<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 March 31, 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 May 8, 1996, 28,833,471 shares of MAPCO Inc. Common Stock, $1 par value,
were outstanding.
<PAGE> 2
MAPCO Inc.
Index
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. Financial Information:
Condensed Consolidated Statements of Income
for the three months ended March 31, 1996
and 1995
Condensed Consolidated Balance Sheets,
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Cash
Flows for the three months ended March 31,
1996 and 1995
Notes to Condensed Consolidated Financial
Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. Other Information:
Exhibits and Reports on Form 8-K
Signatures
</TABLE>
<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 March 31,
--------------------------
1996 1995
-------- --------
<S> <C> <C>
Sales and Operating Revenues (1) $ 865.8 $ 777.2
-------- --------
Expenses:
Outside purchases and operating
expenses (1) 737.7 672.3
Selling, general and administrative 18.1 18.5
Depreciation, depletion and amortization 19.9 27.2
Interest and debt expense 15.3 14.6
Impairment of long-lived assets (Note 2) 8.7 -
Gain on sale of net assets held for
disposal (Note 3) (20.8) -
Other income - net (.1) (.5)
-------- --------
778.8 732.1
-------- --------
Income before Provision for Income Taxes 87.0 45.1
-------- --------
Provision for Income Taxes:
Current 29.0 8.7
Deferred 1.9 6.9
-------- --------
30.9 15.6
-------- --------
Income before Minority Interest 56.1 29.5
Minority Interest in Earnings of Subsidiary (.9) (.5)
-------- --------
Net Income $ 55.2 $ 29.0
======== ========
Earnings per Common Share $ 1.90 $ .97
Average Common Shares Outstanding 29.0 29.9
Cash Dividends per Common Share $ .25 $ .25
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(1) Includes consumer excise taxes of $36.7 million and $31.2 million for
the three months ended March 31, 1996 and 1995, respectively.
<PAGE> 4
MAPCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in Millions
<TABLE>
<CAPTION>
March 31, 1996 December 31,
(Unaudited) 1995
-------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 47.7 $ 33.3
Receivables 251.3 237.8
Inventories (Note 5) 108.4 117.1
Prepaid expenses 23.5 22.3
Other current assets 32.2 27.0
Net assets held for disposal (Notes 2 & 3) 286.3 248.3
--------- ---------
Total current assets 749.4 685.8
--------- ---------
Property, Plant and Equipment, at cost 2,080.1 2,209.1
Less - accumulated depreciation, depletion,
amortization and impairment (764.6) (835.4)
--------- ---------
1,315.5 1,373.7
--------- ---------
Other Assets 173.4 233.8
--------- ---------
$ 2,238.3 $ 2,293.3
========= =========
Current Liabilities:
Current maturities of long-term debt $ 26.9 $ 26.9
Accounts payable 257.5 270.7
Accrued taxes 70.7 49.0
Accrued payroll and related expenses 14.1 16.3
Other current liabilities 59.2 54.6
--------- ---------
Total current liabilities 428.4 417.5
--------- ---------
Long-Term Debt, excluding current
maturities (Note 6) 787.8 801.0
--------- ---------
Other Liabilities 99.3 116.2
--------- ---------
Deferred Income Taxes 233.1 289.3
--------- ---------
Minority Interest 27.9 27.0
--------- ---------
Contingencies (Note 8)
--------- ---------
Stockholders' Equity (Note 7):
Common stock 62.9 62.9
Capital in excess of par value 203.3 203.0
Retained earnings 1,449.9 1,401.8
--------- ---------
1,716.1 1,667.7
Treasury stock, at cost (995.6) (966.7)
Loan to ESOP (58.7) (58.7)
--------- ---------
661.8 642.3
--------- ---------
$ 2,238.3 $ 2,293.3
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
MAPCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------------
1996 1995
-------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 55.2 $ 29.0
Reconciliation of net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 19.9 27.2
Provision for deferred income taxes 1.9 6.9
Other items not requiring (providing)
cash (Note 4) (3.9) 1.3
-------- --------
Funds provided by operations 73.1 64.4
Changes in operating assets and
liabilities (Note 4) (19.3) 23.9
