<PAGE> 1
============================================================
FORM 8-K
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) January 20, 1999
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-9513 CMS ENERGY CORPORATION 38-2726431
(A Michigan Corporation)
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
(212) 436-9200
============================================================
ITEM 5. OTHER EVENTS
As previously disclosed, CMS Energy Corporation ("CMS") and Duke
Energy Corporation ("Duke") have received requests for additional information
("Second Request") from the Federal Trade Commission ("FTC") under the
Hart-Scott-Rodino Antitrust Improvements Act ("HSR") relating to CMS'
acquisition from Duke of the stock of Panhandle Eastern Pipe Line Company,
Trunkline Gas Company, two storage subsidiaries and Trunkline LNG Company
(collectively, the "Panhandle Companies"). CMS and Duke are in the process of
complying with the Second Request and
<PAGE> 2
providing other information to the staff of the FTC. Currently CMS believes that
it will be able to comply substantially with the Second Request in February and
that this will enable the HSR waiting period to expire or to be terminated early
by the FTC in time to permit a closing of the acquisition in the first quarter
of 1999. CMS is seeking to resolve open issues with the FTC's staff which would
allow an early termination by the FTC of the waiting period, either before or
after compliance with the Second Request. While CMS knows of no valid basis for
the FTC to take action opposing the acquisition, CMS cannot give any assurance
with respect to the action of the FTC under HSR or its timing.
Certain pro forma financial information for CMS, reflecting the pending
acquisition of the Panhandle Companies, that should be considered in deciding
whether to invest in CMS securities is attached hereto as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit 99.1 Unaudited Pro Forma Financial Information of CMS Energy Corpora-
tion.
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CMS ENERGY CORPORATION
Dated: January 20, 1999 By: /s/ ALAN M. WRIGHT
----------------------------
Alan M. Wright
Senior Vice President and Chief
Financial Officer
3
<PAGE> 4
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
99.1 Unaudited Pro Forma Financial Information
<PAGE> 1
EXHIBIT 99.1
UNAUDITED PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
OF CMS ENERGY CORPORATION
The following Unaudited Pro Forma Combined Financial Statements (the "PRO
FORMA FINANCIAL STATEMENTS") of CMS Energy Corporation and its subsidiaries
("CMS ENERGY") illustrate the effects of (i) various restructuring, realignment,
and elimination of activities between Panhandle Eastern Pipe Line Company and
its subsidiaries ("PANHANDLE") and Duke Energy Corporation and its subsidiaries
(collectively "DUKE ENERGY") prior to the closing of the pending acquisition of
the stock of Panhandle and its principal subsidiaries, Trunkline Gas Company and
Pan Gas Storage Company, and the stock of Panhandle Storage Company and
Trunkline LNG Company (collectively the "PANHANDLE COMPANIES") by CMS Energy
(the "ACQUISITION"); (ii) the adjustments resulting from the Acquisition; and
(iii) the Panhandle and CMS Energy financing transactions which will be
completed to facilitate the Acquisition, including the assumed public issuance
of $800 million of senior notes by Panhandle, $500 million of senior debt by CMS
Energy, and approximately 13 million shares of common stock by CMS Energy
aggregating approximately $600 million (collectively, the "FINANCING
TRANSACTIONS"). The net proceeds from the Financing Transactions will be used to
retire bridge facilities of Panhandle and CMS Energy which initially will
finance the Acquisition, in whole or in part. The Unaudited Pro Forma Combined
Balance Sheet has been prepared as if such transactions occurred on September
30, 1998; the Unaudited Pro Forma Combined Statements of Income have been
prepared as if such transactions occurred as of January 1, 1997.
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 $300 million of debt outstanding
at the time of closing which will become a part of CMS Energy's consolidated
indebtedness. 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
F-1
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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
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 the pro forma results of operations reflect
(i) higher depreciation and amortization expense to give effect to the
allocation of excess purchase price and the fair value of net assets acquired to
property, plant and equipment, (ii) elimination of pension and rental income and
(iii) lower interest expense from the cancellation of certain indebtedness
between Panhandle and Duke Energy and additional interest expense reflecting the
new debt issuances of both Panhandle and CMS Energy.
