<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal period from to
------------- ------------
Commission file number 0-8503
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, 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) (Zip Code)
Registrant's telephone number, including area code 810-987-2200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 Par Value
--------------------------
(Title of Class)
$2.3125, Series A, Convertible
Cumulative Preferred Stock
------------------------------
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
<PAGE> 2
The aggregate market value of the voting stock (Common Stock, $1 Par Value)
held by non-affiliates is computed at $180,663,577 based on 9,322,166 shares
held by non--affiliates as of February 21, 1994 at the average of the bid and
ask prices on the closest trading date for such stock of $19.00 and $19.75,
respectively, as quoted on the National Association of Securities Dealers
Automated Quotation National Market System (NASDAQ/NMS) (which prices may not
represent actual transactions).
Number of shares outstanding of each of the Registrant's classes of Common
Stock, as of February 21, 1994: 10,491,000 shares of Common Stock, $1 Par
Value.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's definitive Proxy Statement (filed or to be filed
pursuant to Regulation 14A) with respect to Registrant's April 19, 1994 Annual
Meeting of Shareholders are incorporated by reference herein in response to
Part III.
<PAGE> 3
<TABLE>
T A B L E O F C O N T E N T S
<CAPTION>
PAGE
CONTENTS NUMBER
<S> <C> <C>
PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . 4
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . 7
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . 8
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . 37
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 38
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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<PAGE> 4
GLOSSARY
Bcf . . . . . . . . . . A measure of natural gas volumes equivalent to one
billion cubic feet
Degree Day . . . . . . . A measure of coldness computed by the number of
degrees the average daily temperature falls below
65 degrees Fahrenheit
FASB . . . . . . . . . . Financial Accounting Standards Board
FERC . . . . . . . . . . Federal Energy Regulatory Commission
Mcf . . . . . . . . . . A measure of natural gas volumes equivalent to one
thousand cubic feet
MMcf . . . . . . . . . . A measure of natural gas volumes equivalent to one
million cubic feet
MPSC . . . . . . . . . . Michigan Public Service Commission
NGV . . . . . . . . . . Natural gas vehicle
Normal Degree Days . . . An average of degree days over the last 10 years
NYMEX . . . . . . . . . New York Mercantile Exchange
SFAS . . . . . . . . . . Statement of Financial Accounting Standards
-ii-
<PAGE> 5
PART I
ITEM 1. BUSINESS
THE COMPANY
Southeastern Michigan Gas Enterprises, Inc. (the Company) is a holding
company formed in 1977 which owns six direct subsidiaries. The Company
provides professional and technical services for its subsidiaries in the areas
of finance and accounting, taxes, risk management, human resources, legal
assistance and information systems.
Southeastern Michigan Gas Company (Southeastern), Battle Creek Gas Company
(Battle Creek) and Michigan Gas Company (Michigan Gas) (collectively, the
utility subsidiaries) generate revenues through the sale and transportation of
natural gas. Set forth in the table below is sales and transportation
information for the past three years:
<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Gas sales revenue:
Residential.................. $122,216 61% $110,173 62% $101,542 61%
Commercial................... 61,379 31 53,770 30 49,100 30
Industrial................... 16,049 8 14,953 8 15,139 9
-------- --- -------- --- -------- ---
Total gas sales revenue.... $199,644 100% $178,896 100% $165,781 100%
======== === ======== === ======== ===
Gas transportation revenue..... $ 11,968 $ 11,918 $ 11,736
======== ======== ========
Throughput volumes (MMcf):
Gas sales volumes:
Residential.................. 23,302 59% 22,352 59% 20,773 58%
Commercial................... 12,608 32 11,890 32 11,116 31
Industrial................... 3,500 9 3,513 9 3,707 11
------ --- ------ --- ------ ---
Total gas sales volumes.... 39,410 100% 37,755 100% 35,596 100%
====== === ====== === ====== ===
Gas transportation volumes..... 19,073 22,147 22,357
====== ====== ======
</TABLE>
Residential and commercial gas sales revenues are sensitive to weather as
residential and commercial customers use natural gas primarily for space
heating purposes. Industrial sales and transportation volumes and margins are
primarily dependent upon the comparative cost of alternate fuels, economic
conditions and government policies.
Southeastern and Michigan Gas are subject to the jurisdiction of the MPSC
as to various phases of their operations including rates, accounting, service
standards and the issuance of securities. Battle Creek is subject to the
jurisdiction of the MPSC as to various phases of its operations including
accounting, service standards and issuance of securities, but not as to rates.
Battle Creek's rates are subject to the jurisdiction of the City Commissioners
of Battle Creek, Michigan.
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<PAGE> 6
SEMCO Energy Services, Inc. (SEMCO) was formed in 1986 to take advantage
of the natural gas marketing opportunities created by deregulation in the
natural gas industry. SEMCO also has operations and interests in natural gas
transmission and gathering systems, an underground natural gas storage field, a
gas processing plant and oil and gas properties. Some of these interests were
obtained through equity investments where an unrelated party is the operator.
The majority of these activities are regulated by various state regulatory
agencies with respect to maximum rates charged to customers. Set forth below
are SEMCO's operating revenues, cost of gas marketed, volumes, average number
of customers and earnings (loss) from equity investments for the past three
years:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Natural gas marketing operations:
Gas marketing revenues............ $70,991 $54,595 $48,497
Cost of gas marketed.............. 67,474 52,347 46,237
------- ------- -------
Gross margin.................... $ 3,517 $ 2,248 $ 2,260
======= ======= =======
Gas volumes marketed (MMcf)....... 31,501 29,637 28,636
Average number of customers....... 156 161 146
Other operating revenues............ $ 3,631 $ 2,983 $ 1,763
Earnings (loss) from equity
investments....................... $ (23) $ 478 $ 801
</TABLE>
SEMCO's gas marketing margins and volumes are sensitive to the comparative
costs of alternate fuels, seasonal patterns and competition within the gas
marketing industry. As FERC Order 636 is implemented, the gas marketing
industry will face increasing competition but will also be presented with new
opportunities. See "Management's Discussion and Analysis" for further
discussion relating to Order 636.
Southeastern Development Company's (SEDCO's) principal activities consist
of developing a residential real estate project and assisting in the gas supply
and transportation procurement for a cogeneration general partnership in which
it owns a 50% interest.
At this time, SEDCO has no plans to expand its real estate operations.
Southeastern Financial Services, Inc. (SFS) leases motor vehicles and data
processing equipment primarily to companies of the consolidated group.
Gas Supply. The service territories of the utility subsidiaries are
served by four major interstate pipelines: Panhandle Eastern Pipe Line
Company, Northern Natural Gas Company, Great Lakes Gas Transmission Company and
ANR Pipeline Company.
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<PAGE> 7
In 1993, 10% of the natural gas volumes purchased by the utility
subsidiaries were from interstate pipelines. Eighty-nine percent of 1993 gas
purchases were from the spot market or from firm suppliers at prices indexed to
the spot market. These supplies are transported to the utility subsidiaries'
systems under various firm and interruptible transportation arrangements with
interstate and intrastate transmission companies. Less than one percent of
1993 gas purchases were from intrastate suppliers.
The Company has provided for 80% of its annual gas requirements under
long-term firm contracts with prices indexed to market prices. The Company
expects to purchase the remaining 20% of annual requirements on the spot
market. All of the Company's transportation requirements are covered by firm
agreements.
The Company utilizes on-system and leased storage capacity of
approximately 40% of annual gas sales volumes to reduce its reliance on the
interstate pipelines for peak day needs and purchase gas at lower prices.
The utility subsidiaries own underground storage facilities with a working
capacity of 5.2 Bcf. In addition, the Company leases 6.9 Bcf of storage from
Eaton Rapids Gas Storage System and 3.9 Bcf from non-affiliates. SEMCO Gas
Storage Company (an affiliated company) is a 50% owner of Eaton Rapids Gas
Storage System.
SEMCO obtains its gas supply from various production sources, primarily
located in Louisiana, Oklahoma and Michigan. SEMCO generally contracts for gas
supply on a monthly basis, however, it does enter into some long-term gas
purchasing arrangements. See Note 1 of "Notes to the Consolidated Financial
Statements" for a further description of SEMCO's gas supply strategy.
New Business. Since 1987 the Company has added approximately 5,000
customers per year. Customer additions have been primarily residential and
commercial.
Clean air legislation and resultant pressures on industry and electric
utilities to reduce emissions from their plants continue to support interest in
natural gas as an industrial fuel. The use of natural gas as a primary vehicle
fuel is also receiving serious attention for the same environmental reasons.
Rates and Regulation. Management continually reviews the adequacy of the
utility subsidiaries' rates. It is management's intention to file requests for
rate increases whenever it is deemed necessary and appropriate. There have
been no general rate filings by Southeastern since 1983 or Michigan Gas since
1990. Battle Creek last placed new rates into effect in 1991.
In 1992, the MPSC issued a generic order addressing the accounting for the
cost of postretirement benefits other than pensions. Pursuant to this order,
the utility subsidiaries must file generic rate cases before 1996 in order to
recover certain expenses related to this change in accounting treatment. The
utility subsidiaries plan to file these cases before 1996 and any relief
granted by the MPSC will be based on all elements of cost of service. See
Note 7 of "Notes to the Consolidated Financial Statements" for further
discussion.
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<PAGE> 8
Competition. Natural gas competes with other forms of energy available to
customers, primarily on the basis of rates. These competitive forms of energy
include electricity, coal, propane and fuel oils. Changes in the availability
or price of natural gas or other forms of energy, as well as business
conditions, conservation, legislation, regulations, capability to convert to
alternate fuels and other factors may affect the demand for natural gas in
areas served by the Company's subsidiaries.
The Company's subsidiaries sell natural gas to and transport natural gas
for several large customers who have the ability to use alternate fuels.
In addition, the Company's marketing operations compete with other
marketing firms on the basis of price, the ability to arrange suitable
transportation to the customer's premises and the ability to provide related
services such as pipeline nominations and balancing.
FERC Order 636 has increased competition in the natural gas industry as
pipelines unbundle their services and instead offer separate service for gas
transportation, storage and gathering. See "Management's Discussion and
Analysis" for a further discussion of Order 636.
ITEM 2. PROPERTIES
The total properties of the Company consist of the Common Stock of
Southeastern Michigan Gas Company, Michigan Gas Company, Battle Creek Gas
Company, SEMCO Energy Services, Inc., Southeastern Development Company,
Southeastern Financial Services, Inc., and leasehold improvements and office
equipment.
SOUTHEASTERN MICHIGAN GAS COMPANY
Southeastern owns gas supply systems which, on December 31, 1993, included
approximately 112 miles of transmission pipelines and 1,732 miles of
distribution pipelines. The pipelines are located in southeastern Michigan
(centered in and around the City of Port Huron) and south-central Michigan
(centered in and around the City of Albion).
Southeastern's distribution system and service lines are, for the most
part, located on or under public streets, alleys, highways, and other public
places, or on private property not owned by Southeastern with permission or
consent, except to an inconsequential extent, of the individual owners. The
distribution system and service lines located on or under public streets,
alleys, highways, and other public places were all installed under valid rights
and consents granted by appropriate local authorities.
Southeastern's underground storage system consists of six salt caverns and
a depleted gas field, located in St. Clair County, Michigan, together with
measuring, compressor and transmission facilities. The aggregate working
capacity of the system is approximately 3.5 Bcf, with a capacity to deliver
86 MMcf on a peak day.
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<PAGE> 9
Southeastern also owns meters and service lines, gas regulating and
metering stations, garages, warehouses and other buildings necessary and useful
in conducting its business. Southeastern leases its computer and
transportation equipment.
Southeastern's principal plants and properties are held subject to the
lien of the Indenture of Mortgage and Deed of Trust securing its First Mortgage
Bonds.
BATTLE CREEK GAS COMPANY
Battle Creek owns gas supply systems which, on December 31, 1993, included
approximately 27 miles of transmission pipelines and 612 miles of distribution
pipelines. The pipelines are located in southwestern Michigan (centered in and
around the City of Battle Creek, Michigan).
Battle Creek's distribution system and service lines are, for the most
part, located on or under public streets, alleys, highways, and other public
places, or on private property not owned by Battle Creek with permission or
consent, except to an inconsequential extent, of the individual owners. The
distribution system and service lines located on or under public streets,
alleys, highways, and other public places were all installed under valid rights
and consents granted by appropriate local authorities.
Battle Creek owns and operates underground gas storage facilities in a
depleted salt cavern and two depleted gas fields. The aggregate working
capacity of the storage system is approximately 1.7 Bcf.
Battle Creek also owns meters and service lines, gas regulating and
metering stations, garages, warehouses and other buildings necessary and useful
in conducting its business. Battle Creek leases its computer and
transportation equipment.
MICHIGAN GAS COMPANY
Michigan Gas owns gas supply systems located in the southwest portion of
Michigan's lower peninsula and the central and western areas of Michigan's
upper peninsula. The systems include 1,943 miles of distribution pipeline,
meters, service lines, gas regulating and metering stations, garages,
warehouses, and other buildings necessary and useful in conducting its
business. Michigan Gas leases its computer equipment, transportation
equipment, and certain buildings.
Michigan Gas's distribution system and service lines are for the most
part, located on or under public streets, alleys, highways, and other public
places, or on private property not owned by Michigan Gas with permission or
consent, except to an inconsequential extent, of individual owners. The
distribution system and service lines located on or under public streets,
alleys, highways, and other public places were all installed under valid rights
and consents granted by appropriate local authorities.
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<PAGE> 10
SEMCO ENERGY SERVICES, INC.
The principal properties of SEMCO and its affiliates include interests and
operations in natural gas transmission and gathering systems and an underground
gas storage system.
Set forth in the following table are the equity investments of SEMCO and
its affiliates, the total non-current asset balance of each entity, and SEMCO's
ownership percentage and equity investment at December 31, 1993:
<TABLE>
<CAPTION>
Total SEMCO's SEMCO's
Non-current Percent Equity
Assets Ownership Investment
----------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
NOARK Pipeline System................. $102,610 32% $3,467
NOARK Gas Services, L.P............... 91 40 (45)
Eaton Rapids Gas Storage System....... 25,418 50 3,913
Nimrod Natural Gas Corporation........ 9,968 11 348
Nimrod Limited Partnership............ 1,597 29 340
Michigan Intrastate Pipeline System... 4,603 50 513
Michigan Intrastate Lateral System.... 674 50 366
-------- ------
$144,961 $8,902
======== ======
</TABLE>
SEMCO Arkansas Pipeline Company (a wholly-owned subsidiary of SEMCO) is a
32% general partner in the NOARK Pipeline System. The partnership operates a
302-mile pipeline crossing northern Arkansas which completed its first year of
service in 1993. The pipeline provides pipeline capacity to producers in the
Arkansas section of the Arkoma Basin and access to new natural gas service to
communities along the pipeline route. See Note 8 of the "Notes to the
Consolidated Financial Statements" for a discussion of commitments made
relating to this project.
SEMCO Gas Storage Company (a wholly-owned subsidiary of SEMCO) owns a 50%
equity interest in the Eaton Rapids Gas Storage System. This system consists
of approximately 12 Bcf of underground storage capacity located near Eaton
Rapids, Michigan. The system became operational in March 1990. Of the total
capacity, 6.5 Bcf has been contracted by Southeastern, Battle Creek, and
Michigan Gas (affiliated companies) under long-term contracts. The remainder
is leased to non-affiliated companies.
SEMCO Pipeline Company (SEMCO Pipeline) (a wholly-owned subsidiary of
SEMCO) is an 11% owner of Nimrod Natural Gas Corporation (Nimrod) of Tulsa,
Oklahoma. Nimrod engages in the business of installing or purchasing and
operating natural gas gathering systems. These systems purchase, collect and
re-sell wellhead natural gas by delivering it to major transportation pipelines
for redelivery to customers.
SEMCO Pipeline also is a 50% owner of the Michigan Intrastate Pipeline
System and the Michigan Intrastate Lateral System, whose sole purpose is to own
10% of the Saginaw Bay Pipeline Project. The Saginaw Bay Pipeline Project is a
126-mile pipeline from Michigan's Saginaw Bay area to processing plants in
Kalkaska, Michigan.
The following table sets forth the operations wholly or partially owned by
SEMCO and its affiliates, the total net property of the project, and SEMCO's
ownership percentage and net property at December 31, 1993:
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<PAGE> 11
<TABLE>
<CAPTION>
Total SEMCO's SEMCO's
Net Percent Net
Property Ownership Property
-------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Litchfield Lateral...................... $11,305 33% $ 3,768
Greenwood Pipeline...................... 7,439 100 7,439
Iosco-Reno System....................... 4,525 40 1,810
Eaton Rapids Pipeline................... 1,404 100 1,404
Production Gathering Systems and
Oil and Gas Properties................ 659 100 659
------- -------
$25,332 $15,080
======= =======
</TABLE>
SEMCO Pipeline is a 33% owner in the Litchfield Lateral, a 31-mile
pipeline located in southwest Michigan. The line, which is leased entirely to
ANR Pipeline Company, links the Eaton Rapids Gas Storage System with interstate
pipeline supplies. The Litchfield Lateral began operations in February 1993.
In 1991, SEMCO Pipeline constructed an 18-mile pipeline to serve Detroit
Edison's Greenwood power plant located in Michigan's thumb area. SEMCO
Pipeline and Detroit Edison have entered into an agreement whereby Detroit
Edison has contracted for the entire capacity of the line of 240 MMcf per day.
