<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 September 30, 1995
-----------------------------------------------
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 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 has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
On November 1, 1995, 29,497,835 shares of MAPCO Inc. Common Stock, $1 par
value, were outstanding.
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<PAGE> 2
MAPCO Inc.
Index
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. Financial Information:
Condensed Consolidated Statements of Income
for the three and nine months ended September 30,
1995 and 1994 3
Condensed Consolidated Balance Sheets,
September 30, 1995 and December 31, 1994 4
Condensed Consolidated Statements of Cash
Flows for the nine months ended September 30,
1995 and 1994 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:
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 Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales and Operating Revenues (1) $ 801.7 $ 805.3 $2,506.5 $2,235.5
-------- -------- -------- --------
Expenses:
Outside purchases and operating
expenses (1) 716.1 712.9 2,222.6 2,008.0
Selling, general and administrative 17.5 16.5 54.0 49.9
Depreciation, depletion and amortization 27.6 25.7 82.3 74.9
Interest and debt expense 14.9 13.3 44.0 37.8
Other (income) expense - net 0.2 (1.3) (0.2) .4
-------- -------- -------- --------
776.3 767.1 2,402.7 2,171.0
-------- -------- -------- --------
Income before Provision for Income Taxes 25.4 38.2 103.8 64.5
-------- -------- -------- --------
Provision for Income Taxes:
Current 5.1 11.0 21.0 6.8
Deferred 3.1 1.9 14.3 15.0
-------- -------- -------- --------
8.2 12.9 35.3 21.8
-------- -------- -------- --------
Income before Minority Interest 17.2 25.3 68.5 42.7
Minority Interest in Earnings of Subsidiary (.7) (.6) (1.8) (1.2)
-------- -------- -------- --------
Net Income $ 16.5 $ 24.7 $ 66.7 $ 41.5
======== ======== ======== ========
Earnings per Common Share $ .55 $ .83 $ 2.23 $ 1.39
Average Common Shares Outstanding 29.8 29.9 29.8 30.0
Cash Dividends per Common Share $ .25 $ .25 $ .75 $ .75
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(1) Includes consumer excise taxes of $42.2 million and $39.9 million for
the three months ended September 30, 1995 and 1994, respectively, and
$116.5 million and $121.6 million for the nine months ended September
30, 1995 and 1994, respectively.
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<PAGE> 4
MAPCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in Millions
<TABLE>
<CAPTION>
September 30, 1995 December 31,
(Unaudited) 1994
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 27.2 $ 30.6
Receivables 232.3 263.3
Inventories (Note 3) 124.7 111.0
Prepaid expenses 40.4 44.1
Other current assets 29.6 29.9
------------- ------------
Total current assets 454.2 478.9
------------- ------------
Property, Plant and Equipment, at cost 2,636.0 2,501.5
Less - accumulated depreciation
and depletion (1,080.3) (1,027.3)
------------- ------------
1,555.7 1,474.2
------------- ------------
Other Assets 221.2 213.0
------------- ------------
$ 2,231.1 $ 2,166.1
============= ============
Current Liabilities:
Current maturities of long-term debt $ 6.5 $ 32.2
Accounts payable 239.6 270.0
Accrued taxes 38.9 37.8
Accrued payroll and related expenses 19.0 14.0
Other current liabilities 67.3 72.4
------------- ------------
Total current liabilities 371.3 426.4
------------- ------------
Long-Term Debt (Note 4) 794.6 720.9
------------- ------------
Other Liabilities 79.7 77.8
------------- ------------
Deferred Income Taxes 308.1 293.8
------------- ------------
Minority Interest 26.5 24.6
------------- ------------
Contingencies (Note 6)
------------- ------------
Stockholders' Equity (Note 5):
Common stock 62.8 62.8
Capital in excess of par value 203.6 202.6
Retained earnings 1,401.0 1,356.4
------------- ------------
1,667.4 1,621.8
Treasury stock, at cost (952.9) (935.6)
Loan to ESOP (63.6) (63.6)
------------- ------------
650.9 622.6
------------- ------------
$ 2,231.1 $ 2,166.1
============= ============
</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>
Nine Months
Ended September 30,
------------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 66.7 $ 41.5
Reconciliation of net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 82.3 74.9
Provision for deferred income taxes 14.3 15.0
Other items not requiring cash (Note 2) 8.7 11.0
-------- --------
Funds provided by operations 172.0 142.4
Changes in operating assets and
liabilities (Note 2) (9.9) (93.1)
-------- --------
Net cash provided by operating activities 162.1 49.3
-------- --------
Cash Flows from Investing Activities:
Capital expenditures and acquisitions, net of
liabilities assumed (176.3) (278.5)
Proceeds from sales of property, plant and
equipment 4.3 16.8
Other .2 -
-------- --------
Net cash used in investing activities (171.8) (261.7)
-------- --------
Cash Flows from Financing Activities:
Purchase of common stock (17.3) (7.2)
Increase in borrowings 72.7 199.1
Dividends (22.3) (22.5)
Issuance of long-term debt - .1
Payments on long-term debt (27.1) (.2)
Exercise of stock options - .9
Other .3 (.4)
-------- --------
Net cash provided by financing activities 6.3 169.8
-------- --------
Decrease in Cash and Cash Equivalents (3.4) (42.6)
Cash and Cash Equivalents, January 1 30.6 69.8
-------- --------
Cash and Cash Equivalents, September 30 $ 27.2 $ 27.2
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE> 6
MAPCO INC.
