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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NO. 1-8157
PANHANDLE EASTERN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 74-2150460
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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5400 WESTHEIMER COURT
P.O. BOX 1642
HOUSTON, TEXAS 77251-1642
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
(713) 627-5400
(TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<C> <S>
Common Stock, $1.00 par value The New York Stock Exchange, Inc.
The Pacific Stock Exchange Inc.
Preferred Stock Purchase The New York Stock Exchange, Inc.
Rights The Pacific Stock Exchange Inc.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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State the aggregate market value of the voting stock held by non-affiliates
of the Registrant. The aggregate market value is computed by reference to the
last sale price of the Registrant's Common Stock, on the Composite Tape -- New
York Stock Exchange Transactions, on February 28, 1995.
$3,357,050,153
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<CAPTION>
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS AS OF FEBRUARY 28, 1995
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<S> <C>
Common Stock, $1.00 par value 149,181,970
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DOCUMENTS INCORPORATED BY REFERENCE
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<CAPTION>
PART OF
FORM 10-K
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<S> <C>
Part I Portions of the Annual Report to Stockholders of Panhandle Eastern Corporation for the
year ended December 31, 1994
Part II Portions of the Annual Report to Stockholders of Panhandle Eastern Corporation for the
year ended December 31, 1994
Part III Portions of the Definitive Proxy Statement, dated March 13, 1995, for the Annual
Meeting of Stockholders of Panhandle Eastern Corporation, to be held April 26, 1995
Part IV Portions of the Annual Report to Stockholders of Panhandle Eastern Corporation for the
year ended December 31, 1994
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TABLE OF CONTENTS
PART I
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<S> <C> <C>
Item 1. Business...................................................................... 1
General....................................................................... 1
Natural Gas Transmission Group................................................ 2
Market and Supply Services Group.............................................. 6
LNG Operations................................................................ 7
Investments................................................................... 7
Regulation.................................................................... 8
Rates and Regulatory Proceedings.............................................. 9
Competition................................................................... 9
Environmental Matters......................................................... 10
General Matters............................................................... 10
Item 2. Properties.................................................................... 10
Item 3. Legal Proceedings............................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders........................... 13
Executive Officers of Registrant......................................................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......... 14
Item 6. Selected Financial Data....................................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 14
Operations....................................................................
Item 8. Financial Statements and Supplementary Data................................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 14
Disclosure....................................................................
PART III
Item 10. Directors and Executive Officers of the Registrant............................ 14
Item 11. Executive Compensation........................................................ 14
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 14
Item 13. Certain Relationships and Related Transactions................................ 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 15
Index to Financial Statements and Schedules.............................................. 20
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All gas volumes used herein are stated at 14.73 pounds per square inch, on
a dry basis, at 60 degrees Fahrenheit.
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PART I
ITEM 1. BUSINESS
GENERAL
Panhandle Eastern Corporation ("PEC") is a holding company whose
subsidiaries are primarily engaged in the interstate transportation and storage
of natural gas and in the gathering, processing, marketing and intrastate
transportation of natural gas, natural gas liquids ("NGLs") and crude oil.
Services relating to the interstate transportation and storage of natural
gas are provided by the Company's natural gas transmission group. This group
includes four major interstate pipeline subsidiaries of PEC -- Texas Eastern
Transmission Corporation ("TETCO"), Algonquin Gas Transmission Company
("Algonquin"), Panhandle Eastern Pipe Line Company ("PEPL") and Trunkline Gas
Company ("Trunkline"). Together, these subsidiaries own and operate one of the
nation's largest gas transmission networks. This fully interconnected
26,000-mile system can receive natural gas from most major North American
producing regions for delivery to markets throughout the Mid-Atlantic, New
England and Midwest states.
Services relating to the gathering, processing, marketing and intrastate
transportation of natural gas, NGLs and crude oil are provided by the Company's
market and supply services group. This group operates primarily through
Associated Natural Gas Corporation ("ANGC"), Centana Energy Corporation
("Centana") and their subsidiaries. ANGC was merged with the Company in December
1994 in a transaction accounted for as a pooling of interests.
PEC also owns subsidiaries engaged in the importation of liquefied natural
gas ("LNG") from Algeria, as well as in the transportation, storage and
regasification of LNG. In addition, PEC, through subsidiaries, owns interests in
a partnership operating a cogeneration facility, in a joint venture that owns
and operates a chemical-grade methanol plant and an MTBE (methyl tertiary butyl
ether) plant in Saudi Arabia and in master limited partnerships engaged in the
transportation of natural gas in interstate commerce and in the transportation
and storage of petroleum products.
Financial information concerning the Company's business segments and
sources of revenues is set forth in Note 3 of Notes to Consolidated Financial
Statements on page 38, and in the Consolidated Statement of Income on page 31,
of the PEC 1994 Annual Report to Stockholders (the "Annual Report"), filed as
Exhibit 13, which are incorporated herein by reference. Information concerning
the merger with ANGC is set forth in Note 2 of Notes to Consolidated Financial
Statements on page 37 of the Annual Report, which is incorporated herein by
reference.
PEC is a Delaware corporation organized in 1981 in connection with the
corporate restructuring of PEPL, which was incorporated in 1929. Executive
offices of PEC are located at 5400 Westheimer Court, Houston, Texas 77056-5310,
and the telephone number is (713) 627-5400. As used herein, and unless otherwise
stated, "PEC" refers to Panhandle Eastern Corporation and "Company" refers to
Panhandle Eastern Corporation and its subsidiaries.
Certain Terms
Certain terms used in the description of the Company's business are
explained below.
Federal Energy Regulatory Commission ("FERC"): The agency that regulates
the transportation of natural gas in interstate commerce under the Natural Gas
Act of 1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the "NGPA").
FERC's jurisdiction includes rate-making, construction of facilities and
authorization to provide service.
Firm Service: Transportation or storage of third-party gas, where
customers pay a charge to reserve pipeline or storage capacity.
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Gathering Systems: Pipeline, processing and related facilities that access
production and other sources of natural gas supplies for delivery to mainline
transportation systems.
Interruptible Service: Transportation or storage of third-party gas
provided by pipelines on a capacity-available basis.
Local Distribution Company ("LDC"): A municipal or investor-owned utility
that sells or transports gas to local commercial, industrial and residential
consumers.
Merchant Service: Prior to FERC Order 636, traditional service volumes
aggregated by pipelines, under purchase contracts with producers, and
transported and resold to natural gas utilities and other customers at
FERC-approved rates.
Order 636: The FERC pipeline service restructuring rule that guided the
industry's transition to unbundled, open-access pipeline transportation and
related services, creating a more market-responsive environment.
Reservation Charge: The amount paid by firm transportation or storage
customers to reserve pipeline or storage capacity.
Straight Fixed-Variable ("SFV"): A rate design which assigns return on
equity, related taxes and other fixed costs to the reservation component of
rates.
Transition Costs: Those costs incurred as a result of the pipelines'
transition to unbundled services under Order 636. The disposition of natural gas
contracts tied to the former merchant function comprises the majority of such
costs.
Units of Measure:
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MMcf: One million cubic feet
MMcf/d: One million cubic feet per day
Bcf: One billion cubic feet
Tcf: One trillion cubic feet
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NATURAL GAS TRANSMISSION GROUP
General
The Company's interstate pipelines hold an approximate one-third market
share within the Mid-Atlantic, New England and Midwest states. During 1994, the
pipelines delivered 2.50 Tcf of natural gas, equal to approximately 12% of U.S.
consumption.
For TETCO, Algonquin, PEPL and Trunkline, 1994 was the first full year of
restructured services under FERC Order 636. See "Regulation". As a result of
Order 636, all traditional pipeline sales services ceased during the fourth
quarter of 1994, when Trunkline's sales service contracts expired.
Market and Supply Area Deliveries
Market-area natural gas deliveries by the Company's interstate pipelines
were 2.22 Tcf in 1994, up from the 2.09 Tcf delivered in 1993. Consolidated
pipeline deliveries totaled 2.50 Tcf, compared to 2.40 Tcf in 1993.
As used herein, "market area" with respect to each pipeline refers to those
portions of the pipeline that include primarily delivery points for natural gas
leaving the pipeline, and "supply area" with respect to each pipeline refers to
those portions of the pipeline that include primarily receipt points for gas
entering the pipeline. Market-area deliveries represent volumes of gas delivered
to the market area, while supply-area deliveries represent volumes of gas
delivered to the supply area. Generally, rates for supply-area service have
lower margins than rates for market-area service.
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Set forth below is information concerning volumes for PEC's interstate
natural gas pipeline subsidiaries for 1994, 1993 and 1992 (volumes in Bcf).
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% % %
1994 TOTAL 1993 TOTAL 1992 TOTAL
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<S> <C> <C> <C> <C> <C> <C>
Market-area
Transports
TETCO...................................... 1,014 41 927 39 770 32
Algonquin.................................. 279 11 236 10 237 10
PEPL....................................... 579 23 538 22 584 24
Trunkline.................................. 434 17 389 16 351 15
Eliminations(A)............................ (87) (3) (120) (5) (174) (7)
----- ----- ----- ----- ----- -----
2,219 89 1,970 82 1,768 74
===== ==== ===== ==== ===== ====
Sales
TETCO...................................... -- -- 33 1 97 4
Algonquin.................................. -- -- 2 -- 20 1
PEPL....................................... -- -- 22 1 62 2
Trunkline(B)............................... -- -- 66 3 94 4
Eliminations(A)............................ -- -- -- -- (10) --
----- ----- ----- ----- ----- -----
-- -- 123 5 263 11
----- ----- ----- ----- ----- -----
Total Market Area............................ 2,219 89 2,093 87 2,031 85
===== ==== ===== ==== ===== ====
Supply-area Transports
TETCO...................................... 141 5 118 5 154 7
PEPL....................................... 41 2 43 2 60 2
Trunkline.................................. 97 4 147 6 136 6
Eliminations(A)............................ -- -- (1) -- (3) --
----- ----- ----- ----- ----- -----
279 11 307 13 347 15
----- ----- ----- ----- ----- -----
Total Volumes................................ 2,498 100 2,400 100 2,378 100
===== ==== ===== ==== ===== ====
Summary by Pipeline (Total Volumes)
TETCO...................................... 1,155 46 1,078 45 1,021 43
Algonquin.................................. 279 11 238 10 257 11
PEPL....................................... 620 25 603 25 706 30
Trunkline.................................. 531 21 602 25 581 24
Eliminations(A)............................ (87) (3) (121) (5) (187) (8)
----- ----- ----- ----- ----- -----
Total........................................ 2,498 100 2,400 100 2,378 100
===== ==== ===== ==== ===== ====
</TABLE>
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(A) Represents intercompany transactions.
(B) Excludes 89 Bcf and 41 Bcf for 1994 and 1993, respectively, which are
reported as transports.
Demand for gas transmission on the Company's pipeline systems is seasonal,
with the highest throughput occurring during the colder periods in the first and
fourth quarters -- the winter heating season. However, the SFV rate design
required by Order 636 has resulted in pipeline earnings generally being more
evenly distributed throughout the year.
Northeast Area
TETCO. TETCO's principal customers are located in Pennsylvania, New Jersey
and New York, and include LDCs serving the Pittsburgh, Philadelphia, Newark and
New York City metropolitan areas. Total
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throughput increased 7% in 1994 as a result of colder than normal weather in the
first quarter and new incremental services.
In November, the 1994 portion of the Integrated Transportation Program
("ITP") was placed in service. ITP utilizes all four of the Company's interstate
natural gas pipeline systems to provide approximately 130 MMcf/d of firm
transportation service for five Northeast customers. An additional 45 MMcf/d of
ITP service is scheduled for 1995, with 25 MMcf/d planned for 1996.
Flex-X(R), a project of PEC's subsidiary, 1Source Development Company, is
designed to add up to 700 MMcf/d of incremental capacity over a 10-year period,
tailored to the customers' individual needs, and began providing 18 MMcf/d of
firm transportation service to four TETCO customers in November 1994. TETCO has
filed for FERC approval to provide additional firm service of 33 MMcf/d in 1995
and 39 MMcf/d in the fall of 1996 to TETCO customers. Firm transportation
commitments under the program now total approximately 90 MMcf/d.
TETCO also expanded natural gas service to Northeast electric power
generators. In April 1994, TETCO completed a connection to provide interruptible
transportation service of up to 80 MMcf/d to PECO Energy Company's Eddystone
power plant near Philadelphia.
On the supply area portion of its system, TETCO in 1994 delivered 9 Bcf of
domestic supplies to PEMEX Gas and Basic Petrochemicals ("PEMEX"), Mexico's
national gas and petrochemical company, under a contract providing for
interruptible transportation service. TETCO also transported over 7 Bcf of gas
from PEMEX into the United States under various shipping contracts.
Algonquin. Algonquin's major customers include LDCs and electric power
generators located in the Boston, Hartford, New Haven, Providence and Cape Cod
areas.
Algonquin's total throughput for 1994 increased by 17% compared to 1993
primarily as a result of incremental market projects placed in service in late
1993 and during 1994.
Algonquin expanded mainline facilities to provide an additional 65 MMcf/d
of long-term firm transportation in 1994 and early 1995 to meet increased
demand. In addition, Phase I of expanded, long-term firm transportation service
totaling 20 MMcf/d over 10 years for Consolidated Edison Company of New York
began in 1994. Algonquin has filed for FERC approval to provide up to 75 MMcf/d
of firm service in late 1995 on a new pipeline lateral connecting with the Canal
Electric Company facility in Sandwich, Massachusetts. The plant is converting
one of two generating units to natural gas. In 1994, Algonquin also began
providing firm transportation, winter-only service to meet customers' seasonal
requirements.
Midwest Area
PEPL. PEPL's market volumes are concentrated among approximately 20
utilities located in the Midwest market area that encompasses large portions of
Michigan, Ohio, Indiana, Illinois and Missouri. PEPL's major customers serving
this market include utilities, producers and independent marketers. PEPL's total
deliveries increased 3% in 1994.
New market efforts produced contracts in 1994 with terms of 10 to 22 years
with Dayton Power and Light Company, MCN Corporation and Sithe Energy Company
for firm service totaling approximately 190 MMcf/d. Agreements reached in 1994
extended firm service contracts with 54 customers an average of five years
covering 400 MMcf/d. PEPL plans to continue to expand and extend service
offerings, while selectively targeting additional new markets.
In 1993, a PEPL subsidiary entered into a joint venture with a subsidiary
of Western Gas Resources, Inc. that will provide natural gas gathering,
processing and marketing services for natural gas producers. Both companies will
contribute to the venture certain pipeline and gas processing facilities in
Oklahoma. FERC has approved the transfer, subject to certain conditions. The
Company's interest in this venture will be managed by Centana.
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In December 1993, PEPL filed with FERC to transfer its remaining gathering
facilities located west of the Haven, Kansas compressor facility to Panhandle
Field Services Company, a newly created Company subsidiary. In October 1994,
PEPL agreed to sell, subject to FERC approval, a portion of these facilities and
certain transmission facilities to Anadarko Petroleum Corporation ("Anadarko").
The gathering facilities remaining in Panhandle Field Services Company after the
sale to Anadarko will be operated on an open-access, non-regulated basis, thus
expanding supply area opportunities.
Trunkline. Trunkline's major customers include eight utilities located in
portions of Tennessee, Missouri, Illinois, Indiana and Michigan.
Trunkline's total throughput decreased 12% in 1994 as a result of decreased
sales volumes and capacity release programs offered by other pipelines; however,
throughput related to firm transportation contracts rose to 70% of capacity in
1994. Trunkline ended its remaining unbundled sales service in late 1994.
In November 1994, Trunkline began providing 90 MMcf/d to the Memphis market
under a 10-year firm transportation contract. These volumes are delivered
through a new, second connection with Memphis Light, Gas & Water capable of
flowing over 380 MMcf/d. An agreement was reached to extend firm service
contracts five years for more than 330 MMcf/d to Consumers Power Company and 30
MMcf/d to the Midland Cogeneration Venture Limited Partnership ("MCV").
Storage
TETCO provides firm and interruptible open-access storage services. Since
the implementation of Order 636 restructuring, storage is offered as a
stand-alone unbundled service or as part of a no-notice bundled service. TETCO's
storage services utilize two joint venture storage projects in Pennsylvania and
one wholly-owned and operated storage field in Maryland. TETCO's certificated
working capacity in these three fields is 66 Bcf, and on December 31, 1994 the
combined working capacity was 55 Bcf. TETCO also leases storage capacity.
Algonquin owns no storage fields.
PEPL owns and operates three underground storage fields located in
Illinois, Michigan and Oklahoma. Trunkline owns and operates one storage field
in Louisiana. The combined maximum working gas capacity is 44 Bcf. Additionally,
PEPL, through its Pan Gas Storage Company ("Pan Gas") subsidiary, is the owner
of a storage field in Kansas with an estimated maximum capacity of 26 Bcf. PEPL
is the operator of the field. Since the implementation of Order 636
restructuring, PEPL, Trunkline and Pan Gas all offer firm and interruptible
storage on an open-access basis. In addition to owning storage fields, PEPL also
leases storage capacity. PEPL and Trunkline have retained the right to use up to
15 Bcf and 10 Bcf, respectively, of their storage capacity for system needs.
Other Services
1Source Information Services Company provides comprehensive information
products and services for the energy industry. The 1QuestTM product group offers
an array of application software systems, currently licensed to 20 customers,
which allows customers to access information covering a broad range of
marketplace operations, including the growing hub, market center and electronic
trading segments. 1ConnectTM Network Services are a nationwide electronic
energy-industry network which allows customers to communicate with business
associates and provides other services and information in a single computer
interface. 1Connect's existing clients include the Company's four interstate
pipelines, as well as two other major interstate gas pipeline companies.
1Source Development Company's proposed projects are designed to capitalize
on natural gas demand resulting from increased residential and commercial
construction and fuel conversions. These initiatives include WinterNetTM, peak
and seasonal services offered to Mid-Atlantic and Southeast markets;
EnergyPlusTM, a network of proposed LNG storage facilities to respond to
Northeast customers' growing peak-day demand; and Sable Island, a project to
access new gas supply in Nova Scotia for delivery to eastern Canadian and U.S.
markets.
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MARKET AND SUPPLY SERVICES GROUP
General
The Company's market and supply services group, operating primarily through
ANGC, Centana and their subsidiaries, is engaged in the gathering, processing,
marketing, storage and intrastate transportation of natural gas, NGLs and crude
oil.
Natural Gas Marketing
The Company markets natural gas primarily to industrial end-users and to
LDCs. During 1994, the Company marketed an average of 3.1 Bcf of natural gas per
day.
Marketing operations encompass both on-system and off-system sales. With
respect to on-system sales, the Company generally purchases natural gas from
producers at the wellhead, gathers, transports and (if necessary) processes the
gas in its own facilities (see "Natural Gas Gathering and Processing" below) and
delivers the gas to an intrastate or interstate pipeline for redelivery to the
customer. With respect to off-system sales, the Company purchases natural gas
from producers, pipelines and other suppliers not connected with the Company's
facilities for resale to customers. The Company also provides energy-marketing
services, such as supply and market aggregation, dispatching, balancing,
transportation, storage, contract negotiation and administration, as well as
certain financial products and services.
The Company currently provides marketing services to customers transporting
gas on 42 pipeline systems serving all of the lower 48 states. In addition, the
Company markets natural gas in Canada and the United Kingdom.
