<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, 1996
----------------------------------------
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 3, 1996, 56,207,809 shares of MAPCO Inc. Common Stock, $1 par
value, were outstanding.
1
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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, 1996 and 1995 (Unaudited) 3
Condensed Consolidated Balance Sheets,
September 30, 1996 (Unaudited) and
December 31, 1995 4
Condensed Consolidated Statements of Cash
Flows for the nine months ended September 30,
1996 and 1995 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements 6 - 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 23
PART II. Other Information:
Item 1. Legal Proceedings 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 26
</TABLE>
2
<PAGE> 3
FINANCIAL INFORMATION
MAPCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Dollars and Shares in Millions
except per share amounts
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales and Operating Revenues (1) $ 797.5 $ 686.9 $2,321.7 $2,176.6
-------- -------- -------- --------
Expenses:
Outside purchases and operating
expenses (1) 710.9 624.0 2,051.1 1,957.9
Selling, general and administrative 16.5 14.3 47.3 44.9
Depreciation and amortization 18.1 19.1 57.9 56.9
Interest and debt expense 14.9 14.8 44.7 43.7
Gain on sale of net assets held for
disposal (Note 3) - - (20.8) -
Other (income) expense - net (2.6) .2 (3.6) (.2)
-------- -------- -------- --------
757.8 672.4 2,176.6 2,103.2
-------- -------- -------- --------
Income from Continuing Operations before
Provision for Income Taxes 39.7 14.5 145.1 73.4
-------- -------- -------- --------
Provision for Income Taxes:
Current 11.4 2.3 46.1 13.5
Deferred 4.7 3.3 8.8 15.1
-------- -------- -------- --------
16.1 5.6 54.9 28.6
-------- -------- -------- --------
Income from Continuing Operations before
Minority Interest 23.6 8.9 90.2 44.8
Minority Interest in Earnings of Subsidiary (.9) (.7) (2.3) (1.8)
-------- -------- -------- --------
Income from Continuing Operations 22.7 8.2 87.9 43.0
-------- -------- -------- --------
Discontinued Operations (Note 2):
Income from discontinued Coal operations,
net of income taxes - 8.3 14.5 23.7
Loss on disposal of the Coal segment,
including operating loss of $0.2
million during phase-out period, net of
income tax benefit (1.7) - (47.2) -
-------- -------- -------- --------
Income (Loss) from Discontinued Operations (1.7) 8.3 (32.7) 23.7
-------- -------- -------- --------
Net Income $ 21.0 $ 16.5 $ 55.2 $ 66.7
======== ======== ======== ========
Earnings per Common Share:
Income from continuing operations $ .40 $ .14 $ 1.52 $ .72
Net income $ .37 $ .28 $ .96 $ 1.12
Average Common Shares Outstanding (Note 9) 57.3 59.5 57.7 59.7
Cash Dividends per Common Share $ .13 $ .13 $ .38 $ .38
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(1) Includes consumer excise taxes of $40.1 million and $42.2 million for
the three months ended September 30, 1996 and 1995, respectively, and
$117.6 million and $116.5 million for the nine months ended September
30, 1996 and 1995, respectively.
3
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MAPCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in Millions
<TABLE>
<CAPTION>
September 30,
1996 December 31,
(Unaudited) 1995
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 58.9 $ 33.3
Receivables 271.0 222.1
Inventories (Note 5) 148.2 114.0
Prepaid expenses 21.3 18.4
Other current assets 29.8 27.0
Net assets of discontinued operations (Note 2) - 307.5
Net assets held for disposal (Note 3) - 23.4
-------- --------
Total current assets 529.2 745.7
-------- --------
Property, Plant and Equipment, at cost 2,127.0 2,062.1
Less - accumulated depreciation and amortization (785.9) (750.1)
-------- --------
1,341.1 1,312.0
-------- --------
Other Assets 244.1 225.0
-------- --------
$2,114.4 $2,282.7
======== ========
Current Liabilities:
Current maturities of long-term debt $ 39.6 $ 26.9
Accounts payable 299.9 263.9
Accrued taxes 53.8 47.9
Accrued payroll and related expenses 23.8 15.4
Other current liabilities 66.6 52.5
-------- --------
Total current liabilities 483.7 406.6
-------- --------
Long-Term Debt, excluding current
maturities (Note 6) 618.1 801.0
-------- --------
Other Liabilities 116.3 116.5
-------- --------
Deferred Income Taxes 251.6 289.3
-------- --------
Minority Interest 29.2 27.0
-------- --------
Contingencies (Note 8)
Stockholders' Equity (Notes 7 & 9):
Common stock 62.9 62.9
Capital in excess of par value 111.2 203.0
Retained earnings 685.1 1,401.8
-------- --------
859.2 1,667.7
Treasury stock, at cost (185.1) (966.7)
Loan to ESOP (58.6) (58.7)
-------- --------
615.5 642.3
-------- --------
$2,114.4 $2,282.7
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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MAPCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 55.2 $ 66.7
Reconciliation of net income to net cash
provided by operating activities:
Discontinued operations 32.7 (23.7)
Depreciation and amortization 57.9 56.9
Provision for deferred income taxes 8.8 15.1
Gain on sale of net assets held for disposal (20.8) -
Other items not requiring cash (Note 4) 10.2 8.5
Changes in operating assets and
liabilities (Note 4) (42.8) (9.6)
-------- --------
Net cash provided by continuing operations 101.2 113.9
Net cash provided by discontinued operations
(Note 4) 21.9 48.2
-------- --------
Net cash provided by operating activities 123.1 162.1
-------- --------
Cash Flows from Investing Activities:
Capital expenditures and acquisitions, net of
liabilities assumed:
Continuing operations (93.7) (148.7)
Discontinued operations (22.1) (27.6)
Proceeds from sale of net assets held for disposal 43.0 -
Proceeds from sale of net assets of discontinued
operations (Note 2) 236.4 -
Proceeds from sales of property, plant and equipment 11.0 4.3
Investment in unconsolidated joint ventures (18.6) -
Other (0.1) .2
-------- --------
Net cash provided by (used in) investing
activities 155.9 (171.8)
-------- --------
Cash Flows from Financing Activities:
Purchase of common stock (62.0) (17.3)
Increase (decrease) in borrowings (173.2) 72.7
Dividends (22.4) (22.3)
Issuance of long-term debt 3.7 -
Payments on long-term debt (0.7) (27.1)
Other 1.2 0.3
-------- --------
Net cash provided by (used in) financing
activities (253.4) 6.3
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 25.6 (3.4)
Cash and Cash Equivalents, January 1 33.3 30.6
-------- --------
Cash and Cash Equivalents, September 30 $ 58.9 $ 27.2
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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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 September 30, 1996 (unaudited) and December 31, 1995, the
results of operations for the three and nine months ended September 30, 1996
and 1995 (both unaudited) and the cash flows for the nine months ended
September 30, 1996 and 1995 (both unaudited). Prior year amounts have been
reclassified to present the Coal business as discontinued and to conform to
current presentations. All material intercompany accounts and transactions
have been eliminated.
Note 2 -Discontinued Operations
In June 1996, the Company concluded it would sell substantially all of its Coal
business. In July 1996, the Company signed an agreement with the Beacon Group
Energy Investment Fund L.P. ("Beacon") to sell substantially all of the net
assets of the Coal business. The transaction was completed on September 10,
1996, with an effective date of July 31, 1996. As a result, operations of the
Coal business for the current and prior periods have been shown as discontinued
in the condensed consolidated statements of income. In connection with the
sale, the Company made guarantees, indemnifications and representations for
certain specified matters. Management of the Company does not expect these
guarantees, indemnifications and representations to have any material impact on
results of operations, financial position, or cash flows.