Notes to Condensed Consolidated Financial Statements
Note 1 - Accounting Policies
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 September 30, 1995 (unaudited) and December 31, 1994, the results of
operations for the three and nine months ended September 30, 1995 and 1994
(both unaudited) and the cash flows for the nine months ended September 30,
1995 and 1994 (both unaudited). Reclassifications have been made to prior year
amounts to conform to current year presentations. All significant intercompany
accounts and transactions have been eliminated.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for the expected
disposal of long-lived assets. MAPCO is required to adopt SFAS No. 121 no
later than the first quarter of 1996. The new impairment rules are expected to
result in the recognition of an impairment loss for certain Coal segment assets
that will be charged against operating income. Based on current facts and
circumstances, the impairment loss is not expected to exceed $25 million before
income taxes.
Note 2 - Statements of Cash Flows
Other items not requiring (providing) cash reported in cash flows from
operating activities consist of (in millions):
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
------------------------------------
1995 1994
-------- --------
<S> <C> <C>
Net periodic pension income $ (1.3) $ -
Gain on sales of property, plant and equipment (1.2) (.1)
Minority interest in earnings of subsidiary 1.8 1.2
Refinery turnaround accrual 4.7 1.9
Recovery of advance royalties 3.0 2.9
Other non-cash income and expense items - net 1.7 5.1
-------- --------
$ 8.7 $ 11.0
======== ========
</TABLE>
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<PAGE> 7
Note 2 - Statements of Cash Flows (continued)
Changes in operating assets and liabilities consist of (in millions):
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
------------------------------------
1995 1994
-------- --------
<S> <C> <C>
Decrease (increase) in:
Receivables $ 31.1 $ (24.3)
Inventories (12.5) 3.2
Prepaid expenses 3.8 (28.8)
Other current assets .3 (.2)
Other assets .1 (5.6)
Increase (decrease) in:
Accounts payable (30.8) (15.0)
Accrued taxes 1.5 (9.8)
Accrued payroll and related expenses 5.0 (3.8)
Litigation and environmental .4 (16.0)
Other current liabilities (9.8) 10.7
Other liabilities 1.0 (3.5)
-------- --------
$ (9.9) $ (93.1)
======== ========
</TABLE>
Income taxes paid were $8.7 million and $36.8 million for the nine months ended
September 30, 1995 and 1994, respectively.
Interest paid, net of amounts capitalized, was $33.9 million and $26.0
million for the nine months ended September 30, 1995 and 1994, respectively.
Note 3 - Inventories
<TABLE>
<CAPTION>
Inventories consist of (in millions): September 30, December 31,
1995 1994
-------- --------
<S> <C> <C>
Raw materials - crude oil $ 25.1 $ 21.8
-------- --------
Finished products:
Refined petroleum products 32.7 26.1
Fertilizer and natural gas liquids 32.3 31.5
Retail merchandise 24.7 23.7
Coal 9.9 7.9
-------- --------
99.6 89.2
-------- --------
Inventories $ 124.7 $ 111.0
======== ========
</TABLE>
The cost to replace the Petroleum segment's crude oil, refined petroleum
products and retail merchandise inventories in excess of their last-in,
first-out (LIFO) carrying values was approximately $14.3 million at September
30, 1995 and $11.6 million at December 31, 1994.
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<PAGE> 8
Note 4 - Long-Term Debt
Long-term debt consists of (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------- --------
<S> <C> <C>
MAPCO Inc.
- - ----------
Commercial paper and bank money market lines $ 257.8 $ 185.1
8.43% ESOP Notes, payable in mortgage type
principal reductions annually through 2003 63.6 63.6
Medium Term Notes, various maturities through 2022 308.8 334.8
-------- --------
630.2 583.5
-------- --------
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 5.9 4.6
-------- --------
170.9 169.6
-------- --------
801.1 753.1
Less - current maturities (6.5) (32.2)
-------- --------
Long-term debt $ 794.6 $ 720.9
======== ========
</TABLE>
Interest rates on commercial paper and bank money market lines ranged from
5.83% to 6.25% during the first nine months of 1995 and from 3.49% to 5.11%
during the first nine months of 1994. Commercial paper and bank money market
lines outstanding at September 30, 1995 and December 31, 1994 were classified
as long-term debt. MAPCO has the ability and intent, if necessary, under a
bank credit agreement to refinance commercial paper and bank money market lines
with long- term debt having maturities in excess of one year.
