UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal period from _____________ to _____________
Commission file number 001-15565
SEMCO ENERGY, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2144267
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
405 WATER STREET, PORT HURON, MICHIGAN 48060
(Address of principal executive offices)
810-987-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days. Yes [X] No [ ]
The number of outstanding shares of the Registrant's common stock as of April
30, 2001: 18,059,953
INDEX TO FORM 10-Q
------------------
For Quarter Ended March 31, 2001
Page
Number
------
COVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS. . . . . . . . . . . . . . . . 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . .. . . . . . . . . . . 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 3. Default upon Senior Securities. . . . . . . . . . . . . . . . . . . . . 21
Item 4. Submission of Matters to a Vote of Securityholders . . . . . . . . . . 21
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . 21
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 that are based on current
expectations, estimates and projections of SEMCO Energy, Inc. and its
subsidiaries (the "Company"). Statements that are not historical facts,
including statements about the Company's outlook, beliefs, plans, goals, and
expectations, are forward-looking statements. These statements are subject to
potential risks and uncertainties and, therefore, actual results may differ
materially. The Company undertakes no obligation to update publicly any
forward-looking statements whether as a result of new information, future events
or otherwise. Factors that may impact forward-looking statements include, but
are not limited to, the following: (i) the effects of weather and other natural
phenomena; (ii) the economic climate and growth in the geographical areas where
the Company does business; (iii) the capital intensive nature of the Company's
business; (iv) increased competition within the energy industry as well as from
alternative forms of energy; (v) the timing and extent of changes in commodity
prices for natural gas and propane; (vi) the effects of changes in governmental
and regulatory policies, including income taxes, environmental compliance and
authorized rates; (vii) the Company's ability to bid on and win construction,
engineering and quality assurance contracts; (viii) the impact of energy prices
on the amount of projects and business available to the Company's engineering
and construction services segment; (ix) the nature, availability and projected
profitability of potential investments available to the Company; (x) the
Company's ability to accomplish its financing objectives in a timely and
cost-effective manner in light of changing conditions in the capital markets,
(xi) the Company's ability to operate and integrate acquired businesses in
accordance with its plans and (xii) the Company's ability to effectively execute
its strategic plan.
- 2 -
SEMCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Twelve Months Ended
March 31, March 31,
-------------------- --------------------
2001 2000 2001 2000
--------- --------- --------- ---------
OPERATING REVENUES
Gas sales. . . . . . . . . . . . . . . . . . . . $122,024 $ 98,932 $296,404 $221,123
Gas transportation . . . . . . . . . . . . . . . 8,058 11,498 27,343 27,238
Engineering and Construction . . . . . . . . . . 18,151 16,584 109,372 73,286
Other. . . . . . . . . . . . . . . . . . . . . . 3,694 3,288 11,099 9,537
--------- --------- --------- ---------
$151,927 $130,302 $444,218 $331,184
--------- --------- --------- ---------
OPERATING EXPENSES
Cost of gas sold . . . . . . . . . . . . . . . . $ 80,583 $ 60,535 $181,994 $132,325
Operations and maintenance . . . . . . . . . . . 34,329 32,416 153,952 114,929
Depreciation and amortization. . . . . . . . . . 9,098 7,982 34,589 23,752
Property and other taxes . . . . . . . . . . . . 2,938 3,100 9,714 9,367
--------- --------- --------- ---------
$126,948 $104,033 $380,249 $280,373
--------- --------- --------- ---------
OPERATING INCOME . . . . . . . . . . . . . . . . . $ 24,979 $ 26,269 $ 63,969 $ 50,811
OTHER INCOME (DEDUCTIONS)
Interest expense . . . . . . . . . . . . . . . . $ (8,009) $ (8,696) $(34,227) $(25,376)
Other. . . . . . . . . . . . . . . . . . . . . . 878 1,060 2,776 3,316
--------- --------- --------- ---------
$ (7,131) $ (7,636) $(31,451) $(22,060)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
DIVIDENDS ON TRUST PREFERRED SECURITIES. . . . . $ 17,848 $ 18,633 $ 32,518 $ 28,751
INCOME TAXES . . . . . . . . . . . . . . . . . . . $ 6,642 $ 6,639 $ 11,608 $ 9,501
--------- --------- --------- ---------
NET INCOME BEFORE DIVIDENDS ON TRUST
PREFERRED SECURITIES . . . . . . . . . . . . . . $ 11,206 $ 11,994 $ 20,910 $ 19,250
Dividends on trust preferred securities, net of
income taxes . . . . . . . . . . . . . . . . . . 2,150 - 7,155 -
--------- --------- --------- ---------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS . . . . . . . . . . . . . . . . . . $ 9,056 $ 11,994 $ 13,755 $ 19,250
========= ========= ========= =========
BASIC EARNINGS PER SHARE . . . . . . . . . . . . . $ 0.50 $ 0.67 $ 0.76 $ 1.08
========= ========= ========= =========
DILUTED EARNINGS PER SHARE . . . . . . . . . . . . $ 0.48 $ 0.67 $ 0.73 $ 1.08
========= ========= ========= =========
CASH DIVIDENDS PAID PER SHARE. . . . . . . . . . . $ 0.210 $ 0.205 $ 0.840 $ 0.868
========= ========= ========= =========
AVERAGE COMMON SHARES OUTSTANDING. . . . . . . . . 18,057 17,917 18,034 17,815
========= ========= ========= =========
<FN>
The accompanying notes to the consolidated financial statements are an integral part of these
statements.
