-----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, V3RND7Vt2QdNK6DV9K//q0+1FVGjzzswSXBRUDAjiDZTSKYCwJXNvAsgsNMPT0wQ wUm7oYtwNIuBpoy6XSZKmA== 0000950131-96-003846.txt : 19960814 0000950131-96-003846.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950131-96-003846 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 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: 96610270 BUSINESS ADDRESS: STREET 1: 500 GRISWOLD ST CITY: DETROIT STATE: MI ZIP: 48226 BUSINESS PHONE: 3139652430 10-Q 1 FORM 10-Q ================================================================================ 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, 1996, or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------ Commission file number 1-7310 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, 1996: Common Stock, par value $.01 per share: 10,300,000 ================================================================================ INDEX TO FORM 10-Q For Quarter Ended June 30, 1996 Page Number ------ COVER........................................................... i INDEX........................................................... ii PART I - FINANCIAL INFORMATION Item 1. Financial Statements................................... 5 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 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Earnings for the second quarter of 1996 were $0.9 million, an increase of $4.4 million from the second quarter of 1995. Earnings for the 1996 six- and twelve-month periods ended June 1996 were $70.9 and $90.3 million representing an increase of $18.8 million and $42.0 million, respectively, from the same periods in 1995. The increases are due primarily to higher gas sales resulting from colder weather, as well as lower operating expenses.
EFFECT OF WEATHER ON GAS MARKETS AND EARNINGS --------------------------------------------- Quarter Six Months Twelve Months ------------------ ------------------ -------------------- 1996 1995 1996 1995 1996 1995 ------ ------ ------ ------ ------ -------- Percentage Colder (Warmer) than Normal 13.6% 2.5% 7.3% (4.1)% 7.4% (9.6)% Increase (Decrease) from Normal in: Gas Markets (Bcf) 3.2 0.5 8.6 (4.7) 14.8 (15.5) Net Income (Millions) $ 2.9 $ 0.7 $ 7.8 $(4.1) $ 13.3 $ (13.9) EARNINGS COMPONENTS (IN MILLIONS) --------------------------------- COMPARING 1996 TO 1995 ---------------------- Quarter Six Months Twelve Months -------------------- -------------------- -------------------- $ Change % Change $ Change % Change $ Change % Change -------- -------- -------- -------- -------- -------- Operating Revenues $ 37.4 20.2% $ 146.9 24.2% $ 215.5 21.3% Cost of Gas 27.7 38.4 116.2 41.2 149.8 33.3 Gross Margin 9.7 8.6 30.7 9.5 65.7 11.7 Operation and Maintenance (1.5) (2.0) (10.0) (6.7) (23.9) (7.7) Depreciation and Depletion 2.0 8.8 4.3 9.5 6.9 7.9 Property and Other Taxes 0.8 5.8 2.9 9.5 4.9 8.8 Other Income and Deductions 1.9 21.2 3.5 17.7 6.2 14.9 Income Tax Provision 2.3 116.9 11.4 41.8 30.1 134.8
GROSS MARGIN Gross margin (operating revenues less cost of gas) increased for the quarter, six- and twelve-month periods, reflecting increased gas sales and transportation deliveries. Gas sales volumes increased in all 1996 periods as compared to the 1995 periods due to colder weather and market expansion through the addition of approximately 14,000 gas sales customers since June 1995. End user transportation deliveries reflect transportation to the Michigan Power project of two Bcf, five Bcf and seven Bcf during the 1996 quarter, six- and twelve- month periods, respectively. The plant, a 1 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS-(Continued) 123 megawatt cogeneration plant in which MCN has a 50% interest, became operational in October 1995. End user transportation for all 1996 periods also reflect lower deliveries to a large volume industrial customer during a temporary plant shutdown that occurred during the second quarter.
