<PAGE> 1
================================================================================
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, 1995, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------ ------------
COMMISSION FILE NUMBER 1-7310
MICHIGAN CONSOLIDATED GAS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-0478040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 GRISWOLD STREET, DETROIT, MICHIGAN 48226
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 313-965-2430
NO CHANGES
(Former name, former address and former fiscal year,
if changed since last report.)
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
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares outstanding of each of the registrant's classes of
common stock, as of April 30, 1995:
Common Stock, par value $1 per share: 10,300,000
================================================================================
<PAGE> 2
INDEX TO FORM 10-Q
For Quarter Ended March 31, 1995
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
COVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
ii
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, December 31,
----------------------- ------------
1995 1994 1994
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost (which approximates market
value).......................................................... $ 6,933 $ 5,064 $ 1,305
Accounts receivable, less allowance for doubtful accounts of
$20,816, $28,743 and $15,322, respectively...................... 193,942 254,477 134,980
Accrued unbilled revenues......................................... 59,532 83,201 82,233
Gas in inventory (Note 1)......................................... 28,911 9,904 77,843
Property taxes assessed applicable to future periods.............. 41,850 39,427 52,163
Other............................................................. 24,514 27,882 23,102
---------- ---------- ----------
355,682 419,955 371,626
---------- ---------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Investment in and advances to joint ventures...................... 20,535 19,236 20,791
Deferred postretirement benefit................................... 19,095 24,857 19,887
Other............................................................. 51,057 38,750 42,044
---------- ---------- ----------
90,687 82,843 82,722
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost.............................. 2,214,163 2,102,404 2,189,150
Less - Accumulated depreciation and depletion..................... 1,092,497 1,044,006 1,071,588
---------- ---------- ----------
1,121,666 1,058,398 1,117,562
---------- ---------- ----------
$1,568,035 $1,561,196 $1,571,910
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................................. $ 69,487 $ 90,753 $ 80,671
Notes payable..................................................... 79,681 105,043 168,457
Current portion of long-term debt, capital lease obligations
and redeemable cumulative preferred stock....................... 3,873 4,139 4,225
Gas inventory equalization (Note 1)............................... 67,806 108,623 -
Federal income, property and other taxes payable.................. 84,533 94,049 85,806
Refunds payable to customers...................................... 5,759 11,119 19,559
Customer deposits................................................. 10,467 10,920 11,563
Deferred income taxes - current................................... - 7,743 -
Other............................................................. 53,373 62,094 50,670
---------- ---------- ----------
374,979 494,483 420,951
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes................................. 61,308 45,029 52,396
Unamortized investment tax credit................................. 37,830 39,689 38,294
Tax benefits amortizable to customers............................. 113,179 127,611 114,906
Accrued postretirement benefit.................................... 6,596 9,544 23,507
Other............................................................. 59,416 48,489 53,076
---------- ---------- ----------
278,329 270,362 282,179
---------- ---------- ----------
LONG-TERM DEBT, including capital lease obligations................. 447,858 370,461 448,329
---------- ---------- ----------
REDEEMABLE CUMULATIVE PREFERRED STOCK, $2.05 SERIES................. - 2,618 2,618
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 2)
COMMON SHAREHOLDER'S EQUITY
Common stock...................................................... 10,300 10,300 10,300
Additional paid-in capital........................................ 204,777 204,777 204,777
Retained earnings................................................. 251,792 208,195 202,756
---------- ---------- ----------
466,869 423,272 417,833
---------- ---------- ----------
$1,568,035 $1,561,196 $1,571,910
========== ========== ==========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
1
<PAGE> 4
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- -----------------------
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES.................................................... $421,812 $534,356 $ 999,134 $1,233,590
-------- -------- ---------- ----------
OPERATING EXPENSES
Cost of gas......................................................... 210,137 300,123 439,440 662,388
Operation and maintenance........................................... 77,329 86,610 304,294 287,202
Depreciation and depletion.......................................... 22,151 21,190 85,191 76,590
Property and other taxes............................................ 16,502 18,680 55,951 60,783
-------- -------- ---------- ----------
Total operating expenses.......................................... 326,119 426,603 884,876 1,086,963
-------- -------- ---------- ----------
OPERATING INCOME...................................................... 95,693 107,753 114,258 146,627
-------- -------- ---------- ----------
EQUITY IN EARNINGS OF JOINT VENTURES.................................. 224 436 831 2,300
-------- -------- ---------- ----------
OTHER INCOME AND (DEDUCTIONS)
Interest income..................................................... 938 1,392 3,610 4,710
