-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MCNpNuivzF+wayKfvimOIStGuttbRRb5silq8fOuqwSS2vWEoYTppZRlyLWoqpRS tpCutrn7QFKDPoCwgIwEEA== 0000950124-95-001393.txt : 19950511 0000950124-95-001393.hdr.sgml : 19950511 ACCESSION NUMBER: 0000950124-95-001393 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950509 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICHIGAN CONSOLIDATED GAS CO /MI/ CENTRAL INDEX KEY: 0000065632 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 380478040 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07310 FILM NUMBER: 95535648 BUSINESS ADDRESS: STREET 1: 500 GRISWOLD ST CITY: DETROIT STATE: MI ZIP: 48226 BUSINESS PHONE: 3139652430 10-Q 1 FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________ FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------ ------------ COMMISSION FILE NUMBER 1-7310 MICHIGAN CONSOLIDATED GAS COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MICHIGAN 38-0478040 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 GRISWOLD STREET, DETROIT, MICHIGAN 48226 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 313-965-2430 NO CHANGES (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares outstanding of each of the registrant's classes of common stock, as of April 30, 1995: Common Stock, par value $1 per share: 10,300,000 ================================================================================ 2 INDEX TO FORM 10-Q For Quarter Ended March 31, 1995
Page Number ------ COVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii PART I - FINANCIAL INFORMATION Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 10 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ii 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED) (THOUSANDS OF DOLLARS)
MARCH 31, December 31, ----------------------- ------------ 1995 1994 1994 ---------- ---------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents, at cost (which approximates market value).......................................................... $ 6,933 $ 5,064 $ 1,305 Accounts receivable, less allowance for doubtful accounts of $20,816, $28,743 and $15,322, respectively...................... 193,942 254,477 134,980 Accrued unbilled revenues......................................... 59,532 83,201 82,233 Gas in inventory (Note 1)......................................... 28,911 9,904 77,843 Property taxes assessed applicable to future periods.............. 41,850 39,427 52,163 Other............................................................. 24,514 27,882 23,102 ---------- ---------- ---------- 355,682 419,955 371,626 ---------- ---------- ---------- DEFERRED CHARGES AND OTHER ASSETS Investment in and advances to joint ventures...................... 20,535 19,236 20,791 Deferred postretirement benefit................................... 19,095 24,857 19,887 Other............................................................. 51,057 38,750 42,044 ---------- ---------- ---------- 90,687 82,843 82,722 ---------- ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, at cost.............................. 2,214,163 2,102,404 2,189,150 Less - Accumulated depreciation and depletion..................... 1,092,497 1,044,006 1,071,588 ---------- ---------- ---------- 1,121,666 1,058,398 1,117,562 ---------- ---------- ---------- $1,568,035 $1,561,196 $1,571,910 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable.................................................. $ 69,487 $ 90,753 $ 80,671 Notes payable..................................................... 79,681 105,043 168,457 Current portion of long-term debt, capital lease obligations and redeemable cumulative preferred stock....................... 3,873 4,139 4,225 Gas inventory equalization (Note 1)............................... 67,806 108,623 - Federal income, property and other taxes payable.................. 84,533 94,049 85,806 Refunds payable to customers...................................... 5,759 11,119 19,559 Customer deposits................................................. 10,467 10,920 11,563 Deferred income taxes - current................................... - 7,743 - Other............................................................. 53,373 62,094 50,670 ---------- ---------- ---------- 374,979 494,483 420,951 ---------- ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes................................. 61,308 45,029 52,396 Unamortized investment tax credit................................. 37,830 39,689 38,294 Tax benefits amortizable to customers............................. 113,179 127,611 114,906 Accrued postretirement benefit.................................... 6,596 9,544 23,507 Other............................................................. 59,416 48,489 53,076 ---------- ---------- ---------- 278,329 270,362 282,179 ---------- ---------- ---------- LONG-TERM DEBT, including capital lease obligations................. 447,858 370,461 448,329 ---------- ---------- ---------- REDEEMABLE CUMULATIVE PREFERRED STOCK, $2.05 SERIES................. - 2,618 2,618 ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 2) COMMON SHAREHOLDER'S EQUITY Common stock...................................................... 10,300 10,300 10,300 Additional paid-in capital........................................ 204,777 204,777 204,777 Retained earnings................................................. 251,792 208,195 202,756 ---------- ---------- ---------- 466,869 423,272 417,833 ---------- ---------- ---------- $1,568,035 $1,561,196 $1,571,910 ========== ========== ==========
