Beleaguered CMS Energy Corp. said Friday it will report a major loss for 2002 due to additional write-downs and has suspended payment of dividends indefinitely to bolster its liquidity position. The company’ stock was drained of more than 28% of its value following the announcement, settling at $6.11 a share late in the day.

The Dearborn, MI-based energy company, which has been the target of federal investigations into its trading activities and saw its chairman resign in the wake of scandal last May, said it expected to report a loss in the range of $4.25 to $4.75 earnings per share (EPS) for the year due to “additional non-cash write-downs associated with CMS Field Services and certain independent power projects.”

Excluding one-time items, CMS projected its “ongoing” EPS will be in the range of $1.50 to $1.55 for 2002. This is in line with analysts’ EPS projections of $1.52 for the company.

For 2003, CMS Energy said it anticipates its reported EPS to “roughly break even,” while its continuing EPS will be in the range of 80 to 90 cents. “Key factors negatively affecting the 2003 versus 2002 ongoing earnings outlook include the loss of income…from the sale of the CMS Panhandle Companies and other assets, higher interest and depreciation costs at CMS Energy’s principal subsidiary, Consumers Energy, and lower electric sales at Consumers associated with Michigan’s electric restructuring law,” according to a company press statement.

By suspending its dividend, which the company sliced in half last July to an annual rate of 72 cents a share, CMS Energy said it hopes to increase liquidity by more than $100 million during the current year. “By conserving cash, our liquidity is strengthened and we are in a better position to meet the challenges facing our company and our industry,” said Chairman and CEO Ken Whipple.

The board of directors “intends to reinstate it [the dividend] as soon as it is financially prudent to do so,” he noted.

The news of the dividend suspension “comes as a surprise, given recent improvements made by the company in terms of asset sales and liquidity,” said Credit Suisse analyst Curt Launer, adding that he was reducing CMS Energy’s stock rating to “underperform” from “neutral.” He also lowered his 2003 EPS estimate for the company to 50 cents, and reduced his target stock price to $6.

“Our first impression is that future liquidity requirements including $300 million in debt due in 1Q’03, the impact of lower expected ’03 earnings, write-offs of field services and international assets have exacerbated CMS’ position with its banks and caused the suspension,” Launer noted.

CMS Energy “continues to focus on liquidity, with the goal of maintaining a consolidated cash balance of approximately $400 million, split about equally between CMS Energy and Consumers Energy. Executing our plan also eliminates the need for CMS Energy to access the capital markets in 2003,” CMS’ Whipple said.

To further improve its cash position in the year ahead, CMS Energy said it plans to cut capital expenditures by $350 million, or 39%, from its 2002 level, and continue its “aggressive” sales of assets, including its Centennial and Guardian natural gas pipelines, CMS Field Services, the wholesale electric book of CMS Marketing, Services and Trading, and international distribution companies and selected power plants.

In 2002, the company carried out $3.6 billion in asset sales to reduce its debt load. The biggest transaction was the sale of CMS Energy’s Panhandle natural gas pipelines and liquefied natural gas facilities to Southern Union Panhandle for $662 million in cash and the assumption of $1.2 billion in debt. Southern Union Panhandle is a joint venture partnership between Wilkes-Barre, PA-based Southern Union and AIG Highstar. The deal is targeted to close in the first quarter of this year, subject to regulatory approvals, CMS Energy said.

As a result of the asset sales, the company reported it reduced its debt by $800 million in 2002, including paying down $260 million in bank debt.

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