Interest on long-term debt.......................................... (8,253) (6,541) (29,660) (25,748)
Other interest expense.............................................. (2,972) (2,239) (9,826) (8,116)
Other............................................................... (738) (665) (4,750) (5,534)
-------- -------- ---------- ----------
Total other income and (deductions)............................... (11,025) (8,053) (40,626) (34,688)
-------- -------- ---------- ----------
INCOME BEFORE INCOME TAXES............................................ 84,892 100,136 74,463 114,239
INCOME TAX PROVISION.................................................. 29,282 35,174 23,947 39,089
-------- -------- ---------- ----------
NET INCOME............................................................ 55,610 64,962 50,516 75,150
DIVIDENDS ON PREFERRED STOCK.......................................... 74 136 419 666
-------- -------- ---------- ----------
NET INCOME AVAILABLE FOR COMMON STOCK................................. $ 55,536 $ 64,826 $ 50,097 $ 74,484
======== ======== ========== ==========
</TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- -----------------------
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE - Beginning of period......................................... $202,756 $151,869 $ 208,195 $ 201,611
ADD - Net income...................................................... 55,610 64,962 50,516 75,150
-------- -------- ---------- ----------
258,366 216,831 258,711 276,761
DEDUCT - Cash dividends declared
Preferred stock............................................ 74 136 419 666
Common stock............................................... 6,500 8,500 6,500 67,900
-------- -------- ---------- ----------
BALANCE - End of period............................................... $251,792 $208,195 $ 251,792 $ 208,195
======== ======== ========== ==========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
2
<PAGE> 5
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income..................................................................... $ 55,610 $ 64,962
Adjustments to reconcile net income to net cash provided from
operating activities
Depreciation and depletion
Per statement of income.................................................. 22,151 21,190
Charged to other accounts................................................ 1,853 1,714
Deferred income taxes and investment tax credit - net...................... 4,843 (9,558)
Other...................................................................... 313 (469)
--------- ---------
84,770 77,839
Changes in assets and liabilities, exclusive of changes shown
separately............................................................... 47,760 111,613
--------- ---------
Net cash provided from operating activities................................ 132,530 189,452
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable - net............................................................ (88,776) (155,261)
Additional paid-in-capital..................................................... - 1,161
Cash dividends paid
Common stock................................................................. (6,500) (8,500)
Preferred stock.............................................................. (115) (177)
Retirement of long-term debt and preferred stock............................... (3,471) (3,372)
--------- --------
Net cash used for financing activities..................................... (98,862) (166,149)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures........................................................... (28,209) (20,156)
Investment in joint ventures................................................... (167) (18)
Other.......................................................................... 336 (488)
--------- ---------
Net cash used for investing activities..................................... (28,040) (20,662)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................ 5,628 2,641
CASH AND CASH EQUIVALENTS, JANUARY 1............................................. 1,305 2,423
--------- ---------
CASH AND CASH EQUIVALENTS, MARCH 31.............................................. $ 6,933 $ 5,064
========= =========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
Accounts receivable-net........................................................ (59,057) (90,914)
Accrued unbilled revenues...................................................... 22,701 17,015
Gas in inventory............................................................... 48,932 25,195
Accounts payable............................................................... (11,184) (1,998)
Gas inventory equalization..................................................... 67,806 108,623
Federal income, property and other taxes payable............................... (1,273) 33,506
Refunds payable to customers................................................... (13,800) 326
Deferred assets and liabilities................................................ (18,792) 4,299
Other current assets and liabilities........................................... 12,427 15,561
--------- ---------
$ 47,760 $ 111,613
========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest, net of amounts capitalized......................................... $ 4,938 $ 5,308
========= =========
Federal income taxes......................................................... $ 171 $ -
========= =========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
3
<PAGE> 6
MICHIGAN CONSOLIDATED GAS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GAS IN INVENTORY
Inventory is priced on a last-in, first-out (LIFO) basis. In
anticipation that interim inventory reductions will be replaced prior to
year end, the cost of gas for net withdrawals from inventory is recorded at
the estimated average purchase rate for the calendar year. The excess of
these charges over the LIFO cost is credited to the gas inventory
equalization account. During interim periods when there are net injections
to inventory, the equalization account is reversed. Approximately 29.4 Bcf
and 18.2 Bcf of gas was included in inventory at March 31, 1995 and 1994,
respectively.