The notes to the consolidated financial statements are an integral part of this statement. 1 4 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (THOUSANDS OF DOLLARS)
THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, --------------------- ----------------------- 1995 1994 1995 1994 -------- -------- ---------- ---------- OPERATING REVENUES.................................................... $421,812 $534,356 $ 999,134 $1,233,590 -------- -------- ---------- ---------- OPERATING EXPENSES Cost of gas......................................................... 210,137 300,123 439,440 662,388 Operation and maintenance........................................... 77,329 86,610 304,294 287,202 Depreciation and depletion.......................................... 22,151 21,190 85,191 76,590 Property and other taxes............................................ 16,502 18,680 55,951 60,783 -------- -------- ---------- ---------- Total operating expenses.......................................... 326,119 426,603 884,876 1,086,963 -------- -------- ---------- ---------- OPERATING INCOME...................................................... 95,693 107,753 114,258 146,627 -------- -------- ---------- ---------- EQUITY IN EARNINGS OF JOINT VENTURES.................................. 224 436 831 2,300 -------- -------- ---------- ---------- OTHER INCOME AND (DEDUCTIONS) Interest income..................................................... 938 1,392 3,610 4,710 Interest on long-term debt.......................................... (8,253) (6,541) (29,660) (25,748) Other interest expense.............................................. (2,972) (2,239) (9,826) (8,116) Other............................................................... (738) (665) (4,750) (5,534) -------- -------- ---------- ---------- Total other income and (deductions)............................... (11,025) (8,053) (40,626) (34,688) -------- -------- ---------- ---------- INCOME BEFORE INCOME TAXES............................................ 84,892 100,136 74,463 114,239 INCOME TAX PROVISION.................................................. 29,282 35,174 23,947 39,089 -------- -------- ---------- ---------- NET INCOME............................................................ 55,610 64,962 50,516 75,150 DIVIDENDS ON PREFERRED STOCK.......................................... 74 136 419 666 -------- -------- ---------- ---------- NET INCOME AVAILABLE FOR COMMON STOCK................................. $ 55,536 $ 64,826 $ 50,097 $ 74,484 ======== ======== ========== ==========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (UNAUDITED) (THOUSANDS OF DOLLARS)
THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, --------------------- ----------------------- 1995 1994 1995 1994 -------- -------- ---------- ---------- BALANCE - Beginning of period......................................... $202,756 $151,869 $ 208,195 $ 201,611 ADD - Net income...................................................... 55,610 64,962 50,516 75,150 -------- -------- ---------- ---------- 258,366 216,831 258,711 276,761 DEDUCT - Cash dividends declared Preferred stock............................................ 74 136 419 666 Common stock............................................... 6,500 8,500 6,500 67,900 -------- -------- ---------- ---------- BALANCE - End of period............................................... $251,792 $208,195 $ 251,792 $ 208,195 ======== ======== ========== ==========
The notes to the consolidated financial statements are an integral part of these statements. 2 5 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (THOUSANDS OF DOLLARS)
THREE MONTHS ENDED MARCH 31, ---------------------- 1995 1994 --------- --------- CASH FLOW FROM OPERATING ACTIVITIES Net income..................................................................... $ 55,610 $ 64,962 Adjustments to reconcile net income to net cash provided from operating activities Depreciation and depletion Per statement of income.................................................. 22,151 21,190 Charged to other accounts................................................ 1,853 1,714 Deferred income taxes and investment tax credit - net...................... 4,843 (9,558) Other...................................................................... 313 (469) --------- --------- 84,770 77,839 Changes in assets and liabilities, exclusive of changes shown separately............................................................... 47,760 111,613 --------- --------- Net cash provided from operating activities................................ 