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 a back-up for MAPCO's
outstanding commercial paper and bank money market lines. As of September 30,
1995, no borrowings were outstanding under the bank credit agreement.
As of September 30, 1995, MAPCO had $308.8 million of Medium Term Notes
outstanding. These notes mature at various times through 2022 and bear
interest at rates ranging from 7.60% to 8.87%.
Various loan agreements contain restrictive covenants which, among other
things, limit the payment of advances or dividends by two of Natural Gas
Liquids' subsidiaries to MAPCO Inc. At September 30, 1995, $171.0 million of
net assets were restricted by such provisions.
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<PAGE> 9
Note 5 - Employee Benefit Plans
With respect to its Employee Stock Ownership Plan ("ESOP"), MAPCO recognized
compensation expense of $.7 million and $2.1 million for the three and nine
months ended September 30, 1995, respectively, and $.6 million and $1.8 million
for the three and nine months ended September 30, 1994, respectively. Interest
expense on ESOP related debt was $1.3 million and $3.9 million for the three
and nine months ended September 30, 1995, respectively, and $1.4 million and
$4.2 million for the three and nine months ended September 30, 1994,
respectively. Dividends on the allocated and unallocated MAPCO common stock
held by the ESOP were $.6 million and $1.8 million for the three and nine
months ended September 30, 1995 and 1994, respectively, and will be used for
ESOP debt service.
Note 6 - Contingencies
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, Seminole 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.
Generally, the types of remaining claims consist primarily of personal injury
and property damage claims, coupled with theories of nuisance and diminished
property value.
Although plaintiffs seek actual and punitive damages, the Company believes that
complete resolution of the remaining Texas explosion 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 financial
position.
Seminole Loop/Aquila-LaGrange Line Litigation
In May 1993, Seminole completed its Seminole loop project and in January 1994,
Seminole completed its Aquila-LaGrange line project. Seminole is the defendant
in over 70 lawsuits claiming additional compensation for and/or damages to
tracts of land traversed by these projects in 15 counties in the state of
Texas. Many of the lawsuits claim punitive damages for alleged fraud, illegal
entry and other wrongful conduct. Claims in this litigation are not covered by
the Company's insurance.
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<PAGE> 10
Note 6 - Contingencies (continued)
The Company believes that complete resolution of the Seminole
loop/Aquila-LaGrange line litigation will not have a material adverse effect on
the Company's business, results of operations or financial position.
General Litigation
The Company and its subsidiaries are involved in various other lawsuits, claims
and regulatory proceedings incidental to their businesses. In the opinion of
management, the outcome of such matters will not have a material adverse effect
on the Company's business, results of operations or financial position.
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER 1995 VS. THIRD QUARTER 1994
Sales and operating revenues were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended, September 30, 1995 1994 Variance
- - --------------------------------- ------ ------ --------
<S> <C> <C> <C>
Natural Gas Liquids $104.9 $100.3 $ 4.6
Petroleum 595.1 614.2 (19.1)
Coal 114.8 106.2 8.6
Eliminations (13.1) (15.4) 2.3
------ ------ ------
$801.7 $805.3 $ (3.6)
====== ====== ======
</TABLE>
Sales and operating revenues decreased $3.6 million from the 1994 third
quarter.
The $4.6 million increase in Natural Gas Liquids' sales and operating revenues
was due to higher retail propane sales, partially offset by lower
transportation revenues. Retail propane sales increased $10.5 million
primarily as a result of the Emro Propane Company ("Emro") acquisition in
September 1994. Transportation revenues were negatively impacted in the
current quarter by depressed Gulf Coast ethane prices which resulted in
producers retaining ethane in the natural gas stream for sale in the Rocky
Mountain area rather than extracting the liquids for shipment to and sale on
the Gulf Coast.
Petroleum's sales and operating revenues decreased $19.1 million primarily due
to lower trading sales, partially offset by increased North Pole Refinery
sales. Petroleum trading activities, other than for refinery supply and risk
management purposes, were discontinued during the current quarter. Third
quarter sales at the North Pole Refinery increased one million barrels over the
1994 quarter due to increased cargo shipments of diesel fuel and naphtha to
West Coast and export customers.
