<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 of (I.R.S. Employer
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Number of shares of registrant's common stock, $.01 par value, outstanding
as of March 20, 1997: 100 all of which are owned by Clark USA, Inc.
<PAGE>
CLARK REFINING & MARKETING, INC.
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TABLE OF CONTENTS
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Page
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PART I
Items 1 and 2. Business; Properties................................................................................. 1
Item 3. Legal Proceedings.................................................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 18
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters............................. 18
Item 6. Selected Financial Data.............................................................................. 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 21
Item 8. Financial Statements and Supplementary Data.......................................................... 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 28
PART III
Item 10. Directors and Executive Officers of the Registrant................................................... 29
Item 11. Executive Compensation............................................................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management....................................... 35
Item 13. Certain Relationships and Related Transactions....................................................... 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................... 40
Glossary of Terms ...................................................................................................... 43
Signatures ...................................................................................................... 64
</TABLE>
Certain industry terms are defined in the Glossary of Terms
<PAGE>
PART I
Items 1 and 2. Business; Properties
Company Overview
Clark Refining & Marketing, Inc. (the "Company") is the fifth largest
independent refiner and marketer of petroleum products in the United States
("U.S.") with one Texas refinery and two Illinois refineries representing over
350,000 barrels per day of rated crude oil throughput capacity. The Company is
also currently the seventh largest direct operator of gasoline and convenience
stores in the U.S. with over 800 retail outlets in 10 Midwestern states. The
Company's retail network has conducted operations under the Clark brand name for
65 years. The Company also markets gasoline, diesel fuel and other petroleum
products on a wholesale branded and unbranded basis.
The Company's principal executive offices are located at 8182 Maryland
Avenue, St. Louis, Missouri 63105 and its telephone number is (314) 854-9696.
Company History
All of the outstanding common stock of the Company is owned by Clark USA,
Inc. ("Clark USA"). Clark USA was formed in November 1988 by TrizecHahn
Corporation, previously known as The Horsham Corporation ("TrizecHahn"), and AOC
Limited Partnership ("AOC L.P.") to hold all of the capital stock of the
Company and certain other assets. Pursuant to a stockholder agreement (the
"Stockholder Agreement") among AOC L.P., TrizecHahn, Clark USA and the
Company, TrizecHahn purchased 60% of the equity capital of Clark USA and AOC
L.P. purchased the remaining 40% interest. The Company's primary business assets
were acquired on November 22, 1988 out of bankruptcy proceedings. The assets
acquired consisted of (i) substantially all of the assets of Apex Oil Company,
Inc., a Wisconsin corporation (formerly OC Oil & Refining Corporation and prior
thereto Clark Oil & Refining Corporation, a Wisconsin corporation) and its
subsidiaries ("Old Clark") and (ii) certain other assets and liabilities of
the Novelly/Goldstein Partnership (formerly Apex Oil Company), a Missouri
general partnership ("Apex"), the indirect owner of Old Clark and an affiliate
of AOC L.P.
On December 30, 1992, TrizecHahn and Clark USA entered into a Stock
Purchase and Redemption Agreement (the "AOC Stock Purchase Agreement") with
AOC L.P. to purchase and redeem all of the shares and options to purchase shares
of Clark USA owned by AOC L.P., resulting in TrizecHahn owning 100% of the
outstanding equity of Clark USA at that time.
On February 27, 1995, Clark USA sold $135 million of common stock to a
wholly owned subsidiary of TrizecHahn. The TrizecHahn subsidiary immediately
resold $120 million of such stock to Tiger Management Corporation ("Tiger"),
representing an equity ownership interest of 40% of Clark USA at that time. As a
result of these sales of common stock, the Company received an equity
contribution of $150 million from Clark USA and used these proceeds along with
existing cash to acquire from Chevron USA, Inc. ("Chevron") its Port Arthur,
Texas refinery and related assets (the "Port Arthur Refinery") for approximately
$70 million, plus approximately $122 million for inventory and spare parts, and
the assumption of certain liabilities estimated at $19.4 million. The Company is
also obligated under certain circumstances to pay to Chevron contingent payments
(the "Chevron Contingent Payments") pursuant to a formula based on refining
industry margin indicators and the volume of crude oil processed at the Port
Arthur refinery over a five-year period. The maximum total amount of the Chevron
Contingent Payments is $125 million. See "Management's Discussion and Analysis
Of Financial Condition And Results Of Operations -- Liquidity and Capital
Resources." The Port Arthur Refinery increased the Company's crude oil
throughput capacity by over 140% and expanded its market to the Gulf Coast of
the U.S.
In December 1995, subsidiaries of Occidental Petroleum Corporation
("Occidental") and Gulf Resources Corporation ("Gulf") acquired approximately
23% of the equity in Clark USA in exchange for the delivery of certain amounts
of crude oil over a six year period ending in 2001. See "-- The Advance Crude
Oil Purchase
1
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Receivable Transactions." Clark USA subsequently contributed the Occidental
advance crude oil purchase receivable to the Company at market value, where it
was sold in October 1996 for net proceeds of $235.4 million.
Business Strategy
The Company's business strategy focuses on maximizing productivity,
minimizing operating costs, optimizing capital expenditures and growing both its
refining and marketing operations to strengthen the Company's business and
financial profile. This strategy is designed to address the commodity-based
nature of the industry the Company operates in.
. Improving productivity. The Company implements relatively low cost projects
in its refining and marketing operations designed to increase production,
sales volumes and production yields and to improve sales mix while reducing
input costs and operating expenses. Improvements at the newly acquired Port
Arthur refinery, increased yields and crude oil throughput capability at its
Illinois refineries and improved monthly fuel volumes, convenience product
sales and margins in the retail division are examples of these types of
initiatives.
. Optimizing capital investment. The Company optimizes capital investments by
linking discretionary capital spending to cash flow generated, focusing its
efforts first on those productivity initiatives that require no capital
investment and then those which have relatively short payback periods. As an
example, in response to weak 1995 and 1996 industry refining market
conditions, discretionary capital expenditures were scaled back significantly
from historical levels. The Company implemented an image improvement program
within its retail store network to incorporate its new On The Go(R) theme at a
cost per store that the Company believes is less than that incurred by
competitors for upgrades of retail facilities.
. Promoting entrepreneurial culture. The Company emphasizes an entrepreneurial
management approach which uses employee incentives to enhance financial
performance and safety. All of the Company's employees participate in either
its performance management, profit sharing or other incentive plans. In
addition, the Company has adopted a stock incentive plan for certain key
employees.
. Growing through opportunistic acquisitions. The Company intends to continue
to expand its refining and marketing operations through opportunistic
acquisitions which can benefit from its business strategy, create critical
mass, increase market share or access new markets. Since 1994, the Company
more than doubled its refining capacity by acquiring the Port Arthur Refinery
and strengthened its Northern Illinois and Michigan presence by adding 122
retail stores in these core markets.
. Strengthening the balance sheet. The Company will continue to seek to improve
its capital structure. The financing of the Port Arthur refinery acquisition
principally with equity and the contribution of an advance crude oil purchase
receivable from Clark USA lowered the Company's leverage in 1995 and 1996.