-------- --------
Net cash provided by operating activities 53.8 88.3
-------- --------
Cash Flows from Investing Activities:
Capital expenditures and acquisitions, net of
liabilities assumed (32.3) (44.6)
Proceeds from sale of net assets held for disposal 43.0 -
Proceeds from sales of property, plant and
equipment .7 .6
Other (1.0) -
-------- --------
Net cash provided by (used in)
investing activities 10.4 (44.0)
-------- --------
Cash Flows from Financing Activities:
Purchase of common stock (28.9) (1.7)
Decrease in borrowings (13.1) (26.6)
Dividends (7.9) (7.5)
Payments on long-term debt (.1) (3.1)
Exercise of stock options .2 -
-------- --------
Net cash used in financing activities (49.8) (38.9)
-------- --------
Increase in Cash and Cash Equivalents 14.4 5.4
Cash and Cash Equivalents, January 1 33.3 30.6
-------- --------
Cash and Cash Equivalents, March 31 $ 47.7 $ 36.0
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<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 March 31, 1996 (unaudited) and December 31, 1995, the results of operations
for the three months ended March 31, 1996 and 1995 (both unaudited) and the
cash flows for the three months ended March 31, 1996 and 1995 (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.
Note 2 - Impairment of Long-Lived Assets
In the first quarter of 1996, the Company recorded an $8.7 million impairment
loss to reflect the fair value of the Coal segment's net assets, which are
shown as Net Assets Held for Disposal on the condensed consolidated balance
sheets. Management believes that the amounts used to calculate the impairment
charge represent a reasonable estimate of the fair value of the net assets of
the Coal segment for the quarter. Upon completion of the divestiture of the
Coal segment discussed in Note 3, the fair value of the segment's net assets
could differ materially from the amounts estimated in determining the amount of
impairment.
Note 3 - Net Assets Held for Disposal
In January 1996, MAPCO signed a letter of intent to sell 75 percent of
substantially all of the net assets of the Coal segment. The Company is
continuing discussions to sell its Coal business, but now expects that 100
percent of the Coal segment will be divested. The Company is also considering
a spin-off of the Coal business to its shareholders. The Company expects the
divestiture of the Coal segment to be completed during 1996.
In January 1996, the Company signed an agreement to sell its Thermogas Iowa
propane and liquid fertilizer assets as well as its remaining liquid fertilizer
assets in Arkansas, Illinois, Indiana, Minnesota, Ohio and Wisconsin, to CENEX
Inc. The sale of assets to CENEX Inc. was completed on March 29, 1996. See
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS for additional information regarding the CENEX Inc. transaction.
<PAGE> 7
For financial reporting purposes, the assets and liabilities attributable to
the Coal segment and the CENEX Inc. transaction (December 31, 1995 only) have
been classified in the condensed consolidated balance sheets as Net Assets Held
for Disposal and consist of the following (in millions):
<TABLE>
<CAPTION>
December 31, 1995
March 31, 1996 -------------------------------------
Coal Coal Thermogas Total
-------- ------ --------- ------
<S> <C> <C> <C> <C>
Current Assets $ 94.4 $ 68.0 $14.4 $ 82.4
Property, Plant and
Equipment, net 247.7 184.9 10.0 194.9
Other Assets 87.1 26.5 .1 26.6
------ ------ ----- ------
Total Assets 429.2 279.4 24.5 303.9
------ ------ ----- ------
Current Liabilities 49.0 33.6 1.1 34.7
Other Liabilities 93.9 20.9 - 20.9
------ ------ ----- ------
Total Liabilities 142.9 54.5 1.1 55.6
------ ------ ----- ------
Net Assets $286.3 $224.9 $23.4 $248.3
====== ====== ===== ======
</TABLE>
Net Assets Held for Disposal at March 31, 1996, represent 100 percent of the
Coal segment's net assets. The Coal segment's sales and operating revenues
were $124.3 million and $102.3 million and operating profit was $10.2 million
and $9.2 million for the three months ended March 31, 1996 and 1995,
respectively.