Income from discontinued Coal operations includes income tax expense of $4.8
million for the nine months ended September 30, 1996, and $2.6 million and $6.7
million for the three and nine months ended September 30, 1995, respectively.
The loss on disposal of the Coal business is net of an income tax benefit of
$30 million. The Coal segment's sales and operating revenues included in the
three and nine month periods ended September 30, 1996 were $39.5 million and
$276.8 million, respectively, and $114.8 million and $329.9 million for the
three and nine months ended September 30, 1995, respectively.
Note 3 - Net Assets Held for Disposal
In January 1996, the Company signed an agreement to sell its Iowa Thermogas
propane and liquid fertilizer assets as well as its remaining liquid fertilizer
assets in Arkansas, Illinois, Indiana, Minnesota, Ohio and Wisconsin to CENEX
Inc. ("CENEX"). The sale of assets to CENEX was
6
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completed on March 29, 1996. See RESULTS OF OPERATIONS on page 14 for
additional information regarding the CENEX transaction. The assets and
liabilities attributable to the CENEX transaction have been classified in the
condensed consolidated balance sheets as Net Assets Held for Disposal at
December 31, 1995, and consisted of current assets ($14.4 million), property,
plant and equipment, net ($10.0 million), other assets ($.1 million) and
current liabilities ($1.1 million).
Note 4 - 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,
----------------------------
1996 1995
------ ------
<S> <C> <C>
Net periodic pension expense $ 2.1 $ 1.9
Gain on sales of property, plant and equipment (3.9) (1.0)
Minority interest in earnings of subsidiary 2.3 1.8
Litigation and environmental accruals 5.9 0.4
Refinery turnaround accrual 3.2 4.7
Other non-cash income and expense items - net .6 .7
------ ------
$ 10.2 $ 8.5
====== ======
</TABLE>
Net cash from discontinued opertions consist of (in millions):
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
----------------------------
1996 1995
------ ------
<S> <C> <C>
Net income (loss) $(32.7) $ 23.7
Provision for deferred income taxes (46.4) (0.8)
Depreciation 20.1 25.3
Non-cash charges associated with the loss on
disposal of the Coal Segment 77.0 -
Other non-cash income and expense items - net 1.4 0.6
Change in operating assets and liabilities 2.5 (0.6)
------ ------
$ 21.9 $ 48.2
====== ======
</TABLE>
7
<PAGE> 8
Changes in operating assets and liabilities consist of (in millions):
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
----------------------------
1996 1995
------- -------
<S> <C> <C>
Decrease (increase) in:
Receivables $ (46.0) $ 34.2
Inventories (34.4) (10.5)
Prepaid expenses (2.5) 5.2
Other current assets (2.7) .3
Other assets (0.1) (1.4)
Increase (decrease) in:
Accounts payable 31.3 (38.6)
Accrued taxes 6.5 3.4
Accrued payroll and related expenses 6.3 3.8
Other current liabilities 2.6 (7.6)
Other liabilities (3.8) 1.6
------- -------
$ (42.8) $ (9.6)
======= =======
</TABLE>
Income taxes paid were $60.7 million and $8.7 million for the nine months ended
September 30, 1996 and 1995, respectively.
Interest paid, net of amounts capitalized, was $37.4 million and $35.0 million
for the nine months ended September 30, 1996 and 1995, respectively.
Note 5 - Inventories
Inventories are recorded when purchased, produced or manufactured and are
stated at the lower of cost or market.
Inventories consist of (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw materials - crude oil $ 35.8 $ 24.1
------- -------
Finished products:
Refined petroleum products 48.6 43.6
Fertilizer and natural gas liquids 39.7 24.2
Retail merchandise - petroleum (last-in,
first-out) 12.9 12.4
Retail merchandise - other (weighted
average) 11.2 9.7
------- -------
112.4 89.9
------- -------
Inventories $ 148.2 $ 114.0
======= =======
</TABLE>
The cost to replace crude oil, refined petroleum products and retail
merchandise - petroleum inventories in excess of their last-in, first-out
carrying values was approximately $29.2 million at September 30, 1996, and
$16.5 million at December 31, 1995.
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<PAGE> 9
Note 6 - Long-Term Debt
Long-term debt consists of (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ----------
<S> <C> <C>
MAPCO Inc.
- ----------
Commercial paper and bank money market lines $ 116.5 $ 289.7
8.43% ESOP Notes, payable in mortgage type
principal reductions annually through 2003 58.6 58.7
Medium Term Notes, various maturities through 2022 308.8 308.8
-------- -------
483.9 657.2
-------- -------
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 8.8 5.7
-------- -------
173.8 170.7
-------- -------
657.7 827.9
Less - current maturities (39.6) (26.9)
-------- -------
Long-term debt $ 618.1 $ 801.0
======== ========
</TABLE>
Interest rates on commercial paper and bank money market lines ranged from
5.18% to 6.15% during the first nine months of 1996 and from 5.83% to 6.25%
during the first nine months of 1995. Commercial paper and bank money market
lines outstanding at September 30, 1996, and December 31, 1995, were classified
as long-term debt. MAPCO has the ability and intent, if necessary, under a
bank credit agreement to refinance up to $350 million of commercial paper and
bank money market lines with long-term debt having maturities in excess of one
year.
MAPCO has bank credit agreements which represent a total committed line of
credit of $350 million. The commitment under the first bank credit agreement
is for $300 million and reduces in quarterly amounts of $25 million beginning
June 30, 1998. In December 1995, MAPCO obtained an additional $50 million
commitment under a bank credit agreement which matures in December 1996. In
July 1996, the $50 million bank credit agreement was amended to increase the
amount of the commitment to $100 million. However, on October 1, 1996, the
Company voluntarily returned the commitment level to $50 million. The
remaining $50 million commitment will expire in December 1996. Both agreements
serve as a back-up for commercial paper and for borrowings against bank money
market lines. As of September 30, 1996, no borrowings were outstanding under
the bank credit agreements.
As of September 30, 1996, 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%.
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<PAGE> 10
The Company has entered into various interest rate swap agreements with
financial institutions which effectively change the Company's interest rate
exposure from variable rates to fixed rates on $100 million of debt. The
swaps' interest rates are fixed at 5.82% and expire April 1, 2003. The swaps
provide protection against actual interest rate exposure and are not
speculative in nature. The Company has minimized any risk of impact on its
financial position, liquidity or results of operations from changes in interest
rates on the $100 million of variable rate debt that is hedged through the use
of the interest rate swap agreements.
Various loan agreements contain restrictive covenants which, among other
things, limit the payment of advances or dividends by certain subsidiaries to
MAPCO Inc. At September 30, 1996, $190 million of net assets were restricted
by such provisions.
Note 7 - Employee Benefit Plans
MAPCO offers the MAPCO Inc. and Subsidiaries Profit Sharing and Savings Plan
which includes an Employee Stock Ownership Plan feature ("ESOP") to eligible
employees. With respect to the ESOP, MAPCO recognized compensation expense of
$.8 million and $2.4 million for the three and nine months ended September 30,
1996, respectively, and $.7 million and $2.1 million for the three and nine
months ended September 30, 1995, respectively. Interest expense on ESOP
related debt was $1.2 million and $3.6 million for the three and nine months
ended September 30, 1996, respectively, and $1.3 million and $3.9 million for
the three and nine months ended September 30, 1995, respectively. Dividends on
the allocated and unallocated MAPCO common stock held by the ESOP were $.5
million and $1.6 million for the three and nine months ended September 30,
1996, respectively, and $.6 million and $1.8 million for the three and nine
months ended September 30, 1995, respectively, and will be applied to ESOP debt
service. As of September 30, 1996, the number of allocated, unallocated and
pending to be allocated shares held by the ESOP were 985,916, 2,383,502 and
85,128, respectively, as compared to 861,860, 1,362,001 and 0 as of
December 31, 1995.
