Q3 2003 CMS Energy Corp. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning, everyone. And welcome to the CMS Energy third quarter earnings call. This call is being recorded. Just a reminder, there will be a rebroadcast of the conference call today beginning at 12:00 p.m. Eastern Time running through November 18. This presentation is also being webcast. An audio replay will be available approximately two hours after the webcast and will be archived for a period of 30 days on CMS Energy's website in the investment and CMS section. At this time, I would like to turn the call over to Laura Mountcastle, Vice President Investor Relations and Treasurer. Please go ahead.

LAURA MOUNTCASTLE, TREASURER & VP, IR, CMS ENERGY CORP.: Thank you. Good morning and thank you for joining us. With me today are Ken Whipple, Chairman and Chief Executive Officer, Dave Joos, President and Chief Operating Officer and Tom Webb, Executive Vice President and Chief Financial Officer. First, I'll make the usual disclosure statement. This presentation contains forward-looking statements within the meaning of the Safe Harbor provisions of the federal securities laws. Our actual results may differ materially from those anticipated in such statements as a result of various factors discussed in our SEC filings. The presentation also includes non-GAAP measures when describing CMS Energy's results of operations and financial performance. We have prepared a reconciliation of each of these measures to the most directly comparable GAAP measure in our earnings release, which is posted on our web site at cmsenergy.com/invest. I will now turn the call over to Ken.

KEN WHIPPLE, CHAIRMAN & CEO, CMS ENERGY CORP.: Thanks, Laura and good morning, ladies and gentlemen, and welcome. Welcome to our third quarter earnings call. I'm going to kick off today's agenda and Tom will follow with his financial update. Dave will follow that with his operations report, which will include an update on our important regulatory agenda. As some of you know, Dave, Tom and Laura attended the EEI meeting in Orlando last month. They spoke with many analysts and investors and there was a remarkable consistency in the questions and issues raised by you and your counterparts.

So I thought we'd start today by listing those top issues on the next slide, all of which will be covered in more detail in today's presentation. They are earnings, liquidity, debt reduction and regulatory issues. On earnings, we didn't exactly have a barn burner of a quarter, as Tom will cover in a minute. We lost 51 cents a share on a reported basis and we made a whole penny on an ongoing basis.

Despite that, we are once again reaffirming our prior guidance of 80 to 90 cents, although we're guiding you to the lower end of that range. Several of you have asked us about earnings for next year. At the moment, we're working our way through the budget process and the most likely timing to discuss 2004 guidance with you is early in the new year. On liquidity, we have pretty much achieved the period of liquidity piece that we have discussed with you in prior reports. We're now moving into a next phase, where because of our progress, we are able to lower our on hand cash reserves and accelerate some debt maturities, good news, we think.

On debt reduction, Tom's presentation will highlight this year's total company reduction from $7.3 billion to $6.2 billion as well as a reduction of about 50% in parent and Enterprises debt over the next few years. As you know, we have a big regulatory agenda, including the gas rate case, securitization and stranded cost recovery and frankly it's not moving ahead quite as briskly as we would like. Dave will fill you in on that in a minute. Now I'd like to turn it over to Tom to cover the third quarter results in more detail. Tom?

TOM WEBB, EVP & CFO, CMS ENERGY CORP.: Thanks, Ken and my welcome to everybody that's on the call today. For the third quarter, our reported loss was 51 cents a share. Excluding discontinued operations and restructuring costs, ongoing earnings were about break-even at a profit of 1 cent a share. Discontinued operations include a reduction in the fair value of our Venezuelan and electric distribution company, called Seneca. In September, only a portion of overdue rate relief was granted. With this clarification, a new lower fare value for this discontinued operation was established. Our plan is to sell this business in 2004.

Restructuring includes fees related to the reset put securities settled in July. On an ongoing basis our earning are down from 46 cents a year ago and let's take a look at this together on the next slide. With the exception of cooler than normal weather this summer and slower than anticipated economic recovery in Michigan, results are in line with our full year plan. Cost savings in favorable currency exchange rates helped do that. With this waterfall chart, we've highlighted earnings per share changes from a year ago. Our Enterprises projects turned in better results, boosted by a stronger Argentine peso. The earnings impact of lower sales was 16 cents, offset in part by higher gas utility rates worth 2 cents. Lower sales related differences include three things.

First, electric utility sales that were off 6.4%, reflecting a summer that was much cooler than last year. Second, a weaker economy in Michigan. And third, a higher level of customers taking power from alternative suppliers. Our retail open access load at the end of the quarter was about 600 megawatts. The next bar reflects profits related to businesses sold since last year. These profits, of course, are not in this quarter's results. Next, net interest expense is higher reflecting higher debt at the utility, costs associated with a $925 million bridge loan that we've been able to pay off early and …