The Company has a balanced portfolio of short-term and long-term gas sales
agreements with customers, of which the vast majority incorporate
market-sensitive pricing terms. Long-term gas purchase agreements with
producers, principally entered into in connection with system sales, also
generally include market-sensitive pricing provisions. Purchases and sales of
off-system supply are normally made under short-term contracts. Purchase and
sales commitments involving significant market exposure are generally hedged
with commodity futures, swaps and options. For information concerning the
Company's risk management activities, see Note 6 of Notes to Consolidated
Financial Statements on pages 41 and 42 of the Annual Report, which are
incorporated herein by reference.
Natural Gas Gathering and Processing
The Company owns and operates approximately 11,000 miles of natural gas
gathering systems, including intrastate pipelines, and 16 natural gas processing
plants in the United States.
The Company's gathering systems are located in nine central states (see map
under Item 2). These systems connect to major gas-producing regions in the Rocky
Mountain, Mid-Continent and Gulf Coast areas. Included in the Company's
gathering operations are five intrastate pipeline systems and two natural gas
storage facilities, including the Winnie Pipeline and Spindletop Storage
Facility in southeast Texas purchased during 1994. The Company plans to further
expand its infrastructure in this region during 1995 by expanding the storage
facilities and constructing or purchasing additional facilities. These
enhancements should enable the Company to provide expanded services for natural
gas producers and other customers in the Gulf Coast Region.
The Company's NGLs processing operations involve the extraction of NGLs
from natural gas and, at certain facilities, the fractionation of the NGLs into
their individual components (ethane, propane, butane and natural gasoline). The
natural gas used in the Company's processing operations is generally gathered on
the Company's gathering system or, in the case of the facility of subsidiary
National Helium Corporation ("National Helium") in Liberal, Kansas, from the
natural gas stream on PEPL's transmission system. NGLs are sold by the Company
to a variety of wholesale and retail customers and to refiners at market prices
determined from time to time. The Company also provides, on a more limited
basis, processing services to
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producers and others for a stipulated fee. During 1994, NGLs production at the
Company's facilities averaged approximately 49,000 barrels per day. The Company
also produces helium at the National Helium facility.
Crude Oil and NGL Transportation; Crude Oil Marketing
The market and supply services group, through subsidiary Associated
Transport and Trading Company and its affiliates ("ATTCO"), operates
approximately 1,150 miles of intrastate crude oil pipelines in the Mid-Continent
and southern Texas and approximately 450 miles of NGLs pipelines in the Texas
Gulf Coast area.
The crude oil pipeline system provides gathering and mainline
transportation service, for a volumetric fee, based on ATTCO's published
tariffs. During 1994, crude oil throughput on ATTCO's pipelines averaged
approximately 52,000 barrels per day. ATTCO also purchases crude oil from
producers and markets it to end users.
ATTCO's NGLs transportation system transports NGLs received from 12
processing plants in southern Texas. During 1994, NGLs throughput averaged
approximately 16,000 barrels per day.
LNG OPERATIONS
Subsidiaries of PEC entered into LNG import agreements with Sonatrach, the
national oil and gas company of Algeria, in April 1987. The agreements provide
for the importation of up to 3.3 Tcf of LNG over a period of up to 20 years. The
agreements impose no take-or-pay or ship-or-pay obligations upon the Company and
do not establish any minimum annual purchase volumes.
In November 1989, FERC authorized Trunkline LNG Company ("Trunkline LNG")
to provide receiving, storing and regasification services at its Lake Charles,
Louisiana facility. Activation of the LNG program was based primarily on the
agreements with Sonatrach, as well as a long-term contract with Citrus Trading
Corp. ("Citrus") that provides for the sale of up to 110 MMcf/d of gas. Citrus
can elect not to purchase gas in any month if residual fuel oil prices during
the previous month fall below a certain level. However, in the event of such
election, the Company has the option to require Citrus to purchase nominated
volumes at a contractually determined reduced price. Therefore, volumes and
prices under the Citrus contract are not certain. Deliveries of gas to Citrus
were made during six months of 1994, averaging 80 MMcf/d. In 1994, the Company
sold 17.7 Bcf of regasified LNG.
An Algonquin subsidiary owns and operates an LNG facility in Providence,
Rhode Island. The facility provides LNG handling services, including receipt,
storage and redelivery.
INVESTMENTS
Midland Cogeneration Venture
A Company subsidiary owns an approximate 14.3% equity interest in MCV,
which became operational in 1990. MCV converted an incomplete nuclear power
plant to a dual-purpose energy unit that uses natural gas to generate
electricity and produce industrial process steam. PEPL and Trunkline provide 95
MMcf/d of firm transportation to MCV.
National Methanol Company
The Company owns a 25% interest in National Methanol Company ("National
Methanol"), a joint venture which owns and operates a chemical-grade methanol
plant located in Jubail, Saudi Arabia. The other partners are Hoechst Celanese
Corporation, with a 25% interest, and majority state-owned Saudi Basic
Industries Corporation, with a 50% interest. National Methanol completed a
700,000 metric ton-per-year MTBE (methyl tertiary butyl ether) unit that began
commercial operations in 1994.
Northern Border
In 1993, a PEPL subsidiary, together with several other partners,
contributed its ownership interest in Northern Border Pipeline Company
("Northern Border Pipeline") to a newly-formed master limited
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partnership, Northern Border Partners, L.P. ("Northern Border MLP"). Following a
1993 public offering by Northern Border MLP, the PEPL subsidiary continues to
own an 8.5% equity interest in that entity (a 32.5% voting interest), consisting
of general partner and subordinated limited partner interests. Northern Border
MLP owns a 70% interest in Northern Border Pipeline, which owns and operates a
transmission system consisting of 969 miles of pipeline extending from the
Canadian border through Montana to Iowa. Northern Border Pipeline transports
natural gas both under traditional long-term contracts and on an open-access
basis. It has a certificated transport capacity of 975 MMcf/d.
TEPPCO Partners
TEPPCO Partners, L.P. ("TEPPCO Partners") was formed in March 1990 to own
and operate the refined petroleum products and liquefied petroleum gases
("LPGs") pipeline business of Texas Eastern Products Pipeline Company
("TEPPCO"). TEPPCO, a PEC subsidiary, owns a 2% general partner interest and
Deferred Participation Interests ("DPIs") representing an effective 8.45%
limited partner interest in TEPPCO Partners. Effective April 1, 1994, the DPIs
began to participate on the same basis as limited partner units. The remaining
89.55% limited partnership interest was sold to the public in 1990.
TEPPCO Partners owns and operates an approximate 4,300-mile refined
petroleum products and LPG pipeline system extending from southeast Texas
through the midwestern and central United States to the northeastern United
States. The pipeline system includes delivery terminals along the pipeline for
outloading product to tank trucks, rail cars or barges, as well as storage
capacity at Mont Belvieu, Texas, the largest LPG storage complex in the United
States, and at other locations. TEPPCO Partners also owns two marine receiving
terminals at Beaumont, Texas and Providence, Rhode Island. The TEPPCO Partners
pipeline system is the only pipeline that transports LPGs to the Northeast.
REGULATION
TETCO, Algonquin, PEPL, Trunkline, Trunkline LNG and Pan Gas are "natural
gas companies" under the NGA and NGPA and, as such, are subject to the
jurisdiction of FERC.
The NGA grants to FERC authority over the construction and operation of
pipeline and related facilities utilized in the transportation and sale of
natural gas in interstate commerce, including the extension, enlargement or
abandonment of such facilities. The Company's subsidiaries hold required
certificates of public convenience and necessity issued by FERC, authorizing
them to construct and operate the pipelines, facilities and properties now in
operation for which certificates are required, and to transport and sell natural
gas in interstate commerce.
FERC also has authority to regulate rates and charges for natural gas
transported in interstate commerce or sold by a natural gas company in
interstate commerce for resale. The price at which gas is directly sold to
industrial customers is not subject to FERC's jurisdiction. The Company's
subsidiaries file with FERC applications for changes in transportation and
storage rates and charges. These changes are normally allowed to become
effective after a suspension period, subject to refund, until such time as FERC
authorizes the actual level of rates and charges.
TETCO, Algonquin, PEPL and Trunkline operate as open-access transporters of
natural gas. In 1992, FERC issued Order 636, which requires open-access
pipelines to provide firm and interruptible transportation services on an equal
basis for all gas supplies, whether purchased from the pipeline or from another
gas supplier. To implement this requirement, Order 636 provides, among other
things, for mandatory unbundling of services that have historically been
provided by pipelines into separate open-access transportation, sales and
storage services.
Order 636, which is on appeal to the courts, provides for the use of the
SFV rate design, which assigns return on equity, related taxes and other fixed
costs to the reservation component of rates. In addition, Order 636 allows
pipelines to recover eligible costs resulting from implementation of Order 636
("transition costs"). Recoverable transition costs include gas supply
realignment costs, unrecovered deferred gas purchase
8
<PAGE> 11
costs, other existing costs incurred in connection with bundled sales services
that cannot be assigned to customers of unbundled services, and capital costs
attributable to the restructuring.
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 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 a 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.
The Company's natural gas gathering and marketing activities are generally
not subject to regulation by FERC under the NGA and the NGPA. In this regard, in
May 1994, FERC issued orders announcing that it would not exercise jurisdiction
over natural gas gathering activities operated by affiliates of interstate
pipeline companies. Unequal regulatory treatment had hampered the
competitiveness of pipeline-affiliated supply-area activities, which include
natural gas processing, storage and marketing, in addition to gathering. FERC's
orders are expected to enable the Company to compete with non-regulated service
providers, which account for the majority of the sector's operations. The
Company's merger with ANGC was a result of the perceived growth opportunities
created by these orders and other aspects of the post-Order 636 environment.
Regulation of the importation and exportation of natural gas is vested in
the Secretary of Energy, who has delegated various aspects of this jurisdiction
to FERC and the Office of Fossil Fuels of the Department of Energy.
The Company's subsidiaries are subject to the Natural Gas Pipeline Safety
Act of 1968, which regulates gas pipeline and LNG plant safety requirements; the
Hazardous Liquid Pipeline Safety Act of 1979, which regulates oil and petroleum
pipelines; and to federal and state environmental legislation.
RATES AND REGULATORY PROCEEDINGS
When rate cases are pending final FERC approval, a portion of the revenues
collected by the Company's natural gas pipelines is subject to possible refunds.
A summary of the status of pending rate cases and related regulatory matters
involving TETCO, Algonquin, PEPL and Trunkline is contained in Note 4 of the
Notes to Consolidated Financial Statements on pages 38 and 39 of the Annual
Report, which are incorporated herein by reference.
COMPETITION
The Company's interstate pipeline subsidiaries compete with other
interstate and intrastate pipeline companies in the transportation and storage
of natural gas. The principal elements of competition among pipelines are rates,
terms of service, and flexibility and reliability of service. The Company's
pipelines continue to offer selective discounting to maximize revenues from
existing capacity.
TETCO competes directly with Transcontinental Gas Pipe Line Corporation,
Tennessee Gas Pipeline Company ("TGPC"), Iroquois Gas Transmission System
("Iroquois"), CNG Transmission Corporation and Columbia Gas Transmission
Corporation. Algonquin competes directly in certain market areas with TGPC and
Iroquois. PEPL and Trunkline compete directly with ANR Pipeline Company, Natural
Gas Pipeline Company of America and Texas Gas Transmission Corporation in the
Midwest market area.
The Company's market and supply services group faces competition both in
acquiring natural gas supplies and in marketing natural gas, NGLs and crude oil.
Competition for natural gas supplies is primarily based on efficiency,
reliability, availability of transportation and ability to obtain a satisfactory
price for the producer's natural gas. Competition for customers is primarily
based upon reliability and price of delivered natural gas, NGLs and crude oil.
The Company's competitors for obtaining additional natural gas supplies, for
gathering and processing natural gas and for marketing and transporting natural
gas, NGLs and crude oil include major integrated oil companies, major interstate
pipelines and their marketing affiliates and national
9
<PAGE> 12
and local natural gas gatherers, brokers, marketers and distributors of varying
size, financial resources and experience.
Natural gas competes with other forms of energy available to the Company's
customers and end users, including electricity, coal and fuel oils. The primary
competitive factor is price. Changes in the availability or price of natural gas
and other forms of energy, the level of business activity, conservation,
legislation and governmental regulations, the capability to convert to
alternative fuels, and other factors, including weather, affect the demand for
natural gas in the areas served by the Company.
ENVIRONMENTAL MATTERS
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. The Company's estimated 1995 capital expenditures include approximately
$25 million related to these requirements. Management believes that any
expenditures necessary will be eligible for recovery in rates.
For a discussion of other environmental matters involving the Company, see
Note 13 of the Notes to Consolidated Financial Statements on page 46 of the
Annual Report, which is incorporated herein by reference.
GENERAL MATTERS
During 1994, no single customer accounted for 10% or more of the Company's
consolidated revenues.
While the Company does engage in some research and development activities,
no such activities conducted during the past three years have been material to
the Company's business, nor have there been any material customer-sponsored
research activities during that period relating to the Company's business
activities.
TETCO, Algonquin, PEPL and Trunkline are members of and provide support to
the Gas Research Institute ("GRI"), which plans and manages research and
development efforts for the gas industry. The funds used to support GRI are
derived from a surcharge on the pipelines' rates pursuant to FERC authorization.
Payments amounted to approximately $22.1 million, $20.8 million and $25 million
in 1994, 1993 and 1992, respectively, for the four companies combined.
Foreign operations and export sales are not material to the Company's
business as a whole.
As of January 1, 1995, the Company had approximately 5,500 employees.
ITEM 2. PROPERTIES
NATURAL GAS TRANSMISSION GROUP
The combined transmission systems of TETCO, Algonquin, PEPL and Trunkline
consist of approximately 26,000 miles of pipeline and 110 mainline compressor
stations having an aggregate of 2,274,000 installed horsepower.
TETCO's gas transmission system extends approximately 1,700 miles from
producing fields in the Gulf Coast region of Texas and Louisiana to Ohio,
Pennsylvania, New Jersey and New York. It consists of two parallel systems, one
comprised of three large-diameter parallel pipelines and the other comprised of
from one to three large-diameter pipelines over its length. TETCO's system,
including the gathering systems, has 74 compressor stations having a total of
1,421,000 installed horsepower. The TETCO system connects with the PEPL and
Trunkline systems through the Lebanon Lateral.
The Lebanon Lateral is located between Grant County, Indiana, and Lebanon,
Ohio. TETCO owns the Indiana portion and a small segment of the Ohio portion of
this pipeline, while the rest of this pipeline in Ohio
10
<PAGE> 13
is jointly owned by TETCO and another interstate gas pipeline company. The
Indiana portion of the Lebanon Lateral extends approximately 53 miles, while the
Ohio portion of this pipeline is 61 miles long.
Algonquin's transmission system connects with TETCO's facilities in
Lambertville and Hanover, New Jersey, and extends through New Jersey, New York,
Connecticut, Rhode Island and Massachusetts to the Boston area. The system
consists of approximately 1,000 miles of pipeline with five compressor stations
having a total of approximately 115,000 installed horsepower.
PEPL's transmission system, which consists of four large-diameter parallel
pipelines, gathering systems and 13 mainline compressor stations having an
aggregate of 403,000 installed horsepower, extends a distance of approximately
1,300 miles from producing areas in the Anadarko Basin of Texas, Oklahoma and
Kansas through the states of Missouri, Illinois, Indiana and Ohio into Michigan.
Trunkline's transmission system extends approximately 1,400 miles from the
Gulf Coast areas of Texas and Louisiana through the states of Arkansas,
Mississippi, Tennessee, Kentucky, Illinois and Indiana to a point on the
Indiana-Michigan border near Elkhart, Indiana. The system consists principally
of three large-diameter parallel pipelines and 18 mainline compressor stations
having an aggregate of 335,000 installed horsepower.
Trunkline also owns and operates two offshore Louisiana gas supply systems
consisting of 337 miles of pipeline extending approximately 81 miles into the
Gulf of Mexico. TETCO owns and operates two offshore Louisiana gas supply
systems, which extend as far as 103 miles into the Gulf of Mexico and consist of
477 miles of pipeline.
For information concerning natural gas storage properties, see "Natural Gas
Transmission Group -- Storage" under Item 1, which is incorporated herein by
reference.
MARKET AND SUPPLY SERVICES GROUP
For information regarding the properties of the Company's market and supply
services segment, see "Market and Supply Services Group" under Item 1, which is
incorporated herein by reference.
LNG FACILITIES
Algonquin LNG, Inc., a subsidiary of Algonquin, owns and operates an LNG
storage facility in Providence, Rhode Island. This facility has a storage
capacity of 600,000 barrels, which approximates 2 Bcf, and a design output
capacity of 100 MMcf/d.
Trunkline LNG owns a marine terminal, storage and regasification facility
for LNG located near Lake Charles, Louisiana. The Trunkline LNG facilities have
a design output capacity of approximately 700 MMcf/d and a storage capacity of
approximately 1.8 million barrels, which approximates 6 Bcf.
Lachmar, a partnership in which subsidiaries of PEC own all of the
partnership interests, owns two LNG ships, each with a transportation capacity
of 125,000 cubic meters of LNG. Both ships are currently without long-term
charters and are being utilized in the spot trade to the extent opportunities
become available. The Company continues to examine opportunities to better
utilize its LNG assets, including the ships.
OTHER
None of the other properties used in connection with the Company's other
business activities is considered material to the Company's operations as a
whole.
11
<PAGE> 14
[Map of Panhandle Eastern Corporation
Showing Pipelines, Storage Facilities,
Principal Supply Areas and Proposed Pipelines.]
12
<PAGE> 15
ITEM 3. LEGAL PROCEEDINGS
For information concerning material legal proceedings, see Notes 4, 11, 13
and 14 on pages 38 through 40, 45, 46 and 47 of the Annual Report, which are
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders was held on Tuesday, December 15, 1994,
for the purpose of considering the proposal to issue and reserve for issuance up
to 30,413,568 shares of common stock of the Company in connection with the
October 9, 1994 Agreement and Plan of Merger, as amended November 23, 1994,
among the Company, ANGC, and Panhandle Acquisition Two, Inc. There were present
in person at the meeting or represented by proxy, stockholders holding
89,150,206 shares of common stock, or 73.9 percent, out of the 120,714,811
shares issued, outstanding and entitled to vote as of the November 11, 1994
record date. There were 87,388,349 shares, or 98.02 percent, cast in favor of
the proposal, 1,253,744 shares, or 1.41 percent, cast against the proposal, and
another 508,112 shares, or .57 percent, abstaining. Accordingly, the proposal
was approved.
------------------------
EXECUTIVE OFFICERS OF REGISTRANT
<TABLE>
<CAPTION>
BECAME AN
AGE IN EXECUTIVE
NAME OFFICE 1995 OFFICER
-------------------------------- ------------------------------------------- ------ ---------
<S> <C> <C> <C>
Dennis R. Hendrix(1)............ Chairman of the Board and Chief Executive 55 1990
Officer
Paul M. Anderson(2)............. President 50 1991
G. L. Mazanec(3)................ Vice Chairman of the Board 59 1989
James B. Hipple(4).............. Senior Vice President and Chief Financial 61 1989
Officer
Carl B. King(5)................. Senior Vice President and General Counsel 52 1990
Paul F. Ferguson, Jr.(6)........ Vice President, Finance and Accounting, and 46 1989
Treasurer
Sandra P. Meyer(7).............. Vice President and Controller 41 1993
James W. Hart, Jr.(8)........... Vice President, Public Affairs 60 1988
Vernell P. Ludwig(9)............ Vice President, Corporate Development 51 1993
</TABLE>
---------------
(1) Mr. Hendrix was elected Chairman of the Board, President and Chief Executive
Officer in November 1990.
