<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996, OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10070
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 (Zip Code)
offices)
Registrant's telephone number, including area code 313-256-5500
NO CHANGES
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of the registrant's classes of common
stock, as of October 31, 1996:
Common Stock, par value $.01 per share: 67,197,241
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<PAGE>
INDEX TO FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
COVER.................................................................... i
INDEX.................................................................... ii
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements............................................. 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 1
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings................................................ 25
Item 6. Exhibits and Reports on Form 8-K................................. 26
SIGNATURE................................................................ 27
</TABLE>
ii
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
MCN reports quarterly seasonal loss -- MCN's loss from continuing operations
was $13.4 million ($.20 per share) during the 1996 quarter, which was a $3.9
million ($.06 per share) larger loss than the same 1995 quarter. Earnings from
continuing operations for the 1996 nine-month and twelve-month periods
increased $18.2 million ($.24 per share) and $39.0 million ($.52 per share),
respectively, over the comparable 1995 periods.
MCN's earnings for the nine- and twelve-month periods were increased by income
from discontinued operations, including a one-time gain of $36.2 million ($.54
per share) from the sale of The Genix Group, Inc. (Genix), MCN's computer
operations services subsidiary. As discussed in the "Discontinued Operations"
section that follows, MCN sold Genix during the second quarter of 1996.
A summary of financial performance follows:
<TABLE>
<CAPTION>
QUARTER 9 MONTHS 12 MONTHS
--------------- ------------ ------------
1996 1995 1996 1995 1996 1995
------- ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS) (in Millions)
Continuing Operations:
Gas Distribution................... $ (18.9) $(12.9) $ 53.1 $41.5 $ 87.2 $58.4
Diversified Energy................. 5.5 3.4 17.7 11.1 24.2 14.0
------- ------ ------ ----- ------ -----
(13.4) (9.5) 70.8 52.6 111.4 72.4
------- ------ ------ ----- ------ -----
Discontinued Operations:
Income From Operations............. -- .9 1.6 2.7 2.5 3.6
Gain on Sale....................... -- -- 36.2 -- 36.2 --
------- ------ ------ ----- ------ -----
-- .9 37.8 2.7 38.7 3.6
------- ------ ------ ----- ------ -----
$ (13.4) $(8.6) $108.6 $55.3 $150.1 $76.0
======= ====== ====== ===== ====== =====
EARNINGS (LOSS) PER SHARE
Continuing Operations:
Gas Distribution................... $ (.28) $ (.20) $ .79 $ .65 $ 1.31 $ .93
Diversified Energy................. .08 .06 .27 .17 .36 .22
------- ------ ------ ----- ------ -----
(.20) (.14) 1.06 .82 1.67 1.15
------- ------ ------ ----- ------ -----
Discontinued Operations:
Income From Operations............. -- .01 .03 .04 .04 .06
Gain on Sale....................... -- -- .54 -- .54 --
------- ------ ------ ----- ------ -----
-- .01 .57 .04 .58 .06
------- ------ ------ ----- ------ -----
$ (.20) $ (.13) $ 1.63 $ .86 $ 2.25 $1.21
======= ====== ====== ===== ====== =====
</TABLE>
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Strategic direction -- MCN's objective is to achieve superior, long-term
returns for its shareholders. To accomplish this, MCN will aggressively invest
in a diverse portfolio of domestic and international energy-related projects.
The success of this strategy will be demonstrated by the growth of MCN's
earnings and the total return to its shareholders over time.
GAS DISTRIBUTION
Quarterly results are down -- Given the seasonal nature of its business, Gas
Distribution generally experiences a loss during the third quarter when the
weather is warm and less gas is delivered to customers. However, Gas
Distribution's loss of $18.9 million ($.28 per share) during the 1996 quarter
was $6.0 million ($.08 per share) higher than the third quarter of 1995. These
results were due mainly to increased operating expenses. Earnings for the 1996
nine- and twelve-month periods increased $11.6 million ($.14 per share) and
$28.8 million ($.38 per share), respectively, from the same periods in 1995.
The increases are due primarily to higher gas deliveries resulting from colder
weather.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
QUARTER 9 MONTHS 12 MONTHS
---------- ----------- -------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
EFFECT OF WEATHER ON GAS MARKETS AND
EARNINGS
Percentage Colder (Warmer) than
Normal.............................. N/A N/A 6.2% (3.8)% 6.8% (8.5)%
Increase (Decrease) from Normal in:
Gas Markets (in Bcf)................ (.2) .5 8.4 (4.3) 14.2 (14.2)
Net Income (in Millions)............ $(.2) $ .4 $7.6 $(3.7) $12.7 $(12.7)
Earnings Per Share.................. $ -- $.01 $.11 $(.06) $ .19 $ (.20)
</TABLE>
GROSS MARGIN
Gross margin decreases -- Gas Distribution gross margin (operating revenues
less cost of gas) decreased $1.6 million for the 1996 quarter due to higher
lost gas costs, as discussed in the "Cost of Gas" section, partially offset by
increased gas sales and transportation deliveries. Gross margin increased
$23.9 million and $56.7 million for the 1996 nine- and twelve-month periods,
respectively, due to increased gas sales and transportation deliveries.
<TABLE>
<CAPTION>
QUARTER 9 MONTHS 12 MONTHS
-------------- -------------- ------------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
GAS DISTRIBUTION
OPERATIONS (in Millions)
Operating Revenues*....... $119.0 $112.1 $882.8 $732.8 $1,257.6 $1,037.8
Cost of Gas............... 30.1 21.6 433.8 307.7 617.5 454.4
------ ------ ------ ------ -------- --------
Gross Margin............. 88.9 90.5 449.0 425.1 640.1 583.4
------ ------ ------ ------ -------- --------
Other Operating Expenses*
Operation & Maintenance.. 69.8 62.0 211.9 214.7 297.0 302.6
Depreciation & Depletion. 25.0 22.7 74.5 68.6 97.2 89.6
Property & Other Taxes... 13.3 13.2 47.2 44.8 61.2 57.1
------ ------ ------ ------ -------- --------
108.1 97.9 333.6 328.1 455.4 449.3
------ ------ ------ ------ -------- --------
Operating Income (Loss)... (19.2) (7.4) 115.4 97.0 184.7 134.1
------ ------ ------ ------ -------- --------
Equity in Earnings of
Joint Ventures........... .1 .3 .7 .9 1.1 1.2
------ ------ ------ ------ -------- --------
Other Income &
(Deductions)*
Interest Income.......... 1.5 1.3 2.7 3.5 3.6 4.6
Interest Expense......... (12.2) (10.8) (36.0) (32.0) (48.5) (43.6)
Minority Interest........ (.4) (.6) (1.1) (1.8) (1.7) (2.5)
Other.................... .7 (1.4) .5 (2.9) (2.2) (5.7)
------ ------ ------ ------ -------- --------
(10.4) (11.5) (33.9) (33.2) (48.8) (47.2)
------ ------ ------ ------ -------- --------
Income (Loss) Before
Income Taxes............. (29.5) (18.6) 82.2 64.7 137.0 88.1
Income Taxes.............. (10.6) (5.7) 29.1 23.2 49.8 29.7
------ ------ ------ ------ -------- --------
Net Income (Loss)......... $(18.9) $(12.9) $ 53.1 $ 41.5 $ 87.2 $ 58.4
====== ====== ====== ====== ======== ========
</TABLE>
*Includes intercompany transactions.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
GAS SALES AND END USER TRANSPORTATION deliveries in total increased .9 billion
cubic feet (Bcf) in the 1996 quarter, and 20.2 Bcf and 42.6 Bcf in the nine-
and twelve-month periods, respectively. The increase in the 1996 quarter is
due primarily to market expansion and increased customer consumption. The
increases in the nine- and twelve-month periods are due primarily to colder
weather, as well as market expansion and increased consumption. End user
transportation deliveries reflect transportation to the Michigan Power
project, a 123 megawatt cogeneration plant in which MCN has a 50% interest.
Deliveries to the project, which became operational in October 1995, are
approximately 9 Bcf annually.
<TABLE>
<CAPTION>
QUARTER 9 MONTHS 12 MONTHS
----------- ----------- -----------
1996 1995 1996 1995 1996 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
GAS DISTRIBUTION MARKETS (in Bcf)
Gas Sales................................... 14.5 14.4 152.6 136.8 225.7 193.0
End User Transportation..................... 28.6 27.8 108.1 103.7 150.1 140.2
----- ----- ----- ----- ----- -----
43.1 42.2 260.7 240.5 375.8 333.2
Intermediate Transportation*................ 148.7 75.8 407.1 260.3 521.2 337.1
----- ----- ----- ----- ----- -----
191.8 118.0 667.8 500.8 897.0 670.3
===== ===== ===== ===== ===== =====
</TABLE>
*Includes intercompany volumes.
INTERMEDIATE TRANSPORTATION deliveries in the 1996 periods increased due to
additional volumes transported for two major fixed-fee customers and increased
transportation of Antrim gas for Michigan gas producers and brokers. In order
to meet the growing demand for the transportation of Antrim gas, MichCon
recently completed the expansion of the transportation capacity of its
northern Michigan gathering system. The expansion enabled MichCon to transport
an additional 31.7 Bcf, 91.6 Bcf and 107.8 Bcf in the 1996 quarter, nine- and
twelve-month periods, respectively. Profit margins on intermediate
transportation services are considerably less than margins on gas sales or for
end user transportation markets.
COST OF GAS
Cost of gas is affected by variations in sales volumes and cost of gas rates.
Through the Gas Cost Recovery (GCR) mechanism, MichCon is allowed timely
recovery of 100% of its prudently and reasonably incurred cost of gas sold.
Therefore, fluctuations in cost of gas sold have little or no effect on gross
margins.
Cost of gas sold increased in all 1996 periods due to higher sales volumes and
higher prices paid for natural gas in the spot market. The increase in market
prices paid for gas resulted in an increase in the cost of gas per thousand
cubic feet of $.58 (34%), $.59 (26%) and $.41(17%) for the quarter, nine- and
twelve-month periods, respectively.
As discussed in MCN's 1995 Annual Report on Form 10-K, MichCon's gas sales
rates are set to recover lost gas costs using an averaging method based on
historical lost gas experience. An adjustment for the difference between the
historical average lost gas amount and the actual lost gas amount is recorded
to income at the end of the seasonal cycle ended August 31 of each year. The
lost gas adjustment for the 1996 cycle, compared with the adjustment for the
1995 cycle, resulted in a $4.6 million decrease in gross margin for the
quarter.
OTHER OPERATING EXPENSES
OPERATION AND MAINTENANCE expenses were higher in the 1996 quarter due
primarily to increased uncollectible gas accounts that were driven higher by
last winter's colder temperatures and rising gas prices, which significantly
increased customers' heating bills. The impact of higher heating bills was
worsened by a reduction in home heating assistance funding obtained by low-
income customers. Operation and maintenance expenses decreased for 1996 nine-
and twelve-month periods due to lower employee benefit costs, primarily
pension and retiree healthcare costs. The reductions in the 1996 nine- and
twelve-month periods were partially offset by increased uncollectibles
expense. Management's continuing efforts to reduce operating costs also
contributed to the decreases.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
As discussed in MCN's 1995 Annual Report on Form 10-K, MichCon receives a
significant amount of its heating assistance funding from the Low-Income Home
Energy Assistance Program (LIHEAP). During 1995, Congress reduced a
substantial portion of the program's funding for the 1996 fiscal year and
there were proposals to eliminate all funding in future years. Michigan's
share of LIHEAP funds was reduced from $78 million in fiscal year 1995 to
$47.5 million in 1996. During October 1996, President Clinton signed an
Omnibus Spending Bill passed by Congress that provided for $1 billion in
LIHEAP funding, which increases 1997 funding by $100 million over 1996 levels.
DEPRECIATION AND DEPLETION increased in all 1996 periods due to higher plant
balances, reflecting capital expenditures of $396.1 million over the past two
calendar years.
PROPERTY AND OTHER TAXES for all 1996 periods increased due to higher property
balances.
OTHER INCOME & DEDUCTIONS
Other income & deductions for all 1996 periods was affected by higher interest
costs on increased borrowings required to finance capital investments in the
Gas Distribution group. For the 1996 quarter, this increase in interest costs
was more than offset by other income, which included higher allowances for
funds used during construction due to increased construction during 1996.
INCOME TAXES
Income tax expense over the past two years has been affected by the favorable
resolution of a number of tax issues. The favorable effect of those
resolutions on income tax expense was $.7 million and $.4 million greater in
the 1996 quarter and nine-month periods, respectively, when compared to the
same 1995 periods. The favorable effect in the twelve-month period was $2.6
million less in 1996 than in 1995.
OUTLOOK
Gas Distribution's strategy is to grow revenues and reduce its costs in order
to maintain strong returns and provide customers with quality service at
competitive prices. Revenue growth will be achieved primarily through the
expansion of Gas Distribution's base of 1.2 million residential, commercial
and industrial customers. Gas Distribution will continue initiatives to
increase productivity and improve customer services in order to strengthen its
competitive position in the gas industry.
DIVERSIFIED ENERGY
Diversified Energy earnings continue to rise -- The Diversified Energy group
reported quarterly earnings of $5.5 million ($.08 per share), an increase of
$2.1 million ($.02 per share) from the comparable 1995 period. Earnings for
the 1996 nine- and twelve-month periods increased $6.6 million ($.10 per
share) and $10.2 million ($.14 per share), respectively. Reflecting the
success of MCN's strategy to invest in various segments of the natural gas
industry, earnings growth was achieved in all lines of business. The increased
earnings were driven primarily by increased gas sales and levels of natural
gas production. Results were also affected by increased financing costs in all
periods as a result of additional capital needed to fund investments.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
QUARTER 9 MONTHS 12 MONTHS
------------- -------------- --------------
1996 1995 1996 1995 1996 1995
------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
DIVERSIFIED ENERGY OPERATIONS
(in Millions)
Operating Revenues*............ $127.9 $79.8 $522.0 $254.9 $667.1 $344.3
------ ----- ------ ------ ------ ------
Operating Expenses*............ 118.8 75.4 495.0 239.8 633.3 322.9
------ ----- ------ ------ ------ ------
Operating Income (Loss)
Gas Services
Exploration & Production..... 6.1 5.0 19.2 11.9 25.8 18.2
Gas Gathering & Processing... 1.3 .1 3.7 .3 3.8 .4
Gas Marketing & Cogeneration. 2.5 (.2) 5.8 4.7 6.9 5.1
------ ----- ------ ------ ------ ------
9.9 4.9 28.7 16.9 36.5 23.7
Corporate & Other............. (.8) (.5) (1.7) (1.8) (2.7) (2.3)
------ ----- ------ ------ ------ ------
9.1 4.4 27.0 15.1 33.8 21.4
------ ----- ------ ------ ------ ------
Equity in Earnings of Joint
Ventures....................... 2.2 1.5 7.4 2.9 8.4 3.3
------ ----- ------ ------ ------ ------
Other Income & (Deductions)*
Interest Income............... .6 .5 2.4 2.5 3.5 3.6
Interest Expense.............. (5.5) (2.8) (20.9) (8.8) (25.4) (12.5)
Dividends on Preferred
Securities................... (3.6) (2.3) (8.3) (7.0) (10.7) (8.5)
Other......................... (.1) -- 2.5 1.1 3.7 .5
------ ----- ------ ------ ------ ------
(8.6) (4.6) (24.3) (12.2) (28.9) (16.9)
------ ----- ------ ------ ------ ------
Income Before Income Taxes..... 2.7 1.3 10.1 5.8 13.3 7.8
------ ----- ------ ------ ------ ------
Income Taxes
Current and Deferred
Provision.................... 1.2 .5 4.3 2.1 4.8 3.3
Gas Production Tax Credits.... (4.0) (2.6) (11.9) (7.4) (15.7) (9.5)
------ ----- ------ ------ ------ ------
(2.8) (2.1) (7.6) (5.3) (10.9) (6.2)
------ ----- ------ ------ ------ ------
Net Income..................... $ 5.5 $ 3.4 $ 17.7 $ 11.1 $ 24.2 $ 14.0
====== ===== ====== ====== ====== ======
</TABLE>
*Includes intercompany transactions.
GAS SERVICES
EXPLORATION & PRODUCTION (E&P) operating income increased $1.1 million for the
1996 quarter, and $7.3 million and $7.6 million for the nine- and twelve-month
periods, respectively. The results reflect a significantly higher level of gas
and oil produced from properties that have been acquired since mid-1994 and
the development of other new projects. Gas production was 15.1 Bcf and oil
production was 255,000 barrels in the quarter, substantial increases over 1995
production levels of 8.6 Bcf of gas and 101,000 barrels of oil. Additionally,
E&P operations have increased Diversified Energy's earnings through the
generation of an increasing amount of federal gas production tax credits.
E&P operating results were impacted by the average natural gas sales rate per
Mcf, which increased $.10 to $1.84 in the 1996 quarter. For the nine- and
twelve-month periods, the average natural gas sales rate increased $.08 to
$1.94 and $.10 to $2.01, respectively. The average sales rates include the
effect of hedging with natural gas swap and futures agreements, which are used
to limit Diversified Energy's exposure to the risk of market price
fluctuations. As a result of strong gas prices in the marketplace, hedging had
the effect of reducing the average sales rate for the 1996 quarter, nine- and
twelve-month periods by $.17, $.26 and $.09 per Mcf, respectively. Conversely,
hedging increased the average sales rates for the 1995 quarter, nine- and
twelve-month periods by $.36, $.46 and $.37 per Mcf, respectively. E&P
operating results also reflect an increase in the average oil sales rate per
barrel of $3.86, $2.85 and $2.46 for the 1996 quarter, nine- and twelve-month
periods, respectively. Partially offsetting the improved results were
increases in the average production cost per Mcf equivalent.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
MCN expects continued growth in E&P earnings through an increasing level of
natural gas and oil production resulting from its focused efforts to acquire
and develop reserves that generate favorable rates of return. At year end 1995,
MCN had a proved reserve base of 858 Bcf of natural gas and 4.7 million barrels
of oil, or the equivalent of another 28 Bcf of natural gas. More than $240
million has been invested to acquire and develop reserves during the first
three quarters of 1996, with an additional $100 million expected by year end
1996. MCN expects ongoing increases in production levels as it acquires new
reserves, completes additional developmental drilling and obtains the full
benefits from previous acquisitions. Natural gas and oil production levels are
estimated to exceed 60 Bcf equivalent (Bcfe) in 1996, almost double 1995
production levels of 33.7 Bcfe. Likewise, E&P operating income for 1996 is
expected to be significantly above the $18.5 million generated in 1995.
GAS GATHERING & PROCESSING operating income increased $1.2 million for the 1996
quarter, and $3.4 million for both the nine- and twelve-month periods. The
increases reflect income from the first quarter 1996 acquisition of a 99%
interest in Dauphin Island Gathering Partners (DIGP), a general partnership
that owns a 90-mile gas gathering system in the Mobile Bay area of offshore
Alabama. MCN subsequently sold a 40% interest in the partnership to PanEnergy
Dauphin Island Company (Note 2). MCN expects to enhance its opportunities to
further develop and expand the DIGP gathering system in one of the fastest
growing production areas of the country. Earnings were favorably affected by
increased volumes of gas processed during the quarter, nine- and twelve-month
periods of 8.4 Bcf, 19.3 Bcf and 22.4 Bcf, respectively.
GAS MARKETING & COGENERATION operating income increased to $2.5 million in the
1996 quarter compared to an operating loss of $.2 million in the 1995 quarter.
Operating income increased $1.1 million for the nine-month period, and $1.8
million for the twelve-month period. Operating results for all periods were
affected by a significant increase in sales volumes driven by additional sales
to customers in the midwest and northeast United States, including the Michigan
Power project. Operating results for the nine- and twelve-month periods were
also favorably affected by increased sales to customers in eastern Canada.
Operating income was further enhanced by improved gas sales margins, reflecting
an increase in the average gas sales rate of $.66, $.88 and $.70 for the
quarter, nine- and twelve-month periods, respectively.
<TABLE>
<CAPTION>
QUARTER 9 MONTHS 12 MONTHS
--------- ----------- -----------
1996 1995 1996 1995 1996 1995
---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
DIVERSIFIED ENERGY GAS STATISTICS* (in Bcf)
Gas Sales....................................
Gas Marketing & Cogeneration................ 42.3 37.9 155.8 114.0 212.5 151.9
Exploration & Production**.................. 8.6 4.5 25.8 10.8 31.2 13.7
Transportation............................... 16.8 -- 47.6 .6 48.1 .8
---- ---- ----- ----- ----- -----
67.7 42.4 229.2 125.4 291.8 166.4
==== ==== ===== ===== ===== =====
Gas Production............................... 15.1 8.6 40.7 21.7 50.4 27.3
==== ==== ===== ===== ===== =====
Gas Processed................................ 12.7 4.3 30.5 11.2 35.6 13.2
==== ==== ===== ===== ===== =====
</TABLE>
*Includes intercompany volumes.
**Represents gas sales made directly to third parties by E&P operations. Other
E&P production is sold to affiliated companies for marketing.
RISK MANAGEMENT STRATEGY -- Risks associated with significant future E&P
activities will be minimized by diversifying investments along the lines of
geography, geology, risk profile and technology, as well as by partnering with
operators who bring capital and expertise. MCN manages price risk by attempting
to maintain a balanced portfolio of gas supply and gas sales agreements. MCN
uses natural gas futures, options and swap contracts to manage its price risk
by offsetting a large portion of its open positions. MCN has hedged most of its
gas and oil production over the next ten years which is not covered by long-
term fixed-price sales contracts.
