CMS能源 (CMS) 2002 Q1 法說會逐字稿

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  • CONFERENCE FACILITATOR

  • Good morning,

  • and welcome to the CMS Energy

  • First quarter 2002 earnings

  • conference call.

  • Today's call is being

  • recorded.

  • Just a reminder, there will

  • be a rebroadcast of

  • this conference today

  • beginning at 1p.m. Central

  • time -- I'm sorry, Eastern

  • time, running through May 7th.

  • To listen, simply dial 719-457-0820,

  • and reference the pass code 787019.

  • At this time, for opening

  • remarks and introductions, I

  • would like to turn the

  • conference over to the Vice

  • President of Investor

  • Relations, and the Treasurer,

  • Miss. Laura Mountcastle.

  • Go ahead.

  • LAURA MOUNTCASTLE

  • Thank you.

  • Good morning, and

  • thank you for joining us.

  • With me this morning are Al

  • Wright, who will review the

  • quarter and discuss the 2002

  • financial outlook, and David

  • Joos, who will be available

  • during the Q&A.

  • Before we start, I'll make the

  • usual Safe Harbor 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.

  • With that I'll turn it over to

  • Al.

  • AL WRIGHT

  • Thank you, Laura.

  • Good morning, all.

  • Shareholders, other investors

  • and employee shareholders.

  • CMS is happy to report first

  • quarter net income of $399

  • million or $2.92 per share in

  • total.

  • After reconciling items

  • related to the gain on the

  • sale of our Equatorial Guinea

  • properties, that's oil and

  • gas, the cost of Argentine

  • devaluation and

  • expropriation issues, and

  • extraordinary items related to

  • early debt retirement and

  • discontinued operations of a

  • penny in the latter case,

  • total adjustments of 220 as

  • shown on the slide,

  • our operating

  • earnings are 72 cents per

  • share.

  • These operating earnings

  • reflect a mild winter,

  • replacement power costs during

  • the final stages of the

  • unscheduled Palisades outage

  • that began last year, reduced

  • earnings from our Laketrail [INAUDIBLE] facility,

  • and improved operations at our

  • Dearborn and Morocco IPP

  • facilities, all of which I'll

  • get into in some detail in a

  • moment.

  • While these first quarter operating

  • results are 14% below last

  • year's operating EPS, they are

  • consistent with our plan, and

  • position us to achieve our annual

  • targeted operating net income

  • of $2 to $2.05 per share

  • before the impacts of the

  • Argentine issues.

  • These issues -- the Argentine issues, I'll

  • discuss in detail later in

  • this call.

  • In regards to the electric utility --

  • and by the way, as requested by our investors

  • and as promised, we will begin

  • now reporting and discussing

  • operating net income versus

  • simply pre-tax operating

  • income.

  • And we'll do that by business

  • unit.

  • For reference purposes,

  • operating net income including

  • the impact of non-operating

  • income and expenses,

  • the effect of third party

  • and/or inter-company financing

  • and income taxes.

  • The operating and income does

  • not include any parent

  • interest expense allocation.

  • Also, we have adjusted for

  • 2001 reporting of overhead

  • between business units and the

  • parent company, in

  • order to provide comparability

  • of results. So we are indeed

  • looking at apples to apples.

  • Now having said that, the

  • Electric utilities operating

  • net income of $49 million is $11

  • million lower than last year,

  • but pretty much on plan for

  • the year end figure.

  • Deliveries of 9,190 gigawatt

  • hours are down 789 gigawatt

  • hours, or 7.9% due to lower

  • intersystem and industrial

  • sales.

  • Intersystem sales are down due

  • to generating plant outages,

  • while the reduction in

  • industrial sales

  • year-over-year reflects a

  • slowdown in the Michigan

  • economy.

  • Partially offsetting the

  • impact from this sales

  • reduction is an increase in

  • higher margin commercial

  • sales.

  • Higher year-over-year

  • operating expenses includes

  • the replacement power supply

  • costs as a result of the

  • outage at Palisades I

  • discussed earlier. Which by

  • the way, as you know returned

  • to full-power operation on

  • January 23rd.

  • And we did sustain some storm

  • damage in the first quarter.

  • These higher costs were

  • partially offset by reductions

  • in other operating expenses at the

  • electric utility.

  • With regard to the gas utility,

  • the benefits from the interim

  • rate relief received in

  • December of last year, offset

  • pretty much the impact of an

  • exceptionally mild first

  • quarter.

  • As a result, operating net

  • income of $28 million is equal

  • to last year.

  • Deliveries for the quarter

  • were down 10.4 BCF, or 6.5%,

  • principally due to

  • temperatures that were 11%

  • warmer than last year, and in

  • fact were the 11th warmest

  • since 1864.

  • We estimate that the weather

  • impacted our 2002 operating

  • net income by $11 million.

  • However, on a weather-adjusted

  • basis, deliveries were up 1.4%,

  • which is good news in total.

  • With regard to the natural gas

  • transmission business,

  • operating net income for the

  • group totaled $33 million, or

  • $12 million less than last

  • year. But again, this unit is

  • still on plan.

  • The lower earnings at

  • Panhandle's Lake Charles LNG

  • processing facility, are the

  • result primarily from the

  • fixed rates on the BG contract

  • that we have discussed at

  • length versus last year's

  • higher spot rates

  • that followed the price for

  • natural gas.

  • This shortfall, which was

  • expected, was partially offset

  • by benefits from eliminating

  • the amortization of good will

  • as required by FAS-142.

  • Lower commodity prices at our

  • field services operations

  • resulted in slightly lower

  • earnings, which were offset by

  • gains in other operations.

  • With regard to marketing

  • services and trading, we had

  • net income of $7 million, an

  • increase of $3 million, or 75%

  • over the previous year.

  • Higher electric margins

  • resulted primarily from

  • increase mark-to-market

  • earnings on long-term

  • contracts, which helped to

  • offset losses from lower gas

  • mark-to-market earnings due to

  • weaker trading results and

  • lower price impacts on the

  • overall portfolio.

  • So net to net, market-to-market

  • was about a wash.

  • Byron posted an improvement

  • based upon the implementation

  • of various [INAUDIBLE] management projects in the

  • Washington, D.C. area.

  • The IPP business had a strong

  • quarter.

  • Operating net income was $42

  • million, or up $15 million or

  • 56%.

  • This increase is attributed to

  • lower steam costs at our

  • Dearborn industrial generation

  • facility.

  • As you may recall, last year

  • this facility was experiencing

  • construction delays and had to

  • purchase steam to meet its

  • obligations to the customer

  • rather than benefiting from

  • its own steam by-product.

  • And we experienced higher

  • earnings from our INAUDIBLE] investment in

  • Morocco, due to lower average

  • cost of debt as well as a

  • performance incentive bonus

  • that we did earn for the fine

  • performance of the unit.

  • Oil and gas is down.

  • The unit broke even for the

  • first quarter, a decrease of

  • $3 million. But you must

  • remember that's due to the

  • reduced production caused by

  • the sale of -- $1 billion sale of

  • our interests in the

  • Equatorial Guinea property.

  • Realized oil prices in the

  • first quarter of $12.68 a barrel

  • net of hedging, and production

  • of 1,186,000 barrels were down

  • 32% and 24% respectively.

  • This reduction was partially

  • offset by lower operating

  • expenses, including lower

  • average borrowings due to the

  • cash proceeds contributed from

  • the EG sale.

  • Excluding EG production, on a billion cubic foot

  • equivalent, sales were 9.5 BCF, or a decrease of

  • 38%, primarily from the timing

  • of liftings, which is how we

  • now must account, at our

  • Tunisia and Congo holdings.