(2) Mr. Anderson was elected President effective December 1, 1993. He has been a
director of the Company since December 2, 1992. Prior thereto he was
Executive Vice President from March 1, 1991. Prior to joining PEC, Mr.
Anderson was Vice President, Finance and Chief Financial Officer, Inland
Steel Industries, Inc., 1990-1991.
(3) Mr. Mazanec was elected Vice Chairman of the Board on December 1, 1993. He
has been a director of the Company since December 2, 1992. He was Executive
Vice President of the Company from March 1, 1991 and Group Vice President of
the Company from November 1, 1989 to March 1, 1991.
(4) Mr. Hipple was elected Senior Vice President and Chief Financial Officer in
July 1990. Prior thereto he had been Senior Vice President-Finance.
(5) Mr. King was elected Senior Vice President and General Counsel in June 1990.
Prior to joining PEC, Mr. King was President, Oil Tool Division, Cooper
Industries, 1989-1990.
(6) Mr. Ferguson was elected Vice President, Finance and Accounting, in April
1992 and re-elected as Treasurer in June 1994. Prior thereto Mr. Ferguson
was Vice President and Treasurer from July 1990. Mr. Ferguson was Treasurer,
TEC, 1988-1989.
13
<PAGE> 16
(7) Ms. Meyer was elected Controller of the Company in September 1993 and Vice
President in December 1994. She has been an officer or employee of PEC, or a
subsidiary of PEC, for more than five years.
(8) Mr. Hart has been Vice President of the Company for more than five years.
(9) Mr. Ludwig was elected Vice President, Corporate Development, in January
1993. He was President of Algonquin Energy Corporation and Algonquin Gas
Transmission Corporation from April 1991 and January 1991, respectively, to
August 1993. Prior thereto, Mr. Ludwig was Executive Vice President of those
companies.
All officers of PEC are elected in April of each year at the organizational
meeting of the Board of Directors. There are no family relationships among any
directors or executive officers of PEC.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
See "Stockholders' Information -- Common Stock" on page 51 and Note 12 of
the Notes to Consolidated Financial Statements on page 45 of the Annual Report,
which are incorporated herein by reference. The Common Stock is listed on the
New York and Pacific Stock Exchanges. At February 28, 1995, there were 31,361
holders of record of the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
See page 50 of the Annual Report, which is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See pages 21 through 29 of the Annual Report, which are incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to "Index -- Financial Statements" under Item 14(a)(1).
See the consolidated quarterly financial data on page 49 of the Annual
Report, which is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See pages 2 through 4 and page 6 of the Panhandle Eastern Corporation
Definitive Proxy Statement, dated March 13, 1995 ("Proxy Statement"), which are
incorporated herein by reference.
See list of "Executive Officers of Registrant" on pages 13 and 14, which is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See pages 8 through 16 of the Proxy Statement, which are incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See pages 6 through 8 of the Proxy Statement, which are incorporated herein
by reference.
14
<PAGE> 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See pages 2 through 4, 7 and 8 of the Proxy Statement, which are
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report or
incorporated herein by reference:
(1) The Consolidated Financial Statements of Panhandle Eastern
Corporation and Subsidiaries are listed on the Index, page 20.
(2) Exhibits not incorporated by reference to a prior filing are
designated by an asterisk (*) and are filed herewith; all exhibits not so
designated are incorporated herein by reference to a prior filing as
indicated. Items constituting management contracts or compensatory plans or
arrangements are designated by a double asterisk (**).
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
--------- ----------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
2.01 Agreement and Plan of Merger by and 2.1 to Amendment No. 1 to Form S-4 33-56113
among the Company, Panhandle Acqui- Registration Statement of PEC,
sition Two, Inc., and Associated dated November 14, 1994
Natural Gas Corporation, dated
October 9, 1994
2.02 Amendment to Agreement and Plan of 99.2 to Form 8-K of PEC, dated 1-8157
Merger among the Company, Panhandle November 29, 1994
Acquisition Two, Inc., and
Associated Natural Gas Corporation,
dated as of November 28, 1994
3.01 Restated Certificate of 3.1 to Form S-3 Registration 33-34886
Incorporation of Panhandle Eastern Statement of PEC, dated May 14,
Corporation 1990
3.02 By-Laws of Panhandle Eastern 19(a) to Form 10-Q of PEC for 1-8157
Corporation, effective July 8, 1986 quarter ended September 30, 1986
4.01 Rights Agreement, dated March 11, 1 to Form 8-A Registration 1-8157
1986, between Panhandle Eastern Statement of PEC, dated March 12,
Corporation and First City National 1986
Bank of Houston
4.02 Amendment to Rights Agreement, 4.1 to Form 8-K of PEC dated 1-8157
dated May 6, 1993, among Panhandle May 28, 1993
Eastern Corporation, Texas Commerce
Bank National Association (as
successor to First City National
Bank of Houston), and Continental
Stock Transfer & Trust Company
*4.03 Indenture, dated as of November 1,
1994, between Panhandle Eastern
Corporation and The First National
Bank of Boston, as Trustee
**10.01 1977 Non-Qualified Stock Option 10(f) to Form 10-K of PEC for year 1-8157
Plan of Panhandle Eastern ended December 31, 1986
Corporation, as amended through
December 3, 1986 (and related
Agreement)
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
--------- ----------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
**10.02 1982 Key Employee Stock Option Plan 10(g) to Form 10-K of PEC for year 1-8157
of Panhandle Eastern Corporation, ended December 31, 1986
as amended through December 3, 1986
(and related Agreement)
**10.03 Panhandle Eastern 10(w) to Form 10-K of PEC for year 1-8157
Corporation -- Nonemployee ended December 31, 1985
Directors Retirement Plan (As
amended May 22, 1985)
**10.04 Deferred Compensation Plan for the 10.04 to Form 10-K of PEC for year 1-8157
Board of Directors of Panhandle ended December 31, 1989
Eastern Corporation (Adopted May
26, 1982; as amended November 29,
1989)
* **10.05 Amendment to Deferred Compensation
Plan for the Board of Directors of
Panhandle Eastern Corporation dated
January 25, 1995
**10.06 Panhandle Eastern 10.05 to Form 10-K of PEC for year 1-8157
Corporation -- Executive Benefit ended December 31, 1989
Equalization Plan (As amended
November 29, 1989; effective
January 1, 1990)
**10.07 Panhandle Eastern Corporation 10.06 to Form 10-K of PEC for year 1-8157
Retirement Benefit Equalization ended December 31, 1993
Plan (Adopted December 20, 1993;
effective January 1, 1994; amends
and restates Exhibit number 10.05)
**10.08 Panhandle Eastern 19(a) to Form 10-Q of PEC for 1-8157
Corporation -- Executive Severance quarter ended September 30, 1988
Agreement
10.09 Change in Control Severance Pay 19(c) to Form 10-Q of PEC for 1-8157
Plan of Panhandle Eastern quarter ended September 30, 1986
Corporation and Affiliates (Adopted
July 8, 1986)
**10.10 1989 Nonemployee Directors Stock 28(a) to Form S-8 Registration 33-28912
Option Plan (Adopted February 1, Statement of PEC
1989)
10.11 Employees Savings Plan of Panhandle 10.12 to Form 10-K of PEC for year 1-8157
Eastern Corporation and ended December 31, 1990
Participating Affiliates (Effective
January 1, 1991)
10.12 Retirement Income Plan of Panhandle 10.13 to Form 10-K of PEC for year 1-8157
Eastern Corporation and ended December 31, 1990
Participating Affiliates (Effective
January 1, 1991)
**10.13 Panhandle Eastern Corporation Key 10.12 to Form 10-K of PEC for year 1-8157
Executive Retirement Benefit ended December 31, 1993
Equalization Plan (Adopted December
20, 1993; effective January 1, 1994)
**10.14 Panhandle Eastern Corporation Key 10.13 to Form 10-K of PEC for year 1-8157
Executive Deferred Compensation ended December 31, 1993
Plan (Adopted December 20, 1993;
effective January 1, 1994)
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
--------- ----------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
**10.15 1990 Long Term Incentive Plan 10.14 to Form 10-K of PEC for year 1-8157
(Adopted November 29, 1989) ended December 31, 1990
10.16 Special Recognition Bonus Plan 10.15 to Form 10-K of PEC for year 1-8157
(Adopted November 29, 1989) ended December 31, 1990
10.17 Annual Cash Bonus Plan of Panhandle 19.3 to Form 10-Q of PEC for 1-8157
Eastern Corporation (Adopted Octo- quarter ended September 30, 1989
ber 25, 1989; effective January 1,
1990)
10.18 Texas Eastern Deferred Income Pro- 10.9 to Form 10-K of TEC for years 1-7587
gram; First Amendment, dated Decem- ended December 31, 1984 and 1986;
ber 5, 1985; and Second Amendment, 8 to Schedule 14D-9 of TEC, dated
dated August 15, 1988 January 30, 1989
**10.19 Panhandle Eastern Corporation 1994 10.18 to Form 10-K of PEC for year 1-8157
Long Term Incentive Plan ended December 31, 1993
**10.20 Agreement, dated November 1, 1989, 10.27 to Form 10-K of PEC for year 1-8157
between G. L. Mazanec and Panhandle ended December 31, 1990
Eastern Corporation
**10.21 Amendment to Employment Agreement, 10.17 to Form 10-K of PEC for year 1-8157
effective November 1, 1992, be- ended December 31, 1992
tween G. L. Mazanec and Panhandle
Eastern Corporation
**10.22 Agreement, dated November 12, 1990, 10.28 to Form 10-K of PEC for year 1-8157
between D. R. Hendrix and Panhandle ended December 31, 1990
Eastern Corporation
**10.23 Amendment, dated March 12, 1993 to 10.19 to Form 10-K of PEC for year 1-8157
be effective as of February 24, ended December 31, 1992
1993, to Agreement dated November
12, 1990, between D. R. Hendrix and
Panhandle Eastern Corporation
**10.24 Second Amendment, dated December 10.23 to Form 10-K of PEC for year 1-8157
20, 1993, to Agreement dated ended December 31, 1993
November 12, 1990, between Dennis
Hendrix and Panhandle Eastern
Corporation
**10.25 Agreement, dated July 28, 1989, 10.29 to Form 10-K of PEC for year 1-8157
between James B. Hipple, Panhandle ended December 31, 1990
Eastern Corporation and Texas
Eastern
Transmission Corporation
**10.26 Letter, dated May 4, 1992, from 10.21 to Form 10-K of PEC for year 1-8157
Panhandle Eastern Corporation to ended December 31, 1992
James B. Hipple, amending Agreement
dated July 28, 1989
**10.27 Agreement, dated November 12, 1990, 10.31 to Form 10-K of PEC for year 1-8157
between P. J. Burguieres and ended December 31, 1990
Panhandle Eastern Corporation
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
--------- ----------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
**10.28 Agreement, effective January 1, 10.32 to Form 10-K of PEC for year 1-8157
1991, between P. J. Burguieres and ended December 31, 1990
Panhandle Eastern Corporation
**10.29 Agreement, effective March 1, 1991, 10.24 to Form 10-K of PEC for year 1-8157
between Paul M. Anderson and ended December 31, 1991
Panhandle Eastern Corporation
10.30 Settlement Agreement, dated July 19.4 to Form 10-Q of PEC for 1-8157
21, 1986, among Sonatrach, quarter ended June 30, 1986
Panhandle Eastern Corporation,
Panhandle Eastern Pipe Line Company
and Trunkline LNG Company
10.31 Amendment, dated August 11, 1986, 19.5 to Form 10-Q of PEC for 1-8157
to Settlement Agreement, dated July quarter ended June 30, 1986
21, 1986, among Sonatrach,
Panhandle Eastern Corporation,
Panhandle Eastern Pipe Line Company
and Trunkline LNG Company
10.32 Amendment No. 2, dated August 1, 19(e) to Form 10-Q of PEC for 1-8157
1988, to Settlement Agreement, quarter ended June 30, 1988
dated July 21, 1986, among
Sonatrach, International Petroleum
Investment Partnership, Panhandle
Eastern Corporation, Panhandle
Eastern Pipe Line Company and
Trunkline LNG Company
10.33 Purchase Agreement, dated April 26, 19(a) to Form 10-Q of PEC for 1-8157
1987, between Sonatrading Amsterdam quarter ended March 31, 1987
B.V. and Trunkline LNG Company
10.34 Mutual Assurances Agreement, dated 19(b) to Form 10-Q of PEC for 1-8157
April 26, 1987, among Sonatrach, quarter ended March 31, 1987
Sonatrading Amsterdam B.V., Panhan-
dle Eastern Corporation and
Trunkline LNG Company
10.35 Tanker Utilization Agreement, dated 19(c) to Form 10-Q of PEC for 1-8157
April 26, 1987, between Sonatrading quarter ended March 31, 1987
Amsterdam B.V. and Trunkline LNG
Company
10.36 Transportation Agreement, dated 19(d) to Form 10-Q of PEC for 1-8157
April 26, 1987, between Sonatrach quarter ended March 31, 1987
and Trunkline LNG Company
*13 Panhandle Eastern Corporation 1994
Annual Report to Stockholders
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
--------- ----------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
21 List of Certain Subsidiaries of the
Registrant (each a Delaware
corporation):
(a) Algonquin Energy, Inc.
(b) Algonquin Gas Transmission
Company
(c) Associated Natural Gas
Corporation
(d) Associated Natural Gas, Inc.
(e) Associated Transport and
Trading
Company
(f) Centana Energy Corporation
(g) National Helium Corporation
(h) Panhandle Eastern Pipe Line
Company
(i) Texas Eastern Arabian, Ltd.
(j) Texas Eastern (Bermuda), Ltd.
(k) Texas Eastern Corporation
(l) Texas Eastern Products
Pipeline
Company
(m) Texas Eastern Transmission
Corporation
(n) Trunkline Gas Company
*23 Consent of KPMG Peat Marwick LLP
*24 Powers of Attorney
*27 Financial Data Schedule for
December 31, 1994
*99 Definitive Proxy Statement, dated
March 13, 1995, for the Annual
Meeting of Stockholders of
Panhandle Eastern Corporation
</TABLE>
The total amount of securities of the Registrant or its subsidiaries
authorized under any instrument with respect to long-term debt not filed as an
Exhibit does not exceed 10% of the total assets of the Registrant and its
subsidiaries on a consolidated basis. The Registrant agrees, upon request of the
Securities and Exchange Commission, to furnish copies of any or all of such
instruments.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the three months ended
December 31, 1994:
1. Report dated October 10, 1994, was filed under Items 5 and 7 to
disclose the approval of an Agreement and Plan of Merger with Associated
Natural Gas Corporation.
2. Report dated November 14, 1994, was filed under Items 5 and 7 and
contained the required pro forma financial information and financial
statements of Associated Natural Gas Corporation.
3. Report dated November 29, 1994, was filed under Items 5 and 7 to
disclose the settlement of certain litigation relating to the proposed
merger of the Company and Associated Natural Gas Corporation.
4. Report dated December 5, 1994, was filed under Items 5 and 7 to
disclose that the Company had entered into an underwriting agreement for
the public offering of $100 million principal amount of 8 5/8% Notes Due
December 1, 1999.
5. Report dated December 22, 1994, was filed under Items 2 and 7 to
disclose the completion of the merger with Associated Natural Gas
Corporation and contained required pro forma financial information and
financial statements of Associated Natural Gas Corporation.
19
<PAGE> 22
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
INDEX
FINANCIAL STATEMENTS AND SCHEDULES
------------------------
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Independent Auditors' Report........................................................ 30*
Consolidated Statement of Income.................................................... 31*
Consolidated Balance Sheet.......................................................... 32-33*
Consolidated Statement of Common Stockholders' Equity............................... 34*
Consolidated Statement of Cash Flows................................................ 35*
Notes to Consolidated Financial Statements.......................................... 36-48*
</TABLE>
---------------
* Refers to the pages in the Panhandle Eastern Corporation 1994 Annual Report to
Stockholders, which are incorporated herein by reference.
All Schedules are omitted because they are not applicable, not required or
the information is included in the Consolidated Financial Statements or the
Notes thereto.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By ROBERT W. REED
------------------------------------
(Robert W. Reed, Secretary)
Date: March 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1995.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE
------------------------------------------------------ -----------------------------------
<C> <S>
(i) Principal executive officer:*
DENNIS R. HENDRIX Chairman and Chief Executive
------------------------------------------------------ Officer
(Dennis R. Hendrix)
(ii) Principal financial officer:*
JAMES B. HIPPLE Senior Vice President and Chief
------------------------------------------------------ Financial Officer
(James B. Hipple)
(iii) Principal accounting officer:*
SANDRA P. MEYER Vice President and Controller
------------------------------------------------------
(Sandra P. Meyer)
(iv) Directors:*
PAUL M. ANDERSON
MILTON CARROLL
ROBERT CIZIK
CHARLES W. DUNCAN, JR.
HARRY E. EKBLOM
WILLIAM T. ESREY
ANN MAYNARD GRAY
DENNIS R. HENDRIX
HAROLD S. HOOK
LEO E. LINBECK, JR.