2. CONTINGENCIES
As described in MichCon's 1994 Annual Report on Form 10-K, the Federal
Energy Regulatory Commission (FERC) issued an order in 1993 which required
Panhandle Eastern Pipe Line Company (Panhandle) to refund to MichCon the
costs of certain direct billings totaling $5.4 million plus interest of
$4.4 million. During 1994, the FERC issued an order permitting Panhandle
to bill MichCon $4.4 million in interest. These costs were accrued in 1994.
MichCon's request for rehearing of the 1994 order was denied. MichCon has
appealed the issue to the District of Columbia Circuit Court. In March
1995, Panhandle sued MichCon in the United States District Court seeking
judgment for the $4.4 million. If MichCon is ultimately unsuccessful in
defeating Panhandle's claim, it is anticipated that these costs will be
recoverable through the GCR mechanism and therefore, an asset has been
recorded for their future recovery.
MichCon is involved in certain other legal and administrative
proceedings before various courts and governmental agencies concerning
claims arising in the ordinary course of business. Management cannot
predict the final disposition of such proceedings but believes that
adequate provision has been made for probable losses. It is management's
belief, after discussion with legal counsel, that the ultimate resolution
of those proceedings still pending will not have a material adverse effect
on MichCon's financial statements.
3. GENERAL
There have been no changes in MichCon's principal accounting policies
from those set forth in MichCon's 1994 Annual Report on Form 10-K.
Certain reclassifications have been made to the prior year's financial
statements to conform with the 1995 presentation.
The unaudited information furnished herein, in the opinion of
management, reflects all adjustments (consisting of only recurring
adjustments or accruals) necessary for a fair presentation of the results
of operations during the periods.
Because of seasonal and other factors, revenues, expenses and net
income for the interim periods should not be construed as representative of
revenues, expenses and net income for all or any part of the balance of the
current year or succeeding periods.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Earnings for the first quarter of 1995 were $55.5 million, a decrease of
$9.3 million from the first quarter of 1994. For the twelve-month period ended
March 31, 1995, earnings were $50.1 million, a decrease of $24.4 million from
the comparable 1994 period. The decrease in earnings for both 1995 periods was
primarily due to lower gas deliveries resulting from significantly warmer
weather from the comparable periods last year.
EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS
<TABLE>
<CAPTION>
Quarter Twelve Months
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Percentage Colder (Warmer) than Normal (5.8)% 7.9% (11.0)% 3.5%
Increase (Decrease) from Normal in:
Gas Markets (Bcf) (5.2) 7.8 (17.4) 6.7
Net Income (Millions) $(4.7) $7.0 $(15.8) $6.1
</TABLE>
EARNINGS COMPONENTS (IN MILLIONS)
COMPARING 1995 TO 1994
<TABLE>
<CAPTION>
Quarter Twelve Months
--------------------------- --------------------------
$ Change % Change $ Change % Change
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues $(112.5) (21.0)% $(234.5) (19.0)%
Cost of Gas (90.0) (30.0) (222.9) (33.7)
-------- --------
Gross Margin (22.5) (9.6) (11.6) (2.0)
Operation and Maintenance (9.3) (10.7) 17.1 6.0
Depreciation and Depletion 1.0 4.5 8.6 11.2
Property and Other Taxes (2.2) (11.7) (4.8) (8.0)
Other Income and (Deductions) 3.0 36.9 5.9 17.1
Income Tax Provision (5.9) (16.8) (15.1) (38.7)
</TABLE>
GROSS MARGIN
Gross margin (operating revenues less cost of gas) decreased for the
quarter due to lower gas deliveries resulting from warmer weather. Gross
margin for the twelve-month period decreased due to lower gas deliveries
resulting from warmer weather offset by an increase in gas sales rates,
reflecting a general rate increase of $15.7 million, effective January 1994.