Refining
Overview
The refining division currently operates one refinery in Texas and two
refineries in Illinois with a combined crude oil throughput capacity of
approximately 350,000 barrels per day. The Company also owns 16 product
terminals located in its Midwest and Gulf Coast market areas, a crude oil and
LPG terminal associated with the Port Arthur refinery and crude and product
pipeline interests. The Company's refining crude oil throughput capacity ranks
it as one of the five largest independent refining and marketing companies in
the U.S.
Strategy
Since the refining division operates in a commodity-based market
environment in which market prices for crude oil and refined products fluctuate
significantly, the refining division's business strategy focuses on those areas
it can control. The refining industry is capital intensive and has not provided
adequate returns in recent years. The
2
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Company believes this environment provides the opportunity to implement a
contrarian approach. The refining division's strategy is consistent with the
Company's overall business strategy and includes the following key elements:
. Improving Productivity. The refining division focuses on initiatives
requiring little or no capital investment that increase production, improve
product yields and recoveries or reduce operating costs. Comprehensive plant
level programs focus on comparisons to industry benchmark studies as a tool to
develop strategies that improve plant reliability.
. Optimizing Capital Investments. Refining capital expenditures are linked to
cash flow generated from operations. The Company emphasizes an
entrepreneurial approach to discretionary expenditures, and to perceived
mandatory expenditures, such as those required to comply with reformulated and
low sulfur fuels regulations. The Company may seek to comply with regulations
through the use of alternative markets for existing products if adequate
returns on investment are not assured. Most discretionary capital
expenditures in the past three years have had payback periods of less than
four years.
. Promoting Entrepreneurial Culture. Refining division employees are involved in
a team-based approach aimed at improving operations. All employees are
incented through some form of gain-sharing program. The Company believes this
philosophy has significantly contributed to past productivity gains.
. Growth. As part of its growth strategy, the refining division seeks attractive
assets that may be acquired at favorable valuations. The Port Arthur refinery
acquisition is an example of this type of strategy. The Company believes
current industry conditions may offer similar opportunities in the future.
Port Arthur Refinery
The Port Arthur Refinery is located in Port Arthur, Texas and is situated
on an approximately 4,000 acre site. The refinery has a rated crude oil
throughput capacity of approximately 212,000 barrels per day and the ability to
process 100% sour crude oil, including up to 20% heavy crude oil, and has coking
capabilities. Sour and heavy crude oil has historically been available at
substantially lower cost when compared to light sweet crude oil such as West
Texas Intermediate ("WTI"). The Port Arthur refinery has the ability to produce
jet fuel, 100% low sulfur diesel fuel, 55% summer reformulated gasoline ("RFG")
and 75% winter RFG. The refinery's Texas Gulf Coast location provides access to
numerous cost effective domestic and international crude oil sources, and its
products can be sold in the mid-continent and eastern U.S. as well as in export
markets.
Since acquiring the Port Arthur Refinery in early 1995 for approximately
$70 million, plus approximately $122 million for inventory and spare parts, and
the assumption of certain liabilities, the Company has increased crude oil
throughput capability from approximately 178,000 barrels per day to its current
212,000 barrels. In addition, operating expenses were lowered by approximately
50c per barrel by reducing employee and contractor staffing levels and
environmental remediation requirements. During the past two years, the Company
also identified numerous improvement initiatives which it believes can be
implemented at relatively low cost.
3
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The feedstocks and production of the Port Arthur refinery for the ten
months it was owned in 1995 and for the full year 1996 were as follows:
Port Arthur Refinery Feedstocks and Production
(Barrels in thousands)
<TABLE>
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Ten Months Ended Year Ended December 31,
December 31, 1995 1996
----------------------- -----------------------
bbls % bbls %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Feedstocks
Light Sweet Crude Oil............................................ 22,268 35.0% 11,018 14.5%
Light Sour Crude Oil............................................. 31,518 49.5 36,855 48.3
Heavy Sweet Crude Oil............................................ -- -- 23,920 31.4
Heavy Sour Crude Oil............................................. 7,488 11.8 1,327 1.7
Unfinished & Blendstocks......................................... 2,349 3.7 3,128 4.1
------ ----- ------ -----
Total............................................................... 63,623 100.0% 76,248 100.0%
====== ===== ====== =====
Production
Gasoline
Unleaded......................................................... 13,966 21.8 20,840 27.0
Premium Unleaded................................................. 13,030 20.4 12,258 15.9
------ ----- ------ -----
26,996 42.2 33,098 42.9
------ ----- ------ -----
Other Products
Low Sulfur Diesel Fuel........................................... 14,739 23.1 17,443 22.6
Jet Fuel......................................................... 9,047 14.1 11,166 14.5
Petrochemical Products........................................... 5,382 8.4 6,751 8.7
Others........................................................... 7,794 12.2 8,704 11.3
------ ----- ------ -----
36,962 57.8 44,063 57.1
------ ----- ------ -----
Total............................................................... 63,958 100.0% 77,162 100.0%
====== ===== ====== =====
Output/day.......................................................... 207.7 210.8
</TABLE>
Illinois Refineries
The Company's Illinois refineries, Blue Island near Chicago and Hartford
near St. Louis, Missouri, are supplied by common carrier crude oil pipelines and
are also located on inland waterways with barge access. The refineries not only
have access to multiple sources of foreign and domestic crude oil supply, but
also benefit from crude oil input flexibility. The two refineries are connected
by product pipelines, increasing flexibility relative to stand-alone operations.
The Company's product terminals allow efficient distribution of refinery
production through pipeline systems. The Company believes that the Midwest
location of these refineries provides relatively high refining margins and less
volatility than comparable operations located in other regions of the U.S. on an
historical basis principally because, in the past, demand for refined products
has exceeded production in the region. This excess demand has historically been
satisfied by imports from other regions, providing Midwest refineries with a
transportation advantage.
Blue Island Refinery
The Blue Island refinery is located in Blue Island, Illinois, approximately
17 miles south of Chicago. The refinery is situated on a 170 acre site, bounded
by the town of Blue Island and the Calumet-Sag Canal. The facility was initially
constructed in 1945 and, through a series of improvements and expansions, has
reached a crude oil capacity of 75,000 barrels per day, although actual average
monthly throughput rates are sustained at levels in excess of rated capacity
during certain times of the year. Blue Island has among the highest capabilities
to produce gasoline relative to the other refineries in its market area and
through productivity initiatives has achieved the flexibility to produce up to
60% RFG and some low sulfur diesel fuel when the market warrants and based on
the clean fuels attainment of the Company's total refining system. During most
of the year, gasoline is the most profitable refinery product.
Since 1992, the Company has increased the crude oil throughput capability
at the Blue Island refinery by approximately 10,000 barrels per day, introduced
light sour crude oil as a lower cost feedstock, improved the FCC unit capability
by 25% and introduced the capability to produce RFG.
