Pursuant to Rule 424(b)5
Registration Statement No. 333-122429
Prospectus
$800,000,000
[CONSUMERS ENERGY LOGO]
CONSUMERS ENERGY COMPANY
Exchange Offer for all Outstanding
4.40% First Mortgage Bonds due 2009, Series K
5.00% First Mortgage Bonds due 2012, Series L
5.50% First Mortgage Bonds due 2016, Series M
The Exchange Offer will expire at 5:00 p.m., New York City time, on
March 15, 2005 unless we extend it.
Terms of the Exchange Offer
-----------------------
We are offering to exchange new registered 4.40% First Mortgage Bonds due 2009,
Series N for all of our old unregistered 4.40% First Mortgage Bonds due 2009,
Series K; new registered 5.00% First Mortgage Bonds due 2012, Series O, for all
of our old unregistered 5.00% First Mortgage Bonds due 2012, Series L; and new
registered 5.50% First Mortgage Bonds due 2016, Series P for all old
unregistered 5.50% First Mortgage Bonds due 2016, Series M.
The terms of the new bonds will be identical in all material respects to the
terms of the old bonds, except that the registration rights and related
liquidated damages provisions and the transfer restrictions applicable to the
old bonds will not be applicable to the new bonds. The new bonds will have the
same financial terms and covenants as the old bonds, and will be subject to the
same business and financial risks. Any outstanding old bonds not validly
tendered will remain subject to existing transfer restrictions.
Subject to the satisfaction or waiver of specified conditions, we will exchange
the new bonds for all old bonds that are validly tendered and not withdrawn by
you at any time prior to the expiration of the Exchange Offer as described in
this prospectus.
The new bonds will not be listed on any securities exchange or included in any
automatic quotation system.
We will not receive any proceeds for the exchange.
We are not asking you for a proxy and you are requested not to send us a proxy.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 16.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is February 14, 2005
TABLE OF CONTENTS
PAGE
----
Important Notice about Information in this Prospectus............... 1
Where You Can Find More Information................................. 2
Forward-Looking Statements and Information.......................... 3
Summary............................................................. 6
Risk Factors........................................................ 16
Use of Proceeds..................................................... 25
Ratio of Earnings to Fixed Charges.................................. 25
Description of the New Bonds........................................ 26
Ratings............................................................. 34
The Exchange Offer ................................................. 34
Certain United States Federal Income Tax Consequences............... 44
Plan of Distribution................................................ 47
Legal Opinions...................................................... 47
Experts............................................................. 48
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS
You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized anyone to provide you with
information that is different or to make any representations about us or about
the transactions we discuss in this prospectus. If you receive information about
these matters that is not included in this prospectus, you must not rely on that
information. This document may only be used where it is legal to sell these
securities. The information in this document may only be accurate on the date of
this document.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC") under File No. 1-5611. Our SEC
filings are available over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference room at 450 Fifth Street N.W., Room 1024, Washington D.C.
20549. Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms and their copy charges. You may also inspect our SEC reports and
other information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005. You can find additional information about us, including our Annual
Report on Form 10-K/A for the year ended December 31, 2003 and our Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2004, June 30, 2004 and
September 30, 2004, on the web site of our parent company at
http://www.cmsenergy.com. The information on this web site is not a part of this
prospectus.
We are "incorporating by reference" information into this prospectus. This
means that we are disclosing important information by referring to another
document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this prospectus, except for any information
superseded by information in this prospectus. This prospectus incorporates by
reference the documents set forth below that we have previously filed with the
SEC. These documents contain important information about us and about our
finances.
- Annual Report on Form 10-K/A for the year ended December 31, 2003
filed on July 21, 2004
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2004
filed on May 7, 2004, Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004 filed on August 6, 2004 and Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 filed on November
4, 2004
- Current Reports on Form 8-K filed on January 22, 2004, March 18,
2004, June 3, 2004, August 20, 2004, September 1, 2004, October 6,
2004, October 12, 2004, October 13, 2004, October 19, 2004, December
6, 2004, December 8, 2004, December 13, 2004, January 12, 2005,
January 14, 2005, January 20, 2005 and January 27, 2005
The documents filed by us with the SEC pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") after the date of this prospectus, until the Exchange Offer is terminated,
are also incorporated by reference into this prospectus. Any statement contained
in such document will be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus or
any other subsequently filed document modifies or supersedes such statement.
We will provide, upon your oral or written request, a copy of any or all
of the information that has been incorporated by reference in this prospectus
but not delivered with this prospectus. You may request a copy of these filings
at no cost by writing or telephoning us at the following address:
Consumers Energy Company
One Energy Plaza
Jackson, Michigan 49201
Tel: (517) 788-0550
Attention: Office of the Secretary
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FORWARD-LOOKING STATEMENTS AND INFORMATION
This prospectus includes or incorporates by reference forward-looking
statements. From time to time, we may make statements regarding our assumptions,
projections, expectations, intentions or beliefs about future events. These
statements are intended as "forward looking statements" under Rule 175 of the
Securities Act of 1933, as amended (the "SECURITIES ACT") and Rule 3b-6 of the
Exchange Act. Forward-looking statements give our expectations or forecasts of
future events. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. Forward-looking statements have
been and will be made in this prospectus and in our other written documents
(such as press releases, visual presentations and securities disclosure
documents) and oral presentations (such as analyst conference calls). Such
statements are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in our documents or
oral presentations, we intend the words "anticipate," "believe," "estimate,"
"expect," "forecast," "intend," "objective," "plan," "possible," "potential,"
"project," "projection," and variations of such words and similar expressions to
target forward-looking statements that involve risk and uncertainty.
Any or all of our forward-looking statements in oral or written statements or in
other publications may turn out to be wrong. They can be affected by inaccurate
assumptions or by known or unknown risks and uncertainties. Many such factors
will be important in determining our actual future results. Consequently, we
cannot guarantee any forward-looking statement.
In addition to any assumptions and other factors referred to specifically in
connection with such forward-looking statements, there are numerous factors that
could cause our actual results to differ materially from those contemplated in
any forward-looking statements. Such factors include our inability to predict
and/or control:
- capital and financial market conditions, including the price
of the common stock of CMS Energy Corporation, our parent
company ("CMS ENERGY"), and the effect of such market
conditions on our pension plan, interest rates and access to
the capital markets, as well as availability of financing to
us or CMS Energy or any of its affiliates, and the energy
industry;
- market perception of the energy industry, us and CMS Energy,
or any of our affiliates;
- credit ratings of us, CMS Energy or any of its affiliates;
- factors affecting utility and diversified energy operations
such as unusual weather conditions, catastrophic
weather-related damage, unscheduled generation outages,
maintenance or repairs, environmental incidents or electric
transmission or gas pipeline system constraints;
- international, national, regional and local economic,
competitive and regulatory policies, conditions and
developments;
- adverse regulatory or legal decisions, including those related
to environmental laws and regulations;
- the extent of favorable regulatory treatment and regulatory
lag concerning a number of significant questions presently
before the Michigan Public Service Commission ("MPSC")
relating to the Michigan Customer Choice and Electricity
Reliability Act of 2000 (the "CUSTOMER CHOICE ACT"),
including:
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- recovery of stranded costs incurred due to customers choosing
alternative energy suppliers;
- recovery of Clean Air Act costs and other environmental and
safety-related expenditures;
- power supply and natural gas supply costs when energy supply
and oil prices are increasing rapidly;
- timely recognition in rates of additional equity investments
in Consumers; and
- adequate and timely recovery of additional electric and gas
rate-based expenditures;
- the impact of adverse natural gas prices on the Midland Cogeneration
Venture Limited Partnership (the "MCV PARTNERSHIP") investment and
regulatory decisions that limit our recovery of capacity and fixed
energy payments;
- federal regulation of electric sales and transmission of
electricity, including re-examination by federal regulators of the
market-based sales authorizations by which our affiliates
participate in wholesale power markets without price restrictions;
- energy markets, including the timing and extent of changes in
commodity prices for oil, coal, natural gas, natural gas liquids,
electricity and certain related products due to lower or higher
demand, shortages, transportation problems or other developments;
- the generally accepted accounting principles requirement that we
utilize mark-to-market accounting on certain of our energy commodity
contracts, and possibly other types of contracts in the future,
which may have, in any given period, a significant positive or
negative effect on earnings, which could change dramatically or be
eliminated in subsequent periods or could add to earnings
volatility;
- potential disruption or interruption of facilities or operations due
to accidents or terrorism, and the ability to obtain or maintain
insurance coverage for such events;
- nuclear power plant performance, decommissioning, policies,
procedures, incidents and regulation, including the availability of
spent nuclear fuel storage;
- technological developments in energy production, delivery and usage;
- achievement of capital expenditure and operating expense goals;
- changes in financial or regulatory accounting principles or
policies;
- outcome, cost and other effects of legal and administrative
proceedings, settlements, investigations and claims;
- limitations on our ability to control the development or operation
of projects in which our subsidiaries have a minority interest;
- disruptions in the normal commercial insurance and surety bond
markets that may increase costs or reduce traditional insurance
coverage, particularly terrorism and sabotage insurance and
performance bonds;
- other business or investment considerations that may be disclosed
from time to time in CMS Energy's or our SEC filings or in other
publicly issued written documents;
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- other uncertainties that are difficult to predict and many of which
are beyond our control; and
- the factors identified under "Risk Factors" beginning on page 16.
Except to the extent required by the federal securities laws, we undertake no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. The foregoing review of
factors should not be construed as exhaustive or as any admission regarding the
adequacy of our disclosures. Certain risk factors are detailed from time to time
in our various public filings. You are advised, however, to consult any further
disclosures we make on related subjects in our reports to the SEC. In
particular, you should read the discussion in the section entitled
"Forward-Looking Statements and Risk Factors" in our most recent reports to the
SEC on Form 10-K/A and Form 10-Q or Form 8-K filed subsequent to such Form
10-K/A and Form 10-Q.
5
SUMMARY
This summary may not contain all the information that may be important to
you. You should read this prospectus and the documents incorporated by reference
in this prospectus in their entirety before making an investment decision. The
terms "Consumers", "Company", "our", "us", and "we" as used in this document
refer to Consumers Energy Company and its subsidiaries and predecessors as a
combined entity, except where it is made clear that such term means only
Consumers Energy Company. In this document, "MW" means megawatts.
CONSUMERS ENERGY COMPANY
Consumers, a wholly-owned subsidiary of CMS Energy, is a public utility
that provides natural gas and/or electricity to almost 6.5 million of Michigan's
10 million residents in Michigan's lower peninsula. Consumers' electric
operations include the generation, purchase, distribution and sale of
electricity. It provides electric services in 61 of the 68 counties of
Michigan's lower peninsula. In 2003, Consumers' electric utility owned and
operated 30 electric generating plants with an aggregate of 6,435 MW of capacity
and served 1.77 million customers in Michigan's lower peninsula. Consumers' gas
utility operation purchases, transports, stores, distributes and sells natural
gas. It renders gas sales and delivery service in 44 of the 68 counties in
Michigan's lower peninsula. In 2003, Consumers' gas utility owned and operated
over 25,055 miles of distribution mains and 2,408 miles of transmission lines
throughout the lower peninsula of Michigan, providing natural gas to 1.67
million customers. Our principal executive offices are located at One Energy
Plaza, Jackson, Michigan 49201 and our telephone number is (517) 788-0550.
RECENT DEVELOPMENTS
THIRD QUARTER 2004 RESULTS OF OPERATIONS
NET INCOME AVAILABLE TO COMMON STOCKHOLDER
SEPTEMBER 30, 2004 2003 CHANGE
---- ---- ------
(UNAUDITED)
(IN MILLIONS)
Three months ended $ 34 $ 33 $ 1
Nine months ended 162 172 (10)
For the three months ended September 30, 2004, our net income increased $1
million versus the same period in 2003 primarily due to increases in gas
revenues, electric fuel recovery revenues, earnings from the MCV Partnership,
reductions in general tax expense and increased interest income. The annual
unbilled gas volume analysis led to an increase in accrued gas revenues of $7
million versus the 2003 results. In addition, gas revenues increased net income
$1 million due to the interim MPSC gas rate order issued in December 2003. The
Customer Choice Act authorized us to recognize interest income on the excess of
capital expenditures over our depreciation base. The increase in interest income
offset higher operating expenses, benefiting net income $4 million. Net income
also increased $1 million versus the same period in 2003 due to the absence of a
prior year underrecovery of power supply cost recovery revenue versus cost.
Further, net income increased $3 million due to a decrease in general taxes from
decreased property tax expense. Finally, net income increased $2 million due to
higher earnings from the MCV Partnership reflecting increases in the fair value
of certain long-term gas contracts.
Decreased electric delivery revenues and increased interest charges
substantially offset these increases to net income. Decreased electric delivery
revenues reduced net income by $13 million, primarily due to milder summer
temperatures, tariff revenue reductions, and the continued loss of
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commercial and industrial customers switching to alternative electric suppliers,
as allowed by the Customer Choice Act. An increase in interest expense decreased
net income $4 million due to greater average borrowings, partially offset by a
reduction in the average rate of interest.
For the nine months ended September 30, 2004, our net income decreased $10
million versus the same period in 2003. Electric delivery revenues decreased net
income $28 million due to milder summer weather, tariff revenue reductions, and
the continued loss of customers to alternative electric suppliers, as allowed by
the Customer Choice Act. The milder weather lowered gas delivery revenues,
decreasing net income by $7 million. Earnings from the MCV Partnership declined
$6 million primarily due to increases in non-recoverable fuel costs incurred at
the natural gas-fueled, combined-cycle cogeneration facility operated by the MCV
Partnership (the "MCV FACILITY"). In addition, net income was decreased $12
million due to higher interest expense from greater average borrowings,
partially offset by a reduction in our average interest rate. Higher general
taxes decreased net income $7 million due to a 2003 reduction in Michigan small
business tax expense to reflect the benefit of CMS Energy's receipt of approval
to file consolidated tax returns for the years 2000 and 2001. Further, in 2003,
under provisions of the Customer Choice Act, the excess or recovery of power
supply cost recovery revenues over power supply cost recovery costs benefited
net income. In contrast, in 2004, power supply cost recovery overrecoveries must
be reserved for possible future refund and, consequently, do not benefit net
income. This change in the treatment of power supply cost recovery
overrecoveries reduced net income $2 million.