Quarter Six Months Twelve Months ----------- --------------- --------------- 1996 1995 1996 1995 1996 1995 ----- ----- ----- ----- ----- ----- GAS MARKETS (IN BCF) Gas Sales..................... 34.0 31.5 136.2 120.8 222.4 189.7 End User Transportation....... 32.0 32.2 79.4 75.6 149.0 140.1 Intermediate Transportation... 110.3 64.8 258.3 170.7 429.2 300.2 ----- ----- ----- ----- ----- ----- 176.3 128.5 473.9 367.1 800.6 630.0 ===== ===== ===== ===== ===== ===== - -----------------------------------------------------------------------------------------
The increases in intermediate transportation deliveries in the 1996 periods are due primarily to additional volumes transported for ANR Pipeline Company and increased transportation of Antrim gas for Michigan gas producers and brokers. MichCon recently expanded the transportation capacity of its northern Michigan gathering system. A significant portion of the project was completed in 1995, and the remainder is expected to be completed by year-end. The expansion enabled MichCon to transport an additional 30.1 Bcf, 59.9 Bcf and 76.1 Bcf in the 1996 quarter, six- and twelve-month periods, respectively. In January 1996, MCN transferred its Michigan pipeline operations to MichCon in order to consolidate MCN's Michigan gathering pipeline activities within one business unit. The pipeline operation contributed 14.5 Bcf and 27.0 Bcf in volumes transported during the 1996 quarter and six-month periods. Profit margins on intermediate transportation services are considerably less than margins on gas sales or for end user transportation markets. COST OF GAS Cost of gas is affected by variations in sales volumes and cost of gas rates. Through the Gas Cost Recovery (GCR) mechanism, MichCon's rates are set to recover 100% of prudently and reasonably incurred gas costs. Therefore, significant fluctuations in total gas costs have little or no effect on gross margins and earnings. Cost of gas sold increased in the 1996 periods due to higher sales volumes resulting primarily from the colder weather, as well as higher prices paid for natural gas in the spot market. The increase in market prices paid for gas resulted in an increase in the cost of gas sold per thousand cubic feet of $.83 (37.4%), $.59 (25.4%) and $.39 (16.5%) in the 1996 quarter, six- and twelve- month periods, respectively, from the comparable 1995 periods. 2 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS-(Continued) OPERATION AND MAINTENANCE Operation and maintenance expenses were lower in all 1996 periods compared to the 1995 periods due to lower employee benefit costs, primarily pension and retiree health care costs. Also contributing to the six-month period was decreased labor costs. The reductions in the 1996 quarter and six-month periods were partially offset by increased uncollectibles expense. Management's continuing efforts to reduce operating costs also contributed to the decreases. DEPRECIATION AND DEPLETION The increase in depreciation and depletion for all 1996 periods was due mainly to higher plant balances, reflecting capital expenditures of $381.2 million over the past two calendar years. PROPERTY AND OTHER TAXES Property and other taxes for the 1996 periods reflect an increase in property taxes due to higher property balances. OTHER INCOME AND DEDUCTIONS The increase in other income and deductions for all 1996 periods reflects additional interest expense relating to an increase in the average amount of long-term debt outstanding. INCOME TAX PROVISION Income taxes increased for the 1996 quarter, six- and twelve-month periods due primarily to increased earnings. Income tax expense was lower in both the 1996 and 1995 twelve-month periods due to the favorable resolution of prior years' tax issues. CAPITAL RESOURCES AND LIQUIDITY OPERATING ACTIVITIES MichCon's cash flow from operating activities totaled $163.6 million for the 1996 six-month period, decreasing $44.3 million from the comparable 1995 period. The decrease was due primarily to higher working capital requirements, partially offset by higher net income, after adjusting for depreciation and deferred taxes. MichCon anticipates that working capital requirements will be greater throughout 1996 as compared to 1995 in order to fund the GCR undercollection, which is $42 million as of June 1996. 