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FORM 8-K/A
CURRENT REPORT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MARCH 29, 1999
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No
- ----------- ----------------------------------- -----------------
1-2921 PANHANDLE EASTERN PIPE LINE COMPANY 44-0382470
(A Delaware Corporation)
5444 Westheimer Court
Houston, Texas 77056
(713) 627-5400
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ITEM 1. ACQUISITION OF ASSETS
On March 29, 1999, CMS Energy Corporation ("CMS Energy") announced that it had
closed on its previously announced acquisition of all the stock of Panhandle
Eastern Pipe Line Company ("Panhandle") and its principal subsidiaries,
Trunkline Gas Company and Pan Gas Storage Company, from subsidiaries of Duke
Energy Corporation ("Duke"). It also acquired the stock of Panhandle Storage
Company and Trunkline LNG Company. (These companies together with their
subsidiaries Panhandle Eastern Resources, Inc., Trunkline Field Services
Company, Trunkline Gas Resources, Inc., and Trunkline Pipeline Holdings, Inc.
are hereinafter referred to as the "Panhandle Companies".)
The purchase price for the stock of the Panhandle Companies was $1.9 billion in
cash and existing Panhandle debt of approximately $300 million. Concurrent with
the closing, CMS Panhandle Holding Company ("CMS Holding"), a newly formed
interim holding company for the Panhandle Companies, issued $800 million of
senior unsecured notes which were guaranteed by Panhandle. The CMS Holding notes
were issued in a 144A offering in three tranches: $300 million of 6.125% senior
notes due 2004; $200 million of 6.500% senior notes due 2009; and $300 million
of 7.000% senior notes due 2029. CMS Energy intends to merge CMS Holding into
Panhandle during the second quarter of 1999, at which time Panhandle will
replace CMS Holding as the obligor on the CMS Holding notes. CMS Holding's and
Panhandle's combined $1.1 billion of long-term debt as well as approximately an
additional $1.1 billion of CMS Energy unsecured bridge and revolving credit
indebtedness became a part of CMS Energy's consolidated indebtedness as of March
29, 1999. The $600 million CMS Energy bridge loan has a weighted average
interest rate of 5.94% and a term of six months, and the approximately $500
million CMS Energy revolver loan has a weighted average interest rate of 6.22%.
The bridge loan was provided by Barclays Bank PLC, Nationsbank, N.A., and Union
Bank of California, N.A., and the revolver loan is with a consortium of banks
for which The Chase Manhattan Bank serves as administrative agent. CMS Energy
expects to complete permanent financing of the acquisition with the sale of
approximately $600 million of CMS Energy Common Stock.
Panhandle and Trunkline Gas Company, together with the two gas storage companies
acquired, are primarily engaged in the interstate transportation and storage of
natural gas. The acquired assets include 10,400 miles of mainline natural gas
pipeline extending from the Texas Gulf Coast to Michigan and from the
Kansas/Oklahoma mid-continent region to Michigan with a combined capacity of 4.4
billion cubic feet per day, and 70 billion cubic feet of underground working gas
storage facilities. The Trunkline and Panhandle transmission systems connect
directly with the intrastate gas transmission system of Consumers Energy
Company, CMS Energy's Michigan electric and gas utility subsidiary. Consumers
Energy Company is one of the largest gas transmission customers of the two
acquired pipeline companies.
Trunkline LNG Company owns a liquified natural gas ("LNG") regasification plant
and related LNG tanker port, unloading facilities and LNG and gas storage
facilities located at Lake Charles, Louisiana. The LNG plant has the capacity to
deliver 700 million cubic feet per day but has been operated on a limited basis
for a number of years.
The Panhandle Companies compete with a number of 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 rates and conditions of service
of the principal Panhandle Companies are subject to regulation by the Federal
Energy Regulatory Commission.