  • With regard to parent-only

  • interest expense, that was

  • about $4 million greater than

  • last year, and it is entirely due to

  • lower capitalized interest

  • expense related to our DIG

  • investment.

  • For those interested, which I

  • assume are many, CMS

  • consolidated overall average

  • borrowings are down $175

  • million for the quarter,

  • that's on average,

  • at an average cost of 7.71%,

  • which is itself 44 basis

  • points lower than last year.

  • Again, as a wrap-up, operating

  • net income was $96 million, or

  • 72 cents per share.

  • Now, I'll let you reflect on

  • this table.

  • It has a lot of information on

  • it, with regard to the Argentine

  • impacts, which I know have

  • captured the interest of the

  • market.

  • These are principally due to

  • the changes in Argentine law

  • that made it illegal or unable

  • to meet our contract

  • obligations as called for in

  • dollars or in pesos

  • equivalents, and instead were

  • reduced to simple collection

  • in pesos.

  • You're all aware of the

  • fluctuation in that economy

  • there.

  • For these reasons, CMS has

  • changed our functional

  • currency for the Argentine

  • assets from the U.S. dollar to

  • the Argentine pesos.

  • Assuming an exchange rate of

  • approximately 3 to 3 1/2 pesos

  • per dollar in April, and I

  • would tell you that the "Wall

  • Street Journal" closed the

  • pesos at 2.98, and we executed

  • some small forward business at

  • 3.45.

  • So the actual adjustment will

  • be somewhere in that range.

  • CMS will record for the second

  • quarter a charge of

  • approximately $400 million to

  • the foreign currency

  • translation component,

  • here-in-after called CTA, of

  • stockholders equity.

  • On an ongoing basis, this

  • charge, the CTA stockholder

  • equity component, would

  • increase or decrease based on

  • weaker or stronger pesos.

  • We expect that this non-cash

  • charge, which represents about

  • 80% of the affected assets book

  • value, combined with

  • anticipated proceeds from the

  • international arbitration due

  • to the abrogation of our

  • contracts that we are in

  • progress with right now, plus

  • political risk insurance and

  • the eventual sale of these

  • assets, that thus -- that this

  • transaction will substantially

  • eliminate the risk of future

  • balance sheet impacts.

  • In terms of reported income,

  • this charge would reduce

  • future losses for all of our

  • equity accounting investments,

  • pipelines and the El Chacon generating

  • facility.

  • However, we will continue to

  • have some ongoing reported

  • income risk for additional

  • changes to the pesos-dollar

  • exchange rate.

  • For the remainder of the year,

  • as shown on this chart, between

  • 13 to 18 cents, for a total for

  • the year 2002 of 28 to 33

  • cents. Because we have had a

  • 15-cent effect already in the

  • first quarter, as I mentioned

  • on the first chart.

  • Now, if current conditions

  • prevail, in the ranges

  • described above, that is

  • between 3 and 4, an estimate

  • of 2003 effects would be in

  • the range of 17 to 25 cents in

  • total.

  • Assuming that these assets are

  • retained for the entire year,

  • we will, however, continue to

  • seek buyers as we had

  • originally planned.

  • Because of the accounting

  • treatment for these

  • investments, the future

  • sensitivity of earnings to

  • exchange rates is

  • significantly reduced.

  • With regard to our capital

  • structure, it is improving as

  • promised.

  • As you can see, we have

  • already made substantial

  • improvement in our debt-to-cap

  • ratio.

  • After the EG sale and other

  • first quarter's asset sales

  • activity, this ratio stands at

  • 66%.

  • An improvement from the 2001

  • year-end ratio of 71%.

  • And except for the current

  • Argentine monitor issue I just

  • discussed, we would be on plan

  • to achieve the targeted ratio

  • of 60% by year end.

  • After the effects we just

  • discussed, we are projecting a

  • debt ratio of 62%.

  • Still, a large improvement in

  • leverage in year over year,

  • down from 71% to 62%.

  • And that, of course, is really

  • dependent on asset sale

  • program, which we are making

  • great progress on.

  • I am happy to report that we

  • are still on target to realize

  • the 2 point million dollars of

  • cash proceeds from asset sales

  • spanning the two years on the

  • chart.

  • By the end of this month, we

  • will stand at 2.3 to 2.4

  • billion done, which represents

  • more than 80% of our goal.

  • The Powder River and Electric

  • Transmission, sales are

  • actually expected to close

  • today.

  • As it now seems unlikely that

  • our Argentine generating assets

  • will be sold this year, we're

  • evaluating other assets to

  • replace them.

  • The remaining balance of

  • approximately 580 million

  • should be realized from our

  • asset pool.

  • We have 10 more transactions

  • pending right now

  • for closure in the third

  • through the fourth quarter.

  • Finally, and a very important

  • statistic that I know the

  • market is interested in, is our

  • common dividend coverage ratio.

  • Even including asset sales, we still

  • have a 2.7 times cash coverage

  • ratio. That's cash

  • distributions from all of our

  • operating companies, including

  • consumers to the parent, after

  • interest, divided by the

  • parent company's dividend

  • requirement at the annual rate

  • of $1.46.

  • And this is the appropriate

  • time to say we do not envision --

  • we are not making any change

  • in the annual dividend level

  • of $1.46 per share.

  • Finally, with respect to 2002

  • net income guidance, as

  • promised, we are giving you

  • that guidance by business unit

  • on a net operating income

  • basis as I explained.

  • We are still at the $2 to $2.05

  • level excluding the Argentine

  • effects which as I mentioned

  • earlier were something like 28

  • to 33 cents.

  • So we are on target.

  • Our forecasted shortfalls at our gas utility and

  • natural gas transmission units from prior

  • guidance were, principally due

  • to the mild first quarter

  • weather.

  • These are offset by the

  • benefits from MST's Viron and

  • Central Virginia Electric

  • co-op contracts, as well as IPP

  • operations at Morocco and

  • DIG.

  • We do assume in these figures

  • the gas utility final rate

  • order in the second quarter,

  • and normal weather for the

  • remainder of this year.

  • With that, that is a digest of

  • first quarter activity.

  • I would like to invite

  • questions from the audience to

  • myself or David Joos, who is

  • seated with me.

  • CONFERENCE FACILITATOR

  • Thank you. The question-and-answer

  • session will be conducted

  • electronically today.

  • If you would like to ask a question,

  • you can do so by pressing star 1 on your touchtone

  • telephone. We will proceed in the order

  • that you signal us, and take as

  • many questions as time

  • permits.

  • Once again, that is star 1 to

  • ask a question.

  • And we'll pause for just a

  • moment to give everyone the

  • opportunity to signal for

  • questions.

  • [PAUSE]

  • CONFERENCE FACILITATOR

  • And our first

  • question will come from Greg

  • Gordon with Goldman Sachs.

  • GREG GORDON

  • Thanks.

  • Good morning, Al.

  • AL WRIGHT

  • Good morning, Greg.

  • GREG GORDON

  • Just a couple questions.

  • Just want to clarify that you

  • -- taking into account the

  • effects of the accounting

  • adjustment for the balance

  • sheet in Argentina, you're

  • targeting a 62% debt to cap by

  • year end?

  • AL WRIGHT

  • That is correct, Greg.

  • GREG GORDON

  • Great.

  • And then -- but those assets are

  • currently not held for sale?

  • AL WRIGHT

  • That is correct.