4
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The feedstocks and production of the Blue Island refinery for the years
ended December 31, 1994, 1995 and 1996 were as follows:
Blue Island Refinery Feedstocks and Production
(Barrels in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1994 1995 (a) 1996 (a)
-------------- -------------- --------------
bbls % bbls % bbls %
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Feedstocks
Light Sweet Crude Oil....... 20,780 71.3% 18,975 74.0% 21,203 82.7%
Light Sour Crude Oil........ 7,120 24.5 6,318 24.6 3,860 15.1
Unfinished & Blendstocks.... 1,233 4.2 347 1.4 566 2.2
------ ----- ------ ----- ------ -----
Total............................ 29,133 100.0% 25,640 100.0% 25,629 100.0%
====== ===== ====== ===== ====== =====
Production
Gasoline
Unleaded.................... 12,571 43.7 12,737 50.1 12,497 50.9
Premium Unleaded............ 5,558 19.3 3,540 13.9 2,922 11.6
------ ----- ------ ----- ------ -----
18,129 63.0 16,277 64.0 15,419 62.5
------ ----- ------ ----- ------ -----
Other Products
Diesel Fuel................. 6,376 22.1 5,133 20.2 5,690 22.5
Others...................... 4,293 14.9 4,016 15.8 3,755 15.0
------ ----- ------ ----- ------ -----
10,669 37.0 9,149 36.0 9,445 37.5
------ ----- ------ ----- ------ -----
Total............................ 28,798 100.0% 25,426 100.0% 24,864 100.0%
====== ===== ====== ===== ====== =====
Output/Day....................... 78.9 69.7 68.0
</TABLE>
(a) Output during 1995 and 1996 was reduced by significant planned and unplanned
downtime.
Hartford Refinery
The Hartford refinery is located in Hartford, Illinois, approximately 17
miles northeast of St. Louis. The refinery is situated on a 400 acre site. The
facility was initially constructed in 1941 and, through a series of improvements
and expansions, has reached a crude oil refining capacity of approximately
65,000 barrels per day. The Hartford refinery includes a coker unit and
consequently has the ability to process a variety of crude oil including lower
cost, heavy sour crude oil into higher value products such as gasoline and
diesel fuel. The Hartford refinery has the capability to process approximately
50% heavy sour crude oil and 25% medium sour crude oil. This upgrading
capability allows the refinery to benefit from higher margins if heavy sour
crude oil is at a significant discount to light sweet crude oil.
Since 1992, the Company has increased the crude oil throughput capability
at the Hartford refinery by approximately 10,000 barrels per day, improved
overall liquid recovery by approximately 3%, improved FCC unit yields by
approximately 3%, increased higher valued crude unit yields by approximately
2,000 barrels per day and dramatically reduced combined recordable and days away
from work rates from 27 in 1990 to 4 in 1996.
5
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The feedstocks and production of the Hartford refinery for the years ended
December 31, 1994, 1995 and 1996 were as follows:
Hartford Refinery Feedstocks and Production
(Barrels in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1994 (a) 1995 1996
-------------- -------------- --------------
bbls % bbls % bbls %
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Feedstocks
Light Sweet Crude Oil....... 6,037 26.2% 5,008 20.8% 3,725 15.5%
Light Sour Crude Oil........ 7,696 33.4 13,520 56.0 19,588 81.4
Heavy Sour Crude Oil........ 8,800 38.2 4,960 20.6 179 0.7
Unfinished & Blendstocks.... 506 2.2 637 2.6 567 2.4
------ ----- ------ ----- ------ -----
Total............................ 23,039 100.0% 24,125 100.0% 24,059 100.0%
====== ===== ====== ===== ====== =====
Production
Gasoline
Unleaded.................... 9,777 43.6 11,497 47.2 10,882 44.9
Premium Unleaded............ 1,732 7.7 1,723 7.1 1,728 7.1
------ ----- ------ ----- ------ -----
11,509 51.3 13,220 54.3 12,610 52.0
------ ----- ------ ----- ------ -----
Other Products
High Sulfur Diesel Fuel..... 7,801 34.8 8,090 33.2 8,950 36.9
Others...................... 3,106 13.9 3,060 12.5 2,703 11.1
------ ----- ------ ----- ------ -----
10,907 48.7 11,150 45.7 11,653 48.0
------ ----- ------ ----- ------ -----
Total............................ 22,416 100.0% 24,370 100.0% 24,263 100.0%
====== ===== ====== ===== ====== =====
Output/Day....................... 61.4 66.8 66.2
</TABLE>
(a) The 1994 results reflect maintenance turnaround downtime of approximately
one month on selected units.
Terminals and Pipelines
Refined products are distributed primarily through the Company's terminals,
company-owned and common carrier product pipelines and by leased barges over the
Mississippi, Illinois and Ohio rivers. The Company owns 14 product terminals
with a combined capacity of approximately 3.8 million barrels throughout its
upper Midwest market area. In addition to cost efficiencies in supplying its
retail network, the terminal distribution system allows efficient distribution
of refinery production. The Company also owns a crude oil and refined product
terminal, a refined products terminal and an LPG terminal with a combined
capacity of approximately 7.1 million barrels associated with the Port Arthur
refinery in Texas.
The Company enters into refined product exchange agreements with
unaffiliated companies to broaden its geographical distribution capabilities,
and products are also received through exchange terminals and distribution
points throughout the Central U.S.
The Company's pipeline interests, as of December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Pipeline Type Interest Route
-------- ---- -------- -----
<S> <C> <C> <C>
Southcap Crude 36.0% St. James, LA to Patoka, IL
Chicap Crude 22.7 Patoka, IL to Mokena, IL
Clark Port Arthur Crude and products 100.0 Port Arthur and Beaumont, TX
Wolverine Products 9.5 Chicago, IL to Toledo, OH
West Shore Products 11.1 Chicago, IL to Green Bay, WI
</TABLE>
These pipelines operate as common carriers pursuant to published pipeline
tariffs, which also apply to use by the Company. The Company also owns a
proprietary products pipeline from the Blue Island refinery to its terminal in
Hammond, Indiana and from the Port Arthur refinery to its LPG terminal in
Fannett, Texas.
6
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Supply and Distribution
The Company's integrated refining and marketing assets are strategically
located in the Central U.S. in close proximity to a variety of supply and
distribution channels. As a result, the Company has the flexibility to acquire
economic domestic or foreign crude oil and has the ability to distribute its
products to its own system and to most domestic wholesale markets.
The Port Arthur refinery's Texas Gulf Coast location provides access to
numerous cost-effective domestic and international crude oil sources which can
be accessed by waterborne delivery or through the West Texas Gulf pipeline. The
Company's Illinois refineries are located on major inland water transportation
routes and are connected to various local, interstate and Canadian common
carrier pipelines. The Company has a minority interest in several of these
pipelines. The Blue Island refinery can receive Canadian crude oil through the
Lakehead Pipeline from Canada, foreign and domestic crude oil through the
Capline Pipeline system originating in the Louisiana Gulf Coast region, and
domestic crude oil originating in West Texas, Oklahoma and the Rocky Mountains
through the Arco Pipeline system. The Hartford refinery has access to foreign
and domestic crude oil supplies through the Capline/Capwood Pipeline systems and
access to Canadian crude oil through the Express Pipeline and the Mobil/IPL
pipeline system. Both refineries are situated on major water transportation
routes which provide flexibility to receive crude oil or intermediate feedstocks
by barge when economical.
The Company has several crude oil supply contracts that total approximately
106,000 barrels per day with several third party suppliers including, P.M.I.
Comercio Internacional, S.A. de C.V., an affiliate of Petroleos Mexicanos, S.A.
de C.V., Lagoven, an affiliate of Petroleos de Venezuela and Gulf Canada.
These contracts are generally cancelable upon one to three months' notice by
either party, but are intended to remain in place for the foreseeable future.
The remainder of the Company's crude oil supply requirements are acquired on the
spot market from third party foreign and domestic sources.
