-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FsLHMbMlvSCJ2+K91um3owdI8+/OjNgSDktcnZZX/A27Ucb2WOhu1RHSZWv+cEmN DP1iT591AUk7pmgFQmZnXA== 0000950124-97-004117.txt : 19970811 0000950124-97-004117.hdr.sgml : 19970811 ACCESSION NUMBER: 0000950124-97-004117 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 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: 97654340 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 JUNE 30, 1997, or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 1-7310 MICHIGAN CONSOLIDATED GAS COMPANY (Exact name of registrant as specified in its charter) MICHIGAN 38-0478040 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 GRISWOLD STREET, DETROIT, MICHIGAN 48226 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 313-965-2430 NO CHANGES (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares outstanding of each of the registrant's classes of common stock, as of July 31, 1997: Common Stock, par value $.01 per share: 10,300,000 ================================================================================ 2 INDEX TO FORM 10-Q FOR QUARTER ENDED JUNE 30, 1997
PAGE NUMBER ------ COVER ................................................................................... i INDEX ................................................................................... ii PART I - FINANCIAL INFORMATION Item 1. Financial Statements............................................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 1 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................................ 11 SIGNATURE ............................................................................... 12
ii 3 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Earnings increased $0.1 million for the 1997 quarter reflecting improved gross margins resulting from higher gas sales and end user transportation deliveries due to colder weather. Results for the 1997 quarter also reflect lower operation and maintenance expenses, partially offset by higher depreciation and financing costs. Earnings decreased $7.7 million and $18.3 million for the 1997 six- and twelve-month periods, respectively, reflecting reduced gross margins due to warmer weather, as well as higher operating expenses and financing costs. EARNINGS COMPONENTS (IN MILLIONS) COMPARING 1997 TO 1996
Quarter Six Months Twelve Months -------------------------- -------------------------- ------------------------ $ Change % Change $ Change % Change $ Change % Change ------------ ------------ ------------ ------------ ----------- ----------- Operating Revenue ......................... $(12.5) (5.6) $(16.5) (2.2) $ 14.6 1.2 Cost of Gas ............................... (16.6) (16.7) (12.1) (3.0) 24.3 4.1 Gross Margin .............................. 4.1 3.4 (4.4) (1.2) (9.7) (1.6) Operation and Maintenance ................. (1.8) (2.6) 3.5 2.5 13.4 4.7 Depreciation and Depletion ................ 1.7 6.8 2.8 5.7 7.6 8.1 Property and Other Taxes .................. 1.1 7.6 0.3 1.0 2.2 3.6 Other Income and Deductions ............... 2.3 21.2 2.2 9.3 1.9 4.0 Income Tax Provision ...................... 0.8 251.4 (5.3) (13.6) (16.2) (31.0)
GROSS MARGIN Gross margin (operating revenues less cost of gas) increased for the 1997 quarter but decreased for the six- and twelve-month periods, respectively. These varying results are primarily due to fluctuations in gas sales and end user transportation deliveries that were driven by the colder weather during the 1997 quarter and the warmer weather in the 1997 six- and twelve-month periods. All periods were affected by increased revenues as a result of continued growth in intermediate transportation services. EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS
Quarter Six Months Twelve Months ----------------------- ------------------------- ------------------------- 1997 1996 1997 1996 1997 1996 ---------- ----------- ----------- ------------ ----------- ------------ Percentage Colder (Warmer) than Normal ......................... 21.9% 13.6% 1.9% 7.3% 2.0% 7.4% Increase (Decrease) from Normal in: Gas Markets (Bcf) ................. 4.6 3.2 1.5 8.6 3.8 14.8 Net Income (Millions) ............. $ 4.1 $ 2.9 $1.3 $7.8 $3.4 $13.3
1 4 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Gas sales and end user transportation revenues in total decreased $16.9 million and $23.2 million in the 1997 quarter and six-month period, respectively and increased $4.2 million in the 1997 twelve-month period. The decline in gas sales revenues for the 1997 quarter results primarily from a reduction in gas sales rates required to recover lower gas costs, as discussed below. The decrease in gas sales revenue was partially offset by increased deliveries due to colder weather. The decrease in gas sales revenue for the 1997 six-month period reflects lower deliveries due to warmer weather, partially offset by an increase in the gas cost recovery rate. The 1997 twelve-month period increase in revenues is primarily the result of a gas cost recovery rate increase, substantially offset by lower volumes due to warmer weather.