SEMCO Pipeline is a 40% owner of the Iosco County Pipeline and Reno Gas
Processing Plant (Iosco-Reno System), which was placed in service in September
1992. The Iosco-Reno System gathers and processes wet gas in the Au Gres and
Santiago fields located in mid-Michigan for delivery to the processing plant
and ultimate delivery to the gas markets.
SEMCO Pipeline completed the 7.1-mile Eaton Rapids Pipeline in 1990,
providing direct delivery of gas from the Eaton Rapids Gas Storage System to
Battle Creek and Southeastern's Albion division.
OTHER
The principal properties of SFS consist of vehicles and data processing
equipment primarily leased to affiliates.
SEDCO's principal properties include real property and related
improvements held for resale, office properties leased to affiliates and third
parties, and its equity investment in the Dunn/SECO cogeneration venture.
The non-affiliate properties of SFS and SEDCO total $5.1 million or 2.4%
of consolidated utility plant and other property, net.
ITEM 3. LEGAL PROCEEDINGS
Refer to Note 8 of "Notes to the Consolidated Financial Statements" for
information regarding a lawsuit against the NOARK Pipeline System.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 12
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
COMMON STOCK DATA
The common stock of the Company is traded in the over-the-counter market
and is quoted on the NASDAQ National Market System under the symbol "SMGS."
The table below shows high and low closing bid prices of the Company's common
stock in the over-the-counter market as reported by the Detroit Free Press and
quoted on NASDAQ/NMS, adjusted to reflect the 5% stock dividends in May 1992
and 1993. These quotations reflect dealer prices, without brokerage
commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Quarters
------------------------------------------
1st 2nd 3rd 4th
------ ------ ------ ------
<S> <C> <C> <C> <C>
1992
High 14 3/4 15 16 1/4 18 3/4
Low 13 1/2 14 1/4 14 3/4 16 1/4
1993
High 19 21 1/4 23 1/2 24 3/4
Low 17 3/8 19 20 21 1/4
</TABLE>
See the cover page for a recent stock price and the number of shares
outstanding.
See "Selected Financial Data" below for the number of shareholders at year
end for the past five years.
DIVIDENDS
See Notes 4 and 10 of "Notes to the Consolidated Financial Statements" and
"Selected Financial Data."
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<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Operating Revenue.................... $288,963 $251,526 $231,522 $228,339 $226,753
-------- -------- -------- -------- --------
Operating Expenses
Cost of Gas Sold.................... $139,051 $121,643 $111,005 $110,705 $122,684
Cost of Gas Marketed................ 67,474 52,347 46,237 47,703 33,786
Operations.......................... 30,243 29,426 29,614 30,178 29,869
Maintenance......................... 4,253 4,164 3,811 3,971 3,635
Depreciation........................ 12,468 12,344 12,138 10,729 9,807
Income Taxes........................ 5,598 3,899 3,360 1,951 2,612
Taxes Other Than Income Taxes....... 8,446 7,729 7,193 6,798 6,245
-------- -------- -------- -------- --------
$267,533 $231,552 $213,358 $212,035 $208,638
-------- -------- -------- -------- --------
Operating Income..................... $ 21,430 $ 19,974 $ 18,164 $ 16,304 $ 18,115
Other Income (Expense), Net.......... (136)(iv) (339)(iv) 570 1,270 756
-------- -------- -------- -------- --------
Income Before Interest............... $ 21,294 $ 19,635 $ 18,734 $ 17,574 $ 18,871
Interest............................. 11,534 11,126 11,233 11,345 11,389
Dividends on Preferred Stock
of Subsidiary....................... 178 178 178 178 178
-------- -------- -------- -------- --------
Net Income........................... $ 9,582 $ 8,331 $ 7,323 $ 6,051 $ 7,304
Dividends on Convertible
Preferred Stock..................... 19 21 22 24 26
-------- -------- -------- -------- --------
Net Income Available for
Common Stock........................ $ 9,563 $ 8,310 $ 7,301 $ 6,027 $ 7,278
Common Dividends..................... 7,419 6,875 6,385 5,940 5,535
-------- -------- -------- -------- --------
Earnings Reinvested in the Business.. $ 2,144 $ 1,435 $ 916 $ 87 $ 1,743
======== ======== ======== ======== ========
Common Stock Data
Average Shares Outstanding(000)(i)... 9,524 9,274 9,037 8,825 8,634
Earnings Per Share(i)................ $ 1.00 (iv) $ .90 (iv) $ .81 $ .68 $ .84
Dividends Paid Per Share(i).......... $ .78 $ .74 $ .71 $ .67 $ .64
Dividend Payout Ratio................ 77.6% 82.7% 87.5% 98.6% 76.1%
Book Value Per Share(i)(ii).......... $ 8.85 $ 8.23 $ 7.74 $ 7.35 $ 7.08
Market Value Per Share(i)(ii)(iii)... $ 22.00 $ 18.10 $ 13.84 $ 12.10 $ 15.64
Number of Common Shareholders........ 7,261 6,892 6,594 6,369 6,082
Price To Earnings Ratio(ii)(iii)..... 21.9 20.2 17.1 17.7 18.6
Balance Sheet Data(ii)
Total Assets......................... $348,286 $319,548 $294,933 $278,018 $267,273
======== ======== ======== ======== ========
Capitalization
Long-Term Debt(v)................... $117,022 $102,728 $ 95,656 $ 99,040 $102,368
Preferred Stock..................... 3,290 3,320 3,332 3,350 3,364
Common Equity....................... 85,657 77,353 70,758 65,608 61,766
-------- -------- -------- -------- --------
$205,969 $183,401 $169,746 $167,998 $167,498
======== ======== ======== ======== ========
Financial Ratios
Capitalization
Long-Term Debt(v)................... 56.8% 56.0% 56.4% 59.0% 61.1%
Preferred Stock..................... 1.6% 1.8% 2.0% 2.0% 2.0%
Common Equity....................... 41.6% 42.2% 41.6% 39.0% 36.9%
-------- -------- -------- -------- --------
100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========
Return on Average Common Equity....... 11.6% 11.1% 10.6% 9.4% 12.1%
======== ======== ======== ======== ========
<FN>
(i) Adjusted to give effect to 5 percent stock dividends in May 1993, 1992, 1991, 1990 and 1989.
(ii) Year end.
(iii) Based on NASDAQ closing bid price.
(iv) Includes $177 (net of tax) or $.02 per share and $901 (net of tax) or $.09 per share in 1993 and 1992,
respectively, attributable to an extraordinary item-loss on early extinguishment of debt.
(v) Includes current maturities.
</TABLE>
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<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Income
Net income available for common stock before extraordinary item was
$9.7 million ($1.02 per share) for the year ended December 31, 1993. This
represented an increase of $529,000 over the $9.2 million ($.99 per share) net
income available for common stock before extraordinary item for the year ended
December 31, 1992.
The Company recorded extraordinary charges for 1993 and 1992 of $177,000
($.02 per share) and $901,000 ($.09 per share), respectively, for the early
extinguishment of debt.
The improvement in net income before extraordinary items primarily
reflects increased earnings from the Company's natural gas distribution
operations. Colder weather and customer additions resulted in a 4.4% increase
in natural gas volumes sold.
Earnings from natural gas marketing, gas transmission and gas gathering
operations also increased in 1993 compared to 1992. Natural gas volumes
marketed increased 6.3% over the 1992 level along with higher per unit
marketing margins. In addition, 1993 earnings reflect the revenues from
SEMCO's investment in two recently completed pipeline projects located in
Michigan. These earnings offset a loss in 1993 from the Company's investment
in the NOARK Pipeline System, which began operations in September 1992, and
higher charges related to the Company's remaining oil and gas exploration and
production operations.
For 1992, net income available for common before extraordinary item
increased $1.9 million over 1991 from $7.3 million ($.81 per share) to $9.2
million ($.99 per share). The increase was primarily the result of the impact
of colder temperatures and customer additions on natural gas volumes sold by
the Company's utility subsidiaries.
Operating Revenues and Gross Margin
Natural Gas Distribution. The Company's natural gas distribution business
involves operations of Southeastern Michigan Gas Company, Battle Creek Gas
Company and Michigan Gas Company. These companies generate revenue through the
sale and transportation of natural gas. The following table compares sales and
transportation information for the last three years:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
Revenues (in thousands of dollars)
<S> <C> <C> <C>
Gas sales revenues:
Residential............................ $122,216 $110,173 $101,542
Commercial............................. 61,379 53,770 49,100
Industrial............................. 16,049 14,953 15,139
-------- -------- --------
Total gas sales revenue.............. $199,644 $178,896 $165,781
Cost of gas sold....................... 139,051 121,643 111,005
-------- -------- --------
Gross margin......................... $ 60,593 $ 57,253 $ 54,776
Gas transportation revenue............... 11,968 11,918 11,736
-------- -------- --------
Total sales margin and
transportation revenue............. $ 72,561 $ 69,171 $ 66,512
======== ======== ========
</TABLE>
-10-
<PAGE> 15
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
Throughput volumes (in MMcf)
<S> <C> <C> <C>
Gas sales volumes:
Residential............................ 23,302 22,352 20,773
Commercial............................. 12,608 11,890 11,116
Industrial............................. 3,500 3,513 3,707
------ ------ ------
Total gas sales volumes.............. 39,410 37,755 35,596
Gas transportation volumes............... 19,073 22,147 22,357
------ ------ ------
Total throughput..................... 58,483 59,902 57,953
====== ====== ======
Degree Days
Actual................................. 7,053 6,882 6,397
Percent of normal...................... 105.0% 102.2% 93.1%
Average number of gas sales customers.... 210,522 204,839 200,028
</TABLE>
Natural gas sales volumes and gross margin from gas sales increased
1,655 MMcf and $3.3 million for 1993 compared to 1992. Temperatures 2.5%
colder than 1992 and 5% colder than normal resulted in increased gas usage by
weather-sensitive residential and commercial users in 1993. The addition of an
average of 5,683 new gas sales customers in 1993, or 2.8%, generated increased
gas sales and service charge revenues.
For 1992, compared to 1991, gas sales volumes and margin increased
2,159 MMcf and $2.5 million, respectively. Temperatures during 1992 were 7.6%
colder than 1991 and 2.2% colder than normal. In addition, the average number
of customers increased in 1992 compared to 1991 by 4,811, or an increase of
2.4%.
Transportation volumes decreased 3,073 MMcf in 1993 from 1992 while
revenues increased slightly. For 1992, compared to 1991, transportation
volumes decreased 210 MMcf while revenues increased $182,000. In 1992 and
1991, the Company transported significant coal-displacement volumes.
Coal-displacement volumes are sensitive to natural gas prices relative to coal
and are priced at lower margins. Due to the relative prices of coal and
natural gas during the year, the Company did not benefit from any
coal-displacement volumes in 1993.
Natural Gas Marketing. Marketing margins were $3.5 million, $2.2 million
and $2.3 million in 1993, 1992 and 1991, respectively. These margins relate to
natural gas volumes marketed of 31,501 MMcf, 29,637 MMcf and 28,636 MMcf for
the same period. Generally, the price of alternate fuels, seasonal patterns
and competition in the industry contribute to the fluctuation in margins per
unit of gas marketed and the volumes marketed. In addition, the improvement
for 1993 compared to prior years reflects SEMCO's emphasis on expanding its
level of marketing-related services coincident with Order 636 and an increase
in marketing staff.
Other Operating Revenues. Other operating revenues consist of the
revenues generated by natural gas transmission and gathering activities, oil
and gas exploration and production, natural gas cogeneration, real estate
development, equipment leasing and miscellaneous utility revenue.
Revenues generated by these operations were $6.4 million, $6.1 million and
$5.5 million in 1993, 1992 and 1991, respectively. The increases principally
result from SEMCO's interest in the operations of various natural gas
transmission and gathering projects placed in service in recent years. The
revenues generated by these projects offset the declines in equipment leasing,
real estate development and oil and gas activities since 1991.
-11-
<PAGE> 16
Operating Expenses and Income Deductions
Operations expense increased $817,000, or 3.8%, in 1993 compared to 1992.
This increase results primarily from operating costs for distribution and
underground gas storage systems and expenses associated with additional
customers.
For 1992 compared to 1991, operations expense decreased $188,000 due to
reductions in the level and cost of contracted services partially offset by
increases in uncollectible accounts expense related to leasing activities.
Depreciation expense increased $124,000, or 1.0%, in 1993 compared to 1992
and $206,000, or 1.7%, in 1992 compared to 1991. The increase over 1992
reflects depreciation expense associated with growth in utility plant and other
property, depletion associated with the Company's remaining oil and gas
properties, partially offset by reductions in depreciation expense resulting
from the reduction of property leased to non-affiliates. The increase in 1992
over 1991 reflects plant growth, partially offset by lower charges to oil and
gas properties in 1992 compared to 1991.
Income taxes increased $1.6 million in 1993 compared to 1992 and $539,000
in 1992 compared to 1991. Increases in income taxes are principally due to the
improvement in earnings and the increase in statutory tax rates from 34% to 35%
in 1993. Taxes other than income taxes consist primarily of property taxes.
The year-to-year increases in property taxes reflect growth in the Company's
gas distribution, transmission and gathering plant.
Other interest expense, consisting primarily of interest on short-term
borrowings, increased $365,000, or 26%, in 1993 compared to 1992 and decreased
slightly in 1992 from 1991. The average balance in short-term borrowings was
$42.3 million in 1993, $22.3 million in 1992 and $15.7 million in 1991 at
weighted average interest rates of 4.1%, 4.5% and 6.8%, respectively. The
increased level of borrowings substantially results from the build-up of
permanent capital needs generated by capital expenditure programs and the
impact of gas costs on inventory carrying amounts and other working capital
requirements.
Other Income, Net
Other income, net, consists primarily of income from SEMCO's equity
investments but also includes miscellaneous nonoperating income and expense
items, net of tax. Other income, net, was $41,000, $562,000 and $570,000 in
1993, 1992 and 1991, respectively.
Specific items reflected in the year-to-year change are losses from the
investment in the NOARK Pipeline System of $834,000 and $233,000 in 1993 and
1992, respectively, and a $665,000 after-tax charge to the Company's real
estate development activities in 1991. Partially offsetting the impact of
these items on other income, net, were year-to-year improvements in the
earnings from the Company's investment in Eaton Rapids Gas Storage System.
NOARK completed its first year of operation in September 1993. Through a
subsidiary, the Company holds a 31.67% general partnership interest in the
$102.6 million pipeline. NOARK has an operating capacity of 141,000 Mcf a day.
During 1993, NOARK had firm transportation contracts averaging 78,000 Mcf
a day at a demand fee equal to approximately 19.3 cents per Mcf. Actual gas
volumes transported by the pipeline during 1993 averaged nearly 79,000 Mcf a
day, or 56% of capacity, at both firm and interruptible rates.
See Note 8 of Notes to the Consolidated Financial Statements for a
discussion of the Company's guarantees related to the pipeline's financing and
legal actions involving NOARK.
-12-
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company's net cash provided from operating activities totalled
$12.1 million in 1993, $3.2 million in 1992 and $18.1 million in 1991. The
change in operating cash flows is significantly influenced by changes in the
level and cost of gas in underground storage, accounts receivable and unbilled
gas sales, gas cost recoveries and accounts payable. The changes in these
accounts are largely the result of the timing of receipts and payments.
The Company uses significant amounts of short-term borrowings to finance
natural gas purchases for storage during the non-heating season to sell during
the heating season. The Company owns and leases natural gas storage facilities
with available capacity approximating 40% of annual gas sales. Generally, gas
is stored during the months of April through October and withdrawn for sale
from November through March. The carrying amount of natural gas stored
underground peaked at $45.7 million, $42.1 million and $34.6 million in October
1993, 1992 and 1991, respectively.
Net cash from financing activities totalled $12 million in 1993,
$26.3 million in 1992 and $11.8 million in 1991. During 1993, $20 million in
funds were provided through a term loan, due May 31, 1997 and $5.4 million in
proceeds from the Dividend Reinvestment and Common Stock Purchase Plan (DRIP).
During 1993, funds were used for the payment of dividends and to repay certain
portions of long-term and short-term debt outstanding. In addition to funds
provided from the DRIP and short-term lines of credit in 1992, the Company
issued $25 million of 8 5/8% debentures due in 2017. Funds in 1992 were used
for the payment of dividends and to redeem $14.9 million in 11 1/2% debentures
originally due 2000 at 105% of face value. This redemption resulted in an
extraordinary charge to income of $901,000 ($.09 per share) in 1992. In 1991,
funds provided by proceeds from the DRIP and short-term lines were used to pay
dividends and pay down long-term debt.