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>
Three Months
Ended March 31,
-----------------------------
1996 1995
-------- --------
<S> <C> <C>
Net periodic pension income $ - $ (.4)
Gain on sale of net assets held for disposal (20.8) -
Gain on sales of property, plant and equipment (.2) (.2)
Minority interest in earnings of subsidiary .9 .5
Impairment of long-lived assets 8.7 -
Litigation and environmental accruals 4.8 -
Refinery turnaround accrual 1.0 -
Recovery of advance royalties .9 .9
Other non-cash income and expense items - net .8 .5
-------- --------
$ (3.9) $ 1.3
======== ========
</TABLE>
<PAGE> 8
Changes in operating assets and liabilities consist of (in millions):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
Decrease (increase) in:
Receivables $ (28.4) $ 36.5
Inventories 8.5 (11.7)
Prepaid expenses (6.0) .9
Other current assets (5.2) .8
Other assets (2.0) .1
Increase (decrease) in:
Accounts payable (7.9) (23.0)
Accrued taxes 24.1 14.0
Accrued payroll and related expenses (.6) 2.8
Other current liabilities 1.9 4.2
Other liabilities (3.7) (.7)
-------- --------
$ (19.3) $ 23.9
======== ========
</TABLE>
Income taxes paid were $4.6 million and income taxes refunded were $11.6
million for the three months ended March 31, 1996 and 1995, respectively.
Interest paid, net of amounts capitalized, was $6.9 million and $4.9 million
for the three months ended March 31, 1996 and 1995, respectively.
Note 5 - Inventories
Inventories consist of (in millions):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Raw materials - crude oil $ 23.6 $ 24.1
-------- --------
Finished products:
Refined petroleum products 49.5 43.6
Fertilizer and natural gas liquids 12.9 24.2
Retail merchandise 22.4 22.1
Coal - 3.1
-------- --------
84.8 93.0
-------- --------
Inventories $ 108.4 $ 117.1
======== ========
</TABLE>
Excluded from the March 31, 1996, coal inventory balance was $10.8 million and
from the December 31, 1995, fertilizer and natural gas liquids, retail
merchandise and coal inventory balances were $7.2 million, $.5 million and $9.3
million, respectively, which were reclassified to Net Assets Held for Disposal
on the condensed consolidated balance sheets (see Note 3).
<PAGE> 9
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 carrying values was approximately $22.9 million at March 31, 1996 and
$16.5 million at December 31, 1995.
Note 6 - Long-Term Debt
Long-term debt consists of (in millions):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------- -----------
<S> <C> <C>
MAPCO Inc.
Commercial paper and bank money market lines $ 276.6 $ 289.7
8.43% ESOP Notes, payable in mortgage type
principal reductions annually through 2003 58.7 58.7
Medium Term Notes, various maturities through 2022 308.8 308.8
-------- --------
644.1 657.2
-------- --------
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 5.6 5.7
-------- --------
170.6 170.7
-------- --------
814.7 827.9
Less - current maturities (26.9) (26.9)
-------- --------
Long-term debt $ 787.8 $ 801.0
======== ========
</TABLE>
Interest rates on commercial paper and bank money market lines ranged from
5.35% to 6.15% during the first quarter of 1996 and from 5.83% to 6.25% during
the first quarter of 1995. Commercial paper and bank money market lines
outstanding at March 31, 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 $300 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 first bank credit agreement is for $300 million
and reduces in quarterly increments of $25 million commencing June 30, 1998.
In December 1995, MAPCO obtained an additional $50 million commitment under a
bank credit agreement which matures in December 1996. Interest on borrowings
under the bank credit agreements would be at rates generally less than the
prime interest rate. MAPCO must pay a commitment fee to maintain the bank
credit agreements. These agreements serve as a back-up for MAPCO's outstanding
commercial paper and bank money market lines. As of March 31,
<PAGE> 10
1996, no borrowings were outstanding under the bank credit agreements.