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Readers should review the historic Panhandle disclosure under the Securities
Exchange Act of 1934 and in particular its financial information in light of the
changes reflected in the CMS Holding Unaudited Pro Forma Financial Information
filed as an exhibit to this report. Readers should note in particular that prior
to the closing of the acquisition by CMS Energy, Panhandle's interest in
Northern Border Partners, LP and certain non-operating assets which were not
material in amount or revenue impact were transferred from the Panhandle
Companies to other subsidiaries of Duke. In addition, certain intercompany
accounts, including advances, between the Panhandle Companies and Duke were
eliminated. Also, contemporaneous with the acquisition, the stock of Panhandle
Storage Company and Trunkline LNG Company was contributed by CMS Holding to
Panhandle so that they became subsidiaries of Panhandle. Finally, readers should
be aware of the pending merger of CMS Holding into Panhandle and the impact of
that merger on Panhandle's financial information. In general, the CMS Holding
Pro Forma column of the Unaudited Pro Forma Financial Information will be the
combining companies' financial information subsequent to the merger.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Effective upon the closing of the acquisition described above, Panhandle's Board
of Directors dismissed Deloitte & Touche LLP as Panhandle's certifying
accountant and retained Arthur Andersen LLP for 1999. Arthur Andersen LLP is
serving as certifying accountant for CMS Energy and its principal subsidiaries
in 1999. Deloitte & Touche LLP's report on the Panhandle financial statements
for 1997 and 1998 did not contain an adverse opinion or a disclaimer of opinion,
nor was it qualified or modified as to uncertainty, audit scope, or accounting
principles. During 1997, 1998 and the interim period from January 1, 1999
through March 29, 1999 (effective upon the closing of the acquisition), there
were no disagreements or "reportable events" as described in Items 304(a)(1)(iv)
and (v) of Regulation S-K between Panhandle and Deloitte & Touche LLP.
ITEM 7. EXHIBITS
(a) Financial Statements of Business Acquired - Not applicable.
(b) Pro Forma Financial Information - Attached as Exhibit 99(a) is the CMS
Holding Unaudited Pro Forma Financial Information.
(c) Exhibits -
(16)(a) - Letter of Deloitte & Touche LLP, independent auditors, dated
April 5, 1999.
(16)(b) - Letter of Deloitte & Touche LLP, independent auditors, dated
July 19, 1999.
(99)(a) - CMS Holding Unaudited Pro Forma Financial Information
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PANHANDLE EASTERN PIPE LINE COMPANY
Dated: July 19, 1999 By: /s/ Alan M. Wright
-----------------------------------------
Alan M. Wright
Senior Vice President and Chief
Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
(16)(a) - Letter of Deloitte & Touche LLP, independent auditors, dated April 5,
1999.
(16)(b) - Letter of Deloitte & Touche LLP, independent auditors, dated July
19, 1999.
(99)(a) - CMS Holding Unaudited Pro Forma Financial Information.
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EXHIBIT 16(a)
April 5, 1999
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N.W.
Washington D.C. 20549
Dear Sirs/Madams:
We have read and agree with the comments in Item 4 of the Form 8-K of Panhandle
Eastern Pipe Line Company dated March 29, 1999.
Yours truly,
/s/ Deloitte & Touche L.L.P.
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EXHIBIT 16 (b)
July 19, 1999
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N.W.
Washington D.C. 20549
Dear Sirs/Madams:
We have read and agree with the comments in Item 4 of the Form 8-K/A of
Panhandle Eastern Pipe Line Company dated July 19, 1999.
Yours truly,
/s/ Deloitte & Touche L.L.P.