CORPORATE & OTHER
Corporate & other reflects administrative expenses associated with corporate
management activities.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
EQUITY IN EARNINGS OF JOINT VENTURES
Earnings from joint ventures increased $.7 million, $4.5 million and $5.1
million for the 1996 quarter, nine- and twelve-month periods, respectively. The
increases are primarily due to earnings from Gas Gathering & Processing
ventures, reflecting income from the December 1995 acquisition of a 50%
interest in a 40-mile gas gathering line in Virginia. Additionally, the
improved earnings from other joint ventures for the nine- and twelve-month
periods include $1.7 million from the sale of joint venture property.
<TABLE>
<CAPTION>
QUARTER 9 MONTHS 12 MONTHS
---------- ---------- ----------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EQUITY IN EARNINGS OF JOINT VENTURES (in
Millions)
Gas Storage............................... $ .9 $1.1 $2.8 $3.4 $3.6 $3.8
Gas Gathering & Processing................ 1.2 .1 3.1 .2 3.5 .6
Gas Marketing & Cogeneration.............. (.2) (.3) (.6) (.9) (.6) (1.2)
Other..................................... .3 .6 2.1 .2 1.9 .1
---- ---- ---- ---- ---- ----
$2.2 $1.5 $7.4 $2.9 $8.4 $3.3
==== ==== ==== ==== ==== ====
</TABLE>
OTHER INCOME & DEDUCTIONS
Other income & deductions for all 1996 periods reflects higher interest costs
on increased borrowings required to finance capital investments in the
Diversified Energy group. Additionally, all 1996 periods reflect dividends on
$80 million of preferred securities issued in July 1996 (Note 3c). The current
twelve-month period also reflects higher dividends paid on $100 million of
preferred securities issued in November 1994. Partially offsetting the
increased interest and dividend costs was other income which includes pre-tax
gains from the sale of a 40% interest in DIGP (Note 2).
INCOME TAXES
Income taxes for all 1996 periods were favorably impacted by increased federal
gas production tax credits related to E&P projects, partially offset by
increased federal taxes on improved pre-tax earnings.
OUTLOOK
MCN plans to continue aggressively growing its E&P reserve base, primarily in
areas that generate attractive returns. The development of reserves will
contribute toward a reliable long-term supply to meet the increased sales
requirements of MCN's Gas Marketing & Cogeneration business as it expands into
areas beyond Michigan's borders. Additionally, MCN expects oil to become a
significantly larger portion of total proved reserves, creating a more diverse
portfolio. MCN also plans to invest in gas gathering facilities, targeting
areas that contain gas marketing or E&P opportunities.
DISCONTINUED OPERATIONS
In June 1996, MCN completed the sale of its computer operations subsidiary,
Genix, to Affiliated Computer Services, Inc. for an initial sales price of
$137.5 million, resulting in an after-tax gain of $36.2 million. In October
1996, the initial sales price was decreased by $4.6 million to reflect the
reduction in Genix's working capital between the effective and closing dates of
the transaction. The selling price of Genix could be further adjusted downward
by as much as $40 million depending upon the occurrence of certain
contingencies that include, among other things, retention of certain customers
through mid-1998 and tax-related matters. Although Genix had experienced
significant growth in revenues and operating income over the past several
years, MCN's focused strategy is to invest in energy-related projects that
generate higher rates of return. Summary statements and other information on
discontinued computer operations can be found in Note 5 to the consolidated
financial statements.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
MCN's cash flow from operating activities decreased $47.1 million during the
1996 nine-month period compared to the same 1995 period. The decrease was due
primarily to an increase in working capital requirements, partially offset by
higher income, after adjusting for depreciation, deferred taxes and the gain on
the sale of Genix and DIGP interests.
FINANCING ACTIVITIES
MCN issues new shares of common stock pursuant to its Dividend Reinvestment and
Stock Purchase Plans and various employee benefit plans. During 1996, MCN
anticipates the issuance of new shares of common stock pursuant to these plans,
generating proceeds of approximately $18 million. During the first nine months
of 1996, issuances under these plans generated proceeds of $13.4 million.
In April 1996, MCN issued 5,865,000 Preferred Redeemable Increased Dividend
Equity Securities (PRIDES), yielding 8 3/4% (Note 3b). The PRIDES are
convertible securities that consist of a contract under which MCN is obligated
to sell, and the PRIDES holders are obligated to purchase, approximately $135
million in MCN common stock in April 1999. The PRIDES are currently rated the
equivalent of "BBB+" by the major rating agencies and enhance MCN's
creditworthiness.
In July 1996, MCN issued through a wholly-owned trust 3,200,000 shares of 8
5/8% Trust Originated Preferred Securities (TOPrS) for $80 million (Note 3c).
Proceeds from the issuance were invested by MCN in its Diversified Energy group
which used such proceeds to reduce debt incurred to fund capital expenditures,
working capital requirements and for general corporate purposes. The TOPrS are
currently rated the equivalent of "BBB+" or "baa2" by the major rating
agencies.
GAS DISTRIBUTION
During the latter part of the year, cash and cash equivalents normally decrease
as funds are used to finance increases in gas inventories and customer accounts
receivable. Short-term debt is normally reduced in the first part of each year
as gas inventories are depleted and funds are received from winter heating
sales. To meet its seasonal short-term borrowing needs, MichCon normally issues
commercial paper which is backed by credit lines with several banks. MichCon
has established credit lines to allow for borrowings of up to $100 million
under a 364-day revolving credit facility and up to $150 million under a three-
year revolving credit facility. Commercial paper of $192.1 million was
outstanding as of September 30, 1996 under these lines.
In May 1996, MichCon issued first mortgage bonds totaling $70 million under its
existing shelf registration. The proceeds were used to repay short-term
obligations, finance capital expenditures and for general corporate purposes.
MichCon is planning on filing a shelf registration with the Securities and
Exchange Commission in the fourth quarter of 1996 that will allow it to issue,
in conjunction with an existing shelf registration, up to $300 million of debt
securities over the next several years. MichCon's capital requirements and
general market conditions will affect the timing and amount of future
issuances.
DIVERSIFIED ENERGY
MCNIC has established credit lines to allow for borrowings of up to $100
million under a 364-day revolving credit facility and up to $300 million under
a three-year revolving credit facility. The facilities support MCNIC's $400
million commercial paper program, which is used to finance capital investments
of the Diversified Energy group and working capital requirements of its gas
marketing operations. During the first nine months of 1996, MCNIC repaid $273
million of commercial paper, leaving a balance of $101 million outstanding
under this program as of September 30, 1996.
In January and May 1996, MCNIC issued $200 million and $130 million,
respectively, of medium-term notes, using the proceeds to repay commercial
paper balances and for general corporate purposes.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONCLUDED)
INVESTING ACTIVITIES
Capital investments equaled $492.6 million in the 1996 nine-month period
compared to $388.4 million for the same period in 1995. The increase was due to
higher Diversified Energy investments, primarily for E&P expenditures, as well
as the DIGP acquisition. Gas Distribution capital expenditures were incurred
for the construction of transportation pipelines and new distribution lines to
reach communities not previously served by MichCon and to make improvements to
existing systems.
MCN completed the sale of Genix (Note 5) and an interest in DIGP (Note 2) in
1996 resulting in proceeds of $173.5 million. Proceeds from these sales were
used to reduce debt incurred to fund Diversified Energy's capital investments.
<TABLE>
<CAPTION>
9 MONTHS
--------------
1996 1995
------ -------
<S> <C> <C>
CAPITAL INVESTMENTS (in Millions)
Consolidated Capital Expenditures:
Gas Distribution............................................... $148.2 $ 159.9
Diversified Energy............................................. 253.6 169.0
Discontinued Operations........................................ 6.5 6.0
------ -------
408.3 334.9
------ -------
MCN's Share of Joint Venture Capital Expenditures:
Cogeneration................................................... 1.0 32.8
Other.......................................................... 4.7 10.3
------ -------
5.7 43.1
------ -------
Acquisition (Note 2)............................................ 78.6 10.5
------ -------
Minority Partners' Share of Consolidated Capital Expenditures... -- (.1)
------ -------
Total Capital Investments....................................... $492.6 $ 388.4
====== =======
</TABLE>
OUTLOOK
Capital investments in 1996 expected to reach $750 million -- MCN's strategic
direction is to grow significantly by investing in a portfolio of energy-
related projects. For 1996, MCN anticipates investing approximately $225
million in Gas Distribution and approximately $525 million in Diversified
Energy. Capital investments in Gas Distribution will be made to add new gas
sales customers, develop new gas transportation markets and make improvements
to existing systems. This includes construction of a 59-mile loop of MichCon's
existing Milford-to-Belle River Pipeline which will improve the overall
reliability and efficiency of MichCon's gas storage and transmission system.
The pipeline is anticipated to be completed in early 1997 at a cost of
approximately $80 million. Within Diversified Energy, approximately $350
million will be invested in E&P projects for drilling operations and to acquire
reserves in the Michigan, Appalachian, Midcontinent, Gulf Coast and Rocky
Mountain regions. Diversified Energy will invest the remaining $175 million in
gas gathering, gas processing and power generation projects. It is management's
opinion that MCN and its subsidiaries will have sufficient capital resources,
both internal and external, to meet anticipated capital requirements.
9
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------- ------------
1996 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost
(which approximates market value)...... $ 35,910 $ 16,825 $ 19,259
Accounts receivable, less allowance for
doubtful accounts of $14,699, $13,325
and $13,765, respectively.............. 211,868 157,702 317,945
Accrued unbilled revenues............... 22,429 19,081 92,410
Accrued gas cost recovery revenues...... 33,585 -- --
Gas in inventory........................ 153,610 154,987 71,763
Property taxes assessed applicable to
future periods......................... 24,455 22,702 60,633
Other................................... 37,685 36,914 53,486
---------- ---------- ----------
519,542 408,211 615,496
---------- ---------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Investment in and advances to joint
ventures............................... 138,663 81,227 129,026
Deferred swap losses and receivables
(Note 6)............................... 47,364 40,336 54,807
Deferred postretirement benefit costs... 7,809 15,363 13,112
Deferred environmental costs (Note 7a).. 31,016 -- 35,000
Prepaid benefit costs................... 49,161 19,270 23,827
Other................................... 97,334 91,268 90,626
---------- ---------- ----------
371,347 247,464 346,398
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Gas Distribution........................ 2,629,067 2,357,248 2,496,711
Exploration & Production................ 819,806 432,124 576,810
Gas Gathering & Processing.............. 106,290 79,460 22,324
Other................................... 16,907 59,304 64,709
---------- ---------- ----------
3,572,070 2,928,136 3,160,554
Less--Accumulated depreciation and
depletion.............................. 1,301,317 1,196,535 1,223,808
---------- ---------- ----------
2,270,753 1,731,601 1,936,746
---------- ---------- ----------
$3,161,642 $2,387,276 $2,898,640
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................ $ 216,520 $ 130,069 $ 217,184
Notes payable........................... 227,093 150,820 245,635
Current portion of long-term debt,
capital lease obligations and
redeemable cumulative preferred
securities............................. 84,704 7,226 7,000
Federal income, property and other taxes
payable................................ 44,221 55,941 83,384
Customer deposits....................... 10,805 10,294 11,550
Other................................... 90,444 85,285 87,575
---------- ---------- ----------
673,787 439,635 652,328
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes....... 152,103 103,137 125,896
Unamortized investment tax credit....... 35,389 37,270 36,797
Tax benefits amortizable to customers... 113,112 112,257 114,668
Deferred swap gains and payables (Note
6)..................................... 41,244 35,574 51,923
Accrued postretirement benefit costs.... -- 17,721 15,551
Accrued environmental costs (Note 7a)... 35,000 -- 35,000
Minority interest (Note 2).............. 52,002 17,911 18,375
Other................................... 99,232 80,784 93,470
---------- ---------- ----------
528,082 404,654 491,680
---------- ---------- ----------
LONG-TERM DEBT, including capital lease
obligations (Note 3a)................... 1,054,144 811,546 993,407
---------- ---------- ----------
REDEEMABLE CUMULATIVE PREFERRED
SECURITIES OF SUBSIDIARY................ 96,542 96,422 96,449
---------- ---------- ----------
MCN-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF MCN FINANCING
HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF MCN (Note 3c)............. 77,218 -- --
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 3b
and 7)
COMMON SHAREHOLDERS' EQUITY
Common stock............................ 672 662 664
Additional paid-in capital.............. 465,776 442,460 446,055
Retained earnings....................... 280,478 192,353 218,425
PRIDES yield enhancement and issuance
costs (Note 3b)........................ (14,524) -- --
Unearned compensation................... (533) (456) (368)
---------- ---------- ----------
731,869 635,019 664,776
---------- ---------- ----------
$3,161,642 $2,387,276 $2,898,640
========== ========== ==========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
10
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------- ----------------------
1996 1995 1996 1995 1996 1995
--------- --------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 245,502 $ 190,691 $1,395,650 $979,122 $1,911,760 $1,370,232
--------- --------- ---------- -------- ---------- ----------
OPERATING EXPENSES
Cost of gas............ 111,674 79,067 823,171 492,342 1,117,022 710,434
Operation and
maintenance........... 89,206 72,487 264,333 243,014 363,840 334,553
Depreciation, depletion
and amortization...... 38,316 27,736 109,913 83,301 141,197 107,948
Property and other
taxes................. 16,371 14,368 55,787 48,311 71,180 61,768
--------- --------- ---------- -------- ---------- ----------
255,567 193,658 1,253,204 866,968 1,693,239 1,214,703
--------- --------- ---------- -------- ---------- ----------
OPERATING INCOME (LOSS). (10,065) (2,967) 142,446 112,154 218,521 155,529
--------- --------- ---------- -------- ---------- ----------
EQUITY IN EARNINGS OF
JOINT VENTURES......... 2,347 1,822 8,176 3,889 9,532 4,490
--------- --------- ---------- -------- ---------- ----------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 2,018 1,782 5,167 6,096 6,812 8,204
Interest on long-term
debt.................. (15,999) (11,828) (49,861) (32,974) (62,513) (44,503)
Other interest expense. (1,761) (2,181) (7,244) (7,993) (11,300) (11,638)
Dividends on preferred
securities of
subsidiaries.......... (3,579) (2,398) (8,286) (7,213) (10,683) (8,865)
Minority interest...... (736) (661) (1,503) (1,829) (2,165) (2,521)
Other.................. 956 (926) 3,449 (1,598) 2,107 (4,824)
--------- --------- ---------- -------- ---------- ----------
(19,101) (16,212) (58,278) (45,511) (77,742) (64,147)
--------- --------- ---------- -------- ---------- ----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES.... (26,819) (17,357) 92,344 70,532 150,311 95,872
INCOME TAX PROVISION
(BENEFIT).............. (13,416) (7,804) 21,486 17,919 38,897 23,492
--------- --------- ---------- -------- ---------- ----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS.. (13,403) (9,553) 70,858 52,613 111,414 72,380
--------- --------- ---------- -------- ---------- ----------
DISCONTINUED OPERATIONS,
NET OF TAXES (Note 5)
Income from operations. -- 926 1,595 2,662 2,520 3,634
Gain on sale........... -- -- 36,176 -- 36,176 --
--------- --------- ---------- -------- ---------- ----------
-- 926 37,771 2,662 38,696 3,634
--------- --------- ---------- -------- ---------- ----------
NET INCOME (LOSS)....... $ (13,403) $ (8,627) $ 108,629 $ 55,275 $ 150,110 $ 76,014
========= ========= ========== ======== ========== ==========
EARNINGS (LOSS) PER
SHARE
Continuing Operations.. $ (.20) $ (.14) $ 1.06 $ .82 $ 1.67 $ 1.15
--------- --------- ---------- -------- ---------- ----------
Discontinued Operations
(Note 5)
Income from operations. -- .01 .03 .04 .04 .06
Gain on sale........... -- -- .54 -- .54 --
--------- --------- ---------- -------- ---------- ----------
-- .01 .57 .04 .58 .06
--------- --------- ---------- -------- ---------- ----------
$ (.20) $ (.13) $ 1.63 $ .86 $ 2.25 $ 1.21
========= ========= ========== ======== ========== ==========
AVERAGE COMMON SHARES
OUTSTANDING............ 67,073 66,103 66,845 64,214 66,711 63,075
========= ========= ========== ======== ========== ==========
DIVIDENDS DECLARED PER
SHARE.................. $ .2325 $ .2225 $ .6975 $ .6675 $ .9300 $ .8900
========= ========= ========== ======== ========== ==========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (UNAUDITED)
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------- ----------------------
1996 1995 1996 1995 1996 1995
--------- --------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE -- Beginning of
period................. $ 309,467 $ 215,801 $ 218,425 $179,862 $ 192,353 $ 172,395
ADD -- Net income
(loss)................. (13,403) (8,627) 108,629 55,275 150,110 76,014
--------- --------- ---------- -------- ---------- ----------
296,064 207,174 327,054 235,137 342,463 248,409
DEDUCT -- Cash dividends
declared on common
stock.................. 15,586 14,821 46,576 42,784 61,985 56,056
--------- --------- ---------- -------- ---------- ----------
BALANCE -- End of
period................. $ 280,478 $ 192,353 $ 280,478 $192,353 $ 280,478 $ 192,353
========= ========= ========== ======== ========== ==========
</TABLE>
The notes to the consolidated financial statements are an integral part of
these statements.
11
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income.............................................. $ 108,629 $ 55,275
Adjustments to reconcile net income to net cash provided
from operating activities
Depreciation, depletion and amortization
Per statement of income................................ 109,913 83,301
Charged to other accounts and discontinued operations.. 9,103 10,565
Deferred income taxes, current.......................... (5,863) (5,343)
Deferred income taxes and investment tax credit, net.... 23,243 5,587
Gain on sale of Genix and DIGP (Notes 2 and 5).......... (38,767) --
Other................................................... (1,629) 2,936
Changes in assets and liabilities, exclusive of changes
shown separately....................................... (9,793) 89,652
--------- ---------
Net cash provided from operating activities........... 194,836 241,973
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable, net...................................... (18,542) (77,987)
Common stock dividends paid............................. (46,576) (42,784)
Issuance of common stock................................ 13,408 110,772
Issuance of preferred securities (Note 3c).............. 77,218 --
Issuance of long-term debt (Note 3a).................... 398,540 168,764
Long-term commercial paper and credit facilities, net... (256,630) (39,398)
Retirement of long-term debt and preferred stock........ (6,839) (6,987)
Other................................................... (6,281) (1,290)
--------- ---------
Net cash provided from financing activities........... 154,298 111,090
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures.................................... (401,518) (330,349)
Sale of Genix (Note 5).................................. 137,500 --
Acquisition of DIGP (Note 2)............................ (78,620) --
Sale of interest in DIGP (Note 2)....................... 36,000 --
Investment in joint ventures............................ (9,942) (24,119)
Sale of investment in joint ventures.................... -- 10,803
Other................................................... (15,903) (4,120)
--------- ---------
Net cash used for investing activities................ (332,483) (347,785)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................ 16,651 5,278
CASH AND CASH EQUIVALENTS, JANUARY 1..................... 19,259 11,547
--------- ---------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30.................. $ 35,910 $ 16,825
========= =========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES
SHOWN SEPARATELY
Accounts receivable, net................................ $ 82,606 $ 55,504
Accrued unbilled revenues............................... 69,981 63,972
Gas in inventory........................................ (81,847) (23,338)
Property taxes assessed applicable to future periods.... 36,178 32,026
Accrued/deferred gas cost recovery revenues............. (34,163) (17,653)
Accounts payable........................................ 7,464 (12,905)
Federal income, property and other taxes payable........ (72,172) (31,031)
Other current assets and liabilities.................... 7,444 29,260
Deferred assets and liabilities......................... (25,284) (6,183)
--------- ---------
$ (9,793) $ 89,652
========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest, net of amounts capitalized.................... $ 53,152 $ 33,428
========= =========
Federal income taxes.................................... $ 18,434 $ 9,366
========= =========
Noncash investing activities:
Property purchased under capital leases................. $ 6,765 $ 3,087
========= =========
Land acquired in exchange for note receivable........... $ -- $ 1,480
========= =========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
12
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying consolidated financial statements should be read in
conjunction with MCN's 1995 Annual Report on Form 10-K. Certain
reclassifications have been made to the prior year's financial statements to
conform with the 1996 presentation. In the opinion of management, the
unaudited information furnished herein reflects all adjustments (consisting of
only recurring adjustments or accruals) necessary for a fair presentation of
the financial statements for the periods presented.
Because of seasonal and other factors, revenues, expenses, net income and
earnings per share for the interim periods should not be construed as
representative of revenues, expenses, net income and earnings per share for
all or any part of the balance of the current year or succeeding periods.
2. ACQUISITION AND DISPOSITION
During the first quarter of 1996, MCN acquired a 99% interest in Dauphin
Island Gathering Partners, a general partnership that owns a 90-mile gas
gathering system in the Mobile Bay area of offshore Alabama. The total cost of
the acquisition was $78,620,000 and was accounted for under the purchase
method. In June 1996, MCN sold a 35% interest in the partnership to PanEnergy
Dauphin Island Company (PanEnergy) for $31,500,000. The sale resulted in an
after-tax gain of $2,267,000. In July 1996, MCN sold an additional 5% interest
in the partnership to PanEnergy for $4,500,000, generating an additional
after-tax gain of $324,000.
3. CAPITALIZATION
A. LONG-TERM DEBT
The following long-term debt totaling $400,000,000 was issued during 1996:
<TABLE>
<CAPTION>
ISSUE DATE DESCRIPTION AMOUNT ISSUED
---------------------------------------------------------------------------------
<S> <C> <C>
January 1996 MCNIC Medium-Term Notes
5.84%, due February 1999 $ 80,000,000
6.03%, due February 2001 $ 60,000,000
6.32%, due February 2003 $ 60,000,000
---------------------------------------------------------------------------------
May 1996 MichCon First Mortgage Bonds
6.51%, due June 1999 $ 30,000,000
7.15%, due May 2006 $ 40,000,000
MCNIC Medium-Term Notes
6.82%, due May 1999 $130,000,000
---------------------------------------------------------------------------------
</TABLE>
B. PREFERRED REDEEMABLE INCREASED DIVIDEND EQUITY SECURITIES (PRIDES)
In April 1996, MCN issued 5,865,000 PRIDES yielding 8 3/4% with a stated
amount of $23.00 per security. Each security represents a contract to
purchase MCN common stock in April 1999 (or earlier under certain
circumstances). Proceeds from the issuance totaling approximately
$135,000,000 were used to acquire 6.5% U.S. Treasury Notes underlying the
security as subsequently discussed. Accordingly, MCN received no cash from
issuing the PRIDES.