The following table identifies capital expenditures for the three years:
<TABLE>
<CAPTION>
Capital Expenditures 1993 1992 1991
- -------------------- ------- ------- -------
(in thousands of dollars)
<S> <C> <C> <C>
Natural gas distribution.................. $19,238 $19,937 $15,357
Gas transmission, gathering and storage... 1,218 9,192 11,045
Oil and gas properties.................... -- 88 1,958
Vehicle and equipment leasing............. -- -- 2,125
Real estate development................... -- -- 407
Other..................................... 513 369 126
------- ------- -------
$20,969 $29,586 $31,018
======= ======= =======
</TABLE>
Capital expenditures by the Company's natural gas distribution companies
amounted to $19.2 million in 1993. In addition to normal plant repair and
replacement expenditures of $7.4 million, $11.8 million was spent for new
customer additions. Of the $19.9 million spent by the distribution companies
in 1992, $14.3 million was for new customer additions. The remainder was
primarily for normal repair and replacement projects. In 1991, the
distribution companies spent $10.8 million for new customer additions,
$1.2 million on an interconnect with the Greenwood Pipeline and the remainder
primarily on normal repair and replacement of distribution properties.
-13-
<PAGE> 18
Capital expenditures for operations other than natural gas distribution
were principally to complete the Litchfield Lateral pipeline. Of the natural
gas transmission, gathering and storage capital expenditures in 1992,
$5.1 million was spent on SEMCO's investment in the NOARK Pipeline System.
Another $2.6 million was spent toward completion of the Litchfield Lateral
project and $1.1 million toward the Iosco/Reno gas gathering and processing
facility. During 1991, the Company spent $8 million to complete the Greenwood
Pipeline and $2.6 million on the Eaton Rapids Gas Storage System.
Future Capital Expenditures and Liquidity
1994 Capital Expenditures. For 1994, the Company plans to expend
$23.2 million on capital additions. Of this amount $19.9 million is planned
for natural gas distribution operations, with $11.8 million targeted for new
customer additions.
Future Financing. Funds needed for the Company's 1994 capital expenditure
program and dividend payments will be financed primarily through internally-
generated funds and utilization of short-term lines of credit. At year end
1993, the Company had short-term credit facilities totalling $70 million.
A significant source of funds has been the level of dividends reinvested
and optional payments made by shareholders to the DRIP. In 1993, of the total
dividends on common shares of $7.4 million, $2.8 million were reinvested into
common stock. This portion of dividends along with optional cash payments of
$2.6 million resulted in 246,733 new shares issued to existing shareholders in
1993.
In December 1993, the Company filed a shelf registration statement with
the Securities and Exchange Commission to offer up to $80 million aggregate
principal amount of debentures and up to 750,000 shares of common stock. In
January 1994, the Company issued 747,500 shares of common stock pursuant to the
shelf. Net proceeds approximating $14.7 million were used to pay down notes
payable incurred to finance the Company's ongoing capital expenditure programs
and for general corporate purposes. The Company is considering the issuance of
debentures primarily to redeem some of its long-term debt outstanding for the
purpose of reducing interest expense. If these redemptions take place in 1994,
the expensing of the call premiums and unamortized debt expense would result in
an extraordinary loss on early extinguishment of debt in 1994 of up to
$1.3 million.
In February 1994, the Company called the $21.2 million of its 10%
debentures due 2007 and the $12.5 million of its 10% debentures due 2008.
These debentures were called at 104.5% of face value. Expensing of the portion
of the call premium and unamortized debt expense associated with the Company's
non-regulated operations resulted in a $177,000 ($.02 per share) extraordinary
charge to income in 1993. The Company plans to issue long-term debt securities
at a lower interest rate to refinance these debentures, including the call
premium, in the near future. The Company will use its available short-term
lines of credit to fund the called debt until the new securities are issued.
In connection with the redemption of debentures, Southeastern and Michigan
Gas filed securities applications in December 1993 with the MPSC requesting
authority to redeem corresponding long-term debt owed to the Company. The
Company expects these applications will be approved by the MPSC in early 1994.
See Note 8 of Notes to the Consolidated Financial Statements for a
discussion of the Company's guarantees related to the NOARK Pipeline System's
financing.
Commodity Futures Contracts. The Company's natural gas marketing
subsidiary, SEMCO has entered into various long-term sales agreements with
fixed prices that extend through October 1996. Fixed-price sales commitments
-14-
<PAGE> 19
are hedged with either fixed-price purchase commitments from reliable suppliers
or commodity futures contracts purchased on the NYMEX. The futures contracts
are subsequently sold when the supply is purchased for delivery under the sales
agreements.
At December 31, 1993, SEMCO had commitments to sell and deliver
approximately 13,200 MMcf, of which approximately 5,000 MMcf was covered by
purchase commitments from reliable suppliers and 8,200 MMcf was covered by
commodity futures contracts.
OTHER AREAS
Adoption of New Accounting Standards
In the first quarter of 1993, the Company adopted two new standards issued
by the FASB. In December 1990, the FASB issued SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." SFAS 106 requires
the accrual method of accounting for postretirement benefits. In February
1992, the FASB issued SFAS 109, "Accounting for Income Taxes." SFAS 109
requires measurement and restatement of deferred tax assets and liabilities
based upon the estimated future tax effects of temporary differences and
carryforwards. Although the adoption of these standards did not have a
material impact on the Company's result of operations in 1993, adoption of SFAS
106 by the utility subsidiaries has significant regulatory ratemaking
implications. See Note 7 and Note 3 of the Notes to the Consolidated Financial
Statements for further discussion of SFAS 106 and SFAS 109.
Impact of Inflation
The cost of gas sold by the three distribution companies is recovered from
natural gas distribution customers on a current basis. Although inflation has
steadied in recent years, increases in other utility operating costs are
recovered through the regulatory process of filing a rate case, and therefore
may adversely affect the results of operations in inflationary periods due to
the time lag involved in this process. The Company attempts to minimize the
impact of inflation by controlling costs, increasing productivity and filing
rate cases on a timely basis.
It is likely the utilities will be filing rate cases before January 1996
in conjunction with the adoption of SFAS 106. See Note 7 of the Notes to the
Consolidated Financial Statements.
INDUSTRY TRENDS
Competition
The market prices of alternate sources of energy such as coal and #6 fuel
oil compete directly with the price the utilities charge for industrial sales
and transportation of gas. The prices of alternate fuels similarly affect the
volumes and margins of the natural gas marketing operations of the Company. In
addition, continued deregulation of the natural gas industry has further
increased the sources of competition. See "Federal Regulation" discussion
below.
To lessen the impact of prices on fuel choice by industrial customers, the
Company offers additional services, such as gas storage and balancing.
However, the competition among fuels is expected to continue to affect volumes
sold, transported and marketed and the associated margins.
-15-
<PAGE> 20
Federal Regulation
Interstate pipelines were required to comply with FERC Order 636 by the
1993-1994 heating season. Order 636, intended to increase competition within
the gas industry, requires pipelines to unbundle their services and instead
offer separate service for gas transportation, storage and gathering.
Competition. As a result of this restructuring of the interstate pipeline
service, natural gas distribution companies have the ability to select and pay
for only those pipeline services they require. In addition, Order 636 allows
customers on natural gas distribution systems to purchase the same level of
unbundled service directly from the interstate pipelines. Under such
circumstances, natural gas distribution companies generally provide
transportation services to those customers.
It is expected that the availability of unbundled pipeline services to
customers will result in pressure on gas distribution companies to offer
similar unbundled services in order to compete with the pipelines. The Company
anticipates this competition may result in pressure to reduce natural gas
transportation margins. Currently, the utility subsidiaries are providing
transportation services principally to large industrial customers.
In addition to pressure on the transportation margins of the utility
subsidiaries, Order 636 will impact the natural gas marketing operations of
SEMCO. Access to unbundled pipeline services is expected to attract new
competitors to the marketing industry and present opportunities for marketers
to offer expanded services to their customers.
The Company believes it is well-positioned to compete in the post-Order
636 environment. Through the combination of on-system underground gas storage
facilities and leased storage facilities, the utility subsidiaries are able to
offer a variety of gas service options to their customers. In addition, the
Company has significant experience in the natural gas marketing industry
through SEMCO, which began its marketing operations in 1986.
Gas Supply. Order 636 has the effect of shifting the risk of securing
reliable gas supply and managing pipeline capacity from the interstate
pipelines to local gas distribution companies. As a result, gas utilities face
more complex gas supply procurement issues. However, the Company does not
expect Order 636 to significantly affect the gas supply operations of the
utility subsidiaries. For the past several years, the utilities have reduced
their dependence on bundled service from the interstate pipelines. In
addition, on-system underground gas storage facilities and leased storage of
Southeastern, Battle Creek and Michigan Gas will provide the needed flexibility
in gas supply planning and balancing between interstate pipeline deliveries and
customer use patterns expected to arise from Order 636.
The Company's utility subsidiaries are served by four interstate
pipelines, Panhandle Eastern Pipe Line Company, ANR Pipeline Company, Great
Lakes Gas Transmission Company and Northern Natural Gas Company. These
pipelines have received authority from the FERC to substantially implement
their restructuring plans effective November 1, 1993. In conjunction with
these plans, the FERC has given interstate pipelines authority to directly bill
customers for certain transition costs resulting from the restructuring. As
former purchasers of bundled interstate pipeline service, the utility
subsidiaries are responsible for some of these transition costs.
To date, the utility subsidiaries have been billed approximately
$2 million in Order 636 transition costs. At this time, no further significant
direct-billed transition costs are anticipated. As with previously
FERC-mandated billings, the Company believes Order 636 transition costs will be
recoverable from ratepayers through gas cost recovery mechanisms.
-16-
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended December 31, 1993 1992 1991
-------- -------- --------
(in thousands of dollars,
except per share amounts)
<S> <C> <C> <C>
Operating Revenue
Gas sales.............................. $199,644 $178,896 $165,781
Gas marketing.......................... 70,991 54,595 48,497
Transportation......................... 11,968 11,918 11,736
Other operations....................... 6,360 6,117 5,508
-------- -------- --------
$288,963 $251,526 $231,522
-------- -------- --------
Operating Expenses
Cost of gas sold....................... $139,051 $121,643 $111,005
Cost of gas marketed................... 67,474 52,347 46,237
Operations............................. 30,243 29,426 29,614
Maintenance............................ 4,253 4,164 3,811
Depreciation........................... 12,468 12,344 12,138
Income taxes........................... 5,598 3,899 3,360
Taxes other than income taxes.......... 8,446 7,729 7,193
-------- -------- --------
$267,533 $231,552 $213,358
-------- -------- --------
Operating Income......................... $ 21,430 $ 19,974 $ 18,164
Other Income, Net........................ 41 562 570
-------- -------- --------
Income Before Income Deductions.......... $ 21,471 $ 20,536 $ 18,734
-------- -------- --------
Income Deductions
Interest on long-term debt............. $ 9,426 $ 9,385 $ 9,403
Other interest......................... 1,771 1,406 1,478
Amortization of debt expense........... 337 335 352
Dividends of preferred stock
of subsidiary........................ 178 178 178
-------- -------- --------
$ 11,712 $ 11,304 $ 11,411
-------- -------- --------
Net Income............................... $ 9,759 $ 9,232 $ 7,323
Dividends on convertible
preferred stock...................... 19 21 22
-------- -------- --------
Net Income Available For Common Stock
Before Extraordinary Item.............. $ 9,740 $ 9,211 $ 7,301
Extraordinary Item--Loss on early
extinguishment of debt, net of
income taxes of $96 and $464........... 177 901 --
-------- -------- --------
Net Income Available For Common Stock.... $ 9,563 $ 8,310 $ 7,301
======== ======== ========
Earnings Per Share of Common Stock
Before Extraordinary Item.............. $ 1.02 $ .99 $ .81
======== ======== ========
Earnings Per Share of Common Stock....... $ 1.00 $ .90 $ .81
======== ======== ========
Cash Dividends Per Share of
Common Stock........................... $ .78 $ .74 $ .71
======== ======== ========
Average Number of Common Shares
Outstanding............................ 9,524,278 9,273,539 9,037,985
========= ========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-17-
<PAGE> 22
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31, 1993 1992 1991
--------- --------- ---------
(in thousands of dollars)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Cash received from customers.............. $ 278,621 $ 250,213 $ 223,134
Cash paid for payrolls and to suppliers... (243,923) (221,075) (187,046)
Interest paid............................. (11,244) (10,442) (10,829)
Income taxes paid......................... (6,175) (4,300) (2,900)
Taxes other than income taxes paid........ (8,541) (7,741) (7,418)
Other cash receipts and payments, net..... 3,370 (3,406) 3,156
--------- --------- ---------
Net Cash From Operating Activities....... $ 12,108 $ 3,249 $ 18,097
--------- --------- ---------
Cash Flows From Investing Activities
Natural gas distribution
property additions....................... $ (19,238) $ (19,937) $ (15,357)
Investments in other natural gas
related property......................... (2,530) (5,283) (2,269)
Other property additions.................. (513) (3,054) (13,392)
Property retirement costs, net
of proceeds.............................. (301) 95 48
--------- --------- ---------
Net Cash From Investing Activities....... $ (22,582) $ (28,179) $ (30,970)
--------- --------- ---------
Cash Flows From Financing Activities
Issuance of common stock.................. $ 5,889 $ 3,898 $ 2,915
Net change in notes payable to banks...... (758) 21,400 17,800
Issuance of long-term debt................ 20,000 25,000 --
Repayment of long-term debt............... (5,521) (16,908) (2,339)
Payment of dividends...................... (7,616) (7,074) (6,565)
--------- --------- ---------
Net Cash From Financing Activities....... $ 11,994 $ 26,316 $ 11,811
--------- --------- ---------
Net Increase (Decrease) in Cash
and Temporary Cash Investments.......... $ 1,520 $ 1,386 $ (1,062)
Cash and Temporary Cash Investments
Beginning of year......................... 1,445 59 1,121
--------- --------- ---------
End of year............................... $ 2,965 $ 1,445 $ 59
========= ========= =========
Reconciliation of Net Income to Net Cash
From Operating Activities
Net income available for common stock..... $ 9,563 $ 8,310 $ 7,301
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation............................ 12,468 12,344 12,138
Equity (income) loss, net of
distributions.......................... 1,218 374 (498)
Accounts receivable..................... 853 (155) (7,612)
Accrued utility revenue................. (1,143) (821) 756
Materials and supplies and gas in
underground storage.................... (1,023) (7,865) 4,107
Gas charges, recoverable from customers. (11,122) (2,963) 610
Other current assets.................... (3,430) (1,381) (186)
Accounts payable........................ 4,082 (3,099) (1,136)
Customer advances and amounts payable
to customers........................... 1,332 708 (860)
Accrued taxes........................... (3,362) 823 892
Other, net.............................. 2,672 (3,026) 2,585
--------- --------- ---------
Net Cash From Operating Activities..... $ 12,108 $ 3,249 $ 18,097
========= ========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-18-
<PAGE> 23
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31, 1993 1992
-------- --------
(in thousands of dollars)
<S> <C> <C>
ASSETS
Utility Plant
Plant in service, at cost.......................... $271,789 $250,921
Less--Accumulated depreciation..................... 70,629 62,617
-------- --------
$201,160 $188,304
Construction work in progress...................... 782 2,928
-------- --------
$201,942 $191,232
-------- --------
Other Property, Net.................................. $ 16,357 $ 20,796
-------- --------
Current Assets
Cash and temporary cash investments, at cost....... $ 2,965 $ 1,445
Receivables, less allowances of $1,355 and $1,008.. 31,708 32,561
Accrued utility revenue............................ 17,674 16,531
Materials and supplies, at average cost............ 2,894 2,302
Gas in underground storage......................... 31,146 30,715
Gas charges, recoverable from customers............ 15,970 4,848
Other.............................................. 9,862 6,432
-------- --------
$112,219 $ 94,834
-------- --------
Deferred Charges
Unamortized debt expense........................... $ 5,840 $ 4,930
Deferred gas charges, recoverable from customers... 1,474 1,810
Other.............................................. 10,454 5,946
-------- --------
$ 17,768 $ 12,686
-------- --------
$348,286 $319,548
======== ========
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock equity................................ $ 85,657 $ 77,353
Cumulative convertible preferred stock equity...... 190 220
Cumulative preferred stock of subsidiary........... 3,100 3,100
Long-term debt..................................... 97,884 101,712
-------- --------
$186,831 $182,385
-------- --------
Current Liabilities
Notes payable to banks............................. $ 52,342 $ 53,100
Current maturities of long-term debt............... 19,138 1,016
Accounts payable................................... 30,053 25,971
Customer advance payments.......................... 6,804 6,668
Accrued taxes...................................... 262 3,624
Accrued interest................................... 1,855 1,902
Amounts payable to customers....................... 1,089 951
Accumulated deferred income taxes.................. 201 73
Other.............................................. 6,571 7,896
-------- --------
$118,315 $101,201
-------- --------
Deferred Credits
Accumulated deferred income taxes.................. $ 16,102 $ 18,101
Unamortized investment tax credit.................. 3,584 3,851
Deferred gas costs payable to suppliers............ 1,479 1,492
Customer advances for construction................. 7,806 6,748
Other.............................................. 14,169 5,770
-------- --------
$ 43,140 $ 35,962
-------- --------
$348,286 $319,548
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-19-
<PAGE> 24
<TABLE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1993 1992
-------- --------
(in thousands of dollars)
<S> <C> <C>
Common Stock Equity
Common stock, par value $1 per share--authorized
20,000,000 shares; 9,680,376 and 8,951,875
shares outstanding.............................. $ 9,680 $ 8,952
Capital surplus................................... 64,212 58,965
Retained earnings................................. 13,691 11,547
Capital stock expense............................. (1,926) (1,926)
Unearned compensation--ESOT....................... -- (185)
-------- --------
$ 85,657 $ 77,353
-------- --------
Cumulative Convertible Preferred Stock
Convertible preferred stock, par value $1 per
share--authorized 500,000 shares issuable in
series; 7,605 and 8,791 shares outstanding...... $ 8 $ 9
Capital surplus................................... 182 211
-------- --------
$ 190 $ 220
-------- --------
Cumulative Preferred Stock of Subsidiary
$100 par value (callable at option of Subsidiary)
6% series A--15,000 shares authorized and
outstanding................................... $ 1,500 $ 1,500
5 1/2% series B--10,000 shares authorized and
outstanding................................... 1,000 1,000
5 1/2% series C--5,000 shares authorized;
4,000 shares outstanding...................... 400 400
5 1/2% series D--2,000 shares authorized and
outstanding................................... 200 200
-------- --------
$ 3,100 $ 3,100
-------- --------
Long-Term Debt
Southeastern Michigan Gas Enterprises, Inc.
