<PAGE>
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 1-11392
CLARK REFINING & MARKETING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1491230
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8182 MARYLAND AVENUE 63105-3721
ST. LOUIS, MISSOURI (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 854-9696
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 (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( ).
Number of shares of registrant's common stock, $.01 par value, outstanding as of
November 12, 1993: 100, all of which are indirectly owned by The Horsham
Corporation.
- - --------------------------------------------------------------------------------
<PAGE>
[Coopers & Lybrand Letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Clark Refining & Marketing, Inc.:
We have reviewed the accompanying balance sheet of Clark Refining & Marketing,
Inc. (formerly Clark Oil & Refining Corporation) (a Delaware Corporation and
wholly-owned subsidiary of Clark R&M Holdings, Inc.) as of September 30, 1993,
and the related statements of earnings for the three-month and nine-month
periods ended September 30, 1993 and 1992 and statements of cash flows for the
nine-month periods ended September 30, 1993 and 1992. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Clark Refining & Marketing, Inc. as of December
31, 1992, and the related statements of earnings, stockholder's equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 1, 1993, except for Notes 6 and 7 for which the date is February 17,
1993, we expressed an unqualified opinion on those statements.
In our opinion, the information set forth in the accompanying balance sheet as
of December 31, 1992 is fairly stated, in all material respects, in relation to
the financial statements from which it has been derived.
/s/ Coopers & Lybrand
COOPERS & LYBRAND
St. Louis, Missouri
October 27, 1993
<PAGE>
CLARK REFINING & MARKETING, INC.
BALANCE SHEETS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
ASSETS Reference September 30, December 31,
Note 1993 1992
--------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 42,829 $ 18,643
Short-term investments 119,621 187,487
Accounts receivable 56,064 52,150
Inventories 2 162,432 151,083
Prepaid expenses and other 15,870 23,178
-------- --------
Total current assets 396,816 432,541
PROPERTY, PLANT AND EQUIPMENT 355,881 320,870
OTHER ASSETS 3 36,306 34,384
-------- --------
$789,003 $787,795
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 97,872 $107,211
Accrued expenses and other 4 47,028 45,902
Accrued taxes other than income 29,010 34,370
-------- --------
Total current liabilities 173,910 187,483
LONG-TERM DEBT 401,498 401,514
DEFERRED TAXES 6 42,004 44,593
LIABILITY FOR POSTRETIREMENT BENEFITS 6 16,540 --
STOCKHOLDER'S EQUITY:
Common stock ($.01 par value per share;
1,000 shares authorized and 100 shares
issued and outstanding)
Paid-in capital 30,000 30,000
Retained earnings 6 125,051 124,205
-------- --------
Total stockholder's equity 155,051 154,205
-------- --------
$789,003 $787,795
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CLARK REFINING & MARKETING, INC.
STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months
ended September 30,
Reference --------------------
Note 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
NET SALES AND OPERATING REVENUES $ 549,024 $ 615,751
EXPENSES:
Cost of sales (459,053) (542,732)
Operating expenses (56,219) (54,301)
General and administrative expenses (6,667) (6,303)
Depreciation (5,864) (5,274)
Amortization 3 (3,141) (2,296)
--------- ---------
(530,944) (610,906)
--------- ---------
OPERATING INCOME 18,080 4,845
Interest and financing costs, net 3, 4 (8,607) (5,546)
Other income 5 -- --
--------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 9,473 (701)
Income tax provision 6 (3,244) (138)
--------- ---------
EARNINGS (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 6,229 (839)
Extinguishment of debt (net of
taxes of $7,192) -- (11,538)
--------- ---------
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 6,229 (12,377)
Cumulative effect of change in accounting
principle 6 -- --
--------- ---------
NET EARNINGS (LOSS) $ 6,229 $ (12,377)
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
CLARK REFINING & MARKETING, INC.
STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands)
For the nine months
ended September 30,
Reference -------------------------
Note 1993 1992
--------- ----------- -----------
<S> <C> <C> <C>
NET SALES AND OPERATING REVENUES $ 1,719,067 $ 1,685,303
EXPENSES:
Cost of sales (1,485,186) (1,463,164)
Operating expenses (162,009) (156,285)
General and administrative expenses (19,350) (19,490)
Depreciation (17,244) (15,745)
Amortization 3 (8,652) (6,902)
----------- -----------
(1,692,441) (1,661,586)
----------- -----------
OPERATING INCOME 26,626 23,717
Interest and financing costs, net 3, 4 (21,714) (21,157)
Other income 5 11,370 --
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 16,282 2,560
Income tax provision 6 (5,841) (20)
----------- -----------
EARNINGS BEFORE EXTRAORDINARY ITEM
AND CHANGE IN ACCOUNTING PRINCIPLE 10,441 2,540
Extinguishment of debt
(net of taxes of $7,192) -- (11,538)
----------- -----------
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 10,441 (8,998)
Cumulative effect of change in accounting
principle (net of taxes of $5,992) 6 (9,595) --
----------- -----------
NET EARNINGS (LOSS) $ 846 $ (8,998)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CLARK REFINING & MARKETING, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
--------------------
1993 1992
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 846 $ (8,998)
Extraordinary item -- 11,538
Cumulative effect of change in accounting principle 9,595 --
Non-cash items:
Depreciation 17,244 15,745
Amortization 9,540 9,353
Share of earnings of affiliates (2,439) (1,904)
Deferred taxes 6,935 (473)
Other 953 (173)
Cash provided by (reinvested in) working capital -
Accounts receivable, prepaid expenses and other (3,647) (14,751)
Inventories (11,349) (2,601)
Accounts payable, accrued expenses, taxes other
than income, and other (14,324) 10,410
-------- ---------
Net cash provided by operating activities 13,354 18,146
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (92,835) (608,215)
Sales of short-term investments 160,902 646,356
Expenditures for property, plant and equipment (55,381) (45,428)
Expenditures for turnaround (17,989) (1,931)
Payment received on CMAT, Inc. note 10,000 --
Proceeds from disposals of property, plant and
equipment 4,477 993
Dividends received from nonconsolidated affiliates 2,454 1,568
Other investing activity (201) 1,052
-------- ---------
Net cash provided by (used in) investing
activities 11,427 (5,605)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- 175,000
Long-term debt payments (315) (207,334)
Deferred financing costs (579) (6,021)
Other 299 135
-------- ---------
Net cash used in financing activities (595) (38,220)
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 24,186 (25,679)
CASH AND CASH EQUIVALENTS, beginning of period 18,643 45,320
-------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 42,829 $ 19,641
======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FORM 10-Q - PART I
ITEM 1 Financial Statements (continued)
Clark Refining & Marketing, Inc. (formerly Clark Oil & Refining Corporation)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
September 30, 1993
1. Basis of Preparation
The unaudited interim financial statements of Clark Refining & Marketing,
Inc. (the "Company" or "Clark"), a Delaware corporation, as of September 30,
1993 and 1992, and for the three month and nine month periods then ended, have
been reviewed by independent accountants. As discussed in Note 6 below, the
financial information for the three month and nine month periods ended September
30, 1992 and at December 31, 1992 presented herein have been restated for the
adoption of SFAS 109. In the opinion of the management of the Company, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial statements have been included therein. The
results of these interim periods are not necessarily indicative of results for
the entire year.
The financial statements have been prepared in accordance with the
instructions to Form 10-Q. Accordingly, certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These unaudited
statements should be read in conjunction with the audited financial statements
and notes thereto for the year ended December 31, 1992.
2. Inventories
The carrying value of inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1993 1992
-------------- ------------
(in thousands)
<S> <C> <C>
Crude oil................... $ 59,233 $ 46,120
Refined and blend stocks.... 84,988 89,064
Convenience products........ 11,756 10,480
Warehouse stock and other... 6,455 5,419
-------- --------
$162,432 $151,083
======== ========
</TABLE>
The market value of these inventories at September 30, 1993, was
approximately $7.6 million (December 31, 1992 - $13.2 million) higher than the
carrying value.
3. Other Assets
Amortization of deferred financing costs for the three month and nine
month periods ended September 30, 1993, was $0.3 million (1992 - $0.8 million)
and $0.9 million (1992 - $2.5 million), respectively, and is included in
"Interest and Financing Costs, Net".
Amortization of turnaround costs for the three month and nine month
periods ended September 30, 1993, was $3.1 million (1992 - $2.2 million) and
$8.6 million (1992 - $6.8 million), respectively.
