<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996, 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 July 31, 1996:
Common Stock, par value $.01 per share: 10,300,000
================================================================================
<PAGE>
INDEX TO FORM 10-Q
For Quarter Ended June 30, 1996
Page
Number
------
COVER........................................................... i
INDEX........................................................... ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 1
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................... 10
SIGNATURE....................................................... 11
ii
<PAGE>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Earnings for the second quarter of 1996 were $0.9 million, an increase of
$4.4 million from the second quarter of 1995. Earnings for the 1996 six- and
twelve-month periods ended June 1996 were $70.9 and $90.3 million representing
an increase of $18.8 million and $42.0 million, respectively, from the same
periods in 1995. The increases are due primarily to higher gas sales resulting
from colder weather, as well as lower operating expenses.
<TABLE>
<CAPTION>
EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS
---------------------------------------------
Quarter Six Months Twelve Months
------------------ ------------------ --------------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Percentage Colder (Warmer)
than Normal 13.6% 2.5% 7.3% (4.1)% 7.4% (9.6)%
Increase (Decrease) from
Normal in:
Gas Markets (Bcf) 3.2 0.5 8.6 (4.7) 14.8 (15.5)
Net Income (Millions) $ 2.9 $ 0.7 $ 7.8 $(4.1) $ 13.3 $ (13.9)
EARNINGS COMPONENTS (IN MILLIONS)
---------------------------------
COMPARING 1996 TO 1995
----------------------
Quarter Six Months Twelve Months
-------------------- -------------------- --------------------
$ Change % Change $ Change % Change $ Change % Change
-------- -------- -------- -------- -------- --------
Operating Revenues $ 37.4 20.2% $ 146.9 24.2% $ 215.5 21.3%
Cost of Gas 27.7 38.4 116.2 41.2 149.8 33.3
Gross Margin 9.7 8.6 30.7 9.5 65.7 11.7
Operation and Maintenance (1.5) (2.0) (10.0) (6.7) (23.9) (7.7)
Depreciation and Depletion 2.0 8.8 4.3 9.5 6.9 7.9
Property and Other Taxes 0.8 5.8 2.9 9.5 4.9 8.8
Other Income and Deductions 1.9 21.2 3.5 17.7 6.2 14.9
Income Tax Provision 2.3 116.9 11.4 41.8 30.1 134.8
</TABLE>
GROSS MARGIN
Gross margin (operating revenues less cost of gas) increased for the
quarter, six- and twelve-month periods, reflecting increased gas sales and
transportation deliveries.
Gas sales volumes increased in all 1996 periods as compared to the 1995
periods due to colder weather and market expansion through the addition of
approximately 14,000 gas sales customers since June 1995. End user
transportation deliveries reflect transportation to the Michigan Power project
of two Bcf, five Bcf and seven Bcf during the 1996 quarter, six- and twelve-
month periods, respectively. The plant, a
1
<PAGE>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS-(Continued)
123 megawatt cogeneration plant in which MCN has a 50% interest, became
operational in October 1995. End user transportation for all 1996 periods also
reflect lower deliveries to a large volume industrial customer during a
temporary plant shutdown that occurred during the second quarter.
<TABLE>
<CAPTION>
Quarter Six Months Twelve Months
----------- --------------- ---------------
1996 1995 1996 1995 1996 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
GAS MARKETS (IN BCF)
Gas Sales..................... 34.0 31.5 136.2 120.8 222.4 189.7
End User Transportation....... 32.0 32.2 79.4 75.6 149.0 140.1
Intermediate Transportation... 110.3 64.8 258.3 170.7 429.2 300.2
----- ----- ----- ----- ----- -----
176.3 128.5 473.9 367.1 800.6 630.0
===== ===== ===== ===== ===== =====
- -----------------------------------------------------------------------------------------
</TABLE>
The increases in intermediate transportation deliveries in the 1996 periods
are due primarily to additional volumes transported for ANR Pipeline Company and
increased transportation of Antrim gas for Michigan gas producers and brokers.
MichCon recently expanded the transportation capacity of its northern Michigan
gathering system. A significant portion of the project was completed in 1995,
and the remainder is expected to be completed by year-end. The expansion enabled
MichCon to transport an additional 30.1 Bcf, 59.9 Bcf and 76.1 Bcf in the 1996
quarter, six- and twelve-month periods, respectively.
In January 1996, MCN transferred its Michigan pipeline operations to MichCon
in order to consolidate MCN's Michigan gathering pipeline activities within one
business unit. The pipeline operation contributed 14.5 Bcf and 27.0 Bcf in
volumes transported during the 1996 quarter and six-month periods. Profit
margins on intermediate transportation services are considerably less than
margins on gas sales or for end user transportation markets.
