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SEMCO ENERGY, Inc. Reports Third Quarter Earnings

PORT HURON, Mich., Oct. 20 /PRNewswire/ -- SEMCO ENERGY, Inc. (Nasdaq: SMGS) today reported a net loss of $2.2 million or $.12 per share for the third quarter of 1999, compared to a net loss of $2.4 million or $.14 per share for the same period of 1998. The Company typically has losses during the third quarter because its natural gas distribution business delivers less natural gas during the summer months.

William L. Johnson, Chairman and Chief Executive Officer said, "I am pleased with the progress we are making toward achieving our strategic goals. While the Gas Distribution business typically loses money during this time of the year, our Construction Business is entering the profitable phase of its annual business cycle. In spite of losses in the Engineering Business and the financial impact of warmer than normal weather, we still expect a good year in 1999."

Gas Distribution

The Gas Distribution business reported a net loss of $3.2 million or $0.18 per share for the third quarter of 1999 compared to a loss of $2.8 million or $0.17 per share for the same period of 1998. The increased loss is primarily attributed to higher depreciation and property taxes as a result of new property additions as well as the timing of certain operation and maintenance expenses in 1998.

The number of customers served increased by 2.6 percent. The continued healthy economy was responsible in part for customer growth, which continues at nearly twice the industry average.

Diversified Businesses

The Diversified Businesses reported net income of $1.0 million or $0.06 per share for the third quarter of 1999 compared to net income of $0.3 million or $0.02 per share for the same period of 1998. The increase in net income is due primarily to higher earnings from the construction business and proceeds from a corporate insurance claim, partially offset by a loss in the engineering business.

Construction Services -- This business reported operating income of $1.7 million for the third quarter of 1999 compared to $0.3 million for the same period of 1998. The increase in operating income is due primarily to higher revenue from existing construction companies and incremental earnings from four new companies acquired during 1999. Revenues for the third quarter were up by 146 percent and 110 percent higher year-to-date from comparable 1998.

Engineering Services -- This business reported an operating loss of $0.5 million for the third quarter of 1999 compared to operating income of $0.8 million for the same period of 1998. The decrease in operating income is primarily attributed to lower revenues as a result of lower energy prices causing projects to be postponed by companies in the energy industry. Revenues were 66 percent lower in the third quarter and 43 percent lower year- to-date in comparison to the prior year.

Propane, Pipelines & Storage -- Operating income for the third quarter of 1999 was essentially unchanged from 1998 at $0.3 million.

Year-to-Date Results

For the nine months ended September 30, 1999, the Company reported net income of $8.4 million or $0.47 per share compared to $3.6 million or $0.23 per share for the same period in 1998. The average number of common shares outstanding increased by approximately 14 percent from 15.4 million to 17.6 million shares. The increase in net income is due primarily to increased earnings of the Gas Distribution business and the absence of losses from the divested Gas Marketing business. Stronger earnings in Gas Distribution are the result of more favorable weather, customer growth and profits from the new gas supply and storage arrangement begun in April 1999. Also, net losses in the Engineering Business were mostly offset by higher earnings in the Construction and Propane, Pipeline & Storage businesses.

Capital Investments

For the nine months ended September 30, 1999, the Company had capital expenditures for property additions of $21.8 million compared to $17.3 million for the same period in 1998. Capital expenditures for business acquisitions for the first nine months of 1999 were $14.3 million versus $6.3 million for the same nine months of 1998. The increase reflects the acceleration of the implementation of the Company's strategic growth plan. For 1999, the Company anticipates capital expenditures of approximately $26.0 million for property additions excluding acquisitions.

On July 15, 1999, SEMCO ENERGY announced that it had signed a definitive agreement to acquire ENSTAR Natural Gas Company and the Alaska Pipeline Company (together known as "ENSTAR") from Ocean Energy. The Company has agreed to buy ENSTAR for approximately $290 million in cash including $60 million of debt. The acquisition is expected to close by year-end.

SEMCO ENERGY, Inc., a diversified energy services and infrastructure company, owns SEMCO ENERGY GAS COMPANY and SEMCO ENERGY VENTURES. SEMCO ENERGY GAS COMPANY distributes natural gas to over 250,000 residential, commercial and industrial customers in Michigan's Upper and Lower Peninsulas.

Diversified Businesses are owned and operated under SEMCO ENERGY VENTURES, which acquires and operates businesses involved in gas engineering and quality assurance services, pipeline construction services, propane distribution, intrastate pipelines and natural gas storage businesses in various regions of the United States.

The following is a "Safe-Harbor" statement under the Private Securities Litigation Reform Act of 1995. This release contains forward-looking statements that involve risks and uncertainties, including but not limited to, operating expenses, operating income, returns on invested assets, regulatory approval processes, success in obtaining new business and other risks detailed from time to time in the company's Securities and Exchange Commission filings.