Partially offsetting these reductions to net income were $31 million in
benefits relating primarily to reduced depreciation expense and increases in
interest income. The Customer Choice Act authorized us to defer electric
depreciation on the excess of capital expenditures over our depreciation base
and recognize interest income on the excess capital expenditures. Gas
depreciation expense also declined in the nine months ended September 30, 2004
versus the same period in 2003 due to the interim MPSC gas rate order issued in
December 2003. This interim order also authorized a gas rate increase that
benefited net income by $8 million. Finally, net income benefited from the
absence of a $12 million charge taken in 2003. The 2003 charge reflected a
decline in the market value of CMS Energy stock held by us.
STRANDED COST ORDER
On November 23, 2004, the MPSC issued an order authorizing Consumers to
collect its combined 2002 and 2003 "net" stranded costs under the Customer
Choice Act, of approximately $63.2 million. The amount, including interest at an
annual rate of 7 percent, will be collected through use of a stranded cost
recovery charge of 1.2 mills per kilowatt-hour starting in December 2004 until
fully collected. The order also approved a methodology for the calculation of
stranded costs.
2003 GAS RATE CASE AND 2001 GAS DEPRECIATION CASE
On December 2, 2004, the MPSC issued orders in Consumers' rehearing
requests stemming from MPSC orders issued October 14, 2004 regarding Consumers'
2003 gas rate case and the 2001 gas depreciation case.
Regarding the 2003 gas rate case, the MPSC issued an order clarifying the
method of computing Consumers' rate of return on common equity, for purposes of
whether the rate of return on common equity exceeds the authorized 11.4% rate,
consistent with Consumers' rehearing request. The MPSC held that (i) the actual
current level of equity invested in
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Consumers should be used and (ii) actual (not weather-normalized) results should
be used for the rate of return calculation required by the October 14, 2004
order.
Regarding the 2001 gas depreciation case, the MPSC issued an order
approving Consumers' rehearing request that the book depreciation rates be
restored to the levels set forth in the MPSC's December 18, 2003 interim gas
rate relief order, effective and retroactive to October 14, 2004.
ISSUANCE AND SALE OF FIRST MORTGAGE BONDS
On December 13, 2004, Consumers issued and sold $225 million principal
amount of its 5.00% First Mortgage Bonds due 2015 pursuant to an effective shelf
registration statement and a Prospectus Supplement dated December 8, 2004 to a
Prospectus dated December 1, 2004. Consumers used the proceeds (i) to redeem the
aggregate outstanding balance of $207.7 million of its 7.375% First Mortgage
Bonds due 2023, (ii) to pay the attendant call premium of $6,893,563, (iii) to
pay accrued interest to the redemption date and (iv) for general corporate
purposes.
On January 20, 2005, Consumers issued and sold $250 million principal
amount of its 5.15% First Mortgage Bonds due 2017 pursuant to an effective shelf
registration statement and a Prospectus Supplement dated January 13, 2005 to a
Prospectus dated December 1, 2004. Consumers used the proceeds (i) to redeem the
aggregate outstanding balance of $70 million of its 8.36% Trust Originated
Preferred Securities due 2015, (ii) to redeem the aggregate outstanding balance
of $120 million of its 8.20% Trust Originated Preferred Securities due 2027 and
(iii) to pay off its $60 million term loan due November 2006 with a current
floating interest rate of 3.79%.
APPROVAL OF RESOURCE CONSERVATION PLAN
Consumers purchases power under a long term contract from the MCV Facility
operated by the MCV Partnership, in which Consumers has a 49 percent interest.
In February 2004, Consumers filed with the MPSC a request for approval of a
resource conservation plan (the "RCP"). On January 25, 2005, the MPSC issued an
order approving the RCP, with modifications. The terms of the order are
consistent with Consumers' expectations in the RCP proceeding. The purpose of
the RCP is to help conserve natural gas and thereby improve Consumers'
investment in the MCV Partnership as discussed below, without raising the costs
paid by Consumers' electric customers. The RCP allows for a change in the
operation of the MCV Facility to dispatch it on the basis of natural gas market
prices. This change will reduce the MCV Facility's production of electricity and
consumption of natural gas by an estimated 30 to 40 billion cubic feet annually.
The substantial MCV Facility fuel cost savings will be used first to offset
fully the cost of replacement power to Consumers' electric customers. Second, $5
million annually will be used to fund a renewable energy program. Remaining
savings will be split between the MCV Partnership and Consumers. Consumers'
direct savings will be shared 50 percent with its customers in 2005 and 70
percent in 2006 and beyond. In addition, the RCP subjects a larger portion of
the MCV Facility's gas contracts to mark-to-market accounting. Based upon
current market gas prices, this is expected to result in a gain in Consumers'
2005 earnings. Consumers and the MCV Partnership's general partners have
accepted the terms of the order and are implementing the RCP.
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THE OLD BONDS
The Old Bonds.............................. On August 17, 2004 we sold: $150 million principal
amount of our 4.40% First Mortgage Bonds due 2009,
Series K; $300 million principal amount of our 5.00%
First Mortgage Bonds due 2012, Series L; and $350
million principal amount of our 5.50% First Mortgage
Bonds due 2016, Series M (each series collectively
referred to as the "OLD BONDS"). The old bonds were
offered to qualified institutional buyers ("QIBS") under
Rule 144A.
Registration Rights
Agreement.................................. We executed a registration rights agreement that
provides that we would grant certain registration and
exchange rights to old bond holders (the "REGISTRATION
RIGHTS AGREEMENT"). As a result, we have filed a
registration statement with the SEC, which will permit
you to exchange the old bonds for new bonds that are
registered under the Securities Act. The transfer
restrictions and liquidated damages provisions will be
removed from the new bonds. We are conducting the Exchange
Offer to satisfy our obligations with respect to certain
exchange and registration rights. Except for a few limited
circumstances, these rights will terminate when the
Exchange Offer ends.
THE EXCHANGE OFFER
Securities Offered......................... - $150 million principal amount of our 4.40% First
Mortgage Bonds due 2009, Series N;
- $300 million principal amount of our 5.00% First
Mortgage Bonds due 2012, Series O; and
- $350 million principal amount of our 5.50% First
Mortgage Bonds due 2016, Series P; (each series
collectively referred to as the "NEW BONDS").
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Exchange Offer............................. We are offering to exchange (the "EXCHANGE OFFER") up
to:
- $150 million principal amount of our 4.40% First
Mortgage Bonds due 2009, Series N that have been
registered under the Securities Act for a like
principal amount of our 4.40% First Mortgage Bonds
due 2009, Series K;
- $300 million principal amount of our 5.00% First
Mortgage Bonds due 2012, Series O that have been
registered under the Securities Act for a like
principal amount of our $300 million principal
amount of our 5.00% First Mortgage Bonds due 2012,
Series L;
- $350 million principal amount of our 5.50% First
Mortgage Bonds due 2016, Series P that have been
registered under the Securities Act for a like
principal amount of our 5.50% First Mortgage Bonds
due 2016, Series M;
The new bonds will be offered for all of the outstanding
old bonds. The terms of the new bonds will be identical
to the terms of the old bonds, except that the
registration rights and related liquidated damages
provisions and the transfer restrictions are not
applicable to the new bonds. The old bonds may be
tendered only in integral amounts of $1,000.
Resale of New Bonds........................ Based on SEC no action letters, we believe that after
the Exchange Offer you may offer and sell the new bonds
without registration under the Securities Act so long
as:
- You acquire the new bonds in the ordinary course
of business.
- When the Exchange Offer begins you do not have an
arrangement with another person to participate in
a distribution of the new bonds.
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- You are not distributing and do not intend to
distribute the new bonds.
When you tender the old bonds we will ask you to
represent to us that:
- You are not our affiliate.
- You will acquire the new bonds in the ordinary
course of business.
- When the Exchange Offer begins you are not
distributing and you do not plan to distribute
with anyone else the new bonds.
If you are unable to make these representations, you
will be required to comply with the registration and
prospectus delivery requirements under the Securities
Act in connection with any secondary resale transaction.
If you are a broker-dealer and receive new bonds for
your own account, you must acknowledge that you will
deliver a prospectus if you resell the new bonds. By
acknowledging your intent and delivering a prospectus
you will not be deemed to admit that you are an
"underwriter" under the Securities Act. You may use this
prospectus as it is amended from time to time when you
resell new bonds that were acquired from market-making
or trading activities. For a year after the Expiration
Date we will make this prospectus available to any
broker-dealer in connection with such a resale. See
"Plan of Distribution."
If necessary, we will cooperate with you to register and
qualify the new bonds for offer or sale without any
restrictions or limitations under state "blue sky" laws.
Consequences of Failure to
Exchange Old Bonds......................... If you do not exchange your old bonds during the
Exchange Offer you will no longer be entitled to
registration rights. You will not be able to offer or
sell the old bonds unless they are later registered,
sold pursuant to an exemption from registration or sold
in a transaction not subject to the Securities Act or
state securities laws. See "The Exchange
Offer--Consequences of Failure to Exchange."
Expiration Date............................ 5:00 p.m., EST on March 15, 2005 (the "EXPIRATION DATE").
We may extend the Exchange Offer.
11
Conditions to the Exchange
Offer...................................... No minimum principal amount of old bonds must be
tendered to complete the Exchange Offer. However, the
Exchange Offer is subject to certain customary
conditions, which we may waive. See "The Exchange
Offer--Conditions." Other than United States federal and
state securities laws we do not need to satisfy any
regulatory requirements or obtain any regulatory
approval to conduct the Exchange Offer.
Procedures for Tendering
Old Bonds ................................. If you wish to participate in the Exchange Offer you
must complete, sign and date the letter of Transmittal
(the "LETTER OF TRANSMITTAL") or a facsimile copy and
mail it or deliver it to the Exchange Agent along with
any necessary documentation. Instructions and the
address of the Exchange Agent will be on the Letter of
Transmittal and can be found in this prospectus. See
"The Exchange Offer--Procedures for Tendering" and;
"--Exchange Agent." You must also effect a tender of old
bonds pursuant to the procedures for book-entry transfer
as described in this prospectus. See "The Exchange Offer
-- Procedures for Tendering."
Guaranteed Delivery
Procedures................................. If you cannot tender the old bonds, complete the Letter
of Transmittal or provide the necessary documentation
prior to the termination of the Exchange Offer, you may
tender your old bonds according to the guaranteed
delivery procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
Withdrawal Rights.......................... You may withdraw tendered old bonds at any time prior to
5:00 p.m. EST on the Expiration Date. You must send a
written or facsimile withdrawal notice to the Exchange
Agent prior to 5:00 p.m. EST on the Expiration Date.
Acceptance of Old Bonds and
Delivery of New Bonds...................... All old bonds properly tendered to the Exchange Agent by
5:00 p.m. EST on the Expiration Date will be accepted
for exchange. The new bonds will be delivered promptly
after the Expiration Date. See "The Exchange Offer -
Acceptance of Old Bonds for Exchange; Delivery of New
Bonds."
Certain United States Tax
Consequences............................... Exchanging old bonds for the new bonds will not be a
taxable exchange for United States federal income tax
purposes. See "Certain United States Federal Income Tax
Consequences."
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Exchange Agent............................. JPMorgan Chase Bank, N.A. is the exchange agent (the
"EXCHANGE AGENT") for the Exchange Offer.
Fees and Expenses.......................... We will pay all fees and expenses associated with the
Exchange Offer and compliance with the Registration
Rights Agreement.
Use of Proceeds............................ We will receive no cash proceeds in connection with the
issuance of the new bonds pursuant to the Exchange
Offer. See "Use of Proceeds."
THE NEW BONDS
Issuer..................................... Consumers Energy Company.
Securities Offered......................... - $150 million aggregate principal amount of 4.40%
First Mortgage Bonds due 2009, Series N (the
"SERIES N BONDS");
- $300 million aggregate principal amount of 5.00%
First Mortgage Bonds due 2012, Series O (the
"SERIES O BONDS"); and
- $350 million aggregate principal amount of 5.50%
First Mortgage Bonds due 2016, Series P (the
"SERIES P BONDS");
to be issued under the indenture dated as of September
1, 1945 between us and JPMorgan Chase Bank, N.A.
(ultimate successor to City Bank Farmers Trust Company),
as Trustee, and as amended and supplemented from time to
time (the "INDENTURE").
Maturity................................... The Series N Bonds will mature on August 15, 2009. The
Series O Bonds will mature on February 15, 2012. The
Series P Bonds will mature on August 15, 2016.
Interest Rate.............................. The Series N Bonds will bear interest at 4.40% per
annum. The Series O Bonds will bear interest at 5.00%
per annum. The Series P Bonds will bear interest at
5.50% per annum.
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Interest Payment Dates..................... We will pay interest on each series of the new bonds on
February 15 and August 15 of each year, beginning August
15, 2005, and on the date of maturity.
Record Date for Interest Payments.......... The first calendar day of the month in which an Interest
Payment Date occurs.
Ratings.................................... BBB- by Standard & Poor's Ratings Group, a division of
The McGraw Hill Companies, Inc. ("S&P"), Baa3 by Moody's
Investors Service, Inc. ("MOODY'S") and BBB- by Fitch,
Inc. ("FITCH"). See "Ratings."
Ranking.................................... The new bonds will rank equally in right of payment with
our other existing or future first mortgage bonds issued
either independently or as collateral for outstanding or
future securities or loans.
Mandatory Redemption....................... None.
Optional Redemption........................ Each series of new bonds will be redeemable at our
option, in whole or in part, at any time, on not less
than 30 days' notice at the applicable redemption prices
described herein, plus any accrued interest to the date
fixed for redemption. See "Description of the New Bonds
- Optional Redemption."