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.
Cost of gas sold increased in the 1996 periods due to higher sales volumes
resulting primarily from the colder weather, as well as higher prices paid for
natural gas in the spot market. The increase in market prices paid for gas
resulted in an increase in the cost of gas sold per thousand cubic feet of $.83
(37.4%), $.59 (25.4%) and $.39 (16.5%) in the 1996 quarter, six- and twelve-
month periods, respectively, from the comparable 1995 periods.
2
<PAGE>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS-(Continued)
OPERATION AND MAINTENANCE
Operation and maintenance expenses were lower in all 1996 periods compared to
the 1995 periods due to lower employee benefit costs, primarily pension and
retiree health care costs. Also contributing to the six-month period was
decreased labor costs. The reductions in the 1996 quarter and six-month periods
were partially offset by increased uncollectibles expense. Management's
continuing efforts to reduce operating costs also contributed to the decreases.
DEPRECIATION AND DEPLETION
The increase in depreciation and depletion for all 1996 periods was due mainly
to higher plant balances, reflecting capital expenditures of $381.2 million over
the past two calendar years.
PROPERTY AND OTHER TAXES
Property and other taxes for the 1996 periods reflect an increase in property
taxes due to higher property balances.
OTHER INCOME AND DEDUCTIONS
The increase in other income and deductions for all 1996 periods reflects
additional interest expense relating to an increase in the average amount of
long-term debt outstanding.
INCOME TAX PROVISION
Income taxes increased for the 1996 quarter, six- and twelve-month periods due
primarily to increased earnings. Income tax expense was lower in both the 1996
and 1995 twelve-month periods due to the favorable resolution of prior years'
tax issues.
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
MichCon's cash flow from operating activities totaled $163.6 million for the
1996 six-month period, decreasing $44.3 million from the comparable 1995 period.
The decrease was due primarily to higher working capital requirements, partially
offset by higher net income, after adjusting for depreciation and deferred
taxes. MichCon anticipates that working capital requirements will be greater
throughout 1996 as compared to 1995 in order to fund the GCR undercollection,
which is $42 million as of June 1996.
3
<PAGE>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS-(Concluded)
FINANCING ACTIVITIES
Cash and cash equivalents increased $0.4 million during the 1996 six-month
period. 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 1996 six-month period,
MichCon repaid $138.3 million of 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 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 $56.4 million was outstanding as of June 30, 1996 under
these lines.
MichCon issued first mortgage bonds aggregating $70 million in the second
quarter 1996 under its existing shelf registration. The proceeds from the bonds
were used to repay short-term obligations, finance capital expenditures and for
general corporate purposes.
MichCon's capital requirements for 1996 are anticipated to be approximately
$215 million. These investments will be made to add new customers, develop new
gas transportation markets and make improvements to existing storage and
transmission systems. These capital requirements and general financial market
conditions will affect the timing and amount of future debt issuances.
INVESTING ACTIVITIES
MichCon's capital expenditures totaled $73.8 million during the 1996 six-month
period. These expenditures were used primarily for the construction of
transportation pipelines and the construction of new distribution lines to reach
communities not previously served by MichCon.
In January 1996, MichCon began construction of a 59-mile loop of its existing
Milford to Belle River Pipeline. The pipeline is anticipated to be completed in
early 1997 at a cost of 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
disruption in the operation of the existing pipeline or other facilities used to
supply gas to MichCon's system.
It is management's opinion that MichCon will have sufficient capital
resources, both internal and external, to meet anticipated capital requirements.
