<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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 September 14, 1995: 100, all of which are owned by Clark
USA, Inc.
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<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Clark Refining & Marketing, Inc.:
We have reviewed the accompanying consolidated balance sheet of
Clark Refining & Marketing, Inc. (a Delaware corporation) and subsidiary
as of June 30, 1995, and the related consolidated statements of earnings
for the three and six month periods ended June 30, 1995 and 1994 and cash
flows for the six month periods ended June 30, 1995 and 1994. 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, 1994, 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 3, 1995, we
expressed an unqualified opinion on those statements.
In our opinion, the information set forth in the accompanying
balance sheet as of December 31, 1994 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,
July 25, 1995
<PAGE> 3
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Reference June 30, December 31,
ASSETS Note 1995 1994
------ --------- -------- ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 82,159 $ 95,282
Short-term investments 2 47,856 28,658
Accounts receivable 179,406 77,794
Inventories 3 254,672 151,466
Prepaid expenses and other 18,043 15,659
----------- -----------
Total current assets 582,136 368,859
PROPERTY, PLANT AND EQUIPMENT 6 521,146 429,805
OTHER ASSETS 4 46,862 50,717
----------- -----------
$ 1,150,144 $ 849,381
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 311,007 $ 155,442
Accrued expenses and other 5 46,406 41,639
Accrued taxes other than income 45,093 41,407
----------- -----------
Total current liabilities 402,506 238,488
LONG-TERM DEBT 400,721 400,734
DEFERRED INCOME TAXES 16,257 29,178
OTHER LONG-TERM LIABILITIES 38,767 18,129
CONTINGENCIES 8 -- --
STOCKHOLDER'S EQUITY:
Common stock ($.01 par value per share;
1,000 shares authorized and 100 shares
issued and outstanding) -- --
Paid-in capital 7 180,000 30,000
Retained earnings 111,893 132,852
----------- -----------
Total stockholder's equity 291,893 162,852
----------- -----------
$ 1,150,144 $ 849,381
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months
ended June 30,
Reference -----------------------------
Note 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
NET SALES AND OPERATING REVENUES $ 1,337,799 $ 585,691
EXPENSES:
Cost of sales (1,205,166) (500,388)
Operating expenses (104,651) (58,107)
General and administrative expenses (7,713) (7,909)
Depreciation (7,589) (6,566)
Amortization 4 (2,937) (2,415)
Reversal of inventory write-down to market -- 11,500
----------- -----------
(1,328,056) (563,885)
----------- -----------
OPERATING INCOME 9,743 21,806
Interest and financing costs, net 4, 5 (9,657) (8,632)
----------- -----------
EARNINGS BEFORE INCOME TAXES 86 13,174
Income tax provision (11) (4,952)
----------- -----------
NET EARNINGS $ 75 $ 8,222
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the six months
ended June 30,
Reference -----------------------------
Note 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
NET SALES AND OPERATING REVENUES $ 2,165,097 $ 1,152,944
EXPENSES:
Cost of sales (1,964,806) (977,395)
Operating expenses (180,896) (115,781)
General and administrative expenses (15,730) (15,361)
Depreciation (14,609) (13,127)
Amortization 4 (5,827) (5,733)
Reversal of inventory write-down to market 3 -- 26,500
----------- -----------
(2,181,868) (1,100,897)
----------- -----------
OPERATING INCOME (LOSS) (16,771) 52,047
Interest and financing costs, net 4, 5 (18,509) (16,966)
Other income -- --
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (35,280) 35,081
Income tax benefit (provision) 13,406 (13,123)
----------- -----------
NET EARNINGS (LOSS) $ (21,874) $ 21,958
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the six months
ended June 30,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (21,874) $ 21,958
Adjustments:
Depreciation 14,609 13,127
Amortization 8,133 6,321
Share of earnings of affiliates, net of dividends (908) (457)
Deferred income taxes (13,406) 17,522
Reversal of inventory write-down to market -- (26,500)
Other 638 636
Cash provided by (reinvested in) working capital -
Accounts receivable, prepaid expenses and other (105,199) (39,772)
Inventories (103,206) 32,758
Accounts payable, accrued expenses, taxes other than
income, and other 163,159 (8,758)
----------- -----------
Net cash provided by (used in) operating activities (58,054) 16,835
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (25,740) (50,584)
Sales of short-term investments 7,942 49,126
Expenditures for property, plant and equipment (18,070) (28,059)
Expenditures for refinery turnaround (2,596) (1,617)
Refinery acquisition expenditures (69,746) --
Proceeds from disposals of property, plant and equipment 15,354 4,628
----------- -----------
Net cash used in investing activities (92,856) (26,506)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt payments (13) (507)
Capital contribution 150,000 --
Deferred financing costs (12,200) --
----------- -----------
Net cash provided by (used in) financing activities 137,787 (507)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (13,123) (10,178)
CASH AND CASH EQUIVALENTS, beginning of period 95,282 60,771
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 82,159 $ 50,593
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
FORM 10-Q - PART I
ITEM 1 Financial Statements (continued)
Clark Refining & Marketing, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1995
(tabular dollar amounts in thousands of US dollars)
1. Basis of Preparation
The unaudited consolidated balance sheet of Clark Refining & Marketing,
Inc. and Subsidiary (the "Company" or "Clark"), a Delaware corporation, as of
June 30, 1995, and the related consolidated statements of earnings for the
three month and six month periods ended June 30, 1995 and 1994, and cash flows
for the six month periods ended June 30, 1995 and 1994, have been reviewed by
independent accountants. Clark Port Arthur Pipeline Company, a Delaware
corporation, the new wholly-owned subsidiary of Clark, is included in the
consolidated results of the Company. 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
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 31, 1994.