<PAGE> 1
EXHIBIT 99(a)
UNAUDITED PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
OF CMS PANHANDLE HOLDING COMPANY
The following Unaudited Pro Forma Combined Financial Statements (the "PRO
FORMA FINANCIAL STATEMENTS") of CMS Panhandle Holding Company ("CMS HOLDING")
illustrate the effects of: (1) various restructuring, realignment, and
elimination of activities between the Panhandle Companies (as defined below) and
Duke Energy Corporation and its subsidiaries ("DUKE ENERGY") prior to the
closing of the acquisition (the "ACQUISITION") of Panhandle Eastern Pipe Line
Company ("PANHANDLE") and its principal subsidiaries, Trunkline Gas Company and
Pan Gas Storage Company, and its affiliates Panhandle Storage Company and
Trunkline LNG Company (collectively, the "PANHANDLE COMPANIES") by CMS Energy
Corporation ("CMS ENERGY"); (2) the adjustments resulting from the Acquisition
by CMS Energy; and (3) the public issuance of $800 million of Notes by CMS
Holding which will be completed to facilitate the Acquisition (the "FINANCING
TRANSACTION"). The $1.1 billion balance of the cash purchase price will be paid
with an equity contribution from CMS Energy. The Unaudited Pro Forma Combined
Balance Sheet has been prepared as if such transactions occurred on December 31,
1998; the Unaudited Pro Forma Combined Income Statement has been prepared as if
such transactions occurred as of January 1, 1998.
The Pro Forma Financial Statements reflect CMS Energy acquiring all of the
common stock of the Panhandle Companies. The Pro Forma Financial Statements also
reflect, prior to the Acquisition, the transfer of Panhandle's interest in
Northern Border Pipeline Company and certain non-operating assets to other
subsidiaries of Duke Energy, and the elimination of certain intercompany
accounts, including advances, between Panhandle and Duke Energy. The purchase
price for the common stock of the Panhandle Companies is $1.9 billion in cash.
The Panhandle Companies will have approximately $1.1 billion of debt outstanding
after the closing of the Acquisition. This indebtedness includes approximately
$300 million of existing debt and the debt incurred in the Financing
Transaction. CMS Energy's acquisition of the Panhandle Companies will be
accounted for under the purchase method.
A final determination of required purchase accounting adjustments,
including the allocation of the purchase price to the assets acquired and
liabilities assumed based on their respective fair values, has not yet been
made. Accordingly, the purchase accounting adjustments made in connection with
the development of the Pro Forma Financial Statements are preliminary and have
been made solely for purposes of developing the pro forma combined financial
information. However, CMS Energy management believes that the pro forma
adjustments and the underlying assumptions reasonably present the significant
effects of the Acquisition and the Financing Transactions. In addition, CMS
Energy will undertake a study to determine the fair value of assets and
liabilities of the Panhandle Companies and will revise the purchase accounting
adjustments upon completion of that study. Upon consummation of the Acquisition,
the actual financial position and results of operations of the combined entity
will differ, perhaps significantly, from the pro forma amounts reflected herein
because of a variety of factors, including access to additional information,
changes in value and changes in operating results between the dates of the Pro
Forma Financial Statements and the date on which the Acquisition takes place.
The Pro Forma Financial Statements are not necessarily indicative of actual
operating results or financial position had the Acquisition and the Financing
Transactions
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occurred as of the dates indicated above, nor do they purport to indicate
operating results or financial position which may be attained in the future.
The significant adjustments to pro forma net income reflect (1) higher
depreciation and amortization expense to give effect to the allocation of excess
purchase price and the fair value of net assets acquired related to property,
plant and equipment prospectively depreciated over a 40-year period, (2)
elimination of pension and rental income, and (3) lower interest expense from
the cancellation of certain indebtedness between Panhandle and Duke Energy and
additional interest expense reflecting the new debt issuance of CMS Holding.
The significant adjustments to the pro forma financial position reflect (1)
elimination of the advances to Duke Energy and the notes payable to Duke Energy,
(2) increases to property, plant and equipment and accrued liabilities for the
purchase price allocation, (3) recognition of goodwill in the fair value
calculation, (4) decreases in taxes and other liabilities assumed by Duke
Energy, and (5) increases in long-term debt and common stockholder's equity in
connection with the Acquisition and the Financing Transactions.
