01—Abstract
Summary
Summary of the 10-K filed February 23, 2012. Cited figures are marked; the original filing is the authoritative source.
CMS Energy's 2011 Form 10-K, a combined filing with its utility subsidiary Consumers Energy, shows a year of improved earnings.
CMS Energy reported net income available to common stockholders of $415 milliona, or $1.58 diluted EPS, up from $324 million and $1.28 in 2010. Consolidated operating revenue rose to $6.5 billion, and operating cash flow increased to $1.17 billion. The electric utility segment drove most of the gain, with net income of $333 million, aided by rate orders, the one-time Michigan MCIT tax benefit, and lower pension contributions.
Rate relief was the main tailwind, although 2011 storm restoration costs and higher depreciation partly offset it. The main investor concerns are capital spending, regulatory outcomes, and contingent liabilities. Consumers plans $6.6 billionb of capital investment over 2012-2016, and it canceled an 830-MW coal plant in December 2011.
It also plans to mothball seven smaller coal units by January 2015, and new EPA rules (CSAPR, now stayed, and MATS) add compliance costs. CMS Energy carries $7.1 billionc of total debt, and roughly $398 million of its convertible notes became convertible for cash in early 2012. Other exposures include a $142 million Equatorial Guinea tax claim, Bay Harbor remediation, and gas price-reporting litigation.
The filing states that the outcome of that litigation could be material. Overall, the filing presents a utility with stable, regulated earnings and a sizable investment program. Its results depend heavily on Michigan rate decisions, environmental compliance costs that utilities expect to recover from customers, and continued access to capital markets at reasonable cost.
02—Key points
Key Highlights
- CMS Energy 2011 net income available to common stockholders of $415M ($1.58 diluted EPS), up from $324M ($1.28) in 2010
- Consolidated operating revenue of $6.5B in 2011, with electric utility operating revenue of $3.9B and gas utility revenue of $2.3B
- Operating cash flow rose to $1,169M from $959M, mainly on lower pension contributions
- Consumers plans $6.6B of capital investment from 2012 through 2016, with renewable energy, Smart Grid, and environmental controls as key components
- Canceled the 830-MW Karn/Weadock coal plant in December 2011 and plans to mothball seven smaller coal units effective January 2015
- Total CMS Energy debt of $7.1B, with $398M of contingently convertible notes that can require cash principal payments
- Contingent exposures include a $142M Equatorial Guinea tax claim, Bay Harbor environmental remediation, and gas index price-reporting litigation
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 23, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $6.50B$6.43B | +1.1% |
| Operating Expenses | $5.50B$5.45B | +0.8% |
| Operating Income | $1.00B$978.00M | +2.6% |
| Interest Expense | $415.00M$431.00M | −3.7% |
| Net Income | $415.00M$343.00M | +21.0% |
| EPS (Basic) | $1.66$1.40 | +18.6% |
| EPS (Diluted) | $1.58$1.28 | +23.4% |
| Shares Outstanding (Diluted) | 263.40M252.90M | +4.2% |
05—Questions
Frequently Asked Questions
What drove the increase in CMS Energy's 2011 earnings?
Net income available to common stockholders rose $91M, mainly from electric and gas rate orders (about $72M after tax), a one-time $32M benefit from the enactment of Michigan's MCIT tax, and the absence of a 2010 Bay Harbor liability increase. These gains were partly offset by higher distribution and service restoration costs from severe 2011 storms and by higher depreciation.
How is CMS Energy funding its planned capital program?
The company expects to rely on operating cash flow, capital markets debt and equity, bank financing, and leasing. It has a $550M secured revolving facility for CMS Energy and a $500M facility for Consumers, both expiring in 2016. It also entered into a $180M term loan in December 2011 to refinance near-term notes and trust preferred securities, and it has an at-the-market equity program of up to $50M.
What are the biggest regulatory risks for Consumers?
Consumers faces pending electric and gas rate cases, with the MPSC staff recommending smaller increases than requested. The MPSC has also limited self-implemented rates, and a pending electric revenue decoupling reconciliation of $27M is contested. Environmental rules (CSAPR, now stayed, and MATS) could require additional coal unit controls or retirements, and the company believes it can recover most costs through rates, though it cannot guarantee that outcome.
Are there contingent liabilities that could materially affect the company?
Yes. The company identifies several, including gas index price-reporting class actions with no estimable loss, a $142M Equatorial Guinea tax claim that the company disputes, and a recorded $77M Bay Harbor environmental liability with an undiscounted remaining obligation of $100M. Consumers also faces remediation costs at 23 former manufactured gas plant sites, with a recorded liability of $128M, and a possible Superfund claim at the Kalamazoo River site.
What is the dividend and cash flow profile for shareholders?
CMS Energy declared $0.84 per common share in 2011, up from $0.66 in 2010, with quarterly dividends raised to $0.21 in the 2010 fourth quarter. Consumers, which is wholly owned by CMS Energy, paid $374M in common dividends to its parent in 2011, and that cash flow supports CMS Energy's dividends and debt service. Consumers' ability to pay dividends is limited by its articles of incorporation, which restrict payments to $493M of unrestricted retained earnings.
06—Continue