UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _________________
COMMISSION FILE NUMBER 1-9513 (CMS ENERGY CORPORATION)
COMMISSION FILE NUMBER 1-5611 (CONSUMERS ENERGY COMPANY)
EMPLOYEES' SAVINGS PLAN AND
EMPLOYEE STOCK OWNERSHIP PLAN OF
CONSUMERS ENERGY COMPANY
ONE ENERGY PLAZA
JACKSON, MICHIGAN 49201
(FULL TITLE OF THE PLAN AND ADDRESS OF THE PLAN, IF
DIFFERENT FROM THAT OF THE ISSUER NAMED BELOW)
CMS ENERGY CORPORATION
ONE ENERGY PLAZA
JACKSON, MICHIGAN 49201
(NAME OF ISSUER OF THE SECURITIES HELD
PURSUANT TO THE PLAN AND THE ADDRESS
OF ITS PRINCIPAL EXECUTIVE OFFICE)
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Audited Financial Statements and Supplemental Schedule
December 31, 2003 and 2002 and
Year ended December 31, 2003
CONTENTS
Report of Independent Registered Public Accounting Firm......................... 1
Audited Financial Statements
Statements of Net Assets Available for Benefits................................. 2
Statement of Changes in Net Assets Available for Benefits....................... 3
Notes to Financial Statements................................................... 4
Supplemental Schedule
Schedule H, Line 4i -- Schedule of Assets (Held at End of Year)................. 10
Report of Independent Registered Public Accounting Firm
Plan Administrator
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
We have audited the accompanying statements of net assets available for benefits
of Employees' Savings Plan and Employee Stock Ownership Plan of Consumers Energy
Company as of December 31, 2003 and 2002, and the related statement of changes
in net assets available for benefits for the year ended December 31, 2003. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2003 and 2002, and the changes in its net assets available for
benefits for the year ended December 31, 2003 in conformity with U.S. generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2003, is presented for purpose of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
Detroit, Michigan
June 16, 2004
1
Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company
Statements of Net Assets Available for Benefits
DECEMBER 31
2003 2002
---- ----
ASSETS
Investments:
Guaranteed investment contracts (at contract value) $132,664,682 $133,883,841
Fidelity Managed Income Portfolio II 33,777,215 -
CMS Energy Corporation Common Stock 106,921,647 114,336,401
Fidelity Dividend Growth Fund 150,917,774 129,595,779
Nicholas-Applegate Core Growth Institutional
Portfolio Fund - 26,958,174
Comerica Foreign Equity Fund - 12,094,531
Vanguard Large-Cap Value Index Fund - 7,916,780
Vanguard S&P 500 Index Fund - 10,733,054
Vanguard Large-Cap Growth Index Fund - 10,999,521
Nicholas-Applegate Small-Cap Growth Fund - 7,710,161
Comerica Small Cap Index Fund 569,783 -
Comerica Large Cap Index Fund 11,487,580 -
Comerica Large Cap Value Index Fund 9,037,178 -
Comerica Midcap Index Fund 840,724 -
Comerica 500 Index Fund 12,760,323 -
Calamos Growth Fund 44,078,782 -
Janus Mid Cap Value Fund 2,797,972 -
Fidelity Intermediate Bond Fund 5,431,304 -
Fidelity Low Price Stock Fund 5,755,548 -
Fidelity Diversified International Fund 17,313,392 -
Fidelity Small Cap Stock Fund 11,496,264 -
Fidelity Freedom Income Fund 901,377 -
Fidelity Freedom 2010 Fund 2,648,264 -
Fidelity Freedom 2020 Fund 1,270,879 -
Fidelity Freedom 2030 Fund 253,399 -
Fidelity Freedom 2040 Fund 284,550 -
Short term investments 119,713 38,830,403
Loans to participants 24,813,736 31,092,239
------------ ------------
Total investments 576,142,086 524,150,884
Receivables:
Participant contributions - 3,576,748
Interest and dividends - 97,095
Other receivables 157,045 -
------------ ------------
157,045 3,673,843
LIABILITY
Other 65,167 54,056
------------ ------------
Net assets available for benefits $576,233,964 $527,770,671
============ ============
See accompanying notes.
