<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, 1998, 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, 1998:
Common Stock, par value $.01 per share: 10,300,000
<PAGE> 2
INDEX TO FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Page
Number
<S> <C>
COVER .................................................................................. i
INDEX................................................................................... ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................................... 6
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
</TABLE>
ii
<PAGE> 3
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Earnings decreased only $0.5 million for the 1998 quarter and increased
$6.5 million for the twelve-month period, despite significantly warmer weather.
These results reflect lower operating costs as well as continued growth in
intermediate transportation services.
- --------------------------------------------------------------------------------
SELECTED EARNINGS COMPONENTS (IN MILLIONS)
COMPARING 1998 TO 1997
<TABLE>
<CAPTION>
Quarter Twelve Months
------- -------------
$ Change % Change $ Change % Change
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenue.................. $(98.2) (18.6)% $(99.4) (7.9)%
Cost of Gas........................ (85.7) (28.3) (94.6) (14.8)
Gross Margin....................... (12.5) (5.6) (4.8) (0.8)
Operation and Maintenance.......... (11.9) (16.0) (28.9) (9.6)
Depreciation and Depletion......... (3.1) (12.0) 1.4 1.4
Other Income and Deductions........ 2.1 17.5 5.3 11.4
Income Tax Provision 1.3 4.0 11.6 32.7
Net Income......................... (0.5) (0.9) 6.5 9.0
</TABLE>
- --------------------------------------------------------------------------------
GROSS MARGIN
Gross margin (operating revenues less cost of gas) decreased in the 1998
quarter and twelve-month period, reflecting lower gas deliveries resulting from
warmer weather. These declines were partially offset by increased revenues from
intermediate transportation and gas-related services.
EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS
<TABLE>
<CAPTION>
Quarter Twelve Months
------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Percentage Colder (Warmer)
than Normal ......................... (18.8)% (3.3)% (6.9)% 1.0%
Increase (Decrease) from
Normal in:
Gas Markets (Bcf) ............... (19.2) (3.1) (15.5) 2.4
Net Income (Millions) .......... $(16.7) $(2.8) $(13.5) $2.2
</TABLE>
1
<PAGE> 4
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Gas sales and end user transportation revenues in total decreased $108.8
million and $123.4 million in the 1998 quarter and twelve-month period,
respectively. The decrease in revenues for both periods is due primarily to
reduced gas sales as a result of warmer weather, as well as lower prices
required to recover gas costs. End user transportation deliveries also declined
in both periods; however, revenues increased in the twelve-month period as a
result of a slight increase in the average transportation rate.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Quarter Twelve Months
------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
GAS MARKETS ($ MILLIONS)
Gas Sales................................... $ 366.9 $ 474.8 $ 954.8 $1,079.9
End User Transportation..................... 25.0 25.9 83.6 81.9
Intermediate Transportation................. 18.0 14.8 58.4 51.9
Other....................................... 19.3 11.9 58.7 41.1
-------- -------- -------- --------
$ 429.2 $ 527.4 $1,155.5 $1,254.8
======== ======== ======== ========
GAS MARKETS (IN BCF)
Gas Sales................................... 78.7 93.3 191.1 208.8
End User Transportation..................... 42.4 44.3 143.1 143.6
Intermediate Transportation................. 148.4 140.6 594.3 519.4
-------- -------- -------- --------
269.5 278.2 928.5 871.8
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Intermediate transportation revenues increased for the 1998 quarter and
twelve-month period by $3.2 million and $6.5 million, respectively, due to
increased deliveries. The increase in intermediate transportation deliveries for
both periods reflects additional Antrim gas volumes transported for Michigan gas
producers and brokers. In December 1997, MichCon purchased a pipeline to expand
the transportation capacity of its northern Michigan gathering system. This
expansion made possible an increase of 8.1 Bcf in volumes transported in 1998.
Although volumes have increased significantly, profit margins on intermediate
transportation services are considerably less than margins on gas sales or end
user transportation services.
Other operating revenues increased in both 1998 periods due in part to an
increase in gas-related services. Also affecting the comparison to the 1997
periods are unfavorable adjustments for energy conservation revenues in the 1997
periods resulting from the discontinuance of MichCon's energy conservation
programs.