In addition to gasoline, the Company's refineries produce other types of
refined products. No. 2 diesel fuel is used mainly as a fuel for diesel burning
engines. No. 2 diesel fuel production is moved via pipeline or barge to the
Company's 16 product terminals and is sold over the Company's terminal truck
racks or through refinery pipeline or barge movement. The Port Arthur refinery
produces jet fuel which is generally sold through pipelines. Other production
includes residual oils (slurry oil and vacuum tower bottoms) which are used
mainly for heavy industrial fuel (e.g., power generation) and in the
manufacturing of roofing flux or for asphalt used in highway paving. The
Company has agreements to sell to Chevron 24,000 barrels per day of gasoline and
1,000 barrels per day of low-sulfur diesel from the Port Arthur refinery through
February 28, 1999. This contract is cancelable upon 90 day notice by either
party. The Company supplies gasoline and diesel fuel to its retail system
first, then distributes products to its wholesale operations based on the
highest average market returns before being sold into the spot market.
The Company also has an agreement to exchange certain refined products and
chemicals with Chevron Chemical Company, which have averaged approximately
25,000 barrels per day during 1995 and 1996. This contract is cancelable upon
18 months notice by either party or mutual agreement.
The Port Arthur refinery's product can be sold in the mid-continent and
eastern U.S. as well as export markets. These markets can be accessed through
the Explorer, Texas Eastern and Colonial pipelines or by ship or barge. The
Company's Illinois refineries can distribute their products through various
common carrier and proprietary pipelines which connect the 14 Midwest product
terminals or by barge.
Inventory Management
The Company employs several strategies to minimize the impact on
profitability due to the volatility in feedstock costs and refined product
prices. These strategies generally involve the purchase and sale of exchange-
traded, energy-related futures and options with a duration of six months or
less. In addition, the Company to a lesser extent uses energy swap agreements
similar to those traded on the exchanges, such as crack spreads and crude oil
options, to better match the specific price movements in the Company's markets
as opposed to the delivery point of the exchange-traded contract. These
strategies are designed to minimize, on a short-term basis, the Company's
exposure to the risk of fluctuations in crude oil prices and refined product
margins. The number of barrels of crude
7
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oil and refined products covered by such contracts varies from time to time.
Such purchases and sales are closely managed and subject to internally
established risk standards and covenants contained in the Company's working
capital agreement. The results of these hedging activities affect refining costs
of sales and inventory costs. The Company does not engage in speculative
futures or derivative transactions.
The Company manages its total inventory position in a manner consistent
with a risk management policy which states that a normal operating inventory
level (base load) will not be offset using risk management techniques, while
material builds or draws from this normal level may be offset by appropriate
risk management strategies to protect against an adverse impact due to
unfavorable price moves. The Company's retail network also reduces overall risk
by providing ratable market sales which represent approximately 40% of the
refineries' gasoline production. In addition, the retail network benefits from
a reliable and cost-effective source of supply.
Due to the Port Arthur refinery's Gulf Coast location, the Company has the
opportunity to limit its exposure to price fluctuations on crude oil and
finished product production through the use of U.S. Gulf Coast based energy
derivatives, such as forward futures and option contracts relating to Gulf Coast
crack spreads. There exists a market for Gulf Coast refinery crack spreads based
on published spot market product prices and exchange-traded crude oil. Since
the Company sells the majority of the Port Arthur refinery's production into the
Gulf Coast spot market, the Company believes that forward future and option
contracts related to crack spreads may be used effectively to hedge refining
margins. While the Company's hedging program is intended to provide a more
predictable profit margin on a portion of the Port Arthur refinery production,
the use of such a program could limit the Company's ability to participate in an
improvement in Gulf Coast crack spreads.
Clean Air Act/Reformulated Fuels
Under the Clean Air Act, the U.S. Environmental Protection Agency ("EPA")
promulgated regulations mandating low sulfur diesel fuel for all on-road
consumers, and RFG for ozone non-attainment areas, including Chicago, Milwaukee
and Houston in the Company's direct market area.
The Clean Air Act requires the EPA to review national ambient air quality
standards for pollutants every five years. Upon review, the EPA has proposed a
more restrictive standard for ground level ozone (smog) and particulate matter
(soot). The proposed rule, if enacted, would expand non-attainment areas
requiring additional pollution controls and RFG, and possible new diesel fuel
standards. Because the new standard is still in the early comment phase, it is
too early to determine if this proposal will be implemented and if so what
impact it would have on the Company.
Expenditures required to comply with reformulated fuels regulations are
primarily discretionary, subject to market conditions and economic
justification. The reformulated fuels programs impose restrictions on
properties of fuels to be refined and marketed, including those pertaining to
gasoline volatility, oxygenated content, detergent addition and sulfur content.
The regulations regarding these fuel properties vary in markets in which the
Company operates, based on attainment of air quality standards and the time of
the year. The Company's Port Arthur, Blue Island and Hartford refineries have
the capability to produce up to 60%, 60%, and 25%, respectively, of their
gasoline production in RFG. Each refinery's maximum RFG production may be
limited based on the clean fuels attainment of the Company's total refining
system. The Port Arthur refinery has the capability to produce 100% low sulfur
diesel fuel.
Market Environment
The Company's products are principally commodities and, as such, are
significantly affected by a variety of factors beyond its control, including the
supply of, and demand for, crude oil, gasoline and other refined products, which
in turn depend on, among other factors, such as changes in domestic and foreign
economies, weather conditions, political affairs, production levels, the rate of
industry investment, the availability of imports, the marketing of competitive
fuels and the extent of government regulation.
Since late 1994, the Company believes that refining margins were adversely
impacted by several factors. These include uncertainties related to the
transition to RFG in several markets, an unseasonably warm 1994-1995 Northern
Hemisphere winter that reduced demand for distillates and rising, volatile and
high crude oil prices in 1996.
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Over the long term, the Company believes that refining industry
profitability is closely linked to the expansion of refined fuels production
capability, the discount for lower quality crude oil and the rate of demand
growth. U.S. gasoline demand has increased by an average of 1% to 2% annually
over the last decade because of increases in miles driven and stabilization of
the U.S. fleet's fuel efficiency. A narrowing price benefit for using heavy and
sour crude oil has been experienced since the early 1990s. The Company believes
that this is principally because of the Iraqi oil embargo and new light sweet
crude oil fields coming onstream while export producers were maximizing light
sweet crude oil production. This has occurred while demand for heavy crude oil
increased following industry construction of upgrading capability associated
with the favorable heavy and sour crude oil differentials of the early 1990s.
The Company believes that recent heavy and sour crude oil differentials would
not justify further significant upgrading construction and industry studies
indicate that long-term crude oil reserves favor sour crude oil.
Crude oil distillation capacity utilization for the industry equaled an
estimated 93% in 1996. The Company believes that the maximum sustainable
refining industry capacity utilization is near this level due to requirements
for regular maintenance. Increases in industry refined fuels production
capability can result from debottlenecking, increased upgrading capability and
new refinery additions. The Company believes that significant additional
domestic grass roots construction is unlikely because of high capital costs and
stringent environmental regulations. The last grass roots refinery in the U.S.
was built in the mid-1970s. As noted above, the Company does not believe that
recent crude oil quality differentials would justify significant upgrading
construction. The Company believes some refineries increased light production
capabilities through debottlenecking in conjunction with environmental-related
capital spending in the early 1990s. The Company expects minor debottlenecking
to continue, but with a reduction in recent industry capital spending related to
poor industry earnings and decreased new environmental regulations, these
additions are expected to be limited.