Note 8 - 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
Company, as well as Seminole, Mid-America Pipeline Company, MAPCO Natural Gas
Liquids Inc., and other non-MAPCO entities were named as defendants in civil
action lawsuits filed in state district courts located in four Texas counties.
Seminole and the related MAPCO entities have settled in excess of 1,600 claims
in these lawsuits. The lawsuits remaining include two in Washington County
and the Dallmeyer lawsuit which was tried before a jury in Harris County. The
Washington County lawsuits
10
<PAGE> 11
each essentially involve house damage claims, which the Company regards as
having no merit. In Dallmeyer, the judgment rendered in March 1996 against
defendants Seminole and MAPCO-related entities totaled approximately $72
million which included nearly $65 million of punitive damages awarded to the
twenty one plaintiffs.
Both plaintiffs and defendants have appealed the Dallmeyer judgment to the
Court of Appeals for the Fourteenth District of Texas in Harris County. The
defendants seek to have the judgment modified in many respects, including the
elimination of punitive damages as well as a portion of the actual damages
awarded. If the defendant's motions are granted, it will result in an award
very significantly less than the judgment, or alternatively, a retrial of the
case. The plaintiffs have cross appealed and seek to modify the judgment to
increase the total award plus interest to exceed $155 million.
Management believes that it has defenses of considerable merit and will
vigorously litigate all remaining lawsuits as well as the Dallmeyer appeal
and/or seek settlements favorable to the Company, but is not able to predict
the ultimate outcome of these matters at this time. The Company has accrued a
liability representing an estimate of amounts it may incur to finally resolve
all litigation and has also recorded a receivable which corresponds to the
remainder of its insurance coverage to be reimbursed by its insurance carrier.
Management is unable to estimate a range of loss beyond the amount accrued.
Resolutions unfavorable to the Company could result in material liabilities and
charges which have not been reflected in the condensed consolidated financial
statements.
Seminole Loop/Aquila-LaGrange Line Litigation
In May 1993, Seminole completed its Seminole loop pipeline expansion project
and in January 1994, completed the Aquila- LaGrange line project. As
frequently occurs in the pipeline industry, several lawsuits were filed against
Seminole by landowners primarily for rescission of pipeline easements or appeal
of eminent domain awards which are pending in five Texas counties.
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, financial position, or cash
flows.
11
<PAGE> 12
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, financial position, or cash
flows.
Note 9 - Stock Split
On September 10, 1996, the Board of Directors authorized a two-for-one stock
split effected in the form of a stock dividend from shares held as treasury
stock, which was distributed on September 30, 1996, to shareholders of record
on September 16, 1996. All references in the condensed consolidated financial
statements to number of shares and per share amounts of the Company's common
stock have been retroactively restated to reflect the increased number of
shares outstanding.
In accounting for the stock split, MAPCO recorded a reduction in treasury stock
of $843.7 million, with a corresponding reduction in retained earnings of
$750.5 million and a reduction in capital in excess of par value of $93.2
million.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIRD QUARTER 1996 VS. THIRD QUARTER 1995
During the current quarter, the Company was reorganized from three segments
into four business units.
- - The Natural Gas Liquids business unit includes the regulated pipeline
businesses, Westpan operations, fractionation and underground storage.
- - The Propane Marketing business unit includes the Thermogas retail propane
business and the wholesale propane operations.
- - The Petroleum Refining business unit includes the Mid-South and Alaska
marketing and refining operations.
- - The Retail Petroleum business unit includes the MAPCO Express petroleum
and convenience store business.
On September 10, 1996, MAPCO announced that its Board of Directors approved a
Four-Point Plan which was designed to enhance shareholder return and consisted
of:
- - Implementation of a strategy to grow the Company through "Targeted Market
Leadership."
- - A share repurchase program of up to 3.5 million shares (7.0 million after
giving effect to the stock split).
- - A twenty percent (20%) increase in the regular dividend rate from $1.00
per share annually to $1.20 per share annually before giving effect to
the two-for-one stock split.
- - A two-for-one stock split effected in the form of a stock dividend.
Certificates for the new shares were distributed on September 30, 1996,
to shareholders of record on September 16, 1996.
While Management and the Board of Directors believe this plan will enhance
shareholder return, they are unable to predict the ultimate effect this plan
will have on share value.
13
<PAGE> 14
RESULTS OF OPERATIONS
Sales and operating revenues were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995 Variance
------ ------ --------
<S> <C> <C> <C>
Natural Gas Liquids $159.3 $127.8 $ 31.5
Propane Marketing 69.1 48.9 20.2
Petroleum Refining 466.0 403.4 62.6
Retail Petroleum 186.8 166.3 20.5
Eliminations (83.7) (59.5) (24.2)
------ ------ ------
$797.5 $686.9 $110.6
====== ====== ======
</TABLE>
Sales and operating revenues increased $110.6 million.
- - Natural Gas Liquids sales increased $31.5 million primarily due to
increased trading and pipeline volumes. Revenues from trading activities
increased $25.0 million as volatile market conditions created favorable
trading opportunities. The increase in pipeline revenues was primarily
attributable to increased volumes reflecting improved ethane recoveries
and product shipments from Rocky Mountain and Four Corners locations to
meet Gulf Coast demand.
- - Propane Marketing sales and operating revenues increased $20.2 million
principally due to increased propane supply volumes. Propane supply
volumes increased due to strong product demand and sales under a new
five-year agreement to supply propane to the retail plants sold to Cenex
at the end of the first quarter of 1996. These divested plants sold 4.3
million gallons of propane in the third quarter of 1995. Despite losing
those volumes, retail propane sales were even with last year as the
decrease in retail propane volumes was offset by a price increase of 7.9
cents per gallon. Of the $20.2 million increase in sales and operating
revenues, $16.1 million was attributable to increases in volumes and $4.1
million was attributable to higher prices.
- - Petroleum Refining sales increased $62.6 million, despite lower trading
revenues of $52.1 million. The decrease in trading revenues was due to
lower volumes as trading activities have been limited since the end of the
third quarter of 1995. Excluding trading activities, refinery sales
increased $114.7 million, attributable to both higher prices and increased
volumes. Product sales increased 1.9 million barrels at the Memphis
Refinery and the average sales price increased almost $4.00 per barrel.
Product sales increased 150 thousand barrels at the North Pole Refinery
due to increased demand for naphtha and jet fuel, and supplying two new
MAPCO Express stores. The average sales price at the North Pole Refinery
increased $4.00
14
<PAGE> 15
per barrel. Of the $114.7 million increase in refinery sales, $69.2
million of the increase was attributable to increased prices and the
remaining $45.5 million due to increased volumes.
- - Retail Petroleum sales increased $20.5 million principally due to higher
gasoline and diesel fuel prices.
Outside purchases and operating expenses increased $86.9 million. Details by
business unit are as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------------------------------
1996 1995 Variance
-------------------- -------------------- --------------------
Outside Operating Outside Operating Outside Operating
Purchases Expenses Purchases Expenses Purchases Expenses
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas Liquids $ 86.3 $ 31.4 $ 66.6 $ 27.4 $ (19.7) $ (4.0)
Propane Marketing 33.7 17.9 24.3 18.4 (9.4) 0.5
Petroleum Refining 414.0 25.5 360.5 22.0 (53.5) (3.5)
Retail Petroleum 83.3 18.8 80.7 24.1 (2.6) 5.3
------- ------- ------- ------- ------- -------
$ 617.3 $ 93.6 $ 532.1 $ 91.9 $ (85.2) $ (1.7)
======= ======= ======= ======= ======= =======
</TABLE>
Natural Gas Liquids outside purchases increased $19.7 million primarily due to
increased trading purchases caused by higher market prices and increased
volumes. Operating expenses increased $4.0 million principally due to higher
power costs created by increased product movements, and accruals associated
with the anticipated shut-down of the Bivins gas plant at the end of 1996.
