UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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.
(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 April 30, 1998, is
13,661,362.
<PAGE>
INDEX TO FORM 10-Q
------------------
For Quarter Ended March 31, 1998
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 . . . . . . . . . . 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 19
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-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 Twelve
Months Ended Months Ended
March 31, March 31,
--------------------- ---------------------
1998 1997 1998 1997<F1>
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Gas sales $ 70,837 $ 89,795 $199,221 $221,203
Gas marketing 145,674 157,756 514,881 384,078
Transportation 4,029 3,952 13,320 12,792
Other operations 3,481 1,232 14,136 4,564
-------- -------- -------- --------
$224,021 $252,735 $741,558 $622,637
-------- -------- -------- --------
OPERATING EXPENSES
Cost of gas sold $ 48,514 $ 64,276 $135,206 $153,886
Cost of gas marketed 143,334 152,492 508,998 378,588
Operations and maintenance 13,698 12,681 51,580 42,282
Depreciation 3,738 3,112 13,489 11,566
Income taxes 2,978 5,082 3,301 5,232
Taxes other than income taxes 2,428 2,351 9,411 8,755
-------- -------- -------- --------
$214,690 $239,994 $721,985 $600,309
-------- -------- -------- --------
OPERATING INCOME $ 9,331 $ 12,741 $ 19,573 $ 22,328
Write-down of NOARK investment,
net of income taxes of $11,308 -- -- -- (21,000)
Adjustment to NOARK reserve, net of income taxes of $2,705 -- -- 5,025 --
Other income (loss), net 748 79 803 (460)
-------- -------- -------- --------
INCOME BEFORE INCOME DEDUCTIONS $ 10,079 $ 12,820 $ 25,401 $ 868
-------- -------- -------- --------
INCOME DEDUCTIONS
Interest on long-term debt $ 3,180 $ 2,129 $ 10,440 $ 8,515
Other interest 380 961 2,665 2,555
Amortization of debt expense 105 93 405 372
Dividends on preferred stock 48 48 193 193
-------- -------- -------- --------
$ 3,713 $ 3,231 $ 13,703 $ 11,635
-------- -------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 6,366 $ 9,589 $ 11,698 $(10,767)
Cumulative effect of change in accounting for
property taxes, net of income taxes of $960 1,784 -- 1,784 --
-------- -------- -------- --------
NET INCOME (LOSS) $ 8,150 $ 9,589 $ 13,482 $(10,767)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED $ .59 $ .70 $ .98 $ (.79)
======== ======== ======== ========
CASH DIVIDENDS PER SHARE $ .19 $ .18 $ .76 $ .71
======== ======== ======== ========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (IN THOUSANDS) 13,908 13,671 13,761 13,670
======== ======== ======== ========
<FN>
<F1>
Restated - See note 1 of the notes to the consolidated financial statements.
</FN>
The notes to the consolidated financial statements are an integral part of
these statements.
-3-
<PAGE>
</TABLE>
<TABLE>
SEMCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
<CAPTION>
(Unaudited) (Unaudited)
March 31, December 31, March 31,
1998 1997 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
UTILITY PLANT
Plant in service, at cost $364,940 $360,022 $345,156
Less - Accumulated depreciation 105,820 102,790 98,099
-------- -------- --------
$259,120 $257,232 $247,057
OTHER PROPERTY, net 23,247 18,230 9,582
-------- -------- --------
$282,367 $275,462 $256,639
-------- -------- --------
CURRENT ASSETS
Cash and temporary cash investments,
at cost $ 1,815 $ 3,985 $ 8,006
Receivables, less allowances of
$1,660 at March 31, 1998, $1,498
at December 31, 1997 and $1,291
at March 31, 1997 32,904 50,154 47,929
Accrued revenue 59,433 66,998 47,671
Materials and supplies, at average cost 2,530 2,924 2,799
Gas in underground storage 18,360 36,083 5,314
Gas charges, recoverable from customers 11,045 19,931 10,586
Accumulated deferred income taxes -- -- 363
Other 6,599 11,702 5,837
-------- -------- --------
$132,686 $191,777 $128,505
-------- -------- --------
DEFERRED CHARGES
Unamortized debt expense $ 5,179 $ 5,284 $ 5,235
Deferred gas charges, recoverable
from customers -- -- 203
Advances to equity investees -- 8,370 5,910
Other 30,860 24,594 21,277
-------- -------- --------
$ 36,039 $ 38,248 $ 32,625
-------- -------- --------
$451,092 $505,487 $417,769
======== ======== ========
</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)
March 31, December 31, March 31,
1998 1997 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
COMMON STOCK EQUITY
Common stock-par value $1 per share,
20,000,000 shares authorized;
13,644,875, 13,204,147 and
