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 Energy Company ("Consumers")
and its wholly-owned subsidiary, Michigan Gas Storage Company) as of
December 31, 1997 and 1996, and the related statements of income, common
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Detroit, Michigan,
January 26, 1998.
2
Consumers Gas Group
Management's Discussion and Analysis
In 1995, CMS Energy Corporation (CMS Energy) issued a total of 7.62
million shares of Class G Common Stock. This class of common stock
reflects the separate performance of the gas distribution, storage and
transportation businesses conducted by Consumers Energy Company
(Consumers) and Michigan Gas Storage Company, a subsidiary of Consumers
(collectively, Consumers Gas Group). Accordingly, this Management's
Discussion and Analysis (MD&A) should be read along with the MD&A in the
1997 Annual Report of CMS Energy included and incorporated by reference
herein.
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 Class G Common Stock, see
the MD&A of CMS Energy.
Results of Operations
Net income for Consumers Gas Group for 1997 totaled $60 million compared
with $59 million for 1996. The increase in 1997 net income reflects
reduced operation and maintenance expenses offset by decreased gas
deliveries due to warmer winter month temperatures in 1997 and an extra
day for the 1996 leap year, and increased depreciation and general tax
expenses. Other items benefitting 1997 were the recognition of interest
income from a related-party property sale and reduced other income
deductions in 1997 reflecting the absence of an unusual material write-off
which occurred during 1996. Net income for 1996 totaled $59 million
compared with $62 million for 1995. The decrease in 1996 net income
reflects the reversal of a previously recorded gas contract contingency in
1995 and higher operating expenses during 1996. Partially offsetting these
decreases were higher gas deliveries and revenues from value-added
services and gas loaning activities during 1996. For a further
discussion, see Consumers Gas Group Results of Operations in CMS Energy's
MD&A.
Gas Issues
For a discussion of Gas Rate Proceedings, Gas Cost Recovery Matters and
Gas Environmental Matters, see Consumers Gas Group Operating Issues in
CMS Energy's MD&A.
Cash Position, Investing and Financing
Operating Activities: 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 1997 and 1996 totaled $223 million
and $141 million, respectively. The $82 million increase primarily
reflects changes in the timing of cash receipts and payments related to
Consumers Gas Group's operations. Consumers Gas Group uses its operating
cash mainly to maintain and expand its gas utility transmission and
distribution systems and to retire portions of its long-term debt and pay
dividends.
Investing Activities: Cash used in investing activities for 1997 and 1996
totaled $122 million and $145 million, respectively. The $23 million
decrease in cash used primarily reflects a decrease in capital
expenditures.
Financing Activities: Cash used in financing activities during 1997
totaled $114 million while cash provided by financing activities during
1996 totaled $13 million. The $127 million increase in cash used
primarily reflects an increase in the retirement of bonds, other long-term
debt, preferred stock and the return of CMS Energy stockholders'
contributions in 1997 compared to 1996.
Other Investing and Financing Matters: Consumers has an agreement
permitting the sale of certain accounts receivable for up to $500 million.
At December 31, 1997, receivables sold totaled $335 million. Consumers
Gas Group's attributed portion of these receivables sold totaled $138
million. For further information, see Cash Position, Investing and
Financing in CMS Energy's MD&A.
Forward-Looking Information
For cautionary statements relating to Consumers Gas Group's forward-
looking information, see Forward-Looking Information in CMS Energy's MD&A.
Capital Expenditures: CMS Energy estimates the following capital
expenditures for Consumers Gas Group, including new lease commitments,
over the next three years. These estimates are prepared for planning
purposes and are subject to revision.
In Millions
Years Ended December 31 1998 1999 2000
Gas utility (a) $112 $112 $112
Michigan Gas Storage 3 3 3
---- ---- ----
$115 $115 $115
==== ==== ====
(a) Includes a portion of anticipated capital expenditures common to
Consumers' gas and electric utility businesses.
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. For further information regarding
forward-looking information, see the Consumers Gas Group Business Outlook
discussion in CMS Energy's MD&A.
