EXHIBIT 12
SEMCO ENERGY, INC.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS
(THOUSANDS OF DOLLARS)
TWELVE MONTHS ENDED
SEPTEMBER 30, 2005 YEAR ENDED DECEMBER 31,
---------------------- --------------------------------------------------------------------------------
DESCRIPTION PRO FORMA HISTORIC 2004 2004 2003 2002 2001 2000
(b) PRO HISTORIC
FORMA
(b)
---------- --------- -------- -------- -------- -------- -------- ---------
Earnings as defined (a)
Income (loss)
before income
taxes, dividends
on trust
preferred
securities,
discontinued
operations &
extraordinary
items $ 4,484 $ 3,865 $ 4,756 $ 3,689 $ (864) $ 33,777 $ 21,338 $ 30,375
Fixed charges as
defined 44,009 44,628 44,195 45,262 47,208 43,956 44,142 41,778
Add distributed
earnings of
equity investees 2,081 2,081 772 772 1,117 1,154 873 1,337
Less reported
earnings of
equity investees (1,693) (1,693) (1,755) (1,755) (1,604) (1,506) (1,356) (1,363)
Less preference
securities
dividend
requirements of
consolidated
subsidiaries 0 0 0 0 (6,616) (13,232) (13,235) (7,699)
-------- -------- -------- -------- -------- -------- -------- --------
Earnings as defined $ 48,881 $ 48,881 $ 47,968 $ 47,968 $ 39,241 $ 64,149 $ 51,762 $ 64,428
Fixed charges as
defined (a)
Interest expensed
and capitalized $ 39,433 $ 40,046 $ 39,606 $ 40,663 $ 37,316 $ 29,817 $ 30,044 $ 31,454
Amortization of
debt costs and
debt basis
adjustments 3,616 3,622 3,620 3,630 2,369 158 27 1,865
Estimate of
interest within
rental expense 960 960 969 969 907 749 836 760
Preference
securities
dividend
requirements of
consolidated
subsidiaries 0 0 0 0 6,616 13,232 13,235 7,699
-------- -------- -------- -------- -------- -------- -------- --------
Fixed charges as
defined $ 44,009 $ 44,628 $ 44,195 $ 45,262 $ 47,208 $ 43,956 $ 44,142 $ 41,778
Preference
dividends as
defined (a) $ 6,204 $ 19,802 $ 7,241 $ 6,135 $ - $ - $ - $ -
(c)
Combined fixed
charges and
preference
dividends $ 50,213 $ 64,430 $ 51,436 $ 51,397 $ 47,208 $ 43,956 $ 44,142 $ 41,778
(b) (b)
Ratio of earnings
to combined
fixed charges
and preference
dividends (d) (e) (f) (g) (h) 1.46 1.17 1.54
======== ======== ======== ======== ======== ======== ======== ========
Notes:
(a) "Earnings" is defined as Income (loss) before income taxes, dividends
on trust preferred securities, discontinued operations and
extraordinary items plus fixed charges as defined plus distributed
earnings of equity investees less reported earnings of equity
investees less preference securities dividend requirements of
consolidated subsidiaries. "Fixed charges" is defined as interest
expensed and capitalized plus amortization of debt costs and debt
basis adjustments plus an estimate of interest within rental expense
plus preference securities dividend requirements of consolidated
subsidiaries. "Preference dividends" is defined as preference
dividends divided by one minus the effective income tax rate
applicable to continuing operations.
(b) SEMCO Energy, Inc. (the "Company") is required to show pro forma
ratios for the most recent fiscal year and latest interim period in
instances when it issues debt or preference stock, uses the proceeds
from that issuance to repay or retire other debt or securities (a
"refinancing"), and the pro forma ratio varies from the historic
ratios by 10% or more. The Company's issuance of its 5% Cumulative
Convertible Preferred Stock ("Preferred Stock") on March 15, 2005 and
March 22, 2005 was a refinancing because the proceeds from the
issuance of the Preferred Stock were used to retire all the Company's
outstanding 6% Convertible Preference Stock ("CPS") on March 15, 2005
and $10.3 million of the Company's 10.25% Subordinated Debentures
("10.25% Debentures") on April 29, 2005.
The effect of the refinancing on the historical ratio of earnings to
combined fixed charges and preference dividends for the interim period
represented by the twelve months ended September 30, 2005 causes the
pro forma ratio for the same period to vary from the historical ratio
by more than 10%. As such, pro forma disclosure for the most recent
fiscal year and latest interim period is presented in the table above.
