CMS能源 (CMS) 2002 Q1 法說會逐字稿

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.

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.

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.

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]

And our first question will come from Greg Gordon with Goldman Sachs.

Thanks. Good morning, Al.

Good morning, Greg.

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?

That is correct, Greg.

Great. And then -- but those assets are currently not held for sale?

That is correct.

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?

Yes, that's correct.

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?

Right. And that assumes, by the way, an entire year operation in the ranges of exchange rate we show on the table.

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?

That would be a reasonable statement.

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 --

Yes, let's go to that last chart. The current guidance would indicate $195 million for electric, gas $45 million. Gas utility.

Okay.

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.

Okay, great. But most all the financing for the electric and gas utility is done at the electric and gas utility level, correct?

Correct.

Okay. Thanks, guys.

Up next we'll hear from Jeff Gildersleeve with Argus Research.

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?

Dave, you want to --

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.

Okay. So there were no abnormal costs in there this quarter?

No. None.

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?

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.

Great. Thanks a lot.

Up next, from Lumas Management, we'll hear from 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.

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.

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?

That would be, uhm, not a good thing to discuss --

Fair enough.

-- 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.

Great. Thanks. Congratulations.

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.

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?

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.

But they haven't indicated how much is enough?

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.

Alright, thank you.

Up next, we'll hear from John Olson with Sanders, Morris, & Harris.

Al, good morning.

Good morning, how are you?

Fine. Listen, what -- in marketing services and trading, how much of profit was mark to market?

Net about zero. We had some gains in electric I believe, and losses in gas.

Okay.

It netted out about zero.

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?

It's a $19 million annualized number. So I think it's ratable over the year.

Okay. Thanks very much.

Moving on, from Deutsche Banc, we'll hear from James Dobson.

Al, how are you?

I'm fine James. How are you?

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.

[INAUDIBLE] I don't know the total on that deal. Dave, do you have --

: 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.

And they were offsetting.

Okay. And then on JORF, could you give us an idea what the performance incentive was in the numbers?

About 2 million, I'm advised.

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

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.

Great. Thanks for your help.

Up next, from SAC Capital, we'll hear from Vidula Morde.

Good morning, Al.

Good morning, Vidula.

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.

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.

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?

I haven't done the math at 5. I would tell you that we have, as I understand it about 50 million exposed.

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.

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.

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.

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.

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?

Yeah. I think it was on one of the charts, but I'll give it to you verbally here.

Slide number 14.

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.

Okay. Thank you very much.

Up next, from Morgan Stanley, we'll hear from Kip Conlage.

Hey guys. Thanks. My questions have been answered, thanks to the thorough questioning from my colleagues.

Yes. Well, let's get that last name right. That's Conlage.

Yeah, thank you.

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.

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?

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.

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.

Well, we have several ongoing programs, Terry, that you mentioned.

Right.

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.

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?

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.

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?

Let me -- that's a very good question, Terry. Thank you for asking it.

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.

The figures that are shown in the table and the ones that you quoted --

Right.

-- are versus what earnings would be if we had not experienced the change in government in Argentina.

Right.

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.

Will be reduced, but there will be a permanent impairment and drag, correct? Your earnings base has been lowered.

If the assets are gone, then they don't add to your earnings.

Right.

But on the other hand, any cash proceeds would be --

Right, right.

-- offset with interest savings. So --

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?

Uhm... It depends again on your assumption whether we continue to own them.

Right.

If we don't own them, then we would have an improvement somewhat in --

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?

You could look at it that way.

Right.

But you are also making assumption of what we might be able to sell it for, and that could change.

Okay. Good enough. Thanks.

Moving on, we'll hear from Paul Ridzon with McDonald Investments.

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?

Yes. We are going to sell $2.9 billion over the two years. And it does assume that.

And you have not identified those yet?

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.

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.

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.

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?

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.

Okay. Thank you.

From JK Utility Advisors we'll hear from John Colleney.

Hi Al.

Hi John.

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?

That's right.

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?

Negative about 50 million. No recourse.

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?

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.

Okay. And then, uhm, did you say this charge in some fashion mitigates potential operating losses on a go forward basis?

Yes.

How does that work?

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.

Okay. Okay, thanks.

We'll hear from Peter Case with CIBC World Markets.

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?

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.

Okay. Thank you.

Up next we'll hear from Steven Landolt with Landolt Securities.

Good morning everybody. On that $430 million write-off, is that before or after taxes?

That would be after taxes.

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?

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.

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.

Right.

So you're basically taking the worst-case scenario at this time?

Pretty much.

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.

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 ?

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.

Okay. Thank you very much. Good luck going forward.

Thank you.

Our next question will come from National Bank Financial's from Fred Fruhoff.

Good morning. What is the impact of the implementation of FAS-142 on your earlier earnings?

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.

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?

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.

Yes.

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.

How many cargos were there in the first quarter compared to last year?

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.

And what are your plans with respect to the expansion of the LNG terminals capacity.

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.

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?

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.

Okay. Thanks very much. That's all I have.

Moving on, we'll hear from Zach Schreiber with SylCap Investments.

Hi, Al. It's Zach Schreiber from SylCap. Can you hear me?

yes, Zach, loud and clear.

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?

Yes.

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?

At present. We have full equity credit for convertible, principally because it's mandatory.

Okay. Thanks so much.

Moving on, we'll hear from Eric Olson with Barlow Hanley.

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.

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?

Up next, we'll hear from a follow-up from Greg Gordon with Goldman Sachs.

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?

Well, the ongoing level -- first of all, from Argentina, remember, is 17 to 25.

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.

That is correct

I'm just trying to make sure, I'm looking at this the right way.

But with regard to doing the math you just did, that's how it works out.

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?

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.

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?

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.

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 --

That's right.

-- on the common stock.

That's right.

Okay. Great, thanks.

We'll take another follow-up question from Devon Geohiggins with Lumas Management.

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?

Per year.

It's 19 per year.

Yes.

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?

Hold on a second. [PAUSE]

We don't -- we can get that number, but we don't have it this minute. If you'll call Investor Relations later --

Absolutely.

-- 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?

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.

Great, thank you very much.

And our final question will come from Vidula Morde with SAC Capital.

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?

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.

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?

We could. Depending on developments in the country. And in the market.

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?

Vidula, if I could predict what was going to happen in Argentina tomorrow, I'd be a rich man. It's very difficult.

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.

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.

Okay. Thank you very much.

That concludes our question-and-answer session for today. I will turn the conference back over to you for any closing remarks.

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.

That concludes today's teleconference. Thank you for your participation.