3 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS-(Concluded) FINANCING ACTIVITIES Cash and cash equivalents increased $0.4 million during the 1996 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 winter heating sales. During the 1996 six-month period, MichCon repaid $138.3 million of 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 to allow for borrowings of up to $100 million under a 364-day revolving credit facility and up to $150 million under a three-year revolving credit facility. Commercial paper of $56.4 million was outstanding as of June 30, 1996 under these lines. MichCon issued first mortgage bonds aggregating $70 million in the second quarter 1996 under its existing shelf registration. The proceeds from the bonds were used to repay short-term obligations, finance capital expenditures and for general corporate purposes. MichCon's capital requirements for 1996 are anticipated to be approximately $215 million. These investments will be made to add new customers, develop new gas transportation markets and make improvements to existing storage and transmission systems. These capital requirements and general financial market conditions will affect the timing and amount of future debt issuances. INVESTING ACTIVITIES MichCon's capital expenditures totaled $73.8 million during the 1996 six-month period. These expenditures were used primarily for the construction of transportation pipelines and the construction of new distribution lines to reach communities not previously served by MichCon. In January 1996, MichCon began construction of a 59-mile loop of its existing Milford to Belle River Pipeline. The pipeline is anticipated to be completed in early 1997 at a cost of approximately $80 million. The pipeline will improve the overall reliability and efficiency of MichCon's gas storage and transmission system by serving as a back-up means of transportation in the event of disruption in the operation of the existing pipeline or other facilities used to supply gas to MichCon's system. It is management's opinion that MichCon will have sufficient capital resources, both internal and external, to meet anticipated capital requirements. 4
MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED) (THOUSANDS OF DOLLARS) JUNE 30, December 31, ------------------------------ ------------- 1996 1995 1995 ---------- ---------- ------------- ASSETS CURRENT ASSETS Cash and cash equivalents, at cost (which approximates market value).... $ 8,866 $ 33,588 $ 8,469 Accounts receivable, less allowance for doubtful accounts of $18,222, $20,537 and $13,250, respectively............................ 192,849 123,139 175,103 Accrued unbilled revenues............................................... 16,554 14,356 91,134 Gas in inventory (Note 1)............................................... 25,238 51,427 40,191 Property taxes assessed applicable to future periods.................... 35,176 31,537 56,949 Accrued gas cost recovery revenues...................................... 42,026 - - Other................................................................... 33,683 25,029 32,498 ---------- ---------- ---------- 354,392 279,076 404,344 ---------- ---------- ---------- DEFERRED CHARGES AND OTHER ASSETS Investment in and advances to joint ventures............................ 20,377 20,247 20,318 Deferred postretirement benefit costs................................... 9,342 16,853 12,372 Deferred environmental costs (Note 5a).................................. 28,016 - 32,000 Prepaid benefit costs................................................... 50,640 14,150 25,438 Other................................................................... 48,341 46,423 42,061 ---------- ---------- ---------- 156,716 97,673 132,189 ---------- ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, AT COST.................................... 2,540,829 2,257,745 2,413,120 Less - Accumulated depreciation and depletion........................... 1,199,871 1,113,687 1,151,160 ---------- ---------- ---------- 1,340,958 1,144,058 1,261,960 ---------- ---------- ---------- $1,852,066 $1,520,807 $1,798,493 ========== ========== ========== LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable........................................................ $ 94,102 $ 84,779 $ 108,208 Notes payable (Note 3).................................................. 58,291 1,875 196,635 Current portion of long-term debt, capital lease obligations and redeemable cumulative preferred stock............................. 53,177 3,904 3,969 Gas inventory equalization (Note 1)..................................... 53,295 36,605 - Federal income, property and other taxes payable........................ 64,715 69,850 85,195 Customer deposits....................................................... 9,845 10,013 11,531 Deferred income taxes - current......................................... - - 8,379 Other................................................................... 55,084 42,937 56,208 ---------- ---------- ---------- 388,509 249,963 470,125 ---------- ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes....................................... 82,872 61,609 61,146 Unamortized investment tax credit....................................... 35,512 37,366 36,437 Tax benefits amortizable to customers................................... 