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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 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 1-10070
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 July 31, 1996:
Common Stock, par value $.01 per share: 67,027,931
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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............................................. 10
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................................. 25
SIGNATURE................................................................ 26
ii
MCN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
MCN reports higher second quarter earnings -- MCN's earnings from continuing
operations increased $3.6 million ($.05 per share) during the 1996 quarter.
Earnings from continuing operations for the 1996 six-month and twelve-month
periods rose $22.0 million ($.28 per share) and $49.7 million ($.66 per
share), respectively, over the comparable 1995 periods.
MCN's earnings were further boosted by income from discontinued operations,
including a one-time gain of $36.2 million ($.54 per share) from the sale of
The Genix Group, Inc. (Genix), MCN's computer operations services subsidiary.
As discussed in the "Discontinued Operations" section that follows, MCN sold
Genix during the second quarter of 1996.
A summary of financial performance follows:
QUARTER 6 MONTHS 12 MONTHS
------------ ------------ ------------
1996 1995 1996 1995 1996 1995
------ ----- ------ ----- ------ -----
NET INCOME (LOSS) (in Millions)
Continuing Operations:
Gas Distribution...................... $ .8 $(2.8) $ 72.0 $54.4 $ 93.3 $52.3
Diversified Energy.................... 4.4 4.4 12.2 7.8 22.0 13.3
------ ----- ------ ----- ------ -----
5.2 1.6 84.2 62.2 115.3 65.6
------ ----- ------ ----- ------ -----
Discontinued Operations:
Income From Operations................ .6 .7 1.6 1.7 3.4 3.5
Gain on Sale.......................... 36.2 -- 36.2 -- 36.2 --
------ ----- ------ ----- ------ -----
36.8 .7 37.8 1.7 39.6 3.5
------ ----- ------ ----- ------ -----
$ 42.0 $ 2.3 $122.0 $63.9 $154.9 $69.1
====== ===== ====== ===== ====== =====
EARNINGS (LOSS) PER SHARE
Continuing Operations:
Gas Distribution...................... $ .01 $(.04) $ 1.08 $ .86 $ 1.40 $ .85
Diversified Energy.................... .07 .07 .18 .12 .33 .22
------ ----- ------ ----- ------ -----
.08 .03 1.26 .98 1.73 1.07
------ ----- ------ ----- ------ -----
Discontinued Operations:
Income From Operations................ .01 .01 .03 .03 .06 .05
Gain on Sale.......................... .54 -- .54 -- .54 --
------ ----- ------ ----- ------ -----
.55 .01 .57 .03 .60 .05
------ ----- ------ ----- ------ -----
$ .63 $ .04 $ 1.83 $1.01 $ 2.33 $1.12
====== ===== ====== ===== ====== =====
- -------------------------------------------------------------------------------
Strategic direction -- MCN's 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 13.6% colder than normal weather -- Earnings increased $3.6
million ($.05 per share) for the 1996 quarter, and $17.6 million ($.22 per
share) and $41.0 million ($.55 per share) for the six- and twelve-month
periods, respectively, as compared to the same 1995 periods. The increases are
primarily due to higher gas deliveries resulting from significantly colder
weather, as well as lower operation and maintenance expenses.
1
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
QUARTER 6 MONTHS 12 MONTHS
----------- ----------- -------------
1996 1995 1996 1995 1996 1995
----- ---- ---- ----- ----- ------
EFFECT OF WEATHER ON GAS MARKETS
AND EARNINGS
Percentage Colder (Warmer) Than
Normal............................ 13.6% 2.5% 7.3% (4.1)% 7.4% (9.6)%
Increase (Decrease) From Normal in:
Gas Markets (in Bcf).............. 3.2 .5 8.6 (4.7) 14.8 (15.5)
Net Income (in Millions).......... $ 2.9 $ .7 $7.8 $(4.1) $13.3 $(13.9)
Earnings Per Share................ $ .04 $.01 $.12 $(.06) $ .20 $ (.23)
GROSS MARGIN
Gross margin increases -- Gas Distribution gross margin (operating revenues
less cost of gas) increased $7.0 million, $25.6 million and $61.5 million for
the 1996 quarter, six- and twelve-month periods, respectively, reflecting
higher gas sales and transportation deliveries.
QUARTER 6 MONTHS 12 MONTHS
-------------- -------------- ------------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ -------- --------
GAS DISTRIBUTION
OPERATIONS (in Millions)
Operating Revenues*....... $225.3 $190.3 $763.9 $620.7 $1,250.8 $1,037.2
Cost of Gas............... 101.2 73.2 403.7 286.1 609.0 456.9
------ ------ ------ ------ -------- --------
Gross Margin............. 124.1 117.1 360.2 334.6 641.8 580.3
------ ------ ------ ------ -------- --------
Other Operating Expenses*
Operation & Maintenance.. 72.3 74.0 142.2 152.7 289.3 313.2
Depreciation, Depletion &
Amortization............ 24.9 23.3 49.5 46.0 94.8 88.5
Property & Other Taxes... 15.6 14.5 33.9 31.5 61.2 56.6
------ ------ ------ ------ -------- --------
112.8 111.8 225.6 230.2 445.3 458.3
------ ------ ------ ------ -------- --------
Operating Income.......... 11.3 5.3 134.6 104.4 196.5 122.0
------ ------ ------ ------ -------- --------
Equity in Earnings of
Joint Ventures........... .2 .3 .6 .7 1.3 1.3
------ ------ ------ ------ -------- --------
Other Income &
(Deductions)*
Interest Income.......... .6 1.2 1.2 2.2 3.4 4.4
Interest Expense......... (11.2) (9.6) (23.8) (21.2) (47.1) (42.3)
Minority Interest........ (.4) (.6) (.7) (1.2) (1.9) (2.6)
Other.................... .6 (.9) (.2) (1.6) (4.2) (5.3)
------ ------ ------ ------ -------- --------
(10.4) (9.9) (23.5) (21.8) (49.8) (45.8)
------ ------ ------ ------ -------- --------
Income (Loss) Before
Income Taxes............. 1.1 (4.3) 111.7 83.3 148.0 77.5
Income Taxes.............. .3 (1.5) 39.7 28.9 54.7 25.2
------ ------ ------ ------ -------- --------
Net Income (Loss)......... $ .8 $ (2.8) $ 72.0 $ 54.4 $ 93.3 $ 52.3
====== ====== ====== ====== ======== ========
*Includes intercompany transactions
2
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
GAS SALES AND END USER TRANSPORTATION deliveries in total increased 2.4
billion cubic feet (Bcf) in the 1996 quarter, and 19.4 Bcf and 42.0 Bcf in the
1996 six- and twelve-month periods, respectively. The increases are primarily
due to colder weather, as well as market expansion through the addition of
approximately 14,000 customers since June 1995. End user transportation
deliveries to the Michigan Power project, MCN Investment Corporation's
(MCNIC's) 50%-owned 123 megawatt cogeneration plant that became operational in
October 1995, totaled 2.4 Bcf, 5.0 Bcf and 7.1 Bcf during the 1996 quarter,
six- and twelve-month periods, respectively. End user transportation for all
1996 periods also reflects reduced deliveries to a large-volume industrial
customer during a temporary plant shutdown that occurred in the second
quarter.
QUARTER 6 MONTHS 12 MONTHS
----------- ----------- -----------
1996 1995 1996 1995 1996 1995
----- ----- ----- ----- ----- -----
GAS DISTRIBUTION MARKETS (in Bcf)
Gas Sales................................... 34.6 31.9 138.2 122.4 225.5 192.4
End User Transportation..................... 32.0 32.3 79.5 75.9 149.4 140.5
----- ----- ----- ----- ----- -----
66.6 64.2 217.7 198.3 374.9 332.9
Intermediate Transportation*................ 110.3 71.9 258.3 184.5 448.3 324.0
----- ----- ----- ----- ----- -----
176.9 136.1 476.0 382.8 823.2 656.9
===== ===== ===== ===== ===== =====
*Includes intercompany volumes
INTERMEDIATE TRANSPORTATION deliveries continued to rise, increasing 38.4 Bcf,
73.8 Bcf and 124.3 Bcf in the 1996 quarter, six- and twelve-month periods,
respectively, primarily as a result of additional volumes transported for ANR
Pipeline Company and increased transportation of Antrim gas for Michigan gas
producers and brokers. In order to meet the growing demand for the
transportation of Antrim gas, 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
year end. This expansion enabled MichCon to transport an additional 30.1 Bcf,
59.9 Bcf and 76.1 Bcf of natural gas in the 1996 quarter, six- and twelve-
month periods, 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, six- and twelve-month 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 (Mcf) of $.82 (37%), $.59 (25%) and $.39 (16%) in the 1996
quarter, six- and twelve-month periods, respectively, from the comparable 1995
periods.
OTHER OPERATING EXPENSES
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 healthcare costs. Also contributing to the 1996 six-month period were
decreased labor costs. The reductions in the 1996 quarter and six-month period
were partially offset by increased uncollectibles expense. Management's
continuing efforts to reduce operating costs also contributed to the
decreases.
DEPRECIATION AND DEPLETION increased in all 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 all 1996 periods increased due to higher property
balances.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
OTHER INCOME & DEDUCTIONS
The increase in other income & deductions for all 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 all 1996 periods due primarily to increases in
earnings. Income tax expense in both the 1996 and 1995 twelve-month periods
were favorably affected by the resolution of prior years' tax issues.
