<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
---------------------------------------
--------------------
Commission file number 1-5254
-------------------
MAPCO INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-0705739
- -------------------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 South Baltimore Avenue, Tulsa, Oklahoma 74119
- -------------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
(918) 581-1800
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
No changes
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changes 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 has been subject to such filing requirements for the past 90 days.
Yes X . No .
--- ---
On August 2, 1994, 29,951,696 shares of MAPCO Inc. Common Stock, $1
par value, were outstanding.
This report contains 24 pages
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<PAGE> 2
MAPCO Inc.
Index
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART I. Financial Information:
Condensed Consolidated Statements of Income
for the three and six months ended
June 30, 1994 and 1993 3
Condensed Consolidated Balance Sheets,
June 30, 1994 and December 31, 1993 4
Condensed Consolidated Statements of Cash
Flows for the six months ended
June 30, 1994 and 1993 5
Notes to Condensed Consolidated Financial
Statements 6 - 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 19
PART II. Other Information 20
Submission of Matters to a Vote of Security
Holders 20
Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
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<PAGE> 3
PART I
FINANCIAL INFORMATION
MAPCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Dollars and Shares in Millions
except per share amounts
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales and Operating Revenues (1) $ 738.1 $ 663.3 $ 1,430.2 $ 1,355.0
---------- ---------- ---------- ----------
Expenses:
Outside purchases and operating expenses
(Note 6) (1) 719.5 561.1 1,295.1 1,154.7
Selling, general and administrative 16.5 17.9 33.4 34.0
Depreciation, depletion and amortization 24.8 24.3 49.2 48.0
Interest and debt expense 12.2 12.1 24.5 22.3
Other (income) expense - net 2.2 .4 1.7 (.6)
---------- ---------- ---------- ----------
775.2 615.8 1,403.9 1,258.4
---------- ---------- ---------- ----------
Income (Loss) Before Provision for
Income Taxes (37.1) 47.5 26.3 96.6
---------- ---------- ---------- ----------
Provision (Benefit) for Income Taxes:
Current (23.5) 14.9 (4.2) 29.2
Deferred 10.7 .7 13.1 1.3
---------- ---------- ---------- ----------
(12.8) 15.6 8.9 30.5
---------- ---------- ---------- ----------
Income (Loss) Before Minority Interest (24.3) 31.9 17.4 66.1
Minority Interest in Earnings of Subsidiary (.3) (.6) (.6) (.9)
---------- ---------- ---------- ----------
Net Income (Loss) $ (24.6) $ 31.3 $ 16.8 $ 65.2
========== ========== ========== ==========
Earnings (Loss) per Common Share $ (.82) $ 1.04 $ .56 $ 2.17
Average Common Shares Outstanding 30.0 30.0 30.0 30.0
Cash Dividends per Common Share $ .25 $ .25 $ .50 $ .50
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(1) Includes consumer excise taxes of $42.7 million and $36.9 million for the
three months ended June 30, 1994 and 1993, respectively, and $81.7 million and
$70.5 million for the six months ended June 30, 1994 and 1993, respectively.
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<PAGE> 4
MAPCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in Millions
<TABLE>
<CAPTION>
June 30, 1994 December 31,
(Unaudited) 1993
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 71.9 $ 69.8
Receivables 262.6 228.8
Inventories (Note 3) 112.4 113.4
Prepaid expenses 37.9 27.3
Other current assets 26.6 16.9
------------ ------------
Total current assets 511.4 456.2
------------ ------------
Property, Plant and Equipment, at cost 2,372.6 2,341.8
Less - Accumulated depreciation
and depletion (1,009.8) (974.5)
------------ ------------
1,362.8 1,367.3
------------ ------------
Other Assets 133.6 117.3
------------ ------------
$ 2,007.8 $ 1,940.8
============ ============
Current Liabilities:
Current maturities of long-term debt $ 15.8 $ 12.8
Accounts payable 279.0 247.1
Accrued taxes 6.8 47.3
Accrued payroll and related expenses 16.4 21.2
Litigation and environmental (Note 6) 116.7 13.7
Other current liabilities 41.9 40.8
------------ ------------
Total current liabilities 476.6 382.9
------------ ------------
Long-Term Debt (Note 4) 562.5 585.5
------------ ------------
Other Liabilities 85.5 101.6
------------ ------------
Deferred Income Taxes 286.7 273.5
------------ ------------
Minority Interest 23.6 23.0
------------ ------------
Contingencies (Note 6)
------------ ------------
Stockholders' Equity (Note 5):
Common stock 62.8 62.7
Capital in excess of par value 202.6 200.0
Retained earnings 1,308.8 1,306.7
------------ ------------
1,574.2 1,569.4
Less:
-Treasury stock, at cost (933.1) (926.9)
-Loan to ESOP (68.2) (68.2)
------------ ------------
572.9 574.3
------------ ------------
$ 2,007.8 $ 1,940.8
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE> 5
MAPCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 2)
Dollars in Millions
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 16.8 $ 65.2
Reconciliation of net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 49.2 48.0
Provision for deferred income taxes 13.1 1.3
Other items not requiring cash (Note 2) 9.0 2.4
-------- --------
Funds provided by operations 88.1 116.9
Changes in operating assets and
liabilities (Note 2) 1.8 (12.9)
-------- --------
Net cash provided by operating activities 89.9 104.0
-------- --------
Cash Flows from Investing Activities:
Capital expenditures and acquisitions, net of
liabilities assumed (51.1) (93.3)
Proceeds from sales of property, plant and
equipment 4.8 6.5
Other - .1
-------- --------
Net cash used in investing activities (46.3) (86.7)
-------- --------
Cash Flows from Financing Activities:
Purchase of common stock (6.2) (.8)
Increase (decrease) in borrowings (Note 4) (20.0) 1.0
Dividends (15.0) (15.0)
Issuance of long-term debt .1 .4
Payments on long-term debt (.1) (.3)
Exercise of stock options - 1.0
Other (.3) .3
-------- --------
Net cash used in financing activities (41.5) (13.4)
-------- --------
Increase in Cash and Cash Equivalents 2.1 3.9
Cash and Cash Equivalents, January 1 69.8 55.7
-------- --------
Cash and Cash Equivalents, June 30 $ 71.9 $ 59.6
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE> 6
MAPCO INC.