Gas sales decreased in both the 1995 quarter and twelve-month period as
compared to the 1994 periods due mainly to warmer weather. In addition, the
1994 twelve-
<TABLE>
<CAPTION>
Quarter 12 Months
------------- -------------
GAS MARKETS (Bcf) 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gas Sales . . . . . . . . . . . . . . . 89.3 104.6 186.2 231.4
End User Transportation . . . . . . . . 43.5 44.8 138.4 132.2
Intermediate Transportation . . . . . . 105.9 107.7 301.8 313.1
----- ----- ----- -----
238.7 257.1 626.4 676.7
===== ===== ===== =====
</TABLE>
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
month period includes sales volumes from brokering operations which are not
reflected in the 1995 twelve-month period as MichCon sold the business of
Trading Company to other subsidiaries of MCN in June 1993. End user
transportation deliveries for the 1995 quarter decreased slightly from the
1994 quarter due to warmer weather. However, higher demand during the 1995
twelve-month period, offset slightly by warmer weather, resulted in an increase
in end user transportation deliveries from the comparable 1994 period.
The decreases in intermediate transportation in the 1995 quarter and
twelve-month period are primarily the result of reduced volumes transported
for Canadian customers, partially offset by increased transportation for
Michigan gas producers and brokers. Profit margins on intermediate
transportation services are considerably less than margins on gas sales or for
end user transportation markets.
Due to the growing demand by gas producers and brokers for intermediate
transportation services resulting from the significant increase in Michigan
Antrim gas production, MichCon filed a proposal before the MPSC to construct
facilities to expand transportation capacity. In March 1995, the MPSC approved
MichCon's proposal. The expansion project will require approximately $40
million for additional pipeline and related facilities. Construction is
planned to commence this summer and to be completed by the fall of 1995. The
expanded system, in conjunction with existing facilities, is expected to
transport approximately 135 Bcf of Antrim gas annually, generating revenues of
approximately $12 million per year.
During 1994, MCN and Destec Energy, as limited partners, began
construction of a 123-megawatt cogeneration plant in Ludington, Michigan.
MichCon will provide end user transportation of the natural gas needed to fuel
the plant, approximately nine Bcf annually, upon its completion in late 1995.
COST OF GAS
Cost of gas is affected by variations in sales volumes and cost of gas
rates. Through the GCR mechanism, MichCon's rates are set to recover 100% of
prudently and reasonably incurred gas costs. Therefore, significant
fluctuations in total gas costs have little effect on gross margins or
earnings.
Cost of gas sold decreased in the 1995 quarter and twelve-month period due
to lower sales volumes resulting from the warmer weather as well as lower
prices paid for natural gas in the spot market. The decrease in market prices
paid for gas resulted in a decrease in the cost of gas sold per thousand cubic
feet of $.61 (20.5%) in the 1995 quarter and twelve-month period from the
comparable 1994 periods.
A majority of MichCon's interstate gas supply contracts are priced based
on natural gas spot indices. To mitigate price volatility associated with gas
purchases, MichCon has reserved the right to fix the prices it pays under some
of these contracts. In order to capture declining gas prices during 1994,
MichCon fixed the price on approximately 34 Bcf of gas in advance of the month
of purchase. As a result of a further decline in gas prices during 1994,
MichCon's cost of gas would have been approximately $10.0 million (1.9%) lower
in 1994 had it not fixed these prices.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
MichCon filed its 1994 GCR reconciliation case with the MPSC in February
1995. In this case, the MPSC will decide whether MichCon's 1994 gas costs were
reasonable and prudent. To date, MichCon's 1994 gas purchase practices have
not been challenged. An order in this case is expected at the end of 1995.
