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) AUGUST 7, 2002
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
(313) 436-9261
1-5611 CONSUMERS ENERGY COMPANY 38-0442310
(A Michigan Corporation)
212 West Michigan Avenue
Jackson, Michigan
(517) 788-1030
1-2921 PANHANDLE EASTERN PIPE LINE COMPANY 44-0382470
(A Delaware Corporation)
5444 Westheimer Road, P.O. Box 4967
Houston, Texas 77210-4967
(713) 989-7000
ITEM 5. OTHER EVENTS
CMS ENERGY SECOND QUARTER RESULTS
CMS Energy Corporation today announced a second quarter consolidated net loss of
$75 million, or $0.56 per share, compared to second quarter 2001 consolidated
net income of $53 million, or $0.40 per share. Operating net income for the
second quarter was $59 million, or $0.44 per share, compared to $35 million, or
$0.27 per share, in the second quarter of 2001. Operating net income excludes
the effects of non-recurring events such as gains on asset sales ($21 million or
$0.16 per share), losses on discontinued operations of CMS Oil and Gas and CMS
Viron ($141 million or $1.05 per share), restructuring costs ($0.06 per share)
and expenses related to early debt retirement ($0.05 per share).
Operating net income reflects strong results from Consumers Energy's electric
and gas utility businesses including reduced power supply costs due to an
extended refueling outage in 2001 at the Palisades nuclear plant, favorable
weather effects on natural gas and electric deliveries, improved earnings at CMS
Energy's independent power plants and the benefits from mark-to-market
accounting of long-term natural gas fuel supply contracts at the Midland
Cogeneration Venture.
Second quarter operating revenue totaled $2.4 billion, versus $2.2 billion in
the second quarter of 2001.
For the first six months of 2002, consolidated net income was $314 million, or
$2.30 per share, compared to $162 million, or $1.25 per share in 2001. Operating
net income for the same period was $134 million, or $0.99 per share, compared to
$143 million, or $1.12 per share, respectively.
Operating net income excludes the effects of non-recurring events such as gains
on asset sales ($35 million or $0.26 per share), income from discontinued
operations ($169 million or $1.22 per share), restructuring costs ($7 million or
$0.05 per share), expenses related to early debt retirement ($8 million or $0.05
per share) and a goodwill accounting change write-off ($9 million or $0.07 per
share). Operating revenue for the first six months of 2002 totaled $4.8 billion
compared to $5.0 billion in the first half of 2001.
Operating net income of CMS Energy's utility business, Consumers Energy, was $58
million for the second quarter, up 100 percent from $29 million in the second
quarter of 2001. Cool temperatures in May, the tenth coldest May on record in
Michigan, helped to increase natural gas deliveries by 8.3 billion cubic feet
during the quarter versus the second quarter of 2001. Natural gas deliveries
were 65.3 billion cubic feet, up 14.7 percent from the same period last year.
Warmer-than-normal temperatures during June helped total electric deliveries for
the quarter to increase by 133 gigawatt-hours versus the second quarter of last
year. Electric deliveries were 9,410 gigawatt-hours, up 1.4 percent from the
second quarter of 2001.
Second quarter operating net income of the natural gas transmission business was
$13 million, down seven percent from $14 million in the same period last year,
due to lower earnings from liquefied natural gas operations reflecting fixed
contract rates compared to higher spot rates in the second quarter last year, as
well as expropriation and devaluation issues in Argentina. These were partially
offset by lower fixed costs reflecting debt retirement and lower operating
costs.
Independent power production operating net income in the second quarter totaled
$48 million, up 167 percent from $18 million in the same period last year, due
to improved plant performance and increased earnings from the Midland
Cogeneration Venture reflecting mark-to-market accounting for long-term natural
gas fuel supply contracts, lower steam costs at the Dearborn Industrial
Generation plant and higher earnings from international plants. These were
partially offset by expropriation and devaluation issues in Argentina.
Marketing, services and trading reported an operating net loss in the second
quarter of $18 million, as compared to operating net income of $33 million in
the same period last year, primarily reflecting credit constraints that
adversely affected sales contract origination and power and gas trading margins.
