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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-K
(MARK ONE)
/X/
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 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 1-10070
MCN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-2820658
(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 313-256-5500
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ---------------------------------------- ---------------------------------
Common Stock, $.01 Par Value Per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of MCN Corporation Common Stock, $.01 par value
per share, held by non-affiliates as of March 1, 1994 was $1.138 billion based
on 29,557,345 outstanding shares and the closing price on that day (New York
Stock Exchange Composite Transactions).
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of MCN's 1993 Annual Report to Shareholders are incorporated by
reference in Part II, Items 5, 6, 7 and 8 and portions of MCN's March 1994
definitive Proxy Statement are incorporated by reference in Part III, Items 10,
11, 12 and 13.
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KEY TO ABBREVIATED TERMS
<TABLE>
<S> <C>
ANG.................................. Adsorbed Natural Gas; a technology which uses an
adsorbent material to store natural gas in tanks or
containers at considerably lower pressures (300 to
500 pounds per square inch) than traditional methods.
Antrim Gas........................... Natural gas produced from shallow wells in Michigan's
Devonian (Antrim) shale formations.
Bcf.................................. One billion cubic feet of natural gas.
Btu.................................. British Thermal Unit; the amount of heat required to
raise the temperature of one pound of water one
degree Fahrenheit. One cubic foot of natural gas
contains approximately 1,000 Btus.
Capital Investments.................. MCN's consolidated capital expenditures plus
acquisitions and MCN's share of capital expenditures
of joint ventures, less the minority partners' share
of consolidated capital expenditures.
Citizens............................. Citizens Gas Fuel Company; a wholly-owned natural gas
utility subsidiary of MCN Corporation.
CNG.................................. Compressed Natural Gas; natural gas typically
pressurized at 2,400 to 3,000 pounds per square inch
for use in cars and other vehicles.
CoEnergy Trading Company............. A wholly-owned nonutility gas marketing subsidiary of
MCN Investment.
Cogeneration......................... The production of two forms of energy, usually steam
and electricity, from a single fuel source such as
natural gas.
Degree Days.......................... A measure of the coldness of the weather based on how
much the day's average temperature is below 65
degrees Fahrenheit.
End User Transportation.............. A gas delivery service provided to large-volume
commercial and industrial customers who purchase
natural gas directly from producers or brokerage
companies.
FERC................................. Federal Energy Regulatory Commission; an agency of
the United States Department of Energy that
determines interstate rates and regulations for
interstate pipelines.
Gas Gathering........................ The process of collecting natural gas from natural
gas wells and then transporting the gas through
pipelines to processing plants or major pipelines.
Gas Storage.......................... The process of injecting and withdrawing natural gas
from an underground depleted natural gas field or
salt cavern.
GCR.................................. Gas Cost Recovery; a process by which MichCon,
through annual gas cost proceedings before the
Michigan Public Service Commission, can recover the
prudent and reasonable cost of gas sold.
Intermediate Transportation.......... A gas delivery service provided to gas producers, gas
brokers and other gas companies that own the natural
gas, but are not the ultimate consumers.
Mcf.................................. One thousand cubic feet of natural gas.
</TABLE>
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<TABLE>
<S> <C>
MCN Investment....................... MCN Investment Corporation; a wholly-owned subsidiary
of MCN Corporation and the holding company for MCN's
nonutility subsidiaries.
MichCon.............................. Michigan Consolidated Gas Company, a wholly-owned
natural gas utility subsidiary of MCN Corporation.
Minority Interest.................... The minority partners' share of a project, such as
the Saginaw Bay project.
MMcf................................. One million cubic feet of natural gas.
MPSC................................. Michigan Public Service Commission; the regulator of
intrastate aspects of the natural gas industry within
the State of Michigan.
Normal Weather....................... The average daily temperature within MCN's utility
operations service area during a 30-year period, as
measured and published by the National Weather
Service.
Saginaw Bay.......................... Saginaw Bay Pipeline Company and Saginaw Bay Lateral
Company; wholly-owned nonutility subsidiaries of MCN
Investment.
Spot Market.......................... Buying and selling natural gas on a short-term basis,
typically monthly.
Supply Realignment Plan.............. MichCon's plan to use additional underground storage
capacity to provide reliable and lower-priced service
by purchasing natural gas during periods of low
demand.
The Genix Group...................... The wholly-owned subsidiary of MCN Investment
providing computer and related outsourcing services.
Transition Cost...................... Costs incurred by interstate pipeline companies under
FERC Order No. 636 to reduce or eliminate gas supply
obligations.
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
CONTENTS NUMBER
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<S> <C> <C>
Part I
Item 1. Business............................................................ 1
Item 2. Properties.......................................................... 11
Item 3. Legal Proceedings................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................. 12
Executive Officers of the Registrant................................................. 12
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................. 13
Item 6. Selected Financial Data............................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 13
Item 8. Financial Statements and Supplementary Data......................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................ 13
Part III
Item 10. Directors and Executive Officers of the Registrant.................. 14
Compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended..... 14
Item 11. Executive Compensation.............................................. 14
Item 12. Security Ownership of Certain Beneficial Owners and Management...... 14
Item 13. Certain Relationships and Related Transactions...................... 14
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 15
Signatures............................................................................. 28
</TABLE>
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PART I
ITEM I. BUSINESS
MCN is a Michigan corporation organized in 1988. MCN is the holding company
for Michigan Consolidated Gas Company (MichCon), Citizens Gas Fuel Company
(Citizens) and MCN Investment Corporation (MCN Investment). MCN is exempt from
most provisions of the Public Utilities Holding Company Act of 1935. The
operating revenues, operating income, and identifiable assets of MCN's business
segments are included in the financial statements, incorporated by reference in
Item 8, "Financial Statements and Supplementary Data" on page 13. At December
31, 1993, MCN and its subsidiaries employed 3,868 employees.
MCN is organized along two major business lines, utility and nonutility
services.
UTILITY SERVICES
MCN's utility services are provided by MichCon and Citizens.
MichCon is a Michigan corporation that was organized in 1898 and, with its
predecessors, has been in business for nearly 150 years. MichCon is a public
utility engaged in the distribution, transmission and storage of natural gas in
the state of Michigan. MichCon is one of the largest natural gas distributors in
the United States and the largest in Michigan. Citizens is a Michigan
corporation organized in 1951 and, with its predecessors, has been in business
for more than 130 years. Citizens is a gas utility that conducts all of its
business in the state of Michigan.
MARKETS
MichCon distributes natural gas to more than 1.1 million customers in the
Detroit, Grand Rapids, Ann Arbor, Traverse City and Muskegon metropolitan areas
and in various other communities throughout the state of Michigan. Citizens
serves approximately 12,000 customers in and around Adrian, Michigan. Due to the
seasonal nature of utility services' business, revenues and net income tend to
be higher in the first and fourth quarters of the calendar year. The following
table sets forth utility services' gas sales and transportation delivery volumes
for the years 1993-1991.
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Gas Markets (Bcf)
Gas Sales.................................................... 205.4 203.1 192.8
End User Transportation...................................... 128.6 129.7 119.8
Intermediate Transportation.................................. 281.1 184.0 105.5
------ ------ ------
Total Sales and Transportation............................ 615.1 516.8 418.1
------ ------ ------
------ ------ ------
</TABLE>
NOTE: During the second quarter of 1993, MCN consolidated its gas marketing
activities by transferring its utility gas brokering business to
nonutility services. Financial and statistical segment information
presented herein is reported as though the combined gas marketing business
was part of nonutility services for all periods presented. Gas sales and
intermediate transportation volumes include intercompany transactions.
Effect of Weather: Warmer than normal weather in the last three years
caused total sales and transportation volumes to be lower than normalized levels
by 4.3 Bcf in 1993, 10.2 Bcf in 1992 and 17.1 Bcf in 1991.
GAS SALES: Gas sales to residential and commercial customers increased
moderately in 1993 from 1992 because of colder weather.
Competition in the gas sales market comes primarily from alternative energy
sources such as electricity, propane, and to a lesser degree, oil and wood.
Natural gas continues to be the preferred fuel for Michigan residences and
businesses. Residential and commercial developers in utility services' service
territory select natural gas as their fuel of choice in almost all new
construction because of the convenience, cleanliness and
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price advantage of natural gas over propane, fuel oil and other alternative
fuels. Service and price are the primary factors affecting this market.
Utility services also compete with other gas utilities in serving new
communities. Utility services has an Area Expansion Program (AEP) in place with
the objective of increasing the demand for natural gas in residential and small
commercial markets. The AEP, which reaches rural and developing communities
currently not using natural gas, has contributed to the 11,821, 5,373 and 7,868
net increase in customers in 1993, 1992 and 1991, respectively.
END USER TRANSPORTATION: Utility services' gas transportation program
allows large-volume customers to purchase gas directly from producers or through
brokers and enter into transportation agreements with utility services to
transport the gas to the customers' facilities.
The primary focus of competition for this market is total fuel costs. Some
large commercial and industrial customers have the capability to switch to
alternative fuel sources including coal, electricity, oil and steam. In
addition, some of these customers could by-pass utility services' distribution
system and obtain service directly from a pipeline company. However, cost
differentials must be sufficient to more than offset the substantial investment
costs associated with fuel switching or by-pass. Utility services competes
against alternative fuel sources and by-pass through competitive pricing and
signing customers to long-term transportation agreements. Since 1988, one
customer has by-passed MichCon's distribution system.
Through technical and financial assistance, customers have been encouraged
to increase the use of natural gas in their industrial and commercial
facilities. Gas-fueled cogeneration and air conditioning have been two expanding
markets for natural gas. The efficiencies and price competitiveness of natural
gas can significantly reduce operating costs for customers, even though a higher
initial outlay may be required.
At December 31, 1993, MichCon had end user transportation agreements
representing annual volumes of 121 Bcf. Approximately 70% of these volumes are
under contracts that extend to 1995 or beyond. The contracts for the remaining
volumes are typically one-year contracts that expire at various times during
1994. MichCon has started negotiations with customers whose contracts expire in
1994.
In the past several years, MichCon has been successful in converting many
customers' facilities to natural gas from alternative fuels and in retaining
those customers after conversion. In 1993, approximately 23 Bcf of MichCon's
transportation deliveries were to customers who displaced coal with natural gas.
INTERMEDIATE TRANSPORTATION: Utility services provides transportation
services for other gas utilities, marketers and producers. Volumes transported
for these customers have grown significantly in recent years. Utility services'
extensive transmission pipeline system has enabled it to increase the volumes
transported for ANR Pipeline Company (ANR), Michigan gas producers and other
shippers. Utility services operates in a pivotal geographic location with links
to major interstate pipelines that reach markets elsewhere in the Midwest, the
eastern United States and eastern Canada.
There has been a significant increase in Michigan Antrim gas production
over the past few years, resulting in a growing demand by gas producers and
brokers for intermediate transportation services. Given the expected continued
rise in demand, MichCon filed an application in February 1994 with the MPSC for
approval to expand its northern Michigan natural gas transmission system.
Profit margins on intermediate transportation services are considerably
less than margins on gas sales or for end user transportation markets.
ENERGY ASSISTANCE AND CONSERVATION PROGRAMS
Energy assistance programs funded by the federal government and the state
of Michigan, including the Home Heating Tax Credit for low-income customers and
the Department of Social Services' (DSS) Heating Assistance Program (HAP),
continue to be critical to MichCon's ability to control its uncollectible
expenses. MichCon has historically obtained favorable regulatory treatment of
its uncollectible costs, including those related to these energy assistance
programs. The October 1993 MPSC order provided for recovery of uncollectible
costs for low-income and other customers.
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MichCon also offers a number of energy conservation programs for its
residential and commercial customers, the costs of which are recovered through
customer charges and MPSC approved surcharges on gas sales. The MPSC has ordered
rates to provide for recovery of program costs through June 1995. A plan to
extend the programs and cost recovery is being developed. The plan should be
submitted to the MPSC in the second half of 1994. These programs are expected to
continue with full cost recovery.
In February 1994, President Clinton submitted a proposed federal budget for
the 1995 fiscal year. The proposal reflects a 50% reduction in funding for the
Low-Income Home Energy Assistance Program (LIHEAP). LIHEAP currently provides
approximately $78 million in heating assistance to 372,000 Michigan households
through the DSS, with approximately 40% of the funds going to MichCon's
customers. In recent years, proposed reductions to LIHEAP funding were defeated
by Congress. The Company is working with legislators and others to maintain
funding at current levels. If lower funding levels are approved, the Company
will undertake efforts to minimize the impact on its customers and its earnings.
The ultimate outcome of the proposal cannot be determined at this time.
GAS SUPPLY
MichCon obtains its natural gas supply from a number of different sources
and geographic areas under agreements that vary in both pricing provisions and
term. This geographic and contractual diversity of supply helps ensure that
MichCon will be able to meet the requirements of its present and future
customers with reliable supplies of natural gas at competitive, market
responsive prices.
Citizens is currently served by two interstate pipeline suppliers,
Panhandle Eastern Pipe Line Company (Panhandle) and ANR. Westside Pipeline
Company (Westside), an affiliated intrastate pipeline company, connects ANR to
Citizens' distribution system. Citizens has transportation contracts with
Panhandle, ANR, and Westside that provide daily quantities sufficient to meet
the needs of Citizens' firm customers. During 1993, Citizens' purchases were
from a variety of gas suppliers who have access to long-term supplies. Citizens
uses natural gas futures contracts to moderate the effect of spot market price
fluctuations.
The following table summarizes utility services' source of supply for the
years 1993-1991.
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Sources of Gas Supply (Bcf)
Michigan Producers........................................... 92.7 100.0 95.4
Interstate Pipelines......................................... 57.7 48.9 51.1
Other Long-term Suppliers.................................... 38.1 34.9 28.2
Spot Market and Other........................................ 13.1 17.9 20.0
(To) From Storage............................................ 1.5 (.8) (6.1)
------ ------ ------
203.1 200.9 188.6
------ ------ ------
------ ------ ------
</TABLE>
SUPPLY REALIGNMENT: MichCon has implemented a program to align its gas
supply and transportation arrangements to maximize the benefits of its storage
capacity. MichCon's Gas Supply Realignment Plan permitted it to significantly
reduce the level of its interstate pipeline transportation entitlement by
increasing reliance on storage deliverability to meet its winter requirements.
FERC ORDER NO. 636: In April 1992, FERC issued Order No. 636 which required
interstate pipelines to separate their pipeline sales service into its various
service components and to price each component separately. The order also
permitted interstate pipelines to recover 100% of their prudently incurred
transition costs, i.e., costs incurred by interstate pipelines to assign and/or
renegotiate, through buy-out or buy-down, their gas supply purchase obligations.
In November 1993, ANR, MichCon's primary interstate natural gas
transporter, implemented its FERC Order No. 636 service restructuring. ANR
discontinued its merchant function and modified its rates to reflect the
Straight Fixed/Variable rate design (SFV) mandated by Order No. 636. Under SFV,
pipelines recover fixed costs via monthly demand charges and recover variable
costs through volume-sensitive commodity charges. SFV significantly increases
costs to many weather-sensitive local distribution companies who do not
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have on-system storage capacity. In contrast, MichCon through the use of its
extensive underground storage facilities is able to lower its pipeline capacity
entitlement, thereby minimizing the incurrence of pipeline fixed costs.
ANR is expected to file an application with the FERC for recovery of
transition costs over the next three years. The transition costs will be
allocated to its customers based on annual contract entitlement. Because
MichCon's Gas Supply Realignment Plan allowed it to significantly reduce its
entitlement with ANR before implementation of FERC Order No. 636, MichCon's
allocation of ANR's transition costs will be lower. The amount of costs that
will be allocated to MichCon cannot be determined at this time. These costs are
expected to be recovered from sales customers when paid, through the GCR
mechanism.
As ANR implemented its FERC Order No. 636 restructuring, MichCon's
long-term relationship with ANR changed significantly. MichCon no longer
purchases natural gas supply directly from ANR, but instead utilizes ANR as a
transporter of gas. MichCon purchases gas directly from producers and marketers
with access to natural gas supplies in Texas, Oklahoma, Louisiana, and Canada.
Although MichCon has been purchasing gas directly from others during the last
several years to supplement its purchases from ANR, effective November 1, 1993,
MichCon completely eliminated its reliance on pipeline suppliers.
GENERAL SUPPLY: To ensure continuous, uninterrupted service to customers,
MichCon has in place long-term firm transportation agreements with ANR and Great
Lakes Gas Transmission Company (Great Lakes). ANR is obligated to transport
approximately 375 MMcf per day of supply for MichCon, while Great Lakes is
obligated to transport 30 MMcf per day. These transportation contracts expire on
various dates between 1999 and 2011.
MichCon also has contracts with independent Michigan producers that expire
on various dates through 2009. A portion of these contracts expire in 1995.
MichCon has begun discussions with several producers concerning post-1995 gas
purchases. MichCon has reached agreement with the majority of its intrastate
suppliers to limit the unit price of gas through 1995 to a price indexed to the
natural gas spot market. This will ensure that the price of intrastate supplies
remains competitive with the prices available on the interstate market.
At December 31, 1993, MichCon owned and operated five storage fields in
Michigan with a working storage capacity of approximately 130 Bcf. MichCon uses
its storage capacity to supplement its supply during the winter months,
replacing the gas in the summer months when prices are usually at their lowest.
MichCon makes a portion of its natural gas storage capacity available to third
parties. The use of this storage capacity also allows MichCon to lower its peak
day entitlement, thereby reducing interstate pipeline costs. During 1993,
MichCon's maximum one-day sendout was 1.9 Bcf, of which approximately 68% came
from its underground storage fields.
REGULATION AND RATES
MichCon is subject to the jurisdiction of the MPSC as to various phases of
its operations, including utility rates, service, accounting and the issuance of
securities. Citizens rates are set by the Adrian Gas Rate Commission, a
municipal commission. Other various phases of its operations are subject to the
jurisdiction of the MPSC. Both MichCon and Citizens are subject to the
requirements of other regulatory agencies with respect to safety, the
environment and health.
GENERAL RATE PROCEEDINGS: In September 1992, MichCon filed an application
with the MPSC requesting authorization to increase rates by $121.9 million,
effective January 1994. The request was subsequently reduced to $49.2 million to
exclude certain construction projects and to reflect more recent cost estimates.
On October 28, 1993, the MPSC issued a final order (Order) that authorized an
increase in MichCon's rates of $15.7 million including an authorized return on
common equity of 11.5%. The Order primarily reflects lower operating and
construction cost levels than proposed by MichCon. The new rates include $28.7
million for retiree health care benefits recognized under new accounting
requirements and $8.1 million for higher depreciation rates.
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In addition, the Order authorized the deferral of MichCon's manufactured
gas plant (MGP) assessment and remediation costs in excess of the $11.7 million
previously reserved by MichCon. The costs are to be amortized over a 10-year
period beginning in the year subsequent to the year environmental assessment and
remediation costs are paid. The MPSC will review the prudence of any costs prior
to allowing MichCon to recover them in rates. MichCon will not be allowed to
accrue carrying charges until remediation costs are reviewed in a rate case. Any
carrying charges accrued will be based on MichCon's pre-tax authorized rate of
return.
In September 1991, the MPSC approved a two-phase rate increase relating to
MichCon's Supply Realignment Plan. The first phase was a rate increase of $19.9
million effective in September 1991. The second phase was a $3.9 million rate
increase that was implemented in November 1992. The increased rates were used to
recover the costs of maintaining a higher level of gas in inventory and replace
the reduction in storage revenue resulting from the conversion of MichCon's
storage capacity. The increase was also intended to cover transportation costs
incurred to integrate gas supply to certain gas markets serviced by MichCon.
MichCon was required to reconcile the yearly effects of supply realignment on
actual costs with actual supply realignment revenues collected through December
1993. In March 1993, MichCon filed the reconciliation of the 1992 Supply
Realignment costs and revenues. During the year, the MPSC approved settlement
agreements that allowed MichCon to refund $7.4 million, including interest, for
1992.
In April 1990, the MPSC approved a settlement agreement (1990 Settlement),
covering rates and conditions of service to be in effect through 1993. The 1990
Settlement contained a performance incentive provision (PIP) designed to adjust
rates if weather-normalized earnings in 1990, 1991 or 1992 were above or below a
specified range of return on common equity. Consistent with the 1990 Settlement,
in March 1993 MichCon made its PIP filing for 1992 requesting approval to reduce
rates by $9.1 million with actual rates being reduced April 1993, on a
prospective basis. A provision reducing net income by $5.9 million was recorded
in the fourth quarter of 1992 to reflect the impact of this rate reduction. An
order approving MichCon's request was issued in August 1993. A PIP rate refund
of $4.3 million for the period January through March 1993 was refunded to GCR
and transportation customers in July 1993.
Citizens is in the final year of a three-year rate agreement that expires
in October 1994. The agreement puts a ceiling on gas rates and allows Citizens
and its customers to share in gas cost savings. In 1993, a 4% drop in gas costs
resulted in refunds to customers.
GAS COST RECOVERY: The GCR process allows MichCon to recover its cost of
gas sold if the MPSC determines that such costs are reasonable and prudent. This
determination includes an annual Gas Supply and Cost Review, in which the MPSC
approves maximum monthly GCR factors. A subsequent annual GCR reconciliation
proceeding provides a review of gas costs incurred during the year, determines
whether approved gas costs have been overcollected or undercollected and, as a
result, whether a refund or surcharge, including interest, is required.
In March 1993, MichCon filed its 1992 GCR reconciliation case. In that
case, MichCon proposed a total refund of approximately $5 million consisting of
under recovered gas costs which was more than offset by other refund
obligations. In June 1993, the MPSC issued an order approving a partial
settlement that also consolidated refunds from other cases and allowed MichCon
to refund approximately $8 million (including the Supply Realignment and PIP
refunds) during the July billing cycle. In August 1993, the MPSC issued its
final order approving MichCon's 1992 purchased gas costs and providing final
resolution for previously unrefunded balances of approximately $1 million.
In July 1993, MichCon filed its 1994 GCR plan case. An MPSC order is
expected in the first half of 1994. MichCon filed its 1993 GCR reconciliation
case in February 1994.
ENVIRONMENTAL MATTERS
MANUFACTURED GAS PLANTS: Prior to the construction of major natural gas
pipelines, gas for cooking, heating and other uses was manufactured from
processes involving coal, coke or oil. MichCon owns or previously owned sixteen
such former MGP sites.
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During the 1980s, MichCon conducted preliminary environmental
investigations at their former MGP sites, and some contamination related to the
byproducts of gas manufacturing was discovered at each site. The existence of
these sites and the results of the environmental investigations have been
reported to the Michigan Department of Natural Resources (MDNR). None of these
former MGP sites are on the National Priorities List prepared by the United
States Environmental Protection Agency (USEPA). MichCon is not involved in any
litigation or administrative proceedings regarding these former MGP sites, but
submitted a remedial action plan for one site to MDNR during 1993 and is
currently conducting more extensive investigations at two other sites.