12,390,303 shares outstanding $ 13,645 $ 13,204 $ 12,390
Capital surplus 89,188 81,938 79,299
Retained earnings (deficit) 4,868 (640) 5,645
-------- -------- --------
$107,701 $ 94,502 $ 97,334
-------- -------- --------
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 158 162 162
-------- -------- --------
$ 165 $ 169 $ 169
-------- -------- --------
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 $163,559 $163,548 $106,041
-------- -------- --------
CURRENT LIABILITIES
Notes payable to banks $ 31,800 $ 71,019 $ 61,400
Current portion of long-term debt
and capital leases -- -- 1,561
Accounts payable 74,565 79,842 49,746
Customer advance payments 4,125 8,035 1,893
Accrued taxes -- -- 6,014
Accrued interest 4,515 1,985 2,706
Accumulated deferred income taxes 1,151 1,150 --
Other 14,570 13,986 6,939
-------- -------- --------
$130,726 $176,017 $130,259
-------- -------- --------
DEFERRED CREDITS
Reserve for equity investment $ -- $ 25,212 $ 32,942
Accumulated deferred income taxes 22,175 15,046 10,365
Unamortized investment tax credit 2,448 2,515 2,718
Customer advances for construction 3,817 3,935 8,483
Other 17,401 21,443 26,358
-------- -------- --------
$ 45,841 $ 68,151 $ 80,866
-------- -------- --------
$451,092 $505,487 $417,769
======== ======== ========
</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 Twelve Months Ended
March 31, March 31,
--------------------- ---------------------
1998 1997 1998 1997<F1>
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $253,067 $276,058 $741,914 $620,192
Cash paid for payrolls and to suppliers (190,357) (238,264) (684,370) (572,872)
Interest paid (1,030) (1,655) (11,296) (10,932)
Income taxes paid -- -- (3,153) (3,275)
Taxes other than income taxes paid (1,311) (980) (9,925) (8,892)
Other cash receipts and payments, net 171 259 851 1,753
-------- -------- -------- --------
NET CASH FROM OPERATING ACTIVITIES $ 60,540 $ 35,418 $ 34,021 $ 25,974
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Natural gas distribution property additions $ (5,031) $ (4,295) $(28,937) $(29,533)
Other property additions (391) (102) (1,469) (335)
Proceeds from property sales, net of retirement costs (50) (14) 337 706
Acquisition of businesses, net of cash acquired -- -- (15,117) --
Advances to equity investees (4,284) (848) (6,744) (1,692)
-------- -------- -------- --------
NET CASH FROM INVESTING ACTIVITIES $ (9,756) $ (5,259) $(51,930) $(30,854)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ 1,687 $ 1,273 $ 6,288 $ 5,045
Repurchase of common stock -- (1,473) (1,598) (5,200)
Net change in notes payable to banks (51,950) (29,700) (42,331) 18,900
Issuance of long-term debt -- -- 60,000 --
Repayment of long-term debt -- -- (25) (15)
Payment of dividends (2,691) (2,485) (10,616) (9,944)
-------- -------- -------- --------
NET CASH FROM FINANCING ACTIVITIES $(52,954) $(32,385) $ 11,718 $ 8,786
-------- -------- -------- --------
CASH AND TEMPORARY CASH INVESTMENTS
Net increase (decrease) $ (2,170) $ (2,226) $ (6,191) $ 3,906
Beginning of Period 3,985 10,232 8,006 4,100
-------- -------- -------- --------
End of Period $ 1,815 $ 8,006 $ 1,815 $ 8,006
======== ======== ======== ========
RECONCILIATION OF NET INCOME (LOSS) TO
NET CASH FROM OPERATING ACTIVITIES
Net income (loss) $ 8,150 $ 9,589 $ 13,482 $(10,767)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation 3,738 3,112 13,489 11,566
Write-down of NOARK investment, net -- -- -- 21,000
Adjustment to NOARK reserve, net -- -- (5,025) --
Deferred taxes and investment tax credits (2,983) 189 270 4,117
Equity (income) loss, net of distributions (274) 18 110 2,012
Receivables 17,250 (4,344) 18,480 4,856
Accrued revenue 7,565 28,878 (11,762) (319)
Materials and supplies and gas in underground storage 18,116 28,508 (13,567) 959
Gas charges, recoverable from customers 8,886 3,205 (459) (5,455)
Other current assets 2,929 4,203 1,256 (3,088)
Accounts payable (5,277) (41,614) 15,870 407
Customer advances and amounts payable to customers (4,029) (3,857) (2,435) (471)
Accrued taxes 2,979 5,771 (3,768) (2,154)
Other, net 3,490 1,760 8,080 3,311
-------- -------- -------- --------
NET CASH FROM OPERATING ACTIVITIES $ 60,540 $ 35,418 $ 34,021 $ 25,974
======== ======== ======== ========
<FN>
<F1>
Restated - See note 1 of the notes to the consolidated financial statements.
</FN>
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 AND CHANGE IN ACCOUNTING METHOD
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) 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 1997 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.