- 3 -
SEMCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
(In thousands)
March 31, December 31,
2001 2000
---------- -------------
(Unaudited)
CURRENT ASSETS
Cash and temporary cash investments. . . . . . . . $ 6,592 $ 1,221
Receivables, less allowances of $1,653 and $1,436. 48,035 73,139
Accrued revenue. . . . . . . . . . . . . . . . . . 23,587 32,212
Prepaid expenses . . . . . . . . . . . . . . . . . 14,390 14,309
Gas in underground storage . . . . . . . . . . . . 2,010 8,739
Materials and supplies, at average cost. . . . . . 5,429 5,065
Gas charges recoverable from customers . . . . . . 2,472 2,698
Accumulated deferred income taxes. . . . . . . . . 4,036 6,994
Other. . . . . . . . . . . . . . . . . . . . . . . 1,924 946
---------- -------------
$ 108,475 $ 145,323
PROPERTY, PLANT AND EQUIPMENT
Gas distribution . . . . . . . . . . . . . . . . . $ 593,419 $ 585,628
Diversified businesses . . . . . . . . . . . . . . 79,610 79,167
---------- -------------
673,029 664,795
Less - accumulated depreciation. . . . . . . . . . 162,921 154,769
---------- -------------
$ 510,108 $ 510,026
DEFERRED CHARGES AND OTHER ASSETS
Goodwill, less amortization of $10,268 and $9,117. $ 168,580 $ 169,692
Deferred retiree medical benefits. . . . . . . . . 10,565 10,790
Unamortized debt expense . . . . . . . . . . . . . 6,815 6,966
Other. . . . . . . . . . . . . . . . . . . . . . . 13,043 8,426
---------- -------------
$ 199,003 $ 195,874
---------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $ 817,586 $ 851,223
========== =============
<FN>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
- 4 -
SEMCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND CAPITALIZATION
(In thousands)
March 31, December 31,
2001 2000
---------- -------------
(Unaudited)
CURRENT LIABILITIES
Notes payable . . . . . . . . . . . . . . . . . . . . . . . $ 103,414 $ 134,142
Accounts payable. . . . . . . . . . . . . . . . . . . . . . 27,651 32,300
Customer advance payments . . . . . . . . . . . . . . . . . 8,345 13,068
Accrued interest. . . . . . . . . . . . . . . . . . . . . . 8,683 8,020
Amounts payable to customers. . . . . . . . . . . . . . . . 1,919 3,097
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,448 10,774
---------- -------------
$ 167,460 $ 201,401
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes . . . . . . . . . . . . . $ 33,462 $ 36,385
Customer advances for construction. . . . . . . . . . . . . 12,681 14,444
Unamortized investment tax credit . . . . . . . . . . . . . 1,646 1,713
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,556 14,504
---------- -------------
$ 62,345 $ 67,046
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . . $ 307,720 $ 307,930
COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST
PREFERRED SECURITIES OF SUBSIDIARIES HOLDING
SOLELY DEBT SECURITIES OF SEMCO ENERGY, INC.. . . . . . . . $ 139,379 $ 139,374
COMMON SHAREHOLDERS' EQUITY
Common stock - $1 par value; 40,000,000 shares authorized;
18,057,911 and 18,055,639 shares outstanding. . . . . . . $ 18,058 $ 18,056
Capital surplus . . . . . . . . . . . . . . . . . . . . . . 115,130 115,186
Retained earnings . . . . . . . . . . . . . . . . . . . . . 7,494 2,230
---------- -------------
$ 140,682 $ 135,472
---------- -------------
TOTAL LIABILITIES AND CAPITALIZATION. . . . . . . . . . . . . $ 817,586 $ 851,223
========== =============
<FN>
The accompanying notes to the consolidated financial statements are an integral part of
these statements.
- 5 -
SEMCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
--------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 9,056 $ 11,994
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization . . . . . . . . . . . . 9,098 7,982
Changes in assets and liabilities, net of effects of
acquisitions, divestitures and other changes as
shown below: . . . . . . . . . . . . . . . . . . . 34,270 13,527
--------- ---------
NET CASH FROM OPERATING ACTIVITIES. . . . . . . $ 52,424 $ 33,503
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property additions - gas distribution . . . . . . . . . . . $ (7,894) $ (6,623)
Property additions - diversified businesses and other . . . (4,434) (2,436)
Proceeds from property sales, net of retirement costs . . . (238) 285
--------- ---------
NET CASH FROM INVESTING ACTIVITIES. . . . . . . $(12,566) $ (8,774)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, net of expenses . . . . . . . . . $ 33 $ 218
Net cash change in notes payable. . . . . . . . . . . . . . (30,728) (23,792)
Payment of dividends. . . . . . . . . . . . . . . . . . . . (3,792) (3,672)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES. . . . . . . $(34,487) $(27,246)
--------- ---------
CASH AND TEMPORARY CASH INVESTMENTS
Net increase (decrease) . . . . . . . . . . . . . . . . . . $ 5,371 $ (2,517)
Beginning of period . . . . . . . . . . . . . . . . . . . . 1,221 6,086
--------- ---------
End of period . . . . . . . . . . . . . . . . . . . . . . . $ 6,592 $ 3,569
========= =========
CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECTS OF
ACQUISITIONS, DIVESTITURES AND OTHER CHANGES:
Receivables, net. . . . . . . . . . . . . . . . . . . $ 25,104 $ 25,673
Accrued revenue . . . . . . . . . . . . . . . . . . . 8,626 9,447
Materials, supplies and gas in underground storage. . 6,365 4,158
Gas charges recoverable from customers. . . . . . . . 226 61
Accounts payable. . . . . . . . . . . . . . . . . . . (4,649) (23,257)
Customer advances and amounts payable to customers. . (7,664) (8,342)
Accrued taxes . . . . . . . . . . . . . . . . . . . . 5,892 4,890
Other . . . . . . . . . . . . . . . . . . . . . . . . 370 897
--------- ---------
$ 34,270 $ 13,527
========= =========
<FN>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
- 6 -
SEMCO ENERGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
Under the rules and regulations of the Securities and Exchange Commission
for Form 10-Q Quarterly Reports, certain footnotes and other financial statement
information normally included in the year-end financial statements of SEMCO
Energy, Inc. and its subsidiaries (the "Company") have been condensed or omitted
in the accompanying unaudited financial statements. These financial statements
prepared by the Company should be read in conjunction with the financial
statements and notes thereto included in the Company's 2000 Annual Report on
Form 10-K filed with the Securities and Exchange Commission. The information in
the accompanying financial statements reflects, in the opinion of the Company's
management, all adjustments (which include only normal recurring adjustments)
necessary for a fair statement of the information shown, subject to year-end and
other adjustments, as later information may require. Certain reclassifications
have been made to the prior periods' financial statements to conform with the
2001 presentation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARD - On January 1, 2001, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and SFAS No. 137 and SFAS No. 138, which
were amendments to SFAS No. 133 (hereinafter collectively referred to as "SFAS
133"). SFAS 133 was effective for fiscal years beginning after June 15, 2000
and establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the statement of financial position as either an
asset or liability measured at its fair value. SFAS 133 requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
Certain gas purchase contracts of the Company qualify under the provisions
of SFAS 133 and require the recognition of the derivatives at their fair value
in the Consolidated Statement of Financial Position as an asset or liability.