113,449 112,470 114,487 Accrued postretirement benefit costs.................................... - 11,119 12,661 Accrued environmental costs (Note 5a)................................... 32,000 - 32,000 Minority interest (Note 4).............................................. 18,171 - - Other................................................................... 56,892 61,585 65,252 ---------- ---------- ---------- 338,896 284,149 321,983 ---------- ---------- ---------- LONG-TERM DEBT, INCLUDING CAPITAL LEASE OBLIGATIONS (NOTE 2).............. 552,345 516,328 516,564 ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES (NOTE 5) COMMON SHAREHOLDER'S EQUITY Common stock............................................................ 10,300 10,300 10,300 Additional paid-in capital (Note 4)..................................... 230,399 211,777 211,777 Retained earnings....................................................... 331,617 248,290 267,744 ---------- ---------- ---------- 572,316 470,367 489,821 ---------- ---------- ---------- $1,852,066 $1,520,807 $1,798,493 ========== ========== ==========
The notes to the consolidated financial statements are an integral part of this statement. 5 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, ---------------------- ---------------------- ------------------------ 1996 1995 1996 1995 1996 1995 -------- -------- -------- -------- ---------- ---------- Operating Revenues............................... $222,327 $184,968 $753,719 $606,780 $1,227,752 $1,012,245 -------- -------- -------- -------- ---------- ---------- Operating Expenses Cost of gas.................................... 99,681 72,030 398,397 282,167 600,192 450,352 Operation and maintenance...................... 71,212 72,674 139,983 150,003 284,404 308,279 Depreciation and depletion..................... 24,740 22,730 49,133 44,881 93,380 86,528 Property and other taxes....................... 15,004 14,187 33,612 30,689 59,935 55,075 -------- -------- -------- -------- ---------- ---------- Total operating expenses..................... 210,637 181,621 621,125 507,740 1,037,911 900,234 -------- -------- -------- -------- ---------- ---------- Operating Income................................. 11,690 3,347 132,594 99,040 189,841 112,011 -------- -------- -------- -------- ---------- ---------- Equity in Earnings of Joint Ventures............. 260 152 495 376 858 592 -------- -------- -------- -------- ---------- ---------- Other Income and (Deductions) Interest income................................ 634 1,061 1,219 1,999 3,203 4,013 Interest on long-term debt..................... (10,224) (8,431) (19,992) (16,684) (39,128) (31,526) Other interest expense......................... (940) (679) (3,775) (3,651) (7,177) (9,075) Minority interest.............................. (354) - (702) - (702) - Other.......................................... 114 (841) (182) (1,579) (4,012) (5,038) -------- -------- -------- -------- ---------- ---------- Total other income and (deductions).......... (10,770) (8,890) (23,432) (19,915) (47,816) (41,626) -------- -------- -------- -------- ---------- ---------- Income Before Income Taxes....................... 1,180 (5,391) 109,657 79,501 142,883 70,977 Income Tax Provision............................. 329 (1,943) 38,766 27,339 52,431 22,333 -------- -------- -------- -------- ---------- ---------- Net Income....................................... 851 (3,448) 70,891 52,162 90,452 48,644 Dividends on Preferred Stock..................... - 54 18 128 125 358 -------- -------- -------- -------- ---------- ---------- Net Income Available for Common Stock............ $ 851 $ (3,502) $ 70,873 $ 52,034 $ 90,327 $ 48,286 ======== ======== ======== ======== ========== ==========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Unaudited) (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, ---------------------- ---------------------- ------------------------ 1996 1995 1996 1995 1996 1995 -------- -------- -------- -------- ---------- ---------- Balance - Beginning of Period.................... $330,766 $251,792 $267,744 $202,756 $ 248,290 $ 206,504 Add - Net income............................... 851 (3,448) 70,891 52,162 90,452 48,644 -------- -------- -------- -------- ---------- ---------- 331,617 248,344 338,635 254,918 338,742 255,148 Deduct - Cash dividends declared: Preferred stock.............................. - 54 18 128 125 358 Common stock................................. - - 7,000 6,500 7,000 6,500 -------- -------- -------- -------- ---------- ---------- Balance - End of Period.......................... $331,617 $248,290 $331,617 $248,290 $ 331,617 $ 248,290 ======== ======== ======== ======== ========== ========== The notes to the consolidated financial statements are an integral part of these statements.