Quarter Six Months Twelve Months ----------------- ----------------- ------------------ 1997 1996 1997 1996 1997 1996 ------- ------ ------- ------- ------ ------ GAS MARKETS (IN Bcf) Gas Sales......................... 34.7 34.0 128.0 136.2 209.4 222.4 End User Transportation........... 32.7 32.0 77.0 79.4 144.3 149.0 Intermediate Transportation....... 141.6 110.3 282.2 258.3 551.3 429.2 ----- ----- ----- ----- ----- ----- 209.0 176.3 487.2 473.9 905.0 800.6 ===== ===== ===== ===== ===== =====
Intermediate transportation revenues increased for the 1997 quarter, six- and twelve-month periods by $2.2 million, $5.3 million and $14.5 million, respectively due to increased deliveries. The increase in intermediate transportation deliveries for all periods reflects additional volumes transported in connection with the recent expansion of the northern Michigan gathering system. The northern Michigan gathering system enabled MichCon to transport an additional 15.3 Bcf, 32.9 Bcf and 108.8 Bcf for the 1997 quarter, six- and twelve-month periods. Intermediate transportation volumes for the 1997 quarter and twelve-month period were impacted by increased deliveries to two major customers. Volumes transported in the six-month period for these two customers reflected a decrease. Although volumes for these fixed-fee customers may vary, the related revenues are not significantly affected. Other operating revenues decreased by $4.2 million in the 1997 twelve-month period due primarily to a decrease in conservation revenue resulting from the discontinuation of MichCon's conservation programs, which also impacted the quarter and six-month period. As discussed in the "Operation and Maintenance" section that follows, this decrease is offset by a corresponding decrease in expenses related to the conservation programs. The decrease in other operating revenues is partially offset by an increase in gas processing revenues from the northern Michigan gathering system which was transferred from MCN Energy Group Inc. (MCN) to MichCon at the beginning of 1996. 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 total gas costs have little or no effect on gross margins and earnings. Cost of gas sold decreased in the 1997 quarter and six-month period but increased in the twelve-month period. The decrease in market prices paid for gas resulted in a decrease in the cost of gas sold of $.50 (16%) in the 1997 quarter. The increase in market prices paid for gas resulted in an increase in the cost of gas sold of $.15 (5%) and $.26 (9%) in the 1997 six- and twelve- month periods, respectively. The 2 5 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) rate increase in the 1997 six-month period was more than offset by lower volumes due to warmer weather. The 1997 twelve-month period was partially offset by lower volumes due to warmer weather. OPERATION AND MAINTENANCE Operation and maintenance expenses decreased for the 1997 second quarter and increased for the 1997 six- and twelve-month periods. Operation and maintenance expenses were affected in all periods by lower benefit costs, primarily pension and retiree health care costs. The 1997 quarter further benefited from a decrease in uncollectibles expense which was partially offset by an increase in operating expenses related to the increase in intermediate transportation volumes as discussed above. For the 1997 six-month period, the decrease in benefit costs was more than offset by an increase in operating expenses related to the increase in intermediate transportation volumes. The increase in the 1997 twelve-month period is due to higher uncollectibles expense and the additional operating expense related to the increase in intermediate transportation volumes. As previously discussed, the discontinuance of the conservation programs reduced expenses in all 1997 periods. Management continues to evaluate company processes for potential operating cost reductions. DEPRECIATION AND DEPLETION The increase in depreciation and depletion for the 1997 quarter, six- and twelve-month periods is due to higher plant balances reflecting capital expenditures of $448.4 million over the past two calendar years. Depreciation and depletion expenses are expected to increase in future years due to additional capital investments. MichCon filed an application with the MPSC to lower its depreciation rates which could offset the anticipated increase in depreciation expense in future years. PROPERTY AND OTHER TAXES Property and other taxes increased in the 1997 quarter due to an increase in the Michigan single business tax relating to a prior year, partially offset by a reduction in property taxes. OTHER INCOME AND DEDUCTIONS Other income and deductions increased in all the 1997 periods due to additional interest expense resulting from increased long-term debt required to finance capital investments. Other interest expense increased for all periods due to a resolution of a Michigan single business tax issue from prior years that resulted in additional interest expense. For the 1997 quarter and six-month period, other interest expense was partially offset by a decrease in interest expense due to a reduction in commercial paper outstanding. INCOME TAX PROVISION Income taxes changed primarily as a result of variations in earnings. Income taxes also were affected by the favorable resolution of prior years' tax issues. 