COST OF GAS
Cost of gas is affected by variations in sales volumes and cost of
purchased gas and related transportation. Under the existing Gas Cost Recovery
(GCR) mechanism, MichCon recovers all of its reasonably and prudently incurred
cost of gas sold. As a result, fluctuations in cost of gas sold had little
effect on gross margins.
Cost of gas sold decreased in the 1998 periods due primarily to lower
sales volumes, resulting from warmer weather. The decrease also reflects
reductions in the market prices paid of $.48 (15%) and $.19 (6%) per thousand
cubic feet of gas sold in the 1998 quarter and twelve-month period,
respectively.
2
<PAGE> 5
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OPERATION AND MAINTENANCE
Operation and maintenance expenses decreased for both 1998 periods,
reflecting lower uncollectible gas accounts expense and lower benefit costs,
primarily pension and retiree health care costs. MichCon implemented an early
retirement program in the first quarter of 1998 which reduced its work force by
approximately 150 employees. The cost of the program and the related savings
will not have a material impact on 1998 net income. However, it is expected that
the results of the program will contribute to lower operating costs in future
years.
DEPRECIATION AND DEPLETION
The decrease in depreciation and depletion for the 1998 quarter reflects
lower depreciation rates for MichCon's utility property, plant and equipment,
which became effective January 1, 1998. Depreciation on higher plant
balances partially offset the effect of the lower rates.
OTHER INCOME AND DEDUCTIONS
Other income and deductions increased in both 1998 periods due primarily
to additional interest expense on long-term debt required to finance capital
investments.
INCOME TAX PROVISION
Income taxes for the 1998 periods increased as a result of higher earnings
and a 1998 provision for tax issues. The increase in income taxes was also
impacted by amounts recorded in 1997 and 1996 for the favorable resolution of
prior years' tax issues and tax credits.
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
MichCon's cash flow from operating activities totaled $170.1 million for
the 1998 quarter, increasing $23.3 million from the comparable 1997 period. The
increase was due primarily to lower working capital requirements resulting from
the collection of previously unrecovered gas costs. Operating cash flows in the
first quarter were sufficient to fund all capital investments.
FINANCING ACTIVITIES
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 heating sales. During the latter part of the year, cash and cash
equivalents normally 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 that is backed by
credit lines with several banks. MichCon has established credit lines to allow
for borrowings of up to $150 million under a 364-day revolving credit facility
and up to $150 million under a three-year revolving credit facility, both of
which expire July 1998. During the first three months of 1998, MichCon repaid
$123.2 million of commercial paper, leaving a balance of $113.5 million
outstanding at March 31, 1998.
3
<PAGE> 6
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MichCon's existing shelf registration allows for the issuance of up to
$215 million of debt securities. MichCon anticipates the issuance of an
additional $50 million of first mortgage bonds during 1998. The funds from
these issuances will be used to fund capital expenditures and for general
corporate purposes.
INVESTING ACTIVITIES
MichCon's capital expenditures totaled $38.3 million during the 1998
quarter and are anticipated to be approximately $200 million by the end of the
year. Capital expenditures primarily represent the construction of
transportation pipelines, the construction of new distribution lines to attach
new customers, new computer systems and improvements to existing storage,
distribution, and transmission systems.
It is management's opinion that MichCon will have sufficient capital
resources, both internal and external, to meet anticipated capital requirements.
OUTLOOK
MichCon's strategy is to aggressively expand its role as the preferred
provider of natural gas and high-value energy services within Michigan.
Accordingly, MichCon's objectives are to increase revenues and reduce its costs
in order to maintain strong returns and provide customers with high-quality
service at competitive prices.
MichCon plans to capitalize on the opportunities resulting from the gas
industry restructuring by implementing its Regulatory Reform Plan which was
approved by the Michigan Public Service Commission in April 1998. The plan
includes a comprehensive experimental three-year customer choice program that is
designed to offer expanded availability and transportation options to all sales
customers, subject to annual caps on the level of participation. Beginning April
1, 1999, customers will have the option of purchasing natural gas from suppliers
other than MichCon. However, MichCon will continue to transport and deliver the
gas to the customers' premises at prices equal to its existing sales margins.
