<PAGE>
- - -------------------------------------------------------------------------------
UNITED STATES
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 June 30, 1994
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
August 12, 1994; 100, all of which are indirectly owned by The Horsham
Corporation.
- - -------------------------------------------------------------------------------
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors of
Clark Refining & Marketing, Inc.:
We have reviewed the accompanying balance sheet of Clark Refining &
Marketing, Inc. (a Delaware corporation and wholly-owned subsidiary of Clark R &
M Holdings, Inc.) as of June 30, 1994, and the related statements of earnings
for the three and six-month periods ended June 30, 1994 and 1993 and cash flows
for the six-month periods ended June 30, 1994 and 1993. 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 obtaining an understanding of the
system for the preparation of interim financial information, applying analytical
review procedures to the financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially less in
scope than an audit 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, 1993, 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 January 28, 1994, we expressed an unqualified opinion on those statements.
In our opinion, the information set forth in the accompanying balance sheet
as of December 31, 1993 is fairly stated, in all material respects, in relation
to the financial statements from which it has been derived.
Coopers & Lybrand L.L.P.
St. Louis, Missouri,
August 10, 1994
<PAGE>
CLARK REFINING & MARKETING, INC.
BALANCE SHEETS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Reference June 30, December 31,
ASSETS Note 1994 1993
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 50,593 $ 60,771
Short-term investments 2 130,210 133,752
Accounts receivable 88,530 58,103
Inventories 3 141,703 147,961
Prepaid expenses and other 11,908 15,573
-------- --------
Total current assets 422,944 416,160
PROPERTY, PLANT AND EQUIPMENT 374,073 360,945
OTHER ASSETS 4 30,725 34,349
-------- --------
$827,742 $811,454
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $124,374 $138,321
Accrued expenses and other 5 42,545 43,151
Accrued taxes other than income 41,799 30,860
-------- --------
Total current liabilities 208,718 212,332
LONG-TERM DEBT 400,531 401,038
DEFERRED TAXES 36,263 35,248
LIABILITY FOR POSTRETIREMENT BENEFITS 17,494 16,858
CONTINGENCIES 6 -- --
STOCKHOLDER'S EQUITY:
Common stock ($.01 par value per share;
1,000 shares authorized and 100 shares
issued and outstanding)
Paid-in capital 30,000 30,000
Retained earnings 2 134,736 115,978
-------- --------
Total stockholder's equity 164,736 145,978
-------- --------
$827,742 $811,454
======== ========
</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 June 30,
Reference ------------------------
Note 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES AND OPERATING REVENUES $ 585,691 $ 580,813
EXPENSES:
Cost of sales (500,388) (500,979)
Operating expenses (58,107) (51,977)
General and administrative expenses (7,909) (6,688)
Depreciation (6,566) (5,832)
Amortization 4 (2,415) (2,646)
Reversal of inventory write-down to market 3 11,500 --
---------- ----------
(563,885) (568,122)
---------- ----------
OPERATING INCOME 21,806 12,691
Interest and financing costs, net 4, 5 (8,632) (6,510)
Other income -- 2,902
---------- ----------
EARNINGS BEFORE TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 13,174 9,083
Income tax provision (4,952) (3,255)
---------- ----------
EARNINGS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 8,222 5,828
Cumulative effect of change in accounting
principle -- --
---------- ----------
NET EARNINGS $ 8,222 $ 5,828
========== ==========
</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 SIX MONTHS
ENDED JUNE 30,
REFERENCE --------------------------
NOTE 1994 1993
--------- ------------ ------------
<S> <C> <C> <C>
NET SALES AND OPERATING REVENUES $ 1,152,944 $ 1,170,043
EXPENSES:
Cost of sales (977,395) (1,026,133)
Operating expenses (115,781) (105,790)
General and administrative expenses (15,361) (12,683)
Depreciation (13,127) (11,380)
Amortization 4 (5,733) (5,511)
Reversal of inventory write-down to market 3 26,500 --
----------- -----------
(1,100,897) (1,161,497)
----------- -----------
OPERATING INCOME 52,047 8,546
Interest and financing costs, net 4, 5 (16,966) (13,107)
Other income -- 11,370
----------- -----------