The significant adjustments to the pro forma financial position reflect (i)
elimination of the advances to Duke Energy and the notes payable to Duke Energy,
(ii) increases to property, plant and equipment and accrued liabilities for the
purchase price allocation, (iii) the recognition of goodwill in the fair value
calculation, (iv) decreases in taxes and other liabilities assumed by Duke
Energy, and (v) increases in long-term debt and common stockholders' 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 CMS Energy and Panhandle,
respectively, 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 CMS Energy management believes are
achievable with respect to the combined companies.
F-2
<PAGE> 3
CMS ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PANHANDLE COMPANIES
PRE-ACQUISITION PRO FORMA ACQUISITION
--------------------------------------------- --------------------------
PANHANDLE RESTRUCTURING ELIMINATION OF
CMS ENERGY CONSOLIDATED AND DUKE ENERGY ACQUISITION FINANCING
HISTORICAL HISTORICAL REALIGNMENT ACTIVITIES ADJUSTMENTS TRANSACTIONS
---------- ------------ ------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues................ $3,792 $365 $(8)(a) $ (9)(b) $(3)(h)
Operating expenses
Operations and maintenance...... 2,683 154 (3)(a) 10(c)
Depreciation and amortization... 347 41 (2)(a) (3)(d) 6(i)
Property and other taxes........ 155 20 1(a) (1)(e)
------ ---- --- ---- --- ----
3,185 215 (4) 6 6 --
------ ---- --- ---- --- ----
Pretax operating income........... 607 150 (4) (15) (9) --
Other income (deductions)......... (42) 10
Fixed charges..................... 288 58 1(a) (43)(f) 71(k)
------ ---- --- ---- --- ----
Income before income taxes........ 277 102 (5) 28 (9) (71)
Income taxes...................... 86 38 (1)(a) 10(g) (3)(j) (25)(l)
------ ---- --- ---- --- ----
Net income before cumulative
effect of change in accounting
principle....................... 191 64 (4) 18 (6) (46)
Cumulative effect of change in
accounting for property taxes,
net of $23 tax.................. 43
------ ---- --- ---- --- ----
Net income........................ $ 234 $ 64 $(4) $ 18 $(6) $(46)
====== ==== === ==== === ====
Basic earnings per average common
share
CMS Energy...................... $ 2.23
======
Class G......................... $ 1.04
======
Diluted earnings per average
common share
CMS Energy...................... $ 2.19
======
Class G......................... $ 1.04
======
Average common shares outstanding
CMS Energy...................... 101 13
====== ====
Class G......................... 8 --
====== ====
<CAPTION>
PRO FORMA ACQUISITION
-------------------------
INTERCOMPANY CMS ENERGY
ELIMINATIONS PRO FORMA
------------ ----------
<S> <C> <C>
Operating revenues................ $(35)(m) $4,102
Operating expenses
Operations and maintenance...... (35)(m) 2,809
Depreciation and amortization... 389
Property and other taxes........ 175
---- ------
(35) 3,373
---- ------
Pretax operating income........... -- 729
Other income (deductions)......... (32)
Fixed charges..................... 375
---- ------
Income before income taxes........ -- 322
Income taxes...................... 105
---- ------
Net income before cumulative
effect of change in accounting
principle....................... -- 217
Cumulative effect of change in
accounting for property taxes,
net of $23 tax.................. 43
---- ------
Net income........................ $ -- $ 260
==== ======
Basic earnings per average common
share
CMS Energy...................... $ 2.21
======
Class G......................... $ 1.04
======
Diluted earnings per average
common share
CMS Energy...................... $ 2.18
======
Class G......................... $ 1.04
======
Average common shares outstanding
CMS Energy...................... 114
======
Class G......................... 8
======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Income Statements.