GEORGE L. MAZANEC
RALPH S. O'CONNER
</TABLE>
---------------
* Signed on behalf of each of these persons:
By ROBERT W. REED
------------------------------------------------------
(Robert W. Reed, Attorney-in-Fact)
21
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
--------- ----------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
2.01 Agreement and Plan of Merger by and 2.1 to Amendment No. 1 to Form S-4 33-56113
among the Company, Panhandle Acqui- Registration Statement of PEC,
sition Two, Inc., and Associated dated November 14, 1994
Natural Gas Corporation, dated
October 9, 1994
2.02 Amendment to Agreement and Plan of 99.2 to Form 8-K of PEC, dated 1-8157
Merger among the Company, Panhandle November 29, 1994
Acquisition Two, Inc., and
Associated Natural Gas Corporation,
dated as of November 28, 1994
3.01 Restated Certificate of 3.1 to Form S-3 Registration 33-34886
Incorporation of Panhandle Eastern Statement of PEC, dated May 14,
Corporation 1990
3.02 By-Laws of Panhandle Eastern 19(a) to Form 10-Q of PEC for 1-8157
Corporation, effective July 8, 1986 quarter ended September 30, 1986
4.01 Rights Agreement, dated March 11, 1 to Form 8-A Registration 1-8157
1986, between Panhandle Eastern Statement of PEC, dated March 12,
Corporation and First City National 1986
Bank of Houston
4.02 Amendment to Rights Agreement, 4.1 to Form 8-K of PEC dated 1-8157
dated May 6, 1993, among Panhandle May 28, 1993
Eastern Corporation, Texas Commerce
Bank National Association (as
successor to First City National
Bank of Houston), and Continental
Stock Transfer & Trust Company
*4.03 Indenture, dated as of November 1,
1994, between Panhandle Eastern
Corporation and The First National
Bank of Boston, as Trustee
**10.01 1977 Non-Qualified Stock Option 10(f) to Form 10-K of PEC for year 1-8157
Plan of Panhandle Eastern ended December 31, 1986
Corporation, as amended through
December 3, 1986 (and related
Agreement)
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
--------- ----------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
**10.02 1982 Key Employee Stock Option Plan 10(g) to Form 10-K of PEC for year 1-8157
of Panhandle Eastern Corporation, ended December 31, 1986
as amended through December 3, 1986
(and related Agreement)
**10.03 Panhandle Eastern 10(w) to Form 10-K of PEC for year 1-8157
Corporation -- Nonemployee ended December 31, 1985
Directors Retirement Plan (As
amended May 22, 1985)
**10.04 Deferred Compensation Plan for the 10.04 to Form 10-K of PEC for year 1-8157
Board of Directors of Panhandle ended December 31, 1989
Eastern Corporation (Adopted May
26, 1982; as amended November 29,
1989)
* **10.05 Amendment to Deferred Compensation
Plan for the Board of Directors of
Panhandle Eastern Corporation dated
January 25, 1995
**10.06 Panhandle Eastern 10.05 to Form 10-K of PEC for year 1-8157
Corporation -- Executive Benefit ended December 31, 1989
Equalization Plan (As amended
November 29, 1989; effective
January 1, 1990)
**10.07 Panhandle Eastern Corporation 10.06 to Form 10-K of PEC for year 1-8157
Retirement Benefit Equalization ended December 31, 1993
Plan (Adopted December 20, 1993;
effective January 1, 1994; amends
and restates Exhibit number 10.05)
**10.08 Panhandle Eastern 19(a) to Form 10-Q of PEC for 1-8157
Corporation -- Executive Severance quarter ended September 30, 1988
Agreement
10.09 Change in Control Severance Pay 19(c) to Form 10-Q of PEC for 1-8157
Plan of Panhandle Eastern quarter ended September 30, 1986
Corporation and Affiliates (Adopted
July 8, 1986)
**10.10 1989 Nonemployee Directors Stock 28(a) to Form S-8 Registration 33-28912
Option Plan (Adopted February 1, Statement of PEC
1989)
10.11 Employees Savings Plan of Panhandle 10.12 to Form 10-K of PEC for year 1-8157
Eastern Corporation and ended December 31, 1990
Participating Affiliates (Effective
January 1, 1991)
10.12 Retirement Income Plan of Panhandle 10.13 to Form 10-K of PEC for year 1-8157
Eastern Corporation and ended December 31, 1990
Participating Affiliates (Effective
January 1, 1991)
**10.13 Panhandle Eastern Corporation Key 10.12 to Form 10-K of PEC for year 1-8157
Executive Retirement Benefit ended December 31, 1993
Equalization Plan (Adopted December
20, 1993; effective January 1, 1994)
**10.14 Panhandle Eastern Corporation Key 10.13 to Form 10-K of PEC for year 1-8157
Executive Deferred Compensation ended December 31, 1993
Plan (Adopted December 20, 1993;
effective January 1, 1994)
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
--------- ----------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
**10.15 1990 Long Term Incentive Plan 10.14 to Form 10-K of PEC for year 1-8157
(Adopted November 29, 1989) ended December 31, 1990
10.16 Special Recognition Bonus Plan 10.15 to Form 10-K of PEC for year 1-8157
(Adopted November 29, 1989) ended December 31, 1990
10.17 Annual Cash Bonus Plan of Panhandle 19.3 to Form 10-Q of PEC for 1-8157
Eastern Corporation (Adopted Octo- quarter ended September 30, 1989
ber 25, 1989; effective January 1,
1990)
10.18 Texas Eastern Deferred Income Pro- 10.9 to Form 10-K of TEC for years 1-7587
gram; First Amendment, dated Decem- ended December 31, 1984 and 1986;
ber 5, 1985; and Second Amendment, 8 to Schedule 14D-9 of TEC, dated
dated August 15, 1988 January 30, 1989
**10.19 Panhandle Eastern Corporation 1994 10.18 to Form 10-K of PEC for year 1-8157
Long Term Incentive Plan ended December 31, 1993
**10.20 Agreement, dated November 1, 1989, 10.27 to Form 10-K of PEC for year 1-8157
between G. L. Mazanec and Panhandle ended December 31, 1990
Eastern Corporation
**10.21 Amendment to Employment Agreement, 10.17 to Form 10-K of PEC for year 1-8157
effective November 1, 1992, be- ended December 31, 1992
tween G. L. Mazanec and Panhandle
Eastern Corporation
**10.22 Agreement, dated November 12, 1990, 10.28 to Form 10-K of PEC for year 1-8157
between D. R. Hendrix and Panhandle ended December 31, 1990
Eastern Corporation
**10.23 Amendment, dated March 12, 1993 to 10.19 to Form 10-K of PEC for year 1-8157
be effective as of February 24, ended December 31, 1992
1993, to Agreement dated November
12, 1990, between D. R. Hendrix and
Panhandle Eastern Corporation
**10.24 Second Amendment, dated December 10.23 to Form 10-K of PEC for year 1-8157
20, 1993, to Agreement dated ended December 31, 1993
November 12, 1990, between Dennis
Hendrix and Panhandle Eastern
Corporation
**10.25 Agreement, dated July 28, 1989, 10.29 to Form 10-K of PEC for year 1-8157
between James B. Hipple, Panhandle ended December 31, 1990
Eastern Corporation and Texas
Eastern
Transmission Corporation
**10.26 Letter, dated May 4, 1992, from 10.21 to Form 10-K of PEC for year 1-8157
Panhandle Eastern Corporation to ended December 31, 1992
James B. Hipple, amending Agreement
dated July 28, 1989
**10.27 Agreement, dated November 12, 1990, 10.31 to Form 10-K of PEC for year 1-8157
between P. J. Burguieres and ended December 31, 1990
Panhandle Eastern Corporation
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
--------- ----------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
**10.28 Agreement, effective January 1, 10.32 to Form 10-K of PEC for year 1-8157
1991, between P. J. Burguieres and ended December 31, 1990
Panhandle Eastern Corporation
**10.29 Agreement, effective March 1, 1991, 10.24 to Form 10-K of PEC for year 1-8157
between Paul M. Anderson and ended December 31, 1991
Panhandle Eastern Corporation
10.30 Settlement Agreement, dated July 19.4 to Form 10-Q of PEC for 1-8157
21, 1986, among Sonatrach, quarter ended June 30, 1986
Panhandle Eastern Corporation,
Panhandle Eastern Pipe Line Company
and Trunkline LNG Company
10.31 Amendment, dated August 11, 1986, 19.5 to Form 10-Q of PEC for 1-8157
to Settlement Agreement, dated July quarter ended June 30, 1986
21, 1986, among Sonatrach,
Panhandle Eastern Corporation,
Panhandle Eastern Pipe Line Company
and Trunkline LNG Company
10.32 Amendment No. 2, dated August 1, 19(e) to Form 10-Q of PEC for 1-8157
1988, to Settlement Agreement, quarter ended June 30, 1988
dated July 21, 1986, among
Sonatrach, International Petroleum
Investment Partnership, Panhandle
Eastern Corporation, Panhandle
Eastern Pipe Line Company and
Trunkline LNG Company
10.33 Purchase Agreement, dated April 26, 19(a) to Form 10-Q of PEC for 1-8157
1987, between Sonatrading Amsterdam quarter ended March 31, 1987
B.V. and Trunkline LNG Company
10.34 Mutual Assurances Agreement, dated 19(b) to Form 10-Q of PEC for 1-8157
April 26, 1987, among Sonatrach, quarter ended March 31, 1987
Sonatrading Amsterdam B.V., Panhan-
dle Eastern Corporation and
Trunkline LNG Company
10.35 Tanker Utilization Agreement, dated 19(c) to Form 10-Q of PEC for 1-8157
April 26, 1987, between Sonatrading quarter ended March 31, 1987
Amsterdam B.V. and Trunkline LNG
Company
10.36 Transportation Agreement, dated 19(d) to Form 10-Q of PEC for 1-8157
April 26, 1987, between Sonatrach quarter ended March 31, 1987
and Trunkline LNG Company
*13 Panhandle Eastern Corporation 1994
Annual Report to Stockholders
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
--------- ----------------------------------- ----------------------------------- ---------
<S> <C> <C> <C>
21 List of Certain Subsidiaries of the
Registrant (each a Delaware
corporation):
(a) Algonquin Energy, Inc.
(b) Algonquin Gas Transmission
Company
(c) Associated Natural Gas
Corporation
(d) Associated Natural Gas, Inc.
(e) Associated Transport and
Trading
Company
(f) Centana Energy Corporation
(g) National Helium Corporation
(h) Panhandle Eastern Pipe Line
Company
(i) Texas Eastern Arabian, Ltd.
(j) Texas Eastern (Bermuda), Ltd.
(k) Texas Eastern Corporation
(l) Texas Eastern Products
Pipeline
Company
(m) Texas Eastern Transmission
Corporation
(n) Trunkline Gas Company
*23 Consent of KPMG Peat Marwick LLP
*24 Powers of Attorney
*27 Financial Data Schedule for
December 31, 1994
*99 Definitive Proxy Statement, dated
March 13, 1995, for the Annual
Meeting of Stockholders of
Panhandle Eastern Corporation
</TABLE>
<PAGE> 1
EXHIBIT 10.05
DEFERRED COMPENSATION PLAN
BOARD OF DIRECTORS
OF
PANHANDLE EASTERN CORPORATION
(Adopted May 26, 1982; as amended November 29, 1989
and January 25, 1995)
Panhandle Eastern Corporation, a Delaware corporation (the "Company"), hereby
establishes a Deferred Compensation Plan, as amended (the "Plan") providing for
optional deferral of compensation to Directors, as described below:
1. Eligibility.
Any member of the Board of Directors of the Company ("Director") who
receives compensation for acting as a Director is eligible to
participate under the Plan ("Participant").
2. Compensation to be Deferred.
A Director may elect to defer either 50 percent or 100 percent, but no
other or different portion or percentage, of all directors fees which
may become payable to him with respect to services as a Director
("Deferred Compensation") during any calendar year (the "Year").
Directors fees shall include retainer fees, committee fees and
attendance fees, but shall not include any expense reimbursement.
3. Time and Method of Election to Defer.
a. In the first year in which a Participant becomes eligible to
participate in the Plan, the newly-eligible Participant may
make an election to defer compensation for services as a
Director to be performed subsequent to such election by
providing written notice to the Secretary of the Company on
the Election Form provided for such purpose within thirty days
after the date the Participant becomes eligible.
b. In other years, a Participant may elect to defer compensation
by providing written notice thereof to the Secretary of the
Company on the Election Form before December 31 of the year
preceding the year for which compensation shall be deferred.
<PAGE> 2
Page 2
c. A deferral election shall be irrevocable and shall remain in
effect and be deemed a like election for deferral of
compensation with respect to all years subsequent thereto
unless revoked prior to December 31 of the year preceding the
year in which revocation is to be effective. If no election
is made, all compensation shall be paid on a regular basis
during such year.
4. Time of Payment of Deferred Compensation.
A Participant in the Plan may elect to have payment of Deferred
Compensation made, or if an installment payment has been elected
pursuant to Section 5 hereof, to have the first installment payment
made, by January 15 of the year next succeeding the year in which
occurs any one of the following alternative events:
a. Termination of service as a Director; or
b. On a birthday anniversary date to be elected by the
Participant.
5. Method of Payment of Deferred Compensation.
A Participant may elect to have payment of Deferred Compensation made
in accordance with any one of the following alternatives:
a. In a lump sum; or
b. At the rate of twenty (20) percent per year over five (5)
years; or
c. At the rate of ten (10) percent per year over ten (10) years.
6. Election as to Time and method of Payment.
A Participant must make an election, as to the time and method of
payments of Deferred Compensation, in the year preceding the year to
which such election shall be applicable. Such election may be amended
for subsequent years, with respect to the provisions of Section 4
and/or Section 5, by filing an amended Election Form during the year
preceding the year in which such amendment shall become effective.
<PAGE> 3
Page 3
7. Payment in Absence of Election or upon Death.
If for any reason no election has been made as to time or method of
payment of compensation which a Participant has elected to defer, such
Deferred Compensation will be paid in a lump sum by January 15 of the
year next succeeding the year in which the Participant shall have
retired. Upon the death of a Participant, if no election has been
made to the contrary, payment to the Participant's duly qualified
legal representative will be made in a lump sum within thirty (30)
days following request from such legal representative and in any event
within twelve (12) months following the date of the Participant's
death.
8. Deferred Accounts, and Additions Thereto.
The Company will maintain an account of the Deferred Compensation
("Deferred Account") for each Participant. Each Deferred Account
shall be credited with interest at 1/12th of the Annual Interest Rate
as of the last day of each month until the balance of the Deferred
Account has been paid in full. The Annual Interest Rate shall be the
Moody's Seasoned Baa Corporate Bond Yield Index for the week ending
with the final Friday of the previous November, as reported in the
Federal Reserve statistical release H.15 or its successor publication.
For purposes of interest compounding, commencing February 1, 1995,
interest credited during a calendar year will not be considered part
of an account balance until the first day of the succeeding calendar
year.
Title to and beneficial ownership of any assets, whether cash or
investments, which the Company may set aside or earmark to pay the
Deferred Compensation will at all times remain in the Company and
neither the Participant nor the Participant's designated beneficiary
or estate shall have any property interest whatsoever in any specific
assets of the Company.
9. Disability.
In the event of the disability of a Participant, the Executive
Committee of the Board of Directors (the "Committee") of the Company
may, in its sole discretion, make any payments from the Deferred
Compensation account of such Participant, to him or for his account,
as deemed by the Committee to be in his best interests; the fact of
disability to be determined in the sole discretion of the Committee.
<PAGE> 4
Page 4
No member of the Committee will be allowed to participate in any
decision under this Section 9 with respect to his Deferred Compensation
account or determination of his disability.
10. Nonassignability of Deferred Compensation.
The right of the Participant or any other person to the payment of
Deferred Compensation or other benefits under the Plan shall not be
assigned, transferred, pledged, or encumbered except by will or by the
laws of descent and distribution. In the event of any attempted
assignment or transfer, the Company shall have no further liability
under the Plan.
11. Amendment.
The Plan may be amended from time to time by vote of the Board of
Directors of the Company, but no such amendment may change an election
which has become irrevocable as above provided, nor rights and
obligations thereunder.
12. Continuance.
The Plan is to be binding upon the Company and upon its successors and
assigns. The Plan shall continue in effect from year to year unless
and until revoked by the Board of Directors of the Company, any such
revocation to operate only prospectively and not to affect rights or
obligations under elections previously made. In the event of the
merger of the Company with another, the Board of Directors of such
merger or resulting company shall be deemed to have the power herein
stated.
<PAGE> 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
21
<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
22
<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.
23
<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.
24
<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.
25
<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,
26
<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.
27
<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
28
<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.
29
<PAGE> 10
REPORT OF MANAGEMENT
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
The management of Panhandle Eastern Corporation and subsidiary companies
(the Company) acknowledges its responsibility for the integrity of the
financial statements and related information contained in this Annual
Report. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles appropriate to our
business activities.
The management of the Company also acknowledges its responsibility for
maintaining adequate internal controls. Accordingly, accounting systems and
related internal controls are maintained to provide reasonable assurance
that assets are protected from loss or unauthorized use, that transactions
and events are recorded properly and that adequate accounting records are
maintained. The Corporate Auditing Department, which is independent of
operational management, monitors the design and implementation of internal
control systems and compliance with Company policies.
The Company's independent auditors, KPMG Peat Marwick LLP, have audited
the consolidated financial statements. Their audit was conducted in
accordance with generally accepted auditing standards, which includes the
consideration of the Company's internal controls to the extent necessary to
form an independent opinion on the consolidated financial statements
prepared by management.
The Company has established statements of corporate policy relating to
conflict of interest and conduct of business and annually receives from
appropriate employees confirmation of compliance with these policies.
The Audit Committee of the Board of Directors, which is composed of
Directors who are not officers or employees, meets at least twice annually
to review the work of the independent auditors, financial management and
the Corporate Auditing Department, and to consider management's performance
of its financial reporting responsibility. The independent auditors, as
well as the director of the Corporate Auditing Department, are afforded an
opportunity to present to the Audit Committee their opinions in the absence
of management personnel. The Audit Committee reports regularly to the
Board of Directors the results of its meetings and its recommendations,
including that for the selection of the independent auditors.
/s/ DENNIS HENDRIX
------------------------------------
Dennis Hendrix
Chairman
/s/ JAMES B. HIPPLE
------------------------------------
James B. Hipple
Senior Vice President and
Chief Financial Officer
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
30
<PAGE> 11
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.
31
<PAGE> 12
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.
32
<PAGE> 13
CONSOLIDATED BALANCE SHEET--LIABILITIES AND STOCKHOLDERS' EQUITY
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
--------------------------------
Millions 1994 1993
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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.
33
<PAGE> 14
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> <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.
34
<PAGE> 15
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.
35
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
1. Accounting Policies Summary . . . . . . . . . . 36
2. Business Combination . . . . . . . . . . . . . 37
3. Business Segments . . . . . . . . . . . . . . . 38
4. Natural Gas Revenues and Regulatory Matters . . 38
5. Income Tax . . . . . . . . . . . . . . . . . . 40
6. Financial Instruments and Risk Management . . 41
7. Inventory and Gas Imbalances . . . . . . . . . 42
8. Investments . . . . . . . . . . . . . . . . . . 42
9. Plant, Property and Equipment . . . . . . . . . 43
10. Debt and Credit Facilities . . . . . . . . . . 44
11. Leases and Other Commitments . . . . . . . . . 45
12. Common Stock . . . . . . . . . . . . . . . . . 45
13. Environmental Matters . . . . . . . . . . . . . 46
14. Litigation . . . . . . . . . . . . . . . . . . 46
15. Pension and Other Benefits . . . . . . . . . . 47
</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.
36
<PAGE> 17
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.
37
<PAGE> 18
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
38
<PAGE> 19
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.
39
<PAGE> 20
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.
40
<PAGE> 21
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.
41
<PAGE> 22
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>
42
<PAGE> 23
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>
43
<PAGE> 24
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.
44
<PAGE> 25
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.
45
<PAGE> 26
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
46
<PAGE> 27
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
47
<PAGE> 28
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.
48
<PAGE> 29
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.
49
<PAGE> 30
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.
50
<PAGE> 31
STOCKHOLDERS' INFORMATION
COMMON STOCK
<TABLE>
<CAPTION>
Dividends Paid
1994 Quarters High Low Per Share
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
First $25 1/2 $20 5/8 $0.21
--------------------------------------------------------------------------------------
Second 22 1/4 18 1/4 0.21
--------------------------------------------------------------------------------------
Third 23 1/2 19 1/2 0.21
--------------------------------------------------------------------------------------
Fourth 23 5/8 19 1/2 0.21
======================================================================================
1993 Quarters
--------------------------------------------------------------------------------------
First $23 3/4 $16 3/4 $0.20
--------------------------------------------------------------------------------------
Second 25 19 3/4 0.20
--------------------------------------------------------------------------------------
Third 27 1/4 23 0.20
--------------------------------------------------------------------------------------
Fourth 26 20 3/8 0.20
======================================================================================
</TABLE>
o PEC common stock is listed for trading under the symbol PEL on the New
York and Pacific Stock Exchanges.
o There were 28,556 stockholder accounts at December 31, 1994.
o See Page 29 for an explanation of the dividend policy and Note 12 of the
Notes to Consolidated Financial Statements on pages 45 and 46 for a
discussion of restrictions on dividends.