EARNINGS BEFORE TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 35,081 6,809
Income tax provision (13,123) (2,597)
----------- -----------
EARNINGS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 21,958 4,212
Cumulative effect of change in accounting
principle (net of taxes of $5,992) -- (9,595)
----------- -----------
NET EARNINGS (LOSS) $ 21,958 $ (5,383)
=========== ===========
</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 SIX MONTHS
ENDED JUNE 30,
-------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 21,958 $ (5,383)
Cumulative effect of change in accounting principle -- 9,595
Adjustments:
Depreciation 13,127 11,380
Amortization 6,321 6,104
Share of earnings of affiliates, net of dividends (457) (93)
Deferred taxes 17,522 2,770
Reversal of inventory write-down to market (26,500) --
Other 636 636
Cash provided by (reinvested in) working capital -
Accounts receivable, prepaid expenses and other (39,772) (20,172)
Inventories 32,758 (19,941)
Accounts payable, accrued expenses, taxes other than
income, and other (8,758) 29,078
-------- --------
Net cash provided by operating activities 16,835 13,974
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (50,584) (44,956)
Sales of short-term investments 49,126 96,873
Expenditures for property, plant and equipment (28,059) (42,851)
Expenditures for refinery turnaround (1,617) (18,325)
Proceeds from disposals of property, plant and equipment 4,628 4,473
Payment received on note receivable -- 10,000
Other investing activity -- (201)
-------- --------
Net cash provided by (used in) investing activities (26,506) 5,013
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt payments (507) (186)
Deferred financing costs -- (579)
Other -- 241
-------- --------
Net cash used in financing activities (507) (524)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,178) 18,463
CASH AND CASH EQUIVALENTS, beginning of period 60,771 18,643
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 50,593 $ 37,106
======== ========
</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.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 1994
(tabular dollar amounts in thousands of US dollars)
1. BASIS OF PREPARATION
The unaudited balance sheet of Clark Refining & Marketing, Inc. (the
"Company" or "Clark"), a Delaware corporation, as of June 30, 1994, and the
related statements of earnings for the three month and six month periods ended
June 30, 1994 and 1993, and statements of cash flows for the six month period
ended June 30, 1994 and 1993, have been reviewed by independent accountants. 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 this interim
period 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, 1993.
2. SHORT-TERM INVESTMENTS
On January 1, 1994, Clark adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). This standard requires the classification of short-
term investments into three categories and many debt securities to be shown at
fair value on the balance sheet. Clark's short-term investments are all
considered "Available-for-Sale" and are carried at fair value with the resulting
unrealized gain or loss shown as a component of retained earnings.
Short-term investments consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 1994 DECEMBER 31, 1993
--------------------------------- ---------------------------------
AMORTIZED UNREALIZED AGGREGATE AMORTIZED UNREALIZED AGGREGATE
MAJOR SECURITY TYPE COST GAIN (LOSS) FAIR VALUE COST GAIN (LOSS) FAIR VALUE
------------------- --------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Debt Securities $ 35,518 $(1,682) $ 33,836 $ 52,646 $ 43 $ 52,689
Variable Rate Government Funds 59,190 (2,630) 56,560 55,506 (423) 55,083
Corporate Debt Securities 31,057 (385) 30,672 12,651 146 12,797
Mortgage Backed Debt Securities 9,445 (303) 9,142 12,949 (173) 12,776
-------- ------- -------- -------- ------- --------
$135,210 $(5,000) $130,210 $133,752 $ (407) $133,345
======== ======= ======== ======== ======= ========
</TABLE>
The contractual maturities of the short-term investments at June 30, 1994
were:
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE
COST FAIR VALUE
---------- ----------
<S> <C> <C>
Due in one year or less* $112,317 $108,024
Due after one year through five years 10,689 10,441
Due after five years 12,204 11,745
-------- --------
$135,210 $130,210
======== ========
</TABLE>
*Includes the Variable Rate Government Funds for which the underlying
investments may have contractual maturities greater than one year.