In 1984, MichCon established an $11.7 million reserve for environmental
investigation and remediation. During 1993, MichCon spent approximately $2.1
million investigating former MGP sites. The balance in the reserve at December
31, 1993 was approximately $6.2 million. During 1993, MichCon received MPSC
approval of a cost deferral and rate recovery mechanism for reasonable and
prudent investigation and remediation costs incurred at former MGP sites in
excess of the reserve.
MichCon is unable to estimate the actual costs to be incurred in the
investigation and remediation of the former MGP sites. Management believes,
however, that the cost deferral and rate recovery mechanism approved by the MPSC
will prevent environmental costs from having a material adverse impact on its
financial condition.
HARBORTOWN: The MichCon Development Corporation, a 100% owned subsidiary of
MichCon, has a 33% to 50% interest in four partnerships that are developing
Harbortown. Harbortown is a residential and small commercial development that is
being constructed on a 50 acre parcel along the Detroit River. Environmental and
other approvals were received in 1984, prior to construction. In 1991, the
partnerships undertook additional environmental testing at Harbortown to assess
whether there was any potential public health risk from lead, mercury or
selenium in certain past soil samples. In 1992, the MDNR accepted the results of
this risk assessment and agreed that there was no health risk to residents due
to lead in Harbortown surface soils.
Additional environmental testing is ongoing and management remains unable
to predict what ultimate remedial actions, if any, may be required or undertaken
after completion of all testing at Harbortown. Management believes, however,
that any such actions will not have a material adverse impact on the financial
condition of MichCon.
OTHER: In 1993, MichCon received a general notice of liability letter from
the USEPA stating that MichCon is one of two potentially responsible parties at
a suspected dump site in Wyandotte, Michigan. The USEPA requested that MichCon
undertake a remedial investigation and feasibility study at the site. MichCon
has investigated its prior activities in the area, as well as the USEPA's bases
for its conclusion, and does not believe that it is responsible for any
contamination that may exist at the site. In early 1994, MichCon informed the
USEPA of this belief and declined to undertake the requested activities at the
site.
FRANCHISES
MichCon operates in numerous cities, villages, and townships under
franchises or permits that typically are revocable at will and have a thirty
year maximum duration. In Detroit, Grand Rapids and a number of other
municipalities where a substantial part of MichCon's service is furnished,
MichCon's operations originated under franchises that have since expired (in
1923 in the case of Detroit). Within the last year, MichCon has commenced a
program to renew or reestablish formal franchises in those municipalities in
order to avoid uncertainty about MichCon's ability to continue and expand
service in those areas. Regarding the franchises which have not, as yet, been
renewed, MichCon's gas distribution systems are rightfully occupying the streets
with the consent or acquiescence of the municipalities. While MichCon could be
ordered by any municipality in which its franchise has expired to remove its
property from the streets, it could be deprived of ownership only by its consent
and the payment of an agreed price, or by condemnation and the payment of the
fair value of such property. Should any of these municipalities seek to
terminate MichCon's operations therein and substitute another gas utility
operation, publicly or privately owned, the municipality must either (i) acquire
and operate MichCon's system, (ii) construct a new system or (iii) grant a
franchise to another privately owned utility to construct its own distribution
system.
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Public utility franchises in Michigan are non-exclusive. Construction under
a second franchise granted to another public utility requires authorization by
the MPSC which must consider, among other things, the service rendered by the
existing utility, the investment by such utility, and the benefit, if any, to
the public. In one township where MichCon serves approximately 100 residential
customers under an expired franchise, another utility with a franchise
overlapping the area filed a lawsuit and a local circuit judge entered an order
enjoining MichCon from expanding its service in that township. The case is now
pending before the Michigan Court of Appeals.
NONUTILITY SERVICES
MCN Investment, incorporated in 1986, is the holding company for MCN's
nonutility businesses. These businesses are discussed below.
GAS SERVICES
In its gas services business segment, MCN Investment markets natural gas to
large-volume customers, develops gas cogeneration facilities, provides gas
gathering and processing services, engages in gas exploration and production
(E&P) and provides gas storage services. The following table sets forth gas
services' gas sales and transportation delivery volumes for the years 1993-1991.
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Nonutility Gas Markets (Bcf)
Gas Sales.................................................... 122.9 112.3 92.0
Transportation............................................... 21.8 25.4 25.3
------ ------ ------
Total................................................... 144.7 137.7 117.3
------ ------ ------
------ ------ ------
</TABLE>
NOTE: During the second quarter of 1993, MCN consolidated its gas marketing
activities by transferring its utility gas brokering business to
nonutility services. Financial and statistical segment information
presented herein is reported as though the combined gas marketing business
was part of nonutility services for all periods presented. Gas sales
volumes include intercompany transactions.
GAS MARKETING & COGENERATION
MCN's consolidated gas marketing activities operate under the newly formed
CoEnergy Trading Company (CoEnergy Trading). CoEnergy Trading, a wholly-owned
subsidiary of MCN Investment, is engaged in the purchase and sale of natural gas
to large-volume gas users in Michigan, the Midwest, the eastern United States
and Canada. The company serves nearly 700 large-volume commercial and industrial
customers and numerous utilities.
CoEnergy Trading competes against numerous marketing companies, some of
which are affiliated with gas pipeline companies. A diverse portfolio of short-,
medium-and long-term sales and supply contracts combined with access to reliable
gas suppliers and storage facilities enhances CoEnergy Trading's competitive
position.
To moderate the impact of fluctuating spot market prices on profit margins,
CoEnergy Trading has in place a comprehensive hedging program. The program uses
natural gas futures contracts and options on futures contracts to establish
prices for gas supplies purchased or held in inventory. These supplies are being
used to meet long-term sales commitments not supported by long-term supply
contracts or MCN Investment's gas production.
To expand its markets in eastern Canada, a wholly-owned subsidiary of MCN
Investment, entered into a Canadian partnership with Toronto-based Great West
Energy Ltd. (Great West) and formed CoWest Energy in September of 1993. This
joint venture allows both CoEnergy Trading and Great West to capitalize on the
other's strengths in terms of market access, gas storage and gas supply
flexibility. The partnership also presents opportunities for gas cogeneration,
gas production, gas transmission and other gas-related business ventures in
Canada.
7
<PAGE> 12
Cogen Development Company (Cogen), a wholly-owned subsidiary of MCN
Investment which was formed in 1993, pursues cogeneration related opportunities
throughout the United States and Canada. Cogeneration is a power production
technology that provides for the sequential generation of two or more useful
forms of energy (e.g., electricity and steam) from a single primary fuel source
(e.g., natural gas). Cogeneration projects offer MCN the potential for multiple
sources of income, including long-term gas sales, transportation services and a
return on the investment in the facility.
In recent years, an increasing amount of new electric generating capacity
has been fueled by natural gas because of the lower capital costs, shorter
construction time and other advantages associated with natural gas-fueled
facilities. In addition, regulations requiring electric utilities to consider
bids from third parties to meet new electric generation needs are more
prevalent. Cogen is positioning itself to take advantage of these opportunities
by providing cogeneration facilities with long-term gas supplies that enable
them to fulfill their obligations under power purchase contracts with electric
utilities and steam hosts and by making equity investments in the facilities.
Cogen owns a 99% limited partnership interest in Ada Cogeneration Limited
Partnership (Ada Cogeneration), which owns and operates a natural gas-fueled
cogeneration facility in western Michigan. The Ada Cogeneration facility
generates up to 30 megawatts of electricity which is sold to Consumers Power
Company and produces up to 50,000 pounds of steam per hour which is sold to a
nearby commercial operation. Ada Cogeneration has contracted to purchase
approximately 2 Bcf of natural gas annually from Cogen over a 15-year period
ending in 2006.
Cogen's business also consists of a number of small cogeneration units
located at the operating facilities of large commercial and industrial
customers. Cogen has secured long-term agreements for the sale and
transportation of natural gas to these units.
Cogen is an equal partner with Destec Energy, Inc., an affiliate of Dow
Chemical Company, in a joint venture that will own, construct and operate a $150
million, 123 megawatt, natural gas-fueled cogeneration plant in Ludington,
Michigan. The cogeneration plant will sell electricity to Consumers Power
Company and provide steam to Dow Chemical Company. The partnership expects to
purchase approximately 9 Bcf of natural gas annually from Cogen over fifteen
years. The project is in the process of obtaining permits and performing
preliminary engineering studies with an expected in-service date in 1995.
To maximize return and minimize the risk inherent in any investment, Cogen
has taken a diversified approach of investing in a portfolio of power projects
of varying size and geographic location. Cogen's strategy is to form key
alliances with partners who will bring technical expertise and capital to the
project.
GAS GATHERING & PROCESSING
With gas production in Michigan surpassing 200 Bcf annually, there is an
increasing need for the transportation of natural gas from the wellhead to
processing plants and ultimately to consumers. Saginaw Bay Pipeline Company and
Saginaw Bay Lateral Company (collectively "Saginaw Bay") are general partners in
ventures that transport natural gas and natural gas liquids from east-central
Michigan gas fields to processing plants in the northern part of the state.
During 1993, the Saginaw Bay pipeline transported an average of 53 MMcf per
day of natural gas and related liquids. Gas flows through this pipeline system
are expected to increase in 1994 as new gas reserves are connected to the
system. To expand this gathering network, the construction of a gas gathering
pipeline extension is planned for 1994.
Gas production from Michigan Antrim formations contains significant amounts
of carbon dioxide which must be removed to meet quality standards required by
the market. In 1993, MCN Investment acquired a larger interest in a partnership
that is operating a carbon dioxide gas processing plant in Michigan and is
building a second plant that will be operational in 1994.
MCN's strategy to grow its gas gathering and processing operations is
focused in Michigan and nearby states where MCN has gas production interests or
can readily apply its expertise in operating gas pipelines.
8
<PAGE> 13
EXPLORATION & PRODUCTION
MCN Investment is engaged in natural gas exploration, development and
production through its wholly-owned subsidiary, Supply Development Group, Inc.
(SDGI). The primary objective in entering the gas E&P field is to develop a gas
reserve pool to supply its gas marketing operation and new cogeneration plants.
Long-term sales obligations of these businesses necessitates long-term gas
supplies at known prices.
Initial E&P efforts were primarily focused on projects in the Devonian
(Antrim) shale formations in Michigan. This is a naturally fractured formation,
occurring at relatively shallow depths of about 1,500 feet. Even though, the
potential natural gas recovery from an average well is less than the recovery
from wells drilled in other types of formations, wells drilled in the Antrim
shale formations have a high success rate and are therefore considered
relatively low risk. Antrim drilling is attractive because of its relatively low
costs and the 10-year federal income tax credits (Section 29) on gas production
from wells drilled prior to January 1993. SDGI's working interest in Antrim
shale E&P projects averages 80%.
During 1993, SDGI initiated a limited program of E&P drilling in the gas
producing regions of Ohio, Louisiana, Oklahoma and Texas. These exploratory
activities involve greater risk of dry holes or unproductive wells, but there is
also a greater potential for finding larger gas reserves than with the drilling
in Antrim shale. Due to the risk involved, working interest in these wells
averages 35%.
SDGI's share of gas production in these projects totaled approximately 2.3
Bcf of gas in 1993. Production came from more than 330 wells, primarily in
Antrim shale formations, that were completed and attached to gathering systems
at various dates in 1993.
The natural gas industry is very competitive, especially in the area of
obtaining desirable properties and projects for the production of natural gas
and oil. Competition ranges from major oil companies to numerous small
independent oil and gas companies.
SDGI has a conservative and selective approach to investing in properties.
SDGI further reduces the risk inherent in E&P drilling by working with several
producers who use different gas well technologies and operate in diverse
geographical gas producing areas.
GAS STORAGE
MCN has adopted a strategy of using joint ventures and strategic
partnerships to provide gas storage services to other gas utilities, pipeline
companies and large-volume gas users. Storage facilities provide supply
flexibility, improve reliability of deliveries and help reduce gas costs.
The gas industry's new operating environment requires local distribution
companies to assume greater responsibility for securing gas supplies and
developing a cost-effective, reliable gas supply portfolio. At the same time,
gas marketers and others are playing a larger role in the purchase and delivery
of natural gas to end users. These developments, as well as Michigan's pivotal
geographic location, favorable geology and depleting gas fields, present
significant opportunities for MCN's storage services.
MCN currently is a 50% partner with ANR Storage Company in the Blue Lake
gas storage field. This 42 Bcf field was developed at a cost of $122 million and
began operations in April of 1993. MCN's 50% share of the field is equally
divided between MichCon and MCN Investment. The fields' entire capacity has been
sold to ANR Pipeline under a 20-year contract.
With the transfer of utility services gas brokering business, nonutility
services obtained a 50% interest in the Washington 28 storage field. This 10 Bcf
field in southeast Michigan provides storage to MCN's nonutility gas marketing
operations.
In October 1993, MCN Investment entered into a partnership with three
partners to develop a 42 Bcf underground storage field, Washington 10. The
partnership, in which MCN Investment has a 40% interest, will invest
approximately $120 million to convert the underground natural gas producing
field into a storage field. Three of the partners or their affiliates including
MCN Investment will store gas in the field under long-term contracts. The field
is expected to be operational in 1996.
9
<PAGE> 14
COMPUTER OPERATIONS SERVICES
The Genix Group (Genix), a wholly-owned subsidiary of MCN Investment,
provides data processing, computer operations management, data
telecommunications design and management, large-scale electronic printing and
mailing, and business process solution services to more than 100 corporate
clients, including many Fortune 500 companies, in financial services, retailing,
food processing, education, manufacturing and other industries. Approximately
80% of Genix's revenue is currently generated from the sale of computer
operations management services. In providing this service, Genix typically owns
and operates mainframe and other types of computers that process information for
customers. This allows Genix's customers to focus on their core business rather
than investing and operating in-house data centers.
Genix competes in the computer services outsourcing industry on price,
quality and service. Genix targets corporate clients that are looking for
reliable, quality, value-added computer services. By outsourcing in-house
computer and related operations, a company can lower its cost of doing business
by taking advantage of Genix's economies of scale, skilled personnel and
state-of-the-art equipment. In 1993, Genix renewed all of its customer contracts
that were scheduled to expire during the year. In addition, Genix added 10 new
clients in 1993.
During 1993, Genix expanded the capabilities of its major computing centers
in Michigan and Pennsylvania to handle new business and opened a specialized
services facility in the metropolitan Detroit area. In 1993, Genix increased its
processing power by 25% to 1,000 MIPS (million instructions per second).
GAS TECHNOLOGY
MCN Investment's gas technology programs are developing additional ways to
expand demand for natural gas. These research and development efforts have
pioneered and patented an adsorbed natural gas (ANG) technology which allows
natural gas to be stored in containers at one-sixth to one-tenth the pressure of
conventional methods. This technology makes use of an adsorbent material that
works much like a sponge to adsorb methane, the main element of natural gas. ANG
technology offers users three major benefits compared to conventional natural
gas systems and other alternative fuels -- it offers more flexibility in
container design, it uses less expensive refueling equipment and it features
shorter refueling time in home refuel scenarios.
During the first half of 1993, MCN Investment and two other companies
joined forces to develop and convert a fleet of golf cars to run on natural gas
using the patented ANG technology. In July 1993, this pilot program was launched
with a fleet of 80 ANG-fueled golf cars on a golf course north of Detroit. The
results of this pilot program exceeded expectations in several important areas
- -- ease of use and refueling, performance on hilly terrain, operating cost
savings and reduction in polluting emissions and noxious odors.
In late 1993, as part of a research grant from the United States Department
of Energy, MCN Investment joined forces with the Ford Motor Company on a project
which could integrate ANG technology into future car designs. Industry groups,
such as the Gas Research Institute, have estimated that amendments to the Clean
Air Act of 1990 and the Energy Policy Act of 1992 could spur the development of
one million natural gas-fueled vehicles by the year 2000.
In 1993, MCN Investment continued to develop specific products and
applications for its pressurized combustion technology. This technology provides
increased fuel efficiency, heat uniformity and compactness of equipment. MCN
Investment developed and patented a prototype residential compact furnace which
is about one-fourth the size of a conventional furnace, with a more efficient
heat output.
In 1993, MCN Investment succeeded in applying pressurized combustion
technology to an industrial furnace. A joint effort with Salem Furnace will lead
to the installation and testing of a prototype at Bethlehem Steel's Burn Harbor,
Indiana plant. This field test is being funded by the Gas Research Institute of
Chicago. Results of this pilot project will be known later in 1994.
The potential applications for pressurized combustion technology includes
furnaces for single family homes and multiple family dwellings, water heaters,
commercial boilers and industrial furnaces.
10
<PAGE> 15
OTHER
MCN Investment is involved in several residential and commercial community
development partnerships.
Bridgewater Holdings Inc., a 100% owned subsidiary of MCN Investment, holds
a 33 1/3% limited partnership interest in Bridgewater Place Ltd. Limited
Partnership. The partnership owns a 17-story commercial real estate complex
consisting of approximately 375,000 square feet of leasable office space in
Grand Rapids, Michigan.
Storage Development Company, a 100% owned subsidiary of MCN Investment,
holds a 50% limited partnership interest in The Orchards Golf Limited
Partnership. The partnership was formed in 1991 to develop approximately 520
acres of land in Washington Township, Michigan. This development consists of an
18-hole championship golf course of approximately 200 acres and a planned
residential development for the remaining 320 acres.
ITEM 2. PROPERTIES
UTILITY SERVICES
MichCon operates natural gas distribution, transmission and storage
facilities in the state of Michigan. At December 31, 1993, MichCon's
distribution system included 14,680 miles of distribution mains, 1,021,739
service lines and 1,145,687 active meters. MichCon owns 2,502 miles of
transmission and production lines which deliver natural gas to the distribution
districts and interconnect its storage fields with the sources of supply and the
market areas. MichCon also owns properties relating to five underground storage
fields with an aggregate storage capacity of approximately 130 Bcf.
Additionally, MichCon owns district office buildings, service buildings and gas
receiving and metering stations. MichCon occupies its principal office
buildings, located in Detroit and Grand Rapids, Michigan under long-term leases.
Portions of these buildings are subleased.
Most of MichCon's properties are held in fee, by easement, or under lease
agreements. The principal plants and properties of MichCon are held subject to
the lien of MichCon's Indenture of Mortgage and Deed of Trust under which
MichCon's First Mortgage Bonds are issued. Some existing properties are being
fully utilized and new properties are being added to meet the requirements of
expansion into new areas.
Citizens owns all of the properties used in the conduct of its utility
business. Included in these properties is a gas distribution system, a two-story
office building in downtown Adrian and a one-story service center.
NONUTILITY SERVICES
The Saginaw Bay partnerships own substantially all of the properties used
in the conduct of their business, primarily a 126-mile transmission line and
related lateral lines.
The Supply Development Group has interest in properties used for gas
production, including compressor facilities and gathering lines.
Genix owns certain properties including land, buildings and computer
equipment located in Pittsburgh, Pennsylvania and the metropolitan Detroit area.
MCN's facilities are suitable and adequate for their intended use.
ITEM 3. LEGAL PROCEEDINGS
In addition to utility services' regulatory proceedings and other matters
described in Item 1, "Business", MCN is also involved in a number of law suits
and administrative proceedings in the ordinary course of business with respect
to taxes, environmental matters, personal injury, property damage claims and
other matters.
11
<PAGE> 16
The management of MCN believes that the resolution of these matters will
not have a material adverse effect on the financial condition of MCN.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to all executive officers of MCN, as of February
28, 1994, is set forth below. Such officers are appointed by the Board of
Directors for terms expiring at the next annual meeting of shareholders
scheduled to be held on April 28, 1994.
<TABLE>
<CAPTION>
NAME AND POSITION AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- --------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Alfred R. Glancy III............. 56 Present position since September 1992; Chairman, Chief
Chairman, President, Chief Executive Officer and Director since August 1988;
Executive Officer and Director Chairman and Director of MichCon since 1984 and 1981
respectively; Chief Executive Officer of MichCon from
1984 to September 1992.
Stephen E. Ewing................. 50 Present position since September 1992; President and
President and Chief Executive Chief Operating Officer from August 1988 to September
Officer of MichCon and Director 1992; Director since August 1988; President and
Director of MichCon since 1985 and 1984, respectively;
Chief Operating Officer of MichCon from 1985 to
September 1992.
William K. McCrackin............. 60 Present position since September 1992; Vice Chairman,
Vice Chairman, Chief Financial Chief Financial Officer, Treasurer and Director from
Officer and Director August 1988 to September 1992; Vice Chairman of
MichCon from March 1986 to September 1992; Chief
Financial Officer of MichCon from 1985 to September
1992; Director of MichCon since 1984.
Rai P. Bhargava.................. 46 Present position since January 1994; Executive Vice
President and Chief Executive President and Chief Operating Officer of MCN
Officer of MCN Investment Investment from July 1993 to January 1994; Vice
President, Marketing of MichCon from July 1988 to July
1993.
Daniel L. Schiffer............... 50 Present position since April 1989; General Counsel and
Vice President, General Counsel Secretary of MCN since August 1988; Vice President and
and Secretary General Counsel of MichCon from July 1991 to September
1992; Associate General Counsel of MichCon from 1984
to July 1991; Secretary of MichCon from June 1988 to
April 1990 and a Director of MichCon since January
1989.
</TABLE>
12
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MCN Common Stock is traded on the New York Stock Exchange. On March 1, 1994
there were 26,248 holders of record of MCN Common Stock. Information regarding
the market price of MCN Common Stock and related security holder matters is
incorporated by reference herein from the section entitled "Supplementary
Financial Information" in MCN's 1993 Annual Report to Shareholders, pages 52 and
53.
ITEM 6. SELECTED FINANCIAL DATA
Information required pursuant to this item is incorporated by reference
herein from the section entitled "Supplementary Financial Information" in MCN's
1993 Annual Report to Shareholders, pages 52 and 53.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required pursuant to this item is incorporated by reference
herein from the section entitled "Management's Discussion and Analysis" in MCN's
1993 Annual Report to Shareholders, pages 30 through 35.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required pursuant to this item is incorporated by reference
herein from the following sections of MCN's 1993 Annual Report to Shareholders.
The consolidated statement of income, cash flows and capitalization are for each
of the years ended December 31, 1993, 1992 and 1991 and the consolidated
statement of financial position is as of December 31, 1993 and 1992.
Consolidated Statement of Income, page 36;
Consolidated Statement of Financial Position, page 37;
Consolidated Statement of Capitalization, page 38;
Consolidated Statement of Cash Flows, page 39;
Summary of Accounting Policies, page 40;
Notes to Consolidated Financial Statements, pages 41 through 49;
Independent Auditors' Report, page 50; and
Supplementary Financial Information, pages 52 and 53.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth in the section entitled "Election of Directors"
in MCN's March 1994 definitive Proxy Statement is incorporated by reference
herein.