MichCon believes that it acted reasonably and prudently by fixing the gas
prices based upon the information available at the time.
As described in MichCon's 1994 Annual Report on Form 10-K, the FERC issued
an order in 1993 which required Panhandle to refund to MichCon the costs of
certain direct billings totaling $5.4 million plus interest of $4.4 million.
During 1994, the FERC issued an order permitting Panhandle to bill MichCon $4.4
million in interest. These costs were accrued in 1994. MichCon's request for
rehearing of the 1994 order was denied. MichCon has appealed the issue to the
D.C. Circuit Court. In March 1995, Panhandle sued MichCon in the U.S. District
Court seeking judgment for the $4.4 million. If MichCon is ultimately
unsuccessful in defeating Panhandle's claim, it is anticipated that these costs
will be recoverable through the GCR mechanism and therefore, an asset has been
recorded for their future recovery.
OPERATION AND MAINTENANCE
Operation and maintenance expenses were lower in the 1995 quarter due to
lower uncollectible accounts resulting from warmer than normal weather and a
reduction in retirement benefit costs. Operation and maintenance expenses
increased for the 1995 twelve-month period due to higher postretirement
benefit costs of $25.2 million being recognized as a result of the new
accounting requirements under Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions."
These costs are being recovered in rates that became effective in January 1994.
Management's continuing efforts to reduce operating costs contributed to the
decrease in operation and maintenance expenses for the 1995 quarter and
partially offset the increase for the 1995 twelve-month period.
In March 1995, the U.S. House of Representatives voted to eliminate all
funding for the Low-Income Home Energy Assistance Program (LIHEAP). However,
several weeks later the U.S. Senate voted to restore the program's $1.3 billion
appropriation. Currently, delegates from the House and Senate are meeting to
resolve the differences between the House and Senate packages. MichCon
continues its vigorous efforts to maintain this funding. LIHEAP funding
currently provides approximately $78 million in heating assistance to 385,000
Michigan households through the Department of Social Services, with
approximately 40% of the funds going to MichCon customers.
DEPRECIATION AND DEPLETION
The increase in depreciation and depletion for the 1995 quarter and
twelve-month period was due mainly to higher plant balances, reflecting capital
expenditures of $286.7 million over the past two calendar years. The 1995
twelve-month period also reflects higher depreciation rates that were
implemented in January 1994.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
PROPERTY AND OTHER TAXES
Property and other taxes for the quarter and twelve-month period reflect a
decrease in Michigan single business taxes due primarily to lower earnings. In
addition, the 1995 periods also reflect lower property taxes due to changes in
Michigan legislation, partially offset by increased taxes due to higher
property balances.
OTHER INCOME AND DEDUCTIONS
The increase in other income and deductions for the 1995 quarter and
twelve-month period reflects additional interest expense relating to the
issuance of $80 million of first mortgage bonds in September 1994. In
addition, the interest on varying levels of pending customer refunds
contributed to the 1995 twelve-month period increase.
INCOME TAX PROVISION
Income taxes decreased for the 1995 quarter and twelve-month period due to
reduced earnings and the favorable resolution of prior years' tax issues.
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
MichCon's cash flow from operating activities totaled $132.5 million for
the first quarter of 1995, decreasing $56.9 million from the comparable 1994
quarter. The decrease was due primarily to lower income and higher working
capital requirements, partially offset by deferred taxes.
FINANCING ACTIVITIES
Cash and cash equivalents increased by $5.6 million during the first
quarter of 1995. Cash and cash equivalents normally increase and short-term
debt is reduced in the first part of each year as gas inventories are depleted
and funds are received from winter heating sales. During the first quarter of
1995, MichCon repaid $88.8 million of short-term debt, including commercial
paper. During the latter part of the year, cash and cash equivalents decrease
as funds are used to finance increases in gas inventories and customer accounts
receivable. To meet its seasonal short-term borrowing needs, MichCon normally
issues commercial paper which is backed by credit lines with several banks.
MichCon has established credit lines of up to $109 million through August 1995.