Form of New Bonds.......................... One or more global securities held in the name of the
Depository Trust Company ("DTC") in a minimum
denomination of $1,000 and any integral multiple thereof
for each series of new bonds.
Settlement and Payment..................... Same-day immediately available funds.
Trustee and Paying Agent................... JPMorgan Chase Bank, N.A.
14
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data for the fiscal years ended December
31, 1999 through December 31, 2003 have been derived from our audited
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent registered public accounting firm, for the fiscal years ended
December 31, 2003, 2002, 2001 and 2000, except for the amounts included from the
consolidated financial statements of the MCV Partnership. The MCV Partnership
represents an investment accounted for under the equity method of accounting
through December 31, 2003, which was audited by another independent registered
public accounting firm (the other auditors for 2001 and 2000 have ceased
operations), for the fiscal years ended December 31, 2003, 2002, 2001 and 2000.
The selected financial data for the fiscal year ended December 31, 1999 have
been derived from our audited consolidated financial statements, which have been
audited by Arthur Andersen LLP, independent accountants (who have ceased
operations). The following selected consolidated financial data for the nine
months ended September 30, 2004 and 2003 have been derived from our unaudited
consolidated financial statements. Please refer to our Form 10-K/A for the
fiscal year ended December 31, 2003 and our Form 10-Q for the three-month period
ended September 30, 2004, each of which is incorporated by reference herein.
Operating results for the nine months ended September 30, 2004 are not
necessarily indicative of the results that may be expected for the entire year
ended December 31, 2004. The financial information set forth below should be
read in conjunction with our consolidated financial statements, related notes
and other financial information also incorporated by reference in this
prospectus. See "Where You Can Find More Information."
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------------------------
2004(1) 2003 2003 2002 2001 2000 1999
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
Operating revenue................. $ 3,355 $ 3,223 $ 4,435 $ 4,169 $ 3,976 $ 3,878 $ 3,824
Net income........................ 163 206 196 381 188 284 340
Net income available to common
stockholder..................... 162 172 194 335 145 248 313
Total assets...................... 12,501 10,231 10,745 9,598 9,191 8,672 8,044
Long-term debt, excluding
current maturities.............. 3,986 3,531 3,583 2,442 2,472 2,110 2,006
Long-term debt -- related
parties......................... 506 -- 506 -- -- -- --
Non-current portion of capital
and finance lease obligations... 318 116 58 116 72 49 85
Preferred stock................... 44 44 44 44 44 44 44
Company-obligated mandatorily
redeemable preferred securities
of subsidiaries................. -- 490 -- 490 520 395 395
----------
(1) Under Revised FASB Interpretation No. 46, we are the primary beneficiary
of several entities, most notably the MCV Partnership and the First
Midland Limited Partnership. As a result, we have consolidated the assets,
liabilities and activities of these entities into our financial statements
for the three and nine months ended September 30, 2004. These entities
were consolidated for the first time as of and for the three months ended
March 31, 2004 and were previously reported as equity investments.
Therefore, the consolidation of these entities had no impact on our
consolidated net income for the three and nine months ended September 30,
2004.
15
RISK FACTORS
In considering whether to exchange the old bonds for new bonds, you should
carefully consider all the information we have included in this prospectus. In
particular, you should carefully consider the risk factors described below. In
addition, please read the information in "Forward-Looking Statements and
Information" beginning on page 3 of this prospectus.
IF YOU FAIL TO EXCHANGE YOUR OLD BONDS, YOU MAY BE UNABLE TO SELL THEM.
Because we did not register the old bonds under the Securities Act or any
state securities laws, and we do not intend to do so after the Exchange Offer,
the old bonds may only be transferred in limited circumstances under applicable
securities laws. If the holders of the old bonds do not exchange their old bonds
in the Exchange Offer, they may lose their right to have their old bonds
registered under the Securities Act, subject to some limitations. As a holder of
old bonds after the Exchange Offer, you may be unable to sell your old bonds.
THERE IS NO PUBLIC MARKET FOR THE NEW BONDS, SO YOU MAY BE UNABLE TO SELL THEM.
The new bonds are new securities for which there is currently no market.
Consequently, the new bonds will be relatively illiquid, and you may be unable
to sell them. We do not intend to apply for listing of the new bonds on any
securities exchange or for the inclusion of the new bonds in any automated
quotation system. Accordingly, we cannot assure you that a liquid market for the
new bonds will develop.
REGULATORY CHANGES AND OTHER DEVELOPMENTS HAVE RESULTED AND WILL CONTINUE TO
RESULT IN INCREASED COMPETITION IN OUR ENERGY BUSINESS. GENERALLY, INCREASED
COMPETITION THREATENS OUR MARKET SHARE IN CERTAIN SEGMENTS OF OUR BUSINESS AND
CAN REDUCE OUR PROFITABILITY.
We have in the last several years experienced, and expect to continue to
experience, a significant increase in competition for generation services with
the introduction of retail open access in the State of Michigan. Pursuant to the
Customer Choice Act, as of January 1, 2002, all electric customers have the
choice of buying electric generation service from an alternative electric
supplier. We continue to lose industrial and commercial customers to other
electric suppliers. As of December 2004, we had lost 926 MW or 11 percent of our
electric generation business to these alternative electric suppliers. We expect
the loss to be in the range of 1,000 MW to 1,200 MW by year-end 2005. We cannot
predict the total amount of electric supply load that we may lose to competitor
suppliers in the future.
ELECTRIC INDUSTRY REGULATION COULD ADVERSELY AFFECT OUR BUSINESS, INCLUDING OUR
ABILITY TO RECOVER OUR EXPENSES FROM OUR CUSTOMERS.
Federal and state regulation of electric utilities has changed
dramatically in the last two decades and could continue to change over the next
several years. These changes could adversely affect our business, financial
condition and profitability.
In June 2000, the Michigan Legislature enacted the Customer Choice Act
that became effective June 5, 2000. Pursuant to the Customer Choice Act,
residential rates were reduced by five percent and then capped through at least
December 31, 2005. Ultimately, the rate cap could extend until December 31, 2013
depending upon whether or not we exceed the market power supply test established
by the legislation (a requirement that we believe ourselves to be in compliance
with at this time). Under circumstances specified in the Customer Choice Act,
certain costs can be deferred for future recovery after the expiration of the
rate cap period. The rate cap could, however, result in us being unable to
collect customer rates sufficient to recover fully our
16
cost of conducting business. Some of these costs may be beyond our ability to
control. In particular, if we need to purchase power supply from wholesale
suppliers during the period when retail rates are frozen or capped, the rate
restrictions imposed by the Customer Choice Act may make it impossible for us to
recover fully the cost of purchased power and associated transmission costs
through the rates we charge our customers. As a result, it is not certain that
we can maintain our profit margins in our electric utility business during the
period of the rate freeze or rate cap.
We filed an electric rate case with the MPSC in December 2004 for
approximately $320 million in rate increases. We cannot predict the outcome of
the electric rate case.
There are multiple proceedings pending before the Federal Energy
Regulatory Commission ("FERC") involving transmission rates, regional
transmission organizations and standard market design for electric bulk power
markets and transmission. FERC is also reviewing the standards under which
electric utilities are allowed to participate in wholesale power markets without
price restrictions. FERC is currently reviewing information submitted by us to
support our ability to continue to sell power at market-based rates. We cannot
predict the impact of these electric industry-restructuring proceedings on our
financial position, liquidity or results of operations.
PENDING UTILITY LEGISLATION IN MICHIGAN MAY AFFECT US IN WAYS WE CANNOT PREDICT.
In July 2004, as a result of legislative hearings, several bills were
introduced into the Michigan Senate that could change the Customer Choice Act.
The proposals include:
- requiring that rates be based on cost of service;
- establishing a defined stranded cost calculation method;
- allowing customers who stay with or switch to alternative electric
suppliers after December 31, 2005 to return to utility services, and
requiring them to pay current market rates upon return;
- establishing reliability standards that all electric suppliers must
follow;
- requiring electric utilities and electric alternative suppliers to
maintain a 15 percent power reserve margin;
- creating a service charge to fund the Low Income and Energy
Efficiency Fund;
- giving kindergarten through twelfth-grade schools a discount of 10
percent to 20 percent on electric rates; and
- authorizing a service charge payable by all customers for meeting
Clean Air Act requirements.
In September 2004, the Chair of the Senate Technology and Energy Committee
formed a workgroup, which analyzed the merits of the proposed legislation.
Workgroup activities have since concluded that the impact of the proposed
legislation is still uncertain. In October 2004, a substitute to one of the
bills was introduced, but has not yet been adopted by the Michigan Senate.
Although we do not believe the terms of the proposed bills, if enacted,
would have a material adverse effect on our business, the final form of any new
utility legislation may differ from the
17
bills proposed in 2004. We cannot predict whether these or other measures will
be enacted into law or their potential effect on us.
OUR ABILITY TO RECOVER CERTAIN REGULATORY ASSETS UNDER SECTION 10(d)(4) OF THE
CUSTOMER CHOICE ACT MAY AFFECT OUR FINANCIAL RESULTS.
Section 10(d)(4) of the Customer Choice Act allows deferred recovery of an
annual return of and on capital expenditures in excess of depreciation levels
and certain other expenses incurred prior to and throughout the current electric
rate freeze and rate cap periods. See "Electric industry regulation could
adversely affect our business, including our ability to recover our expenses
from our customers." In October 2004, we filed an application with the MPSC
seeking recovery of $628 million in costs from 2000 through 2005 under Section
10(d)(4). The request includes capital expenditures in excess of depreciation,
Clean Air Act costs and other expenses related to changes in law or governmental
action incurred during the rate freeze-cap period. Of the $628 million, $152
million relates to the cost of money.
As allowed by the Customer Choice Act, in January 2004, we began accruing
and deferring for recovery the 2004 portion of our Section 10(d)(4) regulatory
assets. In November 2004, the MPSC issued an order in the Detroit Edison
Company's general electric rate case, which concluded that the Detroit Edison
Company's return of and on Clean Air Act costs incurred from June 2000 through
December 2003 are recoverable under Section 10(d)(4). Based on the precedent set
by this order, we accrued and recorded an additional regulatory asset of $55
million (pre-tax), $36 million net of tax, in November 2004 for our return of
and on Clean Air Act expenditures incurred from 2000 through 2003. Additional
accruals will continue to be recorded until a decision on our request is issued
by the MPSC. Certain aspects of the Detroit Edison Company's electric rate case
are different than our Section 10(d)(4) regulatory asset filing. We cannot
predict the amount, if any, the MPSC will approve as recoverable and failure to
recover these regulatory assets could adversely affect our financial condition.
WE COULD INCUR SIGNIFICANT CAPITAL EXPENDITURES TO COMPLY WITH ENVIRONMENTAL
STANDARDS AND FACE DIFFICULTY IN RECOVERING THESE COSTS ON A CURRENT BASIS.
We are subject to costly and increasingly stringent environmental
regulations. We expect that the cost of future environmental compliance,
especially compliance with clean air and water laws, will be significant.
In 1998, the United States Environmental Protection Agency (the "EPA")
issued regulations requiring the State of Michigan to further limit nitrogen
oxide emissions at our coal-fired electric plants. The EPA and the State of
Michigan regulations require us to make significant capital expenditures
estimated to be $802 million. As of September 30, 2004, we had incurred $500
million in capital expenditures to comply with the EPA regulations and we
anticipate that the remaining $302 million of capital expenditures will be
incurred between 2004 and 2011. Additionally, we currently expect we will
supplement our compliance plan with the purchase of nitrogen oxide emissions
credits for the years 2004 through 2009. The cost of these credits based on the
current market is estimated to average $7 million per year for 2004-2006 and
then decrease with our installation of control technology; however, the market
for nitrogen oxide emissions credits and their price could change substantially.
As new environmental standards become effective, we will need additional capital
expenditures to comply with the standards.
Based on the Customer Choice Act, beginning January 2004 an annual return
of and on these types of capital expenditures, to the extent they are above
depreciation levels, subject to an MPSC prudency hearing shall be accrued and
deferred for recovery. After notice and hearing, the MPSC shall determine the
amount of reasonable and prudent costs, if any, to be recovered and the
18
recovery period.
The EPA has proposed a Clean Air Interstate Rule that would require
additional coal-fired electric plant emission controls for nitrogen oxides and
sulfur dioxide. If implemented, this rule could potentially require substantial
additional expenditures. The rule proposes a two-phase program to reduce
emissions of sulfur dioxide by 70 percent and nitrogen oxides by 65 percent by
2015. Additionally, the EPA also proposed two alternative sets of rules to
reduce emissions of mercury and nickel from coal-fired and oil-fired electric
plants. Until the proposed environmental rules are finalized, an accurate cost
of compliance cannot be determined.
The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seek modification permits
from the EPA. We have received and responded to information requests from the
EPA on this subject. We believe that we have properly interpreted the
requirements of "routine maintenance." If our interpretation is found to be
incorrect, we may be required to install additional pollution controls at some
or all of our coal-fired electric plants and potentially pay fines.
Additionally, the viability of certain plants remaining in operation could be
called into question.
These and other required environmental expenditures, if not recovered from
customers in our rates, may require us to seek significant additional financing
to fund such expenditures and could strain our cash resources.
OUR ENERGY RISK MANAGEMENT STRATEGIES MAY NOT BE EFFECTIVE IN MANAGING FUEL AND
ELECTRICITY PRICING RISKS, WHICH COULD RESULT IN UNANTICIPATED LIABILITIES TO US
OR IN INCREASED VOLATILITY OF OUR EARNINGS.
We are exposed to changes in market prices for natural gas, coal,
electricity and emission credits. Prices for natural gas, coal, electricity and
emission credits may fluctuate substantially over relatively short periods of
time and expose us to commodity price risk. A substantial portion of our
operating expenses for our plants consists of the costs of obtaining these
commodities. We manage these risks using established policies and procedures,
and we may use various contracts to manage these risks, including swaps,
options, futures and forward contracts. We cannot assure you that these
strategies will be successful in managing our pricing risk, or that they will
not result in net liabilities to us as a result of future volatility in these
markets.
