UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _________________
COMMISSION FILE NUMBER 1-9513 (CMS ENERGY CORPORATION)
COMMISSION FILE NUMBER 1-5611 (CONSUMERS ENERGY COMPANY)
EMPLOYEES' SAVINGS PLAN AND
EMPLOYEE STOCK OWNERSHIP PLAN OF
CONSUMERS ENERGY COMPANY
ONE ENERGY PLAZA
JACKSON, MICHIGAN 49201
(FULL TITLE OF THE PLAN AND ADDRESS OF THE PLAN, IF
DIFFERENT FROM THAT OF THE ISSUER NAMED BELOW)
CMS ENERGY CORPORATION
ONE ENERGY PLAZA
JACKSON, MICHIGAN 49201
(NAME OF ISSUER OF THE SECURITIES HELD
PURSUANT TO THE PLAN AND THE ADDRESS
OF ITS PRINCIPAL EXECUTIVE OFFICE)
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Audited Financial Statements and Supplemental Schedule
December 31, 2005 and 2004 and
Year ended December 31, 2005
CONTENTS
Report of Independent Registered Public Accounting Firm .................... 1
Audited Financial Statements
Statements of Net Assets Available for Benefits ............................ 2
Statement of Changes in Net Assets Available for Benefits .................. 3
Notes to Financial Statements .............................................. 4
Supplemental Schedule
Schedule H, Line 4i--Schedule of Assets (Held at End of Year) .............. 9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Plan Administrator
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
We have audited the accompanying statements of net assets available for benefits
of Employees' Savings Plan and Employee Stock Ownership Plan of Consumers Energy
Company as of December 31, 2005 and 2004, and the related statement of changes
in net assets available for benefits for the year ended December 31, 2005. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Plan's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Plan's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2005 and 2004, and the changes in its net assets available for
benefits for the year ended December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2005, is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
Detroit, Michigan
June 23, 2006
1
Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company
Statements of Net Assets Available for Benefits
DECEMBER 31
---------------------------
2005 2004
------------ ------------
ASSETS
Investments:
Guaranteed investment contracts (at contract value) $ 70,445,364 $130,736,865
Collective Trust Funds:
Comerica Small Cap Index Fund 4,430,138 2,633,789
Comerica Large Cap Growth Index Fund 11,831,512 12,155,574
Comerica Large Cap Value Index Fund 12,834,276 11,386,982
Comerica Midcap Index Fund 3,621,115 1,785,889
Comerica 500 Index Fund 15,671,334 14,394,383
Registered Investment Companies:
Fidelity Managed Income Portfolio II 110,015,527 41,291,721
PIMCO Total Return Fund 6,871,368 --
Vanguard Inflation Protected Securities Fund 598,162 --
Fidelity Intermediate Bond Fund -- 6,203,158
Calamos Growth Fund 62,637,949 57,289,067
Janus Mid Cap Value Fund 13,896,018 8,105,451
Fidelity Dividend Growth Fund 142,658,183 150,679,815
Fidelity Low Price Stock Fund 11,740,282 10,999,072
Fidelity Diversified International Fund 34,829,913 24,500,289
Fidelity Small Cap Stock Fund 15,289,122 14,408,657
Fidelity Freedom Income Fund 1,710,387 1,329,472
Fidelity Freedom 2000 Fund 1,358 --
Fidelity Freedom 2005 Fund 112,007 --
Fidelity Freedom 2010 Fund 5,563,136 3,619,498
Fidelity Freedom 2015 Fund 1,348,205 --
Fidelity Freedom 2020 Fund 5,735,221 2,678,603
Fidelity Freedom 2025 Fund 734,202 --
Fidelity Freedom 2030 Fund 1,399,452 723,534
Fidelity Freedom 2035 Fund 232,201 --
Fidelity Freedom 2040 Fund 1,503,321 409,553
CMS Energy Corporation Common Stock 168,766,700 121,554,041
Short term investments 370,103 12,658
Loans to participants 22,229,822 22,891,867
------------ ------------
Total investments 727,076,378 639,789,938
Receivables:
Other receivables 526,691 71,839
------------ ------------
526,691 71,839
LIABILITY
Other 200,783 83,248
------------ ------------
Net assets available for benefits $727,402,286 $639,778,529
============ ============
See accompanying notes.