</TABLE>
<TABLE>
Supplemental Cash Flow Information. Supplemental cash flow information
for the three and twelve months ended March 31, 1998 and 1997 is as follows
(in thousands of dollars):
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
-------------------- --------------------
1998 1997 1998 1997
------- ----- ------- -----
<S> <C> <C> <C> <C>
Acquisitions of Businesses, Net of Cash Acquired
Fair value of assets acquired $ 8,306 $ -- $30,770 $ --
Liabilities assumes (2,306) -- (8,636) --
Capital stock issued for acquisitions (6,000) -- (6,450) --
------- ----- ------- -----
Cash paid $ -- $ -- $15,684 $ --
Less cash acquired -- -- 567 --
------- ----- ------- -----
Net Cash Paid for Acquisitions $ -- $ -- $15,117 $ --
======= ===== ======= =====
</TABLE>
-7-
<PAGE>
Change in Method of Accounting for Property Taxes. During the first
quarter of 1998, the Company implemented a change in its method of accounting
for property taxes so that such taxes are expensed monthly during the fiscal
period of the taxing authority for which the taxes are levied. This change
provides a better matching of property tax expense with both the payment of
services and those services provided by the taxing authority. Prior to 1998,
the Company expensed property taxes monthly during the year following the
assessment date. The cumulative effect of this change in accounting for
property taxes increased earnings by $1,784,000 after-tax. The pro forma
effect on prior years' consolidated net income of retroactively recording
property taxes as if the new method of accounting had been in effect for all
periods presented is not material.
Restatement of Financial Statements. The consolidated statements of
income and cash flows for the twelve months ended March 31, 1997 have been
restated as more fully described in the Company's 1997 Annual Report on Form
10-K. The results contained herein reflect the restatement.
(2) EARNINGS PER SHARE
<TABLE>
The computations of basic and diluted earnings (loss) per share for the
three and twelve months ended March 31, 1998 and 1997 are as follows (in
thousands except per share amounts):
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
-------------------- -------------------
1998 1997 1998 1997
------- ------- ------- --------
<S> <C> <C> <C> <C>
Basic Earnings (Loss) Per Share Computation
Income (loss) before cumulative effect of accounting change $ 6,366 $ 9,589 $11,698 $(10,767)
Cumulative effect of change in accounting for property taxes 1,784 -- 1,784 --
------- ------- ------- --------
Net Income (Loss) $ 8,150 $ 9,589 $13,482 $(10,767)
======= ======= ======= ========
Weighted average common shares outstanding 13,908 13,671 13,761 13,670
Earnings (Loss) Per Share - Basic
Income (loss) before cumulative effect of accounting change $ .46 $ .70 $ .85 $ (.79)
Cumulative effect of change in accounting for property taxes .13 -- .13 --
------- ------- ------- --------
Net Income (Loss) $ .59 $ .70 $ .98 $ (.79)
======= ======= ======= ========
Diluted Earnings (Loss) Per Share Computation
Income (loss) before cumulative effect of accounting change $ 6,366 $ 9,589 $11,698 $(10,767)
Adjustment for effect of assumed conversions:
Preferred convertible stock dividends 4 4 16 16
------- ------- ------- --------
Adjusted income (loss) before cumulative effect of
accounting change $ 6,370 $ 9,593 $11,714 $(10,751)
Cumulative effect of change in accounting for property taxes 1,784 -- 1,784 --
------- ------- ------- --------
Net Income (Loss) $ 8,154 $ 9,593 $13,498 $(10,751)
======= ======= ======= ========
Weighted average common shares outstanding 13,908 13,671 13,761 13,670
Incremental shares from assumed conversions:
Preferred convertible stock 27 28 28 --
Stock options converted 2 2 9 --
------- ------- ------- --------
Diluted weighted average common shares outstanding 13,937 13,701 13,798 13,670
======= ======= ======= ========
Earnings (Loss) Per Share - Basic
Income (loss) before cumulative effect of accounting change $ .46 $ .70 $ .85 $ (.79)
Cumulative effect of change in accounting for
property taxes .13 -- .13 --
------- ------- ------- --------
Net Income (Loss) $ .59 $ .70 $ .98 $ (.79)
======= ======= ======= ========
</TABLE>
-8-
<PAGE>
As a result of the loss from continuing operations for the twelve months
ended March 31, 1997, weighted average common shares outstanding were not
adjusted for the incremental shares from assumed conversions because to do so
would be antidilutive.
(3) CAPITALIZATION
Common Stock Equity
- -------------------
On April 21, 1998 the Company's Board of Directors declared a regular
quarterly cash dividend on common stock of $.20 per share. In addition, the
Board declared a 5% common stock dividend. Both dividends are payable on
May 15 to shareholders of record on May 5. Earnings per common share, cash
dividends per common share and weighted average number of shares outstanding
have been retroactively adjusted for all periods presented to reflect the 5%
stock dividends in May 1998 and 1997.
In February 1998, the Company paid a quarterly cash dividend of $.20 per
share to its common shareholders. Of the total cash dividend of $2,642,000,
$873,000 was reinvested by shareholders into common stock through
participation in the Direct Stock Purchase and Dividend Reinvestment Plan
(DRIP). This portion of the quarterly dividend and shareholders' optional
cash payments of $597,000, resulted in 82,892 new shares issued to existing
shareholders during the quarter pursuant to the DRIP.
(4) COMMITMENTS AND CONTINGENCIES
On January 14, 1998, the Company sold its entire 32% partnership
interest in the NOARK Pipeline System to ENOGEX Arkansas Pipeline Corporation
(EAPC). NOARK is a 302-mile intrastate natural gas pipeline located in
Arkansas which operated at less than 65% capacity since its inception in 1992
as a result of significant cost overruns during construction and competition
from two other interstate pipelines.