3 6 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CAPITAL RESOURCES AND LIQUIDITY OPERATING ACTIVITIES MichCon's cash flow from operating activities totaled $273.8 million for the 1997 six-month period, increasing $110.2 million from the comparable 1996 period. The increase was due primarily to lower working capital requirements reflecting a reduction in the gas cost recovery undercollection, offset by lower net income after adjusting for depreciation and deferred taxes. Operating cash flows were sufficient for the payment of cash dividends on common stock and a portion of capital investments. FINANCING ACTIVITIES Cash and cash equivalents increased by $8.3 million during the 1997 six-month period. Cash and cash equivalents normally increase and short-term debt is reduced in the first part of each year as gas inventories are depleted and funds are received from heating sales. During the latter part of the year, short-term debt is generally incurred to finance increases in gas inventories and accounts receivable from customers. 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 $150 million under a 364-day revolving credit facility and up to $150 million under a three-year revolving credit facility. During the first six months of 1997, MichCon repaid $238.3 million of commercial paper. At June 30, 1997, there were no borrowings outstanding under this program. During May 1997, MichCon issued $85 million of first mortgage bonds under its shelf registrations. The funds from this issuance were used to retire first mortgage bonds, fund capital expenditures and for general corporate purposes. MichCon's capital requirements and general market conditions will affect the timing and amount of future issuances. During April 1997, subsidiaries of MichCon borrowed $40 million under a non-recourse credit agreement that matures in 2005. Proceeds were used to finance the expansion of its northern Michigan gathering system. During the 1997 quarter, MichCon redeemed early $17 million of long-term debt. MichCon also repaid $50 million of first mortgage bonds on its stated maturity date in May 1997. MichCon has available a Trust Demand Note program which allows it to borrow up to $25 million. As of June 30, 1997 there were no borrowings outstanding under this program. MichCon's capitalization objective is to maintain a ratio of approximately 50% debt and 50% equity. At June 30, 1997, the common equity ratio was 51.2% of total capitalization. INVESTING ACTIVITIES MichCon's capital expenditures totaled $57.4 million during the 1997 six-month period and are anticipated to be approximately $160 million by the end of the year. These investments will be made to add new customers, develop new gas transportation markets, make improvements to existing storage and transmission systems and to improve its information systems. 4 7 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONCLUDED) It is management's opinion that MichCon will have sufficient capital resources, both internal and external, to meet anticipated capital requirements. OUTLOOK MichCon's strategy is to 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 through the expansion of MichCon's 1.2 million residential, commercial and industrial customer base. In 1997, MichCon is concentrating on adding new customers in current service areas including increased penetration of previous expansion areas. MichCon will continue initiatives to increase productivity and improve customer services in order to strengthen its competitive position in the gas industry. Management is continually assessing ways to improve cost competitiveness. Among the cost savings initiatives, MichCon and other Michigan utilities are exploring opportunities to share the cost of similar functions in order to obtain greater efficiencies and increase customer value. NEW ACCOUNTING PRONOUNCEMENTS In 1996 the Emerging Issues Task Force of the FASB reached a consensus that the costs associated with modifying internal use software for the year 2000 should be expensed as incurred. MichCon has established processes for evaluating and managing the risks and costs associated with this issue. MichCon is assessing the extent of necessary modifications to its computer software and the impact on the financial position and results of operations. FORWARD-LOOKING STATEMENTS Statements included throughout the Quarterly Report on Form 10-Q which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain risks and uncertainties that may cause actual future results to differ materially from those contemplated, projected, estimated or budgeted in such forward-looking statements. Factors that may impact forward-looking statements include, but are not limited to, the following: (i) the effects of weather and other natural phenomenon; (ii) increased competition from other energy suppliers as well as alternative forms of energy; (iii) the capital intensive nature of MichCon's business; (iv) economic climate and growth in the geographic areas in which MichCon does business; (v) the uncertainty of gas reserve estimates; (vi) the timing and extent of changes in commodity prices for natural gas, electricity and crude oil and (vii) conditions of capital markets and equity markets. 5 8 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (THOUSANDS OF DOLLARS)