The Coal segment's sales and operating revenues increased $8.6 million over
last year. Higher brokerage volumes, increased sales at the Martiki and
Pontiki mines and price increases on long-term contracts were partially offset
by lower sales at the Mettiki, Dotiki, and Retiki mines. The increase in
brokerage sales was primarily attributable to supplying a major customer's
contract tons from brokerage sources rather than from the Retiki mine, which
was closed in January 1995. Sales increased at the Martiki and Pontiki mines
as a result of higher productivity from improved conditions, the installation
of new equipment and improved employee moral at Pontiki. Mettiki's sales
decreased from 1994 primarily because of timing differences on contract
shipments. Sales from the Dotiki mine decreased principally because of the
expiration of a long-term contract with a major customer at the end of 1994. A
new long-term contract for the sale of raw coal from
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<PAGE> 12
the Dotiki mine went into effect on July 1, 1995, partially offsetting the
negative impact of the expired contract. Sales were lower at the Retiki mine
because that facility was closed in January 1995.
Outside purchases and operating expenses increased slightly in the third
quarter of 1995 as compared to 1994. Details by segment are as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------------
1995 1994 Variance
-------------------- -------------------- --------------------
Outside Operating Outside Operating Outside Operating
Purchases Expenses Purchases Expenses Purchases Expenses
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas Liquids $ 20.9 $ 45.2 $ 13.7 $ 46.0 $ (7.2) $ .8
Petroleum 511.2 46.9 527.2 41.2 16.0 (5.7)
Coal 18.0 73.9 10.2 74.6 (7.8) .7
------- ------- ------- ------- ------- -------
$ 550.1 $ 166.0 $ 551.1 $ 161.8 $ 1.0 $ (4.2)
======= ======= ======= ======= ======= =======
</TABLE>
Natural Gas Liquids' outside purchases increased $7.2 million primarily as a
result of additional propane and appliances purchased to supply the plants
acquired from Emro in September 1994.
Operating expenses in the Natural Gas Liquids' segment decreased $0.8 million
because lower transportation and gas plant operating expenses more than offset
the impact of higher retail propane plant expenses. Transportation expenses
decreased due to lower power costs which resulted from lower natural gas prices
and lower volumes of natural gas liquid shipments. Gas plant expenses were
lower because of the shutdown of a plant in the West Panhandle field in
December 1994. Retail propane plant expenses increased over the 1994 quarter
because of the addition of Emro plants acquired in September 1994.
Petroleum's outside purchases decreased $16.0 million. Petroleum trading
activities, other than for refinery supply and risk management purposes, were
discontinued early in the 1995 third quarter which resulted in lower outside
purchases. Retail Marketing's purchases in the 1995 third quarter decreased
primarily due to an average fuel cost reduction of 4.7 cents per gallon
compared to the 1994 quarter. Memphis' and North Pole's outside purchases
increased due to higher crude prices. Another factor which caused Memphis'
purchases to increase was the greater volumes of refined products acquired to
fulfill sales contracts during the turnaround in July and August of the current
year.
Petroleum's operating expenses increased $5.7 million primarily due to: (a)
higher crude throughput at the North Pole Refinery,(b) expenses associated with
a three day, mini-turnaround at the North Pole Refinery,(c) increased
environmental contingencies and (d) increased promotional expenses at Retail
Marketing.
Coal's outside purchases increased $7.8 million from the 1994 quarter primarily
due to increased coal brokerage activities. Most of the increased
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<PAGE> 13
brokerage activity was due to tons supplied to a major customer that were
previously shipped from the Retiki mine, which was closed in January 1995.
Coal's operating expenses during the quarter approximated 1994 levels.
The $1.9 million increase in depreciation, depletion and amortization expense
is primarily due to additional depreciation and amortization charges resulting
from the Emro acquisition.
Interest and debt expense increased $1.6 million because of higher debt levels
coupled with an increase in short-term interest rates.
The effective income tax rate for the third quarter of 1995 was 32.3% compared
to 33.8% in the 1994 quarter. The decrease in the effective tax rate was
primarily attributable to higher statutory depletion in the current quarter as
compared to 1994. The difference between the statutory Federal income tax rate
of 35% and the effective income tax rate was principally due to statutory
depletion, partially offset by state taxes.
Operating profit for the three months ended September 30, 1995 and 1994 is
detailed below (in millions):
<TABLE>
<CAPTION>
1995 1994 Variance
------ ------ --------
<S> <C> <C> <C>
Natural Gas Liquids $ 19.0 $ 22.4 $ (3.4)
Petroleum 16.0 22.1 (6.1)
Coal 11.0 10.5 0.5
------ ------ ------
$ 46.0 $ 55.0 $ (9.0)
====== ====== ======
</TABLE>
Operating profit decreased $9.0 million from the 1994 quarter.
Natural Gas Liquids' operating profit decreased $3.4 million primarily due to
lower transportation profits. Transportation revenues were $4.7 million lower
than the 1994 quarter primarily because of reduced shipments of demethanized
mix to the Gulf Coast. Transportation expenses were $1.0 million lower than
the 1994 quarter primarily due to lower power costs, which partially offset the
negative impact of lower revenues.
