1
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To CMS Energy Corporation:
We have audited the accompanying balance sheets of CONSUMERS GAS GROUP
(representing a business unit of Consumers Power Company ("Consumers") and
its wholly-owned subsidiary, Michigan Gas Storage Company) as of December
31, 1995 and 1994, and the related statements of income, common
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the management of CMS Energy Corporation, the parent of
Consumers. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the financial position of Consumers Gas Group as
of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
January 26, 1996.
2
Consumers Gas Group
Management's Discussion and Analysis
In 1995, CMS Energy issued a total of 7.62 million shares of Class G
Common Stock. This new class of common stock reflects the separate
performance of the gas distribution, storage and transportation businesses
conducted by Consumers and Michigan Gas Storage (collectively, Consumers
Gas Group). Accordingly, this MD&A should be read along with the MD&A in
the 1995 Form 10-K of CMS Energy.
CMS Energy is the parent holding company of Consumers and CMS Enterprises
Company. Consumers, a combination electric and gas utility company
serving the Lower Peninsula of Michigan, is the principal subsidiary of
CMS Energy. For further information regarding the businesses of
CMS Energy, including the nature and issuance of the Class G Common Stock,
see the MD&A of CMS Energy included and incorporated by reference herein.
Earnings
Net income for the Consumers Gas Group for 1995 totaled $62 million,
compared with $53 million for 1994. The increase in 1995 net income
reflects higher gas deliveries and the reversal of losses previously
recorded for gas contingencies. Partially offsetting these increases were
higher depreciation and operation expenses.
Cash Position, Financing and Investing
Consumers Gas Group's cash requirements are met by its operating and
financing activities. Consumers Gas Group's cash from operations is
derived mainly from Consumers' sale and transportation of natural gas.
Cash from operations for 1995 increased $27 million from 1994 primarily
due to improved sales of gas. Consumers Gas Group primarily uses this
operating cash to maintain its gas utility transmission and distribution
systems and retire portions of its long-term debt and pay dividends.
Financing Activities: Cash flows from financing activities in 1995
decreased $28 million from 1994, reflecting no new stock or debt issuances
during 1995.
Investing Activities: Net cash used in financing activities decreased $2
million from 1994. Capital expenditures for the Consumers Gas Group,
including assets placed under capital lease (see Note 12), totaled $126
million for 1995 compared with $134 million for 1994 and $158 million for
1993.
Financing and Investing Outlook: CMS Energy estimates that capital
expenditures for the Consumers Gas Group, including new lease commitments,
will total $339 million over the next three years.
In Millions
Years Ended December 31 1996 1997 1998
Gas Utility (a) $122 $107 $102
Michigan Gas Storage 2 3 3
---- ---- ----
$124 $110 $105
==== ==== ====
(a) Includes a portion of anticipated capital expenditures common to both
utility businesses.
The Consumers Gas Group expects that cash from operations and the ability
to access debt markets will provide necessary working capital and
liquidity to fund future capital expenditures, required debt payments and
other cash needs in the foreseeable future.
Consumers has an agreement permitting the sales of certain accounts
receivable for up to $500 million. At December 31, 1995, receivables sold
totaled $295 million. Consumers Gas Group's attributed portion of such
receivables sold totaled $137 million.
For further information, see CMS Energy's MD&A included and incorporated
by reference herein.
Results of Operations
For Consumers Gas Group's results of operations, see "Gas Utility Results
of Operations" in CMS Energy's MD&A included and incorporated by reference
herein.
Gas Issues
For Consumers Gas Group's discussion of Gas Rates, GCR Matters and
Environmental Matters, see "Gas Utility Issues" in CMS Energy's MD&A
included and incorporated by reference herein.
Outlook
For Consumers Gas Group's outlook discussion, see "Gas Utility Outlook" in
CMS Energy's MD&A included and incorporated by reference herein.
Other
For information regarding the effect of new accounting standards, see
"Other" in CMS Energy's MD&A included and incorporated by reference
herein.