2
Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2003
ADDITIONS
Interest and dividend income $ 13,796,438
Participant contributions 37,584,906
--------------
Total additions 51,381,344
DEDUCTIONS
Benefits payments, withdrawals and distributions 50,184,309
Administrative expenses 200,910
--------------
Total deductions 50,385,219
Net realized and unrealized appreciation
in fair value of investments 47,467,168
--------------
Net increase 48,463,293
Net assets available for benefits:
Beginning of year 527,770,671
--------------
End of year $ 576,233,964
==============
See accompanying notes.
3
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
December 31, 2003 and 2002
and Year Ended December 31, 2003
1. DESCRIPTION OF PLAN
The following description of the Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company (the Plan) provides only general
information. Participants should refer to the Plan document for a complete
description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan designed to encourage and assist
employees of CMS Energy Corporation and its subsidiaries, which are at least 80%
owned and have adopted the Plan (the Company or Employer) in saving for the
future. The Plan is a voluntary program that allows eligible participants to
invest their contributions in various investment funds. All regular employees of
the Company as defined by the Plan, may participate in the Plan. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of 1974
(ERISA).
CONTRIBUTIONS
Participants in the Plan may elect to make pre-tax or after-tax contributions in
amounts equal to whole percentages from 1% to 25% of their eligible
compensation, as defined by the Plan, subject to certain limitations as set
forth in the Plan. If a participant's annual salary is equal to or more than
$90,000, the most that can be contributed by the employer on behalf of the
participant to the Plan is 11%.
The Company will make Matching Employer Contributions in an amount equal to $.50
for each $1.00 contributed by a participant, up to a maximum of 6% of the
participant's eligible compensation.
Effective September 1, 2002, the Matching Employer Contributions to the Plan
were suspended. The Matching Employer Contributions are expected to resume on
the first pay attributable to work on or after January 1, 2005. Effective
September 1, 2002 all Participant balances became eligible for reallocation at
the discretion of the Participant.
Effective September 1, 2002, Incentive Contributions to the Plan were
eliminated.
4
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
1. DESCRIPTION OF PLAN (CONTINUED)
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions,
Elective Employer Contributions, Matching Employer Contributions and allocations
of Plan earnings. The benefit to which a participant is entitled is the benefit
that can be provided from the vested value of the participant's account.
PARTICIPANT LOANS
Participants may borrow from their fund accounts up to a maximum of $50,000 or
50% of their vested account balance, whichever is less. Loan terms range up to
five years for a general purpose loan or up to 15 years for the purchase of a
primary residence. The loans are secured by the balance of the participant's
account and bear interest at a rate commensurate with local prevailing rates as
determined quarterly by the plan administrator. Principal and interest are paid
ratably through payroll deductions.
VESTING
Participants are immediately vested in their contributions and Elective Employer
Contributions plus actual earnings thereon. Vesting in the Matching Employer
Contributions and the Incentive Contributions of their accounts are based on
years of service. A participant becomes 10% vested for each of the first two
years of service with the Company, and 20% for each of the next four years of
service.
PAYMENT OF BENEFITS
Upon termination of service, death, disability or retirement, a participant may
receive a lump-sum amount equal to the vested value of his or her account.
FORFEITURES AND ADMINISTRATIVE EXPENSES
Forfeitures result from Matching Employer Contributions and Incentive
Contributions remaining in the Plan for terminated participants' nonvested
account balances. Forfeitures generated are added to a forfeiture reserve
account and are available to offset Matching Employer Contributions. Such
amounts forfeited in 2003 and 2002 were $59,392 and $167,015, respectively, and
are treated as a reduction of the Employer's contribution. As of December 31,
2003 and December 31, 2002, the cumulative unallocated forfeitures were $103,042
and $78,806. Expenses related to the administration and investment management of
the plan are charged against the assets of the investment funds offered to plan
participants. Brokerage fees, commissions, stock transfer taxes and other
expenses in connection with the purchases, sales and
5
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
1. DESCRIPTION OF PLAN (CONTINUED)
FORFEITURES AND ADMINISTRATIVE EXPENSES (CONTINUED)
distributions of securities for each investment fund are charged to the fund
that incurred the cost. Fees for obtaining loans are charged to the participant
that requested the loan.
