UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal period from to
------------- ------------
Commission file number 0-8503
SEMCO Energy, Inc.
(formerly 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)
810-987-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock outstanding as of July 31, 1997, is
13,024,347.
<PAGE>
INDEX TO FORM 10-Q
------------------
For Quarter Ended June 30, 1997
Page
Number
------
COVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 16
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
SEMCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars Except Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ------------------- -------------------
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE
Gas sales $ 36,389 $38,624 $126,184 $126,587 $218,968 $207,804
Gas marketing 80,943 39,876 238,699 123,339 426,744 186,033
Transportation 3,037 2,821 6,989 6,339 13,008 12,329
Other operations 1,112 1,069 2,344 2,253 4,608 4,844
-------- ------- -------- -------- -------- --------
$121,481 $82,390 $374,216 $258,518 $663,328 $411,010
-------- ------- -------- -------- -------- --------
OPERATING EXPENSES
Cost of gas sold $ 22,994 $25,840 $ 87,270 $ 87,365 $151,040 $140,054
Cost of gas marketed 79,943 39,195 232,435 120,969 416,861 182,183
Operations and maintenance 10,159 9,614 22,840 20,682 42,827 38,841
Depreciation 3,110 2,797 6,222 5,660 11,879 11,734
Income taxes 35 123 5,117 4,918 6,570 6,676
Taxes other than income taxes 2,242 2,125 4,593 4,369 8,872 8,160
-------- ------- -------- -------- -------- --------
$118,483 $79,694 $358,477 $243,963 $638,049 $387,648
-------- ------- -------- -------- -------- --------
OPERATING INCOME $ 2,998 $ 2,696 $ 15,739 $ 14,555 $ 25,279 $ 23,362
Write-down of NOARK investment,
net of income taxes of $11,308 -- -- -- -- (21,000) --
OTHER INCOME (LOSS), NET (33) (45) 46 (319) (448) (51)
-------- ------- -------- -------- -------- --------
INCOME BEFORE INCOME DEDUCTIONS $ 2,965 $ 2,651 $ 15,785 $ 14,236 $ 3,831 $ 23,311
-------- ------- -------- -------- -------- --------
INCOME DEDUCTIONS
Interest on long-term debt $ 2,127 $ 2,129 $ 4,256 $ 4,257 $ 8,513 $ 8,513
Other interest 570 292 1,531 864 2,833 1,782
Amortization of debt expense 97 93 190 187 376 411
Dividends on preferred stock 49 48 97 97 194 195
-------- ------- -------- -------- -------- --------
$ 2,843 $ 2,562 $ 6,074 $ 5,405 $ 11,916 $ 10,901
-------- ------- -------- -------- -------- --------
NET INCOME (LOSS) $ 122 $ 89 $ 9,711 $ 8,831 $ (8,085) $ 12,410
======== ======= ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE $ .01 $ .01 $ .75 $ .68 $ (.62) $ .95
======== ======= ======== ======== ======== ========
CASH DIVIDENDS PER SHARE $ .20 $ .18 $ .38 $ .36 $ .76 $ .72
======== ======= ======== ======== ======== ========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (IN THOUSANDS) 13,003 13,008 13,012 13,011 13,017 13,016
======== ======= ======== ======== ======== ========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
-3-
<PAGE>
<TABLE>
SEMCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
<CAPTION>
(Unaudited) (Unaudited)
June 30, December 31, June 30,
1997 1996 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
UTILITY PLANT
Plant in service, at cost $354,322 $342,778 $324,928
Less - Accumulated depreciation 101,325 96,391 93,554
-------- -------- --------
$252,997 $246,387 $231,374
OTHER PROPERTY, net 9,373 9,585 10,940
-------- -------- --------
$262,370 $255,972 $242,314
-------- -------- --------
CURRENT ASSETS
Cash and temporary cash investments,
at cost $ 5,586 $ 10,232 $ 5,770
Receivables, less allowances of
$1,103 at June 30, 1997, $1,247
at December 31, 1996 and $785
at June 30, 1996 22,224 43,585 20,976
Accrued revenue 31,071 76,549 17,556
Materials and supplies, at average cost 3,021 3,025 4,099
Gas in underground storage 22,705 33,596 15,899
Gas charges, recoverable from customers 10,758 13,791 9,400
Accumulated deferred income taxes 361 364 2,345
Other 3,261 10,040 2,541
-------- -------- --------
$ 98,987 $191,182 $ 78,586
-------- -------- --------
DEFERRED CHARGES
Unamortized debt expense $ 5,270 $ 5,328 $ 5,515
Deferred gas charges, recoverable
from customers 116 290 431
Advances to equity investees 6,726 5,062 4,218
Other 19,881 20,445 20,360
-------- -------- --------
$ 31,993 $ 31,125 $ 30,524
-------- -------- --------
$393,350 $478,279 $351,424
======== ======== ========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
-4-
<PAGE>
<TABLE>
SEMCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
STOCKHOLDERS' INVESTMENT AND LIABILITIES
<CAPTION>
(Unaudited) (Unaudited)
June 30, December 31, June 30,
1997 1996 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
COMMON STOCK EQUITY
Common stock-par value $1 per share,
20,000,000 shares authorized;
13,018,144, 12,400,331 and
12,376,737 shares outstanding $ 13,018 $ 12,400 $ 12,377
Capital surplus 78,879 79,489 79,179
Retained earnings (deficit) 3,229 (1,507) 21,244
-------- -------- --------
$ 95,126 $ 90,382 $112,800
-------- -------- --------
CUMULATIVE CONVERTIBLE PREFERRED STOCK
Convertible preferred stock - par value
$1 per share; authorized 500,000
shares issuable in series; each
convertible to 4.11 common shares $ 7 $ 7 $ 7
Capital surplus 162 162 165
-------- -------- --------
$ 169 $ 169 $ 172
-------- -------- --------
CUMULATIVE PREFERRED STOCK OF SUBSIDIARY
$100 par value (redemption price
$105 per share); authorized
50,000 shares issuable in series;
31,000 shares outstanding $ 3,100 $ 3,100 $ 3,100
-------- -------- --------
LONG-TERM DEBT INCLUDING CAPITAL LEASES $105,689 $106,468 $105,702
-------- -------- --------
CURRENT LIABILITIES
Notes payable to banks $ 50,700 $ 91,100 $ 29,000
Current portion of long-term debt
and capital leases 1,438 1,644 1,394
Accounts payable 45,354 91,360 29,199
Customer advance payments 1,986 5,612 1,757
Accrued taxes 3,700 243 5,229
Accrued interest 1,030 1,272 977
Other 6,331 6,998 5,232
-------- -------- --------
$110,539 $198,229 $ 72,788
-------- -------- --------
DEFERRED CREDITS
Reserve for equity investment $ 32,942 $ 32,942 $ --
Accumulated deferred income taxes 10,616 10,113 19,420
Unamortized investment tax credit 2,651 2,782 2,915
Customer advances for construction 7,708 8,621 8,854
Other 24,810 25,473 25,673
-------- -------- --------
$ 78,727 $ 79,931 $ 56,862
-------- -------- --------
$393,350 $478,279 $351,424
======== ======== ========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
-5-
<PAGE>
<TABLE>
SEMCO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------- ------------------- -------------------
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $163,057 $139,365 $439,115 $281,960 $645,477 $392,191
Cash paid for payrolls and to suppliers (132,948) (109,250) (371,212) (230,823) (598,163) (348,271)
Interest paid (4,373) (4,012) (6,028) (5,278) (11,293) (10,344)
Income taxes paid (3,000) (2,525) (3,000) (2,525) (3,750) (3,709)
Taxes other than income taxes paid (1,120) (469) (2,100) (754) (9,543) (7,362)
Other cash receipts and payments, net (18) 9 241 1,414 1,726 450
-------- -------- -------- -------- -------- --------
NET CASH FROM OPERATING ACTIVITIES $ 21,598 $ 23,118 $ 57,016 $ 43,994 $ 24,454 $ 22,955
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Natural gas distribution property additions $(10,270) $ (5,092) $(14,565) $(10,023) $(34,711) $(28,410)
Other property additions (44) (86) (146) (193) (293) (495)
Property retirement costs, net of proceeds 215 (63) 201 82 984 875
Proceeds from sale and leaseback of capital assets -- -- -- -- -- 3,737
Advances to equity investees (816) -- (1,664) -- (2,508) (1,752)
-------- -------- -------- -------- -------- --------
NET CASH FROM INVESTING ACTIVITIES $(10,915) $ (5,241) $(16,174) $(10,134) $(36,528) $(26,045)
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ 1,435 $ 1,235 $ 2,708 $ 2,595 $ 5,245 $ 5,540
Repurchase of common stock (see note 2) (1,227) (1,520) (2,700) (3,422) (4,907) (5,899)
Net change in notes payable to banks (10,700) (13,500) (40,400) (22,700) 21,700 16,450
Repayment of long-term debt (25) (15) (25) (15) (25) (15)
Payment of dividends (2,586) (2,407) (5,071) (4,812) (10,123) (9,624)
-------- -------- -------- -------- -------- --------
NET CASH FROM FINANCING ACTIVITIES $(13,103) $(16,207) $(45,488) $(28,354) $ 11,890 $ 6,452
-------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS $ (2,420) $ 1,670 $ (4,646) $ 5,506 $ (184) $ 3,362
-------- -------- -------- -------- -------- --------
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of Period $ 8,006 $ 4,100 $ 10,232 $ 264 $ 5,770 $ 2,408
-------- -------- -------- -------- -------- --------
End of Period $ 5,586 $ 5,770 $ 5,586 $ 5,770 $ 5,586 $ 5,770
======== ======== ======== ======== ======== ========
RECONCILIATION OF NET INCOME TO
NET CASH FROM OPERATING ACTIVITIES
Net income (loss) $ 122 $ 89 $ 9,711 $ 8,831 $ (8,085) $ 12,410
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation 3,110 2,797 6,222 5,660 11,879 11,734