4
Statements of Income Consumers Gas Group
In Millions,
Except Per Share Amounts
Years Ended December 31 1995 1994 1993
Operating Revenue $1,195 $1,151 $1,160
------- ------- -------
Operating Expenses Operation
Cost of gas sold 671 662 678
Other 197 185 171
------- ------- -------
Total operation 868 847 849
Maintenance 39 39 38
Depreciation, depletion and amortization 83 76 73
General taxes 54 54 54
------- ------- -------
Total operating expenses 1,044 1,016 1,014
------- ------- -------
Pretax Operating Income 151 135 146
Income Taxes 48 41 39
------- ------- -------
Net Operating Income 103 94 107
------- ------- -------
Other Income Other income taxes, net - - 1
(Deductions) Other, net - (2) (3)
------- ------- -------
Total other deductions - (2) (2)
------- ------- -------
Fixed Charges Interest on long-term debt 30 29 32
Other interest 6 5 6
Capitalized interest (1) - (1)
Preferred dividends 6 5 2
------- ------- -------
Net fixed charges 41 39 39
------- ------- -------
Net Income $ 62 $ 53 $ 66
======= ======= =======
Net Income Attributable to CMS Energy Shareholders
through Retained Interest $ 59 $ 53 $ 66
======= ======= =======
Net Income Attributable to Class G Shareholders $ 3 - -
======= ======= =======
Average Class G Common Shares Outstanding 8 - -
======= ======= =======
Earnings Per Average Class G Common Share $ .38 - -
======= ======= =======
Dividends Declared Per Class G Common Share $ .56 - -
======= ======= =======
<FN>
The accompanying notes are an integral part of these statements.
5
Statements of Cash Flows Consumers Gas Group
In Millions
Years Ended December 31 1995 1994 1993
Cash Flows From Net income $ 62 $ 53 $ 66
Operating Activities Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 83 76 73
Capital lease and other amortization 5 4 5
Deferred income taxes and investment tax credit 13 4 4
Other 1 1 2
Changes in other assets and liabilities (Note 12) 16 15 (67)
------ ------ ------
Net cash provided by operating activities 180 153 83
------ ------ ------
Cash Flows From Capital expenditures (excludes assets placed
Investing Activities capital lease) (Note 12) (124) (129) (153)
Cost to retire property, net (10) (8) (6)
Other 2 3 -
------ ------ ------
Net cash used in investing activities (132) (134) (159)
------ ------ ------
Cash Flows From Payment of common stock dividends (58) (46) (47)
Financing Activities Retirement of bonds and other long-term debt (6) (31) (125)
Payment of capital lease obligations (5) (4) (5)
Repayment of bank loans (2) (106) -
Contribution from CMS Energy stockholders 18 22 -
Increase in notes payable, net 6 16 83
Proceeds from bank loans - 88 3
Proceeds from preferred stock - 42 -
Proceeds from bonds and other long-term debt - - 158
------ ------ ------
Net cash provided by (used in)
financing activities (47) (19) 67
------ ------ ------
Net Increase (Decrease) in Cash and Temporary Cash Investments 1 - (9)
Cash and temporary cash investments
Beginning of year 4 4 13
------ ------ ------
End of year $ 5 $ 4 $ 4
====== ====== ======
<FN>
The accompanying notes are an integral part of these statements.
6
Balance Sheets Consumers Gas Group
ASSETS In Millions
December 31 1995 1994
Plant (At Cost) Plant $2,169 $2,064
Less accumulated depreciation, depletion and amortization 1,179 1,117
------ ------
990 947
Construction work-in-progress 55 47
------ ------
1,045 994
------ ------
Current Assets Cash and temporary cash investments at cost,
which approximates market 5 4
Accounts receivable and accrued revenue, less allowances
of $2 in 1995 and 1994 (Note 5) 99 51
Inventories at average cost
Gas in underground storage 184 235
Materials and supplies 10 9
Trunkline settlement 30 30
Deferred income taxes (Note 4) 9 16
Prepayments and other 49 48
------ ------
386 393
------ ------
Non-current Assets Postretirement benefits (Note 9) 161 158
Trunkline settlement 25 55
Deferred income taxes (Note 4) 14 3
Other 59 70
------ ------
259 286
------ ------
Total Assets $1,690 $1,673
====== ======
7
Consumers Gas Group
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1995 1994
Capitalization Common stockholders' equity
(Note 6) Common stock $ 184 $ 184
Paid-in-capital 125 107
Retained earnings since December 31, 1992 30 26
------ ------
339 317
Preferred stock 78 78
Long-term debt 411 426
Non-current portion of capital leases 20 18
------ ------
848 839
------ ------
Current Liabilities Current portion of long-term debt and capital leases 23 13
Notes payable 105 99
Accounts payable 79 68
Accrued taxes 66 55
Trunkline settlement 30 30
Accrued refunds 20 20
Accrued interest 7 8
Other 52 68
------ ------
382 361
------ ------
Non-current Postretirement benefits (Note 9) 175 172
Liabilities Regulatory liabilities for income taxes, net (Notes 4 and 13) 162 144
Deferred investment tax credit 28 30
Trunkline settlement 25 55
Other 70 72
------ ------
460 473
------ ------
Commitments and Contingencies (Notes 3, 10 and 11)
Total Stockholders' Investment and Liabilities $1,690 $1,673
====== ======
<FN>
The accompanying notes are an integral part of these statements.
