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SEMCO ENERGY Reports First Quarter 2002 Results

FARMINGTON HILLS, Mich., May 1 /PRNewswire-FirstCall/ -- SEMCO ENERGY (NYSE: SEN) today reported net income of $11.3 million, or $0.62 per share, for the first quarter of 2002, compared to net income of $9.1 million, or $0.48 per share, for the first quarter of last year.

An increase in operating income, primarily from the Gas Distribution Business and Construction Services Business, contributed to the increase in net income for the quarter. This was offset partially by a decrease in non- operating income of approximately $.4 million, net of income taxes, for the first quarter of 2002, when compared to the first quarter of 2001. The decrease in non-operating income was primarily due to losses on the sale of equipment and lower interest income. Warmer than normal temperatures reduced net income for the first quarter of 2002 by $2.4 million, or $0.13 per share, and reduced net income for the first quarter of 2001 by $2.2 million, or $0.12 per share. In accordance with new accounting standards, the Company did not record any goodwill amortization during the first quarter of 2002. By comparison, goodwill amortization during the first quarter of 2001, reduced net income by $.7 million, or $0.04 per share.

Marcus Jackson, Chairman, President and Chief Executive Officer said, "We are pleased with the improving results for the first quarter. Net income for the quarter is up approximately 25 percent compared to last year, despite temperatures being approximately 7 percent warmer than normal during both quarters." Mr. Jackson also said, "We believe the previously issued earnings guidance for the year is attainable. We still expect earnings per share to be between $0.82 and $0.90 for 2002."

For the twelve months ended March 31, 2002, the Company had a net loss of $4.1 million compared to net income of $13.8 million for the twelve months ended March 31, 2001. Results for the twelve months ended March 31, 2002 include losses from discontinued operations, restructuring charges, asset impairments and other unusual items that reduced net income by $10.8 million. These items were recorded in the fourth quarter of 2001 as part of the Company's strategic redirection. Warmer than normal temperatures reduced net income for the twelve months ended March 31, 2002 by $5.6 million, or $0.30 per share, and reduced net income for the same period ended March 31, 2001 by $3.5 million, or $0.18 per share.

BUSINESS SEGMENT RESULTS

GAS DISTRIBUTION

The Gas Distribution Business reported operating income of $30.2 million for the first quarter of 2002 compared to $28.0 million for the first quarter of 2001. The increase in operating income is attributed primarily to lower gas costs, new customers and the elimination of goodwill amortization, offset partially by slightly higher operating expenses.

Gas costs were lower during the first quarter of 2002 primarily as a result of gas costs savings generated under the terms of the Company's third- party natural gas supply and management agreements. These savings were due primarily to effective management of the Company's Michigan gas supply. In addition, gas costs were higher than normal during the first quarter of last year as a result of purchasing gas with a higher thermal content for the Michigan operation. The primary items causing the increase in operating expenses were higher employee benefit costs, such as pension expense, health care costs and retiree medical costs.

Temperatures in Michigan and Alaska combined, were approximately 7 percent warmer than normal in both the first quarter of 2002 and the first quarter of 2001. The Company sold and transported 38.6 Bcf of gas during the first quarter of 2002 compared to 39.5 Bcf during the first quarter of 2001.

CONSTRUCTION SERVICES

The Construction Services Business reported an operating loss of $1.3 million for the first quarter of 2002 compared to an operating loss of $2.1 million for the first quarter of 2001. This business typically incurs operating losses during the winter months because underground construction is generally inhibited by weather. The lower operating loss during the first quarter of 2002 is due primarily to an increase in construction projects in the southern region of the country. This was offset partially by a slower release of projects in the northern regions of the country and lower than expected margins on a large construction project in Michigan.

INFORMATION TECHNOLOGY SERVICES

The operating revenues and operating income for the Information Technology Services Business were essentially unchanged for the three months ended March 31, 2002, when compared to the three months ended March 31, 2001. Operating income for both periods was $.2 million and operating revenues were $2.3 million for the first quarter of 2002 and $2.2 million for the first quarter of 2001.

PROPANE, PIPELINES AND STORAGE

The Propane, Pipelines and Storage Business reported operating income of $.6 million for the first quarter of 2002 compared to $.7 million for the first quarter of 2001. The decrease in operating income is due primarily to warmer weather in the Company's propane distribution service area, which caused a decrease in propane sales and margin.