2
Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2005
ADDITIONS
Interest and dividend income $ 6,209,317
Participant contributions 42,057,983
Employer contributions 13,098,045
------------
Total additions 61,365,345
DEDUCTIONS
Benefits payments, withdrawals and distributions 46,769,350
Administrative expenses 190,970
------------
Total deductions 46,960,320
Net realized and unrealized appreciation
in fair value of investments 73,218,732
------------
Net increase 87,623,757
Net assets available for benefits:
Beginning of year 639,778,529
------------
End of year $727,402,286
============
See accompanying notes.
3
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
December 31, 2005 and 2004
and Year Ended December 31, 2005
1. DESCRIPTION OF PLAN
The following description of the Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company (the Plan) provides only general
information. Participants should refer to the Plan document for a complete
description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan designed to encourage and assist
employees of CMS Energy Corporation and its subsidiaries, which are at least 80%
owned (the Company or Employer) and have adopted the Plan in saving for the
future. The Plan is a voluntary program that allows eligible participants to
invest their contributions in various investment funds. All regular employees of
the Company as defined by the Plan, may participate in the Plan. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of 1974
(ERISA).
CONTRIBUTIONS
Participants in the Plan may elect to make pre-tax or after-tax contributions in
amounts up to 50% of their eligible compensation (up to 25% prior to September
1, 2005), as defined by the Plan, subject to certain limitations as set forth in
the Plan. If a participant's annual salary is equal to or more than $95,000, the
most that can be contributed by the Employer on behalf of the participant to the
Plan on a pre-tax basis is 12.5% of their eligible compensation.
The Company provides matching Employer contributions in an amount equal to $.60
for each $1.00 contributed by a participant ($.50 for each $1.00 prior to
September 1, 2005), up to a maximum of 6% of the participant's eligible
compensation. The Employer can also make discretionary contributions to the
Plan, but did not elect to do so during 2005 or 2004.
All participant balances are eligible for reallocation at the discretion of the
participant.
Effective September 1, 2004, the savings portion of the Plan was amended to
provide that authorized but unissued shares of common stock of CMS Energy
Corporation or other securities convertible to such common stock may be used to
satisfy allocations elected by participants and matching Employer contributions.
Effective September 1, 2005, all new participants and participants formerly
covered by the Cash Balance provisions of the Company's pension plan began
accruing benefits under the Defined Company Contribution Plan (DCCP) provisions
of the Plan. Employees are eligible for participation in the DCCP after 180 days
of employment. Under DCCP, participants receive a
4
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
1. DESCRIPTION OF PLAN (CONTINUED)
CONTRIBUTIONS (CONTINUED)
company contribution of 5% of eligible compensation. Contributions are
immediately vested and are allocated at the discretion of the participant.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions,
matching Employer contributions and allocations of Plan earnings. The benefit to
which a participant is entitled is the benefit that can be provided from the
vested value of the participant's account.
VESTING
Participants are immediately vested in their contributions plus actual earnings
thereon. Vesting in any matching Employer contributions is based on years of
service. A participant becomes 10% vested for each of the first two years of
service with the Company, and 20% for each of the next four years of service.
PARTICIPANT LOANS
Participants may borrow from their non-DCCP fund accounts up to a maximum of
$50,000 or 50% of their vested account balance, whichever is less. Loan terms
range up to five years for a general purpose loan or up to 15 years for the
purchase of a primary residence. The loans are secured by the balance of the
participant's account and bear interest at a rate commensurate with local
prevailing rates as determined quarterly by the plan administrator. Principal
and interest are paid ratably through payroll deductions.
PAYMENT OF BENEFITS
Upon termination of service, death, disability or retirement, a participant may
receive a lump-sum amount equal to the vested value of his or her account.
FORFEITURES AND ADMINISTRATIVE EXPENSES
Forfeitures result from matching Employer contributions and incentive
contributions remaining in the Plan for terminated participants' nonvested
account balances. Forfeitures generated are added to a forfeiture reserve
account and are available to offset matching Employer contributions. Such
amounts forfeited in 2005 and 2004 were $41,940 and $55,386, respectively, and
are treated as a reduction of the Employer's contribution. As of December 31,
2005, the
5
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
1. DESCRIPTION OF PLAN (CONTINUED)
FORFEITURES AND ADMINISTRATIVE EXPENSES (CONTINUED)
cumulative unallocated forfeitures were $200,410; as of December 31, 2004 they
were $158,358. Expenses related to the administration and investment management
of the Plan are charged against the assets of the investment funds offered to
plan participants. Brokerage fees, commissions, stock transfer taxes and other
expenses in connection with the purchases, sales and distributions of securities
for each investment fund are charged to the fund that incurred the cost. Fees
for obtaining loans are charged to the participant that requested the loan.
