===============================================================================
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 September 30, 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 October 31, 1995:
Common Stock, par value $1 per share: 10,300,000
===============================================================================
<PAGE>
INDEX TO FORM 10-Q
For Quarter Ended September 30, 1995
Page
Number
------
COVER ........................................................ i
INDEX ........................................................ ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 1
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................... 12
Item 6. Exhibits and Reports on Form 8-K........................ 12
SIGNATURE ....................................................... 13
ii
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Given the seasonal nature of the gas distribution business, MichCon
generally experiences a loss during the third quarter when the weather is warm
and less gas is delivered to customers. MichCon's loss of $13.4 million in the
third quarter of 1995, however, is an improvement of $5.8 million from the
third quarter of 1994. This increase was due mainly to lower operating
expenses, primarily pension and retiree health care costs, and higher gas
sales due to slightly colder weather. Earnings for the 1995 nine- and
twelve-month periods decreased $5.3 million and $9.9 million, respectively,
from the same periods in 1994, reflecting decreased gas deliveries primarily
resulting from warmer weather. These decreases were partially offset by lower
pension costs.
<TABLE>
<CAPTION>
EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS
Quarter Nine Months Twelve Months
--------------- ------------------ ------------------
1995 1994 1995 1994 1995 1994
------ ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Percentage Colder (Warmer)
than Normal ............ N/A N/A (3.8)% 2.6% (8.5)% 1.2%
Increase (Decrease) from
Normal in:
Gas Markets (Bcf) .... 0.5 (0.8) (4.3) 5.6 (14.2) 4.5
Net Income (Millions) $ 0.4 $ (0.8) $ (3.7) $ 5.1 $ (12.7) $ 4.1
</TABLE>
<TABLE>
<CAPTION>
EARNINGS COMPONENTS (IN MILLIONS)
COMPARING 1995 TO 1994
Quarter Nine Months Twelve Months
------------------ ------------------ -------------------
$ Change % Change $ Change % Change $ Change % Change
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues ........... $ 0.2 0.2% $ (99.2) (12.2)% $ (145.4) (12.6)%
Cost of Gas .................. (2.3) (10.0) (81.4) (21.2) (131.1) (22.6)
------- ------- --------
Gross Margin ................. 2.5 3.1 (17.8) (4.2) (14.3) (2.5)
Operation and Maintenance .... (10.6) (14.9) (15.9) (7.0) (2.5) (1.0)
Depreciation and Depletion ... 1.0 4.5 3.3 5.1 5.4 6.6
Property and Other Taxes ..... 0.4 3.1 (2.7) (5.8) (5.7) (9.3)
Other Income and Deductions .. 1.5 16.2 5.4 21.8 4.9 12.7
Income Tax Provision (Benefit) 4.6 N/A (3.0) (12.2) (7.2) (21.0)
</TABLE>
GROSS MARGIN
Gross margin (operating revenues less cost of gas) increased for the
quarter but decreased for the nine- and twelve-month periods due to
fluctuations in gas deliveries resulting from the weather variations
previously discussed. In addition, the twelve-month period decrease was offset
by an increase in gas sales rate, reflecting a general rate increase of $15.7
million, effective January 1994.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Gas sales volumes were also impacted by the weather, increasing in the
1995 quarter but decreasing in the 1995 nine- and twelve-month periods.
<TABLE>
<CAPTION>
Quarter Nine Months Twelve Months
---------------- ----------------- -----------------
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GAS MARKETS (IN BCF)
Gas Sales 14.1 13.5 134.9 146.1 190.3 210.6
End User Transportation 27.8 28.0 103.4 103.3 139.8 139.3
Intermediate Transportation 67.2 58.3 237.8 232.4 309.0 307.3
----- ----- ----- ----- ----- -----
109.1 99.8 476.1 481.8 639.1 657.2
===== ===== ===== ===== ===== =====
</TABLE>
During 1994, MCN and Destec Energy, as equal partners, began construction
of a 123-megawatt cogeneration plant in Ludington, Michigan. In October 1995,
the plant was completed and MichCon began providing end user transportation of
the natural gas needed to fuel the plant, approximately nine Bcf annually.