The sale of NOARK released the company from all its NOARK guarantees,
which related to 40% of NOARK's debt. Furthermore, the Company agreed to pay
approximately $9,200,000, $3,100,000 and $800,000 to EAPC in April 1998, 1999
and 2000, respectively. In return, the Company will receive annual payments
for seventeen years beginning July 1, 2004 in the amount of $842,000 from
EAPC. The reserve for the NOARK investment provided at year-end 1996 was
adjusted at year-end 1997 to record the sale.
The Company expects to incur costs to investigate and/or clean up
several properties, including former manufactured gas plant sites. The
Company has submitted a plan to the State of Michigan for clean up of one
site. The extent of the Company's liabilities and potential costs in
connection with these sites cannot be reasonably estimated at this time. Any
environmental costs incurred by the gas distribution company will be
amortized over ten years starting the year after incurred.
-9-
<PAGE>
(5) ACQUISITIONS
On March 31, 1998, SEMCO Propane, Inc., a wholly-owned subsidiary of
SEMCO Energy Ventures, Inc. purchased the assets and business of Hot Flame
Gas, Inc. (Hot Flame) for 352,944 shares of common stock. Hot Flame supplies
propane gas to over 10,000 customers in northern Michigan and northeast
Wisconsin. For financial statement purposes, the acquisition was accounted
for as a purchase and, accordingly, results of operations are included in the
consolidated financial statements since the date of acquisition.
(6) EARLY RETIREMENT PROGRAM
The Company offered an early retirement program to all eligible
employees during the first quarter of 1998. The program was open from
January 14, 1998 through February 27, 1998 and 101 employees accepted the
early retirement offer. As a result of the sizable reduction in the number
of employees, a pre-tax charge of $516,000 was recognized during the first
quarter of 1998 in the Company's results of operations.
(7) SUBSEQUENT EVENT
On April 15, 1998, the Company redeemed all of its outstanding 8 5/8%
debentures due April 15, 2017 at a redemption price of 104% of the principal
amount of $23,548,000. The payment of the call premium and the unamortized
debt expense associated with the non-regulated operations of the Company will
be reflected as an extraordinary loss of $498,000 after tax in the Company's
1998 second quarter results.
-10-
<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 March 31, 1998, after a change in
accounting method, was $8,150,000 ($.59 per share) compared to $9,589,000
($.70 per share) for the quarter ended March 31, 1997. Net income for the
quarter ended March 31, 1998, before the change in accounting method, was
$6,366,000 ($.46 per share).
Net income for the twelve months ended March 31, 1998, after a change in
accounting method, was $13,482,000 ($.98 per share) compared to a net loss
of $10,767,000 ($.79 per share) for the year ended March 31, 1997. Net
income for the twelve months ended March 31, 1998, before the change in
accounting method, was $11,698,000 ($.85 per share).
Since the Company's primary business of natural gas distribution depends
on the winter months for the majority of its operating revenue, a substantial
portion of the annual results of operations is earned during the first
quarter of the year. Therefore, the Company's results of operations for the
three month periods ended March 31, 1998 and 1997 are not necessarily
indicative of results for a full year.
See Note 4 in the notes to the consolidated financial statements for a
discussion of commitments and contingencies.
A comparison of quarterly and twelve-month-to-date revenues, margins and
operating expenses follows on the next page.
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
<TABLE>
<CAPTION>
GAS DISTRIBUTION OPERATION
- --------------------------
Three Months Ended Twelve Months Ended
March 31, March 31,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Gas Sales revenue $ 70,837 $ 89,795 $199,221 $221,203
Cost of gas sold 48,514 64,276 135,206 153,886
-------- -------- -------- --------
Gas sales margin $ 22,323 $ 25,519 $ 64,015 $ 67,317
Transportation revenue $ 4,029 $ 3,952 $ 13,320 $ 12,792
Other operating revenue 923 414 1,598 1,368
-------- -------- -------- --------
Gross margin $ 27,275 $ 29,885 $ 78,933 $ 81,477
Operations and maintenance $ 8,954 $ 9,115 $ 35,273 $ 35,174
Depreciation 3,001 2,859 11,254 10,665
Income taxes 3,595 4,578 4,595 5,961
Taxes other than income taxes 2,306 2,210 8,746 8,250
-------- -------- -------- --------
Other operating expenses $ 17,856 $ 18,762 $ 59,868 $ 60,050
-------- -------- -------- --------
Operating Income $ 9,419 $ 11,123 $ 19,065 $ 21,427
======== ======== ======== ========
<CAPTION>
NON-REGULATED OPERATIONS
- ------------------------
Three Months Ended Twelve Months Ended
March 31, March 31,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Gas marketing revenue $148,273 $166,370 $537,270 $419,392
Cost of gas marketed 145,933 161,106 531,387 413,902
-------- -------- -------- --------
Gas marketing margin $ 2,340 $ 5,264 $ 5,883 $ 5,490
Other operating revenue $ 4,225 $ 943 $ 20,301 $ 3,559
Operations and maintenance $ 6,331 $ 3,675 $ 23,651 $ 7,293
Depreciation 737 253 2,235 936
Income taxes (392) 603 (810) (481)
Taxes other than income taxes 122 141 664 506
-------- -------- -------- --------
Other operating expenses $ 6,798 $ 4,672 $ 25,740 $ 8,254
-------- -------- -------- --------
Operating Income (Loss) $ (233) $ 1,535 $ 444 $ 795
======== ======== ======== ========
</TABLE>
-12-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
QUARTER RESULTS - GAS DISTRIBUTION OPERATION
Lower gas sales due to warmer weather during the Company's peak winter
heating season, offset partially by continued customer growth and the impact
of the October 1997 rate increase, reduced gas sales margin by $3,196,000
compared to the three months ended March 31, 1997. The rate increase
referenced above was granted in the October 1997 Order of the Michigan Public
Service Commission (see Note 3 in the Notes to the Consolidated Financial
Statements in the Company's 1997 Annual Report on Form 10-K). The weather
was 12% warmer during the quarter ended March 31, 1998 compared to the same
period last year. Gas volumes sold were 15,569,000 Mcf compared to
18,524,000 Mcf for the first quarter of 1997.
