Depreciation of natural gas and crude oil pipeline plant, property and
equipment is computed using the straight-line method. The LNG facilities
are depreciated using a modified unit-of-production method based on the
life of the project's LNG supply contract. See Note 9.
AMORTIZATION OF GOODWILL. The Company is amortizing the excess of the
purchase prices of Texas Eastern Corporation (TEC) in 1989 and of certain
natural gas gathering, transmission and processing facilities over the fair
values of net assets acquired (goodwill) on a straight-line basis over 40
years and 15 years, respectively. Accumulated amortization of goodwill at
December 31, 1994 and 1993 was $86.6 million and $74.5 million,
respectively. See Note 5.
EARLY RETIREMENT OF DEBT. The Company defers certain costs and losses
related to the early retirement of long-term debt and amortizes such
amounts as they are recovered through rates. At December 31, 1994 and 1993,
deferred charges included $62.4 million and $70.7 million, respectively, of
such costs.
INTEREST COST CAPITALIZATION. The Company capitalizes interest on
major projects during construction. The rates used by regulated companies
are calculated pursuant to FERC rules and include an allowance for equity
funds.
DEFERRED INCOME TAX. The Company follows the asset and liability
method of accounting for income tax as required by Accounting Standard No.
109, "Accounting for Income Taxes." Under this standard, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period the rate change is enacted. See Note 5.
EARNINGS PER COMMON SHARE. The computation of earnings per common
share is based on the monthly weighted average number of shares of common
stock outstanding. Convertible debt and unexercised stock options do not
have a dilutive effect on the reported amount of earnings per common share.
See Note 12.
2. BUSINESS COMBINATION
ASSOCIATED NATURAL GAS CORPORATION
On December 15, 1994, Panhandle Acquisition Two, Inc., a wholly-owned
subsidiary of PEC, merged with Associated on a tax-free, stock-for-stock
basis. Associated is a holding company whose subsidiaries purchase, gather,
process, transport and market natural gas, NGLs and crude oil. Under the
terms of the merger, PEC exchanged 28.4 million shares of its common stock
for 100% of Associated's outstanding common stock. As a result, Associated
became a wholly-owned PEC subsidiary. The merger has been accounted for
under the pooling of interests method of accounting for a business
combination and, accordingly, PEC's consolidated financial statements have
been restated to include the accounts of Associated. Nonrecurring expenses
recorded in the fourth quarter of 1994 incurred as a direct result of the
merger totaled $16.2 million ($14.2 million after tax). These expenses
primarily consisted of financial advisory, legal, accounting and other
professional fees, and certain compensation and benefit costs.
Operating revenues and net income for certain pre-merger periods are
shown below. Intercompany transactions between the two companies for the
periods presented were not material.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, Years Ended
Millions 1994 1993 1992
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues
PEC $ 1,804.6 $ 2,513.2 $ 2,756.3
Associated 1,612.1 1,788.8 1,125.0
-----------------------------------------------
Restated operating
revenues $ 3,416.7 $ 4,302.0 $ 3,881.3
===============================================
Net income
PEC $ 157.2 $ 148.1 $ 187.1
Associated 14.8 23.5 14.9
-----------------------------------------------
Restated net income $ 172.0 $ 171.6 $ 202.0
===============================================
</TABLE>
The consolidated financial statements for all periods prior to the
merger have been restated to include Associated's results for the twelve
months ended September 30. Effective with the date of the merger,
Associated's fiscal year end was changed from September 30 to December 31
to conform to PEC's fiscal year end. Accordingly, the Company's
consolidated income statement excludes Associated's revenues, operating
expenses and net income of $558.7 million, $550.1 million and $0.8 million,
respectively, for the three months ended December 31, 1994. Associated's
net income for this period was recorded directly to retained earnings, net
of a $0.3 million charge to conform Grand Valley Gas Company's (Grand
Valley's) fiscal year end. In addition, Associated's cash activity for the
three months ended December 31, 1994 is shown separately on the
consolidated statement of cash flows. This activity includes the retirement
of the outstanding balance of Associated's bank credit agreement. See Note
10.
On July 1, 1994, Associated Natural Gas, Inc., a wholly-owned subsidiary of
Associated, merged with Grand Valley, a natural gas marketing company with a
marketing emphasis in the western United States and Canada. The merger has
been accounted for under the pooling of interests method and, accordingly,
financial information separately shown for Associated has been restated to
include the accounts of Grand Valley.
7
<PAGE> 8
3. BUSINESS SEGMENTS
The Company's operations are classified into two major business segments.
The natural gas transmission segment is involved in the interstate
transportation and storage of natural gas.
The market and supply services segment is involved in the purchasing,
gathering, processing, marketing and intrastate transportation of natural
gas, NGLs and crude oil.
"Corporate and Other" includes, among other things, corporate
investments and the Company's LNG project, which imports and regasifies LNG
and provides worldwide LNG shipping services. Intersegment eliminations are
also included in Corporate and Other. Identifiable assets are those assets
used in the Company's operations in each segment.
Selected financial data for the Company's segments are as follows:
<TABLE>
<CAPTION>
Revenues
------------------------------------
Inter- Depreciation & Operating Capital Identifiable
Millions Unaffiliated segment Total Amortization Income (Loss) Expenditures Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Natural Gas
Transmission
1994 $1,637.5 $ 44.8 $1,682.3 $216.8 $529.4 $301.0 $5,655.8
1993 1,797.2 86.8 1,884.0 219.2 416.0(1) 292.1 6,105.3
1992 2,135.2(2) 52.0 2,187.2(2) 229.7 482.6(2) 260.9 6,078.1
Market and
Supply Services
1994 2,892.8 60.2 2,953.0 33.3 74.8 250.8 1,118.7
1993 2,415.9 36.4 2,452.3 24.7 73.2 71.9 822.3
1992 1,641.4 6.0 1,647.4 23.1 59.4 94.8 643.6
Corporate
and Other
1994 54.8 (105.0) (50.2) 6.9 (18.9)(3) 3.5 733.0
1993 88.9 (123.2) (34.3) 6.9 2.6 2.8 680.2
1992 104.7(2) (58.0) 46.7(2) 6.1 106.5(2) 0.3 993.2
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated
1994 $4,585.1 $ -- $4,585.1 $257.0 $585.3(3) $555.3 $7,507.5
1993(as restated) 4,302.0 -- 4,302.0 250.8 491.8(1) 366.8 7,607.8
1992(as restated) 3,881.3(2) -- 3,881.3(2) 258.9 648.5(2) 356.0 7,714.9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes a $100 million charge reflecting TETCO's settlement of Order
636 implementation and other issues.
(2) Includes earnings for the LNG project settlement of $88.6 million in
operating revenues ($19.9 million-Natural Gas Transmission, $68.7
million-Corporate and Other).
(3) Includes nonrecurring merger costs of $16.2 million.
4. NATURAL GAS REVENUES AND REGULATORY MATTERS
FERC ORDER 636 AND MERCHANT SERVICES
During 1993, the Company's interstate natural gas pipelines began providing
restructured services pursuant to FERC Order 636. This order, which is on
appeal to the courts, requires pipeline service restructuring that
"unbundles" sales, transportation and storage services. Order 636 provides
for the use of the straight fixed-variable (SFV) rate design, which assigns
return on equity, related taxes and other fixed costs to the demand
component of rates. In addition, Order 636 allows pipelines to recover
eligible costs resulting from implementation of the order (transition
costs).
On August 1, 1994, TETCO implemented a FERC-approved settlement that
resolved regulatory issues related primarily to Order 636 transition costs
and a number of other issues related to services prior to Order 636.