The increases in intermediate transportation deliveries in all 1995
periods are primarily the result of increased transportation of Antrim gas 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.
In order to meet the increased 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
Michigan Public Service Commission (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 began during the 1995 second
quarter. A portion of the system is anticipated to be completed this year and
the remainder completed in early 1996. The expanded system is expected to
transport approximately 135 Bcf of Antrim gas annually, generating new
revenues of approximately $8 million per year.
COST OF GAS
Cost of gas is affected by variations in sales volumes and cost of gas
rates. Through the Gas Cost Recovery (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 or no effect on gross
margins and earnings.
As discussed in MichCon's 1994 Annual Report on Form 10-K, MichCon's rates
are also set to recover its lost gas costs using an averaging method based on
historical lost gas experience. The difference between the historical average
lost gas amount and the actual lost gas amount is recorded to income at the
end of the seasonal cycle ended August 31 of each year. The lost gas
adjustment for the 1995 cycle, as compared to the 1994 cycle, resulted in a
$3.5 million increase in cost of gas for the quarter.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Cost of gas sold decreased in all 1995 periods from the comparable 1994
periods. The decrease experienced in the 1995 quarter is due primarily to a
$.42 (19.8%) decrease in the cost of gas sold per thousand cubic feet for the
1995 quarter partially offset by the effect of the lost gas adjustment
discussed above and an increase in volumes sold. Lower sales volumes resulting
from the warmer weather, as well as lower prices paid for natural gas in the
spot market, resluted in the decrease in cost of gas sold in the 1995 nine-
and twelve-month periods. The decline in market prices paid for gas resulted
in a decrease in the cost of gas sold per thousand cubic feet of $.47 (17.0%)
and $.46 (16.3%) in the 1995 nine- and twelve-month periods, respectively,
from the comparable 1994 periods. MichCon's supply strategy will continue to
utilize the spot market for the majority of its direct and contract gas
purchases.
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 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. There was a further decline in gas prices during 1994. Had MichCon
not fixed these prices, its cost of gas would have been approximately $10.0
million (1.9%) lower for the year ended December 31, 1994.
MichCon filed its 1994 GCR reconciliation case with the MPSC in the first
quarter of 1995. In this case, the MPSC will decide whether MichCon's 1994 gas
costs were reasonable and prudent. In July 1995, an intervenor filed testimony
taking issue with some of MichCon's decisions. On November 1, 1995, the
Administrative Law Judge in this proceeding issued a proposal for decision
adopting MichCon's position. 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.
OPERATION AND MAINTENANCE
Operation and maintenance expenses decreased for all 1995 periods due to
lower benefit costs, primarily pension costs. In addition, the 1995 quarter
and nine-month period reflect lower retiree health care costs. The decrease in
operation and maintenance expenses for the twelve-month period was partially
offset by the impact of higher postretirement benefit costs being recognized
as a result of the new accounting requirements under Statement of Financial
Accounting Standards (SFAS) 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 decreases in operation and maintenance
expenses for all the 1995 periods.
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.
Subsequently, the U.S. House Appropriations Committee adopted 1996 funding
legislation that eliminates future energy assistance support. The House is
expected to support this funding bill, however, the Senate continues to
demonstrate strong bipartisan support for LIHEAP. President Clinton has
threatened to veto the House proposal if not modified. During September 1995,
Congress and President Clinton reached an agreement on a stopgap spending bill
that allowed the release of $140 million in 1996 LIHEAP funds.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIHEAP currently provides approximately $78 million in heating
assistance to 385,000 Michigan households through the Department of Social
Services. Last year, $27 million in LIHEAP funds assisted 131,000 MichCon
customers. A portion of any decreased funding may result in increased
uncollectibles expense. Future funding for LIHEAP remains uncertain. MichCon
continues its vigorous efforts to maintain full LIHEAP funding.
DEPRECIATION AND DEPLETION
The increase in depreciation and depletion for all 1995 periods 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.