As of March 31, 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%.
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 March 31, 1996, $190 million of net
assets were restricted by such provisions.
Note 7 - Employee Benefit Plans
With respect to its Employee Stock Ownership Plan ("ESOP"), MAPCO recognized
compensation expense of $.8 million and $.7 million for the three months ended
March 31, 1996 and 1995, respectively. Interest expense on ESOP related debt
was $1.2 million and $1.3 million for the three months ended March 31, 1996 and
1995, respectively. Dividends on the allocated and unallocated MAPCO common
stock held by the ESOP were $.6 million for the three months ended March 31,
1996 and 1995, respectively, and will be used for ESOP debt service.
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
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, MAPCO Natural
Gas Liquids Inc. 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
of the death claims and substantially all of the serious injury claims
resulting from the incident. Generally, the types of remaining claims consist
of personal injury, mental anguish and property damage claims, coupled with
theories of nuisance and diminished property value.
In March 1996, a judgement was rendered in a case tried in the state district
court in Houston, Texas against Seminole, Mid-America Pipeline Company and
MAPCO (the "defendants"). The judgement totaled approximately $72 million in
actual damages, exemplary damages and interest, with only $5.4 million
<PAGE> 11
pertaining to actual damages found by the jury. Following the denial of a
motion for new trial on April 19, 1996, the defendants announced that they plan
to appeal.
The plaintiffs in cases which remain to be tried in Harris, Maverick and
Washington counties in Texas, seek unspecified amounts for actual and exemplary
damages.
Management believes that it has defenses of considerable merit and will
vigorously litigate all pending disputes 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 in connection with the final resolution of all the
remaining claims related to the explosion. The Company has also recorded a
receivable which corresponds to the remainder of its insurance coverage to be
reimbursed by its insurance carrier. 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 project and in January 1994,
Seminole completed its Aquila-LaGrange line project. At December 31, 1995,
Seminole was the plaintiff in over 70 eminent domain lawsuits in which
defendant landowners claim additional compensation for and/or damages to tracts
of land traversed by these projects in 12 counties in the state of Texas. Many
of the lawsuits claim punitive damages for alleged fraud, illegal entry and
other wrongful conduct. On March 29, 1996, the Company settled 21 of the
lawsuits for $3 million which will be capitalized as a cost of the project.
Claims in this litigation are not covered by the Company's insurance.
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.
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales and operating revenues were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended, March 31,
-----------------------------------------
1996 1995 Variance
------ ------ --------
<S> <C> <C> <C>
Natural Gas Liquids $297.6 $260.0 $ 37.6
Petroleum 448.5 420.3 28.2
Coal 124.3 102.3 22.0
Eliminations (4.6) (5.4) .8
------ ------ ------
$865.8 $777.2 $ 88.6
====== ====== ======
</TABLE>
The $37.6 million increase in Natural Gas Liquids' sales and operating revenues
was due to higher retail and wholesale propane sales and increased pipeline
revenues. Retail propane sales increased $22.1 million due to increased sales
volumes of 17.3 million gallons (15%) and an increase in average retail propane
sale prices of 7.2 cents per gallon, reflecting the impact of colder weather
conditions in the current quarter. Wholesale propane sales exceeded the first
quarter of 1995 by $5.5 million also as a result of increased volumes due to
the colder weather. Pipeline revenues increased $6.5 million principally
because of improved ethane recoveries to meet increased demand on the Gulf
Coast, and increased propane shipments to meet home heating market demand
driven by colder weather conditions in the first quarter.
