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SEMCO ENERGY Reports Third Quarter 2002 Results

FARMINGTON HILLS, Mich., Nov. 6 /PRNewswire-FirstCall/ -- SEMCO ENERGY, Inc. (NYSE: SEN) today reported a net loss of $7.0 million, or $0.38 per share, for the third quarter of 2002, compared to a net loss of $6.6 million, or $0.37 per share, for the third quarter of 2001.

Losses during the third quarter are normal because the Company's largest business segment, natural gas distribution, generates the majority of its revenues during the winter heating season. The $0.01 per share increase in net loss for the third quarter of 2002 is due primarily to a decrease in operating income from the Company's Construction Services segment, offset partially by an increase in operating results from the Gas Distribution Business, despite the impact of warmer weather. Additionally, in accordance with new accounting standards, the Company did not record goodwill amortization during 2002, which also partially offset the lower operating results of the Construction Services Business.

Net income for the nine months ended September 30, 2002, was $4.4 million, or $0.24 per share, compared to a net loss of $.9 million, or $0.05 per share, for the same period of 2001. An increase in operating income from the Gas Distribution Business, offset partially by a decrease in operating income from the Construction Services Business, were the primary reasons for the $5.3 million increase in net income. In addition, net income for the first nine months of 2001 includes $.6 million, or $0.03 per share, in losses from the Company's discontinued engineering operations. Goodwill amortization for the nine months ended September 30, 2001, reduced net income by $2.1 million, or $0.11 per share.

Warmer than normal weather increased the net loss reported for the three months ended September 30, 2002 and 2001 by approximately $0.04 per share and $0.02 per share, respectively. For the nine months ended September 30, 2002 and 2001, warmer than normal weather reduced net income by $0.12 per share and $0.21 per share, respectively.

Marcus Jackson, Chairman, President and Chief Executive Officer, said, "We are pleased that the results of the Gas Distribution Business have improved since last year, however, the results of our Construction Services Business have fallen below our expectations and are down from last year's results. A number of our construction customers are cutting back or delaying construction projects due to concerns regarding the economy and other factors. We believe this trend will continue through the fourth quarter of 2002. In addition, the operating performance for the northern region of our construction business has been below our expectations. We currently expect earnings per share for SEMCO to be between $0.60 and $0.65 per share for 2002."

For the twelve months ended September 30, 2002, the Company had a net loss of $1.1 million, or $0.06 per share, compared to net income of $11.6 million, or $0.61 per share for the twelve months ended September 30, 2001. Results for the twelve months ended September 30, 2002, include losses from discontinued operations, restructuring charges, asset impairments and other unusual items that reduced net income by $10.6 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 September 30, 2002, by $3.9 million and reduced net income for the twelve months ended September 30, 2001, by $4.3 million.

BUSINESS SEGMENT RESULTS

GAS DISTRIBUTION

The Gas Distribution Business reported an operating loss of $.7 million for the third quarter of 2002 compared to an operating loss of $2.2 million for the third quarter of 2001. The $1.5 million improvement for 2002 is attributed primarily to the addition of new customers, decreases in operating expenses and the elimination of goodwill amortization, offset partially by the impact of warmer temperatures during the third quarter of 2002, compared to 2001.

Operating income for the nine months ended September 30, 2002 and 2001 was $38.0 million and $30.7 million, respectively. The addition of new customers, the impact of colder temperatures, increased gas cost savings and the elimination of goodwill amortization contributed to the increase. In addition, operating expenses were also lower as a result of cost reductions associated with the Company's redirected business strategy. These items were offset partially by an increase in employee benefit costs, such as pension expense, health care costs and retiree medical costs.

Temperatures during the nine months ended September 30, 2002, were approximately 4% warmer than normal compared to approximately 9% warmer than normal during the same nine-month period of 2001.

The Company realized increased gas costs savings in 2002 under the terms of its third-party natural gas supply and management agreements. The increase in gas cost savings, the majority of which occurred in the first quarter of 2002, was due to the effective management of the Company's Michigan gas supply. In addition, savings associated with natural gas costs were lower in 2001 as a result of purchasing gas with a higher than normal thermal content for the Michigan gas distribution operation. A significant portion of the gas cost savings realized during the first quarter of 2002 is non-recurring.

CONSTRUCTION SERVICES

The Construction Services Business reported operating income of $.6 million for the third quarter of 2002 compared to operating income of $3.6 million for the third quarter of 2001. Operating income for the nine months ended September 30, 2002 was $1.2 million, compared to $2.6 million for the nine months ended September 30, 2001. The $3.0 million decrease in third quarter operating income and $1.4 million decrease in operating income for the first nine months of 2002 is due primarily to lower margin projects and a significant reduction in construction projects, particularly during the third quarter of 2002.

