-----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, Fx2g1iB/XLhxicp5d0xbVBTon4WGfGMUM807TystpOu3GEIfIfRdxLf42ezwPZKG /h2Vh+hdzXdftOuuzp/WaQ== 0000950124-98-002911.txt : 19980515 0000950124-98-002911.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950124-98-002911 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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: SEC FILE NUMBER: 001-07310 FILM NUMBER: 98621258 BUSINESS ADDRESS: STREET 1: 500 GRISWOLD ST CITY: DETROIT STATE: MI ZIP: 48226 BUSINESS PHONE: 3139652430 10-Q 1 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, 1998, or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-7310 MICHIGAN CONSOLIDATED GAS COMPANY (Exact name of registrant as specified in its charter) MICHIGAN 38-0478040 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 GRISWOLD STREET, DETROIT, MICHIGAN 48226 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 313-965-2430 NO CHANGES (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares outstanding of each of the registrant's classes of common stock, as of April 30, 1998: Common Stock, par value $.01 per share: 10,300,000 2 INDEX TO FORM 10-Q FOR QUARTER ENDED MARCH 31, 1998
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............................................... 10 SIGNATURE............................................................................... 11
ii 3 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Earnings decreased only $0.5 million for the 1998 quarter and increased $6.5 million for the twelve-month period, despite significantly warmer weather. These results reflect lower operating costs as well as continued growth in intermediate transportation services. - -------------------------------------------------------------------------------- SELECTED EARNINGS COMPONENTS (IN MILLIONS) COMPARING 1998 TO 1997
Quarter Twelve Months ------- ------------- $ Change % Change $ Change % Change -------- -------- -------- -------- Operating Revenue.................. $(98.2) (18.6)% $(99.4) (7.9)% Cost of Gas........................ (85.7) (28.3) (94.6) (14.8) Gross Margin....................... (12.5) (5.6) (4.8) (0.8) Operation and Maintenance.......... (11.9) (16.0) (28.9) (9.6) Depreciation and Depletion......... (3.1) (12.0) 1.4 1.4 Other Income and Deductions........ 2.1 17.5 5.3 11.4 Income Tax Provision 1.3 4.0 11.6 32.7 Net Income......................... (0.5) (0.9) 6.5 9.0
- -------------------------------------------------------------------------------- GROSS MARGIN Gross margin (operating revenues less cost of gas) decreased in the 1998 quarter and twelve-month period, reflecting lower gas deliveries resulting from warmer weather. These declines were partially offset by increased revenues from intermediate transportation and gas-related services. EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS
Quarter Twelve Months ------- ------------- 1998 1997 1998 1997 ---- ---- ---- ---- Percentage Colder (Warmer) than Normal ......................... (18.8)% (3.3)% (6.9)% 1.0% Increase (Decrease) from Normal in: Gas Markets (Bcf) ............... (19.2) (3.1) (15.5) 2.4 Net Income (Millions) .......... $(16.7) $(2.8) $(13.5) $2.2
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 $108.8 million and $123.4 million in the 1998 quarter and twelve-month period, respectively. The decrease in revenues for both periods is due primarily to reduced gas sales as a result of warmer weather, as well as lower prices required to recover gas costs. End user transportation deliveries also declined in both periods; however, revenues increased in the twelve-month period as a result of a slight increase in the average transportation rate.