<PAGE>
Although some of the contractual maturities of these short-term
investments are over one year, management's intent is to use the funds for
current operations and not hold the investments to maturity.
For the three month and six month periods ended June 30, 1994, the
proceeds from sales of Available-for-Sale securities was $37.7 million and $48.3
million, respectively, with $0.8 million of realized losses recorded for the
three month and six month periods. For the same periods in 1993, the proceeds
from the sale of Available-for-Sale securities was $16.7 million and $96.9
million, respectively, with immaterial realized gains in each period. Realized
gains and losses are computed using the specific identification method.
The change in the unrealized holding gains or losses on Available-for-
Sale securities for the three month and six month periods ended June 30, 1994,
was $1.8 million ($1.2 million after taxes) and $5.0 million ($3.2 million after
taxes), respectively. This net unrealized loss is included as a component of
retained earnings. The unrealized loss was not recognized in 1993 as SFAS 115
had not yet been adopted by Clark, therefore the carrying value at December 31,
1993 was the adjusted cost of the short-term investments.
3. INVENTORIES
The carrying value of inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------- ------------
<S> <C> <C>
Crude oil....................... $ 44,436 $ 53,860
Refined and blendstocks......... 78,891 102,604
Convenience products............ 12,849 12,044
Warehouse stock and other....... 5,527 5,953
Inventory write-down to market.. -- (26,500)
-------- --------
$141,703 $147,961
======== ========
</TABLE>
The market value of these inventories at June 30, 1994, was
approximately $8.4 million above the carrying value (December 31, 1993 - $26.5
million below carrying value).
After the end of the second quarter, Clark increased its line of
credit, used primarily for the issuance of letters of credit for securing
purchases of crude oil, from $100 million to $120 million principally due to
rising crude oil costs and a change in crude oil supply.
4. OTHER ASSETS
Amortization of deferred financing costs for the three month and six
month periods ended June 30, 1994, was $0.3 million (1993 - $0.3 million) and
$0.6 million (1993 - $0.6 million), respectively, and is included in "Interest
and financing costs, net".
Amortization of turnaround costs for the three month and six month
periods ended June 30, 1994, was $2.4 million (1993 - $2.6 million) and $5.7
million (1993 - $5.5 million), respectively.
<PAGE>
5. INTEREST AND FINANCING COSTS, NET
Interest and financing costs, net, consisted of the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- --------------------
1994 1993 1994 1993
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Interest expense...... $10,111 $10,114 $20,348 $20,195
Financing costs....... 325 387 673 771
Interest income....... (1,420) (2,323) (3,350) (5,094)
------- ------- ------- -------
9,016 8,178 17,671 15,872
Capitalized interest.. (384) (1,668) (705) (2,765)
------- ------- ------- -------
$ 8,632 $ 6,510 $16,966 $13,107
======= ======= ======= =======
</TABLE>
Accrued interest payable at June 30, 1994, of $6.9 million (December
31, 1993 - $6.9 million) is included in "Accrued expenses and other".
6. CONTINGENCIES
Forty-one 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.
Discovery, which could be lengthy and complex, is still in the early stages.
Clark moved to dismiss 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 based 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 plaintiffs filed thirty-three amended
complaints. In addition, one new complaint involving nine plaintiffs was filed.
It is too early to predict whether any of these cases will go to trial on the
merits and if so, what the risk of exposure to Clark would be at trial. It is
also not possible to determine whether or to what extent Clark will have any
liability to other individuals arising from the groundwater contamination.
Clark is subject to various legal proceedings related to governmental
regulations and other actions arising out of the normal course of business,
including legal proceedings related to environmental matters. While it is not
possible at this time to establish the ultimate amount of liability with respect
to such contingent liabilities, Clark is of the opinion that the aggregate
amount of any such liabilities, for which provision has not been made, will not
have a material adverse effect on its financial position.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Highlights
RESULTS OF OPERATIONS
The following tables reflect Clark's financial and operating highlights for
the three and six month periods ended June 30, 1994 and 1993. All dollars listed
are in millions except per barrel or gallon information.