OUTLOOK
Gas Distribution's strategy is to grow revenues and reduce its costs in order
to maintain strong returns and provide customers with quality service at
competitive prices. The success of this strategy is evident in current
operating results. MCN is focused on continuing this trend throughout 1996 and
beyond.
DIVERSIFIED ENERGY
Diversified Energy maintains solid earnings level -- The Diversified Energy
group reported quarterly earnings of $4.4 million ($.07 per share), unchanged
from the comparable 1995 period. Earnings for the 1996 six- and twelve-month
periods increased $4.4 million ($.06 per share) and $8.7 million ($.11 per
share), respectively. Reflecting the success of MCN's strategy to invest in
various segments of the natural gas industry, earnings growth was achieved in
the Exploration & Production (E&P) and Gas Gathering & Processing operations.
These results were also affected by lower earnings in Gas Marketing &
Cogeneration for the current quarter and six-month period and increased
financing costs in all periods as a result of additional capital needed to
fund investments.
QUARTER 6 MONTHS 12 MONTHS
------------- -------------- --------------
1996 1995 1996 1995 1996 1995
------ ----- ------ ------ ------ ------
DIVERSIFIED ENERGY OPERATIONS
(in Millions)
Operating Revenues*............ $134.1 $73.8 $394.1 $175.1 $618.9 $339.4
------ ----- ------ ------ ------ ------
Operating Expenses*............ 130.2 69.2 376.2 164.4 589.8 321.2
------ ----- ------ ------ ------ ------
Operating Income (Loss)
Gas Services
Exploration & Production..... 6.6 2.9 13.2 7.0 24.7 15.9
Gas Marketing & Cogeneration. (3.1) 2.2 3.3 4.8 4.2 4.2
Gas Gathering & Processing... .9 .1 2.4 .2 2.6 .3
------ ----- ------ ------ ------ ------
4.4 5.2 18.9 12.0 31.5 20.4
Corporate & Other............. (.5) (.6) (1.0) (1.3) (2.4) (2.2)
------ ----- ------ ------ ------ ------
3.9 4.6 17.9 10.7 29.1 18.2
------ ----- ------ ------ ------ ------
Equity in Earnings of Joint
Ventures...................... 3.1 .5 5.2 1.4 7.7 3.3
------ ----- ------ ------ ------ ------
Other Income & (Deductions)*
Interest Income............... .9 .8 1.8 2.0 3.4 3.9
Interest Expense.............. (7.9) (2.1) (15.4) (6.0) (22.7) (12.7)
Dividends on Preferred
Securities................... (2.4) (2.4) (4.7) (4.7) (9.4) (6.2)
Other......................... 3.3 1.5 2.6 1.1 3.8 .5
------ ----- ------ ------ ------ ------
(6.1) (2.2) (15.7) (7.6) (24.9) (14.5)
------ ----- ------ ------ ------ ------
Income Before Income Taxes..... .9 2.9 7.4 4.5 11.9 7.0
------ ----- ------ ------ ------ ------
Income Taxes
Current and Deferred
Provision.................... .5 1.0 3.1 1.5 4.2 2.9
Gas Production Tax Credits.... (4.0) (2.5) (7.9) (4.8) (14.3) (9.2)
------ ----- ------ ------ ------ ------
(3.5) (1.5) (4.8) (3.3) (10.1) (6.3)
------ ----- ------ ------ ------ ------
Net Income..................... $ 4.4 $ 4.4 $ 12.2 $ 7.8 $ 22.0 $ 13.3
====== ===== ====== ====== ====== ======
*Includes intercompany transactions
4
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
GAS SERVICES
EXPLORATION & PRODUCTION operating income increased $3.7 million for the 1996
quarter, and $6.2 million and $8.8 million for the six- and twelve-month
periods, respectively. The results reflect a significantly higher level of gas
and oil produced from properties that have been acquired since mid-1994 and
the development of other new projects. Gas production was 13.2 Bcf and oil
production was 196 thousand barrels in the quarter, substantial increases over
1995 production levels of 6.7 Bcf of gas and 85 thousand barrels of oil.
Additionally, E&P operations have increased Diversified Energy's earnings
through the generation of an increasing amount of federal gas production tax
credits.
E&P operating results were impacted by the average natural gas sales rate per
Mcf which decreased $.02 to $1.90 in the 1996 quarter. For the six- and twelve
month periods, the average natural gas sales rate increased $.04 to $1.99 and
$.09 to $2.02, respectively. The average sales rates include the effect of
natural gas swap agreements which are used to limit 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 and
six-month period by $.29 and $.31 per Mcf, respectively, and increasing the
average sales rate for the current twelve-month period by $.02 per Mcf.
Natural gas swap agreements increased the average sales rates for the 1995
quarter, six- and twelve-month periods by $.44, $.53 and $.30 per Mcf,
respectively.
E&P operating results also reflect an increase in the average oil sales rate
per barrel of $3.23, $2.14 and $1.25 for the 1996 quarter, six- and twelve-
month periods, respectively. Partially offsetting the improved results were
increases in the average production cost per Mcf equivalent.
MCN expects the continued growth in E&P earnings through an increasing level
of natural gas and oil production resulting from its focused efforts to
acquire and develop lower risk reserves that generate favorable rates of
return. At year end 1995, MCN had a reserve base of 858 Bcf of proved natural
gas and 4.7 million barrels of proved oil or the equivalent of another 28 Bcf
of natural gas with approximately 75% located in low risk areas. Over $130
million has been invested to acquire and develop reserves during the first
half of 1996, with an additional $250-$300 million expected by year end 1996.
MCN expects ongoing increases in production levels as it acquires new
reserves, completes additional developmental drilling and obtains the full
benefits from previous acquisitions. Natural gas and oil production levels are
estimated to exceed 70 Bcf equivalent (Bcfe) in 1996, more than double 1995
production levels of 33.7 Bcfe. Likewise, E&P operating income for 1996 is
expected to be significantly above the $18.5 million generated in 1995.
GAS MARKETING & COGENERATION had an operating loss of $3.1 million for the
1996 quarter, compared to operating income of $2.2 million for the 1995 second
quarter. Operating income decreased $1.5 million for the six-month period, and
was unchanged for the twelve-month period. Operating results were affected by
a significant increase in sales volumes driven by additional sales to
customers in the midwest and northeast United States and eastern Canada. The
increase in sales during the quarter was more than offset by lower margins on
gas sales due to the timing of gas inventory costs related to refilling
storage fields that were depleted during the abnormally cold winter of 1995-
1996. Gas injected to storage is valued at MCN's anticipated average purchase
rate for 1996. Gas Marketing & Cogeneration's average gas purchase rate during
the second quarter of 1996 has exceeded the expected average rate for the
year, reflecting unusually high current prices for gas in the marketplace. As
a result of these higher costs, margins during the quarter have been
depressed.
Additionally, gas sales margins were lowered by the accelerated recognition of
unrealized losses on written options used to manage the price risk of future
gas sales. However, these accelerated losses will be offset in the second half
of 1996 as the related gas sales are made. Higher transportation costs were
also incurred to add firm capacity needed to serve MCN's growing markets in
the midwest and northeast United States. MCN anticipates that margins will be
favorably affected in the latter half of 1996 as gas is withdrawn from storage
and its contracted transportation capacity is more fully utilized to meet
customers' peak winter requirements.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
GAS GATHERING & PROCESSING operating income increased $.8 million for the 1996
quarter, and $2.2 million and $2.3 million for the six- and twelve-month
periods, respectively. The increases reflect income from the first quarter
1996 acquisition of a 99% interest in the Dauphin Island Gathering Partnership
(DIGP). The partnership owns a 90 mile gas gathering system in the Mobile Bay
area of offshore Alabama. MCN subsequently sold a 35% interest in the
partnership in the second quarter and another 5% early in the third quarter to
Pan Energy Dauphin Island Company (Pan Energy). Working with Pan Energy and
others, MCN expects to enhance its opportunities to further develop and expand
the gathering system in one of the fastest growing production areas of the
country (Note 2). In addition, earnings were favorably affected by increased
volumes of gas processed during the quarter, six- and twelve-month periods of
5.4 Bcf, 10.9 Bcf and 18.3 Bcf, respectively.
QUARTER 6 MONTHS 12 MONTHS
--------- ---------- -----------
1996 1995 1996 1995 1996 1995
---- ---- ----- ---- ----- -----
DIVERSIFIED ENERGY GAS STATISTICS* (in Bcf)
Gas Sales
Gas Marketing & Cogeneration................. 42.7 32.6 113.5 76.1 208.1 147.3
Exploration & Production**................... 8.5 3.1 17.2 6.3 27.0 11.2
Transportation................................ 14.7 .1 30.8 .6 31.3 .7
---- ---- ----- ---- ----- -----
65.9 35.8 161.5 83.0 266.4 159.2
==== ==== ===== ==== ===== =====
Gas Production................................ 13.2 6.7 25.6 13.1 43.9 23.6
==== ==== ===== ==== ===== =====
Gas Processed................................. 9.1 3.7 17.8 6.9 27.2 8.9
==== ==== ===== ==== ===== =====
*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.
EQUITY IN EARNINGS OF JOINT VENTURES
Earnings from joint ventures increased $2.6 million, $3.8 million and $4.4
million for the 1996 quarter, six- and twelve-month periods, respectively. The
increases are primarily due to earnings from Gas Gathering & Processing
ventures reflecting income from the December 1995 acquisition of a 50%
interest in a 40 mile gas gathering line in Virginia. Additionally, the
improved earnings from other joint ventures include $1.7 million from the sale
of joint venture property.