2. Short-term Investments
The Company's short-term investments are all considered "Available-for-
Sale" and are carried at fair value with the resulting unrealized gain or loss
(net of applicable taxes) shown as a component of retained earnings.
Short-term investments consisted of the following:
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
---------------------------------- ----------------------------------
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 $ 48,356 $ (500) $ 47,856 $ 30,558 $ (1,900) $ 28,658
</TABLE>
<TABLE>
<CAPTION>
The contractual maturities of the short-term investments at June 30, 1995 were:
Amortized Aggregate
Cost Fair Value
--------- ----------
<S> <C> <C>
Due in one year or less $ 23,984 $ 23,934
Due after one year through five years 24,372 23,922
--------- ---------
$ 48,356 $ 47,856
========= =========
</TABLE>
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.
<PAGE> 8
For the three month and six month periods ended June 30, 1995, the
proceeds from sales of Available-for-Sale securities was $7.9 million with no
realized gain or loss. For the three month and six month periods ended June
30, 1994, the proceeds from the sale of Available-for-Sale securities were
$37.7 million and $48.3 million, respectively, with $0.8 million of realized
losses recorded for the three month and six month periods. 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, 1995,
was a gain of $0.7 million ($0.5 million after taxes) and a gain of $1.4
million ($0.9 million after taxes), respectively. This net unrealized gain
is included as a component of retained earnings.
3. Inventories
The carrying value of inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Crude oil . . . . . . . . . . . . . . . $ 84,649 $ 42,760
Refined products and blendstocks . . . 132,739 87,957
Convenience products. . . . . . . . . . 23,723 14,904
Warehouse stock and other . . . . . . . 13,561 5,845
---------- ----------
$ 254,672 $ 151,466
========== ==========
</TABLE>
The market value of these inventories at June 30, 1995 was approximately
$10.8 million above the carrying value (December 31, 1994 - $1.9 million above
the carrying value). At June 30, 1995, Clark had $0.4 million of unrealized
losses (December 31, 1994 - $2.0 million) from its hedging activities which
limit risk related to price fluctuations in crude oil and refined products.
In connection with the Port Arthur refinery acquisition (see Note 6,
Acquisition of Port Arthur Refinery), Clark purchased crude oil and product
inventory and also entered into a new three year revolving credit facility used
primarily for the issuance of letters of credit to secure purchases of crude
oil. The amount of the new facility is the lesser of $400 million or the
amount available under a defined borrowing base, representing specified
percentages of cash, investments, accounts receivable, inventory and other
working capital items. The amount available under the facility at June 30,
1995 was approximately $380 million. This credit facility is collateralized by
substantially all of Clark's current assets and certain intangibles.
4. Other Assets
Amortization of deferred financing costs for the three month and six month
periods ended June 30, 1995, was $1.4 million (1994 - $0.3 million) and $2.3
million (1994 - $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, 1995, was $2.9 million (1994 - $2.4 million) and $5.8
million (1994 - $5.7 million), respectively.
<PAGE> 9
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,
------------------------ -----------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest expense . . . . . . $ 10,304 $ 10,111 $ 20,575 $ 20,348
Financing costs . . . . . . 1,444 325 2,295 673
Interest income . . . . . . (1,591) (1,420) (3,210) (3,350)
-------- -------- -------- --------
10,157 9,016 19,660 17,671
Capitalized interest . . . . (500) (384) (1,151) (705)
-------- -------- -------- --------
$ 9,657 $ 8,632 $ 18,509 $ 16,966
======== ======== ======== ========
</TABLE>
Accrued interest payable at June 30, 1995 of $7.0 million (December 31,
1994 - $6.9 million) is included in "Accrued Expenses and Other".