Significant second quarter developments in the CMS Energy asset sale program
included:
- Closing of the sale of Consumers Energy's electric transmission system
for approximately $290 million to Washington, D.C.-based Trans-Elect,
the first transaction of its kind in the U.S.;
- Closing of the sale of CMS Oil and Gas Company's coal bed methane
holdings in the Powder River Basin of Wyoming and Montana for $101
million to XTO Energy of Fort Worth, TX,;
- Closing of the sale of CMS Generation's 47.5 percent equity interest
in Toledo Power Co. in the Philippines for $10 million to Mirant, and;
CMS Energy also has entered into three definitive agreements, which together
provide for the sale of CMS Oil and Gas for approximately $232 million. Closing
under these agreements are expected to occur in the third or fourth quarter of
2002.
CMS ENERGY'S EXPLORATION OF THE SALE OF PANHANDLE PIPELINE
AND FIELD SERVICES BUSINESS
CMS Energy is exploring the sale of its domestic pipeline and field services
businesses as part of an ongoing effort to strengthen its balance sheet, improve
its credit ratings and enhance financial flexibility. The businesses being
considered for sale include the Panhandle and Trunkline interstate natural gas
pipelines, the Lake Charles liquified natural gas terminal, the Centennial
liquid products and Guardian natural gas pipelines, and CMS Field Services'
gathering and processing facilities. The company has begun assessing the
market's interest in purchasing the pipeline and field services businesses,
including reviews of financial, legal and regulatory issues associated with the
sale.
SFAS 142 IMPAIRMENT
Pursuant to SFAS 142, companies are now required to annually test goodwill
amounts for impairment under SFAS 142. If the company's total enterprise fair
value of an acquired entity does not equal or exceed the book basis, then the
company has an indication that the goodwill accounts may be impaired. CMS
Energy's initial test for Panhandle indicated a potential impairment. Pursuant
to SFAS 142, a second phase of testing fair values by individual asset and
liability is now required. This phase is generally conducted with the assistance
of an outside appraiser, to determine if an actual impairment exists. This
actual impairment determination, which is underway, must be completed no later
than year end 2002, with transition rules requiring that any such impairment be
treated as a change in accounting and reported as such, including recognition
retroactively to the beginning of the year.
RATING TRIGGERS
As a result of recent downgrades of Panhandle and CMS, contractual rights were
triggered in several financial contracts totaling $480 million between
Panhandle, CMS Enterprises and CMS MS&T and third parties. We are working with
those contractual parties to find mutually satisfactory arrangements but there
can be no assurance that all such arrangements will be completed or that
litigation will not result.
CEO AND CFO CERTIFICATIONS
CMS Energy does not plan to file with the Securities and Exchange Commission the
certificates required by our CEO and CFO relating to the financial statements
included in the CMS Energy Form 10-K for 2001, which includes financial
statements for 2000 as well, and in the Form 10-Q to be filed on or about August
14, 2002, which will contain the 2001 and 2002 quarterly and semiannually
financial statements for the period ended June 30, 2002.
The 2000 and 2001 financial statements need to be restated primarily as a result
of the reported revenues and expenses for round trip trades and related balance
sheet adjustments. The restatements cannot be completed until the Special
Investigative Committee of CMS Energy's Board of Directors completes its
investigation of round trip trading and related issues and CMS Energy's newly
appointed independent public accountants, Ernst & Young LLP have completed a
re-audit of the 2000 and 2001 financial statements and their reviews of the
current quarterly and semi-annual statements for these years.
For the similar reasons, the CEO and CFO of CMS Energy, Consumers Energy and
Panhandle will not be able to make the statements required by the Sarbanes-Oxley
Act of 2002 with respect to the Form 10-Q for the period ended June 30, 2002.
FORWARD-LOOKING STATEMENTS
This Form 8-K contains "forward-looking statements" that are subject to risks
and uncertainties. They should be read in conjunction with the "Forward-Looking
Statement Cautionary Factors" in CMS Energy's, Consumers Energy's and
Panhandle's Form 10-K, Item 1 (incorporated by reference herein) that discusses
important factors that could cause CMS Energy's, Consumers Energy's and
Panhandle's results to differ materially from those anticipated in such
statements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
99.1 Digest of CMS Energy's Consolidated Earnings
99.2 CMS Energy's Second Quarter 2002 Balance Sheet
99.3 CMS Energy's August 7, 2002 Earnings Call Slide Presentation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned hereunto duly authorized.
