UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _________________
COMMISSION FILE NUMBER 1-9513
EMPLOYEES' SAVINGS PLAN AND
EMPLOYEE STOCK OWNERSHIP PLAN OF
CONSUMERS ENERGY COMPANY
ONE ENERGY PLAZA
JACKSON, MICHIGAN 49201
-----------------------
(FULL TITLE OF THE PLAN AND ADDRESS OF THE PLAN, IF
DIFFERENT FROM THAT OF THE ISSUER NAMED BELOW)
CMS ENERGY CORPORATION
ONE ENERGY PLAZA
JACKSON, MICHIGAN 49201
-----------------------
(NAME OF ISSUER OF THE SECURITIES HELD
PURSUANT TO THE PLAN AND THE ADDRESS
OF ITS PRINCIPAL EXECUTIVE OFFICE)
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Audited Financial Statements and Supplemental Schedule
December 31, 2002 and 2001 and
Year ended December 31, 2002
CONTENTS
Report of Independent Auditors....................................................................................1
Audited Financial Statements
Statements of Net Assets Available for Benefits...................................................................2
Statement of Changes in Net Assets Available for Benefits.........................................................3
Notes to Financial Statements.....................................................................................4
Supplemental Schedule
Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year) .................................................10
Report of Independent Auditors
Plan Administrator
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
We have audited the accompanying statement of net assets available for benefits
of Employees' Savings Plan and Employee Stock Ownership Plan of Consumers Energy
Company as of December 31, 2002, and the related statement of changes in net
assets available for benefits for the year ended December 31, 2002. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. Other auditors, who have ceased operations, were engaged to audit the
financial statements and schedule of the Plan for the year ended December 31,
2001. Their report dated May 10, 2002, expressed an opinion that such financial
statements present fairly, in all material respects, the net assets of the Plan
as of December 31, 2001 and for the year then ended, in conformity with
accounting principles generally accepted in the United States.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2002, and the changes in its net assets available for benefits for
the year ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States.
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2002, is presented for purpose of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to auditing
procedures applied in our audit of the 2002 financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
Detroit, Michigan
June 23, 2003
1
Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company
Statements of Net Assets Available for Benefits
DECEMBER 31
2002 2001
-----------------------------------------
Assets
Investments:
Guaranteed investment contracts (at contract value) $133,883,841 $ 116,014,629
CMS Energy Corporation Common Stock 114,336,401 223,364,740
Other Common stock - 192,761,978
Fidelity Dividend Growth Fund 129,595,779 -
Nicholas-Applegate Core Growth Institutional
Portfolio Fund 26,958,174 42,845,245
Comerica Foreign Equity Fund 12,094,531 16,907,463
Vanguard Large-Cap Value Index Fund 7,916,780 8,327,202
Vanguard S&P 500 Index Fund 10,733,054 12,258,069
Vanguard Large-Cap Growth Index Fund 10,999,521 15,556,295
Nicholas-Applegate Small-Cap Growth Fund 7,710,161 10,765,003
Short term investments 38,830,403 33,424,497
Loans to participants 31,092,239 33,496,939
-----------------------------------------
Total investments 524,150,884 705,722,060
Receivables:
Participant contributions 3,576,748 3,601,257
Employer contributions - 1,197,514
Interest and dividends 97,095 228,034
-----------------------------------------
3,673,843 5,026,805
LIABILITY
Other 54,056 -
-----------------------------------------
Net Assets available for benefits $527,770,671 $ 710,748,865
=========================================
See accompanying notes.
2
Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
ADDITIONS
Interest and dividend income $ 24,638,512
Participant contributions 47,730,914
Employer contributions 10,534,451
-------------------
Total additions 82,903,877
DEDUCTIONS
Benefits payments, withdrawals and distributions 49,773,418
Other 54,056
-------------------
Total deductions 49,827,474
Net realized and unrealized depreciation
in fair value of investments (Note 3) (216,054,597)
-------------------
Net decrease (182,978,194)
Net Assets available for benefits:
Beginning of year 710,748,865
-------------------
End of year $ 527,770,671
===================
See accompanying notes.