Variable rate term loan due 1995................ $ -- $ 5,333
Variable rate term loan due 1997 (4.088% at
12/31/93)..................................... 20,000 --
10.0% debentures due 2007....................... 21,169 21,176
10.0% debentures due 2008....................... 12,528 12,544
9.8% debentures due 2014........................ 28,720 28,720
8.625% debentures due 2017...................... 24,960 24,960
Southeastern Michigan Gas Company
First mortgage bonds-
9.5% series due 1995.......................... 3,500 3,500
8.25% series due 1997......................... 3,500 3,500
10.75% series due 2000........................ 1,225 1,300
9.25% series due 2002......................... 1,420 1,510
Variable rate ESOT term loan due 1998............. -- 185
-------- --------
$117,022 $102,728
Less--Current maturities.......................... 19,138 1,016
-------- --------
$ 97,884 $101,712
-------- --------
$186,831 $182,385
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-20-
<PAGE> 25
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
<CAPTION>
Years Ended December 31, 1993 1992 1991
------- ------- -------
(in thousands of dollars)
<S> <C> <C> <C>
Common Stock
Beginning of year........................... $ 8,952 $ 8,295 $ 7,714
5% stock dividends May 1993, May 1992
and May 1991............................ 449 417 387
Common stock issued through dividend
reinvestment plan and other............. 279 240 194
------- ------- -------
End of year................................. $ 9,680 $ 8,952 $ 8,295
======= ======= =======
Common Stock Capital Surplus
Beginning of year........................... $58,965 $55,712 $53,340
5% stock dividends May 1993, May 1992
and May 1991............................ (471) (432) (408)
Common stock issued through dividend
reinvestment plan and other............. 5,718 3,685 2,780
------- ------- -------
End of year................................. $64,212 $58,965 $55,712
======= ======= =======
Retained Earnings
Beginning of year........................... $11,547 $ 9,882 $ 8,730
Net income available for common stock..... 9,563 8,310 7,301
Cash dividends on common stock............ (7,419) (6,875) (6,385)
Tax benefit from dividends paid to ESOT... -- 230 236
------- ------- -------
End of year................................. $13,691 $11,547 $ 9,882
======= ======= =======
Capital Stock Expense
Beginning of year........................... $(1,926) $(1,926) $(1,926)
------- ------- -------
End of year................................. $(1,926) $(1,926) $(1,926)
======= ======= =======
Unearned Compensation--ESOT
Beginning of year........................... $ (185) $(1,205) $(2,250)
Compensation earned....................... 185 1,020 1,045
------- ------- -------
End of year................................. $ -- $ (185) $(1,205)
======= ======= =======
Convertible Preferred Stock
Beginning of year........................... $ 9 $ 9 $ 10
Conversion of preferred stock............. (1) -- (1)
------- ------- -------
End of year................................. $ 8 $ 9 $ 9
======= ======= =======
Convertible Preferred Stock Capital Surplus
Beginning of year........................... $ 211 $ 223 $ 240
Conversion of preferred stock............. (29) (12) (17)
------- ------- -------
End of year................................. $ 182 $ 211 $ 223
======= ======= =======
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-21-
<PAGE> 26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements
include the accounts of Southeastern Michigan Gas Enterprises, Inc. (the
Company) and its wholly-owned subsidiaries, Southeastern Michigan Gas Company
(Southeastern), Battle Creek Gas Company (Battle Creek), Michigan Gas Company
(Michigan Gas), SEMCO Energy Services, Inc. (SEMCO), Southeastern Financial
Services, Inc. and Southeastern Development Company. Investments in
unconsolidated companies at least 20% owned, but not greater than 50% owned,
are reported using the equity method of accounting. All significant
intercompany transactions have been eliminated in consolidation. Certain
previously reported amounts have been reclassified to conform with 1993
presentations.
Rate Regulation. The Company accounts for the effects of regulation under
SFAS 71, "Accounting for the Effects of Certain Types of Regulation." As a
result, the actions of regulators affect when revenues, expenses, assets and
liabilities are recognized.
The rates of the utility subsidiaries, Southeastern, Battle Creek and
Michigan Gas, are subject in certain respects to the requirements of state and
local regulatory bodies. The MPSC authorizes the rates charged to customers by
Southeastern and Michigan Gas. Battle Creek's rates are subject to the
jurisdiction of the City Commission of Battle Creek, Michigan.
Utility Plant, Other Property and Depreciation. Utility plant in service
is recorded at cost. The utility subsidiaries provide for depreciation on a
straight-line basis over the estimated useful lives of the related property.
Included in other property are the nonutility fixed assets of the Company
and its subsidiaries, reduced by the related accumulated depreciation.
Generally, these assets are recorded at cost and depreciated on a straight-line
basis over their estimated useful lives.
The ratio of depreciation to the average balance of property approximated
4.3%, 4.6% and 5.2% for the years 1993, 1992 and 1991, respectively.
Certain investments in unconsolidated companies recorded using the equity
method are also reported as other property. See Note 9 for further discussion.
Receivables, Gas Sales, Transportation and Marketing Revenues. Customer
receivables, gas sales and transportation revenues arise from the operations of
the utility subsidiaries. These subsidiaries deliver natural gas to a broadly
diversified base of residential, commercial and industrial customers located
within the state of Michigan. Marketing revenues and receivables arise from
SEMCO's marketing operations. SEMCO markets natural gas to industrial
customers and gas distribution utilities located in Michigan, Ohio and
Illinois.
Revenue Recognition. Southeastern, Michigan Gas and Battle Creek bill
monthly on a cycle basis and follow the industry practice of recognizing
revenue for gas services rendered to their customers but not billed at month
end. These amounts are presented as accrued utility revenue in the balance
sheet.
SEMCO enters into natural gas futures and options contracts to mitigate
the effects of gas price fluctuations on its fixed-price marketing contracts.
Gains and losses on these transactions, accounted for as hedges, are included
in revenues in the same period natural gas is delivered to customers pursuant
to the marketing contracts. Futures and options contracts are purchased almost
exclusively on the NYMEX.
-22-
<PAGE> 27
Hedge Accounting. The fair market value of futures and options contracts
and any deferred gains or losses are included with related contract deposits in
other current assets. At December 31, 1993, the fair market value of SEMCO's
820 futures contracts and 260 option contracts were $934,000 and $135,000,
respectively. SEMCO also maintained $2,000,000 in related deposits and
recorded $2,387,000 in net deferred futures contract losses. There were
immaterial amounts recorded in 1992 related to SEMCO's hedging activities.
Gas in Underground Storage. Gas in underground storage for Southeastern,
Michigan Gas and SEMCO is reported at average cost. Battle Creek's gas
inventory is stated at last-in, first-out (LIFO) cost. At December 31, 1993
and 1992, the balance in this account approximates the replacement value of the
gas in storage.
In general, commodity costs and variable transportation costs are
capitalized as gas in underground storage. Fixed costs, primarily pipeline
demand charges and storage charges, are expensed as incurred through cost of
gas.
Cost of Gas. The utility subsidiaries have gas cost recovery mechanisms
which allow for the adjustment of rates charged to customers in response to
increases and decreases in the cost of gas purchased. As permitted by the
regulatory jurisdiction, increases or decreases in the cost of gas purchased
are subsequently recovered from or refunded to customers.
Income Taxes. Deferred income taxes are recorded for differences between
the book and tax basis of certain assets and liabilities. Income tax expense
includes Federal and state taxes currently payable and deferred income tax
expenses resulting from adjustments to deferred income tax assets and
liabilities. Investment tax credits (ITC) utilized in prior years for income
tax purposes are deferred for financial accounting purposes and are amortized
through credits to the income tax provision over the lives of the related
property.
The Company and its subsidiaries file a consolidated Federal income tax
return. Income taxes are allocated to each subsidiary based on its separate
taxable income.
Oil and Gas Properties. The Company accounts for oil and gas properties
under the successful efforts method of accounting. Under this method, costs of
productive wells, developmental dry holes and productive leases are capitalized
and amortized on a unit-of-production basis over the life of remaining related
reserves. Cost centers for amortization purposes are determined on a
field-by-field basis. The estimated future costs of dismantlement, restoration
and abandonment are amortized as part of depreciation, depletion and
amortization expense.
Oil and gas leasehold costs are capitalized when incurred. Unproved
properties are assessed periodically and any impairments in value are charged
to depreciation expense.
Exploratory expenses, including geological and geophysical expenses and
annual delay rentals for oil and gas leases, are charged to expense as
incurred. Exploratory drilling costs, including stratigraphic test wells, are
initially capitalized, but charged to expense if and when the well is
determined to be unsuccessful. Oil and gas properties are reported as other
property and expenses related to oil and gas exploration activities are
reported as operations expense and depreciation.
Statement of Cash Flows. For purposes of the consolidated statement of
cash flows, the Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash and temporary cash
investments.
-23-
<PAGE> 28
Non-cash investing and financing activities for the years 1993, 1992 and
1991 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
---- ------ ------
<S> <C> <C> <C>
Conversion of debt to equity................ $185 $1,020 $1,045
Capital additions accrued................... -- $1,312 --
</TABLE>
2. REGULATORY MATTERS
Take-or-Pay. The take-or-pay liabilities of the utility subsidiaries
arose pursuant to FERC actions involving deregulation of natural gas industry.
These costs are substantially recoverable from ratepayers. At December 31,
1993, the Company had a total of $1,475,000 in remaining take-or-pay
liabilities. The Company does not anticipate additional take-or-pay
assessments.
Order 636 Transition Costs. In 1992, the FERC issued Order 636 requiring
interstate pipelines to unbundle their services to most customers and instead
offer separate services for gas supply, gathering, transportation and storage.
Pursuant to the implementation of Order 636 in 1993, the interstate pipelines
have incurred transition costs. The FERC has allowed the interstate pipelines
to directly bill certain of these transition costs to former sales service
customers. As a result, the Company has recorded liabilities of $2,014,000 at
December 31, 1993. The Company does not anticipate any significant additional
direct billings related to Order 636 transition costs. As with take-or-pay
costs, the Company expects Order 636 costs will be recoverable from ratepayers.
Securities Applications. In December 1993, Southeastern and Michigan Gas
filed applications with the MPSC requesting authority to issue up to
$23,000,000 and $31,000,000, respectively, of long-term debt securities to the
Company. These applications are in connection with the Company's plans to
issue up to $80,000,000 in long-term debt securities to redeem certain
outstanding issues.
Southeastern and Michigan Gas plan to use the proceeds of this debt to
redeem long-term debt and certain short-term debt currently owed to the
Company, finance related call premiums and issue costs and, in Southeastern's
case, to redeem First Mortgage Bonds outstanding. The Company expects MPSC
approval of these securities applications in early 1994.
MPSC Orders. In December 1992, the MPSC issued Order U-10040 addressing
the adoption of SFAS 106, "Employers' Accounting For Postretirement Benefits
Other Than Pensions", by utilities subject to MPSC jurisdiction. In February
1993, the MPSC issued Opinion and Order U-10083 addressing the provisions of
the MPSC Uniform System of Accounts for electric and gas utilities related to
deferred income tax accounting. Refer to Note 3 for deferred income tax
accounting discussion and Note 7 for SFAS 106 discussion.
3. INCOME TAXES
SFAS No. 109. In January 1993, the Company prospectively adopted SFAS
109, "Accounting For Income Taxes." Previously, the Company accounted for
income taxes under Accounting Principle Board Opinion No. 11.
SFAS 109 requires an annual measurement of deferred tax assets and
deferred tax liabilities based upon the estimated future tax effects of
temporary differences and carryforwards. In general, the total deferred tax
expense or benefit for the year equals the difference between the beginning and
end of year balances in deferred tax assets and liabilities.
-24-
<PAGE> 29
In February 1993, the MPSC issued Opinion and Order U-10083 addressing
deferred income tax accounting for electric and gas utilities under its
jurisdiction. The order granted electric and gas utilities regulated by the
MPSC general authorization to use deferred tax accounting and to use specific
accounts to comply with SFAS 109. The order also confirmed continued recovery
of regulatory assets and refunding of regulatory liabilities arising from
deferred tax accounting through current ratemaking practices.
Upon adoption, the initial application of SFAS 109 was determined by
recomputing the balance sheet deferred tax amounts as of January 1, 1993 using
currently enacted tax rates. The most significant adjustments were related to
the Company's regulated operations and, since these adjustments are expected to
be recovered from or refunded to customers in future rates, were offset on the
balance sheet by regulatory assets and regulatory liabilities. As a result,
the adoption of SFAS 109 had no material impact on the results of operations.
SFAS 109 requires that deferred tax assets and deferred tax liabilities be
adjusted for changes in tax rates. During 1993, the Company adjusted these
items for a one percent increase in the enacted rate. There was no material
impact to operations resulting from this adjustment.
Provision for Income Taxes. The components of the provision for income
taxes are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Federal
Currently payable......................... $4,879 $4,580 $4,103
Deferred to future periods................ 1,064 (673) (404)
Investment tax credits.................... (267) (267) (267)
------ ------ ------
Total income taxes.......................... $5,676 $3,640 $3,432
Less amounts included in:
Other income.............................. 174 205 72
Extraordinary item........................ (96) (464) --
------ ------ ------
Amount included in operating expenses....... $5,598 $3,899 $3,360
====== ====== ======
</TABLE>
Reconciliation of Statutory Rate to Effective Rate. A reconciliation of
the difference between the Company's provision for income taxes and income
taxes computed at the statutory rate follows (in thousands of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Net income available for common stock....... $ 9,563 $ 8,310 $ 7,301
Add back:
Preferred dividends....................... 197 199 200
Income taxes.............................. 5,676 3,640 3,432
------- ------- -------
Pre-tax income.............................. $15,436 $12,149 $10,933
======= ======= =======
Computed federal income taxes............... $ 5,403 $ 4,131 $ 3,717
Depreciation................................ (108) (151) (187)
Storage gas pricing......................... 14 176 103
Amortization of deferred ITC................ (267) (267) (267)
Amortization of non-deductible amounts
resulting from acquisitions............... 216 205 205
Rate differential on other deferred items... (49) (22) (16)
Other....................................... 467 (432) (123)
------- ------- -------
Total income taxes.......................... $ 5,676 $ 3,640 $ 3,432
======= ======= =======
</TABLE>
-25-
<PAGE> 30
Deferred Taxes. The principal components of the Company's deferred tax
assets (liabilities) were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Property........................................................ $(17,593)
ITC............................................................. 2,284
Employee benefit obligation (including postretirement
benefits of $1,705)........................................... 1,840
Postretirement benefit regulatory assets........................ (1,705)
FERC Order 636 regulatory assets................................ (705)
Hedging transactions (net)...................................... (674)
Take or pay regulatory assets................................... (580)
Reserve for uncollectible accounts.............................. 451
Accrued vacation................................................ 340
Other........................................................... 39
--------
Total deferred taxes.......................................... $(16,303)
========
Gross deferred tax liabilities.................................. $(29,693)
Gross deferred tax assets....................................... 13,390
--------
$(16,303)
========
</TABLE>
Deferred Tax Expense. In 1992 and 1991, deferred tax expense resulted
from timing differences in the recognition of revenue and expense for tax and
financial reporting purposes. The sources of these timing differences were as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
1992 1991
----- -----
<S> <C> <C>
Accelerated depreciation................................ $ 828 $ 527
Property taxes assessed................................. (328) 80
Equity investments...................................... 811 (7)
Oil and gas............................................. (210) (98)
Amortization of migration of storage gas inventories.... (39) (39)
Amortization of loss on bond redemption................. (51) (51)
Deferred gas costs...................................... (274) (125)
Customer contributions.................................. (913) (665)
Other................................................... (497) (26)
----- -----
Total deferred tax expense............................ $(673) $(404)
===== =====
</TABLE>
4. CAPITALIZATION
Common Stock Equity. Earnings per share of common stock, cash dividends
per share of common stock and average number of common shares outstanding are
restated to reflect five percent stock dividends in May 1993, May 1992 and May
1991.
The Company has several short-term credit arrangements and long-term debt
indentures which contain, among other restrictions, limits on the payment of
dividends beyond certain levels of retained earnings. Under the most
restrictive of these covenants, all of the Company's retained earnings
($13,691,000) was available for the payment of dividends on any class of stock
at December 31, 1993.
Under the trust indenture of its First Mortgage Bonds, all of
Southeastern's retained earnings ($18,914,000) was available for the payment of
dividends on its preferred and common stock at December 31, 1993.