  • GREG GORDON

  • So if we were going to look

  • at, you know, if we wanted to

  • do adjust the operating number

  • to account for that we would

  • take the $2 to $2.05 guidance and

  • then incorporate whatever --

  • wherever within the total

  • range of losses at Argentina,

  • the 15 cents you have already

  • booked plus the 13 to 18 cents,

  • so that would really be sort

  • of a -- an operating number

  • closer to $1.70 to

  • $1.80?

  • If I were to assume those were

  • operating numbers?

  • AL WRIGHT

  • Yes, that's correct.

  • GREG GORDON

  • Okay.

  • And then you are saying

  • assuming that the assets are

  • not reclassified as held for

  • sale in 2003, you have

  • quantifed what the ongoing

  • loss would be and that would

  • be a 17 to 25-cent impact?

  • AL WRIGHT

  • Right.

  • And that assumes, by the way,

  • an entire year operation in

  • the ranges of exchange rate we

  • show on the table.

  • GREG GORDON

  • Great.

  • Would it be fair to say we're

  • waiting for some economic and

  • regulatory stability in the

  • region before you go ahead and

  • look for an exit?

  • AL WRIGHT

  • That would be a reasonable

  • statement.

  • GREG GORDON

  • Okay.

  • Great.

  • And then, lastly, would

  • it be possible for you to

  • quantify what you are sort of --

  • total electric and gas utility

  • targeted, you know, operating

  • net income is for the year as

  • a component of the total $2 to

  • $2.05 that you have --

  • AL WRIGHT

  • Yes, let's go to that last

  • chart.

  • The current guidance would

  • indicate $195 million for

  • electric, gas $45 million.

  • Gas utility.

  • GREG GORDON

  • Okay.

  • AL WRIGHT

  • And then if you run

  • down the chart, the total

  • operating net income is $285

  • million, but again that's

  • after parent company interest

  • expense.

  • GREG GORDON

  • Okay, great. But most all the financing

  • for the electric and gas

  • utility is done at the

  • electric and gas utility level,

  • correct?

  • AL WRIGHT

  • Correct.

  • GREG GORDON

  • Okay. Thanks, guys.

  • CONFERENCE FACILITATOR

  • Up next we'll

  • hear from Jeff Gildersleeve

  • with Argus Research.

  • JEFF GILDERSLEEVE

  • Good morning.

  • I wonder if you could just

  • clarify with the marketing

  • services and trading, uhm, I

  • calculate roughly $105 million

  • revenue minus cost of power

  • and gas sold.

  • How do I work down from that,

  • that gross margin, to the 7 or

  • the 10 that you came up with?

  • AL WRIGHT

  • Dave, you want to --

  • DAVID JOOS

  • Well, I'm not sure I can

  • answer the details associated

  • with that question.

  • We have all of the fixed costs

  • associated with the operation,

  • obviously, that have to be

  • deducted from the revenues. And

  • some of those are revenues

  • versus margin that you were

  • talking about.

  • We don't provide the detailed

  • breakdown on all of that data

  • as you know on a quarterly

  • basis.

  • But the -- I guess an overall

  • basis, as we said, we're a

  • little ahead on the power side,

  • a little behind on the gas

  • side and overall, pretty close

  • to plan, although we had some

  • up side on our Viron business

  • in the first quarter.

  • JEFF GILDERSLEEVE

  • Okay.

  • So there were no abnormal

  • costs in there this quarter?

  • DAVID JOOS

  • No.

  • None.

  • JEFF GILDERSLEEVE

  • Okay.

  • And then secondly, with the gas and oil.

  • It seems oil, there was a

  • fairly low price realized in

  • the first quarter.

  • Where do you stand on your oil

  • and gas hedges?

  • Can you provide a little on

  • that?

  • AL WRIGHT

  • Yes.

  • When oil in fact came up, with

  • the activity in the Middle

  • East and what not, we were

  • able to achieve hedges net

  • above the $22.50 level.

  • So -- that's based on a WTI.

  • Now, we net back a different level

  • depending on the source of

  • that oil.

  • But at the WTI level that we

  • were able to lock in $22.50,

  • pretty much the balance of

  • production expected for the

  • year.

  • On the gas hedging activity,

  • we're fully hedged for the

  • balance of the year.

  • JEFF GILDERSLEEVE

  • Great.

  • Thanks a lot.

  • CONFERENCE FACILITATOR

  • Up next, from Lumas Management,

  • we'll hear from Devon Geohiggins.

  • DEVON GEOHIGGINS

  • Hi.

  • Just had a couple questions,

  • on the equity issuance that's

  • planned, and funding in '03 and

  • '04, and how you guys are planning to make

  • funding.

  • AL WRIGHT

  • We don't plan to get into

  • long range discussions at this

  • point.

  • But in general, we have

  • ongoing dividend reinvestment

  • and sort of a continuous stock

  • offering program that's baked

  • into these numbers.

  • And we see no reason at this

  • point to bake into our plans a

  • large block offering of common

  • stock this year.

  • DEVON GEOHIGGINS

  • Okay.

  • Uhm, that sounds good.

  • And just one last question.

  • What kind of rate increase are

  • you guys assuming in terms of

  • percentage of the

  • 100 that's been asked?

  • AL WRIGHT

  • That would be, uhm, not a

  • good thing to discuss --

  • DEVON GEOHIGGINS

  • Fair enough.

  • AL WRIGHT

  • -- in a public forum.

  • It would tend to be a

  • self-fulfilling or worse prophecy.

  • So, I would say that we are

  • continuing to expect

  • reasonable treatment from

  • Michigan Public Service

  • Commission that we have seen

  • over the last several years.

  • DEVON GEOHIGGINS

  • Great.

  • Thanks.

  • Congratulations.

  • CONFERENCE FACILITATOR

  • And as a

  • reminder, if you would like to

  • ask a question, you can do so

  • by pressing star 1 on your

  • touch tone telephone.

  • Moving on, we'll hear from

  • Bill Bund with Fort Washington

  • Investment Advisors.

  • Bill Bund

  • Good morning. If you could please tell me,

  • do you have a clear sense of

  • the rating agencies, what they

  • expect of you in order to get

  • an upgrade?

  • AL WRIGHT

  • That's a tough question.

  • They are very supportive of

  • the company.

  • We have very good

  • relationships.

  • I think they are going to want

  • to see continued momentum in

  • our debt reduction program.

  • As far as statistics, they are

  • focused principally on free

  • flung from operation

  • coverages above 3 -- well

  • above three times.

  • And we'll be at above 3 times

  • this year.

  • I think they are going to

  • really focus on momentum and

  • our continuing commitment to

  • reduced leverage and increased

  • coverages.

  • And so far, so good.

  • Bill Bund

  • But they haven't indicated

  • how much is enough?

  • AL WRIGHT

  • I don't know if you have

  • dealt with my brethren there,

  • but, uhm, they... It is not a

  • science.

  • It's an art.

  • But as I said, they expect

  • coverages well north of three

  • times.

  • It will be at three times by

  • the end of the year.

  • Bill Bund

  • Alright, thank you.

  • CONFERENCE FACILITATOR

  • Up next, we'll

  • hear from John Olson with

  • Sanders, Morris, & Harris.

  • JOHN OLSON

  • Al, good morning.

  • AL WRIGHT

  • Good morning, how are you?

  • JOHN OLSEN

  • Fine. Listen, what -- in marketing

  • services and trading, how much

  • of profit was mark to market?

  • AL WRIGHT

  • Net about zero.

  • We had some gains in electric

  • I believe, and losses in gas.