3
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
December 31, 2002 and 2001
1. DESCRIPTION OF PLAN
The following description of the Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company (the Plan) provides only general
information. Participants should refer to the Plan document for a complete
description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan designed to encourage and assist
employees of CMS Energy Corporation and its subsidiaries, which are at least
80% owned and have adopted the Plan (the Company or Employer) in saving for the
future. The Plan is a voluntary program that allows eligible participants to
invest their contributions in various investment funds. All regular employees of
the Company as defined by the Plan, may participate in the Plan. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of 1974
(ERISA).
CONTRIBUTIONS
Participants in the Plan may elect to make pre-tax or after-tax contributions in
amounts equal to whole percentages from 1% to 25% of their eligible
compensation, as defined by the Plan, subject to certain limitations as set
forth in the Plan. If a member's regular annual salary is equal to or more than
$80,000, the most that can be contributed by the employer on behalf of the
participant to the Plan is 11%.
The Company will make a matching contribution in an amount equal to $.50 for
each $1.00 contributed by a participant, up to a maximum of 6% of the
participant's compensation.
Effective September 1, 2002, all matching contributions to the plan were
suspended. The Matching Employer Contributions are expected to resume on the
first pay attributable to work on or after January 1, 2005.
Each Employer may contribute an Incentive Contribution, which is determined at
the end of each year based on earnings performance goals set by the Company at
the beginning of the year.
4
1. DESCRIPTION OF THE PLAN (CONTINUED)
The Incentive Contribution will be based on the participant's net Elective
Employer and Participant Contributions of up to 6% of each participant's
compensation. The Matching Employer and Incentive Contributions are allocated
entirely to CMS Energy Corporation common stock.
The Plan Administrator may exclude Incentive Contributions to the accounts of
certain officers of Employer.
Effective September 1, 2002, all incentive contributions to the plan were
eliminated.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions,
Elective Employer Contributions and Matching Employer and Incentive
Contributions and allocations of Plan earnings. The benefit to which a
participant is entitled is the benefit that can be provided from the vested
value of the participant's account.
PARTICIPANT LOANS
Participants may borrow from their fund accounts up to a maximum of $50,000 or
50% of their vested account balance. Loan terms range from 1-5 years or up to 10
years for the purchase of a primary residence. The loans are secured by the
balance of the participant's account and bear interest at a rate commensurate
with local prevailing rates as determined quarterly by the plan administrator.
Principal and interest are paid ratably through payroll deductions.
VESTING
Participants are immediately vested in their contributions and Elective Employer
Contributions plus actual earnings thereon. Vesting in the Matching Employer and
Incentive Contributions of their accounts are based on years of service. A
participant becomes 10% vested for each of the first two years of service with
the Company, and 20% for each of the next four years of service.
5
1. DESCRIPTION OF THE PLAN (CONTINUED)
PAYMENT OF BENEFITS
Upon termination of service, death, disability or retirement, a participant may
receive a lump-sum amount equal to the vested value of his or her account.
FORFEITURES AND ADMINISTRATIVE EXPENSES
Forfeitures result from Matching Employer or Incentive Contribution remaining in
the Plan for terminated participants' nonvested account balances. Forfeitures
generated are added to a forfeiture reserve account and are available to offset
Matching Employer and Incentive Contributions. Such amounts forfeited in 2002
and 2001 were $167,015 and $391,527, respectively, and were treated as a
reduction of the Employer's contribution liability. The Company pays expenses
relating to the administration of the Plan. Brokerage fees, commissions, stock
transfer taxes and other expenses in connection with the purchases, sales and
distributions of securities for each investment fund are charged to the fund
that incurred the cost.
PLAN TERMINATION
Although it has not expressed the intention to do so, the Company has reserved
the right to terminate the Plan at any time by resolution of its Board of
Directors. The value of the participant accounts will be determined as of the
effective date of the termination and be distributed as provided by the Plan.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION AND INCOME RECOGNITION
Except for the investment contracts, the Plan's investments are stated at fair
value which equals the quoted market price on the last business day of the plan
year. The shares of registered investment companies are valued at quoted market
prices which represent the net asset values of shares held by the Plan at
year-end. The fair value of the participation units owned by the Plan in the
common trust fund accounts are based on quoted redemption values on the last
business day of the plan year. The participant loans are valued at their
outstanding balances, which approximate fair value.