PROPERTY AND OTHER TAXES
Property and other taxes for the 1995 periods reflect fluctuations in
Michigan single business taxes due primarily to the changes in earnings. In
addition, the 1995 periods were also affected by lower property taxes due to
changes in Michigan legislation and increased taxes due to higher property
balances.
OTHER INCOME AND DEDUCTIONS
The increase in other income and deductions for all 1995 periods reflects
additional interest expense relating to the issuances of first mortgage bonds
of $80 million in September 1994 and $70 million in the 1995 second quarter.
INCOME TAX PROVISION
Income taxes increased for the 1995 quarter, and decreased for the nine-
and twelve-month periods due primarily to changes in earnings. In addition,
the nine- and twelve-month periods reflect the favorable resolution of prior
years' tax issues.
ENVIRONMENTAL MATTERS
As discussed in MichCon's 1994 Annual Report on Form 10-K, MichCon owns or
previously owned 16 former manufactured gas plant (MGP) sites. Some
contamination related to the byproducts of gas manufacturing was discovered at
each site. MichCon is not involved in any administrative proceedings regarding
these former MGP sites, but has an approved remedial action plan for one site
with the Michigan Department of Environmental Quality (MDEQ) and is conducting
more extensive investigations at three other sites.
The MDEQ approved MichCon's remedial action plan for a former MGP site in
Muskegon, Michigan during the 1995 second quarter. The remedy includes limited
excavation and disposal of soils, a new soil cover and, if necessary, a ground
water capture and treatment system. MichCon began the limited excavation and
cover portion of the remedy. Offsite work and installation of the ground water
system is contingent upon execution of an agreement with the state of
Michigan.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
In addition, MichCon was involved in litigation with an adjacent property
owner regarding another site. During the 1995 second quarter, that property
owner agreed to dismiss the litigation.
In its efforts to claim insurance coverage for costs associated with the
investigation and remediation of its former MGP sites, MichCon has employed
outside consultants to assist in estimating its potential liabilities and to
review its archived insurance policies. Although MichCon does not currently
possess sufficient information to reasonably estimate the amount of its
potential liabilities, a determination is expected during the fourth quarter.
As a result, it is probable that MichCon will record in the fourth quarter an
additional liability for potential environmental investigation and remediation
costs which may be significantly in excess of the $3.2 million reserve balance
at September 30, 1995.
Management believes that insurance coverage and the cost deferral and rate
recovery mechanism approved by the MPSC will prevent environmental costs from
having a material adverse impact on MichCon's financial results.
MichCon Development Company, a 100% owned subsidiary of MichCon, has a 33%
to 50% interest in four partnerships that are developing Harbortown, a
residential development that is being constructed on a 50 acre parcel along
the Detroit River. During the 1995 second quarter, the MDEQ approved a
remedial action plan that had been submitted by the Harbortown partnerships.
The plan includes certain landscaping requirements and, during future
development, excavation controls consistent with occupational safety and
health regulations. MichCon Development Company, along with the other general
partner, executed an agreement with the state of Michigan regarding
implementation of the plan. No further action will be taken by the MDEQ.
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
MichCon's cash flow from operating activities totaled $150.8 million for
the 1995 nine-month period, decreasing $44.9 million from the comparable 1994
period. The decrease was due primarily to slightly lower income and higher
working capital requirements, partially offset by deferred taxes.
FINANCING ACTIVITIES
During the latter part of the year, cash and temporary cash investments
decrease as funds are used to finance increases in gas inventories and
customer accounts receivable. Short-term debt is normally reduced in the first
part of each year as gas inventories are depleted and funds are received from
winter heating sales. 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 to allow for borrowings of up to
$100 million under a 364-day revolving credit facility and up to $150 million
under a three-year revolving credit facility. Commercial paper of $109.9
million was outstanding as of September 30, 1995, under these lines. MichCon's
commercial paper is currently rated "A-1" or its equivalent by the major
rating agencies.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Concluded)
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. This filing, along with MichCon's existing shelf
registrations of $30 million, provided MichCon the ability to issue up to $180
million of first mortgage bonds. During the 1995 second quarter, MichCon
issued $70 million of first mortgage bonds under shelf registration
statements. Also during the 1995 second quarter, MCN Corporation invested $7
million in MichCon as an additional equity investment. The proceeds from the
bonds and equity investment were used to repay short-term obligations and will
also be used to finance MichCon's capital expenditures and for general
corporate purposes. 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. In June 1995, Duff & Phelps raised its "A" rating on
MichCon's first mortgage bonds to "A+." MichCon's first mortgage bonds carry
the equivalent of an "A" rating by the other major rating agencies.