Financial Results:
<TABLE>
<CAPTION>
================================================================================================
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
================================================================================================
<S> <C> <C> <C> <C>
Net sales and operating revenues $585.7 $580.8 $1,152.9 $1,170.0
Cost of sales (500.4) (501.0) (977.4) (1,026.1)
Operating expenses (58.1) (52.0) (115.8) (105.8)
------------------------------------------------------------------------------------------------
27.2 27.8 59.7 38.1
General and administrative (7.9) (6.7) (15.4) (12.7)
Depreciation and amortization (9.0) (8.4) (18.8) (16.9)
Interest and financing costs, net (8.6) (6.5) (17.0) (13.1)
------------------------------------------------------------------------------------------------
Earnings before income taxes* 1.7 6.2 8.5 (4.6)
Tax provision* (0.6) (2.2) (2.9) 1.6
------------------------------------------------------------------------------------------------
Earnings before unusual items* 1.1 4.0 5.6 (3.0)
Unusual items, after taxes* 7.1 1.8 16.4 (2.4)
------------------------------------------------------------------------------------------------
Reported net earnings $ 8.2 $ 5.8 $ 22.0 $ (5.4)
================================================================================================
</TABLE>
* Management considers certain items in 1994 and 1993 at Clark to be "unusual".
Detail on these items is presented below.
Net earnings for the 1994 first half, excluding unusual items, improved
versus the year-ago period. Improved refining productivity along with better
general market conditions earlier in the year contributed to the increase. In
addition, refining production was reduced in the first half of last year when
Clark's Blue Island, IL refinery underwent a scheduled maintenance turnaround. A
maintenance turnaround is scheduled for Clark's Hartford, IL refinery in two
stages, later in 1994 and early 1995. Net earnings, excluding unusual items, in
the second quarter of 1994 declined versus the prior year due to weaker refining
market conditions and increased operating expenses. Net sales and operating
revenues in the first half and second quarter of 1994 were relatively flat
compared to the year-earlier period as weak industry crude oil and refined
product prices early in the year recovered and impacted both selling prices and
costs of goods sold.
<PAGE>
<TABLE>
<CAPTION>
Unusual Items:
==============================================================================================
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
==============================================================================================
<S> <C> <C> <C> <C>
Reversal of inventory
write-down to market $11.5 $ -- $26.5 $ --
----------------------------------------------------------------------------------------------
Impact on operating income 11.5 -- 26.5 --
Gain on sale of stores -- 2.9 -- 2.9
Litigation settlements -- -- -- 8.5
Change in accounting principles -- -- -- (15.6)
----------------------------------------------------------------------------------------------
Total $11.5 $ 2.9 $26.5 $ (4.2)
==============================================================================================
Net of income taxes $ 7.1 $ 1.8 $16.4 $ (2.4)
==============================================================================================
</TABLE>
Several items which are considered by management to be "unusual" are
excluded throughout this discussion of Clark's results of operations. A reversal
of an inventory write-down to market was recorded in the first and second
quarters of 1994. A non-cash write-down of $26.5 million was taken in the fourth
quarter of 1993 to reflect the decline in the value of petroleum inventories
below carrying value caused by a substantial drop in petroleum prices. Crude oil
and related refined product prices rose substantially in the first half of 1994
allowing earnings to benefit up to the extent of the original charge. A return
to lower prices could result in additional charges. Effective January 1, 1993,
Clark adopted the provisions of Statement of Financial Accounting Standards No.
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions",
reflected as a change in accounting principle, and No. 109 "Accounting for
Income Taxes", which was accounted for by restating prior periods. An unusual
credit was recorded in the first quarter of 1993 related to the favorable
settlement of litigation. Second quarter 1993 earnings benefited from the sale
of certain retail stores in non-core markets.
