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SEMCO ENERGY Reports Second Quarter 2001 Results

PORT HURON, Mich., July 30 /PRNewswire/ -- SEMCO ENERGY (NYSE: SEN) today reported a net loss of $3.3 million or $0.18 per share for the second quarter of 2001, compared to a net loss of $3.1 million or $0.17 per share during the second quarter of last year. On a weather-normalized basis, the loss would have been $0.12 per share for the second quarter of 2001, compared to a loss of $0.13 per share for 2000. The improvement in weather-normalized results was due in part to increased earnings from the Company's Engineering and Construction business.

Marcus Jackson, President and Chief Executive Officer said, "We are pleased with the improved performance of the Engineering and Construction business. We believe this business segment will continue to have a productive summer and fall construction season and finish 2001 with strong operating results." Mr. Jackson also stated, "The results for the quarter would have been better if weather had not been 19 percent warmer than normal. Warmer than normal weather decreased net income by approximately $1.1 million or $0.06 per share."

Net income for the first six months of 2001 was $5.7 million or $.30 per share compared to $8.9 million or $.50 per share for the same period of 2000. During the first half of 2001, warmer than normal weather has negatively impacted earnings by $3.3 million or $.18 per share. On a weather-normalized basis, net income for the first six months of 2001 would have been $9.1 million or $0.48 per share compared to $12.3 million or $0.69 per share for the first six months of 2000. Increased gas costs and lower transportation services revenue, offset partially by reduced operating expenses in the Gas Distribution business contributed to the decrease in earnings. These items will continue to have an impact on results for the full year 2001.

Results for the first six months of 2001 also include an increase in financing costs of approximately $2.0 million after tax. The increase, most of which occurred in the first quarter, was due in part to higher financing costs for the long-term debt and other 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 six months 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 June 30, 2001 was $13.5 million or $0.71 per share, compared to $16.1 million or $0.90 per share, for the 12 months ended June 30, 2000. Warmer than normal weather also has impacted both periods. The results for the 12 months ended June 30, 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 June 2000.

BUSINESS SEGMENT RESULTS

GAS DISTRIBUTION

The Gas Distribution business reported operating income of $4.9 million for the second quarter of 2001 compared to $5.3 million for the second quarter of 2000. For the six months ended June 30, 2001 and 2000, operating income was $32.8 million and $34.0 million, respectively. The decrease in operating income during the three and six months periods is attributed primarily to higher gas costs, warmer weather and lower transportation fees, offset partially by a decrease in operating expenses.

Temperatures in Michigan and Alaska, combined, for the second quarter of 2001 were approximately 19 percent warmer than normal, compared to approximately 10 percent warmer than normal during the second quarter of 2000. The volume of gas sold and transported for three and six months ended June 30, 2001 was 19.1 Bcf and 58.6 Bcf, respectively, compared to 19.9 Bcf and 59.2 Bcf, respectively, for the three and six months ended June 30, 2000. The decrease was due primarily to the warmer weather.

The Gas Distribution business currently has almost 369,000 customers at the end of June compared to 367,000 customers at the beginning of 2001. The Company expects to add approximately 10,000 customers during 2001, which would represent an increase of approximately 2.7 percent.

ENGINEERING AND CONSTRUCTION SERVICES

The Engineering and Construction (E & C) business reported operating income of $0.8 million for the second quarter of 2001, compared to a $0.4 million operating loss during the second quarter of 2000. This improvement in 2001 is attributable primarily to a large, multi-year construction project in the southeastern region of the United States. This improvement was offset by delays in the release of certain projects, a slow-down in telecommunications work and other events, which occurred during the first half of the year.

For the six months ended June 30, 2001, the E & C business incurred an operating loss of $2.0 million, compared to a loss of $2.6 million for the same period of 2000. The E & C business typically incurs seasonal operating losses during the winter and spring months when underground construction is generally inhibited by weather conditions. E & C operating income for the 12 months ended June 30, 2001 increased by $3.8 million to $4.3 million when compared to the 12 months ended June 30, 2000. The improved results during the six months and 12 months ended June 30, 2001 were also due primarily to the large construction project mentioned previously and margin improvements in certain other regions. Operating revenues for the first six months of 2001 are up 13 percent and are expected to stay on that trend for the full year.