Information concerning the executive officers of MCN is set forth in the
section entitled "Executive Officers of the Registrant" on page 12 in Part I of
this Report.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
The information set forth in the section entitled "Filings Under Section
16(a)" in MCN's March 1994 definitive Proxy Statement is incorporated by
reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the sections entitled "Directors'
Compensation," "Executive Compensation," "Change of Control Employment
Agreements," "Retirement Plans" and "Compensation Committee Interlocks and
Insider Participation" in MCN's March 1994 definitive Proxy Statement is
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the section entitled "Election of Directors"
in MCN's March 1994 definitive Proxy Statement is incorporated by reference
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the section entitled "Executive Compensation"
in MCN's March 1994 definitive Proxy Statement is incorporated by reference
herein.
14
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) LIST OF DOCUMENTS FILED AS PART OF THE REPORT:
1. For a list of financial statements incorporated by reference, see the
section entitled "Financial Statements and Supplementary Data", on page
13 in Part II, Item 8 of this Report.
2. Financial Statement Schedules for each of the three years in the period
ended December 31, 1993, unless otherwise noted, are included herein in
response to Part II, Item 8:
Independent Auditors' Report
<TABLE>
<CAPTION>
SCHEDULE
<S> <C> <C>
II -- Amounts Receivable from Related Parties and Underwriters, Promoters and
Employees other than Related Parties
V -- Property, Plant and Equipment
VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and
Equipment
VII -- Guarantees of Securities of Other Issuers -- December 31, 1993
VIII -- Valuation and Qualifying Accounts
IX -- Short-Term Borrowings
X -- Supplementary Income Statement Information
</TABLE>
Schedules other than those referred to above are omitted as not applicable
or not required, or the required information is shown in the financial
statements or notes thereto.
15
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
MCN Corporation:
We have audited the consolidated financial statements of MCN Corporation
and subsidiaries as of December 31, 1993 and 1992, and for each of the three
years in the period ended December 31, 1993, and have issued our report thereon
dated February 8, 1994; such consolidated financial statements and report are
included in your 1993 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the consolidated financial statement
schedules of MCN Corporation and subsidiaries, listed in Item 14. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Deloitte & Touche
Detroit, Michigan
February 8, 1994
16
<PAGE> 21
SCHEDULE II
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES
OTHER THAN RELATED PARTIES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
DEDUCTIONS BALANCE AT
------------------------- END OF PERIOD
BALANCE AT AMOUNTS -------------------
BEGINNING AMOUNTS WRITTEN NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED OFF CURRENT CURRENT
- ----------------------- ---------- -------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Harbortown Limited
Dividend Housing
Association (1)...... $1,131 $ 102 $ 102 $ -- $ -- $ 1,131
Orchards Golf Limited
Partnership (2)...... $3,426 $ 1,594 $ -- $ -- $ -- $ 5,020
Bridgewater Place
Ltd. Limited
Partnership (3)...... $ -- $ 1,104 $ -- $ -- $ -- $ 1,104
YEAR ENDED DECEMBER 31, 1992
Harbortown Limited
Dividend Housing
Association (1)...... $1,131 $ 102 $ 102 $ -- $ -- $ 1,131
Orchards Golf Limited
Partnership (2)...... $ 663 $ 3,288 $ 525 $ -- $ -- $ 3,426
Blue Lake Gas Storage
Company (4).......... $2,436 $10,740 $ 13,176 $ -- $ -- $ --
YEAR ENDED DECEMBER 31, 1991
Harbortown Limited
Dividend Housing
Association (1)...... $1,131 $ 102 $ 102 $ -- $ -- $ 1,131
Orchards Golf Limited
Partnership (2)...... $ -- $ 663 $ -- $ -- $ -- $ 663
Blue Lake Gas Storage
Company (4).......... $ -- $ 2,436 $ -- $ -- $ 2,436 $ --
</TABLE>
- ------------------------
NOTES:
(1) Represents unsecured promissory note payable, due August 2004, plus accrued
interest thereon. Interest on the promissory note accrues at 9% per annum.
The interest is payable upon maturity of the promissory note, but has been
paid annually in recent years.
(2) Represents notes payable, due various dates through May 2008, plus accrued
interest thereon. Interest on the notes accrues at 16% per annum,
compounded at the end of each calendar year. The interest is payable upon
maturity of the notes.
(3) Represents note payable, due June 1996, plus accrued interest thereon.
Interest on the note accrues at 8 3/4% per annum. The interest is payable
upon maturity of the note.
(4) Represents note payable, due June 1992, to temporarily support the
construction of gas storage facilities. The note accrued interest at a
variable interest rate based on the prime rate, payable quarterly and upon
maturity.
17
<PAGE> 22
SCHEDULE V
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN D COLUMN E COLUMN F
RETIREMENTS OTHER CHANGES
BALANCE AT COLUMN C OR SALES ----------------------------- BALANCE
BEGINNING ADDITIONS AT COST TRANSFERS AND OTHER AT END
CLASSIFICATION OF PERIOD AT COST (NOTE 1) RECLASSIFICATIONS (NOTE 2) OF PERIOD
- ------------------------------------------- ---------- -------- ----------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
UTILITY SERVICES
In Service --
Tangible --
Natural gas production................ $ 43,109 $ 38 $ 108 $ (98) $ -- $ 42,941
Storage............................... 147,760 2,524 130 61 -- 150,215
Transmission.......................... 283,910 36,503 2,555 (5,035) -- 312,823
Distribution.......................... 1,206,698 82,590 6,570 5,178 (515) 1,287,381
General............................... 201,654 28,340 8,936 (915) -- 220,143
Intangible.............................. 12,230 1,989 -- -- -- 14,219
Property under capital leases............. 26,454 432 -- -- -- 26,886
Construction work in progress............. 48,489 (10,242) -- -- (330) 37,917
Utility plant held for future use......... 2,230 -- 1,407 -- 43 866
Other..................................... 9,207 484 -- (243) (1,223) 8,225
---------- -------- ----------- ------ -------- ---------
1,981,741 142,658 19,706 (1,052) (2,025) 2,101,616
---------- -------- ----------- ------ -------- ---------
NONUTILITY SERVICES
Gas Services.............................. 86,641 58,858 -- 1,826 (229) 147,096
Computer Operations Services.............. 28,733 5,065 282 (86) -- 33,430
Corporate & Gas Technology................ 1,020 2,230 86 (789) 12 2,387
---------- -------- ----------- ------ -------- ---------
116,394 66,153 368 951 (217) 182,913
---------- -------- ----------- ------ -------- ---------
Total property, plant and
equipment.......................... $2,098,135 $208,811 $20,074 $ (101) $(2,242) $2,284,529
---------- -------- ----------- ------ -------- ---------
---------- -------- ----------- ------ -------- ---------
YEAR ENDED DECEMBER 31, 1992
UTILITY SERVICES
In Service --
Tangible --
Natural gas production................ $ 43,188 $ 13 $ 33 $ (59) $ -- $ 43,109
Storage............................... 143,864 3,653 126 110 259 147,760
Transmission.......................... 245,258 40,906 791 (1,403) (60) 283,910
Distribution.......................... 1,148,121 65,674 6,001 (111) (985) 1,206,698
General............................... 179,541 28,554 6,423 (18) -- 201,654
Intangible.............................. 8,694 3,536 -- -- -- 12,230
Property under capital leases............. 26,454 -- -- -- -- 26,454
Construction work in progress............. 61,817 (13,328) -- -- -- 48,489
Utility plant held for future use......... 1,242 -- 475 1,463 -- 2,230
Other..................................... 8,792 415 -- -- -- 9,207
---------- -------- ----------- ------ -------- ---------
1,866,971 129,423 13,849 (18) (786) 1,981,741
---------- -------- ----------- ------ -------- ---------
NONUTILITY SERVICES
Gas Services.............................. 51,150 35,935 104 -- (340) 86,641
Computer Operations Services.............. 23,300 5,484 48 (3) -- 28,733
Corporate & Gas Technology................ 729 467 187 11 -- 1,020
---------- -------- ----------- ------ -------- ---------
75,179 41,886 339 8 (340) 116,394
---------- -------- ----------- ------ -------- ---------
Total property, plant and
equipment.......................... $1,942,150 $171,309 $14,188 $ (10) $(1,126) $2,098,135
---------- -------- ----------- ------ -------- ---------
---------- -------- ----------- ------ -------- ---------
YEAR ENDED DECEMBER 31, 1991
UTILITY SERVICES
In Service --
Tangible --
Natural gas production................ $ 42,297 $ 1,022 $ 100 $ (31) $ -- $ 43,188
Storage............................... 135,307 1,754 1 72 6,732 143,864
Transmission.......................... 236,258 9,535 1,849 1,317 (3) 245,258
Distribution.......................... 1,100,424 53,175 5,213 19 (284) 1,148,121
General............................... 167,901 16,056 4,475 59 -- 179,541
Intangible.............................. 6,069 2,625 -- -- -- 8,694
Property under capital leases............. 27,045 -- 591 -- -- 26,454
Construction work in progress............. 27,980 33,837 -- -- -- 61,817
Utility plant held for future use......... 2,716 -- 48 (1,426) -- 1,242
Other..................................... 9,035 253 496 -- -- 8,792
---------- -------- ----------- ------ -------- ---------
1,755,032 118,257 12,773 10 6,445 1,866,971
---------- -------- ----------- ------ -------- ---------
NONUTILITY SERVICES
Gas Services.............................. 44,764 6,456 -- -- (70) 51,150
Computer Operations Services.............. 20,739 2,600 38 -- (1) 23,300
Corporate & Gas Technology................ 1,282 181 622 (92) (20) 729
---------- -------- ----------- ------ -------- ---------
66,785 9,237 660 (92) (91) 75,179
---------- -------- ----------- ------ -------- ---------
Total property, plant and
equipment.......................... $1,821,817 $127,494 $13,433 $ (82) $ 6,354 $1,942,150
---------- -------- ----------- ------ -------- ---------
---------- -------- ----------- ------ -------- ---------
</TABLE>
18
<PAGE> 23
SCHEDULE V
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT -- (CONCLUDED)
(THOUSANDS OF DOLLARS)
- ------------------------
NOTES:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
(1) Retirements or sales are summarized as follows:
Charged to accumulated depreciation, depletion and amortization
(Schedule VI).................................................. $19,440 $13,427 $12,453
Undepreciated cost of other property sold or retired............. 634 761 980
------- ------- -------
$20,074 $14,188 $13,433
------- ------- -------
------- ------- -------
(2) Other includes:
Inventory gas reclassified to base gas (a)....................... $ -- $ 259 $ 6,732
Customer payments for gas main extensions........................ (515) (985) (284)
Writedown of project assets...................................... (1,223) -- --
Miscellaneous.................................................... (504) (400) (94)
------- ------- -------
$(2,242) $(1,126) $ 6,354
------- ------- -------
------- ------- -------
(a) In May 1991, Utility Services reclassified a portion of volumes previously included as Gas in
Inventory to base gas volumes, which are included in Property, Plant and Equipment. These
volumes include working gas capacity that has never been withdrawn. The year ended December
31, 1992 reflects an adjustment to deferred income taxes related to this reclassification.
(3) Reference is made to the Summary of Accounting Policies, in the 1993 Annual Report to Shareholders of
MCN Corporation, page 40, with respect to the basis of the provision for depreciation and depletion.
</TABLE>
19
<PAGE> 24
SCHEDULE VI
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
ADDITIONS DEDUCTIONS
-------------------------- ----------------------
RETIREMENTS
PROVISIONS CHARGED TO OR SALES REMOVAL,
BALANCE AT -------------------------- AT COST COST,
BEGINNING INCOME CLEARING AND (NOTE 1 TO LESS
DESCRIPTION OF PERIOD (NOTE 1) OTHER ACCOUNTS SCHEDULE V) SALVAGE
- ------------------------------------------------- ---------- -------- -------------- ----------- -------
YEAR ENDED DECEMBER 31, 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UTILITY SERVICES
In Service --
Tangible --
Natural gas production...................... $ 33,846 $ 1,964 $ -- $ 99 $ 3
Storage..................................... 73,049 3,428 -- 129 28
Transmission................................ 173,238 9,153 -- 2,566 82
Distribution................................ 608,827 49,819 -- 6,574 3,489
General..................................... 74,602 9,173 5,482 9,105 (713)
Intangible.................................... 1,393 877 -- -- --
Property under capital leases................... 7,265 941 -- -- --
Retirement work in progress..................... (1,721) -- -- -- (132)
Utility plant held for future use............... 986 -- -- 800 --
Other........................................... 799 68 -- 10 --
---------- -------- ----- ----------- -------
972,284 75,423 5,482 19,283 2,757
---------- -------- ----- ----------- -------
NONUTILITY SERVICES
Gas Services.................................... 4,196 2,689 -- -- --
Computer Operations Services.................... 6,299 3,299 -- 120 --
Corporate & Gas Technology...................... 259 264 -- 37 --
---------- -------- ----- ----------- -------
10,754 6,252 -- 157 --
---------- -------- ----- ----------- -------
Total....................................... $983,038 $81,675 $5,482 $19,440 $2,757
---------- -------- ----- ----------- -------
---------- -------- ----- ----------- -------
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UTILITY SERVICES
In Service --
Tangible --
Natural gas production...................... $ 30,913 $ 2,889 $ -- $ (100) $ --
Storage..................................... 69,850 3,347 -- 126 32
Transmission................................ 166,934 7,873 -- 787 80
Distribution................................ 571,526 47,195 -- 6,079 3,805
General..................................... 66,811 8,290 5,532 6,292 (261)
Intangible.................................... 698 695 -- -- --
Property under capital leases................... 6,418 847 -- -- --
Retirement work in progress..................... (1,486) -- -- -- 235
Utility plant held for future use............... 452 -- -- 127 95
Other........................................... 740 59 -- (6) 6
---------- -------- ----- ----------- -------
912,856 71,195 5,532 13,305 3,992
---------- -------- ----- ----------- -------
NONUTILITY SERVICES
Gas Services.................................... 2,015 2,217 -- 9 --
Computer Operations Services.................... 3,905 2,417 -- 21 --
Corporate & Gas Technology...................... 228 131 -- 92 --
---------- -------- ----- ----------- -------
6,148 4,765 -- 122 --
---------- -------- ----- ----------- -------
Total....................................... $919,004 $75,960 $5,532 $13,427 $3,992
---------- -------- ----- ----------- -------
---------- -------- ----- ----------- -------
<CAPTION>
YEAR ENDED DECEMBER 31, 1991
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UTILITY SERVICES
In Service --
Tangible --
Natural gas production...................... $ 28,442 $ 2,476 $ -- $ 65 $ --
Storage..................................... 65,880 3,972 -- 1 3
Transmission................................ 159,963 8,653 -- 1,843 284
Distribution................................ 535,625 45,216 -- 5,233 4,017
General..................................... 58,522 7,539 4,943 4,442 (167)
Intangible.................................... 209 489 -- -- --
Property under capital leases................... 6,243 766 -- 591 --
Retirement work in progress..................... (1,766) -- -- -- (280)
Utility plant held for future use............... 987 -- -- 49 --
Other........................................... 698 50 -- 13 (5)
---------- -------- ----- ----------- -------
854,803 69,161 4,943 12,237 3,852
---------- -------- ----- ----------- -------
NONUTILITY SERVICES
Gas Services.................................... 100 1,985 -- -- --
Computer Operations............................. 1,870 2,045 -- 9 --
Corporate & Gas Technology...................... 319 134 19 207 --
---------- -------- ----- ----------- -------
2,289 4,164 19 216 --
---------- -------- ----- ----------- -------
Total....................................... $857,092 $73,325 $4,962 $12,453 $3,852
---------- -------- ----- ----------- -------
---------- -------- ----- ----------- -------
<CAPTION>
COLUMN A COLUMN E COLUMN F
OTHER BALANCE
-------------------------- AT END
DESCRIPTION MISCELLANEOUS TRANSFERS OF PERIOD
- ------------------------------------------------- ------------- --------- ----------
<S> <C> <C> <C>
UTILITY SERVICES
In Service --
Tangible --
Natural gas production...................... $ (47) $ -- $ 35,661
Storage..................................... 4 -- 76,324
Transmission................................ (1,716) -- 178,027
Distribution................................ 1,772 -- 650,355
General..................................... 3 -- 80,868
Intangible.................................... -- -- 2,270
Property under capital leases................... -- -- 8,206
Retirement work in progress..................... -- -- (1,589)
Utility plant held for future use............... 43 -- 229
Other........................................... (15) -- 842
------ --------- ----------
44 -- 1,031,193
------ --------- ----------
NONUTILITY SERVICES
Gas Services.................................... -- 10 6,895
Computer Operations Services.................... -- (90) 9,388
Corporate & Gas Technology...................... -- (21) 465
------ --------- ----------
-- (101) 16,748
------ --------- ----------
Total....................................... $ 44 $(101) $1,047,941
------ --------- ----------
------ --------- ----------
<S> <C> <C> <C>
UTILITY SERVICES
In Service --
Tangible --
Natural gas production...................... $ (56) $ -- $ 33,846
Storage..................................... 10 -- 73,049
Transmission................................ (702) -- 173,238
Distribution................................ (10) -- 608,827
General..................................... -- -- 74,602
Intangible.................................... -- -- 1,393
Property under capital leases................... -- -- 7,265
Retirement work in progress..................... -- -- (1,721)
Utility plant held for future use............... 756 -- 986
Other........................................... -- -- 799
------ --------- ----------
(2) -- 972,284
------ --------- ----------
NONUTILITY SERVICES
Gas Services.................................... (27) -- 4,196
Computer Operations Services.................... -- (2) 6,299
Corporate & Gas Technology...................... -- (8) 259
------ --------- ----------
(27) (10) 10,754
------ --------- ----------
Total....................................... $ (29) $ (10) $ 983,038
------ --------- ----------
------ --------- ----------
<S> <C> <C> <C>
UTILITY SERVICES
In Service --
Tangible --
Natural gas production...................... $ 60 $ -- $ 30,913
Storage..................................... 2 -- 69,850
Transmission................................ 445 -- 166,934
Distribution................................ (65) -- 571,526
General..................................... 82 -- 66,811
Intangible.................................... -- -- 698
Property under capital leases................... -- -- 6,418
Retirement work in progress..................... -- -- (1,486)
Utility plant held for future use............... (486) -- 452
Other........................................... -- -- 740
------ --------- ----------
38 -- 912,856
------ --------- ----------
NONUTILITY SERVICES
Gas Services.................................... -- (70) 2,015
Computer Operations............................. -- (1) 3,905
Corporate & Gas Technology...................... (26) (11) 228
------ --------- ----------
(26) (82) 6,148
------ --------- ----------
Total....................................... $ 12 $ (82) $ 919,004
------ --------- ----------
------ --------- ----------
</TABLE>
20
<PAGE> 25
SCHEDULE VI
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT -- (CONCLUDED)
(THOUSANDS OF DOLLARS)
- ------------------------
NOTES:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
(1) Reconciliation of total depreciation per Column C to Consolidated
Statement of Income:
Depreciation, depletion and amortization per Consolidated
Statement of Income............................................. $81,646 $76,434 $74,081
Add: Provision charged to Operation & Maintenance................ 941 847 766
Provision charged to other Income and (Deductions)......... 47 53 47
Miscellaneous.............................................. 13 27 --
Less: Amortization of intangible assets.......................... 972 1,401 1,569
------- ------- -------
Total............................................................ $81,675 $75,960 $73,325
------- ------- -------
------- ------- -------
</TABLE>
21
<PAGE> 26
SCHEDULE VII
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE VII -- GUARANTEES OF SECURITIES OF OTHER ISSUERS
DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN G
NATURE OF ANY DEFAULT BY
AMOUNT OWNED ISSUER OF SECURITIES
NAME OF ISSUER OF TOTAL BY PERSON OR AMOUNT IN GUARANTEED IN PRINCIPAL,
SECURITIES TITLE OF ISSUE OF AMOUNT PERSONS FOR TREASURY OF COLUMN F INTEREST, SINKING FUND
GUARANTEED BY EACH CLASS OF GUARANTEED WHICH ISSUER OF NATURE OR REDEMPTION
PERSON FOR WHICH SECURITIES AND STATEMENT IS SECURITIES OF PROVISIONS, OR PAYMENT
STATEMENT IS FILED GUARANTEED OUTSTANDING FILED GUARANTEED GUARANTEE OF DIVIDENDS
- ------------------- ------------------- ---------- ------------ ----------- -------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Harbortown Limited Michigan State $12,000 None None Principal, None
Dividend Housing Housing Development Interest
Association (1) Authority Limited and Fees
Obligation Variable
Rate Demand Notes,
due June 2004
Blue Lake $90 million Credit $41,450 None None 50% of None
Gas Storage Agreement, variable the
Company (1) rates, due March Principal,
1994 Interest
and Fees
</TABLE>
- ---------------------
NOTES:
(1) Reference is made to Note 5a to the Consolidated Financial Statements in the
1993 Annual Report to Shareholders of MCN Corporation, page 43.
22
<PAGE> 27
SCHEDULE VIII
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
------------------
PROVISIONS CHARGED
DEDUCTIONS
TO FOR PURPOSES BALANCE
BALANCE AT ------------------ FOR WHICH THE AT END
BEGINNING UTILITY RESERVES WERE OF
DESCRIPTION OF PERIOD INCOME PLANT PROVIDED PERIOD
- ----------------------------------------------------------------- ---------- ------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Reserve deducted from assets in Consolidated Statement of
Financial Position:
Allowance for doubtful accounts.............................. $ 24,930 $21,138 $ -- $26,492 $19,576
Allowance for notes receivable............................... -- 579 -- -- 579
---------- ------- ------- ------------- --------
$ 24,930 $21,717 $ -- $26,492 $20,155
---------- ------- ------- ------------- --------
---------- ------- ------- ------------- --------
Reserves included in Current Liabilities -- Other in Consolidated
Statement of Financial Position:
Environmental testing (1).................................... $ 1,677 $ -- $ -- $(4,502) $ 6,179
---------- ------- ------- ------------- --------
---------- ------- ------- ------------- --------
Reserves included in Deferred Credits and Other Liabilities --
Other in Consolidated Statement of Financial Position:
Injuries and damages......................................... $ 10,105 $ 1,895 $ 372 $ 3,282 $ 9,090
Environmental testing (1).................................... 6,575 -- -- 6,575 --
---------- ------- ------- ------------- --------
$ 16,680 $ 1,895 $ 372 $ 9,857 $ 9,090
---------- ------- ------- ------------- --------
---------- ------- ------- ------------- --------
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
<S> <C> <C> <C> <C> <C>
Reserves deducted from assets in Consolidated Statement of
Financial Position:
Allowance for doubtful accounts.............................. $ 31,216 $20,201 $ -- $26,487 $24,930
Allowance for notes receivable............................... 223 -- -- 223 --
---------- ------- ------- ------------- --------
$ 31,439 $20,201 $ -- $26,710 $24,930
---------- ------- ------- ------------- --------
---------- ------- ------- ------------- --------
Reserves included in Current Liabilities -- Other in Consolidated
Statement of Financial Position:
Environmental testing (1).................................... $ 458 $ -- $ -- $(1,219) $ 1,677
Restructuring of gas technology operations (2)............... 150 -- -- 150 --
---------- ------- ------- ------------- --------
$ 608 $ -- $ -- $(1,069) $ 1,677
---------- ------- ------- ------------- --------
---------- ------- ------- ------------- --------
Reserves included in Deferred Credits and Other Liabilities --
Other in Consolidated Statement of Financial Position:
Injuries and damages......................................... $ 11,893 $ 629 $ 243 $ 2,660 $10,105
Environmental testing (1).................................... 8,575 -- -- 2,000 6,575
---------- ------- ------- ------------- --------
$ 20,468 $ 629 $ 243 $ 4,660 $16,680
---------- ------- ------- ------------- --------
---------- ------- ------- ------------- --------
<CAPTION>
YEAR ENDED DECEMBER 31, 1991
<S> <C> <C> <C> <C> <C>
Reserves deducted from assets in Consolidated Statement of
Financial Position:
Allowance for doubtful accounts.............................. $ 24,290 $27,631 $ -- $20,705 $31,216
Allowance for notes receivable............................... -- 223 -- -- 223
---------- ------- ------- ------------- --------
$ 24,290 $27,854 $ -- $20,705 $31,439
---------- ------- ------- ------------- --------
---------- ------- ------- ------------- --------
Reserves included in Current Liabilities -- Other in Consolidated
Statement of Financial Position:
Environmental testing (1).................................... $ 601 $ -- $ -- $ 143 $ 458
Restructuring of gas technology operations (2)............... -- 1,349 -- 1,199 150
---------- ------- ------- ------------- --------
$ 601 $ 1,349 $ -- $ 1,342 $ 608
---------- ------- ------- ------------- --------
---------- ------- ------- ------------- --------
Reserves included in Deferred Credits and Other Liabilities --
Other in Consolidated Statement of Financial Position:
Injuries and damages......................................... $ 11,484 $ 3,256 $ 286 $ 3,133 $11,893
Environmental testing (1).................................... 8,575 -- -- -- 8,575
---------- ------- ------- ------------- --------
$ 20,059 $ 3,256 $ 286 $ 3,133 $20,468
---------- ------- ------- ------------- --------
---------- ------- ------- ------------- --------
</TABLE>
23
<PAGE> 28
SCHEDULE VIII
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS -- (CONCLUDED)
- ------------------------
NOTES:
(1) Reference is made to Note 5b to the Consolidated Financial Statements in the
1993 Annual Report to Shareholders of MCN Corporation, page 44. During the
year ended December 31, 1993, $6,575,000 was transferred from Deferred
Credits and Other Liabilities -- Other to Current Liabilities -- Other.
