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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996, OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10070
MCN CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2820658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 GRISWOLD STREET, DETROIT, MICHIGAN 48226
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code 313-256-5500
NO CHANGES
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of the registrant's classes of common
stock, as of April 30, 1996:
Common Stock, par value $.01 per share: 66,847,945
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INDEX TO FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1996
PAGE
NUMBER
------
COVER.................................................................... i
INDEX.................................................................... ii
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements............................................. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 1
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.............. 22
Item 6. Exhibits and Reports on Form 8-K................................. 22
SIGNATURE................................................................ 24
ii
MCN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
MCN reports record first quarter earnings -- MCN's earnings for the 1996
quarter increased 30% or $18.5 million ($.18 per share) over the first quarter
of 1995. Earnings for the 1996 twelve-month period also increased a healthy
64% or $45.0 million ($.56 per share) over the comparable 1995 period.
Earnings per share comparisons reflect approximately 10% more shares
outstanding in the current quarter and twelve-month period.
Significant earnings growth was achieved in both the Gas Distribution and
Diversified Energy groups, and reflects the continued success of MCN's
diversification strategy. Earnings from discontinued operations were
relatively flat and reflect the operating results of The Genix Group, Inc.
(Genix), MCN's computer operations services subsidiary. As discussed in the
"Discontinued Operations" section that follows, MCN intends to sell Genix
during the second quarter of 1996. A summary of financial performance follows:
QUARTER 12 MONTHS
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
NET INCOME (in Millions)
Continuing Operations:
Gas Distribution................... $ 71.3 $ 57.2 $ 89.6 $ 53.8
Diversified Energy................. 7.8 3.4 22.0 13.0
-------- -------- -------- --------
79.1 60.6 111.6 66.8
Discontinued Operations............. 1.0 1.0 3.6 3.4
-------- -------- -------- --------
$ 80.1 $ 61.6 $ 115.2 $ 70.2
======== ======== ======== ========
EARNINGS PER SHARE
Continuing Operations:
Gas Distribution................... $ 1.07 $ .95 $ 1.35 $ .90
Diversified Energy................. .12 .05 .34 .22
-------- -------- -------- --------
1.19 1.00 1.69 1.12
Discontinued Operations............. .01 .02 .05 .06
-------- -------- -------- --------
$ 1.20 $ 1.02 $ 1.74 $ 1.18
======== ======== ======== ========
- -------------------------------------------------------------------------------
Strategic direction -- MCN's primary objective is to achieve superior, long-
term returns for its shareholders. To accomplish this, MCN will aggressively
invest in a diverse portfolio of domestic and international energy-related
projects. The success of this strategy will be demonstrated by the growth of
MCN's earnings and the total return to its shareholders over time.
GAS DISTRIBUTION
Results reflect 5.7% colder than normal weather -- Earnings increased $14.1
million ($.12 per share) and $35.8 million ($.45 per share) for the 1996
quarter and twelve-month period, respectively, as compared to the same 1995
periods. The increases are primarily due to higher gas deliveries resulting
from significantly colder weather, increased transportation deliveries, as well
as lower operating expenses.
QUARTER 12 MONTHS
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
EFFECT OF WEATHER ON GAS MARKETS AND
EARNINGS
Percentage Colder (Warmer) than
Normal............................. 5.7% (5.8)% 6.0% (11.0)%
Increase (Decrease) from Normal in:
Gas Markets (in Bcf)............... 5.4 (5.2) 12.2 (17.4)
Net Income (in Millions)........... $ 4.9 $ (4.7) $ 11.1 $ (15.8)
Earnings Per Share................. $ .07 $ (.08) $ .17 $ (.26)
1
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
GROSS MARGIN
Gross margin increases -- Gas Distribution gross margin (operating revenues
less cost of gas) increased $18.6 million and $57.2 million for the 1996
quarter and twelve-month period, respectively, reflecting higher gas sales and
transportation deliveries.
QUARTER 12 MONTHS
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
GAS DISTRIBUTION OPERATIONS
(in Millions)
Operating Revenues*........... $ 538.6 $ 430.4 $ 1,215.8 $ 1,023.7
Cost of Gas................... 302.5 212.9 581.0 446.1
---------- ---------- ---------- ----------
Gross Margin................. 236.1 217.5 634.8 577.6
---------- ---------- ---------- ----------
Other Operating Expenses*
Operation & Maintenance...... 69.9 78.7 291.0 309.0
Depreciation, Depletion &
Amortization................ 24.5 22.7 93.1 87.1
Property & Other Taxes....... 18.4 16.9 60.3 57.4
---------- ---------- ---------- ----------
112.8 118.3 444.4 453.5
---------- ---------- ---------- ----------
Operating Income.............. 123.3 99.2 190.4 124.1
---------- ---------- ---------- ----------
Equity in Earnings of Joint
Ventures..................... .4 .4 1.3 1.6
---------- ---------- ---------- ----------
Other Income & (Deductions)*
Interest Income.............. .6 1.0 4.0 3.9
Interest Expense............. (12.6) (11.6) (45.5) (41.2)
Minority Interest............ (.3) (.6) (2.1) (2.7)
Other........................ (.7) (.8) (5.6) (5.2)
---------- ---------- ---------- ----------
(13.0) (12.0) (49.2) (45.2)
---------- ---------- ---------- ----------
Income Before Income Taxes.... 110.7 87.6 142.5 80.5
Income Taxes.................. 39.4 30.4 52.9 26.7
---------- ---------- ---------- ----------
Net Income.................... $ 71.3 $ 57.2 $ 89.6 $ 53.8
========== ========== ========== ==========
*Includes intercompany transactions
GAS SALES AND END USER TRANSPORTATION deliveries in total increased 17 billion
cubic feet (Bcf) in the 1996 quarter and 44.8 Bcf in the 1996 twelve-month
period. The increases are primarily due to colder weather, as well as market
expansion through the addition of over 5,000 new customers during the 1996
quarter and over 17,000 since March of 1995. For the twelve-month period, end
user transportation deliveries also reflect an overall higher level of gas
usage by large-volume commercial and industrial customers, including gas
cogeneration facilities. Deliveries to the Michigan Power project, MCN
Investment Corporation's (MCNIC's) 50%-owned 123 megawatt cogeneration plant
that became operational in October 1995, represented 3 Bcf and 5 Bcf of the
increase during the 1996 quarter and twelve-month period, respectively.
QUARTER 12 MONTHS
--------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
GAS DISTRIBUTION MARKETS (in Bcf)
Gas Sales.......................... 103.6 90.5 222.9 188.9
End User Transportation............ 47.5 43.6 149.6 138.8
---------- ---------- ---------- ----------
151.1 134.1 372.5 327.7
Intermediate Transportation*....... 148.0 112.6 409.9 323.1
---------- ---------- ---------- ----------
299.1 246.7 782.4 650.8
========== ========== ========== ==========
*Includes intercompany volumes
2
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
INTERMEDIATE TRANSPORTATION deliveries continued to rise, increasing 35.4 Bcf
and 86.8 Bcf in the 1996 quarter and twelve-month period, respectively,
primarily as a result of increased transportation of Antrim gas for Michigan
gas producers and brokers. In order to meet this growing demand, 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 to be completed by mid-1996. This expansion enabled
MichCon to transport an additional 20.3 Bcf and 36.5 Bcf of natural gas in the
1996 quarter and twelve-month period, respectively. Profit margins on
intermediate transportation services are considerably less than margins on gas
sales or for end user transportation markets.
COST OF GAS
Cost of gas is affected by variations in sales volumes and cost of gas rates.
Through the Gas Cost Recovery (GCR) mechanism, MichCon's rates are set to
recover 100% of prudently and reasonably incurred gas costs. Therefore,
fluctuations in cost of gas sold have little or no effect on gross margins and
earnings.
Cost of gas sold increased in the 1996 quarter and twelve-month period 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 (Mcf) of $.51 (22%) and $.27 (11%) in the 1996 quarter and
twelve-month period, respectively, from the comparable 1995 periods.
OTHER OPERATING EXPENSES
OPERATION AND MAINTENANCE expenses decreased in the 1996 quarter and twelve-
month period due to lower employee benefit costs, primarily pension and
retiree healthcare costs. The current quarter also reflects a reduction in
labor costs. Management's ongoing efforts to reduce operating costs also
contributed to the decreases.
DEPRECIATION AND DEPLETION increased in both 1996 periods due to higher plant
balances, reflecting capital expenditures of $396.1 million over the past two
calendar years.
PROPERTY AND OTHER TAXES for the 1996 quarter and twelve-month period
increased due to higher property balances and higher Michigan single business
taxes resulting from increased earnings.
OTHER INCOME & DEDUCTIONS
The increase in other income & deductions for both 1996 periods reflects
additional interest expense relating to an increase in the average amount of
long-term debt outstanding.
INCOME TAXES
Income taxes increased for the 1996 quarter and twelve-month period due
primarily to increases in earnings.