- ----------------------------------------------------------------------------------------------------------- Quarter Twelve Months ------- ------------- 1998 1997 1998 1997 ---- ---- ---- ---- GAS MARKETS ($ MILLIONS) Gas Sales................................... $ 366.9 $ 474.8 $ 954.8 $1,079.9 End User Transportation..................... 25.0 25.9 83.6 81.9 Intermediate Transportation................. 18.0 14.8 58.4 51.9 Other....................................... 19.3 11.9 58.7 41.1 -------- -------- -------- -------- $ 429.2 $ 527.4 $1,155.5 $1,254.8 ======== ======== ======== ======== GAS MARKETS (IN BCF) Gas Sales................................... 78.7 93.3 191.1 208.8 End User Transportation..................... 42.4 44.3 143.1 143.6 Intermediate Transportation................. 148.4 140.6 594.3 519.4 -------- -------- -------- -------- 269.5 278.2 928.5 871.8 ======== ======== ======== ======== - -----------------------------------------------------------------------------------------------------------
Intermediate transportation revenues increased for the 1998 quarter and twelve-month period by $3.2 million and $6.5 million, respectively, due to increased deliveries. The increase in intermediate transportation deliveries for both periods reflects additional Antrim gas volumes transported for Michigan gas producers and brokers. In December 1997, MichCon purchased a pipeline to expand the transportation capacity of its northern Michigan gathering system. This expansion made possible an increase of 8.1 Bcf in volumes transported in 1998. Although volumes have increased significantly, profit margins on intermediate transportation services are considerably less than margins on gas sales or end user transportation services. Other operating revenues increased in both 1998 periods due in part to an increase in gas-related services. Also affecting the comparison to the 1997 periods are unfavorable adjustments for energy conservation revenues in the 1997 periods resulting from the discontinuance of MichCon's energy conservation programs. COST OF GAS Cost of gas is affected by variations in sales volumes and cost of purchased gas and related transportation. Under the existing Gas Cost Recovery (GCR) mechanism, MichCon recovers all of its reasonably and prudently incurred cost of gas sold. As a result, fluctuations in cost of gas sold had little effect on gross margins. Cost of gas sold decreased in the 1998 periods due primarily to lower sales volumes, resulting from warmer weather. The decrease also reflects reductions in the market prices paid of $.48 (15%) and $.19 (6%) per thousand cubic feet of gas sold in the 1998 quarter and twelve-month period, respectively. 2 5 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OPERATION AND MAINTENANCE Operation and maintenance expenses decreased for both 1998 periods, reflecting lower uncollectible gas accounts expense and lower benefit costs, primarily pension and retiree health care costs. MichCon implemented an early retirement program in the first quarter of 1998 which reduced its work force by approximately 150 employees. The cost of the program and the related savings will not have a material impact on 1998 net income. However, it is expected that the results of the program will contribute to lower operating costs in future years. DEPRECIATION AND DEPLETION The decrease in depreciation and depletion for the 1998 quarter reflects lower depreciation rates for MichCon's utility property, plant and equipment, which became effective January 1, 1998. Depreciation on higher plant balances partially offset the effect of the lower rates. OTHER INCOME AND DEDUCTIONS Other income and deductions increased in both 1998 periods due primarily to additional interest expense on long-term debt required to finance capital investments. INCOME TAX PROVISION Income taxes for the 1998 periods increased as a result of higher earnings and a 1998 provision for tax issues. The increase in income taxes was also impacted by amounts recorded in 1997 and 1996 for the favorable resolution of prior years' tax issues and tax credits. CAPITAL RESOURCES AND LIQUIDITY OPERATING ACTIVITIES MichCon's cash flow from operating activities totaled $170.1 million for the 1998 quarter, increasing $23.3 million from the comparable 1997 period. The increase was due primarily to lower working capital requirements resulting from the collection of previously unrecovered gas costs. Operating cash flows in the first quarter were sufficient to fund all capital investments. FINANCING ACTIVITIES Cash and cash equivalents normally increase and short-term debt is reduced in the first part of each year as gas inventories are depleted and funds are received from heating sales. During the latter part of the year, cash and cash equivalents normally decrease as funds are used to finance increases in gas inventories and customer accounts receivable. To meet its seasonal short-term borrowing needs, MichCon normally issues commercial paper that is backed by credit lines with several banks. MichCon has established credit lines to allow for borrowings of up to $150 million under a 364-day revolving credit facility and up to $150 million under a three-year revolving credit facility, both of which expire July 1998. During the first three months of 1998, MichCon repaid $123.2 million of commercial paper, leaving a balance of $113.5 million outstanding at March 31, 1998. 