4
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(THOUSANDS OF DOLLARS)
JUNE 30, December 31,
------------------------------ -------------
1996 1995 1995
---------- ---------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost (which approximates market value).... $ 8,866 $ 33,588 $ 8,469
Accounts receivable, less allowance for doubtful accounts of
$18,222, $20,537 and $13,250, respectively............................ 192,849 123,139 175,103
Accrued unbilled revenues............................................... 16,554 14,356 91,134
Gas in inventory (Note 1)............................................... 25,238 51,427 40,191
Property taxes assessed applicable to future periods.................... 35,176 31,537 56,949
Accrued gas cost recovery revenues...................................... 42,026 - -
Other................................................................... 33,683 25,029 32,498
---------- ---------- ----------
354,392 279,076 404,344
---------- ---------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Investment in and advances to joint ventures............................ 20,377 20,247 20,318
Deferred postretirement benefit costs................................... 9,342 16,853 12,372
Deferred environmental costs (Note 5a).................................. 28,016 - 32,000
Prepaid benefit costs................................................... 50,640 14,150 25,438
Other................................................................... 48,341 46,423 42,061
---------- ---------- ----------
156,716 97,673 132,189
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST.................................... 2,540,829 2,257,745 2,413,120
Less - Accumulated depreciation and depletion........................... 1,199,871 1,113,687 1,151,160
---------- ---------- ----------
1,340,958 1,144,058 1,261,960
---------- ---------- ----------
$1,852,066 $1,520,807 $1,798,493
========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable........................................................ $ 94,102 $ 84,779 $ 108,208
Notes payable (Note 3).................................................. 58,291 1,875 196,635
Current portion of long-term debt, capital lease obligations
and redeemable cumulative preferred stock............................. 53,177 3,904 3,969
Gas inventory equalization (Note 1)..................................... 53,295 36,605 -
Federal income, property and other taxes payable........................ 64,715 69,850 85,195
Customer deposits....................................................... 9,845 10,013 11,531
Deferred income taxes - current......................................... - - 8,379
Other................................................................... 55,084 42,937 56,208
---------- ---------- ----------
388,509 249,963 470,125
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes....................................... 82,872 61,609 61,146
Unamortized investment tax credit....................................... 35,512 37,366 36,437
Tax benefits amortizable to customers................................... 113,449 112,470 114,487
Accrued postretirement benefit costs.................................... - 11,119 12,661
Accrued environmental costs (Note 5a)................................... 32,000 - 32,000
Minority interest (Note 4).............................................. 18,171 - -
Other................................................................... 56,892 61,585 65,252
---------- ---------- ----------
338,896 284,149 321,983
---------- ---------- ----------
LONG-TERM DEBT, INCLUDING CAPITAL LEASE OBLIGATIONS (NOTE 2).............. 552,345 516,328 516,564
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
COMMON SHAREHOLDER'S EQUITY
Common stock............................................................ 10,300 10,300 10,300
Additional paid-in capital (Note 4)..................................... 230,399 211,777 211,777
Retained earnings....................................................... 331,617 248,290 267,744
---------- ---------- ----------
572,316 470,367 489,821
---------- ---------- ----------
$1,852,066 $1,520,807 $1,798,493
========== ========== ==========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
5
<PAGE>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
---------------------- ---------------------- ------------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues............................... $222,327 $184,968 $753,719 $606,780 $1,227,752 $1,012,245
-------- -------- -------- -------- ---------- ----------
Operating Expenses
Cost of gas.................................... 99,681 72,030 398,397 282,167 600,192 450,352
Operation and maintenance...................... 71,212 72,674 139,983 150,003 284,404 308,279
Depreciation and depletion..................... 24,740 22,730 49,133 44,881 93,380 86,528
Property and other taxes....................... 15,004 14,187 33,612 30,689 59,935 55,075
-------- -------- -------- -------- ---------- ----------
Total operating expenses..................... 210,637 181,621 621,125 507,740 1,037,911 900,234
-------- -------- -------- -------- ---------- ----------
Operating Income................................. 11,690 3,347 132,594 99,040 189,841 112,011
-------- -------- -------- -------- ---------- ----------
Equity in Earnings of Joint Ventures............. 260 152 495 376 858 592
-------- -------- -------- -------- ---------- ----------
Other Income and (Deductions)
Interest income................................ 634 1,061 1,219 1,999 3,203 4,013
Interest on long-term debt..................... (10,224) (8,431) (19,992) (16,684) (39,128) (31,526)
Other interest expense......................... (940) (679) (3,775) (3,651) (7,177) (9,075)
Minority interest.............................. (354) - (702) - (702) -
Other.......................................... 114 (841) (182) (1,579) (4,012) (5,038)
-------- -------- -------- -------- ---------- ----------
Total other income and (deductions).......... (10,770) (8,890) (23,432) (19,915) (47,816) (41,626)
-------- -------- -------- -------- ---------- ----------
Income Before Income Taxes....................... 1,180 (5,391) 109,657 79,501 142,883 70,977
Income Tax Provision............................. 329 (1,943) 38,766 27,339 52,431 22,333
-------- -------- -------- -------- ---------- ----------
Net Income....................................... 851 (3,448) 70,891 52,162 90,452 48,644
Dividends on Preferred Stock..................... - 54 18 128 125 358
-------- -------- -------- -------- ---------- ----------
Net Income Available for Common Stock............ $ 851 $ (3,502) $ 70,873 $ 52,034 $ 90,327 $ 48,286
======== ======== ======== ======== ========== ==========
</TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
---------------------- ---------------------- ------------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance - Beginning of Period.................... $330,766 $251,792 $267,744 $202,756 $ 248,290 $ 206,504
Add - Net income............................... 851 (3,448) 70,891 52,162 90,452 48,644
-------- -------- -------- -------- ---------- ----------
331,617 248,344 338,635 254,918 338,742 255,148
Deduct - Cash dividends declared:
Preferred stock.............................. - 54 18 128 125 358
Common stock................................. - - 7,000 6,500 7,000 6,500
-------- -------- -------- -------- ---------- ----------
Balance - End of Period.......................... $331,617 $248,290 $331,617 $248,290 $ 331,617 $ 248,290
======== ======== ======== ======== ========== ==========
The notes to the consolidated financial statements are an integral part of these statements.