Upon adoption of SFAS 133 on January 1, 2001, the Company recorded an asset and
liability of $1.4 million. At March 31, 2001, the Company had an asset and
liability of $.5 million recorded in its Consolidated Statement of Financial
Position in accordance with SFAS 133.
SUPPLEMENTAL CASH FLOW INFORMATION - Supplemental cash flow information for
the three months ended March 31, 2001 and 2000 is summarized in the table below.
Three Months Ended
March 31,
------------------
2001 2000
------ ------
(in thousands)
CASH PAID DURING THE PERIOD FOR:
Interest. . . . . . . . . . . . . . $7,151 $7,810
Income taxes, net of refunds. . . . $ - $2,357
- 7 -
SEMCO ENERGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
(2) SHORT-TERM BORROWINGS AND CAPITALIZATION
SHORT-TERM BORROWINGS - The Company has $160 million of short-term lines
of credit with banks, $140 million of which are committed facilities. At March
31, 2001, $57.8 million of the Company's credit facilities were unused.
COMMON STOCK EQUITY - On April 17, 2001 the Company's Board of Directors
declared a regular quarterly cash dividend of $0.21 per share on the Company's
common stock. The dividend is payable on May 15, 2001 to shareholders of record
at the close of business on May 4, 2001.
In February 2001, the Company paid a quarterly cash dividend of $0.21 per
share on its common stock. The total cash dividend was approximately $3.8
million of which $.7 million was reinvested by shareholders into common stock
through participation in the Direct Stock Purchase and Dividend Reinvestment
Plan ("DRIP"). The DRIP purchased Company common stock on the open market to
meet the dividend reinvestment and stock purchase requirements of its
participants. Also during the first quarter of 2001, the Company issued
approximately 2,300 shares of its common stock to certain of the Company's
employee benefit plans.
(3) EARNINGS PER SHARE
The computations of basic and diluted earnings per share for the three
months and twelve months ended March 31, 2001 and 2000 are as follows (in
thousands except per share amounts):
Three Months Ended Twelve Months Ended
March 31, March 31,
------------------ -------------------
2001 2000 2001 2000
------- ------- ------- -------
BASIC EARNINGS PER SHARE COMPUTATION:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 9,056 $11,994 $13,755 $19,250
Weighted average common shares outstanding . . . . . . 18,057 17,917 18,034 17,815
Earnings Per Share-Basic . . . . . . . . . . . . . . . $ 0.50 $ 0.67 $ 0.76 $ 1.08
DILUTED EARNINGS PER SHARE COMPUTATION:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 9,056 $11,994 $13,755 $19,250
Adjustment for effect of assumed conversions:
Preferred convertible stock dividends. . . . . . . . - - - 9
------- ------- ------- -------
Diluted net income . . . . . . . . . . . . . . . . . . $ 9,056 $11,994 $13,755 $19,259
------- ------- ------- -------
Weighted average common shares outstanding . . . . . . 18,057 17,917 18,034 17,815
Incremental shares from assumed conversions of:
FELINE PRIDES. . . . . . . . . . . . . . . . . . . . 774 - 794 -
Stock options. . . . . . . . . . . . . . . . . . . . 26 - 26 -
Preferred convertible stock. . . . . . . . . . . . . - - - 16
------- ------- ------- -------
Diluted weighted average common shares outstanding . . 18,857 17,917 18,854 17,831
------- ------- ------- -------
Earnings Per Share-Diluted . . . . . . . . . . . . . . $ 0.48 $ 0.67 $ 0.73 $ 1.08
- 8 -
SEMCO ENERGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
(4) BUSINESS SEGMENTS
Effective January 1, 2001, the Company began operating its engineering
services and construction services business segments as one business segment,
and started reporting its information technology services business as a
reportable business segment. As a result of these changes, the Company is
providing segment information for the following four business segments: (1) gas
distribution; (2) engineering and construction services; (3) information
technology services; and (4) propane, pipelines and storage. The latter three
segments are sometimes referred to together as the "diversified businesses".
For information regarding the determination of reportable business segment,
refer to Note 11 of the Notes to the Consolidated Financial Statements in the
Company's 2000 Annual Report on Form 10-K.
The Company's gas distribution segment distributes and transports natural
gas to approximately 264,000 customers in the state of Michigan and
approximately 105,000 customers in the state of Alaska. The engineering and
construction ("E & C") services segment currently conducts most of its business
in the mid-western, southern and southeastern areas of the United States. The E
& C segment's primary service is the installation of underground gas mains and
service lines. Other services include the installation of underground water and
cable facilities, engineering design services, quality assurance services,
testing and certification, global positioning surveys and other related
engineering and project management services. The information technology ("IT")
service segment is headquartered in Michigan and provides IT infrastructure
outsourcing services, application service provider ("ASP") services, Internet
service provider ("ISP") services and other IT services with a focus on
mid-range computers, particularly the AS-400 platform. The propane, pipelines
and storage segment sells approximately 5 million gallons of propane annually to
retail customers in Michigan's upper peninsula and northeast Wisconsin and
operates natural gas transmission, gathering and storage facilities in Michigan.