<PAGE>
4. Interest and Financing Costs, Net
Interest and financing costs, net, consisted of the following:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
1993 1992 1993 1992
-------- -------- -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Interest expense....... $11,351 $11,470 $30,298 $ 35,624
Financing costs........ 376 784 1,147 3,128
Interest income........ (2,309) (5,163) (7,403) (13,698)
------- ------- ------- --------
9,418 7,091 24,042 25,054
Capitalized interest... (811) (1,545) (2,328) (3,897)
------- ------- ------- --------
$ 8,607 $ 5,546 $21,714 $ 21,157
======= ======= ======= ========
</TABLE>
Accrued interest payable at September 30, 1993, of $8.7 million
(December 31, 1992 - $6.7 million) is included in "Accrued Expenses and Other".
5. Other Income
Final settlement was reached in the first quarter of 1993 on the
litigation arising out of funds on deposit with Drexel Burnham Lambert Trade
Finance, Inc. ("Drexel") at the time of their bankruptcy. The settlement with
Drexel, Drexel Burnham Lambert Group Inc. and Internationale Nederlanden Bank
N.V. resulted in the recognition of other income of $8.5 million.
In June, 1993, Clark sold 21 "non-core" retail stores in Kentucky and
Minnesota, which resulted in the recognition of other income of $2.9 million.
6. Changes in Accounting Principles
On January 1, 1993, Clark adopted Statement of Financial Accounting
Standards No. 106 ("SFAS 106"), "Employer's Accounting for Postretirement
Benefits Other Than Pensions." This standard requires that Clark accrue the
actuarially determined costs of postretirement benefits during the employees'
active service periods. Previously, Clark had accounted for these benefits on a
"pay as you go" basis, recognizing an expense when an obligation was paid. In
accordance with SFAS 106, Clark elected to recognize the cumulative liability, a
non-cash "Transition Obligation" of $9.6 million, net of the tax benefit of $6.0
million, as of January 1, 1993.
A discount rate of 8.0% was assumed as well as a 5.0% rate of increase
in the compensation level. For measuring the expected postretirement benefit
obligation, the health care cost trend rate ranged from 9.8% to 14.0% in 1993,
grading down to an ultimate rate in 2001 of 6.0%. The effect of increasing the
average health care cost trend rates by one percentage point would be
immaterial.
<PAGE>
The following table sets forth the determination of the transition
obligation for the health and life insurance plans at January 1, 1993:
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation
Retirees...................................... $ 7,223
Fully eligible plan participants.............. 6,314
Other plan participants....................... 2,050
-------
Total....................................... 15,587
Accrued postretirement benefit cost............. --
Less: Plan assets at fair value................ --
-------
Transition obligation........................... $15,587
=======
</TABLE>
On January 1, 1993, Clark adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." This standard
requires the use of the liability method for computing deferred income taxes and
provides for restatement of prior years' financial statements to record the
effect of adopting SFAS 109. As a result of the restatement of prior years,
deferred income taxes has increased and retained earnings has decreased at
December 31, 1992 and December 31, 1991 by $8.4 million and $5.2 million,
respectively.
During the quarter ended September 30, 1993, Clark charged approximately
$1.4 million to earnings to adjust for the effect on cumulative temporary
differences of the increase in the federal tax rate from 34% to 35% created by
the Revenue Reconciliation Act of 1993.
For the three month and nine month periods ended September 30, 1992, the
net loss before the retroactive application of SFAS 109 was $12.1 million and
$8.1 million, respectively. The respective effect of the retroactive
application of SFAS 109 on these periods' earnings was a $0.3 million and $0.9
million increase in the tax provision, resulting in a net loss after retroactive
application of SFAS 109 of $12.4 million and $9.0 million, respectively.
The following represents the approximate tax effect of each significant
temporary difference giving rise to deferred tax liabilities and assets.