  • JOHN OLSON

  • Okay.

  • AL WRIGHT

  • It netted out about zero.

  • JOHN OLSON

  • Okay, the net effect on the paper

  • transactions was zero. Okay.

  • Secondly, what about the

  • elimination of good will?

  • How much did that help you?

  • AL WRIGHT

  • It's a $19 million annualized

  • number.

  • So I think it's ratable over the year.

  • JOHN OLSON

  • Okay. Thanks very much.

  • CONFERENCE FACILITATOR

  • Moving on, from

  • Deutsche Banc, we'll hear from

  • James Dobson.

  • JAMES DOBSON

  • Al, how are you?

  • AL WRIGHT

  • I'm fine James.

  • How are you?

  • JAMES DOBSON

  • Great, thank you.

  • Couple of questions.

  • Just going back to this

  • mark-to-market a second,

  • unrealized mark-to-market in

  • Q1?

  • So the non-cash portion of

  • that, I'm thinking probably of

  • that contract that started

  • booking sounded like that was

  • the swing to MS&T.

  • AL WRIGHT

  • [INAUDIBLE] I don't know the total on

  • that deal. Dave, do you have --

  • DAVID JOOS

  • : That was significant,

  • although we don't normally

  • disclose the specific

  • mark-to-market gains

  • associated with specific

  • transactions.

  • That was the one unrealized

  • gain that -- the remainder of

  • what I refer to particularly

  • on the gas side were obviously

  • trading associated as opposed

  • to significant mark-to-market

  • swings.

  • AL WRIGHT

  • And they were offsetting.

  • JAMES DOBSON

  • Okay.

  • And then on JORF, could you

  • give us an idea what the

  • performance incentive was in

  • the numbers?

  • AL WRIGHT

  • About 2 million, I'm

  • advised.

  • JAMES DOBSON

  • About 2 million.

  • Okay.

  • And then last question, any

  • change, uhm, to -- and I think

  • you were alluding to this

  • change in sort of the, you

  • know, portfolio of assets that

  • are, you know, coming up for

  • sale or that you are pursuing

  • for sale, uhm, you know, any

  • additional revisions to, you

  • know, maybe adding JORF to

  • that list or other

  • international assets to that

  • list to sort of clean out the

  • entire international

  • portfolio

  • AL WRIGHT

  • I would say, James, that we

  • haven't made that decision or

  • that move yet or nor are we

  • committing to.

  • But we are committing to 10

  • more assets distributed around

  • the world so that we do

  • continue to increase our focus

  • on fewer and fewer countries.

  • At present, we do not envision

  • the sale of JORF.

  • JAMES DOBSON

  • Great.

  • Thanks for your help.

  • CONFERENCE FACILITATOR

  • Up next, from SAC

  • Capital, we'll hear from

  • Vidula Morde.

  • VIDULA MORDE

  • Good morning, Al.

  • AL WRIGHT

  • Good morning, Vidula.

  • VIDULA MORDE

  • Let's see.

  • I'm wondering maybe a little

  • bit more philosophically, I'm

  • wondering why we should not

  • consider the Argentinian

  • ongoing currency adjustments

  • that are flowing through the

  • income statement as part of

  • operating results for this

  • year and potentially for next

  • when you kind of gave your

  • guidance.

  • AL WRIGHT

  • The reason we segregated it

  • that way, Vidula, was we began

  • the year even back in October

  • saying that it was between $2

  • to $2.05, excluding Argentine

  • effects.

  • Even last fall,

  • although the currency was

  • still pegged, there was enough

  • disquiet that we felt it

  • necessary to caveat that

  • figure in that way.

  • And we're tracking it here

  • that way just to make sure

  • that we're comparing apples to

  • apples.

  • On the other hand, you can

  • make your own adjustments.

  • We have given you the numbers.

  • We want to continue to compare

  • ourselves to our original

  • commitment against which we're

  • doing very well.

  • But we are sustaining a -- the

  • ongoing effects that we

  • discussed.

  • 15 cents in the first quarter.

  • But they will be significantly

  • less in the rest of the year

  • as shown on that chart.

  • So... Kind of, uhm, our attempt to

  • make sure that we're being

  • comparable from what our

  • original disclosure was.

  • VIDULA MORDE

  • Okay.

  • If we, uhm, talk about the

  • balance sheet adjustment that

  • you took about $400 million,

  • you indicated that should

  • resolve most investment.

  • Can you review for us, then,

  • what is left and under what

  • circumstances potentially the

  • remaining investment would end

  • up accruing as a charge to the

  • equity account, whether you

  • need, you know, whether the

  • currency has to go to a 5 peg

  • or what other circumstances we

  • should keep in mind whereby

  • there could be another

  • adjustment to the equity

  • account?

  • AL WRIGHT

  • I haven't done the math at

  • 5.

  • I would tell you that we have,

  • as I understand it about 50

  • million exposed.

  • DAVID JOOS

  • I believe the remaining

  • balance, book balance of the

  • assets that are exposed here,

  • which are the TGN pipeline and

  • generating assets in Argentina,

  • is about $95 million.

  • As we indicated in our earlier

  • discussion, that the reduction

  • of something on the order of

  • $400 million results in about

  • an 80% reduction in the

  • remaining book value.

  • AL WRIGHT

  • And then we have some

  • project -- U.S. currency debt,

  • to deal with. But we think

  • that even at a 5

  • ratio, that it would not be

  • another significant hit,

  • although it would affect the

  • CTA account.

  • VIDULA MORDE

  • Okay.

  • You had also earlier discussed

  • the idea of in terms of

  • financing and that you didn't

  • see any need for any large

  • stock blocks given, the

  • continuous offering and the

  • drip.

  • what I'm wondering, can you

  • tell us how much you're

  • expected in equity to be

  • raised by that? And secondly,

  • you have a fairly significant

  • preferred layer and I don't

  • recall precisely -- I think

  • there are some converts in

  • there, I think some of them

  • might convert this year into

  • common on the diluted shares.

  • And I don't know whether you

  • plan on replacing that

  • preferred layer or whether,

  • uhm, there is no reason to do

  • that.

  • AL WRIGHT

  • That's a good point.

  • You're quite correct. $300

  • million mandatory converts will convert mid 2002.

  • We do anticipate later on in

  • the year replacing that with

  • another mandatory convertible

  • issue depending on market

  • conditions.

  • With regard to the continuous

  • offering dividend reinvestment

  • employee stock purchase

  • programs, for the year we

  • would normally estimate that

  • that would pull in about $200

  • million.

  • VIDULA MORDE

  • Okay.

  • And one last question with

  • regards to the overall

  • guidance.

  • You kind of answered this a

  • little bit to Greg Gordon's

  • question, but I think, uhm,

  • early on last year, you gave

  • us guidance particularly with

  • net incomes and you reiterated

  • the electric income of 195.

  • You now are looking at

  • consumers gas being more like

  • 45 versus 50.

  • I'm wondering, are there any other shuffles

  • that we should do to the

  • various segments to add back

  • up again to the 285 that you

  • are looking for?

  • AL WRIGHT

  • Yeah.

  • I think it was on one of the

  • charts, but I'll give it to you

  • verbally here.

  • DAVID JOOS

  • Slide number 14.

  • AL WRIGHT

  • yeah, slide number 14, but

  • I'll read it down here.

  • Electric utility 195.

  • Gas utility 45.

  • Natural gas transmission 85.

  • MS&T 40.

  • The IPP business, including MCV 125.

  • Oil and gas E&P negative 5,

  • and the after tax parent

  • interest expense and overheads

  • of minus 200.