The accounting policies of the operating segments are the same as those
described in Notes 1 and 11 of the Notes to the Consolidated Financial
Statements in the Company's 2000 Annual Report on Form 10-K except that
intercompany transactions have not been eliminated in determining individual
segment results. The following table provides business segment information as
well as a reconciliation ("Corporate and other") of the segment information to
the applicable line in the Consolidated Financial Statements. Corporate and
other includes corporate related expenses not allocated to segments,
intercompany eliminations and results of other smaller operations.
- 9 -
SEMCO ENERGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Three Months Ended Twelve Months Ended
March 31, March 31,
-------------------- --------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(in thousands)
OPERATING REVENUES
Gas Distribution . . . . . . . . $130,969 $111,688 $327,132 $251,539
Engineering and Construction . . 20,079 20,103 125,862 85,456
Information Technology Services. 2,210 - 7,394 -
Propane, Pipelines and Storage . 2,749 2,061 7,637 6,400
Corporate and Other (a). . . . . (4,079) (3,550) (23,807) (12,211)
--------- --------- --------- ---------
Total Operating Revenues . . . $151,927 $130,302 $444,218 $331,184
========= ========= ========= =========
OPERATING INCOME (LOSS)
Gas Distribution . . . . . . . . $ 27,959 $ 28,659 $ 62,176 $ 50,925
Engineering and Construction . . (2,760) (2,207) 3,149 684
Information Technology Services. 152 - 633 -
Propane, Pipelines and Storage . 736 473 1,794 2,017
Corporate and Other. . . . . . . (1,108) (656) (3,783) (2,815)
--------- --------- --------- ---------
Total Operating Income . . . . $ 24,979 $ 26,269 $ 63,969 $ 50,811
========= ========= ========= =========
<FN>
(a) Includes the elimination of intercompany engineering and construction
services revenue of $1,928,000 and $16,490,000 for the three and twelve
months ended March 31, 2001, respectively, and $3,519,000 and $12,171,000
for the three and twelve months ended March 31, 2000, respectively.
Also includes the elimination of intercompany information technology
services revenue of $2,110,000 and $7,142,000 for the three and twelve
months ended March 31, 2001, respectively.
(5) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS - Prior to the construction of major natural gas
pipelines, gas for heating and other uses was manufactured from processes
involving coal, coke or oil. The Company owns seven Michigan sites which
formerly housed such manufacturing facilities and expects that it will
ultimately incur investigation and remedial action costs at some of these sites,
and a number of other sites. The Company has submitted plans to the appropriate
environmental regulatory authority in the State of Michigan to close one site
and begin work at another site. The extent of the Company's liabilities and
potential costs in connection with these sites cannot reasonably be estimated at
this time. In accordance with an MPSC accounting order, any environmental
investigation and remedial action costs will be deferred and amortized over ten
years. Rate recognition of the related amortization expense will not begin
until after a prudence review in a general rate case.
- 10 -
PART I - FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
SEMCO Energy, Inc. and its subsidiaries (the "Company") had net income of
$9.1 million (or $0.48 per share) for the quarter ended March 31, 2001 compared
to net income of $12.0 million (or $0.67 per share) for the quarter ended March
31, 2000. All references to earnings per share in the Management's Discussion
and Analysis are on a diluted basis. For information related to the calculation
of diluted earnings per share, refer the Note 3 of the Notes to the Consolidated
Financial Statements. On a weather-normalized basis, the net income for the
three months ended March 31, 2001 would have been approximately $11.3 million
(or $0.60 per share) compared to net income of approximately $14.7 million (or
$0.82 per share) for the same period of the prior year.
Net income for the twelve months ended March 31, 2001 was $13.8 million (or
$0.73 per share) compared to $19.3 million (or $1.08 per share) for the twelve
months ended March 31, 2000. On a weather-normalized basis, net income would
have been approximately $17.3 million (or $0.91 per share) for the twelve months
ended March 31, 2001, compared to approximately $25.0 million (or $1.40 per
share) for the same period ended March 31, 2000. The results for the twelve
months ended March 31, 2000 are not truly comparable since ENSTAR's results
included in this earlier period reflect only the heating season from November 1,
1999, the date ENSTAR was acquired, through March 2000.
The Company's largest business segment, natural gas distribution, is
seasonal in nature and depends on the winter months for the majority of its
operating revenue. As a result, a substantial portion of the Company's annual
results of operations is earned during the first and fourth quarters of the
year. The acquisition of ENSTAR in November of 1999 significantly expanded the
Company's gas distribution business and, as a result, has made this seasonal
cycle even more pronounced by contributing additional earnings during the first
and fourth quarters and additional losses during the second and third quarters
of the year. In addition, the Company's engineering and construction services
business segment is also seasonal in nature and makes most of its income during
the summer and fall months and incurs losses during the winter and spring
months. Therefore, the Company's results of operations for the three months
ended March 31, 2001 and 2000 are not necessarily indicative of results for a
full year.