PLAN TERMINATION
Although it has not expressed the intention to do so, the Company has reserved
the right to terminate the Plan at any time by resolution of its Board of
Directors. The value of the participant accounts will be determined as of the
effective date of the termination and be distributed as provided by the Plan.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION AND INCOME RECOGNITION
Except for the investment contracts, the Plan's investments are stated at fair
value which equals the quoted market price on the last business day of the plan
year. The shares of registered investment companies are valued at quoted market
prices which represent the net asset values of shares held by the Plan at
year-end. The fair value of the participation units owned by the Plan in the
common trust fund accounts are based on quoted redemption values on the last
business day of the plan year. The participant loans are valued at their
outstanding balances, which approximate fair value.
Investment contracts are recorded at their contract values, which represent
contributions and reinvested income, less any withdrawals plus accrued interest,
because these investments have fully benefit-responsive features. For example,
participants may ordinarily direct the withdrawal or transfer of all or a
portion of their investment at contract value. However, withdrawals influenced
by Company-initiated events, such as in connection with the sale of a business,
may result in a distribution at other than contract value. There are no reserves
against contract values for credit risk of contract issues or otherwise.
Contract value approximates fair value. The average yield for these contracts
was 5.88% in 2005 and 6.11% in 2004. The crediting interest rate for these
investment contracts ranged from approximately 5.40% to 6.28% in 2005 and 5.40%
to 6.99% in 2004. Rates on contracts remain fixed for the life of each contract.
The valuation of participant accounts is priced on a daily basis.
6
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates that affect
the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
3. INVESTMENTS
Fidelity Investments is the trustee and recordkeeper for the Plan.
During 2005, the Plan's investments (including investments purchased and sold,
as well as held, during the year) appreciated (depreciated) in fair value as
determined by quoted market prices as follows:
NET REALIZED
AND UNREALIZED
APPRECIATION
IN FAIR VALUE
OF INVESTMENTS
--------------
Mutual funds $25,850,850
CMS Energy Corporation Common Stock 47,367,882
-----------
$73,218,732
===========
4. CONTINGENCY
The Company is a named defendant, along with Consumers Energy Company
(Consumers), CMS Marketing Services and Trading Company and certain named and
unnamed officers and directors, in two lawsuits, filed in July 2002 in the U.S.
District Court for the Eastern District of Michigan, brought as purported class
actions on behalf of participants and beneficiaries of the Plan. Plaintiffs
allege breaches of fiduciary duties under ERISA and seek restitution on behalf
of the Plan with respect to a decline in value of the shares of the Company's
common stock held in the Plan, as well as other equitable relief and legal fees.
On March 1, 2006, the Company and Consumers reached an agreement, subject to
court and independent fiduciary approval, to settle the lawsuits. The settlement
agreement requires a $28 million cash payment by the Company's primary insurer
that will be used to pay Plan participants and beneficiaries for alleged losses,
as well as any legal fees and expenses. In addition, the Company agreed to
certain other steps regarding administration of the Plan. A hearing on the final
approval of the settlement was held on June 15, 2006. On June 27, 2006, the
Judge entered the Order and Final Judgment approving the proposed settlement
with minor modifications. The settlement proceeds, net of attorneys' fees and
expenses, will be disbursed to the Plan for distribution by the Plan's trustee
in accordance with the Amended Plan of Allocation.
7
Employees' Savings Plan and Employee
Stock Ownership Plan of Consumers Energy Company
Notes to Financial Statements
5. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated April 24, 2002, stating that the Plan is qualified under Section 401(a) of
the Internal Revenue Code (the Code) and, therefore, the related trust is exempt
from taxation. Once qualified, the Plan is required to operate in conformity
with the Code to maintain its qualification. The plan administrator believes the
Plan is being operated in compliance with the applicable requirements of the
Code and, therefore, believes that the Plan is qualified and the related trust
is tax exempt.