</TABLE>
6
<PAGE>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash Flow from Operating Activities
Net income.................................................................. $ 70,891 $ 52,162
Adjustments to reconcile net income to net cash flow provided
from operating activities:
Depreciation and depletion
Per statement of income................................................. 49,133 44,881
Charged to other accounts............................................... 3,755 3,564
Deferred income taxes - current........................................... 1,079 (2,813)
Deferred income taxes and investment tax credit - net..................... 11,408 5,849
Other..................................................................... (1,442) 585
Changes in assets and liabilities, exclusive of changes shown separately.. 28,753 103,614
------------- -------------
Net cash provided from operating activities............................. 163,577 207,842
------------- -------------
Cash Flow from Financing Activities
Notes payable - net......................................................... (138,344) (166,582)
Issuance of long-term debt ................................................. 69,645 68,764
Cash dividend paid:
Common stock.............................................................. (7,000) (6,500)
Preferred stock........................................................... (54) (169)
Retirement of long-term debt and preferred stock............................ (4,347) (3,763)
Equity investment........................................................... 1,614 7,000
------------- -------------
Net cash used for financing activities.................................. (78,486) (101,250)
------------- -------------
Cash Flow from Investing Activities
Capital expenditures........................................................ (73,823) (75,891)
Other - net................................................................. (10,871) 1,582
------------- -------------
Net cash used for investing activities.................................. (84,694) (74,309)
------------- -------------
Net Increase in Cash and Cash Equivalents..................................... 397 32,283
Cash and Cash Equivalents, January 1.......................................... 8,469 1,305
------------ ------------
Cash and Cash Equivalents, June 30............................................ $ 8,866 $ 33,588
============ ============
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately
Accounts receivable - net................................................... $(14,315) $ 11,227
Gas inventory equalization.................................................. 53,295 36,605
Accrued/deferred gas cost recovery revenues................................. (42,026) (19,224)
Accrued unbilled revenues................................................... 74,580 67,877
Gas in inventory............................................................ 14,953 26,416
Property taxes assessed applicable to future periods........................ 22,983 20,626
Accounts payable............................................................ (15,222) 4,108
Federal income, property and other taxes payable............................ (22,497) (15,956)
Other current assets and liabilities........................................ (13,490) (8,691)
Deferred assets and liabilities............................................. (29,508) (19,374)
------------ ------------
$ 28,753 $ 103,614
============ ============
<PAGE>
Supplemental Disclosures
Cash paid for:
Interest, net of amounts capitalized...................................... $ 24,216 $ 21,249
============ ============
Federal income taxes...................................................... $ 24,456 $ 16,469
============ ============
Noncash financing activities:
Transfer of pipeline net assets to MichCon (Note 4) ...................... $ 17,008 -
============ ============
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
7
<PAGE>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GAS IN INVENTORY
Inventory gas 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 40.6 Bcf and 52.0 Bcf of gas was included in inventory
at June 30, 1996 and 1995, respectively.
2. CAPITALIZATION
During May 1996, First Mortgage Bonds in the amount of $30,000,000 were
issued at 6.51%, due June 1999 and $40,000,000 were issued at 7.15%, due May
2006.
3. LINES OF CREDIT
During 1995, MichCon established credit lines 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. These credit lines totaling
$250,000,000 support its commercial paper program. Commercial paper of
$56,416,000 was outstanding as of June 30, 1996, under these lines. In July
1996, the 364 day revolving facility was renewed.