Similarly, $2,000,000 was transferred during the year ended December 31,
1992. Actual expenditures deducted against the reserve in 1993 and 1992
were $2,073,000 and $781,000, respectively.
(2) During 1991, MCN established a reserve relating to the restructuring of the
gas technology business where MCN entered into a partnership with a third
party to more effectively market its natural gas torch products.
24
<PAGE> 29
SCHEDULE IX
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE IX -- SHORT-TERM BORROWINGS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
WEIGHTED
END OF PERIOD
-------------------- AVERAGE (DAILY)
WEIGHTED MAXIMUM (DAILY) AVERAGE
AVERAGE AMOUNT AMOUNT EFFECTIVE
EFFECTIVE OUTSTANDING OUTSTANDING INTEREST
INTEREST AT ANY DURING THE RATE DURING
CATEGORY OF AGGREGATE BALANCE RATE MONTH END PERIOD THE PERIOD
SHORT-TERM BORROWINGS (NOTE 1) (NOTE 2) (NOTE 3) (NOTE 2) (NOTE 2) (NOTE 3)
- ------------------------------------------------- -------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------------------------
Commercial Paper................................. $260,274 3.4% $ 260,274 $ 159,208 3.4%
Banks............................................ 20,000 4.4 60,000 12,426 3.5
Other............................................ 30 3.4 2,936 732 3.3
YEAR ENDED DECEMBER 31, 1992
-----------------------------------------------------------------
Commercial Paper................................. $235,293 3.5% $ 236,944 $ 91,418 3.8%
Other............................................ 30 6.0 30 27 6.3
YEAR ENDED DECEMBER 31, 1991
-----------------------------------------------------------------
Commercial Paper................................. $180,118 5.3% $ 180,118 $ 68,647 6.1%
Banks............................................ -- -- 30,800 17,557 7.2
Other............................................ 272 7.8 782 327 8.5
</TABLE>
- ------------------------
NOTES:
(1) Reference is made to Note 4 to the Consolidated Financial Statements in the
1993 Annual Report to Shareholders of MCN Corporation, page 43. Fees are
paid to compensate banks for lines of credit.
(2) Represents amounts payable, net of any discount.
(3) Weighted average effective interest rates were calculated on the net
proceeds basis and do not include the effect of line of credit fees.
25
<PAGE> 30
SCHEDULE X
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN B
CHARGED TO
COSTS AND EXPENSES
YEAR ENDED DECEMBER 31,
COLUMN A -----------------------------
ITEM 1993 1992 1991
- ----------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Maintenance...................................................... $29,260 $29,487 $28,862
Real and personal property taxes................................. 46,592 44,805 42,180
</TABLE>
26
<PAGE> 31
3. Exhibits, Including Those Incorporated By Reference
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------
<S> <C>
3-1 Articles of Incorporation of MCN Corporation (Exhibit 3-1 to March 31, 1993
Form 10-Q).
3-2 By-Laws of MCN Corporation, as amended (Exhibit 3-2 to March 31, 1993 Form
10-Q).
4-1 Rights Plan (Exhibit 28-1 to Form 8-K dated December 20, 1989).
10-1 MCN Stock Option Plan Post-Effective Amendment No. 1 (Registration Statement
No. 33-21930-99).
10-2 Directors' Deferred Fee Plan (Exhibit 10-3 to 1989 Form 10-K).
10-3 Executive Deferred Compensation Plan (Exhibit 10-4 to 1989 Form 10-K).
10-4 MCN Corporation Stock Incentive Plan (Exhibit 10-5 to 1989 Form 10-K).
10-5 Form of Employment Agreement (Exhibit 10-1 to March 31, 1990 Form 10-Q).
10-6 MCN Corporation Annual Performance Plan.*
13-1 MCN Corporation 1993 Annual Report to Shareholders.*
21-1 List of MCN Subsidiaries.*
23-1 Independent Auditors' Consent -- Deloitte & Touche.*
24-1 Powers of Attorney.*
</TABLE>
(B) REPORTS ON FORM 8-K:
None.
- -------------------------
* Indicates document filed herewith.
References are to MCN (File No. 1-10070) for documents incorporated by
reference.
27
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MCN CORPORATION
(Registrant)
By: /s/ Patrick Zurlinden
Patrick Zurlinden
Controller and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
TITLE DATE
---------------------------------------- ---------------
<S> <C> <C>
* Director, Chairman, President and Chief March 7, 1994
Alfred R. Glancy III Executive Officer
* Director, Vice Chairman and Chief March 7, 1994
William K. McCrackin Financial Officer
By: /s/ Patrick Zurlinden Controller and Chief Accounting Officer March 7, 1994
Patrick Zurlinden
* Director March 7, 1994
Stephen E. Ewing
* Director March 7, 1994
Roger Fridholm
* Director March 7, 1994
Frank M. Hennessey
* Director March 7, 1994
Thomas H. Jeffs II
* Director March 7, 1994
Arthur L. Johnson
* Director March 7, 1994
Dale A. Johnson
* Director March 7, 1994
Helen O. Petrauskas
* Director March 7, 1994
Howard F. Sims
*By: /s/ Patrick Zurlinden
Patrick Zurlinden
Attorney-in-Fact
</TABLE>
28
<PAGE> 1
EXHIBIT 10-6
MCN CORPORATION
ANNUAL PERFORMANCE PLAN
(As amended effective February 24, 1994)
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Title
ARTICLE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purpose
ARTICLE 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Effective Date
ARTICLE 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Administration
ARTICLE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Participation in the Plan
ARTICLE 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Awards Under The Plan
ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Award Fund
ARTICLE 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Payment of Awards
ARTICLE 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Deferral of Receipt of Awards
ARTICLE 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Beneficiary Designations
ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Amendment, Suspension or Termination
ARTICLE 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Miscellaneous
Section 12.1 Assignment Prohibited . . . . . . . . . . . . . . 8
Section 12.2 Effect on Employee Benefits . . . . . . . . . . . 8
Section 12.3 No Right To An Award . . . . . . . . . . . . . . 8
Section 12.4 No Employment Rights . . . . . . . . . . . . . . 8
Section 12.5 Law Applicable . . . . . . . . . . . . . . . . . 9
<PAGE> 3
MCN CORPORATION
ANNUAL PERFORMANCE PLAN
(as amended effective February 24, 1994)
ARTICLE I
Title
The title of this Plan shall be the "MCN Corporation Annual Performance Plan"
and shall be referred to in this document as the "Plan."
ARTICLE 2
Purpose
The purpose of the Plan is to provide a direct financial incentive to
employees of MCN Corporation ("MCN") and its subsidiaries (individually a
"Company" and collectively the "Companies") who contribute to the overall
success of MCN and to its particular achievements in the areas of earnings,
operating efficiency, customer satisfaction, and employee satisfaction. In
addition, the Plan is designed to place the compensation of such personnel at
competitive levels with similar industries and thereby to assist in motivating
them, retaining them in the employ of the Companies, and in attracting new
highly qualified personnel to the Companies. The term "subsidiary" for
purposes of the Plan shall mean any corporation in which MCN owns, directly or
indirectly, stock possessing 50 percent or more of the total combined voting
power of all classes of stock.
ARTICLE 3
Effective Date
The Plan shall be effective January 4, 1989.
<PAGE> 4
ARTICLE 4
Administration
The Plan shall be administered by the Compensation Committee of the Board of
Directors of MCN (the "Committee"). The Committee shall have full authority
and responsibility to interpret and administer the terms of the Plan and may
adopt rules and regulations governing the administration of the Plan.
The Committee shall be responsible for making recommendations to the Board of
Directors of MCN with respect to employees of the Companies who are to receive
awards under the Plan and the amount of such awards. In discharging this
responsibility, the Committee may consult with individual members of the Board
of Directors of MCN, with the management of MCN and any of the Companies, or
with such other persons as the Committee may deem appropriate.
The Board of Directors of MCN shall determine which employees of the
Companies shall receive awards under the Plan and the amount of the awards,
based upon the recommendations of the Committee and the Board's own
consideration of the criteria established under the Plan for granting awards.
Any member of the Board of Directors who is also an employee eligible to
receive awards under the Plan shall not vote or act on any matter relating
solely to such member during the period the member is eligible to participate
in the Plan.
ARTICLE 5
Participation in the Plan
Designated employees, officers and other key executive employees of the
Companies as described in the administrative guidelines of the Plan (whether or
not such employees also are members of the Board of Directors of any such
corporation) shall be eligible to receive awards under the Plan.
2
<PAGE> 5
ARTICLE 6
Awards Under The Plan
Awards under the Plan shall be determined annually, if at all, for each
calendar year during the term of the Plan, on the basis of both (i) a Company
substantially achieving financial and, if applicable, operating goals as
described in Article 7 below, and (ii) individual employee performance.
ARTICLE 7
Award Fund
Awards shall be paid solely out of an award fund established for each Company
under the Plan (collectively, the "Award Fund"). The amount of each award fund
shall be determined annually, for each calendar year during the term of the
Plan, based upon the extent to which the Company achieves its financial and
operating goals for each such year.
The Award Fund shall be established and awards paid under the Plan for each
year (and only for each such year) with respect to which a Company achieves a
significant portion of its financial and operational goals as described in the
Administrative Guidelines of the Plan.
Any determination concerning establishments of any Award Fund, once made,
shall be conclusive and binding upon all employees eligible to participate in
the Plan and their beneficiaries or successor(s) in interest.
ARTICLE 8
Payment of Awards
(a) Payment of awards to employees selected as recipients thereof shall be
made by the employing Company in the calendar year following the year for which
the award is made and within a reasonable period following approval of the
award by the Board of Directors of MCN.
(b) Notwithstanding the foregoing paragraph in this Article 8, upon a Change
of Control in MCN Corporation, as that term is defined in subsection (c) below,
the following shall
3
<PAGE> 6
be paid in cash to all participants in the Plan who have executed employment
agreements with change in control provisions within twenty (20) days following
a Change of Control or deferred under the Deferred Compensation Plan: awards
for the prior calendar year if not then paid; and (b) awards for the current
calendar year, payable pro rata based upon the fraction whose numerator is the
number of days between December 31 of the prior year and the date of the Change
of Control and whose denominator is 365. Each such award shall be calculated
based on the most recent performance appraisal completed for each participant
prior to the Change of Control and with respect to any pro rata award,
calculated as if the Company's earnings were exactly equal to its net income
goal.
(c) A "Change of Control" means:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) or 20
percent or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock"); or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege); (ii) any acquisition by the Company;
(iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company; or (iv) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and
(iii) of subsection (c) of this Section 2 are satisfied; or
(2) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board;
4
<PAGE> 7
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless following such reorganization,
merger or consolidation, (i) more than sixty percent (60%) of, respectively,
the then outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and the combined voting
power of the then outstanding voting securities of such corporation entitled
to vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be; (ii) no
Person (excluding the Company, any employee benefit plan (or related trust)
of the Company or such corporation resulting from such reorganization,
merger or consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly or
indirectly, twenty percent (20%) or more of the Outstanding Company Common
Stock or Outstanding Voting Securities, as the case may be) beneficially
owns, directly or indirectly, twenty percent (20%) or
5
<PAGE> 8
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation or
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors; and
(iii) at least a majority of the members of the Board of Directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(4) Approval by the Shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (a) more than sixty percent (60%) of, respectively, the then
outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (b) no Person
(excluding the Company and any employee benefit plan (or related trust) of
the Company or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly,
twenty percent (20%) or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities, as the case may be) beneficially
owns, directly or indirectly, twenty percent (20%) or more of, respectively,
the then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
6
<PAGE> 9
directors; and (c) at least a majority of the members of the Board of
Directors of such corporation were members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board providing
for such sale or other disposition of assets of the Company.
ARTICLE 9
Deferral of Receipt of Awards
Any employee eligible to receive an award under the Plan may elect to defer
receipt of all or a percentage of an award granted to the employee under the
Plan under the terms and subject to the provisions of the Deferred Compensation
Plan then in effect.
ARTICLE 10
Beneficiary Designations
Employees eligible to participate in the Plan may designate to the Committee,
on a form approved by the Committee for that purpose, a beneficiary or
beneficiaries to receive any amounts due under the Plan to the employee upon
death. Such designation may be canceled or changed by the employee at the
employee's discretion, but no cancellation or change will be recognized by the
Committee unless effected in writing on a form approved by the Committee for
that purpose and filed with the Committee. In the absence of a valid
beneficiary designation, the amounts due hereunder shall be paid to the
deceased employee's lawful successor(s) in interest in a lump sum as soon as
practicable, but in no event later than one year following the employee's
death.
7
<PAGE> 10
ARTICLE 11
Amendment, Suspension or Termination
The Plan may be amended, suspended or terminated at any time by MCN by action
of its Board of Directors. However, no amendment, suspension or termination of
the Plan shall affect the rights of employees to receive awards deferred under
Article 9 or awards granted but unpaid as of the date of such amendment,
suspension or termination.
ARTICLE 12
Miscellaneous
Section 12.1 Assignment Prohibited The rights and benefits under this Plan
are personal and shall not be subject to any voluntary or involuntary
alienation, assignment, pledge, transfer, or other disposition.
Section 12.2 Effect on Employee Benefits Awards under this Plan will not be
considered compensation under any other employee benefit plan maintained by MCN
or its subsidiaries.
Section 12.3 No Right To An Award No employee or other person shall have
any claim or right to be granted an award under the Plan. The receipt of an
award with respect to any Plan year shall not entitle an employee to an award
with respect to any subsequent Plan Year.
Section 12.4 No Employment Rights Neither the Plan nor any action taken
pursuant to the provisions of the Plan shall be construed as a contract of
employment between an employee and any Company, or as a right of any employee
to be continued in the employment of any Company, or as a limitation of the
right of any Company to discharge any employee at any time, with or without
cause, or as a limitation of the right of the employee to terminate employment
at any time.
8
<PAGE> 11
Section 12.5 Law Applicable This Plan and all actions hereunder shall be
governed by and construed according to the laws of the State of Michigan.
IN WITNESS WHEREOF, the undersigned officer of MCN has executed this Plan as
of this 24th day of February, 1994.
MCN CORPORATION
By: ___________________________________
Alfred R. Glancy III
Chairman and Chief Executive Officer
Dated: _______________
9
<PAGE> 1
EXHIBIT 13-1
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
EARNINGS HIT RECORD HIGH -- MCN's earnings increased 27% in 1993 reaching
record levels, as both its utility and nonutility businesses showed
significantly improved results. Earnings increased $15.7 million ($.37 per
share) from 1992. The record performance reflects in part the strategic
direction discussed below. Earnings for 1992 increased $22 million ($.69 per
share) from 1991. A summary of financial performance follows:
<TABLE>
<CAPTION>
(Millions Except Per Share Amounts) 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Net Income
Utility Services . . . . . . . . . . . . . . . $ 62.6 $49.4 $32.5
Nonutility Services . . . . . . . . . . . . . 10.2 7.7 2.6
------ ----- -----
$ 72.8 $57.1 $35.1
------- ----- -----
------- ----- -----
Earnings Per Share
Utility Services . . . . . . . . . . . . . . . $ 2.13 $1.82 $1.31
Nonutility Services . . . . . . . . . . . . . .35 .29 .11
------ ----- ----
$ 2.48 $2.11 $1.42
------- ----- -----
------- ----- -----
- -------------------------------------------------------------------------------
</TABLE>
STRATEGIC DIRECTION - The natural gas industry is changing rapidly. With the
recent restructuring of interstate pipeline services and the emergence of an
open interstate market for natural gas, management foresees ample investment
opportunities within the gas industry to significantly grow MCN. Accordingly,
MCN's strategic direction is first, to grow the gas utility business through
market expansion; second, to invest in a portfolio of gas-related projects
including gas storage, gas cogeneration, gas production and gas gathering
systems; and third, to pursue opportunities in gas technology and other areas
of expertise.
REORGANIZATION OF GAS MARKETING BUSINESS - In June 1993, MCN consolidated its
gas marketing activities by transferring its utility gas brokering business to
nonutility services. The transfer was made in response to current market and
regulatory developments. The financial and statistical segment information
included herein is reported as though the combined gas marketing business was
part of nonutility services for all periods presented.
EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Percentage Colder (Warmer)
than Normal . . . . . . . . . . . . . . . . . (2.2)% (3.7)% (10.7)%
Increase (Decrease) from Normal in:
Gas Markets (Bcf) . . . . . . . . . . . . . . (4.3) (10.2) (17.1)
Net Income (Millions) . . . . . . . . . . . . $ (3.7) $ (8.7) $(13.3)
Earnings Per Share . . . . . . . . . . . . . . $ (.13) $ (.32) $ (.54)
</TABLE>
UTILITY SERVICES
UTILITY EARNINGS INCREASE 27% - Utility services' 1993 earnings increased
$13.2 million ($.31 per share) as compared to 1992. This improvement in
earnings is primarily due to lower operating expenses, which reflect a more
focused effort to control costs, and higher gas sales as a result of colder
weather. Similarly, earnings for 1992 were $16.9 million ($.51 per share)
higher than 1991. The 1992 increase was due to higher gas sales and
transportation deliveries resulting from colder weather and gas market
expansion.
1
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
OPERATING REVENUES
Operating revenues for 1993 decreased $32.3 million as compared to 1992. The
reduction reflects a lower underlying cost of gas, which was partially offset
by a 1.2 billion cubic feet (Bcf) increase in gas sales and end user
transportation deliveries, as subsequently discussed. Increases in gas markets
and rates contributed to the $110.7 million increase in operating revenues in
1992 over 1991.
<TABLE>
<CAPTION>
UTILITY SERVICES (in Millions)
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Operating Revenues* . . . . . . . . . . . . . . . $1,119.2 $1,151.5 $1,040.8
-------- -------- --------
Operating Expenses*
Cost of Gas . . . . . . . . . . . . . . . . . 588.0 636.3 561.3
Operation & Maintenance . . . . . . . . . . . 270.2 277.7 269.7
Depreciation & Depletion . . . . . . . . . . . 74.4 70.3 68.3
Property & Other Taxes . . . . . . . . . . . . 58.9 59.3 55.5
-------- -------- --------
991.5 1,043.6 954.8
-------- -------- --------
Operating Income . . . . . . . . . . . . . . . . 127.7 107.9 86.0
-------- -------- --------
Equity in Earnings (Loss) of
Joint Ventures . . . . . . . . . . . . . . . . 1.8 (.8) (1.1)
-------- -------- --------
Other Income & (Deductions)*
Interest Income . . . . . . . . . . . . . . . 4.1 6.6 3.9
Interest on Long-term Debt . . . . . . . . . . (25.7) (28.0) (23.3)
Other Interest Expense . . . . . . . . . . . . (8.0) (8.2) (11.8)
Other . . . . . . . . . . . . . . . . . . . . (6.0) (2.4) (3.3)
-------- -------- --------
(35.6) (32.0) (34.5)
-------- -------- --------
Income Tax Provision . . . . . . . . . . . . . . 31.3 25.7 17.9
-------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . $ 62.6 $ 49.4 $ 32.5
-------- -------- --------
-------- -------- --------
- -------------------------------------------------------------------------------
</TABLE>
*Includes intercompany transactions (Note 11)
GAS MARKETS
MAJOR GAS MARKETS UP SLIGHTLY - Gas sales for 1993 increased by 2.3 Bcf due to
the weather being colder than in 1992. Gas sales and end user transportation
deliveries increased 20.2 Bcf in 1992 over 1991 also due to the effects of
colder weather, market expansion and the cost advantage of natural gas as
compared to alternative fuels, primarily coal.
INTERMEDIATE TRANSPORTATION INCREASES 53% - Intermediate transportation
volumes continue to rise, increasing by 97.1 Bcf in 1993 and by 78.5 Bcf in
1992. The increases are due primarily to additional volumes that are being
transported for ANR Pipeline Company (ANR), Michigan gas producers and other
shippers. The 25-mile Milford Loop pipeline, which began operations in January
1992, and the April 1993 start up of the Blue Lake gas storage project enables
MichCon to transport gas for ANR under firm, long-term contracts. The
increases are also due to the St. Clair River Pipeline connection to Ontario,
Canada which allows MichCon to transport gas between the United States and
Canada. Profit margins on intermediate transportation services are
considerably less than margins on gas sales or for end user transportation
markets.