  • Should sum up if I did the

  • sums right of 285.

  • VIDULA MORDE

  • Okay.

  • Thank you very much.

  • CONFERENCE FACILITATOR

  • Up next, from

  • Morgan Stanley, we'll hear from

  • Kip Conlage.

  • KIP CONLAGE

  • Hey guys. Thanks.

  • My questions have been

  • answered,

  • thanks to the thorough

  • questioning from my

  • colleagues.

  • AL WRIGHT

  • Yes.

  • Well, let's get that last name

  • right.

  • That's Conlage.

  • KIP CONLAGE

  • Yeah, thank you.

  • CONFERENCE FACILITATOR

  • If your question

  • has been answered, you can

  • remove yourself from the queue

  • by hitting the pound key.

  • Moving on, we'll hear from

  • Terry Shu with J.P. Morgan.

  • TERRY SHU

  • Yeah. Hi, Al.

  • I know this question has been

  • asked many, many times, this

  • whole business about equity

  • issuance.

  • Months ago, when you have met

  • with us, you have said that

  • for the marketing and trading

  • operation, their issues about

  • credit, et cetera, and counter

  • party concerns and such.

  • And you were thinking of joint

  • ventures, whatever, or equity

  • issuance.

  • Where does that issue stand?

  • DAVID JOOS

  • This is David Joos.

  • We have continued to look at

  • various options to accelerate

  • the credit improvement of

  • MS&T.

  • We haven't arrived on anything

  • specific, and we don't have

  • anything specific to talk

  • about at this time.

  • I will say that MS&T's

  • business unit is operating

  • fine.

  • There is no question on a

  • long-term basis that credit

  • improvement would help us to

  • continue the growth that we

  • have expected for this year.

  • We don't think that that's

  • necessary on a go forward

  • basis to continue the kind of

  • growth rates that we have

  • talked about in the past, and

  • the range of 25% or so is

  • going to require credit

  • improvement.

  • But we're not going to do

  • anything that hurts our

  • progress at the parent level,

  • and we -- as I said continue to

  • look at options there, but have

  • nothing specific to announce

  • at this point in time.

  • TERRY SHU

  • Therefore, it is not

  • requiring an equity issuance,

  • all the questions about equity

  • issuance you do have, uhm, the

  • continuous dividend

  • reinvestment and you said the

  • conversion of the preferred,

  • et cetera, and no new equity

  • issuance, is that the bottom

  • line?

  • I didn't quite understand.

  • AL WRIGHT

  • Well, we have several

  • ongoing programs, Terry, that

  • you mentioned.

  • TERRY SHU

  • Right.

  • AL WRIGHT

  • We have a [INAUDIBLE] continuous offering

  • program, and you have those others.

  • Those will continue to

  • operate.

  • Conversion will happen.

  • And beyond that, we do not

  • currently plan to have any

  • block issuance of stock.

  • TERRY SHU

  • Right.

  • Because you -- you broached

  • that subject from time to

  • time.

  • And so that's been kind of

  • shelved because of the

  • depressed stock price, is that

  • what it is?

  • AL WRIGHT

  • Well, it's a lot of things, one

  • of which is that.

  • But also the fact that for now,

  • the marketing company is doing

  • quite well as it is, and there

  • is no -- we didn't need to

  • issue stock for that reason.

  • TERRY SHU

  • Okay. Back to the Argentine

  • situation.

  • Let me just understand again,

  • better, the 28 to 33 cents for

  • the current year and then 17

  • to 25 cents for next year, are

  • these operating losses that

  • are dragging down the overall

  • results, and that once -- let's

  • say that we got rid of it

  • completely, the Argentine

  • operation.

  • Would you still be dragged

  • down by the same amount

  • because of debt load?

  • Can you just explain a little

  • better when this drag goes

  • away or does it ever go away

  • because your asset has been

  • impaired and you have to carry

  • a debt load?

  • AL WRIGHT

  • Let me -- that's a very

  • good question, Terry.

  • Thank you for asking it.

  • TERRY SHU

  • I just don't quite

  • understand.

  • I have these -- I had these

  • elaborate models which can't

  • capture some of this stuff

  • because we don't have the

  • disclosure.

  • AL WRIGHT

  • The figures that are shown

  • in the table and the ones that

  • you quoted --

  • TERRY SHU

  • Right.

  • AL WRIGHT

  • -- are versus what earnings

  • would be if we had not

  • experienced the change in

  • government in Argentina.

  • TERRY SHU

  • Right.

  • AL WRIGHT

  • In other words, they are

  • not, however, losses

  • necessarily.

  • In other words, they are

  • reductions, but not absolute

  • losses.

  • That said, if we were able to

  • sell these assets, those

  • exposures, those reductions,

  • would be reduced.

  • TERRY SHU

  • Will be reduced, but there

  • will be a permanent impairment

  • and drag, correct?

  • Your earnings base has been

  • lowered.

  • AL WRIGHT

  • If the assets are gone,

  • then they don't add to your earnings.

  • TERRY SHU

  • Right.

  • AL WRIGHT

  • But on the other hand, any

  • cash proceeds would be --

  • TERRY SHU

  • Right, right.

  • AL WRIGHT

  • -- offset with interest

  • savings. So --

  • TERRY SHU

  • Can you give us a net-net

  • number?

  • Or do we have a permanent

  • impairment of a -- 25 cents

  • per share, assuming that the

  • peso never ever comes back?

  • AL WRIGHT

  • Uhm... It depends again on

  • your assumption whether we

  • continue to own them.

  • TERRY SHU

  • Right.

  • AL WRIGHT

  • If we don't own them, then

  • we would have an improvement

  • somewhat in --

  • TERRY SHU

  • Right, somewhat, but not a

  • huge amount, or some -- right?

  • Because you still have your

  • drag, because you're selling it

  • at very low prices relative to

  • what you bought it for.

  • Therefore, you have your debt

  • load.

  • Am I not right?

  • AL WRIGHT

  • You could look at it that

  • way.

  • TERRY SHU

  • Right.

  • AL WRIGHT

  • But you are also making

  • assumption of what we might be

  • able to sell it for, and that

  • could change.

  • TERRY SHU

  • Okay.

  • Good enough.

  • Thanks.

  • CONFERENCE FACILITATOR

  • Moving on, we'll

  • hear from Paul Ridzon with

  • McDonald Investments.

  • PAUL RIDZON

  • Does your projected 62% debt

  • to capital assume that you kind of

  • swap in some other assets to

  • make up for the shortfall from

  • Argentina?

  • AL WRIGHT

  • Yes.

  • We are going to sell $2.9

  • billion over the two years.

  • And it does assume that.

  • PAUL RIDZON

  • And you have not identified

  • those yet?

  • AL WRIGHT

  • We have done, as I said,

  • between 2.3 and 2.4, assuming

  • activity progresses today as

  • we expect on the transmission

  • sale and Powder River.

  • And we have 10 assets under

  • way -- well under way in the

  • process that we expect in

  • total to add up to the

  • difference.

  • DAVID JOOS

  • I think it's fair to say

  • from an identification

  • perspective that we have set

  • previously that, for example

  • our Loy Yang Plant, in

  • Australia is for sale, our

  • plant in Thailand is for sale,

  • we just recently announced the

  • sale of our plant in the

  • Philippines.

  • We have 3 plants in India that

  • are for sale.

  • We have the plant in Jamaica

  • for sale.

  • The plants, you know, in

  • Argentina, are for sale.

