Marathon Petroleum Corporation — FY 2012 Form 10-K
Reporting period: Year ended December 31, 2012. The filing also reports fourth-quarter results. Unless noted, amounts are in U.S. dollars. The company operated refining and marketing, Speedway retail, and pipeline transportation businesses. Its February 1, 2013 Galveston Bay acquisition occurred after the reporting period and is not included in 2012 operating results.
Financial performance and position
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $82.24 billion | $78.64 billion |
| Income from operations | $5.35 billion | $3.75 billion |
| Net income attributable to MPC | $3.39 billion | $2.39 billion |
| Diluted EPS | $9.89 | $6.67 |
| Cash from operating activities | $4.49 billion | $3.31 billion |
| Capital expenditures and investments | $1.46 billion | $1.32 billion |
| Cash and cash equivalents at year-end | $4.86 billion | $3.08 billion |
| Total debt, including capital leases | $3.36 billion | $3.31 billion |
- Refining & Marketing generated $5.10 billion of operating income, up from $3.59 billion. Its reported gross margin increased to $10.45 per barrel from $7.75, chiefly reflecting stronger crack spreads and wider sweet/sour differentials.
- Speedway operating income rose to $310 million from $271 million; Pipeline Transportation income rose to $216 million from $199 million.
- 2012 operating cash flow increased by $1.18 billion year over year; working-capital changes used $428 million of cash. Cash generation funded investment, dividends, and $1.35 billion of share repurchases.
- Year-end debt-to-total-capital ratio was 22%, compared with 26% in 2011. Reported liquidity was $7.86 billion, including cash, a $2.0 billion revolving facility and a $1.0 billion receivables facility; neither facility was drawn. A revolver increase to $2.5 billion became effective in February 2013.
- Q4 2012 revenue was $20.69 billion and net income attributable to MPC was $755 million, versus $19.42 billion and a $75 million loss in Q4 2011.
Material changes and notable items
- Net income attributable to MPC rose $1.00 billion year over year, primarily on improved refining margins. Refinery crude throughput was 1.195 million barrels per day, versus 1.177 million in 2011.
- The $2.2 billion Detroit heavy-oil upgrade was completed in 2012, increasing the refinery’s crude capacity to 120,000 barrels per day and heavy-crude capability to about 100,000 barrels per day.
- The company formed and consolidated MPLX, selling a 26.4% public interest through its October 2012 IPO; MPC retained a 73.6% interest. Speedway acquired 97 stores, ending the year with 1,464.
- 2012 results included a $183 million pretax gain from settlement with the buyer of the Minnesota assets and $124 million of pretax pension settlement expense.
- On February 1, 2013, MPC acquired the 451,000-barrel-per-day Galveston Bay refinery and related assets for about $598 million plus approximately $900 million of inventory. A contingent earnout of up to $700 million may be payable over six years. The acquisition increased stated refining capacity to approximately 1.7 million barrels per day.
Outlook, risks and contingencies
- The 2013 capital and investment budget is $1.62 billion, excluding capitalized interest and the Galveston Bay purchase price. It includes $1.02 billion for Refining & Marketing, $255 million for Speedway, and $184 million for Pipeline Transportation. Management described the budget as subject to change with conditions.
- Management cited growth opportunities in refinery yield and export projects, Utica Shale crude and condensate infrastructure, midstream expansion through MPLX, and Speedway store growth. It also authorized $2.65 billion of share repurchases through December 2014; the board approved a $0.35-per-share dividend payable in March 2013.
- Key risks include volatile refining margins and crude differentials, supply and transport disruptions, unplanned outages, intense retail competition, labor negotiations, and environmental and fuel-regulation costs. The filing says potential impacts of proposed climate, air-quality and renewable-fuel rules cannot yet be reliably estimated; it also notes the discovery of fraudulent biodiesel RINs in 2012.
- Environmental remediation liabilities were $123 million at year-end, with $51 million of related recoverable-cost receivables. The Kentucky emergency-pricing suit alleges $89 million of customer overcharges; management stated it was vigorously defending the case and did not expect a material adverse outcome, while acknowledging an unfavorable resolution could be material. Other environmental enforcement matters were pending.
- Guarantees include maximum potential undiscounted payments of $172 million for LOOP/LOCAP financing, $47 million for Centennial debt, and $25 million for TAME bond financing. The filing also describes uncapped indemnification obligations connected with the Marathon Oil spinoff and associated tax matters.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end. The independent auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether the unusually strong 2012 refining margins and crude-price differentials persisted, and how sensitive earnings are to margin changes.
- Galveston Bay integration, realized synergies, required capital spending, inventory funding, and any earnout payments.
- Operating cash flow after working-capital movements and planned capital spending, dividends, and buybacks.
- Updates on the Kentucky pricing litigation, environmental matters, guarantees, and spinoff-related indemnities.
- Comparability of prior-period results: 2011 includes pre-spinoff periods, and 2010–2011 figures also reflect the Minnesota asset sale in December 2010.