Propane Marketing outside purchases increased $9.4 million primarily to meet
increased propane supply demand. Purchases for retail sales increased $1.4
million as higher propane prices more than offset the impact of decreased
purchases resulting from the divestiture of the Iowa plants. Fertilizer and
appliance purchases decreased slightly, also due to the Iowa divestiture.
Operating expenses decreased slightly as cost savings from the Iowa divestiture
were largely offset by higher benefit costs and other expenses associated with
the increase in supply volumes.
Petroleum Refining's outside purchases increased $53.5 million as increased
purchases at the Memphis and North Pole Refineries were partially offset by
decreased trading purchases. Trading purchases decreased $51.9 million because
trading activities have been limited since the third quarter of 1995.
Purchases increased $78.4 million at the Memphis Refinery reflecting higher
crude costs and additional crude purchases associated with the increased
throughput volumes. Purchases at the North Pole Refinery increased $27.0
million, also reflecting higher crude prices and increased throughput volumes.
Operating expenses increased $3.5 million due to higher costs at the Memphis
Refinery associated with increased throughput volumes. Operating expenses at
the North Pole Refinery were essentially unchanged from last
15
<PAGE> 16
year.
The $2.6 million increase in Retail Petroleum's outside purchases was
attributable to higher fuel costs. Operating expenses decreased $5.3 million
primarily due to reduced contingency accruals.
Other income reflected on the Consolidated Statements of Income for the current
quarter includes $2.5 million of interest income from the Beacon Group Energy
Investment Fund as part of the final settlement associated with sale of the
Coal segment. Other income also includes a $2.5 million gain on the sale of a
corporate airplane.
The effective income tax rate for continuing operations for the third quarter
of 1996 was 40.6% and 38.6% for the third quarter of 1995. The difference
between the statutory Federal income tax rate of 35% and the effective income
tax rate is primarily due to state taxes.
Operating profit (loss) for the three months ended September 30, 1996 and 1995
is detailed below (in millions):
<TABLE>
<CAPTION>
1996 1995 Variance
------ ------ --------
<S> <C> <C> <C>
Natural Gas Liquids $ 32.6 $ 22.8 $ 9.8
Propane Marketing (5.1) (4.1) (1.0)
Petroleum Refining 20.4 10.0 10.4
Retail Petroleum 11.3 6.3 5.0
------ ------ ------
$ 59.2 $ 35.0 $ 24.2
====== ====== ======
</TABLE>
Operating profit increased $24.2 million over the 1995 quarter primarily
because of higher earnings in the NGL and petroleum businesses. Natural Gas
Liquids profits increased primarily due to additional pipeline product
movements and increased trading profits. The improvement in the Petroleum
Refining profits reflects a $0.93 per barrel increase in the Memphis Refinery's
margins and increased sales volumes. Retail Petroleum's profit increase was
principally due to increased merchandise volumes and margins and decreased
contingency accruals.
MAPCO's consolidated third quarter 1996 net income was $21.0 million or $0.37
per share compared to net income of $16.5 million or $0.28 per share in 1995.
Income from continuing operations was $22.7 million or $0.40 per share in the
current quarter compared to $8.2 million or $0.14 per share in the 1995
quarter. Average common shares outstanding were 57.3 million in the 1996
quarter and 59.5 million in the 1995 quarter.
16
<PAGE> 17
YEAR-TO-DATE 1996 VS. YEAR-TO-DATE 1995
RESULTS OF OPERATIONS
Sales and operating revenues were as follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------
1996 1995 Variance
-------- -------- --------
<S> <C> <C> <C>
Natural Gas Liquids $ 463.7 $ 408.2 $ 55.5
Propane Marketing 275.2 229.8 45.4
Petroleum Refining 1,285.3 1,250.1 35.2
Retail Petroleum 532.5 467.4 65.1
Eliminations (235.0) (178.9) (56.1)
-------- -------- ------
$2,321.7 $2,176.6 $145.1
======== ======== ======
</TABLE>
- - Natural Gas Liquids sales and operating revenues increased $55.5 million
primarily due to increased pipeline revenues and trading sales. The
increase in pipeline revenues reflects improved ethane recoveries and
shipments to meet Gulf Coast demand. An increase of 5.1 cents per gallon
was the principal reason for a $35.8 million increase in trading revenues.
- - Propane Marketing sales and operating revenues increased $45.4 million due
to increased domestic, wholesale, and supply sales, partially offset by
lower fertilizer sales. Colder-than-normal weather patterns in the first
two quarters of 1996 resulted in both increased domestic propane volumes
and higher sales prices. All of Propane Marketing's Iowa plants were sold
to Cenex at the end of March 1996 as well as most of the retail fertilizer
operations. The remaining retail fertilizer operations were divested in
the second and third quarters of 1996. Wholesale propane sales increased
16.2 million gallons and prices increased 5.8 cents per gallon due to
increased product demand. Spot sales increased due to supplying propane
to the Iowa plants divested to Cenex and because of increased demand.
Revenues from fertilizer sales decreased $19.1 million due to the
divestiture of those operations. Of the $45.4 million increase in sales
and operating revenues, $20.3 million was attributable to higher prices
and $25.1 million to increased volumes.
- - Petroleum Refining sales increased $35.2 million, despite a decrease in
trading revenues of $282.2 million. Excluding trading activities,
refinery sales increased $317.4 million. Sales at the Memphis Refinery
increased $249.5 million as product sales volumes increased 6.7 million
barrels due to increased demand and the expansion project completed in
August 1995. Also, sales prices increased $2.65 per barrel. Product
sales increased $67.9 million at the North Pole Refinery. Volumes
increased 1.3 million barrels because of increased
17
<PAGE> 18
demand for naphtha and jet fuel, and supplying product for two new MAPCO
Express stores. The average sales price increased almost $3.00 per
barrel. Overall, $135.4 million of the refinery sales increase was
attributable to higher prices and $182.0 million was attributable to
increased volumes.
- - Retail Petroleum sales increased $65.1 million due primarily to higher
fuel prices and increased volumes. Overall, $32.5 million of the increase
was due to higher fuel prices. Gasoline sales increased $20.5 million as
volumes were even with last year but prices increased 9.7 cents per
gallon. Diesel sales increased $27.0 million due to increased volumes of
15.1 million gallons and an 11.0 cent per gallon increase in sales price.
The volume increase was partially attributable to operating 10 additional
stores in the current year. Merchandise sales increased $17.6 million due
to the higher store counts and increased store promotions.
Outside purchases and operating expenses for the nine months ended September
30, 1996 increased $93.2 million over the same period in 1995.
Details by business unit are as follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------
1996 1995 Variance
-------------------- -------------------- --------------------
Outside Operating Outside Operating Outside Operating
Purchases Expenses Purchases Expenses Purchases Expenses
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas Liquids $243.7 $ 85.8 $ 218.9 $ 78.6 $ (24.8) $ (7.2)
Propane Marketing 141.1 59.8 117.2 59.6 (23.9) (0.2)
Petroleum Refining 1,146.1 73.4 1,124.4 67.1 (21.7) (6.3)
Retail Petroleum 241.5 59.7 229.2 62.9 (12.3) 3.2
-------- ------- -------- ------- ------- -------
$1,772.4 $278.7 $1,689.7 $268.2 $ (82.7) $ (10.5)
======== ======= ======== ======= ======= =======
</TABLE>
Natural Gas Liquids's outside purchases increased $24.8 million primarily due
to increased trading and wholesale propane purchases. The increase in both
trading and wholesale propane purchases reflects higher market prices and
increased volumes. Operating expenses increased $7.2 million principally due
to increased expenditures for smart-pigging activity, higher power costs
created by increased product movements and accruals associated with the
anticipated shut-down of the Bivins gas plant at the end of 1996.