In 1994, MichCon began a Trust Demand Note program which allows MichCon to
borrow up to $25 million. At September 30, 1995, there were no borrowings
under this program.
INVESTING ACTIVITIES
MichCon's capital expenditures during the 1995 nine-month period totaled
$154.7 million, an increase of $63.2 million from the comparable 1994 period
due primarily to colder weather precluding construction activity during the
1994 nine-month period. Capital investments during 1995 include the Antrim
expansion project and construction of new distribution lines to reach
communities not previously served by MichCon. Capital expenditures anticipated
for 1995 continue to be approximately $250 million.
It is management's opinion that MichCon will have sufficient capital
resources, both internal and external, to meet anticipated capital
requirements.
During the second quarter of 1995, the MPSC approved MichCon's request to
construct and operate a 59-mile loop of the Milford to Belle River Pipeline
for approximately $80 million. The pipeline will improve the overall
reliability and efficiency of MichCon's gas storage and transmission system by
serving as a back-up means of transportation in the event of disruptions in
the operation of the existing pipeline or other facilities used to supply gas
to MichCon's system. Construction of the pipeline will begin the first quarter
of 1996 and completion is expected in early 1997.
ACCOUNTING PRONOUNCEMENTS
During the second quarter of 1995, MichCon adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets," which requires the
impairment of property and intangibles to be considered whenever evidence
suggests a lack of recoverability. The Statement also modifies existing
practice and guidance with respect to impairment of regulatory assets under
SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation." SFAS
No. 121 requires, among other things, that regulatory assets recorded as a
result of SFAS No. 71 must continue to be probable of recovery in rates at all
times, rather than only at the time the regulatory asset is recorded. As such,
regulatory assets currently recorded may require adjustment in the future if
recovery is no longer probable. Under the current ratemaking process, adoption
of this statement had no impact on the Company's financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)
(Thousands of Dollars)
September 30, December 31,
--------------------- ----------
1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents, at cost (which approximates market value).. $ 3,213 $ 2,267 $ 1,305
Accounts receivable, less allowance for doubtful accounts of
$12,725, $16,869, and $15,322, respectively ........................ 91,434 101,286 134,980
Accrued unbilled revenues ............................................ 18,815 19,918 82,233
Gas in inventory ..................................................... 92,508 107,798 77,843
Property taxes assessed applicable to future periods ................. 21,618 18,337 52,163
Other ................................................................ 28,338 26,942 23,102
--------- --------- ---------
255,926 276,548 371,626
--------- --------- ---------
Deferred Charges and Other Assets
Investment in and advances to joint ventures ......................... 19,742 18,522 20,791
Deferred postretirement benefit cost.................................. 14,613 22,059 19,887
Other ................................................................ 62,218 39,792 42,044
--------- --------- ---------
96,573 80,373 82,722
--------- --------- ---------
Property, Plant and Equipment, at cost.................................. 2,338,974 2,165,298 2,189,150
Less - Accumulated depreciation and depletion......................... 1,135,024 1,080,292 1,071,588
--------- --------- ---------
1,203,950 1,085,006 1,117,562
--------- --------- ---------
$1,556,449 $1,441,927 $1,571,910
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ..................................................... $ 69,691 $ 67,653 $ 80,671
Notes payable (Note 3)................................................ 111,820 90,378 168,457
Current portion of long-term debt, including capital lease obligations
and redeemable cumulative preferred stock .......................... 3,936 4,196 4,225
Federal income, property & other taxes payable ....................... 45,186 48,156 85,806
Refunds payable to customers ......................................... 2,690 29,281 19,559
Customer deposits .................................................... 10,277 10,552 11,563
Other ................................................................ 54,417 53,222 50,670
--------- --------- ---------
298,017 303,438 420,951
--------- --------- ---------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes..................................... 60,863 45,215 52,396