4. TRANSFER OF SUBSIDIARIES
In January 1996, MCN Corporation (MCN), parent company of MichCon, transferred
its Michigan pipeline operations, at book value, to MichCon in order to
consolidate MCN's Michigan gathering pipeline activities within one business
unit. Net assets transferred to MichCon totaled approximately $18,622,000,
including cash of $1,614,000 and long-term debt of $17,600,000. Contributions
from these pipeline operations to MichCon's consolidated net income were
approximately $245,000 and $623,000 for the three- and six-month periods ended
June 30, 1996.
5. COMMITMENTS AND CONTINGENCIES
A. ENVIRONMENTAL MATTERS
As described in MichCon's 1995 Annual Report on Form 10-K, MichCon accrued
an additional environmental remediation liability and corresponding
regulatory asset of $32,000,000 in the fourth quarter of 1995. MichCon has
notified current and former insurance carriers of the environmental
conditions and is pursuing claims against these carriers. In 1996, MichCon
received payments from certain insurance carriers and expects additional
insurance recoveries over the next several years. At June 30, 1996, the
reserve balance was approximately $35,300,000, of which $3,300,000 is
classified as current.
8
<PAGE>
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Concluded)
B. OTHER
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.
6. ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" in
October 1995. The statement requires certain disclosures about stock-based
employee compensation in the financial statements and encourages, but does not
require, a fair-value-based method of accounting for such compensation. MichCon
currently awards performance units to selected employees under its long term
incentive plan. Each performance unit is equivalent to a share of MCN common
stock. MCN is currently evaluating whether to adopt the fair-value-based method
of accounting and its impacts.
7. GENERAL
The accompanying consolidated financial statements should be read in
conjunction with MichCon's 1995 Annual Report on Form 10-K. Certain
reclassifications have been made to the prior year's financial statements to
conform with the 1996 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.
9
<PAGE>
OTHER INFORMATION
EXHIBITS
(a) Exhibits
Exhibit
Number Description
------ -----------
12-1 Computation of Ratio of Earnings to Fixed Charges
27-1 Financial Data Schedule.
10
<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: August 13, 1996 By: /s/ David R. Nowakowski
--------------------------
David R. Nowakowski
Controller, Treasurer and
Chief Accounting Officer
11
<PAGE>
EXHIBIT 12-1
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended Twelve Months Ended
------------------- ------------------- -------------------
June 30, 1996 December 31, 1995 December 31, 1994
------------------- ------------------- -------------------
<S> <C> <C> <C>
EARNINGS AS DEFINED (1)
Pre-tax Income (2)....................... $142,381 $112,727 $ 89,707
Fixed charges............................ 48,908 45,637 39,663
-------- -------- --------
Earnings as defined.................... $191,289 $158,364 $129,370
======== ======== ========
FIXED CHARGES AS DEFINED (1)
Interest on long-term debt............... $ 39,128 $ 35,820 $ 27,948
Interest on other borrowed funds......... 7,177 7,053 9,093
Amortization of debt discounts, premium
and expense............................ 1,075 996 950
Interest implicit in rentals (3)......... 1,528 1,768 1,672
-------- -------- --------
Fixed charges as defined............... $ 48,908 $ 45,637 $ 39,663
======== ======== ========
Ratio of Earnings to Fixed Charges....... 3.91 3.47 3.26
======== ======== ========
- ------------------
</TABLE>
Notes:
- -----
(1) Earnings and fixed charges are defined and computed in accordance with Item
503 of Regulation S-K.
(2) This amount represents the aggregate of (a) the pre-tax income of MichCon,
(b) MichCon's share of pre-tax income of its 50% owned companies and (c)
any income actually received from less than 50% owned companies.
(3) 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> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Statment 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,866
<SECURITIES> 0
<RECEIVABLES> 211,071
<ALLOWANCES> 18,222
<INVENTORY> 25,238
<CURRENT-ASSETS> 354,392
<PP&E> 2,540,829
<DEPRECIATION> 1,199,871
<TOTAL-ASSETS> 1,852,066
<CURRENT-LIABILITIES> 388,509
<BONDS> 552,345
<COMMON> 10,300
0
0
<OTHER-SE> 562,016
<TOTAL-LIABILITY-AND-EQUITY> 1,852,066
<SALES> 753,719
<TOTAL-REVENUES> 753,719
<CGS> 398,397
<TOTAL-COSTS> 621,125
<OTHER-EXPENSES> 884
<LOSS-PROVISION> 12,605
<INTEREST-EXPENSE> 23,767
<INCOME-PRETAX> 109,657
<INCOME-TAX> 38,766
<INCOME-CONTINUING> 70,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,873
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