- 11 -
PART I - FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended Twelve Months Ended
March 31, March 31,
-------------------- --------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(in thousands, except per share amounts)
Operating revenues . . . . . . . . . . . $151,927 $130,302 $444,218 $331,184
Operating expenses . . . . . . . . . . 126,948 104,033 380,249 280,373
--------- --------- --------- ---------
Operating income . . . . . . . . . . . . $ 24,979 $ 26,269 $ 63,969 $ 50,811
Other income and (deductions). . . . . (7,131) (7,636) (31,451) (22,060)
Income taxes . . . . . . . . . . . . . (6,642) (6,639) (11,608) (9,501)
--------- --------- --------- ---------
Net income before dividends on
trust preferred securities . . . . . . $ 11,206 $ 11,994 $ 20,910 $ 19,250
Dividends on trust preferred
securities, net of income tax. . . . 2,150 - 7,155 -
--------- --------- --------- ---------
Net income available to common
shareholders . . . . . . . . . . . . . $ 9,056 $ 11,994 $ 13,755 $ 19,250
Earnings per share ("EPS"):
Basic. . . . . . . . . . . . . . . . . $ 0.50 $ 0.67 $ 0.76 $ 1.08
Diluted. . . . . . . . . . . . . . . . $ 0.48 $ 0.67 $ 0.73 $ 1.08
Average common shares outstanding. . . . 18,057 17,917 18,034 17,815
Impact on net income of colder (warmer)
than normal weather. . . . . . . . . . $ (2,232) $ (2,732) $ (3,495) $ (5,705)
Weather-normalized net income. . . . . . $ 11,288 $ 14,726 $ 17,250 $ 24,955
Weather-normalized EPS:
Basic. . . . . . . . . . . . . . . . . $ 0.63 $ 0.82 $ 0.96 $ 1.40
Diluted. . . . . . . . . . . . . . . . $ 0.60 $ 0.82 $ 0.91 $ 1.40
The Company operates four reportable business segments: (1) gas
distribution; (2) engineering and construction services; (3) information
technology services; and (4) propane, pipelines and storage. The latter three
segments are sometimes referred to together as the "diversified businesses".
Refer to Note 4 of the Notes to the Consolidated Financial Statements for
further information regarding business segments and a summary of operating
revenues and operating income by business segment.
The business segment analyses and other discussions on the next several
pages provide additional information regarding variations in operating results
when comparing the three and twelve month periods ended March 31, 2001 to the
same periods of the prior year. The Company evaluates the performance of its
business segments based on the operating income generated. Operating income
does not include income taxes, interest expense, extraordinary items, changes in
accounting methods or other non-operating income and expense items. A review of
the non-operating items follows the business segment discussions.
- 12 -
PART I - FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
GAS DISTRIBUTION
The Company's gas distribution business segment consists of operations in
Michigan and Alaska. ENSTAR, the Alaska-based operation, was acquired on
November 1, 1999. The acquisition of ENSTAR was accounted for as a purchase
and, therefore, the consolidated financial statements and the table below
include the results of ENSTAR's operations since November 1, 1999. The Michigan
gas distribution operation and ENSTAR are referred to together as the "Gas
Distribution Business".
Operating income for the Gas Distribution Business was $28.0 million for
the quarter ended March 31, 2001, compared to $28.7 million for the quarter
ended March 31, 2000. On a weather-normalized basis, the operating income of
the Gas Distribution Business would have been approximately $31.7 million for
the first quarter of 2001 compared to approximately $33.0 million for the same
period of the prior year.
Three Months Ended Twelve Months Ended
March 31, March 31,
-------------------- --------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(dollars in thousands)
Gas sales revenues. . . . . . . . . . $ 122,024 $ 98,932 $ 296,405 $ 221,124
Cost of gas sold. . . . . . . . . . . 80,583 60,535 181,994 132,325
--------- --------- --------- ---------
Gas sales margin. . . . . . . . . . $ 41,441 $ 38,397 $ 114,411 $ 88,799
Gas transportation revenue. . . . . . 8,058 11,498 27,343 27,237
Other operating revenue . . . . . . . 887 1,258 3,384 3,178
--------- --------- --------- ---------
Gross margin. . . . . . . . . . . . $ 50,386 $ 51,153 $ 145,138 $ 119,214
Operating expenses. . . . . . . . . . 22,427 22,494 82,962 68,289
--------- --------- --------- ---------
Operating income. . . . . . . . . . . $ 27,959 $ 28,659 $ 62,176 $ 50,925
========= ========= ========= =========
Weather-normalized operating income . $ 31,639 $ 32,959 $ 68,046 $ 59,575
========= ========= ========= =========
Volumes of gas sold (MMcf). . . . . . 26,955 23,248 64,760 46,618
Volumes of gas transported (MMcf) . . 12,572 16,010 45,268 39,134
Number of customers at end of period. 369,110 359,913 369,110 359,913
Degree Days . . . . . . . . . . . . . 3,215 3,140 7,370 6,551
Percent colder (warmer) than normal . (7.3)% (10.6)% (4.2)% (10.7)%
<FN>
The amounts in the above table include intercompany transactions.
GAS SALES MARGIN - During the first quarter of 2001, gas sales margin
increased by $3.0 million when compared to the first quarter of 2000. The
increase is due primarily to an increase in gas sales as a result of colder
weather compared to the first quarter of 2000, the addition of new customers and
customers switching from the Company's aggregated transportation services
("ATS") program back to general gas sales service, offset partially by higher
gas costs.
- 13 -
PART I - FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
GAS DISTRIBUTION (CONTINUED)
Weather during the first quarter of 2001 was 7.3% warmer than normal in
Michigan and Alaska combined, while the weather during the first quarter of 2000
was 10.6% warmer than normal. Under normal weather conditions, gas sales margin
for the quarter ended March 31, 2001 would have been higher by approximately
$3.7 million and for the quarter ended March 31, 2000 would have been higher by
approximately $4.3 million.
The ATS program, which was effective April 1, 1998, provides all Michigan
commercial and industrial customers the opportunity to purchase their gas from a
third-party supplier, while allowing the Gas Distribution Business to continue
charging the existing distribution fees and customer fees. Distribution and
customer fees associated with customers who switch to third-party gas suppliers
are recorded in gas transportation revenue rather than gas sales revenue,
because the Company acts as a transporter for those customers. During 2000 and
2001, certain ATS customers switched back to the Company's general gas sales
service because the third-party suppliers they were utilizing stopped
participating in the ATS program, primarily due to a significant increase in the
market price of natural gas.
Gas sales margin for the twelve months ended March 31, 2001 increased by
$25.6 million, when compared to the twelve months ended March 31, 2000. A full
twelve months of operations from ENSTAR, which was acquired on November 1, 1999,
accounted for approximately $13.0 million of the increase in gas sales margin.