THREE MONTHS ENDED SIX MONTHS eNDED JUNE 30, JUNE 30, --------------------------- --------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- OPERATING REVENUES.......................... $ 209,800 $ 222,327 $ 737,245 $ 753,719 ---------- ---------- ---------- ---------- OPERATING EXPENSES Cost of gas............................... 83,031 99,681 386,304 398,397 Operation and maintenance................. 69,394 71,212 143,499 139,983 Depreciation and depletion................ 26,424 24,740 51,925 49,133 Property and other taxes.................. 16,141 15,004 33,935 33,612 ---------- ---------- ---------- ---------- Total operating expenses................ 194,990 210,637 615,663 621,125 ---------- ---------- ---------- ---------- OPERATING INCOME............................ 14,810 11,690 121,582 132,594 ---------- ---------- ---------- ---------- EQUITY IN EARNINGS OF JOINT VENTURES........ 331 260 641 495 ---------- ---------- ---------- ---------- OTHER INCOME AND (DEDUCTIONS) Interest income........................... 1,277 634 2,486 1,219 Interest on long-term debt................ (11,574) (10,269) (22,314) (19,925) Other interest expense.................... (1,858) (940) (4,749) (3,775) Minority interest......................... (595) (354) (933) (702) Other..................................... (304) 159 (103) (249) ---------- ---------- ---------- ---------- Total other income and (deductions)..... (13,054) (10,770) (25,613) (23,432) ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES.................. 2,087 1,180 96,610 109,657 INCOME TAX PROVISION........................ 1,156 329 33,486 38,766 ---------- ---------- ---------- ---------- NET INCOME.................................. 931 851 63,124 70,891 DIVIDENDS ON PREFERRED STOCK................ - - - 18 ---------- ---------- ---------- ---------- NET INCOME AVAILABLE FOR COMMON STOCK....... $ 931 $ 851 $ 63,124 $ 70,873 ========== ========== ========== ========== TWELVE MONTHS ENDED JUNE 30, --------------------------- 1997 1996 ---------- ---------- OPERATING REVENUES.......................... $1,242,311 $1,227,752 ---------- ---------- OPERATING EXPENSES Cost of gas............................... 624,501 600,192 Operation and maintenance................. 297,797 284,404 Depreciation and depletion................ 100,939 93,380 Property and other taxes.................. 62,085 59,935 ---------- ---------- Total operating expenses................ 1,085,322 1,037,911 ---------- ---------- OPERATING INCOME............................ 156,989 189,841 ---------- ---------- EQUITY IN EARNINGS OF JOINT VENTURES........ 1,032 858 ---------- ---------- OTHER INCOME AND (DEDUCTIONS) Interest income........................... 5,167 3,203 Interest on long-term debt................ (43,092) (39,606) Other interest expense.................... (8,986) (7,177) Minority interest......................... (1,219) (702) Other..................................... (1,610) (3,534) ---------- ---------- Total other income and (deductions)..... (49,740) (47,816) ---------- ---------- INCOME BEFORE INCOME TAXES.................. 108,281 142,883 INCOME TAX PROVISION........................ 36,206 52,431 ---------- ---------- NET INCOME.................................. 72,075 90,452 DIVIDENDS ON PREFERRED STOCK................ - 125 ---------- ---------- NET INCOME AVAILABLE FOR COMMON STOCK....... $ 72,075 $ 90,327 ========== ==========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (UNAUDITED) (THOUSANDS OF DOLLARS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 1997 1996 1997 1996 -------- -------- -------- -------- BALANCE - BEGINNING OF PERIOD............... $383,498 $330,766 $336,305 $267,744 Add - Net income.......................... 931 851 63,124 70,891 -------- -------- -------- -------- 384,429 331,617 399,429 338,635 Deduct - Cash dividends declared: Preferred stock......................... - - - 18 Common stock............................ 25,000 - 40,000 7,000 -------- -------- -------- -------- BALANCE - END OF PERIOD..................... $359,429 $331,617 $359,429 $331,617 ======== ======== ======== ======== TWELVE MONTHS ENDED JUNE 30, --------------------------- 1997 1996 -------- -------- BALANCE - BEGINNING OF PERIOD............... $331,617 $248,290 Add - Net income.......................... 72,075 90,452 -------- -------- 403,692 338,742 Deduct - Cash dividends declared: Preferred stock......................... - 125 Common stock............................ 44,263 7,000 -------- -------- BALANCE - END OF PERIOD..................... $359,429 $331,617 ======== ========