The $509,000 increase in other operating revenue is primarily due to an
increase in balancing fees related to gas in storage for transportation
customers. The October 1997 rate case increased the balancing fees for
transportation customers and decreased the balancing fees for the GCR
customers by the same amount. Thus, gas sales has a corresponding decrease.
Operation and maintenance expense decreased by $161,000 during the three
months ended March 31, 1998 compared to the three months ended March 31,
1997. However, a charge of $516,000 related to the early retirement program
is included in operation and maintenance expense for the quarter ended
March 31, 1998 (see Note 6 in the Notes to the Consolidated Financial
Statements). The Company expects that the early retirement program will
lower operating costs over the next several years. The Company actually
experienced a decrease of $677,000 in operation and maintenance expense after
excluding the charge related to the early retirement program. The $677,000
decrease is due in part to a reduction of $538,000 in outside services,
pension, employee benefit expenses. Maintenance and repairs for gas meter
and regulator stations also decreased by approximately $193,000 as a result
of the mild winter weather. These decreases were partially offset by
increased retiree medical expense.
Depreciation increased by $142,000 compared to the first quarter ended
March 31, 1997 primarily due to utility plant additions. Income taxes
decreased by $983,000 due to lower pre-tax earnings.
QUARTER RESULTS - NON-REGULATED OPERATIONS
Gas volumes marketed increased by 14% compared to the first quarter of
1997. However, gas marketing margin decreased by $2,924,000 compared to the
same period last year primarily due to the impact of warmer weather on gas
prices during the quarter ended March 31, 1998. The warmer weather caused
increased availability and declines in gas prices which in turn reduced
revenues and margins on the marketing transactions entered into by the
Company during the first quarter of 1998. 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.
-13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
Other operating revenue during the quarter ended March 31, 1998
increased by $3,282,000 compared to the same period last year. The increase
is due primarily to the operating revenues recorded by Sub-Surface
Construction Co., Maverick Pipeline Services, Inc. and Utility Construction
Services, Inc. (new businesses). There were no revenues from these
businesses recorded in the first quarter of 1997 because they were not part
of the Company's operations during that period.
Operation and maintenance expense increased by $2,656,000 during the
three months ended March 31, 1998 compared to the three months ended
March 31, 1997. However, during the first quarter of 1998, operation and
maintenance expenses attributed to the new businesses totaled $4,188,000.
This was offset by a $1,532,000 decrease due primarily to decreases in gas
marketer incentive compensation partially offset by increased professional
fees for additional services associated with closing the financial records at
year-end.
Depreciation increased by $484,000 compared to the first quarter ended
March 31, 1997 primarily due to depreciation of equipment owned by our new
businesses. Income taxes decreased by $995,000 compared to the quarter ended
March 31, 1997 due to lower pre-tax earnings. $438,000 of the decrease in
income taxes is attributed to our new businesses.
The discussion above indicates that the Company's new businesses
(Sub-Surface Construction Co., Maverick Pipeline Services, Inc. and Utility
Construction Services, Inc.) account for a significant portion of the
increased revenues and expenses of our non-regulated operations. The
seasonal cycle of these new businesses is different than the seasonal cycle
of our regulated gas distribution business. Pipeline construction and
engineering businesses typically have losses in the first quarter (during
winter months), break-even in the second quarter and generate income in the
third and fourth quarters due to the seasonal nature of their business.
During the first quarter of 1998, the new businesses generated an operating
loss of $838,000, which was a more favorable performance than expected due to
the mild weather. The loss from the new businesses is reflected in the
results for the first quarter of 1998 but not in the first quarter of 1997
because the new businesses were not part of the Company's operations during
that period. Sub-Surface Construction Co. was acquired on August 13, 1997,
Maverick Pipeline Services, Inc. was acquired on December 31, 1997 and
Utility Construction Services, Inc. is a start-up company that began
operations in January of 1998. The Company's management expects these new
businesses to generate income as the year progresses and they move into their
profitable season.