8
Statements of Common Stockholders' Equity Consumers Gas Group
In Millions
Other
Common Paid-in Retained
Stock Capital Earnings Total
Balance at January 1, 1993 (a) $184 $ 85 $ - $269
Net income 66 66
Common stock dividends declared (47) (47)
---- ---- ---- ----
Balance at December 31, 1993 (a) 184 85 19 288
Net income 53 53
Common stock dividends declared (46) (46)
CMS Energy stockholders' contribution 22 22
---- ---- ---- ----
Balance at December 31, 1994 (a) 184 107 26 317
Net income 62 62
Common stock dividends declared (58) (58)
CMS Energy stockholders' contribution 18 18
---- ---- ---- ----
Balance at December 31, 1995 (a) $184 $125 $ 30 $339
==== ==== ==== ====
<FN>
(a) Number of shares of Consumers' common stock outstanding was 84,108,789. Common stock allocated to the
Consumers Gas Group is consistent with the allocation method discussed in Note 6.
The accompanying notes are an integral part of these statements.
9
Consumers Gas Group
Notes to Financial Statements
1: Corporate Structure
CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving the
Lower Peninsula of Michigan, is the principal subsidiary of CMS Energy.
For further information regarding the business of CMS Energy, see the
Notes to the Consolidated Financial Statements of CMS Energy included and
incorporated by reference herein.
In 1995, CMS Energy issued a total of 7.62 million shares of Class G
Common Stock. This new class of common stock reflects the separate
performance of the gas distribution, storage and transportation businesses
conducted by Consumers and Michigan Gas Storage (collectively, Consumers
Gas Group). For further information regarding the nature and issuance of
the Class G Common Stock, see Note 8 to the Consolidated Financial
Statements of CMS Energy included and incorporated by reference herein.
These financial statements and their related notes should be read along
with the financial statements and notes contained in the 1995 Form 10-K of
CMS Energy that includes the Report of Independent Public Accountants,
included and incorporated by reference herein.
2: Summary of Significant Accounting Policies and Other Matters
Basis of Presentation: Consumers is a regulated utility. Accordingly, the
majority of the accounting allocation policies described within these
notes have a long-standing basis and have historically been used in
proceedings conducted before the MPSC. The financial statements for the
Consumers Gas Group have been prepared based upon consistent methods that
management believes are reasonable and appropriate to reflect its
financial position, results of operations and cash flows. Where
appropriate, the financial statements reflect the assets, liabilities,
revenues and expenses directly related to the Consumers Gas Group.
However, in instances where common accounts (containing both electric and
gas activities) were not readily attributable to a single business
segment, management allocated to the Consumers Gas Group's financial
statements based on certain measures of business activities, such as gas
revenues, salaries, other operation and maintenance expenditures, number
of gas customers in relationship to total utility customers and/or
functional use surveys. Management believes the attributions are
reasonable.
Although the financial statements of Consumers Gas Group separately report
the assets, liabilities and stockholders' equity, legal title to such
assets and the responsibility for such liabilities are not separately
identifiable to a specific class of common stock. Therefore, the
creditors of CMS Energy are unaffected by the implementation of the
Consumers Gas Group, because all assets of the corporation remain
available to satisfy all liabilities. The holders of CMS Energy Common
Stock and the Class G Common Stock will be subject to all risks associated
with investments in CMS Energy. Holders of Class G Common Stock have no
direct rights in the equity or assets of Consumers Gas Group, but rather
have rights in the equity and assets of CMS Energy.
The financial statements of the Consumers Gas Group incorporate Consumers'
natural gas utility business and the related business of Michigan Gas
Storage. The Consumers Gas Group and the remaining business segments of
CMS Energy comprise all of the accounts included in the Consolidated
Financial Statements of CMS Energy.