The remainder of the increase is attributable to the Michigan gas distribution
operation, and is due primarily to an increase in gas sales as a result of
colder weather compared to the twelve months ended March 31, 2000, the addition
of new customers, and customers switching from the Company's ATS program back to
general gas sales service.
Weather during the twelve months ended March 31, 2001 was 4.2% warmer than
normal in Michigan and Alaska combined, while the weather during the twelve
months ended March 31, 2000 was 10.7% warmer than normal. Under normal weather
conditions, gas sales margin for the twelve months ended March 31, 2001 and 2000
would have been higher by approximately $5.9 million and $8.6 million,
respectively.
GAS TRANSPORTATION REVENUE - For the three months ended March 31, 2001, gas
transportation revenue decreased by $3.4 million when compared to the same
period ended March 31, 2000. The primary cause of the decrease was switching by
customers from the ATS program back to the Company's general gas sales service
and a decrease in standard transportation revenue.
Transportation revenue for the twelve months ended March 31, 2001 increased
by $.1 million when compared to the same period ended March 31, 2000. A full
twelve months of transportation revenue from ENSTAR represents an increase of
$6.5 million. The increase generated by ENSTAR was partially offset by the
impact of ATS customers switching from the ATS program back to general gas sales
service during the period. As discussed above, under the ATS program, the
Company charges ATS customers the same distribution fees and customer fees that
are charged to general gas sales service customers.
OTHER OPERATING REVENUE - During the first quarter of 2001, other operating
revenue decreased by $.4 million when compared to the first quarter of 2000.
The decrease was due to lower service fees, primarily associated with ATS
customers switching back to the Company's general gas sales service. Other
operating revenues for the twelve months ended March 31, 2001 were $3.4 million
compared to $3.2 million for the twelve months ended March 31, 2000. The $.2
million increase was due primarily to a bonus received for completing on
schedule the installation of a large diameter transmission pipeline for a
customer, offset partially by a decrease in fees associated with the ATS
program.
- 14 -
PART I - FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
GAS DISTRIBUTION (CONTINUED)
OPERATING EXPENSES - The operating expenses of the Gas Distribution
Business for the three months ended March 31, 2001 were $22.4 million, which is
essentially unchanged from the same period of 2000. However, there were two
offsetting variances in expenses. Depreciation and amortization expense
increased by approximately $.4 million due primarily to additional property,
plant and equipment placed in service but was offset by a decrease in property
tax expense. The decrease in property taxes was due to new property valuation
tables approved by the State of Michigan.
Operating expenses for the twelve months ended March 31, 2001 increased by
$14.7 million when compared to the twelve months ended March 31, 2000. A full
twelve months of operations at ENSTAR accounts for $17.1 million of increased
operating expenses. The offsetting decrease of $2.4 million relates to the
Michigan gas distribution operation and includes a number of offsetting
increases and decreases in expenses.
The decreases in expenses at the Michigan operation, when comparing the
twelve-month periods, included a reduction in general operating expenses of
approximately $1.2 million due primarily to lower employee-related expenses such
as employee incentive compensation, pension and retiree medical expenses.
Pension and retiree medical expenses decreased due to better than expected
historical experience, changes in actuarial assumptions between periods and a
settlement credit related to an early retirement program offered to employees in
2000. The decrease was also due in part to property and other business taxes,
which were lower by $2.5 million for the twelve months ended March 31, 2001,
when compared to the twelve months ended March 31 2000. Property taxes were
lower due to new property valuation tables discussed previously and a $2.1
million reduction in property taxes recorded in 2000 based on pending appeals of
prior years' personal property tax assessments. The decrease in property taxes,
when comparing the twelve-month periods, was offset partially by a $1.3 million
reduction in property taxes recorded in 1999 based on the prior year tax
appeals.
The above decreases in expenses, when comparing the twelve-month periods,
were offset by an increase of approximately $1.3 million in depreciation and
amortization expense. The increase was due primarily to additional property,
plant and equipment placed in service.
REGULATORY MATTERS - During 2000, the Company filed certain revenue
requirement and cost of service information with the Regulatory Commission of
Alaska ("RCA") as required by the October 1999 order approving the transfer of
ownership of ENSTAR. In November 2000, the RCA issued an order requesting
additional information in order to ensure that ENSTAR's rates are just and
reasonable. The order also appointed a hearing examiner and established certain
procedures. The order indicated that, if changes in ENSTAR's existing rates are
required, such changes would be applied on a prospective basis. On March 5,
2001, the RCA issued an additional order granting ENSTAR's motion to use a 2000
test year, accepting a proposed procedural schedule, and finding that, because
the proceeding was taking longer than expected, ENSTAR should show cause why its
current rates should not be made interim and refundable effective April 6, 2001.
The hearing on this issue of the interim and refundable rates was held on April
4, and a decision has not yet been issued. The Company's position is that the
RCA's power to declare a utility's rates interim and refundable is limited to a
specified portion of those rates and that the evidence presented in the hearing
indicates that ENSTAR's rates are just and reasonable.
- 15 -
PART I - FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
ENGINEERING AND CONSTRUCTION
The Company's engineering and construction ("E & C") business is seasonal. As a
result, it generally incurs operating losses during the winter and spring months
when underground construction and related services are inhibited by weather, and
generates the majority of its operating income during the summer and fall
months. In addition, as this business expands, the seasonal operating losses
and profits typically become proportionally larger.
Three Months Ended Twelve Months Ended
March 31, March 31,
------------------ -------------------
2001 2000 2001 2000
-------- -------- -------- -------
(in thousands)
Operating revenues. . . . . . . . $20,079 $20,103 $125,862 $85,456
Operating expenses. . . . . . . . 22,839 22,310 122,713 84,772
-------- -------- -------- -------
Operating income (loss) . . . . . $(2,760) $(2,207) $ 3,149 $ 684
======== ======== ======== =======
Feet of pipe and cable installed. 930 997 7,895 6,508
Billed engineering hours. . . . . 32 94 230 356
<FN>
The amounts in the above table include intercompany transactions.