Commercial paper of $54.7 million was outstanding as of March 31, 1995 under
these lines. MichCon's commercial paper is currently rated "A-1" or its
equivalent by the major rating agencies.
In 1994, MichCon began a Trust Demand Note program which allows MichCon to
borrow up to $25 million. As of March 31, 1995, borrowings of $25 million were
outstanding under this program. This note was repaid in April 1995.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONCLUDED)
Requirements for capital investments continue to be approximately $250
million for 1995. In anticipation of future permanent capital requirements,
MichCon filed with and received approval from the MPSC for the authority to
issue and sell securities and enter into additional long-term financing
arrangements of up to $150 million. In May 1995, MichCon filed a shelf
registration statement with the Securities and Exchange Commission for the
issuance of up to $150 million of first mortgage bonds. MichCon's current
shelf registrations allow for the issuance of up to an additional $30 million
of first mortgage bonds. During the second quarter of 1995, MichCon
anticipates issuing approximately $70 million of first mortgage bonds under
these shelf registration statements. MichCon's capital requirements and
general financial market conditions will affect the timing and amount of future
debt issuances. MichCon's capitalization objective is to maintain a ratio of
approximately 50% debt and 50% equity. Future long-term debt offerings are
expected to carry MichCon's current debt rating of "A."
INVESTING ACTIVITIES
MichCon's capital expenditures during the first quarter of 1995 totaled
$28.2 million primarily consisting of new distribution lines to reach
communities not previously served by MichCon. This amount represents an
increase of $8.1 million from the first quarter of 1994 due to significantly
colder than normal weather precluding construction activity in the 1994
quarter.
It is management's opinion that MichCon will have sufficient capital
resources, both internal and external, to meet anticipated capital
requirements.
9
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
MichCon solicited the written consent of shareholders, in lieu of holding
an annual meeting, for the election of directors on April 27, 1995. As of
February 27, 1995, the record date for determination of shareholders entitled
to consent to the proposed actions, there were 10,404,732 shares outstanding
and entitled to vote. Of these shares, 10,320,363, or 99.2%, were present by
proxy, and 84,369 shares were not voted. The following Directors were elected
to serve one year terms:
<TABLE>
<CAPTION>
Number of Shares
Number of Shares Withholding
Director Consenting FOR Consent
-------------------- ---------------- ----------------
<S> <C> <C>
Alfred R. Glancy III 10,320,084 279
Stephen E. Ewing 10,320,084 279
William K. McCrackin 10,320,084 279
Carl J. Croskey 10,320,084 279
Daniel L. Schiffer 10,320,084 279
John E. vonRosen 10,320,084 279
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
27-1 Financial Data Schedule.
(b) Reports on Form 8-K
MichCon filed a report on Form 8-K dated March 14, 1995, under
Item 5, in connection with gas purchases during 1994.
10
<PAGE> 13
SIGNATURE
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.
MICHIGAN CONSOLIDATED GAS COMPANY
Date: May 9, 1995 By: /s/ David R. Nowakowski
----------------------------
David R. Nowakowski
Controller, Treasurer and
Chief Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Income and the Consolidated Statement of Financial
Position and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 6,933
<SECURITIES> 0
<RECEIVABLES> 214,758
<ALLOWANCES> 20,816
<INVENTORY> 28,911
<CURRENT-ASSETS> 355,682
<PP&E> 2,214,163
<DEPRECIATION> 1,092,497
<TOTAL-ASSETS> 1,568,035
<CURRENT-LIABILITIES> 374,979
<BONDS> 447,858
<COMMON> 10,300
0
0
<OTHER-SE> 456,569
<TOTAL-LIABILITY-AND-EQUITY> 1,568,035
<SALES> 0
<TOTAL-REVENUES> 421,812
<CGS> 0
<TOTAL-COSTS> 326,119
<OTHER-EXPENSES> 738
<LOSS-PROVISION> 7,750
<INTEREST-EXPENSE> 11,225
<INCOME-PRETAX> 84,892
<INCOME-TAX> 29,282
<INCOME-CONTINUING> 55,610
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,536
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