132,530 189,452 --------- --------- CASH FLOW FROM FINANCING ACTIVITIES Notes payable - net............................................................ (88,776) (155,261) Additional paid-in-capital..................................................... - 1,161 Cash dividends paid Common stock................................................................. (6,500) (8,500) Preferred stock.............................................................. (115) (177) Retirement of long-term debt and preferred stock............................... (3,471) (3,372) --------- -------- Net cash used for financing activities..................................... (98,862) (166,149) --------- --------- CASH FLOW FROM INVESTING ACTIVITIES Capital expenditures........................................................... (28,209) (20,156) Investment in joint ventures................................................... (167) (18) Other.......................................................................... 336 (488) --------- --------- Net cash used for investing activities..................................... (28,040) (20,662) --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS........................................ 5,628 2,641 CASH AND CASH EQUIVALENTS, JANUARY 1............................................. 1,305 2,423 --------- --------- CASH AND CASH EQUIVALENTS, MARCH 31.............................................. $ 6,933 $ 5,064 ========= ========= CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY Accounts receivable-net........................................................ (59,057) (90,914) Accrued unbilled revenues...................................................... 22,701 17,015 Gas in inventory............................................................... 48,932 25,195 Accounts payable............................................................... (11,184) (1,998) Gas inventory equalization..................................................... 67,806 108,623 Federal income, property and other taxes payable............................... (1,273) 33,506 Refunds payable to customers................................................... (13,800) 326 Deferred assets and liabilities................................................ (18,792) 4,299 Other current assets and liabilities........................................... 12,427 15,561 --------- --------- $ 47,760 $ 111,613 ========= ========= SUPPLEMENTAL DISCLOSURES Cash paid for: Interest, net of amounts capitalized......................................... $ 4,938 $ 5,308 ========= ========= Federal income taxes......................................................... $ 171 $ - ========= =========
The notes to the consolidated financial statements are an integral part of this statement. 3 6 MICHIGAN CONSOLIDATED GAS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GAS IN INVENTORY Inventory is priced on a last-in, first-out (LIFO) basis. In anticipation that interim inventory reductions will be replaced prior to year end, the cost of gas for net withdrawals from inventory is recorded at the estimated average purchase rate for the calendar year. The excess of these charges over the LIFO cost is credited to the gas inventory equalization account. During interim periods when there are net injections to inventory, the equalization account is reversed. Approximately 29.4 Bcf and 18.2 Bcf of gas was included in inventory at March 31, 1995 and 1994, respectively. 2. CONTINGENCIES As described in MichCon's 1994 Annual Report on Form 10-K, the Federal Energy Regulatory Commission (FERC) issued an order in 1993 which required Panhandle Eastern Pipe Line Company (Panhandle) to refund to MichCon the costs of certain direct billings totaling $5.4 million plus interest of $4.4 million. During 1994, the FERC issued an order permitting Panhandle to bill MichCon $4.4 million in interest. These costs were accrued in 1994. MichCon's request for rehearing of the 1994 order was denied. MichCon has appealed the issue to the District of Columbia Circuit Court. In March 1995, Panhandle sued MichCon in the United States District Court seeking judgment for the $4.4 million. If MichCon is ultimately unsuccessful in defeating Panhandle's claim, it is anticipated that these costs will be recoverable through the GCR mechanism and therefore, an asset has been recorded for their future recovery. MichCon is involved in certain other legal and administrative proceedings before various courts and governmental agencies concerning claims arising in the ordinary course of business. Management cannot predict the final disposition of such proceedings but believes that adequate provision has been made for probable losses. It is management's belief, after discussion with legal counsel, that the ultimate resolution of those proceedings still pending will not have a material adverse effect on MichCon's financial statements. 