<TABLE>
<CAPTION>
UTILITY GAS MARKETS (in Bcf)
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Gas Sales* . . . . . . . . . . . . . . . . . . . 205.4 203.1 192.8
End User Transportation . . . . . . . . . . . . . 128.6 129.7 119.8
Intermediate Transportation* . . . . . . . . . . 281.1 184.0 105.5
----- ----- -----
615.1 516.8 418.1
----- ----- -----
----- ----- -----
- -------------------------------------------------------------------------------
</TABLE>
*Includes intercompany volumes
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
There has been a significant increase in Michigan Antrim gas production over
the past few years, resulting in a growing demand by gas producers and brokers
for intermediate transportation services. Given the expected continued rise in
demand, MichCon plans to undertake an expansion of its pipeline system.
RATE MATTERS
Over the past several years, MichCon has implemented a number of rate increases
to recover higher operating costs and costs relating to low income customer
assistance programs.
In October 1993, MichCon received approval from the Michigan Public Service
Commission (MPSC) in its general rate case to increase rates $15.7 million
beginning in January 1994. The higher rates include $28.7 million for retiree
health care benefits recognized under new accounting requirements and $8.1
million for higher depreciation rates. Additionally, the MPSC's decision
lowered MichCon's allowed rate of return on common equity to 11.5%. Management
believes that the rate increase, coupled with gas market expansion and cost
management measures discussed below will allow MichCon to earn reasonable
returns in future years.
For the 1990-1993 period, MichCon had been operating under a comprehensive
agreement which provided for an operating incentive plan that allowed for
annual rate adjustments to recover the effects of inflation on operation &
maintenance expenses based on changes in the Consumer Price Index. MichCon
received an inflation related increase in rates of $4.9 million, effective
January 1992.
The comprehensive agreement also contained a performance incentive provision
designed to adjust rates if weather-normalized earnings were above or below a
specified range of return on common equity. Increased gas markets enabled
MichCon to earn returns above the specified range in 1992 which resulted in a
portion of these higher earnings being shared with customers. A provision for
this sharing of earnings with customers was recorded in the fourth quarter of
1992, which reduced net income by $5.9 million.
MichCon received MPSC approval to increase rates from March 1992 through
February 1993 by $6.8 million to recover costs relating to the Michigan
Department of Social Services (DSS) Heating Assistance Program. This program
was extended through February 1994 with the MPSC approving new rates of $10.5
million. MichCon also received MPSC approval to extend $6 million of rates
related to DSS uncollectible gas accounts from January through December 1993.
The MPSC issued an order in September 1991 approving a two-phase rate
increase relating to MichCon's Supply Realignment Plan. The first phase was a
rate increase of $19.9 million effective in September 1991. The second phase
was a $3.9 million rate increase that was implemented in November 1992.
OPERATING EXPENSES
Cost of gas sold decreased by $48.3 million in 1993 due to a reduction in the
unit cost of gas sold. Reflecting lower fixed charges under MichCon's gas
purchase contract with ANR, the cost of gas sold per thousand cubic feet
decreased by $.24 or 8% in 1993. This reduction more than offset the effect on
total gas costs of slightly higher sales volumes and higher prices for gas
purchases tied to spot market rates. Cost of gas sold increased by $75 million
in 1992 as compared to 1991 primarily due to higher sales volumes and a $.07 or
2% increase in the unit cost of gas.
The Federal Energy Regulatory Commission (FERC) issued Order No. 636 in 1992
which required interstate pipeline companies, including ANR, to separate their
pipeline sales service into its various service components. The order also
allows interstate pipelines to recover their prudently incurred transition
costs. ANR implemented its Order No. 636 restructuring in November 1993 and is
expected to file its first transition cost recovery request with the FERC in
the first quarter of 1994. If approved, ANR will allocate the costs to its
pipeline customers over a three-year period. The amount of the costs to be
allocated to MichCon is uncertain. Once the filing is made, MichCon will
accrue its allocated portion which will be recorded as cost of gas. In
addition, the MPSC has
3
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
indicated such costs are recoverable from customers through the Gas Cost
Recovery (GCR) mechanism. It is management's belief that there will be no
material adverse effect on earnings.
Operation & maintenance expenses decreased $7.5 million for 1993 as compared
to 1992 as a result of management's continuing efforts to reduce operating
costs which were intensified in an effort to provide services to customers at a
lower cost. The 1992 increase of $8.0 million as compared to 1991 was due to
higher labor and benefit costs, partially offset by lower expenses related to a
heating assistance program and uncollectible accounts. In 1994 and future
years, operation & maintenance expenses will reflect the recognition of higher
postretirement benefit costs as a result of new accounting requirements (Note
8b). As previously mentioned, these costs will be recovered in rates beginning
in January 1994.
Additionally, operation & maintenance expenses in future years may be
affected by investigation and remediation costs associated with several
environmentally contaminated sites (Note 5b). Management anticipates that
these costs will not materially affect earnings as such amounts are expected to
be recoverable through utility rates.
In February 1994, President Clinton submitted a proposed federal budget for
the 1995 fiscal year. The proposal reflects a 50% reduction in funding for the
Low-Income Home Energy Assistance Program (LIHEAP). LIHEAP currently provides
approximately $78 million in heating assistance to 372,000 Michigan households
through the DSS, with approximately 40% of the funds going to MichCon's
customers. In recent years, proposed reductions to LIHEAP funding were
defeated by Congress. The Company is working with legislators and others to
maintain funding at current levels. If lower funding levels are approved, the
Company will undertake efforts to minimize the impact on its customers and its
earnings. The ultimate outcome of the proposal cannot be determined at this
time.
The increases in depreciation & depletion for 1993 and 1992 are due to
higher plant balances, reflecting record capital expenditures of $390.1 million
over the past three years. Depreciation & depletion expenses are expected to
increase in future years due to higher planned capital investments and new
depreciation rates authorized in MichCon's October 1993 MPSC rate order. The
higher costs are not expected to materially affect earnings as these costs are
reflected in the rate increase effective January 1994.
EQUITY IN EARNINGS OF JOINT VENTURES
Utility earnings from joint ventures increased for 1993 as compared to 1992 due
to earnings from the Blue Lake gas storage project which began operations
during 1993. MCN's 50% interest in the Blue Lake project is owned equally by
utility and nonutility services. Joint venture losses in 1992 and 1991 are due
to investments in community development real estate projects.
OTHER INCOME & DEDUCTIONS
Interest income decreased in 1993, but increased in 1992. The variances are
due to interest received in 1992 on a refund of windfall profit taxes as well
as a 1992 interest adjustment on MichCon's energy conservation programs.
Interest on long-term debt decreased in 1993 due to lower financing costs
resulting from the refinancing of $160.1 million of first mortgage bonds since
September 1992. An additional $70 million of first mortgage bonds were issued
in March 1992, resulting in higher interest expense for 1992.
Other interest expense was lower for 1992 due to lower levels of pending
customer refunds.
Other income & deductions for 1993 reflect higher charitable contributions
and the write-off of certain assets.
4
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
INCOME TAX PROVISION
Income taxes increased for 1993 and 1992 due to the statutory tax rate applied
to higher earnings. The 1993 income taxes also reflect the enactment of the
Omnibus Budget Reconciliation Act of 1993 which increased the corporate tax
rate to 35% effective January 1993.
NONUTILITY SERVICES
NONUTILITY OPERATIONS CONTRIBUTE 14% TO MCN'S EARNINGS -- The nonutility
businesses contributed significantly to MCN's consolidated 1993 results and are
expected to make even larger contributions in future years. Nonutility
earnings for 1993 increased $2.5 million ($.06 per share) compared to 1992.
These results reflect increased contributions from new gas exploration &
production activities and earnings from natural gas storage and gas processing
joint ventures.
Similarly, nonutility earnings for 1992 increased $5.1 million ($.18 per
share) over 1991. This improvement was due to higher earnings from computer
operations services and lower financing costs for 1992 due to reduced
borrowings and more favorable interest rates.
<TABLE>
<CAPTION>
NONUTILITY SERVICES (in Millions)
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Operating Revenues*
Gas Services . . . . . . . . . . . . . . . . . $301.5 $242.3 $193.3
Computer Operations Services . . . . . . . . . 74.4 67.7 62.4
------ ------ ------
375.9 310.0 255.7
------ ------ ------
Operating Expenses*
Gas Services . . . . . . . . . . . . . . . . . 284.6 226.6 177.6
Computer Operations Services . . . . . . . . . 69.2 63.0 60.5
Corporate & Gas Technology . . . . . . . . . . 5.9 2.9 4.9
------ ------ ------
359.7 292.5 243.0
------ ------ ------
Operating Income (Loss)
Gas Services
Gas Marketing & Cogeneration . . . . . . . . 5.9 6.1 6.2
Gas Gathering & Processing . . . . . . . . . 8.9 9.6 9.5
Exploration & Production . . . . . . . . . . . 2.1 - -
------ ------ ------
16.9 15.7 15.7
Computer Operations Services . . . . . . . . . 5.2 4.7 1.9
Corporate & Gas Technology . . . . . . . . . . (5.9) (2.9) (4.9)
------ ------ ------
16.2 17.5 12.7
------ ------ ------
Equity in Earnings of
Joint Ventures . . . . . . . . . . . . . . . . . 5.9 - .8
------ ------ ------
Other Income & (Deductions)*
Interest Income . . . . . . . . . . . . . . . . 1.4 1.3 .4
Interest Expense . . . . . . . . . . . . . . . (5.3) (4.3) (7.2)
Minority Interest . . . . . . . . . . . . . . . (3.3) (3.6) (3.1)
Other . . . . . . . . . . . . . . . . . . . . . (.1) .1 .1
------ ------ ------
(7.3) (6.5) (9.8)
------ ------ ------
Income Tax Provision . . . . . . . . . . . . . . 4.6 3.3 1.1
------ ------ ------
Net Income . . . . . . . . . . . . . . . . . . . $ 10.2 $ 7.7 $ 2.6
------ ------ ------
------ ------ ------
- -------------------------------------------------------------------------------
</TABLE>
*Includes intercompany transactions (Note 11)
GAS SERVICES
OPERATING INCOME INCREASES $1.2 MILLION -- Gas services' operating results for
1993 reflect earnings from the new gas exploration & production activities,
partially offset by a slight earnings decline within the gas marketing and gas
gathering businesses.
Gas services' 1992 operating income remained unchanged as compared to 1991,
in spite of higher operating revenues, due to lower margins on gas sales of the
gas marketing business.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Exploration & production operations provided $2.1 million of operating
income during 1993 reflecting MCN's participation in several gas production
projects, primarily for Antrim shale gas located in Michigan. MCN's gas
marketing & cogeneration operations have purchased all of the Antrim shale gas
produced by these projects under long-term contracts since production began in
early 1993. These projects are expected to provide an attractive return due to
the relatively low cost to drill each well and the federal gas production tax
credits available. MCN's share of these gas production projects have produced
approximately 2.3 Bcf of gas in 1993 which came from more than 330 producing
wells. The production came primarily from the Antrim shale gas wells which
generated $2.3 million of tax credits.
Earnings from gas marketing & cogeneration operations declined $.2 million
during 1993 in spite of higher operating revenues as a result of 10.6 Bcf of
higher gas sales.
The decline in operating income reflects lower margins on gas sales which
were significantly impacted by a spike in spot market prices during the first
half of 1993. A more comprehensive hedging program was subsequently
implemented to minimize the effect on margins of fluctuations in gas prices.
During the latter half of 1993, favorable margins were achieved due to the use
of natural gas futures and options contracts. Gas marketing operations' gas
sales increased 20.3 Bcf in 1992 as compared to 1991, resulting in
significantly higher operating revenues. However, operating income declined
slightly due to reduced margins.
<TABLE>
<CAPTION>
NONUTILITY GAS MARKETS (in Bcf)
1993 1992 1991
------ ----- ----
<S> <C> <C> <C>
Gas Sales* . . . . . . . . . . . . . . . . . . . 122.9 112.3 92.0
Transportation . . . . . . . . . . . . . . . . . 21.8 25.4 25.3
----- ----- -----
144.7 137.7 117.3
----- ----- -----
- -------------------------------------------------------------------------------
</TABLE>
*Includes intercompany volumes
Operating income from gas gathering & processing operations declined $.7
million during 1993 due to a 3.6 Bcf reduction in transportation deliveries.
The decline reflects lower gas production from fields that are currently
connected to MCN's nonutility pipeline network. The projected increase in
Michigan Antrim gas production in 1994, coupled with the gas gathering
operations' available pipeline capacity, will provide additional opportunities
to increase transportation services in future years. Contract negotiations are
continuing with producers that will allow for new gas reserves to be connected
to the pipeline network in 1994. In addition, a newly constructed 6.3 mile
pipeline began operations in November 1993.
COMPUTER OPERATIONS SERVICES
OPERATING INCOME INCREASES 11% -- Computer operations services' operating
income increased $.5 million during 1993 reflecting higher operating revenues
primarily as a result of services to new customers in addition to increased
usage by existing customers. Computer operations now services approximately
100 customers and its marketing strategy is to maintain a well diversified
customer base by offering high quality, premium computer services. This
strategy resulted in the addition of 10 new customers during 1993 representing
$14 million in annual revenues. In addition, new revenues are being generated
as the computer operations business expands the services it offers to
customers. Management anticipates continued growth within computer operations
services over the next several years given the industry's projected 16% annual
growth.
Operating income for 1992 increased $2.8 million compared to 1991 reflecting
the growth in new customers and increased services to existing customers,
coupled with improved operating efficiencies. This increase was partially
offset by the loss of a large customer in mid-1992.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
CORPORATE & GAS TECHNOLOGY
Corporate operations during 1993 reflect increased expenses incurred to develop
new businesses.
NEW GAS TECHNOLOGY PILOT PROGRAM LAUNCHED -- Gas technology operations
during 1993 reflect costs incurred to convert 80 golf cars to operate on
natural gas using adsorbed natural gas (ANG) technology developed by MCN. This
technology utilizes a material that allows natural gas to be stored in
containers at much lower pressures than conventional systems. MCN is seeking
to join forces with other companies to manufacture a similar material in large
quantities at marketable prices. The ANG technology may lead to a more viable
natural gas alternative for fleet and personal transportation vehicles.
Additionally, gas technology operations for 1993 and 1992 include costs
related to other research and development activities. Operations for 1991
include a $1.3 million provision related to the restructuring of a business
that marketed natural gas torch technology.
EQUITY IN EARNINGS OF JOINT VENTURES
Nonutility earnings from joint ventures increased $5.9 million in 1993 as
compared to 1992 due to earnings from the Blue Lake gas storage project, which
began operations in April 1993, and earnings from a gas processing project
reflecting a full year of operations in 1993. Gas marketing & cogeneration
losses relate to the Ada cogeneration facility which, because of the structure
of its electric sales rates, is not expected to show a profit until 1996. In
spite of this, the facility generates a positive cash flow due to tax benefits
related to the project. The increased loss in 1993 from other joint ventures
is due to a reserve for the expected write-off of assets related to the natural
gas torch business. Gas storage earnings in 1992 decreased compared to 1991
due to lower revenues as the result of renegotiated storage contracts.
<TABLE>
<CAPTION>
EQUITY IN EARNINGS (LOSS) OF JOINT VENTURES
(in Millions) 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Gas Storage . . . . . . . . . . . . . . . . . . $ 6.2 $ 1.2 $ 2.2
Gas Marketing & Cogeneration . . . . . . . . . (1.4) (1.5) (1.3)
Gas Gathering & Processing . . . . . . . . . . 2.1 .4 -
Other . . . . . . . . . . . . . . . . . . . . . (1.0) (.1) (.1)
------ ------ ------
$ 5.9 $ - $ .8
------ ------ ------
------ ------ ------
</TABLE>
MCN TARGETS NEW JOINT VENTURES -- In late 1993, MCN entered into three
natural gas-related ventures. The investments are consistent with MCN's
strategic direction of improving shareholder value by investing in gas-related
projects that are expected to earn attractive returns.
MCN is an equal partner in a partnership that will build, own and operate a
123 megawatt, $150 million natural gas-fueled cogeneration plant in Michigan.
This facility is expected to begin commercially producing electricity and steam
in late 1995. MCN will also supply the 9 Bcf of natural gas required annually
to operate the plant.
MCN has a 40% interest in a partnership recently formed to own and operate a
$120 million, 42 Bcf underground natural gas storage field in southeastern
Michigan. The project is expected to be operational in 1996.
MCN is also a 40% partner in a newly formed Canadian partnership that
markets and sells natural gas, primarily in Canada and the northeastern United
States. The partnership is reaching new gas markets which have been opened by
the restructuring of the natural gas industry.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
OTHER INCOME & DEDUCTIONS
Other income & deductions for 1993 as compared to 1992 reflect higher interest
costs on long-term debt due to increased borrowings required to finance capital
investments in the nonutility operations. Other income & deductions for 1992
compared to 1991 reflect lower interest costs on long-term debt which was
reduced by the proceeds received from the October 1992 and September 1991
common stock issuances. Interest costs were also affected by more favorable
interest rates during 1992 and 1993.
INCOME TAX PROVISION
Income taxes for 1993 reflect higher earnings and the enactment of the Omnibus
Budget Reconciliation Act of 1993 which increased the corporate tax rate to
35%, effective January 1993. The income tax provision for 1993 was favorably
impacted by $2.3 million of federal gas production tax credits related to the
gas exploration & production projects.
Income taxes for 1992 and 1991 reflect the statutory tax rate applied to
earnings for the respective periods.
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
MCN's cash flow from operating activities totaled $110.1 million in 1993, an
increase of $27.9 million from 1992. The increase is due primarily to higher
net income, lower working capital requirements and additional deferred income
taxes. The additional deferred income taxes relate primarily to the accounting
for postretirement benefit costs (Note 8b).
Cash flow from operating activities totaled $82.2 million in 1992 compared
to $96.4 million in 1991. The decline reflects higher working capital
requirements which was significantly offset by higher net income and additional
deferred income taxes. The additional deferred income taxes relate to a GCR
undercollection in 1992 compared to a GCR over collection in 1991.
CASH FLOW FROM OPERATING ACTIVITIES (in Millions)
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Utility Services . . . . . . . . . . . . . . . . . . . $161.4 $144.0 $103.1
Nonutility Services . . . . . . . . . . . . . . . . . . 24.7 25.4 21.0
------ ------ ------
186.1 169.4 124.1
Changes in Assets & Liabilities . . . . . . . . . . . . (76.0) (87.2) (27.7)
------ ------ ------
Cash Flow from Operating Activities . . . . . . . . . . $110.1 $ 82.2 $ 96.4
------ ------ ------
------ ------ ------
- -------------------------------------------------------------------------------
</TABLE>
FINANCING ACTIVITIES
MCN issues new shares of common stock pursuant to its Dividend Reinvestment and
Stock Purchase Plan and various employee benefit plans. During the 1991-1993
period, MCN raised approximately $31.5 million from new shares of common stock
issued pursuant to these plans. During 1994, MCN anticipates the issuance of
new common stock pursuant to these plans generating about $14 million. MCN
sold 2,200,000 and 2,070,000 shares of new common stock in public offerings in
1992 and 1991, respectively, generating net proceeds of $100.3 million.
Proceeds from these common stock issuances were used to finance utility capital
expenditures, for natural gas-related investments and to retire debt.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Utility Services
In September 1993, MichCon issued first mortgage bonds totaling $120 million.
The proceeds were used to redeem approximately $74.9 million of its outstanding
first mortgage bonds and for general corporate purposes. These redemptions
allowed MichCon to lower its interest costs. Utility capital investments for
1994 are anticipated to be between $100 million and $200 million. In
anticipation that a portion of these future capital requirements will require
external financing, MichCon has shelf registrations on file with the Securities
and Exchange Commission that allow for the issuance of up to an additional $110
million of first mortgage bonds. MichCon plans to issue additional first
mortgage bonds in 1994. MichCon's capital requirements and general financial
market conditions will affect the timing and amount of future debt issuances.
MichCon's capitalization objective is to maintain a ratio of approximately 50%
debt and 50% equity. Future long-term debt offerings are expected to carry
MichCon's current debt rating of "A".
MichCon issued $120 million and $40 million of first mortgage bonds in 1992
and 1991, respectively. The proceeds were used to finance capital
expenditures, the permanent working capital requirements of the Supply
Realignment Plan (Note 6a) and for scheduled maturities and sinking fund
requirements of long-term debt. A portion of the proceeds was used to redeem
$85.2 million of long-term debt in 1992, allowing MichCon to reduce interest
costs.
During the latter part of each year, utility operations generally incur
short-term debt to finance increases in gas inventories and customer accounts
receivable. The short-term debt is normally reduced in the first part of the
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 of up to $325 million through April 1994
and then decreasing to $125 million through August 1994. Commercial paper of
$260.3 million was outstanding at December 31, 1993.
Nonutility Services
In order to finance nonutility capital investments, MCN and MCN Investment
maintain a joint unsecured, revolving credit facility that allows for
borrowings of up to $150 million through August 1996. At December 31, 1993,
borrowings outstanding under the facility totaled $71 million.
In 1993, MCN Investment established a short-term credit line through
September 1994 which allows for borrowings of up to $65 million to finance the
working capital requirements of the reorganized gas marketing operations.
Funds under the credit line are required by gas marketing operations to finance
increases in natural gas inventories during the summer and fall. Borrowings
will be repaid as sales are made from inventory during the winter months. At
December 31, 1993, MCN Investment had $20 million outstanding on its short-term
credit line.
In 1992, MCN Investment completed the private placement of $30 million of
senior notes. The proceeds were used to finance nonutility capital
expenditures and repay existing debt.
During 1991, Saginaw Bay Pipeline Company obtained a $26.4 million project
loan to permanently finance its 66% share of the Saginaw Bay pipeline project.
These proceeds, along with $16.7 million in contributions from the minority
partners, were used to repay short-term construction debt and finance other
pipeline construction costs.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
INVESTING ACTIVITIES
Capital investments increased $43.1 million in 1993 as compared to 1992, and
included an increase of approximately $22.6 million of capital expenditures for
nonutility gas exploration & production projects, primarily for Antrim shale
gas drilling. Utility services capital expenditures included construction of
distribution lines to reach communities not previously served by MichCon. The
increase in joint venture investments during 1993 reflects the Blue Lake gas
storage project which began operations in April 1993, and investments in other
natural gas-related projects. MCN's 50% share of Blue Lake's 1992-1993
expenditures was financed with $9.6 million of equity contributions and the
remaining cost was financed with partnership borrowings.