CMS ENERGY CORPORATION
Dated: August 8, 2002 By: /s/ Alan M. Wright
--------------------------------
Alan M. Wright
Chief Financial Officer
CONSUMERS ENERGY COMPANY
Dated: August 8, 2002 By: /s/ Alan M. Wright
--------------------------------
Alan M. Wright
Chief Financial Officer
PANHANDLE EASTERN PIPE LINE COMPANY
Dated: August 8, 2002 By: /s/ William J. Haener
--------------------------------
William J. Haener
Chairman of the Board
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
99.1 Digest of CMS Energy's Consolidated Earnings
99.2 CMS Energy's Second Quarter 2002 Balance Sheet
99.3 CMS Energy's August 7, 2002 Earnings Call Slide Presentation
EXHIBIT 99.1
CMS ENERGY CORPORATION
Digest of Consolidated Earnings
(Millions, Except Per Share Amounts)
Three Months Ended June 30 (unaudited) 2002 2001
- -------------------------------------- ---- ----
Operating Revenue $ 2,368 $ 2,165
Consolidated Net Income (Loss) $ (75) $ 53
Reconciling Items:
Asset Sales Gains (Losses) 21 (1)
Discontinued Operations Income (Loss) (141) 19
Restructuring Costs (7) --
Extraordinary Item/Early Debt Retirement Expense (7) --
---------- ----------
Operating Net Income After Reconciling Items $ 59 $ 35
========== ==========
Average Number of Common Shares Outstanding
Basic 135 132
Diluted 139 137
BASIC EARNINGS PER AVERAGE COMMON SHARE OF CMS ENERGY:
Earnings Per Share As Reported $ (.56) $ .40
Reconciling Items:
Asset Sales Gains (Losses) .16 (.01)
Discontinued Operations Income (Loss) (1.05) .14
Restructuring Costs (.06) --
Extraordinary Item/Early Debt Retirement Expense (.05) --
---------- ----------
Earnings Per Share After Reconciling Items $ 0.44 $ .27
========== ==========
DILUTED EARNINGS PER AVERAGE COMMON SHARE OF CMS ENERGY:
Earnings Per Share As Reported $ (.56) $ .40
Reconciling Items:
Asset Sales Gains (Losses) .16 (.01)
Discontinued Operations Income (Loss) (1.05) .14
Restructuring Costs (.06) --
Extraordinary Item/Early Debt Retirement Expense (.05) --
---------- ----------
Earnings Per Share After Reconciling Items $ .44 $ .27
========== ==========
Dividends Declared Per Common Share $ .365 $ .365
In the opinion of Management, the above unaudited amounts reflect all
adjustments necessary to assure the fair presentation of the results of
operations for the periods presented.
CMS ENERGY CORPORATION
Digest of Consolidated Earnings
(Millions, Except Per Share Amounts)
Six Months Ended June 30 (unaudited) 2002 2001
- ------------------------------------ ---- ----
Operating Revenue $ 4,834 $ 4,973
Consolidated Net Income (Loss) $ 314 $ 162
Reconciling Items:
Asset Sales Gains (Losses) 35 (1)
Discontinued Operations Income (Loss) 169 20
Restructuring Costs (7) --
Extraordinary Item/Early Debt Retirement Expense (8) --
Goodwill Accounting Change (Note 1) (9) --
--------- ---------
Operating Net Income After Reconciling Items $ 134 $ 143
========= =========
Average Number of Common Shares Outstanding
Basic 134 129
Diluted 138 133
BASIC EARNINGS PER AVERAGE COMMON SHARE OF CMS ENERGY:
Earnings Per Share As Reported $ 2.34 $ 1.27
Reconciling Items:
Asset Sales Gains (Losses) .26 (.01)
Discontinued Operations Income (Loss) 1.26 .15
Restructuring Costs (.06) --
Extraordinary Item/Early Debt Retirement Expense (.06) --
Goodwill Accounting Change (Note 1) (.07) --
--------- ---------
Earnings Per Share After Reconciling Items $ 1.01 $ 1.13
========= =========
DILUTED EARNINGS PER AVERAGE COMMON SHARE OF CMS ENERGY:
Earnings Per Share As Reported $ 2.30 $ 1.25
Reconciling Items:
Asset Sales Gains (Losses) .26 (.01)
Discontinued Operations Income (Loss) 1.22 .14
Restructuring Costs (.05) --
Extraordinary Item/Early Debt Retirement Expense (.05) --
Goodwill Accounting Change (Note 1) (.07) --
--------- ---------
Earnings Per Share After Reconciling Items $ .99 $ 1.12
========= =========
Dividends Declared Per Common Share $ .73 $ .73
In the opinion of Management, the above unaudited amounts reflect all
adjustments necessary to assure the fair presentation of the results of
operations for the periods presented.