The notes to the consolidated financial statements are an integral part of these statements. 6 9 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited) (Thousands of Dollars)
JUNE 30, DECEMBER 31, ---------------------- ------------ 1997 1996 1996 ---------------------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents, at cost (which approximates market value)............. $ 18,355 $ 8,866 $ 10,010 Accounts receivable, less allowance for doubtful accounts of $23,442, $18,222 and $17,707, respectively...................................... 173,373 192,849 169,436 Accrued unbilled revenues........................................................ 16,158 16,554 107,377 Gas in inventory (Note 1)........................................................ 36,499 25,238 67,910 Property taxes assessed applicable to future periods............................. 37,885 35,176 60,592 Accrued gas cost recovery revenues............................................... 14,072 42,026 27,672 Other............................................................................ 29,344 33,683 23,025 ---------- ---------- ---------- 325,686 354,392 466,022 ---------- ---------- ---------- DEFERRED CHARGES AND OTHER ASSETS Investment in and advances to joint ventures..................................... 19,731 20,377 19,479 Deferred postretirement benefit costs............................................ 1,886 9,342 4,863 Deferred environmental costs..................................................... 27,680 28,016 28,233 Prepaid benefit costs............................................................ 64,737 50,640 64,307 Other............................................................................ 54,324 48,341 50,206 ---------- ---------- ---------- 168,358 156,716 167,088 ---------- ---------- ---------- Property, Plant and Equipment, at cost............................................. 2,706,922 2,540,829 2,668,294 Less - Accumulated depreciation and depletion ................................... 1,282,057 1,199,871 1,243,060 ---------- ---------- ---------- 1,424,865 1,340,958 1,425,234 ---------- ---------- ---------- $1,918,909 $1,852,066 $2,058,344 ========== ========== ========== LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable................................................................. $ 105,822 $ 94,102 $ 130,725 Notes payable.................................................................... 38,366 58,291 265,126 Current portion of long-term debt and capital lease obligations.................. 28,512 53,177 53,232 Gas inventory equalization (Note 1).............................................. 66,685 53,295 - Federal income, property and other taxes payable................................. 73,638 64,715 84,788 Customer deposits................................................................ 11,985 9,845 12,860 Other............................................................................ 45,842 55,084 63,309 ---------- ---------- ---------- 370,850 388,509 610,040 ---------- ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes................................................ 78,701 82,872 76,523 Unamortized investment tax credit................................................ 33,666 35,512 34,588 Tax benefits amortizable to customers............................................ 115,432 113,449 116,313 Accrued environmental costs...................................................... 32,000 32,000 32,000 Minority interest................................................................ 18,070 18,171 17,604 Other............................................................................ 40,578 56,892 43,954 ---------- ---------- ---------- 318,447 338,896 320,982 ---------- ---------- ---------- LONG-TERM DEBT, INCLUDING CAPITAL LEASE OBLIGATIONS (NOTE 2) .................... 629,484 552,345 550,318 ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES (NOTE 4) COMMON SHAREHOLDER'S EQUITY Common stock..................................................................... 10,300 10,300 10,300 Additional paid-in capital....................................................... 230,399 230,399 230,399 Retained earnings................................................................ 359,429 331,617 336,305 ---------- ---------- ---------- 600,128 572,316 577,004 ---------- ---------- ---------- $1,918,909 $1,852,066 $2,058,344 ========== ========== ==========
The notes to the consolidated financial statements are an integral part of this statement. 7 10 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (THOUSANDS OF DOLLARS)