Notes to Condensed Consolidated Financial Statements
Note 1 - In the opinion of Management, the accompanying condensed consolidated
financial statements of MAPCO Inc. and its subsidiaries ("MAPCO" or the
"Company") contain all adjustments necessary to present fairly the financial
position as of June 30, 1994 (unaudited) and December 31, 1993, the results of
operations for the three and six months ended June 30, 1994 and 1993 (both
unaudited) and the cash flows for the six months ended June 30, 1994 and 1993
(both unaudited). Certain reclassifications have been made to prior year
numbers to conform to current year presentations. All significant intercompany
accounts and transactions have been eliminated.
Note 2 - Statements of Cash Flows
Other items not requiring (providing) cash consist of (in millions):
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-------------------------
1994 1993
-------- --------
<S> <C> <C>
Pension (income) expense $ .1 $ (.6)
Gain on sales of property, plant
and equipment (.2) (3.3)
Minority interest .6 .9
Refinery turnaround accrual 1.6 1.6
Other non-cash items 6.9 3.8
-------- --------
$ 9.0 $ 2.4
======== ========
</TABLE>
Changes in operating assets and liabilities consist of (in millions):
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-------------------------
1994 1993
-------- --------
<S> <C> <C>
Decrease (increase) in:
Receivables $ (30.3) $ (21.2)
Inventories 1.0 (7.2)
Prepaid expenses (7.8) (.4)
Other current assets (3.7) .7
Other assets (6.1) .5
Increase (decrease) in:
Accounts payable 27.3 12.6
Accrued taxes (38.4) 3.3
Accrued payroll and related expenses (7.4) 4.1
Litigation and environmental 69.9 -
Other current liabilities 1.2 (2.5)
Other liabilities (3.9) (2.8)
-------- --------
$ 1.8 $ (12.9)
======== ========
</TABLE>
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<PAGE> 7
Note 2 - Statements of Cash Flows (continued)
Income taxes paid were $36.2 million and $32.6 million for the six months ended
June 30, 1994 and 1993, respectively.
Interest paid, net of amounts capitalized, was $25.7 million and $25.6 million
for the six months ended June 30, 1994 and 1993, respectively.
Note 3 - Inventories
Inventories consist of (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- --------
<S> <C> <C>
Raw materials:
Crude Oil $ 20.3 $ 25.6
-------- --------
Finished products:
Refined petroleum products 31.2 24.9
Fertilizer and natural gas liquids 35.3 46.0
Retail merchandise 14.9 12.1
Coal 10.7 4.8
-------- --------
92.1 87.8
-------- --------
Total Inventories $ 112.4 $ 113.4
======== ========
</TABLE>
The cost to replace crude oil, refined petroleum products and retail
merchandise inventories in excess of their last-in, first-out (LIFO) carrying
value was $16.0 million at June 30, 1994 and $6.5 million at December 31, 1993.
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<PAGE> 8
Note 4 - Long-Term Debt
Long-term debt consists of (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- --------
<S> <C> <C>
MAPCO Inc.
- ----------
Commercial paper $ - $ 20.0
8.43% ESOP Notes, payable in mortgage type
principal reductions annually through 2003 68.2 68.2
Medium Term Notes, various maturities through 2022 342.8 342.8
-------- --------
411.0 431.0
-------- --------
Subsidiaries
- ------------
Senior Notes:
8.51% Notes, payable 2007 15.0 15.0
8.95% Notes, payable 2012 35.5 35.5
8.20% Notes, payable $2.5 annually 2007 through 2012 15.0 15.0
8.59% Notes, payable 2017 14.5 14.5
8.70% Notes, payable $2.0 annually 2018 through 2022 10.0 10.0
6.67% Notes, payable $15.0 annually 2001 through 2005 75.0 75.0
Other 2.3 2.3
-------- --------
167.3 167.3
-------- --------
578.3 598.3
Less - current maturities (15.8) (12.8)
-------- --------
Long-term debt $ 562.5 $ 585.5
======== ========
</TABLE>
Interest rates on commercial paper ranged from 3.10% to 4.27% at December 31,
1993. Commercial paper outstanding at December 31, 1993 was classified as
long-term debt.
MAPCO has a bank credit agreement for a line of credit of $300 million. The
bank credit agreement provides for reduction of the total commitment in
quarterly increments of $25 million commencing June 30, 1998. Interest on
borrowings under the bank credit agreement would be at rates generally less
than the prime interest rate. MAPCO must pay a commitment fee to maintain the
bank credit agreement. This agreement serves as back-up for commercial paper.
As of June 30, 1994, no borrowings were outstanding under the bank credit
agreement.
As of June 30, 1994, MAPCO had $342.8 million of Medium Term Notes outstanding.
The Notes mature at various times through 2022 and bear interest at rates
ranging from 7.00% to 8.87%.