                              SEMCO ENERGY, INC.
                     News Release Statistics (Unaudited)

                                  Three Months Ended        Nine Months Ended
                                     September 30,            September 30,
                                   1999        1998 (g)     1999      1998 (g)

    Financial Summary
    (in thousands, except per share amounts)

        Operating Revenues (f)   $39,997    $113,075     $275,106  $450,825

        Operating Expenses (f)   $41,263    $113,074     $255,557  $439,777

        Operating Income (loss)  $(1,266)   $      1     $ 19,549  $ 11,048

        Other Income and (Deductions)
          Business Divestitures  $     -    $      -     $  1,122  $  1,480
          Interest Expense        (3,946)     (3,746)     (11,616)  (10,974)
          Other                      920          24        1,473       831
            Total Other Income
             and (Deductions)    $(3,026)    $(3,722)     $(9,021)  $(8,663)

          Income Taxes           $(2,127)    $(1,364)     $ 2,168   $    95

        Net Income (loss)
          Gas Distribution (c)   $(3,150)    $(2,806)     $ 7,886   $ 5,028
          Diversified
           Businesses (a)(d)         985         290          113       488
          Energy Marketing (b)         -         159          361    (1,941)
            Total Net Income
             (loss)              $(2,165)    $(2,357)     $ 8,360   $ 3,575

        Net Income (loss) -
         Weather Normalized      $(1,602)    $(1,677)     $10,890   $ 8,215

        Earnings Per Share - Basic and Diluted (e)
          Gas Distribution (c)   $ (0.18)    $ (0.17)     $  0.44   $  0.33
          Diversified
           Businesses (a)(d)        0.06        0.02         0.01      0.03
           Energy Marketing (b)        -        0.01         0.02     (0.13)
             Total Earnings Per Share -
              Basic and Diluted  $ (0.12)    $ (0.14)     $  0.47   $  0.23

      Earnings Per Share - Basic and Diluted - Weather
       Normalized(a)(b)(c)(d)(e) $ (0.09)    $ (0.10)     $  0.62   $  0.53

      Cash Dividend Per Share (e)$ 0.205     $ 0.179      $ 0.660   $ 0.543

      Average Number Of Common Shares
       Outstanding (e)            17,763      16,261       17,636    15,425

      Return on Average Common Shareholder's
       Equity:
         As Reported
         Weather Normalized

                                               Twelve Months Ended
                                                  September 30,
                                               1999           1998 (g)

    Financial Summary
    (in thousands, except per share amounts)

        Operating Revenues (f)              $461,766       $724,530

        Operating Expenses (f)              $429,070       $704,041

        Operating Income (loss)             $ 32,696       $ 20,489

        Other Income and (Deductions)
          Business Divestitures             $  4,690       $  9,210
          Interest Expense                   (15,452)       (14,868)
          Other                                1,285            896
            Total Other Income
             and (Deductions)               $ (9,477)      $ (4,762)

        Income Taxes                        $  8,394       $  5,040

        Net Income (loss)
          Gas Distribution (c)              $ 12,690       $  9,352
          Diversified Businesses (a)(d)          794          5,609
          Energy Marketing (b)                 1,341         (2,989)
            Total Net Income (loss)         $ 14,825       $ 11,972

         Net Income (loss) -
          Weather Normalized                $ 19,895       $ 17,112

       Earnings Per Share - Basic and Diluted (e)
         Gas Distribution (c)               $   0.72       $   0.61
         Diversified Businesses (a)(d)          0.04           0.37
         Energy Marketing (b)                   0.08          (0.19)
           Total Earnings Per Share -
            Basic and Diluted               $   0.84       $   0.79

        Earnings Per Share - Basic and Diluted -
         Weather Normalized (a)(b)(c)(d)(e) $   1.13       $   1.12

        Cash Dividend Per Share (e)         $  0.860       $  0.722

        Average Number Of Common Shares
         Outstanding (e)                      17,561         15,238

        Return on Average Common Shareholder's Equity:
          As Reported                          11.21%         11.12%
          Weather Normalized                   15.05%         15.90%

(a) The nine and twelve months ended September 30, 1998 include after-tax income of $1,708 ($0.11 per share) and $6,733 ($0.44 per share), respectively, related to the divestiture of the Company's NOARK investment.

(b) The nine and twelve months ended September 30, 1999 included after-tax income of $729 ($0.04 per share) related to the divestiture of the Company's energy marketing business.

(c) The nine and twelve months ended September 30, 1998 include after-tax income of $1,784 ($0.12 per share) from a change in the method of accounting for property taxes.

(d) The nine and twelve months ended September 30, 1998 include an after- tax charge of $499 ($0.03 per share) from an early retirement of long-term debt.

(e) Adjusted to give retroactive effect to a 5% stock dividend in May 1998.

(f) The decrease in operating revenues and operating expenses for the three, nine and twelve month periods ended September 30, 1999 compared to the same periods of 1998 is due primarily to the energy marketing business, which was sold effective March 31, 1999.

(g) Amounts have been restated as a result of the acquisition of OMC in November 1998, which was accounted for as a pooling of interests.