Unamortized investment tax credit..................................... 36,902 38,760 38,294
Tax benefits amortizable to customers................................. 112,085 124,017 114,906
Accrued postretirement benefit cost................................... 14,537 24,321 23,507
Other ................................................................ 60,025 50,596 53,076
--------- --------- ---------
284,412 282,909 282,179
--------- --------- ---------
Long-Term Debt, including capital lease obligations (Note 2)............ 517,035 450,592 448,329
--------- --------- ---------
Redeemable Cumulative Preferred Stock, $2.05 Series..................... -- 2,618 2,618
--------- --------- ---------
Commitments and Contingencies (Note 4)
Common Shareholder's Equity
Common stock ......................................................... 10,300 10,300 10,300
Additional paid-in capital (Note 2)................................... 211,777 204,777 204,777
Retained earnings..................................................... 234,908 187,293 202,756
--------- --------- ---------
456,985 402,370 417,833
--------- --------- ---------
$1,556,449 $1,441,927 $1,571,910
========= ========= =========
<FN>
The notes to the consolidated financial statements are an integral part of
this statement.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(Thousands of Dollars)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
----------------------- ----------------------- -----------------------
1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues ......................... $ 107,522 $ 107,289 $ 714,302 $ 813,502 $1,012,478 $1,157,880
---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses
Cost of gas .............................. 20,963 23,299 303,130 384,540 448,016 579,115
Operation and maintenance ................ 60,750 71,341 210,753 226,640 297,688 300,162
Depreciation and depletion ............... 22,107 21,154 66,988 63,737 87,481 82,057
Property and other taxes ................. 12,798 12,411 43,487 46,154 55,462 61,157
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses ............... 116,618 128,205 624,358 721,071 888,647 1,022,491
---------- ---------- ---------- ---------- ---------- ----------
Operating Income (Loss) .................... (9,096) (20,916) 89,944 92,431 123,831 135,389
---------- ---------- ---------- ---------- ---------- ----------
Equity in Earnings of Joint Ventures ....... 123 161 499 988 554 1,413
---------- ---------- ---------- ---------- ---------- ----------
Other Income and (Deductions)
Interest income .......................... 765 1,017 2,764 3,067 3,761 3,938
Interest on long-term debt ............... (9,726) (6,587) (26,410) (19,693) (34,665) (26,194)
Other interest expense ................... (774) (2,481) (4,425) (6,150) (7,368) (9,005)
Other .................................... (758) (980) (2,337) (2,198) (4,816) (6,960)
---------- ---------- ---------- ---------- ---------- ----------
Total other income and (deductions) .... (10,493) (9,031) (30,408) (24,974) (43,088) (38,221)
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes .......... (19,466) (29,786) 60,035 68,445 81,297 98,581
Income Tax Provision (Benefit) ............. (6,138) (10,690) 21,201 24,155 26,885 34,048
---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) .......................... (13,328) (19,096) 38,834 44,290 54,412 64,533
Dividends on Preferred Stock ............... 54 115 182 366 297 542
---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) Available for Common Stock $ (13,382) $ (19,211) $ 38,652 $ 43,924 $ 54,115 $ 63,991
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Unaudited)
(Thousands of Dollars)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
--------------------- -------------------- --------------------
1995 1994 1995 1994 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance - Beginning of Period ..... $ 248,290 $ 206,504 $ 202,756 $ 151,869 $ 187,293 $ 144,202
--------- --------- --------- --------- --------- ---------
Add - Net income (loss) ......... (13,328) (19,096) 38,834 44,290 54,412 64,533
--------- --------- --------- --------- --------- ---------
234,962 187,408 241,590 196,159 241,705 208,735
Deduct - Cash dividends declared:
Preferred stock ............... 54 115 182 366 297 542
Common stock .................. -- -- 6,500 8,500 6,500 20,900
========= ========= ========= ========= ========= =========
Balance - End of Period ........... $ 234,908 $187,293 $ 234,908 $187,293 $ 234,908 $ 187,293
========= ========= ========= ========= ========= =========
<FN>
The notes to the consolidated financial statements are an integral part of
this statement.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Thousands of Dollars)
Nine Months Ended
September 30,
---------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash Flow from Operating Activities