-26-
<PAGE> 31
In January 1994, the Company issued 747,500 shares of common stock
pursuant to a shelf registration. Net proceeds approximating $14,724,000 were
used to reduce notes payable to banks incurred to finance the Company's ongoing
capital expenditure program and for general corporate purposes. The proceeds
are reflected as a reduction in current maturities of long-term debt at
December 31, 1993.
Cumulative Convertible Preferred Stock. At December 31, 1993 and 1992,
7,605 and 8,791 shares of the Company's $2.3125 cumulative convertible
preferred shares were outstanding and each share was convertible at the option
of the holder to 4.11 shares of common stock. At December 31, 1993, 31,257
shares of common stock are reserved for issuance upon conversion to holders of
the convertible preferred stock. In 1993, 1992 and 1991, preferred shares
totalling 1,186, 500 and 706 were converted into 4,873, 2,055 and 2,900 shares
of the Company's common stock, respectively.
Cumulative Preferred Stock of Subsidiary. The cumulative preferred stock
of Southeastern is callable at Southeastern's option at $105 per share.
Annually dividends on Southeastern's preferred stock are fully guaranteed by
the Company.
Long-Term Debt. At December 31, 1993, the aggregate amount of maturities
and sinking fund requirements for all issues of long-term debt for each of the
next five years are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
1994.............................................................. $19,138
1995.............................................................. 3,665
1996.............................................................. 165
1997.............................................................. 23,665
1998.............................................................. 165
</TABLE>
The $19,138,000 maturing in 1994 includes $33,697,000 of long-term debt
called in February 1994, to be refinanced, net of the $14,724,000 proceeds from
the common stock offering in January 1994.
In February 1994, the Company called, at 104.5% of face value, the
$21,169,000 of its 10% debentures due 2007 and the $12,528,000 of its 10%
debentures due 2008. This call resulted in an extraordinary charge in 1993 of
$177,000, net of tax. The Company plans to issue long-term debt securities at
a lower interest rate to refinance these debentures, including the call
premium, in the near future. The Company will use its available short-term
lines of credit to fund the call until the new securities are issued.
Substantially all of Southeastern's utility plant is subject to the lien
of the First Mortgage Bonds.
5. SHORT-TERM BORROWINGS
The Company maintains unsecured lines of credit at two banks. Interest on
all such lines are at variable rates, which do not exceed the banks' prime
lending rates. These arrangements are set to expire during 1994 and the
Company expects they will be renegotiated at comparable terms.
Information regarding these borrowings for each of the last three years is
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Notes payable balance at year end........... $52,342 $53,100 $31,700
Unused lines of credit at year end.......... 17,658 18,400 9,800
Average interest rate at year end........... 4.2% 4.4% 6.0%
Maximum borrowings at any month-end......... $63,450 $53,100 $31,700
Average borrowings.......................... 42,347 22,285 15,662
Weighted average cost of borrowing.......... 4.1% 4.5% 6.8%
</TABLE>
-27-
<PAGE> 32
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each significant class of financial instruments:
Cash, temporary cash investments, trade payables and receivables, notes
payable to banks, and variable rate long-term debt. The carrying amount
approximates fair value.
Long-term debt. The fair values of the Company's fixed-rate long-term
debt are estimated based on quoted market prices for the same or similar issues
or the call price if less.
The estimated fair values of the Company's long-term debt as of
December 31, 1993 and 1992 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1993 1992
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Long-term debt..................... $117,022 $121,250 $102,728 $104,983
</TABLE>
7. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Pension Plans. The Company has non-contributory, defined benefit pension
plans, for which the Company is the trustee, covering substantially all
employees. Pension plan benefits are generally based upon years of service and
compensation during the final years of employment. The Company's funding
policy is to contribute amounts annually to the plans based upon actuarial and
economic assumptions designed to achieve adequate funding of projected benefit
obligations. The Company contributes at least the minimum required by the
Employee Retirement Income Security Act of 1974, as amended.
At December 31, 1993, plan assets consisted of 48.5% equity investments,
17% guaranteed income insurance contracts, 16.1% fixed income securities and
18.4% cash equivalents. The Company's pension expense was $1,728,000,
$1,821,000 and $2,086,000 in the years 1993, 1992 and 1991, respectively.
Combined net periodic pension cost for the Company's defined benefit plans
consists of the following components (in thousands of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Service cost................................ $ 1,442 $ 1,387 $ 1,458
Interest cost on projected benefit
obligation................................ 2,983 2,861 2,658
Actual return on assets..................... (2,562) (2,191) (4,397)
Amortization of prior service costs......... 482 482 482
Amortization of unrecognized net gain....... (313) (357) (313)
Amortization of transition obligation....... 79 79 79
Asset gain (loss) deferred.................. (383) (440) 2,119
------- ------- -------
Net periodic pension cost................... $ 1,728 $ 1,821 $ 2,086
======= ======= =======
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheet as of December 31, 1993
and 1992 (in thousands of dollars):
-28-
<PAGE> 33
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $32,807 $26,757
Non-vested benefit obligation......................... 1,299 1,610
------- -------
Accumulated benefit obligation........................ $34,106 $28,367
======= =======
Projected benefit obligation............................ $45,632 $37,623
Plan assets at fair value............................... 36,685 34,222
------- -------
Projected benefit obligation in excess of plan assets... $ 8,947 $ 3,401
Unrecognized net gain................................... 294 6,270
Unrecognized prior service cost......................... (5,519) (6,129)
Unrecognized net obligation at December 31.............. (744) (823)
------- -------
Pension liability recognized in the consolidated
balance sheet......................................... $ 2,978 $ 2,719
======= =======
</TABLE>
Significant pension plan assumptions are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Plan discount rates............................... 7.25% 8.00% 8.50%
Expected long-term rate of return on assets....... 9.00% 9.00% 9.00%
Rates of increase in future compensation levels... 5.00% 5.00% 6.00%
</TABLE>
Other Postretirement Benefits. In addition to providing pension benefits,
the Company provides certain medical and prescription drug benefits to
qualified retired employees, their spouses and covered dependents. To qualify,
a retiree must have started employment before January 1, 1992 and have had at
least ten years of service. Retirees with less than 30 years of service are
required to contribute from 5% to 50% of the Company's coverage cost, with the
percentage depending on the retiree's age and years of service. Employees
hired after January 1, 1992 are not eligible for these benefits under the
current plan.
In December 1990, the FASB issued SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The new standard requires the
Company to change its method of accounting for the cost of postretirement
benefits other than pensions that are provided to retirees from a pay-as-you-go
(cash) method to a full accrual method. Accrual of such postretirement benefit
costs is required during the years that the employee renders service to the
Company until the date of full eligibility. The Company adopted SFAS 106
effective January 1, 1993.
In December 1992, the MPSC issued a generic order addressing the adoption
of SFAS 106 by utilities under their jurisdiction. The order allows Michigan
utilities to adopt SFAS 106 for accounting and ratemaking purposes, subject to
a final order in a general rate case filed before 1996. The generic order
requires external funding for amounts recovered in rates. Pursuant to the
order, the Company recorded a liability for the utility subsidiaries' portion
of SFAS 106 expense, a corresponding regulatory asset for the anticipated
recovery in rates based upon a 20-year amortization period and an expense for
the utility subsidiaries' pay-as-you-go costs. The Company plans to file
general rate cases in accordance with the order prior to 1996. Any rate relief
granted by the MPSC will be based on all elements of cost of service, including
this obligation.
-29-
<PAGE> 34
The combined net postretirement benefit costs consisted of (in thousands of
dollars):
<TABLE>
<CAPTION>
1993
------
<S> <C>
Service cost........................................................ $1,546
Interest cost....................................................... 2,943
Actual return on assets............................................. (255)
Net amortization and deferral....................................... 1,611
------
Net periodic postretirement benefit cost............................ $5,845
======
</TABLE>
In 1993, the Company recorded regulatory assets of $4,425,000 for the
utility subsidiaries' portion of the SFAS 106 costs and an expense of $153,000
for the nonutility subsidiaries' portion of SFAS 106 costs. Also in 1993, the
Company recorded an expense of $688,000 for the utility subsidiaries' portion
of postretirement expense incurred under the pay-as-you-go method. In 1992 and
1991, the other postretirement expense incurred under the pay-as-you-go method
was $717,000 and $482,000, respectively.
The Company funds other postretirement benefits on a discretionary basis
through an Internal Revenue Code Section 401(h) account. For the years 1993,
1992 and 1991, the Company made cash contributions to the 401(h) account of
$579,000, $314,000 and $318,000, respectively.
The funded status of the postretirement benefit plans is reconciled with
the liability recorded at December 31, 1993 as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Actuarial present value of estimated benefits
Retirees........................................................ $ 13,843
Fully eligible active........................................... 8,131
Other active.................................................... 20,407
--------
Accumulated postretirement benefit obligation..................... $ 42,381
Plan assets at fair value......................................... 4,438
--------
Projected postretirement benefit obligation in excess
of plan assets.................................................. $ 37,943
Unrecognized net obligation at transition..................... (31,917)
Unrecognized net loss......................................... (1,448)
--------
Recorded liability................................................ $ 4,578
========
</TABLE>
Significant plan assumptions are as follows:
<TABLE>
<CAPTION>
1993
-----
<S> <C>
Plan discount rate................................................ 7.25%
Rate of compensation increase..................................... 5.00%
Expected long-term rate of return on assets....................... 9.00%
</TABLE>
The 1993 costs were developed based on the substantive health care plan in
effect at January 1, 1993. As of December 31, 1993, the actuary assumed that
retiree medical cost increases would be 12% in 1993, 11.5% in 1994, and
decrease uniformly to 5.8% in 2005 and thereafter and that prescription drug
cost increases would be 16% in 1993, 15.2% in 1994, and decrease uniformly to
5.8% in 2005 and thereafter. The health care cost trend rate assumption
significantly affects the amounts reported. For example, a one percentage
point increase in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1993 by $8,268,000 and the aggregate of
the service and interest cost components of net periodic postretirement benefit
costs for 1993 by $985,000.
-30-
<PAGE> 35
Employee Stock Ownership Trust. The Company has an employee stock
ownership trust (ESOT) which covers substantially all employees. Under the
provisions of this trust, the Company may contribute an annual amount at its
discretion for the benefit of eligible employees. The contribution, if any,
may be made in cash or in common shares of the Company. For the years 1993,
1992 and 1991, the Company's contributions were $600,000, $400,000 and
$500,000, respectively.
In December 1988, the trust borrowed $4,000,000 under a term loan to
purchase 274,348 shares of the Company's common stock. In accordance with
applicable accounting rules, the Company has recorded the ESOT indebtedness in
long-term debt on its balance sheet with an offsetting charge to common stock
equity captioned "Unearned compensation-ESOT." The amount of dividends on ESOT
shares used by the trust to pay debt service in 1993, 1992 and 1991 were
$185,000, $675,000 and $694,000, respectively. Interest expense incurred by
the trust in those years was $5,000, $45,000 and $138,000, respectively. The
ESOT term loan was paid in full in 1993.
8. COMMITMENTS AND CONTINGENCIES
Construction Program. The Company's plans for expansion and improvement
of its distribution and transmission system, as well as other operations, are
under a process of continuing review. Aggregate capital expenditures for all
segments of the Company's operations for 1994 are projected at $23,200,000.
Certain commitments have been made in connection with these expenditures.
Guarantees. SEMCO Arkansas Pipeline Company, a wholly-owned subsidiary of
SEMCO, has a 31.67% interest in a partnership which operates the NOARK Pipeline
System (NOARK). NOARK is a 302-mile intrastate natural gas pipeline,
originating in northwest Arkansas and extending northeast across the state.
The pipeline became operational during the third quarter of 1992.
The Company, SEMCO Arkansas Pipeline Company and SEMCO have guaranteed 40%
of the principal and interest payments on up to $93,000,000 of debt used to
finance the pipeline. Of the total, $63,000,000 is pursuant to a long-term
arrangement requiring annual principal payments of approximately $3,150,000
together with interest on the unpaid balance. This arrangement matures in 2009
and has a fixed interest rate of 9.7375%. The remaining debt of $30,000,000 is
pursuant to a credit agreement which currently terminates January 1996. Under
the terms of the credit agreement, NOARK may request, on an annual basis, a one
year extension of the then-effective terminate date. At December 31, 1993
NOARK had $25,200,000 outstanding under the agreement with interest payments at
a variable interest rate.
NOARK has entered into an interest rate swap relating to a notional amount
of $40,000,000. Pursuant to the swap, NOARK will receive interest payments at
5% per annum on $40,000,000 and make interest payments on $40,000,000 at a rate
equal to six-month LIBOR. The Company has guaranteed 40% of the payments due
pursuant to this swap.
In December 1993, Vesta Energy Corporation (Vesta), a firm shipper on
NOARK, filed a complaint in the Federal District Court for the Northern
District of Oklahoma against seven defendants, including NOARK. Vesta seeks
actual damages on several theories in an aggregate amount exceeding $1,000,000,
seeks punitive damages in excess of $1,000,000 and seeks to rescind its
contracts with certain defendants, including its contract with NOARK. Neither
the Company nor any of its subsidiaries is a party to the suit.
-31-
<PAGE> 36
Under the terms of Vesta's contract with NOARK, Vesta is obligated to pay
a demand fee of approximately 19.3 cents per Mcf on 50,000 Mcf per day and
approximately 9.2 cents per Mcf for volumes actually transported on the NOARK
system. This contract is set to expire in 1997.
On January 1, 1994, Vesta discontinued shipments of gas pursuant to its
contract with NOARK and ceased payment of the demand fee. An affiliate of
Southwestern Energy Pipeline Company, a NOARK general partner, which was
providing approximately 25,000 Mcf per day of the gas transported by Vesta over
the NOARK system, has indicated its current intent to continue to ship those
volumes over the system, initially at the full firm rate, generating NOARK
revenues of approximately $210,000 per month. In February 1994, the
defendants, including NOARK, filed a motion for dismissal of Vesta's claim due
to lack of Federal jurisdiction in the Oklahoma court. In addition, NOARK and
certain other defendants filed separate claims in Arkansas against Vesta for
breach of contract. As these circumstances continue, the loss of revenues to
NOARK reduces the Company's net income by approximately $35,000 per month and
reduces NOARK's cash flows available for debt service. To the extent NOARK's
operating cash flows are insufficient to meet debt service, NOARK may draw on
its available line of credit, require an equity contribution or a loan from its
partners, or do a combination. If the above circumstances continue, the
Company estimates these circumstances could result in a related cash outflow of
approximately $1,000,000 from the Company in 1994.
The Company expects to ultimately recover the remaining cost of its
investment in NOARK over the life of the project.
9. INVESTMENTS IN AFFILIATES
The equity method of accounting is used for interests the Company holds in
affiliates 20% to 50% owned or in which the Company has significant influence
over operations. These affiliate companies are generally involved in natural
gas transmission, storage, or associated operations. The Company provides
income taxes on its share of undistributed earnings of these subsidiaries at
the time the earnings are included in consolidated income. Refer to Note 8 for
a discussion of the Company's significant guarantees of affiliate debt.
At December 31, 1993, the Company held the following interests in these
affiliates:
<TABLE>
<CAPTION>
Percent
Ownership
---------
<S> <C>
Eaton Rapids Gas Storage System.................................. 50.00%
Michigan Intrastate Lateral System............................... 50.00
Michigan Intrastate Pipeline System.............................. 50.00
Nimrod Natural Gas Corporation................................... 11.00
Nimrod Limited Partnership....................................... 29.40
NOARK Gas Services, L.P.......................................... 40.00
NOARK Pipeline System, L.P....................................... 31.67
</TABLE>
Summarized combined financial information for the Company's investments in
affiliate companies for the years ended December 31, 1993, 1992 and 1991 is as
follows (in thousands of dollars):
-32-
<PAGE> 37
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net sales................................... $ 19,717 $ 19,199 $ 10,290
Operating income............................ $ 8,105 $ 5,337 $ 4,826
Net income (loss)........................... $ (1,284) $ 1,108 $ 2,460
======== ======== ========
The Company's share of net income (loss).... $ (51) $ 601 $ 1,175
======== ======== ========
Current assets.............................. $ 5,636 $ 9,467 $ 13,768
Non-current assets.......................... 144,961 138,442 73,249
-------- -------- --------
Total assets................................ $150,597 $147,909 $ 87,017
======== ======== ========
Current liabilities......................... $ 16,748 $ 13,129 $ 10,106
Non-current liabilities..................... 108,259 106,660 65,308
Equity...................................... 25,590 28,120 11,603
-------- -------- --------
Total liabilities and equity................ $150,597 $147,909 $ 87,017
======== ======== ========
The Company's equity investment............. $ 8,902 $ 9,999 $ 5,091
======== ======== ========
The Company's share of undistributed
earnings (losses)......................... $ (151) $ 1,067 $ 1,441
======== ======== ========
</TABLE>
10. QUARTERLY FINANCIAL INFORMATION (Unaudited)
In the opinion of the Company, the following quarterly information
includes all adjustments necessary for a fair statement of the results of
operations for such periods. Earnings and dividends per share of common stock
are calculated based upon the weighted average number of shares outstanding
during each quarter. Due to the seasonal nature of the Company's gas
distribution business, the results of operations reported on a quarterly basis
show substantial variations.