CAPITAL INVESTMENTS (in Millions)
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Consolidated Capital Expenditures:
Utility Services . . . . . . . . . . . . . . . . . . . $142.4 $129.4 $118.3
Nonutility Services . . . . . . . . . . . . . . . . . . 66.4 41.9 9.2
------ ------ ------
208.8 171.3 127.5
------ ------ ------
Acquisitions . . . . . . . . . . . . . . . . . . . . . . - - 14.7
------ ------ ------
MCN's Share of Joint Venture Capital
Expenditures:
Gas Storage . . . . . . . . . . . . . . . . . . . . . 31.4 27.4 2.1
Other . . . . . . . . . . . . . . . . . . . . . . . . 5.1 3.8 3.0
------ ------ ------
36.5 31.2 5.1
------ ------ ------
Minority Partners' Share of Consolidated
Capital Expenditures . . . . . . . . . . . . . . . . . (.1) (.4) (2.3)
------ ------ ------
Total Capital Investments . . . . . . . . . . . . . . . . $245.2 $202.1 $145.0
------ ------ ------
------ ------ ------
</TABLE>
The capital investments comparison for the 1992-1991 years was affected by
the 1992 construction of a new utility transmission pipeline, as well as
investments in nonutility gas exploration & production projects and investments
in the Blue Lake gas storage project. The 1991 acquisition represents MCN's
purchase of a 99% limited partnership interest in the Ada cogeneration project.
MCN's capital investments are anticipated to range from $200 to $400 million
annually over the next several years. These investments are to be directed
toward opportunities in the utility business and other projects that build upon
management's expertise, such as underground gas storage, natural gas
cogeneration facilities, gas gathering lines and gas production.
The anticipated level of investments in 1994 and future years may increase
capital requirements materially in excess of internally generated funds and may
require the issuance of additional debt and equity securities. It is
management's opinion that MCN and its subsidiaries have sufficient capital
resources, both internal and external, to meet anticipated capital
requirements.
EFFECTS OF INFLATION
MCN's utility operations are subject to inflationary pressures. Such
inflationary pressures exist because the utility operations' ability to adjust
its rates to recover increases in operating costs are dependent upon obtaining
approval from the MPSC. The effects of inflation on operating results,
however, are mitigated to the extent that assets are financed with debt that
will be repaid with dollars of less purchasing power. MCN's nonutility
operations have not been significantly affected by inflation.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONCLUDED)
PENDING ACCOUNTING PRONOUNCEMENTS
Beginning in 1994, Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits," will require the use of
accrual accounting for benefits provided to former or inactive employees after
employment but before retirement. Adoption of this Statement is not expected
to have a material effect on MCN's results of operations.
11
<PAGE> 12
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 1993 1992 1991
---------- ---------- ----------
(Thousands Except Per Share Amounts)
<S> <C> <C> <C>
OPERATING REVENUES
Gas sales (Note 6) . . . . . . . . . . . . . . . . . . . . . . $1,262,771 $1,237,137 $1,092,976
Transportation and storage services (Note 6a) . . . . . . . . . 109,694 108,771 98,147
Computer operations services and other . . . . . . . . . . . . 97,114 92,372 85,156
---------- ---------- ----------
Total operating revenues . . . . . . . . . . . . . . . . . . . 1,469,579 1,438,280 1,276,279
---------- ---------- ----------
OPERATING EXPENSES
Cost of gas . . . . . . . . . . . . . . . . . . . . . . . . . . 846,733 845,534 722,118
Operation and maintenance . . . . . . . . . . . . . . . . . . . 334,637 328,277 323,346
Depreciation, depletion and amortization . . . . . . . . . . . 81,646 76,434 74,081
Property and other taxes . . . . . . . . . . . . . . . . . . . 62,677 62,542 58,093
---------- ---------- ----------
Total operating expenses . . . . . . . . . . . . . . . . . . . 1,325,693 1,312,787 1,177,638
---------- ---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . 143,886 125,493 98,641
---------- ---------- ----------
EQUITY IN EARNINGS (LOSS) OF JOINT VENTURES (Note 1) . . . . . 7,710 (753) (294)
---------- ---------- ---------
OTHER INCOME AND (DEDUCTIONS)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . 5,187 6,238 1,714
Interest on long-term debt . . . . . . . . . . . . . . . . . . (28,789) (30,803) (26,581)
Other interest expense . . . . . . . . . . . . . . . . . . . . (9,939) (8,071) (13,105)
Dividends on preferred stock of subsidiary . . . . . . . . . . (727) (973) (1,220)
Minority interest . . . . . . . . . . . . . . . . . . . . . . . (3,284) (3,620) (3,040)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,313) (1,314) (1,959)
---------- ---------- ----------
Total other income and (deductions) . . . . . . . . . . . . . . (42,865) (38,543) (44,191)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . 108,731 86,197 54,156
INCOME TAX PROVISION (Note 10) . . . . . . . . . . . . . . . . 35,941 29,079 19,078
---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,790 $ 57,118 $ 35,078
---------- ---------- ----------
---------- ---------- ----------
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . . . $ 2.48 $ 2.11 $ 1.42
---------- ---------- ----------
---------- ---------- ----------
AVERAGE COMMON SHARES OUTSTANDING (Notes 3c and 3d) . . . . . . 29,321 27,108 24,693
---------- ---------- ----------
---------- ---------- ----------
DIVIDENDS DECLARED PER SHARE . . . . . . . . . . . . . . . . . $ 1.69 $ 1.65 $ 1.64
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The summary of accounting policies and notes to the consolidated financial
statements are integral parts of this statement.
12
<PAGE> 13
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31 1993 1992
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary cash investments, at cost (which approximates
market value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,474 $ 9,866
Accounts receivable, less allowance for doubtful accounts of $19,576 and
$24,930, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236,934 209,911
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,327 91,416
Gas in inventory (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,895 47,847
Property taxes assessed applicable to future periods . . . . . . . . . . . . . . . . 50,709 60,382
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,332 28,165
---------- ----------
482,671 447,587
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Investment in and advances to joint ventures (Note 1) . . . . . . . . . . . . . . . . 60,528 44,971
Deferred postretirement benefit cost (Note 8b) . . . . . . . . . . . . . . . . . . . 25,612 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,031 41,334
---------- ----------
145,171 86,305
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 7) . . . . . . . . . . . . . . . . . . . 2,284,529 2,098,135
Less: Accumulated depreciation and depletion . . . . . . . . . . . . . . . . . . . . 1,047,941 983,038
---------- ----------
1,236,588 1,115,097
---------- ----------
$1,864,430 $1,648,989
---------- ----------
---------- ----------
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 124,585 $ 127,622
Notes payable (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,304 235,323
Current portion of long-term debt, capital lease obligations and redeemable
cumulative preferred stock (Notes 3b and 7) . . . . . . . . . . . . . . . . . . . . 5,980 9,658
Federal income, property and other taxes payable . . . . . . . . . . . . . . . . . . 63,790 87,677
Refunds payable to customers (Note 6b) . . . . . . . . . . . . . . . . . . . . . . . 10,794 3,315
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,271 14,752
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,146 60,058
---------- ----------
576,870 538,405
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . 171,630 131,717
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . 40,571 42,494
Tax benefits amortizable to customers . . . . . . . . . . . . . . . . . . . . . . . . 31,666 44,245
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,357 19,038
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,729 50,471
---------- ----------
316,953 287,965
---------- ----------
CONTINGENCIES (Note 5)
CAPITALIZATION (See accompanying statement)
Long-term debt, including capital lease obligations . . . . . . . . . . . . . . . . . 494,821 379,811
Redeemable cumulative preferred stock of subsidiary . . . . . . . . . . . . . . . . . 5,618 9,000
Common shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470,168 433,808
---------- ----------
970,607 822,619
---------- ----------
$1,864,430 $1,648,989
---------- ----------
---------- ----------
</TABLE>
The summary of accounting policies and notes to the consolidated financial
statements are integral parts of this statement.
13
<PAGE> 14
CONSOLIDATED STATEMENT OF CAPITALIZATION
<TABLE>
<CAPTION>
Year Ended December 31 1993 1992 1991
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
LONG-TERM DEBT, EXCLUDING CURRENT REQUIREMENTS (Notes 3 and 7)
First Mortgage Bonds
7% series due 1993.................................................. $ - $ - $ 15,863
7-1/2% series due 1993.............................................. - - 19,840
9-1/4% series due 1996.............................................. - 6,000 7,500
6-1/4% series due 1997.............................................. 50,000 50,000 -
7-5/8% series due 1997.............................................. - - 24,485
8-5/8% series due 1997.............................................. - 7,069 8,881
8-1/8% series due 1998.............................................. - - 25,023
5-3/4% series due 2001.............................................. 60,000 - -
8% series due 2002.................................................. 70,000 70,000 -
9-1/8% series due 2004.............................................. 55,000 55,000 55,000
9-1/8% series due 2017.............................................. - 60,000 60,000
9-1/2% series due 2019.............................................. 5,000 5,000 5,000
9-1/2% series due 2021.............................................. 40,000 40,000 40,000
6-3/4% series due 2023.............................................. 20,000 - -
7% series due 2025.................................................. 40,000 - -
Unamortized premium and (discount) - net............................ (920) (549) (141)
Notes payable......................................................... 42,000 42,000 12,000
Revolving credit facility............................................. 71,000 - 4,650
Project loan due 2006................................................. 21,122 22,884 24,642
Long-term capital lease obligations................................... 17,625 18,253 19,190
Other long-term debt.................................................. 3,994 4,154 6,119
-------- -------- --------
Total................................................................. 494,821 379,811 328,052
-------- -------- --------
PREFERRED STOCK, no par value - authorized 25,000,000 shares,
outstanding - none
PREFERENCE STOCK OF SUBSIDIARY, par value $1 per share - authorized
4,000,000 shares, outstanding - none
REDEEMABLE CUMULATIVE PREFERRED STOCK OF SUBSIDIARY, EXCLUDING
CURRENT REQUIREMENTS, par value $1 per share - authorized 7,000,000
shares, outstanding 224,732, 360,000 and 480,000 shares,
respectively, $2.05 Series (Note 3b)................................ 5,618 9,000 12,000
-------- -------- --------
COMMON SHAREHOLDERS' EQUITY (Note 3)
COMMON STOCK, par value $.01 per share - authorized
50,000,000 shares, outstanding 29,496,363,
29,145,788 and 26,387,800 shares, respectively..................... 295 291 264
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance - beginning of period......................................... 306,379 235,587 184,910
Common stock issued................................................... 11,644 70,980 50,735
Other................................................................. (906) (188) (58)
-------- -------- --------
Balance - end of period............................................... 317,117 306,379 235,587
-------- -------- --------
RETAINED EARNINGS
Balance - beginning of period......................................... 130,621 118,495 123,864
Net income............................................................ 72,790 57,118 35,078
Cash dividends declared on common stock............................... (49,527) (44,940) (40,400)
Other................................................................. - (52) (47)
-------- -------- --------
Balance - end of period............................................... 153,884 130,621 118,495
-------- -------- --------
UNEARNED COMPENSATION AND ESOP BENEFIT................................ (1,128) (3,483) (5,409)
-------- -------- --------
Total common shareholders' equity..................................... 470,168 433,808 348,937
-------- -------- --------
TOTAL CAPITALIZATION.................................................. $970,607 $822,619 $688,989
-------- -------- --------
-------- -------- --------
</TABLE>
The summary of accounting policies and notes to the consolidated financial
statements are integral parts of this statement.
14
<PAGE> 15
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 1993 1992 1991
--------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,790 $ 57,118 $ 35,078
Adjustments to reconcile net income to net cash provided from
operating activities
Depreciation, depletion and amortization
Per statement of income . . . . . . . . . . . . . . . . . . . . . . . 81,646 76,434 74,081
Charged to other accounts . . . . . . . . . . . . . . . . . . . . . . 6,398 6,459 5,774
Deferred income taxes - current . . . . . . . . . . . . . . . . . . . . 6,010 13,361 (5,826)
Deferred income taxes and investment tax credit - net . . . . . . . . . 25,411 10,442 7,992
Equity in earnings of joint ventures, net of distributions . . . . . . (6,746) 2,576 1,510
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 589 3,035 5,485
--------- --------- ---------
186,098 169,425 124,094
Changes in assets and liabilities, exclusive of changes shown
separately . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75,982) (87,204) (27,651)
--------- --------- ---------
Net cash provided from operating activities . . . . . . . . . . . . . . . . 110,116 82,221 96,443
--------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable - net . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,981 54,933 12,656
Common stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (49,527) (44,940) (40,400)
Issuance of common stock (Notes 3c and 3d) . . . . . . . . . . . . . . . . 11,432 70,285 50,115
Partners' capital contributions received . . . . . . . . . . . . . . . . . - - 16,660
Issuance of long-term debt (Note 3a) . . . . . . . . . . . . . . . . . . . 118,129 148,724 65,613
Revolving credit facility - net (Note 3a) . . . . . . . . . . . . . . . . . 71,900 (4,650) (20,350)
Retirement of long-term debt and preferred stock (Notes 3a and 3b) . . . . (87,932) (119,466) (30,027)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (193) (957) 428
--------- --------- ---------
Net cash provided from financing activities . . . . . . . . . . . . . . . . 108,790 103,929 54,695
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (208,811) (171,309) (127,494)
Investment in joint ventures . . . . . . . . . . . . . . . . . . . . . . . (6,457) (10,036) (17,071)
Repayments from (advances to) joint ventures - net . . . . . . . . . . . . - 2,436 (2,436)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,030) (5,605) (3,656)
--------- --------- ---------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . (216,298) (184,514) (150,657)
--------- --------- ---------
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS . . . . . . . . . . . . 2,608 1,636 481
CASH AND TEMPORARY CASH INVESTMENTS, January 1 . . . . . . . . . . . . . . 9,866 8,230 7,749
--------- --------- ---------
CASH AND TEMPORARY CASH INVESTMENTS, December 31 . . . . . . . . . . . . . $ 12,474 $ 9,866 $ 8,230
--------- --------- ---------
--------- --------- ---------
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN
SEPARATELY
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . . . . . $ (27,476) $ (12,014) $ 19,287
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . (9,911) (41,250) 11,884
Gas in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,905 11,830 (12,030)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,037) 23,238 (64,930)
Federal income, property and other taxes payable . . . . . . . . . . . . . (23,751) (14,570) 15,063
Refunds payable to customers . . . . . . . . . . . . . . . . . . . . . . . 7,479 (39,730) 4,423
Other current assets and liabilities . . . . . . . . . . . . . . . . . . . 13,144 (8,715) (12,072)
Take-or-pay - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,018 14,765
Deferred assets and liabilities . . . . . . . . . . . . . . . . . . . . . . (34,335) (7,011) (4,041)
--------- --------- ---------
$ (75,982) $ (87,204) $ (27,651)
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest, net of amounts capitalized . . . . . . . . . . . . . . . . . . $ 37,880 $ 44,925 $ 37,941
--------- --------- ---------
--------- --------- ---------
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,850 $ 21,745 $ 11,950
--------- --------- ---------
--------- --------- ---------
</TABLE>
The summary of accounting policies and notes to the consolidated financial
statements are integral parts of this statement.
15
<PAGE> 16
SUMMARY OF ACCOUNTING POLICIES
The principal accounting policies of MCN Corporation and its subsidiaries are
set forth below. MichCon, the principal subsidiary of MCN, is subject to the
accounting requirements of and rate regulation by the MPSC with respect to the
distribution and intrastate transportation of natural gas.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MCN and all of
its subsidiaries. Investments in 50% or less owned partnerships and a 99%
limited partnership interest have been accounted for under the equity method,
because MCN has significant but not controlling influence over these entities.
Certain reclassifications have been made to prior years' statements to conform
with the 1993 presentation.
REVENUES AND COST OF GAS
The utility companies accrue revenues for gas service provided but unbilled at
month end. MichCon also accrues revenues equal to the recoverable cost of gas
sold. Annual gas cost proceedings before the MPSC permit MichCon to recover
the prudent and reasonable cost of gas sold. Any overcollection or
undercollection of costs, including interest, will be refunded or billed to
customers.
MichCon's rates are set to recover its lost gas costs using an averaging
method based on historical lost gas experience. Prior to 1993, MichCon
deferred or accrued revenues for differences between historical average lost
gas amounts and the actual amount experienced during the seasonal cycles ended
August 31 of each year. However, as a result of an October 1993 General Rate
Case order, MichCon will no longer defer or accrue revenues for these
differences in lost gas amounts. The amounts previously deferred or accrued
are being amortized to income over the following five years.
MCN uses natural gas futures and options contracts to partially hedge its
exposure to the risk of market price fluctuations for gas supplies purchased
or held in inventory. Changes in the market value of the contracts are
deferred and included in the inventory cost until the gain or loss is
recognized and included in the cost of gas when the hedged transaction is
complete.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and includes appropriate
amounts of labor, materials, overhead and an allowance for funds used during
construction. Upon retirement of utility property, the cost of property, plant
and equipment and net removal costs are charged to accumulated depreciation.
Gas exploration and production costs are accounted for using the full-cost
method. Substantially all acquisitions, exploration and development costs are
capitalized.
DEPRECIATION AND DEPLETION
A major portion of utility property, plant and equipment is depreciated on the
basis of straight-line rates prescribed by the MPSC. Unit of production
depreciation and depletion is used for certain exploration, production and
transmission property of the utility and nonutility segments. All other
property, plant and equipment of MCN is depreciated over its useful life using
the straight-line method. Depreciation rates vary by class of property. The
ratio of the provision for depreciation to the average cost of depreciable
property was 4.2%, 4.3% and 4.4% in 1993, 1992 and 1991, respectively.
16
<PAGE> 17
SUMMARY OF ACCOUNTING POLICIES (CONCLUDED)
INCOME TAXES AND INVESTMENT TAX CREDIT
Effective January 1993, MCN adopted the provisions of SFAS No. 109, "Accounting
for Income Taxes."
Due to current tax rates that are lower than the tax rates in effect when
the original deferred taxes were recorded, net excess deferred taxes on
existing utility plant in service are included in a Tax Benefits Amortizable to
Customers account. Also included in this account is the reduction in income
taxes that will result from the amortization of accumulated investment tax
credits. These tax benefits are being amortized to utility customers through
reduced rates over the life of the related plant.
In accordance with MPSC requirements, investment tax credits relating to
utility property placed into service were deferred and are being credited to
income over the life of the related property. Investment tax credits relating
to nonutility operations were recorded to income in the year the related
property was placed into service.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Utility operations capitalize an allowance for both debt and equity funds used
during construction in the cost of major additions to utility plant.
Nonutility operations also include an allowance for debt funds used during
construction. The total amount capitalized was $3,966,000, $1,650,000 and
$737,000 in 1993, 1992 and 1991, respectively.
DEFERRED DEBT COSTS
In accordance with MPSC regulations, MichCon defers reacquisition and
unamortized issuance costs of reacquired long-term debt when such debt is
refinanced. These costs are amortized over the term of the replacement debt.
REFUNDS PAYABLE TO CUSTOMERS
Utility operations accrue amounts to be paid to customers in accordance with
various refund requirements. These requirements relate to pipeline supplier
refunds received, gas cost over/undercollections, supply realignment cost
overcollections, and the gross margin from gas storage, transportation and
sales to certain customers when the total margin exceeds that assumed in rate
orders.
CONSOLIDATED STATEMENT OF CASH FLOWS
For purposes of this statement, MCN considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
MCN has equity interests in several partnerships involved in the following
business ventures: Gas Storage - 40% to 50% owned (Blue Lake Gas Storage
Company, South Romeo Gas Storage Company and Washington 10 Storage
Partnership), Gas Marketing & Cogeneration - 40% to 99% owned (CoWest Energy
and Ada Cogeneration Ltd. Partnership), Gas Gathering & Processing - 40% owned
(Antrim Ltd. Partnership), and Real Estate & Other - 33% to 50% owned (several
residential and commercial community development partnerships and other
natural gas-related ventures). The following is the combined summarized
financial information of the joint ventures. No provision for income taxes has
been included since income taxes are paid directly by the joint venture
participants.
<TABLE>
<CAPTION>
(in Thousands) 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
OPERATING REVENUES
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,451 $ 3,678 $ 5,559
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . . . . . 17,252 11,791 9,968
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . . . . . 6,555 2,831 -
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,348 4,685 4,165
------- ------- -------
$58,606 $22,985 $19,692
------- ------- -------
------- ------- -------
OPERATING INCOME (LOSS)
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,787 $ 2,026 $ 4,306
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . . . . . 1,004 1,153 915
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . . . . . 5,139 2,018 -
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 880 (895) (967)
------- ------- -------
$24,810 $ 4,302 $ 4,254
------- ------- -------
------- ------- -------
INCOME (LOSS) BEFORE TAXES
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,309 $ 2,580 $ 4,314
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . . . . . (1,154) (1,543) (1,298)
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . . . . . 4,873 1,744 -
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,763) (3,311) (4,009)
------- ------- -------
$15,265 $ (530) $ (993)
------- ------- -------
------- ------- -------
MCN'S SHARE OF INCOME (LOSS) BEFORE TAXES
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,728 $ 1,285 $ 2,157
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . . . . . (1,391) (1,529) (1,285)
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . . . . . 2,121 436 -
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,748) (945) (1,166)
------- ------- -------
$ 7,710 $ (753) $ (294)
------- ------- -------
------- ------- -------
MCN'S SHARE OF INCOME (LOSS) BEFORE TAXES BY SEGMENT
Utility Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,826 $ (728) $(1,123)
Nonutility Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,884 (25) 829
------- ------- -------
$ 7,710 $ (753) $ (294)
------- ------- -------
------- ------- -------
</TABLE>
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
(in Thousands) 1993 1992
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,731 $ 10,318
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . 9,213 3,644
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . 2,941 2,246
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . 4,196 4,405
-------- --------
24,081 20,613
-------- --------
NONCURRENT ASSETS
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,144 76,158
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . 40,808 42,127
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . 16,157 8,000
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . 131,851 116,460
-------- --------
324,960 242,745
-------- --------
$349,041 $263,358
-------- --------
-------- --------
MCN'S SHARE OF TOTAL ASSETS
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,652 $ 43,238
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . 34,968 35,093
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . 7,639 2,561
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . 31,359 30,642
-------- --------
$145,618 $111,534
-------- --------
-------- --------
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,497 $ 5,014
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . 8,077 3,187
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . 4,612 1,800
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . 9,323 51,365
-------- --------
110,509 61,366
-------- --------
NONCURRENT LIABILITIES
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915 46,800
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . 28,331 27,490
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . 4,718 6,442
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . 96,161 33,034
-------- --------
130,125 113,766
-------- --------
PARTNERS' EQUITY
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,463 34,662
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . 13,613 15,094
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . 9,767 2,004
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . 30,564 36,466
-------- --------
108,407 88,226
-------- --------
$349,041 $263,358
-------- --------
-------- --------
MCN'S SHARE OF PARTNERS' EQUITY
Gas Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,991 $ 17,331
Gas Marketing & Cogeneration . . . . . . . . . . . . . . . . . . . . . 10,010 11,573
Gas Gathering & Processing . . . . . . . . . . . . . . . . . . . . . . 3,907 501
Real Estate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . 11,619 12,698
-------- --------
52,527 42,103
Advances and Goodwill (1) . . . . . . . . . . . . . . . . . . . . . . . . 8,001 2,868
-------- --------
MCN's Investment in and Advances to Joint Ventures . . . . . . . . . . . . $ 60,528 $ 44,971
-------- --------
-------- --------
</TABLE>
(1) Differences between MCN's carrying value and its share of the
partnerships' underlying equity interest are accounted for as goodwill and
are being amortized over the expected useful lives of the related assets.