<TABLE>
<CAPTION>
September 30, December 31,
1993 1992
------------- ------------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment................ $52,874 $42,183
Other........................................ 24,820 23,978
------- -------
77,694 66,161
------- -------
Deferred tax assets:
Alternative minimum tax credit............... 15,994 9,458
Other........................................ 22,444 18,391
------- -------
38,438 27,849
------- -------
Net deferred tax liability..................... 39,256 38,312
Current portion - included in "Prepaid
Expenses and Other"........................... 2,748 6,281
------- -------
Deferred taxes................................. $42,004 $44,593
======= =======
</TABLE>
7. Contingencies
Forty-one individual civil suits by residents of Hartford, Illinois have
been filed against Clark in Madison County Illinois, alleging damage from
groundwater contamination. The relief sought in each of these cases is an
unspecified dollar amount. The litigation proceedings are in the initial stages
and discovery which could be lengthy and complex, has not yet begun. Clark moved
to dismiss the thirty-four cases filed in December 1991 on the ground that Clark
is not liable for alleged activity of Old Clark. On September 4, 1992 the trial
court granted Clark's motions to dismiss. The plaintiffs were given leave to
re-file their complaints but only on alleged activity of Clark occurring since
November 8, 1988, the date on which the bankruptcy court with jurisdiction over
Old Clark's bankruptcy proceedings issued its "free and clear" order. In
November 1992, the
<PAGE>
plaintiffs filed thirty-three amended complaints. In addition, one new
complaint involving nine plaintiffs was filed. The litigation proceedings are
in the early stages and Clark cannot predict whether any of these cases will go
to trial.
Clark is subject to certain governmental regulations and legal proceedings
arising in the ordinary course of business. Management is of the opinion that
the outcome of these proceedings will not have a material adverse effect on the
financial position or results of operations of Clark.
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following tables reflect Clark's financial and operating highlights
for the three and nine month periods ended September 30, 1993 and 1992. All
dollars listed are in millions except per barrel or gallon information.
Financial Results:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------- --------------------
1993 1992 1993 1992
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Retail $19.9 $ 11.9 $ 41.6 $ 26.7
Refining 13.8 6.9 30.3 39.1
General and administrative (6.7) (6.4) (19.5) (19.5)
Depreciation and amortization (9.0) (7.6) (25.9) (22.7)
Interest and financing costs (8.6) (5.5) (21.7) (21.1)
Other income -- -- 11.4 --
----- ------ ------ ------
9.4 (0.7) 16.2 2.5
Income tax (provision) benefit (3.2) (0.2) (5.8) --
----- ------ ------ ------
6.2 (0.9) 10.4 2.5
Extinguishment of debt -- (11.5) -- (11.5)
----- ------ ------ ------
6.2 (12.4) 10.4 (9.0)
Change in accounting principle
(SFAS 106) -- -- (9.6) --
----- ------ ------ ------
Net earnings (loss) $ 6.2 $(12.4) $ 0.8 $ (9.0)
===== ====== ====== ======
</TABLE>
Net earnings from operations for the third quarter improved as retail
market conditions and refinery productivity improved over the year ago period.
The prior year's third quarter included an extraordinary item of $11.5 million
related to the extinguishment of Clark's 12 1/4% First Mortgage Fixed Rate Notes
due July 15, 1996. Net earnings from operations for the first nine months of
1993 were negatively affected by reduced production associated with the
scheduled maintenance turnaround at Clark's Blue Island, Illinois refinery and
overall lower Midwest refining margins. Nine month net earnings include a
second quarter pre-tax gain of $2.9 million related to the sale of 21 retail
stores located in "non-core" markets and the favorable first quarter settlement
of litigation relating to funds that were on deposit with Drexel Burnham Lambert
Trade Finance, Inc. which contributed $8.5 million of pre-tax earnings (see Note
5 "Other Income" to the financial statements). In addition, effective January
1, 1993, Clark adopted the provisions of Statement of Financial Accounting
Standards No. 106 "Employer's Accounting for Postretirement Benefits Other Than
Pensions" and No. 109 "Accounting for Income Taxes". See Note 6 "Changes in
Accounting Principles" to the financial statements for further details on these
charges.
Net sales and operating revenues decreased 10.8% for the quarter, but
were up 2.0% for the first nine months from the same periods in 1992. The third
quarter decline in net sales and operating revenues reflected a drop in crude
and related product prices from the year ago period. For the quarter and first
nine months retail gasoline volumes were up 7.1% and 9.3%, respectively, from
the year ago periods and wholesale sales volumes were up 25.4% and 21.6%,
respectively, from the year ago periods.