TETCO's final and nonappealable settlement provides for the recovery of
certain transition costs through volumetric and reservation charges through
the year 2002. Pursuant to the settlement, TETCO will absorb a certain
portion of the transition costs, the amount of which is dependent upon
natural gas prices and deliverability levels. In December 1993, the Company
established an additional provision of $100 million ($60.2 million after
tax) to reflect the impact of the settlement. PEPL's and Trunkline's
transition cost recoveries, which are subject to certain challenges that
are pending further FERC action, will occur over the next three years.
At December 31, 1994 and 1993, the Company's interstate pipelines had
recorded approximately $35 million and $300 million (1994), and $25 million
and $365 million (1993) of current and long-term regulatory assets,
respectively, representing transition costs incurred or estimated to be
incurred that will be recovered from customers. At December 31, 1994 and
1993, the Company had recorded estimated current and long-term liabilities
related to Order 636 transition costs of approximately $125 million and
$105 million (1994), and $100 million and $290 million (1993),
respectively. In
8
<PAGE> 9
addition, the Company had recorded current liabilities of approximately $60
million at December 31, 1993 for estimated refunds pursuant to certain
provisions of TETCO's settlement. The Company refunded $84 million in
December 1994 pursuant to these settlement provisions.
In the past, during the normal course of business, the Company's
interstate pipelines entered into certain gas purchase contracts containing
take-or-pay provisions, which may expose the Company to financial risk.
PEPL and Trunkline are currently collecting certain take-or-pay settlement
costs through a combination of direct billings and volumetric surcharges.
The volumetric surcharges are being collected with interest over a period
extending through 1997. The Company had recorded approximately $26.7
million and $33.4 million at December 31, 1994 and 1993, respectively, for
such amounts.
The U.S. Department of the Interior announced its intention to seek
additional royalties from gas producers as a result of payments received by
such producers in connection with past take-or-pay settlements, buyouts and
buydowns of gas sales contracts with natural gas pipelines. The Company's
pipelines, with respect to certain producer contract settlements, may be
contractually required to reimburse or, in some instances, to indemnify
producers against such royalty claims. If the Company's pipelines
ultimately have to reimburse or indemnify the producers, the potential
exists for some recovery from pipeline customers. The potential liability
of the producers to the government and of the pipelines to the producers
involves complex issues of law and fact which are likely to take a
substantial period of time to resolve.
The Company believes the exposure associated with gas purchase
contract commitments and the termination of the Company's pipeline merchant
services are substantially mitigated by transition cost recoveries pursuant
to TETCO's settlement, Order 636 and other mechanisms. As a result, the
Company believes that Order 636 transition cost issues and take-or-pay
settlement matters will not have a material adverse effect on future
consolidated results of operations or financial position.
JURISDICTIONAL TRANSPORTATION AND SALES RATES
ALGONQUIN. Algonquin filed a general rate increase effective May 1,
1993, subject to refund, which reflected throughput changes due to contract
restructuring and a return to incremental rates with SFV rate design.
In July 1994, FERC approved Algonquin's settlement of its 1993 rate
case and certain other regulatory issues. The settlement resolved certain
Order 636 service restructuring issues, transition cost recovery
methodology and rate design issues remanded to FERC by the U.S. Court of
Appeals. Additionally, the settlement provides for a partial roll-in of
rates over six years, through limited rate filings in May 1996 and 1999 to
reflect changes in net plant, property and equipment.
PEPL. On April 1, 1992 and November 1, 1992, PEPL placed into effect,
subject to refund, general rate increases incorporating the SFV rate
design. Hearings in these rate proceedings were completed in the first half
of 1994, and initial decisions by the FERC Administrative Law Judge (ALJ)
were received. The cases are pending FERC review of the initial ALJ
decisions.
Effective April 1, 1989, PEPL placed into effect, subject to refund,
sales and transportation rates reflecting a restructuring of rates,
including seasonal rate structures. PEPL and others are appealing various
FERC orders related to these rates. On December 7, 1994, FERC approved a
settlement agreement with a majority of the customers which resolves refund
matters and terminates other actions for the period these rates were
effective for the settling parties.
As a result of the above proceedings, PEPL in 1994 recorded operating
income of $23.9 million and interest reductions of $1.1 million.
TRUNKLINE. On September 1, 1994, Trunkline placed into effect, subject
to refund, a general rate increase as a result of a filing made in
accordance with terms of a rate case settlement in 1993. A preliminary
customer settlement has been reached.
OTHER. The Company's pipelines, pursuant to FERC requirements,
requested FERC approval to record the impact of adopting Accounting
Standard No. 109, including the recognition of a portion of the impact as
an increase to stockholders' equity. The FERC accounting branch has denied
approval of certain of these requests, pending rate case review, and the
Company's pipelines, where approval has been denied, have filed for
rehearing. The Company believes the ultimate resolution of this matter will
not have a material adverse effect on consolidated financial position.
LNG PROJECT SETTLEMENT
In 1992, settlement agreements that resolved certain outstanding LNG
project regulatory issues became effective. As a result of the settlement,
revenues and interest expense in 1992 included benefits of $88.6 million
and $17.5 million, respectively ($57.7 million after tax). The income
statement impact was net of related provisions for service restructuring
and deferred revenues related to recovery of LNG project operating costs.
To capitalize on its LNG assets, the Company continues to examine several
strategic opportunities.
9
<PAGE> 10
In 1993, the Company sold substantially all of the remaining balance
of the LNG project settlement receivables, with limited recourse. At
December 31, 1994, $103.4 million remained outstanding on the receivables
sold. In the opinion of management, the probability that the Company will
be required to perform under the recourse provisions is remote.
5. INCOME TAX
Income tax recognized in the consolidated statement of income is summarized
as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
Millions (as restated) (as restated)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 40.6 $ 86.7 $ 44.4
State 6.0 17.6 6.7
---------------------------------------------
Total current 46.6 104.3 51.1
---------------------------------------------
Deferred
Federal 94.6 13.0 68.5
State 20.2 1.6 16.1
---------------------------------------------
Total deferred 114.8 14.6 84.6
---------------------------------------------
Total income tax $161.4 $118.9 $135.7
=============================================
</TABLE>
Deferred income tax in 1993 included a net charge of $8.6 million for
enacted changes in federal and state tax laws and rates, and a benefit of
$4.8 million for changes in the beginning of the year valuation allowance.
Total income tax differs from the amount computed by applying the
federal income tax rate to income before income tax. The reasons for this
difference are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
Millions, except % (as restated) (as restated)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 34%
=============================================
Income tax, computed at the
statutory rate $135.3 $101.7 $114.8
Adjustments resulting from--
State income tax, net of federal
income tax effect 17.0 12.2 15.0
Cumulative effect of federal
rate change -- 9.2 --
Goodwill amortization 4.1 6.0 5.7
Changes in valuation allowance -- (4.8) 1.5
Insurance premiums (4.1) (4.4) (1.5)
Other items, net 9.1 (1.0) 0.2
---------------------------------------------
Total income tax $161.4 $118.9 $135.7
=============================================
Effective tax rate 41.7% 40.9% 40.2%
=============================================
</TABLE>
The tax effects of temporary differences that resulted in deferred
income tax assets and liabilities and a description of the significant
financial statement items that created these differences are as follows:
<TABLE>
<CAPTION>
December 31
1994 1993
Millions (as restated)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Deferred liabilities and credits $ 321.8 $ 338.0
Investment tax credit carryforward 71.7 72.1
Alternative minimum tax credit carryforward 78.1 71.0
Other accrued liabilities 98.3 116.6
Rate refund provisions 20.2 28.4
Deferred revenue - LNG project 24.4 27.3
State deferred income tax, net of federal
tax effect 15.9 16.6
Other 13.5 19.6
-------------------------------
Total deferred income tax assets 643.9 689.6
Valuation allowance and other tax reserves (250.5) (459.9)
-------------------------------
Net deferred income tax assets 393.4 229.7
-------------------------------
Plant, property and equipment (899.6) (875.1)
Deferred charges (287.3) (284.3)
Investments (81.4) (77.9)
State deferred income tax, net of federal
tax effect (92.3) (88.2)
Prepaid pension (83.9) (78.1)
Other (55.0) (41.2)
-------------------------------
Total deferred income tax liabilities (1,499.5) (1,444.8)
-------------------------------
Deferred income tax liability,
net of current amounts $(1,106.1) $(1,215.1)
===============================
</TABLE>
If tax benefits relating to the valuation allowance for deferred
income tax assets and other tax reserves are recognized subsequent to
December 31, 1994, approximately $152.6 million will be allocated to
goodwill.