OUTLOOK
Gas Distribution's strategy is to grow revenues and reduce its cost structure
in order to maintain strong returns and provide customers with quality service
at competitive prices. The success of this strategy is evident in current
operating results. MCN is focused on continuing this trend in 1996 and beyond.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
DIVERSIFIED ENERGY
Earnings more than double -- The Diversified Energy group reported higher
earnings from all of its operating units, with a combined increase of $4.4
million ($.07 per share) and $9 million ($.12 per share) for the quarter and
twelve-month period, respectively. Reflecting the success of MCN's strategy to
invest in various segments of the natural gas industry, earnings continued
their growth principally from increased contributions from Exploration &
Production (E&P) and Gas Marketing & Cogeneration operations. Improved results
from Gas Gathering & Processing also contributed to the increases. The
earnings improvements were partially offset by increased financing costs as a
result of additional capital needed to fund investments.
QUARTER 12 MONTHS
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
DIVERSIFIED ENERGY OPERATIONS (in
Millions)
Operating Revenues *............... $ 259.9 $ 101.4 $ 558.6 $ 347.2
--------- --------- --------- ---------
Operating Expenses *............... 246.0 95.4 528.8 330.3
--------- --------- --------- ---------
Operating Income (Loss)
Gas Services
Exploration & Production......... 6.5 4.1 20.8 15.3
Gas Marketing & Cogeneration..... 6.4 2.6 9.6 3.5
Gas Gathering & Processing....... 1.5 -- 1.9 .2
--------- --------- --------- ---------
14.4 6.7 32.3 19.0
Corporate & Other................. (.5) (.7) (2.5) (2.1)
--------- --------- --------- ---------
13.9 6.0 29.8 16.9
--------- --------- --------- ---------
Equity in Earnings of Joint
Ventures........................... 2.1 .8 5.2 4.3
--------- --------- --------- ---------
Other Income & (Deductions)*
Interest Income................... .9 1.2 3.3 4.0
Interest Expense.................. (7.5) (3.9) (16.9) (13.0)
Dividends on Preferred Securities
of Subsidiary.................... (2.3) (2.3) (9.4) (3.8)
Other............................. (.6) (.2) 1.9 (1.2)
--------- --------- --------- ---------
(9.5) (5.2) (21.1) (14.0)
--------- --------- --------- ---------
Income Before Income Taxes......... 6.5 1.6 13.9 7.2
--------- --------- --------- ---------
Income Taxes
Current and Deferred Provision.... 2.6 .5 4.8 3.0
Federal Tax Credits............... (3.9) (2.3) (12.9) (8.8)
--------- --------- --------- ---------
(1.3) (1.8) (8.1) (5.8)
--------- --------- --------- ---------
Net Income......................... $ 7.8 $ 3.4 $ 22.0 $ 13.0
========= ========= ========= =========
*Includes intercompany transactions
GAS SERVICES
EXPLORATION & PRODUCTION operating income increased $2.4 million for the 1996
quarter and $5.5 million for the twelve-month period. The results reflect a
significantly higher level of gas produced from properties that have been
acquired since mid-1994 and the development of other new projects. Gas
production was 12.5 Bcf in the quarter, nearly a 100% increase over the 1995
level of 6.4 Bcf. Additionally, E&P operations have increased Diversified
Energy's earnings through the generation of an increasing amount of federal
gas production tax credits.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
E&P operating results were also impacted by a higher average sales rate for
1996, reflecting higher than expected natural gas prices. The average sales
rate per Mcf increased $.10 to $2.09 in the 1996 quarter and increased $.10 to
$2.05 in the 1996 twelve-month period. The average sales rates include the
effect of natural gas swap agreements which are used to manage Diversified
Energy's exposure to the risk of market price fluctuations. Natural gas swap
agreements had the effect of reducing the average sales rate for the 1996
quarter by $.33 per Mcf and increasing the sales rate for the current twelve-
month period by $.21 per Mcf. Natural gas swap agreements increased the
average sales rates for the 1995 quarter and twelve-month period by $.61 per
Mcf and $.18 per Mcf, respectively.
GAS MARKETING & COGENERATION operating income for the 1996 quarter and twelve-
month period increased $3.8 million and $6.1 million, respectively, from the
comparable 1995 periods due to higher gas sales volumes at more favorable
margins. The 63% increase for the quarter and the 34% increase for the twelve-
month period in gas sales volumes were driven by additional sales to customers
in the midwest and northeast United States and eastern Canada.
GAS GATHERING & PROCESSING operating income increased $1.5 million and $1.7
million for the 1996 quarter and twelve-month period, respectively. The
increases reflect income from the first quarter 1996 acquisition of a 99%
interest in the Dauphin Island Gathering Partnership. The partnership owns a
90 mile gas gathering system in the Mobile Bay area of offshore Alabama. In
addition, earnings were favorably affected by increased volumes of gas
processed during the quarter and twelve-month period of 6.4 Bcf and 17.4 Bcf,
respectively.
QUARTER 12 MONTHS
--------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
DIVERSIFIED ENERGY GAS STATISTICS*
(in Bcf)
Gas Sales
Gas Marketing & Cogeneration..... 70.8 43.5 198.0 147.3
Exploration & Production**....... 8.7 3.3 21.6 10.7
Transportation.................... 16.2 .5 16.7 .8
---------- ---------- ---------- ----------
95.7 47.3 236.3 158.8
========== ========== ========== ==========
Gas Production.................... 12.5 6.4 37.5 21.4
========== ========== ========== ==========
Gas Processed..................... 8.7 3.2 21.8 5.2
========== ========== ========== ==========
*Includes intercompany volumes.
**Represents gas sales made directly to third parties by E&P operations. Other
E&P production is sold to affiliated companies for marketing.
RISK MANAGEMENT STRATEGY -- Risks associated with significant future E&P
activities will be minimized by diversifying investments along the lines of
geography, geology, risk profile and technology, as well as by partnering with
operators who bring capital and expertise. MCN primarily manages price risk by
attempting to maintain a balanced portfolio of gas supply and gas sales
agreements. MCN uses natural gas futures, options and swap contracts to manage
its price risk by offsetting a large portion of its open positions. MCN has
hedged most of its gas and oil production over the next ten years which is not
covered by long-term fixed-price sales obligations.
CORPORATE & OTHER
Corporate & other reflects administrative expenses associated with corporate
management activities. The Diversified Energy group has been allocated a
larger portion of such expenses reflecting its growing percentage of MCN.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
EQUITY IN EARNINGS OF JOINT VENTURES
Earnings from joint ventures increased $1.3 million and $.9 million for the
1996 quarter and twelve-month period, respectively. The increase for the
quarter is primarily due to additional income related to the December 1995
acquisition of a 50% interest in a 40 mile gas gathering line in Virginia, as
well as the start-up of commercial operations at the Michigan Power
cogeneration project during the fourth quarter of 1995. The increase for the
twelve-month period reflects lower losses from the Ada cogeneration facility
and the start-up of the Michigan Power cogeneration project.
QUARTER 12 MONTHS
------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
EQUITY IN EARNINGS OF JOINT
VENTURES (in Millions)
Gas Storage........................ $ .9 $ 1.2 $ 3.9 $ 4.4
Gas Marketing & Cogeneration....... .2 (.4) (.3) (1.2)
Gas Gathering & Processing......... 1.0 .1 1.5 1.3
Other.............................. -- (.1) .1 (.2)
--------- --------- --------- ---------
$ 2.1 $ .8 $ 5.2 $ 4.3
========= ========= ========= =========
OTHER INCOME & DEDUCTIONS
The 1996 quarter and twelve-month period reflect higher interest costs on
increased borrowings required to finance capital investments in the
Diversified Energy group. In addition, the twelve-month period increase
reflects dividends on $100 million of preferred securities of a subsidiary
which were issued in November 1994.
INCOME TAXES
Income taxes for the 1996 quarter and twelve-month period were favorably
impacted by increased federal gas production tax credits related to E&P
projects. Income taxes were also impacted by increased federal taxes on
improved pretax earnings in the 1996 quarter and twelve-month period.
OUTLOOK
MCN plans to continue aggressively growing its E&P reserve base in lower risk
areas which generate attractive returns. The development of reserves will
contribute toward a reliable long-term supply to meet the increased sales
requirements of MCN's Gas Marketing & Cogeneration operations as it expands
into areas beyond Michigan's borders. In addition, MCN plans to invest in gas
gathering facilities outside of Michigan, targeting areas that contain gas
marketing or E&P opportunities.
DISCONTINUED OPERATIONS
During the second quarter of 1996, MCN announced its intention to sell its
computer operations subsidiary, Genix. Although Genix has experienced
significant growth in revenues and operating income over the past several
years, MCN's focused strategy is to invest in energy-related projects that
generate higher rates of return. Proceeds from the sale will be used to
partially fund Diversified Energy's capital investments. Accordingly, Genix
has been reported as discontinued operations for all periods presented.
Income from discontinued operations was $1.0 million for the current quarter
unchanged from the comparable quarter in 1995. For the twelve-month period,
income increased $.2 million to $3.6 million. Results for the 1996 quarter and
twelve-month period reflect an increase in revenues from new business added
throughout the quarter and 1995, offset by higher software and start-up
expenses associated with new business. Genix expects that the new software
will facilitate continued growth in revenues through the broadening of its
products and services. Summary statements and other information on
discontinued computer operations can be found in note 4 to the consolidated
financial statements.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
MCN's cash flow from operating activities decreased $31.2 million during the
1996 quarter from the comparable 1995 period. The decrease was due primarily
to an increase in working capital requirements, partially offset by higher
income, after adjusting for depreciation and deferred taxes.