The Panhandle Companies' financial statements utilized in the preparation
of the Pro Forma Financial Statements are based upon financial statements and
information obtained from Duke Energy and Panhandle.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements and notes thereto of Panhandle included in
Panhandle's annual report on Form 10-K for the year ended December 31, 1998
delivered with this Offering Memorandum and the documents incorporated by
reference herein, and the notes to the Pro Forma Financial Statements included
elsewhere herein. The pro forma adjustments do not reflect any potential
operating efficiencies or cost savings which management believes are achievable
with respect to the combined companies.
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CMS PANHANDLE HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PANHANDLE COMPANIES
PRE-ACQUISITION PRO FORMA PRO FORMA ACQUISITION
----------------------------------------------------------- ----------------------------------------
PANHANDLE RESTRUCTURING ELIMINATION OF PANHANDLE
CONSOLIDATED AND DUKE ENERGY COMPANIES ACQUISITION FINANCING CMS HOLDING
HISTORICAL REALIGNMENT ACTIVITIES AS ADJUSTED ADJUSTMENTS TRANSACTIONS PRO FORMA
------------ ------------- -------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues........ $496 $(3)(a) $(14)(b) $479 $ (9)(i) $ -- $470
Operating expenses:
Operations and
maintenance........... 213 (2)(a) 9 (c) 220 220
Depreciation and
amortization.......... 56 (2)(a) (4)(d) 50 7 (j) 57
Property and other
taxes................. 26 2 (a) (1)(e) 27 27
---- --- ---- ---- ---- ---- ----
295 (2) 4 297 7 -- 304
---- --- ---- ---- ---- ---- ----
Operating income.......... 201 (1) (18) 182 (16) -- 166
Other income and
expenses................ 24 -- (14)(f) 10 10
---- --- ---- ---- ---- ---- ----
Earnings before interest
and taxes............... 225 (1) (32) 192 (16) -- 176
Interest expense.......... 77 (1)(a) (54)(g) 22 54 (l) 76
---- --- ---- ---- ---- ---- ----
Income before income
taxes................... 148 -- 22 170 (16) (54) 100
Income taxes.............. 57 1 (a) 7 (h) 65 (6)(k) (19)(m) 40
---- --- ---- ---- ---- ---- ----
Net income................ $ 91 $(1) $ 15 $105 $(10) $(35) $ 60
==== === ==== ==== ==== ==== ====
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Income Statement.
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CMS PANHANDLE HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
RESTRUCTURING AND REALIGNMENT:
(a) To reflect the results of operations of Panhandle Storage Company and
Trunkline LNG Company, both acquired by CMS Energy, and the transfer
of Panhandle's interest in Northern Border Pipeline Company and certain
non-operating assets to other subsidiaries of Duke Energy under the
provisions of the Stock Purchase Agreement dated as of October 31, 1998,
between CMS Energy and subsidiaries of Duke Energy (the "STOCK PURCHASE
AGREEMENT").
ELIMINATION OF DUKE ENERGY ACTIVITIES:
(b) To reflect the elimination of rental income earned by Panhandle on an
office building, which was transferred to Duke Energy under the
provisions of the Stock Purchase Agreement.
(c) To reflect the elimination of pension income recognized by Panhandle on the
overfunded pension plans of Duke Energy. Under the provisions of the Stock
Purchase Agreement, Duke Energy transferred to CMS Energy an amount of
pension assets equivalent to the Panhandle Companies' liabilities assumed
by CMS Energy.
(d) To reflect the elimination of depreciation associated with an office
building and certain other assets, which were transferred to Duke Energy
under the provisions of the Stock Purchase Agreement.
(e) To reflect the elimination of ad valorem taxes associated with an office
building, which was transferred to Duke Energy under the provisions of
the Stock Purchase Agreement.
(f) To reflect the elimination of a December 1998 gain on the sale of
Panhandle's general partnership interest in Northern Border Pipeline
Company.
(g) To reflect a reduction in interest expense relating to the settlement of
certain short-term notes payable to Duke Energy under the provisions of the
Stock Purchase Agreement.
(h) To reflect the income tax expense effects of pro forma adjustments (b)
through (g) at an estimated rate of 35%.