The pro forma ratio for the twelve months ended September 30, 2005 was
calculated assuming that the Company's Preferred Stock was issued on
October 1, 2004, rather than March 15, 2005 and March 22, 2005, and
was outstanding for the full twelve months ended September 30, 2005.
Furthermore, the pro forma ratio was calculated assuming that the
proceeds from that issuance were used to retire all of the Company's
outstanding CPS on October 1, 2004, rather than March 15, 2005, and
$10.3 million of the Company's 10.25% Debentures on October 1, 2004,
rather than April 29, 2005. "Earnings" in the pro forma ratio
calculation was the same as "earnings" in the historic ratio
calculation. However, "combined fixed charges and preference
dividends" in the pro forma ratio calculation for the twelve months
ended June 30, 2005 was $14.2 million lower than in the historic ratio
calculation as detailed below (in thousands):
Historic, twelve months ended
September 30, 2005 $ 64,430
Add dividends on Preferred Stock 2,970
Eliminate dividends on CPS (see Note (c)) (16,505)
Eliminate fixed charges on 10.25% Debentures (619)
---------
Pro Forma, twelve months ended
September 30, 2005 $ 50,213
The pro forma ratio for the fiscal year ended December 31, 2004 was
calculated assuming that the Company's Preferred Stock was issued on
January 1, 2004, rather than March 15, 2005 and March 22, 2005, and
was outstanding for the full twelve months ended December 31, 2004.
Furthermore, the pro forma ratio was calculated assuming that the
proceeds from that issuance were used to retire all of the Company's
outstanding CPS on March 18, 2004 (the date the CPS was originally
issued), rather
than March 15, 2005, and $10.3 million of the Company's 10.25%
Debentures on January 1, 2004, rather than April 29, 2005. "Earnings"
in the pro forma ratio calculation was the same as "earnings" in the
historic ratio calculation. However, "combined fixed charges and
preference dividends" in the pro forma ratio calculation for the
fiscal year ended December 31, 2004 was $39 thousand higher than in
the historic ratio calculation as detailed below (in thousands):
Historic, fiscal year ended
December 31, 2004 $ 51,397
Add dividends on Preferred Stock 7,241
Eliminate dividends on CPS (6,135)
Eliminate fixed charges on 10.25% Debentures (1,067)
----------
Pro Forma, fiscal year ended
December 31, 2004 $ 51,436
The variance between dividends on CPS for the twelve months ended
September 30, 2005 and for the fiscal year ended December 31, 2004 is
due primarily to a repurchase premium of approximately $13.2 million
(tax adjusted) that was paid in March 2005 and, therefore, affected
the pro forma "combined fixed charges and preference dividends" only
for the twelve months ended September 30, 2005. The remainder of the
variance between dividends on CPS, and the entirety of the variance
between dividends on Preferred Stock and fixed charges on 10.25%
Debentures, for the twelve months ended September 30, 2005 and for the
fiscal year ended December 31, 2004 is due to the differing lengths of
time during the respective periods that these securities were
outstanding and, for the dividends on the CPS and Preferred Stock, the
differing effective income tax rates applicable during the respective
periods, as described above in note (a).
(c) The preference dividends included in the historic ratio calculation
for the twelve months ended September 30, 2005 include a repurchase
premium of $13.2 million (tax adjusted) related to the repurchase of
the Company's 6% Series B Convertible Preference Stock in March of
2005.
(d) For the twelve months ended September 30, 2005, the pro forma ratio of
earnings to combined fixed charges and preference dividends was less
than 1:1. The amount of earnings that would be required to attain a
ratio of 1:1 was approximately $1.3 million.
(e) For the twelve months ended September 30, 2005, the historic ratio of
earnings to combined fixed charges and preference dividends was less
than 1:1. The amount of earnings that would be required to attain a
ratio of 1:1 was approximately $15.5 million. Approximately $13.2
million of the required earnings was needed to cover the repurchase
premium discussed in note (c).
(f) For 2004, the pro forma ratio of earnings to combined fixed charges
and preference dividends was less than 1:1. The amount of earnings
that would be required to attain a ratio of 1:1 was approximately $3.5
million.
(g) For 2004, the historic ratio of earnings to combined fixed charges and
preference dividends was less than 1:1. The amount of earnings that
would be required to attain a ratio of 1:1 was approximately $3.4
million.
(h) For 2003, the ratio of earnings to combined fixed charges and
preference dividends was less than 1:1. The amount of earnings that
would be required to attain a ratio of 1:1 was approximately $8.0
million.