PLAN TERMINATION
Although it has not expressed the intention to do so, the Company has reserved
the right to terminate the Plan at any time by resolution of its Board of
Directors. The value of the participant accounts will be determined as of the
effective date of the termination and be distributed as provided by the Plan.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION AND INCOME RECOGNITION
Except for the investment contracts, the Plan's investments are stated at fair
value which equals the quoted market price on the last business day of the plan
year. The shares of registered investment companies are valued at quoted market
prices which represent the net asset values of shares held by the Plan at
year-end. The fair value of the participation units owned by the Plan in the
common trust fund accounts are based on quoted redemption values on the last
business day of the plan year. The participant loans are valued at their
outstanding balances, which approximate fair value.
Investment contracts are recorded at their contract values, which represent
contributions and reinvested income, less any withdrawals plus accrued interest,
because these investments have fully benefit-responsive features. For example,
participants may ordinarily direct the withdrawal or transfer of all or a
portion of their investment at contract value. However, withdrawals influenced
by Company-initiated events, such as in connection with the sale of a business,
may result in a distribution at other than contract value. There are no reserves
against contract values for credit risk of contract issues or otherwise.
Contract value approximates fair value. The average yield for these contracts
was 6.20% in 2003 and 6.31% in 2002. The crediting interest rate for these
investment contracts ranged from approximately 5.40% to 7.10% in both 2003 and
2002, respectively. Rates on contracts remain fixed for the life of each
contract.
Upon completion of the recordkeeping transfer to Fidelity Investments, as
described in Note 3, Investments, the valuation of participant accounts was
changed to daily pricing from monthly pricing.
6
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates that affect
the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
3. INVESTMENTS
As of January 3, 2003, Fidelity Investments became the trustee and recordkeeper
for the Plan. After December 31, 2002, Consumers Energy ceased recordkeeping
services for the Plan. As of the close of business on December 31, 2002,
Comerica Bank of Detroit, Michigan ceased providing trustee services to the Plan
and the Plan assets were transferred to Fidelity Investments.
During 2003, the Plan's investments (including investments purchased and sold,
as well as held, during the year) appreciated (depreciated) in fair value as
determined by quoted market prices as follows:
NET REALIZED
AND UNREALIZED
APPRECIATION
(DEPRECIATION)
IN FAIR VALUE
OF INVESTMENTS
DECEMBER 31, 2003
------------------
Mutual funds $ 54,301,990
CMS Energy Corporation Common Stock (6,834,822)
------------------
$ 47,467,168
==================
7
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
4. DIFFERENCES BETWEEN FINANCIAL STATEMENTS AND FORM 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500:
DECEMBER 31
2003 2002
---- ----
Net assets available for benefits per the financial
statements $ 576,233,964 $ 527,770,671
Amounts allocated to withdrawn participants - (6,734,928)
---------------- -----------------
Net assets available for benefits per the Form 5500 $ 576,233,964 $ 521,035,743
================ =================
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
YEAR ENDED
DECEMBER 31,
2003
------------
Benefits paid to participants per the financial
statements $ 50,184,309
Add amounts allocated on Form 5500 to
withdrawn participants at December 31, 2003 -
Less amounts allocated on Form 5500 to
withdrawn participants at December 31, 2002 (6,734,928)
-----------------
Benefits paid to participants per the Form 5500 $ 43,449,381
=================
Amounts allocated to withdrawn participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
year-end but not yet paid.
5. CONTINGENT LIABILITIES
CMS Energy Corporation is a named defendant, along with Consumers Energy
Company, CMS Marketing, Services and Trading Company and certain named and
unnamed officers and directors, in two lawsuits brought as purported class
actions on behalf of participants and beneficiaries of the Plan. The two cases,
filed in July 2002 in the U.S. District Court for the Eastern District of
Michigan, were consolidated by the trial judge, and an amended consolidated
complaint was filed. Plaintiffs allege breaches of fiduciary duties under ERISA
and seek restitution on behalf of the Plan with respect to a decline in value of
the shares of the CMS Energy Corporation Common Stock held in the Plan.
8
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
5. CONTINGENT LIABILITIES (CONTINUED)
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
field by CMS Energy Corporation, Consumers Energy Company and the individuals.
The judge dismissed certain of the amended counts in the plaintiffs' complaint
and denied CMS Energy Corporation's motion to dismiss the other claims in the
complaint. CMS Energy Corporation, Consumers Energy Company and the individual
defendants filed answers to the amended complaint on May 14, 2004. These cases
will be defended vigorously. CMS Energy and Consumers cannot predict the outcome
of this litigation.
6. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated April 24, 2002, stating that the Plan is qualified under Section 401(a) of
the Internal Revenue Code (the Code) and, therefore, the related trust is exempt
from taxation. Once qualified, the Plan is required to operate in conformity
with the Code to maintain its qualification. The plan administrator believes the
Plan is being operated in compliance with the applicable requirements of the
Code and, therefore, believes that the Plan is qualified and the related trust
is tax exempt.
7. PANHANDLE SALE
On June 11, 2003, CMS Energy Corporation completed the previously announced sale
of all of the outstanding stock of Panhandle Eastern Pipe Line Company
(Panhandle) to Southern Union Panhandle Corp., a newly formed entity owned by
Southern Union Company. All Panhandle participants in the Plan were 100% vested
in both the Matching Employer and Incentive Contributions upon completion of the
sale.
8. RISKS AND UNCERTAINTIES
The Plan invests in various investment securities. Investment securities are
exposed to various risks such as interest rate, market and credit risks. Due to
the level of risk associated with certain investment securities, it is at least
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially affect
participants' account balances and the amounts reported in statements of net
assets available for benefits.
9. SUBSEQUENT EVENT
Effective June 3, 2004, the contribution limit of a member earning $90,000 or
more was raised from 11.0% to 12.5% of the participant's eligible compensation.
9
Supplemental Schedule
Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company
EIN: 38-0442310 Plan Number: 002
Schedule H, Line 4i -- Schedule of Assets (Held at End of Year)
December 31, 2003
CONTRACT
DESCRIPTION OF INVESTMENT INCLUDING OR
IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, CURRENT
LESSOR OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST VALUE
----------------------------- ----------------------------------- ---- -------------
New York Life Insurance Company 7.10% Matures 06/27/2005 $ 13,645,830
Principal Mutual Life Insurance Company 6.00% Matures 02/15/2005 19,945,611
Principal Mutual Life Insurance Company 6.18% Matures 11/14/2006 11,722,666
Principal Mutual Life Insurance Company 6.28% Matures 05/14/2007 11,751,951
Principal Mutual Life Insurance Company 5.85% Matures 01/30/2008 11,165,894
The Prudential Mutual Life Insurance Company 6.97% Matures 06/21/2004 9,495,955
The Prudential Mutual Life Insurance Company 5.40% Matures 11/15/2006 11,239,576
The Prudential Mutual Life Insurance Company 5.70% Matures 11/15/2007 16,966,173
Travelers Life and Annuity 6.45% Matures 05/12/2005 26,731,026
* Fidelity Investments Fidelity Managed Income Portfolio II 33,777,215
Fidelity Dividend Growth 150,917,774
Fidelity Intermediate Bond Fund 5,431,304
Fidelity Low Price Stock Fund 5,755,548
Fidelity Diversified International Fund 17,313,392
Fidelity Small Cap Stock Fund 11,496,264
Fidelity Freedom Income Fund 901,377
Fidelity Freedom 2010 Fund 2,648,264
Fidelity Freedom 2020 Fund 1,270,879
Fidelity Freedom 2030 Fund 253,399
Fidelity Freedom 2040 Fund 284,550
Short Term Investments 119,713
* CMS Energy Corporation Common Stock of CMS Energy Corporation 106,921,647
Comerica Bank, N.A. Comerica Small Cap Index Fund 569,783
Comerica Large Cap Index Fund 11,487,580
Comerica Large Cap Value Index Fund 9,037,178
Comerica Midcap Index Fund 840,724
Comerica 500 Index Fund 12,760,323
Calamos Asset Management, Inc. Calamos Growth Fund 44,078,782
Berger Financial Group, LLC Janus Mid Cap Value Fund 2,797,972
* Participant Loans Interest rate range: 3.00% to 8.75% $ - 24,813,736
with various maturity dates ====== -------------
$ 576,142,086
=============
* Party-in-interest.
Note: Historical cost information is not shown as all investments are
participant-directed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
EMPLOYEES' SAVINGS PLAN AND
EMPLOYEE STOCK OWNERSHIP PLAN OF
CONSUMERS ENERGY COMPANY
By: /s/ John F. Drake
---------------------
John F. Drake
Plan Administrator and
Senior Vice President, Human Resources,
CMS Energy Corporation and
Consumers Energy Company
Dated: June 22, 2004
EXHIBITS
Exhibit Number Description
-------------- -----------
(23) Consent of Independent Registered Public Accounting
Firm
(32) Certifications pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002