6. Acquisition of Port Arthur Refinery
On February 27, 1995, Clark purchased Chevron U.S.A. Inc.'s ("Chevron")
Port Arthur, Texas refinery, acquiring the refinery assets and certain related
terminals, pipelines, and other assets for a purchase price of approximately
$70 million. The purchase price of the assets, including all acquisition costs
and assumed liabilities will be allocated over all of the refinery and related
assets using the purchase method of accounting. In addition, Clark purchased
the related petroleum inventory in storage and pipelines, and various spare
parts and supplies for approximately $136 million, as revised in the second
quarter. A final allocation of the purchase price will be determined later in
1995 when appraisals and other studies are completed.
Clark has agreements to sell to Chevron, at market prices, 40,000
barrels per day of gasoline and 6,500 barrels per day of low-sulfur diesel
and jet fuel for one year from the date of the Acquisition. In addition,
Clark has entered into supply agreements with Chevron and Chevron Chemical
Company providing for the purchase and sale by Clark of various quantities of
products and commodities at market prices.The purchase agreement also provides
for contingent payments to Chevron of up to $125 million over a five year
period from the closing date of the acquisition in the event refining industry
margin indicators exceed certain escalating levels. These contingent payments
will be calculated annually and the appropriate liability, if any, will be
recorded at that time. While Chevron retained primary responsibility for
required remediation of most pre-closing environmental contamination, Clark
assumed responsibility for environmental contamination beneath and within 25
to 100 feet of the facility's active processing units.
7. Certain Financings
On February 27, 1995, Clark USA, Inc. ("Clark USA"), Clark's parent
company, obtained a portion of the funds necessary to finance the Port Arthur
acquisition from a subsidiary of its parent company, The Horsham Corporation, a
Quebec corporation ("Horsham"), by selling to the subsidiary shares of new
classes of common stock ("New Common Stock") of Clark USA for $135 million.
Subsequently, the Horsham subsidiary resold $120 million of such New Common
Stock, representing an interest of from 35.6% to 40.0% in Clark USA, to an
institutional money manager. Clark USA subsequently contributed $150 million
to Clark for the purchase of the refinery.
<PAGE> 10
In connection with the financing and closing of the Port Arthur
acquisition, Clark sought consents from the holders of its 9 1/2% Senior
Notes and its 10 1/2% Senior Notes to waive or amend the terms of certain
covenants under the indentures governing these securities. On February 17,
1995, Clark received the requisite consents from their respective noteholders.
These consents (i) permitted Clark to increase the amount of its authorized
working capital and letter of credit facility to the greater of $400 million or
the amount available under a defined borrowing base, (ii) permitted the
incurrence of $75 million of additional tax-exempt indebtedness for qualifying
projects, (iii) exempted the contingent payment obligation to Chevron of up to
$125 million over a five year period from the definition of Indebtedness, (iv)
amended provisions relating to the use of asset disposition proceeds.
Clark has made payments to each holder whose duly executed consent was
received and not revoked of $7.50 per $1,000 aggregate principal amount of the
9 1/2% Notes and 10 1/2% Notes.
In connection with the Port Arthur acquisition and the above financing
transactions, Clark entered into a new three year revolving credit facility,
collateralized by substantially all of Clark's current assets and certain
intangibles (see Note 3 Inventories ). With the acquisition, the amount of
the amended facility is the lesser of $400 million or the amount available
under a borrowing base, as defined, representing specified percentages of cash,
investments, accounts receivable, inventory and other working capital items.
8. Contingencies
On May 4, 1994, the United States Equal Employment Opportunity Commission
(''EEOC'') filed a class action lawsuit, Case No. 94 C 2779, EEOC v. Clark
Refining & Marketing, Inc., 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 and intends to
vigorously defend this action. The plaintiff class consists of 40 class
members and is now tentatively closed. It is premature to predict whether this
case will go to trial, and, if so, what the level of exposure, if any, to Clark
would be at trial.
Clark is subject to various legal proceedings related to the age
discrimination class action lawsuit, 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, cashflows or results of
operations, however, an adverse outcome of these matters could have a material
effect on quarterly or annual operating results or cashflows when resolved in
a future period.
<PAGE> 11
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Clark Refining & Marketing, Inc. (the "Company" or "Clark") is a wholly-
owned subsidiary of Clark USA, Inc. ("Clark USA"). Clark also owns all of the
outstanding capital stock of Clark Port Arthur Pipeline Company which is
reported as a component of the Company's refining division.