3 6 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) MichCon's existing shelf registration allows for the issuance of up to $215 million of debt securities. MichCon anticipates the issuance of an additional $50 million of first mortgage bonds during 1998. The funds from these issuances will be used to fund capital expenditures and for general corporate purposes. INVESTING ACTIVITIES MichCon's capital expenditures totaled $38.3 million during the 1998 quarter and are anticipated to be approximately $200 million by the end of the year. Capital expenditures primarily represent the construction of transportation pipelines, the construction of new distribution lines to attach new customers, new computer systems and improvements to existing storage, distribution, and transmission systems. It is management's opinion that MichCon will have sufficient capital resources, both internal and external, to meet anticipated capital requirements. OUTLOOK MichCon's strategy is to aggressively expand its role as the preferred provider of natural gas and high-value energy services within Michigan. Accordingly, MichCon's objectives are to increase revenues and reduce its costs in order to maintain strong returns and provide customers with high-quality service at competitive prices. MichCon plans to capitalize on the opportunities resulting from the gas industry restructuring by implementing its Regulatory Reform Plan which was approved by the Michigan Public Service Commission in April 1998. The plan includes a comprehensive experimental three-year customer choice program that is designed to offer expanded availability and transportation options to all sales customers, subject to annual caps on the level of participation. Beginning April 1, 1999, customers will have the option of purchasing natural gas from suppliers other than MichCon. However, MichCon will continue to transport and deliver the gas to the customers' premises at prices equal to its existing sales margins. The plan also suspends the GCR mechanism for customers who continue to purchase gas from MichCon and fixes the gas cost component of MichCon's sales rates for the three-year period beginning on January 1, 1999. Currently MichCon does not generate earnings on the gas-supply portion of its operations; however under this plan, changes in cost of gas will directly impact gross margins and earnings. As part of its gas acquisition strategy, MichCon will implement steps to mitigate risks from price and volume fluctuations. Also beginning in 1999, an income sharing mechanism will allow customers to share in profits when actual utility return on equity exceeds predetermined thresholds. Although this program increases MichCon's risk associated with generating margins that cover its gas costs, management believes the opportunities from this program will have a favorable impact on future earnings. 4 7 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONCLUDED) NEW ACCOUNTING PRONOUNCEMENTS In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AcSEC) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires the capitalization of internal-use software and specifically identifies which types of costs should be capitalized and which types of costs should be expensed. The statement is effective for fiscal years beginning after December 15, 1998. Management does not expect the SOP to have a material impact on MichCon's financial statements. In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up Activities." SOP 98-5 requires organizational and start-up costs to be expensed as incurred and is effective for fiscal years beginning after December 15, 1998. Management does not expect the SOP to have a material impact on MichCon's financial statements. FORWARD-LOOKING STATEMENTS The Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain risks and uncertainties that may cause actual future results to differ materially from those contemplated, projected, estimated or budgeted in such forward-looking statements. Factors that may impact forward-looking statements include, but are not limited to, the following: (i) the effects of weather and other natural phenomenon; (ii) increased competition from other energy suppliers as well as alternative forms of energy; (iii) the capital intensive nature of MichCon's business; (iv) economic climate and growth in the geographic areas in which MichCon does business; (v) the uncertainty of gas reserve estimates; (vi) the timing and extent of changes in commodity prices for natural gas, electricity and crude oil; (vii) conditions of capital markets and equity markets and (viii) the effects of changes in governmental policies and regulatory actions, including income taxes, environmental compliance and authorized rates. 5 8 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (THOUSANDS OF DOLLARS)
Three Months Ended Twelve Months Ended March 31, March 31, ----------------------------- ------------------------------ 1998 1997 1998 1997 ------------- -------------- --------------- -------------- Operating Revenues........................... $ 429,227 $ 527,445 $ 1,155,461 $ 1,254,838 ---------- --------- ----------- ----------- Operating Expenses Cost of gas................................ 217,589 303,273 546,545 641,151 Operation and maintenance.................. 62,222 74,105 270,757 299,615 Depreciation and depletion................. 22,445 25,501 100,647 99,255 Property and other taxes................... 17,302 17,794 60,252 60,948 --------- --------- ----------- ----------- Total operating expenses................. 319,558 420,673 978,201 1,100,969 --------- --------- ----------- ----------- Operating Income............................. 109,669 106,772 177,260 153,869 --------- --------- ----------- ----------- Other Income and (Deductions) Interest income............................ 1,112 1,209 4,562 4,524 Interest on long-term debt................. (12,206) (10,740) (46,992) (41,787) Other interest expense..................... (3,257) (2,891) (9,030) (8,068) Minority interest.......................... (745) (338) (2,289) (978) Equity in Earnings of Joint Ventures....... 589 310 1,478 961 Other...................................... 121 201 456 (1,147) --------- --------- ----------- ----------- Total other income and (deductions)...... (14,386) (12,249) (51,815) (46,495) --------- --------- ----------- ----------- Income Before Income Taxes................... 95,283 94,523 125,445 107,374 Income Tax Provision......................... 33,619 32,330 46,954 35,379 --------- --------- ----------- ----------- Net Income Available for Common Stock........ $ 61,664 $ 62,193 $ 78,491 $ 71,995 ========== ========= =========== ===========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (UNAUDITED) (THOUSANDS OF DOLLARS)