DEBT RATINGS
<TABLE>
<CAPTION>
Moody's Standard Duff Fitch
Investors & & Investors
Service Poor's Phelps Service
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TETCO Baa2 BBB BBB BBB
PEPL Baa2 BBB BBB BBB
PEC Baa3 BBB- BBB- BBB-
</TABLE>
ANNUAL MEETING. Stockholders are cordially invited to attend the company's 66th
Annual Meeting, 10 a.m. Wednesday, April 26, 1995, at the J.W. Marriott
Hotel at the Houston Galleria, 5150 Westheimer, Houston, Texas.
DIVIDEND REINVESTMENT. The company's Dividend Reinvestment Plan provides
stockholders a convenient and economical method of purchasing additional
shares of common stock through the reinvestment of cash dividends or
through optional cash investments at market prices. The plan also provides
"certificate safekeeping" and small-account liquidation options. Please
contact Shareholder Services for further information.
SHAREHOLDER SERVICES. Stockholders who need assistance with their accounts
should call 1-800-225-5838 or 713-627-4681. Written requests should be
addressed to Shareholder Services, P.O. Box 1642, Houston, Texas
77251-1642.
REQUESTS FOR FORM 10-K, STATISTICAL REPORTS. The company will furnish to any
stockholder, without charge, copies of the 1994 report on SEC Form 10-K and
the 1994 Statistical Report. Please direct requests to Investor Relations.
INVESTOR RELATIONS. Securities analysts and investors who want information
about the company should contact Gregg E. McBride, Director, Investor
Relations, at 713-627-4600 or 1-800-347-3636, or write to Investor
Relations at P.O. Box 1642, Houston, Texas 77251-1642.
MEDIA RELATIONS. Inquiries from the news media should be directed to James W.
Hart, Jr., Vice President, Public Affairs, at 713-627-4900.
TRANSFER AGENT AND REGISTRAR. Continental Stock Transfer & Trust Company, 2
Broadway, 19th Floor, New York, New York 10004
51
<PAGE> 32
APPENDIX TO EXHIBIT 13
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 21, 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 22, 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 24, 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 26, 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 26, 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 28, 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 29, 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
ACCOUNTANT'S CONSENT
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)
/s/ KPMG PEAT MARWICK LLP
------------------------------
KPMG PEAT MARWICK LLP
Houston, Texas
March 29, 1995
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officers
and/or Directors of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware
corporation, do hereby constitute and appoint J. B. HIPPLE, CARL B. KING, and
ROBERT W. REED, and each of them, their true and lawful attorney and agent to
do any and all acts and things, and execute any and all instruments which, with
the advice of Counsel, said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of the Form 10-K
Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign their names as Officers
and/or Directors of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents this 29th day of March 1995.
<TABLE>
<S> <C>
/s/ DENNIS HENDRIX /s/ GEORGE L. MAZANEC
------------------------------------- ---------------------------------------
Dennis Hendrix George L. Mazanec
/s/ PAUL M. ANDERSON /s/ J. B. HIPPLE
------------------------------------- ---------------------------------------
Paul M. Anderson J. B. Hipple
/s/ J. B. HIPPLE /s/ SANDRA P. MEYER
------------------------------------- ---------------------------------------
J. B. Hipple Sandra P. Meyer
Senior Vice President and Vice President and Controller
Chief Financial Officer (Principal Accounting Officer)
</TABLE>
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer
and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware
corporation, does hereby constitute and appoint J. B. HIPPLE, CARL B. KING, and
ROBERT W. REED, and each of them, his true and lawful attorney and agent to do
any and all acts and things, and execute any and all instruments which, with
the advice of Counsel, said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of the Form 10-K
Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign his name as officer
and/or Director of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents this 29th day of March 1995.
/s/ MILTON CARROLL
-----------------------------
Milton Carroll
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware
corporation, does hereby constitute and appoint J. B. HIPPLE, CARL B. KING, and
ROBERT W. REED, and each of them, his true and lawful attorney and agent to do
any and all acts and things, and execute any and all instruments which, with
the advice of Counsel, said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of the Form 10-K
Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign his name as Officer
and/or Director of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents this 29th day of March 1995.
/s/ ROBERT CIZIK
-----------------------------
Robert Cizik
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware
corporation, does hereby constitute and appoint J. B. HIPPLE, CARL B. KING, and
ROBERT W. REED, and each of them, his true and lawful attorney and agent to do
any and all acts and things, and execute any and all instruments which, with
the advice of Counsel, said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of the Form 10-K
Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign his name as Officer
and/or Director of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents this 29th day of March 1995.
/s/ CHARLES W. DUNCAN, JR.
-----------------------------
Charles W. Duncan, Jr.
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer
and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware
corporation, does hereby constitute and appoint J. B. HIPPLE, CARL B. KING, and
ROBERT W. REED, and each of them, his true and lawful attorney and agent to do
any and all acts and things, and execute any and all instruments which, with
the advice of Counsel, said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of the Form 10-K
Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign his name as Officer
and/or Director of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents this 29th day of March 1995.
/s/ L. E. LINBECK, JR.
-----------------------------
L. E. Linbeck, Jr.
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware
corporation, does hereby constitute and appoint J. B. HIPPLE, CARL B. KING, and
ROBERT W. REED, and each of them, his true and lawful attorney and agent to do
any and all acts and things, and execute any and all instruments which, with
the advice of Counsel, said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of the Form 10-K
Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign his name as Officer
and/or Director of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents this 29th day of March 1995.
/s/ RALPH S. O'CONNOR
-----------------------------
Ralph S. O'Connor
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer
and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware
corporation, does hereby constitute and appoint J. B. HIPPLE, CARL B. KING, and
ROBERT W. REED, and each of them, his true and lawful attorney and agent to do
any and all acts and things, and execute any and all instruments which, with
the advice of Counsel, said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of the Form 10-K
Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign his name as Officer
and/or Director of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents this 29th day of March 1995.
/s/ HAROLD S. HOOK
-----------------------------
Harold S. Hook
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer
and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware
corporation, does hereby constitute and appoint J. B. HIPPLE, CARL B. KING, and
ROBERT W. REED, and each of them, his true and lawful attorney and agent to do
any and all acts and things, and execute any and all instruments which, with
the advice of Counsel, said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of the Form 10-K
Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign his name as Officer
and/or Director of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents this 29th day of March 1995.
/s/ WILLIAM T. ESREY
-----------------------------
William T. Esrey
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer
and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware
corporation, does hereby constitute and appoint J. B. HIPPLE, CARL B. KING, and
ROBERT W. REED, and each of them, his true and lawful attorney and agent to do
any and all acts and things, and execute any and all instruments which, with
the advice of Counsel, said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of the Form 10-K
Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign his name as Officer
and/or Director of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents this 29th day of March 1995.
/s/ HARRY E. EKBLOM
-----------------------------
Harry E. Ekblom
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer
and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware
corporation, does hereby constitute and appoint J. B. HIPPLE, CARL B. KING, and
ROBERT W. REED, and each of them, her true and lawful attorney and agent to do
any and all acts and things, and execute any and all instruments which, with
the advice of Counsel, said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing under said Act of the Form 10-K
Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign her name as officer
and/or Director of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents this 29th day of March 1995.
/s/ ANN MAYNARD GRAY
-----------------------------
Ann Maynard Gray
<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>
<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Panhandle Eastern Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
--------------------------------------------------------------------------------
(3) Filing party:
--------------------------------------------------------------------------------
(4) Date filed:
--------------------------------------------------------------------------------
(Set forth the amount on which the filing fee is calculated and state how it was
determined.)
<PAGE> 2
[PANHANDLE EASTERN LOGO]
March 13, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Panhandle Eastern Corporation, on Wednesday, April 26, 1995, at 10:00 a.m., at
the J. W. Marriott Hotel, 5150 Westheimer, Houston, Texas.
Information about the business of the meeting is set forth in the formal
meeting notice and the Proxy Statement on the following pages. In addition, I
will discuss the general operations of the Company, described in the Company's
1994 Annual Report to Stockholders, and stockholders will be offered an
opportunity to ask questions.
We encourage you to participate in this year's Annual Meeting in person or
by mailing your proxy. Regardless of the number of shares you hold, your
participation and representation in the Company's affairs is important.
Therefore, even if you cannot attend the meeting, please return your proxy to
the Company as soon as possible. To vote, simply place an "X" in the appropriate
box on the enclosed form of proxy, sign and date it, and mail it in the
self-addressed, postage-paid return envelope.
Sincerely,
/s/ DENNIS HENDRIX
---------------------------------
DENNIS HENDRIX
Chairman and
Chief Executive Officer
<PAGE> 3
[PANHANDLE EASTERN LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 26, 1995
To the Stockholders of Panhandle Eastern Corporation:
The 1995 Annual Meeting of Stockholders of Panhandle Eastern Corporation
will be held at the J. W. Marriott Hotel, 5150 Westheimer, Houston, Texas, on
Wednesday, April 26, 1995, at 10:00 a.m., for the purposes of:
1. Electing four Directors, constituting the 1995 Class of the
Company's Board of Directors, for terms of three years, each to hold office
until the 1998 Annual Meeting or until a successor shall have been elected
and shall have qualified; and,
2. Transacting such other business as may properly come before the
Annual Meeting or any adjournment or adjournments thereof.
Stockholders of record on February 28, 1995, are entitled to receive notice
of, and to vote at, the meeting or any adjournment or adjournments thereof. The
transfer books of the Company will not be closed. The list showing stockholders
entitled to vote at the meeting will be located in the office of the Secretary
at the Company's headquarters, 5400 Westheimer Court, Houston, Texas, for
examination for at least 10 days prior to the Annual Meeting.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ROBERT W. REED
---------------------------------------
ROBERT W. REED
Secretary
Dated: March 13, 1995
Houston, Texas
<PAGE> 4
[PANHANDLE EASTERN LOGO]
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
APRIL 26, 1995
------------------------
This statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Panhandle Eastern Corporation (the
"Company") of proxies for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Wednesday, April 26, 1995, at 10:00 a.m., at the J. W.
Marriott Hotel, 5150 Westheimer, Houston, Texas, for the purposes set forth in
the accompanying Notice of Annual Meeting. Business at the Annual Meeting is
limited to matters properly brought before the meeting.
Unless revoked prior to its exercise, any proxy given pursuant to this
solicitation will be voted at the Meeting. A stockholder may revoke a proxy at
any time prior to the Annual Meeting by giving written notice of such revocation
addressed to the Secretary of the Company, P.O. Box 1642, Houston, Texas
77251-1642. Also, a stockholder may attend the Annual Meeting and vote in
person, whether or not such stockholder has previously given a proxy. Proxy
material is being mailed to stockholders on or about March 13, 1995.
On February 28, 1995, the record date for the determination of stockholders
entitled to vote at the Annual Meeting, the Company had outstanding 149,181,970
shares of Common Stock, par value $1.00 per share (the "Common Stock"). Each of
such shares is entitled to one vote at the Annual Meeting. Votes cast by proxy
or in person at the Annual Meeting will be tabulated by the election inspectors
appointed for the Meeting. The holders of a majority of the shares entitled to
vote at the Annual Meeting, whether present in person or represented by proxy,
will constitute a quorum for the transaction of business at the Meeting. All
elections will be decided by a plurality of the votes cast in respect thereof.
If no voting direction is indicated on the proxy card, the shares will be
considered votes FOR the election of the nominees for Director. Proxy cards that
are not signed or that are not returned are treated as not voted for any
purposes. If a broker indicates on a proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares will
not be considered as present and entitled to vote with respect to that matter.
The cost of preparing, assembling, and mailing the material in connection
with the solicitation of proxies will be borne by the Company. In addition to
use of the mails, proxies may be solicited by officers and other employees of
the Company personally, by telephone, or other means. To assist in the
solicitation of proxies, the Company has engaged Corporate Investor
Communications, Inc., for approximately $9,500. The Company will also request
brokerage houses and other nominees or fiduciaries to forward copies of its
proxy material and Annual Report to beneficial owners of Common Stock held in
their names, and the Company will reimburse them for reasonable out-of-pocket
expenses incurred in doing so.
STOCKHOLDER PROPOSALS
The Company knows of no proposals to be considered at the Annual Meeting
other than those set forth in the Notice of Annual Meeting. Stockholder
proposals will be eligible for consideration for inclusion in the Proxy
Statement for the 1996 Annual Meeting if they are received by the Secretary of
the Company no later than November 13, 1995 at the address set forth above.
1
<PAGE> 5
A. ELECTION OF DIRECTORS
Currently, the Board of Directors consists of 12 Directors (nine of whom
are not employed by the Company) and three Advisory Directors (none of whom is
employed by the Company). In accordance with the Company's By-Laws, the
Directors have been divided into three Classes of approximately equal size, with
staggered terms in office. At each Annual Meeting, Directors constituting one
Class are elected for three-year terms. Each Class is designated by the year in
which its current term ends. At this year's Meeting, the members of the 1995
Class of Directors, Charles W. Duncan, Jr., Harry E. Ekblom, Dennis R. Hendrix
and Ralph S. O'Connor, have been nominated for re-election. If re-elected, they
will hold office until the 1998 Annual Meeting or until successors shall have
been elected and shall have qualified. The terms of the Directors constituting
the other two Classes will continue as indicated below.
The proxy holders named on the proxy card will vote FOR the election of the
nominees listed below, unless otherwise instructed on proxy cards that have been
signed or returned. If you do not wish your shares to be voted for particular
nominees, please identify the exceptions on the proxy card. If any of these
nominees should be unable to serve, the proxies will be voted by the proxy
holders for the election of such other person as they shall determine, in
accordance with their judgment.
INFORMATION REGARDING NOMINEES FOR ELECTION AS DIRECTORS (1995 CLASS)
NAME BUSINESS EXPERIENCE AND AGE IN 1995
---- -----------------------------------
Charles W. Duncan, Jr...... Age 69. Engaged in private investments in Houston,
Texas, since 1981. Deputy Secretary of the United
States Department of Defense, January 1977 to
August 1979; Secretary of the United States
Department of Energy, August 1979 until January
1981. Director of Texas Eastern Corporation
("TEC"), a subsidiary of the Company, from 1981
until 1989. Director of the Company since 1990.
Director of American Express Company, The Coca-Cola
Company, Chemical Banking Corporation, Newfield
Exploration Company, Texas Commerce Bancshares,
Inc., and United Technologies Corporation.
Harry E. Ekblom............ Age 67. Vice Chairman of A. T. Hudson & Co., Inc.,
Oradell, New Jersey, a management consulting firm,
since 1985, and, since January 1984, President of
Harry E. Ekblom & Co., Inc., Ridgewood, New Jersey,
a financial consulting firm. Director of the
Company since 1971. Director of Harris & Harris
Group, Inc., and The Commercial Bank of New York.
Dennis R. Hendrix.......... Age 55. Chairman of the Board and Chief Executive
Officer of the Company since November 1990.
President of the Company from November 1990 to
December 1993. President of TEC, November 1985
through December 1989, and Chief Executive Officer
from June 1987 to July 1989. Director since
November 1990, Chairman of the Board from November
1990 to January 1994 and Chief Executive Officer
from November 1990 to April 1991, of Panhandle
Eastern Pipe Line Company ("PEPL"). Director since
November 1990, Chairman of the Board and President
from November 1990 to January 1994 and Chief
Executive Officer from November 1990 to April 1991,
of Texas Eastern Transmission Corporation
("TETCO"). PEPL and TETCO are subsidiaries of the
Company. Director of Texas Commerce Bancshares,
Inc.
Ralph S. O'Connor.......... Age 69. For more than five years, principally
engaged in investments as Chairman and Chief
Executive Officer of Ralph S. O'Connor &
Associates, Houston, Texas. Member of the Board of
Directors of TEC from 1963 until 1989. Director of
the Company since 1991. Director of First City
Bancorporation of Texas, Inc.
2
<PAGE> 6
INFORMATION REGARDING DIRECTORS CONTINUING IN OFFICE
NAME BUSINESS EXPERIENCE AND AGE IN 1995
---- -----------------------------------
1996 CLASS
Milton Carroll............. Age 45. Chairman, President, and Chief Executive
Officer of Instrument Products, Inc., Houston,
Texas, a manufacturer of oilfield tools and other
precision products, since 1977. Director of the
Company since 1993. Director of the Federal Reserve
Bank of Dallas, Houston Industries, Inc., Houston
Lighting & Power Co., and Houston Endowment, Inc.
Robert Cizik............... Age 64. Chairman of the Board and Chief Executive
Officer of Cooper Industries, Inc. ("Cooper"),
Houston, Texas, a diversified, international
manufacturing company, since 1983. From 1975 to
1983, President and Chief Executive Officer of
Cooper. Director of TEC from April 1988 until July
1989. Director of the Company since 1991. Director
of Cooper, Temple-Inland, Inc., Harris Corporation,
and Air Products and Chemicals, Inc.
Harold S. Hook............. Age 64. Chairman and Chief Executive Officer of
American General Corporation ("American General"),
Houston, Texas, an insurance-based, diversified
financial services organization, for more than five
years. Member of the Board of Directors of TEC from
April 1989 through July 1989. Director of the
Company since 1978. Director of American General,
American General Finance, Inc., Chemical Banking
Corporation, Chemical Bank, Cooper, Sprint
Corporation, and Texas Commerce Bancshares, Inc.
Leo E. Linbeck, Jr......... Age 61. Since 1990, Chairman, President and Chief
Executive Officer of Linbeck Corporation, Houston,
Texas, a holding company of five construction
firms, and, since 1975, Chairman, President, and
Chief Executive Officer of Linbeck Construction
Corporation, Houston, Texas, a construction
management and general construction firm. Director
of the Company since 1986. Director of twenty-four
investment funds managed by John Hancock Advisers,
Inc., and of Daniel Industries, Inc.
1997 CLASS
Paul M. Anderson........... Age 50. President of the Company since December
1993 and Director of the Company since December
1992. Executive Vice President of the Company from
March 1991 to December 1993. President and Chief
Executive Officer from April 1991 to January 1994,
Director of PEPL since 1991, and Chairman of the
Board since January 1994. Director of TETCO since
April 1991 and Chairman of the Board since January
1994. Vice President, Finance and Chief Financial
Officer, Inland Steel Industries Inc., 1990-1991.
Senior Vice President, TEC, 1987-1989. Director of
Temple-Inland, Inc.
William T. Esrey........... Age 55. Chairman and Chief Executive Officer of
Sprint Corporation ("Sprint"), Westwood, Kansas, a
diversified telecommunications holding company,
since April 1990. President and Chief Executive
Officer of Sprint from April 1985 to April 1990.
Director of the Company since 1985. Director of
Sprint, Equitable Life Assurance Society of the
United States, Boettcher Venture Capital Partners,
L.P., and General Mills, Inc.
Ann Maynard Gray........... Age 50. Since 1991, President, Diversified
Publishing Group of Capital Cities/ABC, Inc., New
York, New York, involved in television, radio, and
publishing, and Corporate Vice President since
1986. Senior Vice
3
<PAGE> 7
NAME BUSINESS EXPERIENCE AND AGE IN 1995
---- -----------------------------------
President -- Finance, ABC Television Network from
1988 to 1991. Director of the Company since 1994.