FINANCING ACTIVITIES
MCN issues new shares of common stock pursuant to its Dividend Reinvestment
and Stock Purchase Plan and various employee benefit plans. During 1996, MCN
anticipates the issuance of new shares of common stock pursuant to these
plans, generating approximately $18 million. During the first three months of
1996, issuances under these plans generated proceeds of $4.4 million.
In March 1996, MCN filed a registration statement with the Securities Exchange
Commission (SEC). This registration, along with an existing shelf
registration, allows for the issuance of up to $400 million of securities,
including preferred equity, common equity and debt securities.
In April 1996, MCN issued 5,865,000 Preferred Redeemable Increased Dividend
Equity Securities (PRIDES), yielding 8 3/4%, under this shelf registration
(Note 3b). The PRIDES are convertible securities that consist of a contract
under which MCN is obligated to sell and the PRIDES holder is obligated to
purchase approximately $135 million of MCN common stock in April 1999. The
issuance of these securities, which will convert into common stock in April
1999, enhances MCN's creditworthiness. The PRIDES are currently rated the
equivalent of "BBB+" by the major rating agencies.
GAS DISTRIBUTION
Cash and cash equivalents normally increase and short-term debt is reduced in
the first part of each year as gas inventories are depleted and funds are
received from winter heating sales. During the first quarter of 1996, MichCon
repaid $51.7 million of short-term debt including commercial paper. 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 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 $118 million was
outstanding as of March 31, 1996 under these lines.
MichCon maintains a Trust Demand Note program which allows for borrowings of
up to $25 million through April 1996. Borrowings of $25 million were
outstanding under this program at March 31, 1996 and were repaid in April
1996.
DIVERSIFIED ENERGY
In January 1996, MCNIC issued $200 million of medium-term notes using the
proceeds to repay short-term debt and for general corporate purposes. In
anticipation of future permanent capital requirements, MCNIC and MCN filed a
joint shelf registration statement with the SEC in March 1996 that allows for
the issuance of up to an additional $500 million of debt securities.
MCNIC maintains a $400 million commercial paper program to finance capital
investments and working capital requirements of its gas marketing operations.
During the first quarter of 1996, MCNIC repaid $76.7 million of commercial
paper leaving $297 million outstanding under this program at March 31, 1996.
INVESTING ACTIVITIES
Capital investments equaled $181.1 million in the 1996 quarter compared to
$86.7 million for the same period in 1995. The increase was due to higher
Diversified Energy investments, primarily for E&P expenditures, as well as the
Dauphin Island gathering system acquisition. Gas Distribution capital
expenditures were incurred to develop new gas distribution and transportation
markets.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONCLUDED)
QUARTER
---------------------
1996 1995
---------- ----------
CAPITAL INVESTMENTS (in Millions)
Consolidated Capital Expenditures:
Gas Distribution....................................... $ 29.9 $ 31.3
Diversified Energy..................................... 60.4 43.2
Discontinued Operations................................ 6.2 1.7
---------- ----------
96.5 76.2
---------- ----------
MCN's Share of Joint Venture Capital Expenditures:
Cogeneration........................................... 4.2 8.9
Other.................................................. 1.8 1.7
---------- ----------
6.0 10.6
---------- ----------
Acquisition (Note 2).................................... 78.6 --
---------- ----------
Minority Partners' Share of Consolidated Capital
Expenditures........................................... -- (.1)
---------- ----------
Total Capital Investments............................... $ 181.1 $ 86.7
========== ==========
OUTLOOK
Capital investments in 1996 are expected to reach $850 million -- MCN's
strategic direction is to grow significantly by investing in a portfolio of
energy-related projects. For 1996, MCN anticipates investing approximately
$250 million in Gas Distribution and approximately $600 million in Diversified
Energy. Capital investments in Gas Distribution will be made to add new gas
sales customers, develop new gas transportation markets and make improvements
to existing systems. This includes construction of a 59 mile loop of MichCon's
existing Milford-to-Belle River Pipeline which will improve the overall
reliability and efficiency of MichCon's gas storage and transmission system.
The pipeline is anticipated to be completed in early 1997 at a cost of
approximately $80 million. Within Diversified Energy, approximately $400
million will be invested in E&P projects for drilling operations and to
acquire reserves in the Michigan, Appalachian, Midcontinent, Gulf Coast and
Rocky Mountain regions. Diversified Energy will invest the remaining $200
million in gas gathering, gas processing and power generation projects.
Issuance of equity and debt securities are anticipated in 1996 -- The proposed
level of investments for 1996 increases capital requirements materially in
excess of internally generated funds and requires the issuance of additional
debt and equity securities. MCNIC is in the process of issuing $130 million of
medium-term notes during the second quarter of 1996. MCN and its subsidiaries
also anticipate issuing debt and equity securities during 1996 under their
existing shelf registrations statements. MCN's actual capital requirements and
general market conditions will affect the timing and amount of future
issuances. Additionally, MCN anticipates generating cash from the intended
sale of Genix and certain other assets. It is management's opinion that MCN
and its subsidiaries will have sufficient capital resources, both internal and
external, to meet anticipated capital requirements.
8
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
------------------------ ------------
1996 1995 1995
----------- ----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost
(which approximates market value)..... $ 25,338 $ 12,764 $ 19,259
Accounts receivable, less allowance for
doubtful accounts of $17,769,
$21,217 and $13,765, respectively..... 452,743 268,034 317,945
Accrued unbilled revenues.............. 73,201 60,323 92,410
Accrued gas cost recovery revenues..... 35,362 -- --
Gas in inventory (Note 5).............. 14,113 59,277 71,763
Property taxes assessed applicable to
future periods........................ 48,987 43,964 60,633
Gas receivable......................... 26,324 28,405 19,266
Other.................................. 31,659 26,717 34,220
----------- ----------- -----------
707,727 499,484 615,496
----------- ----------- -----------
DEFERRED CHARGES AND OTHER ASSETS
Investment in and advances to joint
ventures.............................. 127,827 64,202 129,026
Deferred swap losses and receivables
(Note 6).............................. 47,135 31,242 54,807
Deferred postretirement benefit cost... 12,310 19,867 13,112
Deferred environmental costs (Note 7a). 31,016 -- 35,000
Prepaid benefit costs.................. 43,761 12,525 23,827
Other.................................. 105,616 90,446 90,626
----------- ----------- -----------
367,665 218,282 346,398
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Gas distribution....................... 2,519,769 2,231,588 2,496,711
Exploration & production............... 634,214 313,114 576,810
Gas gathering & processing............. 102,428 74,020 22,324
Computer operations & other............ 71,247 53,158 64,709
----------- ----------- -----------
3,327,658 2,671,880 3,160,554
Less -- Accumulated depreciation and
depletion............................. 1,254,859 1,139,898 1,223,808
----------- ----------- -----------
2,072,799 1,531,982 1,936,746
----------- ----------- -----------
$ 3,148,191 $ 2,249,748 $ 2,898,640
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................... $ 256,107 $ 114,162 $ 217,184
Notes payable.......................... 176,919 144,031 245,635
Current portion of long-term debt,
capital lease obligations and
redeemable cumulative preferred
securities............................ 5,276 6,671 7,000
Gas inventory equalization (Note 5).... 84,576 67,808 --
Federal income, property and other
taxes payable......................... 75,403 86,541 83,384
Customer deposits...................... 10,875 10,485 11,550
Other.................................. 88,043 67,051 87,575
----------- ----------- -----------
697,199 496,749 652,328
----------- ----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes...... 144,447 101,698 125,896
Unamortized investment tax credit...... 36,328 38,213 36,797
Tax benefits amortizable to customers.. 114,151 113,344 114,668
Deferred swap gains and payables (Note
6).................................... 44,475 28,866 51,923
Accrued postretirement benefit cost.... -- 9,290 15,551
Accrued environmental costs (Note 7a).. 35,000 -- 35,000
Minority interest...................... 18,865 18,478 18,375
Other.................................. 83,518 83,027 93,470
----------- ----------- -----------
476,784 392,916 491,680
----------- ----------- -----------
LONG-TERM DEBT, including capital lease
obligations (Note 3a).................. 1,137,703 601,081 993,407
----------- ----------- -----------
REDEEMABLE CUMULATIVE PREFERRED
SECURITIES OF SUBSIDIARIES............. 96,480 96,361 96,449
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3b
and 7)
COMMON SHAREHOLDERS' EQUITY
Common stock........................... 668 658 664
Additional paid-in capital............. 456,955 434,476 446,055
Retained earnings...................... 283,046 228,137 218,425
Unearned compensation.................. (644) (630) (368)
----------- ----------- -----------
740,025 662,641 664,776
----------- ----------- -----------
$ 3,148,191 $ 2,249,748 $ 2,898,640
=========== =========== ===========
The notes to the consolidated financial statements are an integral part of this
statement.
