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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) JUNE 11, 2003
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)
ONE ENERGY PLAZA
JACKSON, MICHIGAN 49201
(517) 788-0550
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 11, 2003, CMS Energy Corporation ("CMS Energy") completed the previously
announced sale of all of the outstanding capital stock of Panhandle Eastern Pipe
Line Company ("Panhandle") to Southern Union Panhandle Corp., a newly formed
entity owned by Southern Union Company.
CMS Energy received approximately $582 million in cash and three million shares
of Southern Union Company common stock, worth approximately $49 million based on
the June 11, 2003 closing price of $16.48 per share. The sale agreement allows
CMS Energy to sell the stock after 90 days. Southern Union Panhandle Corp. also
assumed approximately $1.16 billion in debt. Consideration for the sale was
established as a result of negotiations between the parties. CMS Energy used the
cash, and will use proceeds from the ultimate sale of the Southern Union Company
stock, to reduce debt.
CMS Energy expects to incur a loss on the sale of Panhandle. The loss
calculations have not been finalized but CMS Energy's best estimate is an
after-tax loss of approximately $31 million (subject to post-closing
adjustments) on the sale of Panhandle in the second quarter of 2003.
Further, a significant number of Panhandle employees elected to retire as of
July 1, 2003 under the Consumers Energy Employee Pension Plan. As a result, CMS
Energy expects to record a settlement loss and a plan curtailment gain in the
second quarter of 2003 pursuant to the provisions of Statement of Financial
Accounting Standards No. 88 - Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits. The
calculations have not been finalized, but CMS Energy expects a net after-tax
loss of approximately $13 million. In addition, CMS Energy will be required to
re-measure its defined benefit retirement plan obligations during the second
quarter of 2003 and as a result, in the second quarter of 2003, will likely
record an additional minimum liability charge to other comprehensive income
estimated to be $20 million, net of tax effects.
Panhandle includes Panhandle Eastern Pipe Line Company, CMS Trunkline Gas
Company, CMS Trunkline LNG Company, and the CMS Sea Robin Pipeline Company.
Panhandle is primarily engaged in the interstate transportation and storage of
natural gas and also owns a liquefied natural gas importation terminal complex.
Panhandle has approximately 10,700 miles of pipeline in the United States.
Panhandle Eastern Pipe Line Company's natural gas transmission system consists
of four large diameter pipelines extending approximately 1,300 miles from
producing areas in the Anadarko Basin of Texas, Oklahoma and Kansas through the
states of Missouri, Illinois, Indiana, Ohio and into Michigan. CMS Trunkline Gas
Company's transmission system includes two large diameter pipelines that extend
approximately 1,400 miles from the Gulf Coast areas of Texas and Louisiana
through the states of Arkansas, Mississippi, Tennessee, Kentucky, Illinois and
Indiana to a point on the Indiana-Michigan border. Panhandle owns and operates
47 compressor stations and has five gas storage fields located in Illinois,
Kansas, Louisiana, Michigan and Oklahoma with an aggregate storage capacity of
70 billion cubic feet. Panhandle's major customers include 25 utilities located
primarily in the United States Midwest market area.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Not applicable.
(b) Pro Forma Financial Information
The accompanying unaudited pro forma condensed consolidated financial statements
reflect adjustments to the historical consolidated financial statements of CMS
Energy to give effect to the sale of Panhandle, assuming the sale had been
effective for the periods indicated.
CMS Energy's consolidated financial statements as of and for the three months
ended March 31, 2003 and for the year ended December 31, 2002, reported
Panhandle as a discontinued operation under Statement of Financial Accounting
Standards No. 144 - Accounting for the Impairment or Disposal of Long-Lived
Assets.
Certain information and notes normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission governing pro forma information. The pro forma condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements of CMS Energy as contained in its 2002 Annual
Report on Form 10-K and Quarterly Report on Form 10-Q as of and for the three
months ended March 31, 2003.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet assumes the
Panhandle sale was consummated on March 31, 2003. Therefore, the loss on sale
recognized at March 31, 2003 will ultimately differ from the actual loss that
occurred at the June 11, 2003 date of sale. The Unaudited Pro Forma Condensed
Consolidated Statements of Income assume the Panhandle disposition occurred on
January 1, 2002. The unaudited pro forma condensed consolidated financial
statements are presented for purposes of illustration only, in accordance with
the assumptions set forth below, and are not necessarily indicative of the
financial position or results of operations that would have occurred had the
sale been consummated on the dates as of which, or at the beginning of the
period for which, the sale is being given effect, nor are they necessarily
indicative of future operating results or financial position of CMS Energy.