Director of Cyprus Amax Minerals Company.
George L. Mazanec.......... Age 59. Vice Chairman of the Board of Directors of
the Company since December 1993 and a Director
since December 1992. Executive Vice President of
the Company from March 1991 to December 1993.
Director since January 1990, Vice Chairman of the
Board since January 1994, and President and Chief
Executive Officer from January 1991 to January
1994, of TETCO. Director of PEPL since January 1990
and Vice Chairman of the Board of PEPL since
January 1994. From 1989 to 1991, Group Vice
President of the Company. Director of Associated
Electric and Gas Insurance Services.
B. ADDITIONAL INFORMATION
INFORMATION REGARDING ADVISORY DIRECTORS
In January 1995, the Board elected three Advisory Directors to one-year
terms. Mr. Max R. Lents was elected to his eleventh term and Senator Lloyd M.
Bentsen and Mr. Cortland S. Dietler were elected to their initial terms. An
Advisory Director has no voting rights but attends meetings of the Board and
certain Board committees in an advisory capacity. Information regarding the
Advisory Directors is as follows:
NAME BUSINESS EXPERIENCE AND AGE IN 1995
---- -----------------------------------
Lloyd M. Bentsen........... Age 74. Shareholder of the law firm of Verner,
Liipfert, Bernhard, McPherson and Hand, Houston,
Texas. United States Senator from Texas from 1971
to 1993. Secretary of the Treasury of the United
States from January 1993 to December 1994. Advisory
Director of the Company since January 1995.
Director of AEA Investors, Inc., IVAX Corporation,
American International Group, and Mitchell Energy
and Development Corporation.
Cortland S. Dietler........ Age 74. Until the December 1994 merger with the
Company, Chairman of the Board of Associated
Natural Gas Corporation, Denver, Colorado, a
marketer, gatherer, and processor of natural gas,
for more than five years. Advisory Director of the
Company since January 1995.
Max R. Lents............... Age 80. Director and former Chairman of the Board
of Miller and Lents, Ltd., an independent oil and
gas consulting firm, Houston, Texas, for more than
five years. Director of the Company from May 1981
to July 1982 and from November 1983 to January 1985
and Advisory Director since January 1985. Director
of Petrolite Corporation.
MEETINGS OF THE BOARD AND ITS COMMITTEES
During 1994, the Board met seven times. Each Director attended at least 75
percent of the aggregate of the Board meetings and the meetings of Board
committees on which he or she served.
At its annual organization meeting in April 1994, the Board amended its
committee structure, reorganizing several committees, establishing certain new
committees, and reconstituting the membership of each committee. The Board's
committees now are the Audit Committee, the Compensation & Organization
Committee ("Compensation Committee"), the Committee on Directors, the Executive
Committee, the Finance Committee and the Public Responsibilities Committee. With
the exception of the Executive Committee, all Committees are composed solely of
Nonemployee Directors.
4
<PAGE> 8
Mr. Cizik is Chairman, and Ms. Gray and Messrs. Carroll, Hook, Lents,
O'Connor, and Dietler, are members, of the Audit Committee. The Audit Committee
recommends the appointment of independent auditors and reviews with them the
plan, scope, and results of their audit and monitors their fees for audit and
other services; reviews the recommendations resulting from such audit and
management responses thereto; and reviews the Company's accounting principles,
policies, internal accounting controls, and the internal auditing department
plans and procedures. The Audit Committee also reviews the Company's annual
financial statements and recommends accounting and internal auditing policies
which, in its judgment, should receive the attention of the Board. The Audit
Committee met two times in 1994.
Mr. Duncan is Chairman of the Compensation Committee (which prior to April
1994 was named the Compensation/Organization/Nomination Committee) and Messrs.
Cizik, Ekblom, Esrey, Linbeck and O'Connor are members. The Compensation
Committee establishes the compensation policies for the Chief Executive Officer
and other senior officers; approves the salaries and certain remuneration
arrangements of senior officers; recommends the adoption of compensation plans
in which officers and certain key employees are eligible to participate; and
recommends awards pursuant thereto, including bonuses, stock option grants, and
other awards. It acts on management recommendations for the election of
officers, recommends the election of a Chief Executive Officer when appropriate,
and reviews management succession plans. The Compensation Committee met four
times in 1994.
The Committee on Directors was established in April 1994. Mr. Esrey is
Chairman of the Committee and Messrs. Carroll, Cizik, Dietler, Duncan, Ekblom
and Hook are members. The Committee on Directors identifies and recommends
candidates to fill Board vacancies and considers nominees for election as
Directors at the Annual Meeting; considers the removal of Directors; reviews the
Board's retirement policy and policies pertaining to Board membership; advises
the Board on matters pertaining to Board tenure and compensation; and considers
and makes recommendations pertaining to corporate governance matters. In
addition, the Committee on Directors will consider stockholders' suggestions of
nominees for Director that are submitted in writing to it, in care of the
Secretary of the Company. The Committee on Directors met once in 1994.
The Finance Committee, the successor to the Pension and Benefits Plan
Committee, is chaired by Mr. Hook and the members are Ms. Gray, Senator Bentsen,
and Messrs. Duncan, Ekblom, Linbeck and Lents. The Finance Committee reviews the
Company's financial needs and approves its financing plans, represents the Board
in discharging its administrative responsibilities with respect to employee
benefit plans, reviews the performance of the investment managers of the
Retirement Income Plan of Panhandle Eastern Corporation and Participating
Affiliates ("Retirement Income Plan"), monitors the Company's risk management
activities, and reviews the Board's dividend policy. The Finance Committee met
once in 1994.
Mr. Linbeck is Chairman, and Senator Bentsen, Messrs. Carroll, Esrey,
Lents, and O'Connor and Ms. Gray are members, of the Public Responsibilities
Committee, which was established in April 1994. This Committee reviews and
considers the Company's policies and practices related to public issues
important to the Company and the industry, including: safety; environmental
affairs; governmental relations; community relations; employee participation in
civic and charitable affairs; civic, charitable, and philanthropic
contributions; and equal opportunity policies and programs. The Public
Responsibilities Committee met twice in 1994.
Mr. Hendrix is Chairman, and Senator Bentsen and Messrs. Anderson, Carroll,
Cizik, Duncan, Hook, Lents, Linbeck, Mazanec and O'Connor are members, of the
Executive Committee, which reviews and, where appropriate, authorizes corporate
action with respect to, the conduct of the business of the Company between Board
meetings. Actions taken by the Executive Committee are regularly submitted to
the Board for review and ratification at the next meeting. The Executive
Committee did not meet in 1994.
5
<PAGE> 9
SECURITY OWNERSHIP OF MANAGEMENT
As of December 31, 1994, all Directors and executive officers of the
Company as a group owned beneficially, or had the right to acquire within 60
days of December 31, 1994, under the 1982 Key Employee Stock Option Plan, as
amended (the "1982 Plan"), the 1989 Nonemployee Directors Stock Option Plan (the
"1989 Plan"), the 1990 Long Term Incentive Plan (the "1990 LTIP"), and the 1994
Long Term Incentive Plan (the "1994 LTIP"), less than 1 percent of the presently
issued and outstanding Common Stock.
The following table shows the number of shares of Common Stock beneficially
owned as of December 31, 1994, or as to which there was a right to acquire
beneficial ownership within 60 days of such date, by each Director or nominee
for Director, each executive officer of the Company named in the Summary
Compensation Table on page 10 ("Named Executive Officers"), and all Directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER
NUMBER OF
OF SHARES
SHARES WHICH
BENEFICIALLY MAY BE
OWNED(1) ACQUIRED(2)
------------ -----------
<S> <C> <C>
Paul M. Anderson.................................... 25,109 110,133
Milton Carroll...................................... 500 5,000
Robert Cizik........................................ 1,322 7,000
Charles W. Duncan, Jr............................... 7,767(3) 8,000
Harry E. Ekblom..................................... 7,276(4) 9,000
William T. Esrey.................................... 2,500 9,000
Ann Maynard Gray.................................... 500 --
Dennis R. Hendrix................................... 389,000 --
James B. Hipple..................................... 11,293(5) 17,924
Harold S. Hook...................................... 5,600 9,000
Carl B. King........................................ 30,268 21,667
Leo E. Linbeck, Jr.................................. 1,208 9,000
George L. Mazanec................................... 31,199 110,219
Ralph S. O'Connor................................... 34,502(6) 7,000
All Directors, nominees for Director, and twelve
executive officers as a group, including those
named above....................................... 626,846 442,495
</TABLE>
---------------
(1) Included are beneficially owned and undistributed shares of Common Stock
held as of December 31, 1994, in the Panhandle Eastern Corporation Dividend
Reinvestment and Stock Purchase Plan and shares held as of December 31,
1994, in, and allocable to the individual under, the Employees' Savings Plan
of Panhandle Eastern Corporation and Participating Affiliates.
(2) Shares of Common Stock which the Directors or executive officers of the
Company have the right to acquire, within 60 days of December 31, 1994,
pursuant to options outstanding under the 1982 Plan, the 1989 Plan, the 1990
LTIP, and the 1994 LTIP. Nonemployee Directors do not participate in the
1982 Plan, the 1990 LTIP, or the 1994 LTIP and Employee Directors do not
participate in the 1989 Plan.
(3) Includes 4,531 shares held by Duncan Investors, Ltd., a partnership in which
Mr. Duncan is a limited and general partner.
(4) Includes 3,000 shares held by Mrs. Ekblom.
(5) Includes 48 shares held by Mrs. Hipple.
(6) Includes 4,502 shares of Common Stock held by three trusts of which Mr.
O'Connor is co-trustee. Mr. O'Connor disclaims beneficial ownership of all
such shares.
6
<PAGE> 10
Texas Eastern Products Pipeline Company, a wholly owned subsidiary of the
Company, is the general partner of TEPPCO Partners, L.P. ("TEPPCO"), a publicly
traded master limited partnership. The following table shows the number of units
of limited partnership interests in TEPPCO beneficially owned as of December 31,
1994, or as to which there was a right to acquire beneficial ownership within 60
days of such date, by each Director or nominee for Director, each of the Named
Executive Officers, and all Directors and executive officers of the Company as a
group. As of December 31, 1994, the percentage of units beneficially owned by
all Directors and executive officers as a group does not exceed 1 percent of the
presently issued and outstanding units.
<TABLE>
<CAPTION>
NUMBER
OF
NUMBER UNITS
OF WHICH
UNITS MAY
BENEFICIALLY BE
OWNED ACQUIRED
------ --------
<S> <C> <C>
Paul M. Anderson........................................ 1,000 --
Milton Carroll.......................................... -- --
Robert Cizik............................................ -- --
Charles W. Duncan, Jr. ................................. -- --
Harry E. Ekblom......................................... -- --
William T. Esrey........................................ -- --
Ann Maynard Gray........................................ -- --
Dennis R. Hendrix....................................... 10,000 --
James B. Hipple......................................... 1,000 --
Harold S. Hook.......................................... 2,000 --
Carl B. King............................................ -- --
Leo E. Linbeck, Jr. .................................... -- --
George L. Mazanec....................................... 1,000 --
Ralph S. O'Connor....................................... 1,000 --
All Directors, nominees for Director, and twelve
executive officers as a group, including those named
above................................................. 18,000 --
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table shows the number of shares of Common Stock held by
beneficial owners of more than 5 percent of the Common Stock as of December 31,
1994, and the percentage of the total outstanding shares of Common Stock as of
that date.
<TABLE>
<CAPTION>
NUMBER PERCENT
OF OF
SHARES OUTSTANDING
NAME AND ADDRESS BENEFICIALLY SHARES
OF BENEFICIAL OWNER OWNED OWNED
---------------------------------------------------- -------- -------
<S> <C> <C>
Sonatrach Petroleum Investment Corp., B.V.
Sloterkade 138D
1058 HM Amsterdam, The Netherlands.................. 7,700,000 5.16
Employees' Savings Plan of
Panhandle Eastern Corporation and Participating
Affiliates
5400 Westheimer Ct.,
Houston, Texas 77056................................ 9,665,691 6.48
</TABLE>
Sonatrach Petroleum Investment Corp., B.V., is a Dutch corporation owned by
two shareholders: Sonatrach (the national oil and gas company of Algeria), which
owns a 99.9 percent interest, and Banque Algerienne du Commerce Exterieur
("BACE"), a Swiss bank, which owns a 0.1 percent interest. The principal
executive offices of Sonatrach are located at 10, Rue du Sahara, Hydra, Algiers
(Algeria), and the principal executive offices of BACE are located at
Schutzengasse 4, Postfach, 8023 Zurich, Switzerland. Sonatrach and BACE are
wholly owned by the government of Algeria.
7
<PAGE> 11
The Company and Sonatrach, directly and through subsidiaries, are parties
to agreements entered into in 1987 providing for the importation of liquefied
natural gas ("LNG") over a period of up to 20 years at volumes and prices and
upon other terms to be agreed upon from time to time. The agreements provide
that if LNG is purchased by the Company from Sonatrach, Sonatrach will receive
an f.o.b. payment equal to approximately 63 percent of the average gross selling
price of an equivalent quantity of regasified LNG, with the Company receiving
the balance. For the year ended December 31, 1994, payments to Sonatrach under
this program for LNG and shipping were approximately $30.6 million.
Employees' Savings Plan of Panhandle Eastern Corporation and Participating
Affiliates("ESP"), holds shares of Common Stock for the account of participants,
who are employees of the Company and participating affiliates. Generally, the
ESP passes through to participants the right to direct the voting of shares of
Common Stock allocable to their accounts and to direct the tender of such shares
in response to a tender or exchange offer for Common Stock. The ESP is
administered by an administrative committee whose members are H. D. Church,
Senior Vice President of TETCO; Paul F. Ferguson, Jr., Vice President, Finance
and Accounting, and Treasurer of the Company; D. R. Hennig, Vice President of
PEPL, TETCO, and Trunkline; James B. Hipple, Senior Vice President and Chief
Financial Officer of the Company; Theopolis Holeman, Vice President of PEPL;
Sandra P. Meyer, Vice President and Controller of the Company; Michael J.
Bradley, Vice President of Centana Energy Corporation, a subsidiary of the
Company; and J. F. Rogers, General Manager, Administration, of Algonquin.
COMPENSATION OF DIRECTORS
Directors who also are employees of the Company (Messrs. Anderson, Hendrix,
and Mazanec) receive no fees for their service as Directors or for attendance at
Board and Committee meetings. Nonemployee Directors and Advisory Directors
receive an annual retainer fee of $30,000, and $1,000 for each Board meeting and
each Committee meeting attended. Nonemployee Committee Chairmen receive an
additional annual retainer of $4,000. Nonemployee Directors and Advisory
Directors are reimbursed for expenses incurred in attending Board and Committee
meetings.
In addition to the foregoing, the Company maintains, or formerly
maintained, the following plans for Nonemployee Directors:
1. The 1982 Directors' Deferred Compensation Plan permits Nonemployee
Directors to elect, on a year-to-year basis, to defer either 50 percent or
100 percent of their Directors' fees. As amended in January 1995, the
annual interest rate applicable to deferred amounts is equal to Moody's
seasoned Baa Corporate Bond Yield Index for the week ending with the final
Friday of the previous November, as reported in the Federal Reserve
statistical release No. 15 or its successor. Amounts accrued are payable
either in a lump sum or over a period of five or 10 years, as elected by
the Nonemployee Director, commencing on January 15th of the year next
succeeding the year in which the Nonemployee Director either ceases to be a
Director or upon the attainment of the age the Nonemployee Director
previously elected. For the year ended December 31, 1994, amounts deferred
under this Plan and interest accrued relative to such deferrals were
$184,194.98 for the five participating Nonemployee Directors as a group.
2. The 1989 Nonemployee Directors' Stock Option Plan ("1989 Plan")
provides for the granting of non-qualified options for the purchase of
shares of Common Stock to each Nonemployee Director, other than an Advisory
Director. Stock appreciation rights ("SARs") are not permitted. All options
are granted at the fair market value of the Common Stock on the date of
grant. On May 1, 1989, each Nonemployee Director was granted an option to
purchase 5,000 shares of Common Stock, and any new Nonemployee Director is
granted an option to purchase 5,000 shares of Common Stock effective on the
May 1 next following election to the Board. Additional options to purchase
1,000 shares of Common Stock are granted to each Nonemployee Director on
May 1 of each year, through and including May 1, 1998. On May 1, 1994,
options to purchase a total of 13,000 shares of Common Stock were granted
under the 1989 Plan at an exercise price of $20.00 per share. Options
granted under the 1989 Plan become exercisable one year from the date of
grant and expire on the tenth anniversary of the date of grant.
8
<PAGE> 12
Accordingly, the options granted on May 1, 1994, are not reflected in the
table on page 6 hereof. No options were exercised during 1994 under the
1989 Plan.
3. The Nonemployee Directors' Retirement Plan provides an annual
unfunded retirement benefit for each Nonemployee Director of the Company
upon the later to occur of the Director's retirement date or the attainment
of age 65. A retired Nonemployee Director with 10 years or more of service
on the Board will receive annually for life (a guaranteed minimum of 10
years) an amount equal to 60 percent of the annual retainer fee in effect
on the Director's retirement date. For a Nonemployee Director retiring with
less than 10 years of service, the annual benefit accrues at a rate of 6
percent of the annual retainer fee in effect on the Director's retirement
date for each year of service, not to exceed a total of 60 percent of such
annual retainer fee. In the event of a "change of control" (as defined), a
Nonemployee Director shall be deemed to have served as such until the
earlier of the tenth anniversary of the Director's service on the Board or
attainment of age 70. There are also certain pre-retirement supplemental
death benefits provided under this plan.
4. At the time it was acquired by the Company in 1989, TEC maintained
an unfunded plan, the TEC Directors' Retirement Plan, which provided an
annual benefit payable for 10 years following a Nonemployee Director's
retirement from active service on the TEC Board of Directors. Upon the
Nonemployee Director's death following retirement, any unpaid installments
will be paid to the named beneficiary. Under this plan, Messrs. Duncan and
O'Connor have vested rights to annual benefits of $18,000 commencing
January 1, 1999.
5. The Directors' Deferred Compensation Plan of Panhandle Eastern
Corporation ("Nonemployee Directors' Plan") was available until December
31, 1986, to Nonemployee Directors and permitted deferral of up to 100
percent of each participating Nonemployee Director's annual retainer fee.
Benefit payment amounts related to retainer fees deferred, to interest
accrued at seniority-based rates, and to age at the time of deferral. For
the year ended December 31, 1994, interest accrued relative to amounts
deferred under the Nonemployee Directors Plan was $54,788.