6
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment contracts are recorded at their contract values, which represent
contributions and reinvested income, less any withdrawals plus accrued interest,
because these investments have fully benefit-responsive features. For example,
participants may ordinarily direct the withdrawal or transfer of all or a
portion of their investment at contract value. However, withdrawals influenced
by Company-initiated events, such as in connection with the sale of a business,
may result in a distribution at other than contract value. There are no reserves
against contract values for credit risk of contract issues or otherwise.
Contract value approximates fair value. The average yield for these contracts
was 6.31% in 2002 and 6.69% in 2001. The crediting interest rate for these
investment contracts ranged from approximately 5.4% to 7.2% in both 2002 and
2001. Rates on contracts remain fixed for the life of each contract.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
3. INVESTMENTS
During 2002, the Plan's investments (including investments purchased and sold,
as well as held, during the year) depreciated in fair value as determined by
quoted market prices as follows:
NET REALIZED
AND UNREALIZED
DEPRECIATION
IN FAIR VALUE
OF INVESTMENTS
DECEMBER 31, 2002
-----------------------
Mutual funds $ (77,865,143)
CMS Energy Corporation common stock (138,189,454)
-----------------------
$ (216,054,597)
=======================
7
3. INVESTMENTS (CONTINUED)
The CMS Energy Corporation common stock investment is the only investment with
non-participant directed contributions. Activity for this fund is as follows for
the year ended December 31, 2002.
Investment balance at January 1, 2002 $ 223,364,740
Contributions received 16,732,823
Net depreciation in fair value (138,189,454)
Interest and dividend income 11,353,066
Benefits paid to participants (11,437,337)
Net transfers from other funds 12,512,563
---------------------
Investment Balance at December 31, 2002 $ 114,336,401
=====================
4. DIFFERENCES BETWEEN FINANCIAL STATEMENTS AND FORM 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500:
DECEMBER 31
2002 2001
------------------------------------------
Net assets available for benefits per the financial
statements $ 527,770,671 $ 710,748,865
Amounts allocated to withdrawn participants (6,734,928) (3,134,204)
------------------------------------------
Net assets available for benefits per the Form 5500 $ 521,035,743 $ 707,614,661
==========================================
8
4. DIFFERENCES BETWEEN FINANCIAL STATEMENTS AND FORM 5500 (CONTINUED)
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
YEAR ENDED
DECEMBER 31,
2002
------------------
Benefits paid to participants per the financial
statements $ 49,773,418
Add amounts allocated on Form 5500 to
withdrawn participants at December 31, 2002 6,734,928
Less amounts allocated on Form 5500 to
withdrawn participants at December 31, 2001 (3,134,204)
------------------
Benefits paid to participants per the Form 5500 $ 53,374,142
==================
Amounts allocated to withdrawn participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
year-end but not yet paid.
5. CONTINGENT LIABILITIES
CMS Energy Corporation is a named defendant, along with Consumers Energy
Company, CMS Marketing Services and Trading and certain named and unnamed
officers and directors, in two lawsuits brought as purported class actions on
behalf of participants and beneficiaries of the 401(k) Plan. The two cases,
filed in July 2002 in the United States District Court for the Eastern District
of Michigan, were consolidated by the trial judge and an amended and
consolidated complaint has been filed. Plaintiffs allege breaches of fiduciary
duties under ERISA and seek restitution on behalf of the Plan with respect to a
decline in value of the shares of CMS Energy Common Stock held in the Plan.
Plaintiffs also seek other equitable relief and legal fees. These cases will be
vigorously defended. The Company cannot predict the outcome of this litigation.
6. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated April 24, 2002, stating that the Plan is qualified under Section 401(a) of
the Internal Revenue Code (the Code) and, therefore, the related trust is exempt
from taxation. Once qualified, the Plan is required to operate in conformity
with the Code to maintain its qualification. The plan administrator believes the
Plan is being operated in compliance with the applicable requirements of the
Code and, therefore, believes that the Plan is qualified and the related trust
is tax exempt.
