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SEMCO ENERGY Reports 2001 Results

FARMINGTON HILLS, Mich., Feb. 7 /PRNewswire-FirstCall/ -- SEMCO ENERGY, Inc. (NYSE: SEN) today reported 2001 net income from continuing operations and before certain unusual items of $4.8 million (or $0.27 per share). The Company had an actual net loss of $6.4 million (or $0.35 per share) for the year. As reported previously, the Company began the process of redirecting its business strategy during the fourth quarter of 2001. As a result of this redirection, SEMCO's results for 2001 include estimated losses of $6.1 million (or $0.34 per share) associated with its plans to discontinue its engineering operation and charges of $5.1 million (or $0.28 per share) for other unusual items, including restructuring charges and asset impairments. For the year 2000, the Company had net income of $16.7 million (or $0.90 per share). Warmer than normal weather reduced 2001 net income by approximately $5.4 million (or $0.29 per share) and reduced 2000 net income by approximately $4.0 million (or $0.21 per share).

Marcus Jackson, President and Chief Executive Officer said, "It was necessary during 2001 to redirect the business strategy of the Company and, therefore, incur restructuring and other charges that significantly impacted earnings for the year. The Company's 2001 net income includes charges of $0.62 per share from discontinuing its engineering business, restructuring activities and other unusual items. However, this redirection of business strategy is expected to increase future profitability and shareholder value."

The Company expects its 2002 earnings per share to be between $0.82 and $0.90, including the impact of weather during January 2002, which was significantly warmer than normal. In response to questions regarding the Company's dividend policy, Mr. Jackson stated "Management is currently reviewing the dividend policy in light of recent operating results and expectations. The Company's Board of Directors periodically reviews the dividend policy and is expected to do so subsequent to the completion of management's review. The Board will determine what policy is in the best interests of the shareholders and what, if any, change is warranted."

For the fourth quarter of 2001, net income from continuing operations and before the unusual items was $5.2 million (or $0.29 per share). The Company had an actual net loss of $5.4 million (or $0.30 per share) for the fourth quarter of 2001. For the fourth quarter of 2000, net income was $12.5 million (or $0.65 per share). Warmer than normal weather reduced net income during the fourth quarter of 2001 by $1.6 million (or $0.09 per share) and during the fourth quarter of 2000 by $.6 million (or $0.03 per share).

SEMCO's net income from continuing operations, excluding the impact of the unusual items and warmer than normal weather, decreased by $6.2 million, when comparing the fourth quarter of 2001 to the same quarter of 2000, and decreased by $10.4 million, when comparing the year 2001 to 2000. The decreases during the quarter and year ended December 31, 2001, were due in large part to reduced operating income from the Company's gas distribution business and construction services business. Operating income was down for the gas distribution business due primarily to increased gas costs and operating expenses and lower transportation services revenue. The decrease in operating income of the construction services business was due primarily to the impact of the slowing economy and a higher level of low margin work.

Financing costs, net of income taxes, also increased by approximately $1.6 million during 2001. The increase is due in part to $1.4 million of non- recurring income (or $0.08 per share) reflected in 2000 results from terminated interest rate swaps. In addition, the Company had more long-term debt and trust preferred securities outstanding in 2001. The additional long- term debt and securities have higher rates than the short-term debt which they replaced. However, the increased financing costs associated with these securities were offset by the impact of significantly lower short-term interest rates in 2001.

RESTRUCTURING AND OTHER UNUSUAL CHARGES

As discussed previously, the Company's results for 2001 include restructuring charges, asset impairments and other unusual items that reduced net income by $5.1 million (or $0.28 per share). The restructuring charges and asset impairments reduced net income by $4.0 million and include severance expense, costs associated with terminating leases, write-downs of certain construction operations and other related expenses associated with the redirection of the Company's business strategy. The other unusual items reduced net income by $1.1 million and include the write-off of certain assets and an increase in reserves for certain contingencies.

The pre-tax restructuring charges, asset impairments and other unusual items are included in both operating expenses and other deductions. Pre-tax charges of $7.3 million are reflected in operating expenses and $.3 million are in other deductions. For business segment reporting, the gas distribution business incurred $1.4 million of these charges; the construction services business incurred $3.3 million; and $2.9 million is reflected in the corporate and other business segment.