QUARTER 6 MONTHS 12 MONTHS
---------- ---------- ----------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
EQUITY IN EARNINGS OF JOINT VENTURES
(in Millions)
Gas Storage........................... $ .9 $1.0 $1.8 $2.3 $3.8 $4.0
Gas Marketing & Cogeneration.......... (.6) (.2) (.4) (.6) (.7) (1.1)
Gas Gathering & Processing............ 1.0 -- 2.0 .1 2.5 .9
Other................................. 1.8 (.3) 1.8 (.4) 2.1 (.5)
---- ---- ---- ---- ---- ----
$3.1 $ .5 $5.2 $1.4 $7.7 $3.3
==== ==== ==== ==== ==== ====
6
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
OTHER INCOME & DEDUCTIONS
Other income and deductions for all 1996 periods reflects higher interest
costs on increased borrowings required to finance capital investments in the
Diversified Energy group. The current twelve-month period also reflects higher
dividends paid on $100 million of preferred securities of a subsidiary which
were issued in November 1994. Partially offsetting the increased interest and
dividend costs was other income which includes a $3.5 million pretax gain from
the sale of a 35% interest in DIGP.
INCOME TAXES
Income taxes for all 1996 periods were favorably impacted by increased federal
gas production tax credits related to E&P projects. The 1996 six- and twelve-
month periods were also impacted by increased federal taxes on improved pretax
earnings.
OUTLOOK
MCN plans to continue aggressively growing its E&P reserve base, primarily in
low 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. Additionally, MCN expects oil to become
a significantly larger portion of its total proved reserves, creating a more
diverse portfolio. MCN also plans to invest in gas gathering facilities
outside of Michigan, targeting areas that contain gas marketing or E&P
opportunities.
DISCONTINUED OPERATIONS
In June 1996, MCN completed the sale of its computer operations subsidiary,
Genix, to Affiliated Computer Services, Inc. for $137.5 million, resulting in
an after-tax gain of $36.2 million. The selling price of Genix could be
adjusted downward by as much as $45.0 million depending upon the occurrence of
certain contingencies, which include, among other things, adjustments arising
from changes in net assets acquired, retention of certain customers for one to
two years and tax-related matters. 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. Summary statements and other information on discontinued
computer operations can be found in Note 5 to the consolidated financial
statements.
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
MCN's cash flow from operating activities decreased $19.1 million during the
1996 six-month period compared to the same 1995 period. The decrease was due
primarily to an increase in working capital requirements, partially offset by
higher income, after adjusting for depreciation, deferred taxes and the gain
on the sale of Genix and DIGP. MCN anticipates that working capital
requirements will be greater throughout 1996 as compared to 1995 in order to
fund temporary GCR undercollections of the Gas Distribution group which is $42
million as of June 1996.
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 proceeds of approximately $18 million. During the first six
months of 1996, issuances under these plans generated proceeds of $8.8
million.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
In April 1996, MCN issued 5,865,000 Preferred Redeemable Increased Dividend
Equity Securities (PRIDES), yielding 8 3/4% (Note 3b). The PRIDES are
convertible securities that consist of a contract under which MCN is obligated
to sell, and the PRIDES holders are obligated to purchase, approximately $135
million in MCN common stock in April 1999. These securities will convert into
common stock in April 1999 and enhance MCN's creditworthiness. The PRIDES are
currently rated the equivalent of "BBB+" by the major rating agencies.
In July 1996, MCN issued through a wholly-owned trust, 3,200,000 shares of 8
5/8% Trust Originated Preferred Securities (TOPrS) for $80 million (Note 3c).
Proceeds from the issuance were invested by MCN in its Diversified Energy group
which used such proceeds to reduce short-term debt incurred to fund capital
expenditures, working capital requirements and for general corporate purposes.
The TOPrS are currently rated the equivalent of "BBB+" or "baa2" 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 1996 six-month period, MichCon
repaid $138.3 million of 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 $56.4 million was outstanding as of June
30, 1996 under these lines.
In May 1996, MichCon issued first mortgage bonds totaling $70 million under its
existing shelf registration. The proceeds were used to repay short-term
obligations, finance MichCon capital expenditures and for general corporate
purposes. MichCon's capital requirements and general market conditions will
affect the timing and amount of future issuances.
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 May
1996, MCNIC issued $130 million of medium-term notes and used the proceeds to
repay short-term debt incurred to fund capital expenditures and for general
corporate purposes.
MCNIC has established credit lines to allow for borrowings of up to $100
million under a 364-day revolving credit facility and up to $300 million under
a three-year revolving credit facility. The facilities support MCNIC's $400
million commercial paper program which is used to finance capital investments
of the Diversified Energy group and working capital requirements of its gas
marketing operations. During the second quarter of 1996, MCNIC repaid $217.4
million of commercial paper leaving a balance of $79.6 million outstanding
under this program at June 30, 1996.
INVESTING ACTIVITIES
Capital investments equaled $306.3 million in the 1996 six-month period
compared to $213.0 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 DIGP acquisition. Gas Distribution capital expenditures were incurred to
develop new gas distribution and transportation markets.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONCLUDED)
MCN completed the sale of Genix (Note 5) and an interest in DIGP (Note 2) in
the second quarter resulting in proceeds of $169 million. Proceeds from these
sales were used to reduce short-term debt incurred to fund Diversified Energy's
capital investments.
6 MONTHS
---------------------
1996 1995
--------- ---------
CAPITAL INVESTMENTS (in Millions)
Consolidated Capital Expenditures:
Gas Distribution....................................... $ 74.6 $ 80.1
Diversified Energy..................................... 142.8 98.2
Discontinued Operations................................ 6.5 3.0
--------- ---------
223.9 181.3
--------- ---------
MCN's Share of Joint Venture Capital Expenditures:
Cogeneration........................................... .3 24.9
Other.................................................. 3.5 6.9
--------- ---------
3.8 31.8
--------- ---------
Acquisition (Note 2).................................... 78.6 --
--------- ---------
Minority Partners' Share of Consolidated Capital
Expenditures........................................... -- (.1)
--------- ---------
Total Capital Investments............................... $ 306.3 $ 213.0
========= =========
OUTLOOK
Capital investments in 1996 expected to total $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. It is management's
opinion that MCN and its subsidiaries will have sufficient capital resources,
both internal and external, to meet anticipated capital requirements.
9
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
---------------------- ------------
1996 1995 1995
---------- ---------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost (which
approximates market value).............. $ 57,838 $ 44,458 $ 19,259
Accounts receivable, less allowance for
doubtful accounts of $18,726, $21,040
and $13,765, respectively............... 295,105 187,071 317,945
Accrued unbilled revenues................ 16,692 14,519 92,410
Accrued gas cost recovery revenues....... 42,026 -- --
Gas in inventory (Note 6)................ 28,033 87,549 71,763
Property taxes assessed applicable to
future periods.......................... 36,575 33,117 60,633
Gas receivable........................... 24,533 21,360 19,266
Other.................................... 26,465 29,550 34,220
---------- ---------- ----------
527,267 417,624 615,496
---------- ---------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Investment in and advances to joint
ventures................................ 138,255 68,371 129,026
Deferred swap losses and receivables
(Note 7)................................ 35,605 37,287 54,807
Deferred postretirement benefit costs.... 10,060 17,614 13,112
Deferred environmental costs (Note 8a)... 31,016 -- 35,000
Prepaid benefit costs.................... 45,959 12,710 23,827
Other.................................... 96,327 106,954 90,626
---------- ---------- ----------
357,222 242,936 346,398
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Gas Distribution......................... 2,559,713 2,275,431 2,496,711
Exploration & Production................. 711,264 365,116 576,810
Gas Gathering & Processing............... 104,026 76,525 22,324
Other.................................... 15,968 55,466 64,709
---------- ---------- ----------
3,390,971 2,772,538 3,160,554
Less--Accumulated depreciation and
depletion............................... 1,266,882 1,168,099 1,223,808
---------- ---------- ----------
2,124,089 1,604,439 1,936,746
---------- ---------- ----------
$3,008,578 $2,264,999 $2,898,640
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable......................... $ 192,294 $ 150,440 $ 217,184
Notes payable ........................... 77,291 71,243 245,635
Current portion of long-term debt,
capital lease obligations and redeemable
cumulative preferred securities......... 84,642 7,087 7,000
Gas inventory equalization (Note 6)...... 53,955 36,608 --
Federal income, property and other taxes
payable................................. 89,239 78,348 83,384
Customer deposits........................ 9,864 10,030 11,550
Other.................................... 93,622 58,006 87,575
---------- ---------- ----------
600,907 411,762 652,328
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes........ 145,648 100,499 125,896
Unamortized investment tax credit........ 35,858 37,741 36,797
Tax benefits amortizable to customers.... 113,631 112,639 114,668
Deferred swap gains and payables (Note
7)...................................... 35,717 28,476 51,923
Accrued postretirement benefit costs..... -- 14,059 15,551
Accrued environmental costs (Note 8a) ... 35,000 -- 35,000
Minority interest (Note 2)............... 47,267 18,237 18,375
Other.................................... 93,186 83,989 93,470
---------- ---------- ----------
506,307 395,640 491,680
---------- ---------- ----------
LONG-TERM DEBT, including capital lease
obligations (Note 3a).................... 1,048,268 706,225 993,407
---------- ---------- ----------
REDEEMABLE CUMULATIVE PREFERRED SECURITIES
OF SUBSIDIARIES.......................... 96,511 96,392 96,449
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 3b
and 8)
COMMON SHAREHOLDERS' EQUITY
Common stock............................. 670 660 664
Additional paid-in capital............... 461,257 439,061 446,055
Retained earnings........................ 309,467 215,801 218,425
PRIDES yield enhancement and issuance
costs (Note 3b)......................... (14,220) -- --
Unearned compensation.................... (589) (542) (368)
---------- ---------- ----------
756,585 654,980 664,776
---------- ---------- ----------
$3,008,578 $2,264,999 $2,898,640
========== ========== ==========
The notes to the consolidated financial statements are an integral part of this
statement.