Under each security, MCN is obligated to sell and the PRIDES holder is
obligated to purchase for $23.00, between .8333 of a share and one share of
MCN common stock. The exact number of MCN common shares to be sold is
dependent on the market value of a share in April 1999. However, the total
number to be sold will not be less than 4,887,500 shares or more than
5,865,000 shares.
13
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MCN is also obligated to pay the PRIDES holders a semi-annual yield
enhancement payment at an annual rate of 2 1/4% of the stated amount. MCN
has recorded the present value of the yield enhancement payments totaling
$8,243,000 as a liability and a reduction to Common Shareholders' Equity on
MCN's Consolidated Statement of Financial Position. The liability is
reduced when the yield enhancement payments are paid. MCN has the right to
defer the yield enhancement payments, in which case MCN cannot declare
dividends on its common stock until the yield enhancement payments have
been made. In addition, MCN has incurred costs of $6,281,000 in conjunction
with the issuance of PRIDES and similarly has recorded them as a reduction
to Common Shareholders' Equity.
The Treasury Notes underlying the securities are pledged as collateral to
secure the PRIDES holders' obligation to purchase MCN common stock under
the stock purchase contract. At maturity in April 1999, the principal
received from the U.S. Treasury Notes will be used to satisfy the PRIDES
holders' obligation in full. Neither the PRIDES nor the U.S. Treasury Notes
are included on MCN's Consolidated Statement of Financial Position.
However, the issuance of common stock will be reflected when cash proceeds
totaling approximately $135,000,000 are received by MCN in April 1999.
C. TRUST ORIGINATED PREFERRED SECURITIES (TOPrS)
In July 1996, MCN Financing I (MCN Financing), a business trust wholly
owned by MCN, issued 3,200,000 shares of 8 5/8% TOPrS, at the liquidation
preference value of $25 per share. The trust was formed for the sole
purpose of issuing the preferred securities and lending the gross proceeds
thereof to MCN. Holders of the preferred securities are entitled to receive
cumulative dividends at an annual rate of 8 5/8% of the liquidation
preference value. Dividends are payable quarterly and in substance are tax
deductible by MCN. Gross proceeds of the issuance totaled $80,000,000 and
were invested in an equivalent amount of 8 5/8% Junior Subordinated
Debentures of MCN due 2036. MCN has the right to extend interest payment
periods on the debentures for up to 20 consecutive quarters, and as a
consequence, quarterly dividend payments on the preferred securities can be
deferred by MCN Financing during any such interest payment period. In the
event that MCN exercises this right, MCN may not declare dividends on its
common stock. With MCN's consent, the preferred securities are redeemable
at the option of MCN Financing, in whole or in part, during or after July
2001. In addition, upon final maturity of the debentures, MCN Financing is
required to redeem the preferred securities.
In the event of default, holders of the preferred securities will be
entitled to exercise and enforce MCN Financing's creditor rights against
MCN, which may include acceleration of the principal amount due on the
debentures. MCN has issued a guarantee with respect to the preferred
securities, and when taken together with MCN's obligations under the
debentures, the related indenture, and the trust documents, provides a full
and unconditional guarantee of MCN Financing's obligations under the TOPrS.
In October 1996, MCN entered into a five-year variable interest rate swap
agreement with a notional amount of $80,000,000. The swap agreement
effectively converts the TOPrS fixed dividend rate into a variable rate
through October 2001.
4. LINES OF CREDIT
As discussed in MCN's 1995 Annual Report on Form 10-K, MichCon and MCNIC
maintain credit lines that allow for borrowings of up to $200,000,000 under
364-day revolving credit facilities and up to $450,000,000 under three-year
revolving credit facilities. These credit lines totaling $650,000,000 support
their commercial paper programs. Commercial paper of $293,165,000 was
outstanding as of September 30, 1996, of which $225,138,000 is classified as
short-term. In July 1996, the 364-day revolving credit facilities were
renewed.
14
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DISCONTINUED OPERATIONS
On June 21, 1996, MCN completed the sale of its computer operations
subsidiary, The Genix Group, Inc. (Genix), to Affiliated Computer Services,
Inc. (ACS) for an initial sales price of $137,500,000, resulting in an after-
tax gain of $36,176,000. Accordingly, Genix's results of operations after June
21, 1996 are not reflected in the Consolidated Statement of Income. In October
1996, the initial sales price was decreased by $4,600,000 to reflect the
reduction in Genix's working capital between the effective and closing dates
of the transaction. The sales price of Genix could be further adjusted
downward by as much as $40,000,000 depending upon the occurrence of certain
contingencies, which include, among other things, retention of certain
customers through mid-1998 and tax-related matters. The following financial
information summarizes Genix's operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
--------------------- ------------------------ --------------------------
1996 1995 1996 1995 1996 1995
(in Thousands) ---------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Non-affiliates......... $ -- $ 22,559 $ 48,054 $ 65,303 $ 72,658 $ 86,224
Affiliates............. -- 3,967 6,826 11,560 10,520 15,672
---------- ---------- ---------- ------------ ------------ ------------
-- 26,526 54,880 76,863 83,178 101,896
---------- ---------- ---------- ------------ ------------ ------------
OPERATING EXPENSES...... -- 24,434 50,765 70,680 77,250 93,566
---------- ---------- ---------- ------------ ------------ ------------
OPERATING INCOME........ -- 2,092 4,115 6,183 5,928 8,330
---------- ---------- ---------- ------------ ------------ ------------
OTHER INCOME AND
(DEDUCTIONS)
Interest expense--
affiliate............. -- (596) (1,110) (1,577) (1,621) (2,023)
Other.................. -- 166 (336) 251 (286) 384
---------- ---------- ---------- ------------ ------------ ------------
-- (430) (1,446) (1,326) (1,907) (1,639)
---------- ---------- ---------- ------------ ------------ ------------
INCOME BEFORE INCOME
TAXES.................. -- 1,662 2,669 4,857 4,021 6,691
INCOME TAX PROVISION.... -- 736 1,074 2,195 1,501 3,057
---------- ---------- ---------- ------------ ------------ ------------
NET INCOME.............. $ -- $ 926 $ 1,595 $ 2,662 $ 2,520 $ 3,634
========== ========== ========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JUNE 21, SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
(in Thousands) ------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Accounts receivable, net............... $ 24,006 $ 23,671 $ 21,723
Property, plant and equipment, net..... 33,216 29,427 30,717
Other.................................. 18,335 14,262 15,486
------------ ------------ ------------
$ 75,557 $ 67,360 $ 67,926
============ ============ ============
LIABILITIES
Accounts payable....................... $ 9,823 $ 7,850 $ 7,639
Notes payable--affiliate............... 27,522 28,179 29,386
Other.................................. 15,578 9,198 9,926
------------ ------------ ------------
$ 52,923 $ 45,227 $ 46,951
============ ============ ============
</TABLE>
Related party transactions between Genix and other MCN companies are included
in the individual captions of the Consolidated Statement of Income as
components of both continuing and discontinued operations.
15
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACCOUNTING FOR COMMODITY SWAP AGREEMENTS
As discussed in MCN's 1995 Annual Report on Form 10-K, MCN manages commodity
price risk through the use of various derivative instruments and limits the
use of such instruments to hedging activities. If MCN did not use derivative
instruments, its exposure to such risk would be higher. Although this strategy
reduces risk, it also limits potential gains from favorable changes in
commodity prices. Natural gas and oil swap agreements are used to manage
exposure to the risk of market price fluctuations on gas sale contracts, and
gas and oil production. Market value changes of swap contracts are recorded as
deferred gains or losses until the hedged transactions are completed, at which
time the realized gains or losses are included as adjustments to revenues. The
offsets to the unrealized losses are recorded as deferred payables and the
offsets to the unrealized gains are recorded as deferred receivables.
The following assets and liabilities related to the use of gas and oil swap
agreements are reflected in the Consolidated Statement of Financial Position:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------- ------------
<S> <C> <C> <C>
(in Thousands) 1996 1995 1995
---------- ---------- ----------
DEFERRED SWAP LOSSES AND RECEIVABLES
Unrealized losses........................... $ 13,642 $ 22,856 $ 18,084
Deferred receivables........................ 33,722 17,807 37,345
---------- ---------- ----------
47,364 40,663 55,429
Less--Current portion....................... -- 327 622
---------- ---------- ----------
$ 47,364 $ 40,336 $ 54,807
========== ========== ==========
DEFERRED SWAP GAINS AND PAYABLES
Unrealized gains............................ $ 29,822 $ 15,768 $ 35,514
Deferred payables........................... 22,778 30,642 25,532
---------- ---------- ----------
52,600 46,410 61,046
Less--Current portion....................... 11,356 10,836 9,123
---------- ---------- ----------
$ 41,244 $ 35,574 $ 51,923
========== ========== ==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
A. ENVIRONMENTAL MATTERS
As discussed in MCN's 1995 Annual Report on Form 10-K, MCN accrued an
additional environmental remediation liability and corresponding regulatory
asset of $35,000,000 in the fourth quarter of 1995. MCN has notified
current and former insurance carriers of the environmental conditions and
is pursuing its claims against these carriers. In 1996, MCN received
payments from certain insurance carriers and expects additional insurance
recoveries over the next several years. At September 30, 1996, the reserve
balance is approximately $38,200,000, of which $3,200,000 is classified as
current.
16
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. GUARANTIES
In 1990, MCN issued a guarantee, expiring no later than 2010, in
conjunction with a Genix building lease. The lease agreement does not allow
MCN to transfer its obligation under the guarantee to ACS, who acquired
Genix in June 1996 (Note 5). However, ACS is obligated to reimburse MCN for
any payments made as a result of this guarantee. Obligations under the
guarantee approximated $15,300,000 at September 30, 1996.
C. 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 MCN's financial
statements.
8. ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" in
October 1995. The statement requires certain disclosures about stock-based
employee compensation and encourages, but does not require, a fair-value-based
method of accounting for such compensation. MCN is currently evaluating whether
to adopt the fair-value-based method of accounting.
9. CONSOLIDATING FINANCIAL STATEMENTS
Debt securities issued by MCNIC are subject to a support agreement between MCN
and MCNIC, under which MCN has committed to make payments of interest and
principal on MCNIC's securities in the event of failure to pay by MCNIC. Under
the terms of the support agreement, the assets of MCN, other than MichCon, and
any cash dividends paid to MCN by any of its subsidiaries are available as
recourse to holders of MCNIC's securities. The carrying value of MCN's assets
on an unconsolidated basis, primarily investments in its subsidiaries other
than MichCon, is $391,211,000 at September 30, 1996.
The following MCN consolidating financial statements are presented and include
separately MCNIC, MichCon and MCN and other subsidiaries. MCN has determined
that separate financial statements and other disclosures concerning MCNIC are
not material to investors. The other MCN subsidiaries represent Citizens Gas
Fuel Company, Blue Lake Holdings, Inc., MCN Michigan Limited Partnership and
MCN Financing.
17
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MCN AND ELIMINATIONS
OTHER AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ------------ ------------ ----------------- ------------
SEPTEMBER 30, 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash
equivalents, at cost.. $ -- $ 17,627 $ 18,282 $ 1 $ 35,910
Accounts receivable.... 5,163 96,026 133,899 (8,521) 226,567
Less -- Allowance for
doubtful accounts..... 67 520 14,112 -- 14,699
------------ ------------ ------------ ------------ ------------
Accounts receivable,
net................... 5,096 95,506 119,787 (8,521) 211,868
Accrued unbilled
revenue............... 232 -- 22,197 -- 22,429
Accrued gas cost
recovery revenues..... -- -- 33,585 -- 33,585
Gas in inventory....... -- 51,868 101,742 -- 153,610
Property taxes assessed
applicable to future
periods............... 107 892 23,456 -- 24,455
Other.................. 1,726 15,554 22,602 (2,197) 37,685
------------ ------------ ------------ ------------ ------------
7,161 181,447 341,651 (10,717) 519,542
------------ ------------ ------------ ------------ ------------
DEFERRED CHARGES AND
OTHER ASSETS
Investments in and
advances to joint
ventures and
subsidiaries.......... 925,538 109,928 20,357 (917,160) 138,663
Deferred swap losses
and receivables....... -- 47,364 -- -- 47,364
Deferred postretirement
benefit costs......... 706 -- 7,103 -- 7,809
Deferred environmental
costs................. 3,000 -- 28,016 -- 31,016
Prepaid benefit costs.. -- -- 54,103 (4,942) 49,161
Other.................. 8,321 39,839 48,660 514 97,334
------------ ------------ ------------ ------------ ------------
937,565 197,131 158,239 (921,588) 371,347
------------ ------------ ------------ ------------ ------------
PROPERTY, PLANT AND
EQUIPMENT, at cost..... 30,404 932,571 2,609,095 -- 3,572,070
Less--Accumulated
depreciation and
depletion............. 10,476 69,832 1,221,009 -- 1,301,317
------------ ------------ ------------ ------------ ------------
19,928 862,739 1,388,086 -- 2,270,753
------------ ------------ ------------ ------------ ------------
$ 964,654 $ 1,241,317 $ 1,887,976 $ (932,305) $ 3,161,642
============ ============ ============ ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....... $ 7,892 $ 117,440 $ 99,223 $ (8,035) $ 216,520
Notes payable.......... -- 33,080 194,013 -- 227,093
Current portion of
long-term debt,
capital lease
obligations and
redeemable cumulative
preferred securities.. 55 31,436 53,213 -- 84,704
Federal income,
property and other
taxes payable......... (3,559) 14,539 33,241 -- 44,221
Customer deposits...... 18 -- 10,787 -- 10,805
Other.................. 6,758 34,997 50,885 (2,196) 90,444
------------ ------------ ------------ ------------ ------------
11,164 231,492 441,362 (10,231) 673,787
------------ ------------ ------------ ------------ ------------
DEFERRED CREDITS AND
OTHER LIABILITIES
Accumulated deferred
income taxes.......... (1,285) 70,228 83,160 -- 152,103
Unamortized investment
tax credit............ 339 -- 35,050 -- 35,389
Tax benefits
amortizable to
customers............. 182 -- 112,930 -- 113,112
Deferred swap gains and
payables.............. -- 41,244 -- -- 41,244
Accrued environmental
costs................. 3,000 -- 32,000 -- 35,000
Minority interest...... -- 33,499 18,503 -- 52,002
Other.................. 28,474 15,862 59,838 (4,942) 99,232
------------ ------------ ------------ ------------ ------------
30,710 160,833 341,481 (4,942) 528,082
------------ ------------ ------------ ------------ ------------
LONG-TERM DEBT,
including capital lease
obligations............ 365 502,525 551,254 -- 1,054,144
------------ ------------ ------------ ------------ ------------
REDEEMABLE CUMULATIVE
PREFERRED SECURITIES OF
SUBSIDIARY............. 96,542 -- -- -- 96,542
------------ ------------ ------------ ------------ ------------
MCN-OBLIGATED
MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF
MCN FINANCING.......... 77,218 -- -- -- 77,218
------------ ------------ ------------ ------------ ------------
COMMON SHAREHOLDERS'
EQUITY
Common Stock........... 672 5 10,300 (10,305) 672
Additional paid-in
capital............... 471,868 238,721 230,399 (475,212) 465,776
Retained earnings...... 291,172 107,741 313,180 (431,615) 280,478
PRIDES yield
enhancement and
issuance costs........ (14,524) -- -- -- (14,524)
Unearned compensation.. (533) -- -- -- (533)
------------ ------------ ------------ ------------ ------------
748,655 346,467 553,879 (917,132) 731,869
------------ ------------ ------------ ------------ ------------
$ 964,654 $ 1,241,317 $ 1,887,976 $ (932,305) $ 3,161,642
============ ============ ============ ============ ============
</TABLE>
18
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MCN AND ELIMINATIONS
OTHER AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ------------ ------------ ----------------- ------------
SEPTEMBER 30, 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash
equivalents, at cost.. $ 36 $ 12,135 $ 3,213 $ 1,441 $ 16,825
Accounts receivable.... 2,742 71,869 104,159 (7,743) 171,027
Less -- Allowance for
doubtful accounts..... 80 520 12,725 -- 13,325
------------ ------------ ------------ ------------ ------------
Accounts receivable,
net................... 2,662 71,349 91,434 (7,743) 157,702
Accrued unbilled
revenue............... 266 -- 18,815 -- 19,081
Gas in inventory....... -- 62,479 92,508 -- 154,987
Property taxes assessed
applicable to future
periods............... 91 993 21,618 -- 22,702
Other.................. 801 7,002 28,338 773 36,914
------------ ------------ ------------ ------------ ------------
3,856 153,958 255,926 (5,529) 408,211
------------ ------------ ------------ ------------ ------------
DEFERRED CHARGES AND
OTHER ASSETS
Investments in and
advances to joint
ventures and
subsidiaries.......... 738,410 49,306 19,742 (726,231) 81,227
Deferred swap losses
and receivables....... -- 40,336 -- -- 40,336
Deferred postretirement
benefit costs......... 750 -- 14,613 -- 15,363
Prepaid benefit costs.. -- -- 20,770 (1,500) 19,270
Other.................. 7,370 41,819 41,448 631 91,268
------------ ------------ ------------ ------------ ------------
746,530 131,461 96,573 (727,100) 247,464
------------ ------------ ------------ ------------ ------------
PROPERTY, PLANT AND
EQUIPMENT, at cost..... 26,021 563,141 2,338,974 -- 2,928,136
Less -- Accumulated
depreciation and
depletion............. 9,298 52,213 1,135,024 -- 1,196,535
------------ ------------ ------------ ------------ ------------
16,723 510,928 1,203,950 -- 1,731,601
------------ ------------ ------------ ------------ ------------
$767,109 $ 796,347 $ 1,556,449 $ (732,629) $ 2,387,276
============ ============ ============ ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....... $ 1,979 $ 63,339 $ 69,691 $ (4,940) $ 130,069
Notes payable.......... -- 39,000 111,820 -- 150,820
Current portion of
long-term debt,
capital lease
obligations and
redeemable cumulative
preferred securities.. 485 2,805 3,936 -- 7,226
Federal income,
property and other
taxes payable......... (2,447) 13,202 45,186 -- 55,941
Customer deposits...... 17 -- 10,277 -- 10,294
Other.................. 3,711 24,462 57,107 5 85,285
------------ ------------ ------------ ------------ ------------
3,745 142,808 298,017 (4,935) 439,635
------------ ------------ ------------ ------------ ------------
DEFERRED CREDITS AND
OTHER LIABILITIES
Accumulated deferred
income taxes.......... (685) 42,886 60,863 73 103,137
Unamortized investment
tax credit............ 368 -- 36,902 -- 37,270
Tax benefits
amortizable to
customers............. 172 -- 112,085 -- 112,257
Deferred swap gains and
payables.............. -- 35,574 -- -- 35,574
Accrued postretirement
benefit costs......... 2,125 1,059 14,537 -- 17,721
Minority interest...... -- 17,911 -- -- 17,911
Other.................. 14,457 7,801 60,025 (1,499) 80,784
------------ ------------ ------------ ------------ ------------
16,437 105,231 284,412 (1,426) 404,654
------------ ------------ ------------ ------------ ------------
LONG-TERM DEBT,
including capital lease
obligations............ 425 294,086 517,035 -- 811,546
------------ ------------ ------------ ------------ ------------
REDEEMABLE CUMULATIVE
PREFERRED SECURITIES OF
SUBSIDIARY............. 96,422 -- -- -- 96,422
------------ ------------ ------------ ------------ ------------
COMMON SHAREHOLDERS'
EQUITY
Common Stock........... 662 5 10,300 (10,305) 662
Additional paid-in
capital............... 449,352 210,122 211,777 (428,791) 442,460
Retained earnings...... 200,522 44,095 234,908 (287,172) 192,353
Unearned compensation.. (456) -- -- -- (456)
------------ ------------ ------------ ------------ ------------
650,080 254,222 456,985 (726,268) 635,019
------------ ------------ ------------ ------------ ------------
$ 767,109 $ 796,347 $ 1,556,449 $ (732,629) $ 2,387,276
============ ============ ============ ============ ============
</TABLE>
19
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MCN AND ELIMINATIONS
OTHER AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ---------- ---------- ----------------- ------------
DECEMBER 31, 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash
equivalents, at cost.. $ 168 $ 10,622 $ 8,469 $ -- $ 19,259
Accounts receivable.... 4,934 147,510 188,353 (9,087) 331,710
Less -- Allowance for
doubtful accounts..... 70 445 13,250 -- 13,765
---------- ---------- ---------- ---------- ----------
Accounts receivable,
net................... 4,864 147,065 175,103 (9,087) 317,945