Natural gas prices in particular have historically been volatile. To
manage market risks associated with the volatility of natural gas prices, the
MCV Partnership maintains a gas hedging program. The MCV Partnership enters into
natural gas futures contracts, option contracts and over-the-counter swap
transactions in order to hedge against unfavorable changes in the market price
of natural gas in future months when gas is expected to be needed. These
financial instruments are being used principally to secure anticipated natural
gas requirements necessary for projected electric and steam sales, and to lock
in sales prices of natural gas previously obtained in order to optimize the MCV
Partnership's existing gas supply, storage and transportation arrangements.
Consumers also routinely enters into contracts to offset its positions, such as
hedging exposure to the risks of demand, market effects of weather and changes
in commodity prices associated with its gas distribution business. Such
positions are taken in conjunction with the gas cost recovery mechanism, which
allows Consumers to recover prudently incurred costs associated with such
positions. However, neither Consumers nor the MCV Partnership always hedges the
entire exposure of its operations from commodity price volatility. Furthermore,
the ability to hedge exposure to commodity price volatility depends on liquid
commodity markets. As a result, to the extent the commodity markets are
illiquid, we may not be able to execute our risk management strategies, which
could result in greater open positions than we would prefer at a given time. To
the extent that open positions exist, fluctuating commodity
19
prices can improve or diminish our financial results and financial position.
In addition, we currently have a power supply cost recovery mechanism to
recover the increased cost of fuel used to generate electricity from our
industrial and large commercial customers, but not from our residential or small
commercial customers. Therefore, to the extent that we have not hedged our fuel
costs, we are exposed to changes in fuel prices to the extent fuel for our
electric generating facilities must be purchased on the open market in order for
us to serve our residential and small commercial customers.
OUR REVENUES AND RESULTS OF OPERATIONS ARE SUBJECT TO RISKS THAT ARE BEYOND OUR
CONTROL, INCLUDING BUT NOT LIMITED TO FUTURE TERRORIST ATTACKS OR RELATED ACTS
OF WAR.
The cost of repairing damage to our facilities due to storms, natural
disasters, wars, terrorist acts and other catastrophic events, in excess of
reserves established for such repairs, may adversely impact our results of
operations, financial condition and cash flows. The occurrence or risk of
occurrence of future terrorist activity and the high cost or potential
unavailability of insurance to cover such terrorist activity may impact our
results of operations and financial condition in unpredictable ways. These
actions could also result in disruptions of power and fuel markets. In addition,
our natural gas distribution system and pipelines could be directly or
indirectly harmed by future terrorist activity.
WE HAVE FINANCING NEEDS AND WE MAY BE UNABLE TO SUCCESSFULLY ACCESS BANK
FINANCING OR THE CAPITAL MARKETS.
We rely on access to bank financing and the capital markets as a source of
liquidity for capital requirements not satisfied by the cash flow from our
operations. In addition, the amount we pay for natural gas stored as inventory
normally requires additional financing due to timing of cost recoveries. We plan
to seek new financing as required for our ongoing operations and construction
program, including substantial construction expenditures for federal Clean Air
Act compliance. We currently plan to seek funds through the capital markets and
commercial lenders. Entering into new financings is subject in part to capital
market receptivity to utility industry securities in general and to Consumers'
securities issuances in particular. We believe that our current level of cash
and borrowing capacity, along with anticipated cash flows from operating and
investing activities, will be sufficient to meet our liquidity needs through
2005. Consumers cannot guarantee the capital market's acceptance of its
securities or predict the impact of factors beyond its control, such as actions
of rating agencies. If we are unable to access bank financing or the capital
markets to incur or refinance indebtedness, there could be a material adverse
effect upon our liquidity and operations.
Our current credit ratings are discussed in "Ratings." We cannot assure
you that these credit ratings will remain in effect for any given period of time
or that one or more of these ratings will not be lowered or withdrawn entirely
by a rating agency. We note that these credit ratings are not recommendations to
buy, sell or hold our securities. Each rating should be evaluated independently
of any other rating. Any future reduction or withdrawal of one or more of our
credit ratings could have a material adverse impact on our ability to access
capital on acceptable terms. We cannot assure you that any of our current
ratings or those of our affiliates, including CMS Energy, will remain in effect
for any given period of time or that a rating will not be lowered or withdrawn
entirely by a rating agency. Further, any adverse developments relating to CMS
Energy that resulted in a lowering of CMS Energy's credit ratings could have an
adverse effect on our credit ratings. Any lowering of the ratings of our first
mortgage bonds would likely reduce the market value of the new bonds.
20
WE MAY BE NEGATIVELY IMPACTED BY THE RESULTS OF AN EMPLOYEE BENEFIT PLAN
LAWSUIT.
We are a defendant, along with CMS Energy, CMS Marketing, Services and
Trading Company (now known as CMS Energy Resource Management Company) ("CMS
MST") and certain named and unnamed officers and directors, in two lawsuits
brought as purported class actions on behalf of participants and beneficiaries
of our 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 the Employee Retirement Income
Security Act of 1974 ("ERISA") and seek restitution on behalf of the plan with
respect to a decline in value of the shares of our common stock held in the
plan. The plaintiffs also seek other equitable relief and legal fees. The judge
issued an opinion and order dated March 31, 2004 in connection with the motions
to dismiss filed by CMS Energy, us and the individuals. The judge dismissed
certain of the amended counts in the plaintiffs' complaint and denied CMS
Energy's motion to dismiss the other claims in the complaint. CMS Energy, we and
the individual defendants filed answers to the amended complaint on May 14,
2004. The judge issued an opinion and order dated December 27, 2004
conditionally granting plaintiff's motion for class certification. A trial date
has not been set, but is expected to be no earlier than late in 2005.
We cannot predict the outcome of the ERISA litigation and it is possible
that an adverse outcome in this lawsuit could adversely affect our financial
condition, liquidity or results of operations.
THE FINANCIAL DIFFICULTIES OF OUR PARENT COMPANY, CMS ENERGY, COULD ADVERSELY
AFFECT OUR ABILITY TO OBTAIN COMMON EQUITY CAPITAL, OUR CREDIT RATINGS AND OUR
ABILITY TO ACCESS THE CAPITAL MARKETS.
In addition to working to resolve the investigation discussed herein, CMS
Energy is actively engaged in improving its own liquidity and financial
position, including through efforts to attract new external financing. CMS
Energy is subject to uncertainties in accessing the capital markets that are
similar to, if not more pronounced than, those discussed above in respect of
Consumers. As the sole holder of our common stock, CMS Energy is currently our
only source of common equity capital. CMS Energy has pledged the common stock of
its principal subsidiaries, including Consumers, as security for bank credit
facilities. We engage in transactions with other subsidiaries and affiliates of
CMS Energy in the ordinary course of business, including the MCV Partnership,
and paid overhead costs to CMS Energy that totaled $8 million in 2003. Any
inability of CMS Energy to successfully execute its strategy for liquidity
improvement and stabilization could have an adverse effect on our credit ratings
or our ability to access the capital markets. Dividends from Consumers are a
major contribution to CMS Energy's cash resources and significantly affect the
ability of CMS Energy to service its debt.
21
WE MAY BE ADVERSELY AFFECTED BY A REGULATORY INVESTIGATION AND LAWSUITS
REGARDING "ROUND-TRIP" TRADING BY OUR AFFILIATE AS WELL AS CIVIL LAWSUITS
REGARDING PRICING INFORMATION THAT TWO OF OUR AFFILIATES PROVIDED TO MARKET
PUBLICATIONS.
We are a direct subsidiary of CMS Energy. As a result of round-trip
trading transactions at CMS MST, CMS Energy is under investigation by the United
States Department of Justice (the "DOJ"). CMS Energy has also received subpoenas
from U.S. Attorneys Offices regarding investigations of those trades. CMS Energy
and Consumers have also been named in numerous class action lawsuits by
individuals who allege that they purchased CMS Energy securities during a
purported class period. These complaints generally seek unspecified damages
based on allegations that the defendants violated United States securities laws
and regulations by making allegedly false and misleading statements about our
business and financial condition. The cases have been consolidated into a single
lawsuit and an amended and consolidated complaint was filed on May 1, 2003. The
judge issued an opinion and order dated March 31, 2004 in connection with
various pending motions, including the plaintiffs' motion to amend the complaint
and the motions to dismiss the complaint filed by CMS Energy, us and other
defendants. The judge directed the plaintiffs to file an amended complaint under
seal and ordered an expedited hearing on the motion to amend, which was held on
May 12, 2004. At the hearing, the judge ordered the plaintiffs to file an
amended complaint deleting certain counts related to purchasers of CMS
Energy-related securities, which the judge ordered dismissed with prejudice. The
plaintiffs filed this complaint on May 26, 2004. CMS Energy, we and the
individual defendants filed new motions to dismiss on June 21, 2004. A hearing
on those motions occurred on August 2, 2004 and on January 7, 2005, the judge
ruled on the motions to dismiss. The judge agreed to dismiss Consumers as well
as three individual defendants. The judge denied the motion to dismiss with
respect to CMS Energy and the other remaining individual defendants.
In March 2004, the SEC approved a cease-and-desist order settling an
administrative action against CMS Energy relating to round-trip trading. The
order did not assess a fine and CMS Energy neither admitted nor denied the
order's findings.
The Board of Directors of CMS Energy has received a demand on behalf of a
shareholder to commence civil actions (i) to remedy alleged breaches of
fiduciary duties by CMS Energy officers and directors in connection with
round-trip trading at CMS MST and (ii) to recover damages sustained by CMS
Energy as a result of alleged insider trades alleged to have been made by
certain current and former officers of CMS Energy and its subsidiaries. In
December 2002, two new directors were appointed to the CMS Energy Board of
Directors. A special litigation committee was formed by the Board of Directors
in January 2003 to determine whether it is in the best interest of CMS Energy to
bring the action demanded by the shareholder. The disinterested members of the
Board of Directors appointed the two new directors to serve on the special
litigation committee.
On December 2, 2003, during the continuing review by the special
litigation committee, CMS Energy was served with a derivative complaint filed by
the shareholder in the Circuit Court of Jackson County, Michigan in furtherance
of his demands. The date for CMS Energy and other defendants to answer or
otherwise respond to the complaint was stayed by the court to February 21, 2005,
subject to such further stays as may be mutually agreed upon by the parties and
authorized by the court.
CMS Energy has notified appropriate regulatory and governmental agencies
that some employees at CMS MST and CMS Field Services, Inc. (now Cantera Gas
Company), a former indirect subsidiary of CMS Energy, appeared to have provided
inaccurate information regarding
22
natural gas trades to various energy industry publications which compile and
report index prices. CMS Energy is cooperating with an investigation by the DOJ
regarding this matter. On November 25, 2003, the Commodity Futures Trading
Commission (the "CFTC") issued a settlement order regarding this matter. CMS MST
and CMS Field Services, Inc. agreed to pay a fine to the CFTC totaling $16
million. CMS Energy neither admitted nor denied the findings of the CFTC in the
settlement order.
CMS Energy has also been named as a defendant in several gas industry
civil lawsuits regarding inaccurate gas trade reporting that include claims
alleging manipulation of natural gas prices and violations of the Commodities
Exchange Act and federal and state antitrust laws.
We cannot predict the outcome of the DOJ investigation and the lawsuits.
It is possible that the outcome in one or more of the investigation or the
lawsuits could adversely affect CMS Energy's and our financial condition,
liquidity or results of operations.
OUR OWNERSHIP OF A NUCLEAR GENERATING FACILITY CREATES RISK RELATING TO NUCLEAR
ENERGY.
We own the Palisades nuclear power plant and we are, therefore, subject to
the risks of nuclear generation, including the risks associated with the
operation of plant facilities and the storage and disposal of spent fuel and
other radioactive waste. The Nuclear Regulatory Commission (the "NRC") has broad
authority under federal law to impose licensing and safety-related requirements
for the operation of nuclear generation facilities. In the event of
non-compliance, the NRC has the authority to impose fines or shut down a unit,
or both, depending upon its assessment of the severity of the situation, until
compliance is achieved. In addition, although we have no reason to anticipate a
serious nuclear incident at our plant, if an incident did occur, it could harm
our results of operations and financial condition. A major incident at a nuclear
facility anywhere in the world could cause the NRC to limit or prohibit the
operation or licensing of any domestic nuclear unit.
WE CURRENTLY UNDERRECOVER IN OUR RATES OUR PAYMENTS TO THE MCV PARTNERSHIP FOR
CAPACITY AND ENERGY, AND ARE ALSO EXPOSED TO FUTURE CHANGES IN THE MCV
PARTNERSHIP'S FINANCIAL CONDITION THROUGH OUR EQUITY AND LESSOR INVESTMENTS.
Our power purchase agreement with the MCV Partnership ("PPA") expires in
2025. We estimate that we will incur estimated cash underrecoveries of payments
under the PPA aggregating $206 million through 2007. For availability payments
billed by the MCV Partnership after September 15, 2007, and not recovered from
customers, we would expect to claim a "regulatory out" under the PPA which we
believe we have the right to do after satisfying our obligation to "support and
defend" full recovery of PPA charges from customers. The MCV Partnership has
indicated that it may take issue with our exercise of the regulatory out clause
after September 2007. The effect of exercise of the regulatory out would be to
reduce cash flow to the MCV Partnership, which could in turn have an adverse
effect on our equity and lessor interests in the MCV Facility.
Further, under the PPA, energy payments to the MCV Partnership are based
on the cost of coal burned at our coal plants and costs associated with fuel
inventory, operations and maintenance, and administrative and general expenses
associated with our coal plants. However, the MCV Partnership's costs of
producing electricity are tied, in large part, to the cost of natural gas.
Because natural gas prices have increased substantially in recent years, while
energy charge payments to the MCV Partnership have not, the MCV Partnership's
financial performance has been impacted negatively.
23
We cannot estimate, at this time, the impact of these issues on our future
earnings or cash flow from our interest in the MCV Partnership. The forward
price of natural gas for the next 20 years and the MPSC decision in 2007 or
later related to our recovery of capacity payments are the two most significant
variables in the analysis of the MCV Partnership's future financial performance.