3. GENERAL There have been no changes in MichCon's principal accounting policies from those set forth in MichCon's 1994 Annual Report on Form 10-K. Certain reclassifications have been made to the prior year's financial statements to conform with the 1995 presentation. The unaudited information furnished herein, in the opinion of management, reflects all adjustments (consisting of only recurring adjustments or accruals) necessary for a fair presentation of the results of operations during the periods. Because of seasonal and other factors, revenues, expenses and net income for the interim periods should not be construed as representative of revenues, expenses and net income for all or any part of the balance of the current year or succeeding periods. 4 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Earnings for the first quarter of 1995 were $55.5 million, a decrease of $9.3 million from the first quarter of 1994. For the twelve-month period ended March 31, 1995, earnings were $50.1 million, a decrease of $24.4 million from the comparable 1994 period. The decrease in earnings for both 1995 periods was primarily due to lower gas deliveries resulting from significantly warmer weather from the comparable periods last year. EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS
Quarter Twelve Months ---------------------- ---------------------- 1995 1994 1995 1994 -------- -------- -------- --------- Percentage Colder (Warmer) than Normal (5.8)% 7.9% (11.0)% 3.5% Increase (Decrease) from Normal in: Gas Markets (Bcf) (5.2) 7.8 (17.4) 6.7 Net Income (Millions) $(4.7) $7.0 $(15.8) $6.1
EARNINGS COMPONENTS (IN MILLIONS) COMPARING 1995 TO 1994
Quarter Twelve Months --------------------------- -------------------------- $ Change % Change $ Change % Change ---------- ---------- ---------- ---------- Operating Revenues $(112.5) (21.0)% $(234.5) (19.0)% Cost of Gas (90.0) (30.0) (222.9) (33.7) -------- -------- Gross Margin (22.5) (9.6) (11.6) (2.0) Operation and Maintenance (9.3) (10.7) 17.1 6.0 Depreciation and Depletion 1.0 4.5 8.6 11.2 Property and Other Taxes (2.2) (11.7) (4.8) (8.0) Other Income and (Deductions) 3.0 36.9 5.9 17.1 Income Tax Provision (5.9) (16.8) (15.1) (38.7)
GROSS MARGIN Gross margin (operating revenues less cost of gas) decreased for the quarter due to lower gas deliveries resulting from warmer weather. Gross margin for the twelve-month period decreased due to lower gas deliveries resulting from warmer weather offset by an increase in gas sales rates, reflecting a general rate increase of $15.7 million, effective January 1994. Gas sales decreased in both the 1995 quarter and twelve-month period as compared to the 1994 periods due mainly to warmer weather. In addition, the 1994 twelve-
Quarter 12 Months ------------- ------------- GAS MARKETS (Bcf) 1995 1994 1995 1994 ---- ---- ---- ---- Gas Sales . . . . . . . . . . . . . . . 89.3 104.6 186.2 231.4 End User Transportation . . . . . . . . 43.5 44.8 138.4 132.2 Intermediate Transportation . . . . . . 105.9 107.7 301.8 313.1 ----- ----- ----- ----- 238.7 257.1 626.4 676.7 ===== ===== ===== =====
5 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) month period includes sales volumes from brokering operations which are not reflected in the 1995 twelve-month period as MichCon sold the business of Trading Company to other subsidiaries of MCN in June 1993. End user transportation deliveries for the 1995 quarter decreased slightly from the 1994 quarter due to warmer weather. However, higher demand during the 1995 twelve-month period, offset slightly by warmer weather, resulted in an increase in end user transportation deliveries from the comparable 1994 period. The decreases in intermediate transportation in the 1995 quarter and twelve-month period are primarily the result of reduced volumes transported for Canadian customers, partially offset by increased transportation for Michigan gas producers and brokers. Profit margins on intermediate transportation services are considerably less than margins on gas sales or for end user transportation markets. Due to the growing demand by gas producers and brokers for intermediate transportation services resulting from the significant increase in Michigan Antrim gas production, MichCon filed a proposal before the MPSC to construct facilities to expand transportation capacity. In March 1995, the MPSC approved MichCon's proposal. The expansion project will require approximately $40 million for additional pipeline and related facilities. Construction is planned to commence this summer and to be completed by the fall of 1995. The expanded system, in conjunction with existing facilities, is expected to transport approximately 135 Bcf of Antrim gas annually, generating revenues of approximately $12 million per year. During 1994, MCN and Destec Energy, as limited partners, began construction of a 123-megawatt cogeneration plant in Ludington, Michigan. MichCon will provide end user transportation of the natural gas needed to fuel the plant, approximately nine Bcf annually, upon its completion in late 1995. COST OF GAS Cost of gas is affected by variations in sales volumes and cost of gas rates. Through the GCR mechanism, MichCon's rates are set to recover 100% of prudently and