Propane Marketing's outside purchases increased $23.9 million reflecting
increased purchases to meet propane supply demand and higher product costs.
Fertilizer and appliance purchases decreased due to the divestiture of the Iowa
plants. Operating expenses increased slightly as cost savings from the Iowa
divestiture were more than offset by higher benefit costs and by other expenses
associated with the increase in supply volumes.
18
<PAGE> 19
Petroleum Refining's outside purchases increased $21.7 million as
increased purchases at the Memphis and North Pole Refineries were
partially offset by decreased trading purchases. Trading purchases decreased
$281.3 million because trading activities have been limited since the end of the
third quarter of 1995. Outside purchases increased $236.5 million at the
Memphis Refinery reflecting additional crude purchases associated with the
increased throughput volumes and higher crude costs. Purchases at the North
Pole Refinery increased $66.5 million, also reflecting higher crude prices and
increased throughput volumes. Operating expenses increased $6.3 million due to
higher costs at the Memphis Refinery associated with increased throughput
volumes. Operating expenses at the North Pole Refinery were essentially
unchanged from last year.
The $12.3 million increase in Retail Petroleum's outside purchases was
attributable to higher fuel costs and an increase in diesel fuel
volumes. Operating expenses decreased $3.2 million primarily due to a reduced
contingency accrual associated with a favorable litigation settlement.
Other income in the current year includes $2.5 million of interest income
associated with the sale of the Coal segment and a $2.5 million gain on the
sale of a corporate airplane.
The effective income tax rate for continuing operations for the first nine
months of 1996 was 37.9% compared to 39.0% in 1995. The difference between the
statutory Federal income tax rate of 35% and the effective income tax rate is
primarily due to state taxes.
Operating profit for the nine months ended September 30, 1996 and 1995 is
detailed below (in millions):
<TABLE>
<CAPTION>
1996 1995 Variance
------ ------ --------
<S> <C> <C> <C>
Natural Gas Liquids $ 97.6 $ 79.4 $ 18.2
Propane Marketing 41.9 19.6 22.3
Petroleum Refining 40.9 22.0 18.9
Retail Petroleum 25.6 13.2 12.4
------ ------ ------
$206.0 $134.2 $ 71.8
====== ====== ======
</TABLE>
Operating profit increased $71.8 million because of higher earnings in all of
MAPCO's business units. Natural Gas Liquids profits increased $18.2 million
primarily due to additional pipeline product movements and increased trading
profits. Propane Marketing profits increased $22.3 million, which includes a
$20.8 million gain on the sale of certain assets to Cenex in the first quarter
of 1996. Petroleum Refining's operating profit increased $18.9 million due to
higher margins and increased sales volumes. Retail Petroleum's operating
profit increased $12.4 million due to increased merchandise and diesel volumes
and higher
19
<PAGE> 20
gasoline margins. In addition, operating expenses decreased primarily due to
decreased contingency accruals.
MAPCO's consolidated net income for the first nine months of 1996 was $55.2
million or $0.96 per share compared to $66.7 million or $1.12 per share in
1995. Net income from continuing operations for the first nine months of 1996
was $87.9 million or $1.52 per share compared to $43.0 million or $0.72 per
share in 1995. Average common shares outstanding were 57.7 million in 1996 and
59.7 million in 1995.
FINANCIAL CONDITION
Cash Generation
Cash generation was as follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1996 1995
------ -------
<S> <C> <C>
Net cash provided by continuing operations $101.2 $ 113.9
Net cash provided by discontinued operations 21.9 48.2
------ -------
Net cash provided by operating activities 123.1 162.1
Net cash provided by (used in) investing
activities 155.9 (171.8)
Net cash provided by (used in) financing
activities (253.4) 6.3
------ -------
Cash generation (usage) $ 25.6 $ (3.4)
====== =======
</TABLE>
Net cash provided by continuing operations decreased $12.7 million because
increased income from continuing operations was more than offset by the
negative impact of changes in operating assets and liabilities and provision
for deferred income taxes.
- - The increase in income from continuing operations reflects improved
operations in all of MAPCO's business units.
- - The negative impact of changes in operating assets and liabilities in
1996 was primarily attributable to the seasonal build-up of propane
and crude inventories and an increase in receivables associated with
increased trading activities. These negative items were partially
offset by the receipt of cash from propane sales made at the end of
1995.
- - The decrease in the provision for deferred income taxes was primarily
attributable to the sale of the Coal segment.
The decrease in net cash provided by discontinued operations primarily reflects
reduced income from the Coal operations.
20
<PAGE> 21
Cash flows from investing activities during the first nine months of
1996 included $236.4 million of proceeds from the sale of the Coal segment to
the Beacon Group and $43.0 million of proceeds from Retail Propane's sale of its
Iowa propane and liquid fertilizer assets to CENEX. These proceeds were
partially offset by $115.8 million of capital expenditures for continuing
operations, of which $44.8 million was for capital items necessary to maintain
existing operations. Capital expenditures in 1996 also include $25.1 million for
the Rio Grande pipeline project, $11.2 million for a saturated gas plant
expansion at the Memphis Refinery, $5.8 million for the acquisition of a propane
company in Colorado, and $4.4 million for the expansion of the Hobbs Station in
west Texas. Cash used in investing activities during the first nine months of
1995 consisted of $176.3 million of capital expenditures for continuing
operations, of which $52.9 million was for capital items necessary to maintain
existing operations. Capital expenditures in 1995 also 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 coal mine and $11.0 million for the acquisition of 27
retail gasoline/convenience stores in the Nashville, Tennessee market.
Cash used in financing activities for the first nine months of 1996 included
the repurchase of 2,189,684 shares of MAPCO common stock for $62.0 million, the
payment of $22.4 million of dividends and a net decrease in variable rate debt
of $173.2 million. Cash used in financing activities for the first nine months
of 1995 included dividend payments of $22.3 million, the repurchase of 317,300
shares of MAPCO common stock for $17.3 million, short-term borrowings of $72.7
million and the repayment of $27.1 million of fixed-rate debt.
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, 1996, MAPCO
had $58.9 million of cash and cash equivalents.
MAPCO's external financing sources include its bank credit agreements and its
ability to issue public or private debt, including commercial paper. MAPCO's
bank credit agreements represent a total committed line of credit of $350
million. The commitment under the first bank credit agreement is for $300
million and reduces in quarterly amounts of $25 million beginning June 30,
1998. In December 1995, MAPCO obtained an additional $50 million commitment
under a bank credit agreement which matures in December 1996. In July 1996,
the $50 million bank credit agreement was amended to increase the amount of the
commitment to $100 million. However, on October 1, 1996, the Company
voluntarily returned the commitment level to $50 million. The remaining $50
million
21
<PAGE> 22
commitment will expire in December 1996. Both agreements serve as a back-up
for commercial paper and for borrowings against bank money market lines. As of
September 30, 1996, no borrowings were outstanding under the bank credit
agreements.
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, 1996, MAPCO had outstanding $308.8 million of
Medium Term Notes under this registration. On October 14, 1996, $14.0 million
of these notes reached maturity leaving $294.8 million outstanding. MAPCO has
the authorization to issue up to an additional $47.0 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.
The Company has entered into various interest rate swap agreements with
financial institutions which effectively change the Company's interest rate
exposure from variable rates to fixed rates on $100 million of debt. The
swaps, which expire April 1, 2003, provide protection against actual interest
rate exposure and are not speculative in nature. The Company has minimized any
risk of impact on its financial position, liquidity or results of operations
from changes in interest rates on the $100 million of variable rate debt that
is hedged through the use of the interest rate swap agreements.