SIX MONTHS ENDED JUNE 30, -------------------- 1997 1996 -------- -------- CASH FLOW FROM OPERATING ACTIVITIES Net income.................................................... $ 63,124 $ 70,891 Adjustments to reconcile net income to net cash flow provided from operating activities: Depreciation and depletion Per statement of income................................. 51,925 49,133 Charged to other accounts............................... 3,724 3,755 Deferred income taxes - current........................... (13,122) 1,079 Deferred income taxes and investment tax credit - net... 375 11,408 Other..................................................... (544) (1,442) Changes in assets and liabilities, exclusive of changes shown separately........................................ 168,284 28,753 -------- -------- Net cash provided from operating activities........... 273,766 163,577 -------- -------- CASH FLOW FROM FINANCING ACTIVITIES Notes payable - net........................................... (226,760) (138,344) Issuance of long-term debt.................................... 124,051 69,645 Additional paid-in-capital.................................... - 1,614 Cash dividend paid: Common stock................................................ (40,000) (7,000) Preferred stock............................................. - (54) Retirement of long-term debt and preferred stock.............. (72,229) (4,347) -------- -------- Net cash used for financing activities................ (214,938) (78,486) -------- -------- CASH FLOW FROM INVESTING ACTIVITIES Capital expenditures.......................................... (57,423) (73,823) Other - net................................................... 6,940 (10,871) -------- -------- Net cash used for investing activities................ (50,483) (84,694) -------- -------- Net Increase in Cash and Cash Equivalents....................... 8,345 397 Cash and Cash Equivalents, January 1............................ 10,010 8,469 -------- -------- Cash and Cash Equivalents, June 30.............................. $ 18,355 $ 8,866 ======== ======== CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY Accounts receivable - net................................... $ (7,915) $(14,315) Gas inventory equalization.................................. 66,685 53,295 Accrued gas cost recovery revenues.......................... 13,600 (42,026) Accrued unbilled revenues................................... 91,219 74,580 Gas in inventory............................................ 31,411 14,953 Property taxes assessed applicable to future periods...... 22,707 22,983 Accounts payable............................................ (24,903) (15,222) Federal income, property and other taxes payable........... (11,150) (22,497) Other current assets and liabilities........................ (11,236) (13,490) Deferred and prepaid benefit costs.......................... 2,547 13,685 Deferred assets and liabilities............................. (4,681) (43,193) -------- -------- $168,284 $ 28,753 ======== ======== SUPPLEMENTAL DISCLOSURES Cash paid for: Interest, net of amounts capitalized........................ $ 15,446 $ 24,216 ======== ======== Federal income taxes........................................ $ 29,299 $ 24,456 ======== ======== Noncash financing activities: Transfer of pipeline net assets from MCN.................... $ - $ 17,008 ======== ========
The notes to the consolidated financial statements are an integral part of this statement. 8 11 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GAS IN INVENTORY Inventory gas is priced on a last-in, first-out (LIFO) basis. In anticipation that interim inventory reductions will be replaced prior to year end, the cost of gas for net withdrawals from inventory is recorded at the estimated average purchase rate for the calendar year. The excess of these charges over the LIFO cost is credited to the gas inventory equalization account. During interim periods when there are net injections to inventory, the equalization account is reversed. Approximately 39.8 billion cubic feet (Bcf) and 40.6 Bcf of gas was included in inventory at June 30, 1997 and 1996, respectively. 2. CAPITALIZATION A. LONG-TERM DEBT ISSUANCE The following long-term debt totaling $85,000,000 was issued in May 1997: First Mortgage Bonds Amount Issued -------------------- ------------- 7.21%, due May 2007 $30,000,000 7.06%, due May 2012 $40,000,000 7.60%, due May 2017 $15,000,000 These funds were used to repay short-term debt used to retire first mortgage bonds on May 1, 1997, fund capital expenditures and for general corporate purposes. MichCon has entered into variable interest rate swap agreements with notional principal amounts aggregating $80,000,000 in connection with the first mortgage bonds issued May 1997. Swap agreements of $40,000,000 through May 2002 have reduced the average cost of debt from 7.31% to 6.30% for the two months ended June 30, 1997. Swap agreements of $40,000,000 through May 2005 have reduced the average cost of debt from 7.06% to 5.90% for the two months ended June 30, 1997. During April 1997, MichCon subsidiaries borrowed $40,000,000 under a non-recourse credit agreement at an average interest rate of 6.45%. Under terms of the agreement, certain alternative variable interest rates are available at the borrowers option during the life of the agreement. Quarterly principal payments commenced in June 1997 with a final installment due November 2005. The loan is secured by a pledge of stock of the borrowers and a security interest in certain of their assets. B. LONG-TERM DEBT REDEMPTION In the second quarter of 1997, MichCon redeemed early $5,000,000 of 9.50% first mortgage bonds and $12,000,000 of 9.75% unsecured notes. As noted in MichCon's 1996 Form 10-K, the company had a variable interest rate swap agreement through April 2000 on the $12,000,000 unsecured notes. This agreement reduced the cost of debt of the fixed-rate unsecured notes from 9.75% to 5.77% for the six months ended June 30, 1997. This swap has been redesignated as a hedge of other outstanding first mortgage bonds. 