Natural gas prices have historically been volatile and presently there is no
consensus in the marketplace on the price or range of prices of natural gas
beyond the next five years. Further, it is not presently possible for us to
predict the actions of the MPSC in 2007 or later. Even with the implementation
of the RCP, if gas prices continue at present levels or increase, the economics
of operating the MCV Facility may be adverse enough to require us to recognize
an impairment of our investment in the MCV Partnership. For these reasons, at
this time we cannot predict the impact of these issues on its future earnings or
cash flows or on the value of our equity interest in the MCV Partnership.
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USE OF PROCEEDS
The Exchange Offer is intended to satisfy our obligations under the
Registration Rights Agreement. We will not receive any cash proceeds from the
issuance of the new bonds. The old bonds that are surrendered in exchange for
the new bonds will be retired and canceled and cannot be reissued. As a result,
the issuance of the new bonds will not result in any increase or decrease in our
indebtedness. We have agreed to bear the expenses of the Exchange Offer to the
extent indicated in the Registration Rights Agreement. No underwriter is being
used in connection with the Exchange Offer. We used the net proceeds from the
sale of the old bonds of approximately $792.9 million, after deducting offering
discounts but before deducting offering expenses, (i) to redeem the aggregate
outstanding balance of $300 million of our 6% Senior Notes due March 15, 2005,
(ii) to redeem the aggregate outstanding balance of $141 million of our Senior
Remarketed Secured Notes due 2018 with an initial interest rate of 6.5% until
June 15, 2005, (iii) to redeem the aggregate outstanding balance of $140 million
of our Term Loan Agreement with Beal Bank, S.S.B. with an interest rate of 6.23%
and a maturity date of March 26, 2009, (iv) to pay any attendant call premiums
associated with those redemptions, (v) to pay accrued interest to the redemption
dates and (vi) for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for the nine months ended
September 30, 2004 and for each of the years ended December 31, 1999 through
2003 are as follows:
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------
SEPTEMBER 30, 2004 2003 2002 2001 2000 1999
------------------ ---- ---- ---- ---- ----
Ratio of earnings to fixed charges (a) 1.98 2.25 3.59(b) 2.28(c) 2.90 3.46
(a) For purposes of computing the ratio, earnings represent the sum of pretax
income, net interest charges and the estimated interest portions of lease
rentals, plus distributed income of equity investees less earnings from
equity investees.
(b) Excludes a cumulative effect of change in accounting after-tax gain of $18
million: if included, ratio would be unchanged, since the change in
accounting resulted from the equity-based subsidiary, MCV Partnership. The
total net income of equity-based subsidiaries is excluded from determining
earnings as defined.
(c) Excludes a cumulative effect of change in accounting after-tax loss of $11
million; if included, ratio would be 1.81.
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DESCRIPTION OF THE NEW BONDS
GENERAL
The new bonds are to be issued under an Indenture dated as of September 1,
1945, between Consumers and JPMorgan Chase Bank, N.A. (ultimate successor to
City Bank Farmers Trust Company), as trustee (the "TRUSTEE"), as amended and
supplemented by various supplemental indentures. In connection with the change
of the state of incorporation from Maine to Michigan in 1968, Consumers
succeeded, and was substituted for, the Maine corporation under the Indenture.
At January 21, 2005, ten series of first mortgage bonds in an aggregate
principal amount of approximately $2.550 billion were outstanding under the
Indenture, excluding six series of first mortgage bonds in an approximate
aggregate principal amount of $1.373 billion to secure outstanding senior notes
and credit facilities and three series of first mortgage bonds in an approximate
aggregate principal amount of $126 million to secure outstanding pollution
control revenue bonds.
The statements herein concerning the new bonds and the Indenture are a
summary and do not purport to be complete and are subject to, and qualified in
their entirety by, all of the provisions of the Indenture, which is incorporated
herein by this reference. They make use of defined terms and are qualified in
their entirety by express reference to the Indenture, including the supplements
thereto, copy of which will be available upon request to the Trustee.
PRINCIPAL, MATURITY AND INTEREST
The Indenture permits us to "re-open" this offering of each series of new
bonds without the consent of the holders of the new bonds of such series.
Accordingly, the principal amount of each series of new bonds may be increased
in the future on the same terms and conditions and with the same CUSIP numbers
as the new bonds of such series being offered by this prospectus. The Series N
Bonds will mature on August 15, 2009, the Series O Bonds will mature on February
15, 2012 and the Series P Bonds will mature on August 15, 2016, unless earlier
redeemed or otherwise repaid. The Series N Bonds will bear interest at 4.40% per
year, the Series O Bonds will bear interest at a rate of 5.00% per year, and the
Series P Bonds will bear interest at a rate of 5.50% per year, payable
semi-annually in arrears on February 15 and August 15 of each year, beginning
August 15, 2005 and at the date of maturity. Interest will be paid to the person
in whose name the new bonds are registered at the close of business on the first
calendar day of the month in which the interest payment date occurs. Interest
payable on any interest payment date or on the date of maturity will be the
amount of interest accrued from and including the date of original issuance or
from and including the most recent interest payment date on which interest has
been paid or duly made available for payment to but excluding such interest
payment date or the date of maturity, as the case may be. So long as the new
bonds are in book-entry form, principal of and interest on the new bonds will be
payable, and the new bonds may be transferred, only through the facilities of
DTC. If any interest payment date falls on a day that is not a business day, the
interest payment date will be the next succeeding business day (and without any
interest or other payment in respect of any such delay). Interest will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
REGISTRATION, TRANSFER AND EXCHANGE
Each series of new bonds will be initially issued in the form of one or
more global new bonds, in registered form, without coupons, in denominations of
$1,000 and any integral multiple thereof as described under "Book-Entry Only
Issuance -- The Depository Trust Company." The global new bonds will be
registered in the name of the nominee of DTC. Except as described under
"Book-Entry Only Issuance -- The Depository Trust Company," owners of beneficial
interests in
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a global new bond will not be entitled to have new bonds registered in their
names, will not receive or be entitled to receive physical delivery of any such
new bond and will not be considered the registered holder thereof under the
Indenture.
OPTIONAL REDEMPTION
Each series of new bonds will be redeemable as a whole or in part, at our
option, at any time upon at least 30 days' notice, at a redemption price equal
to the greater of (1) 100% of the principal amount of such new bonds and (2) the
sum of the present values of the Remaining Scheduled Payments (as defined below)
of principal and interest on such new bonds discounted to the redemption date
semi-annually (assuming a 360-day year consisting of twelve 30-day months) at
the Treasury Rate (as defined below), plus 20 basis point for the Series N Bonds
and the Series O Bonds and plus 25 basis points for the Series P Bonds, plus in
any case accrued interest on the new bonds to the date of redemption.
"TREASURY RATE" means, with respect to any redemption date, the rate per annum
equal to the semi-annual equivalent yield to maturity of the Comparable Treasury
Issue (as defined below), assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price (as defined below) for such redemption date.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security selected
by an Independent Investment Banker (as defined below) as having a maturity
comparable to the remaining term of the applicable new bonds to be redeemed that
would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of such new bonds.
"INDEPENDENT INVESTMENT BANKER" means Barclays Capital Inc., Citigroup Global
Markets Inc. or Merrill Lynch, Pierce, Fenner & Smith Incorporated or, if such
firms are unwilling or unable to select the Comparable Treasury Issue, an
independent banking institution of national standing selected by us.
"COMPARABLE TREASURY PRICE" means, with respect to any redemption date, (1) the
average of the bid and asked prices for the Comparable Treasury Issue (expressed
in each case as a percentage of its principal amount) on the third business day
preceding such redemption date, as set forth in the daily statistical release
(or any successor release) published by the Federal Reserve Bank of New York and
designated "H.15(519)" or (2) if such release (or any successor release) is not
published or does not contain such prices on such business day, (a) the average
of the Reference Treasury Dealer Quotations (as defined below) for such
redemption date, after excluding the highest and lowest of such Reference
Treasury Dealer Quotations, or (b) if the Company obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such quotations.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Reference
Treasury Dealer (as defined below) and any redemption date, the average, as
determined by the Company, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m.
on the third business day preceding such redemption date.
"REFERENCE TREASURY DEALER" means (1) each of Barclays Capital Inc., Citigroup
Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and
their respective successors; provided, however, that if any of the foregoing
shall cease to be a primary U.S. government securities dealer in New York City
(a "PRIMARY TREASURY DEALER"), we shall replace that former dealer with another
Primary Treasury Dealer and (2) up to four other Primary
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Treasury Dealers selected by us.
"REMAINING SCHEDULED PAYMENTS" means, with respect to each new bond to be
redeemed, the remaining scheduled payments of the principal thereof and interest
thereon that would be due after the related redemption date but for such
redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such new bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.
We will mail notice of any redemption between 30 days and 60 days before
the redemption date to each holder of the debt securities to be redeemed.
SINKING FUND REQUIREMENT
The new bonds will not have the benefit of any sinking fund.
ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
Additional first mortgage bonds may be issued under the Indenture for up
to 60% of unfunded net property additions or against the deposit of an equal
amount of cash, if, for any period of twelve consecutive months within the
fifteen preceding calendar months, the net earnings of Consumers (before income
or excess profit taxes) shall have been at least twice the interest requirement
for one year on all first mortgage bonds outstanding and to be issued and on
indebtedness of prior or equal rank. Additional first mortgage bonds may also be
issued to refund first mortgage bonds outstanding under the Indenture. Deposited
cash may be applied to the retirement of first mortgage bonds or be withdrawn in
an amount equal to the principal amount of first mortgage bonds which may be
issued on the basis of unfunded net property additions. As of November 30, 2004,
unfunded net property additions were $1.864 billion. Consumers could issue
$1.118 billion of additional first mortgage bonds on the basis of such property
additions. In addition, as of January 21, 2005, Consumers could issue $474
million of additional first mortgage bonds on the basis of first mortgage bonds
previously retired.
LIMITATIONS ON DIVIDENDS
The Indenture does not restrict Consumers' ability to pay dividends on its
common stock.
CONCERNING THE TRUSTEE
JPMorgan Chase Bank, N.A. is the Trustee and Paying Agent. Consumers and
its affiliates maintain lending, depository and other normal banking
relationships with JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. is also a
lender to Consumers and its affiliates.
The Indenture provides that Consumers' obligations to compensate the
Trustee and reimburse the Trustee for expenses, disbursements and advances will
constitute indebtedness which will be secured by a lien generally prior to that
of the first mortgage bonds upon all property and funds held or collected by the
Trustee as such.
The Trustee or the holders of 20% in total principal amount of the first
mortgage bonds may declare the principal due on default, but the holders of a
majority in total principal amount may rescind such declaration and waive the
default if the default has been cured. Subject to certain limitations, the
holders of a majority in total principal amount of the first mortgage bonds may
generally direct the time, method and place of conducting any proceeding for the
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enforcement of the Indenture. No first mortgage bondholder has the right to
institute any proceedings for the enforcement of the Indenture unless that
holder has given the Trustee written notice of a default, the holders of 20% of
total principal amount of outstanding first mortgage bonds shall have tendered
to the Trustee reasonable security or indemnity against costs, expenses and
liabilities and requested the Trustee to take action, the Trustee shall have
declined to take action or failed to do so within 60 days and no inconsistent
directions shall have been given by the holders of a majority in total principal
amount of the first mortgage bonds.
PRIORITY AND SECURITY
The new bonds are ranked equally with all other series of first mortgage
bonds now outstanding or issued later under the Indenture. The Indenture is a
direct first lien on substantially all of Consumers' property and franchises
(other than certain property expressly excluded from the lien (such as cash,
bonds, stock and certain other securities, contracts, accounts and bills
receivables, judgments and other evidences of indebtedness, stock in trade,
materials or supplies manufactured or acquired for the purpose of sale and/or
resale in the usual course of business or consumable in the operation of any of
the properties of Consumers, natural gas, oil and minerals, motor vehicles and
certain real property listed in Schedule A to the Indenture)). This lien is
subject to excepted encumbrances (and certain other limitations) as defined and
described in the Indenture. The new bonds are also subject to certain provisions
of Michigan law which provide that, under certain circumstances, the State of
Michigan's lien against property on which it has incurred costs related to any
environmental response activity that is subordinate to prior recorded liens can
become superior to such prior liens pursuant to court order. The Indenture
permits, with certain limitations, the acquisition of property subject to prior
liens and, under certain conditions, permits the issuance of additional
indebtedness under such prior liens to the extent of 60% of net property
additions made by Consumers to the property subject to such prior liens.
RELEASE AND SUBSTITUTION OF PROPERTY
The Indenture provides that, subject to various limitations, property may
be released from the lien thereof when sold or exchanged, or contracted to be
sold or exchanged, upon the basis of:
- cash deposited with the Trustee;
- bonds or purchase money obligations delivered to the Trustee;
- prior lien bonds delivered to the Trustee or reduced or assumed by
the purchaser;
- property additions acquired in exchange for the property released;
or
- a showing that unfunded net property additions exist.
The Indenture also permits the withdrawal of cash upon a showing that unfunded
net property additions exist or against the deposit of bonds or the application
thereof to the retirement of bonds.
MODIFICATION OF INDENTURE
The Indenture, the rights and obligations of Consumers and the rights of
the holders of first mortgage bonds may be modified by Consumers with the
consent of the holders of 75% in principal amount of the first mortgage bonds
and of not less than 60% of the principal amount of each series affected. In
general, however, no modification of the terms of payment of principal or
interest and no modification affecting the lien or reducing the percentage
required for modification is effective against any first mortgage bonds without
the first mortgage bondholders'
29
consent. Consumers has reserved the right without any consent or other action by
the holders of first mortgage bonds of any series created after September 15,
1993 or by the holder of any senior note or exchange note that is secured by
first mortgage bonds to amend the Indenture in order to substitute a majority in
principal amount of first mortgage bonds outstanding under the Indenture for the
75% requirement set forth above (and then only in respect of such series of
outstanding bonds as shall be affected by the proposed action) and to eliminate
the requirement for a series-by-series consent requirement.