CMS ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2003
(In millions)
HISTORICAL SALE OF PRO FORMA PRO FORMA
CMS ENERGY PANHANDLE ADJUSTMENTS CMS ENERGY
---------- --------- ----------- ----------
(NOTE 1) (NOTE 2)
ASSETS
Plant and Property (at cost) $ 10,712 $10,712
Less accumulated depreciation, depletion and amortization 5,490 5,490
--------- -------
5,222 5,222
Construction work-in-progress 488 488
--------- -------
Net plant and property 5,710 5,710
Investments 1,447 $ 37 $ (37)(a) 1,447
Cash and temporary cash investments 675 589 (534)(a) 730
Other current assets 1,561 1,561
Current assets held for sale 355 (189) 166
Non-current assets 2,505 2,505
Non-current assets held for sale 2,042 (1,812) 230
--------- ------- ------ -------
TOTAL ASSETS $ 14,295 $(1,375) $ (571) $12,349
========= ======= ====== =======
STOCKHOLDERS' INVESTMENT AND LIABILITIES
Common stockholders' equity and other paid-in-capital $ 3,606 $ 3,606
Other comprehensive loss (737) $ (20)(c) (757)
Retained deficit (1,641) $ (27) (13)(b) (1,681)
Preferred stock and trust preferred securities 927 927
Long-term debt 5,212 (537)(a) 4,675
Non-current portion of capital leases 121 121
--------- ------- ------ -------
Total capitalization 7,488 (27) (570) 6,891
Minority interests 22 22
Current liabilities 2,470 32 2,502
Current liabilities held for sale 299 (190) 109
Non-current liabilities 2,718 33(b,c) 2,751
Non-current liabilities held for sale 1,298 (1,190) (34)(a) 74
--------- ------- ------ -------
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $ 14,295 $(1,375) $ (571) $12,349
========= ======= ====== =======
See Notes to pro forma condensed consolidated financial statements.
CMS ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2002
(In millions, except per share amounts)
HISTORICAL PROFORMA PROFORMA
CMS ENERGY ADJUSTMENTS CMS ENERGY
---------- ----------- ----------
(NOTE 2)
OPERATING REVENUE $ 8,687 $8,687
OPERATING EXPENSES 8,588 8,588
------- ------
OPERATING INCOME 99 99
------- ------
OTHER INCOME 2 2
FIXED CHARGES 504 $(46)(d) 458
------- ---- ------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTERESTS (403) 46 (357)
INCOME TAX EXPENSE 13 16(e) 29
------- ---- ------
LOSS FROM CONTINUING OPERATIONS $ (416) $ 30 $ (386)
======= ==== ======
LOSS FROM CONTINUING OPERATIONS PER SHARE
BASIC - AVERAGE COMMON SHARES OUTSTANDING 139 139
- INCOME PER AVERAGE COMMON SHARE $ (2.99) $.21 $ (2.78)
DILUTED - AVERAGE COMMON SHARES OUTSTANDING 139 139
- INCOME PER AVERAGE COMMON SHARE $ (2.99) $.21 $ (2.78)
See Notes to pro forma condensed consolidated financial statements.
CMS ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 2003
(In millions, except per share amounts)
HISTORICAL PRO FORMA PRO FORMA
CMS ENERGY ADJUSTMENTS CMS ENERGY
---------- ----------- ----------
(NOTE 2)
OPERATING REVENUE $1,992 $1,992
OPERATING EXPENSES 1,753 1,753
----- ------
OPERATING INCOME 239 239
----- ------
OTHER INCOME (DEDUCTIONS) (2) (2)
FIXED CHARGES 119 $(12)(d) 107
----- ---- ------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTERESTS 118 12 130
INCOME TAX EXPENSE 41 4(e) 45
MINORITY INTERESTS 1 1
----- ---- ------
INCOME FROM CONTINUING OPERATIONS $ 76 $ 8 $ 84
===== ==== ======
INCOME FROM CONTINUING OPERATIONS PER SHARE:
BASIC - AVERAGE COMMON SHARES OUTSTANDING 144 144
- INCOME PER AVERAGE COMMON SHARE $ .53 $.05 $ .58
DILUTED - AVERAGE COMMON SHARES OUTSTANDING 165 165
- INCOME PER AVERAGE COMMON SHARE $ .49 $.05 $ .54
See Notes to pro forma condensed consolidated financial statements.