  • However, as Al has indicated,

  • at this point in time it

  • doesn't look -- because of the

  • fluidity of the situation down

  • there, it doesn't look

  • promising that those assets

  • would actually be sold this

  • year.

  • But we have announced a long

  • list of things that are for

  • sale.

  • Internally, there are a few

  • things that may not sell, like

  • I said, like the Argentine

  • assets.

  • But collectively amongst that

  • list, and some other things

  • that we may put up for sale to

  • make sure we get to this

  • program, we plan on getting

  • the $2.9 billion, and that is built

  • into our plan.

  • AL WRIGHT

  • While I'm at it, Terry,

  • there is something I forgot to

  • mention, with regard to Argentina. And

  • that is that this hit to the

  • balance sheet eventually could

  • be mitigated by both

  • arbitration proceeds that we

  • have under way under the

  • international treaty with the

  • United States, having to do

  • with honoring these contracts

  • at the regulated entities. And, of

  • course, if Argentina doesn't

  • pay such a judgment, then we

  • are backed up somewhat with insurance

  • proceeds for political risk.

  • So, you forget that in your

  • equation.

  • PAUL RIDZON

  • Would you -- this is Paul

  • Ridzon again.

  • Could you indicate what level

  • of earnings is associated with

  • the 10 assets that are likely

  • to close this year?

  • AL WRIGHT

  • I don't have that figure on

  • the top of -- off the top of

  • my head. But I will tell you

  • they have been factored out of

  • our projections.

  • PAUL RIDZON

  • Okay.

  • Thank you.

  • CONFERENCE FACILITATOR

  • From JK Utility

  • Advisors we'll hear from John

  • Colleney.

  • JOHN COLLENEY

  • Hi Al.

  • AL WRIGHT

  • Hi John.

  • JOHN COLLENEY

  • I guess two areas.

  • One in terms of the Powder

  • River and Transmission sale

  • that you expect might close

  • today.

  • Total proceeds in the $400

  • million area, is that about

  • right?

  • AL WRIGHT

  • That's right.

  • JOHN COLLENEY

  • Okay.

  • And then, I hate to keep going

  • back to Argentina.

  • But on -- I guess two questions.

  • You mentioned there is some

  • project U.S. currency debt

  • attached to the Argentinian assets.

  • Is that recourse to CMS, and

  • how much is it?

  • AL WRIGHT

  • Negative

  • about 50 million.

  • No recourse.

  • JOHN COLLENEY

  • No recourse.

  • Okay.

  • And then, on a -- trying to

  • understand, on a quarterly

  • basis, this $400 million

  • charge that you are taking

  • will be adjusted up or down,

  • depending on the peso at close

  • of each quarter, is that

  • correct?

  • AL WRIGHT

  • That is correct.

  • And we will be using a base of

  • between 3 and 3.5 as a

  • starting point.

  • And any such subsequent

  • adjustment will go to CTA, not

  • through earnings.

  • JOHN COLLENEY

  • Okay.

  • And then, uhm, did you say

  • this charge in some fashion

  • mitigates potential operating

  • losses on a go forward basis?

  • AL WRIGHT

  • Yes.

  • JOHN COLLENEY

  • How does that work?

  • AL WRIGHT

  • In some cases, it reduces

  • the asset value frankly to

  • zero.

  • And therefore, subsequent

  • gains and losses are excluded.

  • The second way is it causes

  • depreciation to be less.

  • JOHN COLLENEY

  • Okay.

  • Okay, thanks.

  • CONFERENCE FACILITATOR

  • We'll hear from

  • Peter Case with CIBC World

  • Markets.

  • PETER CASE

  • Al or Dave, can you talk a

  • little bit about the long-run

  • outlook for the E&P business,

  • given your commitment to the

  • 2.9 billion in proceeds, and

  • that Argentina probably won't

  • contribute to that in the

  • short term?

  • And with -- now having sold both

  • Equatorial Guinea and Powder

  • River, does that business have

  • critical mass?

  • Is it a keeper?

  • DAVID JOOS

  • Those are a lot of good

  • questions and ones that we are

  • working trough right now

  • internally.

  • We have been up front that the

  • E&P business as currently

  • structured doesn't make sense.

  • We have a few assets left in

  • the United States, in West Texas

  • and Louisiana.

  • We have a couple of very good

  • properties in South America

  • and Venezuela and Colombia.

  • And then we have Cameroon,

  • Tunisia and the Congo along

  • with exploration properties in

  • Eritrea.

  • So we are spread fairly thin

  • at this point in time for a business

  • of our size.

  • And frankly, what we have said,

  • and we continue to say, is

  • that we plan on either

  • repositioning and possibly

  • exiting that business. Though

  • the specifics of how we'll do

  • that, when we'll do that, and

  • even if we do that are not yet

  • settled.

  • PETER CASE

  • Okay.

  • Thank you.

  • CONFERENCE FACILITATOR

  • Up next we'll

  • hear from Steven Landolt with

  • Landolt Securities.

  • STEVEN LANDOLT

  • Good morning everybody. On that $430

  • million write-off, is that before or

  • after taxes?

  • AL WRIGHT

  • That would be after taxes.

  • STEVEN LANDOLT

  • Okay.

  • And then also, there's been a

  • lot of talk about the down

  • side of Argentina.

  • What about the up side?

  • Are there -- is there anything

  • down there that you people see

  • to make the outlook more

  • positive?

  • AL WRIGHT

  • Well, I'll tell you, we are

  • pretty well connected down

  • there.

  • We have been to Washington.

  • We are talking all the time to

  • people in Treasury, who in turn

  • are influential at the IMF.

  • And I would say that we have

  • made progress in -- with

  • Treasury and the IMF, such that

  • any subsequent IMF bailout or

  • loan program will have as a

  • condition -- it is likely to

  • have as a condition

  • restoration of the viability

  • of the energy sector in

  • Argentina.

  • Including some reasonable

  • outcome on our contracts.

  • However, the current

  • government seems to be trying,

  • at the moment, to figure out

  • some way of operating without

  • IMF support, because the IMF is

  • insisting on some fairly

  • painful political conditions

  • in order to justify loaning

  • them money.

  • So if I were to call it today,

  • I would say the government

  • seems to be moving away from

  • the IMF.

  • Whether they will be

  • successful in the long run in

  • that regard is arguable.

  • I think frankly, as a

  • collegiate economist, that the

  • IMF is going to have to play

  • into that scenario, in which

  • case I think there may be some

  • restoration in the energy

  • sector.

  • But this is all very

  • problematic and difficult to

  • forecast. And that's why, among

  • other reasons, we decided to

  • take the steps we have.

  • DAVID JOOS

  • I think it is fair to say

  • that while there is little to

  • be enthusiastic about at this

  • point in time, the steps that

  • we have taken eliminate for

  • the most part any material

  • down side.

  • Not to say there aren't some

  • minor adjustments that we

  • talked about.

  • So what up side -- what change

  • there is, over the longer term,

  • is likely to be up side.

  • It's just difficult to

  • forecast it or time it at this

  • point.

  • AL WRIGHT

  • Right.

  • STEVEN LANDOLT

  • So you're basically taking

  • the worst-case scenario at

  • this time?

  • AL WRIGHT

  • Pretty much.

  • DAVID JOOS

  • It's not the absolute worst

  • case, but it's pretty close to

  • it. As we indicated, you know,

  • we basically, with this charge,

  • will reduce our book equity to

  • something like 20% of what was

  • originally there for the

  • assets that are affected.

  • STEVEN LANDOLT

  • So this is a hit of about

  • $3.25 a share... So what would

  • be the book value after the

  • sale of the oil and gas

  • properties and then this

  • writedown?

