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SEMCO ENERGY Reports Third Quarter 2001 Results

FARMINGTON HILLS, Mich., Oct. 26 /PRNewswire/ -- SEMCO ENERGY (NYSE: SEN) today reported a net loss of $6.6 million or $0.37 per share for the third quarter of 2001, compared to a net loss of $4.7 million or $0.26 per share during the third quarter of last year. On a weather-normalized basis, the loss would have been $0.35 per share for the third quarter of 2001, compared to a loss of $0.26 per share for 2000.

Marcus Jackson, President and Chief Executive Officer said, "2001 has been a difficult year. We are disappointed with the results at certain of our engineering and construction business units and the impact of the slowing economy on our large volume gas transportation market. Over the past few months, I have conducted a thorough assessment of SEMCO's current corporate strategy and related financial performance and have determined that we must redirect that strategy. Despite the fact that 2001 results will be considerably lower than anticipated, I am confident that the redirection of our corporate strategy will position SEMCO to improve profitability and strengthen our financial position." The Company has issued a concurrent news release that discusses the strategic redirection.

During the first nine months of 2001, the Company incurred a net loss of $.9 million or $0.05 per share compared to net income of $4.2 million or $0.23 per share for the same period of 2000. During the first nine months of 2001, warmer than normal weather has negatively impacted earnings by $3.7 million or $0.20 per share. On a weather-normalized basis, net income for the first nine months of 2001 would have been $2.8 million or $0.15 per share compared to $7.6 million or $0.41 per share for the first nine months of 2000. Increased gas costs and operating expenses and lower transportation services revenue in the Gas Distribution business contributed to the decrease in earnings during the three and nine months ended September 30, 2001. These items will continue to have an impact on results during the remainder of 2001.

Results for the first nine months of 2001 also include an increase in financing costs of approximately $2.1 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. Results for the first nine months of 2000 also 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 September 30, 2001 was $11.6 million or $0.61 per share, compared to $13.5 million or $0.74 per share, for the 12 months ended September 30, 2000.

BUSINESS SEGMENT RESULTS

GAS DISTRIBUTION

The Gas Distribution business reported an operating loss of $2.2 million for the third quarter of 2001 compared to operating income of $1.1 million for the third quarter of 2000. For the nine months ended September 30, 2001 and 2000, operating income was $30.7 million and $35.1 million, respectively. The decrease in operating income during the three and nine month periods is attributed primarily to higher gas costs and operating expenses and lower transportation fees.

Gas costs have been higher in 2001 as a result of purchasing gas with a higher thermal content and an increase in unaccounted-for gas. Also, during 2000, the Company released pipeline capacity, which reduced 2000 gas costs. The primary items causing the increase in operating expenses are additional depreciation on new property in service, increased employee costs, and property tax reductions recorded in the third quarter of 2000. Transportation customer fees are down in 2001 primarily due to reduced consumption caused by the softening economy and reduced service fees associated with ATS (Aggregated Transportation Services) customers who have switched to the Company's general gas sales service.

Temperatures during the third quarter of 2001 for Michigan and Alaska combined were approximately four (4) percent colder than normal, compared to approximately nine (9) percent colder than normal during the third quarter of 2000. Temperatures in Alaska were five (5) percent warmer than normal during the third quarter of 2001. The volume of gas sold and transported for three and nine months ended September 30, 2001 was 15.5 Bcf and 74.1 Bcf, respectively, compared to 15.2 Bcf and 74.4 Bcf, respectively, for the three and nine months ended September 30, 2000.

ENGINEERING AND CONSTRUCTION SERVICES

The Engineering and Construction (E & C) business reported operating income of $3.4 million for the third quarter of 2001, compared to $3.5 million during the third quarter of 2000. The small decrease in 2001 is attributable primarily to lower margins on work at certain business units and a slow-down in telecommunications work, offset partially by profits on a large, multi-year construction project in the southeastern region of the United States.

For the nine months ended September 30, 2001, the E & C business had operating income of $1.4 million, compared to $.9 million for the same period of 2000. E & C operating income for the 12 months ended September 30, 2001 increased by $1.5 million to $4.2 million when compared to the 12 months ended September 30, 2000. The improved results during the nine months and 12 months ended September 30, 2001 were also due primarily to the large construction project mentioned previously, offset partially by lower margin work and less telecommunications work in certain regions.

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. Revenues and operating income for third quarter of 2001 were $2.5 million and $.1 million respectively, compared to $1.6 million and $.2 million respectively, for the third quarter of 2000. For the first nine months of 2001, Aretech's operating revenues were $7.6 million and operating income was $.4 million.

PROPANE, PIPELINES AND STORAGE

The Propane, Pipelines and Storage business reported operating income of $.3 million for the third quarter of 2001, which was essentially unchanged from the third quarter of 2000. This business contributed $1.4 million in operating income during the first nine months of 2001 and $1.9 million during the 12 months ended September 30, 2001.