reasonably incurred gas costs. Therefore, significant fluctuations in total gas costs have little effect on gross margins or earnings. Cost of gas sold decreased in the 1995 quarter and twelve-month period due to lower sales volumes resulting from the warmer weather as well as lower prices paid for natural gas in the spot market. The decrease in market prices paid for gas resulted in a decrease in the cost of gas sold per thousand cubic feet of $.61 (20.5%) in the 1995 quarter and twelve-month period from the comparable 1994 periods. A majority of MichCon's interstate gas supply contracts are priced based on natural gas spot indices. To mitigate price volatility associated with gas purchases, MichCon has reserved the right to fix the prices it pays under some of these contracts. In order to capture declining gas prices during 1994, MichCon fixed the price on approximately 34 Bcf of gas in advance of the month of purchase. As a result of a further decline in gas prices during 1994, MichCon's cost of gas would have been approximately $10.0 million (1.9%) lower in 1994 had it not fixed these prices. 6 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) MichCon filed its 1994 GCR reconciliation case with the MPSC in February 1995. In this case, the MPSC will decide whether MichCon's 1994 gas costs were reasonable and prudent. To date, MichCon's 1994 gas purchase practices have not been challenged. An order in this case is expected at the end of 1995. MichCon believes that it acted reasonably and prudently by fixing the gas prices based upon the information available at the time. As described in MichCon's 1994 Annual Report on Form 10-K, the FERC issued an order in 1993 which required Panhandle to refund to MichCon the costs of certain direct billings totaling $5.4 million plus interest of $4.4 million. During 1994, the FERC issued an order permitting Panhandle to bill MichCon $4.4 million in interest. These costs were accrued in 1994. MichCon's request for rehearing of the 1994 order was denied. MichCon has appealed the issue to the D.C. Circuit Court. In March 1995, Panhandle sued MichCon in the U.S. District Court seeking judgment for the $4.4 million. If MichCon is ultimately unsuccessful in defeating Panhandle's claim, it is anticipated that these costs will be recoverable through the GCR mechanism and therefore, an asset has been recorded for their future recovery. OPERATION AND MAINTENANCE Operation and maintenance expenses were lower in the 1995 quarter due to lower uncollectible accounts resulting from warmer than normal weather and a reduction in retirement benefit costs. Operation and maintenance expenses increased for the 1995 twelve-month period due to higher postretirement benefit costs of $25.2 million being recognized as a result of the new accounting requirements under Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." These costs are being recovered in rates that became effective in January 1994. Management's continuing efforts to reduce operating costs contributed to the decrease in operation and maintenance expenses for the 1995 quarter and partially offset the increase for the 1995 twelve-month period. In March 1995, the U.S. House of Representatives voted to eliminate all funding for the Low-Income Home Energy Assistance Program (LIHEAP). However, several weeks later the U.S. Senate voted to restore the program's $1.3 billion appropriation. Currently, delegates from the House and Senate are meeting to resolve the differences between the House and Senate packages. MichCon continues its vigorous efforts to maintain this funding. LIHEAP funding currently provides approximately $78 million in heating assistance to 385,000 Michigan households through the Department of Social Services, with approximately 40% of the funds going to MichCon customers. DEPRECIATION AND DEPLETION The increase in depreciation and depletion for the 1995 quarter and twelve-month period was due mainly to higher plant balances, reflecting capital expenditures of $286.7 million over the past two calendar years. The 1995 twelve-month period also reflects higher depreciation rates that were implemented in January 1994. 7 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) PROPERTY AND OTHER TAXES Property and other taxes for the quarter and twelve-month period reflect a decrease in Michigan single business taxes due primarily to lower earnings. In addition, the 1995 periods also reflect lower property taxes due to changes in Michigan legislation, partially offset by increased taxes due to higher property balances. OTHER INCOME AND DEDUCTIONS The increase in other income and deductions for the 1995 quarter and twelve-month period reflects additional interest expense relating to the issuance of $80 million of first mortgage bonds in September 1994. In addition, the interest on varying levels of pending customer refunds contributed to the 1995 twelve-month period increase. INCOME TAX PROVISION Income taxes decreased for the 1995 quarter and twelve-month period due to reduced earnings and the favorable resolution