Note 1 - Sale of Panhandle
As discussed in Item 2 above, CMS Energy sold all of the outstanding capital
stock of Panhandle to Southern Union Panhandle Corp. for a combination of cash,
stock and assumption of debt. Accordingly, CMS Energy has reflected, in the
accompanying unaudited pro forma condensed consolidated financial statements,
that the sale yielded CMS Energy total cash consideration, including adjustments
to working capital, of approximately $589 million and three million shares of
Southern Union Company common stock, valued at approximately $37 million, based
on a price at March 31, 2003 of $12.15 per share. The sale also included $16
million each of selling expenses and taxes, resulting in a loss of $27 million
calculated as of March 31, 2003 and reflected in retained deficit. In the sale
transaction, CMS Energy retained Panhandle assets totaling $28 million and
liabilities of $96 million, which includes a $34 million Panhandle bridge loan
and $62 million of pension and other postretirement liabilities of Panhandle
employees through the date of sale.
Note 2 - Pro Forma and Panhandle Sale Adjustments
The following is a summary of pro forma adjustments:
Condensed Consolidated Balance Sheet:
a. To reflect the retirement of $537 million of long term debt
and the payment of the Panhandle bridge loan of $34 million
from the cash proceeds of the sale of Panhandle and of
Southern Union Company common stock.
b. To reflect the expected net loss due to the settlement loss
and plan curtailment gain from pension obligations pursuant to
SFAS No. 88 (see Item 2).
c. To reflect the additional liability and the corresponding
charge to other comprehensive income from re-measurement of
pension plan obligations at the date of sale of $20 million
net of tax.
Condensed Consolidated Statements of Income:
d. To reflect reduced interest expense from the use of $571
million of proceeds to reduce long-term debt outstanding at
the beginning of the year ended December 31, 2002, and the
three months ended March 31, 2003, at average interest rates
of 8.2% for both periods. The year ended December 31, 2002
assumes cash proceeds from the sale of Southern Union common
stock were not available to pay down debt for 90 days in
accordance with the Panhandle sale agreement.
e. To reflect the income tax effects of the pro forma
adjustments.
(c) Exhibits
(10)(a) Stock Purchase Agreement by and among CMS Gas Transmission
Company, AIG Highstar Capital, L.P., AIG Highstar II Funding
Corp., Southern Union Company and Southern Union Panhandle
Corp. dated as of December 21, 2002 (Filed as Exhibit 10.1 to
Form 8-K filed December 22, 2002)
(10)(b) Amended and Restated Stock Purchase Agreement by and among CMS
Gas Transmission Company, Southern Union Company and Southern
Union Panhandle Corp. dated as of May 12, 2003 (Filed as
Exhibit (10)(b) to Form 10-Q filed May 14, 2003)
(10)(c) Shareholder Agreement by and between CMS Gas Transmission
Company and Southern Union Company dated as of May 12, 2003
(Filed as Exhibit (10)(c) to Form 10-Q filed May 14, 2003)
(10)(d) Amendment Agreement by and among CMS Gas Transmission Company,
AIG Highstar Capital, L.P., AIG Highstar II Funding Corp.,
Southern Union Company and Southern Union Panhandle Corp.
dated as of May 12, 2003 (Filed as Exhibit (10)(d) to Form
10-Q filed May 14, 2003)
This Form 8-K contains "forward-looking statements" within the meaning of the
safe harbor provisions of the federal securities laws. The "forward-looking
statements" are subject to risks and uncertainties. They should be read in
conjunction with the Management's Discussion and Analysis found in CMS Energy's
Form 10-Q for the quarterly period ended March 31, 2003 (incorporated herein by
reference), that discusses important factors that could cause CMS Energy's
results to differ materially from those anticipated in such statements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CMS ENERGY CORPORATION
Dated: June 23, 2003
By: /s/ Thomas J. Webb
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Thomas J. Webb
Executive Vice President and Chief
Financial Officer