|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
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.
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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|"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.|