The Advance Crude Oil Purchase Receivable Transactions
In late 1995, Clark USA completed merger agreements and a series of related
agreements with subsidiaries of Occidental and Gulf pursuant to which Clark USA
acquired the right to receive the equivalent of 17.661 million barrels and 3.164
million barrels of crude oil, respectively, over a six year period (the "Oil
Transactions"). In connection with the Oil Transactions, Clark USA issued
common stock valued at approximately $120 million, or $22 per share (5,454,545
shares), and paid $100 million in cash to Occidental. Clark USA issued common
stock valued at approximately $26.9 million, or $22 per share (1,222,273
shares), to Gulf. Clark USA subsequently contributed the Occidental advance
crude oil purchase receivable to the Company at market value, where it was sold
in October 1996 for net proceeds of $235.4 million. Clark USA still owns the
Gulf advance crude oil purchase receivable. However, Gulf has not made their
required deliveries since July 1996.
Marketing
The Company markets gasoline and convenience products in ten Midwestern
states through a retail network of company-operated stores and also markets
refined petroleum products through a wholesale program to distributors, chain
retailers and industrial consumers. The Company's retail presence is
predominately in the Great Lakes region of the U.S. where Company-operated
stores (826 at January 31, 1997) market value-oriented gasoline products and a
unique mix of On-The-Go(R) convenience products. The Company's wholesale
operation markets petroleum products in both the Midwest and Gulf Coast regions
of the U.S. In 1996, the Company sold approximately 1.1 billion gallons of fuel
and over $250 million of convenience products through approximately 200 million
retail transactions and sold an additional 1.1 billion gallons of fuel to
wholesale customers ranging from Clark-branded retailers to major transportation
and commercial companies.
Retail Division
The Company's retail strategy is based on two primary objectives,
optimization and growth, and is intended to accomplish four strategic goals: (i)
optimize core market stores, (ii) minimize the value deterioration of non-
strategic stores, (iii) grow earnings through acquisitions and new initiatives
designed to leverage existing expertise,
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product knowledge and market/brand strength, and (iv) control operating and
general and administrative expenses.
. Optimization. The retail division operating strategy centers around
optimizing the productivity of existing assets by maximizing overall gross
margin and controlling expenses. The Company believes that continued
improvements in existing processes and initiatives such as gasoline
pricing, growth of higher margin premium gasoline grades and On The Go/(R)/
convenience product lines, growth of other income/new concept initiatives
(such as lottery, money orders, fast food, car washes, etc.) together with
the proper management of controllable expenses are the most effective ways
to improve core assets.
. Growth. In order to support it's retail strategic objectives, the Company
performs thorough fundamental market analyses. The Company's analytical
system evaluates each existing and potential market to identify those that
it believes will produce the highest return on investment.
The retail division's optimization and growth strategy is consistent with
the Company's overall business strategy and includes the following key elements:
. Improving Productivity. The retail division's goal is to achieve
significant productivity gains exclusive of external market factors.
Examples of key productivity initiatives include increasing gasoline and
convenience product sales, improving gasoline pricing and shifting product
mixes to high margin products.
. Optimizing Capital Investments. Retail division capital expenditures are
linked to the retail business' earnings with strict emphasis made on
internally funding capital projects. Capital is primarily budgeted for
projects relating to environmental compliance plans and discretionary
productivity improvements.
. Promoting Entrepreneurial Culture. The retail division employs a
decentralized team-oriented culture with training programs and employee
incentives designed to deliver service that exceeds customer expectations.
The Company's store managers have the flexibility to price gasoline and to
select and price convenience products, but also have the responsibility to
achieve acceptable results. The Company believes that customer satisfaction
is linked to employee satisfaction, and that its incentive systems and
feedback processes will contribute to the performance and motivation of its
workforce.
In markets where the Company has a competitive strength on which to build
or where opportunities have been identified by preferred market analysis,
the Company will consider making opportunistic acquisitions to expand
market share in existing markets as well as larger acquisitions to enter
new markets. The Company believes that continued growth through such
acquisitions as the 122 stores acquired since 1994, contributes to building
the Clark brand in core markets. In markets where the Company has
experienced value deterioration in assets and the preferred market analysis
has defined there to be no long-term market potential, the Company will
consider divesting retail locations if favorable sale opportunities arise
or if the Company determines the locations would be more viable by
conversion to branded jobber locations.
Retail Operations Overview
The Company's retail system began operations during the 1930s with the
opening of Old Clark's first store in Milwaukee, Wisconsin. Old Clark then
expanded throughout the Midwest. At its peak in the early 1970s, Old Clark had
more than 1800 retail stores and had established a strong market reputation for
the sale of high octane gasoline at discount prices. In subsequent years, Old
Clark, in line with the general industry trends, rationalized its operating
stores by closing marginal locations. During the 1970s, the majority of Old
Clark's stores were dealer-operated. During the years 1973 through 1983, Old
Clark assumed operation of most of its stores to ensure more direct control of
its marketing and distribution network.
As of January 31, 1997, the Company had 825 Company-operated and one dealer
operated retail locations, all of which operated under the Clark brand name. Of
these stores, 637 were owned (77%) and 189 were leased (23%). The Company
believes a high proportion of Company-operated stores enables it to respond more
quickly and
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uniformly to changing market conditions than many of its competitors, including
major oil companies whose focus has generally been operating their stores
through dealer or jobber networks.
The Company's six highest volume core metropolitan markets, with market
share of 5% to 18%, consist of Chicago, Central Illinois, Southern Michigan,
Cleveland, Milwaukee and Toledo. The Company's core markets are markets in
which the Company believes it can maintain or develop market share of 7.5% to
15% in order to leverage brand recognition, promotions and other marketing and
operating activities.
Over the past few years the Company has grown its market share in several
of its core markets through retail store acquisitions. Agreements were signed in
October 1994 for 25 stores in metropolitan Chicago acquired from State Oil and
in April 1995 for 35 stores in Central Illinois acquired from Illico Independent
Oil Company. In March 1996 agreements were reached with State Oil for four
additional stores and with Bell Fuels, Inc. for the acquisition of 10 high
volume Chicago locations. The latter acquisition increased the Company's market
share in Chicago from approximately 8.7% to 9.7%. In January 1997, the Company
acquired 48 stores in Southern Michigan from Silcorp, Ltd. This transaction
increased the Company's Southern Michigan market share from approximately 5% to
7%.
Simultaneous with growing the Company's market share in core markets
through acquisitions, the Company continues to evaluate its remaining non-core
markets for possible divestiture. In the past few years, the Company has
divested 64 stores in its Louisville, Kentucky, Evansville, Indiana, Minnesota,
Kansas and Western Missouri markets.
The geographic distribution of retail stores by state as of January 31,
1997 was as follows:
Geographical Distribution of Retail Stores
<TABLE>
<CAPTION>
<S> <C>
Illinois 266
Michigan 210
Ohio 156
Indiana 79
Wisconsin 70
Missouri (a) 30
Other States (b) 15
---
Total 826
===
</TABLE>
(a) Includes one dealer-operated store
(b) Iowa, Kentucky, Pennsylvania and West Virginia
In addition to developing its retail store network through acquisitions and
divestitures, the Company continues to optimize its retail stores through
productivity achieved from improved operations, profit enhancing capital
expenditures and the addition of incremental new concept and other income
initiatives. From 1993 to 1996, the Company transformed the image of its retail
network by converting it from a 1950s look to a new vibrant color scheme. In
1993, the Company initiated a strategy to increase the sales of On The Go/(R)/
products to reduce the Company's reliance on cigarette sales. This was
accomplished by remodeling store interiors and adding soda fountain machines and
interior beverage coolers. In an effort to continue to improve gasoline volume
and pricing, growth of higher margin premium gasoline grades and On The Go/(R)/
convenience product lines, the Company continues to upgrade the equipment for
core market stores including canopies and multiple product dispensers ("MPDs").