10
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
OPERATING REVENUES...... $ 356,930 $ 262,343 $1,150,148 $ 788,431 $1,856,949 $1,364,934
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Cost of gas............ 199,068 124,980 711,497 413,275 1,084,415 717,910
Operation and
maintenance........... 88,370 83,211 175,127 170,527 347,121 342,111
Depreciation, depletion
and amortization...... 36,159 28,428 71,597 55,565 130,617 104,036
Property and other
taxes................. 18,064 15,835 39,416 33,943 69,177 60,631
---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses.............. 341,661 252,454 997,637 673,310 1,631,330 1,224,688
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME........ 15,269 9,889 152,511 115,121 225,619 140,246
---------- ---------- ---------- ---------- ---------- ----------
EQUITY IN EARNINGS OF
JOINT VENTURES......... 3,306 823 5,829 2,067 9,007 4,568
---------- ---------- ---------- ---------- ---------- ----------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 1,604 2,111 3,149 4,314 6,576 8,340
Interest on long-term
debt.................. (16,386) (9,831) (32,525) (21,146) (57,005) (42,084)
Other interest expense. (2,719) (1,728) (6,820) (5,812) (13,057) (12,599)
Dividends on preferred
securities of
subsidiaries.......... (2,345) (2,397) (4,707) (4,815) (9,502) (6,582)
Minority interest...... (387) (604) (767) (1,168) (2,090) (2,579)
Other.................. 3,738 439 2,493 (672) 225 (4,838)
---------- ---------- ---------- ---------- ---------- ----------
Total other income and
(deductions).......... (16,495) (12,010) (39,177) (29,299) (74,853) (60,342)
---------- ---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES.... 2,080 (1,298) 119,163 87,889 159,773 84,472
INCOME TAX PROVISION
(BENEFIT).............. (3,127) (2,903) 34,902 25,723 44,509 18,887
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS............. 5,207 1,605 84,261 62,166 115,264 65,585
---------- ---------- ---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS,
NET OF TAXES (Note 5)..
Income from operations. 582 707 1,595 1,736 3,446 3,486
Gain on sale........... 36,176 -- 36,176 -- 36,176 --
---------- ---------- ---------- ---------- ---------- ----------
Total discontinued
operations............ 36,758 707 37,771 1,736 39,622 3,486
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME.............. $ 41,965 $ 2,312 $ 122,032 $ 63,902 $ 154,886 $ 69,071
========== ========== ========== ========== ========== ==========
EARNINGS PER SHARE
Continuing Operations.. $ .08 $ .03 $ 1.26 $ .98 $ 1.73 $ 1.07
Discontinued Operations
(Note 5)
Income from operations. .01 .01 .03 .03 .06 .05
Gain on sale........... .54 -- .54 -- .54 --
---------- ---------- ---------- ---------- ---------- ----------
.55 .01 .57 .03 .60 .05
---------- ---------- ---------- ---------- ---------- ----------
$ .63 $ .04 $ 1.83 $ 1.01 $ 2.33 $ 1.12
========== ========== ========== ========== ========== ==========
AVERAGE COMMON SHARES
OUTSTANDING............ 66,893 65,884 66,730 63,254 66,467 61,409
========== ========== ========== ========== ========== ==========
DIVIDENDS DECLARED PER
SHARE.................. $ .2325 $ .2225 $ .4650 $ .4450 $ .9200 $ .8825
========== ========== ========== ========== ========== ==========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (UNAUDITED)
(IN THOUSANDS)
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................. $ 283,046 $ 228,137 $ 218,425 $ 179,862 $ 215,801 $ 200,748
ADD -- Net income....... 41,965 2,312 122,032 63,902 154,886 69,071
---------- ---------- ---------- ---------- ---------- ----------
325,011 230,449 340,457 243,764 370,687 269,819
DEDUCT -- Cash dividends
declared on common
stock.................. 15,544 14,648 30,990 27,963 61,220 54,017
Other................ -- -- -- -- -- 1
---------- ---------- ---------- ---------- ---------- ----------
BALANCE -- End of
period................. $ 309,467 $ 215,801 $ 309,467 $ 215,801 $ 309,467 $ 215,801
========== ========== ========== ========== ========== ==========
The notes to the consolidated financial statements are an integral part of
these statements.
11
MCN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
----------------------
1996 1995
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income............................................ $ 122,032 $ 63,902
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation, depletion and amortization
Per statement of income.............................. 71,597 55,565
Charged to other accounts and discontinued
operations.......................................... 7,149 7,072
Deferred income taxes, current........................ 727 (2,838)
Deferred income taxes and investment tax credit, net.. 17,776 3,802
Gain on sale of Genix and DIGP (Notes 2 and 5)........ (38,443) --
Other................................................. (935) 1,987
Changes in assets and liabilities, exclusive of
changes shown separately............................. 70,559 140,038
---------- ----------
Net cash provided from operating activities.......... 250,462 269,528
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable, net.................................... (168,344) (157,564)
Common stock dividends paid........................... (30,990) (27,963)
Issuance of common stock.............................. 8,848 107,569
Issuance of long-term debt (Note 3a).................. 398,434 68,764
Long-term commercial paper and credit facilities, net. (264,007) (45,000)
Retirement of long-term debt and preferred stock...... (5,353) (5,184)
Other................................................. (5,978) (707)
---------- ----------
Net cash used for financing activities............... (67,390) (60,085)
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures.................................. (217,088) (177,390)
Sale of Genix (Note 5)................................ 137,500 --
Acquisition of DIGP (Note 2).......................... (78,620) --
Sale of interest in DIGP (Note 2)..................... 31,500 --
Investment in joint ventures.......................... (8,151) (11,021)
Sale of investment in joint ventures.................. -- 10,803
Other................................................. (9,634) 1,076
---------- ----------
Net cash used for investing activities............... (144,493) (176,532)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 38,579 32,911
CASH AND CASH EQUIVALENTS, JANUARY 1................... 19,259 11,547
---------- ----------
CASH AND CASH EQUIVALENTS, JUNE 30..................... $ 57,838 $ 44,458
========== ==========
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES
SHOWN SEPARATELY
Accounts receivable, net.............................. $ (64) $ 26,305
Accrued unbilled revenues............................. 75,718 68,534
Gas in inventory...................................... 43,730 44,100
Accrued/deferred gas cost recovery revenues........... (42,026) (19,224)
Accounts payable...................................... (16,762) 7,793
Gas inventory equalization............................ 53,955 36,608
Federal income, property and other taxes payable...... (26,979) (8,624)
Other current assets and liabilities.................. 13,258 8,398
Deferred assets and liabilities....................... (30,271) (23,852)
---------- ----------
$ 70,559 $ 140,038
========== ==========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest, net of amounts capitalized................ $ 36,467 $ 28,960
========== ==========
Federal income taxes................................ $ 11,434 $ 9,366
========== ==========
Noncash investing activities:
Property purchased under capital leases............. $ 6,765 $ 2,418
========== ==========
Land acquired in exchange for note receivable....... $ -- $ 1,480
========== ==========
The notes to the consolidated financial statements are an integral part of this
statement.
12
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. In the opinion of management, the
unaudited information furnished herein reflects all adjustments (consisting of
only recurring adjustments or accruals) necessary for a fair presentation of
the financial statements for the periods presented.
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 AND DISPOSITION
During the first quarter of 1996, MCN acquired a 99% interest in the Dauphin
Island Gathering Partnership (DIGP). 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. In June 1996, MCN sold a 35% interest in the partnership to PanEnergy
Dauphin Island Company (PanEnergy) for $31,500,000. The sale resulted in an
after-tax gain of $2,267,000. In July 1996, MCN sold an additional 5% interest
in the partnership to PanEnergy for $4,500,000, generating an additional
after-tax gain of $324,000.
3. CAPITALIZATION
A. LONG-TERM DEBT
The following long-term debt totaling $400,000,000 was issued during 1996:
ISSUE DATE DESCRIPTION AMOUNT ISSUED
---------------------------------------------------------------------------------
January 1996 MCNIC Medium-Term Notes
5.84%, due February 1999 $ 80,000,000
6.03%, due February 2001 $ 60,000,000
6.32%, due February 2003 $ 60,000,000
---------------------------------------------------------------------------------
May 1996 MichCon First Mortgage Bonds
6.51%, due June 1999 $ 30,000,000
7.15%, due May 2006 $ 40,000,000
MCNIC Medium-Term Notes
6.82%, due May 1999 $130,000,000
---------------------------------------------------------------------------------
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.
13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 recorded the present value of the yield enhancement payments totaling
$8,243,000 as a liability and a reduction to Common Shareholders' Equity on
MCN's Consolidated Statement of Financial Position. The liability is
reduced when the yield enhancement payments are paid. MCN has the right to
defer the yield enhancement payments in which case MCN cannot declare
dividends on its common stock until the yield enhancement payments have
been made. In addition, MCN has incurred costs of $5,977,000 in conjunction
with the issuance of PRIDES and similarly has recorded them as a reduction
to Common Shareholders' Equity.
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 the PRIDES
holders' obligation in full. 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.