7. SUBSEQUENT EVENT
On June 11, 2003, CMS Energy Corporation completed the previously announced sale
of all of the outstanding stock of Panhandle Eastern Pipe Line Company
(Panhandle) to Southern Union Panhandle Corp., a newly formed entity owned by
Southern Union Company. All Panhandle participants in the Plan were 100% vested
in both the Matching Employer and Incentive Contributions upon completion of the
sale.
9
Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company
EIN: 38-0442310 Plan Number: 002
Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year)
December 31, 2002
CONTRACT
DESCRIPTION OF INVESTMENT INCLUDING OR
IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, CURRENT
LESSOR OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST VALUE
-------------------------------------------------------------------------------------------------------------------------------
* New York Life Insurance Company 7.10%, Matures 06/27/05 $ 12,755,322
* Principal Mutual Life Insurance Company 7.20%, Matures 4/01/03 8,959,593
* Principal Mutual Life Insurance Company 6.00%, Matures 2/15/05 18,816,614
* Principal Mutual Life Insurance Company 6.18%, Matures 11/14/06 11,041,396
* Principal Mutual Life Insurance Company 6.28%, Matures 5/14/07 11,058,581
* Principal Mutual Life Insurance Company 5.85%, Matures 1/30/08 10,548,790
* The Prudential Mutual Life Insurance Company 6.97%, Matures 6/21/04 8,877,213
* The Prudential Mutual Life Insurance Company 5.40%, Matures 11/15/06 10,663,735
* The Prudential Mutual Life Insurance Company 5.70%, Matures 11/15/07 16,051,252
* Travelers Life and Annuity 6.45%, Matures 5/12/05 25,111,345
Fidelity Investments Fidelity Dividend Growth Fund 129,595,779
* CMS Energy Corporation Common Stock of CMS Energy Corporation 114,336,401
Nicholas Applegate Nicholas-Applegate Core Growth Institutional
Portfolio Fund 26,958,174
Nicholas-Applegate Small-Cap Growth Fund 7,710,161
* Comerica Bank, N.A. Comerica Foreign Equity Fund 12,094,531
Vanguard Investments Vanguard Large-Cap Value Index Fund 7,916,780
Vanguard S&P 500 Index Fund 10,733,054
Vanguard Large-Cap Growth Index Fund 10,999,521
* Comerica Bank, N.A. Short term investments 38,830,403
* Participants Loans to participants $ - 31,092,239
=========--------------
524,150,884
===============
* Party-in-interest.
Note: Historical cost information is not shown as all investments are
participant-directed.
10
THIS REPORT IS A COPY OF THE PREVIOUSLY ISSUED ARTHUR ANDERSEN REPORT AND
THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Employees' Savings & Incentive Plan and Employee Stock Ownership Plan of
Consumers Energy Company:
We have audited the accompanying statements of financial position of EMPLOYEES'
SAVINGS & INCENTIVE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN OF CONSUMERS ENERGY
COMPANY (the "Plan") as of December 31, 2001 and 2000, and the related
statements of changes in members' equity for each of the three years in the
period ended December 31, 2001. These financial statements and the schedule
referred to below are the responsibility of the Plan administrator. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 the Plan administrator, as well as evaluating the overall financial
statement presentation. We believe 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 the Plan as of December 31,
2001 and 2000, and the changes in members' equity for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes as of December 31, 2001 is presented for purposes of
additional analysis and is not a required part of the basic financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
May 10, 2002.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
CONSUMERS ENERGY COMPANY
EMPLOYEES' SAVINGS PLAN AND
EMPLOYEE STOCK OWNERSHIP PLAN
By: /s/ John F. Drake
-----------------------------------------
John F. Drake
Plan Administrator and
Senior Vice President, Human Resources,
CMS Energy Corporation and
Consumers Energy Company
Dated: June 30, 2003
12
EXHIBITS
Exhibit Number Description
(23)(a) Statement regarding Consent of Independent Auditors,
Arthur Andersen LLP
(23)(b) Consent of Independent Auditors, Ernst & Young LLP
(99) Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002