BUSINESS SEGMENT RESULTS

GAS DISTRIBUTION

The gas distribution business reported operating income of $19.6 million for the fourth quarter of 2001 compared to operating income of $27.8 million for the fourth quarter of 2000. For the year ended December 31, 2001 and 2000, operating income was $50.3 million and $62.9 million, respectively. Operating expenses for 2001 include a $1.1 million restructuring charge, most of which is employee severance expense associated with workforce reductions. In addition to the restructuring charge, the decrease in operating income during the quarter and year ended December 31, 2001 is attributed primarily to warmer weather, higher gas costs and operating expenses and lower transportation fees.

Gas costs were higher in 2001 as a result of purchasing gas with a higher thermal content for the Michigan operation, which also results in lower gas sales, and an increase in unaccounted-for gas. Also, during 2000, the Company released excess 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 were lower 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 returned to the Company's general gas sales service.

Temperatures during the fourth quarter of 2001 for Michigan and Alaska combined were approximately seven (7) percent warmer than normal, compared to approximately one (1) percent warmer than normal during the fourth quarter of 2000. Temperatures for the year 2001 were nearly nine (9) percent warmer than normal, compared to approximately six (6) percent warmer than normal during 2000. The volume of gas sold and transported for three and twelve months ended December 31, 2001 was 32.1 Bcf and 106.1 Bcf, respectively, compared to 35.4 Bcf and 109.8 Bcf, respectively, for the three and twelve months ended December 31, 2000.

CONSTRUCTION SERVICES

The construction services business reported an operating loss of $3.9 million for the fourth quarter of 2001, compared to operating income of $2.8 million during the fourth quarter of 2000. For the year ended December 31, 2001, the construction services business had an operating loss of $1.4 million. Excluding the restructuring charges, asset impairments and other unusual charges of $3.3 million, operating income was $1.9 million for 2001 compared to $3.7 million for 2000. In addition to the unusual charges, the items contributing to the decrease in operating results, a large portion of which occurred during the fourth quarter, include the mix of available work and the slowing economy. The slowing economy has reduced new housing starts which caused a decrease in the number of new gas service lines installed by the Company's construction services business. The Company also believes that the slowing economy has caused many customers to delay certain construction projects until 2002, which has changed the mix of work available to the construction services business. The mix of work has included more lower margin work at certain business units. As part of its strategic redirection, the Company will likely consolidate certain regions of its construction services business in an effort to increase shareholder value.

The factors causing the decrease in operating results are offset partially by profits on a large, multi-year construction project in the southeastern region of the United States.

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 the fourth quarter of 2001 were $2.7 million and $.1 million respectively, compared to $2.0 million and $.2 million respectively, for the fourth quarter of 2000. For the year 2001, Aretech's operating revenues were $10.3 million and operating income was $.4 million, compared to $5.2 million and $.5 million, respectively for the short year (nine months) ended December 31, 2000.

PROPANE, PIPELINES AND STORAGE

The Propane, Pipelines and Storage business reported operating income of $.5 million for the fourth quarter of 2001, which was essentially unchanged from the fourth quarter of 2000. This business had operating income of $1.9 million for the year 2001 compared to $1.5 million for 2000. The increase is due primarily to lower operating expenses and higher propane margins offset by the impact of warmer weather.

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. is a diversified energy and infrastructure company that distributes natural gas to more than 374,000 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
                                          December 31,        December 31,
                                         2001      2000      2001      2000

    Financial Summary

      Operating revenues               $132,528  $142,767  $445,823  $410,325

      Restructuring and impairment
       charges                            6,103         -     6,103         -
      Other operating expenses          113,983   112,470   395,329   345,092

      Operating income                   12,442    30,297    44,391    65,233

      Other income and (deductions)
        Interest expense                 (7,974)   (8,505)  (31,784)  (34,905)
        Other                               626     1,106     2,335     2,828
          Total other income and
           (deductions)                  (7,348)   (7,399)  (29,449)  (32,077)

      Income tax provision                2,810     8,346     6,578    11,554

      Income before dividends on trust
       preferred securities
       and discontinued operations        2,284    14,552     8,364    21,602

      Dividends on trust preferred
       securities, net of income taxes   (2,153)   (2,144)   (8,603)   (5,004)

      Net income (loss) from
       continuing operations                131    12,408      (239)   16,598

      Income (loss) from discontinued
       operations, net of income taxes   (5,564)      114    (6,122)       95

      Net income (loss) available to
       common shareholders              $(5,433)  $12,522   $(6,361)  $16,693