Various loan agreements contain restrictive covenants which, among other
things, limit the payment of advances or dividends by two Natural Gas Liquids'
subsidiaries to MAPCO. At June 30, 1994, $190 million of net assets were
restricted by such provisions.
Note 5 - Employee Benefit Plans
With respect to the Employee Stock Ownership Plan ("ESOP"), MAPCO recognized
$.6 million and $1.2 million as compensation expense for the
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<PAGE> 9
Note 5 - Employee Benefit Plans (continued)
three and six months ended June 30, 1994, respectively, and $.4 million and $.9
million for the three and six months ended June 30, 1993, respectively.
Interest expense on ESOP related debt was $1.4 million and $2.8 million for the
three and six months ended June 30, 1994, respectively, and $1.6 million and
$3.1 million for the three and six months ended June 30, 1993, respectively.
Dividends on the allocated and unallocated MAPCO common stock held by the ESOP
were $.6 million and $1.2 million for the three and six months ended June 30,
1994 and 1993, respectively, and have been used for ESOP debt service.
Note 6 - Contingencies
State Royalty Oil tentative settlement
The refining and marketing arm of the Company, MAPCO Petroleum Inc., operates a
refinery in Alaska through its subsidiary, MAPCO Alaska Petroleum Inc.
("MAPI"). Since 1978, MAPI (and/or its predecessor) has had long-term
agreements with the State of Alaska (the "State") to purchase royalty oil from
the State at prices linked to amounts payable by North Slope oil producers in
satisfaction of their royalty obligations to the State. In 1977, the State
commenced suit against the producers (in an action entitled State of Alaska v.
Amerada Hess, et al.) alleging that they incorrectly calculated their royalty
payments.
As of April 1992, the State had settled its royalty oil claims against all of
the producers. On the basis of these settlements, the State billed MAPI for
retroactive increases in the prices paid by MAPI under all four of its royalty
oil purchase agreements. The State's claim against MAPI is based upon the
difference between the volume weighted average paid by the producers and the
revised royalty values adopted by the State. MAPI has been paying the State
under a contractual pricing formula which resulted in prices in excess of the
volume weighted average of the producers' past royalty reports.
The State's claim, based upon invoices submitted to MAPI on October 1, 1992, is
comprised of claims for retroactive price adjustments (including interest
through varying dates in October 1992) of $98 million, $9.2 million, $2.9
million and $6.4 million under the 1978, 1977, and 1984 and 1985 Agreements,
respectively. In addition, MAPI could be responsible for interest subsequent
to the billing dates.
On August 28, 1992, MAPI commenced suit against the State in an Anchorage State
Court seeking a declaratory judgment that MAPI is not liable to the State for
any retroactive price increase under its primary royalty oil purchase agreement
(the "1978 Agreement"). That same date, MAPI invoked the arbitration provision
of the agreement under which it had purchased the second largest amount of
State royalty oil (the "1977 Agreement"), again seeking a determination that it
is not liable for any retroactive price increase. On February 5, 1993, MAPI
filed suit in Anchorage State Court as to the remaining two agreements (the
"1984 and 1985 Agreements").
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<PAGE> 10
Note 6 - Contingencies (continued)
In June 1994, MAPI received a ruling which states that MAPI is liable for the
retroactive royalty oil price adjustments under the 1978 royalty oil purchase
agreement with the State of Alaska, subject only to further review by the Court
as to retroactive interest due, if any. As a result of the June ruling and the
pending issue of whether retroactive interest is due the State, and also the
desire by both parties to forego a lengthy trial, the State and MAPI have
tentatively settled all disputed issues in the litigation and all suits and the
arbitration proceedings will be dismissed, effective August 1, 1994.
Pursuant to the tentative settlement, MAPI will pay the State by October 31,
1994, a total of $95 million. As to the total tentative settlement MAPI
accrued an additional $68.7 million during the second quarter of 1994.
The tentative settlement will have no impact upon the remaining term of the
1978 Agreement which expires in 2003, but the formula for calculating the price
for purchasing crude oil will change. As of August 1, 1994, MAPI will pay the
State a price based upon a weighted average price calculated in accordance with
a pricing methodology agreed to by the State and the Alaska North Slope
producers as part of the settlements reached in the Amerada Hess litigation.
Texas Explosion Litigation
On April 7, 1992, a liquefied petroleum gas explosion occurred near an
underground salt dome storage facility located near Brenham, Texas and owned by
an affiliate of the Company, Seminole Pipeline Company ("Seminole"). The
National Transportation Safety Board and the Texas Railroad Commission
essentially determined that the probable cause of the explosion was the result
of overfilling the storage facility.
The Company, as well as Seminole, Mid-America Pipeline Company and other
non-MAPCO entities have been named as defendants in civil actions filed in
state district courts in Texas. During 1993, the Company received
reimbursements from its insurers for settlements which disposed of all the
death claims and substantially all of the serious injury claims resulting from
the incident. The Company believes that complete resolution of the remaining
actions by litigation or settlement, after reimbursement of insurance coverage,
will not have a material adverse effect on the Company's business, results of
operations or consolidated financial position.
General Litigation
The Company is involved in various other lawsuits, claims and regulatory
proceedings incidental to their businesses. In the opinion of management, it
is remotely likely that the outcome of such matters will have a material
adverse effect on the Company's business, consolidated financial position or
results of operations.