C. TRUST ORIGINATED PREFERRED SECURITIES (TOPRS)
In July 1996, MCN Financing I (MCN Financing), a business trust wholly
owned by MCN, issued 3,200,000 shares of 8 5/8% TOPrS, at the liquidation
preference value of $25 per share. The trust was formed for the sole
purpose of issuing the preferred securities and lending the gross proceeds
thereof to MCN. Holders of the preferred securities are entitled to receive
cumulative dividends at an annual rate of 8 5/8% of the liquidation
preference value. Dividends are payable quarterly and in substance are tax
deductible by MCN. Gross proceeds of the issuance totaled $80,000,000 and
were invested in an equivalent amount of 8 5/8% Junior Subordinated
Debentures of MCN due 2036. MCN has the right to extend interest payment
periods on the debentures for up to 20 consecutive quarters, and as a
consequence, quarterly dividend payments on the preferred securities can be
deferred by MCN Financing during any such interest payment period. In the
event that MCN exercises this right, MCN may not declare dividends on its
common stock. With MCN's consent, the preferred securities are redeemable
at the option of MCN Financing, in whole or in part, on or after July 2001.
In addition, upon final maturity of the debentures, MCN Financing is
required to redeem the preferred securities.
In the event of default, holders of the preferred securities will be
entitled to exercise and enforce MCN Financing's creditor rights against
MCN, which may include acceleration of the principal amount due on the
debentures. MCN has issued a guarantee with respect to the preferred
securities, and when taken together with MCN's obligations under the
debentures, the related indenture, and the trust documents, provides a full
and unconditional guarantee of MCN Financing's obligations under the TOPrS.
4. LINES OF CREDIT
As discussed in MCN's 1995 Annual Report on Form 10-K, MichCon and MCNIC
maintain credit lines that allow for borrowings of up to $200,000,000 under 364
day revolving credit facilities and up to $450,000,000 under three year
revolving credit facilities. These credit lines totaling $650,000,000 support
their commercial paper programs. Commercial paper of $136,066,000 was
outstanding as of June 30, 1996, of which $75,416,000 is classified as short-
term. In July 1996, the 364 day revolving credit facilities were renewed.
14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DISCONTINUED OPERATIONS
On June 21, 1996, MCN completed the sale of its computer operations subsidiary,
The Genix Group, Inc. (Genix), to Affiliated Computer Services, Inc. (ACS) for
$137,500,000. Accordingly, Genix's results of operations after June 21, 1996
are not reflected in the Consolidated Statement of Income. The selling price of
Genix could be adjusted downward by as much as $45,000,000 depending upon the
occurrence of certain contingencies, which include, among other things,
adjustments arising from changes in net assets acquired, retention of certain
customers for one to two years and tax-related matters. The sale resulted in an
after-tax gain of $36,176,000. The following financial information summarizes
Genix's operations:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
-------------------- -------------------- --------------------
(in Thousands) 1996 1995 1996 1995 1996 1995
--------- --------- --------- --------- --------- ---------
OPERATING REVENUES
Non-affiliates......... $ 23,212 $ 20,829 $ 48,054 $ 42,744 $ 95,218 $ 82,884
Affiliates............. 3,075 3,793 6,826 7,593 14,486 15,707
--------- --------- --------- --------- --------- ---------
26,287 24,622 54,880 50,337 109,704 98,591
--------- --------- --------- --------- --------- ---------
OPERATING EXPENSES...... 24,679 22,808 50,765 46,246 101,684 90,708
--------- --------- --------- --------- --------- ---------
OPERATING INCOME........ 1,608 1,814 4,115 4,091 8,020 7,883
--------- --------- --------- --------- --------- ---------
OTHER INCOME AND
(DEDUCTIONS)
Interest expense --
affiliate............ (613) (581) (1,110) (981) (2,217) (1,789)
Other.................. (104) 89 (336) 85 (120) 294
--------- --------- --------- --------- --------- ---------
(717) (492) (1,446) (896) (2,337) (1,495)
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME
TAXES.................. 891 1,322 2,669 3,195 5,683 6,388
INCOME TAX PROVISION.... 309 615 1,074 1,459 2,237 2,902
--------- --------- --------- --------- --------- ---------
NET INCOME.............. $ 582 $ 707 $ 1,595 $ 1,736 $ 3,446 $ 3,486
========= ========= ========= ========= ========= =========
JUNE 21, JUNE 30,
--------- ---------
(in Thousands) 1996 1995
--------- ---------
ASSETS
Accounts receivable, net.................................. $ 24,006 $ 19,836
Property, plant and equipment, net........................ 33,216 27,991
Other..................................................... 18,335 17,523
--------- ---------
$ 75,557 $ 65,350
========= =========
LIABILITIES
Accounts payable.......................................... $ 9,823 $ 8,487
Notes payable -- affiliate................................ 27,522 27,188
Other..................................................... 15,578 8,398
--------- ---------
$ 52,923 $ 44,073
========= =========
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.
15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. 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 49.7 billion cubic feet (Bcf)
and 70.0 Bcf of gas was in inventory at June 30, 1996 and 1995, respectively.
7. 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 recorded as
deferred gains or losses until the hedged transactions are completed, at which
time the realized gains or losses are included as adjustments to revenues. The
offsets to the unrealized losses are recorded as deferred payables and the
offsets to the unrealized gains are 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:
JUNE 30, DECEMBER 31,
--------------------- ------------
(in Thousands) 1996 1995 1995
---------- ---------- ----------
DEFERRED SWAP LOSSES AND RECEIVABLES
Unrealized losses........................... $ 17,734 $ 26,666 $ 18,084
Deferred receivables........................ 17,871 10,621 37,345
---------- ---------- ----------
35,605 37,287 55,429
Less -- Current portion..................... -- -- 622
---------- ---------- ----------
$ 35,605 $ 37,287 $ 54,807
========== ========== ==========
DEFERRED SWAP GAINS AND PAYABLES
Unrealized gains............................ $ 15,394 $ 6,732 $ 35,514
Deferred payables........................... 25,575 36,429 25,532
---------- ---------- ----------
40,969 43,161 61,046
Less -- Current portion...................... 5,252 14,685 9,123
---------- ---------- ----------
$ 35,717 $ 28,476 $ 51,923
========== ========== ==========
8. 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 1996, MCN received
payments from certain insurance carriers and expects additional insurance
recoveries over the next several years. At June 30, 1996, the reserve
balance is approximately $38,300,000, of which $3,300,000 is classified as
current.
16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. GUARANTIES
MCN has issued guaranties and comfort letters, expiring at various dates
through 2010, in conjunction with Genix entering into certain operating
leases for computer equipment and facilities. The lease agreements do not
allow MCN to transfer its obligations under the commitments to ACS, who
acquired Genix in June 1996 (Note 5). However, ACS is obligated to
reimburse MCN for any payments made as a result of these commitments. These
guaranties and comfort letters totaled approximately $36,000,000 at June
30, 1996.
C. 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.
9. 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.
10. 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 $315,388,000 at June 30, 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.