9
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
OPERATING REVENUES......... $ 793,218 $ 526,088 $ 1,762,362 $ 1,359,146
----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of gas............... 512,429 288,295 1,010,327 719,714
Operation and maintenance. 86,757 87,316 341,962 335,018
Depreciation, depletion
and amortization......... 35,438 27,137 122,886 102,140
Property and other taxes.. 21,352 18,108 66,948 61,302
----------- ----------- ----------- -----------
Total operating expenses.. 655,976 420,856 1,542,123 1,218,174
----------- ----------- ----------- -----------
OPERATING INCOME........... 137,242 105,232 220,239 140,972
----------- ----------- ----------- -----------
EQUITY IN EARNINGS OF JOINT
VENTURES.................. 2,523 1,244 6,524 5,935
----------- ----------- ----------- -----------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........... 1,545 2,203 7,083 7,777
Interest on long-term
debt..................... (16,139) (11,315) (50,450) (41,381)
Other interest expense.... (4,101) (4,084) (12,066) (12,509)
Dividends on preferred
securities of
subsidiaries............. (2,362) (2,418) (9,554) (4,300)
Minority interest......... (380) (564) (2,307) (2,682)
Other..................... (1,245) (1,111) (3,074) (6,113)
----------- ----------- ----------- -----------
Total other income and
(deductions)............. (22,682) (17,289) (70,368) (59,208)
----------- ----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES 117,083 89,187 156,395 87,699
INCOME TAX PROVISION....... 38,029 28,626 44,733 20,918
----------- ----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS................ 79,054 60,561 111,662 66,781
DISCONTINUED OPERATIONS,
NET OF TAXES (Note 4)..... 1,013 1,029 3,571 3,455
----------- ----------- ----------- -----------
NET INCOME................. $ 80,067 $ 61,590 $ 115,233 $ 70,236
=========== =========== =========== ===========
EARNINGS PER SHARE
Continuing Operations..... $ 1.19 $ 1.00 $ 1.69 $ 1.12
Discontinued Operations
(Note 4)................. .01 .02 .05 .06
----------- ----------- ----------- -----------
$ 1.20 $ 1.02 $ 1.74 $ 1.18
=========== =========== =========== ===========
AVERAGE COMMON SHARES
OUTSTANDING............... 66,566 60,595 66,216 59,766
=========== =========== =========== ===========
DIVIDENDS DECLARED PER
SHARE..................... $ .2325 $ .2225 $ .9100 $ .8750
=========== =========== =========== ===========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
BALANCE -- Beginning of
period.................... $ 218,425 $ 179,862 $ 228,137 $ 210,014
ADD -- Net income.......... 80,067 61,590 115,233 70,236
----------- ----------- ----------- -----------
298,492 241,452 343,370 280,250
DEDUCT -- Cash dividends
declared on common stock.. 15,446 13,315 60,324 52,110
Other................... -- -- -- 3
----------- ----------- ----------- -----------
BALANCE -- End of period... $ 283,046 $ 228,137 $ 283,046 $ 228,137
=========== =========== =========== ===========
The notes to the consolidated financial statements are an integral part of
these statements.
10
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income............................................ $ 80,067 $ 61,590
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation, depletion and amortization
Per statement of income.............................. 35,438 27,137
Charged to other accounts and discontinued
operations.......................................... 3,606 3,741
Deferred income taxes, current........................ 8,613 (1,880)
Deferred income taxes and investment tax credit, net.. 17,565 6,178
Other................................................. 199 353
Changes in assets and liabilities, exclusive of
changes shown separately............................. (25,294) 54,227
---------- ----------
Net cash provided from operating activities.......... 120,194 151,346
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable, net.................................... (68,716) (86,055)
Common stock dividends paid........................... (15,446) (13,315)
Issuance of common stock.............................. 4,378 102,964
Issuance of long-term debt (Note 3a).................. 199,729 --
Long-term commercial paper and credit facilities, net. (59,654) (80,000)
Retirement of long-term debt and preferred stock...... (4,497) (4,671)
Other................................................. -- (671)
---------- ----------
Net cash provided from (used for) financing
activities.......................................... 55,794 (81,748)
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures.................................. (89,717) (74,768)
Acquisition (Note 2).................................. (78,620) --
Investment in joint ventures.......................... (49) (1,560)
Sale of investment in joint ventures.................. -- 7,628
Other................................................. (1,523) 319
---------- ----------
Net cash used for investing activities............... (169,909) (68,381)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 6,079 1,217
CASH AND CASH EQUIVALENTS, JANUARY 1................... 19,259 11,547
---------- ----------
CASH AND CASH EQUIVALENTS, MARCH 31.................... $ 25,338 $ 12,764
========== ==========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES
SHOWN SEPARATELY
Accounts receivable, net.............................. $ (133,828) $ (53,876)
Accrued unbilled revenues............................. 19,209 22,730
Gas in inventory...................................... 57,650 72,372
Deferred/accrued gas cost recovery revenues........... (35,940) 14,905
Accounts payable...................................... 38,923 (28,485)
Gas inventory equalization............................ 84,576 67,808
Federal income, property and other taxes payable...... (7,981) (431)
Other current assets and liabilities.................. (1,093) (32,248)
Deferred assets and liabilities....................... (46,810) (8,548)
---------- ----------
$ (25,294) $ 54,227
========== ==========
SUPPLEMENTAL DISCLOSURES
Cash paid (received) during the year for:
Interest, net of amounts capitalized.................. $ 14,256 $ 9,416
========== ==========
Federal income taxes.................................. $ -- $ (1,309)
========== ==========
Noncash investing activities:
Property purchased under capital leases............... $ 6,765 $ --
========== ==========
Land acquired in exchange for note receivable......... $ -- $ 1,480
========== ==========
The notes to the consolidated financial statements are an integral part of this
statement.
11
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying consolidated financial statements should be read in
conjunction with MCN's 1995 Annual Report on Form 10-K. Certain
reclassifications have been made to the prior year's financial statements to
conform with the 1996 presentation. 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, net income and
earnings per share for the interim periods should not be construed as
representative of revenues, expenses, net income and earnings per share for
all or any part of the balance of the current year or succeeding periods.
2. ACQUISITION
During the first quarter of 1996, MCN acquired a 99% interest in the Dauphin
Island Gathering Partnership. The partnership owns a 90 mile gas gathering
system in the Mobile Bay area of offshore Alabama. The total cost of the
acquisition was $78,620,000 and was accounted for under the purchase method.
3. CAPITALIZATION
A. LONG-TERM DEBT
The following long-term debt was issued during the first quarter of 1996
(in thousands):
ISSUE DATE DESCRIPTION AMOUNT ISSUED
----------------------------------------------------------------------------------
January 1996 MCNIC Medium-Term Notes
5.84%, due February 1999 $ 80,000
6.03%, due February 2001 $ 60,000
6.32%, due February 2003 $ 60,000
----------------------------------------------------------------------------------
B. PREFERRED REDEEMABLE INCREASED DIVIDEND EQUITY SECURITIES (PRIDES)
In April 1996, MCN issued 5,865,000 PRIDES yielding 8 3/4% with a stated
amount of $23.00 per security. Each security represents a contract to
purchase MCN common stock in April 1999 (or earlier under certain
circumstances). Proceeds from the issuance totaling approximately
$135,000,000 were used to acquire 6.5% U.S. Treasury Notes underlying the
security as subsequently discussed. Accordingly, MCN received no cash from
issuing the PRIDES.
Under each security, MCN is obligated to sell and the PRIDES holder is
obligated to purchase for $23.00, between .8333 of a share and one share of
MCN common stock. The exact number of MCN common shares to be sold is
dependent on the market value of a share in April 1999. However, the total
number to be sold will not be less than 4,887,500 shares or more than
5,865,000 shares. MCN is also obligated to pay semi-annually to the PRIDES
holder a yield enhancement payment at an annual rate of 2 1/4% of the
stated amount. MCN has the right to defer the yield enhancement payment in
which case MCN cannot declare dividends on its common stock until the yield
enhancement payment has been made.
The Treasury Notes underlying the securities are pledged as collateral to
secure the PRIDES holders' obligation to purchase MCN common stock under
the stock purchase contract. At maturity, in April 1999, the principal
received from the U.S. Treasury Notes will be used to satisfy in full the
PRIDES holders' obligation. Neither the PRIDES nor the U.S. Treasury Notes
will be included on MCN's Consolidated Statement of Financial Position.
However, the issuance of common stock will be reflected when cash proceeds
totaling approximately $135,000,000 are received by MCN in April 1999.