The investment tax credit carryforward, which is expected to be fully
utilized, will begin to expire in 1996 and will be extinguished in 2002 if
not utilized sooner. The alternative minimum tax credit carryforward can be
carried forward indefinitely.
In 1990, the Internal Revenue Service (IRS) issued regulations which
disallow for tax purposes losses incurred in the Company's 1989 sales of
certain assets that were acquired in the purchase of TEC. Consequently, the
Company established a provision in 1990 for this and certain other issues,
resulting in an increase in goodwill and deferred income tax liability.
During the third quarter of 1994, upon completion of the IRS field
examination, the Company revised its estimate and reduced the related
goodwill and deferred income tax liability by approximately $200 million.
10
<PAGE> 11
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
Approximate
Millions Book Value Fair Value
- --------------------------------------------------------------------------------------
Assets (Liabilities)
<S> <C> <C> <C>
DECEMBER 31, 1994
Cash Note 1 $ 33.3 $ 33.3
Other current receivables 19.2 19.2
Other investments Note 8 54.3 51.0(1)
Long-term debt Note 10 (2,367.8) (2,410.2)(2)
Foreign currency
exchange contract Note 8 22.4 21.7(3)
Interest rate swaps -- 2.1(3)
December 31, 1993
Cash Note 1 $ 77.6 $ 77.6
Other current receivables 51.9 51.9
Other investments Note 8 64.2 53.6(1)
Notes payable Note 10 18.4 18.4(2)
Long-term debt Note 10 (2,152.0) (2,432.8)(2)
Foreign currency
exchange contract Note 8 13.5 10.3(3)
Interest rate swaps -- 3.0(3)
</TABLE>
(1) The fair value of these financial instruments, which include insurance
contracts and long-term receivables, is based on determinations by
insurance companies and discounted cash flows, as applicable.
(2) Based on quoted market prices for the same or similar issues,
discounted cash flows and/or rates currently available to the Company
for debt with similar terms and remaining maturities.
(3) Represents estimated amounts the Company would receive (pay) if
agreements were settled, considering current market rates and the
creditworthiness of the parties to the agreements.
The Company has implemented an agreement to sell with limited
recourse, on a continuing basis, current accounts receivable at a discount.
The Company received $100 million for accounts receivable sold that
remained outstanding at December 31, 1994. In the opinion of management,
the probability that the Company will be required to perform under the
recourse provisions is remote. Other receivables in the consolidated
balance sheet at December 31, 1994 and 1993 include taxes receivable and
reimbursements due from others for capital projects.
The following financial instruments have no book value associated with
them and there are no fair values readily determinable since quoted market
prices are not available: recourse provisions of the First Mortgage Notes
(Note 8) and the LNG project settlement and trade receivable sales (Note
4), the Northern Border Pipeline Company (Northern Border) transportation
agreement guarantee (Note 8) and the Petrolane Incorporated (Petrolane)
lease indemnification (Note 11).
The Company enters into certain financial instrument arrangements in
order to reduce the market risks inherent in the operations of the
business. As of December 31, 1994, the Company had outstanding a foreign
currency exchange contract with a $54 million notional amount that was
entered into so as to reduce the impact of changes in currency exchange
rates and interest rates on the Swiss Franc bonds. The contract expires in
1996, concurrent with maturity of the bonds, and has the effect of fixing
the currency exchange and interest rates for these 100 million Swiss Franc
bonds at $0.54 per Swiss Franc and 9.26%, respectively. The Company adjusts
the long-term debt and the exchange contract valuation account at the end
of each period to reflect the current exchange rate.
At December 31, 1994, the Company had two interest rate swaps for a
total outstanding notional amount of approximately $103.4 million that were
entered into as a result of the sales of the LNG project settlement
receivables. Pursuant to these swaps, the Company makes payments to the
counterparty at a rate based on LIBOR (London Interbank Offered Rates) and
receives payments based on the FERC prime rate. The notional amount
decreases as the outstanding balance of the settlement receivables
decreases, and the swaps terminate in conjunction with repayment of the
receivables, which will be no later than 1998. Other interest expense is
adjusted for the net amount of these swap receipts and payments.
PRICE RISK MANAGEMENT. At December 31, 1994, the Company held or
issued several instruments that reduce the Company's exposure to market
fluctuations in the price and transportation costs of natural gas and
petroleum products. The Company's market exposure arises from inventory
balances and fixed-price purchase and sale commitments that extend for
periods of up to 24 months which are entered into to support the Company's
marketing and supply activities. The Company's general strategy is to hedge
fixed-price commitments with commodity futures, swaps and options; however,
net open positions can occur in the ordinary course of business. In
conjunction with the hedging activities, the Company also engages in
limited trading of such instruments. The Company adheres to policies which
limit its exposure to market risk from open positions and monitors daily
its exposure from open positions.
Natural gas futures require the Company to buy or sell natural gas at
a fixed-price. Under swap agreements, the Company receives or makes
payments based on the differential between a specified price and the actual
price of natural gas. The Company uses futures and swaps to lock-in margins
on offsetting fixed-price purchase or sale commitments for physical
quantities of natural gas. Natural gas options held to hedge price risk
provide the right, but not the requirement, to buy or sell natural gas at a
fixed price. The Company purchases options to guarantee a minimum margin
for fixed-price agreements to purchase or sell physical quantities of
natural gas.
11
<PAGE> 12
At December 31, 1994, the Company had outstanding futures, swaps and
options for net purchases of 36.5 billion cubic feet of natural gas which
offset the risk of price fluctuations under fixed-price commitments to
sell natural gas. The following list identifies the instruments held to
hedge fixed-price commitments at December 31, 1994:
<TABLE>
<CAPTION>
Net Purchases (Sales)
------------------------------
Notional or
Millions Contract Amount Fair Value
-------------------------------------------------------------
<S> <C> <C>
Futures $64.2 $54.4
Swaps 10.7 10.2
Options (0.1) (0.2)
</TABLE>
The gains, losses and costs related to the hedging instruments
described above are deferred until the underlying physical transaction
occurs. At December 31, 1994, the Company had an unrecognized net loss of
$10.5 million related to financial instruments which is offset by an
unrecognized net gain from the Company's obligations to sell physical
quantities of gas.
Gains or losses on futures, options and swap contracts that do not
qualify as hedges are recognized in income on a current basis. During 1994,
the Company recognized gains of $0.7 million on trading positions which had
an average fair value of $5.9 million. At December 31, 1994, the fair value
of instruments held or issued for trading purposes was $4.4 million that
represented purchases of 2.6 billion cubic feet of natural gas.
MARKET AND CREDIT RISK. New York Mercantile Exchange (Exchange) traded
futures and option contracts are guaranteed by the Exchange and have
nominal credit risk. On all other transactions described above, the Company
is exposed to credit risk in the event of nonperformance by the
counterparties. For each counterparty, the Company analyzes the credit
positions prior to entering into an agreement and establishes credit
limits. The change in market value of Exchange-traded futures and options
contracts requires daily cash settlement in margin accounts with brokers.