Refining
<TABLE>
<CAPTION>
Refining Division Operating Statistics:
================================================================================================
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
================================================================================================
<S> <C> <C> <C> <C>
Crude oil throughput (m bbls/day) 141.1 114.2 138.3 113.9
Production (m bbls/day) 144.9 123.8 142.1 125.3
Gross margin (per barrel) $ 3.25 $ 3.38 $ 3.66 $ 3.00
Gross margin (millions) $ 42.4 $ 38.1 $ 94.2 $ 68.1
Operating expenses (millions) $(28.8) $(24.7) $(57.9) $(51.8)
Divisional G & A expenses (millions) $ (2.6) $ (2.0) $ (5.4) $ (4.0)
Contribution to operating income (millions) $ 11.0 $ 11.4 $ 30.9 $ 12.3
</TABLE>
The refining division contributed $11.0 million (1993 - $11.4 million)
in the second quarter and $30.9 million (1993 - $12.3 million) in the first half
of 1994 to Clark's operating income. In addition to the 1993 maintenance
turnaround and the impact of market conditions mentioned above, earnings for the
first half improved due to increased refining productivity. These productivity
improvements resulted from the processing of lower cost sour crude oil and an
increased crude oil processing rate at the Blue Island refinery, several
projects at the Hartford refinery and record wholesale marketing volumes.
Earnings were negatively impacted by the narrowing price benefit for using sour
crude oil (the predominant input at the Hartford refinery) versus sweet crude
oil and a declining availability of Canadian light sweet crude oil (the
predominant input at the Blue Island refinery) throughout the first half of
1994. Additionally, refining margins weakened in the second quarter as product
prices did not keep pace with rising crude oil costs. Clark does not currently
view these factors as long-term trends. Second quarter and first half 1994
divisional operating and general and administrative expenses were up versus the
year-ago period. Costs increased due to increased labor hours to meet operating
needs related to colder than normal weather along with new labor and sulfur
processing contracts and enhanced refinery planning and operations support
services.
<PAGE>
Retail
Retail Division Operating Statistics:
<TABLE>
<CAPTION>
===============================================================================================================
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
===============================================================================================================
<S> <C> <C> <C> <C>
Gasoline volume (mm gals.) 265.6 255.5 510.0 512.4
Gasoline volume (m gals. pmps) 105.4 98.1 101.2 98.5
Gasoline gross margin (per gallon) 10.3c 10.5c 10.5c 9.4c
Gasoline gross margin (millions) $ 27.3 $ 26.7 $ 53.6 $ 48.1
Company operated stores (end of quarter) 830 842 830 842
Dealer operated stores (end of quarter) 10 10 10 10
Convenience product sales (millions) $ 61.1 $ 56.7 $ 113.4 $ 108.0
Convenience product sales (pmps) $24,244 $21,750 $22,501 $20,761
Convenience product gross margin 25.5% 26.3% 24.5% 25.6%
Convenience product gross margin (millions) $ 15.6 $ 14.9 $ 27.7 $ 27.6
Convenience product gross margin (pmps) $ 6,181 $ 5,936 $ 5,504 $ 5,416
Operating expenses (millions) $ (29.4) $ (27.3) $ (57.9) $ (54.0)
Divisional G & A expenses (millions) $ (1.7) $ (1.1) $ (3.2) $ (2.2)
Contribution to operating income (millions) $ 11.8 $ 13.2 $ 20.2 $ 19.5
</TABLE>
pmps = per month per store
The retail division contributed $11.8 million (1993 - $13.2 million) in
the second quarter and $20.2 million (1993 - $19.5 million) in the first half
of 1994 to Clark's operating income. Average monthly gasoline volumes and
convenience product margins per store for the second quarter and first half
increased versus the prior year but gross margins were negatively impacted by
a decrease in average stores in operation and lower convenience product unit
margins. First half results were strengthened by favorable first quarter
retail market conditions and the repeat of a four-week promotion (also run in
1993) which offered all grades of gasoline for the same price as regular
unleaded gasoline. The above improvements were tempered by increased retail
division operating and general and administrative expenses in the second quarter
and first half of 1994 principally related to increased store operating hours,
marketing support for training, merchandising and advertising, and information
services.
Other Financial Highlights
The second quarter and first half of 1994 depreciation and amortization
expenses increased compared to a year ago, principally due to increased
depreciation associated with higher levels of property, plant and equipment and
the inclusion of the amortization of the Blue Island refinery maintenance
turnaround completed in the second quarter of 1993, partially offset by the
postponement of the Hartford maintenance turnaround to late in 1994 and early
in 1995.