12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DISCONTINUED OPERATIONS
In April 1996, MCN announced its intention to sell its computer operations
subsidiary, The Genix Group, Inc. (Genix). Accordingly, Genix has been
accounted for as a discontinued operation. The disposition is expected to
occur in the second quarter of 1996 and result in a gain. The following
financial information summarizes Genix's operations:
QUARTER TWELVE MONTHS
---------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ----------- ----------
(in Thousands)
OPERATING REVENUES
Non-affiliates............... $ 24,842 $ 21,915 $ 92,834 $ 78,067
Affiliates................... 3,751 3,800 15,205 15,755
---------- ---------- ----------- ----------
28,593 25,715 108,039 93,822
---------- ---------- ----------- ----------
OPERATING EXPENSES............ 26,086 23,438 99,813 86,308
---------- ---------- ----------- ----------
OPERATING INCOME.............. 2,507 2,277 8,226 7,514
---------- ---------- ----------- ----------
OTHER INCOME AND (DEDUCTIONS)
Interest expense --
affiliate................... (497) (400) (2,185) (1,466)
Other........................ (232) (4) 73 257
---------- ---------- ----------- ----------
(729) (404) (2,112) (1,209)
---------- ---------- ----------- ----------
INCOME BEFORE INCOME TAXES.... 1,778 1,873 6,114 6,305
INCOME TAX PROVISION.......... 765 844 2,543 2,850
---------- ---------- ----------- ----------
NET INCOME.................... $ 1,013 $ 1,029 $ 3,571 $ 3,455
========== ========== =========== ==========
MARCH 31,
-----------------------
1996 1995
(in Thousands) ----------- ----------
ASSETS
Accounts receivable, net........................... $ 26,824 $ 20,580
Property, plant and equipment, net................. 34,787 28,068
Other.............................................. 18,075 19,508
----------- ----------
$ 79,686 $ 68,156
=========== ==========
LIABILITIES
Accounts payable................................... $ 7,767 $ 7,328
Notes payable -- affiliate......................... 34,071 31,607
Other.............................................. 15,861 8,651
----------- ----------
$ 57,699 $ 47,586
=========== ==========
Related party transactions between Genix and other MCN companies are included
in the individual captions of the Consolidated Statement of Income as
components of both continuing and discontinued operations.
13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. 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 generally 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 23.8 billion cubic feet
(Bcf) and 42.8 Bcf of gas was in inventory at March 31, 1996 and 1995,
respectively.
6. ACCOUNTING FOR COMMODITY SWAP AGREEMENTS
As discussed in MCN's 1995 Annual Report on Form 10-K, MCN manages commodity
price risk through the use of various derivative instruments and limits the
use of such instruments to hedging activities. If MCN did not use derivative
instruments, its exposure to such risk would be higher. Although this strategy
reduces risk, it also limits potential gains from favorable changes in
commodity prices. Natural gas and oil swap agreements are used to manage
exposure to the risk of market price fluctuations on gas sale contracts, and
gas and oil production. Market value changes of swap contracts are deferred
and recorded as a deferred gain or deferred loss until the hedged transaction
is completed, at which time the realized gain or loss is included as an
adjustment to revenues. The offset to the unrealized losses is recorded as
deferred payables and the offset to the unrealized gains is recorded as
deferred receivables.
The following assets and liabilities related to the use of gas and oil swap
agreements are reflected in the Consolidated Statement of Financial Position:
MARCH 31, DECEMBER 31,
--------------------- ------------
1996 1995 1995
(in Thousands) ---------- ---------- ------------
DEFERRED SWAP LOSSES AND RECEIVABLES
Unrealized losses........................... $ 31,108 $ 31,242 $ 18,084
Deferred receivables........................ 16,027 -- 37,345
---------- ---------- ----------
47,135 31,242 55,429
Less -- Current portion..................... -- -- 622
---------- ---------- ----------
$ 47,135 $ 31,242 $ 54,807
========== ========== ==========
DEFERRED SWAP GAINS AND PAYABLES
Unrealized gains............................ $ 13,773 $ -- $ 35,514
Deferred payables........................... 38,855 37,244 25,532
---------- ---------- ----------
52,628 37,244 61,046
Less -- Current portion..................... 8,153 8,378 9,123
---------- ---------- ----------
$ 44,475 $ 28,866 $ 51,923
========== ========== ==========
14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
A. ENVIRONMENTAL MATTERS
As discussed in MCN's 1995 Annual Report on Form 10-K, MCN accrued an
additional environmental remediation liability and corresponding regulatory
asset of $35,000,000 in the fourth quarter of 1995. MCN has notified
current and former insurance carriers of the environmental conditions and
is pursuing its claims against these carriers. In the first quarter of
1996, MCN received its first settlements from insurance carriers and
expects additional insurance recoveries over the next several years. At
March 31, 1996, the reserve balance is approximately $38,400,000, of which
$3,400,000 is classified as current.
B. OTHER
MCN is involved in certain legal and administrative proceedings before
various courts and governmental agencies concerning claims arising in the
ordinary course of business. Management cannot predict the final
disposition of such proceedings, but believes that adequate provision has
been made for probable losses. It is management's belief, after discussion
with legal counsel, that the ultimate resolution of those proceedings still
pending will not have a material adverse effect on MCN's financial
statements.
8. ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" in
October 1995. The statement requires certain disclosures about stock-based
employee compensation and encourages, but does not require, a fair-value-based
method of accounting for such compensation. MCN is currently evaluating
whether to adopt the fair-value-based method of accounting and its impacts.
9. CONSOLIDATING FINANCIAL STATEMENTS
Debt securities issued by MCNIC are subject to a support agreement between MCN
and MCNIC, under which MCN has committed to make payments of interest and
principal on MCNIC's securities in the event of failure to pay by MCNIC. Under
the terms of the support agreement, the assets of MCN, other than MichCon, and
any cash dividends paid to MCN by any of its subsidiaries are available as
recourse to holders of MCNIC's securities. The carrying value of MCN's assets
on an unconsolidated basis, primarily investments in its subsidiaries other
than MichCon, is $289,956,000 at March 31, 1996.
The following MCN consolidating financial statements are presented and include
separately MCNIC, MichCon and MCN and other subsidiaries. MCN has determined
that separate financial statements and other disclosures concerning MCNIC are
not material to investors. The other MCN subsidiaries represent Citizens Gas
Fuel Company, Blue Lake Holdings, Inc. and MCN Michigan Limited Partnership.
15
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
MCN AND
OTHER ELIMINATIONS AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ----------- ----------- ----------------- ------------
MARCH 31, 1996
--------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash
equivalents, at cost.. $ 25 $ 15,759 $ 9,554 $ -- $ 25,338
Accounts receivable.... 7,098 194,193 280,734 (11,513) 470,512
Less -- Allowance for
doubtful accounts..... 79 626 17,064 -- 17,769
----------- ----------- ----------- ----------- -----------
Accounts receivable,
net................... 7,019 193,567 263,670 (11,513) 452,743
Accrued unbilled
revenue............... 819 -- 72,382 -- 73,201
Accrued gas cost
recovery revenues..... -- -- 35,362 -- 35,362
Gas in inventory....... -- 447 13,665 1 14,113
Property taxes assessed
applicable to future
periods............... 148 1,777 47,062 -- 48,987
Gas receivable......... -- 13,541 12,783 -- 26,324
Other.................. 1,661 22,665 23,818 (16,485) 31,659
----------- ----------- ----------- ----------- -----------
9,672 247,756 478,296 (27,997) 707,727
----------- ----------- ----------- ----------- -----------
DEFERRED CHARGES AND
OTHER ASSETS
Investments in and
advances to joint
ventures and
subsidiaries.......... 846,439 99,109 20,043 (837,764) 127,827
Deferred swap losses
and receivables....... -- 47,135 -- -- 47,135
Deferred postretirement
benefit cost.......... 728 -- 11,582 -- 12,310
Deferred environmental
costs................. 3,000 -- 28,016 -- 31,016
Prepaid benefit costs.. -- -- 48,896 (5,135) 43,761
Other.................. 8,529 48,638 47,934 515 105,616
----------- ----------- ----------- ----------- -----------
858,696 194,882 156,471 (842,384) 367,665
----------- ----------- ----------- ----------- -----------
PROPERTY, PLANT AND
EQUIPMENT, at cost..... 28,592 798,302 2,500,764 -- 3,327,658
Less -- Accumulated
depreciation and
depletion............. 10,192 67,083 1,177,584 -- 1,254,859
----------- ----------- ----------- ----------- -----------
18,400 731,219 1,323,180 -- 2,072,799
----------- ----------- ----------- ----------- -----------
$ 886,768 $ 1,173,857 $ 1,957,947 $ (870,381) $ 3,148,191
=========== =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....... $ 4,169 $ 145,833 $ 117,060 $ (10,955) $ 256,107
Notes payable.......... -- 32,000 144,919 -- 176,919
Current portion of
long-term debt,