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SECOND QUARTER 1994 VS. SECOND QUARTER 1993
RESULTS OF OPERATIONS
Items which had a significant impact on second quarter 1994 results of
operations were:
. MAPCO Alaska Petroleum Inc. ("MAPI") reached a tentative settlement with
the State of Alaska involving royalty oil purchases.
See Note 6 - Contingencies for a detailed discussion of this matter. As
a result of the tentative settlement, MAPI recognized a $68.7 million
pre-tax charge against its second quarter earnings.
. Sales price declines outpaced crude cost declines which significantly
reduced margins and operating profit at both the Memphis and North Pole
Refineries.
Sales and Operating Revenues
<TABLE>
<CAPTION>
Sales & Operating Revenues
-----------------------------
Three Months
Ended June 30,
----------------------------
Segment 1994 1993 Variance
- ----------------- ------ ------ --------
(In Millions)
<S> <C> <C> <C>
Natural Gas Liquids $114.9 $112.1 $ 2.8
Petroleum 535.9 462.1 73.8
Coal 104.7 99.7 5.0
Eliminations (17.4) (10.6) (6.8)
------ ------ -------
$738.1 $663.3 $ 74.8
====== ====== =======
</TABLE>
Sales and operating revenues increased $74.8 million.
. The $2.8 million increase in Natural Gas Liquids ("NGL") segment
revenues is primarily attributable to: (a) additional throughput
volumes from new plant connections completed during the past year and
a new long-term contract with a major customer, (b) higher chemical
sales volumes due primarily to more favorable weather conditions in
the current quarter, and (c) increased gas processing liquid volumes.
These increases were partially offset by lower retail propane sales
caused by a decrease in average sales prices and lower volumes. The
lower retail volumes resulted from fewer plants in operation because
of strategic plant divestitures and warmer temperatures in the current
quarter. In addition, second quarter transportation revenues were
negatively impacted by high natural gas prices in the Rocky Mountain
area and depressed Gulf Coast ethane markets which resulted in
producers retaining ethane in the natural gas stream rather than
extracting the liquids for shipment to and sale on the Texas Gulf
Coast.
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<PAGE> 12
. Petroleum segment sales exceeded last year's second quarter by $73.8
million, primarily due to increased petroleum product purchasing and
marketing activities. Petroleum significantly increased its product
purchasing and marketing activities in the current quarter, which
resulted in a sales increase of $77.7 million. Higher sales at the
Memphis Refinery and in Retail Marketing were more than offset by
lower sales at the North Pole Refinery. Sales at the Memphis Refinery
were $13.4 million higher because of a 14% increase over the 1993
quarter in the volume of crude processed, partially offset by a sharp
decrease in average sales prices. Retail Marketing sales increased
$5.6 million principally due to increased merchandise and fuel
volumes. North Pole refinery sales decreased $20.2 million primarily
because of lower sales prices and lower refinery processing volumes.
Increased competition from a new refinery/supplier in Valdez and an
overall decrease in demand for petroleum products in the Alaskan
markets are the primary reasons for the decrease in North Pole's
volumes.
. Coal segment sales were $5.0 million higher principally reflecting the
benefit of price increases on long-term contracts and increased coal
brokerage activity.
Outside Purchases and Operating Expenses
Outside purchases and operating expenses were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended, June 30,
---------------------------------------------------------------------------------------------------
1994 1993 Variance
------------------------------- ------------------------------- -------------------------------
Outside Operating Outside Operating Outside Operating
Segment Purchases Expenses Total Purchases Expenses Total Purchases Expenses Total
- ------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NGL $ 27.4 $ 43.9 $ 71.3 $ 33.4 $ 39.7 $ 73.1 $ 6.0 $ (4.2) $ 1.8
Petroleum 449.8 112.1 561.9 371.0 39.2 410.2 (78.8) (72.9) (151.7)
Coal 11.2 75.1 86.3 9.7 68.1 77.8 (1.5) (7.0) (8.5)
-------- -------- -------- -------- -------- -------- ------- ------- --------
$ 488.4 $ 231.1 $ 719.5 $ 414.1 $ 147.0 $ 561.1 $ (74.3) $ (84.1) $ (158.4)
======== ======== ======== ======== ======== ======== ======= ======= ========
</TABLE>
Outside purchases increased $74.3 million, primarily in the Petroleum Segment.
Significantly increased Petroleum product purchasing and marketing activities
combined with Memphis Refinery's higher processing volumes are the principal
reasons for the increase in Petroleum's outside purchases. Lower processing
volumes at the North Pole Refinery resulted in lower outside purchases which
partially offset the increased purchases in petroleum product and marketing and
by the Memphis Refinery. Natural Gas Liquids' outside purchases decreased $6.0
million primarily as a result of lower propane product prices and lower retail
sales volumes. The $1.5 million increase in Coal's outside purchases was due
to higher brokerage volumes.
Operating expenses increased $84.1 million over the 1993 quarter principally
due to the $68.7 million charge to Petroleum expenses relative to the State
Royalty Oil tentative settlement. NGL's operating expenses increased $4.2
million due to a $2.0 million charge in the current quarter for the buy-out of
a gas supply contract and higher gas processing expenses associated with the
increased volumes processed. In addition to the $68.7 million State Royalty
Oil tentative settlement charge, Petroleum's operating expenses increased $4.2
million primarily because of increased catalyst usage and other costs
associated with the
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<PAGE> 13
higher volumes of crude processed at the Memphis Refinery and a $2.0 million
environmental claim settlement in the second quarter of 1993 which reduced last
year's operating expenses at the North Pole Refinery. Coal's operating
expenses were $7.0 million higher primarily reflecting increased coal shipments
and higher costs at the Mettiki mine and the combination of adverse mining
conditions and equipment failures at the Pontiki mine. Mettiki's operating
costs are higher than last year because the longwall was moved during the
second quarter of 1994, as compared to 1993 when the longwall was moved during
the first quarter.