<PAGE>
Retail
Operating Statistics:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
1993 1992 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gasoline volume (millions of gallons) 257.6 240.6 770.0 704.6
Gasoline volume (thousand gallons
per month per store) 101.3 90.5 98.8 88.3
Gasoline gross margin per gallon 12.9c 9.9c 10.6c 9.3c
Gasoline gross margin (millions) $ 33.2 $ 23.9 $ 81.3 $ 65.4
Company operated stores (end of
quarter) 838 875 838 875
Dealer operated stores (end of quarter) 10 11 10 11
Convenience product sales (millions) $ 58.2 $ 54.5 $ 166.2 $ 151.0
Convenience product sales (per month
per store) $22,892 $19,722 $21,328 $18,924
Convenience product gross margin 25.4% 24.2% 25.5% 23.7%
Convenience product gross margin
(millions) $ 14.7 $ 13.2 $ 42.4 $ 35.8
Convenience product gross margin
(per month per store) $ 5,798 $ 4,956 $ 5,437 $ 4,491
Operating expenses (millions) ($28.0) ($25.2) ($82.1) ($74.5)
Contribution to operating income
(millions) $ 19.9 $ 11.9 $ 41.6 $ 26.7
</TABLE>
The retail division contributed $19.9 million (1992 - $11.9 million) to
Clark's operating income in the third quarter of 1993 and $41.6 million (1992 -
$26.7 million) for the first nine months. Gasoline margins per gallon averaged
12.9c (1992 - 9.9c) for the quarter and 10.6c (1992 - 9.3c) for the first nine
months of 1993. Third quarter margins per gallon were strengthened versus the
prior year principally due to improved retail market conditions during a period
of falling product costs. Improved productivity and increased promotional
activity contributed to a 7.1% increase in 1993 third quarter and 9.3% increase
in nine month retail gasoline volumes. In the first quarter the company ran a
promotion which offered higher octane grades at the same price as regular
unleaded. This promotion was designed to attract new customers and increase
higher margin premium and extra unleaded sales on a long-term basis and had a
favorable impact on nine month results. The above factors combined to improve
the third quarter 1993 margin from gasoline sales by 38.9% versus the prior year
with an improvement of 24.3% for the first nine months compared to the year-ago
period. Average gasoline volumes per month per store for the 1993 first nine
months and third quarter were up 11.9% over the comparable periods a year ago.
The gross margin from convenience product sales for the three months ended
September 30, 1993 was $14.7 million (1992 - $13.2 million) up 11.4% from the
year-ago period and the nine month gross margin of $42.4 million (1992 - 35.8
million) was up 18.4% versus the comparable period in the prior year. This
improvement was principally due to improved vendor allowances attributed to the
new brand management department, the carry-over effect of the promotion
mentioned above and store marketing and incentive plans. Average contribution
from convenience product sales per month per store for the 1993 third quarter
and first nine months were up 17.0% and 21.1%, respectively, versus the year-ago
period.
Third quarter operating expenses in the retail division of $28.0 million
(1992 - $25.2 million) rose 11.1% over last year's third quarter and first nine
months operating expenses were up 10.2% versus the prior year principally as a
result of increased promotional expenses and higher labor costs.
<PAGE>
Refining
Operating Statistics:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
1993 1992 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Crude oil throughput (thousand
barrels per day) 131.4 126.6 119.8 129.3
Production (thousand barrels per day) 139.5 139.6 130.1 141.0
Utilization 107.3% 107.4% 100.1% 108.5%
Gross margin per barrel $ 3.28 $ 2.80 $ 3.10 $ 3.13
Gross margin (millions) $ 42.0 $ 36.0 $ 110.2 $ 120.9
Operating expenses (millions) ($28.2) ($29.1) ($79.9) ($81.8)
Contribution to operating income
(millions) $ 13.8 $ 6.9 $ 30.3 $ 39.1
</TABLE>
The refining division contributed $13.8 million (1992 - $6.9 million) to
Clark's operating income during the third quarter of 1993 and $30.3 million
(1992 - $39.1 million) for the first nine months. Third quarter refining
division results improved on the strength of recent productivity improvements,
heavy oil and wholesale margins, despite inventory losses incurred relating to a
drop in crude and product prices. Additionally, Midwest flooding and the
related significant drop in Midwest #2 oil prices hurt earnings. The principal
reasons for the drop in contribution in the first nine months from the year-ago
period were lower Midwest refining margins and reduced production at the Blue
Island refinery associated with a scheduled maintenance turnaround which began
in early March and was completed at the end of April. Refinery production for
the three months ended September 30, 1993 averaged 139,500 barrels per day
(107.3% utilization rate) versus 139,600 barrels per day (107.4% utilization
rate) in the year-ago period and refinery production for the nine months ended
September 30, 1993 averaged 130,100 barrels per day (100.1% utilization rate)
versus 141,000 barrels per day (108.5% utilization rate) in the comparable
period a year-ago. Refining margins averaged $3.28 per barrel (1992 - $2.80 per
barrel) during the third quarter and $3.10 per barrel (1992 - $3.13 per barrel)
for the first nine months. Despite the American Petroleum Institute reporting
an apparent modest increase in demand in the first nine months of 1993, the
markets remain under pressure by ample product supplies resulting from additions
to industry cracking capability over the past year and high industry refining
runs.
