8-KRegulation FDOther EventsExhibits & Filings

CMS ENERGY CORP 8-K Report, Regulation FD Disclosure (Jan 5, 2007)

Filed January 5, 2007For Securities:CMSCMS-PCCMSACMSCCMSD

Summary

CMS Energy Corporation (CMS) filed an 8-K on January 5, 2007, disclosing significant legal and arbitration developments. The company announced a Memorandum of Understanding (MOU) to settle two class action lawsuits related to alleged securities law violations concerning round-trip trading. This settlement, totaling $200 million (with $76.5 million covered by insurers), aims to resolve claims from both common stock and ACTS purchasers and was approved by the board as beneficial for shareholders to eliminate business uncertainty. Additionally, CMS Energy received an arbitration award regarding a dispute with Duke/Flour Daniel (DFD) over the construction of the Dearborn Industrial Generation Project. While DIG (a CMS Energy subsidiary) was awarded approximately $25 million on its claims, DFD was awarded $5 million plus credit for letters of credit totaling $30 million, resulting in a net amount due to DFD of approximately $12 million. CMS Energy has reserved for this amount and recognized an earnings impact in the fourth quarter of 2006.

Key Highlights

  • 1CMS Energy has reached a $200 million settlement in principle to resolve two class action lawsuits alleging securities law violations.
  • 2The settlement addresses claims related to round-trip trading and misleading statements about revenues and expenses.
  • 3Insurers will contribute $76.5 million to the settlement, with CMS Energy covering the remaining $123.5 million plus interest.
  • 4CMS Energy has recorded a pre-tax charge of $123.5 million in Q4 2006 for the settlement.
  • 5An arbitration award was received concerning disputes with Duke/Flour Daniel (DFD) over the Dearborn Industrial Generation Project.
  • 6The arbitration awarded CMS Energy's subsidiary, DIG, approximately $25 million, but resulted in a net payment of about $12 million due to DFD's claims and prior letter of credit usage.
  • 7CMS Energy recognized an approximate $18 million pre-tax earnings benefit in Q4 2006 from the net arbitration outcome.

Frequently Asked Questions

The total settlement amount is $200 million, which includes settlement administration costs and attorney fees. CMS Energy's portion is $123.5 million, plus an amount equivalent to interest. Insurers are covering $76.5 million of the settlement.

The lawsuits alleged that CMS Energy and certain officers/directors violated securities laws by making false and misleading statements about the company's business and financial condition, particularly concerning revenues and expenses related to 'round-trip trading' by its subsidiary CMS Marketing, Services and Trading Company.

The arbitration awarded CMS Energy's subsidiary, DIG, approximately $25 million on its claims against DFD. However, DFD was awarded approximately $5 million plus $30 million for letters of credit DIG had drawn. This resulted in a net amount of approximately $12 million payable to DFD.

CMS Energy stated that the settlement amount can be paid using cash from operations and available cash, ensuring liquidity for continuing operations. The company has established a $123.5 million reserve and taken a resulting pre-tax charge to 2006 earnings in the fourth quarter for the settlement. The arbitration award also resulted in a pre-tax earnings impact of approximately $18 million in the fourth quarter of 2006.