Operating Profit
<TABLE>
<CAPTION>
Operating Profit (Loss)
------------------------------
Three Months
Ended June 30
------------------------------
Segment 1994 1993 Variance
- ------------------- ------ ------ --------
(In Millions)
<S> <C> <C> <C>
Natural Gas Liquids $ 25.8 $ 24.4 $ 1.4
Petroleum (49.6) 29.7 (79.3)
Coal 7.5 11.5 (4.0)
------ ------ ------
$(16.3) $ 65.6 $(81.9)
====== ====== ======
</TABLE>
Operating profit decreased $81.9 million due principally to the $68.7 million
charge against current quarter earnings relative to the State Royalty Oil
tentative settlement.
. NGL's operating profit increased $1.4 million primarily because of higher
transportation and chemical profits. Increased throughput volumes from
new plant connections and a new long-term contract with a major customer
more than offset the overall increase in transportation operating expenses
and the effects of ethane rejection. Chemical profits exceeded last year
because last year's season was adversely impacted by extremely wet weather
conditions and flooding throughout the Midwest.
. Excluding the State Royalty Oil tentative settlement charge, Petroleum's
operating profit decreased $10.6 million. Operating profit at the Memphis
Refinery and North Pole Refinery decreased $7.4 million and $5.1 million,
respectively. The principal reason for the decline in operating profit was
a sharp decrease in sales prices, partially offset by lower crude costs,
resulting in lower margins at both refineries. An increase in operating
profit from petroleum product purchasing and marketing activities
partially offset the decreases at the Memphis and North Pole Refineries.
. Coal's operating profit decreased $4.0 million primarily reflecting the
timing difference in longwall moves at the Mettiki mine and the
combination of adverse mining conditions and equipment failures at the
Pontiki mine.
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<PAGE> 14
Net Income/Loss
MAPCO's consolidated net loss was $24.6 million or $.82 per share for the 1994
second quarter, compared to net income of $31.3 million or $1.04 per share for
the 1993 second quarter. Average common shares outstanding were 30.0 million
in both the 1994 and 1993 second quarters. Net income was reduced $1.52 per
share in the current quarter due to the charge against income relative to the
State Royalty Oil tentative settlement.
YEAR-TO-DATE 1994 VS. YEAR-TO-DATE 1993
Sales and Operating Revenues
<TABLE>
<CAPTION>
Sales & Operating Revenues
----------------------------
Six Months
Ended June 30,
----------------------------
Segment 1994 1993 Variance
- -------------------- -------- -------- --------
(In Millions)
<S> <C> <C> <C>
Natural Gas Liquids $ 245.3 $ 240.8 $ 4.5
Petroleum 1,012.5 936.2 76.3
Coal 207.0 199.9 7.1
Eliminations (34.6) (21.9) (12.7)
-------- -------- -------
$1,430.2 $1,355.0 $ 75.2
======== ======== =======
</TABLE>
Sales and operating revenues increased $75.2 million.
. NGL's current year revenues have increased $4.5 million over 1993. The
increase is primarily attributable to: (a) additional throughput volumes
from new plant connections completed during the past year and a new
long-term contract with a major customer, (b) the completion of the
Seminole Loop expansion on May 1, 1993, and (c) increased chemical sales
because of the effect of adverse weather conditions on prior year sales.
These increases were partially offset by lower retail propane sales which
resulted from a decrease in average sales prices and lower volumes. The
lower retail volumes resulted from fewer plants in operation in the
current year due to strategic plant divestitures. In addition, current
year transportation revenues were negatively impacted by high natural gas
prices in the Rocky Mountain area and depressed Gulf Coast ethane markets
which resulted in producers retaining ethane in the natural gas stream
rather than extracting the liquids for shipment to and sale on the Texas
Gulf Coast.
. Petroleum's sales and operating revenues increased by $76.3 million.
Significantly higher petroleum product purchasing and marketing activity,
partially offset by lower North Pole Refinery and Express Fuels sales,
were the primary reasons for the sales increase. Sales at the North Pole
Refinery decreased because of lower average sales prices and lower volumes
of processed crude. North Pole Refinery volumes have decreased because of
increased competition and an overall decrease in demand in the Alaskan
markets. Express Fuels was
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<PAGE> 15
sold in June 1993.
. The Coal segment's $7.1 million revenue increase is primarily attributable
to: (a) increased brokerage volumes, (b) price increases on long-term
contracts, and (c) higher sales volumes related to increased production at
the Mettiki mine which reflect fewer operational problems and the
installation of new longwall shields. These increases were partially
offset by reduced revenues in the East Kentucky Region. The reduced East
Kentucky revenues primarily reflect lower production levels at the Pontiki
mine.