In 1995, the Company changed its pricing methodology to better reflect
external market prices for valuing product transferred between its retail and
refining divisions. This change was necessitated by new regulations and
logistics associated with blended gasoline products. Divisional results for
1994 have been restated to be consistent with this new methodology. The
restatement did not impact the Company's consolidated results of operations or
financial position. Results that were impacted include the refining and retail
division contributions to operating income. Related retail gasoline gross
margins and refining margins per barrel were also adjusted.
Results of Operations
Financial Highlights
The following tables reflect the Company's financial and operating
highlights for the three and six month periods ended June 30, 1995 and 1994.
All dollars listed are in millions except statistical data.
Financial Results: (a)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
For the three months For the six months
ended June 30, ended June 30,
------------------------ -----------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales and operating revenues $1,337.8 $ 585.7 $ 2,165.1 $ 1,152.9
Cost of sales 1,205.2 500.4 1,964.8 977.4
Operating expenses 104.7 58.1 180.9 115.8
General and administrative expenses 7.7 7.9 15.7 15.4
Depreciation and amortization 10.5 9.0 20.4 18.8
Interest and financing costs, net 9.6 8.6 18.5 17.0
----------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (b) 0.1 1.7 (35.2) 8.5
Income tax (provision) benefit (b) -- (0.6) 13.3 (2.9)
----------------------------------------------------------------------------------------------------
Earnings (loss) before unusual items (b) 0.1 1.1 (21.9) 5.6
Unusual items, after taxes (b) -- 7.1 -- 16.4
----------------------------------------------------------------------------------------------------
Net earnings (loss) $ 0.1 $ 8.2 $ (21.9) $ 22.0
====================================================================================================
Operating Income: (a)
Refining contribution to operating income (c)$ 12.7 $ 18.3 $ (7.8) $ 41.7
Retail contribution to operating income (c) 11.4 4.5 19.5 9.4
Corporate general and administrative 3.9 3.6 8.0 6.8
Depreciation and amortization 10.5 9.0 20.4 18.8
Unusual items, net (b) -- 11.5 -- 26.5
----------------------------------------------------------------------------------------------------
Operating income (loss) $ 9.7 $ 21.7 $ (16.7) $ 52.0
====================================================================================================
</TABLE>
(a) This table provides supplementary data and is not intended to
represent an income statement presented in accordance with generally
accepted accounting principles.
(b) The Company considers an item in 1994 which is discussed below to be
"unusual".
(c) In 1995, the Company changed its pricing methodology to better reflect
external market prices for valuing product transferred between its
retail and refining divisions. Divisional results for 1994 have been
restated to be consistent with this new methodology.
<PAGE> 12
Net earnings before unusual items for the second quarter of 1995 improved
significantly over the first quarter of 1995, but were relatively flat as
compared to the second quarter of 1994. For the six months ended June 30,
1995 Clark reported significantly lower earnings than the same period a year
ago. Six month results were negatively impacted by an extremely poor industry
refining margin environment in the first quarter of 1995. Net earnings in the
second quarter and first half of 1994 benefited from an unusual item that
resulted from an increase in crude oil and product prices that allowed for the
reversal of an inventory writedown originally taken in 1993. Net sales and
operating revenues in the second quarter and first six months of 1995 were up
dramatically over the comparable periods of 1994 because of the inclusion of
incremental sales from production at the 200,000 barrel per day Port Arthur,
Texas refinery acquired by Clark on February 27, 1995.
Refining
Refining Division Operating Statistics:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
For the three months For the six months
ended June 30, ended June 30,
-------------------- --------------------
1995 1994 1995 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Port Arthur Refinery (acquired February 27, 1995)
Crude oil throughput (m bbls/day) 202.2 -- 196.2 --
Production (m bbls/day) 215.5 -- 201.8 --
Gross margin ($/barrel) $2.81 -- $2.66 --
Operating expenses ($/barrel) $1.93 -- $2.04 --
Net margin (millions) $17.2 -- $15.4 --
Blue Island, Hartford and other refining
Crude oil throughput (m bbls/day) 134.9 141.1 129.3 138.3
Production (m bbls/day) 129.1 144.9 130.1 142.1
Gross margin ($/barrel) (a) $2.64 $3.81 $2.06 $4.08
Operating expenses ($/barrel) $2.83 $2.18 $2.82 $2.25
Net margin (millions) (a) $(1.8) $20.9 $(17.7) $47.1
Divisional G & A expenses (millions) $2.7 $2.6 $5.5 $5.4
Contribution to earnings (millions) (a) $12.7 $18.3 $(7.8) $41.7
</TABLE>
(a) In 1995, the Company changed its pricing methodology to better reflect
external market prices for valuing product transferred between its
retail and refining divisions. Divisional results for 1994 have been
restated to be consistent with this new methodology.