The financial statements of Consumers Gas Group were prepared in
accordance with generally accepted accounting principles on a consistent
basis and include the use of management's estimates. Any future changes
in accounting policy not mandated by appropriate authorities must be, in
management's opinion, preferable to the policy in place and must be
disclosed in accordance with generally accepted accounting principles.
For presentation purposes, all material transactions between companies
within the Consumers Gas Group have been eliminated.
Earnings Per Share and Dividends: Earnings per share, for year ended
December 31, 1995, reflect the performance of the Consumers Gas Group
since the initial issuance of the Class G Common Stock during the third
quarter of 1995. The Class G Common Stock participates in earnings and
dividends from the issue date. The earnings (loss) attributable to such
common stock and the related amounts per share are computed by considering
the weighted average number of common shares outstanding.
The earnings (loss) attributable to outstanding Class G Common Stock are
equal to Consumers Gas Group's net income (loss) multiplied by a fraction,
the numerator is the weighted average number of Outstanding Shares during
the period and the denominator represents the weighted average number of
Outstanding Shares and Retained Interest Shares during the period. The
earnings attributable to Class G Common Stock on a per share basis, for
the year ended December 31, 1995, are based on 23.45 percent of the
earnings of the Consumers Gas Group since the initial issuance.
Earnings per share are omitted from the statements of income, for the
years ended December 31, 1994 and 1993, since the Class G Common Stock was
not part of the equity structure of CMS Energy. For purpose of analysis,
following are pro forma data for the years ended December 31, 1995 and
1994 which give effect to the issuance and sale of 7.52 million shares of
Class G Common Stock (representing 23.50 percent of the equity
attributable to the Consumers Gas Group) on January 1, 1994.
In Millions, Except Per Share Amounts
Pro Forma Pro Forma
Years Ended December 31 1995 1994
- ----------------------- ----- -----
Consumers Gas Group Net Income $ 62 $ 53
Net Income attributable to CMS Energy
Common Stock through Retained Interest $ 47 $ 41
Net Income attributable to outstanding
Class G Common Stock $ 15 $ 12
Average shares outstanding
of Class G Common Stock 7.536 7.520
Earnings per share attributable to
outstanding Class G Common Stock $1.93 $1.66
Holders of Class G Common Stock have no direct rights in the equity or
assets of the Consumers Gas Group, but rather have rights in the equity
and assets of CMS Energy as a whole. In the sole discretion of the Board
of Directors, dividends may be paid exclusively to the holders of Class G
Common Stock, exclusively to the holders of CMS Energy Common Stock, or to
the holders of both classes in equal or unequal amounts. Dividends on the
Class G Common Stock are paid at the discretion of the Board of Directors
based primarily upon the earnings and financial condition of the Consumers
Gas Group, and to a lesser extent, CMS Energy as a whole. It is the Board
of Directors' current intention that the declaration or payment of
dividends with respect to the Class G Common Stock will not be reduced,
suspended or eliminated as a result of factors arising out of or relating
to the electric utility business or the non-utility businesses of
CMS Energy unless such factors also require, in the Board of Directors'
sole discretion, the omission of the declaration or reduction in payment
of dividends on both the CMS Energy Common Stock and the Class G Common
Stock.
The portion of Consumers' common dividends attributed to the Consumers Gas
Group, for periods prior to the July 1995 issuance of the Class G Common
Stock, have been reflected in the financial statements. These dividend
amounts were allocated based on the ratio of the Consumers Gas Group's net
income to Consumers' consolidated net income after dividends on preferred
stock. This ratio was then applied to Consumers' total dividend payments
for these periods. Dividends declared on the Class G Common Stock
following the issuance are also reflected in the financial statements. In
July and October 1995, the Board of Directors declared quarterly dividends
of $.28 per share ($1.12 per share on an annual basis) on Class G Common
Stock.
Related Party Transactions: The Consumers Gas Group sold, stored and
transported natural gas and provided other services to the MCV Partnership
totaling approximately $13 million for 1995, $13 million for 1994 and $14
million for 1993. Consumers Gas Group purchases a portion of its gas from
an affiliate, CMS NOMECO. The amounts of purchases for the years ended
December 31, 1995, 1994 and 1993 totaled $19 million, $1 million and $3
million, respectively.