Swap contracts and most other over-the-counter instruments are generally
settled at the expiration of the contract term and are often subject to
margin requirements with the counterparty. At December 31, 1994, the
Company had $30.8 million in margin cash accounts to service these
commodity hedging tools of which $4.7 million was available for general
corporate purposes.
The Company has a concentration of receivables due from public
utilities throughout the United States. These concentrations of customers
may affect the Company's overall credit risk in that the customers may be
similarly affected by changes in economic, regulatory or other factors.
Trade receivables are generally not collateralized; however, the Company
analyzes customers' credit positions prior to extending credit.
7. INVENTORY AND GAS IMBALANCES
A summary of inventory and supplies by category follows:
<TABLE>
<CAPTION>
December 31
1994 1993
Millions (as restated)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Crude oil $ 11.2 $ 12.4
NGLs 2.3 3.8
Gas held for resale 9.4 2.2
Materials and operating supplies 101.2 114.0
--------------------------
Total inventory and supplies $124.1 $132.4
==========================
</TABLE>
Inventory and supplies are recorded at the lower of cost or market
using the average cost method. Materials and operating supplies includes
gas held for operations.
The consolidated balance sheet includes in-kind balances as a result
of differences in gas volumes received and delivered. At December 31, 1994
and 1993, other current assets and other current liabilities included $35
million and $11.5 million (1994), and $78.3 million and $72.8 million
(1993), respectively, for these imbalances.
8. INVESTMENTS
AFFILIATES
The Company has investments in the following companies that are accounted
for using the equity method. These investments include undistributed
earnings of $69.7 million in 1994 and $42.3 million in 1993 related to 50%
or less owned entities.
<TABLE>
<CAPTION>
INVESTMENTS IN AFFILIATES
December 31
Millions, except % % Ownership 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
National Methanol Company 25.00 $ 70.7 $ 45.9
Northern Border 5.95* 33.5 33.9
TEPPCO Partners, L.P. 10.45 22.6 22.4
Midland Cogeneration Venture 14.34 9.1 6.4
Other affiliates Various 24.2 20.6
-----------------------
Total investments in affiliates $160.1 $129.2
=======================
</TABLE>
* Represents effective ownership percentage through Northern Border Partners,
L.P.
<TABLE>
<CAPTION>
EQUITY IN EARNINGS
Years Ended December 31
Millions 1994 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
National Methanol Company $26.2 $ 3.3 $ 1.2
Northern Border 4.5 13.9 15.9
TEPPCO Partners, L.P. 3.6 0.8 0.4
Midland Cogeneration Venture 2.8 (1.6) (4.8)
Other affiliates 3.8 (0.3) (6.9)
------------------------------------------
Total equity in earnings $40.9 $16.1 $ 5.8
==========================================
</TABLE>
12
<PAGE> 13
Distributions and dividends received amounted to $11.7 million, $14.2
million and $12.9 million in 1994, 1993 and 1992, respectively.
Summarized combined balance sheet and income statement information of
the entities that are accounted for using the equity method are as follows:
<TABLE>
<CAPTION>
Millions 1994 1993 1992
<S> <C> <C> <C>
----------------------------------------------------------------------------
ASSETS
Current assets $ 610.3 $ 396.0 $ 421.3
Noncurrent assets 4,639.5 4,506.7 4,238.5
-----------------------------------------
Total $5,249.8 $4,902.7 $4,659.8
=========================================
LIABILITIES AND EQUITY
Current liabilities $ 475.1 $ 356.4 $ 318.9
Noncurrent liabilities 3,713.5 3,734.4 3,548.4
Equity 1,061.2 811.9 792.5
-----------------------------------------
Total $5,249.8 $4,902.7 $4,659.8
=========================================
INCOME
Operating revenues $1,438.2 $1,029.2 $ 903.9
Operating expenses 890.7 656.2 556.3
Net income 271.5 103.4 69.7
</TABLE>
NORTHERN BORDER. Northern Border is a partnership operating a pipeline
transporting natural gas from Canada to the Midwest area of the United
States.
During 1993, the Company transferred its 22.75% interest in Northern
Border to Northern Border Partners, L.P., a master limited partnership
(MLP), in exchange for general partner interests as well as subordinated
and common limited partner units. Also during 1993, the Company sold 74%
of its MLP limited partner units, resulting in a fourth quarter pre-tax
gain of $48.2 million ($28.7 million after tax). The Company received net
proceeds of approximately $147 million that were used for the repayment of
debt and for general corporate purposes.
Under the terms of a settlement related to a transportation agreement
between PEPL and Northern Border, PEPL guarantees payment to Northern
Border under a transportation agreement by an affiliate of Pan-Alberta Gas
Limited. The transportation agreement requires estimated total payments of
$184 million for the years 1995 through 2001. In the opinion of management,
the probability that PEPL will be required to perform under this guarantee
is remote.
NATIONAL METHANOL COMPANY (NATIONAL METHANOL). National Methanol is a
joint venture that owns and operates a chemical-grade methanol plant
located in Jubail, Saudi Arabia. National Methanol produced over 900,000
metric tons of methanol in 1994 and completed construction of a 700,000
metric ton-per-year MTBE (methyl tertiary butyl ether) unit. This plant
began commercial operations on July 1, 1994 and produced approximately
350,000 metric tons of MTBE, an oxygenate used to produce cleaner-burning
gasoline blends.
TEPPCO PARTNERS, L.P. TEPPCO Partners, L.P. is an MLP that owns and
operates a petroleum products pipeline. A subsidiary partnership of the MLP
has $356.5 million in First Mortgage Notes outstanding with recourse to the
general partner, a subsidiary of PEC. These notes have annual principal
payments due through 2010.
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP (MCV). MCV converted
an incomplete nuclear plant to a dual-purpose energy unit that uses natural
gas to generate electricity and produce industrial process steam. The
Company has a general partnership interest in MCV.
OTHER INVESTMENTS
Other investments include real estate holdings and financial
instruments, such as insurance contracts and long-term receivables that are
recorded at cost in the consolidated balance sheet. In 1992, the Company
recognized a charge of $8.2 million for the sales of certain office
buildings.
9. PLANT, PROPERTY AND EQUIPMENT
A summary of plant, property and equipment by classification follows:
<TABLE>
<CAPTION>
December 31
Depreciation 1994 1993
Millions, except % % Rates (as restated)
<S> <C> <C> <C>
-------------------------------------------------------------------------------
Transmission 1.70 - 4.00 $5,796.9 $5,393.3
Gathering 1.30 - 6.67 449.1 439.8
Processing 4.00 - 5.00 133.2 111.2
Underground storage 1.87 - 3.50 465.2 400.4
LNG facilities --* 599.8 600.3
LNG vessels 2.78 - 2.86 144.5 144.5
General plant 2.53 - 33.33 302.7 283.6
Construction work
in progress -- 148.5 150.3
------------------------
Total plant, property
and equipment $8,039.9 $7,523.4
========================
</TABLE>
*Modified unit-of-production method.