4
Statements of Income Consumers Gas Group
In Millions, Except Per Share Amounts
Years Ended December 31 1997 1996 1995
Operating Revenue $1,204 $1,282 $1,195
------ ------ ------
Operating Expenses Operation
Cost of gas sold 694 750 674
Other 175 193 189
------ ------ ------
869 943 863
Maintenance 34 40 39
Depreciation, depletion and amortization 93 87 83
General taxes 55 54 54
------ ------ ------
1,051 1,124 1,039
------ ------ ------
Pretax Operating Income 153 158 156
------ ------ ------
Other Income (Deductions) (2) (6) -
------ ------ ------
Fixed Charges Interest on long-term debt 28 30 30
Other interest 13 12 11
Capitalized interest - (1) (1)
Preferred dividends 5 6 6
------ ------ ------
46 47 46
------ ------ ------
Income Before Income Taxes 105 105 110
Income Taxes 45 46 48
------ ------ ------
Net Income $ 60 $ 59 $ 62
====== ====== ======
Net Income Attributable to CMS Energy Shareholders
through Retained Interest $ 45 $ 45 $ 59
====== ====== ======
Net Income Attributable to Class G Shareholders $ 15 $ 14 $ 3
====== ====== ======
Average Class G Common Shares Outstanding 8 8 8
====== ====== ======
Basic and Diluted Earnings Per Average Class G Common Share $ 1.84 $ 1.82 $ .38
====== ====== ======
Dividends Declared Per Class G Common Share $ 1.21 $ 1.15 $ .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 1997 1996 1995
Cash Flows From Net income $ 60 $ 59 $ 62
Operating Adjustments to reconcile net income to net cash
Activities provided by operating activities
Depreciation, depletion and amortization 93 87 83
Capital lease and other amortization 4 4 5
Deferred income taxes and investment tax credit 5 13 14
Other (1) 2 -
Changes in other assets and liabilities (Note 6) 62 (24) 16
------ ------ ------
Net cash provided by operating activities 223 141 180
------ ------ ------
Cash Flows From Capital expenditures (excludes capital
Investing lease additions) (Note 6) (113) (137) (124)
Activities Cost to retire property, net (9) (9) (10)
Other - 1 2
------ ------ ------
Net cash used in investing activities (122) (145) (132)
------ ------ ------
Cash Flows From Payment of common stock dividends (40) (37) (58)
Financing Return of CMS Energy stockholders' contribution (39) - -
Activities Retirement of bonds and other long-term debt (33) (8) (6)
Retirement of preferred stock (26) - -
Repayment of bank loans (7) - (2)
Payment of capital lease obligations (4) (4) (5)
Repayment of long-term note (2) - -
Proceeds from long-term note 25 22 -
Issuance of common stock 7 5 1
Increase in notes payable, net 5 9 6
Proceeds from bank loans - 23 -
Contribution from CMS Energy stockholders - 3 18
------ ------ ------
Net cash provided by (used in)
financing activities (114) 13 (46)
------ ------ ------
Net Increase (Decrease) in Cash and Temporary Cash Investments (13) 9 2
Cash and temporary cash investments
Beginning of year 15 6 4
------ ------ ------
End of year $ 2 $ 15 $ 6
====== ====== ======
<FN>
The accompanying notes are an integral part of these statements.
6
Balance Sheets Consumers Gas Group
ASSETS In Millions
December 31 1997 1996
Plant and Property Plant and property $2,322 $2,203
(At Cost) Less accumulated depreciation, depletion
and amortization (Note 2) 1,231 1,133
------ ------
1,091 1,070
Construction work-in-progress 28 46
------ ------
1,119 1,116
------ ------
Current Assets Cash and temporary cash investments at cost,
which approximates market 2 15
Accounts receivable and accrued revenue, less allowances
of $3 in 1997 and $4 in 1996 (Note 4) 53 97
Inventories at average cost
Gas in underground storage 197 186
Materials and supplies 7 8
Deferred income taxes (Note 7) 6 4
Trunkline settlement - 25
Prepayments and other 51 49
------ ------
316 384
------ ------
Non-current Assets Postretirement benefits (Note 10) 142 153
Deferred income taxes (Note 7) 6 11
Other 61 59
------ ------
209 223
------ ------
Total Assets $1,644 $1,723
====== ======
7
Consumers Gas Group
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1997 1996
Capitalization Common stockholders' equity
(Note 4) Common stock $ 184 $ 184
Paid-in capital 102 134
Retained earnings since December 31, 1992 72 52
------ ------
358 370
Preferred stock 52 78
Long-term debt 333 446
Non-current portion of capital leases (Note 11) 16 17
------ ------
759 911
------ ------
Current Liabilities Current portion of long-term debt and capital leases 118 24
Notes payable 119 114
Accounts payable 94 85
Accrued taxes 65 61
Accrued refunds 10 7
Accrued interest 4 7
Trunkline settlement - 25
Other 44 52
------ ------
454 375
------ ------
Non-current Postretirement benefits (Note 10) 168 171
Liabilities Regulatory liabilities for income taxes, net
(Notes 7 and 12) 173 169
Deferred investment tax credit 25 27
Other 65 70
------ ------
431 437
------ ------
Commitments and Contingencies (Notes 2, 3, 5 and 11)
Total Stockholders' Investment and Liabilities $1,644 $1,723
====== ======
<FN>
The accompanying notes are an integral part of these statements.
