01—Abstract
Summary
Summary of the 10-K filed March 1, 2010. Cited figures are marked; the original filing is the authoritative source.
CMS Energy Corporation's 2009 Form 10-K (filed March 1, 2010) is a combined filing with its principal subsidiary Consumers Energy, the Michigan electric and gas utility that accounts for substantially all of the parent's assets, income, and revenue.
CMS reported 2009 operating revenue of $6.2 billiona (down from $6.8 billion in 2008) and net income available to common stockholders of $218 million, or $0.91 diluted EPS, versus $284 million ($1.20 diluted) in 2008. The decline was driven mainly by a $130 million charge tied to a February 2010 MPSC order on Big Rock decommissioning, higher Bay Harbor remediation costs, weaker Michigan economic conditions reducing deliveries, and higher pension and OPEB expense, partially offset by favorable rate orders. Cash from operations rose to $848 million, but CMS made a $206 million pension contribution in 2009.
The balance sheet remains heavily leveraged, with $6.6 billionb of consolidated debt principal at year-end 2009 and a Consumers debt-to-capital ratio of 0.52 against a 0.7 covenant maximum. CMS's senior unsecured ratings sit at BB+ (S&P), Ba1 (Moody's), and BB+ (Fitch), while Consumers' secured bonds are investment grade (BBB/A3/BBB+). Management outlined a more than $7 billion Consumers capital program over 2010-2014, including a proposed 830 MW coal plant, renewable energy build-out to meet the 10% requirement by 2015, and advanced metering, which it intends to finance largely through capital markets and rate recovery.
Key risks include regulatory outcomes at the MPSC, potential greenhouse gas and coal ash regulation, contingent cash obligations on about $839 millionc of convertible securities, and several pending gas price reporting antitrust suits. For investors, the central question is whether the utility's rate base growth and regulatory recovery can offset a weak Michigan economy, high leverage, and a sizable investment program. The filing shows the company returning to dividend growth, raising the quarterly dividend to $0.15 in January 2010, but earnings quality and regulatory risk remain significant.
02—Key points
Key Highlights
- 2009 net income available to common stockholders fell to $218 million ($0.91 diluted EPS) from $284 million ($1.20) in 2008, driven by a $130 million Big Rock decommissioning charge at Consumers.
- Consumers' electric utility earnings dropped to $194 million from $271 million, while gas utility earnings rose modestly to $96 million from $89 million.
- Operating cash flow increased to $848 million from $557 million, though it absorbed a $206 million pension contribution in 2009.
- Total CMS consolidated debt principal was $6.6 billion at year-end 2009; Consumers' debt-to-capital ratio of 0.52 sits within its 0.7 covenant limit.
- Consumers plans capital investments exceeding $7 billion over 2010-2014, including a proposed 830 MW coal plant and renewable energy additions to reach 10% of sales by 2015.
- Quarterly common dividend was raised to $0.15 per share in January 2010 from $0.125, following $0.50 declared per share for 2009.
- Credit ratings are stable outlook across agencies, with CMS senior unsecured debt at BB+/Ba1/BB+ and Consumers' secured debt at BBB/A3/BBB+.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 1, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $6.21B$6.81B | −8.8% |
| Operating Expenses | $5.51B$6.01B | −8.4% |
| Operating Income | $698.00M$794.00M | −12.1% |
| Interest Expense | $435.00M$400.00M | +8.8% |
| Net Income | $229.00M$295.00M | −22.4% |
| EPS (Basic) | $0.96$1.25 | −23.2% |
| EPS (Diluted) | $0.91$1.20 | −24.2% |
| Shares Outstanding (Diluted) | 237.90M— | — |
05—Questions
Frequently Asked Questions
Why did CMS Energy's 2009 earnings decline versus 2008?
Net income available to common stockholders fell $66 million, mainly because Consumers recognized a $130 million charge tied to the MPSC's February 2010 Big Rock decommissioning order. Lower deliveries from weak Michigan economic conditions, higher Bay Harbor remediation costs ($22 million after tax), and higher pension and OPEB expense also weighed on results. These were partly offset by the favorable effect of 2008 and 2009 rate orders, which added about $139 million after tax.
How leveraged is CMS Energy, and are there near-term refinancing needs?
CMS carried $6.6 billion of principal debt at year-end 2009, and it has $533 million of long-term debt maturing in 2010 and $297 million in 2011. Consumers has $250 million of first mortgage bonds due in 2010 and $300 million in 2012. CMS issued $300 million of 6.25% senior notes in January 2010 and maintains a $550 million revolver and a $500 million Consumers revolver, both planned for renewal in 2012. Management says cash and expected operating cash flow will be sufficient to meet requirements.
What are the largest capital commitments and how will they be funded?
Consumers forecasts capital expenditures of $3.67 billion for 2010 through 2012, with the largest elements being electric generation and environmental controls. Environmental compliance alone is estimated at $1.4 billion for 2010-2017, and cooling water intake work at $150 million. Funding is expected from operating cash flow, utility rate recovery, capital markets issuance, and possibly leasing or bank financing, with the company noting that market access is not guaranteed.
What are the biggest legal or contingent risks disclosed?
Key risks include the pending DOJ investigation and multi-district natural gas price-reporting litigation, in which the outcome could be materially adverse. Bay Harbor remediation has a recorded liability of $78 million, with an undiscounted obligation of $101 million, and could rise if long-term water disposal solutions are delayed. Marathon has sued CMS Enterprises for indemnification related to the F.T. Barr claim, and CMS has $839 million of contingently convertible securities that could require cash settlement of principal.
What does the regulatory outlook look like for Consumers?
Consumers' November 2009 electric rate order authorized a $134 million annual increase with a 10.7% return on equity and a 'pilot' decoupling mechanism. Consumers filed for a further $178 million electric increase in January 2010 and a $114 million gas increase in May 2009, which it self-implemented at $89 million subject to refund. Because the MPSC retains broad discretion over these requests, final outcomes could differ materially from what has been self-implemented, which is a key regulatory risk for investors.
06—Continue