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. GAS IN INVENTORY
Inventory gas is priced on a last-in, first-out (LIFO) basis. At December 31,
1993, the replacement cost exceeded the $45,895,000 LIFO cost by $169,850,000
and at December 31, 1992, the replacement cost exceeded the $47,847,000 LIFO
cost by $158,474,000. MichCon's current GCR tariff provisions prevent MichCon
from retaining any benefits from a lower cost of gas sold resulting from
liquidating quantities of LIFO inventory. At December 31, 1993, the portion of
the excess of the replacement cost over the LIFO cost subject to GCR tariff
provisions was $168,569,000.
3. CAPITALIZATION
A. LONG-TERM DEBT
The following long-term debt was issued during 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
Amount
Issue Date Description Issued
<S> <C> <C>
1993
September MichCon - First Mortgage Bonds, $60,000
5-3/4%, due May 2001
MichCon - First Mortgage Bonds, $20,000
6-3/4%, due November 2023
MichCon - First Mortgage Bonds, $40,000
7%, due May 2025
1992
September MichCon - First Mortgage Bonds, $50,000
6-1/4%, due May 1997
July MCN Investment - 7.79% Senior $30,000
Notes, due June 1997
March MichCon - First Mortgage Bonds, $70,000
8%, due May 2002
</TABLE>
The proceeds received from the September 1993 debt issuances were used to
redeem three existing series of first mortgage bonds totaling approximately
$74,900,000 and for general corporate purposes. Substantially all of the
properties of MichCon are pledged as security for payment of the first mortgage
bonds.
MichCon has a variable interest rate swap agreement through April 2000 on
$12,000,000 of unsecured notes which effectively reduced the cost of this debt
to 3.6% at December 31, 1993. The notes are due June 2000.
During 1993, MCN and MCN Investment amended their joint unsecured
revolving credit facility to allow for borrowings of up to $150,000,000 through
August 1996. Borrowings of $71,000,000 were outstanding at a weighted average
interest rate of 4.5% at December 31, 1993.
Saginaw Bay Pipeline Company has an interest rate swap agreement on the
$22,900,000 outstanding balance of its project loan agreement at December 31,
1993, which effectively fixes the interest rate at 7.5% through February 2003.
Substantially all of the properties of Saginaw Bay Pipeline Company and the
partnership serve as collateral for the project loan.
Maturities and sinking fund requirements during the next five years for
long-term debt outstanding at December 31, 1993 are $2,800,000 in 1994,
$2,300,000 in 1995, $72,900,000 in 1996, $81,900,000 in 1997 and $2,200,000 in
1998.
B. REDEEMABLE CUMULATIVE PREFERRED STOCK OF SUBSIDIARY
At MichCon's option, all or part of the Cumulative Preferred Stock, $2.05
Series, is redeemable, at prices progressively decreasing to $25 per share.
Sinking fund provisions require that 60,000 shares be retired annually and also
provide for a noncumulative option to retire an additional 60,000 shares each
year. MichCon redeemed 120,000 shares at the sinking fund redemption price of
$25 per share in January 1994.
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
C. COMMON STOCK
MCN issues new shares of common stock pursuant to its Dividend Reinvestment and
Stock Purchase Plan and various employee benefit plans. The number of shares
issued was approximately 388,000 in 1993, 574,000 in 1992 and 392,000 in 1991
and generated net proceeds of $11,400,000, $12,600,000 and $7,500,000,
respectively.
In October 1992 and September 1991, MCN sold in public offering 2,200,000
and 2,070,000 shares of common stock, respectively. These issuances generated
net proceeds of $57,700,000 and $42,600,000 for the respective periods.
D. STOCK INCENTIVE AND OPTION PLANS
MCN's Stock Incentive Plan authorizes the use of performance units, restricted
stock or other stock related awards to key management employees. During 1993,
MCN changed this program to place a larger portion of incentives at-risk,
encourage a more strategic focus on long-term performance and increase the
retention value of the plan. MCN now issues performance units to executives
based on total shareholder return, as compared to a group of peer companies
over a six-year period. During 1993, MCN granted 149,300 performance units
based on total shareholder return for the previous three-year period. The
units granted will be adjusted upward or downward based on total shareholder
return for the next three-year period. The final awards are then payable in
cash and shares of common stock. Participants receive dividend equivalents,
based on the units granted. The performance units are recorded at market value
and amortized to expense as compensation over the periods earned. At December
31, 1993, 431,080 shares were available to be granted under the Stock Incentive
Plan.
MCN issued 27,800 and 28,800 restricted shares in 1992 and 1991,
respectively, under the Stock Incentive Plan. The restricted shares generally
vest six years after the date of grant, prior to which, they are
nontransferable and forfeitable. Holders of the shares receive cash dividends
and are entitled to vote. The market value of the shares when granted is
recorded as unearned compensation and amortized to expense over the periods
earned.
The MCN Stock Option Plan, which was effectively replaced in May 1989 by
the MCN Stock Incentive Plan, provided for the granting of options to officers
of MCN and its subsidiaries. There were no options available for grant for the
years presented. Changes in the number of shares of MCN Common Stock under
option are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Outstanding and exercisable at beginning of year
(ranging from $8.22 to $21.03 per share) . . . . . . . . . . . . . . . . . . . . 73,942 217,746 229,668
Exercised (ranging from $8.22 to $21.03 per share) . . . . . . . . . . . . . . . . 58,520 143,804 11,922
-------- -------- --------
Outstanding and exercisable at year end (ranging from
$8.22 to $21.03 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,422 73,942 217,746
-------- -------- --------
-------- -------- --------
</TABLE>
E. SHAREHOLDERS' RIGHTS PLAN
One preferred share purchase right is attached to each outstanding share of
common stock. The rights, which cannot be traded separately from MCN's common
stock, are designed to protect shareholders from coercive or unfair takeover
tactics. The rights are exercisable only upon certain triggering events and
expire in January 2000.
4. NOTES PAYABLE
At December 31, 1993, MichCon had lines of credit with banks permitting
borrowings of up to $325,000,000. In April 1994, the lines decrease to
$125,000,000 through August 1994. These lines are at interest rates that are
generally less than the prevailing prime rate. MichCon usually issues
commercial paper in lieu of an equivalent amount of borrowings under these
lines of credit. At December 31, 1993 and 1992, the outstanding borrowings,
all in the form of commercial paper issued at a discount, totaled $260,274,000
and $235,293,000, respectively, at weighted average interest rates of 3.4% and
3.5%. Commitment fees are paid to compensate banks for lines of credit.
In September 1993, MCN Investment established a short-term credit line
that allows for borrowings of up to $65,000,000 through September 9, 1994 at
interest rates which are generally less than the prevailing prime rate. At
December 31, 1993, borrowings of $20,000,000 were outstanding under this line
of credit at a weighted average interest rate of 4.4%. Commitment fees are
paid to compensate banks for lines of credit.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. CONTINGENCIES
A. GUARANTIES
Subsidiaries of MCN and an unaffiliated corporation have formed an equal
partnership, Blue Lake Gas Storage Company, to construct and operate a natural
gas storage system. In September 1993, the partnership reduced its
$100,000,000 bank line of credit to $90,000,000 through March 1994. MCN has
guaranteed its 50% share of all debt incurred under the credit facility. MCN's
guaranty covered $41,450,000 of the outstanding debt at December 31, 1993.
A subsidiary of MichCon and an unaffiliated corporation have formed a
series of partnerships which are engaged in the construction and development of
a residential community on the Detroit riverfront (Harbortown). One of the
partnerships obtained $12,000,000 of tax-exempt financing through the Michigan
State Housing Development Authority. Both partners and their parent
corporations have issued guaranties for the full amount of this financing and
each parent corporation has agreed to reimburse the other for 50% of any
payments made as a result of these guaranties.
B. ENVIRONMENTAL MATTERS
Prior to the construction of major natural gas pipelines, gas for cooking,
heating and other uses was manufactured from processes involving coal, coke or
oil. MichCon has sixteen such former manufactured gas plant (MGP) sites.
During the mid-1980's, MichCon conducted preliminary environmental
investigations at their MGP sites, and some contamination related to the
byproducts of gas manufacturing was discovered at each site. The existence of
these sites and the results of the environmental investigations have been
reported to the Michigan Department of Natural Resources (MDNR). MichCon is
not involved in any litigation or administrative proceedings regarding these
former MGP sites, but is currently conducting more extensive investigations at
two sites and submitted remediation recommendations for one site to the MDNR
during 1993.
In 1984, MichCon established an $11,700,000 reserve for environmental
investigation and remediation. The balance of the reserve at December 31, 1993
was $6,200,000. During 1992, MichCon requested that the MPSC approve a cost
deferral and rate recovery mechanism for any investigation and remediation
costs incurred at former MGP sites in excess of the existing reserve. In
October 1993, the MPSC issued an order in MichCon's general rate case which
allows MichCon to defer environmental costs paid in excess of the reserve and
amortize these costs into income over a ten-year period.
The Harbortown residential community is on a 50 acre parcel along the
Detroit River. Environmental and other approvals were received in 1984, prior
to construction. In 1991, the partnerships undertook additional environmental
testing at Harbortown to assess whether there was any potential public health
risk from lead, mercury or selenium in certain past soil samples. A report
prepared by an independent consulting firm concluded that Harbortown surface
soils did not present a health risk to any resident. In 1992, the MDNR
accepted the results of this risk assessment and agreed that there was no
health risk to residents due to lead in Harbortown surface soils.
Additional environmental testing is ongoing and management remains unable
to predict what ultimate remedial actions, if any, may be required or
undertaken at Harbortown. However, management believes that any such actions
will not have a material adverse impact on the financial condition of the
Company.
In 1993, MichCon received a general notice of liability letter from the
United States Environmental Protection Agency (USEPA) stating that MichCon is
one of two potentially responsible parties at a suspected dump site in
Wyandotte, Michigan. The USEPA requested that MichCon undertake a remedial
investigation and feasibility study at the site. MichCon has investigated its
prior activities in the area, as well as the USEPA's bases for its conclusion,
and does not believe that it is responsible for any contamination that may
exist at the site. In early 1994, MichCon informed the USEPA of this belief
and declined to undertake the requested activities at the site.
C. COMMITMENTS
To ensure a reliable supply of natural gas at competitive prices, MCN has
entered into long-term purchase and transportation contracts with various
suppliers and producers. In general, purchase prices under these contracts are
determined by formulas based on market prices. In 1994, MCN has firm purchase
commitments for approximately 236 Bcf of gas. This annual commitment declines
each year, through the year 2005. MCN expects that sales will exceed its
minimum purchase commitments. The Company is also committed to pay demand
charges of $70,500,000 during 1994 related to firm purchase and transportation
agreements. These demand charges are primarily for MichCon and recoverable
through the GCR mechanism.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Capital investments for 1994 are estimated to be between $200,000,000 and
$400,000,000 and certain commitments have been made in connection therewith.
D. INTERSTATE PIPELINE RESTRUCTURING
The FERC issued Order No. 636 in 1992 which required interstate pipelines to
separate their pipeline sales service into its various service components. The
order also allows interstate pipelines to recover their prudently incurred
transition costs resulting from the restructuring.
ANR, MichCon's primary interstate natural gas transporter, implemented its
Order No. 636 restructuring in November 1993 and is expected to file its first
transition cost recovery request with the FERC in the first quarter of 1994.
If approved, ANR will allocate the costs to its pipeline customers over a
three-year period. The amount of the costs to be allocated to MichCon is
uncertain. Once the filing is made, MichCon will accrue its allocated portion.
In addition, the MPSC has indicated such costs are recoverable through the GCR
mechanism. It is management's belief that there will be no material adverse
effect on earnings.
E. OTHER
MCN 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 the Company's financial condition.
6. RATE MATTERS
A. GENERAL RATE PROCEEDINGS
In October 1993, MichCon received approval from the MPSC in its general rate
case to increase rates $15,700,000 beginning in January 1994. The higher rates
include $28,700,000 for retiree health care benefits recognized under new
accounting requirements and $8,100,000 for higher depreciation rates.
Additionally, the MPSC's decision lowered MichCon's allowed rate of return on
common equity to 11.5%.
For the 1991-1993 period, MichCon had been operating under a comprehensive
agreement which provided for an operating incentive plan that allowed for
annual rate adjustments to recover the effects of inflation on operation and
maintenance expenses based on changes in the Consumer Price Index. MichCon
received an inflation related increase in rates of $4,900,000, effective
January 1992.
The comprehensive agreement also contained a performance incentive provision
designed to adjust rates if weather-normalized earnings were above or below a
specified range of return on common equity. Increased gas markets enabled
MichCon to earn returns above the specified range in 1992 which resulted in a
portion of these higher earnings being shared with customers. A provision for
this sharing of earnings with customers was recorded in 1992 which reduced net
income by $5,900,000.
MichCon received MPSC approval to increase rates from March 1992 through
February 1993 by $6,800,000 to recover its costs relating to the Michigan
Department of Social Services (DSS) Heating Assistance Program. This program
was extended through February 1994 with the MPSC approving rates of $10,500,000
effective February 1993. MichCon also received MPSC approval to extend
$6,000,000 of rates to recover its costs related to DSS uncollectible gas
accounts from January through December 1993.
As part of MichCon's Supply Realignment Plan, MichCon did not renew
storage contracts that expired with interstate transportation customers in
order to increase the existing storage capacity available for gas sales
customers. As part of its efforts to convert this capacity, MichCon requested
approval to remove its Interstate Storage Division operations from FERC
jurisdiction. The FERC issued an order granting MichCon's request effective
August 1, 1991.
The MPSC approved MichCon's request for a rate increase of $19,900,000,
effective September 1991, in order to implement MichCon's Supply Realignment
Plan. The increased rates are being used to recover the costs of maintaining a
higher level of gas in inventory and replace the reduction in storage revenue
resulting from the conversion of MichCon's storage capacity. The order also
provided for a rate increase of $3,900,000, effective November 1992. This
increase was intended to cover transportation costs incurred to integrate gas
supply to certain gas markets serviced by MichCon.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
B. GAS COST RECOVERY AND REFUNDS
A previously accrued refund totaling $8,400,000 was paid to customers in July
1993 as a result of the order issued by the MPSC in MichCon's 1992 GCR
reconciliation case.
At December 31, 1993, refunds payable to customers totaled $10,794,000
consisting primarily of $7,500,000 of supply realignment overcollections and
$5,800,000 of excess transportation and storage revenues. These amounts are
partially offset by $4,600,000 of 1993 GCR undercollections.
7. CAPITAL AND OPERATING LEASES
MCN leases certain property (principally office buildings, a warehouse, a
parking structure and computer equipment) under lease arrangements expiring at
various dates to 2010, with renewal options extending beyond that date.
Portions of the office buildings and parking structure are subleased to various
tenants.
The gross amount of assets recorded under capital leases and the related
accumulated depreciation at December 31, 1993 are $26,887,000 and $8,206,000,
respectively. The gross amount of assets and related accumulated depreciation
at December 31, 1992 were $26,454,000 and $7,264,000, respectively.
Minimum rental commitments under noncancelable leases at December 31, 1993
are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ---------
(in Thousands)
<S> <C> <C>
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,908 $ 16,269
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,908 13,413
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,908 10,145
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,908 7,973
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,908 5,428
1999 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,288 18,695
--------- ---------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,828 $ 71,923
---------
---------
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . 12,147
---------
Present value of minimum lease payments . . . . . . . . . . . . . . . . . . . . . . 18,681
Less: Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,056
---------
Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,625
---------
---------
</TABLE>
Total minimum lease payments for capital and operating leases have not
been reduced by future minimum sublease receipts of $10,700,000 and $2,100,000,
respectively, under noncancelable subleases.
Capital and operating lease payments for the years ended December 31
consist of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(in Thousands)
<S> <C> <C> <C>
Capital Leases:
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . $ 941 $ 847 $ 766
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 1,923 2,003 2,084
------- ------- -------
Total capital lease expense . . . . . . . . . . . . . . . . . . . . $ 2,864 $ 2,850 $ 2,850
------- ------- -------
------- ------- -------
Operating lease expense . . . . . . . . . . . . . . . . . . . . . . $16,641 $15,441 $16,988
------- ------- -------
------- ------- -------
</TABLE>
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. RETIREMENT BENEFITS
A. PENSION PLAN BENEFITS
Separate retirement plans are maintained for union and nonunion employees. The
plans are noncontributory, cover substantially all employees and provide for
normal retirement at age 65, but with the option to retire earlier or later
under certain conditions. The plans provide pension benefits that are based on
the employee's compensation and years of credited service. MCN's funding
policy is to fund each year's actuarially determined funding requirements of
the plans, subject to regulations issued by the Internal Revenue Service.
Currently, these plans meet the full funding limitations of the Internal
Revenue Code. Accordingly, no contributions for the 1991, 1992 or 1993 plan
years were made and none will be made for the 1994 plan year.
Net pension cost for these plans included the following components:
<TABLE>
<CAPTION>
1993 1992 1991
--------- -------- --------
(in Thousands)
<S> <C> <C> <C>
Service cost - benefits earned during
the period . . . . . . . . . . . . . . . . . . . . . $ 11,046 $ 10,109 $ 9,122
Interest cost on projected benefit
obligations . . . . . . . . . . . . . . . . . . . . . 29,987 28,699 27,705
Actual return on plan assets . . . . . . . . . . . . . (107,148) (40,739) (101,125)
Net amortization and deferral . . . . . . . . . . . . . 65,146 202 63,335
--------- -------- --------
Net pension credit . . . . . . . . . . . . . . . . . . $ (969) $ (1,729) $ (963)
--------- -------- --------
--------- -------- --------
</TABLE>
The following table sets forth a reconciliation of the funded status of the
plans and the amounts recorded as prepaid pension cost in the Consolidated
Statement of Financial Position:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(in Thousands)
<S> <C> <C>
Actuarial present value of:
Accumulated vested benefit obligation . . . . . . . . . . . . . . . . . . . . . $366,781 $326,084
Accumulated nonvested benefit obligation . . . . . . . . . . . . . . . . . . . 27,487 20,236
-------- --------
$394,268 $346,320
-------- --------
-------- --------
Projected benefit obligations for service rendered
to date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $468,464 $428,102
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609,122 524,217
-------- --------
Plan assets in excess of projected benefit obligations . . . . . . . . . . . . . 140,658 96,115
Less: Unrecognized net asset at transition . . . . . . . . . . . . . . . . . . . 55,219 60,259
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . 3,310 3,826
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . . . 76,735 27,605
-------- --------
Prepaid pension cost recognized in the Consolidated
Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . $ 5,394 $ 4,425
-------- --------
-------- --------
</TABLE>
In determining the actuarial present value of the projected benefit
obligations, the weighted average discount rate was 6.5% for 1993 and 7.0% for
1992. The rate of increase in future compensation levels used was 5.0% for
1993 and 5.5% for 1992 and 1991. The expected long-term rate of return on plan
assets was 7.5% for 1993, 1992 and 1991. During 1992, these pension plans were
amended to marginally enhance benefits and increase the period over which
pension benefits are earned. For 1993 and 1992, plan assets consisted
primarily of equity and fixed income securities.
B. OTHER POSTRETIREMENT BENEFITS
MCN provides certain health care and life insurance benefits for retired
employees. Substantially all of MCN's employees may become eligible for these
benefits if they reach retirement age while working for MCN. Prior to 1993,
these costs were recognized as expense and paid when claims were incurred and
amounted to $10,700,000 and $10,900,000 for 1992 and 1991, respectively.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Effective January 1993, MCN adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," which requires the use of
accrual accounting for postretirement benefits. Consistent with a December
1992 MPSC order, MCN deferred the 1993 utility related postretirement benefit
costs that were in excess of claims paid (including the amortization of the
initial transition obligation) until January 1994 when new rates to recover
such costs became effective. The deferred 1993 costs are being amortized over
a period of 19 years. MCN continued to fund postretirement benefit costs as
they were paid in 1993.
In December 1993, MCN established a funding policy for its postretirement
benefit costs in which these costs are funded to the extent such amounts are
recoverable in rates. During 1993, MichCon established separate qualified
Voluntary Employees' Beneficiary Association (VEBA) trusts for its union and
nonunion employees. In December 1993, MichCon initiated funding to the VEBA
trusts totaling $28,700,000 which is invested in equity and fixed income
securities. It is expected that the plan assets will earn a 7.4% return on
investment.
Net postretirement cost included the following components:
<TABLE>
<CAPTION>
(in Thousands) 1993
---------
<S> <C>
Service cost - benefits earned during the period . . . . . . . . . . . . . . . . . . . . . . . $ 7,738
Interest cost on accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . 20,517
Amortization of transition obligation over 20 years . . . . . . . . . . . . . . . . . . . . . . 14,656
--------
Total postretirement cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,911
Less: Deferred utility cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,612
--------
Net postretirement cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,299
--------
--------
</TABLE>
The following table sets forth a reconciliation of the funded status of
the plans and the amounts recorded as accrued postretirement cost in the
Consolidated Statement of Financial Position:
<TABLE>
<CAPTION>
(in Thousands)
1993 1992
--------- --------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $190,995 $161,214
Fully eligible active participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,035 38,385
Participants with less than 30 years of service . . . . . . . . . . . . . . . . . . . . . . . 97,482 93,514
-------- --------
335,512 293,113
Less: Unrecognized transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . 278,453 293,113
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,967 -
Contribution made after measurement date . . . . . . . . . . . . . . . . . . . . . . . . 28,700 -
-------- --------
Accrued postretirement liability recognized in the
Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . $ 3,392 $ -
-------- --------
-------- --------
</TABLE>
The rate at which health care costs are assumed to increase is the most
significant factor in estimating MCN's postretirement benefit obligation. MCN
used a rate of 15% for 1993, 14% for 1994 and a rate that gradually declines
each year until it stabilizes at 5% in 2003. A one percentage point increase
in the assumed rate would increase the accumulated postretirement benefit
obligation at December 31, 1993 by 13% and increase the sum of the service cost
and interest cost by 18% for the year then ended. The discount rate used in
determining the accumulated postretirement benefit obligation was 6.5% and 7%
for 1993 and 1992, respectively.
9. FINANCIAL INSTRUMENTS
MCN has estimated the fair value of its financial instruments using available
market information and appropriate valuation methodologies. Considerable
judgement is required in developing the estimates of fair value presented
herein and therefore, the values are not necessarily indicative of the amounts
that MCN could realize in a current market exchange. The carrying amounts of
certain financial instruments such as notes payable and customer deposits are
assumed to approximate fair value due to the short-term nature of these items.