Petroleum's operating profit decreased $6.1 million primarily due to lower
margins at the Memphis Refinery. A major turnaround was conducted at the
Memphis Refinery during July and August of the current year. The higher-priced
refined products purchased during that period to meet sales commitments,
coupled with higher crude costs, were the principal reasons for the 43%
decrease in the current quarter's margins as compared to 1994. Margins at the
North Pole Refinery were 14% lower than the 1994 quarter but were offset by the
positive impact of increased sales volumes.
Coal's operating profit increased $0.5 million principally because higher
profits at the Pontiki and Martiki mines were mostly offset by lower profits at
the Dotiki mine. Operating profit increased at the Pontiki and Martiki mines
primarily because combined production tons increased 23% over the 1994 quarter.
The installation of new equipment at Martiki and Pontiki and improved employee
moral at Pontiki were the primary contributors to the
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<PAGE> 14
productivity improvements. Dotiki's operating profit decreased because of
lower sales prices which were partially offset by lower costs. Sales from the
Dotiki mine decreased principally because of the expiration of a long-term
contract with a major customer at the end of 1994. A new long-term contract
for the sale of raw coal from the Dotiki mine went into effect on July 1, 1995,
partially offsetting the negative impact of the expired contract. Operating
expenses at the Dotiki mine were lower than the 1994 quarter primarily because
tons sold under the new raw coal contract were not processed through the
preparation plant.
MAPCO's consolidated third quarter 1995 net income was $16.5 million or $0.55
per share compared to $24.7 million or $0.83 per share in 1994. Average common
shares outstanding were 29.8 million in the 1995 quarter and 29.9 million in
the 1994 quarter.
YEAR-TO-DATE 1995 VS. YEAR-TO-DATE 1994
Sales and operating revenues were as follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended, September 30, 1995 1994 Variance
- - -------------------------------- -------- -------- --------
<S> <C> <C> <C>
Natural Gas Liquids $ 406.9 $ 345.6 $ 61.3
Petroleum 1,816.7 1,626.7 190.0
Coal 329.9 313.2 16.7
Eliminations (47.0) (50.0) 3.0
-------- -------- ------
$2,506.5 $2,235.5 $271.0
======== ======== ======
</TABLE>
Sales and operating revenues increased $271.0 million over 1994.
Natural Gas Liquids' sales and operating revenues increased $61.3 million
primarily due to higher retail propane sales. Retail propane sales improved
over last year because of the Emro acquisition in September 1994.
Transportation revenues increased slightly over 1994. New plant connections,
plant expansions, a new contract with a major customer and higher tariffs were
offset to a large extent by the impact of lower ethane shipments to the Gulf
Coast.
Petroleum's sales and operating revenues increased $190.0 million primarily due
to a change in trading strategies implemented in the second quarter of 1994.
However, petroleum trading activities, other than for refinery supply and risk
management purposes, were discontinued during the 1995 third quarter.
The Coal segment's sales and operating revenues increased $16.7 million over
last year. Higher brokerage volumes and increased sales at the Martiki and
Pontiki mines were partially offset by lower sales at the Dotiki, Pattiki and
Retiki mines. Brokerage sales increased primarily due to supplying a major
customer's contract tons from brokerage sources rather than from the Retiki
mine. Martiki and Pontiki sales increased because of significantly improved
productivity at both of those mines. Increased shipments of lower-priced raw
coal in the current year compared to reduced shipments of higher-price clean
14 of 26
<PAGE> 15
coal was the primary reason for lower sales at the Dotiki mine. Reduced
shipments of contract tons was the principal reason for the sales decrease at
the Pattiki mine. Sales were lower at the Retiki mine because that mine was
closed in January 1995.
Outside purchases and operating expenses increased $214.6 million in the first
nine months of 1995 as compared to 1994. Details by segment are as follows (in
millions):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------
1995 1994 Variance
-------------------- -------------------- --------------------
Outside Operating Outside Operating Outside Operating
Purchases Expenses Purchases Expenses Purchases Expenses
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas Liquids $ 106.7 $ 137.9 $ 74.1 $ 137.2 $ (32.6) $ (.7)
Petroleum 1,583.0 131.0 1,351.4 193.8 (231.6) 62.8
Coal 56.6 207.4 30.3 221.2 (26.3) 13.8
-------- ------- -------- ------- ------- -------
$1,746.3 $ 476.3 $1,455.8 $ 552.2 $(290.5) $ 75.9
======== ======= ======== ======= ======= =======
</TABLE>
Natural Gas Liquids' outside purchases increased $32.6 million primarily as a
result of additional propane and appliance purchases to supply the plants
acquired from Emro in September 1994. Operating expenses in the Natural Gas
Liquids' segment increased only $0.7 million as higher retail propane plant
expenses due to the Emro acquisition were mostly offset by lower transportation
and gas plant operating costs. Lower pipeline maintenance and power costs and
prior year charges associated with the buy-out of a gas supply contract were
the principal reasons that transportation expenses compared favorably to 1994.