The refining division contributed earnings of $12.7 million (1994 -
earnings of $18.3 million) to operating income in the second quarter of 1995
and a loss of $7.8 million (1994 - earnings of $41.7 million) in the first half
of 1995. Industry margin conditions in the first quarter of 1995 were at their
lowest point since 1987 and this was the primary reason for the Company's
operating loss in the first half of 1995. The principal factors that
contributed to the poor industry margins were the unseasonably warm winter,
which reduced demand for heating oil especially compared to the strong demand
in the prior year, and the transition to reformulated gasoline. Several
geographical areas unexpectedly opted not to switch to reformulated gasoline
which caused confusion and concern in the marketplace, and that caused gasoline
prices to fall relative to the cost of crude oil.
<PAGE> 13
Second quarter 1995 results improved over the first quarter of 1995 with
better industry gasoline margins and contribution from the newly acquired Port
Arthur refinery. Although industry gasoline margins improved considerably in
the second quarter, the Company's results, including Port Arthur's, were
affected by weak distillate margins and substantially higher costs for heavy
and sour crude oils as compared to the prior year. The price of heavy and sour
crude oils have risen substantially relative to more expensive light sweet
crude oil such as West Texas Intermediate, eroding some of the cost advantages
of more highly complex refiners such as Clark, which has the capability to
process nearly 80% of its crude slate in heavy and sour crude oils. Second
quarter results were also adversely affected by downtime at two of the Blue
Island refinery's gasoline producing units. See Part II, Other Information -
Item 1, Legal Proceedings. On a comparative basis, the 1994 second quarter
included a significant contribution from crude oil and product acquisition
activities because of a substantial rise in crude oil and product prices in
that period, which was not repeated in this year's second quarter.
The Company's crude oil throughput and refinery production increased over
the prior year due almost entirely to the previously mentioned acquisition of
the Port Arthur refinery. Despite the net increase in production, the poor
industry margins in the first quarter caused the Company to reduce refinery
production by an average of approximately 10,000 barrels per day in that
quarter. Additionally, a fire in the isomax unit and unscheduled downtime in
the alkylation unit at the Blue Island refinery reduced yields and production
by approximately 7,300 barrels per day in the second quarter and 8,400 barrels
per day for the first half. The Blue Island refinery returned to full
production in mid-August.
Refining division operating expenses for the second quarter and first half
of 1995 increased over the comparable periods a year ago due principally to the
addition of the Port Arthur refinery and related terminal expenses in the
current period and expenses associated with the Blue Island operating problems.
Reduced throughput at Clark's Illinois refineries also contributed to a higher
per barrel operating cost.
Retail
Retail Division Operating Statistics:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
For the three months For the six months
ended June 30, ended June 30,
-------------------- --------------------
1995 1994 1995 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Company operated stores (average) 855 838 846 839
Gasoline volume (mm gals.) 277.8 265.6 528.7 510.0
Gasoline gross margin (c / gal) (a) 10.5c 7.5c 10.2c 8.4c
Gasoline gross margin (millions) (a) $29.4 $20.0 $54.2 $42.8
Convenience product sales (millions) $65.7 $61.1 $117.5 $113.4
Convenience product gross margin (millions) $16.4 $15.6 $30.8 $27.7
Operating expenses (millions) $33.2 $29.4 $63.3 $57.9
Divisional G & A expenses (millions) $1.2 $1.7 $2.2 $3.2
Contribution to operating income (millions) (a) $11.4 $4.5 $19.5 $9.4
Per Month Per Store
Gasoline volume (m gals.) 108.3 105.4 104.2 101.2
Convenience product sales (m) $25.6 $24.2 $23.1 $22.5
</TABLE>
(a) In 1995, the Company changed its pricing methodology to better
reflect external market prices for valuing product transferred between
its retail and refining divisions. Divisional results for 1994 have
been restated to be consistent with this new methodology.
<PAGE> 14
Clark continued to expand its retail network in core markets during the
second quarter of 1995, resulting in a net increase in store count over the
second quarter of 1994. The Company acquired 35 retail stores in April 1995 in
Peoria, Illinois, one of its core markets and is continuing to seek expansion
opportunities in other core markets. Consistent with the Company's strategy to
exit non-core markets, the Company is actively seeking to divest 41 stores in
the Kansas, western Missouri and Minnesota markets.