Outside Purchases and Operating Expenses
Outside purchases and operating expenses were as follows (in millions):
<TABLE>
<CAPTION>
Six Months Ended, June 30,
---------------------------------------------------------------------------------------------------
1994 1993 Variance
------------------------------- ------------------------------- -------------------------------
Outside Operating Outside Operating Outside Operating
Segment Purchases Expenses Total Purchases Expenses Total Purchases Expenses Total
- ------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NGL $ 60.4 $ 91.2 $ 151.6 $ 71.3 $ 82.3 $ 153.6 $ 10.9 $ (8.9) $ 2.0
Petroleum 824.2 152.6 976.8 766.2 79.8 846.0 (58.0) (72.8) (130.8)
Coal 20.1 146.6 166.7 15.9 139.2 155.1 (4.2) (7.4) (11.6)
-------- -------- -------- -------- -------- -------- ------- ------- --------
$ 904.7 $ 390.4 $1,295.1 $ 853.4 $ 301.3 $1,154.7 $ (51.3) $ (89.1) $ (140.4)
======== ======== ======== ======== ======== ======== ======= ======= ========
</TABLE>
Outside purchases increased $51.3 million primarily because of additional
Petroleum product purchasing and marketing activity. Operating expenses
increased $89.1 million.
. Natural Gas Liquids' outside purchases decreased $10.9 million primarily
because of lower propane prices and volumes. Retail propane volumes have
decreased from last year primarily because fewer retail plants are in
operation.
Natural Gas Liquids' operating expenses increased $8.9 million due
primarily to: (a) testing and refurbishing pipeline in connection with the
commencement of the new long-term contract with a major customer, (b)
costs associated with the buyout of a gas supply contract, and (c) higher
gas processing expenses due to increased volumes.
. Petroleum's outside purchases increased $58.0 million. Significantly
higher petroleum product purchasing and marketing activity resulted in a
$96.5 million increase in outside purchases, however, this increase was
partially offset by lower purchases by the Memphis Refinery, North Pole
Refinery and Express Fuels operations. Although crude prices increased
sharply from the first quarter of 1994, average crude prices are still
below last year, which has resulted in reduced outside purchases at both
the Memphis and North Pole Refineries. Also, the volume of crude
processed at the North Pole Refinery decreased from last year which caused
a further reduction in current year outside purchases. Express Fuels'
outside purchases were lower because that operation was sold in June 1993.
Petroleum's operating expenses in 1994 were $72.8 million higher than in
1993 due to: (a) the $68.7 million charge relative to the State Royalty
Oil tentative settlement, (b) costs associated with
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<PAGE> 16
significantly higher throughput volumes at the Memphis Refinery, (c) a
$2.0 million environmental claim settlement which reduced last year's
operating expenses at the North Pole Refinery, and (d) higher Retail
Marketing salary, training and advertising expenses.
. Coal's outside purchases were $4.2 million higher principally due to
additional brokerage volumes.
Coal's operating expenses increased $7.4 million reflecting: (a) higher
operating levels at the Mettiki mine and higher costs associated with a
difficult longwall move during the second quarter of the current year, (b)
the combination of adverse mining conditions and equipment failures at the
Pontiki mine, and (c) less favorable mining conditions at the Dotiki mine.
Interest and Debt Expense
Interest and debt expense increased $2.2 million primarily because of higher
amounts of interest capitalized in 1993 relative to the Seminole Loop expansion
project.
Operating Profit
<TABLE>
<CAPTION>
Operating Profit (Loss)
------------------------------
Six Months
Ended June 30
------------------------------
Segment 1994 1993 Variance
- ------------------- ------ ------ --------
(In Millions)
<S> <C> <C> <C>
Natural Gas Liquids $ 59.0 $ 62.0 $ (3.0)
Petroleum (13.2) 42.6 (55.8)
Coal 18.9 24.0 (5.1)
------ ------ ------
$ 64.7 $128.6 $(63.9)
====== ====== ======
</TABLE>
Year-to-date operating profit was $63.9 million less than the prior year
primarily because of the $68.7 million pre-tax charge against current year
earnings relative to the State Royalty Oil tentative settlement. Excluding the
State Royalty Oil tentative settlement, operating profit increased $4.8
million.
. NGL's operating profit was $3.0 million less than in 1993 because lower
transportation and gas processing profits more than offset increased
retail propane profits. Higher transportation operating expenses,
particularly in the first quarter when a major pipeline testing and
refurbishing project was underway, more than offset increased throughput
volumes from new plant connections and a new long-term contract with a
major customer. Gas processing's operating profit was negatively impacted
primarily by lower NGL sales prices. Retail propane profits improved
primarily because of higher propane supply margins and lower plant
operating expenses due to the fewer number of plants in operation during
1994. Chemical profits also compare favorably to last year because the
1993 season was adversely
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<PAGE> 17
impacted by extremely wet weather conditions and flooding throughout the
Midwest.
. Excluding the State Royalty Oil tentative settlement charge, Petroleum's
operating profit increased $12.9 million. The increase was primarily
attributable to the higher margins and profits experienced at the Memphis
and North Pole Refineries during the first quarter of 1994. Including the
State Royalty Oil tentative settlement charge, Petroleum's year-to-date
operating loss was $13.2 million or $55.8 million less than Petroleum's
1993 operating profit.
. Coal's operating profit was $5.1 million below 1993 primarily because of
the combination of adverse mining conditions and equipment failures at the
Pontiki mine and less favorable mining conditions at the Dotiki mine.
Income Taxes
MAPCO's effective income tax rate through June 30, 1994 was 33.8% compared to
31.6% in the first six months of 1993. The increase is primarily due to the
higher corporate income tax rate included in the Omnibus Budget Reconciliation
Act of 1993, and because the effective tax rate for the first six months of
1993 was reduced .8% by the adoption of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. The difference between the
statutory Federal income tax rate of 35% and the effective tax rate is
primarily due to statutory depletion, partially offset by state taxes.
Net Income
MAPCO's consolidated net income was $16.8 million or $.56 per share compared to
$65.2 million or $2.17 per share in 1993. Average common shares outstanding
for the six months ended June 30, 1994 and 1993 were 30.0 million. Net income
was reduced $1.52 per share in the second quarter of 1994 due to the $68.7
million pre-tax charge against income relative to the State Royalty Oil
tentative settlement.