Write-down of NOARK investment, net -- -- -- -- 21,000 --
Deferred taxes and investment tax credits 186 80 375 110 4,223 424
Equity (income) loss, net of distributions (86) 81 (68) 1,827 1,845 2,013
Receivables 25,705 31,803 21,361 11,344 (1,248) (6,976)
Accrued revenue 16,600 29,796 45,478 21,298 (13,515) (4,076)
Materials and supplies and gas in underground storage (17,613) (11,715) 10,895 3,454 (5,728) (165)
Gas charges, recoverable from customers (172) (4,269) 3,033 (3,546) (1,358) (5,743)
Other current assets 2,576 834 6,779 3,286 (1,346) 3,205
Accounts payable (4,392) (23,418) (46,006) (8,819) 16,155 11,280
Customer advances and amounts payable to customers (682) (236) (4,539) (5,161) (917) (1,802)
Accrued taxes (2,314) (1,513) 3,457 4,525 (1,529) 3,071
Other, net (1,442) (1,211) 318 1,185 3,078 (2,420)
-------- -------- -------- -------- -------- --------
NET CASH FROM OPERATING ACTIVITIES $ 21,598 $ 23,118 $ 57,016 $ 43,994 $ 24,454 $ 22,955
======== ======== ======== ======== ======== ========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
-6-
<PAGE>
SEMCO ENERGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
Under the rules and regulations of the Securities and Exchange Commission
for Form 10-Q Quarterly Reports, certain footnotes and other financial
statement information normally included in SEMCO Energy, Inc.'s (the
Company's), formerly Southeastern Michigan Gas Enterprises, Inc.'s, year-end
financial statements have been condensed or omitted in the accompanying
unaudited financial statements. These financial statements prepared by the
Company should be read in conjunction with the financial statements and notes
thereto included in the Company's 1996 Annual Report on Form 10-K filed with
the Securities and Exchange Commission. The information in the accompanying
financial statements reflects, in the opinion of the Company's management, all
adjustments (which include only normal recurring adjustments) necessary for a
fair statement of the information shown, subject to year-end and other
adjustments, as later information may require.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings Per Share. In February 1997 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS 128"), which is effective for financial statements for periods
ending after December 15, 1997. In general, this statement requires
replacement of Primary EPS, which the company currently uses to calculate EPS,
with Basic EPS. Basic EPS is computed by dividing reported earnings available
to common share holders by weighted average shares outstanding. No dilution
for any potentially dilutive securities is included in the Basic EPS
calculation. Due to the fact that the Compan-y- has an immaterial amount of
dilutive securities, it is anticipated that the calculation of Basic EPS under
the new standard will not significantly differ from the Company's current
calculation.
Fully diluted EPS, which will now be referred to as diluted EPS, is still
required.
Stock-Based Compensation. In October 1995 the FASB issued SFAS 123,
"Accounting for Stock-Based Compensation." In general, SFAS 123 recommends
that all stock-based compensation given to employees in exchange for their
services be expensed based on the fair value of the stock instrument. The
Company has chosen to continue accounting for these transactions under
previously existing accounting standards as allowed under SFAS 123. However,
if compensation expense under SFAS 123 is materially different, net income and
earnings per share must be disclosed as if SFAS 123 accounting had been
applied. As of June 30, 1997, the fair value of the Company's stock-based
compensation is not material, and no disclosures have been made.
-7-
<PAGE>
(2) CAPITALIZATION
Common Stock Equity
- -------------------
On June 12, 1997, the Company's Board of Directors declared a regular
quarterly cash dividend on common stock of $.20 per share payable on August 15
to shareholders of record at the close of business on August 5.
In May 1997, the Company issued a 5% stock dividend and paid a quarterly
cash dividend of $.20 per share to its common shareholders. During the
quarter, the Company issued 76,206 shares of stock for funds invested through
the Direct Stock Purchase and Dividend Reinvestment Plan (the DRIP). The total
funds invested by shareholders in the second quarter was $1,435,000.
The Company purchases shares of its own common stock in the open market
for reissuance pursuant to the DRIP. In the second quarter of 1997, the
Company purchased 66,944 shares for $1,227,000.