General and Administrative; Depreciation and Amortization
Third quarter general and administrative expenses of $6.7 million (1992 -
$6.4 million) were slightly over the 1992 third quarter while the $19.5 million
for the first nine months matched the prior year, which included charges related
to an early retirement and severance program. Third quarter depreciation and
amortization expenses of $9.0 million increased by $1.4 million compared to a
year-ago and first nine months expenses were up $3.2 million versus the prior
year. Depreciation and amortization increased versus the prior year principally
due to increased amortization related to the recently completed maintenance
turnaround at Blue Island and final adjustments recorded in the first quarter
related to the 1990 Blue Island turnaround. In addition, depreciation expense
rose due to the cumulative effect of increased levels of capital spending.
Interest and Financing Costs, Net
Net interest and financing costs of $8.6 million (1992 - $5.5 million) for
the quarter increased over the year ago period due to investment trading gains
being recognized last year. Nine month net interest and financing costs of $21.7
million compared with $21.1 million in the year ago period.
Other Income
See Note 5 "Other Income" to the financial statements.
<PAGE>
Outlook
Clark believes the demand for refined products could grow modestly over the
next several years, but expects that regulatory requirements and costs of entry
will limit the industry's ability to meet demand. High current industry
refinery utilization and the expected closure of marginal refineries due to
increasing requirements for regulatory capital investments may result in a
positive long-term outlook for the refining and marketing industry, but in the
near-term, Clark is looking to achieve significant productivity gains to secure
its ongoing profitability. Management believes Clark is positioned to
successfully meet these challenges through its strategically located refining,
distribution and marketing systems and highly motivated, empowered workforce.
Clark is pursuing acquisitions which would provide increased retail store
concentration in core markets and additional refining flexibility.
Liquidity and Capital Resources
Cash generated by operating activities, before working capital changes, for
the nine months ended September 30, 1993 improved to $42.7 million from $25.1
million in the year-ago period. Cash reinvested in working capital increased
principally due to increased inventory and the related effect on accounts
receivable and payable during the first nine months. Working capital at
September 30, 1993 was $222.9 million (a 2.3:1 current ratio) versus $245.1
million (a 2.3:1 current ratio) at December 31, 1992. The drop in working
capital was primarily related to capital and turnaround expenditures.
Capital and turnaround expenditures totaled $73.4 million during the first
nine months of 1993 compared to $47.4 million in the year-ago period when there
was no turnaround. Of the 1993 total, refinery capital and turnaround
expenditures totaled $50.8 million (1992 - $40.1 million), including $18.0
million for the maintenance turnaround at the Blue Island refinery. Retail
division expenditures of $20.7 million (1992 - $6.6 million) related principally
to a store automation project, mandatory underground storage tank and line
projects and store upgrades.
Funds generated from operating activities, together with Clark's existing
cash, cash equivalents and marketable investments, are expected to be adequate
to fund requirements for working capital and capital expenditure programs for
the next year. Future discretionary and environmentally-mandated spending may
require additional financing.
The market value of inventories at September 30, 1993 exceeded LIFO book
value by $7.6 million versus the December 31, 1992 excess of $13.2 million.