Note 1: Reflects the adoption of SFAS No 142 "Accounting for Goodwill and Other
Intangible Assets" which required the writedown of goodwill at CMS MST related
to its CMS Viron business, retroactive to January 1, 2002.
EXHIBIT 99.2
CMS ENERGY CORPORATION
Summarized Comparative Balance Sheet
(Millions of Dollars)
June 30 December 31 June 30
2002 2001 2001
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
ASSETS
Net plant and property $ 7,110 $ 7,798 $ 7,205
Construction work in progress 515 564 934
Investments 1,701 1,907 2,095
Current assets 2,407 2,911 3,448
Non-current assets 3,740 3,800 3,964
------- ------- -------
$15,473 $16,980 $17,646
======= ======= =======
STOCKHOLDERS' INVESTMENT
AND LIABILITIES
CAPITALIZATION
Debt
Long-term debt (excluding
Securitization) $ 5,864 $ 6,470 $ 7,193
Capital leases 96 60 55
Short term 280 416 328
Current maturities 618 965 341
------- ------- -------
Total debt 6,858 7,911 7,917
Preferred stock and securities 1,228 1,258 1,258
Minority interest 77 86 89
Common stockholders' equity 1,757 1,890 2,684
------- ------- -------
Total capitalization 9,920 11,145 11,948
Securitization debt 469 469 --
Current liabilities 2,130 2,291 3,184
Non-current liabilities 2,954 3,075 2,514
------- ------- -------
$15,473 $16,980 $17,646
======= ======= =======
EXHIBIT 99.3
[CMS ENERGY LOGO]
- --------------------------------------------------------------------------------
This presentation contains forward-looking statements within the meaning of the
safe-harbor provisions of the federal securities laws. Our actual results may
differ materially from those anticipated in such statements as a result of
various factors discussed in our SEC filings.
1
[CMS ENERGY LOGO]
2002 Second Quarter
Earnings Per Share Reconciliation
- --------------------------------------------------------------------------------
2002 2001
---- ----
EPS Reported $ (0.56) $ 0.40
Reconciling Items:
Asset Sales Gains (Losses) $ 0.16 $ (0.01)
Discontinued Operations Income (Loss) (1.05) 0.14
Restructuring Costs (0.06) --
Extraordinary Item (0.05) --
------- -------
(1.00) 0.13
======= =======
EPS Operating $ 0.44 $ 0.27
======= =======
2
[CMS ENERGY LOGO]
Year to Date - June 2002
Earnings Per Share Reconciliation
- --------------------------------------------------------------------------------
2002 2001
---- ----
EPS Reported $ 2.30 $ 1.25
Reconciling Items:
Asset Sales Gains (Losses) $ 0.26 $ (0.01)
Discontinued Operations Income (Loss) 1.22 0.14
Restructuring Costs (0.05) --
Extraordinary Item (0.05) --
Goodwill Accounting Change - Viron (0.07) --
------- -------
1.31 0.13
======= =======
EPS Operating $ 0.99 $ 1.12
======= =======
3
[CMS ENERGY LOGO]
Electric Utility
- --------------------------------------------------------------------------------
Operating Net Income
[BAR GRAPH]
2002 2001
(in Millions)
$54 $29
PTOI $116 $82
- - Variance $25 million
- Overall deliveries up 133 Gwh's - $5 MM
- Lower Supply costs - $22 MM
- Other including higher Other Operating
Expenses ($2) MM
4
[CMS ENERGY LOGO]
Gas Utility
- --------------------------------------------------------------------------------
Operating Net Income
[BAR GRAPH]
2002 2001
(in Millions)
$4 $0
PTOI $20 $16
- Variance $4 million
- Deliveries up 8.3 Bcf - $5 MM
- Interim rate increase - $1 MM
- Higher other operating expenses &
other - ($2) MM
5
[CMS ENERGY LOGO]
CMS Panhandle Companies
- --------------------------------------------------------------------------------
[BAR GRAPH]
Operating Net Income
2002 2001
(in Millions)
$12 $10
PTOI $35 $37
- Variance - $2 million
- Lower LNG operations - ($5) MM
- Absence of goodwill amortization - $2 MM
- Lower operating expenses - $3 MM
- Lower fixed charges and other - $2 MM
6
[CMS ENERGY LOGO]
Natural Gas Transmission
- --------------------------------------------------------------------------------
[BAR GRAPH]
Operating Net Income
2002 2001
(in Millions)
$1 $4
PTOI $3 $7
- Variance ($3) million
- Other pipeline operations/lower costs - $4 MM