  • What would be the book value

  • of the company roughly at this

  • time then ?

  • AL WRIGHT

  • I don't have that figure,

  • nor have we published -- well,

  • actually, we did publish the

  • first quarter, and you could

  • make adjustments on that pro

  • forma.

  • STEVEN LANDOLT

  • Okay.

  • Thank you very much.

  • Good luck going forward.

  • AL WRIGHT

  • Thank you.

  • CONFERENCE FACILITATOR

  • Our next question will

  • come from National Bank

  • Financial's from Fred Fruhoff.

  • FRED FRUHOFF

  • Good morning.

  • What is the impact of the

  • implementation of FAS-142 on

  • your earlier earnings?

  • AL WRIGHT

  • So far, it is the

  • elimination of the good will

  • in the Panhandle principally, which

  • runs about $19 million

  • annually.

  • We continue to review the

  • value of all of our assets

  • under FAS-142, and that will

  • continue through the rest of

  • the year.

  • FRED FRUHOFF

  • Okay.

  • I have a couple of questions

  • on the trunk line LNG business,

  • if I may.

  • I take it you don't disclose

  • operating earnings for -- for

  • your LNG operations, or do

  • you?

  • DAVID JOOS

  • Not specifically.

  • We indicated on an overall

  • basis what our earnings were

  • at GTS, Gas Transmission and

  • storage.

  • As you know, the trunk line

  • LNG business is something that

  • we have sold the existing

  • capacity, under a long-term

  • contract in excess of 20 years,

  • to British Gas.

  • FRED FRUHOFF

  • Yes.

  • DAVID JOOS

  • We announced that earlier.

  • That doesn't mean that there

  • is no additional earnings

  • associated with that. We do

  • have some opportunities to

  • move spot cargos through the

  • LNG business.

  • Early in this year, we saw

  • very little of that, because

  • gas prices were so depressed.

  • We are starting to see a

  • pickup in cargo at Lake Charles, so

  • there will be some earnings

  • contribution. But the majority

  • of that basically was

  • monitized earlier through the

  • BG contract monization.

  • FRED FRUHOFF

  • How many cargos were there

  • in the first quarter compared

  • to last year?

  • DAVID JOOS

  • I don't have those numbers.

  • My recollection is there was

  • maybe one or -- I can't

  • remember if the first cargo

  • was even in the first quarter

  • through April.

  • And I don't have the numbers

  • specifically how many cargos

  • early last year.

  • We have seen a pickup, and I

  • think we are looking at

  • somewhere on the order of 7 or

  • 8 cargos that have already

  • been committed just within the

  • last month or so as a result

  • of the pickup of prices.

  • FRED FRUHOFF

  • And what are your plans

  • with respect to the expansion

  • of the LNG terminals capacity.

  • DAVID JOOS

  • Well, we have -- we are

  • proceeding with the

  • preliminary efforts associated

  • with that, including

  • engineering, and looking for

  • contractors to build a

  • facility.

  • We are in the process of going

  • through the FERC licensing

  • proceedings.

  • That is going well.

  • The environmental meetings at

  • the site have gone well.

  • There is an option for British

  • Gas to take the incremental

  • capacity, and they have that

  • option through June.

  • We'll just have to wait and

  • see if they are interested in

  • that.

  • As we said earlier, we

  • continue to believe that LNG

  • is going to be a very

  • important part of the supply

  • portfolio for the United

  • States on a go forward basis,

  • and this is probably the most

  • cost-effective project in the

  • U.S. to provide for additional

  • expansion capabilities.

  • So we fully expect that we are

  • going to be moving forward

  • with that project.

  • There is a little bit of

  • uncertainty yet as to exactly

  • how that will be contracted,

  • et cetera.

  • But that should get itself

  • resolved here in the third and

  • fourth quarter.

  • FRED FRUHOFF

  • Does this terminal lend

  • itself potentially to a

  • limited partnership type of an

  • arrangement, where you would be

  • the general partner, and you

  • could monitize, of course,

  • part of your current

  • investment to the limited

  • partners?

  • AL WRIGHT

  • We, as you know, or perhaps

  • not, last year we executed a

  • transaction that monitized the

  • existing British Gas contract

  • for capacity.

  • And with regard to the

  • expansion, we have made no

  • decision yet as to the best

  • way to finance that.

  • But it could involve a

  • partnership.

  • FRED FRUHOFF

  • Okay.

  • Thanks very much.

  • That's all I have.

  • CONFERENCE FACILITATOR

  • Moving on, we'll hear from

  • Zach Schreiber with SylCap Investments.

  • ZACH SCHREIBER

  • Hi, Al.

  • It's Zach Schreiber from SylCap.

  • Can you hear me?

  • AL WRIGHT

  • yes, Zach, loud and clear.

  • ZACH SCHREIBER

  • Just a question again on

  • the balance sheet and just the

  • assumptions embedded in the

  • 62% number for year end.

  • Does that number explicitly

  • assume that the $300 million

  • of convert that, uhm, that

  • mandatory converts into

  • equity sort of midyear '02 and

  • then that they get replaced

  • dollar for dollar with a like

  • security?

  • AL WRIGHT

  • Yes.

  • ZACH SCHREIBER

  • And embedded in that number,

  • that's 62% debt to total capital,

  • are you guys giving yourself

  • equity credit for those

  • converts, the rating agencies

  • doing that, or do's the equity

  • credit really only increase on

  • conversion to common?

  • AL WRIGHT

  • At present.

  • We have full equity credit for

  • convertible, principally

  • because it's mandatory.

  • ZACH SCHREIBER

  • Okay.

  • Thanks so much.

  • CONFERENCE FACILITATOR

  • Moving on, we'll hear from

  • Eric Olson with Barlow Hanley.

  • ERIC OLSON

  • Good morning.

  • I was just curious if you

  • could provide us what

  • operating cash flow for the

  • quarter came in at.

  • If you have given any guidance

  • for recurring effort in

  • cash flow for the year.

  • And also, you mentioned on previous

  • conference calls, but I wanted

  • to hear if you're still

  • committed to the dividend.

  • Thanks.

  • AL WRIGHT

  • I don't have that cash flow

  • information before me, but it's

  • huge because of the sale of

  • EG.

  • So I'd have to make an

  • adjustment as to the operating

  • level, and I don't have that in

  • front of me.

  • Now, with regards to the

  • dividend. We are committed to

  • maintaining the dividend at

  • $1.46, 36.5 cents a share. In

  • fact the next declaration will

  • be coming along shortly.

  • So there is no change in the

  • dividend.

  • Is that clear?

  • CONFERENCE FACILITATOR

  • Up next, we'll hear from a

  • follow-up from Greg Gordon

  • with Goldman Sachs.

  • GREG GORDON

  • Yeah, just two follow-up

  • questions, guys.

  • If I look at your earnings

  • breakdown, and just sort of do

  • some basic math, the -- if I

  • take, assuming that all the

  • financing for the utility is

  • at the utility level, and that

  • that $200 million of parent

  • operating expense is

  • associated with the rest of

  • the assets, and we sort of,

  • you know, do basic math, you

  • get for 2002, uhm, you know,

  • net income after parent debt

  • or sort of non-utility

  • investments of about $45

  • million. Which, you know,

  • assuming that that convertible

  • does turn into common midyear,

  • would be about 30 cents a year

  • of earnings?

  • So after taking into account

  • the Argentina businesses, you

  • know, the sort of losses there

  • before you can package them

  • for sale, would it be fair to

  • say that you're basically

  • break even after financing

  • costs?