-14-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
QUARTER RESULTS - NON-OPERATING INFORMATION
Other income (loss), net, as shown in the Consolidated Statements of
Income, increased by $669,000 due primarily to a non-recurring income tax
benefit recognized during the first quarter of 1998. The income tax benefit
relates to tax deductions available to the Company due to the operating
results of the NOARK Pipeline System Partnership. During the first quarter
of 1998, NOARK finalized the estimate of its 1997 tax loss from operations at
an amount higher than originally estimated. An income tax benefit was
recorded to reflect the increase in tax deductions.
Interest on long-term debt increased by $1,051,000 due to the increase
in long-term debt compared to the quarter ended March 31, 1997. During the
fourth quarter of 1997, the Company issued $60,000,000 of private placement
debt to reduce notes payable to banks incurred to finance the Company's
ongoing capital expenditure program and for general corporate purposes.
Other interest decreased by $581,000 as a result of the above mentioned
refinancing offset partially by additional borrowings for utility plant
additions and other general corporate purposes.
During the first quarter of 1998, the Company's gas distribution
business changed its method of accounting for property taxes, resulting in a
one-time $1,784,000 increase in after-tax income (see Note 1 in the Notes to
the Consolidated Financial Statements).
TWELVE-MONTH RESULTS - GAS DISTRIBUTION OPERATION
Lower gas sales due to warmer weather during the twelve months ended
March 31, 1998, offset partially by continued customer growth and the impact
of the October 1997 rate increase, reduced gas sales margin by $3,302,000
compared to the twelve months ended March 31, 1997. The weather was 4%
warmer during the twelve months ended March 31, 1998 compared to the same
period last year. Gas volumes sold were 39,030,000 Mcf compared to
42,538,000 Mcf for the twelve months ended March 31, 1997.
Transportation revenue increased by $528,000 due to an increase in
transportation customers during the twelve months ended March 31, 1998. Most
of the additional transportation customers were existing gas sales customers
that switched to transportation. Other operating revenue increased by
$230,000 primarily due to the additional balancing fees for transportation
customers discussed in the quarterly results.
Operation and maintenance expense increased by $99,000 during the twelve
months ended March 31, 1998 compared to the twelve months ended March 31,
1997. However, a charge of $516,000 related to the early retirement program
is included in operation and maintenance expense for the twelve months ended
March 31, 1998 (see Note 6 in the Notes to the Consolidated Financial
Statements). The offsetting $417,000 decrease is attributable mainly to
reduced pension and employee benefit costs offset by increased retiree
medical costs.
-15-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
Depreciation increased by $589,000 compared to the twelve months ended
March 31, 1997 primarily due to utility plant additions. Income taxes
decreased by $1,366,000 due to lower pre-tax earnings. Taxes other than
income taxes increased by $496,000 primarily due to the additional utility
plant in service.
TWELVE-MONTH RESULTS - NON-REGULATED OPERATIONS
During the twelve months ended March 31, 1998, gas volumes marketed
increased by 35% compared to the twelve months ended March 31,1997. Gas
marketing margin increased by $393,000 primarily due to the increase in
volumes, offset partially by decreases in per unit margins and the effect of
weather and gas prices. 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.
Other operating revenue during the twelve months ended March 31, 1998
increased by $16,742,000 compared to the same period last year. The increase
is due to the operating revenues recorded by Sub-Surface Construction
Co., Maverick Pipeline Services, Inc. and Utility Construction Services, Inc.
(new businesses). There were no revenues from these businesses recorded in
the twelve months ended March 31, 1997 because they were not part of the
Company's operations during that period.
Operation and maintenance expense increased by $16,358,000 during the
twelve months ended March 31, 1998 compared to the twelve months ended
March 31, 1997. $15,747,000 of the increase is attributable to the new
businesses. The remaining $611,000 is primarily due to increased
professional fees for additional services associated with closing the
financial records at year-end and services related to a 1997 computer systems
enhancement project.
Depreciation increased by $1,299,000 compared to the twelve months ended
March 31, 1997 primarily due to depreciation of equipment owned by the
Company's new businesses. Income taxes decreased by $329,000 compared to the
twelve months ended March 31, 1997 due to lower pre-tax earnings. $154,000
of the decrease in income taxes is attributed to the new businesses. The
increase in taxes other than income taxes is also attributed primarily to the
new businesses.
TWELVE-MONTH RESULTS - NON-OPERATING INFORMATION
Net income for the twelve months ended March 31, 1997 includes a
$21,000,000 after-tax write-down of the Company's NOARK investment. Net
income for the twelve months ended March 31, 1998 includes $5,025,000 of
after-tax income related to the December 1997 adjustment to the NOARK
reserve based on the pending sale. The increase in other income (loss), net
during the twelve month period ended March 31, 1998 is primarily due to the
non-recurring income tax benefit discussed in the quarterly results.
-16-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
The increase in interest on long-term debt is due to the $60,000,000
private placement debt discussed in the quarterly results.