The retail division contributed earnings of $11.4 million (1994 - $4.5
million) to operating income in the second quarter of 1995 and $19.5 million
(1994 - $9.4 million) in the first half of 1995. Significant improvements in
gasoline and convenience product gross margins more than offset higher store
operating expenses.
Gasoline gross margins were improved over 1994 in the second quarter and
first half of 1995 despite extremely volatile unit margins caused by consumer
resistance to paying for the higher cost of newly introduced reformulated
gasoline and general increases in gasoline cost. In response to these market
conditions and supported by the positive impact from the Company's reimaging
program, Clark implemented a pricing strategy to narrow the historical street
gasoline pricing difference relative to its higher priced competitors. This
strategy enabled Clark to optimize unit margins especially in June when costs
began to decline.
Convenience product gross margins increased in the second quarter and
first half over the same periods in 1994 due to an improvement in the mix of
higher margin "On The Go" products (41% of sales in the first half of 1995
versus 38% in the year-ago period) as well as the favorable margin impact from
the newly acquired stores. In addition to incremental lease and operating
expenses associated with the new stores added since 1994, expenses increased
due to higher store labor costs and higher credit card processing expenses due
to a 50% increase in credit card sales, partially offset by lower
administrative costs.
Other Financial Highlights
Corporate general and administrative expenses for the first half of 1995
exceeded the same period a year ago due principally to adjustments of bad debt
and other reserves in the prior year.
Depreciation and amortization expenses for the second quarter and first
half of 1995 exceeded the comparable periods a year ago principally because of
the newly acquired Port Arthur refinery.
Net interest and financing costs increased principally because of higher
financing cost amortization associated with Clark's larger working capital
facility which was increased to support the crude oil supply needs of the Port
Arthur refinery.
Liquidity and Capital Resources
Net cash from operating activities for the first six months of 1995,
excluding working capital changes, was a $12.8 million deficit compared to a
$32.6 million contribution in the year-earlier period. The deterioration of
cash flows was due principally to the Company's net loss in the first quarter
of 1995. Working capital at June 30, 1995 was $179.6 million, a 1.45 to 1
current ratio, versus $130.4 million at December 31, 1994, a 1.55 to 1 current
ratio. Working capital increased due to the acquisition and partial
financing with equity of the Port Arthur refinery working capital
requirements. The current ratio declined due to the relative increase in
accounts payable associated with the Port Arthur refinery acquisition, a
deficit in cash flow from operating activities excluding working capital
changes, and capital expenditures.
<PAGE> 15
In general, the Company's short-term working capital requirements
fluctuate with the price and payment terms of crude oil. The Company expects
internally generated cash flows will be sufficient to meet its needs. Clark
has in place a $400 million committed revolving line of credit expiring
November 30, 1997 for the issuance of letters of credit primarily to support
purchases of crude oil, other feedstocks and refined products. The amount
available under the facility at June 30, 1995 was approximately $380 million.
The line of credit has a sub-limit of $100 million for cash borrowings. At
June 30, 1995, $276.1 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, 1995.
Cash flows used in investing activities in the first half, excluding
short-term investment activities for which management's intent is similar to
cash and cash equivalents, increased to $75.1 million in 1995 from $25.0
million in the year-earlier period. The increase was due to the Port Arthur
refinery acquisition which closed on February 27, 1995. Capital expenditures
for property, plant and equipment totaled $18.1 million (1994 - $28.1 million)
during the first half of 1995. Refinery capital expenditures totaled $2.8
million of this amount in the first half (1994 - $17.2 million) mostly directed
towards miscellaneous regulatory projects. First half retail capital
expenditures totaled $14.4 million in 1995 (1994 - $9.8 million) and consisted
of one-half for regulatory compliance, principally related to Stage II vapor
recovery that was required to be completed in the first half of the current
year, and one-half for discretionary projects primarily related to the
Company s image program as well as the purchase of the existing equipment for
stores acquired in the second quarter. Approximately $15.0 million was
generated in 1995 from the sale and leaseback of certain Hartford refinery
assets acquired in last year's maintenance turnaround.
Cash flows from financing activities in the first six months of 1995
reflected the partial financing of the Port Arthur refinery acquisition with
the equity contribution from Clark USA, and fees related to the larger working
capital facility associated with the expanded working capital needs of the
Company following the acquisition.