The shut-down of a gas plant in the West Panhandle field at the end of 1994 was
the reason that gas plant expenses were lower in the current year.
Petroleum's outside purchases increased $231.6 million over the same period in
1994 reflecting higher crude costs, purchases of refined products during the
turnaround at the Memphis Refinery in 1995 and new trading strategies followed
through the first half of 1995. Operating expenses decreased $62.8 million
primarily because last year's costs included a $68.7 million charge relative to
the State Royalty Oil settlement.
Coal's outside purchases exceeded last year by $26.3 million principally due
to increased coal brokerage activities. Most of the increased brokerage
activity was attributable to tons supplied to a major customer that were
previously shipped from the Retiki mine, which was closed in January 1995.
Operating expenses decreased $13.8 million principally due to the closing of
the Retiki mine.
The $7.4 million increase in depreciation, depletion and amortization expense
was primarily due to additional depreciation and amortization charges
15 of 26
<PAGE> 16
resulting from the Emro acquisition.
Interest and debt expense increased $6.2 million because of higher debt levels
and higher short-term interest rates.
The effective income tax rate for the first nine months of 1995 was 34.0%
compared to 33.8% in 1994. The difference between the statutory Federal income
tax rate of 35% and the effective income tax rate was primarily due to
statutory depletion, partially offset by state taxes.
Operating profit for the nine months ended September 30, 1995 and 1994 is
detailed below (in millions):
<TABLE>
<CAPTION>
1995 1994 Variance
------ ------ --------
<S> <C> <C> <C>
Natural Gas Liquids $ 98.8 $ 81.4 $ 17.4
Petroleum 35.4 8.9 26.5
Coal 30.7 29.4 1.3
------ ------ ------
$164.9 $119.7 $ 45.2
====== ====== ======
</TABLE>
Natural Gas Liquids' operating profit increased $17.4 million because of higher
transportation, retail propane plant and gas plant profits. Transportation
profits increased $7.0 million (11%) due to slightly higher revenues coupled
with lower pipeline maintenance and power expense. Retail propane operating
profit increased $6.6 million (52%) primarily as a result of the Emro
acquisition. Gas plant operating profits increased $3.8 million (54%) as a
result of higher NGL prices, increased condensate production and lower plant
operating expenses.
Petroleum's operating profit increased $26.5 million over the first nine months
of 1994. Excluding the $68.7 million impact of the State Royalty Oil
settlement, Petroleum's operating profit was $42.2 million lower principally
because of reduced margins at both the Memphis and North Pole Refineries.
Higher crude costs, particularly in the first quarter of 1995, negatively
impacted margins and operating profit at both refineries. In addition, the
requirement to purchase refined product to meet sales commitments during the
turnaround at the Memphis Refinery had a significant adverse effect on current
year margins.
Coal's operating profit increased $1.3 million over 1994. Higher profits at
the Pontiki and Martiki mines were partially offset by lower profits at the
Dotiki, Pattiki and Retiki mines. Improved employee moral at Pontiki, the
installation of new equipment at Pontiki and Martiki and lower stripping ratios
at Martiki were the reasons for the operating profit increase at those mines.
Dotiki's and Pattiki's operating profit compared unfavorably to 1994
principally due to reduced shipments of contract tons. Retiki's profits were
16 of 26
<PAGE> 17
lower because the mine, which was operational during 1994, was closed in
January 1995.
MAPCO's consolidated net income for the first nine months of 1995 was $66.7
million or $2.23 per share compared to $41.5 million or $1.39 per share in
1994. Excluding the impact of the State Royalty Oil settlement, net income for
the first nine months of 1994 was $87.0 million or $2.91 per share. Average
common shares outstanding were 29.8 million in 1995 and 30.0 million in 1994.
FINANCIAL CONDITION
Cash Usage
Cash usage was as follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended, September 30, 1995 1994
- - -------------------------------- -------- --------
<S> <C> <C>
Funds provided by operations $ 172.0 $ 142.4
Changes in operating assets and liabilities (9.9) (93.1)
-------- --------
Net cash provided by operating activities 162.1 49.3
Net cash used in investing activities (171.8) (261.7)
Net cash provided by financing activities 6.3 169.8
-------- --------
Cash usage $ (3.4) $ (42.6)
======== ========
</TABLE>
Funds provided by operations through the first nine months of 1995 as compared
to 1994 increased primarily due to the negative impact of the State Royalty Oil
settlement on 1994 operating profit. The negative impact of the change in
operating assets and liabilities of $93.1 million in 1994 was primarily due to:
(a) a decrease in litigation reserves and taxes payable due to the payment of
the State Royalty Oil settlement, (b) an increase in receivables resulting from
higher Petroleum segment sales and (c) a decrease in payables resulting from
less favorable terms for foreign crude purchases. These items were partially
offset by the impact on payables of higher Petroleum segment purchases and
higher accrued interest.