A summary of plant, property and equipment, net of accumulated
depreciation, by classification follows:
<TABLE>
<CAPTION>
December 31
1994 1993
Millions (as restated)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Transmission $3,761.6 $3,529.7
Gathering 120.5 114.1
Processing 91.9 72.7
Underground storage 355.5 306.0
LNG project 319.7 325.2
General plant 210.1 198.7
Construction work in progress 148.5 150.3
------------------------
Net plant, property and equipment $5,007.8 $4,696.7
========================
</TABLE>
13
<PAGE> 14
10. DEBT AND CREDIT FACILITIES
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
December 31
1994 1993
Millions (as restated)
- -----------------------------------------------------------------------------------
<S> <C> <C>
PEC
Bonds
7 3/4% revenue maturing 2022 $ 328.0 $ 328.0
Swiss Franc (9.26%) maturing 1996* 76.4 67.3
Notes
Medium Term, Series A, 8.5-9%
maturing 1996-1997* 139.0 139.0
10.5% maturing 1997* -- 100.0
8 5/8% maturing 1999 100.0 --
Revolving Credit Agreement (8.5%) 185.0 --
Unamortized Discount* (9.7) (16.6)
------------------------
Total PEC 818.7 617.7
------------------------
TETCO
Debentures
10 1/8% maturing 2011 100.0 100.0
10% maturing 2011 150.0 150.0
Notes
10 3/8% maturing 2000 200.0 200.0
10% maturing 2001 100.0 100.0
8% maturing 2002 100.0 100.0
8 1/4% maturing 2004 100.0 --
Medium Term, Series A, 7.64-9.07%
maturing 1999-2012 100.0 100.0
Unamortized Discount (31.6) (32.8)
------------------------
Total TETCO 818.4 717.2
------------------------
ALGONQUIN
Notes
8.795-8.936% maturing 1996 50.0 50.0
9.13% maturing 2003 100.0 100.0
Unamortized Discount (2.1) (3.2)
------------------------
Total Algonquin 147.9 146.8
------------------------
PEPL
Debentures
9 7/8% maturing 1996 125.0 250.0
7.95% maturing 2023 100.0 100.0
7.2% maturing 2024 100.0 100.0
Notes
7 7/8% maturing 2004 100.0 --
Variable Rate (4.25%) maturing 1995 -- 50.0
Unamortized Discount (1.0) (1.2)
------------------------
Total PEPL 424.0 498.8
------------------------
PANHANDLE GATHERING COMPANY
4% maturing 1996 4.5 4.5
------------------------
ASSOCIATED
Notes
12.75% maturing 1994-1995 4.0 12.0
9.55% maturing 1996-1999 55.0 55.0
9% convertible maturing 1997-2004 10.0 10.0
6.3% maturing 1999-2003 40.0 --
9.9% maturing 2000-2003 45.0 45.0
Revolving Credit Agreement -- 45.0
Other 0.3 --
------------------------
Total Associated 154.3 167.0
------------------------
LESS CURRENT MATURITIES (4.1) (66.5)
------------------------
TOTAL LONG-TERM DEBT $2,363.7 $2,085.5
========================
</TABLE>
*These previous obligations of TEC were assumed by PEC in conjunction with a
reorganization of TEC in 1994.
The interest rates indicated were in effect on principal balances
outstanding at December 31, 1994. Interest costs capitalized in 1994, 1993
and 1992 were $4.6 million, $3.8 million and $2.1 million, respectively.
Required sinking fund and installment payments applicable to long-term
debt are as follows:
<TABLE>
<CAPTION>
Millions
- -----------------------------------------------
<S> <C>
1995 $ 4.1
1996 294.3
1997 145.8
1998 31.3
1999 373.3
</TABLE>
PEC, TETCO and PEPL each have effective shelf registration statements
with the Securities and Exchange Commission for the issuance of $100
million of unsecured debt securities. At December 31, 1993, the Company had
$18.4 million of short-term borrowings outstanding with a weighted average
interest rate of 3.8%.
CREDIT AGREEMENTS. PEC entered into a new variable-rate, bank credit
agreement, dated December 1, 1994, that permits PEC to borrow up to $600
million. TETCO and PEPL also entered into new variable-rate, bank credit
agreements that permit these subsidiaries to borrow up to $200 million on a
combined basis. The bank commitments under the credit agreements will
terminate December 9, 1999. Also in December 1994, Associated canceled its
$150 million bank credit agreement in conjunction with the PEC merger and
retired the $83 million balance outstanding with proceeds received from an
advance from PEC.
14
<PAGE> 15
11. LEASES AND OTHER COMMITMENTS
The Company utilizes assets under operating leases in several areas of
operations. Consolidated rental expense amounted to $30.6 million, $28.7
million and $29.6 million for the years 1994, 1993 and 1992, respectively.
Minimum rental payments under the Company's various operating leases for
the years 1995 through 1999 are $27.6 million, $23.7 million, $20.1
million, $12.4 million and $11 million, respectively. Thereafter,
payments aggregate $48.4 million through 2011.
In connection with the sale of Petrolane in 1989, TEC agreed to
indemnify Petrolane against certain obligations for guaranteed leases and
environmental matters. Certain of the lease obligations relate to
Petrolane's divestiture of supermarket operations prior to its acquisition
by TEC and as of December 31, 1994 total approximately $84.3 million over
the remaining terms of the leases, which expire in 2006. In the opinion of
management, the probability that TEC will be required to perform under this
indemnity provision is remote.
Petrolane was named in a suit filed by the city of Fresno, California
(the City) in the U.S. District Court for the Eastern District of
California on February 18, 1993 seeking contribution from 22 parties for
characterization and remediation costs related to the Fresno Sanitary
Landfill (the Landfill). The City, under a mandate from the U.S.
Environmental Protection Agency (EPA), is obligated to characterize and
remediate environmental contamination at the Landfill, which is on the
National Priorities List. One of Petrolane's former subsidiaries is alleged
to have disposed of hazardous substances at the Landfill. Since
characterization of the Landfill has not been completed, the Company is
unable at this time to estimate its share of cleanup costs or the timing of
such costs, but expects that this matter will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
12. COMMON STOCK
STOCK ISSUANCES. On December 15, 1994, under the terms of the merger,
PEC issued 28.4 million shares of common stock in exchange for 100% of
Associated's common stock. See Note 2.
In June 1993, PEC sold 10 million shares of common stock priced at
$21.25 per share, resulting in net proceeds to the Company of $204.5
million. Proceeds from the offering were applied towards the early
redemption, also in June, of $176 million of outstanding debentures.
STOCK OPTIONS. Transactions under various stock option and incentive
plans are summarized as follows:
<TABLE>
<CAPTION>
Shares Option Prices
- --------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding Dec. 31, 1992 1,336,109 $12.19 - $30.63
Granted 555,000 19.06 - 21.31
Exercised (98,535) 12.81 - 19.40
Expired (31,367) 16.38 - 30.63
---------
Outstanding Dec. 31, 1993 1,761,207 12.19 - 30.63
Granted 337,300 20.00 - 24.25
Exercised (60,737) 12.19 - 19.06
Expired (33,666) 16.38 - 30.63
Associated* 1,574,546 10.13 - 18.07
---------
OUTSTANDING DEC. 31, 1994 3,578,650 10.13 - 30.63
=========
Exercisable at December 31
1992 754,609 $12.19 - $30.63
1993 911,707 12.19 - 30.63
1994 2,863,183 10.13 - 30.63
</TABLE>
* Represents conversion of Associated's stock options outstanding into
equivalent PEC options.
STOCK AWARDS. Under PEC's 1990 Long Term Incentive Plan, there were 3
million shares of PEC common stock reserved for issuance to key employees.
Awards representing 92,600 and 114,750 common shares, along with dividend
equivalents, were granted to key employees during 1991 and 1990,
respectively. Common shares are issued over a period of two to six years
pursuant to these awards. In addition, in 1993 and 1991, respectively,
300,000 and 40,000 common shares were issued as restricted stock awards,
with restrictions being removed over periods of three and four years,
respectively.