Accrued unbilled
revenue............... 1,276 -- 91,134 -- 92,410
Gas in inventory....... -- 31,572 40,191 -- 71,763
Property taxes assessed
applicable to future
periods............... 176 3,508 56,949 -- 60,633
Other.................. 596 30,417 32,498 (10,025) 53,486
---------- ---------- ---------- ---------- ----------
7,080 223,184 404,344 (19,112) 615,496
---------- ---------- ---------- ---------- ----------
DEFERRED CHARGES AND
OTHER ASSETS
Investments in and
advances to joint
ventures and
subsidiaries.......... 773,344 100,483 20,318 (765,119) 129,026
Deferred swap losses
and receivables....... -- 54,807 -- -- 54,807
Deferred postretirement
benefit costs......... 740 -- 12,372 -- 13,112
Deferred environmental
costs................. 3,000 -- 32,000 -- 35,000
Prepaid benefit costs.. -- -- 25,438 (1,611) 23,827
Other.................. 7,501 39,949 42,061 1,115 90,626
---------- ---------- ---------- ---------- ----------
784,585 195,239 132,189 (765,615) 346,398
---------- ---------- ---------- ---------- ----------
PROPERTY, PLANT AND
EQUIPMENT, at cost..... 27,784 719,650 2,413,120 -- 3,160,554
Less -- Accumulated
depreciation and
depletion............. 9,732 62,916 1,151,160 -- 1,223,808
---------- ---------- ---------- ---------- ----------
18,052 656,734 1,261,960 -- 1,936,746
---------- ---------- ---------- ---------- ----------
$ 809,717 $1,075,157 $1,798,493 $ (784,727) $2,898,640
========== ========== ========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....... $ 4,489 $ 112,630 $ 108,208 $ (8,143) $ 217,184
Notes payable.......... -- 49,000 196,635 -- 245,635
Current portion of
long-term debt,
capital lease
obligations and
redeemable cumulative
preferred securities.. 55 2,976 3,969 -- 7,000
Federal income,
property and other
taxes payable......... 1,372 6,180 85,195 (9,363) 83,384
Customer deposits...... 19 -- 11,531 -- 11,550
Other.................. 2,935 20,715 64,587 (662) 87,575
---------- ---------- ---------- ---------- ----------
8,870 191,501 470,125 (18,168) 652,328
---------- ---------- ---------- ---------- ----------
DEFERRED CREDITS AND
OTHER LIABILITIES
Accumulated deferred
income taxes.......... (590) 65,341 61,146 (1) 125,896
Unamortized investment
tax credit............ 360 -- 36,437 -- 36,797
Tax benefits
amortizable to
customers............. 181 -- 114,487 -- 114,668
Deferred swap gains and
payables.............. -- 51,923 -- -- 51,923
Accrued postretirement
benefit costs......... 2,177 713 12,661 -- 15,551
Accrued environmental
costs................. 3,000 -- 32,000 -- 35,000
Minority interest...... -- 18,375 -- -- 18,375
Other.................. 18,175 11,546 65,252 (1,503) 93,470
---------- ---------- ---------- ---------- ----------
23,303 147,898 321,983 (1,504) 491,680
---------- ---------- ---------- ---------- ----------
LONG-TERM DEBT,
including capital lease
obligations............ 420 476,424 516,564 (1) 993,407
---------- ---------- ---------- ---------- ----------
REDEEMABLE CUMULATIVE
PREFERRED SECURITIES OF
SUBSIDIARY............. 96,449 -- -- -- 96,449
---------- ---------- ---------- ---------- ----------
COMMON SHAREHOLDERS'
EQUITY
Common Stock........... 664 5 10,300 (10,305) 664
Additional paid-in
capital............... 453,220 207,103 211,777 (426,045) 446,055
Retained earnings...... 227,159 52,226 267,744 (328,704) 218,425
Unearned compensation.. (368) -- -- -- (368)
---------- ---------- ---------- ---------- ----------
680,675 259,334 489,821 (765,054) 664,776
---------- ---------- ---------- ---------- ----------
$ 809,717 $1,075,157 $1,798,493 $ (784,727) $2,898,640
========== ========== ========== ========== ==========
</TABLE>
20
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MCN AND ELIMINATIONS
OTHER AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ -------- -------- ----------------- ------------
THREE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 1,726 $127,904 $117,251 $ (1,379) $ 245,502
-------- -------- -------- -------- --------
OPERATING EXPENSES
Cost of gas............ 964 82,474 29,163 (927) 111,674
Operation and
maintenance........... 416 20,514 68,727 (451) 89,206
Depreciation, depletion
and amortization...... 488 12,998 24,830 -- 38,316
Property and other
taxes................. 418 2,792 13,161 -- 16,371
-------- -------- -------- -------- --------
2,286 118,778 135,881 (1,378) 255,567
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS). (560) 9,126 (18,630) (1) (10,065)
-------- -------- -------- -------- --------
EQUITY IN EARNINGS
(LOSS) OF JOINT
VENTURES AND
SUBSIDIARIES........... (12,166) 2,055 203 12,255 2,347
-------- -------- -------- -------- --------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 3,689 582 1,401 (3,654) 2,018
Interest on long-term
debt.................. (1) (4,985) (11,013) -- (15,999)
Other interest expense. (136) (4,061) (1,217) 3,653 (1,761)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (3,579) (3,579)
Minority interest...... -- (405) (332) 1 (736)
Other.................. 15 277 664 -- 956
-------- -------- -------- -------- --------
3,567 (8,592) (10,497) (3,579) (19,101)
-------- -------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES.... (9,159) 2,589 (28,924) 8,675 (26,819)
INCOME TAX PROVISION
(BENEFIT).............. 9 (2,938) (10,487) -- (13,416)
-------- -------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS.. (9,168) 5,527 (18,437) 8,675 (13,403)
-------- -------- -------- -------- --------
DISCONTINUED OPERATIONS,
NET OF TAXES
Income from operations. -- -- -- -- --
Gain on sale........... -- -- -- -- --
-------- -------- -------- -------- --------
-- -- -- -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS)....... (9,168) 5,527 (18,437) 8,675 (13,403)
DIVIDENDS ON PREFERRED
SECURITIES............. 3,579 -- -- (3,579) --
-------- -------- -------- -------- --------
NET INCOME (LOSS)
AVAILABLE FOR COMMON
STOCK.................. $ (12,747) $ 5,527 $(18,437) $ 12,254 $ (13,403)
======== ======== ======== ======== ========
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 1,472 $ 82,870 $107,522 $ (1,173) $ 190,691
-------- -------- -------- -------- --------
OPERATING EXPENSES
Cost of gas............ 639 58,127 20,963 (662) 79,067
Operation and
maintenance........... 517 11,731 60,750 (511) 72,487
Depreciation, depletion
and amortization...... 424 5,205 22,107 -- 27,736
Property and other
taxes................. 262 1,308 12,798 -- 14,368
-------- -------- -------- -------- --------
1,842 76,371 116,618 (1,173) 193,658
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS). (370) 6,499 (9,096) -- (2,967)
-------- -------- -------- -------- --------
EQUITY IN EARNINGS
(LOSS) OF JOINT
VENTURES AND
SUBSIDIARIES........... (7,583) 1,431 123 7,851 1,822
-------- -------- -------- -------- --------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 2,398 861 765 (2,242) 1,782
Interest on long-term
debt.................. (20) (2,083) (9,726) 1 (11,828)
Other interest expense. (15) (3,761) (774) 2,369 (2,181)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (2,398) (2,398)
Minority interest...... -- (660) -- (1) (661)
Other.................. (67) 26 (758) (127) (926)
-------- -------- -------- -------- --------
2,296 (5,617) (10,493) (2,398) (16,212)
-------- -------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES.... (5,657) 2,313 (19,466) 5,453 (17,357)
INCOME TAX PROVISION
(BENEFIT).............. 130 (1,797) (6,138) 1 (7,804)
-------- -------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS.. (5,787) 4,110 (13,328) 5,452 (9,553)
DISCONTINUED OPERATIONS,
NET OF TAXES........... -- 926 -- -- 926
-------- -------- -------- -------- --------
NET INCOME (LOSS)....... (5,787) 5,036 (13,328) 5,452 (8,627)
DIVIDENDS ON PREFERRED
SECURITIES............. 2,344 -- 54 (2,398) --
-------- -------- -------- -------- --------
NET INCOME (LOSS)
AVAILABLE FOR COMMON
STOCK.................. $ (8,131) $ 5,036 $(13,382) $ 7,850 $ (8,627)
======== ======== ======== ======== ========
</TABLE>
21
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MCN AND ELIMINATIONS
OTHER AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ -------- -------- ----------------- ------------
NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 11,872 $521,962 $870,970 $ (9,154) $1,395,650
-------- -------- -------- --------- ----------
OPERATING EXPENSES
Cost of gas............ 6,275 396,002 427,560 (6,666) 823,171
Operation and
maintenance........... 1,230 56,881 208,710 (2,488) 264,333
Depreciation, depletion
and amortization...... 1,436 34,514 73,963 -- 109,913
Property and other
taxes................. 1,281 7,733 46,773 -- 55,787
-------- -------- -------- --------- ----------
10,222 495,130 757,006 (9,154) 1,253,204
-------- -------- -------- --------- ----------
OPERATING INCOME........ 1,650 26,832 113,964 -- 142,446
-------- -------- -------- --------- ----------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 110,486 6,905 698 (109,913) 8,176
-------- -------- -------- --------- ----------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 8,482 2,458 2,620 (8,393) 5,167
Interest on long-term
debt.................. (20) (18,836) (31,005) -- (49,861)
Other interest expense. (246) (10,398) (4,992) 8,392 (7,244)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (8,286) (8,286)
Minority interest...... -- (470) (1,034) 1 (1,503)
Other.................. (175) 3,142 482 -- 3,449
-------- -------- -------- --------- ----------
8,041 (24,104) (33,929) (8,286) (58,278)
-------- -------- -------- --------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 120,177 9,633 80,733 (118,199) 92,344
INCOME TAX PROVISION
(BENEFIT).............. 1,318 (8,111) 28,279 -- 21,486
-------- -------- -------- --------- ----------
INCOME FROM CONTINUING
OPERATIONS............. 118,859 17,744 52,454 (118,199) 70,858
-------- -------- -------- --------- ----------
DISCONTINUED OPERATIONS,
NET OF TAXES
Income from operations. -- 1,595 -- -- 1,595
Gain on sale........... -- 36,176 -- -- 36,176
-------- -------- -------- --------- ----------
-- 37,771 -- -- 37,771
-------- -------- -------- --------- ----------
NET INCOME.............. 118,859 55,515 52,454 (118,199) 108,629
DIVIDENDS ON PREFERRED
SECURITIES............. 8,268 -- 18 (8,286) --
-------- -------- -------- --------- ----------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 110,591 $ 55,515 $ 52,436 $(109,913) $ 108,629
======== ======== ======== ========= ==========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 9,953 $263,483 $714,302 $ (8,616) $ 979,122
-------- -------- -------- --------- ----------
OPERATING EXPENSES
Cost of gas............ 4,522 189,253 303,130 (4,563) 492,342
Operation and
maintenance........... 3,388 32,926 210,753 (4,053) 243,014
Depreciation, depletion
and amortization...... 1,236 15,077 66,988 -- 83,301
Property and other
taxes................. 1,031 3,793 43,487 -- 48,311
-------- -------- -------- --------- ----------
10,177 241,049 624,358 (8,616) 866,968
-------- -------- -------- --------- ----------
OPERATING INCOME (LOSS). (224) 22,434 89,944 -- 112,154
-------- -------- -------- --------- ----------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 56,908 2,495 499 (56,013) 3,889
-------- -------- -------- --------- ----------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 7,287 2,706 2,764 (6,661) 6,096
Interest on long-term
debt.................. (63) (6,502) (26,410) 1 (32,974)
Other interest expense. (39) (10,637) (4,425) 7,108 (7,993)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (7,213) (7,213)
Minority interest...... -- (1,829) -- -- (1,829)
Other.................. 1,524 (336) (2,337) (449) (1,598)
-------- -------- -------- --------- ----------
8,709 (16,598) (30,408) (7,214) (45,511)
-------- -------- -------- --------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 65,393 8,331 60,035 (63,227) 70,532
INCOME TAX PROVISION
(BENEFIT).............. 1,425 (4,708) 21,201 1 17,919
-------- -------- -------- --------- ----------
INCOME FROM CONTINUING
OPERATIONS............. 63,968 13,039 38,834 (63,228) 52,613
DISCONTINUED OPERATIONS,
NET OF TAXES........... -- 2,662 -- -- 2,662
-------- -------- -------- --------- ----------
NET INCOME.............. 63,968 15,701 38,834 (63,228) 55,275
DIVIDENDS ON PREFERRED
SECURITIES............. 7,031 -- 182 (7,213) --
-------- -------- -------- --------- ----------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 56,937 $ 15,701 $ 38,652 $ (56,015) $ 55,275
======== ======== ======== ========= ==========
</TABLE>
22
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MCN ELIMINATIONS
AND OTHER AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ -------- ---------- ----------------- ------------
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 17,081 $670,178 $1,237,481 $ (12,980) $1,911,760
-------- -------- ---------- --------- ----------
OPERATING EXPENSES
Cost of gas............ 9,204 509,022 608,392 (9,596) 1,117,022
Operation and
maintenance........... 1,869 72,974 292,381 (3,384) 363,840
Depreciation, depletion
and amortization...... 1,871 43,223 96,103 -- 141,197
Property and other
taxes................. 1,580 9,302 60,298 -- 71,180
-------- -------- ---------- --------- ----------
14,524 634,521 1,057,174 (12,980) 1,693,239
-------- -------- ---------- --------- ----------
OPERATING INCOME........ 2,557 35,657 180,307 -- 218,521
-------- -------- ---------- --------- ----------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 152,329 7,710 938 (151,445) 9,532
-------- -------- ---------- --------- ----------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 10,880 3,303 3,839 (11,210) 6,812
Interest on long-term
debt.................. (33) (22,064) (40,415) (1) (62,513)
Other interest expense. (260) (14,182) (7,620) 10,762 (11,300)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (10,683) (10,683)
Minority interest...... -- (1,132) (1,034) 1 (2,165)
Other.................. (216) 4,464 (2,590) 449 2,107
-------- -------- ---------- --------- ----------
10,371 (29,611) (47,820) (10,682) (77,742)
-------- -------- ---------- --------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 165,257 13,756 133,425 (162,127) 150,311
INCOME TAX PROVISION
(BENEFIT).............. 2,011 (11,195) 48,082 (1) 38,897
-------- -------- ---------- --------- ----------
INCOME FROM CONTINUING
OPERATIONS............. 163,246 24,951 85,343 (162,126) 111,414
-------- -------- ---------- --------- ----------
DISCONTINUED OPERATIONS,
NET OF TAXES
Income from operations. -- 2,520 -- -- 2,520
Gain on sale........... -- 36,176 -- -- 36,176
-------- -------- ---------- --------- ----------
-- 38,696 -- -- 38,696
-------- -------- ---------- --------- ----------
NET INCOME.............. 163,246 63,647 85,343 (162,126) 150,110
DIVIDENDS ON PREFERRED
SECURITIES............. 10,612 -- 71 (10,683) --
-------- -------- ---------- --------- ----------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 152,634 $ 63,647 $ 85,272 $(151,443) $ 150,110
======== ======== ========== ========= ==========
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 13,984 $355,459 $1,012,478 $ (11,689) $1,370,232
-------- -------- ---------- --------- ----------
OPERATING EXPENSES
Cost of gas............ 6,316 262,291 448,016 (6,189) 710,434
Operation and
maintenance........... 2,609 39,810 297,688 (5,554) 334,553
Depreciation, depletion
and amortization...... 1,590 18,877 87,481 -- 107,948
Property and other
taxes................. 1,298 5,008 55,462 -- 61,768
-------- -------- ---------- --------- ----------
11,813 325,986 888,647 (11,743) 1,214,703
-------- -------- ---------- --------- ----------
OPERATING INCOME........ 2,171 29,473 123,831 54 155,529
-------- -------- ---------- --------- ----------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 77,786 2,733 554 (76,583) 4,490
-------- -------- ---------- --------- ----------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 8,864 3,794 3,761 (8,215) 8,204
Interest on long-term
debt.................. (123) (9,716) (34,665) 1 (44,503)
Other interest expense. (66) (12,866) (7,368) 8,662 (11,638)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (8,865) (8,865)
Minority interest...... -- (2,521) -- -- (2,521)
Other.................. 234 263 (4,816) (505) (4,824)
-------- -------- ---------- --------- ----------
8,909 (21,046) (43,088) (8,922) (64,147)
-------- -------- ---------- --------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 88,866 11,160 81,297 (85,451) 95,872
INCOME TAX PROVISION
(BENEFIT).............. 2,065 (5,459) 26,885 1 23,492
-------- -------- ---------- --------- ----------
INCOME FROM CONTINUING
OPERATIONS............. 86,801 16,619 54,412 (85,452) 72,380
DISCONTINUED OPERATIONS,
NET OF TAXES........... -- 3,634 -- -- 3,634
-------- -------- ---------- --------- ----------
NET INCOME.............. 86,801 20,253 54,412 (85,452) 76,014
DIVIDENDS ON PREFERRED
SECURITIES............. 8,568 -- 297 (8,865) --
-------- -------- ---------- --------- ----------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 78,233 $ 20,253 $ 54,115 $ (76,587) $ 76,014
======== ======== ========== ========= ==========
</TABLE>
23
<PAGE>
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MCN AND ELIMINATIONS
OTHER AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ -------- -------- ----------------- ------------
NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOW FROM
OPERATING ACTIVITIES... $ 24,837 $ 75,068 $111,297 $(16,366) $ 194,836
-------- -------- -------- -------- --------
CASH FLOW FROM FINANCING
ACTIVITIES
Notes payable, net..... -- (15,920) (2,622) -- (18,542)
Capital contributions
received from
(distributions
paid to) affiliates,
net................... (964) 48,516 1,614 (49,166) --
Common stock dividends
paid.................. (46,576) -- (7,000) 7,000 (46,576)
Preferred securities
dividends paid........ (8,268) -- (54) 8,322 --
Issuance of common
stock................. 13,408 -- -- -- 13,408
Issuance of preferred
securities............ 77,218 -- -- -- 77,218
Issuance of long-term
debt.................. -- 328,895 69,645 -- 398,540
Long-term commercial
paper and credit
facilities, net....... -- (256,630) -- -- (256,630)
Retirement of long-term
debt and preferred
securities............ (55) (1,350) (5,435) 1 (6,839)
Other.................. (6,281) -- -- -- (6,281)
-------- -------- -------- -------- --------
Net cash provided from
financing activities.. 28,482 103,511 56,148 (33,843) 154,298
-------- -------- -------- -------- --------
CASH FLOW FROM INVESTING
ACTIVITIES
Capital expenditures... (3,823) (251,419) (146,277) 1 (401,518)
Sale of Genix.......... -- 137,500 -- -- 137,500
Acquisition............ -- (78,620) -- -- (78,620)
Sale of an interest in
DIGP.................. -- 36,000 -- -- 36,000
Investment in joint
ventures and
subsidiaries.......... (50,130) (10,052) (33) 50,273 (9,942)
Other.................. 466 (4,983) (11,322) (64) (15,903)
-------- -------- -------- -------- --------
Net cash used for
investing activities.. (53,487) (171,574) (157,632) 50,210 (332,483)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (168) 7,005 9,813 1 16,651
CASH AND CASH
EQUIVALENTS, JANUARY 1. 168 10,622 8,469 -- 19,259
-------- -------- -------- -------- --------
CASH AND CASH
EQUIVALENTS, SEPTEMBER
30..................... $ -- $ 17,627 $ 18,282 $ 1 $ 35,910
======== ======== ======== ======== ========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOW FROM
OPERATING ACTIVITIES... $ 20,789 $ 83,790 $150,837 $(13,443) $ 241,973
-------- -------- -------- -------- --------
CASH FLOW FROM FINANCING
ACTIVITIES
Notes payable, net..... -- (21,350) (56,637) -- (77,987)
Capital contributions
received from
(distributions paid
to) affiliates, net... (3,216) 56,327 7,000 (60,111) --
Common stock dividends
paid.................. (42,784) -- (6,500) 6,500 (42,784)
Preferred securities
dividends paid........ (7,031) -- (223) 7,254 --
Issuance of common
stock................. 110,772 -- -- -- 110,772
Issuance of long-term
debt.................. -- 100,000 68,764 -- 168,764
Long-term commercial
paper and credit
facilities, net....... -- (39,398) -- -- (39,398)
Retirement of long-term
debt and preferred
securities............ (50) (2,647) (4,290) -- (6,987)
Other.................. -- -- -- (1,290) (1,290)
-------- -------- -------- -------- --------
Net cash provided from
financing activities.. 57,691 92,932 8,114 (47,647) 111,090
-------- -------- -------- -------- --------
CASH FLOW FROM INVESTING
ACTIVITIES
Capital expenditures... (3,241) (172,390) (154,718) -- (330,349)
Investment in joint
ventures and
subsidiaries.......... (75,262) (13,530) (308) 64,981 (24,119)
Sale of investment in
joint ventures........ -- 10,803 -- -- 10,803
Other.................. 30 317 (2,017) (2,450) (4,120)
-------- -------- -------- -------- --------
Net cash used for
investing activities.. (78,473) (174,800) (157,043) 62,531 (347,785)
-------- -------- -------- -------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS....... 7 1,922 1,908 1,441 5,278
CASH AND CASH
EQUIVALENTS, JANUARY 1. 29 10,213 1,305 -- 11,547
-------- -------- -------- -------- --------
CASH AND CASH
EQUIVALENTS, SEPTEMBER
30..................... $ 36 $ 12,135 $ 3,213 $ 1,441 $ 16,825
======== ======== ======== ======== ========
</TABLE>
24
<PAGE>
OTHER INFORMATION
LEGAL PROCEEDINGS
ENVIRONMENTAL: In 1994, MichCon received a general notice of liability
letter from the U.S. Environmental Protection Agency (USEPA) stating that it
was one of two potentially responsible parties at the Lower Ecorse Creek
Superfund site in Wyandotte, Michigan. USEPA requested that MichCon conduct a
remedial investigation and feasibility study at that site. MichCon
investigated its prior activities in the area and USEPA's bases for its
conclusion, and concluded that it was not responsible for contamination
discovered at that site. MichCon informed USEPA of this belief and did not
undertake the requested activities.