INFORMATION TECHNOLOGY SERVICES

This is the first year the Company has reported its Information Technology (IT) Services business as a separate business segment. This business, under the Aretech Information Services name, began operations in April of 2000 and provides IT outsourcing services, with a focus on mid-range computers, and Internet related services. During the past year, Aretech has secured multi- year contracts with three automotive suppliers, secured two commercial Internet service provider contracts and currently has bids outstanding for numerous prospects in its target market. Aretech currently has approximately 1,400 Internet service provider (ISP) customers. Revenues and operating income for second quarter of 2001 were $2.9 million and $.1 million respectively, compared to $1.6 million and $.1 million respectively, for the second quarter of 2000. For the first six months of 2001, Aretech's operating revenues were $5.1 million and operating income was $.2 million.

PROPANE, PIPELINES AND STORAGE

The Propane, Pipelines and Storage business reported operating income of $.3 million for the second quarter of 2001, which was essentially unchanged from the second quarter of 2000. For the six months ended 2001, this business contributed $1.1 million in operating income and $1.9 million for the 12 months ended June 30, 2001.

CAPITAL INVESTMENTS

For the second quarter of 2001, the Company had capital expenditures for property additions of $16.0 million, compared to $20.1 million for the second quarter of 2000. There were no capital expenditures for business acquisitions during the second quarter of 2001, compared to $1.8 million during the second quarter of 2000.

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.

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. Statements that are not historic facts, including statements about the Company's outlook, beliefs, plans, goals and expectations, are forward-looking statements. Factors that may impact forward-looking statements include, but are not limited to, the effects of weather, the economic climate, competition, commodity prices, changing conditions in the capital markets, regulatory approval processes, changes in authorized rates, 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)
                   (in thousands, except per share amounts)


                                        Three Months Ended   Six Months Ended
                                              June 30,           June 30,
                                           2001     2000      2001      2000

    Financial Summary

      Operating Revenues                 $89,015  $76,478  $240,943  $206,780

      Operating Expenses                  83,974   71,805   210,922   175,838

      Operating Income                     5,041    4,673    30,021    30,942

      Other Income and (Deductions)
        Interest Expense                  (7,742)  (9,405)  (15,752)  (18,101)
        Other                                834      608     1,712     1,668
          Total Other Income and
           (Deductions)                   (6,908)  (8,797)  (14,040)  (16,433)

      Income Tax Provision (credit)         (678)  (1,807)    5,964     4,832

      Income before Dividends on Trust
       Preferred Securities               (1,189)  (2,317)   10,017     9,677

      Dividends on Trust Preferred
       Securities, Net of Income Taxes     2,150      757     4,300       757

      Net Income (Loss) Available to
       Common Shareholders               $(3,339) $(3,074)   $5,717    $8,920

      Net Income (Loss) - Weather
       Normalized                        $(2,237) $(2,401)   $9,051   $12,325

      Earnings Per Share
        Basic                             $(0.18)  $(0.17)    $0.32     $0.50
        Diluted                           $(0.18)  $(0.17)    $0.30     $0.50

      Earnings Per Share - Weather
       Normalized
        Basic                             $(0.12)  $(0.13)    $0.50     $0.69
        Diluted                           $(0.12)  $(0.13)    $0.48     $0.69

      Cash Dividends Per Share            $0.210   $0.210    $0.420    $0.415

      Average Number Of Common Shares
       Outstanding
        Basic                             18,062   17,992    18,060    17,954
        Diluted                           18,062   17,992    18,916    17,959

      Return on Average Common
       Shareholders' Equity:
        As Reported
        Weather Normalized

                                                       Twelve Months Ended
                                                            June 30,
                                                      2001             2000

    Financial Summary

       Operating Revenues                          $456,755          $356,434

       Operating Expenses                           392,418           304,417

       Operating Income                              64,337            52,017

       Other Income and (Deductions)
          Interest Expense                          (32,564)          (31,006)
          Other                                       3,003             3,349
             Total Other Income and
              (Deductions)                          (29,561)          (27,657)

       Income Tax Provision (credit)                 12,737             7,549

       Income before Dividends on Trust
        Preferred Securities                         22,039            16,811

       Dividends on Trust Preferred
        Securities, Net of Income Taxes               8,548               757

       Net Income (Loss) Available to
        Common Shareholders                         $13,491           $16,054

       Net Income (Loss) - Weather
        Normalized                                  $17,415           $21,132

       Earnings Per Share
          Basic                                       $0.75             $0.90
          Diluted                                     $0.71             $0.90

       Earnings Per Share - Weather
        Normalized
          Basic                                       $0.96             $1.18
          Diluted                                     $0.92             $1.18

       Cash Dividends Per Share                      $0.840            $0.824

       Average Number Of Common Shares
        Outstanding
          Basic                                      18,051            17,887
          Diluted                                    18,887            17,899

       Return on Average Common
        Shareholders' Equity:
          As Reported                                 10.0%             11.6%
          Weather Normalized                          12.9%             15.3%