The results for the twelve months ended March 31, 1998 include a
one-time $1,784,000 increase in after-tax income due to a change in the
method of accounting for property taxes (see Note 1 in the Notes to the
Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities for the three and twelve month
periods ended March 31, 1998, as compared to the same periods last year,
increased $25,122,000 and $8,047,000, respectively. The changes in operating
cash flows between periods is primarily due to the timing of cash receipts
and cash payments and its effect on working capital.
The Company anticipates spending approximately $15,650,000 for capital
items during the remainder of 1998. These estimated amounts will primarily
relate to customer additions and system replacement in the gas distribution
operation. This amount does not include any sum for business acquisitions,
if any, the Company may effect during the reminder of 1998.
See Note 4 in the Notes to the Consolidated Financial Statements for a
discussion of the amounts to be paid in conjunction with the sale of the
Company's partnership interest in the NOARK Pipeline System.
Financing activities used $52,954,000 in funds during the first quarter
of 1998, primarily to reduce notes payable to banks.
FUTURE FINANCING SOURCES
The Company's operating cash flow needs, as well as dividend payments
and capital expenditures for the balance of 1998, are expected to be
generated primarily through operating activities and short-term borrowings.
However, if the Company makes any business acquisitions during the year, they
may be financed with stock or long-term debt. At March 31, 1998, the Company
had $96,500,000 in unused lines of credit.
On April 15, 1998, the Company redeemed all of its outstanding 8 5/8%
debentures due April 15, 2017 (see Note 7 in the Notes to the Consolidated
Financial Statements). The Company expects to save $300,000 to $400,000 per
year in interest expense as a result of redeeming the debentures. The
redemption was accomplished using short-term debt but the Company intends to
convert it to long-term debt before the end of 1998.
-17-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. - (Continued)
The Company anticipates that during the second quarter of 1998 it will
file a registration statement pursuant to Rule 415 of the Securities Act of
1933 giving the company the ability to issue common equity and debt
securities over the next two years.
FORWARD LOOKING STATEMENTS
The Quarterly Report on Form 10Q includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve certain risks and uncertainties that may
cause actual future results to differ materially from those contemplated,
projected, estimated or budgeted in such forward-looking statements. Factors
that may impact forward-looking statements include, but are not limited to,
the following: (i) the effects of weather and other natural phenomena; (ii)
the economic climate and growth in the geographical areas where SEMCO does
business; (iii) the capital intensive nature of SEMCO's business; (iv)
increased competition within the energy marketing industry as well as from
alternative forms of energy; (v) the timing and extent of changes in
commodity prices for natural gas; (vi) the effects of changes in governmental
and regulatory policies, including income taxes, environmental compliance and
authorized rates; (vii) SEMCO's ability to bid on and win business contracts;
(viii) the nature, availability and projected profitability of potential
investments available to SEMCO and (ix) the conditions of capital markets and
equity markets.
-18-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Not applicable.
Item 4. Not applicable.
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits - (See page 21 for the Exhibit Index.)
--Articles of Incorporation of SEMCO Energy, 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 August 15, 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.
--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.
--Letter from Arthur Andersen dated May 5, 1998 re: change in
accounting principle.
--Financial data schedule.
(b) Reports on Form 8-K.
On March 11, 1998, the Company filed Form 8-K to report on the
restatement of 1996 earnings and the new management team at SEMCO Energy
Services, Inc., a subsidiary of the Company.
-19-
<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: May 15, 1998
By: /s/Robert J. Digan, II
-------------------------------------
Robert J. Digan, II
Senior Vice President and
Principal Accounting and Financial
Officer
-20-
<PAGE>
EXHIBIT INDEX
Form 10-Q
First Quarter 1998
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- -------- ----------- -------- ---------
2 Plan of Acquisition, etc. NA NA
3.(i).1 Articles of Incorporation of SEMCO Energy,
Inc., as restated July 11, 1989.(a) x
3.(i).2 Certificate of Amendment to Article III
of the Articles of Incorporation dated
May 16, 1990.(b) x
3.(i).3 Certificate of Amendment to Articles I,
III and VI of the Articles of Incorporation
dated April 16, 1997.(j) x
3.(ii) Bylaws--last revised August 15, 1997.(k) x
4.1 Trust Indenture dated April 1, 1992, with
NBD Bank, N.A. as Trustee.(c) x
4.2 Note Agreement dated as of June 1, 1994,
relating to issuance of $80,000,000 of
long-term debt.(e) x
4.3 Rights Agreement dated as of April 15, 1997
with Continental Stock Transfer & Trust Company,
as Rights Agent.(h) x
10 Material Contracts.
10.1 Short-Term Incentive Plan.(d) x
10.2 Deferred Compensation and Phantom Stock
Purchase Agreement (for outside
directors only).(f) x
10.3 Supplemental Retirement Plan for Certain
Officers.(g) x
10.4 1997 Long-Term Incentive Plan.(h) x
10.5 Stock Option Certificate and Agreement
dated October 10, 1996 with
William L. Johnson.(i) x
10.6 Stock Option Certificate and Agreement
dated February 26, 1997 with
William L. Johnson.(i) x
10.7 Employment Agreement dated October 10, 1996,
with William L. Johnson.(j) x
10.8 Change of Control Employment Agreement dated
October 10, 1996, with William L. Johnson.(j) 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. x
19 Report furnished to security holders. NA NA
-21-
<PAGE>
EXHIBIT INDEX
(Continued)
Form 10-Q
First Quarter 1998
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- -------- ----------- -------- ---------
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
Key to Exhibits Incorporated by Reference
(a) Filed with SEMCO Energy, Inc.'s Form 10-K for 1989, dated March 29,
1990, File No. 0-8503.