8
Statements of Common Stockholders' Equity Consumers Gas Group
In Millions
Years Ended December 31 1997 1996 1995
Common Stock At beginning and end of period (a) $ 184 $ 184 $ 184
----- ----- -----
Other Paid-in Capital At beginning of period 134 126 107
Common stock issued 7 5 1
CMS Energy stockholders' contribution - 3 18
Return of CMS Energy stockholders' contribution (39) - -
----- ----- -----
At end of period 102 134 126
----- ----- -----
Retained Earnings At beginning of period 52 30 26
Net income 60 59 62
Common stock dividends declared (40) (37) (58)
----- ----- -----
At end of period 72 52 30
----- ----- -----
Total Common Stockholders' Equity $ 358 $ 370 $ 340
===== ===== =====
<FN>
(a) Number of shares of Consumers' common stock outstanding was 84,108,789 for all periods presented. Common
stock allocated to the Consumers Gas Group is consistent with the allocation method discussed in Note 4.
The accompanying notes are an integral part of these statements.
9
Consumers Gas Group
Notes to Financial Statements
1: Corporate Structure
CMS Energy Corporation (CMS Energy) is the parent holding company of
Consumers Energy Company (Consumers) and CMS Enterprises Company
(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 businesses of
CMS Energy, see the Notes to Consolidated Financial Statements of
CMS Energy included and incorporated by reference herein.
CMS Energy has issued shares of Class G Common Stock. This class of
common stock reflects the separate performance of the gas distribution,
storage and transportation businesses conducted by Consumers and Michigan
Gas Storage Company, a subsidiary of Consumers (collectively, Consumers
Gas Group). For further information regarding the nature and issuance of
the Class G Common Stock, see Note 7 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 1997 Annual
Report 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 Michigan Public Service Commission
(MPSC). The financial statements for 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
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
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 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 Consumers Gas Group incorporate Consumers'
natural gas utility business and the related business of Michigan Gas
Storage Company. 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 Consumers Gas Group have been eliminated.
Earnings Per Share and Dividends: Basic and Diluted earnings per share for
the years ended December 31, 1997 and 1996, reflect the performance of
Consumers Gas Group. Basic and Diluted earnings per share for 1995
reflect the performance of Consumers Gas Group since the initial issuance
of the Class G Common Stock in 1995. The earnings attributable to Class G
Common Stock and the related amounts per share are computed by considering
the weighted average number of shares of Class G Common Stock outstanding.
Earnings attributable to outstanding Class G Common Stock are equal to
Consumers Gas Group's net income multiplied by a fraction; the numerator
is the weighted average number of Outstanding Shares during the period
(Outstanding Shares), and the denominator is the weighted average number
of Outstanding Shares and Retained Interest Shares, shares not held by the
holders of the Outstanding Shares, during the period. The earnings
attributable to Class G Common Stock on a per share basis, for the years
ended December 31, 1997, 1996 and 1995, are based on 24.50 percent, 23.79
percent and 23.45 percent of the income of Consumers Gas Group since the
initial issuance, respectively.
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 as a whole. In the sole discretion of the Board of
Directors of CMS Energy (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 Class G Common Stock are paid at
the discretion of the Board of Directors based primarily upon the earnings
and financial condition of 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.
In February and May 1997, CMS Energy paid dividends of $.295 per share on
Class G Common Stock. In August and November of 1997, and February 1998,
CMS Energy paid dividends of $.31 per share on Class G Common Stock.
Related Party Transactions: Consumers Gas Group sold, stored and
transported natural gas and provided other services to the Midland
Cogeneration Venture Limited Partnership totaling $13 million, each year,
for 1997, 1996 and 1995. Consumers Gas Group purchases a portion of its
gas from CMS NOMECO Oil & Gas Co., a wholly owned subsidiary of
Enterprises. The amounts of purchases for the years ended December 31,
1997, 1996 and 1995 totaled $25 million, $24 million and $19 million,
respectively.
Other: For significant accounting policies refer to the following Notes
to Consolidated Financial Statements of CMS Energy: for Consumers Gas
Group's gas inventory, maintenance, depreciation and depletion, revenue
and fuel costs, and utility regulation, see Note 2; for cash equivalents,
see Note 12; for income taxes, see Note 13; for executive incentive
compensation, see Note 15; and for pensions and other postretirement
benefits, see Note 16 included and incorporated by reference herein.