Under Associated's 1991 Equity Incentive Plan, there were 1.7 million
equivalent PEC common shares reserved for issuance to key employees. Awards
(in equivalent PEC shares) of restricted stock for 54,215 shares, 31,387
shares, 33,431 shares, and 75,864 shares were granted in 1994, 1993, 1992,
and 1991, respectively, with restrictions removed over a period of four
years from the time of grant. At the time of the merger with PEC, there
were 106,859 equivalent PEC shares issued on which restrictions remained.
Pursuant to change in control provisions of this plan, restrictions were
removed as to 48,353 shares effective with the merger and will be removed
on the remaining shares in 1995.
CONVERTIBLE DEBT. The Company's 9% convertible notes entitle the
holders, at their option, to convert the notes into 451,875 shares of PEC
common stock. This conversion right contains various anti-dilution
provisions, including a provision to adjust the conversion rate if PEC
sells shares at a price less than the current market price. See Note 10.
15
<PAGE> 16
RESTRICTIONS ON DIVIDENDS. Under the most restrictive covenants
contained in the Company's debt agreements, $727.5 million of PEC's
consolidated common stockholders' equity was available for the payment of
dividends at December 31, 1994.
13. ENVIRONMENTAL MATTERS
TETCO. TETCO is currently conducting PCB (polychlorinated biphenyl)
characterization (assessment) and cleanup programs at certain of its
compressor station sites under conditions stipulated by a U.S. Consent
Decree. The programs include on-and off- site characterization,
installation of on-site source control equipment and groundwater monitoring
wells, and on- and off-site cleanup work. TETCO expects to complete the
programs at up to 89 sites in as many as 14 states. The programs are
expected to continue until 2000.
In addition to the cleanup required by the United States, TETCO has
been conducting PCB remediation (cleanup) work at certain on-site and
off-site areas pursuant to separate agreements with the states of
Pennsylvania and New Jersey. These agreements generally impose cleanup
levels that are more stringent than those required by the U.S. Consent
Decree.
In 1987, the Commonwealth of Kentucky instituted suit in state court
against TETCO, alleging improper disposal of PCBs at TETCO's three
compressor station sites in Kentucky. This suit, which is still pending,
seeks penalties for violations of Kentucky environmental statutes. The
Company previously established a reserve for potential fines and penalties.
In 1991, TETCO and the Commonwealth executed a consent order in which TETCO
agreed to perform site assessments at its sites in Kentucky, and this work
has been substantially completed. TETCO completed remediation of one of its
Kentucky sites in 1994 and plans to remediate another site in 1995.
At December 31, 1994 and 1993, TETCO had recorded current and
long-term liabilities of $56.4 million and $289.1 million (1994) and $93
million and $298.7 million (1993), respectively, for remaining estimated
cleanup costs. These cost estimates represent gross cleanup costs expected
to be incurred by TETCO, have not been reduced by customer or insurance
recoveries and do not include fines, penalties or third-party claims. TETCO
is recovering 57.5% of cleanup costs in rates pursuant to a stipulation and
agreement approved by FERC in 1992. At December 31, 1994 and 1993, TETCO
had recorded current and long-term regulatory assets of $18.6 million and
$177.1 million (1994) and $31.1 million and $196.3 million (1993),
respectively, representing costs to be recovered from customers.
TETCO's litigation with its insurance carriers to recover cleanup and
other costs and to enforce the carriers' duty to defend and indemnify TETCO
has concluded. TETCO's petition for a writ of certiorari with the U.S.
Supreme Court was denied on October 3, 1994, allowing judgment in favor of
the insurance carriers to stand.
TETCO, as well as certain other PEC subsidiaries in some of the cases,
are defendants in several private plaintiff suits in various courts. These
suits seek relief for actual and punitive damages that allegedly resulted
from the release of PCBs and other hazardous substances in violation of
federal and state laws. The Company is continuing to defend itself
vigorously in these suits.
PEPL AND TRUNKLINE. The Company has identified environmental
contamination at up to 53 sites on the PEPL and Trunkline systems and is
undertaking remediation programs at these sites. The contamination resulted
from the past use of lubricants containing PCBs and the prior use of
wastewater collection facilities and other on-site disposal areas. Soil and
sediment testing, to date, has detected no significant off-site
contamination. The Company has communicated with the EPA and appropriate
state regulatory agencies on these matters. The environmental cleanup
programs are expected to continue until 2002.
At December 31, 1994 and 1993, the Company had recorded liabilities of
$70 million and $33 million, respectively, relating to PEPL and Trunkline
PCB, wastewater and disposal area cleanup programs and had recorded
regulatory assets of $82.4 million and $33 million, respectively,
representing costs to be recovered from customers.
The federal and state cleanup programs are not expected to interrupt
or diminish the Company's ability to deliver natural gas to customers. The
Company believes the ultimate resolution of matters relating to the cleanup
programs will not have a material adverse effect on consolidated results of
operations or financial position.
14. LITIGATION
In connection with a rupture and fire that occurred on TETCO's 36-inch
natural gas pipeline on March 23, 1994 in Edison, New Jersey, numerous
lawsuits have been filed against the Company and other defendants in the
Superior Court of New Jersey, Middlesex County, on behalf of hundreds of
individuals seeking unspecified compensatory damages for personal injuries
and property losses, as well as punitive damages. Currently, the parties
are engaged in the discovery process. The Company also has been contacted
by attorneys claiming to represent hundreds of additional individuals with
unspecified claims against the Company. In addition, Quality Materials,
Inc., the owner of the asphalt
16
<PAGE> 17
plant located at the site of the rupture, has filed suit in the U.S.
District Court for the District of New Jersey against TETCO seeking to
recover unspecified property damages, lost income and punitive damages.
TETCO has filed a counterclaim against Quality Materials, Inc.
The findings of an investigation of the incident by the Company and
the National Transportation Safety Board (NTSB) indicate third-party damage
to be the cause of the rupture. Additionally, an NTSB report found that
TETCO's pipeline operations met or exceeded federal safety regulations. The
Company recorded a $5 million after-tax charge in 1994 for costs related to
this incident that are not recoverable under the Company's insurance
policies. The Company expects the resolution of these matters will not
have a material adverse effect on consolidated results of operations or
financial position.
The Company is also involved in various other legal actions and claims
arising in the normal course of business. Based upon its current assessment
of the facts and the law, management does not believe that the outcome of
any such action or claim will have a material adverse effect upon the
consolidated financial position of the Company. However, these actions and
claims in the aggregate seek substantial damages against the Company and
are subject to the uncertainties inherent in any litigation.
15. PENSION AND OTHER BENEFITS
PENSION BENEFITS. PEC has a non-contributory trusteed pension plan
covering certain employees with a minimum of one year vesting service. The
plan provides pension benefits that are generally based on the employee's
years of service and highest average earnings during a specified period.
The Company's policy is to fund amounts, as necessary, on an actuarial
basis to provide assets sufficient to meet benefits to be paid to plan
members.