In July 1996, the Company signed an agreement with Beacon to sell substantially
all of the net assets of the Coal business. That transaction was finalized on
September 10, 1996. Total proceeds from the transaction of $236.4 million were
used to pay down debt. MAPCO's increased debt capacity will be used for share
repurchases, capital expenditures and acquisitions. Between September 10,
1996, and October 31, 1996, 1,272,283 (post-split) shares have been repurchased
for $37.4 million.
On March 29, 1996, the Company sold its Iowa Thermogas propane and fertilizer
assets and its remaining Thermogas liquid fertilizer assets in Arkansas,
Illinois, Indiana, Ohio, Minnesota and Wisconsin to CENEX. The transaction
resulted in proceeds of $43.0 million which were used primarily for capital
expenditures, share repurchases and general corporate purposes.
Various loan agreements contain restrictive covenants which, among other
things, limit the payment of advances or dividends by two of Natural Gas
Liquids' operating units to MAPCO Inc. At September 30, 1996, $190 million of
net assets were restricted by such provisions.
MAPCO's existing debt and credit agreements contain covenants which
22
<PAGE> 23
limit the amount of additional indebtedness the Company may incur. Management
believes that the Company has sufficient capacity to fund its anticipated
needs.
Capital expenditures for continuing operations in 1996 are expected to be
approximately $170.6 million, of which $113.2 million will be for acquisitions
and expansion projects. MAPCO expects to utilize cash from operations and
funding sources, as needed, to meet currently projected capital expenditures,
environmental projects, debt service and dividends in 1996 and thereafter.
In the third quarter of 1996, the Company announced a four-point plan approved
by the Board of Directors, which includes the repurchase of up to 7.0 million
shares, or twelve percent of post-split outstanding stock, a twenty percent
dividend increase and a two-for-one stock split. The two-for-one stock split
effected in the form of a stock dividend from shares held as treasury stock was
distributed on September 30, 1996, to shareholders of record on September 16,
1996.
In conjunction with the stock repurchase programs, the Board of Directors of the
Company approved the use of put options on MAPCO stock designed to reduce the
cost of the stock repurchase programs to the Company. The put option program is
limited to 1,500,000 shares at any one point in time and the options are
exercisable on one specified day only ("European Style").
Other Issues
Construction of the Rio Grande Pipeline, which will be the first pipeline to
carry NGL shipments across the U.S./Mexico border, is on schedule and is
expected to be operational in the first quarter of 1997. The project received
a Presidential Permit, which is required when crossing an international
boundary, from the U.S. State Department on August 22, 1996. Construction of
the PEMEX Mendex Terminal, which will be the termius of the Rio Grande Pipeline
outside of Juarez, Mexico, has been completed and the terminal is in operation.
23
<PAGE> 24
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
During May of 1993, the EPA, Region X conducted a multimedia inspection
at MAPCO Alaska Petroleum Inc.'s ("MAPI") North Pole Refinery located near
Fairbanks, Alaska. Following the inspection, the EPA issued two (2)
Information Requests relating to New Source Performance Standards ("NSPS"). In
June of 1995, the U.S. Department of Justice, Environmental and Natural
Resources Division also served written notice upon MAPI of civil claims under
the NSPS of the Clean Air Act. Although the Department of Justice indicated a
willingness to bring suit against MAPI in federal court for recovery of civil
penalties and injunctive relief, the Department of Justice offered to defer
litigation if MAPI would enter into settlement negotiations with the Department
of Justice.
After over a year of settlement discussions, MAPI has reached agreement
with the Department of Justice and the EPA, Region X. Under the terms of the
Consent Decree, MAPI will pay a penalty of $425,000 and will perform two
Supplemental Environmental Projects ("SEP") having a total cost value of
$397,000.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Exhibit 4 - Amendment No. 1 dated as of July 30, 1996 to the
Revolving Credit Facility Agreement dated as of December 22,
1995, among MAPCO Inc., the Lenders named therein and the Chase
Manhattan Bank (formerly known as Chemical Bank), as Agent for
the Lenders.
Exhibit 10 - Severance Agreement between MAPCO Inc. and W.
Jeffrey Hart dated as of September 19, 1996.
Exhibit 11 - Statement Regarding Computation of Per Share
Earnings.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges.
Exhibit 27 - Financial Data Schedule.
24
<PAGE> 25
(b). Reports on Form 8-K
Current Report on Form 8-K filed on July 16, 1996, announcing the
execution of a final agreement for the sale of 100% of the
Company's coal segment to the Beacon Group Energy Investment
Fund, L.P.
25
<PAGE> 26
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: November 13, 1996 /s/ PHILIP W. BAXTER
----------------- ----------------------------
Philip W. Baxter
Executive Vice President and
Chief Financial Officer
Date: November 13, 1996 /s/ GORDON E. SCHAECHTERLE
----------------- ----------------------------
Gordon E. Schaechterle
Vice President, Controller
and Tax Counsel
26
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Exhibit 4 Amendment No. 1 dated as of
July 30, 1996 to the Revolving Credit
Facility Agreement dated as of
December 22, 1995, among MAPCO Inc.,
the Lenders named therein and the
Chase Manhattan Bank (formerly known
as Chemical Bank), as Agent for the
Lenders.
Exhibit 10 Severance Agreement between MAPCO Inc.
and W. Jeffrey Hart dated as of
September 19, 1996.
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>
27
<PAGE> 1
EXHIBIT 4
AMENDMENT NO. 1 dated as of July 30, 1996 to the
Revolving Credit Facility Agreement dated as of
December 22, 1995 (the "Credit Agreement") among
MAPCO Inc., a Delaware corporation (the "Borrower"),
the Lenders named therein and CHEMICAL BANK, as Agent
for the Lenders (in such capacity, the "Agent").
INTRODUCTORY STATEMENT
All capitalized terms not otherwise defined in this Amendment
are as defined in the Credit Agreement.
Pursuant to the Credit Agreement, the Lenders have agreed to
make Loans to the Borrower.
The Borrower has requested that the Credit Agreement be
amended as set forth herein.
Accordingly, the parties hereby agree as follows:
1. Amendment to the Credit Agreement. The Credit Agreement
is hereby amended effective as of the Effective Date (subject to the terms and
conditions set forth in Section 2 hereof) as follows:
(A) Section 2.1 of the Credit Agreement is hereby amended by
deleting the amount "$50,000,000" each time it appears in the Commitment
schedule therein and inserting the amount "$100,000,000" in its place.
(B) Section 2.10 of the Credit Agreement is hereby amended to
add the following clause (e):
"(e) If the Total Commitments in effect hereunder on the
date set forth below (the "Reduction Date") would exceed the
amount set forth opposite the Reduction Date, then on the
Reduction Date the Total Commitments shall be automatically
reduced, ratably among the Lenders in accordance with each
Lender's percentage of the Total Commitments, to such amount
set forth opposite the Reduction Date:
Reduction Date Total Commitments
-------------- -----------------
October 29, 1996 $50,000,000
In the event that the aggregate outstanding amounts of the
Loans on the Reduction Date would exceed the Total Commitments
in effect on the Reduction Date after giving effect to any
reductions in the Total Commitment on such date, the Borrower
shall, on the Reduction Date, make a mandatory prepayment of
the Loans in a principal amount equal to such excess so that,
after giving effect to such prepayment, the aggregate
outstanding principal amount of all Loans does not exceed the
Total Commitments."