Three Months Ended Twelve Months Ended March 31, March 31, ----------------------------- ------------------------------ 1998 1997 1998 1997 ------------- -------------- --------------- -------------- Balance - Beginning of Period.................... $ 375,325 $ 336,305 $ 383,498 $ 330,766 Add - Net income............................... 61,664 62,193 78,491 71,995 --------- --------- --------- --------- 436,989 398,498 461,989 402,761 Deduct - Cash dividends declared: Common Stock. - 15,000 25,000 19,263 --------- --------- --------- --------- Balance - End of Period.......................... $ 436,989 $ 383,498 $ 436,989 $ 383,498 ========= ========= ========= =========
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)
March 31, December 31, ------------------------------ ------------ 1998 1997 1997 --------------- ------------- ------------ ASSETS Current Assets Cash and cash equivalents...................................... $ 17,083 $ 15,284 $ 14,353 Accounts receivable, less allowance for doubtful accounts of... $18,123, $24,398 and $15,015, respectively.................... 262,768 256,692 195,662 Accrued unbilled revenues...................................... 63,400 71,507 91,896 Gas in inventory............................................... 20,188 21,419 40,201 Property taxes assessed applicable to future periods........... 54,765 49,300 64,827 Accrued gas cost recovery revenues............................. - 21,500 12,862 Other.......................................................... 28,348 29,292 33,361 ----------- ----------- ----------- 446,552 464,994 453,162 ----------- ----------- ----------- Deferred Charges and Other Assets Investment in and advances to joint ventures................... 20,078 19,865 19,643 Long term investments.......................................... 35,538 3,737 35,110 Deferred postretirement benefit costs.......................... - 4,099 - Deferred environmental costs................................... 27,816 28,116 27,699 Prepaid benefit costs.......................................... 85,817 60,228 85,790 Other.......................................................... 47,232 48,942 46,972 ----------- ----------- ----------- 216,481 164,987 215,214 ----------- ----------- ----------- Property, Plant and Equipment.................................... 2,809,342 2,685,456 2,790,352 Less - Accumulated depreciation and depletion ................. 1,334,813 1,265,095 1,322,392 ----------- ----------- ----------- 1,474,529 1,420,361 1,467,960 ----------- ----------- ----------- $ 2,137,562 $ 2,050,342 $ 2,136,336 =========== =========== =========== LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities Accounts payable................................................ $ 90,568 $ 95,299 $ 130,267 Notes payable................................................... 117,094 160,958 241,691 Current portion of long-term debt and capital lease obligations. 27,616 53,286 34,956 Gas inventory equalization (Note 1)............................. 70,894 96,197 - Federal income, property and other taxes payable................ 100,257 89,578 78,630 Deferred gas cost recovery revenues............................. 18,937 - - Customer deposits............................................... 15,323 12,630 16,363 Other........................................................... 67,751 51,894 67,780 ----------- ----------- ----------- 508,440 559,842 569,687 ----------- ----------- ----------- Deferred Credits and Other Liabilities Accumulated deferred income taxes............................... 84,839 75,846 83,905 Unamortized investment tax credit............................... 32,284 34,127 32,745 Tax benefits amortizable to customers........................... 123,189 115,897 122,922 Accrued environmental costs..................................... 32,000 32,000 32,000 Minority interest............................................... 17,954 17,738 17,283 Other........................................................... 48,963 41,695 44,663 ----------- ----------- ----------- 339,229 317,303 333,518 ----------- ----------- ----------- Long-Term Debt, including capital lease obligations .............. 612,205 549,000 617,107 ----------- ----------- ----------- Contingencies (Note 2) Common Shareholder's Equity Common stock.................................................... 10,300 10,300 10,300 Additional paid-in capital...................................... 230,399 230,399 230,399 Retained earnings............................................... 436,989 383,498 375,325 ----------- ----------- ----------- 677,688 624,197 616,024 ----------- ----------- ----------- $ 2,137,562 $ 2,050,342 $ 2,136,336 =========== =========== ===========
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)