(b) Filed with SEMCO Energy, Inc.'s Form 10-K for 1990, dated March 28,
1991, File No. 0-8503.
(c) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended March
31, 1992, File No. 0-8503.
(d) Filed with SEMCO Energy, Inc.'s Form 10-K for 1992, dated March 30,
1993, File No. 0-8503.
(e) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
June 30, 1994, File No. 0-8503.
(f) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
September 30, 1994, File No. 0-8503.
(g) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
March 31, 1996, File No. 0-8503.
(h) Filed March 6, 1997 as part of SEMCO Energy, Inc.'s 1997 Proxy
Statement, dated March 7, 1997, File No. 0-8503.
(i) Filed with SEMCO Energy, Inc.'s Form 10-K for 1996, dated March 27,
1997, File No. 0-8503.
(j) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
March 31, 1997, File No. 0-8503.
(k) Filed with SEMCO Energy, Inc.'s Form 10-Q for the quarter ended
September 30, 1997, File No. 0-8503.
-22-
Exhibit 18
ARTHUR
ANDERSEN
Arthur Andersen LLP
Suite 2700
500 Woodward Avenue
Detroit MI 48226-3424
313 596 9000
May 5, 1998
SEMCO Energy, Inc.
405 Water Street
Port Huron, Michigan 48060
RE: Form 10-Q Report for the Quarter Ended March 31, 1998
To the Board of Directors:
This letter is written to meet the requirements of Regulation S-K
calling for a letter from a registrant's independent accountants
whenever there has been a change in accounting principle or
practice.
We have been informed that, as of January 1, 1998, SEMCO Energy,
Inc. (the Company) changed from a method of accounting for
property taxes based on the assessment date to a method based on
the fiscal year of the taxing authorities. According to the
management of the Company, this change was made to provide a
better matching of property tax expense with both the payment for
services and those services provided by the taxing authorities.
A complete coordinated set of financial and reporting standards
for determining the preferability of accounting principles among
acceptable alternative principles has not been established by the
accounting profession. Thus, we cannot make an objective
determination of whether the change in accounting described in
the preceding paragraph is to a preferable method. However, we
have reviewed the pertinent factors, including those related to
financial reporting, in this particular case on a subjective
basis, and our opinion stated below is based on our determination
made in this manner.
We are of the opinion that the Company's change in method of
accounting is to an acceptable alternative method of accounting,
which, based upon the reasons stated for the change and our
discussions with you, is also preferable under the circumstances
in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your
<PAGE>
management.
We have not audited the application of this change to the
financial statements of any period subsequent to December 31,
1997. Further, we have not examined and do not express any
opinion with respect to your financial statements for the three
months ended March 31, 1998.
Very truly yours,
Arthur Andersen LLP
<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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 259,120
<OTHER-PROPERTY-AND-INVEST> 23,247
<TOTAL-CURRENT-ASSETS> 132,686
<TOTAL-DEFERRED-CHARGES> 36,039
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 451,092
<COMMON> 13,645
<CAPITAL-SURPLUS-PAID-IN> 89,188
<RETAINED-EARNINGS> 4,868
<TOTAL-COMMON-STOCKHOLDERS-EQ> 107,701
0
3,265
<LONG-TERM-DEBT-NET> 163,559
<SHORT-TERM-NOTES> 31,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 144,767
<TOT-CAPITALIZATION-AND-LIAB> 451,092
<GROSS-OPERATING-REVENUE> 224,021
<INCOME-TAX-EXPENSE> 2,978
<OTHER-OPERATING-EXPENSES> 211,712
<TOTAL-OPERATING-EXPENSES> 214,690
<OPERATING-INCOME-LOSS> 9,331
<OTHER-INCOME-NET> 748
<INCOME-BEFORE-INTEREST-EXPEN> 10,079
<TOTAL-INTEREST-EXPENSE> 3,709
<NET-INCOME> 6,370
4
<EARNINGS-AVAILABLE-FOR-COMM> 8,150<F1>
<COMMON-STOCK-DIVIDENDS> 2,642
<TOTAL-INTEREST-ON-BONDS> 3,180
<CASH-FLOW-OPERATIONS> 60,540
<EPS-PRIMARY> .59<F2>
<EPS-DILUTED> .59<F2>
<FN>
<F1>Includes the cumulative effect of a change in accounting for property taxes of
$1,784.
<F2>Adjusted to give retroactive effect to a 5% stock dividend payable in May 1998.
Prior Financial Data Schedules have not been restated for this dividend.
</FN>
</TABLE>