Petroleum's sales and operating revenues increased $28.2 million reflecting an
increase in both refined product and Retail Marketing sales, partially offset
by lower trading sales. Refined product sales increased $76.2 million as
production increased over 1995 at both the Memphis and North Pole Refineries
reflecting increased demand and the impact of capital projects completed last
summer. Also, average product sales prices increased $2.45 per barrel at the
Memphis Refinery and $1.11 per barrel at the North Pole Refinery. Retail
Marketing sales increased $20.0 million over the 1995 first quarter due to the
impact of the acquisition of 27 stores in the Nashville, Tennessee area at the
end of March 1995, and an increase in per store merchandise sales. Sales from
trading activities decreased $68.0 million from last year's first quarter
because trading activities have been significantly curtailed since the third
quarter of 1995.
The Coal segment set a new quarterly record for tons sold during the first
quarter of 1996 at 4.3 million tons. Sales and operating revenues increased
$22.0 million over 1995 primarily due to additional brokerage volumes, higher
sales volumes at the Martiki, Mettiki and Dotiki mines, and higher average
sales prices at the Virginia Region coal mines. Tons sold at the
<PAGE> 13
Martiki mine increased 359 thousand tons (75%) reflecting the impact of
increased production from a new reserve area combined with significantly
increased sales to a major customer. Mettiki's sales volumes increased 389
thousand tons (65%) reflecting a reduction of coal inventories. Dotiki's sales
volumes improved 197 thousand tons (39%) as a result of a new raw coal sales
contract with a major customer which began in July 1995. The Virginia Region
sales increased 16% primarily due to a $1.78 per ton sales price increase
reflecting stronger metallurgical coal markets.
Outside purchases and operating expenses increased $65.4 million in the first
quarter of 1996 as compared to 1995. Details by segment are as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------
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 $ 165.8 $ 47.5 $ 138.0 $ 47.4 $ (27.8) $ (.1)
Petroleum 378.0 44.2 364.1 41.4 (13.9) (2.8)
Coal 23.1 79.1 16.6 64.8 (6.5) (14.3)
------- ------- ------- ------- ------- -------
$ 566.9 $ 170.8 $ 518.7 $ 153.6 $ (48.2) $ (17.2)
======= ======= ======= ======= ======= =======
</TABLE>
Natural Gas Liquids' outside purchases increased $27.8 million primarily as a
result of higher product costs and increased propane volumes. Colder weather
conditions during the current quarter increased demand and tightened supplies
which resulted in an 11.0 cent per gallon increase in wholesale propane costs
over last year. Operating expenses were comparable with last year.
Petroleum's outside purchases increased $13.9 million as increased purchases by
the Memphis Refinery, North Pole Refinery and Retail Marketing were mostly
offset by lower trading purchases. Refinery purchases increased $73.9 million
as crude throughput at both the Memphis and North Pole Refineries increased
over the 1995 quarter and because crude prices increased sharply over last
year. Retail Marketing purchases increased $7.6 million primarily due to the
higher volume of purchases associated with 27 stores acquired at the end of
March 1995. Trading purchases decreased $67.6 million as trading activities
have been significantly curtailed since the third quarter of 1995. Operating
expenses increased $2.8 million because of general increases at both Refineries
related to the volume increases and from higher Retail Marketing expenses due
to operating more stores in the current quarter.
Coal's outside purchases exceeded last year by $6.5 million primarily due to
increased coal brokerage activities. Operating expenses increased $14.3
million reflecting higher production levels at Martiki and increased shipping
levels at Mettiki and Dotiki.
<PAGE> 14
The decrease in depreciation, depletion and amortization is primarily
attributable to depreciation and depletion not recorded on assets held for
disposal in the Coal segment.
The effective income tax rate for the first quarter of 1996 was 35.5% compared
to 34.6% in the first quarter of 1995. The difference between the statutory
Federal income tax rate of 35% and the effective income tax rate is primarily
due to statutory depletion, partially offset by state taxes.