ACQUISITION ADJUSTMENTS:
(i) To reflect the elimination of non-cash amortization of deferred credits
associated with a Trunkline LNG Company rate settlement.
(j) To reflect depreciation expense on the fair value of property, plant and
equipment prospectively depreciated over a 40-year period which
approximates the Federal Energy Regulatory Commission ("FERC")- approved
depreciation rate for the regulated property, plant and equipment of the
Panhandle Companies. Also reflects amortization expense over a 40-year
period of the estimated goodwill recognized in the Acquisition.
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(k) To reflect the income tax expense effects of pro forma adjustments (i) and
(j) at an estimated rate of 35%.
FINANCING TRANSACTIONS:
(l) To reflect the increase of interest expense relating to the issuance
of $800 million of CMS Holding Notes with a weighted average interest rate
of 6.8%. An increase of 1/8% in interest rates would have the impact of
increasing total pro forma interest expense by approximately $1 million for
the year ended December 31, 1998.
(m) To reflect the income tax expense effects of pro forma adjustment (l) at an
estimated rate of 35%.
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CMS PANHANDLE HOLDING COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PANHANDLE COMPANIES
PRE-ACQUISITION PRO FORMA
-----------------------------------------------------------
PANHANDLE RESTRUCTURING ELIMINATION OF PANHANDLE
CONSOLIDATED AND DUKE ENERGY COMPANIES
HISTORICAL REALIGNMENT ACTIVITIES AS ADJUSTED
------------ ------------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Receivables........................... $ 94 $ (3)(a) $ (1)(b) $ 90
Other current assets.................. 86 (2)(a) (6)(c) 78
------ ---- ----- ------
180 (5) (7) 168
------ ---- ----- ------
INVESTMENTS:
Advances and note
receivable--parent.................. 738 (738)(b) --
Investment in affiliates and other.... 50 (41)(a) 9
------ ---- ----- ------
788 (41) (738) 9
------ ---- ----- ------
NET PROPERTY, PLANT AND EQUIPMENT....... 979 101 (a) (72)(d) 1,008
------ ---- ----- ------
OTHER NON-CURRENT ASSETS................ 26 -- (2)(c) 24
------ ---- ----- ------
Total Assets.................... $1,973 $ 55 $(819) $1,209
====== ==== ===== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $ 56 $(48)(a) $ -- $ 8
Notes payable--parent................. 675 (675)(e) --
Other current liabilities............. 183 3 (a) (68)(f) 108
(10)(c)
------ ---- ----- ------
914 (45) (753) 116
------ ---- ----- ------
LONG-TERM DEBT.......................... 299 (3)(a) 3 (b) 299
------ ---- ----- ------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes................. 99 51 (a) (150)(f) --
Other non-current liabilities......... 103 36 (a) (61)(c) 78
------ ---- ----- ------
202 87 (211) 78
------ ---- ----- ------
COMMON STOCKHOLDER'S EQUITY:
Common stock.......................... 1 1
Paid-in capital....................... 466 16 (a) 142 (g) 624
Retained earnings..................... 91 91
------ ---- ----- ------
558 16 142 716
------ ---- ----- ------
Total Liabilities and
Stockholder's Equity.......... $1,973 $ 55 $(819) $1,209
====== ==== ===== ======
<CAPTION>
PRO FORMA ACQUISITION
----------------------------------------
ACQUISITION FINANCING CMS HOLDING
ADJUSTMENTS TRANSACTIONS PRO FORMA
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Receivables........................... $ -- $ -- $ 90
Other current assets.................. 78
------ ------- ------
-- -- 168
------ ------- ------
INVESTMENTS:
Advances and note
receivable--parent.................. --
Investment in affiliates and other.... 9
------ ------- ------
-- -- 9
------ ------- ------
NET PROPERTY, PLANT AND EQUIPMENT....... 603 (h) 1,576
(35)(i)
------ ------- ------
OTHER NON-CURRENT ASSETS................ 700 (j) -- 724
------ ------- ------
Total Assets.................... $1,268 $ -- $2,477
====== ======= ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $ -- $ -- $ 8
Notes payable--parent................. --
Other current liabilities............. 108
------ ------- ------
-- -- 116
------ ------- ------
LONG-TERM DEBT.......................... 19 (j) 800 (l) 1,118
------ ------- ------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes................. --
Other non-current liabilities......... 100 (j) 143
(35)(i)
------ ------- ------
65 -- 143
------ ------- ------
COMMON STOCKHOLDER'S EQUITY:
Common stock.......................... 1
Paid-in capital....................... 1,275 (k) 1,100 (m) 1,099
(1,900)(n)
Retained earnings..................... (91)(k) --
------ ------- ------
1,184 (800) 1,100
------ ------- ------
Total Liabilities and
Stockholder's Equity.......... $1,268 $ -- $2,477
====== ======= ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Balance Sheet.