The following amounts are shown in thousands of dollars, except per share
amounts:
<TABLE>
<CAPTION>
Quarters First Second Third Fourth
- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1993
Operating revenue................... $99,155 $53,011 $40,451 $96,346
Operating income.................... 11,592 2,518 340 6,980
Net income (loss) available for
common before extraordinary item.. 7,861 (165) (2,433) 4,477
Extraordinary item.................. -- -- -- (177)
------- ------- ------- -------
Net income (loss) available for
common stock...................... 7,861 (165) (2,433) 4,300
Earnings (loss) per share of common
before extraordinary item(i)...... .82 (.02) (.25) .47
Earnings (loss) per share of
common stock(i)................... .82 (.02) (.25) .45
Cash dividends per share of
common stock(i)................... .19 .19 .20 .20
<FN>
(i) Adjusted for five percent stock dividends in May 1993 and May 1992.
</TABLE>
-33-
<PAGE> 38
<TABLE>
<CAPTION>
Quarters First Second Third Fourth
- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1992
Operating revenue................... $81,969 $47,041 $39,100 $83,416
Operating income.................... 10,216 2,459 5 7,294
Net income (loss) available for
common before extraordinary item.. 7,629 (380) (2,335) 4,297
Extraordinary item.................. (901) -- -- --
------- ------- ------- -------
Net income (loss) available for
common stock...................... 6,728 (380) (2,335) 4,297
Earnings (loss) per share of common
before extraordinary item(i)...... .82 (.04) (.25) .46
Earnings (loss) per share of
common stock(i)................... .73 (.04) (.25) .46
Cash dividends per share of
common stock(i)................... .18 .18 .19 .19
<FN>
(i) Adjusted for five percent stock dividends in May 1993 and May 1992.
</TABLE>
-34-
<PAGE> 39
ARTHUR ANDERSEN & CO.
Report of Independent Public Accountants
To Southeastern Michigan Gas Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC. (a Michigan
corporation) and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income, changes in stockholders' investment and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements and the schedules referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Southeastern
Michigan Gas Enterprises, Inc. and subsidiaries as of December 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Notes 3 and 7 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes and other postretirement benefits.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in item 14(a)2 are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Detroit, Michigan,
February 9, 1994.
-35-
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-36-
<PAGE> 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the captions "Information About Directors
and Executive Officers" and "Other Executive Officers" in Registrant's
definitive Proxy Statement (filed or to be filed pursuant to Regulation 14A)
with respect to Registrant's April 19, 1994 Annual Meeting of Shareholders is
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the captions "Compensation Committee
Interlocks and Insider Participation" and "Compensation of Directors and
Executive Officers" in Registrant's definitive Proxy Statement (filed or to be
filed pursuant to Regulation 14A) with respect to Registrant's April 19, 1994
Annual Meeting of Shareholders is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the caption "Stock Outstanding, Voting
Rights and Votes Required" in the Registrant's definitive Proxy Statement
(filed or to be filed pursuant to Regulation 14A) with respect to Registrant's
April 19, 1994 Annual Meeting of Shareholders, is incorporated by reference
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Certain Business
Relationships of Directors" in the Registrant's definitive Proxy Statement
(filed or to be filed pursuant to Regulation 14A) with respect to Registrant's
April 19, 1994 Annual Meeting to Shareholders, is incorporated by reference
herein.
-37-
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements. The following financial
statements are included in Part II, item 8 above.
<TABLE>
<CAPTION>
Pages in 10-K
-------------
<S> <C>
Consolidated Statements of Income for the years
ended December 31, 1993, 1992 and 1991 17
Consolidated Statements of Cash Flows for the
years ended December 31, 1993, 1992 and 1991 18
Consolidated Balance Sheets as of
December 31, 1993 and 1992 19
Consolidated Statements of Capitalization as
of December 31, 1993 and 1992 20
Consolidated Statements of Changes in
Stockholders' Investment for the years
ended December 31, 1993, 1992 and 1991 21
Notes to the Consolidated Financial Statements 22-34
Report of Independent Public Accountants 35
</TABLE>
(a) 2. Financial Statement Schedules.
The following additional data should be read in conjunction with the
Consolidated Financial Statements in Part II, item 8 above.
Schedules not included herein have been omitted because they are not
applicable or the required information is shown in such financial
statements or notes thereto.
<TABLE>
<CAPTION>
Schedule
Number Pages in 10-K
-------- -------------
<S> <C> <C>
III Condensed Financial Information of
Southeastern Michigan Gas Company 42-45
V Consolidated Property, Plant and
Equipment for the years ended
December 31, 1993, 1992 and 1991 46-48
VI Consolidated Accumulated Depreciation,
Depletion and Amortization of Property,
Plant and Equipment for the years
ended December 31, 1993, 1992 and 1991 49-51
VIII Consolidated Valuation and Qualifying
Accounts for the years ended
December 31, 1993, 1992 and 1991 52
X Consolidated Supplementary Income
Statement Information for the years
ended December 31, 1993, 1992 and 1991 53
</TABLE>
-38-
<PAGE> 43
(a) 3. Exhibits, including those incorporated by reference
<TABLE>
<CAPTION>
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- ------- ----------- -------- ---------
<S> <C> <C> <C>
2 Plan of Acquisition, etc. NA NA
3 Articles of Incorporation and Bylaws
3(a) 1--Articles of Incorporation of Southeastern
Michigan Gas Enterprises, Inc.
(Enterprises), as restated
July 11, 1989.(e) x
2--Certificate of amendment to Article III of
the Articles of Incorporation dated
May 16, 1990.(g) x
3(b) Bylaws of Enterprises--last revised
October 14, 1993. x
4(a) Agreement to furnish Indenture of Mortgage and
Deed of Trust dated October 1, 1950 and
supplements thereto.(d) x
4(b) Agreement to furnish credit Agreement dated
October 3, 1985, between Enterprises and
NBD-Bank (National Bank of Detroit).(f) x
4(c) Trust Indenture dated September 1, 1987,
between Enterprises and Centerre Trust Company
of St. Louis as Trustee.(a) x
4(d) Trust Indenture dated December 1, 1987, between
Enterprises and Centerre Trust Company of
St. Louis as Trustee.(b) x
4(e) Trust Indenture dated December 15, 1988,
between Enterprises and Boatmen's Trust Company
as Trustee.(c) x
4(f) Trust Indenture dated April 1, 1992, between
Enterprises and NBD Bank, N.A. as Trustee.(j) x
9 Voting Trust Agreement. NA NA
10 Material Contracts.
10(a) Guaranty Agreement dated October 10, 1991,
relating to financing of NOARK.(h) x
10(b) Group A Employment Contract.(k) x
10(c) Short-Term Incentive Plan.(k) x
11 Statement re computation of per share earnings. NA NA
12 Statements re computation of ratios.(i) x
13 Annual report to shareholders. NA NA
16 Letter re change in certifying accountant. NA NA
</TABLE>
-39-
<PAGE> 44
<TABLE>
<CAPTION>
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- ------- ----------- -------- ---------
<S> <C> <C> <C>
18 Letter re change in accounting principle. NA NA
21 Subsidiaries of the Registrant. x
22 Published report regarding matters submitted
to a vote of security holders. NA NA
23 Consent of Independent Public Accountants. x
24 Power of Attorney. x
27 Financial Data Schedule. NA NA
28 Information from reports furnished to state
insurance regulatory authorities. NA NA
99 Proxy Statement dated March 21, 1994.(l) x
</TABLE>
Key to Exhibits Incorporated by Reference
(a) Filed with Enterprises' Registration Statement, Form S-2, No.
33-18979, filed December 10, 1987.
(b) Filed with Enterprises' Form 10-K for 1987, dated March 28, 1988,
File No. 0-8503.
(c) Filed with Enterprises' Form 10-K for 1988, dated March 30, 1989,
File No. 0-8503.
(d) Filed with Enterprises' Form 10-Q for the quarter ended June 30,
1989, File No. 0-8503.
(e) Filed with Enterprises' Form 10-K for 1989, dated March 29, 1990,
File No. 0-8503.
(f) Filed with Enterprises' Form 10-Q for the quarter ended September 30,
1990, File No. 0-8503.
(g) Filed with Enterprises' Form 10-K for 1990, dated March 28, 1991,
File No. 0-8503.
(h) Filed with Enterprises' Registration Statement, Form S-2, No.
33-46413, filed March 16, 1992.
(i) Filed with Enterprises' Form 10-K for 1991, dated March 27, 1992,
File No. 0-8503.
(j) Filed with Enterprises' Form 10-Q for the quarter ended March 31,
1992, File No. 0-8503.
(k) Filed with Enterprises' Form 10-K for 1992, dated March 30, 1993,
File No. 0-8503.
(l) Filed March 16, 1994, pursuant to Rule 14a-6 of the Exchange Act,
File No. 0-8503.
ITEM 14. (Continued)
(b) No reports on Form 8-K have been filed during the quarter ended
December 31, 1993. On January 11, 1994, the Company filed Form 8-K to
report litigation affecting the Company. See Note 8 of "Notes to the
Consolidated Financial Statements" for further discussion.
(c) The Exhibits, if any, filed herewith are identified on the Exhibit Index.
(d) The financial statement schedules filed are listed under Item 14.(a).2.
above.
-40-
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 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.
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
Date: March 28, 1994 By /s/ Ward N. Kirby
----------------------------------------
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Ward N. Kirby President March 28, 1994
- ------------------------
Ward N. Kirby (Director and Principal
Executive Officer)
/s/Robert F. Caldwell Executive Vice President March 28, 1994
- ------------------------
Robert F. Caldwell (Director and Principal
Financial and Accounting
Officer)
/s/Frank G. Andreoni* Director March 28, 1994
- ------------------------
Frank G. Andreoni
/s/Daniel A. Burkhardt* Director March 28, 1994
- ------------------------
Daniel A. Burkhardt
/s/George T. Ferris* Director March 28, 1994
- ------------------------
George T. Ferris
/s/Michael O. Frazer* Director March 28, 1994
- ------------------------
Michael O. Frazer
/s/Harvey I. Klein* Director March 28, 1994
- ------------------------
Harvey I. Klein
/s/William March* Director March 28, 1994
- ------------------------
William March
/s/Edith A. Stotler* Director March 28, 1994
- ------------------------
Edith A. Stotler
/s/Robert J. Thomson* Director March 28, 1994
- ------------------------
Robert J. Thomson
/s/John W. Wirtz* Director March 28, 1994
- ------------------------
John W. Wirtz
*By/s/Ward N. Kirby March 28, 1994
---------------------
Ward N. Kirby
Attorney-in-fact
</TABLE>
-41-
<PAGE> 46
<TABLE>
SCHEDULE III
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF
SOUTHEASTERN MICHIGAN GAS COMPANY
STATEMENT OF INCOME
<CAPTION>
Years ended December 31,
---------------------------------
1993 1992 1991
------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUE
Gas sales $72,486 $65,585 $60,200
Transportation 3,125 2,809 2,970
Other operations 380 361 332
------- ------- -------
75,991 68,755 63,502
------- ------- -------
OPERATING EXPENSES
Cost of gas sold 46,297 40,990 37,359
Operations 11,406 11,329 11,049
Maintenance 2,019 1,808 1,745
Depreciation 3,690 3,460 3,259
Income taxes 2,071 1,690 1,375
Taxes other than income taxes 3,488 3,217 2,935
------- ------- -------
68,971 62,494 57,722
------- ------- -------
OPERATING INCOME 7,020 6,261 5,780
OTHER INCOME, NET 179 207 225
------- ------- -------
INCOME BEFORE INCOME DEDUCTIONS 7,199 6,468 6,005
------- ------- -------
INCOME DEDUCTIONS
Interest on long-term debt 1,676 1,703 1,778
Other interest 614 524 352
Amortization of debt expense 145 145 146
------- ------- -------
2,435 2,372 2,276
------- ------- -------
NET INCOME 4,764 4,096 3,729
Dividends on preferred stock 178 178 178
------- ------- -------
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK $ 4,586 $ 3,918 $ 3,551
======= ======= =======
</TABLE>
-42-
<PAGE> 47
<TABLE>
SCHEDULE III
(cont.)
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF
SOUTHEASTERN MICHIGAN GAS COMPANY
BALANCE SHEET
A S S E T S
-----------
<CAPTION>
December 31,
------------------------
1993 1992
-------- --------
(Thousands of Dollars)
<S> <C> <C>
UTILITY PLANT
Plant in service, at original cost $124,533 $117,923
Less - Accumulated depreciation 49,340 45,862
-------- --------
75,193 72,061
Construction work in progress 780 224
-------- --------
75,973 72,285
-------- --------
OTHER PROPERTY 378 437
-------- --------
CURRENT ASSETS
Cash and temporary cash investments, at cost 100 35
Receivables
Affiliates 85 249
Nonaffiliates, less reserves of $116 and $117 8,652 9,247
Accrued utility revenue 6,209 5,411
Material and supplies, at average cost 1,581 1,227
Gas in underground storage, at average cost 11,333 10,884
Property taxes assessed and prepayments 1,819 4,087
Other current assets 1,210 1,769
-------- --------
30,989 32,909
-------- --------
DEFERRED CHARGES
Unamortized debt expense 1,057 1,202
Deferred gas charges, recoverable from customers 145 1,002
Other 5,981 5,839
-------- --------
7,183 8,043
-------- --------
$114,523 $113,674
======== ========
</TABLE>
-43-
<PAGE> 48
<TABLE>
SCHEDULE III
(cont.)
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF
SOUTHEASTERN MICHIGAN GAS COMPANY
BALANCE SHEET
CAPITALIZATION AND LIABILITIES
<CAPTION>
December 31,
------------------------
1993 1992
-------- --------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION
Common stock equity $ 38,942 $ 38,256
Cumulative preferred stock 3,100 3,100
Long-term debt 17,333 17,498
Capital lease obligations 323 254
-------- --------
59,698 59,108
-------- --------
CURRENT LIABILITIES
Note payable to Enterprises 19,940 14,366
Current maturities of long-term debt 165 165
Current maturities of capital lease obligations 330 264
Accounts payable
Affiliates 2,468 1,228
Nonaffiliates 5,537 6,074
Customer advance payments 3,037 3,260
Accrued taxes 319 3,189
Accrued interest 278 351
Amounts payable to customers 5 236
Accumulated deferred income taxes 227 734
Other 2,145 3,769
-------- --------
34,451 33,636
-------- --------
COMMITMENTS AND CONTINGENCIES
DEFERRED CREDITS
Accumulated deferred income taxes 4,040 11,733
Unamortized investment tax credits 2,363 2,531
Deferred gas costs payable to suppliers 89 650
Customer advances for construction 5,650 4,714
Other 8,232 1,302
-------- --------
20,374 20,930
-------- --------
$114,523 $113,674
======== ========
</TABLE>
-44-
<PAGE> 49
<TABLE>
SCHEDULE III
(cont.)
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF
SOUTHEASTERN MICHIGAN GAS COMPANY
STATEMENT OF CASH FLOWS
<CAPTION>
Years ended December 31,
---------------------------------
1993 1992 1991
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITY
Cash received from customers $ 76,261 $ 66,933 $ 63,867
Cash paid for payrolls and to suppliers (61,665) (58,070) (49,627)
Interest paid (2,363) (2,198) (2,132)
Income taxes paid (5,711) (1,781) (988)
Taxes other than income taxes paid (3,540) (3,256) (3,082)
Other cash receipts and payments, net 1,921 (978) (958)
-------- -------- --------
NET CASH FROM OPERATING ACTIVITY 4,903 650 7,080
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITY
Capital expenditures (6,413) (7,248) (5,819)
Proceeds from sale of property
and equipment 107 -- 31
-------- -------- --------
NET CASH FROM INVESTING ACTIVITY (6,306) (7,248) (5,788)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITY
Change in notes payable to Enterprises 5,575 11,550 2,510
Issuance of long-term debt -- -- --
Repayment of long-term debt (29) (1,149) (260)
Payment of dividends (4,078) (3,778) (3,778)
-------- -------- --------
NET CASH FROM FINANCING ACTIVITY 1,468 6,623 (1,528)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND TEMPORARY CASH INVESTMENTS 65 25 (236)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of Year 35 10 246
-------- -------- --------
End of Year $ 100 $ 35 $ 10
======== ======== ========
RECONCILIATION OF NET INCOME TO
NET CASH FROM OPERATING ACTIVITY
Net income available for common stock $ 4,586 $ 3,918 $ 3,551
Adjustments to reconcile net income to
net cash from operating activity
Depreciation 4,163 3,827 3,666
Deferred taxes and ITC (2,971) (459) 756
Accounts receivable 1,318 (2,140) (195)
Accrued utility revenue (798) (13) 550
Materials and supplies and gas in
underground storage (803) (2,537) 1,021
Property taxes assessed and
prepayments 2,268 (355) (188)
Accounts payable 704 (79) (242)
Amounts payable to customers (230) (1,095) (616)
Other, net (3,334) (417) (1,223)
-------- -------- --------
NET CASH FROM OPERATING ACTIVITY $ 4,903 $ 650 $ 7,080
======== ======== ========
</TABLE>
-45-
<PAGE> 50
<TABLE>
SCHEDULE V
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE V - CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(Thousands of Dollars)
<CAPTION>
Balance Balance
Beginning Additions Retirements Transfers End
Major Classifications of Period at Cost or Sales and Other of Period
- -------------------------------------------- --------- ------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
UTILITY PLANT, at cost:
In service -
Intangible -
Organization $ 87 $ - $ - $ - $ 87
Franchise and consents 263 77 23 - 317
-------- ------- ------ ------- --------
Total intangible plant 350 77 23 - 404
Tangible -
Production plant 326 23 16 172 505
Storage plant 19,434 151 164 106 19,527
Transmission plant 24,576 3,890 5 86 28,547
Distribution plant 188,100 15,053 1,068 (173) 201,912
General plant 17,978 3,408 756 111 20,741
-------- ------- ------ ------- --------
Total plant in service 250,764 22,602 2,032 302 271,636
Construction work in progress 2,928 (2,146) - - 782
Plant held for future use 157 - 4 - 153
-------- ------- ------ ------- --------
Total utility plant, at cost,
including intangibles $253,849 $20,456 $2,036 $ 302 $272,571
======== ======= ====== ======= ========
OTHER PROPERTY, at cost $ 27,088 $ 513 $4,014 $(2,006)(A) $ 21,581
======== ======= ====== ======= ========
<FN>
(A) Primarily consists of equity income (loss), net of distributions on investments accounted for under the
equity method and miscellaneous writedowns.