Net interest and financing costs increased due principally to decreased
capitalization of interest costs related to capital projects and lower returns
on funds invested.
LIQUIDITY AND CAPITAL RESOURCES
Net cash generated from operating activities, excluding working capital
changes, improved to $32.6 million in the first half of 1994 from $25.0 million
in the year-earlier period on the strength of earnings growth. Working capital
at June 30, 1994 was $214.2 million, a 2.03 to 1 current ratio, versus $203.8
million at December 31, 1993, a 1.96 to 1 current ratio. The increased earnings
along with decreased inventory levels, increased accounts receivable balances
and decreased accounts payable balances, all of which fluctuate with market
opportunities and operational needs, combined to increase working capital.
However, pipeline movement restrictions and unfavorable refinery crude oil
supply economics in recent months versus traditional operating norms have
negatively affected working capital at June 30, 1994.
<PAGE>
In general, Clark's short-term working capital requirements fluctuate with
the price of crude oil. Clark expects internally generated cash flows will be
sufficient to meet its needs. Clark has in place a committed revolving line of
credit expiring December 31, 1994, for short-term cash borrowings and for the
issuance of letters of credit primarily for purchases of crude oil, other
feedstocks and refined products. The line of credit was recently increased from
$100 million to $120 million to compensate for changes in operating norms as
previously discussed. At June 30, 1994, $76.6 million of the line of credit was
utilized for letters of credit. There were no direct borrowings under Clark's
line of credit at June 30, 1994.
Cash flows used in investing activities in the first half, excluding
short-term investment activities to which management's intent is similar to cash
and cash equivalents, decreased to $25.0 million in 1994 from $46.7 million in
the year-earlier period. The decline was due to lower capital expenditures and
the lack of major maintenance turnaround expenditures to date in 1994. Capital
expenditures totaled $28.1 million (1993 - $42.9 million) during the first half
of 1994. Refinery capital expenditures totaled $17.2 million (1993 - $27.7
million), two-thirds directed towards discretionary productivity improvement
projects and the balance regulatory related. Retail capital expenditures of
$9.8 million (1993 - $13.1 million) were related to store reimaging and
upgrades, installation of store security packages and regulatory work.
Funds generated from operating activities together with Clark's existing
cash, cash equivalents and short-term investments, are expected to be adequate
to fund existing requirements for working capital and capital expenditure
programs for the next year. Clark's future discretionary, environmentally-
mandated spending and acquisitions may require additional debt or equity
capital.
In late March 1994, Clark entered into exclusive negotiations with Chevron
USA Products Co. regarding the purchase of Chevron's 177,000 barrel per day
refinery in Port Arthur, Texas. If negotiations are successful, a late 1994
closing date would be expected.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
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. On July 11,
1994, the EPA filed an Amended Complaint alleging additional violations and
increasing the amount of the total penalty sought to $0.2 million.
On May 5, 1993, Clark received correspondence from the Michigan Department
of Natural Resources ("MDNR") indicating that the MDNR believes Clark may be a
PRP in connection with groundwater 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 has conducted an
investigation into the historical use of its site, potential contaminants used
at the site, third party sites which may be the source of contaminants and is
also conducting a subsurface investigation of its site and the surrounding area.
On July 22, 1994, MDNR commenced suit against Clark and Chevron, U.S.A. seeking
$0.3 million for past response activity costs incurred by MDNR in connection
with this site. Clark is still assessing the allegations contained in the
Complaint, but believes it has good defenses to the allegations.