In the northern regions of the country, customers have been cutting back or delaying construction projects this year in light of the uncertainty surrounding the economy and other factors. This has eroded most of the margins on work performed in this region due to costs associated with the time lag to reduce the fixed costs associated with the prior level of revenues. In addition, certain fixed costs cannot be eliminated for a number of reasons, including the expectation that work will resume on many of the projects.

During the first and second quarters of 2002, construction revenues in the southern region of the country were up significantly due to certain large projects in that region. Margins on these projects offset the decrease in margins in the northern region. However, during the third quarter of 2002, customers in the southern region also delayed some of these large construction projects, which has also eroded margins in that region.

Competition for the limited supply of available work has also contributed to the reduced margins on the work that is actually performed. In addition, the operating performance for the northern region of the construction services segment has been below the Company's expectations.

INFORMATION TECHNOLOGY

The operating income of the Information Technology Services Business was nearly $.1 million for the third quarter of 2002 and approximately $.4 million for the first nine months of 2002, which was essentially unchanged from the same periods of 2001.

PROPANE, PIPELINES AND STORAGE

The Propane, Pipelines and Storage Business reported operating income of $.2 million for the third quarter of 2002 compared to $.3 million for the third quarter of 2001. The decrease was due to warmer temperatures, which reduced propane sales and margins, and a slight decrease in pipeline revenues.

Operating income for the nine months ended September 30, 2002, was $1.2 million compared to $1.4 million for the first nine months of 2001. The decrease was due to warmer temperatures, which reduced propane sales and margins, and a slight decrease in pipeline revenues.

SEMCO ENERGY, Inc. is a diversified energy and infrastructure company that distributes natural gas to more than 377,000 customers in Michigan and Alaska. It also owns and operates businesses involved in natural gas pipeline construction services, propane distribution and 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,
                                                      2002              2001

    Financial Summary

       Operating revenues                           $72,693           $76,804

       Restructuring and impairment charges               -                 -
       Other operating expenses                      73,039            75,866

       Operating income                                (346)              938

       Other income and (deductions)
          Interest expense                           (7,951)           (8,092)
          Other                                         694               345
             Total other income and (deductions)     (7,257)           (7,747)

       Income tax provision (credit)                 (2,739)           (2,456)

       Income before dividends on trust
        preferred securities
        and discontinued operations                  (4,864)           (4,353)

       Dividends on trust preferred
        securities, net of income taxes              (2,150)           (2,150)

       Income (loss) from continuing operations      (7,014)           (6,503)

       Income (loss) from discontinued
        operations, net of income taxes                   -              (142)

       Net income (loss) available to
        common shareholders                         $(7,014)          $(6,645)

       Earnings per share - basic
          Net income (loss) from
           continuing operations                     $(0.38)           $(0.36)
          Net income (loss) available to
           common shareholders                       $(0.38)           $(0.37)

       Earnings per share - diluted
          Net income (loss) from
           continuing operations                     $(0.38)           $(0.36)
          Net income (loss) available to
           common shareholders                       $(0.38)           $(0.37)

       Cash dividends per share                      $0.125            $0.210

       Average number of common shares outstanding
          Basic                                      18,519            18,109
          Diluted                                    18,519            18,109

    Impact of Certain Unusual Items

       Net income (loss) available to
        common shareholders                         $(7,014)          $(6,645)
       Impact on net income of the
        following unusual items:
          Income (loss) from discontinued operations    $ -             $(142)
          Restructuring charges,
           impairments and other unusual items          $ -               $ -
       Net income, excluding the unusual items      $(7,014)          $(6,503)
       Weather-normalized net income,
        excluding the unusual items                 $(6,349)          $(6,109)

       Earnings per share - diluted
          Net income (loss)                          $(0.38)           $(0.37)
          Impact on earnings per share of
           the following unusual items:
             Income (loss) from
              discontinued operations                   $ -            $(0.01)
             Restructuring charges,
              impairments and other
              unusual items                             $ -               $ -
          Net income, excluding the unusual items    $(0.38)           $(0.36)
          Weather-normalized net income,
           excluding the unusual items               $(0.34)           $(0.34)


                                                       Nine Months Ended
                                                          September 30,
                                                     2002               2001

    Financial Summary

      Operating revenues                          $334,704           $313,295

      Restructuring and impairment charges               -                  -
      Other operating expenses                     296,090            281,346

      Operating income                              38,614             31,949

      Other income and (deductions)
        Interest expense                           (23,102)           (23,810)
        Other                                        1,728              1,710
          Total other income and (deductions)      (21,374)           (22,100)