</TABLE>
-46-
<PAGE> 51
<TABLE>
SCHEDULE V
(cont.)
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE V - CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(Thousands of Dollars)
<CAPTION>
Balance Balance
Beginning Additions Retirements Transfers End
Major Classifications of Period at Cost or Sales and Other of Period
- -------------------------------------------- --------- ------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
UTILITY PLANT, at cost:
In service -
Intangible -
Organization $ 87 $ - $ - $ - $ 87
Franchise and consents 260 3 - - 263
-------- ------- ------ ------- --------
Total intangible plant 347 3 - - 350
Tangible -
Production plant 339 - 13 - 326
Storage plant 19,033 626 225 - 19,434
Transmission plant 22,334 872 - 1,370 24,576
Distribution plant 172,064 16,934 676 (222) 188,100
General plant 16,912 1,901 834 (1) 17,978
-------- ------- ------ ------- --------
Total plant in service 231,029 20,336 1,748 1,147 250,764
Construction work in progress 721 2,401 - (194) 2,928
Plant held for future use 157 - - - 157
-------- ------- ------ ------- --------
Total utility plant, at cost,
including intangibles $231,907 $22,737 $1,748 $ 953 $253,849
======== ======= ====== ======= ========
OTHER PROPERTY, at cost $ 23,498 $ 6,770 $1,929 $(1,251)(A) $ 27,088
======== ======= ====== ======= ========
<FN>
(A) Primarily consists of equity income (loss), net of distributions on investments accounted for under the
equity method and miscellaneous writedowns.
</TABLE>
-47-
<PAGE> 52
<TABLE>
SCHEDULE V
(cont.)
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE V - CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(Thousands of Dollars)
<CAPTION>
Balance Balance
Beginning Additions Retirements Transfers End
Major Classifications of Period at Cost or Sales and Other of Period
- -------------------------------------------- --------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
UTILITY PLANT, at cost:
In service -
Intangible -
Organization $ 87 $ - $ - $ - $ 87
Franchise and consents 251 9 - - 260
-------- ------- ------ ------- --------
Total intangible plant 338 9 - - 347
Tangible -
Production plant 2,221 - 1,882 - 339
Storage plant 18,903 296 - (166) 19,033
Transmission plant 11,698 1,073 18 9,581 22,334
Distribution plant 159,640 13,148 768 44 172,064
General plant 16,380 1,447 871 (44) 16,912
-------- ------- ------ ------- --------
Total plant in service 209,180 15,973 3,539 9,415 231,029
Construction work in progress 388 333 - - 721
Plant held for future use 157 - - - 157
-------- ------- ------ ------- --------
Total utility plant, at cost,
including intangibles $209,725 $16,306 $3,539 $ 9,415 $231,907
======== ======= ====== ======= ========
OTHER PROPERTY, at cost $ 22,994 $16,232 $6,313 $(9,415) $ 23,498
======== ======= ====== ======= ========
</TABLE>
-48-
<PAGE> 53
<TABLE>
SCHEDULE VI
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE VI - CONSOLIDATED ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(Thousands of Dollars)
<CAPTION>
Additions to Reserves Deductions
---------------------- from Reserves
Provisions Charged to -----------------------
---------------------- Retirements
Balance Clearing and at Original Removal Balance
Beginning Other Cost (See Cost Less End
Description of Period Income Accounts(A) Schedule V) Salvage Transfers of Period
- ------------------------ --------- ------ ------------ ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
UTILITY PLANT
General $59,516 $9,193 $387 $1,537 $301 $ 11 $67,269
Leasehold improvements -- -- -- -- -- -- --
Other limited term
utility improvements 61 -- 6 26 -- -- 41
Transportation and
work equipment 3,040 752 -- 473 -- -- 3,319
------- ------ ---- ------ ---- ---- -------
$62,617 $9,945 $393 $2,036 $301 $ 11 $70,629
======= ====== ==== ====== ==== ==== =======
OTHER PROPERTY $ 6,292 $2,273 $ 19 $3,360 $-- $ -- $ 5,224
======= ====== ==== ====== ==== ==== =======
<FN>
(A) Represents primarily provision for depreciation of work equipment which is
charged to clearing accounts and apportioned together with other work
equipment expenses to various construction, operation and maintenance accounts.
</TABLE>
-49-
<PAGE> 54
<TABLE>
SCHEDULE VI
(cont.)
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE VI - CONSOLIDATED ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(Thousands of Dollars)
<CAPTION>
Additions to Reserves Deductions
---------------------- from Reserves
Provisions Charged to -----------------------
---------------------- Retirements
Balance Clearing and at Original Removal Balance
Beginning Other Cost (See Cost Less End
Description of Period Income Accounts(A) Schedule V) Salvage Transfers of Period
- ------------------------ --------- ------ ------------ ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
UTILITY PLANT
General $52,094 $8,532 $358 $1,117 $351 $-- $59,516
Leasehold improvements -- -- -- -- -- -- --
Other limited term
utility improvements 56 -- 5 -- -- -- 61
Transportation and
work equipment 3,014 657 -- 631 -- -- 3,040
------- ------ ---- ------ ---- ---- -------
$55,164 $9,189 $363 $1,748 $351 $-- $62,617
======= ====== ==== ====== ==== ==== =======
OTHER PROPERTY $ 5,469 $2,280 $ 21 $1,478 $-- $ -- $ 6,292
======= ====== ==== ====== ==== ==== =======
<FN>
(A) Represents primarily provision for depreciation of work equipment which is
charged to clearing accounts and apportioned together with other work
equipment expenses to various construction, operation and maintenance accounts.
</TABLE>
-50-
<PAGE> 55
<TABLE>
SCHEDULE VI
(cont.)
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE VI - CONSOLIDATED ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(Thousands of Dollars)
<CAPTION>
Additions to Reserves Deductions
---------------------- from Reserves
Provisions Charged to -----------------------
---------------------- Retirements
Balance Clearing and at Original Removal Balance
Beginning Other Cost (See Cost Less End
Description of Period Income Accounts(A) Schedule V) Salvage Transfers of Period
- ------------------------ --------- ------ ------------ ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
UTILITY PLANT
General $47,017 $7,793 $362 $2,731 $637 $ 290 $52,094
Leasehold improvements -- -- -- -- -- -- --
Other limited term
utility improvements 51 5 -- -- -- -- 56
Transportation and
work equipment 2,427 1,395 -- 808 -- -- 3,014
------- ------ ---- ------ ---- ----- -------
$49,495 $9,193 $362 $3,539 $637 $ 290 $55,164
======= ====== ==== ====== ==== ===== =======
OTHER PROPERTY $ 6,483 $2,945 $-- $3,669 $-- $(290) $ 5,469
======= ====== ==== ====== ==== ===== =======
<FN>
(A) Represents primarily provision for depreciation of work equipment which is
charged to clearing accounts and apportioned together with other work
equipment expenses to various construction, operation and maintenance accounts.
</TABLE>
-51-
<PAGE> 56
<TABLE>
SCHEDULE VIII
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE VIII - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<CAPTION>
Additions Deductions
--------- From Reserve
Balance Provision for Purpose of Balance
Beginning Charged Which the Reserve End
Description of Period to Income Was Provided of Period
- ------------------------------------------------------- --------- --------- ----------------- ---------
FOR THE YEAR ENDED DECEMBER 31, 1993
------------------------------------
<S> <C> <C> <C> <C>
RESERVE DEDUCTED FROM RECEIVABLES IN BALANCE SHEET -
Uncollectible accounts $1,008 $ 939 $ 592 $1,355
====== ====== ====== ======
RESERVE DEDUCTED FROM OTHER PROPERTY IN BALANCE SHEET -
Oil and gas leasehold reserve $1,405 $ 250 $ 553 $1,102
====== ====== ====== ======
Real estate land cost reserve $ 800 $ 300 $ -0- $1,100
====== ====== ====== ======
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1992
------------------------------------
<S> <C> <C> <C> <C>
RESERVE DEDUCTED FROM RECEIVABLES IN BALANCE SHEET -
Uncollectible accounts $ 992 $1,045 $1,029 $1,008
====== ====== ====== ======
RESERVE DEDUCTED FROM OTHER PROPERTY IN BALANCE SHEET -
Oil and gas leasehold reserve $ 685 $ 720 $ -0- $1,405
====== ====== ====== ======
Real estate land cost reserve $ 800 $ -0- $ -0- $ 800
====== ====== ====== ======
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1991
------------------------------------
<S> <C> <C> <C> <C>
RESERVE DEDUCTED FROM RECEIVABLES IN BALANCE SHEET -
Uncollectible accounts $ 892 $ 672 $ 572 $ 992
====== ====== ====== ======
RESERVE DEDUCTED FROM OTHER PROPERTY IN BALANCE SHEET -
Oil and gas leasehold reserve $ -0- $ 685 $ -0- $ 685
====== ====== ====== ======
Real estate land cost reserve $ -0- $ 800 $ -0- $ 800
====== ====== ====== ======
</TABLE>
-52-
<PAGE> 57
<TABLE>
SCHEDULE X
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
SCHEDULE X - CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Thousands of Dollars)
<CAPTION>
For the Years ended December 31,
--------------------------------
TAXES OTHER THAN PAYROLL AND INCOME TAXES 1993 1992 1991
- ----------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Real and personal property tax $5,811 $5,303 $4,981
Michigan Single Business Tax 1,183 998 928
------ ------ ------
$6,994 $6,301 $5,909
====== ====== ======
</TABLE>
Rents, royalties, advertising and research and
development costs are not significant.
-53-
<PAGE> 58
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
Exhibit Index
Form 10-K
1993
<TABLE>
<CAPTION>
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- ------- ----------- -------- ---------
<S> <C> <C> <C>
2 Plan of Acquisition, etc. NA NA
3 Articles of Incorporation and Bylaws
3(a) 1--Articles of Incorporation of Southeastern
Michigan Gas Enterprises, Inc.
(Enterprises), as restated
July 11, 1989.(e) x
2--Certificate of amendment to Article III of
the Articles of Incorporation dated
May 16, 1990.(g) x
3(b) Bylaws of Enterprises--last revised
October 14, 1993. x
4(a) Agreement to furnish Indenture of Mortgage and
Deed of Trust dated October 1, 1950 and
supplements thereto.(d) x
4(b) Agreement to furnish credit Agreement dated
October 3, 1985, between Enterprises and
NBD-Bank (National Bank of Detroit).(f) x
4(c) Trust Indenture dated September 1, 1987,
between Enterprises and Centerre Trust Company
of St. Louis as Trustee.(a) x
4(d) Trust Indenture dated December 1, 1987, between
Enterprises and Centerre Trust Company of
St. Louis as Trustee.(b) x
4(e) Trust Indenture dated December 15, 1988,
between Enterprises and Boatmen's Trust Company
as Trustee.(c) x
4(f) Trust Indenture dated April 1, 1992, between
Enterprises and NBD Bank, N.A. as Trustee.(j) x
9 Voting Trust Agreement. NA NA
10 Material Contracts.
10(a) Guaranty Agreement dated October 10, 1991,
relating to financing of NOARK.(h) x
10(b) Group A Employment Contract.(k) x
10(c) Short-Term Incentive Plan.(k) x
11 Statement re computation of per share earnings. NA NA
12 Statements re computation of ratios.(i) x
13 Annual report to shareholders. NA NA
16 Letter re change in certifying accountant. NA NA
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- ------- ----------- -------- ---------
<S> <C> <C> <C>
18 Letter re change in accounting principle. NA NA
21 Subsidiaries of the Registrant. x
22 Published report regarding matters submitted
to a vote of security holders. NA NA
23 Consent of Independent Public Accountants. x
24 Power of Attorney. x
27 Financial Data Schedule. NA NA
28 Information from reports furnished to state
insurance regulatory authorities. NA NA
99 Proxy Statement dated March 21, 1994.(l) x
</TABLE>
Key to Exhibits Incorporated by Reference
(a) Filed with Enterprises' Registration Statement, Form S-2, No.
33-18979, filed December 10, 1987.
(b) Filed with Enterprises' Form 10-K for 1987, dated March 28, 1988,
File No. 0-8503.
(c) Filed with Enterprises' Form 10-K for 1988, dated March 30, 1989,
File No. 0-8503.
(d) Filed with Enterprises' Form 10-Q for the quarter ended June 30,
1989, File No. 0-8503.
(e) Filed with Enterprises' Form 10-K for 1989, dated March 29, 1990,
File No. 0-8503.
(f) Filed with Enterprises' Form 10-Q for the quarter ended September 30,
1990, File No. 0-8503.
(g) Filed with Enterprises' Form 10-K for 1990, dated March 28, 1991,
File No. 0-8503.
(h) Filed with Enterprises' Registration Statement, Form S-2, No.
33-46413, filed March 16, 1992.
(i) Filed with Enterprises' Form 10-K for 1991, dated March 27, 1992,
File No. 0-8503.
(j) Filed with Enterprises' Form 10-Q for the quarter ended March 31,
1992, File No. 0-8503.
(k) Filed with Enterprises' Form 10-K for 1992, dated March 30, 1993,
File No. 0-8503.
(l) Filed March 16, 1994, pursuant to Rule 14a-6 of the Exchange Act,
File No. 0-8503.
<PAGE> 1
EXHIBIT 3(b)
Revised 10/14/93
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
BYLAWS
ARTICLE I
STOCK
Section 1. CAPITAL STOCK. The Capital of this Corporation consists of
Twenty Million (20,000,000) shares designated "Common Stock $1.00 Par Value"
and Five Hundred Thousand (500,000) shares designated "Cumulative Preferred
Stock, $1 Par Value".
Section 2. CERTIFICATE OF SHARES. The Certificates for shares of the
Capital Stock of this Corporation shall be in such form, not inconsistent with
the Articles of Incorporation of the Corporation, as shall be prepared or be
approved by the Board of Directors. The Certificates shall be signed by the
President or a Vice President.
Section 3. TRANSFER OF SHARES. Shares of the Capital Stock of the
Corporation shall be transferred by endorsement of the Certificates
representing said shares by the registered holder thereof or his attorney, and
its surrender to the Secretary for cancellation. Whereupon the Secretary shall
issue to the transferee or transferees, as specified by the endorsement upon
the surrendered certificate, new certificates for a like number of shares.
Transfers shall be made only upon the books of the Corporation and upon said
surrender and cancella-tion; and shall entitle the transferee to all
privileges, rights and interests of a shareholder of this Corporation.
Section 4. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS. The Board of
Directors may in its discretion for the purpose of determining shareholders
entitled to notice of and to vote at a meeting of shareholders or any
adjournment thereof, or to express consent or dissent from a proposal without a
meeting, or for the purpose of determining shareholders entitled to receive
payment of a dividend or allotment of a right, or for the purpose of any other
action, fix in advance a date as the record date for any such determination of
shareholders. The record date shall not be more than sixty (60) nor less than
ten (10) days before the date of the meeting, nor more than sixty (60) days
before any other action. When a determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders has been made as
provided in this Section 4, the determination applies to any adjournment of the
meeting, unless the Board fixes a new record date under this Section 4 for the
adjourned meeting.
Section 5. LOST CERTIFICATES. In case of the loss of any certificate of
shares of stock, upon due proof by the registered holder or his
representatives, by affidavit of such loss, the Secretary shall issue a
duplicate certificate in its place, upon the Corporation's being fully
indemnified therefor.
Section 6. FISCAL YEAR. The fiscal year of the Corporation shall end on
the 31st day of December in each year.
<PAGE> 2
Section 7. CORPORATE SEAL. The Board of Directors shall provide a
suitable corporate seal, which seal shall be in charge of the Secretary, and
shall be used by him.
Section 8. REDEMPTION OF CONTROL SHARES. Consistent with the provisions
of Section 799 of the Michigan Business Corporation Act, MCL 450.1799, control
shares of the Company acquired in a control share acquisition, with respect to
which no acquiring person statement has been filed with the Company, are, at
any time during the period ending 60 days after the last acquisition of control
shares or the power to direct the exercise of voting power of control shares by
the acquiring person, subject to redemption by the Company at the fair value of
the shares pursuant to procedures adopted by the Board of Directors.