2. Conditions to Effectiveness. This Amendment is subject to
the satisfaction in full, of the following conditions precedent (the first date
on which all such conditions have been satisfied being herein called the
"Effective Date"):
(A) the Agent shall have received executed counterparts of
this Amendment, which, when taken together, bear the signatures of the
Borrower, the Agent and the Lenders;
<PAGE> 2
(B) The Agent shall have received for each Lender a promissory
note identical to the Note currently held by such Lender but in the amount of
its Commitment after giving effect to this Amendment (each a "New Note");
(C) The Lenders shall have received a favorable written
opinion of James N. Cundiff, Esq., Assistant General Counsel and Assistant
Secretary for the Borrower, dated the Effective Date, addressed to the Lenders,
(i) covering the matters set forth in Section 3.1 of the Credit Agreement in
respect of the Borrower, Sections 3.2 and 3.6 (which in the case of Sections
3.2(b)(i) and 3.6 may be to the best knowledge of such counsel after due
inquiry), and (ii) to the effect that (x) this Amendment and the New Notes
have been duly executed and delivered by the Borrower and, together with the
Credit Agreement as hereby amended, constitute the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms (subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency and similar laws affecting creditors' rights
generally and to moratorium laws from time to time in effect) and (y) no
consent or approval of any governmental authority or regulatory body to the
execution, delivery and performance of this Agreement or the New Notes or to
the borrowings thereunder is required by law, or if any such consent or
approval is necessary it has been obtained, which opinion shall be satisfactory
to Morgan, Lewis & Bockius LLP, special counsel for the Lenders, and
(D) The Lenders shall have received (i) a certificate of the
secretary or an Assistant Secretary of the Borrower, dated the Effective Date
and certifying (1) that attached thereto is a true and complete copy of
resolutions duly adopted by the Board of Directors of the Borrower authorizing
borrowings by the Borrower in an amount not to exceed $450,000,000 and that
such resolutions have not been modified, rescinded or amended and are in full
force and effect, (2) that neither the Certificate of Incorporation nor the
By-laws of the Borrower have been amended since December 22, 2995 and (3) as to
the incumbency and specimen signature of each officer of the Borrower executing
this Amendment, the New Notes or any other document delivered in connection
herewith or therewith (such certificate to contain a certification by another
officer of the Borrower as to the incumbency and specimen signature of the
Secretary or such Assistant Secretary signing such certificate); and (ii) such
other documents an any Lender or Morgan, Lewis & Bockius LLP, special counsel
for the Lenders, may reasonably request; and
(E) all legal matters incident to this Amendment shall be
satisfactory to Morgan, Lewis & Bockius LLP, special counsel for the Lenders.
(3) Representations and Warranties. The Borrower represents
and warrants that:
(A) the representations and warranties contained in Section 3
of the Credit Agreement are true and correct in all material respects on and as
of the date hereof as if such representations and warranties had been made on
and as of the date hereof; and
(B) the Borrower is in compliance with all the terms and
provisions set forth in the Credit Agreement and no Event of Default or event
which with notice or lapse of time or both would constitute an Event of Default
has occurred under the Credit Agreement nor will occur under the Credit
Agreement or the Competitive Advance and Revolving Credit Facility Agreement
dated as of April 29, 1994 (as amended) among the Borrower, the Lenders party
thereto and The Chase Manhattan Bank (f/k/a Chemical Bank) as Agent as a result
of this Amendment, the New Notes or the borrowings thereunder.
<PAGE> 3
4. Full Force and Effect. Except as expressly amended
hereby, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof on the date hereof. As used in the
Credit Agreement, the terms "Agreements", "this Agreement", this Credit
Agreement", "herein", "hereinafter", "hereto", "hereof", and words of similar
import, shall, unless the context otherwise requires, mean the Credit Agreement
as amended by this Amendment.
5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
6. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
7. Expenses. The Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Agent in connection with the
preparation, execution and delivery of this Amendment, including, but not
limited to, the reasonable fees and disbursements of Morgan, Lewis & Bockius
LLP, special counsel for the Lenders.
8. Headings. The headings of this Amendment are for the
purposes of reference only and shall not affect the construction of this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers, all as of the
date and year first above written.
MAPCO Inc.
/s/ Donald R. Wellendorf
---------------------------
Name: Donald R. Wellendorf
Title: Vice President, Treasurer
And Investor Relations
THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank),
for itself and as Agent
/s/ R. Potter
----------------------------
Name: Ronald Potter
Title: Managing Director
<PAGE> 1
EXHIBIT 10
September 19, 1996
PERSONAL AND CONFIDENTIAL
W. Jeffrey Hart
Senior Vice President-Petroleum
P.O. Box 645
Tulsa, OK 74101-0645
Dear Jeff:
This letter will confirm our understandings relating to your
resignation as an employee and Officer of MAPCO Inc. ("MAPCO") and an Officer
and/or Director of any of MAPCO's subsidiaries. In consideration for your many
years of dedicated service with MAPCO, it is agreed as follows:
1. Severance Pay. Concurrently with your signing this Letter
Agreement, you have signed Officer and Director letters of resignation all
effective as of the date of execution of this Letter Agreement attached hereto
and it is agreed that you will resign as an employee of MAPCO effective close
of business November 1, 1996. MAPCO will pay to you on November 1, 1996, a
lump sum amount equal to two (2) months of your annual base salary currently in
effect; and on January 2, 1997, a lump sum amount equal to twelve (12) months
of your annual base salary currently in effect. These payments represent full
and complete severance pay in recognition of your length of service with MAPCO.
They may be reduced, if necessary, to comply with tax withholding requirements.
2. Settlement Pay. On January 2, 1997, you will be paid
$100,000.00 which represents payment in lieu of any obligation of MAPCO to you
in connection with your participation in MAPCO's Incentive Compensation Plan,
which Plan otherwise contemplated bonus payments, if any, payable in 1997.
This may be reduced, if necessary, to comply with tax withholding requirements.
You shall not be eligible for any other awards under the Plan, including any
long-term incentive bonus compensation that would have been payable in 1998.
3. Various Benefit Distributions. Your rights under any employee
benefit plan shall be governed by the terms of such plan only as modified
specifically by this Letter Agreement.
<PAGE> 2
W. Jeffrey Hart
September 19, 1996
Page 2
4. Health Benefits. Your normal participation in the MAPCO Group
Health Plan will cease effective close of business November 1, 1996, but you
will be eligible for the Consolidated Omnibus Budget Reconciliation Act of 1986
("COBRA") extension at that time. If you so elect COBRA coverage, MAPCO shall
waive your monthly COBRA "premiums" for the eighteen-month COBRA period. If
you become re-employed with or by any person, firm or corporation, and are
eligible for group health care coverage, MAPCO will cease paying your monthly
COBRA premiums and it will be your responsibility to continue those payments if
you so elect.
5. Vacation. You will be paid, as soon as practicable after
November 1, 1996, vacation entitlement, if due, in accordance with Company
vacation benefit policy.
6. Perks. Any perks which you presently enjoy shall cease as of
the effective date of this Letter Agreement. There are no amounts remaining to
be paid or further obligations to you for tax preparation and estate planning
reimbursement commitments for 1996, except as otherwise permitted in Paragraph
8. below.
7. Stock Options. For purposes of the 1986 Stock Option and 1989
Stock Incentive Plans, your deemed normal retirement date will be close of
business November 1, 1996, and you will receive vesting and acceleration
benefits as if you elected and were qualified for normal retirement on that
date. It is further agreed that under the Non-Qualified Stock Option Agreement
covering certain options granted to you effective January 24, 1995, at a
closing NYSE price of $53.00, all options thereunder which would otherwise be
exercisable in 1997 and 1998, shall all be deemed vested as of November 1,
1996 and exercisable within the period three (3) years thereafter, or the
expiration of the original option grant, whichever occurs earlier. Reload or
replenishment options will not be granted after the effective date of this
letter.