The components of the net pension benefit are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
Millions 1994 1993 1992
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Actual return on plan assets $(2.1) $ 73.6 $ 51.5
Amount deferred 67.4 (13.4) 7.4
--------------------------------------------
Expected return on plan assets 65.3 60.2 58.9
Service cost benefits earned
during the period (12.4) (10.7) (10.2)
Interest cost on projected
benefit obligations (35.8) (35.0) (33.3)
Net amortization 2.9 2.7 3.7
--------------------------------------------
Net pension benefit $20.0 $ 17.2 $ 19.1
============================================
</TABLE>
The following table sets forth the pension plan's funded status and
the net asset recognized by the Company:
<TABLE>
<CAPTION>
December 31
Millions 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value
(principally common stock and
fixed income securities) $676.9 $725.6
--------------------------
Actuarial present value of
benefit obligations:
Vested 335.7 370.4
Nonvested 14.9 15.4
--------------------------
Accumulated obligations 350.6 385.8
Effects of projected future
compensation levels 85.1 95.2
--------------------------
Projected obligations 435.7 481.0
--------------------------
Plan assets in excess of
projected obligations 241.2 244.6
Unrecognized net asset (46.4) (51.0)
Unrecognized net loss 21.0 1.4
Unrecognized prior service cost 24.0 27.8
--------------------------
Prepaid pension $239.8 $222.8
==========================
</TABLE>
Assumptions used in the Company's pension accounting are as follows:
<TABLE>
<CAPTION>
December 31
1994 1993 1992
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rates 8.5% 7.5% 8.0%
Rates of increase in compensation
levels 5.0 5.0 5.0
Expected long-term rates of return
on plan assets 9.5 9.5 9.5
</TABLE>
The Company also sponsors employee savings plans which cover
substantially all employees. The Company expensed plan contributions of $13
million, $12.2 million and $12.1 million in 1994, 1993 and 1992,
respectively.
OTHER POSTRETIREMENT BENEFITS. The Company's postretirement benefits
consist of certain health care and life insurance benefits for certain
retired employees. Substantially all employees of certain subsidiaries may
become eligible for these benefits when they reach retirement age while
working for such companies and have attained 10 years of specified service.
The benefits are provided through contributory and noncontributory trusteed
benefit plans.
Effective January 1, 1993, the Company adopted Accounting Standard No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." This standard provides for the accrual of such benefit costs
over the active service period of employees to the date of full eligibility
for the benefits. The Company previously charged amounts to expense based
on the annual amount of contributions made to the plans' trust fund. The
Company is amortizing the net transition obligation, resulting from
implementation of the
17
<PAGE> 18
new accounting standard, over approximately 20 years.
It is the Company's general policy to fund accrued postretirement
health care costs. The retiree life insurance plan is fully funded based
on actuarially-determined requirements.
The net postretirement benefit cost is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993
Health Health
Millions Care Life Care Life
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actual return on
plan assets $ 0.6 $(0.3) $ 0.2 $ 4.2
Amount deferred -- 5.3 (0.2) 0.7
-----------------------------------------------------------
Expected return on
plan assets 0.6 5.0 -- 4.9
Service cost benefits
earned during the period (1.7) (0.5) (1.3) (0.3)
Interest cost on
accumulated obligations (11.3) (4.3) (10.8) (4.2)
Net amortization and
deferral (2.9) -- (3.0) 0.1
----------------------------------------------------------
Net postretirement
benefit (cost) $(15.3) $ 0.2 $(15.1) $ 0.5
==========================================================
</TABLE>
The change in the method of accounting for these benefits did not
result in a significant change in postretirement benefit costs recognized
in 1993. Amounts charged to expense for retiree health care and life
insurance was $15.5 million for 1992.
The following table sets forth the postretirement benefit plans'
funded status and the net liability recognized by the Company:
<TABLE>
<CAPTION>
December 31
1994 1993
Health Health
Millions Care Life Care Life
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated
postretirement
benefit obligations:
Retirees $(114.3) $(47.8) $(115.0) $(50.2)
Fully eligible active
plan participants (2.4) (0.2) (2.0) (0.1)
Other active plan
participants (23.9) (6.8) (26.4) (7.4)
-----------------------------------------------------------
Accumulated
obligations (140.6) (54.8) (143.4) (57.7)
Plan assets at fair value* 16.3 51.1 9.7 54.7
-----------------------------------------------------------
Accumulated obligations
in excess of plan assets (124.3) (3.7) (133.7) (3.0)
Unrecognized transition
obligations (assets) 109.3 (2.4) 115.2 (2.5)
Unrecognized net loss 5.0 6.6 7.7 5.9
-----------------------------------------------------------
Net postretirement benefit
asset (liability) $ (10.0) $ 0.5 $ (10.8) $ 0.4
===========================================================
</TABLE>
*Principally common stocks, corporate bonds and U.S. government and agency
bonds.
The assumed health care cost trend rate used to estimate the cost of
postretirement benefits was 9% for 1995. The health care cost trend rate
is expected to decrease, with a 5.5% ultimate trend rate expected to be
achieved by 1999. The effect of a 1% increase in the assumed health care
cost trend rate for each future year is $0.7 million on the annual
aggregate of the service and interest cost components of net periodic
postretirement benefit costs and $9.3 million on the accumulated
postretirement benefit obligations at December 31, 1994. Other assumptions
used in postretirement benefit accounting are as follows:
<TABLE>
<CAPTION>
December 31
1994 1993
Health Health
Care Life Care Life
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rates 8.5% 8.5% 7.5% 7.5%
Rate of increase in
compensation levels not 5.0 not 5.0
Expected long-term applicable applicable
rates of return
on plan assets, net of
applicable tax 5.7 9.5 5.7 9.5
</TABLE>
FERC policy generally allows, subject to individual pipeline
proceedings, for current rate recovery of funded postretirement benefit
costs including amortization of the transition obligation. Pending FERC
approval for recovery, the Company's pipelines have deferred certain
postretirement benefit costs.
OTHER POSTEMPLOYMENT BENEFITS. The Company adopted Accounting
Standard No. 112, "Employers' Accounting for Postemployment Benefits,"
effective January 1, 1994. This standard requires accruals for benefits
provided by the Company to certain former or inactive employees. As a
result of implementation, the Company recorded additional liabilities and
regulatory assets of approximately $17 million. The Company's pipelines
have received permission from FERC to defer such costs, pending resolution
of present and future rate filings requesting recovery. The earnings impact
of this change in accounting policy is not significant.
18
<PAGE> 1
EXHIBIT 99.4
CONSOLIDATED QUARTERLY FINANCIAL DATA
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Quarters Ended
----------------------------------------------------
1994 Millions, except per share amounts March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME Operating revenues
Previously reported $ 517.3 $ 464.7 $ 579.3 $ --
Sales gross-up(1) 117.3 126.0 -- --
Associated(2) 513.1 554.1 544.9 --
----------------------------------------------------
As restated $1,147.7 $ 1,144.8 $1,124.2 $1,168.4
----------------------------------------------------
Operating income
Previously reported $ 150.0 $ 129.8 $ 128.9 $ --
Associated(2) 13.9 16.1 7.8 --
----------------------------------------------------
As restated $ 163.9 $ 145.9 $ 136.7 $ 138.8(3)
----------------------------------------------------
Net income
Previously reported $ 58.8 $ 48.9 $ 49.5 $ --
Associated(2) 6.0 7.2 1.6 --
----------------------------------------------------
As restated $ 64.8 $ 56.1 $ 51.1 $ 53.2(3)
- ------------------------------------------------------------------------------------------------------------------------
COMMON Earnings per common share
SHARES Previously reported $ 0.49 $ 0.41 $ 0.41 $ --
As restated $ 0.44 $ 0.38 $ 0.34 $ 0.36
========================================================================================================================
1993
- ------------------------------------------------------------------------------------------------------------------------
INCOME Operating revenues
Previously reported $ 612.6 $ 573.8 $ 447.5 $ 487.0
Sales gross-up(1) 63.3 108.5 120.2 100.3
Associated(2) 458.3 410.5 447.6 472.4
----------------------------------------------------
As restated $1,134.2 $ 1,092.8 $1,015.3 $1,059.7
----------------------------------------------------
Operating income
Previously reported $ 187.0 $ 114.2 $ 106.0 $ 32.7
Associated(2) 15.2 14.4 10.7 11.6
----------------------------------------------------
As restated $ 202.2 $ 128.6 $ 116.7 $ 44.3(4)
----------------------------------------------------
Net income
Previously reported $ 69.5 $ 34.4 $ 25.6 $ 18.6
Associated(2) 7.3 6.7 4.7 4.8
----------------------------------------------------
As restated $ 76.8 $ 41.1 $ 30.3(5) $ 23.4(4),(6)
- ------------------------------------------------------------------------------------------------------------------------
COMMON Earnings per common share
SHARES Previously reported $ 0.64 $ 0.31 $ 0.21 $ 0.16
As restated $ 0.56 $ 0.29 $ 0.21 $ 0.16
========================================================================================================================
</TABLE>
(1) Restated to reflect the gross-up of certain operating revenues and expenses
previously shown net.