F-3
<PAGE> 4
CMS ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PANHANDLE COMPANIES
PRE-ACQUISITION PRO FORMA ACQUISITION
--------------------------------------------- --------------------------
PANHANDLE RESTRUCTURING ELIMINATION OF
CMS ENERGY CONSOLIDATED AND DUKE ENERGY ACQUISITION FINANCING
HISTORICAL HISTORICAL REALIGNMENT ACTIVITIES ADJUSTMENTS TRANSACTIONS
---------- ------------ ------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues......... $4,781 $534 $(6)(a) $(13)(b) $ (7)(h)
Operating expenses
Operations and
maintenance............ 3,387 254 (6)(a) (13)(c)
Depreciation and
amortization........... 467 59 (2)(a) (4)(d) 3(i)
Property and other
taxes.................. 211 26 1(a) (1)(e)
------ ---- --- ---- ---- ----
4,065 339 (7) (18) 3 --
------ ---- --- ---- ---- ----
Pretax operating income.... 716 195 1 5 (10) --
Other income
(deductions)............. (12) 6
Fixed charges.............. 352 73 2(a) (50)(f) 94(k)
------ ---- --- ---- ---- ----
Income before income
taxes.................... 352 128 (1) 55 (10) (94)
Income taxes............... 108 48 19(g) (4)(j) (33)(l)
------ ---- --- ---- ---- ----
Net income................. $ 244 $ 80 $(1) $ 36 $ (6) $(61)
====== ==== === ==== ==== ====
Basic earnings per average
common share
CMS Energy............... $ 2.39
======
Class G.................. $ 1.84
======
Diluted earnings per
average common share
CMS Energy............... $ 2.37
======
Class G.................. $ 1.84
======
Average common shares
outstanding
CMS Energy............... 96 13
====== ====
Class G.................. 8 --
====== ====
<CAPTION>
PRO FORMA ACQUISITION
-------------------------
INTERCOMPANY CMS ENERGY
ELIMINATIONS PRO FORMA
------------ ----------
<S> <C> <C>
Operating revenues......... $(53)(m) $5,236
Operating expenses
Operations and
maintenance............ (53)(m) 3,569
Depreciation and
amortization........... 523
Property and other
taxes.................. 237
---- ------
(53) 4,329
---- ------
Pretax operating income.... -- 907
Other income
(deductions)............. (6)
Fixed charges.............. 471
---- ------
Income before income
taxes.................... -- 430
Income taxes............... 138
---- ------
Net income................. $ -- $ 292(n)
==== ======
Basic earnings per average
common share
CMS Energy............... $ 2.55
======
Class G.................. $ 1.84
======
Diluted earnings per
average common share
CMS Energy............... $ 2.54
======
Class G.................. $ 1.84
======
Average common shares
outstanding
CMS Energy............... 109
======
Class G.................. 8
======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Income Statements.
F-4
<PAGE> 5
CMS ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENTS
RESTRUCTURING AND REALIGNMENT:
(a) To reflect the results of operations of Panhandle Storage Company and
Trunkline LNG Company, both being 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 Duke Energy subsidiaries (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 will be 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 will transfer to CMS Energy an amount of
pension assets equivalent to the Panhandle Companies' liabilities assumed
by CMS Energy. Also reflects the elimination of certain previously recorded
litigation expenses. The liability for such litigation will be transferred
from the Panhandle Companies to Duke Energy under the provisions of the
Stock Purchase Agreement.
(d) To reflect the elimination of depreciation expense associated with an
office building and certain other assets, which will be 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 will be transferred to Duke Energy under the provisions of
the Stock Purchase Agreement.
(f) 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.
(g) To reflect the income tax expense effects of pro forma adjustments (b)
through (f) at an estimated rate of 35%.
ACQUISITION ADJUSTMENTS:
(h) To reflect the elimination of non-cash amortization of deferred credits
associated with a Trunkline LNG Company rate settlement.