of prior years' tax issues. CAPITAL RESOURCES AND LIQUIDITY OPERATING ACTIVITIES MichCon's cash flow from operating activities totaled $132.5 million for the first quarter of 1995, decreasing $56.9 million from the comparable 1994 quarter. The decrease was due primarily to lower income and higher working capital requirements, partially offset by deferred taxes. FINANCING ACTIVITIES Cash and cash equivalents increased by $5.6 million during the first quarter of 1995. Cash and cash equivalents normally increase and short-term debt is reduced in the first part of each year as gas inventories are depleted and funds are received from winter heating sales. During the first quarter of 1995, MichCon repaid $88.8 million of short-term debt, including commercial paper. During the latter part of the year, cash and cash equivalents decrease as funds are used to finance increases in gas inventories and customer accounts receivable. To meet its seasonal short-term borrowing needs, MichCon normally issues commercial paper which is backed by credit lines with several banks. MichCon has established credit lines of up to $109 million through August 1995. Commercial paper of $54.7 million was outstanding as of March 31, 1995 under these lines. MichCon's commercial paper is currently rated "A-1" or its equivalent by the major rating agencies. In 1994, MichCon began a Trust Demand Note program which allows MichCon to borrow up to $25 million. As of March 31, 1995, borrowings of $25 million were outstanding under this program. This note was repaid in April 1995. 8 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONCLUDED) Requirements for capital investments continue to be approximately $250 million for 1995. In anticipation of future permanent capital requirements, MichCon filed with and received approval from the MPSC for the authority to issue and sell securities and enter into additional long-term financing arrangements of up to $150 million. In May 1995, MichCon filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to $150 million of first mortgage bonds. MichCon's current shelf registrations allow for the issuance of up to an additional $30 million of first mortgage bonds. During the second quarter of 1995, MichCon anticipates issuing approximately $70 million of first mortgage bonds under these shelf registration statements. MichCon's capital requirements and general financial market conditions will affect the timing and amount of future debt issuances. MichCon's capitalization objective is to maintain a ratio of approximately 50% debt and 50% equity. Future long-term debt offerings are expected to carry MichCon's current debt rating of "A." INVESTING ACTIVITIES MichCon's capital expenditures during the first quarter of 1995 totaled $28.2 million primarily consisting of new distribution lines to reach communities not previously served by MichCon. This amount represents an increase of $8.1 million from the first quarter of 1994 due to significantly colder than normal weather precluding construction activity in the 1994 quarter. It is management's opinion that MichCon will have sufficient capital resources, both internal and external, to meet anticipated capital requirements. 9 12 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS MichCon solicited the written consent of shareholders, in lieu of holding an annual meeting, for the election of directors on April 27, 1995. As of February 27, 1995, the record date for determination of shareholders entitled to consent to the proposed actions, there were 10,404,732 shares outstanding and entitled to vote. Of these shares, 10,320,363, or 99.2%, were present by proxy, and 84,369 shares were not voted. The following Directors were elected to serve one year terms:
Number of Shares Number of Shares Withholding Director Consenting FOR Consent -------------------- ---------------- ---------------- Alfred R. Glancy III 10,320,084 279 Stephen E. Ewing 10,320,084 279 William K. McCrackin 10,320,084 279 Carl J. Croskey 10,320,084 279 Daniel L. Schiffer 10,320,084 279 John E. vonRosen 10,320,084 279
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description ------- ----------- 27-1 Financial Data Schedule. (b) Reports on Form 8-K MichCon filed a report on Form 8-K dated March 14, 1995, under Item 5, in connection with gas purchases during 1994. 10 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MICHIGAN CONSOLIDATED GAS COMPANY Date: May 9, 1995 By: /s/ David R. Nowakowski ---------------------------- David R. Nowakowski Controller, Treasurer and Chief Accounting Officer 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Statement of Income and the Consolidated Statement of Financial Position and is qualified in its entirety by reference to such financial statements. 1000 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 6,933 0 214,758 20,816 28,911 355,682 2,214,163 1,092,497 1,568,035 374,979 447,858 10,300 0 0 456,569 1,568,035 0 421,812 0 326,119 738 7,750 11,225 84,892 29,282 55,610 0 0 0 55,536 0 0
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