DEFAULTS
The Indenture defines the following as "defaults":
- failure to pay principal when due;
- failure to pay interest for sixty days;
- failure to pay any installment of any sinking or other purchase fund
for ninety days;
- certain events in bankruptcy, insolvency or reorganization; and
- failure to perform any other covenant for ninety days following
written demand by the Trustee for Consumers to cure such failure.
Consumers has covenanted to pay interest on any overdue principal and (to
the extent permitted by law) on overdue installments of interest, if any, on the
first mortgage bonds under the Indenture at the rate of 6% per year. The
Indenture does not contain a provision requiring any periodic evidence to be
furnished as to the absence of default or as to compliance with the terms
thereof. However, Consumers is required by law to furnish annually to the
Trustee a certificate as to compliance with all conditions and covenants under
the Indenture.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The new bonds that are exchanged for old bonds that were sold to QIBs will
be in the form of one or more bonds in registered, global form without interest
coupons (the "GLOBAL NEW BONDS"). Upon issuance, the global new bonds will be
deposited with the Trustee, as custodian for DTC, and registered in the name of
DTC or its nominee, in each case for credit to the accounts of DTC's Direct
Participants and Indirect Participants (each as defined below).
Beneficial interests in all global new bonds and all new bonds in
certificated form ("CERTIFICATED NEW BONDS"), if any, will be subject to the
applicable rules and procedures of DTC and its Direct Participants or Indirect
Participants, which may change from time to time.
The global new bonds may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the global new bonds may be
exchanged for certificated new bonds in certain limited circumstances. See " --
Exchange of Interests in Global New Bonds for Certificated New Bonds."
DEPOSITARY PROCEDURES
DTC has advised Consumers that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "DIRECT PARTICIPANTS") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Direct Participants. The Direct
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Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities that
clear through or maintain a direct or indirect, custodial relationship with a
Direct Participant (collectively, the "INDIRECT PARTICIPANTS"). DTC may hold
securities beneficially owned by other persons only through the Direct
Participants or Indirect Participants, and such other persons' ownership
interest and transfer of ownership interest will be recorded only on the records
of the appropriate Direct Participant and/or Indirect Participant, and not on
the records maintained by DTC.
DTC has also advised Consumers that, pursuant to DTC's procedures, (1)
upon deposit of the global new bonds, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the principal
amount of the global new bonds allocated by the Initial Purchasers to such
Direct Participants and (2) DTC will maintain records of the ownership interests
of such Direct Participants in the global new bonds and the transfer of
ownership interests by and between Direct Participants. DTC will not maintain
records of the ownership interests of, or the transfer of ownership interests by
and between, Indirect Participants or other owners of beneficial interests in
the global new bonds. Direct Participants and Indirect Participants must
maintain their own records of the ownership interests of, and the transfer of
ownership interests by and between, Indirect Participants and other owners of
beneficial interests in the global new bonds. Investors in the global new bonds
may hold their interests therein directly through DTC if they are Direct
Participants in DTC or indirectly through organizations that are Direct
Participants in DTC. All ownership interests in any global new bonds will be
subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical
delivery in definitive, certificated form, of securities that they own. This may
limit or curtail the ability to transfer beneficial interests in a global new
bond to such persons. Because DTC can act only on behalf of Direct Participants,
which in turn act on behalf of Indirect Participants and others, the ability of
a person having a beneficial interest in a global new bond to pledge such
interest to persons or entities that are not Direct Participants in DTC, or to
otherwise take actions in respect of such interests, may be affected by the lack
of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the new bonds, see " -- Exchange of
Interests in Global New Bonds for Certificated New Bonds."
EXCEPT AS DESCRIBED IN " -- EXCHANGE OF INTERESTS IN GLOBAL NEW BONDS FOR
CERTIFICATED NEW BONDS", OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NEW BONDS
WILL NOT HAVE NEW BONDS REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF CERTIFICATED NEW BONDS IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.
Under the terms of the Indenture, Consumers and the Trustee will treat the
persons in whose names the new bonds are registered (including new bonds
represented by global new bonds) as the owners thereof for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal, premium, liquidated damages, if any, and interest on
global new bonds registered in the name of DTC or its nominee will be payable by
the Trustee to DTC or its nominee as the registered holder under the Indenture.
Consequently, neither Consumers, the Trustee nor any agent of Consumers or the
Trustee has or will have any responsibility or liability for (1) any aspect of
DTC's records or any Direct Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
global new bonds or for maintaining, supervising or reviewing any of DTC's
records or any Direct Participant's or Indirect Participant's records relating
to the beneficial ownership interests in any global new bond or (2) any other
matter relating to the actions and practices of DTC or any of its Direct
Participants or Indirect Participants.
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DTC has advised Consumers that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the new
bonds is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the applicable global new bonds
as shown on DTC's records. Payments by Direct Participants and Indirect
Participants to the beneficial owners of the new bonds will be governed by
standing instructions and customary practices between them and will not be the
responsibility of DTC, the Trustee or Consumers. Neither Consumers nor the
Trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the new bonds, and
Consumers and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
new bonds for all purposes.
The global new bonds will trade in DTC's Same-Day Funds Settlement System
and, therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants who hold an interest through a
Direct Participant will be effected in accordance with the procedures of such
Direct Participant but generally will settle in immediately available funds.
DTC has advised Consumers that it will take any action permitted to be
taken by a holder of new bonds of a series only at the direction of one or more
Direct Participants to whose account interests in the related global new bonds
are credited and only in respect of such portion of the aggregate principal
amount of such new bonds as to which such Direct Participant or Direct
Participants has or have given direction. However, if there is an event of
default with respect to the new bonds, DTC reserves the right to exchange the
related global new bonds (without the direction of one or more of its Direct
Participants) for legended certificated new bonds, and to distribute such
certificated new bonds to its Direct Participants. See " -- Exchange of
Interests in Global New Bonds for Certificated New Bonds."
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interests in the global new bonds among Direct Participants, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. None of Consumers, the Initial
Purchasers or the Trustee will have any responsibility for the performance by
DTC, or its respective Direct Participants and Indirect Participants, of their
respective obligations under the rules and procedures governing any of their
operations.
The information in this section concerning DTC and its book-entry system
has been obtained from DTC, and Consumers takes no responsibility for the
accuracy thereof.
EXCHANGE OF INTERESTS IN GLOBAL NEW BONDS FOR CERTIFICATED NEW BONDS
Global new bonds may be exchanged for certificated new bonds if (1) (a)
DTC notifies Consumers that it is unwilling or unable to continue as depositary
for the global new bonds or Consumers determines that DTC is unable to act as
such depositary and Consumers thereupon fails to appoint a successor depositary
within 90 days or (b) DTC has ceased to be a clearing agency registered under
the Exchange Act, (2) Consumers, at its option, notifies the Trustee in writing
that it elects to cause the issuance of certificated new bonds or (3) there
shall have occurred and be continuing a default or an event of default with
respect to the new bonds. In any such case, Consumers will notify the Trustee in
writing that, upon surrender by the Direct Participants and Indirect
Participants of their interest in such global new bond, certificated new bonds
will be issued to each person that such Direct Participants and Indirect
Participants and DTC identify as being the beneficial owner of the related new
bonds.
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Beneficial interests in global new bonds held by any Direct Participant or
Indirect Participant may be exchanged for certificated new bonds upon request to
DTC, or by such Direct Participant (for itself or on behalf of an Indirect
Participant), to the Trustee in accordance with customary DTC procedures.
Certificated new bonds delivered in exchange for any beneficial interest in any
global new bond will be registered in the names, and issued in any approved
denominations, requested by DTC on behalf of such Direct Participants or
Indirect Participants (in accordance with DTC's customary procedures).
Neither Consumers nor the Trustee will be liable for any delay by the
holder of global new bonds or DTC in identifying the beneficial owners of the
related new bonds, and Consumers and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the holder of the global new
bond or DTC for all purposes.
CERTIFICATED NEW BONDS
Certificated new bonds may be exchangeable for other certificated new
bonds of any authorized denominations and of a like aggregate principal amount
and tenor. Certificated new bonds may be presented for exchange, and may be
presented for registration of transfer (duly endorsed, or accompanied by a duly
executed written instrument of transfer), at the designated office of the
Trustee in Detroit, Michigan (the "SECURITY REGISTRAR"). The Security Registrar
will not charge a service charge for any registration of transfer or exchange of
new bonds; however, Consumers may require payment by a holder of a sum
sufficient to cover any tax, assessment or other governmental charge payable in
connection therewith, as described in the Indenture. Such transfer or exchange
will be effected upon the Security Registrar being satisfied with the documents
of title and identity of the person making the request. Consumers may at any
time designate additional transfer agents with respect to the new bonds.
Consumers shall not be required to (a) issue, exchange or register the
transfer of any certificated new bond for a period of 15 days next preceding the
mailing of notice of redemption of such new bond or (b) exchange or register the
transfer of any certificated new bond or portion thereof selected, called or
being called for redemption, except, in the case of any certificated new bond to
be redeemed in part, the portion thereof not so to be redeemed.
If a certificated new bond is mutilated, destroyed, lost or stolen, it may
be replaced at the office of the Security Registrar upon payment by the holder
of such expenses as may be incurred by Consumers and the Security Registrar in
connection therewith and the furnishing of such evidence and indemnity as
Consumers and the Security Registrar may require. Mutilated new bonds must be
surrendered before substitute new bonds will be issued.
SAME DAY SETTLEMENT
Payments in respect of the new bonds represented by the global new bonds
(including principal, premium, if any, and interest) will be made by wire
transfer of immediately available same day funds to the accounts specified by
DTC as the holder of the global new bonds. Principal, premium, if any, and
interest and liquidated damages, if any, on all certificated new bonds in
registered form will be payable at the office or agency of the Trustee in The
City of New York, except that, at the option of Consumers, payment of any
interest and liquidated damages, if any, may be made except for DTC (1) by check
mailed to the address of the person entitled thereto as such address shall
appear in the security register or (2) by wire transfer to an account maintained
by the person entitled thereto as specified in the security register.
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RATINGS
S&P has assigned each series of old bonds a rating of BBB - , Moody's has
assigned each series of old bonds a rating of Baa3 and Fitch has assigned each
series of old bonds a rating of BBB-. The terms of the new bonds will be
identical in all material respects to the terms of the old bonds, except that
the registration rights and related liquidated damages provisions and the
transfer restrictions applicable to the old bonds will not be applicable to the
new bonds. The new bonds will have the same financial terms and covenants as the
old bonds, and will be subject to the same business and financial risks. The
ratings mentioned above reflect only the views of such ratings agencies, and do
not constitute a recommendation to buy, sell or hold securities. In general,
ratings address credit risk. Each rating should be evaluated independently of
any other rating. An explanation of the significance of such ratings may be
obtained only from such rating agencies at the following addresses: Standard &
Poor's, 25 Broadway, New York, New York 10004; Moody's Investors Service, Inc.,
99 Church Street, New York, New York 10007; and Fitch, Inc., 1 State Street
Plaza, New York, New York 10004. The security rating may be subject to revision
or withdrawal at any time by the assigning rating organization, and,
accordingly, there can be no assurance that such ratings will remain in effect
for any period of time or that they will not be revised downward or withdrawn
entirely by the rating agencies if, in their judgment, circumstances warrant.
Neither Consumers nor the Initial Purchasers have undertaken any responsibility
to oppose any proposed downward revision or withdrawal of a rating on the old
bonds. Any such downward revision or withdrawal of such ratings may have an
adverse effect on the market price of the new bonds.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We initially sold the old bonds in private offerings to Barclays Capital
Inc., Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co., ABN AMRO Incorporated, BNP Paribas
Securities Corp., Comerica Securities, Inc., Fifth Third Securities, Inc.,
Huntington Capital Corp., J.P. Morgan Securities Inc., and Wedbush Morgan
Securities Inc. (the "INITIAL PURCHASERS") pursuant to a purchase agreement
dated August 11, 2004 between us and them. The Initial Purchasers resold the old
bonds to QIBs in reliance on, and subject to the restrictions imposed under,
Rule 144A under the Securities Act. As of the date of this prospectus, $800
million of the old bonds are outstanding.
EXCHANGE OFFER REGISTRATION
In connection with the private offering of the old bonds, we entered into
a Registration Rights Agreement with the Initial Purchasers pursuant to which we
agreed, for the benefit of the holders of the old bonds, at our cost to:
- within 180 days following the original issue date of the old bonds,
prepare and file with the SEC an exchange offer registration
statement with respect to a proposed exchange offer and the issuance
and delivery to the holders, in exchange for the old bonds of each
series, of new bonds, which will have terms identical in all
material respects to the old bonds of such series, except that the
new bonds will not contain terms with respect to transfer
restrictions and will not provide for the payment of additional
interest under the circumstances described below;
- use our reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities
Act within either 270 days of the original issue date
34
of the old bonds;
- use our reasonable best efforts to keep the exchange offer
registration statement effective until the closing of the exchange
offer; and
- use our reasonable best efforts to cause the exchange offer to be
consummated not later than 30 days following the effectiveness of
the exchange offer registration statement.
The new bonds will be issued under the Indenture. Upon the effectiveness
of the exchange offer registration statement, we will offer the new bonds in
exchange for surrender of the old bonds of the related series. We will keep the
Exchange Offer open for not less than 20 business days after the date notice of
the Exchange Offer is mailed to the holders of the old bonds of the related
series, or longer if required by applicable law.
For each old bond surrendered to us pursuant to the Exchange Offer and not
withdrawn by the holder, the holder of the old bond will receive a new bond
having a principal amount equal to that of the surrendered old bond. Interest on
each new bond will accrue from the last date on which interest was paid on the
old bond surrendered in exchange or, if no interest has been paid on that old
bond, from the original issue date of the new bonds.