3: Rate Matters
For information regarding rate matters directly affecting Consumers Gas
Group, see Note 4 in the Consolidated Financial Statements of CMS Energy
included and incorporated by reference herein.
4: Short-Term Financings and Capitalization
Short-Term Financings: Consumers' short-term financings are discussed in
Consolidated Financial Statements of CMS Energy Note 5 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
Consumers Gas Group at December 31, 1997 and 1996, is estimated by
management to be $138 million and $137 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 attributable 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 Consumers Gas Group based on the ratio of customer revenues
contributed by Consumers' gas customers to total Consumers' revenue. As a
result of the centralized management of short-term financing, the amounts
allocated to 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 period (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.
Capital Stock and Long-Term Debt: Consumers Gas Group's capital stock and
long-term debt, including debt resulting from the sale of Trust Preferred
Securities, 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 long-term debt and capital stock of
CMS Energy and Consumers, see Note 6 and Note 7 to the Consolidated
Financial Statements of CMS Energy included and incorporated by reference
herein.
5: Commitments and Contingencies
Capital Expenditures: Consumers Gas Group estimates capital expenditures,
including new lease commitments, of $115 million for 1998, 1999 and 2000.
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 Consumers Gas Group (including those involving former
manufactured gas plant sites), see the Gas Environmental Matters and Other
discussions in CMS Energy's Note 10 included and incorporated by reference
herein.
6: 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 were:
In Millions
Years Ended December 31 1997 1996 1995
Cash transactions
Interest paid
(net of amounts capitalized) $42 $39 $40
Income taxes paid (net of refunds) 40 33 25
Non-cash transactions
Assets placed under capital lease $ 3 $ 1 $ 2
Capital leases refinanced - - 9
Changes in other assets and liabilities as shown on the Statements of Cash
Flows at December 31 are described below:
In Millions
Years Ended December 31 1997 1996 1995
Sale of receivables, net $ 1 $ - $ 26
Accounts receivable 18 7 (39)
Accrued revenue 25 (5) (35)
Inventories (10) - 50
Accounts payable 9 6 11
Accrued refunds 3 (13) -
Other current assets and liabilities, net (9) (5) (8)
Non-current deferred amounts, net 25 (14) 11
---- ---- ----
$ 62 $(24) $ 16
==== ==== ====
7: Income Taxes
Consumers Gas Group is included in the consolidated federal income tax
return filed by CMS Energy (see Note 13 to the Consolidated Financial
Statements of CMS Energy). The financial statement provision and actual
cash tax payments have been reflected in 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 and the amortization of investment tax
credits (ITC) over the life of the related property included within the
Consumers Gas Group. Tax settlements at Consumers Gas Group are
consistent with settlements of CMS Energy's consolidated tax 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 Consumers Gas Group consisted of:
In Millions
Years Ended December 31 1997 1996 1995
Current federal income taxes $40 $33 $34
Deferred income taxes 7 14 16
Deferred ITC, net (2) (1) (2)
--- --- ---
$45 $46 $48
=== === ===
Operating $46 $50 $50
Other (1) (4) (2)
--- --- ---
$45 $46 $48
=== === ===
The principal components of deferred tax assets (liabilities) recognized
in the balance sheet for Consumers Gas Group are as follows.
In Millions
December 31 1997 1996
Property $ (66) $ (60)
Postretirement benefits (Note 10) (53) (57)
Employee benefit obligations (includes postretirement
benefits of $53 and $57) (Note 10) 66 69
Regulatory liability for income taxes 60 59
Other 5 4
----- -----
$ 12 $ 15
===== =====
Gross deferred tax liabilities $(217) $(226)
Gross deferred tax assets 229 241
===== =====
$ 12 $ 15
===== =====
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 1997 1996 1995
Net income before preferred dividends $ 65 $ 65 $ 68
Income tax expense 45 46 48
---- ---- ----
110 111 116
Statutory federal income tax rate x 35% x 35% x 35%
---- ---- ----
Expected income tax expense 39 39 41
Increase (decrease) in taxes from:
Differences in book and tax depreciation
not previously deferred 8 9 9
ITC amortization (2) (2) (2)
---- ---- ----
Actual income tax expense $ 45 $ 46 $ 48
==== ==== ====
8: Financial Instruments
The carrying amount of Consumers Gas Group's long-term debt was $333
million and $446 million and the fair value was $335 million and $448
million as of December 31, 1997 and 1996, respectively. For additional
information regarding financial instruments, see Note 14 to the
Consolidated Financial Statements of CMS Energy included and incorporated
by reference herein.