Currently, approximately 90% of stores have canopies and approximately 70% of
stores have MPDs. It is believed that MPDs improve volumes and margins by
enabling the Company to market a more profitable mid-grade gasoline product
without the large capital expenditures required for underground storage tanks.
The installation of canopies enhances gasoline volumes with better lighting and
shelter from adverse weather conditions. In 1996, the Company added "pay at the
pump" credit card technology at 53 locations, and will continue to evaluate the
addition of similar technology at additional locations, as well as additional
other income initiatives, including car washes and branded fast food.
As a result of the above initiatives and recent acquisitions, the Company
has from 1992 to 1996 improved monthly fuel volume per store by 16% to 104,500
gallons, increased monthly convenience product sales per store
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by 33% to $25,500, increased the mix of On The Go/(R)/ convenience products from
32% to 42% of total convenience product sales, and improved monthly convenience
product gross margin per store by 47% to $6,600.
The Company has implemented a number of environmental projects at its
retail stores. These projects include the ongoing response to the September 1988
regulations that provided for a 10 year transition period through 1998, and are
related to the design, construction, installation, repair and testing of
underground storage tanks ("UST") and the requirement of the Clean Air Act to
install Stage II vapor recovery systems at certain retail stores. The Company
has UST leak detection devices installed at nearly all retail locations.
Approximately 56% of current locations meet the December 1998 federal UST
compliance standards. The Company estimates that mandatory retail capital
expenditures for environmental and regulatory compliance for 1997 and 1998 will
be approximately $23 million. Costs to comply with future regulations cannot be
estimated.
Market Environment
The sale of gasoline at the retail level is considered a mature industry as
consumption typically increases at 1% to 2% per year, and industry studies
indicate that many markets have reached saturation in terms of the number of
retail outlets and fuel dispensing capability. The retail markets in which the
Company operates are highly competitive. Many well-capitalized major oil
companies and numerous independent marketers have made substantial investments
in their retail assets. Historically, this competitive environment has caused
retail gasoline margins in the Company's Midwest markets to be among the lowest
in the country.
The Company believes that the increased sale of convenience products and
fast food and the expanded offering of other services like car washes and pay-
at-the-pump technology will be the primary avenues for individual site growth in
the industry. Industry studies also indicate that the retail markets have been
characterized by several significant trends including (i) increased
rationalization of stores and consolidation of companies, (ii) changing consumer
demand to emphasize convenience and value, (iii) the impact of governmental
regulations on product offerings and services, and during 1996 (iv) unstable
gasoline unit margins due to crude oil and related wholesale price volatility.
. Rationalization/Consolidation. During the past several years, major oil
companies have rationalized their retail systems to gain efficiencies.
These companies divested non-strategic locations to focus on areas near
strategic supply sources, which has put a higher concentration of market
share in fewer geographic regions for many of these companies. In addition,
smaller operators have closed marginal and unprofitable locations due to
the investment requirements to meet the 1998 UST environmental compliance
deadline.
More recently, oil companies and convenience store chains have sought to
consolidate through mergers, acquisitions and joint ventures. The lack of
availability of favorable new locations, the high cost of construction of
new facilities and the opportunity to achieve significant cost reduction
and brand building synergies make this attractive for many companies.
. Changing Consumer Demand. Industry studies indicate that consumer buying
behavior continues to reflect the effect of increasing demands on consumer
time and money. Consumers have generally become time constrained, value
minded buyers that expect quality goods for reasonable prices.
. Government Regulations. The gasoline and convenience store industry is
subjected to significant governmental regulations. The environmental
requirements for Stage II vapor recovery and UST upgrades have been
partially responsible for the closing of more than 31,000 retail stores or
close to 14% of U.S. outlets over the five year period of 1990 to 1994.
This trend is expected to continue through 1998. It is anticipated that
these regulations may also cause many companies with vehicle fleet programs
to abandon on-site fueling in favor of retail fueling. Most recently, the
Food and Drug Administration has initiated a series of regulations intended
to stop the sale of tobacco products to minors. Such regulations, if
enacted, may impact the way such tobacco products are marketed throughout
the country.
. Volatile Wholesale Costs. The volatility of crude oil and wholesale costs
can materially affect the profitability of retail gasoline operations.
Typically, there is a delay in changes between retail gasoline prices and
changes in wholesale product costs that prevents operators from maintaining
stable gasoline margins. During periods of
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<PAGE>
rapidly rising wholesale costs, margins are usually compressed. Conversely,
during periods of falling wholesale costs, margins usually expand.
Wholesale Division
The Company's wholesale division strategy is to leverage its strengths in
the distribution and marketing of petroleum and On-The-Go/(R)/ products to
create value through commercial relationships with minimal capital investment.
The wholesale division strategy is designed to create value by focusing on
distinct channels of trade and offering products and services that meet the
unique needs of targeted customers. Wholesale marketing can be divided into four
primary functions: (i) fuel sales to commercial and transportation end-users,
(ii) fuel sales to reseller-distributors, (iii) branded franchise marketing, and
(iv) new business franchise marketing.
The Company currently sells gasoline and diesel fuel on an unbranded basis
to approximately 500 distributors and chain retailers. The Company believes
these sales offer higher profitability than spot market alternatives. Wholesale
sales are also made to the transportation and commercial sector, including
airlines, railroads, barge lines and other industrial end-users. In 1997, the
Company continued growth of a new branded jobber program, ending the year with
21 outlets owned and operated by branded jobbers. As part of its new business
franchise marketing initiative, the Company added two outlets in Texas located
on grocery store parking lots. The Company believes that a branded distributor
program, new business franchise marketing, and further focus on the
transportation and commercial sector offer significant opportunity for
incremental sales volumes and earnings in the future.
Fuel sales to all channels of trade focus on maximizing netback
realizations (revenue less all distribution and working capital investment
costs). The wholesale division continues to refine and integrate netback
management tools to identify the most attractive short-term sales opportunities
as well identify the most profitable markets over the long-term. Channel of
trade, product, and market specific strategies are continually refined and
optimized through this netback methodology. Efforts focus on improving returns
and optimizing the core Midwest system while expanding Gulf Coast marketing
activities around the supply of refined products available from the Port Arthur
refinery.
Competition
The refining and marketing segment of the oil industry is highly
competitive. Many of the Company's principal competitors are integrated
multinational oil companies that are substantially larger and better known than
the Company. Because of the diversity, integration of operations, larger
capitalization and greater resources, these major oil companies may be better
able to withstand volatile market conditions, compete on the basis of price and
more readily obtain crude oil in times of shortages.