In September 1996, USEPA sent MichCon a second general notice of liability
letter for the site and demanded reimbursement of approximately $2.3 million
in past costs, plus interest. USEPA then issued MichCon and the other
potentially responsible party a unilateral administrative order under section
106 of the Comprehensive Environmental Response Compensation and Liability Act
to implement the remedy. USEPA estimates the cost of the remedy to be
approximately $650,000. MichCon again reviewed USEPA's bases for determining
that it is a potentially responsible party and concluded again that it was not
responsible for contamination discovered at that site and informed USEPA of
its decision. USEPA may sue MichCon to force compliance with the order or may
implement the remedy and then sue MichCon for recovery of all incurred costs.
If USEPA institutes and prevails in such a suit and if the court determines
that MichCon did not have sufficient cause not to comply with the order, the
court may impose civil penalties and punitive damages. Management believes
that MichCon was not responsible for contamination at the site and has
sufficient cause not to comply with this order and that the resolution of this
matter will not have a material adverse effect on MCN's financial statements.
ENERGY CONSERVATION PROGRAM: In December 1994, a suit was filed against
MichCon in Wayne County, Michigan Circuit Court by six customers who had
participated in one of three energy conservation programs sponsored by
MichCon. Under these programs, which had been approved by the MPSC, MichCon
offered low interest loans, rebates and other arrangements to assist qualified
residential customers in purchasing high efficiency furnaces. MichCon did not
manufacture, sell or install any of the furnaces. The complaint alleged that
MichCon induced the purchase of these furnaces through its conservation
programs and that it had a duty to, but failed to, warn its customers that
harmful levels of carbon monoxide could backdraft if a chimney was not
properly sized and a chimney liner installed. No personal injuries were
claimed. Plaintiffs sought injunctive relief, unspecified monetary damages and
class action certification. The trial court denied such certification on two
separate occasions; the Michigan Court of Appeals denied plaintiffs' request
for an appeal of those rulings.
MichCon impleaded, as third-party defendants, all of the manufacturers,
contractors and installers of the plaintiffs' furnaces. On September 13, 1996,
the plaintiffs' motions were granted to certify as a class the approximately
46,000 customers who had participated in MichCon's conservation programs from
1990 to the present. MichCon believes that plaintiffs' allegations are without
merit and will continue to defend the case vigorously.
25
<PAGE>
EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10-1 MCN Executive Deferred Compensation Plan, as amended.
10-2 MCN Supplemental Death Benefit and Retirement Income Plan.
10-3 MichCon Supplemental Retirement Plan.
12-1 Computation of Ratio of Earnings to Fixed Charges for MCN Corporation.
12-2 Computation of Ratio of Earnings to Fixed Charges for MCN Investment Corporation.
27-1 Financial Data Schedule.
</TABLE>
26
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MCN CORPORATION
/s/ Harold Gardner
Date: November 7, 1996 By: _________________________________
Harold Gardner
Vice President, Controller
and Chief Accounting Officer
27
<PAGE>
MCN
EXECUTIVE DEFERRED COMPENSATION PLAN
(as amended effective January 1, 1996)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
SECTION 1.................................................................... 1
DEFINITIONS
1.01. "Account"................................................... 1
1.02. "Additional Pension Plan Benefit"........................... 1
1.03. "Additional Savings Plan Benefit"........................... 2
1.04. "Affiliated Employer........................................ 2
1.05. "Anniversary Date".......................................... 2
1.06. "Annual Base Salary"........................................ 2
1.07. "Annual Incentive Compensation"............................. 2
1.08. "Beneficiary"............................................... 2
1.09. "Benefit Agreement"......................................... 3
1.10. "Board of Directors"........................................ 3
1.11. "Code"...................................................... 3
1.12. "Committee"................................................. 3
1.13. "Company"................................................... 3
1.14. "Deferral".................................................. 3
1.15. "Deferral Period"........................................... 3
1.16. "Disability................................................. 3
1.17. "Effective Date"............................................ 3
1.18. "ERISA"..................................................... 3
1.19. "Executive"................................................. 4
1.20. "In Pay Status"............................................. 4
1.21. "Leave"..................................................... 4
1.22. "Participant"............................................... 4
1.23. "Pension Plan".............................................. 4
1.24. "Plan"...................................................... 4
1.25. "Plan Interest Rate"........................................ 4
1.26. "Plan Year"................................................. 4
1.27. "Post-Retirement Survivor Benefit".......................... 4
1.28. "Pre-Retirement Survivor Benefit"........................... 4
1.29. "Retirement Date"........................................... 4
1.30. "Retirement Income Benefit"................................. 5
1.31. "Savings Plan".............................................. 5
1.32. "Social Security Wage Base"................................. 5
1.33. "Spouse".................................................... 5
SECTION 2.................................................................... 5
PARTICIPATION
2.01. Commencement of Participation............................... 5
2.02. Deferrals................................................... 5
2.03. Election of Deferral........................................ 5
2.04. Forgo Deferral for a Plan Year.............................. 6
2.05. Increased Deferral.......................................... 6
2.06. Establishment of Account.................................... 6
2.07. Interaction with Other Plans................................ 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 3................................................................... 7
FUNDING OF BENEFITS
3.01. Unfunded Plan............................................... 7
3.02. Interest.................................................... 7
SECTION 4.................................................................... 8
CLAIMS PROCEDURE
4.01. Benefit Claims Procedure.................................... 8
4.02. Appeals Procedure........................................... 8
SECTION 5.................................................................... 9
RETIREMENT INCOME BENEFITS
5.01. Normal Retirement Benefit................................... 9
5.02. Termination Benefit......................................... 10
5.03. Disability.................................................. 11
5.04. Hardship Withdrawal Benefits................................ 11
SECTION 6.................................................................... 12
PRE-RETIREMENT SURVIVOR BENEFITS
6.01. Pre-Retirement Survivor Benefit............................. 12
6.02 Proof of Insurability....................................... 13
6.03. Exclusion for Suicide or Self-Inflicted
Injury..................................................... 13
SECTION 7.................................................................... 13
POST-RETIREMENT SURVIVOR BENEFITS
7.01. Post-Retirement Survivor Benefit............................ 13
SECTION 8.................................................................... 13
VESTING OF BENEFITS
8.01. Vesting of Benefits......................................... 13
SECTION 9.................................................................... 14
ADDITIONAL PROVISIONS AFFECTING BENEFITS
9.01. Benefit Agreement........................................... 14
9.02. Leave of Absence............................................ 14
9.03. Alternative Forms of Benefit................................ 14
9.04. Tax Withholding............................................. 14
SECTION 10................................................................... 14
ADMINISTRATION OF THE PLAN
10.01. Duties and Power............................................ 14
10.02. Benefit Statements.......................................... 15
SECTION 11................................................................... 15
AMENDMENT, SUSPENSION, AND TERMINATION
11.01. Right to Amend or Terminate................................. 15
11.02. Right to Surrender.......................................... 15
11.03. Non-ERISA Plan.............................................. 15
11.04. Right to Accelerate......................................... 16
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 12................................................................... 16
MISCELLANEOUS
12.01. Right to Continued Employment............................... 16
12.02. Prohibition Against Alienation.............................. 16
12.03. Sayings Clause.............................................. 16
12.04. Payments of Benefit of Incompetent.......................... 16
12.05. Spouse's Interest........................................... 17
12.06. Successors.................................................. 17
12.07. Gender, Number and Heading.................................. 17
12.08. Legal Fees and Expenses..................................... 17
12.09. Choice of Law............................................... 17
12.10. Affiliated Employees........................................ 17
SECTION 13................................................................... 18
CHANGE IN CONTROL PROVISIONS
13.01. General..................................................... 18
13.02. Transfer to Rabbi Trust..................................... 18
13.03. Joint and Several Liability................................. 18
13.04. Dispute Procedures.......................................... 18
13.05. Definition of Change in Control............................. 19
</TABLE>
iii
<PAGE>
MCN
EXECUTIVE DEFERRED COMPENSATION PLAN
(as amended effective January 1, 1996)
MCN Corporation, a Michigan corporation (hereinafter referred to as the
"Company"), has adopted the Executive Deferred Compensation Plan (hereinafter
referred to as the "Plan") to provide supplemental retirement income for certain
Executives (hereinafter defined) and to provide a measure of security for
certain Executives through the payment of death benefits to their Beneficiaries.
The Company previously adopted the MCN Management Incentive Bonus
Compensation Plan ("Incentive Plan") which permitted participants to defer
awards made to them under the Incentive Plan. Effective as of January 1, 1990,
deferrals under the Incentive Plan were discontinued and account balances under
the Incentive Plan were transferred to the Plan.
It is intended that this Plan provide benefits for "a select group of
management or highly compensated employees" within the meaning of Sections 201,
301 and 401 of ERISA (hereinafter defined), and therefore to be exempt from the
provisions of Parts 2, 3 and 4 of Title I of ERISA.
SECTION 1
DEFINITIONS
The following words and terms as used herein shall, unless the context
clearly requires a different meaning, have the respective meanings hereinafter
set forth.
1.01. "Account" means the record maintained by the Company of each
Participant's Deferrals, credited interest, Additional Pension Plan Benefit,
Additional Savings Plan Benefit, and distributions under the Plan.
1.02. "Additional Pension Plan Benefit" means an additional benefit under
this Plan, equal to the present value at the date of retirement under the
qualified plan or other termination of employment of the difference between (1)
the benefit that the Participant would have been entitled to receive under the
Pension Plan if he had not elected to defer any amount under the Plan, and (2)
the benefit that the Participant is entitled to receive under the Pension Plan.
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1.03. "Additional Savings Plan Benefit" means an additional monthly
benefit under this Plan, equal to the amount of any Company matching
contributions that would have been made on the Participant's deferred salary
under the terms of the Savings Plan plus (i) for periods from January 1, 1990 to
July 31, 1991, the income that would have been earned thereon based upon the
Participant's investment elections and the terms of the Savings Plan, and (ii)
for periods after July 31, 1991, interest based upon the Plan Interest Rate in
effect for such period which should be added to the Participant's account.
1.04 "Affiliated Employer" means any corporation while such corporation is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or any other employing entity while
such entity is under common control (within the meaning of Section 414(c) of the
Code) with the Company.
1.05. "Anniversary Date" means any January 1 including or after the
Effective Date.
1.06. "Annual Base Salary" means annual base salary payable in the current
Plan Year before any 401(k) deferral or cafeteria plan election and before any
payroll deduction for taxes or any other purpose, but excluding any bonus,
fringe benefit or other form of remuneration.
1.07. "Annual Incentive Compensation" means the annual incentive plan cash
compensation earned in the current Plan Year and payable in the subsequent Plan
Year.
1.08. "Beneficiary" means the person, persons or entity designated in
writing by the Participant on forms provided by the Company to receive
distribution of certain death benefits under the Plan in the event of the
Participant's death. A Participant may change the designated Beneficiary from
time to time by filing a new written designation with the Committee, and such
designation shall be effective upon receipt by the Committee. The designation of
a Beneficiary other than the Participant's Spouse must be consented to in
writing by the Spouse. If a Participant has not designated a Beneficiary, or if
a designated Beneficiary is not living or in existence at the time of a
Participant's death, any death benefits payable under the Plan shall be paid to
the Participant's Spouse, if then living, and if the Participant's Spouse is not
then living, to the Participant's estate.
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1.09. "Benefit Agreement" means the benefit agreement described in Section
9.01 relating to a Participant's commitment to defer Annual Base Salary, as
defined in Section 1.06, and/or Annual Incentive Compensation, as defined in
Section 1.07.
1.10. "Board of Directors" means the Board of Directors of the Company, as
defined in Section 1.13.
1.11. "Code" means the Internal Revenue Code of 1986, as amended.
1.12. "Committee" means the Savings Plan Committee under the MichCon
Savings and Stock Ownership Plan, or successor thereto. The Committee is
responsible for the administration of the Plan.
1.13. "Company" means MCN, a Michigan corporation, its successors and
assigns, and any direct or indirect subsidiary of MCN which has elected, with
the consent of MCN, to participate in the Plan.
1.14. "Deferral" means the portion of a Participant's Annual Base Salary
and/or Annual Incentive Compensation that has been deferred in accordance with
Section 2.03. Deferral amounts are retained by the Company as part of its
general assets.
1.15. "Deferral Period" means the period beginning with the date of the
Participant's commencement of participation in the Plan and ending on the
earlier of
(a) the fifth Anniversary Date after such date; or
(b) the Participant's Retirement Date, as defined in Section 1.29.
1.16. "Disability" means the total and permanent inability, caused by
disease or bodily injury and originating after his designation as a Participant,
of an Executive to do substantially all the material duties of his regular job,
except that
(a) after such inability has continued for two years, such Executive
shall be considered to be suffering Disability only if he cannot work for
pay or profit at another job for which he is reasonably fitted by
education, training or experience; and
(b) such Executive shall be considered to be suffering Disability
only for those periods during which he is not working for pay or profit.
1.17. "Effective Date" means January 1, 1990 and each January 1
thereafter.
1.18. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
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1.19. "Executive" means a management or highly compensated employee of the
Company who has been specifically designated by the Chairman of the Board of
Directors to be eligible for Plan participation. Such an employee shall remain
an Executive so long as this designation is not revoked by the Chairman of the
Board of Directors. Upon such revocation, the former Executive shall be entitled
to receive only those benefits which have been vested.
1.20. "In Pay Status" means, with respect to a benefit under the Plan,
that a Participant or Beneficiary has met all of the requirements to receive
such benefit and it is being paid or is about to be paid to such Participant or
Beneficiary.
1.21. "Leave" means any period during which an Executive who is employed
by the Company immediately prior to the commencement thereof is absent from the
Company pursuant to a leave of absence granted with the permission of the
Company.
1.22. "Participant" means an Executive who has made a written election to
participate in the Plan in accordance with Section 2.01.
1.23. "Pension Plan" means, with respect to a Participant, any Company-
sponsored qualified defined benefit plan under which the Participant is eligible
to participate.
1.24. "Plan" means the MCN EXECUTIVE DEFERRED COMPENSATION PLAN, as
described herein and as hereafter amended.
1.25. "Plan Interest Rate" means the interest rate for the latest issue,
as of the end of the previous month, of ten-year U.S. Treasury Notes, or such
other rate as set by the Chairman of the Board of Directors.
1.26. "Plan Year" means the period beginning January 1 and ending December
31 of each year (the calendar year).
1.27. "Post-Retirement Survivor Benefit", as described in Section 7.01,
means the benefit payable to the Beneficiary of a Participant who dies after the
commencement of his Retirement Income Benefit.
1.28. "Pre-Retirement Survivor Benefit", as described in Section 6.01,
means the benefit payable to the Beneficiary of a Participant who dies prior to
his Retirement Date.
1.29. "Retirement Date" for a Participant covered by a Pension Plan means
any normal or early retirement date specified in the Pension Plan, as defined in
Section 1.23; and for a Participant covered by a Savings Plan, but not covered
by a Pension Plan, means any normal or early retirement date specified in the
Savings Plan, as defined in Section 1.31.
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1.30. "Retirement Income Benefit" means the retirement benefit described in
Section 5.
1.31. "Savings Plan" means, with respect to a Participant, any Company
sponsored qualified defined contribution plan under which the Participant is
eligible to participate.
1.32. "Social Security Wage Base" means the maximum amount of wages subject
to the old-age, survivor and disability portion of the Federal Insurance
Contributions Act tax.
1.33. "Spouse" means an individual who is legally married to a Participant
under the laws of the state in which the Participant resides, on the day
immediately preceding the Participant's date of death.
SECTION 2
PARTICIPATION
2.01. Commencement of Participation. An Executive shall become a
Participant hereunder upon execution of a Benefit Agreement by the Executive no
later than the October 30 prior to its Effective Date. A properly executed
Benefit Agreement shall be effective on the January 1 immediately following the
execution of the Benefit Agreement, and shall contain the items described in
this Section and in Sections 5.01, 6.01 and 9.01. Subject to Sections 2.02, 2.04
and 2.05, the deferral election made in a Benefit Agreement shall be
irrevocable.
2.02. Deferrals. A Participant may continue to make the annual Deferral
provided under Section 2.03 with respect to his Benefit Agreement until his
designation as an Executive is revoked by the Chairman of the Board of
Directors, he terminates employment with the Company, he receives a hardship
withdrawal, or he revokes his Benefit Agreement after the completion of his
Deferral Period.
2.03. Election of Deferral. A Participant shall elect in his Benefit
Agreement, in multiples of $1,000 except for the $3,000 minimum, the annual
Deferral that he will make for each Plan Year in which he is a Participant. Such
annual Deferral shall not exceed 30% of Annual Base Salary and 100% of Annual
Incentive Compensation less the Federal Insurance Contributions Act tax on the
Annual Incentive Compensation and shall not be less than $3,000. An annual
Deferral of Annual Base Salary cannot reduce the Participant's Annual Base
Salary below the Social Security Wage Base for the Plan Year. An annual Deferral
of Annual Incentive
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Compensation shall be stated as a flat amount and shall not be greater than 100%
of the Participant's current year target Annual Incentive Compensation less the
Federal Insurance Contributions Act tax on the Annual Incentive Compensation. A
Participant's election shall be irrevocable during the Deferral Period, subject
to Sections 2.02, 2.04 and 2.05. After a Participant's Deferral Period is
completed, the Participant may elect on an annual basis, before October 30,
whether he wishes to make a Deferral for the following Plan Year.
2.04. Forgo Deferral for a Plan Year. A Participant may elect, no later
than October 30 prior to its Effective Date, to forgo the Deferral for the
remainder of the Deferral Period. This election cannot be made for the first
year in the Deferral Period. If this election is made for a Plan Year, the
Participant shall not be permitted to participate in the Plan for the two year
period beginning with the January 1 immediately following the election to forgo
the Deferral. If the Participant thereafter elects to participate in the Plan,
such Participant shall begin a new Deferral Period. If a Participant dies prior
to his Retirement Date while employed by the Company and during a period that an
election to forgo Deferral is in effect, the Participant's Beneficiary shall not
be entitled to the Pre-Retirement Survivor Benefit under Section 6.01, but shall
receive a lump sum distribution of an amount equal to the Participant's Account
balance as of the Participant's date of death. Such lump sum payment shall be
made not later than one hundred twenty (120) days after the Participant's date
of death.
2.05. Increased Deferral. A Participant may elect to increase the annual
Deferral that he will make for each Plan Year in which he is a Participant by
filing a new Benefit Agreement to that effect with the Committee. The amount of
any such increase shall be in multiples of $1,000, and the increased annual
Deferral shall not exceed the limits set forth in Section 2.03. Such election
will be effective on the January 1 after the new Benefit Agreement is filed with
the Committee. A Participant's election to increase the amount deferred in a
Plan Year will not preclude the Participant from reducing the increased deferral
in subsequent Plan Years. However, in no event may the Deferral in subsequent
Plan Years of the Deferral Period be reduced to an amount less than the original
annual Deferral amount.
2.06. Establishment of Account. The Committee shall establish an Account
for each Participant to which the Participant's Deferrals shall be credited,
interest in accordance with Section 3.02 shall be credited, the Participant's
account balance, if any, under the Incentive Plan shall be credited, the
Additional Pension Plan Benefit shall be credited, the Additional Savings
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Plan Benefit shall be credited, and distributions shall be debited. A
Participant's Deferrals shall be credited to his Account as of the date the
Deferral would have been paid to the Participant. The Additional Pension Plan
Benefit shall be credited to the Participant's Account as of the date of the
Participant's retirement under the qualified plan or other termination of
employment. The Additional Savings Plan Benefit shall be credited to the
Participant's Account as of the end of each month for which the Participant
makes a Deferral under the Plan. A Participant whose Account includes a transfer
of assets from the Incentive Plan shall be treated as having satisfied a year of
the Deferral Period for each of the Participant's years of participation in the
deferral portion of the Incentive Plan.
2.07. Interaction with Other Plans. The deferral of Annual Base Salary (but
not Annual Incentive Compensation) may result in a reduction of a Participant's
benefit under the Pension Plan and the Savings Plan due to restrictions imposed
by the IRS on qualified plans. In order to minimize the effect of this
reduction, a Participant's Account shall be credited with an Additional Pension
Benefit and an Additional Savings Plan Benefit.
SECTION 3
FUNDING OF BENEFITS
3.01. Unfunded Plan. The Plan shall be unfunded. All benefits payable under
the Plan shall be paid from the Company's general assets. The Company shall not
be required to set aside or hold in trust any funds for the benefit of a
Participant or Beneficiary, who shall have the status of a general unsecured
creditor with respect to the Company's obligation to make benefit payments
pursuant to the Plan. Any assets of the Company available to pay Plan benefits
shall be subject to the claims of the Company's general creditors and may be
used by the Company in its sole discretion for any purpose.
3.02. Interest. Interest shall be credited and compounded to each
Participant's Account, including that portion of the Account attributable to the
benefit described in Section 2.07, on the last day of each month during each
Plan Year based upon the Plan Interest Rate in effect for such Plan Year for so
long as there remains an Account balance.
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SECTION 4
CLAIMS PROCEDURE
4.01. Benefit Claims Procedure. All applications for benefits under the
Plan shall be submitted to the Committee at the Company's principal place of
business. Applications for benefits must be in writing and must be signed by the
Participant or, in the case of a Pre-Retirement or Post-Retirement Survivor
Benefit, by the Beneficiary or legal representative of the deceased Participant.
In the event of a Participant's death, a certified copy of the death certificate
will be required by the Committee. The Committee reserves the right to require
that the Participant furnish proof of his age prior to processing any
application. Each application shall be acted upon and approved or disapproved
within ninety (90) days following its receipt by the Committee. In the event any
application for benefits is denied in whole or in part, the Committee shall
notify the applicant in writing of such denial and of his right to a review by
the Committee and shall set forth, in a manner calculated to be understood by
the applicant, specific reasons for such denial, specific references to
pertinent Plan provisions on which the denial is based, a description of any
additional material or information necessary for the applicant to perfect his
application, an explanation of why such material or information is necessary,
and an explanation of the Plan's review procedure.