6 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Thousands of Dollars)
Six Months Ended June 30, ------------------------------------- 1996 1995 ------------- ------------- Cash Flow from Operating Activities Net income.................................................................. $ 70,891 $ 52,162 Adjustments to reconcile net income to net cash flow provided from operating activities: Depreciation and depletion Per statement of income................................................. 49,133 44,881 Charged to other accounts............................................... 3,755 3,564 Deferred income taxes - current........................................... 1,079 (2,813) Deferred income taxes and investment tax credit - net..................... 11,408 5,849 Other..................................................................... (1,442) 585 Changes in assets and liabilities, exclusive of changes shown separately.. 28,753 103,614 ------------- ------------- Net cash provided from operating activities............................. 163,577 207,842 ------------- ------------- Cash Flow from Financing Activities Notes payable - net......................................................... (138,344) (166,582) Issuance of long-term debt ................................................. 69,645 68,764 Cash dividend paid: Common stock.............................................................. (7,000) (6,500) Preferred stock........................................................... (54) (169) Retirement of long-term debt and preferred stock............................ (4,347) (3,763) Equity investment........................................................... 1,614 7,000 ------------- ------------- Net cash used for financing activities.................................. (78,486) (101,250) ------------- ------------- Cash Flow from Investing Activities Capital expenditures........................................................ (73,823) (75,891) Other - net................................................................. (10,871) 1,582 ------------- ------------- Net cash used for investing activities.................................. (84,694) (74,309) ------------- ------------- Net Increase in Cash and Cash Equivalents..................................... 397 32,283 Cash and Cash Equivalents, January 1.......................................... 8,469 1,305 ------------ ------------ Cash and Cash Equivalents, June 30............................................ $ 8,866 $ 33,588 ============ ============ Changes in Assets and Liabilities, Exclusive of Changes Shown Separately Accounts receivable - net................................................... $(14,315) $ 11,227 Gas inventory equalization.................................................. 53,295 36,605 Accrued/deferred gas cost recovery revenues................................. (42,026) (19,224) Accrued unbilled revenues................................................... 74,580 67,877 Gas in inventory............................................................ 14,953 26,416 Property taxes assessed applicable to future periods........................ 22,983 20,626 Accounts payable............................................................ (15,222) 4,108 Federal income, property and other taxes payable............................ (22,497) (15,956) Other current assets and liabilities........................................ (13,490) (8,691) Deferred assets and liabilities............................................. (29,508) (19,374) ------------ ------------ $ 28,753 $ 103,614 ============ ============ Supplemental Disclosures Cash paid for: Interest, net of amounts capitalized...................................... $ 24,216 $ 21,249 ============ ============ Federal income taxes...................................................... $ 24,456 $ 16,469 ============ ============ Noncash financing activities: Transfer of pipeline net assets to MichCon (Note 4) ...................... $ 17,008 - ============ ============