      Earnings per share - basic
        Net income (loss) from
         continuing operations            $0.01     $0.69    $(0.01)    $0.92
        Net income (loss) available to
         common shareholders             $(0.30)    $0.69    $(0.35)    $0.93

      Earnings per share - diluted
        Net income (loss) from
         continuing operations            $0.01     $0.64    $(0.01)    $0.89
        Net income (loss) available to
         common shareholders             $(0.30)    $0.65    $(0.35)    $0.90

      Cash dividends per share           $0.210    $0.210    $0.839    $0.835

      Average number of common shares
       outstanding
        Basic                            18,193    18,049    18,106    17,999
        Diluted                          18,193    19,401    18,106    18,619


    Impact of Certain Unusual Items

      Net income (loss) available to
       common shareholders (net
       income)                          $(5,433)  $12,522   $(6,361)  $16,693
      Impact on net income of the
       following unusual items:
        Income (loss) from
         discontinued operations        $(5,564)     $114   $(6,122)      $95
        Restructuring charges,
         impairments and other unusual
         items                          $(5,083)      $ -   $(5,083)      $ -
      Net income, excluding the
       unusual items                     $5,214   $12,408    $4,844   $16,598
      Weather-normalized net income,
       excluding the unusual items       $6,836   $13,017   $10,194   $20,593

      Earnings per share - diluted
        Net income (loss)                $(0.30)    $0.65    $(0.35)    $0.90
        Impact on earnings per share
         of the following unusual
         items:
          Income (loss) from
           discontinued operations       $(0.31)    $0.01    $(0.34)    $0.01
          Restructuring charges,
           impairments and other
           unusual items                 $(0.28)      $ -    $(0.28)      $ -
        Net income, excluding the
         unusual items                    $0.29     $0.64     $0.27     $0.89
        Weather-normalized net income,
         excluding the unusual items      $0.38     $0.67     $0.56     $1.11


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

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

    Business Segment Information

      Operating revenues
        Gas Distribution           $101,286   $110,243   $324,365   $307,851
        Construction Services        32,810     33,047    126,205    105,231
        Information Technology
         Services                     2,666      1,966     10,275      5,184
        Propane, Pipelines and
         Storage                      2,036      2,379      7,443      6,949
        Corporate and Other (a)      (6,270)    (4,868)   (22,465)   (14,890)
          Total operating revenues $132,528   $142,767   $445,823   $410,325

      Operating income (loss) (b)
        Gas Distribution            $19,645    $27,759    $50,337    $62,876
        Construction Services        (3,932)     2,843     (1,374)     3,676
        Information Technology
         Services                        78        200        431        481
        Propane, Pipelines and
         Storage                        518        533      1,871      1,530
        Corporate and Other (a)      (3,867)    (1,038)    (6,874)    (3,330)
          Total operating income    $12,442    $30,297    $44,391    $65,233

    Operating Statistics

      Gas distribution:
        Volumes sold (MMcf)          20,464     22,461     63,127     61,054
        Volumes transported (MMcf)   11,593     12,936     42,992     48,706
        Number of customers at end
         of period                  374,938    367,157    374,938    367,157
        Weather statistics:
          Degree days                 2,552      2,715      7,038      7,294
          Percent colder (warmer)
           than normal                 (7.1)%      (.8)%     (8.6)%     (5.9)%
          Weather related increase
           (decrease) from normal:
            Net income (in
             thousands)             $(1,577)     $(605)   $(5,262)   $(3,935)
            Earnings per share -
             basic                   $(0.09)    $(0.03)    $(0.29)    $(0.22)
            Earnings per share -
             diluted                 $(0.09)    $(0.03)    $(0.29)    $(0.21)

      Construction:
        Feet of pipe and cable
         installed                2,195,000  2,522,000  7,320,000  7,969,000

      Propane Distribution:
        Volumes sold (gallons)    1,356,000  1,588,000  4,233,000  4,492,000
        Weather related increase
         (decrease) from normal:
          Net income (in
           thousands)                  $(45)       $(4)      $(88)      $(60)
          Earnings per share -
           basic and diluted            $ -        $ -        $ -        $ -

    (a)  Includes intercompany eliminations.

(b) Results for the three and twelve months ended December 31, 2001 include restructuring charges, impairments and other unusual items.

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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, FAX: +1-810-989-4098, 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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