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


                                     Three Months Ended     Six Months Ended
                                          June 30,              June 30,
                                      2001       2000       2001       2000

    Business Segment Information

      Operating Revenues
        Gas Distribution            $54,457    $49,928   $185,426   $161,616
        Engineering and
         Construction                36,966     30,370     57,045     50,472
        Information Technology
         Services                     2,938      1,602      5,148      1,602
        Propane, Pipelines and
         Storage                      1,369      1,228      4,118      3,289
        Corporate and Other (a)      (6,715)    (6,650)   (10,794)   (10,199)
          Total Operating Revenues  $89,015    $76,478   $240,943   $206,780

      Operating Income (Loss)
        Gas Distribution             $4,886     $5,348    $32,845    $34,007
        Engineering and
         Construction                   773       (425)    (1,987)    (2,633)
        Information Technology
         Services                        85        127        237        127
        Propane, Pipelines and
         Storage                        347        276      1,082        748
        Corporate and Other (a)      (1,050)      (653)    (2,156)    (1,307)
          Total Operating Income     $5,041     $4,673    $30,021    $30,942

    Operating Statistics

      Gas Distribution:
        Volumes Sold (MMcf)           9,806      9,272     36,761     32,521
        Volumes Transported
         (MMcf)                       9,277     10,654     21,849     26,664
        Number of Customers at End
         of Period                  368,733    361,167    368,733    361,167
        Weather Statistics:
          Degree Days                   885      1,001      4,139      4,164
          Percent Colder (Warmer)
           Than Normal                (19.4)%    (10.1)%     (9.8)%    (10.4)%
          Weather related Increase
           (Decrease) From Normal:
            Net Income (in
             thousands)             $(1,090)     $(650)   $(3,300)   $(3,350)
            Earnings Per Share -
             Basic                   $(0.06)    $(0.04)    $(0.18)    $(0.19)
            Earnings Per Share -
             Diluted                 $(0.06)    $(0.04)    $(0.18)    $(0.19)

      Engineering and
       Construction:
        Billed Engineering Hours     60,000     94,000     92,000    188,000
        Feet of Pipe and Cable
         Installed                1,652,000  1,930,000  2,581,000  2,927,000

      Propane Distribution:
        Volumes Sold (Gallons)      600,000    639,000  2,277,000  2,312,000
        Weather related Increase
         (Decrease) From Normal:
          Net Income (in
           thousands)                  $(12)      $(23)      $(34)      $(55)
          Earnings Per Share -
           Basic and Diluted            $ -        $ -        $ -        $ -


                                                      Twelve Months Ended
                                                           June 30,
                                                     2001             2000

    Business Segment Information

      Operating Revenues
        Gas Distribution                          $331,661         $264,758
        Engineering and Construction               132,459          100,134
        Information Technology Services              8,729            1,602
        Propane, Pipelines and Storage               7,778            6,345
        Corporate and Other (a)                    (23,872)         (16,405)
          Total Operating Revenues                $456,755         $356,434

      Operating Income (Loss)
        Gas Distribution                           $61,714          $52,209
        Engineering and Construction                 4,347              483
        Information Technology Services                591              127
        Propane, Pipelines and Storage               1,864            1,922
        Corporate and Other (a)                     (4,179)          (2,724)
          Total Operating Income                   $64,337          $52,017

    Operating Statistics

      Gas Distribution:
        Volumes Sold (MMcf)                         65,294           51,572
        Volumes Transported (MMcf)                  43,891           44,260
        Number of Customers at End of
         Period                                    368,733          361,167
        Weather Statistics:
          Degree Days                                7,209            6,841
          Percent Colder (Warmer) Than
           Normal                                   (6.1)%             (8.6)%
          Weather related Increase
           (Decrease) From Normal:
            Net Income (in thousands)              $(3,885)         $(5,000)
            Earnings Per Share - Basic              $(0.22)          $(0.28)
            Earnings Per Share - Diluted            $(0.21)          $(0.28)

      Engineering and Construction:
        Billed Engineering Hours                   196,000          355,000
        Feet of Pipe and Cable Installed         7,617,000        6,959,000

      Propane Distribution:
        Volumes Sold (Gallons)                   4,457,000        4,409,000
        Weather related Increase
         (Decrease) From Normal:
          Net Income (in thousands)                   $(39)            $(78)
          Earnings Per Share - Basic and
           Diluted                                     $ -              $ -

    (a) 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, +1-810-989-4101, or Media: Francis R. Lieder, +1-810-987-2200 ext. 4186, Fax: +1-810-989-4098, 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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