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The carrying amount and the estimated fair value of other financial
instruments consist of the following:
<TABLE>
<CAPTION>
1993 1992
------------------------ ------------------------
Carrying Estimated Carrying Estimated
(in Thousands) Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Notes receivable and advances . . . . . . . . . . . . . . . . . . $ 9,592 $ 9,592 $ 6,707 $ 6,707
Liabilities and Shareholders' Equity:
Long-term debt, excluding capital lease
obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 477,196 502,433 360,527 382,884
Redeemable cumulative preferred stock,
including current portion . . . . . . . . . . . . . . . . . . . 8,618 8,955 11,618 12,158
Off-Balance Sheet Unrealized Gains:
Interest rate swap agreements . . . . . . . . . . . . . . . . . . 1,175 1,844
</TABLE>
The estimated fair values are determined based on the following:
Notes receivable and advances - interest rates currently available to MCN
for investments with similar maturities and credit quality assumptions.
Long-term debt - interest rates currently available to MCN for issuance of
debt with similar terms and remaining maturities.
Redeemable cumulative preferred stock - quoted market price.
Interest rate swap agreements - estimated amount that MCN would receive or
pay to terminate the swap agreements, taking into account current interest
rates and the creditworthiness of the swap counterparties.
Guaranties (Note 5a) - estimated exposure and cost to terminate the Blue
Lake guaranty has been determined to be immaterial. Management is unable
to practicably estimate the fair value of the Harbortown guaranty due to
the nature of the related party transaction and the fact that there is no
similar market for the instrument.
The fair value estimates presented herein are based on information
available to management as of December 31, 1993 and 1992. Management is not
aware of any subsequent factors that would significantly affect the estimated
fair value amounts.
27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. SUMMARY OF INCOME TAXES
Effective January 1993, MCN adopted SFAS No. 109, "Accounting for Income
Taxes," which supersedes SFAS No. 96. No cumulative adjustment was necessary
for the adoption of this standard because its provisions are not materially
different than those applied under the previous standard which MCN adopted in
1987.
<TABLE>
<CAPTION>
(in Thousands) 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Effective Federal Income Tax Rate . . . . . . . . . . . . . . . . . . . . . . . . . 32.5% 32.7% 34.0%
-------- -------- --------
-------- -------- --------
Income Taxes Consist of:
Current provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,359 $ 6,061 $ 18,496
Deferred provision - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,505 24,961 2,346
Investment tax credit - net . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,923) (1,943) (1,764)
-------- -------- --------
Total income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,941 $ 29,079 $ 19,078
-------- -------- --------
-------- -------- --------
Reconciliation Between Statutory and Actual Income Taxes:
Statutory federal income taxes at a rate of 35%,
34% and 34%, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,056 $ 29,307 $ 18,413
Adjustments to federal tax expense:
Excess of book over tax depreciation, allowed . . . . . . . . . . . . . . . . . . 4,302 4,279 4,566
Adjustment of federal income taxes provided
in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 (1,320) (1,709)
Amortization of investment tax credit . . . . . . . . . . . . . . . . . . . . . . (1,893) (1,943) (2,116)
Federal gas production tax credits . . . . . . . . . . . . . . . . . . . . . . . (2,258) (12) -
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,579) (1,232) (76)
-------- -------- --------
Total income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,941 $ 29,079 $ 19,078
-------- -------- --------
-------- -------- --------
</TABLE>
Deferred tax assets and liabilities are recognized for the estimated
future tax effect of temporary differences between the tax basis of assets or
liabilities and the reported amounts in the financial statements. Deferred tax
assets and liabilities are classified as current or noncurrent according to the
classification of the related assets or liabilities. The tax effect of
temporary differences that gave rise to MCN's deferred tax assets and
liabilities consisted of the following:
<TABLE>
<CAPTION>
(in Thousands) 1993 1992
----------------------------------
<S> <C> <C>
Deferred Tax Assets:
Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,773 $ 8,376
Vacation and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,980 4,617
Deferred lost gas cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,266 3,804
Federal gas production tax credits . . . . . . . . . . . . . . . . . . . . . . . . . 2,270 12
Alternative minimum tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,318 766
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,417 1,698
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -------- --------
22,024 19,273
-------- --------
Deferred Tax Liabilities:
Depreciation and other property related basis
differences, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,083 129,377
Property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,579 20,522
Postretirement benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,045 -
Refunds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,524 128
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,891 8,421
-------- --------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207,122 158,448
-------- --------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,098 139,175
Less: Net deferred tax liability - current . . . . . . . . . . . . . . . . . . . . . . 13,468 7,458
-------- --------
Net deferred tax liability - noncurrent . . . . . . . . . . . . . . . . . . . . . . . . $171,630 $131,717
-------- --------
-------- --------
</TABLE>
The Omnibus Budget Reconciliation Act of 1993, which was enacted in August
1993, increased the corporate income tax rate from 34% to 35% effective January
1993.
28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded)
11. SEGMENT INFORMATION
The business segments of MCN are defined as follows: a) Utility Services -
natural gas distribution, transmission and storage operations; b) Gas Services
- - nonutility natural gas marketing, gathering and production; c) Computer
Operations Services - computer processing and network services, high speed
electronic printing and direct mail services; d) Corporate & Gas Technology -
corporate services and natural gas technology programs.
<TABLE>
<CAPTION>
Computer Corporate
Utility Gas Operations & Gas Intercompany Consolidated
Services (1) Services (1) Services Technology Eliminations Total
---------- ---------- ---------- ----------- ------------ -----------
(in Thousands)
<S> <C> <C> <C> <C> <C> <C>
1993
- ----
Operating Revenues . . . . . . . . . . . $1,119,189 $301,496 $74,391 $ - $(25,497)(2) $1,469,579
Operating Income (Loss) . . . . . . . . . 127,704 16,928 5,192 (5,938) - 143,886
Identifiable Assets . . . . . . . . . . . 1,525,991 288,756 53,802 65,109 (69,228) 1,864,430
Depreciation, Depletion and Amortization 74,414 2,232 4,616 384 - 81,646
Capital Expenditures . . . . . . . . . . 142,428 59,088 5,064 2,231 - 208,811
1992
- ----
Operating Revenues . . . . . . . . . . . $1,151,522 $242,302 $67,730 $ - $(23,274)(2) $1,438,280
Operating Income (Loss) . . . . . . . . . 107,922 15,707 4,749 (2,885) - 125,493
Identifiable Assets . . . . . . . . . . . 1,440,279 199,605 46,205 33,771 (70,871) 1,648,989
Depreciation, Depletion and Amortization 70,289 2,195 3,818 132 - 76,434
Capital Expenditures . . . . . . . . . . 129,423 35,935 5,484 467 - 171,309
1991
- ----
Operating Revenues . . . . . . . . . . . $1,040,781 $193,310 $62,430 $ - $(20,242)(2) $1,276,279
Operating Income (Loss) . . . . . . . . . 85,979 15,702 1,887 (4,927) - 98,641
Identifiable Assets . . . . . . . . . . . 1,363,291 144,811 44,846 18,936 (54,497) 1,517,387
Depreciation, Depletion and Amortization 68,345 1,988 3,613 135 - 74,081
Capital Expenditures . . . . . . . . . . 118,245 6,468 2,600 181 - 127,494
</TABLE>
(1) In June 1993, MCN consolidated its gas marketing activities by
transferring its utility gas brokering business to Gas Services. The
segment information included herein is presented as though the combined
gas marketing business was part of Gas Services for all periods presented.
(2) Intercompany eliminations include revenue of the Computer Operations
Services from the Utility Services of $15,340, $15,631 and $14,731 for
1993, 1992 and 1991, respectively. The remaining balance is primarily
for gas transportation and gas sales between Utility Services and Gas
Services.
29
<PAGE> 30
TO THE BOARD OF DIRECTORS OF MCN CORPORATION:
We have audited the accompanying consolidated statements of financial position
of MCN Corporation and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, cash flows and capitalization for
each of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MCN
Corporation and subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 8b to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions effective January 1, 1993 to conform with Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
/s/ Deloitte & Touche
Detroit, Michigan
February 8, 1994
30
<PAGE> 31
SUPPLEMENTARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (Unaudited) 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
NET INCOME . . . . . . . . . . . . . . . . . . . $ 72,790 $ 57,118 $ 35,078 $ 32,336 $ 49,785
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
CASH DIVIDENDS DECLARED ON COMMON STOCK . . . . . $ 49,527 $ 44,940 $ 40,400 $ 37,519 $ 35,474
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
COMMON STOCK DATA
Earnings per share . . . . . . . . . . . . . . . $ 2.48 $ 2.11 $ 1.42 $ 1.38 $ 2.20
Book value per share . . . . . . . . . . . . . . $ 15.94 $ 14.88 $ 13.22 $ 12.61 $ 12.86
Return on average common shareholders' equity . . 16.1% 14.6% 10.8% 10.8% 18.2%
Actual common shares outstanding (000) . . . . . 29,496 29,146 26,388 23,930 23,232
Average shares outstanding (000) . . . . . . . . 29,321 27,108 24,693 23,516 22,662
PROPERTY, PLANT AND EQUIPMENT
Utility Services . . . . . . . . . . . . . . . . $2,101,616 $1,981,741 $1,866,971 $1,755,033 $1,669,980
Nonutility Services . . . . . . . . . . . . . . . 182,913 116,394 75,179 66,784 13,744
---------- ---------- ---------- ---------- ----------
2,284,529 2,098,135 1,942,150 1,821,817 1,683,724
Less - Accumulated depreciation and depletion . . 1,047,941 983,038 919,004 857,092 810,055
---------- ---------- ---------- ---------- ----------
Net . . . . . . . . . . . . . . . . . . . . . . . $1,236,588 $1,115,097 $1,023,146 $ 964,725 $ 873,669
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . $1,864,430 $1,648,989 $1,517,387 $1,500,360 $1,365,318
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
CAPITAL INVESTMENTS . . . . . . . . . . . . . . . $ 245,178 $ 202,071 $ 145,021 $ 177,667 $ 83,033
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
CAPITALIZATION
Long-term debt and capital lease obligations . . $ 494,821 $ 379,811 $ 328,052 $ 320,516 $ 307,421
Redeemable cumulative preferred stock . . . . . . 5,618 9,000 12,000 15,000 18,000
Common shareholders' equity . . . . . . . . . . . 470,168 433,808 348,937 301,791 298,720
---------- ---------- ---------- ---------- ----------
$ 970,607 $ 822,619 $ 688,989 $ 637,307 $ 624,141
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OPERATING REVENUES (1)
Utility Services:
Gas sales . . . . . . . . . . . . . . . . . . . $ 983,083 $ 969,221 $ 929,339 $ 895,092 $1,094,991
End user transportation . . . . . . . . . . . . 71,718 70,160 63,298 58,355 53,097
Intermediate transportation . . . . . . . . . . 19,637 17,840 7,979 4,535 2,989
Storage services . . . . . . . . . . . . . . . 10,090 9,584 16,946 26,329 25,929
Conservation and other assistance programs . . 23,935 27,677 30,803 15,550 4,134
Application of (provision for) refunds - net . (3,165) 43,792 (15,799) 12,203 (14,387)
Other . . . . . . . . . . . . . . . . . . . . . 13,891 13,248 8,215 7,244 6,298
---------- ---------- ---------- ---------- ----------
1,119,189 1,151,522 1,040,781 1,019,308 1,173,051
---------- ---------- ---------- ---------- ----------
Nonutility Services:
Gas sales and transportation . . . . . . . . . 301,496 242,302 193,310 163,436 115,363
Computer operations services and other . . . . 74,391 67,730 62,430 44,627 24,411
---------- ---------- ---------- ---------- ----------
375,887 310,032 255,740 208,063 139,774
---------- ---------- ---------- ---------- ----------
Less intercompany transactions . . . . . . . . . 25,497 23,274 20,242 18,032 16,180
---------- ---------- ---------- ---------- ----------
$1,469,579 $1,438,280 $1,276,279 $1,209,339 $1,296,645
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
EFFECT OF WEATHER
Degree days . . . . . . . . . . . . . . . . . . . 6,675 6,607 6,092 5,967 7,092
Percent colder (warmer) than normal . . . . . . . (2.2)% (3.7)% (10.7)% (12.5)% 4.0%
Increase (decrease) from normal in:
Gas markets (MMcf) . . . . . . . . . . . . . . (4,328) (10,218) (17,110) (21,369) 5,149
Net income . . . . . . . . . . . . . . . . . . $ (3,696) $ (8,728) $ (13,268) $ (15,623) $ 3,542
Earnings per share . . . . . . . . . . . . . . $ (.13) $ (.32) $ (.54) $ (.66) $ .16
</TABLE>
(1) In June 1993, MCN consolidated its gas marketing activities by
transferring its utility gas brokering business to Nonutility Services.
The segment information included herein is presented as though the
combined gas marketing business was part of Nonutility Services for all
periods presented.
31
<PAGE> 32
SUPPLEMENTARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (Unaudited) 1993 1992 1991 1990 1989
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
GAS MARKETS (MMcf)
Utility Services:
Gas sales . . . . . . . . . . . . . . . 205,372 203,110 192,770 188,066 214,051
End user transportation . . . . . . . . 128,643 129,722 119,846 111,373 115,045
Intermediate transportation . . . . . . 281,116 183,978 105,496 73,330 59,901
--------- --------- ---------- ---------- ----------
615,131 516,810 418,112 372,769 388,997
--------- --------- ---------- ---------- ----------
Nonutility Services:
Gas sales . . . . . . . . . . . . . . . 122,849 112,263 91,968 74,380 55,164
Transportation . . . . . . . . . . . . 21,840 25,382 25,335 - -
--------- --------- ---------- ---------- ----------
144,689 137,645 117,303 74,380 55,164
--------- --------- ---------- ---------- ----------
Less intercompany transactions . . . . . 17,406 6,816 2,509 89 -
--------- --------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . 742,414 647,639 532,906 447,060 444,161
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
UTILITY CUSTOMERS
Residential . . . . . . . . . . . . . . . 1,061,679 1,050,533 1,045,618 1,038,260 1,014,283
Total . . . . . . . . . . . . . . . . . . 1,141,986 1,130,165 1,124,792 1,116,924 1,090,970
EMPLOYEES
Utility Services . . . . . . . . . . . . 3,379 3,588 3,544 3,489 3,364
Nonutility Services . . . . . . . . . . . 489 380 338 380 173
</TABLE>
QUARTERLY OPERATING RESULTS AND COMMON STOCK PRICES (Unaudited)
Due to the seasonal nature of MCN's utility operations, revenues, net income
and earnings per share tend to be higher in the first and fourth quarters of
the calendar year. Quarterly earnings per share may not total for the years,
since quarterly computations are based on weighted average common shares
outstanding during each quarter. There were 26,512 and 26,856 holders of
record of MCN common shares at December 31, 1993 and 1992, respectively.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ---------
(Dollars in Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1993
Operating revenues . . . . . . . . . . . $556,738 $287,526 $180,508 $444,807 $1,469,579
Operating income (loss) . . . . . . . . . $ 90,640 $ 6,994 $ (9,404) $ 55,656 $ 143,886
Net income (loss) . . . . . . . . . . . $ 54,044 $ 1,938 $(11,220) $ 28,028 $ 72,790
Earnings (loss) per share . . . . . . . . $ 1.85 $ .07 $ (.38) $ .95 $ 2.48
Dividends paid per share . . . . . . . . $ .42 $ .42 $ .42 $ .43 $ 1.69
Average daily trading volume . . . . . . 72,269 56,798 40,678 33,186 50,539
Price per share
High . . . . . . . . . . . . . . . . . $ 33.625 $ 34.875 $ 36.500 $ 36.625 $ 36.625
Low . . . . . . . . . . . . . . . . . . $ 29.000 $ 30.875 $ 33.000 $ 33.875 $ 29.000
Close . . . . . . . . . . . . . . . . . $ 33.625 $ 34.875 $ 34.875 $ 34.750 $ 34.750
1992
Operating revenues . . . . . . . . . . . $534,852 $268,494 $184,938 $449,996 $1,438,280
Operating income (loss) . . . . . . . . . $ 98,070 $ 11,829 $(15,557) $ 31,151 $ 125,493
Net income (loss) (2) . . . . . . . . . . $ 57,034 $ 1,534 $(15,159) $ 13,709 $ 57,118
Earnings (loss) per share . . . . . . . . $ 2.16 $ .06 $ (.57) $ .48 $ 2.11
Dividends paid per share . . . . . . . . $ .41 $ .41 $ .41 $ .42 $ 1.65
Average daily trading volume . . . . . . 31,462 33,429 57,091 73,133 48,907
Price per share
High . . . . . . . . . . . . . . . . . $ 24.500 $ 24.875 $ 28.125 $ 31.000 $ 31.000
Low . . . . . . . . . . . . . . . . . . $ 21.750 $ 21.625 $ 24.625 $ 25.250 $ 21.625
Close . . . . . . . . . . . . . . . . . $ 22.625 $ 24.875 $ 27.625 $ 30.875 $ 30.875
</TABLE>
(2) Fourth quarter earnings for 1992 reflect two provisions that decreased
net income, one related to the Performance Incentive Plan for $5,900
($.21 per share) and the other related to the Supply Realignment Plan
$3,600 ($.13 per share) (Note 6).
32
<PAGE> 1
EXHIBIT 21-1
MCN CORPORATION (MCN) is a holding company organized under the laws of the
state of Michigan. MCN owns directly all of the outstanding common stock of
Michigan Consolidated Gas Company (MichCon), Citizens Gas Fuel Company
(Citizens), and MCN Investment Corporation (MCN Investment). MCN is organized
along two major business lines, utility and nonutility services. Except where
otherwise indicated, the companies set forth below are Michigan corporations.
UTILITY SERVICES
A. MICHCON. Except where otherwise indicated, the companies set forth
below are wholly-owned subsidiaries of MichCon.
1. Michigan Consolidated Homes Limited Dividend Housing Corporation,
a Delaware corporation.
2. MichCon Development Corporation has a 33% to 50% interest in four
partnerships.
3. Blue Lake Holdings, Inc. holds a 50% interest in the Blue Lake Gas
Storage Company. MichCon owns 50% of Blue Lake Holdings, Inc., the
other half is owned by Storage Development Company, a subsidiary of
MCN Investment.
4. Kalkaska Gas Storage Limited Partnership, a Michigan partnership
in which MichCon has a 31% interest, holds a 53.5% interest in the
Cold Springs Gas Storage Limited Partnership.
B. CITIZENS.
NONUTILITY SERVICES
C. MCN INVESTMENT is the holding company for MCN's various nonutility
businesses. Except where otherwise indicated, the companies set
forth below are wholly-owned subsidiaries of MCN Investment.
Gas Services
------------
Gas Marketing and Cogeneration
1. CoEnergy Trading Company.
2. CoEnergy Canadian Holdings, Ltd., a New Brunswick corporation,
which holds a 40% interest in a Canadian
partnership, CoWest Energy.
3. Cogen Development Company (Cogen).
i. Ada Cogeneration Limited Partnership, a Michigan
partnership, in which Cogen is a 99% limited partner.
<PAGE> 2
Gas Gathering & Processing
4. Saginaw Bay Pipeline Company, a 66% general partner in the Saginaw
Bay Area Limited Partnership.
5. Saginaw Bay Lateral Company, a 46% general partner in the Saginaw
Bay lateral Limited Partnership.
6. Otsego Holdings, Inc., a 40% general partner in the Antrim Limited
Partnership.
7. Westside Pipeline Company.
Exploration & Production
8. Supply Development Group, Inc.
i. Elmira Antrim Company
ii. Green River Antrim Company
iii. Warner Antrim Company
iv. Green Oak Development Company
v. MGS Development Company
vi. Southwest Gas Supply, Inc.
vii. GeoTrend Exploration, Inc.
Gas Storage
9. Storage Development Company.
i. South Romeo Gas Storage Company, a Michigan partnership in
which Storage Development Company has a 50% interest.
ii. The Orchards Golf Limited Partnership, a Michigan partnership
in which Storage Development Company has a 50% interest.
iii. W-10 Holdings, Inc., holds a 40% interest in Washington 10
Storage Partnership.
iv. Blue Lake Holdings, Inc. (See Utility Services).
<PAGE> 3
Computer Operations Services
----------------------------
1. The Genix Group, Inc.
i. Genix Corporation, a Delaware corporation.
ii. MCN Computer Services, Inc.
Gas Technology
--------------
1. G-T Energy Concepts, Inc.
2. Combustion Concepts, Inc.
3. Fuel Concepts, Inc.
Other
-----
1. Bridgewater Holdings, Inc. holds a 33% limited partner interest in
the Bridgewater Place Ltd. Limited Partnership.
<PAGE> 1
EXHIBIT 23-1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-44975, 33-44976 and 33-43075 on Form S-8, 33-40424 on Form S-3 and
Post-Effective Amendment No. 1 to Registration Statement No. 33-21930-99 on
Form S-8 of MCN Corporation of our reports dated February 8, 1994, appearing in
and incorporated by reference in this Annual Report on Form 10-K of MCN
Corporation for the year ended December 31, 1993.
/s/ Deloitte & Touche
March 4, 1994
<PAGE> 1
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in his name and on his behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ STEPHEN E. EWING
Stephen E. Ewing
<PAGE> 2
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in his name and on his behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ WILLIAM K. MCCRACKIN
William K. McCrackin
<PAGE> 3
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in his name and on his behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ ROGER FRIDHOLM
Roger Fridholm
<PAGE> 4
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in his name and on his behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ FRANK M. HENNESSEY
Frank M. Hennessey
<PAGE> 5
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in his name and on his behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ THOMAS H. JEFFS II
Thomas H. Jeffs II
<PAGE> 6
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in his name and on his behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ ARTHUR L. JOHNSON
Arthur L. Johnson
<PAGE> 7
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in his name and on his behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ DALE A. JOHNSON
Dale A. Johnson
<PAGE> 8
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, her true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in her name and on her behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ HELEN O. PETRAUSKAS
Helen O. Petrauskas
<PAGE> 9
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in his name and on his behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ HOWARD F. SIMS
Howard F. Sims
<PAGE> 10
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in his name and on his behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ ALFRED R. GLANCY III
Alfred R. Glancy III
<PAGE> 11
EXHIBIT 24-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director or Officer of MCN CORPORATION, a Michigan
corporation, does hereby constitute and appoint, Alfred R. Glancy III, Daniel L.
Schiffer and Patrick Zurlinden, and each of them, his true and lawful attorneys
and agents, each with full power and authority (acting alone and without the
others) to execute in his name and on his behalf and to file with the
Securities and Exchange Commission an Annual Report on Form 10-K for the year
ended December 31, 1993, including all amendments.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th
day of February, 1994.
/s/ PATRICK ZURLINDEN
Patrick Zurlinden