Funds generated from operating activities together with the Company's
existing cash, cash equivalents and short-term investments, are expected to be
adequate to fund requirements for working capital and capital expenditure
programs for the next year. In response to the industry refining conditions
during the latter part of 1994 and first quarter of 1995 and the planned
acquisition of the Port Arthur refinery, the Company initiated a number of
programs aimed at conserving liquidity. These programs include inventory
reductions (including inventory reductions at the Port Arthur refinery),
reduced or delayed capital expenditures (other than mandatory and environmental
capital expenditures) and certain additional strategies. These programs
resulted in the Company's cash, cash equivalents and short-term investments
balance at June 30, 1995 being relatively flat compared with year-end despite
completing the Port Arthur refinery acquisition in the first quarter and a
deficit cash flow from operating activities before working capital changes.
While the Company believes that these programs will be sufficient to provide
the Company with adequate liquidity through the end of 1995, there can be no
assurance that the depressed industry conditions will not return and continue
longer than anticipated. Future working capital, discretionary capital
expenditures, environmentally-mandated spending and acquisitions may require
additional debt or equity financing.
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
On March 13, 1995, a fire occurred in the isomax unit at the Blue Island
refinery. Two employees were fatally injured in the fire; three other
employees were injured. The isomax unit and two other units were out of
service at the time of the incident. The cause of the incident was
investigated by Clark and the Occupational Safety and Health Administration
("OSHA") and was thoroughly investigated by the Illinois Attorney General prior
to the restart of the affected units. Clark has now resumed operation of all
units which had been out of service in connection with the incident. Property
damage and related costs are expected to be covered by Clark's property,
business interruption and workers' compensation insurance coverages in excess
of aggregate deductibles of $1.4 million. In addition, on September 13, 1995
Clark and OSHA entered into a settlement agreement that closed all matters
arising from the March 13, 1995 incident. In response to OSHA's allegation of
certain safety violations, Clark agreed to pay a $1.25 million penalty, make
certain safety improvements and perform a safety audit.
On May 16, 1995, there was a minor (less than 15 pounds) release of
hydrogen fluoride ("HF") from a catalyst regeneration portion of the HF unit at
the Blue Island refinery. At the request of the Illinois Attorney General, and
with the Company's consent, the Circuit Court of Cook County, Illinois entered
an order prohibiting the restart of the regeneration portion of the HF unit
pending the outcome of an investigation of the cause of the release. On August
8, 1995, an order was entered by the Court allowing Clark to resume operation
of the HF regeneration unit. The order also requires Clark, pursuant to an
agreement between Clark and the Illinois Attorney General, to implement certain
HF release mitigation and detection measures. Clark has not yet ascertained
the actual cost of these measures, although Clark has initially estimated that
these measures may cost at least $1.4 million and is still evaluating the
feasibility of additional measures that the order requires Clark to consider.
Case No. 95 CH 2311, People ex rel. Ryan vs. Clark Refining & Marketing,
Inc., is currently pending in the Circuit Court of Cook County, Illinois. This
lawsuit, originally filed by the Illinois Attorney General following the isomax
incident at the Blue Island refinery on March 13, 1995, was amended just after
the HF release of May 16, 1995 to include all releases into the air or water
that had occurred in the past three years at the Blue Island plant. The
Company has filed an answer denying most of the material allegations. No
estimate can be made at this time of either the likelihood or the magnitude of
any potential liability that may result from this litigation.
On June 7, 1995, Clark was served with a complaint in People of the State
of Illinois v. Clark Refining & Marketing, Inc., PCB No. 95-163, which is
presently pending before the Illinois Pollution Control Board. The complaint
alleges violations relating to the 13 "release incidents" at Clark's Hartford,
Illinois refinery that were the subject of the "Pre-Enforcement Conference
Letters" sent to Clark by the IEPA in October, 1994. The complaint also
alleges violations relating to the operation of certain process units at the
Hartford refinery and a number of permit, recordkeeping and reporting
violations. Clark has filed an answer with the Illinois Pollution Control
Board denying most of the material allegations and has also filed a motion to
dismiss ten entire counts and portions of two other counts of the complaint on
jurisdictional grounds. No estimate of any liability with respect to this
complaint can be made at this time.
Clark received an administrative complaint from the EPA on January 5, 1993
alleging recordkeeping and related violations of the Clean Air Act concerning
the Hartford refinery and seeking civil penalties of $100,000. On July 11,
1994, the EPA filed an amended complaint alleging additional violations and
increasing the amount of the total penalty sought to $200,000. The case was
tried before an administrative law judge on August 23-24, 1994. On March 21,
1995, Clark received the initial decision of the Administrative Law Judge,
finding liability against Clark and assessing a civil penalty of $140,000.
Clark paid this penalty in May 1995.