ADDITIONAL INTEREST
We are making this Exchange Offer to satisfy our obligations and your
registration rights under the Registration Rights Agreement. If a registration
default occurs, which means one of the following events occurs:
- the exchange offer registration statement is not filed with the SEC
on or prior to the 180th calendar day following the original issue
date of the old bonds;
- the exchange offer registration statement is not declared effective
on or prior to the 270th calendar day following the original issue
date of the old bonds;
- the Exchange Offer is not consummated on or prior to the 30th
calendar day following effectiveness of the exchange offer
registration statement;
- if required, a shelf registration statement with respect to the old
bonds is not filed with the SEC on or prior to the date specified
above;
- if required, a shelf registration statement with respect to the old
bonds is not declared effective on or prior to such date specified
above; or
- either the exchange offer registration statement or a shelf
registration statement has been filed and declared effective but
after its effective date ceases to be effective or is unusable for
its intended purpose without being succeeded within 15 business days
by a post-effective amendment to such registration statement that
cures such failure and that is itself declared effective by the SEC
within five business days;
then additional interest will accrue on the old bonds, from and including
the date on which any such registration default shall occur to, but excluding,
the date on which the registration default has been cured, at the rate of 0.50%
per year. We will have no other liabilities for monetary damages with respect to
our registration obligations. The receipt of additional interest will be the
sole monetary remedy available to a holder if we fail to meet these obligations.
35
SEC INTERPRETATIONS
Based on existing interpretations of the Securities Act by the staff of
the SEC in several no-action letters to third parties, and subject to the
immediately following sentence, we believe that the new bonds issued pursuant to
the Exchange Offer may be offered for resale, resold or otherwise transferred by
the holders, other than holders who are broker-dealers, without further
compliance with the registration and prospectus delivery provisions of the
Securities Act. Any purchaser of the old bonds, however, who is our affiliate or
who intends to participate in the Exchange Offer for the purpose of distributing
the new bonds, or any participating broker-dealer who purchased the old bonds
for its own account, other than as a result of market-making activities or other
trading activities, to resell pursuant to Rule 144A or any other available
exemption under the Securities Act:
- will not be able to rely on the interpretations by the staff of the
SEC;
- will not be able to tender its old bonds in the Exchange Offer; and
- must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or
transfer of the new bonds, unless the sale or transfer is made under
an exemption from those requirements.
We do not intend to seek our own interpretation regarding the Exchange
Offer, and we cannot assure you that the staff of the SEC would make a similar
determination with respect to the new bonds as it has in other interpretations
to third parties.
Each holder of the old bonds of a series, other than specified holders,
who wishes to exchange such old bonds for the related new bonds in the Exchange
Offer will be required to make representations that:
- it is not our affiliate;
- the old bonds being exchanged, and any new bonds to be received by
it, have been or will be acquired in the ordinary course of its
business; and
- it has no arrangement or understanding with any person to
participate in the distribution, within the meaning of the
Securities Act, of the new bonds.
In addition, in connection with resales of the new bonds, any
participating broker-dealer must deliver a prospectus meeting the requirements
of the Securities Act. The staff of the SEC has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the new bonds, other than a resale of an unsold allotment from
the original sale of the old bonds, with the prospectus contained in the
exchange offer registration statement. Under the Registration Rights Agreement,
we have agreed, for a period of one year following the consummation of the
Exchange Offer, to make available a prospectus meeting the requirements of the
Securities Act to any participating broker-dealer for use in connection with any
resale of any new bonds acquired in the Exchange Offer.
SHELF REGISTRATION
If:
(1) we are not permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or SEC policy; or
36
(2) upon notice to us by any holder in specified circumstances,
we will, in addition to or instead of effecting the registration of the new
bonds pursuant to the exchange offer registration statement, as the case may be,
(1) on or prior to 90 days after the earlier of any event in (1) or (2)
above, file with the SEC a shelf registration statement covering
resales of the old bonds;
(2) use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act not
later than 180 days after the date of any event in (1) or (2) above;
(3) use our reasonable best efforts to keep the shelf registration
statement effective for two years; and
(4) use our reasonable best efforts to ensure that the shelf
registration statement and any amendment to the shelf registration
statement and any prospectus included in the shelf registration
statement conforms with the requirements of the Securities Act.
We will, in the event of the filing of a shelf registration statement,
provide to each holder of the old bonds that are covered by the shelf
registration statement copies of the prospectus that is a part of the shelf
registration statement and notify each holder when the shelf registration
statement has become effective. A holder of the old bonds that sells the old
bonds pursuant to the shelf registration statement generally will be required to
be named as a selling security holder in the related prospectus, to deliver
information to be used in connection with the shelf registration, and to deliver
a prospectus to purchasers, will be subject to the civil liability provisions
under the Securities Act in connection with the sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to the
holder, including indemnification obligations.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" shall mean March 15, 2005 unless we, in our
sole discretion, extend the Exchange Offer, in which case the term "Expiration
Date" shall mean the latest date to which the Exchange Offer is extended.
To extend the Expiration Date, we will notify the Exchange Agent of any
extension by oral or written notice and will notify the holders of the old bonds
by means of a press release or other public announcement prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that we are extending the Exchange
Offer for a specified period of time.
We reserve the right:
- to delay acceptance of any old bonds, extend the Exchange Offer or
terminate the Exchange Offer and not permit acceptance of the old
bonds not previously accepted if any of the conditions set forth
herein under "--Conditions" shall have occurred and shall not have
been waived by us, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or
- to amend the terms of the Exchange Offer in any manner deemed by it
to be advantageous to the holders of the old bonds.
37
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
Exchange Agent. If the Exchange Offer is amended in a manner determined by us to
constitute a material change, we will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of the old bonds of such
amendment.
Without limiting the manner in which we may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, we shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
INTEREST ON THE NEW BONDS
Interest on the new bonds will accrue from the last date on which interest
was paid on the old bonds, or, if no interest has been paid on a series of old
bonds, from the date of issuance of each series of old bonds for which the
Exchange Offer is being made. Relevant interest information for each series of
the new bonds is as follows:
Interest Date of
Semiannual Commencement Issuance
Issuance Rate Dates Payable Date of New Bonds of Old Bonds
-------------- ---- ------------------------- ----------------- ---------------
Series N Bonds 4.40% February 15 and August 15 August 15, 2005 August 17, 2004
Series O Bonds 5.00% February 15 and August 15 August 15, 2005 August 17, 2004
Series P Bonds 5.50% February 15 and August 15 August 15, 2005 August 17, 2004
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
medallion guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
any other required documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date. In addition, either (i) a timely confirmation
of a book-entry transfer (a "BOOK-ENTRY CONFIRMATION") of such old bonds into
the Exchange Agent's account at The Depositary (the "BOOK-ENTRY TRANSFER
FACILITY") pursuant to the procedure for book-entry transfer described below,
must be received by the Exchange Agent prior to the Expiration Date or (ii) the
holder must comply with the guaranteed delivery procedures described below. THE
METHOD OF DELIVERY OF LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO
THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTERS OF TRANSMITTAL OR OTHER REQUIRED DOCUMENTS SHOULD BE SENT TO
CONSUMERS. Delivery of all documents must be made to the Exchange Agent at its
address set forth below. Holders may also request their respective brokers,
dealers, commercial banks, trust companies or nominees to effect such tender for
such holders.
The tender by a holder of old bonds will constitute an agreement between
such holder and Consumers in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. Any beneficial
owner whose old bonds are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to tender should contact
such registered holder promptly and instruct such registered holder to tender on
his behalf.
38
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be medallion guaranteed by any member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor" institution within
the meaning of Rule 17Ad-15 under the Exchange Act (each an "ELIGIBLE
INSTITUTION") unless the old bonds tendered pursuant thereto are tendered for
the account of an Eligible Institution.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations, or
others acting in a fiduciary or representative capacity, such person should so
indicate when signing, and unless waived by Consumers, evidence satisfactory to
Consumers of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered old bonds will be determined by
Consumers, in its sole discretion, which determination will be final and
binding. Consumers reserves the absolute right to reject any and all old bonds
not properly tendered or any old bonds which, if accepted, would, in the opinion
of counsel for Consumers, be unlawful. Consumers also reserves the absolute
right to waive any irregularities or conditions of tender as to particular old
bonds. Consumers' interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old bonds must be cured within such time as Consumers
shall determine. Neither Consumers, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of old bonds, nor shall any of them incur any liability for
failure to give such notification. Tenders of old bonds will not be deemed to
have been made until such irregularities have been cured or waived. Any old
bonds received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned without cost to such holder by the Exchange Agent, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, Consumers reserves the right, in its sole discretion, subject
to the provisions of the Indenture, to purchase or make offers for any old bonds
that remain outstanding subsequent to the Expiration Date or, as set forth under
"--Conditions," to terminate the Exchange Offer in accordance with the terms of
the Registration Rights Agreement, and to the extent permitted by applicable
law, purchase old bonds in the open market, in privately negotiated transactions
or otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
ACCEPTANCE OF OLD BONDS FOR EXCHANGE; DELIVERY OF NEW BONDS
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, all old bonds properly tendered will be accepted promptly after the
Expiration Date, and the new bonds will be issued promptly after acceptance of
the old bonds. See "--Conditions." For purposes of the Exchange Offer, the old
bonds shall be deemed to have been accepted as validly tendered for exchange
when Consumers gives oral or written notice to the Exchange Agent.
In all cases, issuance of new bonds for old bonds that are accepted for
exchange pursuant to the Exchange Offer will be made only after the Exchange
Agent has timely received a Book-Entry Confirmation of such old bonds into its
account at the Book-Entry Transfer Facility and a properly completed and duly
executed Letter of Transmittal and all other required documents. If any tendered
old bonds are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer, such unaccepted or such nonexchanged old bonds will be
credited to an account
39
maintained with such Book- Entry Transfer Facility as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the old bonds at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of old bonds by causing the
Book-Entry Transfer Facility to transfer such old bonds into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, the Letter of
Transmittal (or facsimile) thereof with any required signature guarantees and
any other required documents must, in any case, be transmitted to and received
by the Exchange Agent at one of the addresses set forth under "--Exchange Agent"
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if:
- the tender is made through an Eligible Institution,
- prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Letter
of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by Consumers (by
facsimile transmission, mail or hand delivery), setting forth the
name and address of the holder of old bonds and the amount of old
bonds tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange, Inc.
("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, a Book-Entry Confirmation and any other
documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent, and
- a Book-Entry Confirmation and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of old bonds may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date at one of the addresses set forth under "--Exchange Agent." Any
such notice of withdrawal must:
- specify the name and number of the account at the Book-Entry
Transfer Facility from which the old bonds were tendered,
- identify the principal amount of the old bonds to be withdrawn, and
- specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn old bonds and
otherwise comply with the procedures of such
40
Book-Entry Transfer Facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notice will be determined by Consumers, whose determination
shall be final and binding on all parties. Any old bonds so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any old bonds which have been tendered for exchange but which
are not exchanged for any reason will be credited to an account maintained with
such Book-Entry Transfer Facility for the old bonds as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn old bonds may be retendered by following one of the procedures
described under "--Procedures for Tendering" and "--Book-Entry Transfer" at any
time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, old bonds will not
be required to be accepted for exchange, nor will new bonds be issued in
exchange for any old bonds, and Consumers may terminate or amend the Exchange
Offer as provided herein before the acceptance of such old bonds, if, because of
any change in law, or applicable interpretations thereof by the SEC, Consumers
determines that it is not permitted to effect the Exchange Offer. Consumers has
no obligation to, and will not knowingly, permit acceptance of tenders of old
bonds from affiliates of Consumers or from any other holder or holders who are
not eligible to participate in the Exchange Offer under applicable law or
interpretations thereof by the staff of the SEC, or if the new bonds to be
received by such holder or holders of old bonds in the Exchange Offer, upon
receipt, will not be tradable by such holder without restriction under the
Securities Act and the Exchange Act and without material restrictions under the
"blue sky" or securities laws of substantially all of the states of the United
States. Other than the United States federal and state securities laws we do not
need to satisfy any regulatory requirements or obtain any regulatory approvals
to conduct the Exchange Offer.
EXCHANGE AGENT
JPMorgan Chase Bank, N.A. has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Certified or Registered Mail: By Overnight Courier or Hand:
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A.
Institutional Trust Services Institutional Trust Services
P.O. Box 2320 2001 Bryan Street, 9th Floor
Dallas, Texas 75221-2320 Dallas, Texas 75201
Attention: Frank Ivins Attention: Frank Ivins
Facsimile Transmission Number:
(214) 468-6494
(Eligible Institutions Only)
Confirm By Telephone:
(214) 468-6464
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FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by Consumers. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telephone, facsimile or in person by officers and regular employees of
Consumers.
Consumers will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. Consumers, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith.
The expenses to be incurred in connection with the Exchange Offer will be
paid by Consumers, including fees and expenses of the Exchange Agent and the
Trustee, and accounting, legal, printing and related fees and expenses.
Consumers will pay all transfer taxes, if any, applicable to the exchange
of old bonds pursuant to the Exchange Offer. If, however, new bonds or old bonds
for principal amounts not tendered or accepted for exchange are to be registered
or issued in the name of any person other than the registered holder of the old
bonds tendered, or if tendered old bonds are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of old bonds pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
RESALE OF NEW BONDS
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, Consumers believes that new bonds issued
pursuant to the Exchange Offer in exchange for old bonds may be offered for
resale, resold and otherwise transferred by any owner of such new bonds (other
than any such owner which is an "affiliate" of Consumers within the meaning of
Rule 405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such new
bonds are acquired in the ordinary course of such owner's business and such
owner does not intend to participate, and has no arrangement or understanding
with any person to participate, in the distribution of such new bonds. Any owner
of old bonds who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the new
bonds may not rely on the position of the staff of the SEC enunciated in Exxon
Capital Holdings Corporation (available May 13, 1988, as interpreted in the
SEC's letter to Shearman & Sterling dated July 2, 1993), Morgan Stanley & Co.,
Incorporated (available June 5, 1991), Warnaco, Inc. (available June 5, 1991),
and Epic Properties, Inc. (available October 21, 1991) or similar no-action
letters (collectively the "NO-ACTION LETTERS") but rather must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. In addition, any such resale transaction
should be covered by an effective registration statement containing the selling
security holders information required by Item 507 of Regulation S-K of the
Securities Act. Each broker-dealer that receives new bonds for its own account
in exchange for old bonds, where such old bonds were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such new bonds.