capital lease
obligations and
redeemable cumulative
preferred securities.. 55 2,077 3,143 1 5,276
Gas inventory
equalization.......... -- 2,183 82,393 -- 84,576
Federal income,
property and other
taxes payable......... 4,409 3,331 82,048 (14,385) 75,403
Customer deposits...... 19 38 10,818 -- 10,875
Other.................. 2,840 11,936 75,365 (2,098) 88,043
----------- ----------- ----------- ----------- -----------
11,492 197,398 515,746 (27,437) 697,199
----------- ----------- ----------- ----------- -----------
DEFERRED CREDITS AND
OTHER LIABILITIES
Accumulated deferred
income taxes.......... (769) 63,386 81,830 -- 144,447
Unamortized investment
tax credit............ 353 -- 35,975 -- 36,328
Tax benefits
amortizable to
customers............. 183 -- 113,968 -- 114,151
Deferred swap gains and
payables.............. -- 44,475 -- -- 44,475
Accrued postretirement
benefit cost.......... 2,230 1,234 -- (3,464) --
Accrued environmental
costs................. 3,000 -- 32,000 -- 35,000
Minority interest...... -- 1,060 17,805 -- 18,865
Other.................. 17,747 11,005 56,438 (1,672) 83,518
----------- ----------- ----------- ----------- -----------
22,744 121,160 338,016 (5,136) 476,784
----------- ----------- ----------- ----------- -----------
LONG-TERM DEBT,
including capital lease
obligations............ 420 604,562 532,720 1 1,137,703
----------- ----------- ----------- ----------- -----------
REDEEMABLE CUMULATIVE
PREFERRED SECURITIES OF
SUBSIDIARIES........... 96,480 -- -- -- 96,480
----------- ----------- ----------- ----------- -----------
COMMON SHAREHOLDERS'
EQUITY
Common stock........... 668 5 10,300 (10,305) 668
Additional paid-in
capital............... 463,184 189,679 230,399 (426,307) 456,955
Retained earnings...... 292,424 61,053 330,766 (401,197) 283,046
Unearned compensation.. (644) -- -- -- (644)
----------- ----------- ----------- ----------- -----------
755,632 250,737 571,465 (837,809) 740,025
----------- ----------- ----------- ----------- -----------
$ 886,768 $ 1,173,857 $ 1,957,947 $ (870,381) $ 3,148,191
=========== =========== =========== =========== ===========
16
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
MCN AND
OTHER ELIMINATIONS AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ------------ ------------ ----------------- ------------
MARCH 31, 1995
----------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash
equivalents, at cost.. $ 102 $ 5,729 $ 6,933 $ -- $ 12,764
Accounts receivable.... 4,692 78,489 214,758 (8,688) 289,251
Less -- Allowance for
doubtful accounts..... 81 820 20,816 (500) 21,217
------------ ------------ ------------ ------------ ------------
Accounts receivable,
net................... 4,611 77,669 193,942 (8,188) 268,034
Accrued unbilled
revenue............... 791 -- 59,532 -- 60,323
Gas in inventory....... -- 30,366 28,911 -- 59,277
Property taxes assessed
applicable to future
periods............... 111 2,003 41,850 -- 43,964
Gas receivable......... -- 22,779 5,626 -- 28,405
Other.................. 1,671 8,646 18,888 (2,488) 26,717
------------ ------------ ------------ ------------ ------------
7,286 147,192 355,682 (10,676) 499,484
------------ ------------ ------------ ------------ ------------
DEFERRED CHARGES AND
OTHER ASSETS
Investments in and
advances to joint
ventures and
subsidiaries.......... 765,963 42,205 20,535 (764,501) 64,202
Deferred swap losses
and receivables....... -- 31,242 -- -- 31,242
Deferred postretirement
benefit cost.......... 772 -- 19,095 -- 19,867
Prepaid benefit costs.. 834 467 11,224 -- 12,525
Other.................. 8,333 42,051 39,833 229 90,446
------------ ------------ ------------ ------------ ------------
775,902 115,965 90,687 (764,272) 218,282
------------ ------------ ------------ ------------ ------------
PROPERTY, PLANT AND
EQUIPMENT, at cost..... 24,035 433,682 2,214,163 -- 2,671,880
Less -- Accumulated
depreciation and
depletion............. 8,531 38,870 1,092,497 -- 1,139,898
------------ ------------ ------------ ------------ ------------
15,504 394,812 1,121,666 -- 1,531,982
------------ ------------ ------------ ------------ ------------
$ 798,692 $ 657,969 $ 1,568,035 $ (774,948) $ 2,249,748
============ ============ ============ ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....... $ 880 $ 51,750 $ 69,487 $ (7,955) $ 114,162
Notes payable.......... -- 64,350 79,681 -- 144,031
Current portion of
long-term debt,
capital lease
obligations and
redeemable cumulative
preferred securities.. 485 2,313 3,873 -- 6,671
Gas inventory
equalization.......... 2 -- 67,806 -- 67,808
Federal income,
property and other
taxes payable......... 1,171 3,325 84,533 (2,488) 86,541
Customer deposits...... 18 -- 10,467 -- 10,485
Other.................. 3,550 4,373 59,132 (4) 67,051
------------ ------------ ------------ ------------ ------------
6,106 126,111 374,979 (10,447) 496,749
------------ ------------ ------------ ------------ ------------
DEFERRED CREDITS AND
OTHER LIABILITIES
Accumulated deferred
income taxes.......... (184) 40,574 61,308 -- 101,698
Unamortized investment
tax credit............ 383 -- 37,830 -- 38,213
Tax benefits
amortizable to
customers............. 165 -- 113,179 -- 113,344
Deferred swap gains and
payables.............. -- 28,866 -- -- 28,866
Accrued postretirement
benefit cost.......... 2,694 -- 6,596 -- 9,290
Accrued environmental
costs................. -- -- -- -- --
Minority interest...... -- 18,478 -- -- 18,478
Other.................. 14,086 9,525 59,416 -- 83,027
------------ ------------ ------------ ------------ ------------
17,144 97,443 278,329 -- 392,916
------------ ------------ ------------ ------------ ------------
LONG-TERM DEBT,
including capital lease
obligations............ 474 152,749 447,858 -- 601,081
------------ ------------ ------------ ------------ ------------
REDEEMABLE CUMULATIVE
PREFERRED SECURITIES OF
SUBSIDIARIES........... 96,361 -- -- -- 96,361
------------ ------------ ------------ ------------ ------------
COMMON SHAREHOLDERS'
EQUITY
Common stock........... 658 5 10,300 (10,305) 658
Additional paid-in
capital............... 443,296 248,367 204,777 (461,964) 434,476
Retained earnings...... 235,283 33,294 251,792 (292,232) 228,137
Unearned compensation.. (630) -- -- -- (630)
------------ ------------ ------------ ------------ ------------
678,607 281,666 466,869 (764,501) 662,641
------------ ------------ ------------ ------------ ------------
$ 798,692 $ 657,969 $ 1,568,035 $ (774,948) $ 2,249,748
============ ============ ============ ============ ============
17
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
MCN AND
OTHER ELIMINATIONS AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ------------ ------------ ----------------- ------------
DECEMBER 31, 1995
----------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash
equivalents, at cost.. $ 168 $ 10,622 $ 8,469 $ -- $ 19,259
Accounts receivable.... 4,934 147,510 188,353 (9,087) 331,710
Less -- Allowance for
doubtful accounts..... 70 445 13,250 -- 13,765
------------ ------------ ------------ ------------ ------------
Accounts receivable,
net................... 4,864 147,065 175,103 (9,087) 317,945
Accrued unbilled
revenue............... 1,276 -- 91,134 -- 92,410
Gas in inventory....... -- 31,572 40,191 -- 71,763
Property taxes assessed
applicable to future
periods............... 176 3,508 56,949 -- 60,633
Gas receivable......... -- 4,995 14,242 29 19,266
Other.................. 596 25,422 18,256 (10,054) 34,220
------------ ------------ ------------ ------------ ------------
7,080 223,184 404,344 (19,112) 615,496
------------ ------------ ------------ ------------ ------------
DEFERRED CHARGES AND
OTHER ASSETS
Investments in and
advances to joint
ventures and
subsidiaries.......... 773,344 100,483 20,318 (765,119) 129,026
Deferred swap losses
and receivables....... -- 54,807 -- -- 54,807
Deferred postretirement
benefit cost.......... 740 -- 12,372 -- 13,112
Deferred environmental
costs................. 3,000 -- 32,000 -- 35,000
Prepaid benefit costs.. -- -- 25,438 (1,611) 23,827
Other.................. 7,501 39,949 42,061 1,115 90,626
------------ ------------ ------------ ------------ ------------
784,585 195,239 132,189 (765,615) 346,398
------------ ------------ ------------ ------------ ------------
PROPERTY, PLANT AND
EQUIPMENT, at cost..... 27,784 719,650 2,413,120 -- 3,160,554
Less -- Accumulated
depreciation and
depletion............. 9,732 62,916 1,151,160 -- 1,223,808
------------ ------------ ------------ ------------ ------------
18,052 656,734 1,261,960 -- 1,936,746
------------ ------------ ------------ ------------ ------------
$ 809,717 $ 1,075,157 $ 1,798,493 $ (784,727) $ 2,898,640
============ ============ ============ ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....... $ 4,489 $ 112,630 $ 108,208 $ (8,143) $ 217,184
Notes payable.......... -- 49,000 196,635 -- 245,635
Current portion of
long-term debt,
capital lease
obligations and
redeemable cumulative
preferred securities.. 55 2,976 3,969 -- 7,000
Federal income,
property and other
taxes payable......... 1,372 6,180 85,195 (9,363) 83,384
Customer deposits...... 19 -- 11,531 -- 11,550
Other.................. 2,935 20,715 64,587 (662) 87,575
------------ ------------ ------------ ------------ ------------
8,870 191,501 470,125 (18,168) 652,328
------------ ------------ ------------ ------------ ------------
DEFERRED CREDITS AND
OTHER LIABILITIES
Accumulated deferred
income taxes.......... (590) 65,341 61,146 (1) 125,896
Unamortized investment
tax credit............ 360 -- 36,437 -- 36,797
Tax benefits
amortizable to
customers............. 181 -- 114,487 -- 114,668