Clark has in place a $100.0 million committed revolving line of credit
expiring December 31, 1994, for cash borrowings and for the issuance of letters
of credit primarily for purchases of crude oil, other feed stocks and refined
products. At September 30, 1993, $41.8 million of the line of credit was
utilized for letters of credit. There were no borrowings under the line of
credit.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
On February 13, 1990, Drexel Burnham Lambert Trade Finance, Inc. ("Drexel"),
which was supplying a $180 million revolving line of credit to Clark at that
time, filed for relief under Chapter 11 of the U.S. Bankruptcy Code. As a
result of this filing, new advances to Clark were not being extended under the
terms of the revolving line of credit and funds which Clark had on deposit with
Drexel in the amount of $11.6 million had not been returned. This deposit was
fully reserved during 1990. To recoup the deposit and other damages incurred,
Clark withheld $14.7 million of funds from Internationale Nederlanden Bank N.V.
("INB"), which had issued letters of credit for Clark's use under its line of
credit with Drexel. On January 4, 1993, Drexel paid $9.4 million to INB. The
payment was made pursuant to a claims agreement among DBL Liquidating Trust,
Drexel, INB and Clark. The claims agreement settled any Clark claims against
Drexel and provided that Drexel assign its rights against Clark to INB, but that
any recoveries by INB from Drexel, including the above $9.4 million, will be
applied as a reduction of its claims against Clark. On March 31, 1993, the
parties settled all remaining litigation upon payment by Clark to INB of $5.5
million and upon entry of a stipulated order in the Drexel Burnham Lambert
Group. Inc. bankruptcy proceedings of an allowed unsecured claim in favor of
Clark from which Clark received payment of approximately $1.3 million in May,
1993 and expects to receive an additional $0.2 million. In addition, INB
released all rights to a certificate of deposit Clark had pledged as escrow in
the dispute (see Note 5 to the Financial Statements).
On May 5, 1993, Clark received correspondence from the Michigan Department of
Natural Resources ("MDNR") indicating that the MDNR believes Clark may be a
Potential Responsible Party ("PRP") in connection with ground water
contamination in the vicinity of one of its retail stores in the Sashabaw Road
area north of Woodhull Lake and Lake Oakland, Oakland County Michigan. Clark
has begun an initial investigation into the matters raised by the MDNR. At the
request of the MDNR, Clark is conducting an investigation into the historical
use of its site, potential contaminants used at the site, and third party sites
which may be the source of contaminants, and is also conducting a subsurface
investigation of its site. Clark has incurred approximately $10,000 in
preliminary investigative activities to date. Clark has no information on the
identity of other parties which MDNR may suspect to be PRPs, nor does it have
any estimate of potential total remediation costs.
Clark received an Administrative Complaint from the United States
Environmental Protection Agency ("EPA") on September 12, 1992 alleging record
keeping violations of the Resource Conservation and Recovery Act concerning 22
stores in Michigan, Indiana, and Wisconsin and seeking civil penalties of $0.6
million. On March 18, 1993, Clark received an Amended Complaint from the EPA
involving similar allegations but reducing the amount of civil penalties sought
to $0.1 million. Clark received an Administrative Complaint from the EPA on
August 6, 1992 alleging record keeping violations of the Toxic Substance Control
Act concerning PCB usage at the Blue Island refinery and seeking civil penalties
of $0.1 million. Clark has settled this matter with the EPA with payment of
$25,000. Clark received an Administrative Complaint from the EPA on January 5,
1993 alleging record keeping and related violations of the Clean Air Act
concerning the Hartford refinery and seeking civil penalties of $0.1 million.
An impoundment at the Hartford refinery contains hazardous wastes that were
produced as the result of past operations. Clark has been evaluating remedial
options with respect to that waste since 1992, and has been in discussions with
the Illinois Environmental Protection Agency ("IEPA") concerning those options.
In April, 1993 an employee of IEPA told Clark that the presence of those
hazardous wastes may require a permit under the Resource Conservation and
Recovery Act, and that in turn may require corrective action with respect to the
entire refinery. Clark has received no formal notice or complaint with respect
to these issues from IEPA. Clark has begun an investigation with respect to the
need for a permit and consequent corrective action.
In addition to the proceedings described above, Clark has various suits and
claims against it. While it is impossible to estimate with certainty the
ultimate legal and financial liability in respect to these other suits
<PAGE>
and claims, Clark believes the outcome of these other suits and claims will not
be material in relation to its financial position.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
October 1, 1993 Change of Corporate Name and Trademark
<PAGE>
SIGNATURE
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.
CLARK REFINING & MARKETING, INC.
(Registrant)
/s/ James A. Zweifel
--------------------------------
James A. Zweifel
Controller
November 12, 1993