(i) To reflect depreciation expense related to the increase in 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.
F-5
<PAGE> 6
(j) To reflect the income tax expense effects of pro forma adjustments (h) and
(i) at an estimated rate of 35%.
FINANCING TRANSACTIONS:
(k) To reflect the increase of interest expense relating to the assumed public
issuance of $800 million of Panhandle senior notes with a weighted average
coupon of 6.75% and $500 million of CMS Energy senior debt with a coupon of
7.5%. An increase of 1/8% in interest rates would have the impact of
increasing total pro forma interest expense by approximately $1.2 million
and $1.6 million for the nine months ended September 30, 1998 and the year
ended December 31, 1997, respectively. This adjustment does not include
non-recurring CMS Energy and Panhandle bridge financing fees of $11 million
($7 million after-tax).
(l) To reflect the income tax expense effects of pro forma adjustment (k) at an
estimated rate of 35%.
INTERCOMPANY ELIMINATIONS:
(m) To reflect the elimination of intercompany transactions between CMS Energy
and the Panhandle Companies.
OTHER DISCLOSURE INFORMATION:
(n) Net income for the year ended December 31, 1997, includes the recognition
of the FERC's approval of Panhandle's rate settlement agreement which
provided final resolution of refund matters and established prospective
rates. As a result of the settlement agreement and certain other
proceedings, Panhandle recognized pretax operating income of $33 million
($21 million after-tax). Without this recognition, CMS Energy's 1997 pro
forma net income, basic earnings per share and diluted earnings per share
would have been $261 million, $2.36 and $2.35, respectively.
F-6
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CMS ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PANHANDLE COMPANIES
PRE-ACQUISITION PRO FORMA ACQUISITION
------------------------------------------ -----------------------------------------
ELIMINATION
CMS PANHANDLE RESTRUCTURING OF DUKE
ENERGY CONSOLIDATED AND ENERGY ACQUISITION FINANCING INTERCOMPANY
HISTORICAL HISTORICAL REALIGNMENT ACTIVITIES ADJUSTMENTS TRANSACTIONS ELIMINATIONS
---------- ------------ ------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Net property, plant and
equipment................ $5,270 $ 976 $107(a) $ (73)(b) $ 576(h)
(38)(i)
Investments
Advances and notes
receivable--parent..... -- 715 (30)(a) (685)(c)
Investments in affiliates
and other.............. 1,952 54 (45)(a)
------ ------ ---- ----- ------ ------- ---
1,952 769 (75) (685) -- -- --
------ ------ ---- ----- ------ ------- ---
Current assets
Cash and temporary cash
investments............ 101
Accounts receivable and
accrued revenue........ 457 86 (3)(a) (4)(o)
Other current assets..... 580 80 1(a) (6)(d)
------ ------ ---- ----- ------ ------- ---
1,138 166 (2) (6) -- -- (4)
------ ------ ---- ----- ------ ------- ---
Other non-current
assets................... 1,570 29 (3)(d) 700(j)
------ ------ ---- ----- ------ ------- ---
Total assets....... $9,930 $1,940 $ 30 $(767) $1,238 $ -- $(4)
====== ====== ==== ===== ====== ======= ===
LIABILITIES AND STOCKHOLDERS'
INVESTMENT AND LIABILITIES
Capitalization
Common stockholders'
equity................. $1,922 $ 563 $ 5(a) $ 156(g) $1,176(k) $ 600(l)
(1,900)(m)
Preferred stock of
subsidiary............. 238
Trust preferred
securities............. 393
Long-term debt........... 4,248 299 (3)(a) 3(c) 1,300(n)
Non-current portion of
capital leases......... 77
------ ------ ---- ----- ------ ------- ---
6,878 862 2 159 1,176 -- --
------ ------ ---- ----- ------ ------- ---
Current liabilities
Current portion of long-
term debt and capital
leases................. 171
Notes payable............ 302 675 (675)(e)
Accounts payable......... 399 49 (44)(a) (4)(o)
Other current
liabilities............ 456 175 (3)(a) (66)(f)
(9)(d)
------ ------ ---- ----- ------ ------- ---
1,328 899 (47) (750) -- -- (4)