The May 1997 5% stock dividend resulted in 618,579 shares issued to
existing shareholders. Earnings per common share, cash dividends per common
share and weighted average number of shares outstanding give retroactive effect
for all periods presented to the 5% stock dividends in May 1997 and 1996.
(3) COMMITMENTS AND CONTINGENCIES
SEMCO Arkansas Pipeline Company, a wholly-owned subsidiary of SEMCO Energy
Ventures, Inc. (Energy Ventures), has a 32% interest in a partnership which
operates the NOARK Pipeline System. NOARK is a 302-mile intrastate natural gas
pipeline, originating in northwest Arkansas and extending northeast across the
state.
The Company, SEMCO Arkansas Pipeline Company and Energy Ventures have
guaranteed 40% of the principal and interest payments on approximately
$79,825,000 of debt used to finance the pipeline. Of the total debt,
$51,975,000 is outstanding 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 is pursuant to a $30,000,000 multibank
revolving line of credit which currently matures April 26, 1998. Under the
terms of the credit agreement, NOARK may request, on an annual basis, a
one-year extension of the then-effective termination date. At June 30, 1997,
NOARK had $27,850,000 outstanding under the agreement with interest payments at
a variable interest rate.
NOARK has been operating below capacity and generating losses since it was
placed in service. Operating cash flows have been insufficient to meet
principal and interest payments on the debt. The Company contributed $906,000
to NOARK in October 1994, $760,000 in January 1995, $800,000 in April 1995,
$880,000 in July 1995 and $872,000 in October 1995, in connection with its
guarantee.
-8-
<PAGE>
In December 1995, NOARK received $6,000,000 in settlement of litigation
between Vesta Energy Company and the NOARK partners. Vesta paid the settlement
in consideration of termination of a firm transportation agreement with NOARK,
including all related contracts, and release from all obligations related to
the NOARK Pipeline System.
NOARK used the Vesta settlement to temporarily reduce outstanding
borrowings on its revolving line of credit. Therefore, the Company was not
required to make another contribution to NOARK until October 1996, when the
Company contributed $844,000. In January and April 1997, the Company
contributed an additional $848,000 and $816,000, respectively, and estimates
its required contributions to NOARK for the balance of 1997 to approximate
$1,600,000.
In December 1996, the Company recorded a one-time non-cash after-tax
charge against earnings of $21,000,000 on its investment and participation as a
general partner in NOARK. On a pre-tax basis, the charge against earnings
represents a significant portion of the Company's current investment, including
loan guarantees, in NOARK. The Company recorded this write-down due to its
inability to recover the carrying amount of its investment in NOARK, including
the loan guarantees. The Company recognized a loss in value of its NOARK
investment due to recurring losses generated by NOARK and NOARK's continued
inability to meet principal and interest payments on the partnership debt.
The Company's short-term credit arrangements, note agreements and
long-term debt indentures contain restrictive covenants requiring certain
levels of earnings and the maintenance of certain financial ratios. Because of
the NOARK write-down, the Company would have been in violation of certain of
these covenants, however the Company has received waivers or amendments for all
affected covenants.
The Company will continue to explore opportunities to improve the project,
but the write-down is expected to eliminate the need for significant NOARK
operating losses being recorded in the Company's future income statements and
will not affect the Company's cash or stock dividend.
The Company will continue to try to sell its interest in NOARK.
-9-
<PAGE>
PART I - FINANCIAL INFORMATION - (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Net income for the quarter ended June 30, 1997 was $122,000 ($.01 per
share) compared to $89,000 ($.01 per share) for the quarter ended June 30,
1996.
Net income was $9,711,000 ($.75 per share) and $8,831,000 ($.68 per share)
for the six months ended June 30, 1997 and June 30, 1996, respectively.
For the twelve months ended June 30, 1997, the Company recorded a net loss
of $8,085,000 ($.62 per share), which includes the December 1996 $21,000,000
after-tax write-down of the Company's investment in the NOARK Pipeline System
(NOARK). Excluding the NOARK write-down, the Company's net income was
$12,915,000 ($.99 per share). This compares to net income of $12,410,000 ($.95
per share) for the twelve months ended June 30, 1996.
Since the Company's primary business of natural gas distribution depends
upon the winter months for the majority of its operating revenue, the Company
typically experiences nominal net income in the second quarter.
See Note 3 in the notes to the consolidated financial statements for a
discussion of commitments and contingencies.