17
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
MCN AND ELIMINATIONS
OTHER AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ------------ ------------ ----------------- ------------
JUNE 30, 1996
----------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash
equivalents, at cost.. $ 33 $ 48,939 $ 8,866 $ -- $ 57,838
Accounts receivable.... 3,269 105,528 211,071 (6,037) 313,831
Less -- Allowance for
doubtful accounts..... 74 430 18,222 -- 18,726
------------ ------------ ------------ ------------ ------------
Accounts receivable,
net................... 3,195 105,098 192,849 (6,037) 295,105
Accrued unbilled
revenue............... 138 -- 16,554 -- 16,692
Accrued gas cost
recovery revenues..... -- -- 42,026 -- 42,026
Gas in inventory....... -- 2,794 25,238 1 28,033
Property taxes assessed
applicable to future
periods............... 78 1,321 35,176 -- 36,575
Gas receivable......... -- 15,468 9,065 -- 24,533
Other.................. 1,836 2,068 24,618 (2,057) 26,465
------------ ------------ ------------ ------------ ------------
5,280 175,688 354,392 (8,093) 527,267
------------ ------------ ------------ ------------ ------------
DEFERRED CHARGES AND
OTHER ASSETS
Investments in and
advances to joint
ventures and
subsidiaries.......... 875,107 109,373 20,377 (866,602) 138,255
Deferred swap losses
and receivables....... -- 35,605 -- -- 35,605
Deferred postretirement
benefit costs......... 717 -- 9,342 1 10,060
Deferred environmental
costs................. 3,000 -- 28,016 -- 31,016
Prepaid benefit costs.. -- -- 50,640 (4,681) 45,959
Other.................. 8,940 37,679 48,341 1,367 96,327
------------ ------------ ------------ ------------ ------------
887,764 182,657 156,716 (869,915) 357,222
------------ ------------ ------------ ------------ ------------
PROPERTY, PLANT AND
EQUIPMENT, at cost..... 28,881 821,262 2,540,829 (1) 3,390,971
Less -- Accumulated
depreciation and
depletion............. 10,051 56,960 1,199,871 -- 1,266,882
------------ ------------ ------------ ------------ ------------
18,830 764,302 1,340,958 (1) 2,124,089
------------ ------------ ------------ ------------ ------------
$ 911,874 $ 1,122,647 $ 1,852,066 $ (878,009) $ 3,008,578
============ ============ ============ ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....... $ 6,405 $ 96,387 $ 94,102 $ (4,600) $ 192,294
Notes payable.......... -- 19,000 58,291 -- 77,291
Current portion of
long-term debt,
capital lease
obligations and
redeemable cumulative
preferred securities.. 55 31,409 53,177 1 84,642
Gas inventory
equalization.......... -- 660 53,295 -- 53,955
Federal income,
property and other
taxes payable......... (361) 24,885 64,715 -- 89,239
Customer deposits...... 19 -- 9,845 -- 9,864
Other.................. 6,596 33,999 55,084 (2,057) 93,622
------------ ------------ ------------ ------------ ------------
12,714 206,340 388,509 (6,656) 600,907
------------ ------------ ------------ ------------ ------------
DEFERRED CREDITS AND
OTHER LIABILITIES
Accumulated deferred
income taxes.......... (1,087) 63,863 82,872 -- 145,648
Unamortized investment
tax credit............ 346 -- 35,512 -- 35,858
Tax benefits
amortizable to
customers............. 183 -- 113,449 (1) 113,631
Deferred swap gains and
payables.............. -- 35,717 -- -- 35,717
Accrued postretirement
benefit costs......... 2,388 478 -- (2,866) --
Accrued environmental
costs................. 3,000 -- 32,000 -- 35,000
Minority interest...... -- 29,096 18,171 -- 47,267
Other.................. 24,236 13,873 56,892 (1,815) 93,186
------------ ------------ ------------ ------------ ------------
29,066 143,027 338,896 (4,682) 506,307
------------ ------------ ------------ ------------ ------------
LONG-TERM DEBT,
including capital lease
obligations............ 420 495,504 552,345 (1) 1,048,268
------------ ------------ ------------ ------------ ------------
REDEEMABLE CUMULATIVE
PREFERRED SECURITIES OF
SUBSIDIARIES........... 96,511 -- -- -- 96,511
------------ ------------ ------------ ------------ ------------
COMMON SHAREHOLDERS'
EQUITY
Common Stock........... 670 5 10,300 (10,305) 670
Additional paid-in
capital............... 467,795 175,557 230,399 (412,494) 461,257
Retained earnings...... 319,507 102,214 331,617 (443,871) 309,467
PRIDES yield
enhancement and
issuance costs........ (14,220) -- -- -- (14,220)
Unearned compensation.. (589) -- -- -- (589)
------------ ------------ ------------ ------------ ------------
773,163 277,776 572,316 (866,670) 756,585
------------ ------------ ------------ ------------ ------------
$ 911,874 $ 1,122,647 $ 1,852,066 $ (878,009) $ 3,008,578
============ ============ ============ ============ ============
18
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
MCN AND ELIMINATIONS
OTHER AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ------------ ------------ ----------------- ------------
JUNE 30, 1995
----------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash
equivalents, at cost.. $ 44 $ 10,826 $ 33,588 $ -- $ 44,458
Accounts receivable.... 3,789 68,025 143,676 (7,379) 208,111
Less -- Allowance for
doubtful accounts..... 83 420 20,537 -- 21,040
------------ ------------ ------------ ------------ ------------
Accounts receivable,
net................... 3,706 67,605 123,139 (7,379) 187,071
Accrued unbilled
revenue............... 163 -- 14,356 -- 14,519
Gas in inventory....... -- 36,122 51,427 -- 87,549
Property taxes assessed
applicable to future
periods............... 53 1,527 31,537 -- 33,117
Gas receivable......... -- 17,162 4,198 -- 21,360
Other.................. 2,066 6,677 20,831 (24) 29,550
------------ ------------ ------------ ------------ ------------
6,032 139,919 279,076 (7,403) 417,624
------------ ------------ ------------ ------------ ------------
DEFERRED CHARGES AND
OTHER ASSETS
Investments in and
advances to joint
ventures and
subsidiaries.......... 758,095 38,972 20,247 (748,943) 68,371
Deferred swap losses
and receivables....... -- 37,287 -- -- 37,287
Deferred postretirement
benefit costs......... 761 -- 16,853 -- 17,614
Prepaid benefit costs.. -- -- 14,150 (1,440) 12,710
Other.................. 8,562 50,653 46,423 1,316 106,954
------------ ------------ ------------ ------------ ------------
767,418 126,912 97,673 (749,067) 242,936
------------ ------------ ------------ ------------ ------------
PROPERTY, PLANT AND
EQUIPMENT, at cost..... 25,047 489,746 2,257,745 -- 2,772,538
Less -- Accumulated
depreciation and
depletion............. 8,902 45,510 1,113,687 -- 1,168,099
------------ ------------ ------------ ------------ ------------
16,145 444,236 1,144,058 -- 1,604,439
------------ ------------ ------------ ------------ ------------
$ 789,595 $ 711,067 $ 1,520,807 $ (756,470) $ 2,264,999
============ ============ ============ ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....... $ 977 $ 70,771 $ 84,779 $ (6,087) $ 150,440
Notes payable.......... -- 69,368 1,875 -- 71,243
Current portion of
long-term debt,
capital lease
obligations and
redeemable cumulative
preferred securities.. 486 2,697 3,904 -- 7,087
Gas inventory
equalization.......... -- 3 36,605 -- 36,608
Federal income,
property and other
taxes payable......... (148) 8,646 69,850 -- 78,348
Customer deposits...... 17 -- 10,013 -- 10,030
Other.................. 2,975 12,098 42,937 (4) 58,006
------------ ------------ ------------ ------------ ------------
4,307 163,583 249,963 (6,091) 411,762
------------ ------------ ------------ ------------ ------------
DEFERRED CREDITS AND
OTHER LIABILITIES
Accumulated deferred
income taxes.......... (395) 39,285 61,609 -- 100,499
Unamortized investment
tax credit............ 375 -- 37,366 -- 37,741
Tax benefits
amortizable to
customers............. 169 -- 112,470 -- 112,639
Deferred swap gains and
payables.............. -- 28,476 -- -- 28,476
Accrued postretirement
benefit costs......... 1,990 950 11,119 -- 14,059
Minority interest...... -- 18,237 -- -- 18,237
Other.................. 15,555 8,289 61,585 (1,440) 83,989
------------ ------------ ------------ ------------ ------------
17,694 95,237 284,149 (1,440) 395,640
------------ ------------ ------------ ------------ ------------
LONG-TERM DEBT,
including capital lease
obligations............ 424 189,473 516,328 -- 706,225
------------ ------------ ------------ ------------ ------------
REDEEMABLE CUMULATIVE
PREFERRED SECURITIES OF
SUBSIDIARIES........... 96,392 -- -- -- 96,392
------------ ------------ ------------ ------------ ------------
COMMON SHAREHOLDERS'
EQUITY
Common Stock........... 660 5 10,300 (10,305) 660
Additional paid-in
capital............... 447,188 223,711 211,777 (443,615) 439,061
Retained earnings...... 223,472 39,058 248,290 (295,019) 215,801
Unearned compensation.. (542) -- -- -- (542)
------------ ------------ ------------ ------------ ------------
670,778 262,774 470,367 (748,939) 654,980
------------ ------------ ------------ ------------ ------------
$ 789,595 $ 711,067 $ 1,520,807 $ (756,470) $ 2,264,999
============ ============ ============ ============ ============
19
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS)
MCN AND ELIMINATIONS
OTHER 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 costs......... 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 costs......... 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
============ ============ ============ ============ ============
20
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 JUNE 30, 1996
------------------------------------------------------------------------
OPERATING REVENUES...... $ 2,939 $ 134,109 $ 222,327 $ (2,445) $ 356,930
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Cost of gas............ 1,540 99,905 99,681 (2,058) 199,068
Operation and
maintenance........... 628 16,918 71,212 (388) 88,370
Depreciation, depletion
and amortization...... 480 10,939 24,740 -- 36,159
Property and other
taxes................. 302 2,379 15,004 379 18,064
------------ ------------ ------------ ------------ ------------
Total operating
expenses.............. 2,950 130,141 210,637 (2,067) 341,661
------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS). (11) 3,968 11,690 (378) 15,269
------------ ------------ ------------ ------------ ------------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 42,810 2,910 260 (42,674) 3,306