After an acquiring person statement has been filed and after the meeting
at which the voting rights of the control shares acquired in a control share
acquisition are submitted to the shareholders, the shares are subject to
redemption by the Company at the fair value of the shares pursuant to
procedures adopted by the Board of Directors unless the shares are accorded
full voting rights by the shareholders as provided in Section 798 of the
Michigan Business Corporation Act.
ARTICLE II
SHAREHOLDERS' MEETINGS
Section 1. TIME, PLACE AND PURPOSE. Meetings of the shareholders of the
Corporation shall be held annually on the third Tuesday in April in each year,
beginning in the year 1978, (or if said day be a legal holiday, then on the
next succeeding day not a holiday) at 2:00 o'clock P.M., at the office of the
Corporation in the City of Port Huron, Michigan, or at such other place within
or without the State of Michigan as may be fixed by the Board of Directors, for
the purpose of electing Directors and for the transaction of such other
business as may properly be brought before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the President and Secretary, and shall be called by either of them by
vote of a majority of the Board of Directors or at the request in writing of
shareholders of record owning a majority of the entire shares of the
Corporation issued and outstanding and entitled to vote at such meetings.
Section 3. NOTICE. Written notice of any shareholders' meeting shall be
mailed to each shareholder of record entitled to vote at the meeting at his
last known address, as the same appears on the stock book of the Corporation,
or otherwise, or delivered in person, not less than ten (10) nor more than
sixty (60) days before any meeting, and such notice of meeting shall indicate
the object or objects thereof. Nevertheless, if all the shareholders entitled
to vote at the meeting shall waive notice of the meeting, no notice of the same
shall be required and, whenever all the shareholders entitled to vote at the
meeting shall meet in person or by proxy, such meeting shall be valid for all
purposes, without call or notice, and at such meeting any corporate action
shall not be invalid for want of notice.
-2-
<PAGE> 3
Section 4. QUORUM. At any meeting of the shareholders, the holders of
the issued and outstanding shares of the Corporation entitled to cast a
majority of the votes at the meeting, whether present in person or represented
by proxy, shall constitute a quorum. The shareholders present in person or by
proxy at such meeting may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. Meetings at which less than a quorum is represented, however, may be
adjourned from time to time to a further date without further notice other than
the announcement at such meeting and, when a quorum shall be present upon such
adjourned date, any business may be transacted which might have been transacted
at the meeting as originally called.
Section 5. VOTING. Each shareholder entitled to vote at any meeting
shall have one vote in person or by proxy for each share held by him which has
voting power upon the matter in question at the time, but no proxy shall be
voted after three years from its date unless said proxy provides for a longer
period. In all elections for Directors, each shareholder entitled to vote
shall have the right to vote, in person or by proxy, the number of voting
shares owned by him, for as many persons as there are Directors to be elected,
or to cumulate said shares and give one candidate as many votes as the number
of Directors multiplied by the number of his voting shares shall equal, or to
distribute them on the same principle among as many candidates as he shall see
fit.
Section 6. ORGANIZATION. Meetings of the shareholders shall be presided
over by the Chairman of the Board, or the President, or if neither is present,
by any Vice President or, if no Vice President is present, by a chairman to be
chosen at the meeting. The Secretary of the Corporation or, if he is not
present, an Assistant Secretary of the Corporation, if present, shall act as
Secretary of the meeting, but if no such officer is present, the presiding
officer shall appoint any person to act as Secretary of the meeting.
Section 7. INSPECTORS. The Board of Directors, in advance of a
shareholders' meeting, may appoint one or more inspectors to act at the meeting
or any adjournment thereof. The inspectors shall perform such duties and shall
make such determinations as are prescribed by law.
Section 8. GIVING NOTICE. Any notice required by statute or by these
Bylaws to be given to the shareholders, or to Directors, or to any officer of
the Corporation, shall be deemed to be sufficient to be given by depositing the
same in a post office box in a sealed, postpaid wrapper, addressed to such
shareholder, Director, or officer at his last known address with proper postage
and such notice shall be deemed to have been given at the time of such mailing.
Section 9. NEW SHAREHOLDERS. Every person becoming a shareholder in this
Corporation shall be deemed to assent to these Bylaws, and shall designate to
the Secretary the address to which he desires that the notice herein required
to be given may be sent, and all notices mailed to such addresses, with postage
prepaid, shall be considered as duly given at the date of mailing, and any
person failing to so designate his address shall be deemed to have waived
notice of such meeting.
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ARTICLE III
DIRECTORS
Section 1. NUMBER, CLASSIFICATION AND TERM OF OFFICE. The business and
the property of the Corporation shall be managed and controlled by the Board of
Directors. The number of Directors shall be eleven (11). Directors shall hold
office for staggered terms as provided in the Articles of Incorporation.
Section 2. PLACE OF MEETING. The Directors may hold their meetings in
such place or places within or without this State as a majority of the Board of
Directors may, from time to time, determine.
Section 3. MEETINGS. Meetings of the Board of Directors may be called at
any time by the Chairman, President or Secretary, or by a majority of the Board
of Directors. Directors shall be notified in writing of the time, place and
purpose of all meetings of the Board at least three days prior thereto. Any
Director shall, however, be deemed to have waived such notice by his attendance
at any meeting. The Chairman of the Board, or in his absence the President,
shall preside at meetings of the Board.
Section 4. QUORUM. A majority of the Board of Directors shall constitute
a quorum for the transaction of business and, if at any meeting of the Board of
Directors there be less than a quorum present, a majority of those present may
adjourn the meeting from time to time.
Section 5. VACANCIES. Vacancies in the Board of Directors shall be
filled by the remaining members of the Board and each person so elected shall
be a Director until his successor is elected by the shareholders.
Section 6. COMPENSATION. No Director shall receive any salary or
compensa-tion for his services as Director, unless otherwise especially ordered
by the Board of Directors or by the Bylaws.
Section 7. AGE OF RETIREMENT. Notwithstanding anything above to the
contrary, no individual shall serve as a director past the Retirement Age. Any
individual reaching the Retirement Age while serving as director shall be
considered to have resigned as of that date. No individual who has reached the
Retirement Age shall qualify to run for election, or serve, as a director. The
Retirement Age for individuals serving as directors on January 1, 1987 shall be
75 years. The Retirement Age for all other individuals shall be 70 years. The
Board of Directors, however, may waive the provisions of this Section as to any
director in its discretion by majority vote of the remaining directors in
office.
Section 8. RESIGNATION OF EMPLOYEE DIRECTOR. Notwithstanding anything
above to the contrary, any individual who is an employee of the Corporation or
any majority-owned subsidiary when elected or appointed as a director, shall
cease to be a director when that employment ends for any reason and shall be
considered to have resigned as a director as of that date. The Board of
Directors, however, may waive the provisions of this Section as to any director
in its discretion by majority vote of the remaining directors in office.
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<PAGE> 5
Section 9. QUALIFICATIONS. In addition to any other qualifications for a
director imposed by law, these Bylaws, or the Articles of Incorporation, a
person shall not qualify to serve as a director if that person has previously
served concurrently as a director of the Corporation and an employee of the
Corporation or any majority-owned subsidiary, but is no longer an employee.
The Board of Directors, however, may waive the provisions of this Section as to
any director in its discretion by majority vote of the remaining directors in
office.
ARTICLE IV
OFFICERS
Section 1. NUMBER, CLASSIFICATION AND TERM OF OFFICE. The Board of
Directors shall select a President, a Secretary, a Treasurer and a Director,
Audit and Corporate Services and may select one or more additional Vice
Presidents, Assistant Secretaries and Assistant Treasurers, who shall be
elected by the Board of Directors at their regular annual meeting. The term of
office shall be for one year and until their successors are chosen. No one of
such officers, except the President, need be a Director. Any two of the
offices, except those of President and Vice President, may be held by the same
person, but no officer shall execute, acknowledge, or verify any instrument in
more than one capacity. The Board of Directors shall fix the salaries of the
officers of the Corporation. The Board of Directors may also fill any vacancy
in the foregoing offices at any regular or special meeting duly called and
held.
Section 2. APPOINTMENTS AND REMOVAL OF OFFICERS. The Board of Directors
may also appoint such other officers and agents as they may deem necessary for
the transaction of the business of the Corporation. All officers and agents
shall respectively have such authority and perform such duties in the
management of the property and affairs of the Corporation as may be designated
by the Board of Directors. Without limitation of any right of an officer or
agent to recover damages for breach of contract, the Board of Directors may
remove any officer or agent whenever, in their judgment, the business interests
of the Corporation will be served thereby.
Section 3. BONDING OF OFFICERS. The Board of Directors may secure the
fidelity of any or all of such officers by bond or otherwise.
ARTICLE V
DUTIES OF OFFICERS
Section 1. PRESIDENT. The President shall be the chief executive officer
of the Company and, as such, shall have supervision of its policies, business
and affairs, and such other powers and duties as are commonly incident to the
office of chief executive officer. He may sign, execute, and deliver in the
name of the Company powers of attorney, contracts, bonds, and other obligations
and shall perform such other duties as may be prescribed from time to time by
the Board of Directors or by the Bylaws. He may appoint officers, agents, or
employees other than those appointed by the Board of Directors.
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<PAGE> 6
Section 2. EXECUTIVE VICE PRESIDENT. The Executive Vice President shall
be the chief operating officer of the Company. He shall exercise such duties
as customarily pertain to the office of Executive Vice President and chief
operating officer and shall have such other duties as shall be delegated by the
President. He may sign, execute, and deliver in the name of the Company powers
of attorney, contracts, bonds, and other obligations and shall perform such
other duties as may be prescribed from time to time by the Board of Directors
or by the Bylaws. In the absence or disability of the President, the Executive
Vice President shall perform the duties and exercise the powers of the
President.
Section 3. VICE PRESIDENT(S). If the Board of Directors shall have
selected one or more additional Vice Presidents, any such Vice President shall
do and perform such acts and shall exercise such powers and have such
responsibilities as the Board of Directors may, from time to time, authorize or
direct.
Section 4. TREASURER. The Treasurer shall have custody and keep account
of all money, funds and property of the Corporation, unless otherwise
determined by the Board of Directors, and he shall render such accounts and
present such statement to the Directors and President as may be required of
him. He shall deposit all funds of the Corporation which may come into his
hands in such bank or banks as the Board of Directors may designate. He shall
keep his bank accounts in the name of the Corporation, and shall exhibit his
books and accounts, at all reasonable times, to any Director of the Corporation
upon application at the offices of the Corporation during business hours. He
shall pay out money as the business may require upon the order of the properly
constituted officer or officers of the Corporation, taking proper vouchers
therefor; provided, however, that the Board of Directors shall have power by
resolution to delegate any of the duties of the Treasurer to other officers,
and to provide by what officers, if any, all bills, notes, checks, vouchers,
orders or other instruments shall be countersigned. He shall perform, in
addition, such other duties as may be delegated to him by the Board of
Directors.
Section 5. SECRETARY. The Secretary of the Corporation shall keep the
minutes of all the meetings of the Shareholders, Board of Directors and
Committees of the Board in books provided for that purpose; he shall attend to
the giving and receiving of all notices of the Corporation; he shall sign, with
the President or a Vice President, in the name of the Corporation, all
contracts authorized by the Board of Directors and, when necessary, shall affix
the corporate seal of the Corporation thereto; he shall have charge of the
certificate books, transfer books and stock ledgers and such other books and
papers as the Board of Directors may direct; all of which shall, at all
reasonable times, be open to the examination of any Director upon application
at the office of the Secretary; and, in addition, such other duties as may be
delegated to him by the Board of Directors.
Section 6. DIRECTOR, AUDIT AND CORPORATE SERVICES. The Director, Audit
and Corporate Services shall be responsible for directing internal audit
functions and the internal audit staff. He shall also be responsible for
maintaining the relationship with the Audit Committee including assisting in
the setting of agendas and the scheduling of meetings. He shall also function
as the Quality Process Facilitator and perform other duties as assigned.
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<PAGE> 7
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. The Corporation shall indemnify any person against expenses
(including attorney fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person by reason of the fact that such
person is or was a director or officer of the Corporation, in connection with
any threatened, pending or completed action, suit or proceeding to the full
extent allowed by Sections 561, 562, 563 and 564 of the Michigan Business
Corporation Act from time to time in effect (including, where permitted and
upon any undertaking required, payment in advance of expenses); provided,
however, that except with respect to actions, suits or proceedings initiated by
any such person to enforce his or her rights to indemnification or advancement
of expenses under this Article or otherwise, the Corporation shall indemnify
any such person in connection with an action, suit or proceeding initiated by
such person only if such action, suit or proceeding was authorized or ratified
by the Board of Directors of the Corporation. "Proceeding" as used in this
Article shall include any proceeding within an action or suit.
2. Without limiting in any way Section 1 of this Article:
(a) The Corporation may, by action of or approval by its Board of
Directors, provide indemnification and/or advancement of expenses to employees
or agents of the Corporation who are not directors or officers in the same
manner and to the same extent as such rights are provided to directors and
officers pursuant to this Article.
(b) The indemnification and advancement of expenses provided by or
granted pursuant to this Article shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under these Bylaws, the Articles of Incorporation, contractual
agreement, or otherwise by law and shall continue as to a person who has ceased
to be a director or officer of the Corporation and shall inure to the benefit
of the heirs, executors and administrators of such person.
ARTICLE VII
AMENDMENTS
The shareholders entitled to vote or the Board of Directors may alter,
amend, add to or repeal these Bylaws, including the fixing and altering of the
Board of Directors; provided that the Board of Directors shall not make or
alter any Bylaws fixing their number, qualifications, classification, or term
of office.
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<PAGE> 1
EXHIBIT 21
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
List of Subsidiaries
Exhibit 21 to Form 10-K (1993)
The subsidiaries of Southeastern Michigan Gas Enterprises, Inc. (the
Registrant) are:
Southeastern Michigan Gas Company
Michigan Gas Company
MI-GAS PROPANE COMPANY (a subsidiary of Michigan Gas Company)
Battle Creek Gas Company
Southeastern Financial Services, Inc.
Southeastern Development Company
SEMCO Energy Services, Inc.
SEMCO Pipeline Company (a subsidiary of SEMCO Energy Services, Inc.)
SEMCO Gas Storage Company (a subsidiary of SEMCO Energy Services, Inc.)
SEMCO Arkansas Pipeline Company (a subsidiary of SEMCO Energy Services, Inc.)
SEMCO Gathering Company (a subsidiary of SEMCO Energy Services, Inc.)
Each is incorporated in the State of Michigan and each does business only under
its respective corporate name indicated above.
<PAGE> 1
EXHIBIT 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our report dated February 9, 1994, included in this Form 10-K for the year
ended December 31, 1993, into the Company's previously filed Registration
Statements No. 33-37290, 33-46413 and 33-51553.
ARTHUR ANDERSEN & CO.
Detroit, Michigan,
March 28, 1994.
<PAGE> 1
EXHIBIT 24
SOUTHEASTERN MICHIGAN GAS ENTERPRISES, INC.
POWER OF ATTORNEY
Whereas, the Board of Directors of Southeastern Michigan Gas Enterprises,
Inc., a Michigan corporation, at a meeting held on February 23, 1994,
authorized and approved the execution of Form 10-K Annual Report for 1993
pursuant to Section 13 of the Securities Exchange Act of 1934 and the filing of
said Form 10-K with the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
NOW, THEREFORE, each of the undersigned in his capacity as a Director or
officer, or both, as the case may be, of said Corporation, does hereby appoint
Ward N. Kirby and Robert F. Caldwell, and each of them severally, his true and
lawful attorneys or attorney to execute in his name, place and stead, in his
capacity as a Director or officer or both, as the case may be, of said
Corporation, the Form 10-K for the year ended December 31, 1993 and any and all
amendments thereto and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission.
Each of said attorneys shall have full power of substitution and
resubstitution. Each of said attorneys shall have full power and authority to
do and perform in the name and on behalf of each of the undersigned, in any and
all capacities, each act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as each of the undersigned
might or could do in person, and each of the undersigned hereby ratifies and
approves the acts of said attorneys and each of them.
IN WITNESS WHEREOF, we have hereunto set our hands as of the 23rd day of
February, 1994.
/s/Frank G. Andreoni /s/Ward N. Kirby
- ------------------------------------- -------------------------------------
Frank G. Andreoni, Director Ward N. Kirby, President, Chief
Executive Officer, Director
/s/Daniel A. Burkhardt /s/Harvey I. Klein
- ------------------------------------- -------------------------------------
Daniel A. Burkhardt, Director Harvey I. Klein, Director
/s/Robert F. Caldwell /s/William March
- ------------------------------------- -------------------------------------
Robert F. Caldwell, Principal William March, Director
Financial and Accounting Officer,
Executive Vice President, Director
/s/Marcia M. Chmielewski /s/Edith A. Stotler
- ------------------------------------- -------------------------------------
Marcia M. Chmielewski, Treasurer Edith A. Stotler, Director
(Controller)
/s/George T. Ferris, Director /s/Robert J. Thomson
- ------------------------------------- -------------------------------------
George T. Ferris, Director Robert J. Thomson, Director
/s/Michael O. Frazer /s/John W. Wirtz
- ------------------------------------- -------------------------------------
Michael O. Frazer, Director John W. Wirtz, Director
powrofa.10k(sla)