- Argentine expropriation & devaluation impacts ($5) MM
- Field services and gas processing operations - ($2) MM
2002 Operating net income excludes a ($2) MM adjustment to the previously
reported gain on sale of the Methanol Investment
7
[CMS ENERGY LOGO]
Marketing, Services & Trading
- --------------------------------------------------------------------------------
[BAR GRAPH]
Operating Net Income
2002 2001
(in Millions)
($18) $33
PTOI $(27) $51
- Variance ($51) MM
- Lower electric net margins - ($24) MM
- Lower gas net margins - ($22) MM
- Intercompany MTM losses - ($21) MM
- Lower operating expenses & other - $16 MM
8
[CMS ENERGY LOGO]
Independent Power Production
- --------------------------------------------------------------------------------
[BAR GRAPH]
Operating Net Income
2002 2001
(in Millions)
$48 $18
PTOI $73 $28
- Variance $30 million
- MCV - MTM of long term supply costs & other - $23 MM
- DIG - lower steam costs - $8 MM
- Other plant operations / lower costs $7 MM
- Argentine expropriation & devaluation impacts ($8) MM
9
[CMS ENERGY LOGO]
Parent Interest Expense & Other
- --------------------------------------------------------------------------------
[BAR GRAPH]
Operating Net Income (Loss)
2002 2001
(in Millions)
($42) ($59)
PTOI $22 $4
- Variance $17 million
- Inter company MTM gains - $21 MM
- Lower Parent Interest Expense $6 MM
- Other Investments ($10) MM
10
[CMS ENERGY LOGO]
Asset Sales and Other Cash Proceeds
- --------------------------------------------------------------------------------
Date $ Millions
EDEERSA Electric
2001 Done
Distribution and other $133
Done LNG monetization 310
Done Securitization proceeds 469
---------------
Sub-Total - 2001 912
---------------
Equatorial Guinea Oil & Gas
2002 Done reserves and Atlantic Methanol 1,002
operations
Done Consumers' Electric Transmission 288
Done Powder River reserves and other 131
Q3 Oil & Gas Company 232
Completed & announced 2,565
Q3-Q4 Generation, distribution & other 75 - 275
---------------
Total 2001 & 2002 Asset Sales and Other Cash Proceeds $2,640 - $2,840
===============
11
[CMS ENERGY LOGO]
CMS Energy Parent -
Sources and Uses of Cash Last Half 2002
- --------------------------------------------------------------------------------
Sources
Cash on Hand @ June 30 $ 70
July bank borrowings 186
Asset sales announced 232
Dividends
- Consumers Energy 105
- Enterprises 115
Other 42
------
Subtotal- Sources $680
------
Uses
Debt paydown $286
Capital investments 160
Parent interest 130
Common & preferred
Dividends 75
--------
Subtotal- Uses 651
--------
Cash on hand @
December 31 $ 99
========
12
[CMS ENERGY LOGO]
Capital Structure
- --------------------------------------------------------------------------------
12-31-01
--------
$11.1 billion
[3D PIE CHART]
Common Equity Preferred Stock Debt**
18% 11% 71%
6-30-02
-------
$9.9 billion
[3D PIE CHART]
Common Equity Preferred Stock Debt**
19% 12% 69%
12-31-02 E
- ----------
$10.2
[3D PIE CHART]
Common Equity Preferred Stock Debt**
22% 12% 66%
**Excludes securitization debt of $469 MM
13
[CMS ENERGY LOGO]
2002 Net Income Guidance
- --------------------------------------------------------------------------------
(In Millions, except EPS)
2002 Current 2002 Prior
Description Guidance Guidance Change
----------- -------- -------- ------
Electric Utility $ 200 $ 200 $ 0
Gas Utility 45 45 0
Natural Gas Transmission 70 70 0
MS&T 0 15 (15)
IPP 105 105 0
Oil & Gas (5) (5) 0
Energy parent interest expense & other (200) (215) 15
------- ------- -------
Operating Net Income $ 215 $ 215 $ 0
======= ======= =======
14
[CMS ENERGY LOGO]
2002 Other Issues
- --------------------------------------------------------------------------------
- PEPL Goodwill Impairment
- Rating Triggers
- Officer Certificates
15
[CMS ENERGY LOGO]
2002 Other Issues (contd)
- --------------------------------------------------------------------------------
- Investigations
- Ernst & Young Audit
- Potential Pipeline Sale
16