Other: For significant accounting policies regarding Consumers Gas
Group's gas inventory, maintenance, depreciation and depletion, revenue
and fuel costs, and utility regulation, as well as the effect of new
accounting standards, see Note 2 to the Consolidated Financial Statements
of CMS Energy included and incorporated by reference herein.
For significant accounting policies regarding income taxes, see Note 4;
for pensions and other postretirement benefits, see Note 9; and for cash
equivalents, see Note 12.
3: Rate Matters
For information regarding rate matters directly affecting the Consumers
Gas Group, see the "Gas Rates" and "GCR Matters" discussions in Note 4 to
the Consolidated Financial Statements of CMS Energy included and
incorporated by reference herein.
4: Income Taxes
The Consumers Gas Group is included in the consolidated federal income tax
return filed by CMS Energy (see Note 5 to the Consolidated Financial
Statements of CMS Energy). The financial statement provision and actual
cash tax payments have been reflected in the Consumers Gas Group's
financial statements in accordance with CMS Energy's tax allocation
policy. The financial statement amounts reflect management's estimate of
the separate taxable income of the segment, the effect of deferred tax
accounting for temporary differences that arise, the amortization of ITC
over the life of the related property included within the Consumers Gas
Group and any AMT credit carryforwards that can be carried forward
indefinitely to reduce regular tax liabilities in future periods related
to the Consumers Gas Group. Tax settlements at Consumers Gas Group are
consistent with settlements of CMS Energy's consolidated returns and are
generally settled in the year, or in the year following the year in which
such amounts are accrued.
The significant components of income tax expense (benefit) for the
Consumers Gas Group consisted of:
In Millions
Years Ended December 31 1995 1994 1993
Current federal income taxes $34 $37 $34
Deferred income taxes 16 6 6
Deferred ITC, net (2) (2) (2)
---- ---- ----
$48 $41 $38
==== ==== ====
Operating $48 $41 $39
Other - - (1)
---- ---- ----
$48 $41 $38
==== ==== ====
The principal components of deferred tax assets (liabilities) recognized
in the balance sheet for the Consumers Gas Group are as follows:
In Millions
December 31 1995 1994
Property $(54) $(54)
Postretirement benefits (Note 9) (59) (58)
Employee benefit obligations (includes
postretirement benefits of $59
and $56) (Note 9) 70 68
Regulatory liability for income taxes 57 50
Other 9 13
----- -----
$ 23 $ 19
===== =====
Gross deferred tax liabilities $(227) $(235)
Gross deferred tax assets 250 254
----- -----
$ 23 $ 19
===== =====
The actual income tax expense for Consumers Gas Group differs from the
amount computed by applying the statutory federal tax rate to income
before income taxes as follows:
In Millions
Years Ended December 31 1995 1994 1993
Net income before preferred dividends $ 68 $ 58 $ 68
Income tax expense 48 41 38
----- ----- -----
116 99 106
Statutory federal income tax rate X 35% X 35% X 35%
----- ----- -----
Expected income tax expense 41 35 37
Increase (decrease) in taxes from:
Differences in book and tax
depreciation not previously deferred 9 8 7
ITC amortization (2) (2) (2)
Other, net - - (4)
----- ----- -----
$48 $41 $38
===== ===== =====
5: Short-Term Financings
Consumers' short-term financings are discussed in Note 6 to the
Consolidated Financial Statements of CMS Energy included and incorporated
by reference herein.
Consumers generally manages its short-term financings on a centralized
consolidated basis. The portion of receivables sold attributable to the
Consumers Gas Group at December 31, 1995 and 1994, is estimated by
management to be $137 million and $111 million, respectively. Accounts
receivable and accrued revenue in the balance sheets have been reduced to
reflect receivables sold. The portions of short-term debt and receivables
sold attributed to Consumers Gas Group reflect the high utilization of
short-term borrowing to finance the purchase of gas for storage in the
summer and fall periods. The allocation of short-term financings and
related interest charges to Consumers Gas Group generally follows the
ratio of gas utility assets to total Consumers' assets. Additionally, the
carrying costs for Consumers' sales of certain of its accounts receivable
under its trade receivable purchase and sale agreement generally are
allocated to the Consumers Gas Group based on the ratio of customer
revenues contributed by Consumers' gas customers to total Consumers'
revenue. However, as a result of the centralized management of short-term
financing, the amounts allocated to the Consumers Gas Group are further
adjusted in both the seasonal gas inventory build-up period (second and
third quarters) and the high seasonal gas sales periods (first and fourth
quarters) to more closely reflect the higher short-term financing
requirements of the inventory build-up period and conversely the lower
financing requirements during the higher sales periods. Management
believes these allocations to be reasonable.