8. Out placement Assistance. If you so desire, MAPCO will
arrange out placement services for you through MAPCO's normal sources at a cost
of up to $45,000. You may also charge against this amount and be reimbursed
for reasonable, verified tax, estate planning, legal and consulting services
expense incurred in connection with your resignation. Any such reimbursed or
paid service expense will reduce out placement payment obligations under this
paragraph.
9. Employment Continuation Agreement. The Employment
Continuation Agreement executed by you with MAPCO Inc. effective as of December
20, 1989, as amended, shall terminate upon execution of this Letter Agreement.
10. Confidentiality. You agree to hold in a fiduciary capacity
for the benefit of MAPCO, all secret or confidential information, knowledge or
data of the Company obtained by you during your employment by MAPCO Inc.
(whether or not developed by you) which is not
<PAGE> 3
W. Jeffrey Hart
September 19, 1996
Page 3
generally known to the public or recognized as standard practice, and you agree
not to communicate or divulge any such information, knowledge or data to any
person, firm or corporation.
11. Computer Equipment, Data Base and other property. Effective
immediately your access to all management information systems, including
financial reporting and E-Mail, shall cease. You agree to return all mobile or
off- location equipment supplied by the Company, including computer equipment,
FAX and mobile telephones. All Company credit cards will be returned on the
effective date of this Letter Agreement.
12. General Release. You acknowledge and agree that upon
execution of this Letter Agreement and the honoring of the commitments set
forth herein, MAPCO has performed all of its obligations to you and that you
accept the considerations expressed in this Letter Agreement in full
satisfaction of all rights arising from and related to your employment by
MAPCO; and accordingly, in connection therewith you agree to forever discharge
and release MAPCO and its subsidiaries, and the officers, directors and
employees of either, from any and all claims and liabilities, known or unknown,
which may have otherwise accrued as of or prior to the execution of this Letter
Agreement.
13. Stock Repurchase. MAPCO will consider repurchase of Common
Stock of MAPCO held by you, subject to any restrictions or conditions of
MAPCO's then current stock repurchase program.
14. Entire Agreement. It is understood that the foregoing
contains our entire agreement, and no modifications hereof shall be binding
upon either of us unless it is in writing signed by each of us.
Sincerely,
MAPCO Inc.
/s/ James E. Barnes
---------------------
James E. Barnes
JEB:DWB:lkc
I have read and accept the terms and
conditions of this certain Letter Agreement
dated September 19, 1996 .
-------------------------------------
/s/ W. Jeffrey Hart
- -------------------------------------------
W. Jeffrey Hart
Date: September 20, 1996
--------------------------------------
<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 Sept. 30, Ended Sept. 30,
------------------- -------------------
1996 1995 1996 1995
----- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Computation for Consolidated Statements of Income
- -------------------------------------------------
Net income (a) $ 21.0 $ 16.5 $ 55.2 $ 66.7
====== ====== ====== ======
Weighted average common shares outstanding (e) 57.3 59.5 57.7 59.7
Common stock equivalents (stock options) - - - -
------ ------ ------ ------
Weighted average common shares outstanding (a)(e) 57.3 59.5 57.7 59.7
====== ====== ====== ======
Primary earnings per common share (a)(c)(e) $ .37 $ .28 $ 0.96 $ 1.12
====== ====== ====== ======
Additional Primary Computation
- ------------------------------
Net income (a) $ 21.0 $ 16.5 $ 55.2 $ 66.7
====== ====== ====== ======
Weighted average common shares outstanding (a)(e) 57.3 59.5 57.7 59.7
Dilutive effect of outstanding options (d) .3 .2 .2 .1
------ ------ ------ ------
Weighted average common shares outstanding,
as adjusted (e) 57.6 59.7 57.9 59.8
====== ====== ====== ======
Primary earnings per common share, as
adjusted (b)(e) $ .36 $ .28 $ 0.95 $ 1.12
====== ====== ====== ======
FULLY DILUTED EARNINGS PER COMMON SHARE
Additional Fully Diluted Computation
- ------------------------------------
Net income (a) $ 21.0 $ 16.5 $ 55.2 $ 66.7
====== ====== ====== ======
Weighted average common shares outstanding (a)(e) 57.3 59.5 57.7 59.7
Dilutive effect of outstanding options (d) .3 .2 .3 .1
------ ------ ------ ------
Weighted average common shares outstanding,
as adjusted (e) 57.6 59.7 58.0 59.8
====== ====== ====== ======
Fully diluted earnings per common share,
as adjusted (b)(e) $ .36 $ .28 $ 0.95 $ 1.12
====== ====== ====== ======
</TABLE>
<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 1996 and 1995, 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) In accordance with footnote 3 to paragraph 9 of APB Opinion No. 30, the
impact of outstanding options is included in the additional primary
earnings per share and additional fully diluted earnings per share
calculations for the three months ended September 30, 1996.
(e) On September 10, 1996, the Board of Directors authorized a two-for-one
stock split effected in the form of a stock dividend from shares held as
treasury stock, which was distributed on September 30, 1996, to
shareholders of record on September 16, 1996. All references in this
Exhibit 11 to number of shares and per share amounts of the Company's
common stock have been retroactively restated to reflect the increased
number of shares outstanding.
<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
Sept 30, 1996 1995 1994 1993 1992 1991
----------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Earnings as defined:
Income before provision for income taxes ........ $145.1 $114.2 $116.6 $ 202.9 $144.6 $182.6
Fixed charges ................................... 49.4 66.2 60.1 55.3 60.1 63.9
Capitalized interest included in fixed charges... (.9) (1.7) - (2.8) (2.0) (1.2)
Amortization of capitalized interest ............ 1.8 3.5 3.4 3.5 3.5 3.3
------ ------ ------ ------- ------ ------
Total ................................... $195.4 $182.2 $180.1 $258.9 $206.2 $248.6
====== ====== ====== ======== ====== ======
Fixed charges as defined:
Interest and debt expense (includes amortization
of debt expense and discount) ................. $ 44.7 $ 58.7 $ 53.7 $ 46.9 $ 51.7 $ 55.5
Capitalized interest ............................ .9 1.7 - 2.8 2.0 1.2
Portion of rentals representative of the interest
factor ........................................ 3.8 5.8 6.4 5.6 6.4 7.2
------ ------ ------ -------- ------ ------
Total ................................... $ 49.4 $ 66.2 $ 60.1 $ 55.3 $ 60.1 $ 63.9
====== ====== ====== ======== ====== ======
Ratio of earnings to fixed charges 4.0 2.8 3.0 4.7 3.4 3.9
====== ====== ====== ======== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MAPCO INC.'S
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996, AND MAPCO INC.'S
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 58,900
<SECURITIES> 0
<RECEIVABLES> 271,000
<ALLOWANCES> 0
<INVENTORY> 148,200
<CURRENT-ASSETS> 529,200
<PP&E> 2,127,000
<DEPRECIATION> 785,900
<TOTAL-ASSETS> 2,114,400
<CURRENT-LIABILITIES> 483,700
<BONDS> 618,100
0
0
<COMMON> 62,900
<OTHER-SE> 552,600
<TOTAL-LIABILITY-AND-EQUITY> 2,114,400
<SALES> 2,321,700
<TOTAL-REVENUES> 2,321,700
<CGS> 0
<TOTAL-COSTS> 2,051,100
<OTHER-EXPENSES> 80,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,700
<INCOME-PRETAX> 145,100
<INCOME-TAX> 54,900
<INCOME-CONTINUING> 87,900
<DISCONTINUED> (32,700)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,200
<EPS-PRIMARY> .96
<EPS-DILUTED> .95
</TABLE>