CAPITAL INVESTMENTS

For the third quarter of 2001, the Company had capital expenditures for property additions of $15.7 million, compared to $20.1 million for the third quarter of 2000. There were no capital expenditures for business acquisitions during the third quarter of 2001 or 2000.

SEMCO ENERGY, Inc. is a diversified energy and infrastructure company that distributes natural gas to more than 369,000 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 statement 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, 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
                                                           September 30,
                                                      2001              2000

    Financial Summary

       Operating Revenues                           $80,797           $70,326

       Operating Expenses                            80,038            66,303

       Operating Income                                 759             4,023

       Other Income and (Deductions)
          Interest Expense                           (8,123)           (8,304)
          Other                                         333                14
             Total Other Income and (Deductions)     (7,790)           (8,290)

       Income Tax Provision (Credit)                 (2,536)           (1,622)

       Income before Dividends on Trust
        Preferred Securities                         (4,495)           (2,645)

       Dividends on Trust Preferred
        Securities, Net of Income Taxes               2,150             2,104

       Net Income (Loss) Available to
        Common Shareholders                         $(6,645)          $(4,749)

       Net Income (Loss) - Weather Normalized       $(6,251)          $(4,768)

       Earnings Per Share
          Basic                                      $(0.37)           $(0.26)
          Diluted                                    $(0.37)           $(0.26)

       Earnings Per Share - Weather Normalized
          Basic                                      $(0.35)           $(0.26)
          Diluted                                    $(0.35)           $(0.26)

       Cash Dividends Per Share                      $0.210            $0.210

       Average Number Of Common Shares Outstanding
          Basic                                      18,109            18,036
          Diluted                                    18,109            18,036

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


                                                        Nine Months Ended
                                                           September 30,
                                                      2001              2000

    Financial Summary

       Operating Revenues                          $321,740          $277,106

       Operating Expenses                           290,960           242,142

       Operating Income                              30,780            34,964

       Other Income and (Deductions)
          Interest Expense                          (23,876)          (26,405)
          Other                                       2,046             1,683
             Total Other Income and (Deductions)    (21,830)          (24,722)

       Income Tax Provision (Credit)                  3,427             3,210

       Income before Dividends on Trust
        Preferred Securities                          5,523             7,032

       Dividends on Trust Preferred
        Securities, Net of Income Taxes               6,451             2,861

       Net Income (Loss) Available to
        Common Shareholders                           $(928)           $4,171

       Net Income (Loss) - Weather Normalized        $2,800            $7,557

       Earnings Per Share
          Basic                                      $(0.05)            $0.23
          Diluted                                    $(0.05)            $0.23

       Earnings Per Share - Weather Normalized
          Basic                                       $0.15             $0.42
          Diluted                                     $0.15             $0.41

       Cash Dividends Per Share                      $0.630            $0.625

       Average Number Of Common Shares Outstanding
          Basic                                      18,076            17,982
          Diluted                                    18,076            18,356

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


                                                       Twelve Months Ended
                                                           September 30,
                                                      2001              2000

    Financial Summary

       Operating Revenues                          $467,226          $386,763

       Operating Expenses                           406,154           329,457

       Operating Income                              61,072            57,306

       Other Income and (Deductions)
          Interest Expense                          (32,384)          (35,364)
          Other                                       3,321             2,443
             Total Other Income and (Deductions)    (29,063)          (32,921)

       Income Tax Provision (Credit)                 11,822             8,054

       Income before Dividends on Trust
        Preferred Securities                         20,187            16,331

       Dividends on Trust Preferred
        Securities, Net of Income Taxes               8,594             2,861

       Net Income (Loss) Available to
        Common Shareholders                         $11,593           $13,470

       Net Income (Loss) - Weather Normalized       $15,930           $17,966

       Earnings Per Share
          Basic                                       $0.64             $0.75
          Diluted                                     $0.61             $0.74

       Earnings Per Share - Weather Normalized
          Basic                                       $0.88             $1.00
          Diluted                                     $0.83             $0.98

       Cash Dividends Per Share                      $0.840            $0.830

       Average Number Of Common Shares Outstanding
          Basic                                      18,069            17,956
          Diluted                                    19,089            18,240

       Return on Average Common Shareholders' Equity:
          As Reported                                   9.3%             10.2%
          Weather Normalized                           12.7%             13.7%



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


                                                      Three Months Ended
                                                         September 30,
                                                    2001             2000

    Business Segment Information

      Operating Revenues
        Gas Distribution                           $37,653           $35,992
        Engineering and Construction                45,798            38,151
        Information Technology Services              2,461             1,616
        Propane, Pipelines and Storage               1,289             1,281
        Corporate and Other (a)                     (6,403)           (6,714)
          Total Operating Revenues                 $80,797           $70,326

      Operating Income (Loss)
        Gas Distribution                           $(2,153)           $1,110
        Engineering and Construction                 3,373             3,495
        Information Technology Services                117               154
        Propane, Pipelines and Storage                 271               249
        Corporate and Other (a)                       (849)             (985)
          Total Operating Income                      $759            $4,023