On May 4, 1994, the United States Equal Employment Opportunity Commission
("EEOC") filed a class action lawsuit against Clark in the United States
District Court for the Northern District of Illinois alleging that Clark had
engaged in a pattern of practice of unlawful discrimination against certain
employees over the age of forty. The relief sought by the EEOC includes
reinstatement or reassignment of the individuals allegedly affected, payment of
back wages, an injunction prohibiting employment practices which discriminate on
the basis of age, and institution of policies to eradicate the effects of any
past discriminatory practices. Clark believes the allegations to be without
merit. It is too early to predict whether this case will go to trial and, if so,
what the risk of exposure to Clark would be at trial.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.7 Second Amendment, dated as on July 15, 1994, to Credit Agreement
between the Company, the Banks listed therein, Banker's Trust
Company as Issuing Bank, the Toronto-Dominion Bank, as Co-Agent
and BT Commercial Corporation, as Agent .
(b) Reports on Form 8-K
None
<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
Vice President - Controller
August 12, 1994
<PAGE>
EXHIBIT 10.7
AMENDMENT NUMBER TWO, dated as of July 15, 1994 (this "Amendment"), to
CREDIT AGREEMENT, dated as of November 30, 1990, and Amended and Restated as of
February 10, 1993, as thereafter amended (the "Credit Agreement"), among CLARK
REFINING & MARKETING, INC. (formerly CLARK OIL & REFINING CORPORATION), a
Delaware corporation (the "Company"), the banks signatory thereto (each a
"Bank" and, collectively, the "Banks"), BANKERS TRUST COMPANY, a New York
banking corporation, as an Issuing Bank, THE TORONTO-DOMINION BANK, a Canadian
chartered bank, as Co-Agent, and BT COMMERCIAL CORPORATION, a Delaware
corporation, as a Bank and as agent for the Banks (in such capacity, including
its successors and permitted assigns, the "Agent"). Terms which are capitalized
herein and not otherwise defined shall have the meanings ascribed thereto in the
Credit Agreement.
WHEREAS, the Company has requested that the Agent and the Banks agree
to amend Section 1.1 of the Credit Agreement; and
WHEREAS, the Agent and the Banks have considered and agreed to the
Company's request, upon the terms and subject to the conditions set forth in
this Amendment; and
WHEREAS, in connection with the proposed amendment, the Banks have
entered into an Assignment and Assumption Agreement dated as of the date hereof
in the form attached hereto as Exhibit A (the "Assignment and Assumption
Agreement");
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION ONE Amendment
---------
(1) Upon the satisfaction of the conditions set forth in Section Two
hereof, the Credit Agreement is hereby amended as follows:
Section 1.1 of the Credit Agreement is amended by deleting the
definition of the term "Total Commitment" from such Section and replacing
it with the following:
""Total Commitment" means the aggregate Commitment of all of the
Banks, which shall initially be $120,000,000."
<PAGE>
-2-
(2) Upon satisfaction of the conditions set forth in Section Two hereof,
the Commitment of each Bank shall initially be the amount specified on the
signature page hereto for such Bank, subject to adjustment from time to time as
provided for in the Credit Agreement.
(3) Upon satisfaction of the conditions set forth in Section Two hereof,
the Pro Rata Share of each Bank shall initially be the percentage specified on
the signature page hereto for such Bank, subject to adjustment from time to time
as provided in the Credit Agreement.
SECTION TWO Conditions Precedent
--------------------
Upon the fulfillment of the following conditions the amendments
contemplated by this Amendment shall become effective:
(1) All representations and warranties of the Company set forth in
Section 4 of the Credit Agreement and Section Three of this Amendment,
shall be true and correct in all material respects on and as of the date
hereof, and, immediately before and immediately after giving effect to the
effectiveness of this Amendment, no Unmatured Event of Default and no Event
of Default shall have occurred and be continuing at such time;
(2) Since December 31, 1991, nothing shall have occurred or become
known that the Agent shall have determined has a Materially Adverse Effect;
(3) The Agent shall have received a certificate from the Company,
executed by the Company's Treasurer or Chief Financial Officer, as to the
effect of paragraphs (a) and (b);
(4) The Assignment and Assumption Agreement shall be in full force and
effect; and
(5) The Agent shall have received from the Company, for pro rata
distribution to each Bank, a fee equal to $20,000.00.
SECTION THREE Representations and Warranties
------------------------------
The Company hereby confirms, reaffirms and restates the representations
and warranties made by it in Section 4 of
<PAGE>
-3-
the Credit Agreement, as amended hereby, and all such representations and
warranties are true and correct in all material respects as of the date hereof.