9: 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 15 to the Consolidated Financial Statements of CMS Energy
included and incorporated by reference herein. This plan allows for
awards of Class G Common Stock, and has established criteria for certain
plan awards.
10: Retirement Benefits
Postretirement Benefit Plans Other Than Pensions: Consumers Gas Group's
attributed portion of CMS Energy's net periodic cost for health and life
insurance benefits totaled $12 million, $15 million and $15 million in
1997, 1996 and 1995, 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 $153 million
and $163 million at December 31, 1997 and 1996, respectively. These
amounts were allocated based on policies Consumers has historically used
in proceedings conducted before the Michigan Public Service Commission.
For further information regarding CMS Energy's postretirement benefit
plans other than pensions, see Note 16 to the Consolidated Financial
Statements of CMS Energy included and incorporated by reference herein.
Supplemental Executive Retirement Plan: The attributed Supplemental
Executive Retirement Plan (SERP) trust assets of Consumers Gas Group were
$8 million at December 31, 1997 and $6 million at December 31, 1996 and
were classified as other non-current assets. Consumers Gas Group's
estimated portion of CMS Energy's recorded liability for the SERP totaled
$4 million at December 31, 1997 and $6 million at December 31, 1996.
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 16 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 (Pension Plan) covers substantially all employees.
Consumers Gas Group's attributed portion of CMS Energy's net periodic
pension cost totaled $4 million in 1997 and 1996, and $3 million in 1995.
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 $17 million at December 31, 1997
and $13 million at December 31, 1996 and was allocated to 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 16 to
the Consolidated Financial Statements of CMS Energy included and
incorporated by reference herein.
Defined Contribution Plan: Consumers provides a defined contribution
401(k) plan to all U.S. employees of CMS Energy and its subsidiaries which
are at least 80 percent owned and have adopted the plan. Consumers'
contributions to the plan are invested in CMS Energy Common Stock. For
further information, see Note 16 to the Consolidated Financial Statements
of CMS Energy included and incorporated by reference herein.
11: 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, 1997, were:
In Millions
Capital Leases
1998 $ 6
1999 5
2000 4
2001 4
2002 3
2003 and thereafter 3
---
Total minimum lease payments 25
Less imputed interest 5
---
Present value of net minimum lease payments 20
Less current portion 4
---
Non-current portion $16
===
Consumers recovers lease charges from customers and accordingly charges
payments for its capital and operating leases to operating expense. There
were no operating lease charges for Consumers Gas Group in 1997 or 1996.
Operating lease charges, including charges to clearing and other accounts,
for the year ended December 31, 1995 were $1 million. Capital lease
expenses for Consumers Gas Group for the years ended December 31, 1997,
1996 and 1995 were $6 million, $6 million and $7 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.
12: 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. Virtually all of these costs are being
recovered through current rates.
In Millions
December 31 1997 1996
Postretirement benefits (Note 10) $ 150 $ 162
Manufactured gas plant sites 47 47
Trunkline settlement - 25
Other 3 3
----- -----
Total regulatory assets $ 200 $ 237
===== =====
Regulatory liabilities for income taxes $(173) $(169)
===== =====
17
Quarterly Financial and Common Stock Information Consumers Gas Group
In Millions, Except Per Share Amounts
1997 (Unaudited) 1996 (Unaudited)
Quarters Ended March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
Operating revenue $498 $220 $110 $376 $548 $209 $123 $402
Pretax operating income
(loss) (a) $78 $23 $(1) $53 $93 $23 - $42
Net income (loss) $39 $5 $(7) $23 $48 $5 $(9) $15
Basic and diluted earnings
(loss) per average
common share (b) $1.18 $.16 $(.21) $.70 $1.50 $.16 $(.28) $.44
Dividends declared per
common share $.295 $.295 $.31 $.31 $.28 $.28 $.295 $.295
Common stock prices (c)
High $19-7/8 $19-7/8 $22 $27-1/8 $20 $19-3/8 $18-7/8 $19-1/4
Low $17-7/8 $17-5/8 $19 $20-5/8 $17-7/8 $17-1/2 $16-5/8 $17-3/8
<FN>
(a) Amounts in 1996 were restated for comparative purposes.
(b) The sum of the quarters may not equal the annual earnings per share due to changes in shares outstanding.
(c) Based on New York Stock Exchange - Composite transactions.