Capital expenditures through September of 1995 were $176.3 million, of which
$52.9 million was for capital items necessary to maintain existing operations.
Capital expenditures for the same period of 1994 were $278.5 million, of which
$43.4 million was for capital items necessary to maintain existing operations.
Capital expenditures in 1995 included $38.7 million for the expansion of the
Rocky Mountain Pipeline System, $26.8 million for capital improvements at the
Memphis Refinery, $11.6 million related to the expansion of the Martiki mine
and $11.0 million for the acquisition of 27 retail gasoline/convenience stores
in the Nashville, Tennessee market area.
17 of 26
<PAGE> 18
Capital expenditures in 1994 included $191 million for the acquisition of the
assets of Emro.
Financing activities for the first nine months of 1995 included short-term
borrowings of $72.7 million which were offset by the repayment of $26.0 million
of fixed-rate debt, the payment of $22.3 million of dividends and the
repurchase of 317,300 shares of MAPCO common stock for $17.3 million.
Financing activities for the first nine months of 1994 included borrowings of
$199.1 million to fund the acquisition of the assets of Emro and payment of the
State Royalty Oil settlement, the payment of $22.5 million of dividends and the
repurchase of 119,466 shares of MAPCO common stock for $7.2 million.
Capitalization
Capitalization, which includes long-term debt (excluding current maturities)
and stockholders' equity, increased from $1,343.5 million at December 31, 1994
to $1,445.5 million at September 30, 1995. The increase in 1995 represents the
favorable impact of 1995 operating results on stockholders' equity and the
increase in short-term debt, partially offset by the payment of dividends and
the repurchase of MAPCO common stock. MAPCO's long-term debt as a percentage
of capitalization was 55% at September 30, 1995 compared to 54% at December 31,
1994.
Various loan agreements contain restrictive covenants which, among other
things, limit the payment of advances or dividends by two of Natural Gas
Liquids' subsidiaries to MAPCO Inc. At September 30, 1995, $171.0 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 September 30, 1995, MAPCO
had $27.2 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's bank credit agreement is for a committed
line of credit of $300 million. 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 for borrowings
against bank money market lines. As of September 30, 1995, no borrowings were
outstanding under the bank credit agreement.
18 of 26
<PAGE> 19
In 1990, MAPCO filed a shelf registration statement with the Securities and
Exchange Commission providing for the issuance of up to $400 million of debt
securities. As of September 30, 1995, MAPCO had outstanding $308.8 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's existing debt and credit agreements contain covenants which limit the
amount of additional indebtedness the Company may incur. Management believes
that MAPCO has sufficient capacity to fund its anticipated needs.
Capital expenditures in 1995 are expected to be approximately $277 million, of
which $196 million will be for acquisitions and expansion projects. MAPCO
expects to utilize cash from operations and funding sources as needed to meet
anticipated 1995 and 1996 capital expenditures. Beginning in 1997, MAPCO's
liquidity is expected to increase since cash from operations is anticipated to
exceed currently projected capital expenditures, environmental projects, debt
service and dividends. MAPCO anticipates that future excess internal cash
generation will be used primarily for debt reduction and capital expenditures.
OTHER
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for the expected
disposal of long-lived assets. MAPCO is required to adopt SFAS No. 121 no
later than the first quarter of 1996. The new impairment rules are expected to
result in the recognition of an impairment loss for certain Coal segment assets
that will be charged against operating income. Based on current facts and
circumstances, the impairment loss is not expected to exceed $25 million before
income taxes.
19 of 26
<PAGE> 20
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
<TABLE>
<S> <C>
Exhibit 11 - Statement Regarding Computation of per Share
Earnings.
Exhibit 12 - Computation of Ratio of Earnings to Fixed
Charges.
Exhibit 27 - Financial Data Schedule.
</TABLE>
(b). Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1995.
20 of 26
<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.
<TABLE>
<S> <C>
MAPCO Inc.