Net income ............................................................ $ 38,834 $ 44,290
Adjustments to reconcile net income to net cash flow provided from
operating activities:
Depreciation and depletion
Per statement of income ............................................ 66,988 63,737
Charged to other accounts .......................................... 5,446 5,323
Deferred income taxes - current ...................................... (5,323) (17,848)
Deferred income taxes and investment tax credit - net ................ 4,254 (6,399)
Other ................................................................ 992 (42)
--------- ---------
111,191 89,061
Changes in assets and liabilities, exclusive of changes
shown separately .................................................... 39,646 106,646
--------- ---------
Net cash provided from operating activities ........................ 150,837 195,707
--------- ---------
Cash Flow from Financing Activities
Notes payable - net .................................................... (56,637) (169,926)
Issuance of long-term debt ............................................. 68,764 78,620
Cash dividend paid:
Common stock ......................................................... (6,500) (8,500)
Preferred stock ...................................................... (223) (407)
Retirement of long-term debt and preferred stock ....................... (4,290) (3,905)
Equity investment ...................................................... 7,000 1,161
--------- ---------
Net cash provided from (used for) financing activities ............. 8,114 (102,957)
--------- ---------
Cash Flow from Investing Activities
Capital expenditures ................................................... (154,718) (91,517)
Other - net ............................................................ (2,325) (1,389)
--------- ---------
Net cash used for investing activities ............................. (157,043) (92,906)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ..................... 1,908 (156)
Cash and Cash Equivalents, January 1 ..................................... 1,305 2,423
========= =========
Cash and Cash Equivalents, September 30 .................................. $ 3,213 $ 2,267
========= =========
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately
Accounts receivable - net .............................................. $ 41,913 $ 62,086
Accrued unbilled revenues .............................................. 63,418 80,298
Gas in inventory ....................................................... (14,665) (72,699)
Property taxes assessed to applicable periods .......................... 30,545 31,523
Accounts payable ....................................................... (10,980) (25,098)
Federal income, property and other taxes payable ....................... (40,620) (12,387)
Refunds payable to customers ........................................... (16,869) 18,488
Other current assets and liabilities ................................... 2,589 116
Deferred assets and liabilities ........................................ (15,685) 24,319
========= =========
$ 39,646 $ 106,646
========= =========
Supplemental Disclosures
Cash paid for:
Interest, net of amounts capitalized ................................. $ 24,084 $ 21,957
========= =========
Federal income taxes ................................................. $ 23,111 $ 31,858
========= =========
<FN>
The notes to the consolidated financial statements are an integral part of
this statement.
</TABLE>
9
<PAGE>
MICHIGAN CONSOLIDATED GAS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying consolidated financial statements should be read in
conjunction with 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.
2. Capitalization
The following debt was issued during 1995:
<TABLE>
<CAPTION>
Issue Date Description Amount
---------- ------------------------ -----------
<S> <C> <C>
May 1995 First Mortgage Bonds,
7.50%, due May 2020 $30,000,000
June 1995 First Mortgage Bonds,
6.30%, due June 1998 $20,000,000
6.72%, due June 2003 $ 4,150,000
6.80%, due June 2003 $15,850,000
</TABLE>
In addition, MCN Corporation invested $7,000,000 in MichCon as an
additional equity investment in May 1995.
3. Lines of Credit
In July 1995, new credit lines were negotiated to allow for borrowings
of up to $100,000,000 under a 364-day revolving credit facility and up to
$150,000,000 under a three-year revolving credit facility. MichCon usually
issues commercial paper in lieu of an equivalent amount of borrowings
under these lines of credit. Commercial paper of $109,945,000 was
outstanding at September 30, 1995 under these lines at a weighted average
interest rate of 5.9%. This debt is classified as short-term based upon
management's intent to repay it within one year. Fees are paid to
compensate banks for lines of credit.