FINANCIAL CONDITION
Cash Generation
Cash generation was as follows (in millions):
<TABLE>
<CAPTION>
Six Months Ended, June 30, 1994 1993
-------- --------
<S> <C> <C>
Funds provided by operations $ 88.1 $ 116.9
Changes in operating assets and liabilities 1.8 (12.9)
-------- -------
Net cash provided by operating activities 89.9 104.0
Net cash used in investing activities ( 46.3) (86.7)
Net cash used in financing activities ( 41.5) (13.4)
-------- -------
Cash Generation $ 2.1 $ 3.9
======== =======
</TABLE>
17 of 24
<PAGE> 18
Funds provided by operations in 1994 as compared to 1993 decreased primarily
due to lower operating profit in the Petroleum segment resulting from the
charge relating to the State Royalty Oil tentative settlement.
Capital expenditures in 1994 were $51.1 million, of which $28.0 million was for
capital items necessary to maintain existing operations, compared to capital
expenditures of $93.3 million in 1993, of which $24.0 million was for capital
items necessary to maintain existing operations. Capital expenditures for 1993
included $48.0 million for expansion of the Seminole Pipeline.
Financing activities for the first six months of 1994 include a reduction in
short-term borrowings of $20.0 million, the payment of $15.0 million of
dividends and the repurchase of 101,966 shares of MAPCO common stock for $6.2
million.
Capitalization
Capitalization, which includes long-term debt (excluding current maturities)
and stockholders' equity, decreased from $1,160 million at December 31, 1993 to
$1,135 million at June 30, 1994. The 1994 changes reflect the utilization of
cash flow from operations to reduce borrowings. MAPCO's long-term debt as a
percent of capitalization was 50% at June 30, 1994 and December 31, 1993.
Various loan agreements contain restrictive covenants which, among other
things, limit the payment of advances or dividends by two NGL subsidiaries to
MAPCO. At June 30, 1994, $190 million of net assets were restricted by such
provisions.
Liquidity and Capital Resources
MAPCO's primary sources of liquidity are its cash and cash equivalents,
internal cash generation, and external financing. At June 30, 1994 MAPCO had
$71.9 million of cash and cash equivalents.
MAPCO's external financing sources include its bank credit agreement, its
uncommitted bank credit lines, and its ability to issue public or private debt,
including commercial paper. MAPCO renegotiated its bank credit agreement in
April 1994. In addition to maintaining the commitment amount at $300 million,
certain restrictive covenants were amended. The total commitment under the
bank credit agreement reduces in quarterly amounts of $25 million beginning
June 30, 1998. This agreement serves as a back-up for commercial paper and
bank borrowings outstanding. As of June 30, 1994, no borrowings were
outstanding under the bank credit agreement.
In 1990, MAPCO filed a shelf registration statement with the Securities
18 of 24
<PAGE> 19
and Exchange Commission providing for the issuance of up to $400 million of
debt securities. As of June 30, 1994, MAPCO had outstanding $343 million of
Medium Term Notes under this registration. MAPCO has the authorization to
issue up to an additional $47 million of Medium Term Notes. The proceeds from
any debt issued under the shelf registration statement have been and will
continue to be used for general corporate purposes, including working capital,
capital expenditures, reduction of other debt and acquisitions.
MAPCO has reached a tentative settlement with the State of Alaska relative to
crude oil purchases under a 1978 agreement. Management anticipates the tentative
settlement will be financed with external financing. See Note 6 -
Contingencies for a detailed discussion of this matter.
Capital expenditures in 1994 are expected to be approximately $346 million, of
which approximately $277 million will be for acquisitions and expansion
projects. On June 9, 1994, MAPCO signed a non-binding letter of intent for the
acquisition of the assets of Emro Propane Company and the sale of 39
gasoline/convenience stores. On August 3, 1994, MAPCO signed additional
non-binding agreements to further define the acquisition and planned closing on
or about September 1, 1994. The purchase price of this acquisition has been
reflected in the expected capital expenditures for 1994. MAPCO intends to
finance this acquisition with excess cash and external financing. MAPCO's
existing debt and credit agreements contain covenants which limit the amount of
additional indebtedness the Company can incur. Management believes, however,
that MAPCO has sufficient capacity to fund its anticipated needs. MAPCO's
liquidity is expected to be sufficient to meet currently projected capital
expenditures, environmental compliance costs, debt service and dividends.
MAPCO anticipates that future excess internal cash generation will be used
primarily for debt reduction and capital expenditures.
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<PAGE> 20
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on Wednesday,
May 25, 1994, at the Company's offices in Tulsa. In connection with the
election of three nominees for Directors to Class III Directorships, 24,811,253
votes were cast as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------------------------
NAME FOR WITHHOLD AUTHORITY
---- ------------ ------------------
<S> <C> <C>
Herman J. Schmidt 24,616,755 194,498
------------ ---------
Malcolm T. Hopkins 24,624,903 186,350
------------ ---------
Donald Paul Hodel 24,592,992 218,261
------------ ---------
</TABLE>
Shareholders were also requested to consider and act upon a proposal to approve
the selection of Deloitte & Touche as independent auditors for the year ending
December 31, 1994. Of the 24,811,253 votes cast, the number of shares voting
FOR this proposal was 24,645,719. 51,136 votes were cast AGAINST the proposal
and 114,398 abstentions were tabulated.