Deferred swap gains and
payables.............. -- 51,923 -- -- 51,923
Accrued postretirement
benefit cost.......... 2,177 713 12,661 -- 15,551
Accrued environmental
costs................. 3,000 -- 32,000 -- 35,000
Minority interest...... -- 18,375 -- -- 18,375
Other.................. 18,175 11,546 65,252 (1,503) 93,470
------------ ------------ ------------ ------------ ------------
23,303 147,898 321,983 (1,504) 491,680
------------ ------------ ------------ ------------ ------------
LONG-TERM DEBT,
including capital lease
obligations............ 420 476,424 516,564 (1) 993,407
------------ ------------ ------------ ------------ ------------
REDEEMABLE CUMULATIVE
PREFERRED SECURITIES OF
SUBSIDIARIES........... 96,449 -- -- -- 96,449
------------ ------------ ------------ ------------ ------------
COMMON SHAREHOLDERS'
EQUITY
Common stock........... 664 5 10,300 (10,305) 664
Additional paid-in
capital............... 453,220 207,103 211,777 (426,045) 446,055
Retained earnings...... 227,159 52,226 267,744 (328,704) 218,425
Unearned compensation.. (368) -- -- -- (368)
------------ ------------ ------------ ------------ ------------
680,675 259,334 489,821 (765,054) 664,776
------------ ------------ ------------ ------------ ------------
$ 809,717 $ 1,075,157 $ 1,798,493 $ (784,727) $ 2,898,640
============ ============ ============ ============ ============
18
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
MCN AND
OTHER ELIMINATIONS AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ------------ ----------- ----------------- ------------
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------------------------------
OPERATING REVENUES...... $ 7,207 $ 259,949 $ 531,392 $ (5,330) $ 793,218
------------ ------------ ----------- ------------ ------------
OPERATING EXPENSES
Cost of gas............ 3,771 213,623 298,716 (3,681) 512,429
Operation and
maintenance........... 186 19,449 68,771 (1,649) 86,757
Depreciation, depletion
and amortization...... 468 10,577 24,393 -- 35,438
Property and other
taxes................. 561 2,562 18,608 (379) 21,352
------------ ------------ ----------- ------------ ------------
Total operating
expenses............... 4,986 246,211 410,488 (5,709) 655,976
------------ ------------ ----------- ------------ ------------
OPERATING INCOME........ 2,221 13,738 120,904 379 137,242
------------ ------------ ----------- ------------ ------------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 79,842 1,940 235 (79,494) 2,523
------------ ------------ ----------- ------------ ------------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 2,400 930 585 (2,370) 1,545
Interest on long-term
debt.................. (10) (6,361) (9,768) -- (16,139)
Other interest expense. (14) (3,622) (2,835) 2,370 (4,101)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (2,362) (2,362)
Minority interest...... -- (32) (348) -- (380)
Other.................. (288) (287) (296) (374) (1,245)
------------ ------------ ----------- ------------ ------------
Total other income and
(deductions).......... 2,088 (9,372) (12,662) (2,736) (22,682)
------------ ------------ ----------- ------------ ------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 84,151 6,306 108,477 (81,851) 117,083
INCOME TAX PROVISION
(BENEFIT).............. 1,100 (1,508) 38,437 -- 38,029
------------ ------------ ----------- ------------ ------------
INCOME FROM CONTINUING
OPERATIONS............. 83,051 7,814 70,040 (81,851) 79,054
DISCONTINUED OPERATIONS,
NET OF TAXES........... -- 1,013 -- -- 1,013
------------ ------------ ----------- ------------ ------------
NET INCOME.............. 83,051 8,827 70,040 (81,851) 80,067
DIVIDENDS ON PREFERRED
SECURITIES............. 2,344 -- 18 (2,362) --
------------ ------------ ----------- ------------ ------------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 80,707 $ 8,827 $ 70,022 $ (79,489) $ 80,067
============ ============ =========== ============ ============
THREE MONTHS ENDED MARCH 31, 1995
-----------------------------------------------------------------------
OPERATING REVENUES...... $ 5,976 $ 103,995 $ 421,812 $ (5,695) $ 526,088
------------ ------------ ----------- ------------ ------------
OPERATING EXPENSES
Cost of gas............ 2,728 78,124 210,137 (2,694) 288,295
Operation and
maintenance........... 697 12,291 77,329 (3,001) 87,316
Depreciation, depletion
and amortization...... 380 4,606 22,151 -- 27,137
Property and other
taxes................. 476 1,130 16,502 -- 18,108
------------ ------------ ----------- ------------ ------------
Total operating
expenses............... 4,281 96,151 326,119 (5,695) 420,856
------------ ------------ ----------- ------------ ------------
OPERATING INCOME........ 1,695 7,844 95,693 -- 105,232
------------ ------------ ----------- ------------ ------------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 61,469 660 224 (61,109) 1,244
------------ ------------ ----------- ------------ ------------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 2,492 972 938 (2,199) 2,203
Interest on long-term
debt.................. (21) (3,041) (8,253) -- (11,315)
Other interest expense. (22) (3,461) (2,972) 2,371 (4,084)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (2,418) (2,418)
Minority interest...... -- (564) -- -- (564)
Other.................. -- (203) (738) (170) (1,111)
------------ ------------ ----------- ------------ ------------
Total other income and
(deductions).......... 2,449 (6,297) (11,025) (2,416) (17,289)
------------ ------------ ----------- ------------ ------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 65,613 2,207 84,892 (63,525) 89,187
INCOME TAX PROVISION
(BENEFIT).............. 1,009 (1,665) 29,282 -- 28,626
------------ ------------ ----------- ------------ ------------
INCOME FROM CONTINUING
OPERATIONS.............. 64,604 3,872 55,610 (63,525) 60,561
DISCONTINUED OPERATIONS,
NET OF TAXES........... -- 1,029 -- -- 1,029
------------ ------------ ----------- ------------ ------------
NET INCOME.............. 64,604 4,901 55,610 (63,525) 61,590
DIVIDENDS ON PREFERRED
SECURITIES............. 2,344 -- 74 (2,418) --
------------ ------------ ----------- ------------ ------------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 62,260 $ 4,901 $ 55,536 $ (61,107) $ 61,590
============ ============ =========== ============ ============
19
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
MCN AND
OTHER ELIMINATIONS AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ------------ ------------ ----------------- ------------
TWELVE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------------------
OPERATING REVENUES...... $ 16,393 $ 567,653 $ 1,190,393 $ (12,077) $ 1,762,362
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Cost of gas............ 8,494 437,772 572,541 (8,480) 1,010,327
Operation and
maintenance........... 3,516 56,177 285,866 (3,597) 341,962
Depreciation, depletion
and amortization...... 1,759 29,757 91,370 -- 122,886
Property and other
taxes................. 1,415 6,794 59,118 (379) 66,948
------------ ------------ ------------ ------------ ------------
Total operating
expenses.............. 15,184 530,500 1,008,895 (12,456) 1,542,123
------------ ------------ ------------ ------------ ------------
OPERATING INCOME........ 1,209 37,153 181,498 379 220,239
------------ ------------ ------------ ------------ ------------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 117,124 4,580 750 (115,930) 6,524
------------ ------------ ------------ ------------ ------------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 9,593 3,509 3,630 (9,649) 7,083
Interest on long-term
debt.................. (65) (13,050) (37,335) -- (50,450)
Other interest expense. (45) (14,582) (6,916) 9,477 (12,066)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (9,554) (9,554)
Minority interest...... -- (1,959) (348) -- (2,307)
Other.................. 1,195 902 (4,967) (204) (3,074)
------------ ------------ ------------ ------------ ------------
Total other income and
(deductions).......... 10,678 (25,180) (45,936) (9,930) (70,368)
------------ ------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 129,011 16,553 136,312 (125,481) 156,395
INCOME TAX PROVISION
(BENEFIT).............. 2,209 (7,635) 50,159 -- 44,733
------------ ------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS............. 126,802 24,188 86,153 (125,481) 111,662
DISCONTINUED OPERATIONS,
NET OF TAXES........... -- 3,571 -- -- 3,571
------------ ------------ ------------ ------------ ------------
NET INCOME.............. 126,802 27,759 86,153 (125,481) 115,233
DIVIDENDS ON PREFERRED
SECURITIES............. 9,375 -- 179 (9,554) --
------------ ------------ ------------ ------------ ------------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 117,427 $ 27,759 $ 85,974 $ (115,927) $ 115,233
============ ============ ============ ============ ============
TWELVE MONTHS ENDED MARCH 31, 1995
------------------------------------------------------------------------
OPERATING REVENUES...... $ 13,890 $ 357,810 $ 999,134 $ (11,688) $ 1,359,146
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Cost of gas............ 6,550 279,607 439,440 (5,883) 719,714
Operation and
maintenance........... 1,077 35,507 304,294 (5,860) 335,018
Depreciation, depletion
and amortization...... 1,397 15,552 85,191 -- 102,140
Property and other
taxes................. 1,278 4,073 55,951 -- 61,302
------------ ------------ ------------ ------------ ------------
Total operating
expenses.............. 10,302 334,739 884,876 (11,743) 1,218,174