Operating profit for the three months ended March 31, 1996 and 1995 is detailed
below (in millions):
<TABLE>
<CAPTION>
1996 1995 Variance
------ ------ --------
<S> <C> <C> <C>
Natural Gas Liquids $ 84.8 $ 55.0 $ 29.8
Petroleum 13.2 1.0 12.2
Coal 10.2 9.2 1.0
------ ------ ------
$108.2 $ 65.2 $ 43.0
====== ====== ======
</TABLE>
Natural Gas Liquids' operating profit increased $29.8 million because of a
$20.8 million gain recognized on the sale of certain Thermogas assets to CENEX
Inc. and higher pipeline and retail propane profits. Pipeline's operating
profit increased $3.8 million (15%) primarily as a result of strong revenues
achieved in the quarter. The increase in pipeline revenues was attributable
to: (1) increased demand for ethane on the Gulf Coast in the current quarter
which prompted strong ethane recoveries and shipments by producers on the Rocky
Mountain Pipeline, and (2) colder weather conditions which significantly
increased propane demand and shipments to the home heating markets. Thermogas'
operating profit increased $5.0 million excluding the $20.8 million impact of
the CENEX Inc. transaction. Increased propane volumes, brought about by
significantly colder weather conditions in the current quarter, was the
principal reason for the increase in Thermogas' operating profit.
Petroleum's operating profit increased $12.2 million primarily because of
increased profits by the Memphis Refinery and Retail Marketing. Profits at the
Memphis Refinery increased $9.3 million over last year due to increased margins
and volumes. Margins increased $0.92 per barrel (66%) over the first quarter
of last year as sales prices increased more than crude costs. Sales of
processed product at the Memphis Refinery increased 2.0 million barrels (28%)
over last year, reflecting the impact of an expansion project completed last
summer. Retail Marketing's operating profit increased $3.0 million over the
first quarter of 1995, primarily due to higher merchandise profits. The
increase in retail merchandise profits was attributable to a 24% increase in
merchandise volumes, reflecting the impact of 27 stores acquired in March 1995
and increased merchandise volumes on a per store basis. The North Pole
Refinery's operating profit was comparable with last year as an increase in
volumes was offset by lower margins.
<PAGE> 15
Coal's first quarter operating profit was comparable to the prior year.
MAPCO's consolidated first quarter 1996 net income was $55.2 million or $1.90
per share, compared to $29.0 million or $0.97 per share in 1995. Excluding
the impact of the CENEX Inc. transaction, net income in the 1996 quarter was
$41.8 million or $1.44 per share. Average common shares outstanding were 29.0
million in 1996 and 29.9 million in 1995.
FINANCIAL CONDITION
Cash Generation
Cash generation was as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended, March 31, 1996 1995
- ----------------------------- -------- --------
<S> <C> <C>
Funds provided by operations $ 73.1 $ 64.4
Changes in operating assets and liabilities (19.3) 23.9
-------- --------
Net cash provided by operating activities 53.8 88.3
Net cash provided by (used in)
investing activities 10.4 (44.0)
Net cash used in financing activities (49.8) (38.9)
-------- --------
Cash generation $ 14.4 $ 5.4
======== ========
</TABLE>
The increase in funds provided by operations was primarily due to improved
operating results in the Natural Gas Liquids' segment and the Petroleum segment
during the first quarter of 1996 as compared to the first quarter of 1995.
The negative impact of changes in operating assets and liabilities in 1996 was
primarily attributable to: (a) the payment of propane purchases made at the end
of 1995 to build-up inventories in anticipation of the home heating season and
(b) an increase in receivables resulting from strong sales and operating
revenues during the first quarter of 1996. These negative items were partially
offset by a decrease in propane inventories and an increase in accrued taxes
resulting from the timing of estimated Federal income tax payments.
The change in operating assets and liabilities during the first three months of
1995 was primarily attributable to an increase in accrued taxes related to the
impact of the State Royalty Oil settlement which resulted in a significant tax
refund during the first quarter of 1995.