9
<PAGE> 13
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table and notes present the cash and certain other
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company ("Named Executive Officers"), as of December
31, 1994, for the years ended December 31, 1992, 1993, and 1994:
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------- -------------------------------------------------
AWARDS
---------------------
SECURITIES PAYOUTS ALL OTHER
OTHER ANNUAL RESTRICTED UNDERLYING ------- COMPEN-
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/SARS LTIP SATION
POSITION(1) YEAR ($) ($) ($)(2) AWARD(S)($)(3) (#)(4) PAYOUTS($) ($)(5)
(A) (B) (C) (D) (E) (F) (G) (H) (I)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
Dennis R. Hendrix. 1994 -- -- 19,411 -- -- -- 49,451
1993 -- -- 23,578 6,525,000(6) -- -- 55,532
1992 -- -- 23,087 -- -- -- 60,560
Paul M. Anderson.. 1994 340,000 191,964 -- -- -- -- 69,424
1993 337,917 160,153 -- -- 250,000 -- 61,066
1992 315,000 160,000 53,909 -- -- -- 35,712
George L. Mazanec. 1994 340,000 189,414 -- -- -- 198,413 97,111
1993 336,667 177,710 -- -- 250,000 203,644 76,851
1992 297,917 175,000 -- -- -- 99,388 41,162
James B. Hipple... 1994 277,917 125,910 -- -- -- 64,998 71,682
1993 253,750 113,016 -- -- -- 66,644 63,104
1992 238,333 112,500 -- -- -- 53,786 49,064
Carl B. King...... 1994 255,000 135,333 -- -- 15,000 64,998 33,714
1993 253,833 103,709 -- -- -- 67,744 31,485
1992 241,000 103,630 -- -- -- 53,786 13,008
-------------------------------------------------------------------------------------------------------
</TABLE>
(1) The principal positions of Messrs. Hendrix, Anderson, and Mazanec are
described on pages 2, 3 and 4. Mr. King is Senior Vice President and General
Counsel of the Company and TEC. Mr. Hipple is Senior Vice President and
Chief Financial Officer of the Company, Associated, PEPL, TEC, TETCO, and
Trunkline Gas Company.
(2) Pursuant to rules on executive and director compensation disclosure adopted
by the SEC, Other Annual Compensation is reportable if, in the aggregate,
the components thereof exceed the lesser of $50,000 or 10 percent of the sum
of the Named Executive Officer's salary and bonus. Each component thereof
that exceeds 25 percent of the total for each Named Executive Officer for
whom disclosure is required must be identified. Accordingly, the amounts
reported in column (e) include:
<TABLE>
<CAPTION>
USE OF COMPANY AIRCRAFT REIMBURSED MOVING EXPENSES
--------------------------- ---------------------------
1992 1993 1994 1992 1993 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mr. Hendrix.................... $18,300 $19,203 $15,980 -- -- --
Mr. Anderson................... -- -- -- $43,452 -- --
</TABLE>
(3) In March 1991, Mr. Anderson was awarded 40,000 shares of restricted Common
Stock under the terms of the 1990 LTIP. These shares were initially
restricted as to the transfer of ownership, with such restriction being
removed on 10,000 shares on March 1 of each year, beginning on March 1,
1992, and continuing through March 1, 1995. At December 31, 1994, Mr.
Anderson's aggregate restricted stock holdings were 10,000 shares, which,
based on the fair market value at that date, would be valued at
10
<PAGE> 14
$196,875. Mr. Anderson received dividends payable to holders of record of
Common Stock on the restricted shares.
(4) In December 1991, the Compensation Committee granted 126 executives and
management employees, including Messrs. Anderson, Mazanec, King, and Hipple,
options to purchase 778,500 shares of Common Stock, together with an
equivalent amount of EPS Performance Units. Stock options for 40,500 shares
of Common Stock, together with an equivalent number of EPS Performance
Units, were also granted in April 1992 to seven executives and management
employees; 12,000 options and EPS Performance Units were granted to one
executive in July 1992; 41,000 options and EPS Performance Units were
granted to eight management employees in January 1993; in December 1993,
Messrs. Anderson and Mazanec each were granted options to purchase 250,000
shares of Common Stock, together with an equivalent number of EPS
Performance Units; in January 1994, 129 executive and management employees
were granted options to purchase 324,300 shares, together with an equivalent
number of EPS Performance Units; and in January 1995, 847,000 options and
EPS Performance Units were granted to 178 executives and management
employees. Each EPS Performance Unit creates a credit to an employee's EPS
Performance Unit account when earnings per share exceed a threshold, which
was $0.80 per share for awards made in 1991 and 1992, $1.10 for awards made
in January 1993, $1.50 for awards made in December 1993 and January 1994,
and $1.61 for awards made in January 1995. When earnings for a calendar year
(exclusive of certain special items) exceed the threshold, the excess amount
is credited to the employee's EPS Performance Unit account. The balance in
the account may be used to exercise stock options granted in connection with
the EPS Performance Units or shall be paid two years after the underlying
options expire, usually 10 years from the date of grant. Under the
agreements for such stock options, the options become exercisable in equal
installments over periods of one, two, and three years from the date of
grant. Options may also be exercised by normal means once vesting
requirements are met.
(5) Pursuant to rules on executive and director compensation disclosure adopted
by the SEC, amounts reported for the last completed fiscal year shall be
identified and quantified in a footnote. Accordingly, amounts reported for
1994 include (a) amounts credited by the Company for the Named Executive
Officers under the ESP and under the Panhandle Eastern Corporation Key
Employees Deferred Compensation Plan ("KED"), an unfunded, defined
contribution plan that allows eligible employees, including Messrs.
Anderson, Mazanac, Hipple and King, to elect deferral of base salary and
bonus, and receive matching company contributions and interest credits,
whenever, and to the extent that, their participation in the ESP is limited
by provisions of the Internal Revenue Code, (b) that portion of interest
credits on deferred compensation amounts that are considered, pursuant to
rules promulgated by the SEC, to be at above-market rates, (c) the value of
EPS Performance Units credited to EPS Performance Unit accounts of the Named
Executive Officers in 1994, and (d) the imputed value of premiums paid by
the Company for insurance on the Named Executive Officers' lives (none of
the Named Executive Officers has any cash value rights related to such
insurance).
<TABLE>
<CAPTION>
INTEREST VALUE OF
AT ABOVE VALUE OF EPS LIFE INSURANCE
ESP/KED MARKET RATES PERFORMANCE UNITS PREMIUMS
-------- ------------ ----------------- --------------
<S> <C> <C> <C> <C>
Mr. Hendrix............................. $ 0 $ 35,166 $ 0 $ 14,285
Mr. Anderson............................ 33,010 12,605 22,800 1,009
Mr. Mazanec............................. 28,474 37,113 22,794 8,730
Mr. Hipple.............................. 25,802 21,660 15,196 9,024
Mr. King................................ 15,783 81 15,200 2,650
</TABLE>
(6) In November 1990, Mr. Hendrix and the Company entered into an agreement
whereby he would receive no salary for 1991, 1992, and 1993. Instead, Mr.
Hendrix was awarded 300,000 shares of restricted Common Stock under the
terms of the 1990 LTIP as compensation for that period. Mr. Hendrix received
dividends payable to holders of record of Common Stock on the restricted
shares. These shares were initially restricted as to the transfer of
ownership, with such restrictions being removed on 25,000 shares every three
months, beginning in February 1991 and continuing through November 1993. The
value of the 300,000 restricted shares, based on the fair market value of
the Company's Common Stock as reported on The New York Stock Exchange
Composite Reporting System on November 12, 1990, which
11
<PAGE> 15
was $11.00 per share, was $3,300,000. Based on the December 30, 1994, fair
market value of $19.6875 per share, the 300,000 restricted shares would be
valued at $5,906,250. Effective February 24, 1993, the agreement with Mr.
Hendrix was amended to extend the term through November 1996 and to award
him an additional 300,000 shares of restricted Common Stock in lieu of
salary for the period November 1993 through November 1996. The restrictions,
and the removal thereof, were the same as for the 1990 award, and Mr.
Hendrix receives dividends payable to holders of record of Common Stock on
these restricted shares. In December 1993 this award was amended to provide
for the accelerated removal of restrictions in that month on 200,000 shares.
It was provided that the restrictions on the remaining 100,000 shares would
be removed as follows: 36,000 shares in quarterly installments of 9,000
shares each in 1994, 34,000 shares in quarterly installments of 8,500 shares
each in 1995, and 30,000 shares in quarterly installments of 7,500 shares
each in 1996. The full amount reported in the table for 1993 represents the
value of the 300,000 restricted shares based on the fair market value of the
Company's Common Stock on February 24, 1993, which was $21.75. Based on the
December 30, 1994, fair market value, these 300,000 shares also would be
valued at $5,906,250. At December 31, 1994, Mr. Hendrix's aggregate
remaining ownership of restricted stock was 64,000 shares, with a fair
market value of $1,260,000.
STOCK OPTION/SAR GRANTS IN 1994
The following table shows all grants of stock options to the Named
Executive Officers in 1994. No SARs were granted to any Named Executive Officer
in 1994 nor were the exercise prices on stock options previously awarded to any
of them amended or adjusted.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------
GRANT DATE
INDIVIDUAL GRANTS VALUE
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS GRANTED GRANT DATE
UNDERLYING TO EMPLOYEES EXERCISE OR PRESENT
OPTIONS/SARS IN BASE PRICE EXPIRATION VALUE(2)
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE $
(A) (B) (C) (D) (E) (F)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mr. Hendrix.................... 0 0 0 N/A 0
Mr. Anderson................... 0 0 0 N/A 0
Mr. Mazanec.................... 0 0 0 N/A 0
Mr. Hipple..................... 0 0 0 N/A 0
Mr. King....................... 15,000(1) 5 $24.25 1-25-04 97,485
-----------------------------------------------------------------------------------------------
</TABLE>
(1) On January 26, 1994, the Board of Directors granted stock options to
purchase 324,300 shares to 129 management employees, including Mr. King, at
an exercise price of $24.25, which was the fair market value of the Common
Stock on the date of grant. Options for 66,000 of such shares were incentive
stock options vesting in one-third increments commencing one year from the
date of grant. The remainder, including those granted to Mr. King, were
nonqualified stock options vesting one year from the date of grant. The
options have a ten year term. The grants include the award of an equivalent
number of EPS Performance Units, but do not include SARs. Each EPS
Performance Unit creates a credit to the grantee's EPS Performance Unit
account when the Company's earnings per share, exclusive of certain special
items, exceed a threshold. For the January 26, 1994 grant, the threshold is
$1.50. When earnings for a calendar year, beginning with 1994, exceed the
threshold, the excess amount is credited to the grantee's EPS Performance
Unit account. The balance of the account may be used to exercise the stock
options or it shall be paid two years after the expiration of the options.
The options may also be exercised by normal means once vesting requirements
are met.
(2) Grant date present values are based on the Black-Scholes option valuation
model. The key input variables used in valuing the options were: risk-free
interest rate - 6.25 percent; dividend yield - 4.96 percent; stock
12
<PAGE> 16
price volatility - .33; option term - ten years. The Standard and Poor's
Compustat Database was used and the volatility variable reflected 36 months
of stock price trading data. No adjustments for non-transferability or risk
of forfeiture were made. The actual value, if any, a grantee may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised, so that there is no assurance the value
realized will be at or near the value estimated by the Black-Scholes model.
EXERCISES OF STOCK OPTIONS IN 1994 AND YEAR-END OPTION VALUES
The following table provides information concerning the stock options
exercised by each of the Named Executive Officers during 1994 and the value of
unexercised stock options to the Named Executive Officers as of December 31,
1994. The value assigned to each unexercised, "in the money" stock option is
based on the positive spread between the exercise price of such stock option and
the fair market value of the Common Stock on December 31, 1994. The fair market
value is the average of the high and low prices of a share of Common Stock on
that date as reported on The New York Stock Exchange, Inc., Composite
Transactions Reporting System. In assessing the value, it should be kept in mind
that no matter what theoretical value is placed on a stock option on a
particular date, its ultimate value will be dependent on the market value of the
Company's Common Stock at a future date. That future value will depend in part
on the efforts of the Named Executive Officers to foster the future success of
the Company for the benefit of all stockholders.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
SHARES FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE* UNEXERCISABLE
(A) (B) (C) (D) (E)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mr. Hendrix...................... 0 0 0/0 0/0
Mr. Anderson..................... 1,478 13,210 108,633/166,667 88,775/0
Mr. Mazanec...................... 1,392 12,441 110,219/166,667 89,060/0
Mr. Hipple....................... 928 8,178 17,924/0 22,084/0
Mr. King......................... 6,667 58,753 6,667/15,000 59,373/0
-----------------------------------------------------------------------------------------------
</TABLE>
* Future exercisability of currently unexercisable stock options depends on the
grantee remaining employed by the Company throughout the vesting period of the
options, subject to provisions applicable at retirement, death, or total
disability. The unexercisable options vest and become exercisable on the
following schedule:
<TABLE>
<CAPTION>
JANUARY 26, DECEMBER 1, DECEMBER 1,
1995 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Mr. Anderson..................................... -- 83,333 83,334
Mr. Mazanec...................................... -- 83,333 83,334
Mr. Hipple....................................... -- -- --
Mr. King......................................... 15,000 -- --
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
ARRANGEMENTS
In November 1990, Mr. Hendrix and the Company entered into a five-year
employment agreement pursuant to which he received no salary for the first three
years of his employment. Instead, he was awarded 300,000 shares of Common Stock
under the terms of the 1990 LTIP, which shares were initially restricted as to
the transfer of ownership. Such restriction was removed on 25,000 shares every
three months, beginning in February 1991 and continuing through November 1993.
Mr. Hendrix received dividends on the restricted shares. The restriction would
have terminated early as to all of the restricted shares in the event of death
or disability, involuntary termination by the Company for any reason other than
cause (as defined), or change in control of the Company.
13
<PAGE> 17
Effective February 24, 1993, the employment agreement with Mr. Hendrix was
amended to extend the term through November 1996. The amendment provides that
Mr. Hendrix will continue to receive no salary for the three years from November
1993 through November 1996. Instead, he was awarded an additional 300,000 shares
of Common Stock on the same terms and subject to the same restrictions as those
described above, with restrictions being removed at the rate of 25,000 shares
every three months, beginning in February 1994. Mr. Hendrix began receiving
dividends on the additional shares in December 1993.
On January 1, 1994, the Omnibus Budget Reconciliation Act of 1993 (the
"Budget Act") became effective. Certain provisions of the Budget Act would have
denied to the Company a tax deduction for a substantial portion of compensation
expenses related to Mr. Hendrix in 1994, 1995, and 1996. In order to preserve
the deduction, on December 20, 1993, the agreement was amended again to provide
for the restrictions on 200,000 shares to be removed immediately and for the
restrictions on the remaining shares to be removed over the next 36 months.
Based on certain assumptions as to stock price, preserving the deduction was
estimated to result in tax savings to the Company of approximately $1.8 million.
In addition to the restricted shares, Mr. Hendrix participates in the
welfare plans available to employees generally; however, to the extent permitted
by law, he has waived and relinquished his right to participate in the ESP, the
Retirement Income Plan, and certain other plans available to Company employees
and executives.
The Company and Mr. Mazanec entered into a five-year employment agreement
in November 1989 which set a minimum base salary of $250,000 per year. In
addition to maintaining certain non-qualified retirement benefits to which he
was entitled as an executive of TEC, the agreement provides Mr. Mazanec a
supplemental lump sum cash benefit of $750,000 plus 8 percent interest
compounded semi-annually from November 1, 1989, payable within 30 days of his
termination from the Company for any reason. If Mr. Mazanec terminates
employment due to a material breach of the agreement by the Company which is not
remedied within 30 days after written notice by Mr. Mazanec, or if the Company
terminates the agreement without cause, the Company also will pay him, in a lump
sum, base pay and incentive compensation projected through the employment
period, as well as providing him an extension of welfare plan benefits through
the employment period. Effective November 1, 1992, the Company and Mr. Mazanec
entered into an amendment to the employment agreement, extending the period of
employment covered by the agreement through October 31, 1996.
On March 1, 1991, the Company and Mr. Anderson entered into an employment
agreement, the primary term of which originally was to expire on December 31,
1993. Unless either party serves notice of termination, on December 31 of each
year, the term is automatically extended for an additional one-year period. On
December 31, 1991, 1992, 1993 and 1994, the primary term was automatically
extended through December 31, 1994, 1995, 1996 and then 1997, respectively. The
Company may terminate the agreement for cause, death, or disability. Under such
circumstances, or if Mr. Anderson terminates the agreement for other than good
reason (as defined), Mr. Anderson or his estate will be paid base pay and
incentive compensation earned for that fraction of the year which he was
actually employed. If the agreement is terminated by Mr. Anderson for good
reason, or by the Company for reasons other than cause, death, or disability,
Mr. Anderson will receive in a lump sum the present value of his base pay and
incentive compensation projected through the employment period, as well as an
extension of welfare plan benefits through the employment period.
Effective March 1, 1991, Mr. Anderson was awarded 40,000 shares of
restricted Common Stock under the terms of the 1990 LTIP. These shares were
initially restricted as to the transfer of ownership, with such restriction
being removed on 10,000 shares on March 1 of each year, beginning on March 1,
1992, and continuing through March 1, 1995, provided Mr. Anderson remained in
the employ of the Company during that period. The restriction would have
terminated early as to all of the restricted shares in the event of death or
disability, involuntary termination by the Company for any reason other than
cause (as defined), or change in control of the Company. Mr. Anderson received
dividends payable to holders of record of Common Stock on the restricted shares.
The Company's Executive Severance Program ("Program") provides that in the
event of a "change in control," as defined in the agreements entered into
between the Company and the participants in the Program,
14
<PAGE> 18
such participants will have certain benefits provided to them in the event of
the termination of their employment within three years of the effective date of
such change in control. Such benefits are provided unless such termination of
employment is (i) because of the death or retirement of the executive, (ii) by
the Company or its subsidiaries for "cause" (as defined) or disability, or (iii)
by the executive other than for "good reason" (as defined). Generally, benefits
include a lump-sum cash payment equal to two and one-half times the average of
the participant's annual compensation for the five years preceding the change in
control (including deferred amounts, bonuses, and employer contributions to the
ESP); cash payment for the participant's account in the ESP; a continuation of
various medical, insurance, and certain other benefits for a period of two and
one-half years; and a lump-sum cash payment, at termination, equal to the
present value of the additional retirement benefits the participant would have
received as a result of two and one-half years additional service. The aggregate
of each participant's benefits, when combined, will not exceed three times the
"base amount" (as defined in the Internal Revenue Code). In consideration of
these benefits, the participant agrees, in the event a person seeks to effect a
change in control, not to leave the employ of the Company, and to continue to
render services commensurate with the participant's position, until such person
has abandoned or terminated efforts or the change in control has occurred. The
participant also agrees to retain in confidence all of the confidential business
information of the Company or its subsidiaries known to the participant. The
Program presently covers four executive officers of the Company, including
Messrs. Hipple and King.
The Company's Change in Control Severance Pay Plan ("Severance Plan") is
available for all employees of the Company and certain of its subsidiaries,
except those employees covered by an agreement under the Executive Severance
Program or a collective bargaining agreement. The Severance Plan provides a
number of severance benefits for eligible employees, which would be triggered by
certain specific events occurring subsequent to a "change in control" (as
defined) of the Company. In addition to the variable cash payments provided for
in the Severance Plan, eligible employees and dependents would receive, at no
cost to the employee, six months' continuation of medical and dental benefits at
the current benefit level, or at the benefit level immediately prior to the
change in control, whichever is greater. As of December 31, 1994, no benefits
had been provided under the Severance Plan.
PENSION PLAN
The Company's qualified retirement plan provides benefits, expressed in the
form of a single life annuity commencing at normal retirement date (age 65, or,
if later, the fifth anniversary of participation in the retirement plan) based
on a benefit formula that, in part, uses final five-year average pay, which
considers the regular compensation of the participant, including overtime
payments, bonus payments, and some forms of deferred compensation.