4.02. Appeals Procedure. Any person whose application for benefits is
denied in whole or in part may appeal such denial to the Committee by submitting
a written statement to the Committee within ninety (90) days after receiving
written notice from the Committee of the denial of the claim. A written
statement should:
(a) request a review by the Committee of the application for
benefits;
(b) set forth all of the grounds upon which the request
for review is based and any facts in support thereof; and
(c) set forth any issues or comments that the applicant deems
pertinent to his application.
The Committee shall regularly review appeals applications submitted to it.
The Committee shall act upon each appeal within sixty (60) days after receipt of
the applicant's request for review by the Committee .
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The Committee shall make a full and fair review of each such application
and any written materials submitted by the applicant or the Company in
connection therewith and may require the Company or the applicant to submit such
additional facts, documents, or other evidence as the Committee in its sole
discretion deems necessary or advisable in making such a review. On the basis of
its review, the Committee shall make an independent determination of the
applicant's eligibility for benefits under the Plan. The decision of the
Committee on any application for benefits shall be final and conclusive upon all
persons.
In the event that the Committee denies an application in whole or in part,
the Committee shall give written notice of the Committee's decision to the
applicant setting forth, in a manner calculated to be understood by the
applicant, the specific reasons for such denial and specific references to the
pertinent Plan provisions on which the Committee's decision was based.
SECTION 5
RETIREMENT INCOME BENEFITS
5.01. Normal Retirement Benefit
(a) Each Participant who retires under the Pension or Savings Plan on
his Retirement Date after the completion of his Deferral Period shall be
entitled to a Retirement Income Benefit commencing on the first of the month
following the month in which his Retirement Date occurs. The Participant's
Retirement Income Benefit shall be paid, in accordance with the Participant's
selection in his Benefit Agreement, either in monthly payments over 5, 10 or 15
years, or as a lump sum distribution of the Participant's Account. The payment
option selected by the Participant on his Benefit Agreement may be changed at
any time by the Participant by submitting a new payment selection to the
Committee, but a change shall be effective only if it is received by the
Committee at least 36 months before payments under the Plan commence. The amount
of the monthly payments shall be calculated to pay out over the specified period
the entire balance in the Participant's Account as of his Retirement Date with
interest credited monthly on the declining balance at the Plan Interest Rate.
The Participant's Account shall continue to be credited monthly with interest at
the Plan Interest Rate and charged with the monthly payments to the Participant.
The amount of the monthly payments to the Participant shall be adjusted on
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January 1 of each year to reflect changes in the Plan Interest Rate and other
changes in the Participant's Account balance.
(b) Each Participant who retires under the Pension or Savings Plan on
his Retirement Date prior to the completion of his Deferral Period shall receive
a lump sum distribution in an amount equal to the Participant's Account balance
on his Retirement Date. Such distribution shall be made no later than one
hundred twenty (120) days after the Participant's Retirement Date.
(c) Notwithstanding subparagraph (b) above, a Participant whose
Deferral Period is less than five years may accelerate his Deferrals so that the
sum of the Deferrals at the end of his Deferral Period is equal to five times
his annual Deferral. This acceleration shall be effective beginning with the
Plan Year following the year a new Benefit Agreement indicating an increased
annual Deferral is filed with the Committee. The Participant's Retirement Income
Benefit shall be paid in accordance with the Participant's selection in his
Benefit Agreement.
5.02. Termination Benefit. A Participant who terminates employment prior to
retirement or whose designation as an Executive is revoked shall receive payment
of the Participant's Account balance in accordance with the Participant's
election on his Benefit Agreement, either in monthly payments over three (3)
years or as a lump sum distribution. If no election is indicated on the
Participant's Benefit Agreement for termination benefits, the Participant's
termination benefit shall be paid to him in monthly payments over three (3)
years beginning no later than one hundred twenty (120) days after termination of
employment or revocation of designation as an Executive. The termination
election selected by the Participant on his Benefit Agreement may be changed at
any time by the Participant by submitting a new termination election to the
Committee, but a change shall be effective only if it is received by the
Committee at least 36 months before payments under the Plan commence. The amount
of the monthly payments shall be calculated to pay out over the three-year
period the entire balance in the Participant's Account as of his Retirement Date
with interest credited monthly on the declining balance at the Plan Interest
Rate. The Participant's Account shall continue to be credited monthly with
interest at the Plan Interest Rate and charged with the monthly payments to the
Participant. The amount of the monthly payments to the Participant shall be
adjusted on January 1 of each year to reflect changes in the Plan Interest Rate
and other changes in the Participant's Account
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balance. After receiving a termination benefit, neither the Participant, nor the
Participant's Beneficiary shall be entitled to any further benefit hereunder.
5.03. Disability. A Participant who has suffered a Disability shall be
deemed to be an Executive during such period and shall continue to be eligible
for Retirement Income Benefits under Section 5.01 without reduction and Pre-
Retirement and Post-Retirement Survivor Benefits under Sections 6.01 and 7.01.
If the Disability occurs within a Deferral Period, and the disabled Participant
is determined by the Committee to be totally and permanently disabled prior to
the completion of the Deferral Period, the Committee shall excuse him from
making additional Deferrals under the applicable Benefit Agreement, or shall
reduce the amount of his required Deferrals, but no amounts shall be credited to
his Account with respect to such excused or reduced Deferral(s). For all other
Plan purposes, a Participant whose Deferrals have been excused shall be deemed
to have made all required Deferrals during his Deferral Period.
5.04. Hardship Withdrawal Benefits. At any time prior to the commencement
of Retirement Income Benefits hereunder, a Participant may request that the
Committee make a distribution to him of all or part of his Account balance
within 120 days. Such distribution shall be made only if the Committee
determines that the Participant is suffering from a financial hardship that
cannot be satisfied from his normal sources of income, and the distribution
shall be limited to the amount required to meet the financial hardship. In
making these determinations, the Committee shall utilize the regulations
proposed or adopted by the U.S. Department of Treasury pursuant to Section
401(k) of the Code and the rules under the Savings Plan. A financial hardship
shall be satisfied from the Plan to the extent possible; then from the
Supplemental Savings Plan; and finally from the Savings Plan. After receiving a
hardship distribution, neither the Participant, nor his Beneficiary shall be
entitled to any Pre-Retirement Survivor Benefit hereunder unless the Participant
completes two years of participation after the hardship distribution, in which
event the Pre-Retirement Survivor Benefit shall be based solely on Deferrals
after the hardship distribution. If a Participant dies during the two years of
participation after the hardship distribution, the Pre-Retirement Survivor
Benefit shall be computed as provided in Section 6.01, except that the
projection forward shall include hypothetical annual Deferrals equal to zero.
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SECTION 6
PRE-RETIREMENT SURVIVOR BENEFITS
6.01. Pre-Retirement Survivor Benefit. Except as provided in Sections
2.04, 5.04 and 6.02, if a Participant dies prior to his Retirement Date while
employed by the Company, his Beneficiary shall be entitled to receive an amount
equal to the present value, at the Participant's date of death, of the
Participant's Account balance projected forward to his Normal Retirement Date.
This projection forward will be accomplished by crediting to his Account balance
as of his date of death the amount of a hypothetical Deferral equal to the
average of the Participant's annual Deferrals for the five years immediately
preceding the Participant's death for the year of the Participant's death and
for all subsequent years through and including the year in which the
Participant's Normal Retirement Date falls and crediting interest on the Account
balance and any subsequent hypothetical Deferrals at the Plan Interest Rate in
effect on his date of death in order to arrive at the projected value of his
Account balance as of the Participant's Retirement Date. If the Participant did
not participate in the Plan for five years preceding the year of death, the
average will be computed based on a numerator equal to the total deferral
election in effect for the Deferral Period in which death occurred and a
denominator equal to five. This projected Account balance then will be converted
to its present value on the Participant's date of death using 70% of the ten-
year U.S. Treasury Note interest rate on the latest date such notes were issued
before the Participant's date of death. The pre-retirement survivor benefit
shall be paid in accordance with the Participant's selection in his Benefit
Agreement, either in monthly payments over 5, 10 or 15 years, or as a lump sum
distribution. The payment option selected by the Participant on his Benefit
Agreement may be changed at any time by the Participant submitting a new payment
selection to the Committee, but a change shall be effective only if it is
received by the Committee at least 36 months before payments under the Plan
commence.
Notwithstanding the foregoing, the Chairman of the Board of Directors may,
at the time of declaring the Executive eligible, designate an Executive to be
eligible only for Retirement Income Benefits and not the Pre-Retirement Survivor
Benefit. In the event of such a designation, the beneficiary of such an
Executive shall not receive any Pre-Retirement Survivor Benefit under this
Section.
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6.02. Proof of Insurability. If a new Participant is uninsurable, or does
not cooperate in the application for life insurance, such Participant's
Beneficiary shall not be entitled to receive a Pre-Retirement Survivor Benefit
under Section 6.01. The Beneficiary of such a Participant shall receive a
distribution of an amount equal to the Participant's Account balance as of the
Participant's date of death. Such distribution shall be paid in accordance with
the Participant's selection on his Benefit Agreement, either in monthly payments
over 5, 10, or 15 years, or as a lump sum distribution.
If a Participant, who was insurable at the time participation in the Plan
commenced, elects to increase his Deferral, such increase shall not be reflected
in computing the Pre-Retirement Survivor Benefit under Section 6.01 if the
Participant became uninsurable prior to electing the increased Deferral or does
not cooperate in the application for life insurance.
6.03. Exclusion for Suicide or Self-Inflicted Injury. Notwithstanding any
other provision of the Plan, no Pre-Retirement Survivor Benefits in excess of a
Participant's Account balance as of his date of death shall be paid to any
Participant or Beneficiary in the event the Participant dies as the result of
suicide or self-inflicted injury within two years after January 1 of the first
year of participation.
SECTION 7
POST-RETIREMENT SURVIVOR BENEFITS
7.01. Post-Retirement Survivor Benefit. The Beneficiary of a Participant
who dies after commencement of his Retirement Income Benefit shall be entitled
to continue to receive the Retirement Income Benefit payments being made to the
Participant under Section 5.01 for the remainder of the period over which
benefits were being paid to the deceased Participant.
SECTION 8
VESTING OF BENEFITS
8.01. Vesting of Benefits. A Participant shall be 100% vested in his
benefits under the Plan at all times except as set forth in Sections 5.02, 6.01,
6.02, 6.03, 9.02, 9.03, 11.02, 11.03
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and 11.04. A Participant shall rank as an unsecured creditor of the Company for
all benefits under the Plan.
SECTION 9
ADDITIONAL PROVISIONS AFFECTING BENEFITS
9.01. Benefit Agreement. The Committee shall provide to each Executive a
form of Benefit Agreement with respect to each Deferral Period for which the
Committee will permit the Executive to make Deferrals. The Benefit Agreement
shall set forth the Executive's acceptance of the benefits provided hereunder,
his agreement to be bound by the terms of the Plan, and such other matters as
are set forth in this Plan or deemed advisable by the Committee.
9.02. Leave of Absence. An Executive who is on Leave, with or without
salary, for a period of not more than one year, shall be deemed to be an
Executive employed by the Company during such Leave. An Executive who is on
Leave without salary for a period in excess of one year shall forfeit his Pre-
Retirement Survivor Benefit and shall not be entitled to any Pre-Retirement
Survivor Benefit hereunder unless the Participant completes five years of
participation after such leave in which event the Pre-Retirement Survivor
Benefit shall be based solely on Deferrals after the Leave.
9.03. Alternative Forms of Benefit. The Committee in its sole discretion,
at the written request of the recipient submitted to the Committee no later than
36 months prior to the commencement of benefit distributions to the recipient,
may elect to pay the Participant, Spouse or Beneficiary an actuarially
equivalent lump-sum, annuity or other form of benefit that it deems appropriate
in lieu of the form of benefit otherwise provided in Sections 5, 6 or 7.
9.04. Tax Withholding. Benefit payments hereunder shall be subject to
applicable federal, state or local tax withholding laws.
SECTION 10
ADMINISTRATION OF THE PLAN
10.01. Duties and Power. The Committee shall be responsible for the
general administration of the Plan and the proper execution of its provisions.
It shall also be responsible
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for the interpretation of the Plan and the determination of all questions
arising thereunder. It shall maintain all necessary books of accounts and
records. It shall have power to establish, interpret, enforce, amend, and
revoke, from time to time, such rules and regulations for the administration of
the Plan and the conduct of its business as it deems appropriate, including the
right to remedy ambiguities, inconsistencies and omissions (provided such rules
and regulations are uniformly applied to all persons similarly situated). Any
action that the Committee is required or authorized to take shall be final and
binding upon each and every person who is or may become a Plan Participant or
Beneficiary. The Committee may amend this Plan to comply with changes to the
Code, so long as the amendment does not materially increase the cost of
maintaining the Plan or change benefits to Participants or Beneficiaries.
10.02. Benefit Statements. No later than 120 days after the end of each
Plan Year, the Committee will provide each Participant with a statement setting
forth the Participant's Account balance as of the last day of the immediately
preceding Plan Year.
SECTION 11
AMENDMENT, SUSPENSION, AND TERMINATION
11.01. Right to Amend or Terminate. The Plan may be amended or terminated
by the Board of Directors at any time. Such amendment or termination may modify
or eliminate any benefit hereunder except that such amendment or termination
shall not affect the rights of Participants or Beneficiaries to the vested
portion of a Participant's Account as of the date of such amendment or
termination.
11.02. Right to Surrender. If the Board of Directors determines that
payments under the Plan would have a material adverse affect on the Company's
ability to carry on its business, the Board of Directors may suspend such
payments temporarily for such time as in its sole discretion it deems advisable,
but in no event for a period in excess of one year. The Company shall pay such
suspended payments in a lump sum immediately upon the expiration of the period
of suspension.
11.03. Non-ERISA Plan. The Plan is intended to provide benefits for "a
select group of management or highly compensated employees" within the meaning
of Sections 201, 301 and 401 of ERISA, and therefore to be exempt from Sections
2, 3 and 4 of Title 1 of ERISA.
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<PAGE>
Accordingly, the Plan shall terminate and existing Account balances and other
benefits In Pay Status shall be paid in a single, actuarially equivalent lump-
sum and no further benefits, vested or non-vested, shall be paid hereunder in
the event it is determined by a court of competent jurisdiction or by an opinion
of counsel that the Plan constitutes an employee pension benefit plan within the
meaning of Section 3(2) of ERISA which is not so exempt.
11.04. Right to Accelerate. The Board of Directors in its sole discretion
may accelerate all vested benefits upon termination of the Plan, and pay such
benefits in a single, actuarially equivalent lump-sum.
SECTION 12
MISCELLANEOUS
12.01. Right to Continued Employment. Nothing in the Plan shall be
construed as giving any person employed by the Company the right to be retained
in the Company's employ. The Company expressly reserves the right to dismiss any
person at any time, with or without cause, without liability for the effect that
such dismissal might have upon him as a Participant in the Plan.
12.02. Prohibition Against Alienation. Except as otherwise provided in the
Plan, no right or benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to so anticipate, alienate, sell, transfer, assign,
pledge, encumber, or charge the same shall be void. No such right or benefit
shall be liable for or subject to the debts, contracts, liabilities,
engagements, or torts of the person entitled to such right or benefit.
12.03. Sayings Clause. If any provision of this instrument shall be finally
held by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
12.04. Payment of Benefit of Incompetent. In the event the Committee finds
that a Participant, former Participant, or Beneficiary is unable to care for his
affairs because of his minority, illness, accident, or other reason, any
benefits payable hereunder may, unless other claim has been made therefor by a
duly appointed guardian, committee or other legal representative, be paid to a
spouse, child, parent, or other blood relative or dependent or to any person
found by the
16
<PAGE>
Committee to have incurred expenses for the support and maintenance of such
Participant, former Participant, or Beneficiary; and any such payments so made
shall be a complete discharge of all liability therefor.
12.05. Spouse's Interest. The interest in the benefits hereunder of a
Spouse of a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such Spouse in any
manner including but not limited to such Spouse's will, nor shall such interest
pass under the laws of intestate succession.
12.06. Successors. In the event of any consolidation, merger, acquisition
or reorganization of the Company, the obligations of the Company under this Plan
shall continue and be binding upon the Company and its successors.
12.07. Gender, Number and Heading. Whenever any words are used herein in
the masculine gender, they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply. Whenever any words
used herein are in the singular form, they shall be construed as though they
were also used in the plural form in all cases where they would so apply.
Headings of sections and subsections as used herein are inserted solely for
convenience and reference and constitute no part of the Plan.
12.08. Legal Fees and Expenses. The Company shall pay all legal fees and
expenses that a Participant may incur as a result of the Company contesting the
validity, enforceability, or the Participant's interpretation of, or
determinations under this Plan, other than Section 5.04.
12.09. Choice of Law. This Plan shall be governed by and construed in
accordance with the laws of the State of Michigan to the extent not superseded
by applicable federal statutes or regulations.
12.10. Affiliated Employees. An affiliate of the Company may adopt the
Plan, with the consent of the Company, in order to become a participating
employer under the Plan. A participating employer may withdraw from the Plan by
filing a notice with the Committee. Transfers of employment between
participating employers and the Company or other participating employers will be
treated as continuous and uninterrupted service under the Plan.
17
<PAGE>
SECTION 13
CHANGE IN CONTROL PROVISIONS
13.01 General. In the event of a Change in Control, as defined in Section
13.05, then, notwithstanding any other provision of the Plan, the provisions of
this Section 13 shall be applicable and shall supersede any conflicting
provisions of the Plan. For purposes of Section 13.05 only, the term "Company"
shall mean MCN Corporation, its successors and assigns.
13.02 Transfer to Rabbi Trust. The Company has established a trust
pursuant to a Trust Agreement dated January 3, 1991 (the "Rabbi Trust"). The
terms of the Rabbi Trust provide that, in the event of a Change in Control and
thereafter, assets are to be transferred to such Trust to provide benefits under
the Plan. The Company shall make all transfers of funds required by the Rabbi
Trust in a timely manner and shall otherwise abide by the terms of the Rabbi
Trust.
13.03 Joint and Several Liability. Upon and at all times after a Change in
Control, the liability under the Plan of the Company and each Affiliated
Employer that has adopted the Plan shall be joint and several so that the
Company and each such Affiliated Employer shall each be liable for all
obligations under the Plan to each employee covered by the Plan, regardless of
the corporation by which such employee is employed.
13.04 Dispute Procedures. In the event that, upon or at any time
subsequent to a Change in Control, a claim for benefits under the Plan of a
Participant or Beneficiary who has exhausted the claims and appeals procedures
set forth in Section 4.01 and 4.02 is denied in whole or in part, the following
additional procedures shall be applicable:
(a) Any amount that is not in dispute shall be paid to the
Participant or Beneficiary at the time or times provided herein.
(b) The Company shall advance to such claimant from time to time such
amounts as shall be required to reimburse the claimant for reasonable legal
fees, costs and expenses incurred by such claimant in seeking a judicial
resolution of his or her claim, including reasonable fees, costs and expenses
relating to appeals; provided, however, that the Company shall not be obligated
to advance to the claimant any amounts under this Section 13.04(b) unless and
until the claimant agrees in writing to repay to the Company, immediately upon
the occurrence of a final judicial determination with respect to such dispute,
any amount of such fees,
18
<PAGE>
costs and expenses that is not awarded to such claimant in a final order of a
court of competent jurisdiction.
13.05 Definition of Change in Control. A "Change of Control" means:
(a) 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) of 20% 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 acquisition shall not constitute a Change
of Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by the Company, (C) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (D) 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 13.05 are satisfied; or
(b) 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; 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
(c) 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 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
19
<PAGE>
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, 20% or more of the Outstanding Company Common Stock or Outstanding
Voting Securities, as the case may be, beneficially owns, directly or
indirectly, 20% or 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
(d) 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 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,
20
<PAGE>
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be beneficially owns, directly or indirectly, 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
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.
IN WITNESS WHEREOF, MCN Corporation has caused this Plan to be executed as
of this 1st day of January, 1996.
MCN CORPORATION
By: /s/ Daniel L. Schiffer
---------------------------------
Daniel L. Schiffer, Vice President,
General Counsel and Secretary
Restated: March 11, 1996
21
<PAGE>
MCN
EXECUTIVE DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION FORM
================================================================================
Employee Name | Social Security No. | I.D.
Number
- --------------------------------------------------------------------------------
Address (Number/Street) | City | State |Zip Code
================================================================================
In accordance with the terms of the MCN Executive Deferred Compensation
Plan ("Plan") which is hereby incorporated by reference, I hereby accept
and agree to all the provisions of the Plan and irrevocably elect pursuant
to Section 2 of the Plan to defer a portion of my compensation as indicated
below.
Amount to be Deferred
---------------------
I designate the following amounts to be deferred under the terms of the
Plan:
$ .00 Annual Incentive Compensation (up to a maximum of 100% of the
current year's target Annual Incentive Compensation less the
applicable FICA tax)
$ .00 Annual Base Salary (a minimum required deferral of $3,000 up
to a maximum of 30% of Annual Base Salary in $1,000
increments, but in no event may Annual Base Salary be reduced
below the Social Security Wage Base)
Payment Election
----------------
That the amount deferred shall be paid to me after termination of my
employment with the Company and its subsidiaries by reason of retirement,
disability, or death, in the manner specified below:
____ Lump-sum payment
____ Payment in monthly installments over _____ years (in 5 year
increments, not to exceed 15 years)
I understand that, in addition to the above payment, I may be eligible for
a hardship withdrawal pursuant to Section 5 of the Plan.