9 12 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED) 3. LINES OF CREDIT MichCon has established credit lines that allow for borrowings of up to $150,000,000 under a 364-day revolving credit facility and up to $150,000,000 under a three-year revolving credit facility. These credit lines totaling $300,000,000 support its commercial paper program. No borrowings were outstanding under these lines as of June 30, 1997. The 364-day revolving credit facility was renewed in July 1997. The three-year revolving credit facility expires in July 1998. 4. COMMITMENTS AND CONTINGENCIES MichCon is involved in certain legal and administrative proceedings before various courts and governmental agencies concerning claims arising in the ordinary course of business. Management cannot predict the final disposition of such proceedings, but believes that adequate provision has been made for probable losses. It is management's belief, after discussion with legal counsel, that the ultimate resolution of those proceedings still pending will not have a material adverse effect on MichCon's financial statements. 5. GENERAL There have been no changes in MichCon's principal accounting policies from those set forth in MichCon's 1996 Annual Report on Form 10-K. Certain reclassifications have been made to the prior year's financial statements to conform with the 1997 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. 10 13 OTHER INFORMATION EXHIBITS (a) Exhibits EXHIBIT NUMBER DESCRIPTION ------- -------------------------------------------------- 12-1 Computation of Ratio of Earnings to Fixed Charges. 27-1 Financial Data Schedule. (b) Reports on Form 8-K MichCon filed a report on Form 8-K dated May 14, 1997, under Item 5, with respect to the issuance of $40,000,000 of First Mortgage Bonds Designated As 7.06% Secured Medium-Term Notes, Series B, due May 1, 2012, and $30,000,000 of First Mortgage Bonds Designated As 7.21% Secured Medium-Term Notes, Series C, due May 1, 2007 and $15,000,000 of First Mortgage Bonds Designated As 7.60% Secured Medium-Term Notes, Series C, due May 1, 2017. Forms of Underwriting Agreement for each bond were filed as Exhibits thereto. 11 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MICHIGAN CONSOLIDATED GAS COMPANY Date: August 8, 1997 By: /s/ Howard L. Dow III ------------------------------- Howard L. Dow III Vice President and Chief Financial Officer 12 15 EXHIBIT INDEX SEQUENTIALLY NUMBERED EXHIBIT NUMBER DESCRIPTION PAGE - -------------- ----------- ------------ 12-1 Computation of Ratio of Earnings 27-1 Financial Data Schedule EX-12.1 2 EX-12.1 1 EXHIBIT 12-1 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (THOUSANDS OF DOLLARS)
Twelve Months Ended Twelve Months Ended Twelve Months Ended ------------------- ------------------- ------------------- June 30, 1997 December 31, 1996 December 31, 1995 ------------------- ------------------- ------------------- EARNINGS AS DEFINED (1) Net Income .................................. $109,406 $122,239 $112,727 Fixed charges ............................... 57,100 53,831 45,637 -------- -------- -------- Earnings as defined ........................ $166,506 $176,070 $158,364 ======== ======== ======== FIXED CHARGES AS DEFINED (1) Interest on long-term debt .................. $ 45,546 $ 43,163 $35,820 Interest on other borrowed funds ............ 8,986 8,012 7,053 Amortization of debt discounts, premium and expense ................................ 1,085 1,081 996 Interest implicit in rentals (2) ............ 1,483 1,575 1,768 -------- -------- -------- Fixed charges as defined ................... $ 57,100 $ 53,831 $ 45,637 ======== ======== ======== Ratio of Earnings to Fixed Charges .......... 2.92 3.27 3.47 ======== ======== ========
Notes: (1) Earnings and fixed charges are defined and computed in accordance with Item 503 of Regulation S-K. (2) This amount is estimated to be a reasonable approximation of the interest portion of rentals. MichCon is a guarantor of certain other debt. Fixed charges related to such debt are deemed to be immaterial and therefore have been excluded from the above ratios. EX-27.1 3 EX-27.1
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. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 18,355 0 196,815 23,442 36,499 325,686 2,706,922 1,282,057 1,918,909 370,850 629,484 0 0 10,300 589,828 1,918,909 0 737,245 0 615,663 1,036 13,240 27,063 96,610 33,486 63,124 0 0 0 63,124 0.0 0.0
-----END PRIVACY-ENHANCED MESSAGE-----