6. RISKS AND UNCERTAINTIES
The Plan invests in various investment securities. Investment securities are
exposed to various risks such as interest rate, market and credit risks. Due to
the level of risk associated with certain investment securities, it is at least
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially affect
participants' account balances and the amounts reported in statements of net
assets available for benefits.
7. NEW ACCOUNTING PRONOUNCEMENTS
On December 29, 2005, the Financial Accounting Standards Board (FASB) released
FASB Staff Position AAG INV-1 and SOP 94-4-1 entitled "Reporting of Fully
Benefit-Responsive Investments Contracts Held by Certain Investment Companies
Subject to AICPA Investment Company Guide and Defined-Contribution Health and
Welfare and Pension Plans." The new reporting requirements are effective for
reporting periods ending after December 15, 2006 and would apply to Guaranteed
Investment Contracts held by the Plan. The Company is in the process of
evaluating the new reporting requirements.
8
Supplemental Schedule
Employees' Savings Plan and Employee Stock
Ownership Plan of Consumers Energy Company
EIN: 38-0442310 Plan Number: 002
Schedule H, Line 4i--Schedule of Assets (Held at End of Year)
December 31, 2005
CONTRACT
DESCRIPTION OF INVESTMENT INCLUDING OR
IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, CURRENT
LESSOR OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST VALUE
- -------------------------------------------- -------------------------------------------- ---- ------------
Principal Mutual Life Insurance Company 6.18% Matures 11/14/2006 $ 13,217,587
Principal Mutual Life Insurance Company 6.28% Matures 05/14/2007 13,275,596
Principal Mutual Life Insurance Company 5.85% Matures 01/30/2008 12,510,516
The Prudential Mutual Life Insurance Company 5.40% Matures 11/15/2006 12,486,226
The Prudential Mutual Life Insurance Company 5.70% Matures 11/15/2007 18,955,439
* Fidelity Investments Fidelity Managed Income Portfolio II 110,015,527
Fidelity Dividend Growth 142,658,183
Fidelity Low Price Stock Fund 11,740,282
Fidelity Diversified International Fund 34,829,913
Fidelity Small Cap Stock Fund 15,289,122
Fidelity Freedom Income Fund 1,710,387
Fidelity Freedom 2000 Fund 1,358
Fidelity Freedom 2005 Fund 112,007
Fidelity Freedom 2010 Fund 5,563,136
Fidelity Freedom 2015 Fund 1,348,205
Fidelity Freedom 2020 Fund 5,735,221
Fidelity Freedom 2025 Fund 734,202
Fidelity Freedom 2030 Fund 1,399,452
Fidelity Freedom 2035 Fund 232,201
Fidelity Freedom 2040 Fund 1,503,321
Short Term Investments 370,103
* CMS Energy Corporation Common Stock of CMS Energy Corporation 168,766,700
Comerica Bank, N.A. Comerica Small Cap Index Fund 4,430,138
Comerica Large Cap Growth Index Fund 11,831,512
Comerica Large Cap Value Index Fund 12,834,276
Comerica Midcap Index Fund 3,621,115
Comerica 500 Index Fund 15,671,334
Calamos Asset Management, Inc. Calamos Growth Fund 62,637,949
Pimco Pimco Total Return Fund 6,871,368
Berger Financial Group, LLC Janus Mid Cap Value Fund 13,896,018
Vanguard Vanguard Inflation Protected Securities Fund 598,162
* Participant Loans Interest rate range: 3.00% to 8.75%
with various maturity dates 22,229,822
--- ------------
$-- $727,076,378
=== ============
* Party-in-interest.
Note: Historical cost information is not shown as all investments are
participant-directed.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
EMPLOYEES' SAVINGS PLAN AND
EMPLOYEE STOCK OWNERSHIP PLAN OF
CONSUMERS ENERGY COMPANY
By: /s/ Laura L. Mountcastle
---------------------------------
Laura L. Mountcastle
Plan Administrator and
Vice President, Investor Relations and Treasurer
CMS Energy Corporation and
Consumers Energy Company
Dated: June 29, 2006
EXHIBITS
Exhibit Number Description
- -------------- -----------
(23) Consent of Independent Registered Public Accounting Firm
(32) Certifications pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002