Termination Election
--------------------
That the amount deferred shall be paid to me after termination of my
employment with the Company and its subsidiaries for any reason, other
than retirement, disability or death, or after my designation as an
Executive is revoked, in the manner specified below:
___ Lump-sum payment
___ Payment in monthly installments over 3 years.
<PAGE>
================================================================================
Employee Signature | Date
- --------------------------------------------------------------------------------
Receipt Acknowledged By | Title | Date
================================================================================
Revised March 8, 1996
<PAGE>
MCN
EXECUTIVE DEFERRED COMPENSATION PLAN
BENEFICIARY DESIGNATION FORM
- --------------------------------------------------------------------------------
Employee Name | Social Security No. |I.D.
Number | |
- --------------------------------------------------------------------------------
Address (Number/Street) | City | State |Zip Code
- --------------------------------------------------------------------------------
I HEREBY DESIGNATE, PURSUANT TO SUBSECTION 1.06 OF THE ABOVE-REFERENCED
PLAN, THE BELOW DESIGNATED PERSON(S) AS MY BENEFICIARY IN THE EVENT OF MY
DEATH:
- --------------------------------------------------------------------------------
BENEFICIARY'S NAME | ADDRESS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IN THE EVENT ANY OF THE ABOVE-NAMED BENEFICIARIES SHOULD PREDECEASE ME, OR
SHALL SURVIVE ME BUT DIE BEFORE RECEIVING ALL AMOUNTS TO BE PAID, I HEREBY
NAME THE FOLLOWING AS A CONTINGENT BENEFICIARY TO RECEIVE ANY SUCH UNPAID
AMOUNTS:
- --------------------------------------------------------------------------------
BENEFICIARY'S NAME | ADDRESS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IN THE EVENT NONE OF THE ABOVE-NAMED BENEFICIARIES SURVIVE ME, ANY UNPAID
AMOUNTS SHALL BE PAID TO MY LAWFUL SUCCESSOR IN INTEREST. I RESERVE THE
RIGHT TO CHANGE THIS BENEFICIARY DESIGNATION AT ANY TIME BY FILING WITH THE
COMMITTEE OR ITS DESIGNEE A NEW BENEFICIARY DESIGNATION FORM.
I UNDERSTAND THAT MY MOST RECENT ELECTION AS TO THE BENEFICIARY DESIGNATION
WILL APPLY TO ALL AWARD AMOUNTS DEFERRED BY ME AT ANY TIME.
- --------------------------------------------------------------------------------
<PAGE>
Employee Signature | Date
- --------------------------------------------------------------------------------
Receipt Acknowledged By | Title | Date
- --------------------------------------------------------------------------------
<PAGE>
MCN CORPORATION
SUPPLEMENTAL DEATH BENEFIT AND
RETIREMENT INCOME PLAN
THIS PLAN, executed as of this 4th day of January, 1989, shall provide each
director and employee designated by the Board of Directors of the Company with
the benefits specified for a Director or employee under the MichCon Supplemental
Death Benefit and Retirement Income Plan ("MichCon Plan") as in effect as of
January 4, 1989, and as amended from time to time, subject to all the terms and
conditions as specified in the Plan. The MichCon Plan and all its provisions are
attached hereto and hereby incorporated by reference. The benefits under this
Plan are in lieu of those otherwise payable by MichCon.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed
this Plan on behalf of the Corporation as of January 1, 1990.
MCN CORPORATION
By: /s/ Daniel L. Schiffer
------------------------
Daniel L. Schiffer
Its: Secretary
--------------------------------
<PAGE>
MICHCON
SUPPLEMENTAL DEATH BENEFIT AND
RETIREMENT INCOME PLAN
(as amended and restated effective October 28, 1993)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section PAGE
- ------- ----
<S> <C>
ARTICLE 1.................................................................. 1
Title
ARTICLE 2.................................................................. 1
Definitions
ARTICLE 3.................................................................. 6
Purpose
ARTICLE 4.................................................................. 6
Effective Date
ARTICLE 5.................................................................. 6
Participation
ARTICLE 6.................................................................. 7
Benefits
ARTICLE 7.................................................................. 10
Conditions for Benefits
ARTICLE 8.................................................................. 13
Unfunded Plan
ARTICLE 9.................................................................. 13
Assignment
ARTICLE 10................................................................. 13
Administration
ARTICLE 11................................................................. 14
Amendment, Suspension or Termination
ARTICLE 12................................................................. 15
Legal Fees and Expenses
ARTICLE 13................................................................. 16
No Employment Rights and Not a Contract to Continue in Office
</TABLE>
<PAGE>
MICHCON
SUPPLEMENTAL DEATH BENEFIT AND
RETIREMENT INCOME PLAN
(as amended effective January 1, 1990)
ARTICLE 1
TITLE
The title of this plan shall be the "MichCon Supplemental Death Benefit and
Retirement Income Plan."
ARTICLE 2
DEFINITIONS
The following words and phrases used herein shall have the following
respective meanings unless the context clearly requires otherwise:
(1) Board: The Board of Directors of MCN Corporation.
(2) Cause: Cause shall mean repeated material breaches of an Employee's
duties of employment which are not cured after receipt by the Employee
of written notice specifying such breaches or the Employee's conviction
of a felony involving moral turpitude.
(3) Change of Control: Change of Control shall mean:
(a) 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) of 20% or more of either (i) the then
outstanding shares of common stock of MCN Corporation (the
"Outstanding MCN Common Stock") or (ii) the combined voting power
of the then outstanding voting securities of MCN
1
<PAGE>
Corporation entitled to vote generally in the election of directors
(the "Outstanding MCN Voting Securities"): provided, however, that
the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from MCN Corporation
(excluding an acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by MCN Corporation, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by MCN Corporation or any corporation
controlled by MCN Corporation 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
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of MCN Corporation (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by MCN
Corporation'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
(c) Approval by the shareholders of MCN Corporation of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 60% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such
2
<PAGE>
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 MCN Common Stock and Outstanding
MCN Voting Securities immediately prior to such reorganization,
merger or consolidation is substantially the same proportions as
their ownership, immediately prior to such reorganization, merger
or consolidation, of the Outstanding MCN Common Stock and
Outstanding MCN Voting Securities, as the case may be, (ii) no
Person (excluding MCN Corporation, any employee benefit plan or
related trust sponsored or maintained by MCN Corporation or any
corporation controlled by MCN Corporation 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,
20% or more of the Outstanding MCN Common Stock or Outstanding MCN
Voting Securities, as the case may be) beneficially owns directly
or indirectly, 20% or 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
(d) Approval by the shareholders of MCN Corporation of (i) a complete
liquidation or dissolution of MCN Corporation or (ii) the sale or
other
3
<PAGE>
disposition of all or substantially all of the assets of MCN
Corporation, other than to a corporation, with respect to which
following such sale or other disposition, (A) more than 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 MCN Common Stock and Outstanding MCN 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 MCN
Common Stock and Outstanding MCN Voting Securities, as the case may
be, (B) no Person (excluding MCN Corporation, any employee benefit
plan or related trust sponsored or maintained by MCN Corporation or
any corporation controlled by MCN Corporation, or such corporation
resulting from such reorganization, merger or consolidation, and
any Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 20% of more of the
Outstanding MCN Common Stock or Outstanding MCN Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 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 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 MCN Corporation.
(4) Committee: The Compensation Committee of the Board.
4
<PAGE>
(5) Company: Michigan Consolidated Gas Company.
(6) Dependent Child: A natural born or legally adopted child, stepchild or
foster child of an Employee, including children conceived at the date of
death, which child is unmarried, is not in the armed forces of any
country, has not attained the age of 21, and prior to the death of the
Survivor was dependent upon such Survivor for his or her principal
support and maintenance and, if a stepchild or foster child, resided in
such Survivor's household. If, with respect to an Employee, there are
more than four persons who qualify under the preceding sentence at
anytime, only the four youngest such persons shall be treated as
qualifying.
(7) Directors: Members of the Board who are not also employees of the
Company or of a Subsidiary.
(8) Employees: Key salaried employees of the Company or a Subsidiary who are
employed in an executive, administrative, or professional capacity.
(9) Final Annual Salary: The regular basic annual salary for an Employee
before any payroll deductions, Section 401(k) contributions, non-
qualified deferred compensation contributions, or cafeteria plan
election, but excluding bonuses, awards and severance payments. This
amount shall be determined at the time the employment of the Employee
ceases as a result of retirement, termination or death.
(10) Good Reason: Good Reason means (i) a significant change in the
Employee's authority, duties, responsibilities or status within MCN from
those which existed immediately prior to the Change in Control; (ii) a
change (other than a bona fide promotion) in the Employee's title or
office; (iii) a reduction in the Employee's compensation or benefits
existing immediately prior to the Change in Control; (iv) a change in
the Employee's assigned place of employment requiring physical
relocation, or a material change in the Employee's business travel
obligations; (v) any similar significant change in the requirements,
responsibilities or compensation of the Employee from the arrangements
immediately prior to the Change in Control imposed by MCN without the
express written
5
<PAGE>
consent of the Employee; or (vi) any other changes in working conditions
that a reasonable man holding a similar position would find untenable.
(11) MCN: MCN Corporation
(12) Plan: MichCon Supplemental Death Benefit and Retirement Income Plan.
(13) Subsidiary: Any corporation in which the Company owns, directly or
indirectly, stock possessing 50 percent or more of the total combined
voting power of all classes of stock.
(14) Survivor: The Employee or the Employee's spouse (if any) whose
death occurs last.
ARTICLE 3
PURPOSE
The purpose of the Plan is to improve the ability of the Company and its
Subsidiaries to attract and retain executives and directors.
ARTICLE 4
EFFECTIVE DATE
The effective date of the Plan shall be June 22, 1988.
ARTICLE 5
PARTICIPATION
Participation in the Plan is limited to Employees and Directors who are
recommended by the Committee and approved by the Board. No person shall have a
right to participate in the Plan without approval by the Board. Participation in
the Plan shall be evidenced by a written agreement executed between the Company
and the Employee or Director. No person eligible for benefits under this Plan as
an Employee shall be eligible for benefits under this Plan as a Director.
6
<PAGE>
ARTICLE 6
BENEFITS
A. Pre-Retirement Death Benefit
Provided the conditions specified in Article 7, Section A are satisfied,
the Company will pay solely to the surviving spouse of an Employee who
participated in the Plan, a pre-retirement death benefit of 1/24th of the
Employee's Final Annual Salary during the month of the Employee's death and
monthly thereafter through and including the month the Employee would have
attained age 65, and thereafter, monthly payments of 1/60th of the Employee's
Final Annual Salary through and including the month in which the Employee
would have attained age 75. All such payments will be made only during the
lifetime of the Employee's surviving spouse and will cease upon the death of
said spouse. With respect to Directors, provided the conditions specified in
Article 7, Section A are satisfied, the Company will pay solely to the
surviving spouse of a Director who participated in the Plan, a pre-retirement
death benefit of $100,000 at the time of the Director's death. Payment will
be made only to the Director's surviving spouse and no payment will be made
if there is no surviving spouse.
B. Post-Retirement Benefit
Provided the conditions specified in Article 7, Section B are satisfied,
the Company will pay to an Employee or Director who participated in the Plan,
a post-retirement benefit. An Employee who retires prior to age 62 and the
Employee's surviving spouse are not eligible (without approval of the
Committee) to begin receiving any post-retirement benefit until the date that
the Employee attains or would have attained age 62 had the Employee lived. A
Director who ceases to hold office as a Director prior to age 65 is not
eligible (without approval of the Committee) to receive any post-retirement
benefit. If such approval is obtained, post-retirement benefits will begin on
the date the Director attains or would have attained age 65 had the Director
lived, unless otherwise approved by the Committee.
7
<PAGE>
An Employee shall elect, at least 30 days prior to the Employee's
retirement (or at least 30 days prior to attaining age 62 if the second
paragraph of Article 7, Section D applies to the Employee), on a form
approved by the Committee, to receive a post-retirement benefit pursuant to
any one of the following options. A Director shall elect, at least 30 days
prior to the Director ceasing to hold office as a Director (or at least 30
days prior to attaining age 65 if the third paragraph of Article 7, Section D
applies to the Director), on a form approved by the Committee, to receive a
post-retirement benefit pursuant to either Option A or C.
1. Supplemental Retirement Benefit Options
OPTION A. The Company will pay to an Employee, in equal monthly
payments, 20% of the Employee's Final Annual Salary each year for each
of the first 10 years following the Employee's retirement from the
Company or a Subsidiary or following the Employee's attainment of age
62, whichever is later. With respect to Directors, the Company will pay
to a Director, in equal monthly payments, $10,000 each year for each of
the first 10 years following the Director's ceasing to hold office as a
Director. Such payments will be made only to the Employee or Director,
or in the event of the Employee's or Director's death, to the Employee's
or Director's surviving spouse, and upon the death of the survivor
thereof shall cease.
OR
OPTION B. The Company will pay to an Employee, in equal monthly
payments, 15% of the Employee's Final Annual Salary each year for each
of the first 15 years following the Employee's retirement from the
Company or a Subsidiary or following the Employee's attainment of age
62, whichever is later. Such payments will be made only to the Employee,
or in the event of the Employee's death, to the Employee's surviving
spouse, and upon the death of the survivor thereof shall cease.
OR
8
<PAGE>
2. Post-Retirement Death Benefit Options
OPTION C. The Company will pay solely to an Employee's surviving spouse,
the sum of 332% of the Employee's Final Annual Salary upon the later of
the Employee's death or the date the Employee would have attained age 62
had the Employee lived. With respect to Directors, the Company will pay
solely to the Director's surviving spouse, the sum of $100,000 upon the
death of a Director if the death occurs after the Director ceased to
hold office as a Director. No payment will be made if there is no
surviving spouse.
OR
OPTION D. The Company will pay solely to an Employee's surviving spouse,
in equal monthly payments, 42% of the Employee's Final Annual Salary
each year for each of the first 10 years following the later of the
Employee's death or the date the Employee would have attained age 62 had
the Employee lived. Such payments will be made only during the lifetime
of the Employee's surviving spouse and will cease upon the death of said
spouse.
OR
OPTION E. The Company will pay solely to an Employee's surviving spouse,
in equal monthly payments, 32% of the Employee's Final Annual Salary
each year for each of the first 15 years following the later of the
Employee's death or the date the Employee would have attained age 62 had
the Employee lived. Such payments will be made only during the lifetime
of the Employee's surviving spouse and will cease upon the death of said
spouse.
C. Dependent Child Benefit
Provided the conditions specified in Article 7, Section C are satisfied,
the Company will pay to a Dependent Child of an Employee who participated in
the Plan, a dependent child benefit of 1/96th of the Employee's Final Annual
Salary during the month of the Survivor's death and monthly thereafter
through and including the month the Dependent Child attains age 21. All such
9
<PAGE>
payments are limited to persons who qualify as a Dependent Child and no other
person shall receive any dependent child benefit.
D. Assumption of Liability for Benefits
The Company will assume Primark Corporation's obligations with respect
to each person who was covered by the Primark Corporation Supplemental Death
Benefit and Retirement Income Plan and who is a Director or Employee of the
Company immediately after the effective date of the spin-off of the Company
from Primark Corporation except for the obligation to the person who,
immediately before the spin-off, was the Chief Executive Officer of Primark
Corporation.
ARTICLE 7
CONDITIONS FOR BENEFITS
A. Pre-Retirement Death Benefit
Subject to the following conditions, the pre-retirement death benefit
provided in Article 6, Section A shall be paid to an Employee's or Director's
surviving spouse.
CONDITIONS
1. The Employee shall have been in the continuous employ of the Company or
a Subsidiary from the date of participation in the Plan until the time
of the Employee's death. With respect to Directors, the Director shall
have served continuously on the Board from the date of participation in
the Plan until the time of the Director's death; and
2. The Employee shall have died while in the employ of the Company or a
Subsidiary and prior to the Employee's actual retirement from the
Company or a Subsidiary. With respect to Directors, the Director shall
have died while holding office.
B. Post-Retirement Benefit
Subject to the following conditions, the post-retirement death benefit
provided in Article 6, Section Bl or B2 shall be paid to an Employee or
Director or the respective surviving spouse.
10
<PAGE>
CONDITIONS
1. The Employee shall have been in the continuous employ of the Company or
a Subsidiary from the date of participation in the Plan until the time
of the Employee's retirement. With respect to Directors, the Director
shall have served continuously on the Board from the date of
participation in the Plan until the Director attains age 65, unless
otherwise approved by the Committee; and
2. The Employee shall have retired from the Company or a Subsidiary in
accordance with the terms of the MichCon Retirement Plan. With respect
to Directors, the Director shall have ceased to hold office as a
Director, otherwise than by death.
C. Dependent Child Benefit
Subject to the following conditions, the dependent child benefit
provided in Article 6, Section C shall be paid to any person who qualifies as
a Dependent Child.
CONDITIONS
1. The Employee shall have been in the continuous employ of the Company or
a Subsidiary from the date of participation in the Plan until the time
of the Employee's death; and
2. The Employee shall have died while in the employ of the Company or a
Subsidiary and prior to the Employee's actual retirement from the
Company or a Subsidiary; and
3. The Employee's spouse (if any) shall have died; and
4. A Dependent Child survives.
D. Continued Services Required
Except as provided in this Section, all rights to benefits under this
Plan shall terminate upon termination of the Employee's employment with the
Company or a Subsidiary for any reason other than the Employee's death or
retirement in accordance with the terms of the MichCon Retirement Plan. With
respect to Directors, except as provided in this Section, all rights to
benefits under this Plan shall terminate if the Director ceases to hold
office as a Director before the Director attains age 65, unless otherwise
approved by the Committee.
11
<PAGE>
Notwithstanding any other provision of this Plan, if (1) a Change in
Control occurs, (2) the Employee was either admitted to participation in the
Plan on or before July 1, 1988, or the Change in Control occurs more than 12
months (or such shorter period as approved by the Committee) after the Employee
was admitted to participation in the Plan, and (3) within 60 months after the
Change in Control occurs, the employment of the Employee is terminated (i) by
the Company other than for Cause or (ii) by the Employee for Good Reason, then
all rights to benefits under this Plan shall continue as if such termination of
employment had not occurred. A pre-retirement death benefit shall be available
if such person dies prior to attaining age 62, and a post-retirement benefit
shall be available when such person attains age 62.
Notwithstanding any other provision of this Plan, if (1) a Change in
Control occurs, (2) the Director was either admitted to participation in the
Plan on or before July 1, 1988, or the Change in Control occurs more than 12
months (or such shorter period as approved by the Committee) after the Director
was admitted to participation in the Plan, and (3) as part of or within 60
months after the Change in Control, the Director ceases to hold office otherwise
than (i) removal by the shareholders for Cause, or (ii) resignation by the
Director, then all rights to benefits shall continue as if the Director had
continued to hold office. A pre-retirement death benefit shall be available if
such Director dies prior to attaining age 65, and a post-retirement benefit
shall be available when such Director attains age 65.
Notwithstanding any other provision of this Plan, if an Employee is
admitted to participation in the Plan, and has reached age 55, and thereafter,
the employment of the Employee is terminated prior to retirement other than for
Cause, then all rights to benefits under this Plan accrued as of the later of
December 31, 1993 or on December 31 of the year the employee reaches age 55
shall continue as if such termination of employment had not occurred. A pre-
retirement death benefit shall be available if such person dies prior to
attaining age 62, and a post-retirement benefit shall be available when such
person attains age 62.
12
<PAGE>
ARTICLE 8
UNFUNDED PLAN
This Plan shall not be a funded plan. Any insurance Policy or other asset
acquired or held by the Company in connection with this Plan shall not be deemed
to be held by the Company in trust for any person, or to be security for the
performance of any obligations of the Company, but shall be and remain a general
asset of the Company. No person shall have any property interest in any specific
assets of the Company. Any rights acquired pursuant to the Plan shall be those
of an unsecured creditor. The obligation to make payments under this Plan shall
be and remain an unsecured, unfunded general obligation of the Company.
ARTICLE 9
ASSIGNMENT
No benefit hereunder of any person is assignable or transferable to any other
person nor may such be sold, assigned, conveyed, or otherwise transferred or
hypothecated.
ARTICLE 10
ADMINISTRATION
This Plan shall be administered by 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
with respect to Employees and Directors who are to participate in the Plan. In
discharging this responsibility, the Committee may consult with individual
members of the Board, with the management of the Company or with such other
persons as the Committee may deem appropriate.
13
<PAGE>
The Board shall determine which Employees and Directors shall participate in
the Plan, based upon the recommendations of the Committee, and the Board's own
consideration of who should participate in the Plan.
The Committee, in its absolute discretion, may cause benefit payments to an
Employee to commence prior to the Employee attaining age 62 if it deems such
action appropriate to the circumstances.
The Committee, in its absolute discretion, may provide benefits to a Director
even if the Director fails to hold office until the Director attains age 65 and
may cause benefit payments to such Director to commence prior to the Director
attaining age 65 if it deems such action appropriate to the circumstances.
The Committee, in its absolute discretion, may provide benefits to an
Employee or Director even if such person was admitted to participation in the
Plan or the Primark Corporation Supplemental Death Benefit and Retirement Income
Plan within 12 months of a Change in Control.
Any member of the Committee or of the Board who is being considered for
eligibility or who would be affected by a matter being considered shall not vote
or act on such matter.
ARTICLE 11
AMENDMENT, SUSPENSION OR TERMINATION
MCN's Board of Directors may at any time amend, suspend or terminate the
Plan, or any part thereof, for any purpose; provided, however, that no such
amendment, suspension or termination shall affect any agreement between an
Employee or Director and MCN without the written consent of the Employee or
Director.
14
<PAGE>
ARTICLE 12
LEGAL FEES AND EXPENSES
MCN shall pay all legal fees and expenses that an Employee or Director
admitted to participation in the Plan, or such Employee's or Director's spouse
or Dependent Child may incur as a result of MCN contesting the validity,
enforceability, or any such person's interpretation of, or determinations under
this Plan; provided, however, MCN shall not be required to pay any fees or
expenses of any such person unsuccessfully seeking to obtain benefits following
a Change in Control based upon termination of employment or removal from office
for Cause.