Three Months Ended March 31, ------------------------- 1998 1997 ------------ ---------- CASH FLOW FROM OPERATING ACTIVITIES Net income.................................................... $ 61,664 $ 62,193 Adjustments to reconcile net income to net cash flow provided from operating activities: Depreciation and depletion Per statement of income................................. 22,445 25,501 Charged to other accounts............................... 2,043 1,913 Deferred income taxes - current........................... (9,131) (7,176) Deferred income taxes and investment tax credit - net..... 740 (1,554) Other..................................................... (250) (766) Changes in assets and liabilities, exclusive of changes shown separately........................................ 92,608 66,748 -------- -------- Net cash provided from operating activities........... 170,119 146,859 -------- -------- CASH FLOW FROM FINANCING ACTIVITIES Notes payable - net........................................... (124,597) (104,168) Cash dividend paid applicable to common stock................. - (15,000) Retirement of long-term debt and preferred stock.............. (4,772) (1,297) -------- -------- Net cash used for financing activities................ (129,369) (120,465) -------- -------- CASH FLOW FROM INVESTING ACTIVITIES Capital expenditures.......................................... (38,282) (23,702) Other - net................................................... 262 2,582 -------- -------- Net cash used for investing activities................ (38,020) (21,120) -------- -------- Net Increase in Cash and Cash Equivalents....................... 2,730 5,274 Cash and Cash Equivalents, January 1............................ 14,353 10,010 -------- -------- Cash and Cash Equivalents, March 31............................. $ 17,083 $ 15,284 ======== ======== CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY Accounts receivable - net................................... $(67,555) $(88,130) Gas inventory equalization.................................. 70,894 96,197 Accrued/deferred gas cost recovery revenues................. 31,799 6,172 Accrued unbilled revenues................................... 28,496 35,870 Gas in inventory............................................ 20,013 46,491 Property taxes assessed applicable to future periods........ 10,062 11,292 Accounts payable............................................ (39,699) (35,426) Federal income, property and other taxes payable............ 21,627 4,790 Other current assets and liabilities........................ 13,075 (10,736) Deferred assets and liabilities............................. 3,896 228 -------- -------- $ 92,608 $ 66,748 ======== ======== SUPPLEMENTAL DISCLOSURES Cash paid for: Interest, net of amounts capitalized........................ $ 13,089 $ 9,889 ======== ======== Federal income taxes........................................ $ 5,497 $ 11,303 ======== ========
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 32.9 billion cubic feet (Bcf) and 23.6 Bcf of gas was included in inventory at March 31, 1998 and 1997, respectively. 2. CONTINGENCIES MichCon is involved in certain legal and administrative proceedings before various courts and governmental agencies concerning claims arising in the ordinary course of business. Management cannot predict the final disposition of such proceedings, but believes that adequate provision has been made for probable losses. It is management's belief, after discussion with legal counsel, that the ultimate resolution of those proceedings still pending will not have a material adverse effect on MichCon's financial statements. 3. GENERAL There have been no changes in MichCon's principal accounting policies from those set forth in MichCon's 1997 Annual Report on Form 10-K. Certain reclassifications have been made to the prior year's financial statements to conform with the 1998 presentation. The unaudited information furnished herein, in the opinion of management, reflects all adjustments (consisting of only recurring adjustments or accruals) necessary for a fair presentation of the results of operations during the periods. Because of seasonal and other factors, revenues, expenses and net income for the interim periods should not be construed as representative of revenues, expenses and net income for all or any part of the balance of the current year or succeeding periods. 9 12 OTHER INFORMATION EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION 12-1 Computation of Ratio of Earnings to Fixed Charges. 27-1 Financial Data Schedule. (b) Reports on Form 8-K None 10 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MICHIGAN CONSOLIDATED GAS COMPANY Date: May 14, 1998 By: /s/ Howard L. Dow III ------------------------------ Howard L. Dow III Senior Vice President and Chief Financial Officer 11 14 INDEX TO EXHIBITS EXHIBIT DESCRIPTION - ------- ----------- 12.1 Computation of Ratio of Earnings of Fixed Charges 27.1 Financial Data Schedule EX-12.1 2 EXHIBIT 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 March 31, 1998 December 31, 1997 December 31, 1996 EARNINGS AS DEFINED (1) Net Income............................................... $129,786 $125,630 $122,239 Fixed charges............................................ 59,788 57,905 53,831 -------- -------- -------- Earnings as defined.................................... $189,574 $183,535 $176,070 ======== ======== ======== FIXED CHARGES AS DEFINED (1) Interest on long-term debt.............................. $ 48,442 $ 47,024 $ 43,163 Interest on other borrowed funds........................ 9,030 8,664 8,012 Amortization of debt discounts, premium and expense........................................... 1,006 1,032 1,081 Interest implicit in rentals (2)........................ 1,310 1,185 1,575 -------- -------- -------- Fixed charges as defined.............................. $ 59,788 $ 57,905 $ 53,831 ======== ======== ======== Ratio of Earnings to Fixed Charges ................... 3.17 3.17 3.27 ==== ==== ====
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 EXHIBIT 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 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 17,083 0 280,891 18,123 20,188 446,552 2,809,342 1,334,813 2,137,562 508,440 612,205 0 0 10,300 667,388 2,137,562 0 429,227 0 319,558 624 7,195 15,463 95,283 33,619 61,664 0 0 0 61,664 0 0
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