24,811,253 votes were cast on proposal #3: to transact any other business which
may properly come before the meeting or any adjournment thereof. Of those
votes cast, 24,804,546 were voted in favor of the proposal and the remaining
6,707 were broker non- votes.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Exhibit 11 - Statement regarding computation of per share earnings.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges.
(b). Reports on Form 8-K
- Current Report on Form 8-K filed on June 13, 1994, relating to the
execution of a non-binding letter of intent to purchase the assets
of Emro Propane Company.
- Current Report on Form 8-K filed on June 15, 1994, relating to a
ruling received by a subsidiary of the Company in connection with
certain litigation with the State of Alaska.
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<PAGE> 21
SIGNATURES
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.
MAPCO Inc.
Date: August 4, 1994 /s/ FRANK S. DICKERSON, III
Frank S. Dickerson, III
Senior Vice President,
Chief Financial Officer
and Treasurer
Date: August 4, 1994 /s/ Donald R. Wellendorf
Donald R. Wellendorf
Vice President and Controller
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<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
11 - Statement regarding computation of per share earnings.
12 - Computation of Ratio of Earnings to Fixed Charges.
</TABLE>
<PAGE> 1
EXHIBIT 11
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Dollars and Shares in Millions
except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
PRIMARY EARNINGS PER COMMON SHARE 1994 1993 1994 1993
-------- -------- -------- --------
Computation for Consolidated Statements of Income
- -------------------------------------------------
<S> <C> <C>
Net income (loss) (a) $ (24.6) $ 31.3 $ 16.8 $ 65.2
======== ======== ======== ========
Weighted average common shares outstanding 30.0 30.0 30.0 30.0
Common stock equivalents (stock options) - - - -
-------- -------- -------- --------
Average common shares outstanding (a) 30.0 30.0 30.0 30.0
======== ======== ======== ========
Primary earnings (loss) per common share (a) (c) $ (.82) $ 1.04 $ .56 $ 2.17
======== ======== ======== ========
Additional Primary Computations
- -------------------------------
Net income (loss) (a) $ (24.6) $ 31.3 $ 16.8 $ 65.2
======== ======== ======== ========
Average common shares outstanding (a) 30.0 30.0 30.0 30.0
Dilutive effect of outstanding options (d) - .2 .2 .2
-------- -------- -------- --------
Average common shares outstanding, as adjusted 30.0 30.2 30.2 30.2
======== ======== ======== ========
Primary earnings (loss) per common share as
adjusted (b) $ (.82) $ 1.04 $ .56 $ 2.16
======== ======== ======== ========
FULLY DILUTED EARNINGS PER COMMON SHARE
Additional Fully Diluted Computation
- ------------------------------------
Net income (loss) (a) $ (24.6) $ 31.3 $ 16.8 $ 65.2
======== ======== ======== ========
Average common shares outstanding (a) 30.0 30.0 30.0 30.0
Dilutive effect of outstanding options (d) - .2 .2 .2
-------- -------- -------- --------
Assumed common shares outstanding 30.0 30.2 30.2 30.2
======== ======== ======== ========
Fully diluted earnings (loss) per common share (b) $ (.82) $ 1.04 $ .56 $ 2.16
======== ======== ======== ========
</TABLE>
22 of 24
<PAGE> 2
EXHIBIT 11
a) These figures agree with the related amounts in the Consolidated
Statements of Income.
b) This calculation is submitted in accordance with Securities Exchange Act
of 1934 Release No. 9083, although not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in dilution of less
than 3%.
c) In 1994 and 1993, stock options are not included in the earnings per
share computation included in MAPCO's Condensed Consolidated Statements
of Income because the dilutive effect is less than 3%.
d) The impact of outstanding options is not shown for the three months ended
June 30, 1994 because the effect of those options on the additional
primary earnings per share and additional fully diluted earnings per
share calculations would be antidilutive.
23 of 24
<PAGE> 1
EXHIBIT 12
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1994 1993 1992 1991 1990 1989
------------- ------ ------ ------ ------ ------
<S> <C> <C>
Earnings as defined:
Income before provision for income taxes ........ $ 26.3 $202.9 $144.6 $182.6 $185.7 $172.2
Fixed charges.................................... 27.7 55.3 60.1 63.9 67.3 45.7
Capitalized interest included in fixed charges... (2.8) (2.0) (1.2) (1.1) (.8)
Amortization of capitalized interest............. 1.9 3.5 3.5 3.3 3.6 3.1
Minority interest in earnings of subsidiary...... (.6) (2.2)
Distributed income of affiliate accounted for by
the equity method.............................. 4.5 2.1
------ ------ ------ ------ ------ ------
Total................................. $ 55.3 $256.7 $206.2 $248.6 $260.0 $222.3
====== ====== ====== ====== ====== ======
Fixed charges as defined:
Interest and debt expense (includes amortization
of debt expense and discount).................. $ 24.8 $ 46.9 $ 51.7 $ 55.5 $ 59.3 $ 37.5
Capitalized interest............................. 2.8 2.0 1.2 1.1 .8
Interest expense on guaranteed debt of affiliate
accounted for by the equity method............. .6 2.1
Portion of rentals representative of the interest
factor......................................... 2.9 5.6 6.4 7.2 6.3 5.3
------ ------ ------ ------ ------ ------
Total................................. $ 27.7 $ 55.3 $ 60.1 $ 63.9 $ 67.3 $ 45.7
====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges................. 2.0 4.6 3.4 3.9 3.9 4.9
====== ====== ====== ====== ====== ======
</TABLE>
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