OPERATING REVENUES - The operating revenues of the E & C Business for the
first quarter of 2001 were essentially unchanged at $20.1 million when compared
to the first quarter of 2000. Operating revenues for the twelve months ended
March 31, 2001 were $125.9 million, an increase of $40.4 million (or 47%) over
the same period ended March 31, 2000. The increase is due primarily to the
timing of business acquisitions and an increase in construction projects.
Several E & C business acquisitions were made during or after the twelve months
ended March 31, 2000. Refer to Note 3 of the Notes to the Consolidated
Financial Statements in the Company's 2000 Annual Report on Form 10-K for the
acquisition dates of all E & C businesses acquired during the past three years.
OPERATING INCOME - The E & C Business had a seasonal operating loss of $2.8
million for the first quarter of 2001 compared to a loss of $2.2 million for the
first quarter of 2000. The increased operating loss for the first quarter of
2001 was due in part to increased project costs as a result of more restrictive
deep-ground frost conditions in certain regions of the midwest and other events.
In addition, operating income for the first quarter of 2000 included profits
from two large telecommunication projects.
Operating income for the twelve months ended March 31, 2001 was $3.1
million, compared to $.7 million for the twelve months ended March 31, 2000.
The increase is due primarily to the operating income of the businesses acquired
during or after the twelve months ended March 31, 2000 and the items discussed
above, which affected results for the three-month periods. Operating income
during the twelve months ended March 31, 2001 was also impacted by higher fuel
costs and a decrease in engineering and pipeline inspection projects.
- 16 -
PART I - FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
INFORMATION TECHNOLOGY SERVICES
This is the first quarter that the Company is reporting its information
technology ("IT") services business as a separate business segment. This
business, under the Aretech Information Services name, began operations in May
of 2000 and provides IT infrastructure outsourcing services, ASP services and
other IT services with a focus on mid-range computers, particularly the AS-400
platform. Aretech is also an internet service provider ("ISP") and currently
has approximately 1,200 ISP customers.
Three Months Ended Twelve Months Ended
March 31, March 31,
------------------ -------------------
2001 2000 2001 2000
------ ----- ------ -----
(in thousands)
Operating revenues. . . $2,210 $ - $7,394 $ -
Operating expenses. . . 2,058 - 6,761 -
------ ----- ------ -----
Operating income. . . . $ 152 $ - $ 633 $ -
====== ===== ====== =====
<FN>
The amounts in the above table include intercompany transactions.
OPERATING REVENUES AND INCOME - Operating revenues for the IT services
business for the three and twelve months ended March 31, 2001 were $2.2 million
and $7.4 million, respectively. Operating income for the same periods was $.2
million and $.6 million, respectively.
PROPANE, PIPELINES AND STORAGE
Three Months Ended Twelve Months Ended
March 31, March 31,
------------------ -------------------
2001 2000 2001 2000
------ ------ ------ ------
(in thousands)
Operating revenues. . . $2,749 $2,061 $7,637 $6,400
Operating expenses. . . 2,013 1,588 5,843 4,383
------ ------ ------ ------
Operating income. . . . $ 736 $ 473 $1,794 $2,017
====== ====== ====== ======
OPERATING REVENUES - The operating revenues of the Company's propane,
pipelines and storage business for the three and twelve months ended March 31,
2001 were $2.7 million and $7.6 million, respectively, compared to $2.1 million
and $6.4 million, respectively, for the same periods ended March 31, 2000. The
increases during the periods were due primarily to higher propane distribution
revenues. However, during the twelve months ended March 31, 2001, the increase
in propane revenues was offset partially by slightly lower pipeline revenues.
The increase in propane revenues was due to an increase in the market price of
propane. Pipeline revenues were down due primarily to the absence of revenues
from a pipeline that was sold in mid-1999.
- 17 -
PART I - FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
PROPANE, PIPELINES AND STORAGE (CONTINUED)
OPERATING INCOME - The operating income from the propane, pipelines and
storage business for the three months ended March 31, 2001, when compared to the
same period of 2000, increased by $.3 million due primarily to better propane
margins and lower administrative expenses. Operating income for the twelve
months ended March 31, 2001 decreased by $.2 million, when compared to the same
period ended March 31, 2000. The decrease was caused primarily by the absence
of operating income from a pipeline that was sold in mid-1999, offset partially
by better propane margins.
OTHER INCOME AND DEDUCTIONS
Three Months Ended Twelve Months Ended
March 31, March 31,
------------------ --------------------
2001 2000 2001 2000
-------- -------- --------- ---------
(in thousands)
Interest expense. . . . . . . . . . . $(8,009) $(8,696) $(34,227) $(25,376)
Other income. . . . . . . . . . . . . 878 1,060 2,776 3,316
-------- -------- --------- ---------
Total other income (deductions) . . $(7,131) $(7,636) $(31,451) $(22,060)
======== ======== ========= =========
INTEREST EXPENSE - Interest expense for the twelve months ended March 31,
2001, when compared to the same period ended March 31, 2000, increased by $8.9
million. The increase is due primarily to increases in debt levels to finance
the Company's capital expenditure and business acquisition programs and for
general corporate purposes. The most significant increase in debt levels
occurred on November 1, 1999, when the Company incurred $290 million of
additional short-term debt to finance the acquisition of ENSTAR ("bridge loan").
The bridge loan was repaid during the second and third quarters of 2000 with the
proceeds of several securities offerings and borrowings from the Company's bank
lines of credit. Interest expense for the twelve months ended March 31, 2000
also includes $2.1 million of income recognized on interest rate swaps
terminated during the first quarter of 2000. Refer to Notes 5 and 6 of the
Notes to the Consolidated Financial Statements in the Company's 2000 Annual
Report on Form 10-K for further information regarding bridge loan and securities
offerings.