(2) Restated to reflect the merger with Associated Natural Gas Corporation.
(3) Includes nonrecurring merger costs of $16.2 million ($14.2 million after
tax).
(4) Includes a $100 million charge ($60.2 million after tax) reflecting TETCO's
settlement of Order 636 implementation and other issues.
(5) Includes a net tax provision of approximately $5 million, primarily
reflecting approximately $9 million for the retroactive impact of the
federal tax rate increase.
(6) Includes a gain of $48.2 million ($28.7 million after tax) resulting from
the sale of a partial interest in Northern Border Partners, L.P.
<PAGE> 1
EXHIBIT 99.5
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------
$ Millions, except per share amounts 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME OPERATING REVENUES $ 4,585.1 $4,302.0 $ 3,881.3 (1)
COSTS AND EXPENSES
Natural gas and petroleum products purchased 2,829.4 2,575.6 2,058.9
Operating and maintenance 553.3 650.6 (2) 577.1
Depreciation and amortization 257.0 250.8 258.9
Special charge--LNG facilities write-down -- -- --
Other costs and expenses 360.1 (3) 333.2 337.9
-------------------------------------------------
OPERATING INCOME 585.3 491.8 648.5
INTEREST EXPENSE 245.0 282.5 307.2 (1)
INCOME (LOSS) FROM CONTINUING OPERATIONS 225.2 (3) 171.6 (2),(4) 202.0 (1)
NET INCOME (LOSS) $ 225.2 (3) $ 171.6 (2),(4) $ 202.0 (1)
AVERAGE COMMON SHARES OUTSTANDING, millions 148.7 142.4 (6) 134.6
EARNINGS (LOSSES) PER COMMON SHARE
Continuing operations $ 1.51 $ 1.21 $ 1.50
Total 1.51 1.21 1.50
DIVIDENDS PER COMMON SHARE $ 0.84 $ 0.80 $ 0.80
- ---------------------------------------------------------------------------------------------------------------------
BALANCE PLANT, PROPERTY AND EQUIPMENT $ 8,039.9 $7,523.4 $ 7,360.2
SHEET Accumulated depreciation and amortization (3,032.1) (2,826.7) (2,753.8)
-------------------------------------------------
Net plant, property and equipment $ 5,007.8 $4,696.7 $ 4,606.4
TOTAL ASSETS $ 7,507.5 $7,607.8 $ 7,714.9
CAPITAL STRUCTURE
Long-term debt due within one year $ 4.1 $ 66.5 $ 196.3
Notes payable -- 18.4 41.7
Long-term debt 2,363.7 2,085.5 2,615.6
Common stockholders' equity 2,035.2 1,879.4 1,556.8
-------------------------------------------------
TOTAL CAPITALIZATION $ 4,403.0 $4,049.8 $ 4,410.4
BOOK VALUE PER COMMON SHARE $ 13.65 $ 12.73 $ 11.47
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS OPERATING CASH FLOW $ 448.0 $ 769.5 $ 147.6
CAPITAL EXPENDITURES $ 555.3 $ 366.8 $ 356.0
- ---------------------------------------------------------------------------------------------------------------------
OPERATING NATURAL GAS PIPELINE VOLUMES, Bcf(7)
DATA Market area 2,219 2,093 2,031
Supply area 279 307 347
-------------------------------------------------
Total Volumes 2,498 2,400 2,378
-------------------------------------------------
MARKET AND SUPPLY SERVICES
Natural gas gathered/processed, Bcf/d(8) 1.6 1.4 1.2
Natural gas marketed, Bcf/d 3.1 2.3 1.8
NGLs production, thousand barrels/day 49 42 33
=====================================================================================================================
<CAPTION>
Years Ended December 31
---------------------------
$ Millions, except per share amounts 1991 1990
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME OPERATING REVENUES $ 3,409.5 $ 3,753.5
COSTS AND EXPENSES
Natural gas and petroleum products purchased 1,773.1 2,093.0
Operating and maintenance 561.9 653.0
Depreciation and amortization 268.8 285.3
Special charge--LNG facilities write-down -- 310.0
Other costs and expenses 345.1 363.6
---------------------------
OPERATING INCOME 460.6 48.6
INTEREST EXPENSE 344.6 362.8
INCOME (LOSS) FROM CONTINUING OPERATIONS 99.4 (239.0)
NET INCOME (LOSS) $ 99.4 $ (274.8)(5)
AVERAGE COMMON SHARES OUTSTANDING, millions 122.5 108.8
EARNINGS (LOSSES) PER COMMON SHARE
Continuing operations $ 0.81 $ (2.20)
Total 0.81 (2.53)
DIVIDENDS PER COMMON SHARE $ 0.80 $ 1.40
- -----------------------------------------------------------------------------------------------
BALANCE PLANT, PROPERTY AND EQUIPMENT $ 7,092.5 $ 6,866.5
SHEET Accumulated depreciation and amortization (2,658.3) (2,488.4)
---------------------------
Net plant, property and equipment $ 4,434.2 $ 4,378.1
TOTAL ASSETS $ 7,441.5 $ 7,548.4
CAPITAL STRUCTURE
Long-term debt due within one year $ 224.7 $ 258.1
Notes payable -- --
Long-term debt 2,372.4 2,519.2
Common stockholders' equity 1,406.3 1,168.5
---------------------------
TOTAL CAPITALIZATION $ 4,003.4 $ 3,945.8
BOOK VALUE PER COMMON SHARE $ 10.61 $ 10.40
- -----------------------------------------------------------------------------------------------
CASH FLOWS OPERATING CASH FLOW $ 358.2 $ 13.7
CAPITAL EXPENDITURES $ 284.1 $ 444.9
- -----------------------------------------------------------------------------------------------
OPERATING NATURAL GAS PIPELINE VOLUMES, Bcf(7)
DATA Market area 1,801 1,853
Supply area 329 329
---------------------------
Total Volumes 2,130 2,182
---------------------------
MARKET AND SUPPLY SERVICES
Natural gas gathered/processed, Bcf/d(8) 1.1 0.9
Natural gas marketed, Bcf/d 1.3 1.1
NGLs production, thousand barrels/day 25 22
===============================================================================================
</TABLE>
Data has been restated to reflect the merger with Associated Natural Gas
Corporation.
(1) Includes revenues for the LNG project settlement of $88.6 million and $17.5
million in reduced interest expense ($57.7 million after tax).
(2) Includes a $100 million charge ($60.2 million after tax) reflecting TETCO's
settlement of Order 636 implementation and other issues.
(3) Includes nonrecurring merger costs of $16.2 million ($14.2 million after
tax).
(4) Includes a gain of $48.2 million ($28.7 million after tax) resulting from
the sale of a partial interest in Northern Border Partners, L.P.
(5) Includes a $60.7 million decrease for the cumulative effect of a change in
accounting principle.
(6) Includes the issuance of 10 million shares of common stock in June 1993.
(7) Billion cubic feet at 14.73 pounds per square inch atmospheric pressure.
(8) Billion cubic feet per day.
See the Notes to Consolidated Financial Statements for a discussion of material
contingencies and Note 2 for the restatement resulting from a merger.