15
<PAGE>
ARTICLE 13
NO EMPLOYMENT RIGHTS AND
NOT A CONTRACT TO CONTINUE IN OFFICE
Nothing contained in the Plan and no actions taken pursuant to the provisions
of the Plan shall be construed as a contract of employment between the Company
or a Subsidiary and an Employee, or as a right of any Employee to be continued
in the employment of the Company or a Subsidiary, or as a limitation of the
right of the Company or a Subsidiary 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.
Nothing contained in the Plan and no actions taken pursuant to the provisions
of the Plan shall be construed as a contract for services between the Company
and a Director, or as a right of a Director to continue to serve as a director,
or as a limitation of the right of shareholders to remove a Director from
office, with or without cause, or as a limitation of the right of the Director
to resign from office.
IN WITNESS WHEREOF, the undersigned officer of the Company has executed this
Plan as of this 28th day of October, 1993.
MICHIGAN CONSOLIDATED GAS COMPANY
By: /s/ Stephen E. Ewing
-----------------------------------------------------
Stephen E. Ewing,
President and Chief Executive
Officer
Restated October 28, 1993
16
<PAGE>
MCN CORPORATION
SUPPLEMENTAL DEATH BENEFIT AND
RETIREMENT INCOME AGREEMENT
EMPLOYEE
THIS AGREEMENT is made this __ day of __________, __________, between MCN
Corporation, a Michigan Corporation, (the "Corporation") and __________________,
an employee of the Corporation (the "Employee").
WITNESSETH
WHEREAS, the Employee has agreed to serve as an officer of the Corporation
and the Corporation desires to encourage the Employee to continue to perform his
or her duties in a capable and efficient manner.
NOW, THEREFORE, in consideration of the foregoing and the benefits to be
derived hereunder, the Corporation and Employee agree as follows:
The Employee shall receive the benefits of an Employee under the MichCon
Supplemental Death Benefit and Retirement Income Plan ("Plan") as in effect on
this date subject to all the terms and conditions as specified in the Plan. The
Plan and all its provisions are hereby incorporated by reference. The benefits
under this Agreement are in lieu of those otherwise payable by MichCon.
17
<PAGE>
IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed this
agreement on behalf of the Corporation and the Employee has executed this
agreement on the date first above written:
MCN CORPORATION
By:
------------------------------------
Its: Secretary
------------------------------------
EMPLOYEE
-----------------------------------------
Employee
<PAGE>
MCN CORPORATION
SUPPLEMENTAL DEATH BENEFIT AND
RETIREMENT INCOME AGREEMENT
OPTION ELECTION FORM
EMPLOYEE
Name Soc. Sec. No.
------------------------------- -----------------------
Retirement Date I. D. No.
------------------- ---------------------------
Name of Spouse Soc. Sec. No.
--------------------- -----------------------
I hereby elect to receive the following post-retirement benefit under my
Supplemental Death Benefit and Retirement Agreement with MCN Corporation which
is subject to all the terms and conditions specified in the MichCon Supplemental
Death Benefit and Retirement Income Plan ("Plan"). The Plan and all its
provisions are hereby incorporated by reference.
________ Option A
________ Option B
________ Option C
________ Option D
________ Option E
I understand that once having retired, I may not change this election.
- ----------------------------------- ------------------------------------
Date Employee
- ----------------------------------- ------------------------------------
Date Witness
<PAGE>
MCN CORPORATION
SUPPLEMENTAL DEATH BENEFIT AND
RETIREMENT INCOME AGREEMENT
DIRECTOR
THIS AGREEMENT is made this______ day of ___________________, 19__, between
MCN Corporation, a Michigan Corporation, (the "Corporation") and
________________________, a non-employee director of the Corporation (the
"Director").
WITNESSETH
WHEREAS, the Director has agreed to serve On the Board of Directors of the
Corporation and the Corporation desires to encourage the Director to continue to
perform his or her duties in a capable and efficient manner.
NOW, THEREFORE, in consideration of the foregoing and the benefits to be
derived hereunder, the Corporation and Director agree as follows:
The Director shall receive the benefits of a Director under the MichCon
Supplemental Death Benefit and Retirement Income Plan ("Plan") as in effect as
of January 4, 1989 subject to all the terms and conditions as specified in the
Plan. The Plan and all its provisions are hereby
<PAGE>
incorporated by reference. The benefits under this Agreement are in lieu of
those otherwise payable by MichCon.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed
this agreement on behalf of the Corporation and the Director has executed this
agreement on the date first above written:
MCN CORPORATION
By:
-------------------------------------
Its: Secretary
-------------------------------------
DIRECTOR
-----------------------------------------
Director
<PAGE>
MCN CORPORATION
SUPPLEMENTAL DEATH BENEFIT AND
RETIREMENT INCOME AGREEMENT
OPTION ELECTION FORM
DIRECTOR
Name Soc. Sec. No.
----------------------------------- --------------------------
Last Date to Hold Office
---------------
Name of Spouse Soc. Sec. No.
------------------------- --------------------------
I hereby elect to receive the following post-retirement benefit under the
MichCon Supplemental Death Benefit and Retirement Income Plan ("Plan"), subject
to all the terms and conditions specified in the Plan. The Plan and all its
provisions are hereby incorporated by reference.
________ Option A
________ Option C
I understand that once having ceased to serve on the Board of Directors of MCN
Corporation, I may not change this election.
- --------------------------------------- ---------------------------------------
Date Director
- --------------------------------------- ---------------------------------------
Date Witness
<PAGE>
MCN
SUPPLEMENTAL RETIREMENT PLAN
----------------------------
MCN CORPORATION
---------------
On behalf of MCN Corporation, I hereby adopt the MichCon Supplemental
Retirement Plan, effective as of January 1, 1990, and as amended from time to
time, so as to provide benefits to officers and other employees of MCN
Corporation under the terms and conditions of said plan.
MCN Corporation
By: /s/ Alfred R. Glancy III
------------------------------------
Alfred R. Glancy III
Chairman and Chief Executive Officer
August 15, 1992
- ------------------------------
<PAGE>
MICHCON
SUPPLEMENTAL RETIREMENT PLAN
(as amended effective January 1, 1990)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE 1.................................................................. 1
Title
ARTICLE 2.................................................................. 1
Definitions
ARTICLE 3.................................................................. 1
Purpose
ARTICLE 4.................................................................. 2
Effective Date
ARTICLE 5.................................................................. 2
Eligibility
ARTICLE 6.................................................................. 2
Employers' Obligation
ARTICLE 7.................................................................. 3
Payment of Benefits
ARTICLE 8.................................................................. 3
Unfunded Plan
ARTICLE 9.................................................................. 4
Administration
ARTICLE 10................................................................. 4
Amendment and Termination
ARTICLE 11................................................................. 4
Miscellaneous
Section 11.1 Benefits Non-Assignable............................. 4
Section 11.2 No Employment Rights................................ 4
Section 11.3 Law Applicable...................................... 4
Section 11.4 Legal Fees and Expenses............................. 5
Section 11.5 Cause............................................... 5
ARTICLE 12................................................................. 5
Change in Control Provisions
Section 12.1 General............................................. 5
Section 12.2 Transfer to Rabbi Trust............................. 5
Section 12.3 Joint and Several Liability......................... 5
Section 12.4 Dispute Procedures.................................. 5
Section 12.5 Definition of Change in Control..................... 6
</TABLE>
<PAGE>
MICHCON
SUPPLEMENTAL RETIREMENT PLAN
(as amended effective January 1, 1990)
ARTICLE 1
TITLE
-----
The title of this plan shall be the "MichCon Supplemental Retirement
Plan" and shall be referred to in this document as the "Plan".
ARTICLE 2
DEFINITIONS
-----------
The words and phrases used in the Plan shall have the same meanings as
provided under Article 2 of the MichCon Retirement Plan (the "Qualified Plan"),
unless otherwise defined in the Plan or the context clearly requires otherwise.
ARTICLE 3
PURPOSE
-------
The principal purpose of the Plan is to provide for the payment of
certain benefits that would not otherwise be payable under the Qualified Plan.
Such benefits shall be payable to certain employees of the Company and any other
corporation which is a Participating Employer under the Qualified Plan.
1
<PAGE>
ARTICLE 4
EFFECTIVE DATE
--------------
The effective date of the Plan for the Company shall be March 31, 1988
and for any Participating Employer shall be the date established by resolution
of the Board of Directors of the particular Participating Employer at the time
of adoption of the Plan.
ARTICLE 5
ELIGIBILITY
-----------
All employees of Participating Employers whose benefits under the
Qualified Plan are limited because of the limitation on compensation under
Section 401(a)(17) of the Code, the limitation on benefits and contributions
under Section 415 of the Code, or any other provision of the Code or other law
that the Committee hereafter designates shall be eligible for the benefits
provided by this Plan. Also, all employees of Participating Employers who are
participating in the MichCon Supplemental Savings Plan shall be eligible for
benefits provided by this Plan. Notwithstanding the foregoing, no employee
shall be eligible for benefits provided by this Plan until such employee has
satisfied the eligibility requirements of the Qualified Plan.
ARTICLE 6
EMPLOYERS' OBLIGATION
---------------------
The Participating Employers shall pay under this Plan any amount that
any eligible employee would have been entitled to receive under the Qualified
Plan but for the limitation on compensation under Section 401(a)(17) of the
Code, the limitation on benefits and contributions under Section 415 of the
Code, and any other provision of the Code or other law that the Committee
hereafter designates. Also, the Participating Employers shall pay under this
Plan any amount that any eligible employee would have been entitled to receive
under the Qualified Plan but
2
<PAGE>
for the exclusion of deferrals under the MichCon Supplemental Savings Plan from
the definition of Primary Monthly Earnings in the Qualified Plan. Such payments
shall be made by the particular Participating Employer which last employed the
employee with respect to whom the payment is to be made.
ARTICLE 7
PAYMENT OF BENEFITS
-------------------
Payments made under this Plan shall be made in all respects at the
same time, in the same manner and to the same person as would have been the case
under the Qualified Plan had the limitations described in Article 6 not been
applicable and the payment had been made under the Qualified Plan.
ARTICLE 8
UNFUNDED PLAN
-------------
This Plan shall not be a funded plan. Notwithstanding that, the
Participating Employers may set aside or otherwise earmark company assets for
payment of the benefits payable hereunder. Title to and ownership of such
assets shall at all times remain in such company, and no eligible employee shall
have any property interest in any specific assets of such company. Nothing in
the Plan and no action taken pursuant to the provisions of the Plan shall be
deemed to create a trust or fund of any kind or to create a fiduciary
relationship. The obligation to make payments under this Plan shall be and
remain an unsecured, unfunded general obligation of the Participating Employer.
3
<PAGE>
ARTICLE 9
ADMINISTRATION
--------------
The Plan shall be administered by the Committee appointed pursuant to
the provisions of Section 14.1 of the Qualified Plan. The Committee shall have
the same powers and duties, and shall be subject to the same limitations, as are
described in the Qualified Plan.
ARTICLE 10
AMENDMENT AND TERMINATION
-------------------------
The Plan shall be subject to the same reserved power of amendment and
termination as the Qualified Plan.
ARTICLE 11
MISCELLANEOUS
-------------
Section 11.1 Benefits Non-Assignable. This Plan shall be subject to
the same terms as specified in Section 11.6 of the Qualified Plan, and said
Section is hereby incorporated by reference.
Section 11.2 No Employment Rights. Nothing contained in the Plan and
no action taken pursuant to the provisions of the Plan shall be construed as a
contract of employment between an employee and the Company or a Participating
Employer, or as a right of any employee to be continued in the employment of the
Company or a Participating Employer, or as a limitation of the right of the
Company or a Participating Employer 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.
Section 11.3 Law Applicable. This Plan and all actions hereunder
shall be governed by and construed according to the laws of the State of
Michigan.
4
<PAGE>
Section 11.4 Legal Fees and Expenses. The Company shall pay all legal
fees and expenses that any eligible employee may incur as a result of the
Company contesting the validity, enforceability, or such employee's
interpretation of, or determinations under this Plan.
Section 11.5 Cause. Cause shall mean repeated material breaches of an
Employee's duties of employment which are not cured after receipt by the
Employee of written notice specifying such breaches or the Employee's conviction
of a felony involving moral turpitude.
ARTICLE 12
CHANGE IN CONTROL PROVISIONS
----------------------------
Section 12.1 General. In the event of a Change in Control, as defined
in Section 12.5, then, notwithstanding any other provision of the Plan, the
provisions of this Section 12 shall be applicable and shall supersede any
conflicting provisions of the Plan.
Section 12.2 Transfer to Rabbi Trust. MCN Corporation ("MCN") has
established a trust pursuant to a Trust Agreement dated January 3, 1991 (the
"Rabbi Trust"). The terms of the Rabbi Trust provide that, in the event of a
Change in Control and thereafter, assets are to be transferred to such trust to
provide benefits under the Plan. MCN shall make all transfers of funds required
by the Rabbi Trust in a timely manner and shall otherwise abide by the terms of
the Rabbi Trust.
Section 12.3 Joint and Several Liability. Upon and at all times after
a Change in Control, the liability under the Plan of MCN and each Affiliated
Employer that has adopted the Plan shall be joint and several so that MCN and
each such Affiliated Employer shall each be liable for all obligations under the
Plan to each employee covered by the Plan, regardless of the corporation by
which such employee is employed.
Section 12.4 Dispute Procedures. In the event that, upon or at any
time subsequent to a Change in Control, a claim for benefits under the Plan of a
Participant or distributee who has exhausted the claims and appeals procedures
set forth in Section 13.7 of the Qualified Plan is denied in whole or in part,
the following additional procedures shall be applicable:
(a) Any amount that is not in dispute shall be paid to the
Participant or distributee at the time or times provided herein.
5
<PAGE>
(b) MCN shall advance to such claimant from time to time such amounts
as shall be required to reimburse the claimant for reasonable legal fees,
costs and expenses incurred by such claimant in seeking a judicial
resolution of his or her claim, including reasonable fees, costs and
expenses relating to appeals; provided, however, that MCN shall not be
obligated to advance to the claimant any amounts under this Section 12.4(b)
unless and until the claimant agrees in writing to repay to MCN,
immediately upon the occurrence of a final judicial determination with
respect to such dispute, any amount of such fees, costs and expenses that
is not awarded to such claimant in a final order of a court of competent
jurisdiction.
Section 12.5 Definition of Change in Control. A "Change of Control" means:
(a) 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) of
20% or more of either (i) the then outstanding shares of common stock of
MCN Corporation (the "Outstanding MCN Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of MCN Corporation
entitled to vote generally in the election of directors (the "Outstanding
MCN Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change of Control: (A) any acquisition directly from
MCN Corporation (excluding any acquisition by virtue of the exercise of a
conversion privilege), (B) any acquisition by MCN Corporation, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by MCN Corporation or any corporation controlled by MCN
Corporation or (D) 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 12.5 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of MCN Corporation (the "Incumbent Board") cease for any reason
to constitute at
6
<PAGE>
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by MCN Corporation'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
(c) Approval by the shareholders of MCN Corporation of a
reorganization, merger or consolidation, in each case, unless, following
such reorganization, merger or consolidation, (i) more than 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 MCN Common Stock and Outstanding MCN 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 MCN Common
Stock and Outstanding MCN Voting Securities, as the case may be, (ii) no
Person (excluding MCN Corporation, any employee benefit plan or related
trust sponsored or maintained by MCN Corporation or any corporation
controlled by MCN Corporation or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, mergers or consolidation,
directly or indirectly, 20% or more of the Outstanding MCN Common Stock or
Outstanding MCN Voting Securities, as the case may be)
7
<PAGE>
beneficially owns, directly or indirectly, 20% or 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
(d) Approval by the shareholders of MCN Corporation of (i) a complete
liquidation or dissolution of MCN Corporation or (ii) the sale or other
disposition of all or substantially all of the assets of MCN Corporation,
other than to a corporation, with respect to which following such sale or
other disposition, (A) more than 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 MCN Common
Stock and Outstanding MCN 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 MCN Common Stock and Outstanding MCN Voting Securities, as the
case may be, (B) no Person (excluding MCN Corporation, any employee
benefit plan or related trust sponsored or maintained by MCN Corporation or
any corporation controlled by MCN Corporation or such corporation resulting
from such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 20% or more of the Outstanding MCN Common Stock or
Outstanding MCN Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such
8
<PAGE>
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of 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 MCN Corporation.
9
<PAGE>
IN WITNESS WHEREOF, the undersigned official of the Company has executed
this Plan as of this 1st day of January, 1990, pursuant to the resolution
adopted by the Board of Directors of the Company.
MICHIGAN CONSOLIDATED GAS COMPANY
By: /s/ Alfred R. Glancy III
---------------------------------------------
Alfred R. Glancy III,
Chairman and Chief Executive Officer
Restated August 15, 1992
10
<PAGE>
MCN CORPORATION AND SUBSIDIARIES EXHIBIT 12-1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
September 30, 1996 December 31, 1995 December 31, 1994
------------------ ----------------- -----------------
<S> <C> <C> <C>
EARNINGS AS DEFINED (1) (5)
Pre-tax income (2) $ 150,635 $ 128,997 $ 100,143
Fixed charges (3) 92,823 72,895 55,197
------------------- ----------------- -----------------
Earnings as defined $ 243,458 $ 201,892 $ 155,340
================== ================= =================
FIXED CHARGES AS DEFINED (1) (4) (5)
Interest, expensed $ 73,813 $ 57,675 $ 49,104
Interest, capitalized 11,990 7,926 2,928
Amortization of debt discounts, premium
and expense 2,095 1,641 1,332
Interest implicit in rentals 2,199 2,325 1,904
Preferred securities dividend requirements
of subsidiaries 10,718 9,699 2,194
------------------ ----------------- -----------------
Fixed charges as defined $ 100,815 $ 79,266 $ 57,462
================== ================= =================
Ratio of Earnings to Fixed Charges 2.41 2.55 2.70
================== ================= =================
</TABLE>
(1) Earnings and fixed charges are defined and computed in accordance with
Item 503 of Regulation S-K.
(2) This amount represents the aggregate of (a) the pre-tax income from
continuing operations of MCN and its majority-owned subsidiaries, (b) MCN's
share of pre-tax income of its 50% owned companies, and (c) any income
actually received from less than 50% owned companies.
(3) Fixed charges added to earnings are adjusted to exclude interest
capitalized during the period for nonutility companies and the preferred
securities dividend requirements of MichCon included in fixed charges but
not deducted in the determination of pre-tax income.
(4) Fixed charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense, (c) an estimate of
interest implicit in rentals, and (d) preferred securities dividend
requirements of subsidiaries (MichCon, MCN Limited Partnership and MCN
Financing I), increased to reflect the pre-tax earnings requirement for
MichCon.
(5) In June 1996, MCN completed the sale of The Genix Group, its computer
services subsidiary. For purposes of calculating the Ratio of Earnings to
Fixed Charges, it has been classified as a discontinued operation and
therefore excluded from the ratio for all periods presented.
<PAGE>
MCN INVESTMENT CORPORATION AND SUBSIDIARIES EXHIBIT 12-2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
September 30, 1996 December 31, 1995 December 31, 1994
------------------ ----------------- -----------------
<S> <C> <C> <C>
EARNINGS AS DEFINED (1) (4)
Pre-tax income (2) $ 14,535 $ 13,163 $ 6,696
Fixed charges (3) 37,225 24,748 13,640
------------------ ----------------- -----------------
Earnings as defined $ 51,760 $ 37,911 $ 20,336
================== ================= =================
FIXED CHARGES AS DEFINED (1) (4)
Interest, expensed $ 36,246 $ 24,151 $ 13,365
Interest, capitalized 7,570 5,895 2,089
Amortization of debt discounts,
premium and expense 882 520 275
Interest implicit in rentals 97 77 -
------------------ ----------------- -----------------
Fixed charges as defined $ 44,795 $ 30,643 $ 15,729
================== ================= =================
Ratio of Earnings to Fixed Charges 1.16 1.24 1.29
================== ================= =================
(1) Earnings and fixed charges are defined and computed in accordance with Item
503 of Regulation S-K.
(2) This amount represents the aggregate of (a) the pre-tax income from
continuing operations of MCN Investment and its majority-owned subsidiaries,
(b) MCN Investment's share of pre-tax income of its 50% owned companies, and
(c) any income actually received from less than 50% owned companies.
(3) Fixed charges added to earnings are adjusted to exclude interest capitalized
during the period and, therefore, may differ from fixed charges as defined.
(4) In June 1996, MCN completed the sale of The Genix Group, its computer
services subsidiary. For purposes of calculating the Ratio of Earnings to
Fixed Charges, it has been classified as a discontinued operation and
therefore excluded from the ratio for all periods presented.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 35,910
<SECURITIES> 0
<RECEIVABLES> 226,567
<ALLOWANCES> 14,699
<INVENTORY> 153,610
<CURRENT-ASSETS> 519,542
<PP&E> 3,572,070
<DEPRECIATION> 1,301,317
<TOTAL-ASSETS> 3,161,642
<CURRENT-LIABILITIES> 673,787
<BONDS> 1,054,144
<COMMON> 672
173,760
0
<OTHER-SE> 731,197
<TOTAL-LIABILITY-AND-EQUITY> 3,161,642
<SALES> 0
<TOTAL-REVENUES> 1,395,650
<CGS> 0
<TOTAL-COSTS> 1,253,204
<OTHER-EXPENSES> (3,449)
<LOSS-PROVISION> 16,850
<INTEREST-EXPENSE> 57,105
<INCOME-PRETAX> 92,344
<INCOME-TAX> 21,486
<INCOME-CONTINUING> 70,858
<DISCONTINUED> 37,771
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,629
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 0
</TABLE>