------------ ------------ ------------ ------------ ------------
OPERATING INCOME........ 3,588 23,071 114,258 55 140,972
------------ ------------ ------------ ------------ ------------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 73,292 3,499 831 (71,687) 5,935
------------ ------------ ------------ ------------ ------------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 4,154 3,769 3,610 (3,756) 7,777
Interest on long-term
debt.................. (128) (11,593) (29,660) -- (41,381)
Other interest expense. (132) (6,481) (9,826) 3,930 (12,509)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (4,300) (4,300)
Minority interest...... -- (2,682) -- -- (2,682)
Other.................. (1,348) 213 (4,750) (228) (6,113)
------------ ------------ ------------ ------------ ------------
Total other income and
(deductions).......... 2,546 (16,774) (40,626) (4,354) (59,208)
------------ ------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 79,426 9,796 74,463 (75,986) 87,699
INCOME TAX PROVISION
(BENEFIT).............. 2,337 (5,366) 23,947 -- 20,918
------------ ------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS............. 77,089 15,162 50,516 (75,986) 66,781
DISCONTINUED OPERATIONS,
NET OF TAXES........... -- 3,455 -- -- 3,455
------------ ------------ ------------ ------------ ------------
NET INCOME.............. 77,089 18,617 50,516 (75,986) 70,236
DIVIDENDS ON PREFERRED
SECURITIES............. 3,881 -- 419 (4,300) --
------------ ------------ ------------ ------------ ------------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 73,208 $ 18,617 $ 50,097 $ (71,686) $ 70,236
============ ============ ============ ============ ============
20
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
MCN
AND OTHER ELIMINATIONS AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ----------- ----------- ----------------- ------------
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------------------------
NET CASH FLOW FROM
OPERATING ACTIVITIES... $ 16,019 $ 20,093 $ 94,296 $ (10,214) $ 120,194
----------- ----------- ----------- ----------- -----------
CASH FLOW FROM FINANCING
ACTIVITIES
Notes payable, net..... -- (17,000) (51,716) -- (68,716)
Capital contributions
received from
(distributions paid
to) affiliates, net... (830) (524) 1,614 (260) --
Common stock dividends
paid.................. (15,446) -- (7,000) 7,000 (15,446)
Preferred securities
dividends paid........ (2,344) -- (54) 2,398 --
Issuance of common
stock................. 4,378 -- -- -- 4,378
Issuance of long-term
debt.................. -- 199,729 -- -- 199,729
Long-term commercial
paper and credit
facilities, net....... -- (59,654) -- -- (59,654)
Retirement of long-term
debt and preferred
securities............ -- (526) (3,974) 3 (4,497)
----------- ----------- ----------- ----------- -----------
Net cash provided from
(used for) financing
activities............ (14,242) 122,025 (61,130) 9,141 55,794
----------- ----------- ----------- ----------- -----------
CASH FLOW FROM INVESTING
ACTIVITIES
Capital expenditures... (956) (59,145) (29,616) -- (89,717)
Acquisition............ -- (78,620) -- -- (78,620)
Investment in joint
ventures and
subsidiaries.......... (1,090) (32) (17) 1,090 (49)
Other.................. 126 816 (2,448) (17) (1,523)
----------- ----------- ----------- ----------- -----------
Net cash used for
investing activities.. (1,920) (136,981) (32,081) 1,073 (169,909)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (143) 5,137 1,085 -- 6,079
CASH AND CASH
EQUIVALENTS, JANUARY 1. 168 10,622 8,469 -- 19,259
----------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, MARCH 31.. $ 25 $ 15,759 $ 9,554 $ -- $ 25,338
=========== =========== =========== =========== ===========
THREE MONTHS ENDED MARCH 31, 1995
----------------------------------------------------------------------
NET CASH FLOW FROM
OPERATING ACTIVITIES... $ 12,556 $ 18,599 $ 132,530 $ (12,339) $ 151,346
----------- ----------- ----------- ----------- -----------
CASH FLOW FROM FINANCING
ACTIVITIES
Notes payable, net..... -- 2,722 (88,776) (1) (86,055)
Capital contributions
received from
(distributions paid
to) affiliates, net... (1,289) 97,342 -- (96,053) --
Common stock dividends
paid.................. (13,315) -- (6,500) 6,500 (13,315)
Preferred securities
dividends paid........ (2,344) -- (115) 2,459 --
Issuance of common
stock................. 102,964 -- -- -- 102,964
Long-term commercial
paper and credit
facilities, net....... -- (80,000) -- -- (80,000)
Retirement of long-term
debt and preferred
securities............ -- (1,200) (3,471) -- (4,671)
Other.................. -- (671) -- -- (671)
----------- ----------- ----------- ----------- -----------
Net cash provided from
(used for) financing
activities............ 86,016 18,193 (98,862) (87,095) (81,748)
----------- ----------- ----------- ----------- -----------
CASH FLOW FROM INVESTING
ACTIVITIES
Capital expenditures... (1,102) (45,457) (28,209) -- (74,768)
Investment in joint
ventures and
subsidiaries.......... (97,342) (2,111) (167) 98,060 (1,560)
Sale of investment in
joint ventures........ -- 7,628 -- -- 7,628
Other.................. (55) (1,336) 336 1,374 319
----------- ----------- ----------- ----------- -----------
Net cash used for
investing activities.. (98,499) (41,276) (28,040) 99,434 (68,381)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 73 (4,484) 5,628 -- 1,217
CASH AND CASH
EQUIVALENTS, JANUARY 1. 29 10,213 1,305 -- 11,547
----------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, MARCH 31.. $ 102 $ 5,729 $ 6,933 $ -- $ 12,764
=========== =========== =========== =========== ===========
21
OTHER INFORMATION
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
MCN held its Annual Meeting of Shareholders on April 25, 1996. As of
February 26, 1996, the record date for determination of shareholders entitled
to vote at the Annual Meeting, there were 66,776,428 shares outstanding and
entitled to vote. Of these shares, 60,927,183, or 91.24%, were present by
proxy, and 5,849,245 shares were not voted.
At the Annual Meeting, shareholders voted:
1)To elect the following Directors to serve for the terms indicated:
NUMBER OF SHARES
NUMBER OF SHARES WITHHOLDING
DIRECTOR CONSENTING FOR CONSENT
----------------------- ------------------ ------------------
(Three-Year Terms)
Stephen E. Ewing 60,210,590 716,593
Roger Fridholm 60,537,092 390,091
Helen O. Petrauskas 60,462,571 464,612
(Two-Year Term)
Bill M. Thompson 60,470,003 457,180
The name of each other director whose term of office continued after the
meeting is: Alfred R. Glancy III, Frank M. Hennessey, Thomas H. Jeffs II,
Dale A. Johnson, William K. McCrackin, and Howard F. Sims.
2) To appoint Deloitte & Touche LLP as independent auditors for the year
ending December 31, 1996, with 60,497,621 shares voted for the appointment,
182,580 shares voted against, and abstentions of 246,982 shares.
EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
12-1 Computation of Ratio of Earnings to Fixed Charges for MCN
Corporation.
12-2 Computation of Ratio of Earnings to Fixed Charges for MCN
Investment Corporation.
27-1 Financial Data Schedule.
22
(b)Reports on Form 8-K
MCN filed a report on Form 8-K dated January 10, 1996, under Item 5,
with respect to the acquisition of certain gas producing and pipeline
properties in Virginia from companies of CONSOL Coal Group. Also, in
separate transactions with other parties, MCN, through subsidiaries of
MCN Investment, also acquired certain gas and oil properties in Texas,
Oklahoma, Kansas, Colorado and North Dakota.
MCN filed an additional report on Form 8-K dated February 6, 1996,
under Item 5, with respect to the signing by one of its subsidiaries of
a definitive agreement to acquire a majority interest in the gas
gathering properties of Dauphin Island Gathering Partnership in the
offshore Mobile Bay area of Alabama from Tenneco Energy; Enron Gas
Gathering, Inc.; and Dauphin Island Gathering Company, L.P. (DIGCO).
MCN filed an additional report on Form 8-K dated April 8, 1996, under
Item 5, with respect to the announcement that it is evaluating the
potential sale of its computer services subsidiary, The Genix Group,
Inc., a leading provider of computer outsourcing services in the United
States.
MCN filed an additional report on Form 8-K dated April 18, 1996, under
Item 5, with respect to record first quarter 1996 earnings.
MCN filed an additional report on Form 8-K dated April 22, 1996, under
Item 5, with respect to the offering of the PRIDES by MCN. The
following documents were filed as Exhibits thereto:
. Purchase Agreement dated April 22, 1996 with respect to MCN
Corporation's PRIDES.
. Purchase Contract Agreement dated April 22, 1996 between MCN
Corporation and The First National Bank of Chicago, as Purchase
Contract Agent.
. Pledge Agreement dated April 22, 1996 among MCN Corporation,
Chemical Bank, as Collateral Agent, and The First National Bank of
Chicago, as Purchase Contract Agent.
MCN filed an additional report on Form 8-K dated May 6, 1996, under
Item 5, with respect to the offering by MCN Investment of up to $500
million of medium-term notes. The following documents were filed as
Exhibits thereto:
. Distribution Agreement dated May 6, 1996 with respect to the Offered
Notes.
. Computation of Ratio of Earnings to Fixed Charges for MCN
Investment.
. Computation of Ratio of Earnings to Fixed Charges for MCN
Corporation.
23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MCN CORPORATION
/s/ Patrick Zurlinden
Date: May 10, 1996 By: _________________________________
Patrick Zurlinden
Vice President, Controller
and Chief Accounting Officer
24