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SEMCO ENERGY Reports First Quarter 2001 Earnings

PORT HURON, Mich., April 27 /PRNewswire/ -- SEMCO ENERGY (NYSE: SEN) today reported net income of $9.1 million or $0.48 per share for the first quarter of 2001, compared to net income of $12.0 million or $0.67 per share during the first quarter of last year.

William L. Johnson, Chairman, President and Chief Executive Officer said, "Warmer than normal weather, primarily in Alaska, had a significant impact on earnings. Had temperatures for the period been normal, we would have reported earnings of approximately $0.60 per share for the first quarter of 2001. Unless temperatures during the fourth quarter are significantly colder than normal, it is not likely that the impact of weather during the first quarter will be reversed during the rest of the year."

Also contributing to the decrease in earnings was an increase in the seasonal loss from the Company's expanding engineering and construction business. Johnson explained that the underground construction business typically generates losses during the first half of the year due to weather restrictions, and earns most of its income during the summer and fall months. As the Company expands its engineering and construction business, the seasonal losses and profits become proportionally larger. As a result, the seasonal first quarter losses of this business segment will generally increase each year as the business grows. Delays in starting certain projects due to deep ground frost and other events added to this year's larger loss. Johnson also said, "We believe the Engineering and Construction business will have a productive summer and fall season and finish 2001 with strong operating results despite the slow start during the first quarter. Operating revenues during 2001 for this business are expected to increase 12 percent from the $125.8 million in revenues reported in 2000. So far in 2001, we already have contracts with customers that should generate revenues equal to nearly 90 percent of the revenues earned in 2000 and there are numerous other projects on which we are bidding."

Results for the first quarter of 2001 also include an increase in financing costs of approximately $1.7 million after tax. The increase was due in part to higher financing costs for the long-term debt and securities issued to refinance the short-term bridge loan utilized to finance the acquisition of ENSTAR, the Company's Alaska gas distribution operation. Also, results for the first quarter of 2000 included $1.4 million of non-recurring income (or $0.08 per share) from terminated interest rate swaps.

Net income for the 12 months ended March 31, 2001 was $13.8 million or $0.73 per share, compared to $19.3 million or $1.08 per share, for the 12 months ended March 31, 2000. On a weather-normalized basis, net income would have been $17.3 million, or $0.91 per share, for the 12 months ended March 31, 2001, compared to $25.0 million or $1.40 per share for the same period ended March 31, 2000. The results for the 12 months ended March 31, 2000 are not truly comparable since ENSTAR's results included in this earlier period reflect only the heating season from November 1, 1999, the date ENSTAR was acquired, through March 2000.

BUSINESS SEGMENT RESULTS

GAS DISTRIBUTION

The Gas Distribution business reported operating income of $28.0 million for the first quarter of 2001 compared to $28.7 million for the first quarter of 2000. The decrease in operating income is attributed primarily to higher gas costs, associated with the sale of the gas commodity, and lower transportation fees, offset partially by higher revenues from continued customer growth. The Company expects to add approximately 10,000 customers in 2001 to the current customer base of 367,000, representing an increase of approximately 2.7 percent.

Temperatures in Michigan and Alaska combined for the first quarter of 2001 were approximately 7 percent warmer than normal compared to approximately 11 percent warmer than normal during the first quarter of 2000. Temperatures in Alaska during the first quarter of 2001 were nearly 15 percent warmer than normal, making it one of the warmest winters of the past century in Anchorage.

ENGINEERING AND CONSTRUCTION SERVICES

The Engineering and Construction (E & C) business reported an operating loss of $2.8 million for the first quarter of 2001, compared to a $2.2 million operating loss during the first quarter of 2000. The Company's E & C business typically incurs seasonal operating losses during the winter months because underground construction is generally inhibited by weather. The increased operating loss in 2001 is attributable in part to more restrictive frost conditions in certain regions of the Midwest and other delays in starting various projects. In addition, first quarter 2000 results included profits from two large telecommunications projects.

INFORMATION TECHNOLOGY SERVICES

This quarter is the first time the Company is reporting its Information Technology (IT) Services business as a separate business segment. This business, under the Aretech Information Services name, began operations in May of 2000 and provides IT infrastructure outsourcing services, ASP services and other IT services with a focus on mid-range computers, particularly the AS 400 platform. Aretech also is an Internet service provider (ISP) and currently has approximately 1,200 ISP customers. Revenues and operating income for the first quarter of 2001 were $2.2 million and $.2 million, respectively. The Company anticipates adding more customers this year and potentially reaching revenues in excess of $10 million for 2001.

PROPANE, PIPELINES AND STORAGE

The Propane, Pipelines and Storage business reported operating income of $.7 million for the first quarter of 2001, compared to $.5 million for the first quarter of 2000. The increase in operating income is due primarily to higher margins for the propane business and a reduction in operating expenses.

CAPITAL INVESTMENTS

For the first quarter of 2001, the Company had capital expenditures for property additions of $12.3 million compared to $9.1 million for the first quarter of 2000. There were no capital expenditures for business acquisitions during the first quarter of 2000 or 2001.

SEMCO ENERGY, Inc. is a diversified energy and infrastructure company that distributes natural gas to more than 367,000 customers in Michigan and Alaska. It also owns and operates businesses involved in natural gas engineering and quality assurance services, pipeline construction services, propane distribution, intrastate pipelines and natural gas storage in various regions of the United States. In addition, it provides information technology and outsourcing services, specializing in the mid-range computer market.