  • On that basket of

  • non-Michigan-based businesses?

  • Or is that not an

  • appropriate way to look at it?

  • AL WRIGHT

  • Well, the ongoing level -- first of

  • all, from Argentina, remember,

  • is 17 to 25.

  • GREG GORDON

  • Right, so that will improve next

  • year.

  • I'm just looking at -- and it

  • will further improve hopefully

  • when you get out of that

  • business.

  • AL WRIGHT

  • That is correct

  • GREG GORDON

  • I'm just trying to make sure, I'm

  • looking at this the right way.

  • AL WRIGHT

  • But with regard to doing

  • the math you just did, that's

  • how it works out.

  • GREG GORDON

  • Okay.

  • Now, one other thing.

  • When you look at the operating

  • cash flow of just the utility

  • businesses, and compare that to

  • the utility CAP-X, plus the

  • common dividend, are we in a

  • position where we are sort of

  • comfortably funding the

  • dividend and the maintenance

  • CAP-X of the utility with the

  • cash flow of the utility?

  • Or is it, or do we need the

  • incremental cash business to

  • support that core business, and

  • the dividend payout?

  • AL WRIGHT

  • We enjoy a dividend stream

  • from all the businesses that

  • in some cases is actually in

  • excess of earnings, because of

  • the way the project financing

  • works. A classic example of

  • that is JORF, where dividends coming in in cash are

  • higher than the earnings.

  • Let's go back to the core

  • question, which is -- with regard to the

  • utility.

  • I would say that during the

  • last several -- couple of

  • years, that the utility has

  • been a net needer of funds

  • after the dividend, simply

  • because of its environmental

  • expenditures for nitrous

  • oxide.

  • We expect that to abate

  • somewhat, and therefore, the

  • utility being pretty much

  • break-even after paying fairly

  • a significant dividends.

  • GREG GORDON

  • Great.

  • But at this point,

  • the utility, after

  • its capital expenditures, is

  • not in a position where it

  • could hypothetically fund the

  • entire common dividend?

  • AL WRIGHT

  • No, I didn't say that. I

  • said after it dividends

  • roughly $200 million, that it

  • still has to raise a little

  • money.

  • So net-net, yeah, the utility

  • dividend does cover the common

  • dividend.

  • GREG GORDON

  • Great.

  • I mean, so, you know, I mean,

  • what I'm -- basically, the

  • framework I'm trying to

  • understand here, you know,

  • even though you have

  • challenges with your basket of

  • non-regulated businesses, and

  • you're working through those

  • and that's, had you know,

  • you're slogging through it and

  • that's going to take some time,

  • this is the core business is

  • still generating earnings and

  • cash flow sufficient to

  • continue to pay the dividend --

  • AL WRIGHT

  • That's right.

  • GREG GORDON

  • -- on the common stock.

  • AL WRIGHT

  • That's right.

  • GREG GORDON

  • Okay.

  • Great, thanks.

  • CONFERENCE FACILITATOR

  • We'll take

  • another follow-up question

  • from Devon Geohiggins with Lumas

  • Management.

  • DEVON GEOHIGGINS

  • Great, thank you.

  • Just a couple things.

  • Just to clarify. The

  • amortization, I know that's been

  • touched on a couple of times,

  • but is it 19 times, you know,

  • annualized time 4 quarters or

  • 19 per year?

  • AL WRIGHT

  • Per year.

  • DEVON GEOHIGGINS

  • It's 19 per year.

  • AL WRIGHT

  • Yes.

  • DEVON GEOHIGGINS

  • Okay.

  • That's what I was thinking.

  • And then, as far as the

  • depreciation from the

  • writedowns, can you give us

  • some indication as to the

  • magnitude of the decrease in

  • that number?

  • AL WRIGHT

  • Hold on a second.

  • [PAUSE]

  • AL WRIGHT

  • We don't -- we can get that number,

  • but we don't have it this minute.

  • If you'll call Investor

  • Relations later --

  • DEVON GEOHIGGINS

  • Absolutely.

  • AL WRIGHT

  • -- then they

  • have it. -13:39:56 DEVON GEOHIGGINS: Okay.

  • Just one last question.

  • I know everybody is focusing

  • on the balance sheet issues.

  • But what are the rating

  • agencies talking about, and are

  • they focusing more on the

  • coverage ratios and sort of,

  • you know, meeting different

  • things like that as opposed to

  • focusing on the balance sheet?

  • AL WRIGHT

  • Yes, their main concern,

  • as it should be, and that we concur with, is

  • free funds from operation coverages,

  • and debt to EBITDA, neither of

  • which are affected by our

  • non-cash write-off.

  • DEVON GEOHIGGINS

  • Great, thank you very much.

  • CONFERENCE FACILITATOR

  • And our final

  • question will come from Vidula Morde

  • with SAC Capital.

  • VIDULA MORDE

  • One last question with

  • respect to Argentina.

  • What would it take for you to

  • conclude that you can, on an

  • accounting basis, decide that

  • these are discontinued

  • operations or assets held for

  • sale such that the, uhm,

  • remaining effect that you have

  • indicated of the 13, 17 cents

  • that would come through the

  • income statement would no

  • longer need to be reflected?

  • AL WRIGHT

  • Well, there would still be

  • some residual effect, Vidula,

  • but a lot of

  • it would be eliminated.

  • I would tell you that I

  • believe the rule to be that

  • you have to have a pretty

  • probable plan to dispose of

  • those assets within a year.

  • And we just couldn't make that

  • determination, given the

  • state of uncertainty in

  • Argentina.

  • VIDULA MORDE

  • Now, given what you know

  • about the parties with whom

  • you have discussions with, and everything like that,

  • is this going to be a

  • quarter-to-quarter thing

  • whereby, come this time three

  • months from now, in fact you

  • may be in a position to

  • reclassify these assets?

  • AL WRIGHT

  • We could.

  • Depending on developments in

  • the country.

  • And in the market.

  • VIDULA MORDE

  • Just, kind of based on what

  • you have been watching here,

  • do you have any expectation

  • that we should expect

  • something like that this year?

  • Or do you think it really is

  • going to push into next year?

  • AL WRIGHT

  • Vidula, if I could predict

  • what was going to happen in

  • Argentina tomorrow, I'd be a

  • rich man.

  • It's very difficult.

  • DAVID JOOS

  • I think, suffice it to say,

  • that given the timing of this

  • year, and the circumstances down

  • there, that there isn't a lot

  • of appetite on people's part

  • to buy assets in Argentina.

  • And for that reason, we are

  • not at all optimistic that

  • they are going to sell during

  • this calendar year.

  • AL WRIGHT

  • Right. There's two aspects.

  • One is the situation in

  • Argentina, as Dave rightly

  • points out, you know, there

  • is no market for assets there.

  • At present, it could happen

  • but it isn't likely that both

  • of those will resolve in such

  • a way that we'll be able to

  • classify them as [INAUDIBLE] for sale.

  • VIDULA MORDE

  • Okay. Thank you very much.

  • CONFERENCE FACILITATOR

  • That concludes

  • our question-and-answer

  • session for today.

  • I will turn the conference back

  • over to you for any closing

  • remarks.

  • AL WRIGHT

  • Well, again, thank you very

  • much.

  • I know you are all busy this

  • season.

  • And we appreciate your

  • continued support and interest

  • in the company.

  • Thank you.

  • CONFERENCE FACILITATOR

  • That concludes

  • today's teleconference.

  • Thank you for your

  • participation.