The plan also suspends the GCR mechanism for customers who continue to
purchase gas from MichCon and fixes the gas cost component of MichCon's sales
rates for the three-year period beginning on January 1, 1999. Currently MichCon
does not generate earnings on the gas-supply portion of its operations; however
under this plan, changes in cost of gas will directly impact gross margins and
earnings. As part of its gas acquisition strategy, MichCon will implement steps
to mitigate risks from price and volume fluctuations.
Also beginning in 1999, an income sharing mechanism will allow customers
to share in profits when actual utility return on equity exceeds predetermined
thresholds. Although this program increases MichCon's risk associated with
generating margins that cover its gas costs, management believes the
opportunities from this program will have a favorable impact on future earnings.
4
<PAGE> 7
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONCLUDED)
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AcSEC) issued Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 requires the capitalization of internal-use
software and specifically identifies which types of costs should be capitalized
and which types of costs should be expensed. The statement is effective for
fiscal years beginning after December 15, 1998. Management does not expect the
SOP to have a material impact on MichCon's financial statements.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." SOP 98-5 requires organizational and start-up costs to be
expensed as incurred and is effective for fiscal years beginning after
December 15, 1998. Management does not expect the SOP to have a material
impact on MichCon's financial statements.
FORWARD-LOOKING STATEMENTS
The Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve certain risks and uncertainties that may
cause actual future results to differ materially from those contemplated,
projected, estimated or budgeted in such forward-looking statements. Factors
that may impact forward-looking statements include, but are not limited to, the
following: (i) the effects of weather and other natural phenomenon; (ii)
increased competition from other energy suppliers as well as alternative forms
of energy; (iii) the capital intensive nature of MichCon's business; (iv)
economic climate and growth in the geographic areas in which MichCon does
business; (v) the uncertainty of gas reserve estimates; (vi) the timing and
extent of changes in commodity prices for natural gas, electricity and crude
oil; (vii) conditions of capital markets and equity markets and (viii) the
effects of changes in governmental policies and regulatory actions, including
income taxes, environmental compliance and authorized rates.
5
<PAGE> 8
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,
----------------------------- ------------------------------
1998 1997 1998 1997
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Operating Revenues........................... $ 429,227 $ 527,445 $ 1,155,461 $ 1,254,838
---------- --------- ----------- -----------
Operating Expenses
Cost of gas................................ 217,589 303,273 546,545 641,151
Operation and maintenance.................. 62,222 74,105 270,757 299,615
Depreciation and depletion................. 22,445 25,501 100,647 99,255
Property and other taxes................... 17,302 17,794 60,252 60,948
--------- --------- ----------- -----------
Total operating expenses................. 319,558 420,673 978,201 1,100,969
--------- --------- ----------- -----------
Operating Income............................. 109,669 106,772 177,260 153,869
--------- --------- ----------- -----------
Other Income and (Deductions)
Interest income............................ 1,112 1,209 4,562 4,524
Interest on long-term debt................. (12,206) (10,740) (46,992) (41,787)
Other interest expense..................... (3,257) (2,891) (9,030) (8,068)
Minority interest.......................... (745) (338) (2,289) (978)
Equity in Earnings of Joint Ventures....... 589 310 1,478 961
Other...................................... 121 201 456 (1,147)
--------- --------- ----------- -----------
Total other income and (deductions)...... (14,386) (12,249) (51,815) (46,495)
--------- --------- ----------- -----------
Income Before Income Taxes................... 95,283 94,523 125,445 107,374
Income Tax Provision......................... 33,619 32,330 46,954 35,379
--------- --------- ----------- -----------
Net Income Available for Common Stock........ $ 61,664 $ 62,193 $ 78,491 $ 71,995
========== ========= =========== ===========
</TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
----------------------------- ------------------------------
1998 1997 1998 1997
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Balance - Beginning of Period.................... $ 375,325 $ 336,305 $ 383,498 $ 330,766
Add - Net income............................... 61,664 62,193 78,491 71,995
--------- --------- --------- ---------
436,989 398,498 461,989 402,761
Deduct - Cash dividends declared: Common Stock. - 15,000 25,000 19,263
--------- --------- --------- ---------
Balance - End of Period.......................... $ 436,989 $ 383,498 $ 436,989 $ 383,498
========= ========= ========= =========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
6
<PAGE> 9
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
March 31, December 31,
------------------------------ ------------
1998 1997 1997
--------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................... $ 17,083 $ 15,284 $ 14,353
Accounts receivable, less allowance for doubtful accounts of...