                                SEMCO ENERGY, INC.
                       News Release Statistics (Unaudited)
                     (in thousands, except per share amounts)


                                       Three Months Ended  Twelve Months Ended
                                            March 31,           March 31,
                                         2001      2000      2001      2000

    Financial Summary

      Operating Revenues               $151,927  $130,302  $444,218  $331,184

      Operating Expenses                126,948   104,033   380,249   280,373

      Operating Income                   24,979    26,269    63,969    50,811

      Other Income and (Deductions)
        Interest Expense                 (8,009)   (8,696)  (34,227)  (25,376)
        Other                               878     1,060     2,776     3,316
          Total Other Income and
           (Deductions)                  (7,131)   (7,636)  (31,451)  (22,060)

      Income Taxes                        6,642     6,639    11,608     9,501

      Income before Dividends on Trust
       Preferred Securities              11,206    11,994    20,910    19,250

      Dividends on Trust Preferred
       Securities, Net of Income Taxes    2,150         -     7,155         -

      Net Income (loss) Available to
       Common Shareholders               $9,056   $11,994   $13,755   $19,250

      Net Income (Loss) - Weather
       Normalized                       $11,288   $14,726   $17,250   $24,955

      Earnings Per Share
        Basic                             $0.50     $0.67     $0.76     $1.08
        Diluted                           $0.48     $0.67     $0.73     $1.08

      Earnings Per Share - Weather
       Normalized
        Basic                             $0.63     $0.82     $0.96     $1.40
        Diluted                           $0.60     $0.82     $0.91     $1.40

      Cash Dividends Per Share (a)       $0.210    $0.205    $0.840    $0.868

      Average Number Of Common Shares
       Outstanding
        Basic                            18,057    17,917    18,034    17,815
        Diluted                          18,857    17,917    18,854    17,831

      Return on Average Common
       Shareholders' Equity:
        As Reported                                             9.4%     13.2%
        Weather Normalized                                     11.8%     17.1%

(a) The twelve months ended March 31, 2000 include a special one-time dividend of $0.05 per share paid in May 1999.

                                SEMCO ENERGY, INC.
                       News Release Statistics (Unaudited)
                 (dollars in thousands, except per share amounts)


                                    Three Months Ended   Twelve Months Ended
                                        March 31,             March 31,
                                     2001       2000       2001       2000

    Business Segment Information

      Operating Revenues
        Gas Distribution            $130,969   $111,688   $327,132  $251,539
        Engineering and
         Construction                 20,079     20,103    125,862    85,456
        Information Technology
         Services                      2,210          -      7,394         -
        Propane, Pipelines and
         Storage                       2,749      2,061      7,637     6,400
        Corporate and Other (b)       (4,079)    (3,550)   (23,807)  (12,211)
          Total Operating Revenues  $151,927   $130,302   $444,218  $331,184

      Operating Income (Loss)
        Gas Distribution             $27,959    $28,659    $62,176   $50,925
        Engineering and
         Construction                 (2,760)    (2,207)     3,149       684
        Information Technology
         Services                        152          -        633         -
        Propane, Pipelines and
         Storage                         736        473      1,794     2,017
        Corporate and Other (b)       (1,108)      (656)    (3,783)   (2,815)
          Total Operating Income     $24,979    $26,269    $63,969   $50,811

    Operating Statistics

      Gas Distribution:
        Volumes Sold (MMcf)           26,955     23,248     64,760    46,618
        Volumes Transported
         (MMcf)                       12,572     16,010     45,268    39,134
        Number of Customers at End
         of Period                   369,110    359,913    369,110   359,913
        Weather Statistics:
          Degree Days                  3,215      3,140      7,370     6,551
          Percent Colder (Warmer)
           Than Normal                  (7.3)%    (10.6)%     (4.2)%   (10.7)%
          Weather related Increase
           (Decrease) From Normal:
            Net Income (in
             thousands)              $(2,210)   $(2,700)   $(3,445)   $(5,550)
            Earnings Per Share -
             Basic                    $(0.13)    $(0.15)    $(0.20)    $(0.31)
            Earnings Per Share -
             Diluted                  $(0.12)    $(0.15)    $(0.18)    $(0.31)

      Engineering and
       Construction:
        Billed Engineering Hours      32,000     94,000    230,000    356,000
        Feet of Pipe and Cable
         Installed                   930,000    997,000  7,895,000  6,508,000

      Propane Distribution:
        Volumes Sold (Gallons)     1,677,000  1,673,000  4,495,000  4,361,000
        Weather related Increase
         (Decrease) From Normal:
          Net Income (in
           thousands)                   $(22)      $(32)      $(50)     $(155)
          Earnings Per Share -
           Basic and Diluted              $-         $-         $-     $(0.01)

    (b)  Includes intercompany eliminations.

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SOURCE SEMCO ENERGY, Inc.
Web site: http: //www.semcoenergy.com
CONTACT: Analysts: Sebastian Coppola, Senior Vice President and Chief Financial Officer, 810-989-4101, or Media: Francis R. Lieder, 810-987-2200, ext. 4186, FAX: 810-989-4098, or E-mail: francis.lieder@semcoenergy.com , 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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