42
By tendering in the Exchange Offer, each holder (or DTC participant, in
the case of tenders of interests in the global old bonds s held by DTC) will
represent to Consumers (which representation may be contained the Letter of
Transmittal) to the effect that:
- it is not an affiliate of Consumers,
- it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the new bonds to be issued in the Exchange Offer and
- it is acquiring the new bonds in its ordinary course of business.
Each holder will acknowledge and agree that any broker-dealer and any such
holder using the Exchange Offer to participate in a distribution of the new
bonds acquired in the Exchange Offer:
- could not under SEC policy as in effect on the date of the
Registration Rights Agreement rely on the position of the SEC
enunciated in the No-Action Letters, and
- must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary
resale transaction and that such a secondary resale transaction must
be covered by an effective registration statement containing the
selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of new bonds
obtained by such holder in exchange for old bonds acquired by such
holder directly from Consumers or an affiliate thereof.
To comply with the securities laws of certain jurisdictions, it may be
necessary to qualify for sale or to register the new bonds prior to offering or
selling such new bonds. Consumers has agreed, pursuant to the Registration
Rights Agreement and subject to certain specified limitations therein, to
cooperate with selling holders or underwriters in connection with the
registration and qualification of the new bonds for offer or sale under the
securities or "blue sky" laws of such jurisdictions as may be necessary to
permit the holders of new bonds to trade the new bonds without any restrictions
or limitations under the securities laws of the several states of the United
States.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old bonds who do not exchange their old bonds for new bonds
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such old bonds as set forth in the legend thereon as a
consequence of the issuance of the old bonds pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the old bonds may not be
registered under the Securities Act, except pursuant to a transaction not
subject to, the Securities Act and applicable state securities laws. Consumers
does not currently anticipate that it will register the old bonds under the
Securities Act. To the extent that old bonds are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
old bonds could be adversely affected.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OF OLD
BONDS FOR NEW BONDS
The following summary describes the principal United States federal income
tax consequences to holders who exchange old bonds for new bonds pursuant to the
Exchange Offer. This summary is intended to address the beneficial owners of old
bonds that are citizens or residents of the United States, corporations,
partnerships or other entities created or organized in or under the laws of the
United States or any State or the District of Columbia, or estates or trusts
that are not foreign estates or trusts for United States federal income tax
purposes, in each case, that hold the old bonds as capital assets.
The exchange of old bonds for new bonds pursuant to the Exchange Offer
will not constitute a taxable exchange for United States federal income tax
purposes. As a result, a holder of an old bond whose old bond is accepted in the
Exchange Offer will not recognize gain or loss on the exchange. A tendering
holder's tax basis in the new bonds received pursuant to the Exchange Offer will
be the same as such holder's tax basis in the old bonds surrendered therefor. A
tendering holder's holding period for the new bonds received pursuant to the
Exchange Offer will include its holding period for the old bonds surrendered
therefor.
ALL HOLDERS OF OLD BONDS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE
EXCHANGE OF OLD BONDS FOR NEW BONDS AND OF THE OWNERSHIP AND DISPOSITION OF NEW
BONDS RECEIVED IN THE EXCHANGE OFFER IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE
NEW BONDS
The following is a summary of the material United States federal income
tax consequences of the acquisition, ownership and disposition of the old bonds
or the new bonds by a United States Holder (as defined below). This summary
deals only with the United States Holders that will hold the old bonds or the
new bonds as capital assets. The discussion does not cover all aspects of
federal taxation that may be relevant to, or the actual tax effect that any of
the matters described herein will have on, the acquisition, ownership or
disposition of the old bonds or the new bonds by particular investors, and does
not address state, local, foreign or other tax laws. In particular, this summary
does not discuss all of the tax considerations that may be relevant to certain
types of investors subject to special treatment under the federal income tax
laws (such as banks, insurance companies, investors liable for the alternative
minimum tax, individual retirement accounts and other tax-deferred accounts,
tax-exempt organizations, dealers in securities or currencies, investors that
will hold the old bonds or the new bonds as part of straddles, hedging
transactions or conversion transactions for federal tax purposes or investors
whose functional currency is not United States Dollars). Furthermore, the
discussion below is based on provisions of the Internal Revenue Code of 1986, as
amended (the "CODE"), and regulations, rulings, and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed, revoked
or modified so as to result in U.S. federal income tax consequences different
from those discussed below.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP, OR DISPOSITION OF NEW BONDS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR INTERNATIONAL TAXING JURISDICTION.
44
As used herein, the term "UNITED STATES HOLDER" means a beneficial owner
of the old bonds or the new bonds that is (i) a citizen or resident of the
United States for United States federal income tax purposes, (ii) a corporation
created or organized under the laws of the United States or any State thereof,
(iii) a person or entity that is otherwise subject to United States federal
income tax on a net income basis in respect of income derived from the old bonds
or the new bonds, or (iv) a partnership to the extent the interest therein is
owned by a person who is described in clause (i), (ii) or (iii) of this
paragraph.
INTEREST
Interest paid on an old bond or a new bond will be taxable to a United
States Holder as ordinary income at the time it is received or accrued,
depending on the holder's method of accounting for tax purposes.
PURCHASE, SALE, EXCHANGE, RETIREMENT AND REDEMPTION OF THE NEW BONDS
In general (with certain exceptions described below) a United States
Holder's tax basis in a new bond will equal the price paid for the old bonds for
which such new bond was exchanged pursuant to the Exchange Offer. A United
States Holder generally will recognize gain or loss on the sale, exchange,
retirement, redemption or other disposition of an old bond or a new bond (or
portion thereof) equal to the difference between the amount realized on such
disposition and the United States Holder's tax basis in the old bond or the new
bond (or portion thereof). Except to the extent attributable to accrued but
unpaid interest, gain or loss recognized on such disposition of an old bond or a
new bond will be capital gain or loss. Such capital gain or loss will generally
be long-term capital gain or loss if the United States Holder held such bond
(including in the holding period of the new bond, the period during which the
United Stated Holder held the old bonds surrendered for it) for more than one
year immediately prior to such disposition. Long-term capital gains of
individuals are eligible for preferential rates of taxation, which have been
reduced for long-term capital gains recognized on or after May 6, 2003 and
before January 1, 2009. The deductibility of capital losses is subject to
limitations.
BOND PREMIUM
If a United States Holder acquires a new bond or has acquired an old bond,
in each case, for an amount more than its redemption price, the Unites States
Holder may elect to amortize such bond premium on a yield to maturity basis.
Once made, such an election applies to all bonds (other than bonds the interest
on which is excludable from gross income) held by the United States Holder at
the beginning of the first taxable year to which the election applies or
thereafter acquired by the United States Holder, unless the Internal Revenue
Service (the "IRS") consents to a revocation of the election. The basis of a new
bond will be reduced by any amortizable bond premium taken as a deduction.
MARKET DISCOUNT
The purchase of a new bond or the purchase of an old bond other than at
original issue may be affected by the market discount provisions of the Code.
These rules generally provide that, if a United States Holder purchases a new
bond (or purchased an old bond) at a "market discount," as defined below, and
thereafter recognizes gain upon a disposition of the new bond (including
dispositions by gift or redemption), the lesser of such gain (or appreciation,
in the case of a gift) or the portion of the market discount that has accrued
("ACCRUED MARKET DISCOUNT") while the new bond (and its predecessor old bond, if
any) was held by such United States Holder will be treated as ordinary interest
income at the time of disposition rather than as capital gain. For a new
45
bond or an old bond, "market discount" is the excess of the stated redemption
price at maturity over the tax basis immediately after its acquisition by a
United States Holder. Market discount generally will accrue ratably during the
period from the date of acquisition to the maturity date of the new bond, unless
the United States Holder elects to accrue such discount on the basis of the
constant yield method. Such an election applies only to the bond with respect to
which it is made (except that an election with respect to the predecessor old
bond would also apply to the new bond) and is irrevocable.
In lieu of including the accrued market discount income at the time of
disposition, a United States Holder of a new bond acquired at a market discount
(or acquired in exchange for an old bond acquired at a market discount) may
elect to include the accrued market discount in income currently either ratably
or using the constant yield method. Once made, such an election applies to all
other obligations that the United States Holder purchases at a market discount
during the taxable year for which the election is made and in all subsequent
taxable years of the United States Holder, unless the IRS consents to a
revocation of the election. If an election is made to include accrued market
discount in income currently, the basis of a new bond (or, where applicable, a
predecessor old bond) in the hands of the United States Holder will be increased
by the accrued market discount thereon as it is includible in income. A United
States Holder of a market discount new bond who does not elect to include market
discount in income currently generally will be required to defer deductions for
interest on borrowings allocable to such new bond, if any, in an amount not
exceeding the accrued market discount on such new bond until the maturity or
disposition of such new bond.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest and principal on, and the proceeds of sale or other
disposition of the old bonds or the new bonds payable to a United States Holder,
may be subject to information reporting requirements and backup withholding at
the applicable statutory rate will apply to such payments if the United States
Holder fails to provide an accurate taxpayer identification number or to report
all interest and dividends required to be shown on its federal income tax
returns. Certain United States Holders (including, among others, corporations)
are not subject to backup withholding. United States Holders should consult
their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
46
PLAN OF DISTRIBUTION
Each broker-dealer that receives new bonds for its own account pursuant
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new bonds. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connections with resales of the new bonds received in exchange for the old bonds
where such old bonds were acquired as a result of market-making activities or
other trading activities. Consumers has agreed that, starting on the Expiration
Date and ending on the close of business on the first anniversary of the
Expiration Date, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
Consumers will not receive any proceeds from any sale of the new bonds by
broker-dealers. The new bonds received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the counter market, in negotiated transactions, through
the writing of options on the new bonds or a combination of such methods of
resale, at market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new bonds. Any broker-dealer
that resells new bonds that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such new bonds may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of new bonds and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, Consumers will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. Consumers has agreed to pay all expenses incident
to the Exchange Offer and will indemnify the holders of the new bonds against
certain liabilities, including liabilities under the Securities Act.
LEGAL OPINIONS
Robert C. Shrosbree, Assistant General Counsel for CMS Energy Corporation,
has rendered an opinion as to the legality of the new bonds for Consumers.
Jay M. Silverman, Director of Tax Planning and Assistant Tax Counsel,
has rendered an opinion regarding tax matters.
47
EXPERTS
The consolidated financial statements and schedule of Consumers appearing
in Consumers' Annual Report (Form 10-K/A) for the year ended December 31, 2003
have been audited by Ernst & Young LLP, independent registered public accounting
firm, as set forth in their report thereon included therein and incorporated
herein by reference, and are based in part on the reports of
PricewaterhouseCoopers LLP for 2003 and 2002, an independent registered public
accounting firm, and Arthur Andersen LLP (who have ceased operations) for 2001,
independent accountants, for the MCV Partnership. Such consolidated financial
statements and schedule are incorporated herein by reference in reliance upon
such reports given on the authority of such firms as experts in accounting and
auditing.
The consolidated financial statements of the MCV Partnership as of and for
the years ended December 31, 2003 and 2002, not separately presented or
incorporated by reference in this prospectus, have been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report appearing in Consumers' Annual Report on Form 10-K/A for
the year ended December 31, 2003, which report is incorporated by reference
herein. Such financial statements, to the extent they have been included in the
financial statements of Consumers, have been so included in reliance on the
report of such independent registered public accounting firm given on the
authority of said firm as experts in auditing and accounting.
The audited consolidated financial statements of the MCV Partnership for
the year ended December 31, 2001, not separately presented or incorporated by
reference in this prospectus, have been audited by Arthur Andersen LLP,
independent accountants. Arthur Andersen LLP has not consented to the inclusion
of their report on the financial statements of the MCV Partnership for the year
ended December 31, 2001 in this prospectus, and we have dispensed with the
requirement to file their consent in reliance upon Rule 437a under the
Securities Act. Because Arthur Andersen LLP has not consented to the
incorporation by reference of their report in this prospectus, you will not be
able to recover against Arthur Andersen LLP under Section 11 of the Securities
Act for any untrue statements of a material fact contained in the financial
statements audited by Arthur Andersen LLP or any omissions to state a material
fact required to be stated therein.
Future consolidated financial statements of Consumers and the reports
thereon of Ernst & Young LLP also will be incorporated by reference in this
prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
48
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER MADE HEREBY, AND, IF GIVEN
OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
CONSUMERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
EXCHANGE OR A SOLICITATION OF ANY OFFER TO EXCHANGE THE NEW BONDS FOR OLD BONDS
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO EXCHANGE OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE EXCHANGE OFFER OR SOLICITATION
IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
EXCHANGE OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
EXCHANGE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
PAGE
----
Important Notice about Information in this
Prospectus.................................. 1
Where You Can Find More Information......... 2
Forward-Looking Statements and Information.. 3
Summary..................................... 6
Risk Factors................................ 16
Use of Proceeds............................. 25
Ratio of Earnings to Fixed Charges.......... 25
Description of the New Bonds................ 26
Ratings..................................... 34
The Exchange Offer ......................... 34
Certain United States Federal Income Tax
Consequences................................ 44
Plan of Distribution ....................... 47
Legal Opinions.............................. 47
Experts..................................... 48
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OFFER TO EXCHANGE
4.40% FIRST MORTGAGE BONDS DUE 2009,
SERIES N
5.00% FIRST MORTGAGE BONDS DUE 2012,
SERIES O
5.50% FIRST MORTGAGE BONDS DUE 2016,
SERIES P
FOR ANY AND ALL OUTSTANDING
4.40% FIRST MORTGAGE BONDS DUE 2009,
SERIES K
5.00% FIRST MORTGAGE BONDS DUE 2012,
SERIES L
5.50% FIRST MORTGAGE BONDS DUE 2016,
SERIES M
[CONSUMERS ENERGY LOGO]
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