The principal competitive factors affecting the Company's refining division
are crude oil and other feedstock costs, refinery efficiency, refinery product
mix and product distribution and transportation costs. Certain of the Company's
larger competitors have refineries which are larger and, as a result, could have
lower per barrel costs or high margins per barrel of throughput. The Company
has no crude oil reserves and is not engaged in exploration and production
activities. The Company obtains nearly all of its crude oil requirements from
unaffiliated sources. The Company believes that it will be able to obtain
adequate crude oil and other feedstocks at generally competitive prices for the
foreseeable future.
The principal competitive factors affecting the Company's retail marketing
division are locations of stores, product price and quality, appearance and
cleanliness of stores, brand identification and market share. Competition from
large, integrated oil and gas companies, as well as convenience stores which
sell motor fuel, is expected to continue. The principal competitive factors
affecting the Company's wholesale marketing business are product price and
quality, reliability and availability of supply and location of distribution
points.
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Environmental Matters
Compliance Matters
Operators of refineries and gasoline stores are subject to comprehensive
and frequently changing federal, state and local environmental laws and
regulations, including those governing emissions of air pollutants, discharges
of wastewaters and storm waters, and the handling and disposal of non-hazardous
and hazardous waste. Federal, state and local laws and regulations establishing
various health and environmental quality standards and providing penalties for
violations thereof affect nearly all of the operations of the Company. Included
among such statutes are the Clean Air Act, Resource Conservation and Recovery
Act and the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"). Also significantly affecting the Company are the
rules and regulations of Occupational Safety and Health Administration. Many of
these laws authorize the imposition of civil and criminal sanctions upon
companies that fail to comply with applicable statutory or regulatory
requirements. The Company believes that, in all material respects, its existing
operations are in compliance with such laws and regulations.
The Company's existing operations are large and complex. The numerous
environmental regulations to which the Company is subject are complicated,
sometimes ambiguous, and often changing. In addition, the Company may not have
detected certain violations of environmental laws and regulations because the
conditions that constitute such violations may not be apparent. It is therefore
possible that certain of the Company's operations are not currently in
compliance with state or Federal environmental laws and regulations, and that
such non-compliance could result in fines and payments that could have a
material adverse effect on the Company's financial condition, results of
operations, cash flow or liquidity. Accordingly, the Company may be required to
make additional expenditures to comply with existing environmental requirements.
Regulations issued by the EPA in 1988 with respect to USTs require the
Company, over a period of up to ten years, to install, where not already in
place, detection devices and corrosion protection on all USTs and piping at its
retail gasoline outlets. The regulations also require periodic tightness
testing of USTs and piping. Commencing in 1998, operators will be required
under these regulations to install continuous monitoring systems for underground
tanks. See "--Marketing--Retail Operations Overview."
The Company cannot predict what environmental legislation or regulations
will be enacted in the future or how existing or future laws or regulations will
be administered or interpreted with respect to products or activities to which
they have not previously been applied. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of the regulatory
agencies or stricter interpretation of existing laws which may develop in the
future, could have an adverse effect on the financial position or operations of
the Company and could require substantial additional expenditures by the Company
for the installation and operation of pollution control systems and equipment.
See "--Legal Proceedings."
Remediation Matters
In addition to environmental laws that regulate the Company's on-going
operations, the Company's various operations also are subject to liability for
the remediation of contaminated soil and groundwater. Under CERCLA and
analogous state laws, certain persons may be liable as a result of the release
or threatened release of hazardous substances into the environment. Such
persons include the current owner or operator of property where such releases or
threatened releases have occurred, any persons who owned or operated such
property during the time that hazardous substances were released at such
property, and persons who arranged for the disposal of hazardous substances at
such property. Liability under CERCLA is strict. Courts have also determined
that liability under CERCLA is, in most cases where the government is the
plaintiff, joint and several, meaning that any responsible party could be held
liable for all costs necessary for investigating and remediating a release or
threatened release of hazardous substances. As a practical matter, liability at
most CERCLA (and similar) sites is shared among all the solvent "potentially
responsible parties" ("PRPs"). The most relevant factors in determining the
probable liability of a party at a CERCLA site usually are the cost of
investigation and remediation, the relative amount of hazardous substances
contributed by the party to the site and the number of solvent PRPs. While the
Company maintains property and casualty insurance in the normal course of its
business, such insurance does not typically cover remediation and certain other
environmental expenses.
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The release or discharge of petroleum and hazardous materials can occur at
refineries, terminals and retail stores. The Company has identified a variety
of potential environmental issues at its refineries, terminals and retail
stores. In addition, each refinery has areas on-site which may contain
hazardous waste or hazardous substance contamination and which may have to be
addressed in the future at substantial cost. Many of the terminals may also
require remediation due to the age of tanks and facilities and as a result of
current or past activities at the terminal properties including several
significant spills and past on-site waste disposal practices.
Legal and Governmental Proceedings
As a result of its activities, the Company is the subject of a number of
legal and administrative proceedings relating to environmental matters. While it
is not possible at this time to estimate the ultimate amount of liability with
respect to the environmental matters described below, 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. However, an adverse outcome of any one
or more of these matters could have a material effect on quarterly or annual
operating results or cash flows when resolved in a future period.
Hartford Groundwater Contamination. The Company and other area oil
companies were contacted by the Illinois Environmental Protection Agency
("IEPA") and the Illinois Attorney General regarding the presence of gasoline
contamination in the groundwater beneath the northern portion of the Village of
Hartford, Illinois. The Company installed a gasoline vapor recovery system in
Hartford. The successful installation and operation of the vapor recovery system
substantially met the concerns of the regulatory authorities. No claim has been
filed by the state authorities. Based upon the estimates of an independent
environmental engineering firm, in 1991 the Company established a $10 million
provision for the estimated costs of its mitigation and recovery efforts, of
which approximately $4 million remained for future remediation at December 31,
1996.
Hartford Pollution Control Board Litigation. On June 7, 1995, the Company
was served with a complaint entitled People of the State of Illinois v. Clark
Refining & Marketing, Inc. PCB No. 95-163. This matter was substantially settled
in 1996 for $235,000. One issue concerning the exempt status of the Company's
wastewater treatment system is being submitted to an Administrative Law Judge on
a stipulation of facts. No estimate of any liability with respect to this
remaining element of the complaint can be made at this time.
Hartford FCCU. In early April, 1996, the Company learned that its Hartford,
Illinois refinery is the subject of a Clean Air Act enforcement referral by the
EPA to the United States Department of Justice. The referral pertains to alleged
violations of the Clean Air Act and regulations promulgated thereunder in the
operation and permitting of the Hartford refinery fluid catalytic cracking unit
("FCCU") and alleged modification of the FCCU. Although a complaint has not yet
been filed, the government requested additional information from the Company
pursuant to Section 114 of the Clean Air Act for the stated purpose of
completing its pre-enforcement evaluation. The Company submitted the requested
information and is cooperating with the government in its investigation. No
estimate can be made at this time of the Company's potential liability, if any,
as a result of this enforcement referral.
Blue Island Federal Enforcement. On September 30, 1996 the EPA served a
Notice of Violation and a Finding of Violation on the Company, alleging that the
Company is in violation of the Clean Air Act national emission standard for
hazardous air pollutants for benzene at the Blue Island refinery, and that the
Company was in violation of certain leak detection and recordkeeping
requirements issued pursuant to the Illinois state implementation plan. No
estimate can be made at this time of the Company's potential liability, if any,
as a result of this Notice of Violation and this Finding of Violation. On
January 14, 1997, the Company received a demand for information concerning a
variety of water pollution, air pollution, and solid waste management practices
and procedures. On March 3, 1997, the EPA initiated a multimedia investigation
at the Blue Island refinery. The investigation is proceeding in stages and is
currently in progress. On March 25, 1997, the Company received a Grand Jury
subpoena requesting certain documents relating to water discharges. The Company
is cooperating fully and will produce the documents reponsive to the subpoena.