SEMCO ENERGY, Inc. is a diversified energy company that distributes natural gas to more than 374,000 Customers in Michigan and Alaska. It also owns and operates businesses involved in 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 set forth in detail 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 Twelve Months Ended
                                            March 31,           March 31,
                                         2002      2001      2002      2001

    Financial Summary

      Operating revenues              $156,877  $149,978  $452,722  $433,666

      Restructuring and impairment
       charges                               -         -     6,103         -
      Other operating expenses         128,258   124,311   399,276   368,964

      Operating income                  28,619    25,667    47,343    64,702

      Other income and (deductions)
        Interest expense                (7,674)   (8,001)  (31,457)  (34,231)
        Other                              325       866     1,794     2,634
          Total other income and
           (deductions)                 (7,349)   (7,135)  (29,663)  (31,597)

      Income tax provision               7,790     6,904     7,464    11,840

      Income before dividends on trust
       preferred securities
       and discontinued operations      13,480    11,628    10,216    21,265

      Dividends on trust preferred
       securities, net of income taxes  (2,150)   (2,150)   (8,603)   (7,155)

      Net income (loss) from
       continuing operations            11,330     9,478     1,613    14,110

      Income (loss) from discontinued
       operations, net of income taxes       -      (422)   (5,700)     (355)

      Net income (loss) available to
       common shareholders             $11,330    $9,056   $(4,087)  $13,755

      Earnings per share - basic
        Net income (loss) from
         continuing operations           $0.62     $0.52     $0.09     $0.78
        Net income (loss) available to
         common shareholders             $0.62     $0.50    $(0.22)    $0.76

      Earnings per share - diluted
        Net income (loss) from
         continuing operations           $0.62     $0.50     $0.09     $0.75
        Net income (loss) available to
         common shareholders             $0.62     $0.48    $(0.22)    $0.73

      Cash dividends per share           $0.21     $0.21     $0.84     $0.84

      Average number of common shares
       outstanding
        Basic                           18,315    18,057    18,169    18,034
        Diluted                         18,327    18,857    18,180    18,854

    Impact of Certain Unusual Items

      Net income (loss) available to
       common shareholders             $11,330    $9,056   $(4,087)  $13,755
      Impact on net income of the
       following unusual items:
        Income (loss) from
         discontinued operations            $-     $(422)  $(5,700)    $(355)
        Restructuring charges,
         impairments and other unusual
         items                              $-        $-   $(5,083)       $-
      Net income, excluding the
       unusual items                   $11,330    $9,478    $6,696   $14,110
      Weather-normalized net income,
       excluding the unusual items     $13,769   $11,710   $12,253   $17,605

      Earnings per share - diluted
        Net income (loss)                $0.62     $0.48    $(0.22)    $0.73
        Impact on earnings per share
         of the following unusual
         items:
          Income (loss) from
           discontinued operations          $-    $(0.02)   $(0.31)   $(0.02)
          Restructuring charges,
           impairments and other
           unusual items                    $-        $-    $(0.28)       $-
        Net income, excluding the
         unusual items                   $0.62     $0.50     $0.37     $0.75
        Weather-normalized net income,
         excluding the unusual items     $0.75     $0.62     $0.67     $0.93


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


                                     Three Months Ended   Twelve Months Ended
                                           March 31,             March 31,
                                       2002       2001       2002       2001

    Business Segment Information

      Operating revenues
        Gas Distribution              $131,452  $130,969  $324,848  $327,132
        Construction Services           25,581    17,848   133,938   108,525
        Information Technology
         Services                        2,261     2,210    10,326     7,394
        Propane, Pipelines and
         Storage                         2,238     2,749     6,932     7,637
        Corporate and Other (includes
         intercompany eliminations)     (4,655)   (3,798)  (23,322)  (17,022)
          Total operating revenues    $156,877  $149,978  $452,722  $433,666

      Operating income (loss)  (a)
        Gas Distribution               $30,192   $27,959   $52,570   $62,175
        Construction Services           (1,310)   (2,073)     (612)    3,882
        Information Technology
         Services                          176       152       455       633
        Propane, Pipelines and
         Storage                           609       736     1,745     1,794
        Corporate and Other (includes
         intercompany eliminations)     (1,048)   (1,107)   (6,815)   (3,782)
          Total operating income       $28,619   $25,667   $47,343   $64,702

    Operating Statistics

      Gas distribution:
        Volumes sold (MMcf)             26,562    26,955    62,734    64,760
        Volumes transported
         (MMcf)                         12,051    12,572    42,471    45,268
        Number of customers at end
         of period                     377,550   369,110   377,550   369,110
        Weather statistics:
          Degree days                    3,224     3,215     7,048     7,370
          Percent colder (warmer)
           than normal                    (7.0)%    (7.3)%    (8.5)%    (4.2)%
          Weather related increase
           (decrease) from normal:
            Net income (in
             thousands)                $(2,355)  $(2,210)  $(5,407)  $(3,445)
            Earnings per share -
             basic                      $(0.13)   $(0.12)   $(0.30)   $(0.19)
            Earnings per share -
             diluted                    $(0.13)   $(0.12)   $(0.30)   $(0.18)

      Construction:
        Feet of pipe installed       1,055,000   930,000 7,445,000 7,895,000

      Propane Distribution:
        Volumes sold (gallons)       1,603,000 1,677,000 4,158,000 4,495,000
        Weather related increase
         (decrease) from normal:
          Net income (in
           thousands)                     $(84)     $(22)    $(150)     $(50)
          Earnings per share -
           basic and diluted                $-        $-        $-        $-

(a Results for the twelve months ended March 31, 2002 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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