------------ ------------ ------------ ------------ ------------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 2,393 946 634 (2,369) 1,604
Interest on long-term
debt.................. (9) (6,153) (10,224) -- (16,386)
Other interest expense. (96) (4,052) (940) 2,369 (2,719)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (2,345) (2,345)
Minority interest...... -- (33) (354) -- (387)
Other.................. 98 3,152 114 374 3,738
------------ ------------ ------------ ------------ ------------
Total other income and
(deductions).......... 2,386 (6,140) (10,770) (1,971) (16,495)
------------ ------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 45,185 738 1,180 (45,023) 2,080
INCOME TAX PROVISION
(BENEFIT).............. 209 (3,665) 329 -- (3,127)
------------ ------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS............. 44,976 4,403 851 (45,023) 5,207
------------ ------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS,
NET OF TAXES
Income from operations. -- 582 -- -- 582
Gain on sale........... -- 36,176 -- -- 36,176
------------ ------------ ------------ ------------ ------------
Total discontinued
operations............ -- 36,758 -- -- 36,758
------------ ------------ ------------ ------------ ------------
NET INCOME.............. 44,976 41,161 851 (45,023) 41,965
DIVIDENDS ON PREFERRED
SECURITIES............. 2,345 -- -- (2,345) --
------------ ------------ ------------ ------------ ------------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 42,631 $ 41,161 $ 851 $ (42,678) $ 41,965
============ ============ ============ ============ ============
THREE MONTHS ENDED JUNE 30, 1995
------------------------------------------------------------------------
OPERATING REVENUES...... $ 2,505 $ 76,618 $ 184,968 $ (1,748) $ 262,343
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Cost of gas............ 1,155 53,002 72,030 (1,207) 124,980
Operation and
maintenance........... 2,174 8,904 72,674 (541) 83,211
Depreciation, depletion
and amortization...... 432 5,266 22,730 -- 28,428
Property and other
taxes................. 293 1,355 14,187 -- 15,835
------------ ------------ ------------ ------------ ------------
Total operating
expenses.............. 4,054 68,527 181,621 (1,748) 252,454
------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS). (1,549) 8,091 3,347 -- 9,889
------------ ------------ ------------ ------------ ------------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 3,022 404 152 (2,755) 823
------------ ------------ ------------ ------------ ------------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 2,397 873 1,061 (2,220) 2,111
Interest on long-term
debt.................. (22) (1,378) (8,431) -- (9,831)
Other interest expense. (2) (3,415) (679) 2,368 (1,728)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (2,397) (2,397)
Minority interest...... -- (605) -- 1 (604)
Other.................. 1,591 (159) (841) (152) 439
------------ ------------ ------------ ------------ ------------
Total other income and
(deductions).......... 3,964 (4,684) (8,890) (2,400) (12,010)
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES.... 5,437 3,811 (5,391) (5,155) (1,298)
INCOME TAX PROVISION
(BENEFIT).............. 286 (1,246) (1,943) -- (2,903)
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS.. 5,151 5,057 (3,448) (5,155) 1,605
DISCONTINUED OPERATIONS,
NET OF TAXES........... -- 707 -- -- 707
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS)....... 5,151 5,764 (3,448) (5,155) 2,312
DIVIDENDS ON PREFERRED
SECURITIES............. 2,343 -- 54 (2,397) --
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS)
AVAILABLE FOR COMMON
STOCK.................. $ 2,808 $ 5,764 $ (3,502) $ (2,758) $ 2,312
============ ============ ============ ============ ============
21
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
------------ ------------ ------------ ----------------- -------------
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------------------------------
OPERATING REVENUES...... $ 10,146 $ 394,058 $ 753,719 $ (7,775) $ 1,150,148
------------ ------------ ------------ ------------ -------------
OPERATING EXPENSES
Cost of gas............ 5,311 313,528 398,397 (5,739) 711,497
Operation and
maintenance........... 814 36,367 139,983 (2,037) 175,127
Depreciation, depletion
and amortization...... 948 21,516 49,133 -- 71,597
Property and other
taxes................. 863 4,941 33,612 -- 39,416
------------ ------------ ------------ ------------ -------------
Total operating
expenses.............. 7,936 376,352 621,125 (7,776) 997,637
------------ ------------ ------------ ------------ -------------
OPERATING INCOME........ 2,210 17,706 132,594 1 152,511
------------ ------------ ------------ ------------ -------------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 122,652 4,850 495 (122,168) 5,829
------------ ------------ ------------ ------------ -------------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 4,793 1,876 1,219 (4,739) 3,149
Interest on long-term
debt.................. (19) (12,514) (19,992) -- (32,525)
Other interest expense. (110) (7,674) (3,775) 4,739 (6,820)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (4,707) (4,707)
Minority interest...... -- (65) (702) -- (767)
Other.................. (190) 2,865 (182) -- 2,493
------------ ------------ ------------ ------------ -------------
Total other income and
(deductions).......... 4,474 (15,512) (23,432) (4,707) (39,177)
------------ ------------ ------------ ------------ -------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 129,336 7,044 109,657 (126,874) 119,163
INCOME TAX PROVISION
(BENEFIT).............. 1,309 (5,173) 38,766 -- 34,902
------------ ------------ ------------ ------------ -------------
INCOME FROM CONTINUING
OPERATIONS............. 128,027 12,217 70,891 (126,874) 84,261
------------ ------------ ------------ ------------ -------------
DISCONTINUED OPERATIONS,
NET OF TAXES
Income from operations. -- 1,595 -- -- 1,595
Gain on sale........... -- 36,176 -- -- 36,176
------------ ------------ ------------ ------------ -------------
Total discontinued
operations............ -- 37,771 -- -- 37,771
------------ ------------ ------------ ------------ -------------
NET INCOME.............. 128,027 49,988 70,891 (126,874) 122,032
DIVIDENDS ON PREFERRED
SECURITIES............. 4,689 -- 18 (4,707) --
------------ ------------ ------------ ------------ -------------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 123,338 $ 49,988 $ 70,873 $ (122,167) $ 122,032
============ ============ ============ ============ =============
SIX MONTHS ENDED JUNE 30, 1995
-------------------------------------------------------------------------
OPERATING REVENUES...... $ 8,481 $ 180,613 $ 606,780 $ (7,443) $ 788,431
------------ ------------ ------------ ------------ -------------
OPERATING EXPENSES
Cost of gas............ 3,883 131,126 282,167 (3,901) 413,275
Operation and
maintenance........... 2,871 21,195 150,003 (3,542) 170,527
Depreciation, depletion
and amortization...... 812 9,872 44,881 -- 55,565
Property and other
taxes................. 769 2,485 30,689 -- 33,943
------------ ------------ ------------ ------------ -------------
Total operating
expenses.............. 8,335 164,678 507,740 (7,443) 673,310
------------ ------------ ------------ ------------ -------------
OPERATING INCOME........ 146 15,935 99,040 -- 115,121
------------ ------------ ------------ ------------ -------------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 64,491 1,064 376 (63,864) 2,067
------------ ------------ ------------ ------------ -------------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 4,889 1,845 1,999 (4,419) 4,314
Interest on long-term
debt.................. (43) (4,419) (16,684) -- (21,146)
Other interest expense. (24) (6,876) (3,651) 4,739 (5,812)
Dividends on preferred
securities of
subsidiaries -- -- -- (4,815) (4,815)
Minority interest...... -- (1,169) -- 1 (1,168)
Other.................. 1,591 (362) (1,579) (322) (672)
------------ ------------ ------------ ------------ -------------
Total other income and
(deductions).......... 6,413 (10,981) (19,915) (4,816) (29,299)
------------ ------------ ------------ ------------ -------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 71,050 6,018 79,501 (68,680) 87,889
INCOME TAX PROVISION
(BENEFIT).............. 1,295 (2,911) 27,339 -- 25,723
------------ ------------ ------------ ------------ -------------
INCOME FROM CONTINUING
OPERATIONS............. 69,755 8,929 52,162 (68,680) 62,166
DISCONTINUED OPERATIONS,
NET OF TAXES........... -- 1,736 -- -- 1,736
------------ ------------ ------------ ------------ -------------
NET INCOME.............. 69,755 10,665 52,162 (68,680) 63,902
DIVIDENDS ON PREFERRED
SECURITIES............. 4,687 -- 128 (4,815) --
------------ ------------ ------------ ------------ -------------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 65,068 $ 10,665 $ 52,034 $ (63,865) $ 63,902
============ ============ ============ ============ =============
22
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 JUNE 30, 1996
------------------------------------------------------------------------
OPERATING REVENUES...... $ 16,827 $ 625,144 $ 1,227,752 $ (12,774) $ 1,856,949
------------ ------------ ------------ ------------ -----------
OPERATING EXPENSES
Cost of gas............ 8,879 484,675 600,192 (9,331) 1,084,415
Operation and
maintenance........... 1,970 64,191 284,404 (3,444) 347,121
Depreciation, depletion
and amortization...... 1,807 35,430 93,380 -- 130,617
Property and other
taxes................. 1,424 7,818 59,935 -- 69,177
------------ ------------ ------------ ------------ -----------
Total operating
expenses.............. 14,080 592,114 1,037,911 (12,775) 1,631,330
------------ ------------ ------------ ------------ -----------
OPERATING INCOME........ 2,747 33,030 189,841 1 225,619
------------ ------------ ------------ ------------ -----------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 156,912 7,086 858 (155,849) 9,007
------------ ------------ ------------ ------------ -----------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 9,589 3,582 3,203 (9,798) 6,576
Interest on long-term
debt.................. (52) (17,825) (39,128) -- (57,005)
Other interest expense. (139) (15,219) (7,177) 9,478 (13,057)