Interest expense for the three months ended March 31, 2001 decreased by $.7
million when compared to the same quarter ended March 31, 2000. The bridge loan
discussed above was outstanding during the first quarter of 2000, while during
the first quarter of 2001, the Company had long-term debt and trust preferred
securities outstanding. As a result, interest expense is down primarily because
the dividends on the trust preferred securities are reported separately from
interest expense. Interest expense for the first quarter of 2000 also included
$2.1 million of non-recurring income recognized on terminated interest rate
swaps.
- 18 -
PART I - FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
OTHER INCOME AND DEDUCTIONS (CONTINUED)
OTHER INCOME - Other income for the three months and twelve months ended
March 31, 2001 decreased by $.2 million and $.5 million respectively, when
compared to the same periods ended March 31, 2000. The decrease during the
first quarter of 2001 was due primarily to non-recurring income during the first
quarter of 2000 from an investment in a gas storage partnership. The decrease
during the twelve months ended March 31, 2001, when compared to the same period
of 2000, was due to lower allowances for funds used during construction
("AFUDC") and the non-recurring income in the first quarter of 2000 discussed
above.
INCOME TAXES
Income taxes were $6.6 million for both the first quarter of 2000 and the
first quarter of 2001. Income taxes for the twelve months ended March 31, 2001
increased by approximately $2.1 million when compared to the same period ended
March 31, 2000. The change in income taxes, when comparing one period to
another, is due primarily to changes in earnings before income taxes and
dividends on trust preferred securities and any adjustments necessary for
compliance with tax laws and regulations.
DIVIDENDS ON TRUST PREFERRED SECURITIES, NET OF INCOME TAX
The Company issued trust preferred securities and FELINE PRIDES during the
second quarter of 2000. These securities are described in Note 5 of the Notes
to the Consolidated Financial Statements in the Company's 2000 Annual Report on
Form 10-K. Dividends on these securities, net of income tax, for the three
months and twelve months ended March 31, 2001 were approximately $2.2 million
and $7.2 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM INVESTING - The following table identifies capital
investments for the three months ended March 31, 2001 and 2000:
Three Months Ended
March 31,
------------------
2001 2000
------- ------
(in thousands)
Capital investments:
Property additions - gas distribution. . . . . . . . . $ 7,894 $6,623
Property additions - diversified businesses and other. 4,434 2,436
------- ------
$12,328 $9,059
======= ======
The Company has spent approximately $12.3 million on property additions
during the first three months of 2001 and anticipates spending approximately $33
million on property additions during the remainder of 2001. The Company may
also incur expenditures for business acquisitions during the remainder of 2001.
- 19 -
PART I - FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
CASH FLOWS FROM OPERATIONS - Net cash from operating activities for the
three months ended March 31, 2001, when compared to the same period of the prior
year, increased by $18.9 million. The change in operating cash flows is
influenced significantly by changes in the level and cost of gas in underground
storage, changes in accounts receivable and accrued revenue and other working
capital changes. The changes in these accounts are largely the result of the
timing of cash receipts and payments.
CASH FLOWS FROM FINANCING - Net cash used for financing activities during
the three months ended March 31, 2001 increased by $7.2 million when compared to
the same period ended March 31, 2000.
Three Months Ended
March 31,
--------------------
2001 2000
--------- ---------
(in thousands)
Cash provided by (used in) financing activities:
Issuance of common stock. . . . . . . . . . . . $ 33 $ 218
Net cash change in notes payable. . . . . . . . (30,728) (23,792)
Payment of dividends. . . . . . . . . . . . . . (3,792) (3,672)
--------- ---------
$(34,487) $(27,246)
========= =========
In April 2001 the Company's Board of Directors declared a regular quarterly
cash dividend of $0.21 per share on the Company's common stock. The dividend is
payable on May 15, 2001 to shareholders of record at the close of business on
May 4, 2001.
FUTURE FINANCING - In general, the Company funds its capital expenditure
program and dividend payments with operating cash flows and the utilization of
short-term lines of credit. When appropriate, the Company will refinance its
short-term lines with long-term debt, common stock or other long-term financing
instruments. The Company has short-term credit facilities of $160 million, $140
million of which are committed facilities. $57.8 million of these short-term
credit facilities were unused at March 31, 2001.
In March 2000, a registration statement on Form S-3 ("registration
statement") filed by the Company and SEMCO Capital Trust I, SEMCO Capital Trust
II and SEMCO Capital Trust III ("Capital Trusts") with the Securities and
Exchange Commission became effective. At March 31, 2001, there was $224 million
of available financing remaining under the Company's registration statement.
The Company may acquire additional businesses during the remainder of 2001.
If business acquisitions are made, the Company will likely raise the required
capital through a combination of utilizing short-term lines of credit and
issuing long-term debt or equity.
The Company's ratio of earnings to fixed charges was 1.48 for the twelve
months ended March 31, 2001. If you assume that common stock of the Company was
issued in place of the FELINE PRIDES, the ratio of earnings to fixed charges
would have been 1.75.
- 20 -
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
During the first quarter of 2001, the Company issued an aggregate of
2,272 shares of unregistered common stock to the members of its Board of
Directors in exchange for services rendered, valued at $33,100.
The preceding transaction was exempt from registration under Section
4(2) of the Securities Act of 1933.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits - (See page 23 for the Exhibit Index.)
3(ii) Bylaws--last revised April 25, 2001.
12 Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the first quarter of 2001.
- 21 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEMCO ENERGY, INC.
(Registrant)
Dated: May 15, 2001
By: /s/Sebastian Coppola
-------------------------------------
Sebastian Coppola
Senior Vice President and Principal
Financial Officer
- 22 -
EXHIBIT INDEX
Form 10-Q
First Quarter 2001
Exhibit
No. Description Filed Herewith
- -------- ----------- ---------------
3(ii) Bylaws--last revised April 25, 2001. x
12 Ratio of Earnings to Fixed Charges. x
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