A comparison of quarterly, year-to-date and twelve-month-to-date revenues,
margins and system throughput follows on the next page.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
----------------- ------------------- -------------------
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
------- ------- -------- -------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue
Gas Sales
Residential $23,265 $24,485 $ 80,328 $ 79,804 $139,168 $130,658
Commercial 10,875 11,458 38,489 38,034 65,964 61,908
Industrial 2,249 2,681 7,367 8,749 13,836 15,238
------- ------- -------- -------- -------- --------
$36,389 $38,624 $126,184 $126,587 $218,968 $207,804
Cost of Gas Sold 22,994 25,840 87,270 87,365 151,040 140,054
------- ------- -------- -------- -------- --------
Gross Margin $13,395 $12,784 $ 38,914 $ 39,222 67,928 67,750
======= ======= ======== ======== ======== ========
Gas Marketing $80,943 $39,876 $238,699 $123,339 426,744 186,033
Cost of Gas Marketed 79,943 39,195 232,435 120,969 416,861 182,183
------- ------- -------- -------- -------- --------
$ 1,000 $ 681 $ 6,264 $ 2,370 9,883 3,850
======= ======= ======== ======== ======== ========
Transportation Revenue $ 3,037 $ 2,821 $ 6,989 $ 6,339 13,008 12,329
======= ======= ======== ======== ======== ========
Other $ 1,112 $ 1,069 $ 2,344 $ 2,253 4,608 4,844
======= ======= ======== ======== ======== ========
<CAPTION>
(in millions of cubic feet)
<S> <C> <C> <C> <C> <C> <C>
Gas Volumes
Gas Sales
Residential 4,514 4,253 16,003 16,349 26,357 26,694
Commercial 2,365 2,239 8,251 8,342 13,579 13,671
Industrial 488 546 1,637 2,090 2,932 3,562
------- ------- -------- -------- -------- --------
7,367 7,038 25,891 26,781 42,868 43,927
======= ======= ======== ======== ======== ========
Gas Marketing 39,870 21,221 94,115 51,495 172,048 88,946
======= ======= ======== ======== ======== ========
Gas Transported 4,910 4,674 11,180 10,621 21,091 21,526
======= ======= ======== ======== ======== ========
Degree Days - Actual 1,077 986 4,245 4,532 6,811 7,391
- Percent of Normal 116% 109% 100% 108% 100% 109%
Gas Sales Customers-Average 236,078 228,040 235,797 227,564 232,794 225,482
</TABLE>
QUARTER RESULTS
Gross margin on gas sales increased by $611,000 (5%) as gas volumes sold
for the three month period ended June 30, 1997 increased 5% from the same
period in 1996. Volumes increased due to a combination of the addition of over
8,000 gas sales customers, as well as weather that was approximately 9% colder
than in 1996.
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
Gas marketing revenue increased $41,067,000 (103%) on increased volumes
totaling 18,649,000 thousand cubic feet (Mcf) (88%). This resulted in an
increase in gas marketing margin of $71,000 (12%), net of gas marketer
incentive compensation. The revenue increases of the Company's marketing
operations are attributable to growth in the Company's out-of-state marketing
offices and the opening of the Mid-Atlantic office in late 1996.
Gas marketing volumes and margins are subject to significant competitive
factors. In addition to fluctuations caused by the price of alternative fuels
and seasonal patterns, competition within the natural gas marketing industry
continues to increase.
Operations and maintenance expense increased by $545,000 (6%) in the
second quarter compared to a year ago due primarily to a $248,000 increase in
gas marketer incentive compensation and an increase in expenses attributable to
expansion of marketing operations.
Depreciation and taxes other than income taxes increased by $313,000 (11%)
and $117,000 (6%), respectively, due primarily to utility plant additions.
Other interest increased $278,000 (95%), over the prior year, due to
higher borrowings on the Company's lines of credit. The increased borrowings
were primarily for utility plant additions and increased working capital to
support the higher marketing activity.
YEAR-TO-DATE RESULTS
Gross margin on gas sales for the first six months of 1997 decreased by
$308,000 (1%) over the same period in 1996. Although the Company experienced
normal weather during the first six months of 1997, the comparable period in
1996 experienced 6% colder weather resulting in a 3% decrease in volumes sold.
The increase in gas sales customers of approximately 8,200 or 4% offset the
majority of the weather related decrease.
Margins from natural gas marketing activities, net of marketers incentive
compensation, increased by $1,792,000 (104%) for the first six months of 1997
versus the same period in 1996. Contributing to this increase is the
significant increase in volumes sold, up 83% from 1996, due to the continued
growth in our out-of-state markets. The increase in margin from volumes sold
was offset slightly by lower per-unit margins. Warmer weather in 1997 compared
to 1996, as well as competitive factors, contributed to the per-unit margin
decrease.
Operations and maintenance expense increased $2,158,000 (10%) for the six
months ended June 30,1997 compared to the same period the prior year. The
majority of this increase, $2,100,000, is attributed to higher expenses
associated with Energy Services' independent marketing contracts. Increased
costs incurred by the marketing operations to expand its markets were offset by
decreases in health and pension expense.