$18,123, $24,398 and $15,015, respectively.................... 262,768 256,692 195,662
Accrued unbilled revenues...................................... 63,400 71,507 91,896
Gas in inventory............................................... 20,188 21,419 40,201
Property taxes assessed applicable to future periods........... 54,765 49,300 64,827
Accrued gas cost recovery revenues............................. - 21,500 12,862
Other.......................................................... 28,348 29,292 33,361
----------- ----------- -----------
446,552 464,994 453,162
----------- ----------- -----------
Deferred Charges and Other Assets
Investment in and advances to joint ventures................... 20,078 19,865 19,643
Long term investments.......................................... 35,538 3,737 35,110
Deferred postretirement benefit costs.......................... - 4,099 -
Deferred environmental costs................................... 27,816 28,116 27,699
Prepaid benefit costs.......................................... 85,817 60,228 85,790
Other.......................................................... 47,232 48,942 46,972
----------- ----------- -----------
216,481 164,987 215,214
----------- ----------- -----------
Property, Plant and Equipment.................................... 2,809,342 2,685,456 2,790,352
Less - Accumulated depreciation and depletion ................. 1,334,813 1,265,095 1,322,392
----------- ----------- -----------
1,474,529 1,420,361 1,467,960
----------- ----------- -----------
$ 2,137,562 $ 2,050,342 $ 2,136,336
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable................................................ $ 90,568 $ 95,299 $ 130,267
Notes payable................................................... 117,094 160,958 241,691
Current portion of long-term debt and capital lease obligations. 27,616 53,286 34,956
Gas inventory equalization (Note 1)............................. 70,894 96,197 -
Federal income, property and other taxes payable................ 100,257 89,578 78,630
Deferred gas cost recovery revenues............................. 18,937 - -
Customer deposits............................................... 15,323 12,630 16,363
Other........................................................... 67,751 51,894 67,780
----------- ----------- -----------
508,440 559,842 569,687
----------- ----------- -----------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes............................... 84,839 75,846 83,905
Unamortized investment tax credit............................... 32,284 34,127 32,745
Tax benefits amortizable to customers........................... 123,189 115,897 122,922
Accrued environmental costs..................................... 32,000 32,000 32,000
Minority interest............................................... 17,954 17,738 17,283
Other........................................................... 48,963 41,695 44,663
----------- ----------- -----------
339,229 317,303 333,518
----------- ----------- -----------
Long-Term Debt, including capital lease obligations .............. 612,205 549,000 617,107
----------- ----------- -----------
Contingencies (Note 2)
Common Shareholder's Equity
Common stock.................................................... 10,300 10,300 10,300
Additional paid-in capital...................................... 230,399 230,399 230,399
Retained earnings............................................... 436,989 383,498 375,325
----------- ----------- -----------
677,688 624,197 616,024
----------- ----------- -----------
$ 2,137,562 $ 2,050,342 $ 2,136,336
=========== =========== ===========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
7
<PAGE> 10
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
------------ ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income.................................................... $ 61,664 $ 62,193
Adjustments to reconcile net income to net cash flow provided
from operating activities:
Depreciation and depletion
Per statement of income................................. 22,445 25,501
Charged to other accounts............................... 2,043 1,913
Deferred income taxes - current........................... (9,131) (7,176)
Deferred income taxes and investment tax credit - net..... 740 (1,554)
Other..................................................... (250) (766)
Changes in assets and liabilities, exclusive of changes
shown separately........................................ 92,608 66,748
-------- --------
Net cash provided from operating activities........... 170,119 146,859
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable - net........................................... (124,597) (104,168)
Cash dividend paid applicable to common stock................. - (15,000)
Retirement of long-term debt and preferred stock.............. (4,772) (1,297)