      Income tax provision (credit)                  6,428              3,768

      Income before dividends on trust
       preferred securities
       and discontinued operations                  10,812              6,081

      Dividends on trust preferred
       securities, net of income taxes              (6,451)            (6,451)

      Income (loss) from continuing operations       4,361               (370)

      Income (loss) from discontinued
       operations, net of income taxes                   -               (558)

      Net income (loss) available to
       common shareholders                          $4,361              $(928)

      Earnings per share - basic
        Net income (loss) from
         continuing operations                       $0.24             $(0.02)
        Net income (loss) available to
         common shareholders                         $0.24             $(0.05)

      Earnings per share - diluted
        Net income (loss) from
         continuing operations                       $0.24             $(0.02)
        Net income (loss) available to
         common shareholders                         $0.24             $(0.05)

      Cash dividends per share                      $0.460             $0.630

      Average number of common shares outstanding
        Basic                                       18,422             18,076
        Diluted                                     18,452             18,076

    Impact of Certain Unusual Items

      Net income (loss) available to
       common shareholders                          $4,361              $(928)
      Impact on net income of the
       following unusual items:
        Income (loss) from discontinued
         operations                                    $ -              $(558)
        Restructuring charges,
         impairments and other unusual
         items                                         $ -                $ -
      Net income, excluding the unusual items       $4,361              $(370)
      Weather-normalized net income,
       excluding the unusual items                  $6,599             $3,358

      Earnings per share - diluted
        Net income (loss)                            $0.24             $(0.05)
        Impact on earnings per share of
         the following unusual items:
          Income (loss) from
           discontinued operations                     $ -             $(0.03)
          Restructuring charges,
           impairments and other unusual items         $ -                $ -
        Net income, excluding the
         unusual items                               $0.24             $(0.02)
        Weather-normalized net income,
         excluding the unusual items                 $0.36              $0.19


                                                       Twelve Months Ended
                                                           September 30,
                                                     2002               2001

    Financial Summary

      Operating revenues                          $467,232           $456,061

      Restructuring and impairment charges           6,103                  -
      Other operating expenses                     410,074            393,814

      Operating income                              51,055             62,247

      Other income and (deductions)
        Interest expense                           (31,076)           (32,315)
        Other                                        2,356              2,815
          Total other income and (deductions)      (28,720)           (29,500)

      Income tax provision (credit)                  9,239             12,115

      Income before dividends on trust
       preferred securities
       and discontinued operations                  13,096             20,632

      Dividends on trust preferred
       securities, net of income taxes              (8,603)            (8,594)

      Income (loss) from continuing operations       4,493             12,038

      Income (loss) from discontinued
       operations, net of income taxes              (5,564)              (444)

      Net income (loss) available to
       common shareholders                         $(1,071)           $11,594

      Earnings per share - basic
        Net income (loss) from
         continuing operations                       $0.24              $0.67
        Net income (loss) available to
         common shareholders                        $(0.06)             $0.64

      Earnings per share - diluted
        Net income (loss) from
         continuing operations                       $0.24              $0.63
        Net income (loss) available to
         common shareholders                        $(0.06)             $0.61

      Cash dividends per share                      $0.670             $0.840

      Average number of common shares outstanding
        Basic                                       18,365             18,069
        Diluted                                     18,365             19,089

    Impact of Certain Unusual Items

      Net income (loss) available to
       common shareholders                         $(1,071)           $11,594
      Impact on net income of the
       following unusual items:
        Income (loss) from discontinued
         operations                                $(5,564)             $(444)
        Restructuring charges,
         impairments and other unusual items       $(5,083)               $ -
      Net income, excluding the unusual items       $9,576            $12,038
      Weather-normalized net income,
       excluding the unusual items                 $13,436            $16,375

      Earnings per share - diluted
        Net income (loss)                           $(0.06)             $0.61
        Impact on earnings per share of
         the following unusual items:
          Income (loss) from
           discontinued operations                  $(0.30)            $(0.02)
          Restructuring charges,
           impairments and other unusual items      $(0.28)               $ -
        Net income, excluding the
         unusual items                               $0.52              $0.63
        Weather-normalized net income,
         excluding the unusual items                 $0.73              $0.86


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


                                                      Three Months Ended
                                                          September 30,
                                                     2002               2001

    Business Segment Information

      Operating revenues
        Gas Distribution                           $40,474            $37,653
        Construction Services                       33,868             41,397
        Information Technology Services              2,510              2,461
        Propane, Pipelines and Storage               1,097              1,289
        Corporate and Other (includes
         intercompany eliminations)                 (5,256)            (5,996)
          Total operating revenues                 $72,693            $76,804