Cash generated from investing activities during the first three months of 1996
included $43.0 million of proceeds from Thermogas' sale of its Iowa propane
assets and its liquid fertilizer assets to CENEX Inc. These proceeds were
partially offset by $32.3 million of capital expenditures, of which $14.3
million was for capital items necessary to maintain existing
<PAGE> 16
operations. Capital expenditures in 1996 also included $4.3 million for the
expansion of the Hobbs Station in west Texas and $3.9 million for a saturated
gas plant expansion at the Memphis Refinery. Cash used in investing activities
during the first three months of 1995 consisted of $44.6 million of capital
expenditures, of which $17.2 million was for capital items necessary to
maintain existing operations. Capital expenditures in 1995 also included $10.3
million for the acquisition of 27 retail gasoline/convenience stores in the
Nashville, Tennessee market area.
Cash used in financing activities for the first three months of 1996 included
the repurchase of 519,200 shares of MAPCO common stock for $28.9 million, a net
decrease in short-term debt of $13.1 million and the payment of $7.9 million of
dividends. Cash used in financing activities for the first three months of
1995 included a net reduction in short-term borrowings of $26.6 million,
dividend payments of $7.5 million and the repayment of $3.1 million of
fixed-rate debt.
Capitalization
Capitalization, which includes long-term debt (excluding current maturities)
and stockholders' equity, increased from $1,443.3 million at December 31, 1995
to $1,449.6 million at March 31, 1996. The increase represents the favorable
impact of 1996 operating results on stockholders' equity, partially offset by
the repurchase of MAPCO common stock, a net decrease in short-term debt and the
payment of dividends. MAPCO's long-term debt as a percentage of capitalization
was 54% at March 31, 1996 compared to 56% at December 31, 1995.
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 March 31, 1996, $190 million of net
assets were restricted by such provisions.
Liquidity and Capital Resources
MAPCO's primary sources of liquidity are its cash and cash equivalents,
internal cash generation, and external financing. At March 31, 1996, MAPCO had
$47.7 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.
<PAGE> 17
Both agreements serve as a back-up for commercial paper and for borrowings
against bank money market lines. As of March 31, 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 March 31, 1996, 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.
In January 1996, MAPCO signed a letter of intent to sell 75 percent of
substantially all of the net assets of the Coal segment. The Company is
continuing discussions to sell its Coal business, but now expects that 100
percent of the Coal segment will be divested. The Company is also considering
a spin-off of the Coal business to its shareholders. The Company anticipates
the majority of any proceeds from the divestiture of the Coal segment will be
used for capital expenditures, share repurchases and/or debt reduction.
On March 29, 1996, the Company sold its Thermogas Iowa propane and fertilizer
assets and its remaining Thermogas liquid fertilizer assets in Arkansas,
Illinois, Indiana, Ohio, Minnesota and Wisconsin to CENEX Inc. The transaction
resulted in proceeds of $43.0 million which were used primarily for capital
expenditures, share repurchases and debt reduction.
MAPCO's existing debt and credit agreements contain covenants which 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 in 1996 are expected to be approximately $170 million, of
which $115 million will be for acquisitions and expansion projects. MAPCO
expects to utilize cash from operations and funding sources, as needed, to meet
anticipated 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.
<PAGE> 18
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Exhibit 11 - Statement Regarding Computation of per
Share Earnings.
Exhibit 12 - Computation of Ratio of Earnings to Fixed
Charges.
Exhibit 27 - Financial Data Schedule.
(b). Reports on Form 8-K
Current Report on Form 8-K filed January 17, 1996, regarding the
Company's announcement of its intention to sell a majority
interest in its coal business.
Current Report on Form 8-K filed on February 1, 1996, announcing
the finalization of negotiations regarding the award of a coal
supply contract by Virginia Electric & Power Company to Mettiki
Coal Corporation.
Current Report on Form 8-K filed February 20, 1996, regarding a
civil jury award against the Company and two of its affiliated
companies in connection with a 1992 explosion at a storage cavern
near Brenham, Texas.