The notes to the consolidated financial statements are an integral part of this statement. 7 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 40.6 Bcf and 52.0 Bcf of gas was included in inventory at June 30, 1996 and 1995, respectively. 2. CAPITALIZATION During May 1996, First Mortgage Bonds in the amount of $30,000,000 were issued at 6.51%, due June 1999 and $40,000,000 were issued at 7.15%, due May 2006. 3. LINES OF CREDIT During 1995, MichCon established credit lines to allow for borrowings of up to $100,000,000 under a 364 day revolving credit facility and up to $150,000,000 under a three year revolving credit facility. These credit lines totaling $250,000,000 support its commercial paper program. Commercial paper of $56,416,000 was outstanding as of June 30, 1996, under these lines. In July 1996, the 364 day revolving facility was renewed. 4. TRANSFER OF SUBSIDIARIES In January 1996, MCN Corporation (MCN), parent company of MichCon, transferred its Michigan pipeline operations, at book value, to MichCon in order to consolidate MCN's Michigan gathering pipeline activities within one business unit. Net assets transferred to MichCon totaled approximately $18,622,000, including cash of $1,614,000 and long-term debt of $17,600,000. Contributions from these pipeline operations to MichCon's consolidated net income were approximately $245,000 and $623,000 for the three- and six-month periods ended June 30, 1996. 5. COMMITMENTS AND CONTINGENCIES A. ENVIRONMENTAL MATTERS As described in MichCon's 1995 Annual Report on Form 10-K, MichCon accrued an additional environmental remediation liability and corresponding regulatory asset of $32,000,000 in the fourth quarter of 1995. MichCon has notified current and former insurance carriers of the environmental conditions and is pursuing claims against these carriers. In 1996, MichCon received payments from certain insurance carriers and expects additional insurance recoveries over the next several years. At June 30, 1996, the reserve balance was approximately $35,300,000, of which $3,300,000 is classified as current. 8 MICHIGAN CONSOLIDATED GAS COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Concluded) B. OTHER 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. 6. ACCOUNTING PRONOUNCEMENT The Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" in October 1995. The statement requires certain disclosures about stock-based employee compensation in the financial statements and encourages, but does not require, a fair-value-based method of accounting for such compensation. MichCon currently awards performance units to selected employees under its long term incentive plan. Each performance unit is equivalent to a share of MCN common stock. MCN is currently evaluating whether to adopt the fair-value-based method of accounting and its impacts. 7. GENERAL The accompanying consolidated financial statements should be read in conjunction with MichCon's 1995 Annual Report on Form 10-K. Certain reclassifications have been made to the prior year's financial statements to conform with the 1996 presentation. 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 OTHER INFORMATION EXHIBITS (a) Exhibits Exhibit Number Description ------ ----------- 12-1 Computation of Ratio of Earnings to Fixed Charges 27-1 Financial Data Schedule. 10 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 13, 1996 By: /s/ David R. Nowakowski -------------------------- David R. Nowakowski Controller, Treasurer and Chief Accounting Officer 11 EX-12.1 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 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, 1996 December 31, 1995 December 31, 1994 ------------------- ------------------- ------------------- EARNINGS AS DEFINED (1) Pre-tax Income (2)....................... $142,381 $112,727 $ 89,707 Fixed charges............................ 48,908 45,637 39,663 -------- -------- -------- Earnings as defined.................... $191,289 $158,364 $129,370 ======== ======== ======== FIXED CHARGES AS DEFINED (1) Interest on long-term debt............... $ 39,128 $ 35,820 $ 27,948 Interest on other borrowed funds......... 7,177 7,053 9,093 Amortization of debt discounts, premium and expense............................ 1,075 996 950 Interest implicit in rentals (3)......... 1,528 1,768 1,672 -------- -------- -------- Fixed charges as defined............... $ 48,908 $ 45,637 $ 39,663 ======== ======== ======== Ratio of Earnings to Fixed Charges....... 3.91 3.47 3.26 ======== ======== ======== - ------------------
Notes: - ----- (1) Earnings and fixed charges are defined and computed in accordance with Item 503 of Regulation S-K. (2) This amount represents the aggregate of (a) the pre-tax income of MichCon, (b) MichCon's share of pre-tax income of its 50% owned companies and (c) any income actually received from less than 50% owned companies. (3) 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 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Statment 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-31-1996 JAN-01-1996 JUN-30-1996 8,866 0 211,071 18,222 25,238 354,392 2,540,829 1,199,871 1,852,066 388,509 552,345 10,300 0 0 562,016 1,852,066 753,719 753,719 398,397 621,125 884 12,605 23,767 109,657 38,766 70,891 0 0 0 70,873 0 0
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