-12-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
Depreciation expense increased $562,000 (10%) primarily due to increased
property additions. These property additions, as well as higher marketing
activity, were financed by short-term borrowing resulting in an increase in
Other Interest of 667,000 (77%).
Other Income (Loss) year-to-date for 1997 was a gain of $46,000 compared
to a loss of ($319,000) in 1996. For the six months ended June 30,1996, Other
Income (Loss) includes losses from the Company's investment in NOARK totaling
$778,000 which is net of interest accrued on advances to NOARK. No losses have
been recorded, or interest accrued, during the first half of 1997 as a result
of the December 1996 write-down of NOARK.
TWELVE-MONTH RESULTS
Gas sales margin increased $178,000 for the twelve month period ended
June 30, 1997, compared to the same period a year earlier. Eight percent
warmer weather was offset by the addition of approximately 7,300 gas sales
customers and, to a lesser extent, by a December 1995 rate increase.
Gas marketing margin increased $2,571,000, net of marketers' incentive
compensation, primarily due to an 93% increase in volumes sold. In 1996 the
Company began expanding its operations outside its traditional markets through
the use of independent contractors. This has lead to the significant increase
in sales volumes, however, per unit margins have decreased slightly as
competition continues to put downward pressure on these margins.
Operations and maintenance expense increased by $3,986,000 (10%) in the
current period compared to the same period a year ago. Contributing to the
increase between periods were marketers' incentive compensation, which
increased over $3,000,000, and costs related to expansion of marketing
operations.
Other interest increased $1,051,000 (59%). This increase is due to
short-term debt incurred to fund the Company's increased marketing activity and
for customer additions.
Other income (loss), net, decreased from a loss of $51,000 for the twelve
months ended June 30, 1996 to a loss of $448,000 in the same period ending
June 30, 1997. The twelve-month results for 1996 include a non-recurring gain
of $1,251,000, net of tax, on the settlement of the lawsuit involving NOARK.
Excluding this gain, the loss from NOARK, net of tax, was $1,821,000 for the
twelve-month period ended June 30, 1996. The twelve month period ended June
30, 1997 includes six months of NOARK losses totaling $896,000. As a result of
the December 1996 write-down of the NOARK investment, no losses were incurred
during the first half of 1997.
-13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities for the three, six and twelve month
periods ended June 30, 1997, as compared to the same periods last year,
increased/(decreased) ($1,520,000), $13,022,000 and $1,499,000, respectively.
The changes in operating cash flows between the periods is primarily due to the
timing of cash receipts and cash payments and its effect on working capital.
The Company anticipates spending approximately $14,565,000 for capital
items during the remainder of 1997. These estimated amounts will primarily
relate to customer additions and system replacement in the gas distribution
operations.
See Note 3 of the Notes to the Consolidated Financial Statements for a
discussion of contributions to the NOARK Pipeline System pursuant to the
Company's guarantees of the pipeline's debt.
Financing activities used $13,103,000 in funds during the second quarter
of 1997, primarily to reduce notes payable to banks.
FUTURE FINANCING SOURCES
The remainder of the Company's operating cash flow needs, as well as
dividend payments and capital expenditures for the balance of 1997, is expected
to be generated primarily through operating activities and short-term
borrowings. At June 30, 1997, the Company had $49,200,000 in unused lines of
credit.
Long-Term Debt
- --------------
The Company has signed an agreement with a private placement agent and is
in the process of issuing up to $60,000,000 of long-term Notes, with one-half
maturing in five years and the remainder in ten years. The proceeds of the
offering will be used to pay down short-term debt.
It is anticipated that the placement will be finalized by the end of
August 1997.
-14-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
The Company has short-term credit arrangements, note agreements and
long-term debt indentures which contain restrictive financial covenants
including, among others, limits on the payment of dividends beyond certain
levels. Because of the NOARK write-down in December 1996, the Company would
not have been in compliance with certain of these covenants. However, the
Company has received waivers or amendments with respect to the affected credit
arrangements and expects no deviation from its historical dividend payment
record in 1997.
Item 3. Not applicable.
Item 4. Submission of Matters to a Vote of Securityholders.
At the April 15, 1997 Annual Meeting of Common Shareholders the
following nominees were elected to hold office on the Board of Directors for a
term of three years:
Name Votes For Votes Withheld
---- --------- --------------
John T. Ferris 9,302,947 882,524
Michael O. Frazer 9,253,610 931,861
Frederick S. Moore 9,371,033 814,438
Edith A. Stotler 9,245,816 939,655
Also at the April 15, 1997 Annual Meeting of Common Shareholders, the
following proposals were approved:
-- Approval of a change in the Company's name to SEMCO Energy, Inc.