Qualified retirement plan benefits may be subject to statutory limitations
if the participant receives compensation in excess of a maximum, is covered by
other qualified plans, if benefits are paid before social security retirement
age, if the participant has less than 10 years of plan participation, or if
benefits are paid in a more valuable form than a single life annuity. Benefits
are not reduced by the amount of any social security payments received by the
participant. When qualified plan benefits are limited by statute, non-qualified
plans restore certain benefits for participants covered by the non-qualified
plans to a level which would have been available if such statutory limits did
not exist.
15
<PAGE> 19
The table below shows the estimated annual benefits payable at age 65 under
the qualified and non-qualified retirement plans at various levels of final
average compensation and assuming various years of benefit accrual service
(dollars in thousands):
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------
REMUNERATION 15 20 25 30 35
-------------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$200...................................... $ 46 $ 62 $ 77 $ 93 $108
300...................................... 70 94 117 141 164
400...................................... 94 126 157 189 220
500...................................... 118 158 197 237 276
600...................................... 142 190 237 285 332
</TABLE>
The years of benefit accrual service for each Named Executive Officer,
except Mr. Hendrix, who does not participate in the plan, are as follows: Paul
M. Anderson, 16; Carl B. King, 4; James B. Hipple, 37; and George L. Mazanec, 7.
The covered compensation is the sum of the salary and bonus reported in the
Summary Compensation Table on page 10.
In connection with the 1989 acquisition of TEC by the Company, the TEC
Retirement Plan was amended to offer enhanced early retirement benefits to
active employees age 50 or older whose primary work location was in the
headquarters office. Mr. Hipple was among those employees eligible for these
enhanced retirement benefits. The Company entered into a contract with Mr.
Hipple in 1989 under which, in consideration of his agreement to remain in the
employ of the Company through December 1992, the Company agreed to pay him the
actuarial equivalent of the enhanced retirement benefits which he lost by not
exercising his option to retire early. During 1992, the Board of Directors
extended the effectiveness of this contract until Mr. Hipple retires.
C. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, which is composed exclusively of Nonemployee
Directors, is responsible for, among other things, the Company's executive
compensation programs. The following is the report of the Compensation Committee
on compensation policies regarding executive officers and the basis of
compensation actions it has taken.
The objectives of the Company's executive compensation programs remain (i)
to attract and retain executive officers and key employees who provide valuable
experience and skills to the Company and who contribute materially on a
consistent basis to its long term success, and (ii) to support and reward
individual and team performance that increases stockholder value. With those
objectives in mind, the executive compensation programs are administered to
provide compensation based on these principles:
1. Competitive Compensation Opportunities. The executive compensation
programs are intended to provide total compensation (consisting of base
salaries, annual cash incentive opportunities, and long-term incentive
opportunities) that is competitive with the average total compensation
offered other executives employed by companies of similar size, complexity,
and line of business. Therefore, each year the Compensation Committee
considers data from surveys, proxy statements, independent compensation
consultants, and those peer group companies listed in the Stockholder
Return graphs in Section D, below.
2. Performance-Based Pay. Payouts from the short- and long-term
compensation programs in which executive officers and key employees
participate are designed to reflect and be contingent on the achievement of
both group and individual annual performance goals.
DESCRIPTION OF THE CURRENT EXECUTIVE COMPENSATION PROGRAM
Base Salaries. The base salaries of the Company's executive officers,
other than the Chief Executive Officer, are consistent with average comparable
base salaries determined from the data described above.
16
<PAGE> 20
Executive officer base salaries are reviewed annually by the Compensation
Committee and revised, if appropriate, based on factors which include individual
performance and general levels of comparable salary increases. At its most
recent meeting in January 1995, the Compensation Committee approved increases to
the base salaries of most executive officers and key employees, in order to keep
total compensation opportunities at competitive levels and to reflect individual
performance.
Annual Cash Incentive Opportunities. The Compensation Committee
administers the Annual Cash Bonus Plan ("ACBP") which permits the granting of
cash incentive compensation awards. The ACBP requires the Compensation Committee
annually to establish administrative guidelines to define who may earn an
incentive award, what performance is required to earn it, and how much may be
earned. Guidelines effective for 1994 called for the Chief Executive Officer to
recommend, and the Compensation Committee to approve, an annual bonus
opportunity for each participant. This opportunity, or "target," is expressed as
a percentage of base salary and is determined by the Compensation Committee's
judgment of the direct or indirect impact each individual could have on the
Company's performance, as measured by operating income. Depending on
performance, executive officers could receive up to 125 percent of the bonus
target. Of the twelve executive officers of the Company in 1994, eleven were
participants in the ACBP. Mr. Hendrix is not a participant.
In 1994, each of the executive officers, in consultation with the Chief
Executive Officer, established six to ten specific personal objectives. These
personal objectives were primarily directed toward development of new services,
market expansion, cost control and increasing returns on the Company's rate
base. Fifty percent of each executive officer's 1994 bonus was determined by the
degree to which, in the opinion of the Chief Executive Officer and the
Compensation Committee, the executive officer achieved his or her personal
objectives. Further, each business unit established operating income objectives
approved by the Compensation Committee, and fifty percent of each executive
officer's bonus was contingent upon achievement of those objectives. If any one
business unit failed to reach a minimum level of income established in the
guidelines, the executive officer would receive no compensation for the
proportion of the bonus contingent upon that business unit's results. In 1994,
five business units met or exceeded their target operating income objectives and
two did not. All of the eleven participating executive officers exceeded 100
percent of their personal objectives.
Long Term Incentive Opportunities. Through the 1990 LTIP and 1994 LTIP,
which were approved by the stockholders in April 1990 and 1994, respectively,
the Compensation Committee has the flexibility to structure long-term awards to
meet particular business needs. To date, four types of awards have been made
under the 1990 LTIP and two types of awards have been made under the 1994 LTIP:
A. 1990 LTIP
1. Restricted Stock. Since 1990, the Compensation Committee has
awarded 640,000 shares of stock that is restricted as to transferability to
two executive officers. Mr. Hendrix received grants of 300,000 shares of
restricted stock in both 1990 and 1993 in lieu of salary, bonus, and
certain employee benefits. Mr. Anderson received a grant of 40,000 shares
of restricted stock in 1991. Restrictions were removed as vesting
requirements were met. The purpose of these awards was to make the
recipients' compensation substantially contingent on stock price and
dividend yield and to ensure significant share ownership.
2. Conditional Stock. This form of award was employed in November
1990 and January and April 1991 when the Company's management team was
being assembled following the merger of the Company and TEC and in
conjunction with the Company's reorganization into distinct business units.
The awards, made to grantees that included Messrs. Mazanec, Hipple, and
King, as well as other officers of the Company, were for the purpose of
focusing the recipients' attention on long-term objectives by adding,
through the ownership of Common Stock, a meaningful long-term incentive
opportunity that previously did not exist. Conditional stock awards vested
and were distributed in scheduled annual installments within four to six
years of grant. Recipients were paid dividend equivalents in cash on
unvested, undistributed shares. These awards were designed for a unique
purpose and time, and the Compensation Committee has no plans to make
additional conditional stock awards.
17
<PAGE> 21
3. Stock Options. Stock options have been granted to executive
officers and others by the Compensation Committee at various times since
the inception of the 1990 LTIP, as the primary vehicle for providing
long-term incentive opportunities to executive officers. Under the 1990
LTIP, options were granted to individuals no more than every three years,
except where promotions or changes in responsibility, in the opinion of the
Compensation Committee, called for an exception. The number of stock
options granted was determined through a process which, first, utilized
survey data to determine the annualized value of long term incentive grants
made to other executives and management employees in the Company's
compensation data base ("target value"). Next, the Black-Scholes stock
option pricing model was used to calculate a ratio which, when multiplied
by the exercise price of the option, produced an expected present value of
the option. Finally, the number of options required to make a competitive
long-term grant was calculated by dividing the target value by the expected
present value of a single option. The result of this equation, expressed as
a number of options, could be adjusted by the Compensation Committee
depending upon the grant recipient's qualitative and quantitative
performance, the size of stock option grants awarded the recipient in the
past, and expectations of future performance. In January 1994, 129
executive and management employees, including Mr. King, were granted
options under the 1990 LTIP to purchase 324,300 shares.
4. EPS Performance Units. Although stock options are the primary
vehicle for long-term incentive opportunities for executive officers, the
Compensation Committee considers them insufficient for the purpose of
rewarding specific management actions that enhance earnings and stockholder
return. Therefore, the Compensation Committee has granted EPS Performance
Units in conjunction with stock options to further encourage stock
ownership by executive officers and key employees and to strengthen the
linkage among financial performance, stockholder return, and long-term
incentives. One EPS Performance Unit was granted in conjunction with each
stock option awarded in January 1994. Each EPS Performance Unit creates a
credit to the grantee's EPS Performance Unit account when the Company's
earnings per share has exceeded a threshold, which, for grants made in
January 1994, was $1.50. When earnings for a calendar year, exclusive of
certain special items, exceed the threshold, the excess amount is credited
to the grantee's EPS Performance Unit account. The balance in the account
may be used to exercise stock options granted in connection with the EPS
Performance Units or it will be paid two years after the underlying options
expire, usually ten years from the date of grant. Options may also be
exercised by normal means once vesting requirements are met.
B. 1994 LTIP
1. Stock Options. In January 1995, the Compensation Committee granted
stock options to executive officers and others under the 1994 LTIP. While
in recent years the general rule has been to grant stock options to
individuals no more than every three years, the Compensation Committee in
1995 has changed to an annual grant frequency in order to reflect
competitive trends toward annual grants. The method used to determine the
number of stock options granted and the present value of the options is the
same as described for stock option grants under the 1990 LTIP. In January
1995, 178 executive and management employees were granted options under the
1994 LTIP to purchase 847,000 shares.
2. EPS Performance Units. As with the 1990 LTIP, in January 1995, the
Compensation Committee granted to each participant in the January 1995
stock option grant, a number of EPS Performance Units equal to the number
of stock options granted. The threshold for calculating credit to the
grantee's EPS Performance Unit account was $1.61 per share for these
grants.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Compensation Committee took no action in 1994 regarding the Chief
Executive Officer's compensation. However, in February 1993 the employment
agreement between the Company and Mr. Hendrix was amended to extend its term for
one additional year through November 1996 and to establish an appropriate amount
of compensation for the final three years of the agreement, the compensation for
which had not
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previously been established. The amendment provided that Mr. Hendrix would
continue to receive no salary or bonus for the three years from November 1993
through November 1996. Instead, as in the first three years of the employment
agreement, his compensation would be in the form of restricted Common Stock.
Considering the market price of the Common Stock on the date of amendment of the
agreement, and the total compensation of other chief executive officers in the
natural gas pipeline industry (including those peer group companies used in the
Stockholder Return Comparisons in Section D hereof), the Compensation Committee,
with the aid of an independent compensation consultant, concluded that the
appropriate grant should be 300,000 shares, with restrictions on transferability
being removed on 25,000 shares every three months, beginning in February 1994.
Mr. Hendrix receives dividends payable to stockholders of record of Common Stock
on the restricted shares. The Compensation Committee believes that the value of
Mr. Hendrix's compensation is approximately at the average of that for the chief
executive officers of the peer group companies.
Provisions of the Budget Act enacted after the amendment date, generally
remove the Company's ability to deduct compensation expense in excess of $1
million paid to any of the five highest paid executives, including the Chief
Executive Officer, in any year beginning in 1994 unless such compensation is
"performance-based" as defined by the Budget Act. Although the award to Mr.
Hendrix was set at a competitive level and by its nature achieves the ultimate
goal of aligning management and stockholder interests, the terms of the award
did not meet the legal definition of "performance-based" compensation under the
Budget Act. In the Company's opinion, compensation in excess of $1 million paid
to Mr. Hendrix under the terms of the agreement would not have been deductible
beginning in 1994 and could have resulted in increased tax cost to the Company
of approximately $1.8 million during the period 1994 through 1996.
In light of these changes in tax treatment of executive compensation, at
its December 20, 1993 meeting, the Compensation Committee reaffirmed its
decision to compensate Mr. Hendrix solely with restricted stock. However, due to
the significant potential tax cost of the original agreement, the Compensation
Committee elected to accelerate the removal of restrictions on 200,000 shares
into 1993 when the compensation realized by Mr. Hendrix remained fully
deductible by the Company. Restrictions on 36,000 shares were removed in
quarterly installments of 9,000 shares each during 1994. Restrictions on the
remaining 64,000 shares of the award will be removed as follows: 34,000 shares
in quarterly installments of 8,500 shares each in 1995, and 30,000 shares in
quarterly installments of 7,500 shares each in 1996.
The Compensation Committee intends to continue to structure compensation
programs that reward performance while preserving maximum deductibility of all
compensation awards. It is not anticipated that compensation realized by any
officer under programs now in effect will, in the immediate future, result in
any material loss of tax deductions under the Budget Act.
THE COMPENSATION & ORGANIZATION COMMITTEE:
CHARLES W. DUNCAN, JR., CHAIRMAN WILLIAM T. ESREY
ROBERT CIZIK LEO E. LINBECK, JR.
HARRY E. EKBLOM RALPH S. O'CONNOR
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<PAGE> 23
D. STOCKHOLDER RETURN COMPARISON
SEC rules require that the Company include in this Proxy Statement a line
graph presentation comparing cumulative, five-year stockholder returns on an
indexed basis with the S&P 500 Stock Index and either a nationally recognized
industry standard or an index of peer companies selected by the Company. This
information is set forth on the graph below, which covers the period from
year-end 1989 through year-end 1994. The Company has chosen the Dow Jones
Pipeline Group for its peer comparison. The Dow Jones Pipeline Group includes
Coastal Corp., El Paso Natural Gas Company, Enron Corp., Enserch Corp., Sonat,
Inc., Transco Energy Co., Williams Companies, and the Company.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL
RETURN* AMONG PANHANDLE EASTERN CORPORATION,
S&P 500 STOCK INDEX, AND DOW JONES PIPELINE GROUP
(* Total return assumes quarterly reinvestment of dividends)
<TABLE>
<CAPTION>
Measurement Period Panhandle Dow Jones
(Fiscal Year Covered) Eastern Pipelines S&P 500
<S> <C> <C> <C>
12/89 $100.0 $100.0 $100.0
12/90 $ 42.9 $ 81.6 $ 96.9
12/91 $ 58.0 $ 79.6 $126.4
12/92 $ 66.8 $ 98.4 $136.1
12/93 $ 98.2 $123.9 $149.8
12/94 $ 84.8 $123.1 $151.7
</TABLE>
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<PAGE> 24
The next graph compares the cumulative stockholder return of the Company
with the same indexes, but over a four-year period from year-end 1990 through
year-end 1994, the period roughly coinciding with the tenure of the Company's
current senior management team.
COMPARISON OF FOUR YEAR CUMULATIVE TOTAL RETURN* AMONG
PANHANDLE EASTERN CORP., S&P 500 STOCK INDEX, AND DOW JONES PIPELINE GROUP
(* Total return assumes quarterly reinvestment of dividends)
<TABLE>
<CAPTION>
Measurement Period Panhandle Dow Jones
(Fiscal Year Covered) Eastern Pipelines S&P 500
<S> <C> <C> <C>
12/90 $100.0 $100.0 $100.0
12/91 $135.0 $ 97.5 $130.5
12/92 $155.7 $120.5 $140.4
12/93 $228.7 $151.7 $154.6
12/94 $197.4 $150.8 $156.6
</TABLE>
There can be no assurance that the Company's cumulative total return will
continue into the future with the same or similar trends depicted in the graphs
above.
E. COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
To the Company's knowledge, based on information furnished to it and
contained in the reports filed pursuant to Rule 16a-3 of the Securities Exchange
Act of 1934, as well as written representations that no other reports were
required, all applicable Section 16(a) filing requirements were complied with
during the year ended December 31, 1994.
F. OTHER MATTERS
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP ("Peat Marwick") served as the Company's independent
auditor during 1994, and was again appointed by the Board to serve in that
capacity for 1995. Representatives of Peat Marwick will be present at the Annual
Meeting to respond to appropriate questions from stockholders and to make a
statement if they desire to do so.
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<PAGE> 25
OTHER MATTERS BEFORE THE MEETING
It is not expected that any other matters will come before the Annual
Meeting. However, if any other matters properly come before the Annual Meeting,
it is the intention of the persons named in the accompanying form of proxy to
vote such proxy in accordance with their judgment on such matters.
It is important that the proxies be returned promptly. All stockholders,
whether or not they expect to attend the Annual Meeting in person, are urged to
mark, sign, date, and return the accompanying form of proxy in the enclosed
pre-addressed envelope, which requires no postage if mailed in the United
States.
BY ORDERS OF THE BOARD OF DIRECTORS,
/s/ ROBERT W. REED
------------------------------------
Robert W. Reed
Secretary
Dated: March 13, 1995
Houston, Texas
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[Recycled Paper Logo]
<PAGE> 27
--------------------------------------------------------------------------------
[PANHANDLE EASTERN LOGO]
<TABLE>
<S> <C> <C>
PROXY PLEASE MARK
P.O. Box 1642 VOTE / / OR /X/
Houston, Texas
77251-1642
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF STOCKHOLDERS ON APRIL 26, 1995
As evidenced by the signature(s) on the reverse side hereof, the
undersigned hereby appoints James B. Hipple, Carl B. King, and
Robert W. Reed, and any one of them, as Proxies, each with full
power of substitution, to represent and vote all shares of the
Common Stock of Panhandle Eastern Corporation (the "Company") which
the undersigned would be entitled to vote if personally present at
the Annual Meeting of Stockholders of the Company to be held at the
J.W. Marriott Hotel, 5150 Westheimer, Houston, Texas, on April 26,
1995, at 10:00 A.M., and at any adjournments thereof, with all
powers the undersigned would possess if personally present. This
card also provides voting instructions for shares, if any, held in
the Company's Dividend Reinvestment and Stock Purchase Plan and, if
applicable, shares held in the various employee benefit plans.
ITEM 1--ELECTION OF DULY NOMINATED DIRECTORS (THREE YEAR TERMS)
<TABLE>
<S> <C> <C> <C>
Nominees: Charles W. Duncan, Jr., FOR ALL NOMINEES WITHHELD
Harry E. Ekblom, (EXCEPT AS MARKED (AS TO ALL
Dennis R. Hendrix, and TO THE CONTRARY NOMINEES)
Ralph S. O'Connor AS PROVIDED)
/ / / /
</TABLE>
(To withhold authority to vote for any individual nomi-
nee write that nominee's name in the space provided
below)
-------------------------------------------------------
ITEM 2--ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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<PAGE> 28
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THIS PROXY WILL BE VOTED AS DIRECTED,
OR IF NO DIRECTION IS INDICATED
WILL BE VOTED "FOR" ITEM 1.
Dated , 1995
-------------
-------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
-------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
<TABLE>
<S> <C>
When signing as attorney, executor,
administrator, trustee, or guardian, or in
other representative capacities, please give
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ABOVE, MARK your full title as such. A Proxy for shares
ANY ADDRESS CORRECTION, DATE, AND RETURN THIS PROXY held in joint ownership should be signed by
USING THE ENCLOSED ENVELOPE. EACH owner.
</TABLE>
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