Date: November 6, 1995 /s/ PHILIP W. BAXTER
----------------- ----------------------------
Philip W. Baxter
Senior Vice President and
Chief Financial Officer
Date: November 6, 1995 /s/ GORDON E. SCHAECHTERLE
----------------- ----------------------------
Gordon E. Schaechterle
Vice President, Controller
and Tax
</TABLE>
21 of 26
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Exhibit 11 Statement Regarding Computation of per
Share Earnings. 23-24
Exhibit 12 Computation of Ratio of Earnings to Fixed
Charges. 25
Exhibit 27 Financial Data Schedule. 26
</TABLE>
22 of 26
<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 Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Computation for Consolidated Statements of Income
- - -------------------------------------------------
Net income (a) $ 16.5 $ 24.7 $ 66.7 $ 41.5
====== ====== ====== ======
Weighted average common shares outstanding 29.8 29.9 29.8 30.0
Common stock equivalents (stock options) - - - -
------ ------ ------ ------
Weighted average common shares outstanding (a) 29.8 29.9 29.8 30.0
====== ====== ====== ======
Primary earnings per common share (a) (c) $ .55 $ .83 $ 2.23 $ 1.39
====== ====== ====== ======
Additional Primary Computation
- - ------------------------------
Net income (a) $ 16.5 $ 24.7 $ 66.7 $ 41.5
====== ====== ====== ======
Weighted average common shares outstanding (a) 29.8 29.9 29.8 30.0
Dilutive effect of outstanding options .1 .2 .1 .1
------ ------ ------ ------
Weighted average common shares outstanding,
as adjusted 29.9 30.1 29.9 30.1
====== ====== ====== ======
Primary earnings per common share,
as adjusted (b) $ .55 $ .82 $ 2.23 $ 1.38
====== ====== ====== ======
FULLY DILUTED EARNINGS PER COMMON SHARE
Additional Fully Diluted Computation
- - ------------------------------------
Net income (a) $ 16.5 $ 24.7 $ 66.7 $ 41.5
====== ====== ====== ======
Weighted average common shares outstanding (a) 29.8 29.9 29.8 30.0
Dilutive effect of outstanding options .1 .2 .2 .2
------ ------ ------ ------
Weighted average common shares outstanding,
as adjusted 29.9 30.1 30.0 30.2
====== ====== ====== ======
Fully diluted earnings per common share,
as adjusted (b) $ .55 $ .82 $ 2.23 $ 1.38
====== ====== ====== ======
</TABLE>
23 of 26
<PAGE> 2
EXHIBIT 11
(a) These figures agree with the related amounts in the Condensed 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 1995 and 1994, 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%.
24 of 26
<PAGE> 1
EXHIBIT 12
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1995 1994 1993 1992 1991 1990
------------------ ------ ------ ------ ------ ------
<S> <C> <C>
Earnings as defined:
Income before provision for income taxes ........ $ 103.8 $116.6 $202.9 $144.6 $182.6 $185.7
Fixed charges.................................... 49.1 60.1 55.3 60.1 63.9 67.3
Capitalized interest included in fixed charges... (.5) (2.8) (2.0) (1.2) (1.1)
Amortization of capitalized interest............. 2.6 3.4 3.5 3.5 3.3 3.6
Distributed income of affiliate accounted for by
the equity method.............................. 4.5
------- ------ ------ ------ ------ ------
Total................................. $ 155.0 $180.1 $258.9 $206.2 $248.6 $260.0
======= ====== ====== ====== ====== ======
Fixed charges as defined:
Interest and debt expense (includes amortization
of debt expense and discount).................. $ 44.3 $ 53.7 $ 46.9 $ 51.7 $ 55.5 $ 59.3
Capitalized interest............................. .5 2.8 2.0 1.2 1.1
Interest expense on guaranteed debt of affiliate
accounted for by the equity method............. .6
Portion of rentals representative of the interest
factor......................................... 4.3 6.4 5.6 6.4 7.2 6.3
------- ------ ------ ------ ------ ------
Total................................. $ 49.1 $ 60.1 $ 55.3 $ 60.1 $ 63.9 $ 67.3
======= ====== ====== ====== ====== ======
Ratio of earnings to fixed charges................. 3.2 3.0 4.7 3.4 3.9 3.9
======= ====== ====== ====== ====== ======
</TABLE>
25 of 26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 27,200
<SECURITIES> 0
<RECEIVABLES> 233,900
<ALLOWANCES> 1,600
<INVENTORY> 124,700
<CURRENT-ASSETS> 454,200
<PP&E> 2,636,000
<DEPRECIATION> 1,080,300
<TOTAL-ASSETS> 2,231,100
<CURRENT-LIABILITIES> 371,300
<BONDS> 794,600
<COMMON> 62,800
0
0
<OTHER-SE> 588,100
<TOTAL-LIABILITY-AND-EQUITY> 2,231,100
<SALES> 2,506,500
<TOTAL-REVENUES> 2,506,500
<CGS> 0
<TOTAL-COSTS> 2,222,600
<OTHER-EXPENSES> 136,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,000
<INCOME-PRETAX> 103,800
<INCOME-TAX> 35,300
<INCOME-CONTINUING> 68,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,700
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.23
</TABLE>