For Against Abstain
--- ------- -------
9,281,667 697,174 206,630
-- Approval of a Long-Term Incentive Plan.
For Against Abstain
--- ------- -------
7,954,986 1,747,154 483,331
-- Authorization of class of Preference Stock composed of 3,000,000
shares.
For Against Abstain
--- ------- -------
6,434,585 1,645,697 494,479
-15-
<PAGE>
PART II - OTHER INFORMATION - (Continued)
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits - (See page 18 for the Exhibit Index.)
--Articles of Incorporation of SEMCO Energy, Inc. (formerly
Southeastern Michigan Gas Enterprises, Inc.), as restated
July 11, 1989.
--Certificate of Amendment to Article III of the Articles of
Incorporation dated May 16, 1990.
--Certificate of Amendment to Articles I, III and VI of the Articles
of Incorporation dated April 16, 1997.
--Bylaws--last revised June 12, 1997.
--Trust Indenture dated April 1, 1992, with NBD Bank, N.A. as
Trustee.
--Note Agreement dated as of June 1, 1994, relating to issuance of
$80,000,000 of long-term debt.
--Rights Agreement dated as of April 15, 1997 with Continental Stock
Transfer & Trust Company, as Rights Agent.
--Guaranty Agreement dated October 10, 1991, relating to financing of
NOARK.
--Short-Term Incentive Plan.
--Deferred Compensation and Phantom Stock Purchase Agreement (for
outside directors only).
--Supplemental Retirement Plan for Certain Officers.
--1997 Long-Term Incentive Plan.
--Stock Option Certificate and Agreement dated October 10, 1996 with
William L. Johnson.
--Stock Option Certificate and Agreement dated February 26, 1997 with
William L. Johnson.
--Employment Agreement dated October 10, 1996, with William L.
Johnson.
--Change of Control Employment Agreement dated October 10, 1996, with
William L. Johnson.
--Proxy Statement dated March 7, 1997.
(b) Reports on Form 8-K.
On June 17, 1997, the Company filed Form 8-K to report the
resignation of its Executive Vice President and Chief Financial Officer.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEMCO ENERGY, INC.
(Registrant)
Dated: August 13, 1997
By: /s/Robert J. Digan, II
-------------------------------------
Robert J. Digan, II
Senior Vice President and
Principal Accounting and Financial
Officer
-17-
<PAGE>
EXHIBIT INDEX
Form 10-Q
Second Quarter 1997
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- -------- ----------- -------- ---------
2 Plan of Acquisition, etc. NA NA
3.(i).1 Articles of Incorporation of SEMCO Energy, Inc.
(formerly Southeastern Michigan Gas
Enterprises, Inc.), as restated
July 11, 1989.(e) x
3.(i).2 Certificate of Amendment to Article III
of the Articles of Incorporation dated
May 16, 1990.(f) x
3.(i).3 Certificate of Amendment to Articles I,
III and VI of the Articles of Incorporation
dated April 16, 1997.(l) x
3.(ii) Bylaws--last revised June 12, 1997. x
4.1 Trust Indenture dated April 1, 1992, with
NBD Bank, N.A. as Trustee.(b) x
4.2 Note Agreement dated as of June 1, 1994,
relating to issuance of $80,000,000 of
long-term debt.(d) x
4.3 Rights Agreement dated as of April 15, 1997
with Continental Stock Transfer & Trust Company,
as Rights Agent.(j) x
10 Material Contracts.
10.1 Guaranty Agreement dated October 10, 1991,
relating to financing of NOARK.(a) x
10.2 Short-Term Incentive Plan.(c) x
10.3 Deferred Compensation and Phantom Stock
Purchase Agreement (for outside
directors only).(g) x
10.4 Supplemental Retirement Plan for Certain
Officers.(h) x
10.5 1997 Long-Term Incentive Plan.(j) x
10.6 Stock Option Certificate and Agreement
dated October 10, 1996 with
William L. Johnson.(k) x
10.7 Stock Option Certificate and Agreement
dated February 26, 1997 with
William L. Johnson.(k) x
10.8 Employment Agreement dated October 10, 1996,
with William L. Johnson.(l) x
10.9 Change of Control Employment Agreement dated
October 10, 1996, with William L. Johnson.(l) x
11 Statement re computation of per share earnings. NA NA
15 Letter re unaudited interim financial
information. NA NA
18 Letter re change in accounting principle. NA NA
-18-
<PAGE>
EXHIBIT INDEX
(Continued)
Form 10-Q
Second Quarter 1997
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- -------- ----------- -------- ---------
19 Report furnished to security holders. NA NA
22 Published report regarding matters submitted
to a vote of security holders. NA NA
23 Consent of Independent Public Accountants. NA NA
24 Power of Attorney. NA NA
27 Financial Data Schedule. x
99.1 Proxy Statement dated March 7, 1997.(i) x
Key to Exhibits Incorporated by Reference
(a) Filed with SEMCO Energy, Inc.'s (formerly Southeastern Michigan Gas
Enterprises, Inc.'s) Registration Statement, Form S-2, No. 33-46413,
filed March 16, 1992.