    Operating Statistics

      Gas Distribution:
        Volumes Sold (MMcf)                          5,901             6,072
        Volumes Transported (MMcf)                   9,549             9,106
        Number of Customers at End of Period       369,231           361,228
        Weather Statistics:
          Degree Days                                  320               317
          Percent Colder (Warmer) Than Normal          3.6%              8.6%
          Weather related Increase
           (Decrease) From Normal:
            Net Income (in thousands)                $(385)              $20
            Earnings Per Share - Basic              $(0.02)              $ -
            Earnings Per Share - Diluted            $(0.02)              $ -

      Engineering and Construction:
        Billed Engineering Hours                    58,000            53,000
        Feet of Pipe and Cable Installed         2,543,000         2,521,000

      Propane Distribution:
        Volumes Sold (Gallons)                     599,000           592,000
        Weather related Increase
         (Decrease) From Normal:
          Net Income (in thousands)                    $(9)              $(1)
          Earnings Per Share - Basic and Diluted       $ -               $ -


                                                       Nine Months Ended
                                                         September 30,
                                                    2001              2000

    Business Segment Information

      Operating Revenues
        Gas Distribution                          $223,079          $197,608
        Engineering and Construction               102,843            88,623
        Information Technology Services              7,608             3,218
        Propane, Pipelines and Storage               5,407             4,570
        Corporate and Other (a)                    (17,197)          (16,913)
          Total Operating Revenues                $321,740          $277,106

      Operating Income (Loss)
        Gas Distribution                           $30,692           $35,117
        Engineering and Construction                 1,387               863
        Information Technology Services                353               281
        Propane, Pipelines and Storage               1,353               997
        Corporate and Other (a)                     (3,005)           (2,294)
          Total Operating Income                   $30,780           $34,964

    Operating Statistics

      Gas Distribution:
        Volumes Sold (MMcf)                         42,662            38,592
        Volumes Transported (MMcf)                  31,399            35,771
        Number of Customers at End of Period       369,231           361,228
        Weather Statistics:
          Degree Days                                4,515             4,567
          Percent Colder (Warmer) Than Normal         (9.0)%            (8.8)%
          Weather related Increase
           (Decrease) From Normal:
            Net Income (in thousands)              $(3,685)          $(3,330)
            Earnings Per Share - Basic              $(0.20)           $(0.19)
            Earnings Per Share - Diluted            $(0.20)           $(0.18)

      Engineering and Construction:
        Billed Engineering Hours                   150,000           241,000
        Feet of Pipe and Cable Installed         5,125,000         5,448,000

      Propane Distribution:
        Volumes Sold (Gallons)                   2,877,000         2,904,000
        Weather related Increase
         (Decrease) From Normal:
          Net Income (in thousands)                   $(43)             $(56)
          Earnings Per Share - Basic and Diluted       $ -               $ -


                                                     Twelve Months Ended
                                                         September 30,
                                                    2001              2000

    Business Segment Information

      Operating Revenues
        Gas Distribution                          $333,322          $281,456
        Engineering and Construction               140,106           116,146
        Information Technology Services              9,574             3,218
        Propane, Pipelines and Storage               7,786             6,408
        Corporate and Other (a)                    (23,562)          (20,465)
          Total Operating Revenues                $467,226          $386,763

      Operating Income (Loss)
        Gas Distribution                           $58,451           $55,336
        Engineering and Construction                 4,225             2,737
        Information Technology Services                553               281
        Propane, Pipelines and Storage               1,886             1,903
        Corporate and Other (a)                     (4,043)           (2,951)
          Total Operating Income                   $61,072           $57,306

    Operating Statistics

      Gas Distribution:
        Volumes Sold (MMcf)                         65,123            55,562
        Volumes Transported  (MMcf)                 44,334            48,475
        Number of Customers at End of Period       369,231           361,228
        Weather Statistics:
          Degree Days                                7,236             7,002
          Percent Colder (Warmer) Than Normal         (6.0)%            (6.9)%
          Weather related Increase
           (Decrease) From Normal:
            Net Income (in thousands)              $(4,290)          $(4,430)
            Earnings Per Share - Basic              $(0.24)           $(0.25)
            Earnings Per Share - Diluted            $(0.22)           $(0.24)

      Engineering and Construction:
        Billed Engineering Hours                   201,000           334,000
        Feet of Pipe and Cable Installed         7,646,000         7,514,000

      Propane Distribution:
        Volumes Sold (Gallons)                   4,464,000         4,366,000
        Weather related Increase
         (Decrease) From Normal:
          Net Income (in thousands)                   $(47)             $(66)
          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 Contact: Thomas Connelly, Director of Investor Relations, +1-248-702-6000, ext. 6240, or Media Contact: Francis R. Lieder, Manager of Media Relations, +1-810-987-2200, ext. 4186, email: 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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