10
<PAGE>
MICHIGAN CONSOLIDATED GAS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
4. Contingencies
MichCon is involved in certain 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.
11
<PAGE>
OTHER INFORMATION
LEGAL PROCEEDINGS
As discussed on page 11 in MichCon's 1994 Annual Report on Form 10-K,
in December 1994, six residential customers filed suit against the Company
on behalf of themselves and others who purchased and installed high
efficiency furnaces through one of the Company's energy conservation
programs. Plaintiffs allege, among other things, that MichCon failed to
warn them that unsafe conditions could result from improper installation
and venting of gas appliances and seek injunctive relief, unspecified
money damages, exemplary damages, attorneys fees and costs. On August 11,
1995, the Wayne County Circuit Court dismissed one of the plaintiffs for
failure to establish any injury. On October 4, 1995, the Court denied
plaintiffs motion for class certification with prejudice. Management
believes plaintiffs' remaining allegations are without merit and intends
to vigorously defend this action.
The management of MichCon believes that the resolution of these matters
will not have a material adverse effect on the financial statements of
MichCon.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
12-1 Computation of Ratio of Earnings to Fixed Charges.
27-1 Financial Data Schedule.
12
<PAGE>
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: November 8, 1995 By: /s/ David R. Nowakowski
--------------------------
David R. Nowakowski
Controller, Treasurer and
Chief Accounting Officer
13
EXHIBIT 12-1
<TABLE>
<CAPTION>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
Twelve Months Ended Twelve Months Ended Twelve Months Ended
September 30, 1995 December 31, 1994 December 31, 1993
------------------- ------------------- -------------------
<S> <C> <C> <C>
EARNINGS AS DEFINED (1)
Net Income ............................ $ 54,412 $ 59,868 $ 62,376
Federal and other income taxes ........ 26,885 29,839
30,939
Fixed charges ......................... 44,874 39,663 36,231
-------- -------- --------
Earnings as defined ................. $126,171 $129,370 $129,546
======== ======== ========
FIXED CHARGES AS DEFINED (1)
Interest on long-term debt ............ $ 34,665 $ 27,948 $ 25,594
Interest on other borrowed funds ...... 7,368 9,093 7,961
Amortization of debt discounts, premium
and expense ......................... 974 950 1,057
Interest implicit in rentals (2) ...... 1,867 1,672 1,619
-------- -------- --------
Fixed charges as defined ............ $ 44,874 $ 39,663 $ 36,231
======== ======== ========
Ratio of Earnings to Fixed Charges .... 2.81 3.26 3.58
==== ==== ====
<FN>
Notes:
(1) Earnings and fixed charges are defined and computed in accordance with
instructions for Item 3 of Form S-3.
(2) This amount is estimated to be a reasonable approximation of the
interest portion of rentals.
MichCon is a guarantor of certain other debt. Fixed charges related to such
debt are deemed to be immaterial and therefore have been excluded from the
above ratios.
</TABLE>
<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> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,213
<SECURITIES> 0
<RECEIVABLES> 104,159
<ALLOWANCES> (12,725)
<INVENTORY> 92,508
<CURRENT-ASSETS> 255,926
<PP&E> 2,338,974
<DEPRECIATION> (1,135,024)
<TOTAL-ASSETS> 1,556,449
<CURRENT-LIABILITIES> 298,017
<BONDS> 517,035
0
0
<COMMON> 10,300
<OTHER-SE> 446,685
<TOTAL-LIABILITY-AND-EQUITY> 1,556,449
<SALES> 714,302
<TOTAL-REVENUES> 714,302
<CGS> 303,130
<TOTAL-COSTS> 624,358
<OTHER-EXPENSES> 2,337
<LOSS-PROVISION> 9,088
<INTEREST-EXPENSE> 30,835
<INCOME-PRETAX> 60,035
<INCOME-TAX> 21,201
<INCOME-CONTINUING> 38,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,652
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