------ ------ ---- ----- ------ ------- ---
Non-current liabilities
Deferred income taxes.... 654 73 38(a) (111)(f)
Postretirement
benefits............... 499
Other non-current
liabilities............ 571 106 37(a) (65)(b) 100(j)
(38)(i)
------ ------ ---- ----- ------ ------- ---
1,724 179 75 (176) 62 -- --
------ ------ ---- ----- ------ ------- ---
Total stockholders'
investment and
liabilities...... $9,930 $1,940 $ 30 $(767) $1,238 $ -- $(4)
====== ====== ==== ===== ====== ======= ===
<CAPTION>
PRO FORMA
ACQUISITION
-----------
CMS
ENERGY
PRO
FORMA
-------
<S> <C>
ASSETS
Net property, plant and
equipment................ $ 6,818
Investments
Advances and notes
receivable--parent..... --
Investments in affiliates
and other.............. 1,961
-------
1,961
-------
Current assets
Cash and temporary cash
investments............ 101
Accounts receivable and
accrued revenue........ 536
Other current assets..... 655
-------
1,292
-------
Other non-current
assets................... 2,296
-------
Total assets....... $12,367
=======
LIABILITIES AND STOCKHOLDERS'
Capitalization
Common stockholders'
equity................. $ 2,522
Preferred stock of
subsidiary............. 238
Trust preferred
securities............. 393
Long-term debt........... 5,847
Non-current portion of
capital leases......... 77
-------
9,077
-------
Current liabilities
Current portion of long-
term debt and capital
leases................. 171
Notes payable............ 302
Accounts payable......... 400
Other current
liabilities............ 553
-------
1,426
-------
Non-current liabilities
Deferred income taxes.... 654
Postretirement
benefits............... 499
Other non-current
liabilities............ 711
-------
1,864
-------
Total stockholders'
equity and
liabilities...... $12,367
=======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Balance Sheet.
F-7
<PAGE> 8
CMS ENERGY CORPORATION
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 being 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 transfer to Duke Energy of certain assets, primarily an
office building, under the provisions of the Stock Purchase Agreement.
(c) To reflect the settlement of the advances and notes receivable from Duke
Energy under the provisions of the Stock Purchase Agreement.
(d) 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.
(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 of $576 million 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 assumption of benefit plan obligations by the
Panhandle Companies previously assumed by Duke Energy, and (iv) the accrual
of certain obligations of the Panhandle Companies which are expected to be
paid after completion of the transaction. The following adjustments reflect
CMS Energy management's intended business strategies which may differ from
the business
F-8
<PAGE> 9
strategies employed by Duke Energy management prior to the Acquisition
(dollars in millions):
<TABLE>
<S> <C>
Other assets including goodwill............................. $700
Other non-current liabilities............................... $100
</TABLE>
(k) To reflect an increase in common stockholders' equity as a result of the
Acquisition adjustments (h) through (j).
FINANCING TRANSACTIONS:
(l) To reflect the assumed public issuance of approximately 13 million shares
of common stock of CMS Energy aggregating $600 million. The anticipated net
proceeds will be used to retire a portion of the indebtedness incurred to
acquire the Panhandle Companies.
(m) To reflect the payment of $1.9 billion in cash to Duke Energy for the
acquisition of the Panhandle Companies.
(n) To reflect the assumed public issuance of $800 million of Panhandle senior
notes and $500 million of CMS Energy senior debt. The anticipated net
proceeds will be used to retire a portion of the indebtedness incurred to
acquire the Panhandle Companies.
INTERCOMPANY ELIMINATIONS:
(o) To reflect the elimination of intercompany transactions between CMS Energy
and the Panhandle Companies.
F-9