(b) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended March
31, 1992, File No. 0-8503.
(c) Filed with SEMCO Energy, Inc.'s Form 10-K for 1992, dated March 30,
1993, File No. 0-8503.
(d) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
June 30, 1994, File No. 0-8503.
(e) Filed with SEMCO Energy, Inc.'s Form 10-K for 1989, dated March 29,
1990, File No. 0-8503.
(f) Filed with SEMCO Energy, Inc.'s Form 10-K for 1990, dated March 28,
1991, File No. 0-8503.
(g) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
September 30, 1994, File No. 0-8503.
(h) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
March 31, 1996, File No. 0-8503.
(i) Filed March 6, 1997, pursuant to Rule 14a-6 of the Exchange Act, File
No. 0-8503.
(j) Filed as part of SEMCO Energy, Inc.'s 1997 Proxy Statement, dated
March 7, 1997, File No. 0-8503.
(k) Filed with SEMCO Energy, Inc.'s Form 10-K for 1996, dated March 27,
1997, File No. 0-8503.
(l) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
March 31, 1997, File No. 0-8503.
-19-
Exhibit 3.(ii)
Revised 6/12/97
SEMCO Energy, 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", Five Hundred Thousand
(500,000) shares designated "Cumulative Preferred Stock, $1 Par
Value" and Three Million (3,000,000) shares designated
"Preference 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. The signatures may be facsimiles to the
extent allowed by law.
Section 3. 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 3, the determination applies to any adjournment of the
meeting, unless the Board fixes a new record date under this
Section 3 for the adjourned meeting.
Section 4. 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 transfer agent shall issue a duplicate certificate in
its place, upon the Corporation's being fully indemnified
therefor.
Section 5. Fiscal Year. The fiscal year of the
Corporation shall end on the 31st day of December in each year.
Section 6. Corporate Seal. Each certificate shall
contain the seal of the Corporation or a facsimile thereof.
Section 7. 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.
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. Whether or not a
quorum is present, meetings 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.
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 compensation 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.
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 and
a Treasurer 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.
Section 2. Executive Vice President. The Executive Vice
President shall be the chief financial officer of the Company. He
shall exercise such duties as customarily pertain to the office
of chief financial officer and shall have such other duties as
shall be delegated by the President.
Section 3. Senior Vice President. The Senior Vice
President shall be the chief operating officer of the Company.
He shall exercise such duties as customarily pertain to the
office of chief operating officer and shall have such other
duties as shall be delegated by the President. In the absence or
disability of the President, the Senior Vice President shall
perform the duties and exercise the powers of the President.
Section 4. 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 5. 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 6. 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; shall attend to the giving and receiving of all
notices of the Corporation; and, in addition, shall perform such
other duties as may be delegated to the Secretary by the Board
of Directors.
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.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, THE CONSOLIDATED BALANCE SHEETS AND THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 252,997
<OTHER-PROPERTY-AND-INVEST> 9,373
<TOTAL-CURRENT-ASSETS> 98,987
<TOTAL-DEFERRED-CHARGES> 31,993
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 393,350
<COMMON> 13,018
<CAPITAL-SURPLUS-PAID-IN> 78,879
<RETAINED-EARNINGS> 3,229
<TOTAL-COMMON-STOCKHOLDERS-EQ> 95,126
0
3,269
<LONG-TERM-DEBT-NET> 103,548
<SHORT-TERM-NOTES> 50,700
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 2,141
<LEASES-CURRENT> 1,438
<OTHER-ITEMS-CAPITAL-AND-LIAB> 137,128
<TOT-CAPITALIZATION-AND-LIAB> 393,350
<GROSS-OPERATING-REVENUE> 374,216
<INCOME-TAX-EXPENSE> 5,117
<OTHER-OPERATING-EXPENSES> 353,360
<TOTAL-OPERATING-EXPENSES> 358,477
<OPERATING-INCOME-LOSS> 15,739
<OTHER-INCOME-NET> 46
<INCOME-BEFORE-INTEREST-EXPEN> 15,785
<TOTAL-INTEREST-EXPENSE> 5,977
<NET-INCOME> 9,808
97
<EARNINGS-AVAILABLE-FOR-COMM> 9,711
<COMMON-STOCK-DIVIDENDS> 4,974
<TOTAL-INTEREST-ON-BONDS> 4,256
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<EPS-PRIMARY> .75
<EPS-DILUTED> .75
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