-------- --------
Net cash used for financing activities................ (129,369) (120,465)
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures.......................................... (38,282) (23,702)
Other - net................................................... 262 2,582
-------- --------
Net cash used for investing activities................ (38,020) (21,120)
-------- --------
Net Increase in Cash and Cash Equivalents....................... 2,730 5,274
Cash and Cash Equivalents, January 1............................ 14,353 10,010
-------- --------
Cash and Cash Equivalents, March 31............................. $ 17,083 $ 15,284
======== ========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN
SEPARATELY
Accounts receivable - net................................... $(67,555) $(88,130)
Gas inventory equalization.................................. 70,894 96,197
Accrued/deferred gas cost recovery revenues................. 31,799 6,172
Accrued unbilled revenues................................... 28,496 35,870
Gas in inventory............................................ 20,013 46,491
Property taxes assessed applicable to future periods........ 10,062 11,292
Accounts payable............................................ (39,699) (35,426)
Federal income, property and other taxes payable............ 21,627 4,790
Other current assets and liabilities........................ 13,075 (10,736)
Deferred assets and liabilities............................. 3,896 228
-------- --------
$ 92,608 $ 66,748
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest, net of amounts capitalized........................ $ 13,089 $ 9,889
======== ========
Federal income taxes........................................ $ 5,497 $ 11,303
======== ========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
8
<PAGE> 11
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 32.9 billion cubic feet (Bcf)
and 23.6 Bcf of gas was included in inventory at March 31, 1998 and 1997,
respectively.
2. 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.
3. GENERAL
There have been no changes in MichCon's principal accounting policies from
those set forth in MichCon's 1997 Annual Report on Form 10-K. Certain
reclassifications have been made to the prior year's financial statements to
conform with the 1998 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> 12
OTHER INFORMATION
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.
(b) Reports on Form 8-K
None
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 14, 1998 By: /s/ Howard L. Dow III
------------------------------
Howard L. Dow III
Senior Vice President and
Chief Financial Officer
11
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
12.1 Computation of Ratio of Earnings of Fixed
Charges
27.1 Financial Data Schedule
<PAGE> 1
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
March 31, 1998 December 31, 1997 December 31, 1996
<S> <C> <C> <C>
EARNINGS AS DEFINED (1)
Net Income............................................... $129,786 $125,630 $122,239
Fixed charges............................................ 59,788 57,905 53,831
-------- -------- --------
Earnings as defined.................................... $189,574 $183,535 $176,070
======== ======== ========
FIXED CHARGES AS DEFINED (1)
Interest on long-term debt.............................. $ 48,442 $ 47,024 $ 43,163
Interest on other borrowed funds........................ 9,030 8,664 8,012
Amortization of debt discounts, premium
and expense........................................... 1,006 1,032 1,081
Interest implicit in rentals (2)........................ 1,310 1,185 1,575
-------- -------- --------
Fixed charges as defined.............................. $ 59,788 $ 57,905 $ 53,831
======== ======== ========
Ratio of Earnings to Fixed Charges ................... 3.17 3.17 3.27
==== ==== ====
</TABLE>
Notes:
(1) Earnings and fixed charges are defined and computed in accordance with Item
503 of Regulation S-K.
(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> <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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 17,083
<SECURITIES> 0
<RECEIVABLES> 280,891
<ALLOWANCES> 18,123
<INVENTORY> 20,188
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<PP&E> 2,809,342
<DEPRECIATION> 1,334,813
<TOTAL-ASSETS> 2,137,562
<CURRENT-LIABILITIES> 508,440
<BONDS> 612,205
0
0
<COMMON> 10,300
<OTHER-SE> 667,388
<TOTAL-LIABILITY-AND-EQUITY> 2,137,562
<SALES> 0
<TOTAL-REVENUES> 429,227
<CGS> 0
<TOTAL-COSTS> 319,558
<OTHER-EXPENSES> 624
<LOSS-PROVISION> 7,195
<INTEREST-EXPENSE> 15,463
<INCOME-PRETAX> 95,283
<INCOME-TAX> 33,619
<INCOME-CONTINUING> 61,664
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,664
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