      Operating income (loss)  (a)
        Gas Distribution                             $(690)           $(2,153)
        Construction Services                          578              3,553
        Information Technology Services                 48                117
        Propane, Pipelines and Storage                 227                271
        Corporate and Other (includes
         intercompany eliminations)                   (509)              (850)
          Total operating income                     $(346)              $938

    Operating Statistics

      Gas distribution:
        Volumes sold (MMcf)                          5,367              5,901
        Volumes transported (MMcf)                  10,213              9,549
        Number of customers at end of period       377,845            369,231
        Weather statistics:
          Degree days                                  168                320
          Percent colder (warmer) than normal        (32.5)%              3.6%
          Weather related increase
           (decrease) from normal:
            Net income (in thousands)                $(645)             $(385)
            Earnings per share - basic              $(0.04)            $(0.02)
            Earnings per share - diluted            $(0.04)            $(0.02)

      Construction:
        Feet of pipe installed                   1,385,000          2,543,000

      Propane Distribution:
        Volumes sold (gallons)                     439,000            599,000
        Weather related increase
         (decrease) from normal:
          Net income (in thousands)                   $(20)               $(9)
          Earnings per share - basic and diluted       $ -                $ -


                                                       Nine Months Ended
                                                          September 30,
                                                     2002              2001

    Business Segment Information

      Operating revenues
        Gas Distribution                          $242,281          $223,079
        Construction Services                       95,973            93,394
        Information Technology Services              7,088             7,608
        Propane, Pipelines and Storage               4,751             5,407
        Corporate and Other (includes
         intercompany eliminations)                (15,389)          (16,193)
          Total operating revenues                $334,704          $313,295

      Operating income (loss)  (a)
        Gas Distribution                           $38,037           $30,692
        Construction Services                        1,207             2,557
        Information Technology Services                367               353
        Propane, Pipelines and Storage               1,217             1,353
        Corporate and Other (includes
         intercompany eliminations)                 (2,214)           (3,006)
          Total operating income                   $38,614           $31,949

    Operating Statistics

      Gas distribution:
        Volumes sold (MMcf)                         43,574            42,662
        Volumes transported  (MMcf)                 33,203            31,399
        Number of customers at end of period       377,845           369,231
        Weather statistics:
          Degree days                                4,747             4,515
          Percent colder (warmer) than normal         (3.8)%            (9.0)%
          Weather related increase
           (decrease) from normal:
            Net income (in thousands)              $(2,165)          $(3,685)
            Earnings per share - basic              $(0.12)           $(0.21)
            Earnings per share - diluted            $(0.12)           $(0.21)

      Construction:
        Feet of pipe installed                   3,629,000         5,125,000

      Propane Distribution:
        Volumes sold (gallons)                   2,826,000         2,877,000
        Weather related increase
         (decrease) from normal:
          Net income (in thousands)                   $(73)             $(43)
          Earnings per share - basic and diluted       $ -               $ -


                                                       Twelve Months Ended
                                                           September 30,
                                                     2002              2001

    Business Segment Information

      Operating revenues
        Gas Distribution                          $343,567          $333,322
        Construction Services                      128,784           126,441
        Information Technology Services              9,753             9,574
        Propane, Pipelines and Storage               6,787             7,786
        Corporate and Other (includes
         intercompany eliminations)                (21,659)          (21,062)
          Total operating revenues                $467,232          $456,061

      Operating income (loss)  (a)
        Gas Distribution                           $57,682           $58,451
        Construction Services                       (2,725)            5,400
        Information Technology Services                444               553
        Propane, Pipelines and Storage               1,735             1,886
        Corporate and Other (includes
         intercompany eliminations)                 (6,081)           (4,043)
          Total operating income                   $51,055           $62,247

    Operating Statistics

      Gas distribution:
        Volumes sold (MMcf)                         64,038            65,123
        Volumes transported  (MMcf)                 44,796            44,334
        Number of customers at end of period       377,845           369,231
        Weather statistics:
          Degree days                                7,283             7,236
          Percent colder (warmer) than normal         (5.1)%            (6.0)%
          Weather related increase
           (decrease) from normal:
            Net income (in thousands)              $(3,742)          $(4,290)
            Earnings per share - basic              $(0.20)           $(0.24)
            Earnings per share - diluted            $(0.20)           $(0.23)

      Construction:
        Feet of pipe installed                   5,824,000         7,646,000

      Propane Distribution:
        Volumes sold (gallons)                   4,182,000         4,464,000
        Weather related increase
         (decrease) from normal:
          Net income (in thousands)                  $(118)             $(47)
          Earnings per share - basic and diluted    $(0.01)              $ -

(a) Results for the twelve months ended September 30, 2002 include restructuring charges, impairments and other unusual items.

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SOURCE 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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