<PAGE> 17
On April 13, 1995 the Company was served with two Grand Jury Records
Subpoenas issued by the Office of the United States Attorney, Environmental
Crimes Section, in St. Louis. The Subpoenas seek documentary information
primarily about the gasoline spill at the St. Louis Terminal which occurred in
January, 1994. The Company is cooperating fully with the U.S. Attorney
Office's investigation and on June 26, 1995 produced responsive documents to
the Subpoenas. It is not possible to estimate at this time any potential
exposure to Clark from this inquiry.
On May 4, 1994, the United States Equal Employment Opportunity Commission
(''EEOC'') filed a class action lawsuit, Case No. 94 C 2779, EEOC v. Clark
Refining & Marketing, Inc., 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 and intends to
vigorously defend this action. The plaintiff class consists of 40 class
members and is now tentatively closed. It is premature to predict whether this
case will go to trial, and, if so, what the level of exposure, if any, to Clark
would be at trial.
On May 23, 1995 the Company was served with a petition entitled Anderson,
et al vs. Chevron and Clark, filed in Jefferson County, Texas by twenty-four
individual plaintiffs who were Chevron employees who did not receive offers of
employment from Clark at the time of the purchase of the Port Arthur Refinery.
Chevron is named as a co-defendant as well as the outplacement service retained
by Chevron. Clark has filed an answer denying all of the allegations.
Subsequent to the filing of the petition, the plaintiffs have each filed
individual charges with the United States Equal Employment Opportunity
Commission and the Texas Commission of Human Rights. The Company believes the
allegations in both the petition and the individual charges to be without merit
and intends to vigorously defend these matters. No estimate can be made at
this time of either the likelihood or the magnitude of any potential liability
that may result from this litigation or the individual charges filed.
Clark has been named as a defendant in forty civil lawsuits filed by
residents of Hartford, Illinois pending in the Circuit Court for the Third
Judicial Circuit, Madison County, Illinois, seeking unspecified damages for the
presence of gasoline in the soil and groundwater beneath the plaintiffs'
properties. Shell Oil has been named as a co-defendant in six of the above-
referenced lawsuits. The plaintiffs in thirty-four of the lawsuits, which are
pending solely against Clark, have all filed motions to voluntarily dismiss
their lawsuits. It is anticipated that these motions will be granted by the
court and once they are granted, the plaintiffs will have one year within which
to refile their claims. No estimate can be made at this time of either the
likelihood or the magnitude of any potential liability that may result from
this litigation or the individual charges filed.
While it is not possible at this time to establish the ultimate amount of
liability with respect to the environmental and legal matters described above,
the Company is of the opinion that the aggregate amount of any such liability
will not have a material adverse effect on its financial position, cashflows or
results of operations, however, an adverse outcome of these matters could have
a material effect on quarterly or annual operating results or cashflows when
resolved in a future period.
ITEM 5 - Other Information
Effective August 1, 1995, Maura J. Clark, 36, was elected as Executive
Vice President Corporate Development and Chief Financial Officer of the
Company. Ms. Clark is an employee of The Horsham Corporation serving under a
consulting contract with Clark. Ms. Clark previously served as Vice President-
Finance at North American Life Assurance Company, a financial services company,
from September 1993 through July 1995. From May 1990 to September 1993, Ms.
Clark served as Vice President Corporate Finance and Corporate Development of
North American Trust Company (formerly First City Trust Company), a subsidiary
of North American Life Assurance Company.
Effective July 31, 1995, Kevin P. Pennington resigned as Executive Vice
President Corporate Services of the Company.
<PAGE> 18
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE> 19
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/ Dennis R. Eichholz
-----------------------
Dennis R. Eichholz
Controller and Treasurer (Authorized
Officer and Chief Accounting Officer)
September 14, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
[DESCRIPTION] ART 5 FDS FOR 2ND QTR 10-Q
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-95
<PERIOD-START> JAN-01-95
<PERIOD-END> JUN-30-95
<CASH> 82,159
<SECURITIES> 47,856
<RECEIVABLES> 181,324
<ALLOWANCES> 1,918
<INVENTORY> 254,672
<CURRENT-ASSETS> 582,136
<PP&E> 653,579
<DEPRECIATION> 132,433
<TOTAL-ASSETS> 1,150,144
<CURRENT-LIABILITIES> 402,506
<BONDS> 400,721
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,150,144
<SALES> 2,160,152
<TOTAL-REVENUES> 2,168,307
<CGS> 1,964,806
<TOTAL-COSTS> 2,161,432
<OTHER-EXPENSES> 19,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,870
<INCOME-PRETAX> (35,280)
<INCOME-TAX> (13,406)
<INCOME-CONTINUING> (21,874)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,874)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