Dividends on preferred
securities of
subsidiaries. -- -- -- (9,502) (9,502)
Minority interest...... -- (1,387) (702) (1) (2,090)
Other.................. (298) 4,213 (4,012) 322 225
------------ ------------ ------------ ------------ -----------
Total other income and
(deductions).......... 9,100 (26,636) (47,816) (9,501) (74,853)
------------ ------------ ------------ ------------ -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 168,759 13,480 142,883 (165,349) 159,773
INCOME TAX PROVISION
(BENEFIT).............. 2,132 (10,054) 52,431 -- 44,509
------------ ------------ ------------ ------------ -----------
INCOME FROM CONTINUING
OPERATIONS............. 166,627 23,534 90,452 (165,349) 115,264
------------ ------------ ------------ ------------ -----------
DISCONTINUED OPERATIONS,
NET OF TAXES
Income from operations. -- 3,446 -- -- 3,446
Gain on sale........... -- 36,176 -- -- 36,176
------------ ------------ ------------ ------------ -----------
Total discontinued
operations............ -- 39,622 -- -- 39,622
------------ ------------ ------------ ------------ -----------
NET INCOME.............. 166,627 63,156 90,452 (165,349) 154,886
DIVIDENDS ON PREFERRED
SECURITIES............. 9,377 -- 125 (9,502) --
------------ ------------ ------------ ------------ -----------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 157,250 $ 63,156 $ 90,327 $ (155,847) $ 154,886
============ ============ ============ ============ ===========
TWELVE MONTHS ENDED JUNE 30, 1995
------------------------------------------------------------------------
OPERATING REVENUES...... $ 14,030 $ 350,273 $ 1,012,245 $ (11,614) $ 1,364,934
------------ ------------ ------------ ------------ -----------
OPERATING EXPENSES
Cost of gas............ 6,467 267,278 450,352 (6,187) 717,910
Operation and
maintenance........... 2,842 36,472 308,279 (5,482) 342,111
Depreciation, depletion
and amortization...... 1,499 16,009 86,528 -- 104,036
Property and other
taxes................. 1,166 4,390 55,075 -- 60,631
------------ ------------ ------------ ------------ -----------
Total operating
expenses.............. 11,974 324,149 900,234 (11,669) 1,224,688
------------ ------------ ------------ ------------ -----------
OPERATING INCOME........ 2,056 26,124 112,011 55 140,246
------------ ------------ ------------ ------------ -----------
EQUITY IN EARNINGS OF
JOINT VENTURES AND
SUBSIDIARIES........... 71,133 2,677 592 (69,834) 4,568
------------ ------------ ------------ ------------ -----------
OTHER INCOME AND
(DEDUCTIONS)
Interest income........ 6,494 3,805 4,013 (5,972) 8,340
Interest on long-term
debt.................. (127) (10,431) (31,526) -- (42,084)
Other interest expense. (87) (9,729) (9,075) 6,292 (12,599)
Dividends on preferred
securities of
subsidiaries.......... -- -- -- (6,582) (6,582)
Minority interest...... -- (2,580) -- 1 (2,579)
Other.................. 306 155 (5,038) (261) (4,838)
------------ ------------ ------------ ------------ -----------
Total other income and
(deductions).......... 6,586 (18,780) (41,626) (6,522) (60,342)
------------ ------------ ------------ ------------ -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES........... 79,775 10,021 70,977 (76,301) 84,472
INCOME TAX PROVISION
(BENEFIT).............. 2,086 (5,649) 22,333 117 18,887
------------ ------------ ------------ ------------ -----------
INCOME FROM CONTINUING
OPERATIONS............. 77,689 15,670 48,644 (76,418) 65,585
DISCONTINUED OPERATIONS,
NET OF TAXES........... -- 3,486 -- -- 3,486
------------ ------------ ------------ ------------ -----------
NET INCOME.............. 77,689 19,156 48,644 (76,418) 69,071
DIVIDENDS ON PREFERRED
SECURITIES............. 6,224 -- 358 (6,582) --
------------ ------------ ------------ ------------ -----------
NET INCOME AVAILABLE FOR
COMMON STOCK........... $ 71,465 $ 19,156 $ 48,286 $ (69,836) $ 69,071
============ ============ ============ ============ ===========
23
MCN CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
MCN AND ELIMINATIONS
OTHER AND CONSOLIDATED
SUBSIDIARIES MCNIC MICHCON RECLASSIFICATIONS TOTALS
------------ ---------- ---------- ----------------- ------------
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------------------------
NET CASH FLOW FROM
OPERATING ACTIVITIES... $ 21,924 $ 76,877 $ 163,577 $ (11,916) $ 250,462
---------- ---------- ---------- ---------- ----------
CASH FLOW FROM FINANCING
ACTIVITIES
Notes payable, net..... -- (30,000) (138,344) -- (168,344)
Capital contributions
received from
(distributions paid
to) affiliates, net... (524) (14,642) 1,614 13,552 --
Common stock dividends
paid.................. (30,990) -- (7,000) 7,000 (30,990)
Preferred securities
dividends paid........ (4,689) -- (54) 4,743 --
Issuance of common
stock................. 8,848 -- -- -- 8,848
Issuance of long-term
debt.................. -- 328,789 69,645 -- 398,434
Long-term commercial
paper and credit
facilities, net....... -- (264,007) -- -- (264,007)
Retirement of long-term
debt and preferred
securities............ -- (1,008) (4,347) 2 (5,353)
Other.................. (5,978) -- -- -- (5,978)
---------- ---------- ---------- ---------- ----------
Net cash provided from
(used for) financing
activities............ (33,333) 19,132 (78,486) 25,297 (67,390)
---------- ---------- ---------- ---------- ----------
CASH FLOW FROM INVESTING
ACTIVITIES
Capital expenditures... (2,216) (141,048) (73,823) (1) (217,088)
Sale of Genix.......... -- 137,500 -- -- 137,500
Acquisition of DIGP.... -- (78,620) -- -- (78,620)
Sale of interest in
DIGP.................. -- 31,500 -- -- 31,500
Investment in joint
ventures and
subsidiaries.......... (1,614) (8,211) -- 1,674 (8,151)
Return of investment in
joint ventures and
subsidiaries.......... 14,642 -- -- (14,642) --
Other.................. 462 1,187 (10,871) (412) (9,634)
---------- ---------- ---------- ---------- ----------
Net cash provided from
(used for) investing
activities............ 11,274 (57,692) (84,694) (13,381) (144,493)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (135) 38,317 397 -- 38,579
CASH AND CASH
EQUIVALENTS, JANUARY 1. 168 10,622 8,469 -- 19,259
---------- ---------- ---------- ---------- ----------
CASH AND CASH
EQUIVALENTS, JUNE 30... $ 33 $ 48,939 $ 8,866 $ -- $ 57,838
========== ========== ========== ========== ==========
SIX MONTHS ENDED JUNE 30, 1995
-------------------------------------------------------------------
NET CASH FLOW FROM
OPERATING ACTIVITIES... $ 17,064 $ 59,143 $ 207,842 $ (14,521) $ 269,528
---------- ---------- ---------- ---------- ----------
CASH FLOW FROM FINANCING
ACTIVITIES
Notes payable, net..... -- 9,018 (166,582) -- (157,564)
Capital contributions
received from
(distributions paid
to) affiliates, net... (1,999) 72,686 7,000 (77,687) --
Common stock dividends
paid.................. (27,963) -- (6,500) 6,500 (27,963)
Preferred securities
dividends paid........ (4,688) -- (169) 4,857 --
Issuance of common
stock................. 107,569 -- -- -- 107,569
Issuance of long-term
debt.................. -- -- 68,764 -- 68,764
Long-term commercial
paper and credit
facilities, net....... -- (45,000) -- -- (45,000)
Retirement of long-term
debt and preferred
securities............ (247) (1,174) (3,763) -- (5,184)
Other.................. -- (707) -- -- (707)
---------- ---------- ---------- ---------- ----------
Net cash provided from
(used for) financing
activities............ 72,672 34,823 (101,250) (66,330) (60,085)
---------- ---------- ---------- ---------- ----------
CASH FLOW FROM INVESTING
ACTIVITIES
Capital expenditures... (2,169) (99,330) (75,891) -- (177,390)
Investment in joint
ventures and
subsidiaries.......... (87,462) (3,245) -- 79,686 (11,021)
Sale of investment in
joint ventures........ -- 10,803 -- -- 10,803
Other.................. (90) (1,581) 1,582 1,165 1,076
---------- ---------- ---------- ---------- ----------
Net cash used for
investing activities.. (89,721) (93,353) (74,309) 80,851 (176,532)
---------- ---------- ---------- ---------- ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS....... 15 613 32,283 -- 32,911
CASH AND CASH
EQUIVALENTS, JANUARY 1. 29 10,213 1,305 -- 11,547
---------- ---------- ---------- ---------- ----------
CASH AND CASH
EQUIVALENTS, JUNE 30... $ 44 $ 10,826 $ 33,588 $ -- $ 44,458
========== ========== ========== ========== ==========
24
OTHER INFORMATION
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.
(b) Reports on Form 8-K
MCN filed a report on Form 8-K dated June 5, 1996, under Item 5, with
respect to the announcement that it had signed a definitive agreement
for the sale of its computer services subsidiary, The Genix Group,
Inc., to Affiliated Computer Services, Inc.
MCN filed an additional report on Form 8-K dated July 18, 1996, under
Item 5, with respect to its second quarter 1996 earnings.
MCN filed an additional report on Form 8-K dated July 24, 1996, under
Item 5, with respect to the issuance of $80 million of 8 5/8% Trust
Originated Preferred Securities (Preferred Securities) by MCN Financing
I. The following documents were filed as Exhibits thereto:
. Underwriting Agreement dated July 24, 1996 with respect to the
Preferred Securities.
. Opinion of Skadden, Arps, Slate, Meagher & Flom, special counsel
to MCN, regarding the validity of the Preferred Securities.
. Opinion of Daniel L. Schiffer, Senior Vice-President, General
Counsel and Secretary of MCN, regarding the validity of the
Preferred Securities.
MCN filed an additional report on Form 8-K dated July 24, 1996, under
Item 5, with respect to the issuance of the Preferred Securities by MCN
Financing I. The following documents were filed as Exhibits thereto:
. Amended and Restated Declaration of Trust of MCN Financing I,
dated as of July 24, 1996.
. Second Supplemental Indenture, dated as of July 24, 1996, between
MCN and NBD Bank.
. Subscription Agreement, dated as of July 24, 1996, between MCN
Financing I and MCN.
. Preferred Securities Guarantee Agreement, dated as of July 26,
1996, between MCN and Wilmington Trust Company.
. Debenture Purchase Agreement, dated July 26, 1996, between MCN
and MCN Financing I.
25
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: August 13, 1996 By: _________________________________
Patrick Zurlinden
Vice President, Controller
and Chief Accounting Officer
26