Current Report on Form 8-K filed March 12, 1996, regarding civil
judgment entered into against the Company and two of its
affiliated companies in connection with a 1992 explosion at a
storage cavern near Brenham, Texas.
<PAGE> 19
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: May 10, 1996 /s/ PHILIP W. BAXTER
---------------- ----------------------------
Philip W. Baxter
Senior Vice President and
Chief Financial Officer
Date: May 10, 1996 /s/ GORDON E. SCHAECHTERLE
---------------- ----------------------------
Gordon E. Schaechterle
Vice President, Controller
and Tax
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <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>
<PAGE> 1
EXHIBIT 11
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Dollars and Shares in Millions
except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------
1996 1995
------ ------
<S> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Computation for Consolidated Statements of Income
Net income (a) $ 55.2 $ 29.0
====== ======
Weighted average common shares outstanding 29.0 29.9
Common stock equivalents (stock options) - -
------ ------
Weighted average common shares outstanding (a) 29.0 29.9
====== ======
Primary earnings per common share (a) (c) $ 1.90 $ .97
====== ======
Additional Primary Computation
Net income (a) $ 55.2 $ 29.0
====== ======
Weighted average common shares outstanding (a) 29.0 29.9
Dilutive effect of outstanding options .1 .1
------ ------
Weighted average common shares outstanding,
as adjusted 29.1 30.0
====== ======
Primary earnings per common share,
as adjusted (b) $ 1.90 $ .97
====== ======
FULLY DILUTED EARNINGS PER COMMON SHARE
Additional Fully Diluted Computation
Net income (a) $ 55.2 $ 29.0
====== ======
Weighted average common shares outstanding (a) 29.0 29.9
Dilutive effect of outstanding options .2 .1
------ ------
Weighted average common shares outstanding,
as adjusted 29.2 30.0
====== ======
Fully diluted earnings per common share,
as adjusted (b) $ 1.89 $ .97
====== ======
</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%.
<PAGE> 1
EXHIBIT 12
MAPCO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996 1995 1994 1993 1992 1991
------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Earnings as defined:
Income before provision for income taxes ........ $ 87.0 $114.2 $116.6 $202.9 $144.6 $182.6
Fixed charges.................................... 16.8 66.2 60.1 55.3 60.1 63.9
Capitalized interest included in fixed charges... - (1.7) - (2.8) (2.0) (1.2)
Amortization of capitalized interest............. 1.0 3.5 3.4 3.5 3.5 3.3
------- ------ ------ ------ ------ ------
Total................................. $ 104.8 $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).................. $ 15.4 $ 58.7 $ 53.7 $ 46.9 $ 51.7 $ 55.5
Capitalized interest............................. - 1.7 - 2.8 2.0 1.2
Portion of rentals representative of the interest
factor......................................... 1.4 5.8 6.4 5.6 6.4 7.2
------- ------ ------ ------ ------ ------
Total................................. $ 16.8 $ 66.2 $ 60.1 $ 55.3 $ 60.1 $ 63.9
======= ====== ====== ====== ====== ======
Ratio of earnings to fixed charges................. 6.2 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 MARCH 31, 1996, AND MAPCO INC.'S
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 47,700
<SECURITIES> 0
<RECEIVABLES> 253,100
<ALLOWANCES> 1,800
<INVENTORY> 108,400
<CURRENT-ASSETS> 749,400
<PP&E> 2,080,100
<DEPRECIATION> 764,600
<TOTAL-ASSETS> 2,238,300
<CURRENT-LIABILITIES> 428,400
<BONDS> 787,800
<COMMON> 0
0
62,900
<OTHER-SE> 598,900
<TOTAL-LIABILITY-AND-EQUITY> 2,238,300
<SALES> 865,800
<TOTAL-REVENUES> 865,800
<CGS> 0
<TOTAL-COSTS> 737,700
<OTHER-EXPENSES> 25,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,300
<INCOME-PRETAX> 87,000
<INCOME-TAX> 30,900
<INCOME-CONTINUING> 55,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,200
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.89
</TABLE>