                              SEMCO ENERGY, INC.
                     News Release Statistics (Unaudited)


                                       Three Months Ended   Nine Months Ended
                                         September 30,        September 30,
                                      1999        1998 (g)  1999      1998 (g)

    Business Segment Information
    (in thousands)

         Operating Revenues
             Gas Distribution       $19,294      $24,359   $132,983  $130,219
             Engineering Services     3,388        9,952     12,767    22,344
             Construction Services   18,752        7,635     35,468    16,862
             Propane/Pipelines/
              Storage                 1,217        1,187      4,445     3,155
             Energy Marketing (i)         -       74,880     96,904   291,481
             Corporate and Other (h) (2,654)      (4,938)    (7,461)  (13,236)
                 Total Operating
                  Revenues          $39,997     $113,075   $275,106  $450,825

          Operating Income (Loss)
             Gas Distribution       $(2,017)     $(1,686)   $19,915   $12,348
             Engineering Services      (494)         764       (586)    1,911
             Construction Services    1,736          309        811      (978)
             Propane/Pipelines/Storage  268          250      1,435       998
             Energy Marketing (i)         -          755       (341)   (2,548)
             Corporate and Other (h)   (759)        (391)    (1,685)     (683)
                 Total Operating Income
                  (loss)            $(1,266)          $1    $19,549   $11,048

    Operating Statistics

         Gas Distribution:
             Volumes Sold (MMcf)      2,082        2,193     22,276    22,414
             Volumes Transported
              (MMcf)                  4,891        4,882     19,464    16,589
             Number of Customers at
              End of Period               -            -          -         -
             Degree Days                152           80      4,126     3,558
             Percent Colder (Warmer)
              Than Normal             (26.1)%      (64.3)%     (8.3)%  (21.0)%
             Increase (Decrease) From Normal In:
                 Net Income (in
                  thousands)          $(550)       $(650)   $(2,350)  $(4,500)
                 Earnings Per Share  $(0.03)      $(0.04)    $(0.14)   $(0.29)

         Engineering Services:
             Billed Hours            74,000      170,000    266,000   416,000

         Construction Services:
             Feet of Pipe
              Installed           1,966,000    1,320,000  4,142,000  2,888,000

         Propane Distribution:
             Volumes Sold (Gallons) 635,000      474,000  2,870,000  1,028,000
             Degree Days                289          202      5,234      1,229
             Percent Colder (Warmer)
              Than Normal             (33.4)%      (52.8)%     (9.9)%  (33.9)%
            Increase (Decrease) From Normal In:
                Net Income (in
                 thousands)            $(13)        $(30)     $(180)   $(140)
                Earnings Per Share       $-           $-     $(0.01)  $(0.01)


                                                      Twelve Months Ended
                                                         September 30,
                                                     1999            1998 (g)

    Business Segment Information
    (in thousands)

         Operating Revenues
             Gas Distribution                      $186,986          $201,838
             Engineering Services                    31,789            23,839
             Construction Services                   44,511            25,529
             Propane/Pipelines/
              Storage                                 6,142             3,907
             Energy Marketing (i)                   203,310           496,380
             Corporate and Other (h)                (10,972)          (26,963)
                 Total Operating
                  Revenues                         $461,766          $724,530

          Operating Income (Loss)
             Gas Distribution                       $29,930           $21,844
             Engineering Services                       440             2,124
             Construction Services                    1,688               (94)
             Propane/Pipelines/Storage                2,022             1,363
             Energy Marketing (i)                     1,513            (3,931)
             Corporate and Other (h)                 (2,897)             (817)
                 Total Operating Income
                  (loss)                            $32,696           $20,489

    Operating Statistics

         Gas Distribution:
             Volumes Sold (MMcf)                     32,108            35,654
             Volumes Transported
              (MMcf)                                 26,667            22,392
             Number of Customers at
              End of Period                         249,633           243,275
             Degree Days                              6,135             5,960
             Percent Colder (Warmer)
              Than Normal                             (11.4)%          (14.2)%
             Increase (Decrease) From Normal In:
                 Net Income (in
                  thousands)                        $(4,850)         $(5,000)
                 Earnings Per Share                  $(0.28)          $(0.32)

         Engineering Services:
             Billed Hours                           436,000          487,000

         Construction Services:
             Feet of Pipe
              Installed                           5,685,000        4,288,000

         Propane Distribution:
             Volumes Sold (Gallons)               4,209,000        1,028,000
             Degree Days                              7,738            1,229
             Percent Colder (Warmer)
              Than Normal                             (11.9)%          (33.9)%
            Increase (Decrease) From Normal In:
                Net Income (in
                 thousands)                           $(220)           $(140)
                Earnings Per Share                   $(0.01)          $(0.01)

(g) Amounts have been restated as a result of the acquisition of OMC in November 1998, which was accounted for as a pooling of interests.

(h) Includes intercompany eliminations.

(i) The Energy Marketing business was sold effective March 31, 1999.
SOURCE SEMCO ENERGY, Inc.
CONTACT: Analysts: Edric R. Mason, Jr., 810-989-4104, fax, 810-989-4098, or Media: Francis R. Lieder, Jr., 810-987-2200, ext. 4186, fax, 810-989-4098, both of SEMCO ENERGY, Inc.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding SEMCO Energy's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.

 
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