6: Capitalization
Capital Stock and Long-Term Debt: Consumers Gas Group's capital stock
and long-term debt have been allocated based on the ratio of gas utility
assets (including common assets attributed to the gas utility segment) to
total Consumers' assets. Management believes these measurements are
reasonable. For information regarding the capital stock and long-term
debt of CMS Energy and Consumers, see Notes 7 and 8 to the Consolidated
Financial Statements of CMS Energy included and incorporated by reference
herein.
7: Financial Instruments
The carrying amount of Consumers Gas Group's long-term debt was $411
million and $426 million and the fair value was $417 million and $403
million as of December 31, 1995 and 1994, respectively. For additional
information regarding financial instruments, see Note 10 to the
Consolidated Financial Statements of CMS Energy included and incorporated
by reference herein.
8: Executive Incentive Compensation
For information regarding CMS Energy's Performance Incentive Stock Plan,
restricted shares of common stock, stock options and stock appreciation
rights, see Note 11 to the Consolidated Financial Statements of CMS Energy
included and incorporated by reference herein. This plan was amended
during 1995 to provide for awards of Class G Common Stock, to establish
criteria for certain plan awards and to increase the number of shares
reserved for award.
9: Retirement Benefits
Postretirement Benefit Plans Other Than Pensions: The Consumers Gas
Group's attributed portion of CMS Energy's net periodic cost for health
and life insurance benefits totaled $15 million, $17 million and $16
million in 1995, 1994 and 1993, respectively. These allocations were
based on the ratio of salaries and wages related to Consumers' gas
operations to Consumers' total salaries and wages. Management believes
these allocations are reasonable.
Consumers Gas Group's attributed portion of CMS Energy's total recorded
liability for postretirement benefit plans is estimated to be $169 million
and $166 million at December 31, 1995 and 1994, respectively. These
amounts were allocated based on policies Consumers has historically used
in proceedings conducted before the MPSC. For further information
regarding CMS Energy's postretirement benefit plans other than pensions,
see Note 12 to the Consolidated Financial Statements of CMS Energy
included and incorporated by reference herein.
Supplemental Executive Retirement Plan: The attributed trust assets of
Consumers Gas Group at cost (which approximates market) were $6 million
and $4 million, at December 31, 1995 and 1994 respectively, and were
classified as other non-current assets. These allocations were based on a
ratio of salaries and wages related to Consumers' gas operations to
Consumers' total salaries and wages. Management believes these
allocations are reasonable. For further information, see Note 12 to the
Consolidated Financial Statements of CMS Energy included and incorporated
by reference herein.
Defined Benefit Pension Plan: A trusteed, non-contributory, defined
benefit Pension Plan covers substantially all employees. Consumers Gas
Group's attributed portion of CMS Energy's net periodic pension cost
totaled $3 million in 1995, 1994 and 1993. These allocations were based
on the ratio of salaries and wages related to Consumers' gas operations to
Consumers' total salaries and wages. Management believes these allocations
are reasonable.
Consumers Gas Group's attributed portion of CMS Energy's total recorded
liability for the Pension Plan totaled $10 million at December 31, 1995
and 1994 and was allocated to the Consumers Gas Group based on the ratio
of salaries and wages related to Consumers' gas operations to Consumers'
total salaries and wages. Consumers Gas Group's estimated portion of
CMS Energy's recorded liability for the SERP totaled $5 million at
December 31, 1995 and $4 million at December 31, 1994 and was allocated to
the Consumers Gas Group based on the ratio of salaries and wages related
to Consumers' gas operations to Consumers' total salaries and wages.
Management believes these allocations are reasonable. For further
information, see Note 12 to the Consolidated Financial Statements of
CMS Energy included and incorporated by reference herein.
10: Leases
CMS Energy and its subsidiaries lease various assets, including vehicles,
aircraft, construction equipment, computer equipment and buildings.