The Company further represents and warrants (which representations and
warranties shall survive the execution and delivery hereof) to the Agent, for
the benefit of the Banks and to any Issuing Bank that:
(1) The Company has the corporate power, authority and legal right to
execute, deliver and perform this Amendment and the transactions
contemplated hereby, and has taken all actions necessary to authorize the
execution, delivery and performance of this Amendment, and the transactions
contemplated hereby and thereby;
(2) No consent of any person (including, without limitation,
shareholders or creditors of the Company, as the case may be) other than
the Banks, and no consent, permit, approval or authorization of, exemption
by, notice or report to, or registration, filing or declaration with, any
governmental authority is required in connection with the execution,
delivery, performance, validity or enforceability of this Amendment or the
transactions contemplated hereby;
(3) This Amendment has been duly executed and delivered on behalf of
the Company by its duly authorized officer, and constitutes a legal, valid
and binding obligation of the Company, enforceable in accordance with its
terms, except as the enforceability thereof may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting
creditors' rights generally; and
(4) The execution, delivery and performance of this Amendment will not
violate any requirement of law or contractual obligation of the Company.
SECTION FOUR Miscellaneous
-------------
(1) Except as herein expressly amended, the Credit Agreement and all
other agreements, documents, instruments and certificates executed in connection
therewith, except as otherwise provided herein, are ratified and confirmed in
all respects and shall remain in full force and effect in accordance with their
respective terms.
<PAGE>
-4-
(2) All references to the Credit Agreement or any of the other Loan
Documents shall mean the Credit Agreement or such other Loan Documents, as the
case may be, as amended as of the effective date hereof, and as amended hereby
and as hereafter amended, supplemented and modified from time to time.
(3) This Amendment may be executed by the parties hereto individually or in
combination, in one or more counterparts, each of which shall be an original and
all of which shall constitute one and the same agreement.
(4) This Amendment shall be governed by, construed and interpreted in
accordance with, the internal laws of the State of New York.
<PAGE>
-5-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
CLARK REFINING & MARKETING, INC.
(formerly CLARK OIL & REFINING
CORPORATION)
By: /s/ Dennis R. Eichholz
---------------------------------
Title: VICE PRESIDENT - TREASURER
BT COMMERCIAL CORPORATION, as
Agent and as a Bank
By: /s/ Christopher Kinslow
---------------------------------
Title: VICE-PRESIDENT
BANKERS TRUST COMPANY, as an
Issuing Bank
By: /s/ Christopher Kinslow
---------------------------------
Title: VICE-PRESIDENT
Commitment: $26,100,000.00
Pro Rata Share: 21.75%
THE TORONTO-DOMINION BANK, as a
Bank and as Co-Agent
By: /s/ Jano Mott
---------------------------------
Title: MGR. CR. ADMIN.
Commitment: $40,540,000.00
Pro Rata Share: 33.78333%
<PAGE>
-6-
NBD BANK, N.A. as a Bank
By: /s/ Thomas A. Levasseur
---------------------------------
Title: VICE PRESIDENT
Commitment: $12,560,000.00
Pro Rata Share: 10.46667%
NATIONAL CITY BANK, as a Bank
By: /s/ J. Runk, Jr.
---------------------------------
Title: ACCOUNT OFFICER
Commitment: $7,800,000.00
Pro Rata Share: 6.50%
DRESDNER BANK AG, Chicago Branch,
as a Bank
By: /s/ G.D. Lewis
---------------------------------
Title: ASST. VICE PRESIDENT
Commitment: $15,000,000.00
Pro Rata Share: 12.50%
LASALLE NATIONAL BANK, as a Bank
By: /s/ Steven Fenton
---------------------------------
Title: VP/COUNSEL
Commitment: $18,000,000.00
Pro Rata Share: 15.00%
Acknowledged by:
BANKERS TRUST COMPANY,
as Collateral Agent
By: /s/ Christopher Kinslow
--------------------------
Title: VICE-PRESIDENT