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CMS PANHANDLE HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
RESTRUCTURING AND REALIGNMENT:
(a) To reflect the financial position of Panhandle Storage Company and
Trunkline LNG Company, both acquired by CMS Energy, and the transfer
of Panhandle's interest in Northern Border Pipeline Company and certain
non-operating assets to other subsidiaries of Duke Energy under the
provisions of the Stock Purchase Agreement.
ELIMINATION OF DUKE ENERGY ACTIVITIES:
(b) To reflect the settlement of the advances and notes receivable from Duke
Energy under the provisions of the Stock Purchase Agreement.
(c) To reflect the transfer from the Panhandle Companies to Duke Energy of
certain environmental and litigation liabilities and the related assets
under the provisions of the Stock Purchase Agreement.
(d) To reflect the transfer to Duke Energy of certain assets, primarily an
office building, under the provisions of the Stock Purchase Agreement.
(e) To reflect the settlement of certain short-term notes payable to Duke
Energy under the provisions of the Stock Purchase Agreement.
(f) To reflect the transfer from the Panhandle Companies to Duke Energy of all
tax liabilities under the provisions of the Stock Purchase Agreement.
(g) To reflect the settlement and transfer of certain assets and liabilities
described in pro forma adjustments (b) through (f).
ACQUISITION ADJUSTMENTS:
(h) To reflect the increase in property, plant and equipment to adjust the
historical value of these assets to their estimated fair values. The
allocation reflects CMS Energy's internal evaluation of the excess purchase
price and is subject to the completion of a study to determine the fair
value of the property. Should the study not support such allocation to
property, plant and equipment, the excess of total purchase price over the
fair value of the net assets acquired will be reflected as an adjustment to
the preliminary estimate of goodwill.
(i) To reflect the elimination of deferred credits associated with a Trunkline
LNG Company rate settlement.
(j) To reflect the preliminary estimated acquisition adjustments under the
purchase method of accounting to record assets acquired and liabilities
assumed at estimated fair value for (i) the preliminary estimate of
goodwill, (ii) the increase of certain other assets, deferred charges and
regulatory assets, (iii) the long-term debt assumed, (iv) the assumption of
benefit plan obligations by the Panhandle Companies, previously assumed by
Duke Energy, and (v) the accrual of certain obligations of the Panhandle
Companies which are expected to be paid after completion of the
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transaction. The following adjustments reflect CMS Energy management's
intended business strategies which may differ from the business strategies
employed by Duke Energy management prior to the Acquisition:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
Other assets including goodwill...................... $700
Other non-current liabilities........................ 100
</TABLE>
(k) To reflect the increase in paid-in capital and the elimination in retained
earnings as a result of pro forma adjustments (h) through (j).
FINANCING TRANSACTIONS:
(l) To reflect the issuance of $800 million of CMS Holding Notes.
(m) To reflect a $1.1 billion equity contribution by CMS Energy.
(n) To reflect the payment of $1.9 billion in cash to Duke Energy for the
acquisition of the Panhandle Companies.
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