Consumers Gas Group's attributed portion of CMS Energy's minimum rental
commitments under non-cancelable leases at December 31, 1995, were:
In Millions
Capital Operating
Leases Leases
1996 $ 6 $ 1
1997 6 -
1998 5 -
1999 4 -
2000 3 -
2001 and thereafter 7 -
---- ----
Total minimum lease payments 31 $ 1
Less imputed interest 6 ====
----
Present value of net minimum lease payments 25
Less current portion 5
----
Non-current portion $ 20
====
Consumers recovers these charges from customers and accordingly charges
payments for its capital and operating leases to operating expense.
Operating lease charges for the Consumers Gas Group, including charges to
clearing and other accounts as of December 31, 1995, 1994 and 1993, were
$1 million, $1 million and $1 million, respectively. Capital lease
expenses for the Consumers Gas Group for the years ended December 31,
1995, 1994 and 1993 were $7 million, $6 million and $6 million,
respectively.
Consumers Gas Group's minimum rental commitments and lease expenses are
generally allocated based on the specific use of the leased item. Common
leases are allocated to Consumers Gas Group through functional use
surveys, which management believes to be reasonable.
11: Commitments and Contingencies
Capital Expenditures: The Consumers Gas Group estimates capital
expenditures, including new lease commitments, will be $124 million for
1996, $110 million for 1997 and $105 million for 1998. These estimates
include an attributed portion of Consumers' anticipated capital
expenditures for common plant and equipment.
For further information regarding commitments and contingencies directly
affecting the Consumers Gas Group (including those involving former
manufactured gas plant sites), see the "Environmental Matters,"
"Commitments for Gas Supplies" and "Other" discussions in Note 14 to the
Consolidated Financial Statements of CMS Energy included and incorporated
by reference herein.
12: Supplemental Cash Flow Information
For purposes of the Statement of Cash Flows, all highly liquid investments
with an original maturity of three months or less are considered cash
equivalents. Consumers Gas Group's other cash flow activities and
non-cash investing and financing activities for the years ended December
31 were:
In Millions
1995 1994 1993
Cash transactions
Interest paid (net of amounts
capitalized) $ 35 $ 33 $ 37
Income taxes paid (net of refunds) 25 31 42
Non-cash transactions
Assets placed under
capital lease $ 2 $ 5 $ 5
Capital leases refinanced 9 - 12
Changes in other assets and liabilities as shown on the Statements of Cash
Flows at December 31 are described below:
In Millions
1995 1994 1993
Sale of receivables, net $ 26 $ (13) $ 72
Accounts receivable (39) 11 (35)
Accrued revenue (35) 30 (31)
Inventories 50 (6) (24)
Accounts payable 11 1 (7)
Accrued refunds - - (10)
Other current assets and liabilities, net (8) (1) (17)
Non-current deferred amounts, net 11 (7) (15)
----- ----- -----
$ 16 $ 15 $(67)
===== ===== =====
13: Effects of the Ratemaking Process
The following regulatory assets (liabilities) which include both current
and non-current amounts, are reflected in Consumers Gas Group's Balance
Sheets. These assets represent probable future revenue to Consumers
associated with certain incurred costs as these costs are recovered
through the ratemaking process.
In Millions
December 31 1995 1994
Postretirement benefits (Note 9) $ 169 $ 166
Trunkline settlement 55 85
Manufactured gas plant sites 47 47
Other 5 14
----- -----
Total regulatory assets $ 276 $ 312
===== =====
Regulatory liabilities for income taxes $(162) $(144)
===== =====
At December 31, 1995, $55 million of Consumers Gas Group's regulatory
assets are being recovered through rates being charged to customers over 2
years. Consumers anticipates MPSC approval for recovery of the remaining
amounts.
18
Quarterly Financial and Common Stock Information Consumers Gas Group
In Millions,
Except Per Share Amounts
1995 (Unaudited) 1994 (Unaudited)
Quarters Ended March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
Operating revenue $482 $197 $122 $394 $528 $183 $126 $314
Pretax operating income $91 $17 $2 $41 $84 $18 $4 $29
Net income (loss) $49 $3 $(8) $18 $46 $4 $(5) $8
Earnings (loss) per average
common share - - $(.17) $.55 - - - -
Dividends declared per
common share - - $.28 $.28 - - - -
Common stock prices (a)
High - - $18-3/4 $18-7/8 - - - -
Low - - $16-1/8 $17-5/8 - - - -
<FN>
(a) Based on New York Stock Exchange - Composite transactions.