No estimate can be made at this time whether any potential for liability exists
as result of this investigation.
Blue Island, Illinois Refinery. People ex rel Ryan v. Clark Refining &
Marketing, Inc., Cir. Ct. Cook County, Ill., Case No. 95-CH-2311, is currently
pending in the Circuit Court of Cook County, Illinois. The first count of
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this lawsuit concerns a fire that occurred in the Isomax unit at the Blue Island
refinery on March 13, 1995 in which two employees were killed and three other
employees were injured. The second count of the lawsuit concerns a release of
hydrogen fluoride ("HF") on May 16, 1995 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 unit of
the HF unit pending an investigation of the cause of the release. On August 8,
1995, an order was entered by the Court allowing the Company to resume operation
of the HF regeneration unit. The order also requires the Company, pursuant to an
agreement between the Company and the Illinois Attorney General, to implement
certain HF release mitigation and detection measures that are substantially
complete. The next three counts of the lawsuit concern releases into the air
that occurred in the past three years at the Blue Island refinery. One of those
air emissions, which occurred on October 7, 1994, is also the basis for
Rosolowski, et al v. Clark Refining & Marketing, Inc., Cir. Ct. Cook County,
Ill., Case No. 95-L-01 4703. See "--Legal Proceedings." The next five counts of
the lawsuit concern several alleged releases of process wastewater and
contaminated stormwater to the Cal Sag Channel from the Blue Island refinery.
The Company has filed an Answer denying the material allegations in the lawsuit.
Following an explosion on October 19, 1996, in a propane gas line at the Blue
Island refinery, the State of Illinois brought an action seeking a temporary
restraining order requiring the refinery to cease operations, temporarily,
pending a safety review. On November 8, 1996, the court denied the requested
order. No estimate of any liability with respect to this matter can be made at
this time.
Ninth Avenue Site. On January 5, 1995, the Company received a Unilateral
Administrative Order from the EPA pursuant to CERCLA alleging that "Clark Oil &
Refining Corp." is a PRP with respect to shipments of hazardous substances to a
solid waste disposal site known as the Ninth Avenue Site, Gary, Indiana. The
alleged shipments all occurred prior to 1987. The Order instructs the Company
and the other approximately ninety PRPs to design and implement certain remedial
work at the site. The Company has informed the EPA that it is not a proper
party to this matter, because its purchase of certain assets of Old Clark was
"free and clear" of all Old Clark liabilities. Information provided with the
Order estimates that the remedial work may cost approximately $25 million. No
estimate of the Company's liability can be made with respect to this proceeding
at this time. In addition, on December 28, 1994, the Company was served with a
summons and complaint brought by certain private parties seeking to recover all
past and future response costs with respect to the Ninth Avenue Site. The
Company, along with approximately eighty other parties, is alleged to be a PRP
with respect to that site on the basis of shipments of hazardous substances
allegedly made prior to 1987. The Company moved to dismiss this action on the
basis that the action is barred by the "free and clear" Order pursuant to which
the Company purchased certain assets of Old Clark. On April 19, 1996, the
District Court denied the Company's Motion to Dismiss holding that at this early
procedural stage of the case and prior to gathering facts regarding the
plaintiff's opportunity to participate in the bankruptcy case which issued the
"free and clear" order, the Court would not dismiss the case. No estimate of any
liability with respect to this case can be made at this time.
St. Louis Terminal. 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 a gasoline spill at the St. Louis terminal which
occurred in January, 1994. The Company is cooperating fully with the United
States Attorney Office's investigation, and on June 26, 1995 the Company
produced documents responsive to the Subpoena. At this time it is not possible
to estimate any potential exposure to the Company from this inquiry.
Sashabaw Road. On May 5, 1993 the Company received correspondence from the
Michigan Department of Natural Resources ("MDNR") indicating that the MDNR
believes that the Company 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. On July
22, 1994, MDNR commenced suit against the Company and Chevron U.S.A. Products
Co. seeking $450,000 for past response activity costs incurred by MDNR in
connection with this site. MDNR subsequently dropped Chevron from its
litigation and raised its demand to the Company to $750,000. No estimate of any
liability with respect to this matter can be made at this time.
Port Arthur Refinery. The original refinery on the site of the Port Arthur
refinery began operating in 1904, prior to modern environmental laws and methods
of operation. While the Company believes, as a result, that there is extensive
contamination at the site, the Company is unable to estimate the cost of
remediating such contamination. While Chevron will be obligated to perform the
required remediation of most pre-closing contamination, the Company assumed
responsibility for environmental contamination beneath and within 25 to 100
16
<PAGE>
feet of the facility's active processing units. Based on the estimates of
independent environmental consultants, the Company accrued approximately $7.5
million as part of the Port Arthur refinery acquisition for its cost of
remediation in this area. In addition, as a result of the acquisition, the
Company may become jointly and severally liable under CERCLA for the costs of
investigation and remediation at the site. In the event that Chevron is unable
(as a result of bankruptcy or otherwise) or unwilling to perform the required
remediation at the site, the Company may be required to do so. The cost of any
such remediation could be substantial and could be beyond the Company's
financial ability.
Employees
As of February 28, 1997, the Company employed approximately 7,400 people,
approximately 1,000 of whom were covered by collective bargaining agreements at
the Blue Island, Hartford and Port Arthur refineries. The Hartford and Port
Arthur refinery contracts expire in February 1999 and the Blue Island refinery
contract expires in August 1999. In addition, the Company has union contracts
for certain employees at its Hammond, Indiana and St. Louis, Missouri terminals
which expire March 31, 1998 and March 5, 1998, respectively. Relationships with
the unions have been good and neither Old Clark nor the Company has ever
experienced a work stoppage as a result of labor disagreements.
Item 3. Legal Proceedings
The Company was named as a defendant in thirty-four suits filed in December
1991 in the Circuit Court of the Third Judicial District, Madison County,
Illinois, by plaintiff residents and property owners in the Village of Hartford,
Illinois. These suits sought damages for the presence of gasoline in the soil
and groundwater beneath plaintiff's properties. See "Business;
Properties--Environmental Matters." Twenty-five of these suits were settled by
the Company and Shell at a total cost to the Company of less than $150,000 with
the exception of one case in the process of settlement and one remaining case.
No estimate can be made of the Company's potential loss in these remaining
cases, if any, at this time.
Rosolowski et al v. Clark Refining & Marketing, Inc., Cir. Ct. Cook County,
Ill., Case No. 95-L-014703. This purported class action lawsuit, filed on
October 11, 1995, relates to an on-site electrical malfunction at the Company's
Blue Island refinery on October 7, 1994, which resulted in the release to the
atmosphere of used catalyst containing low levels of heavy metals, including
antimony, nickel and vanadium. This release resulted in the temporary
evacuation of certain areas near the refinery, including a high school, and
approximately fifty people were taken to area hospitals. The Company has
offered to reimburse the medical expenses incurred by persons receiving
treatment. The Company was previously sued by one individual who claimed
medical costs as a result of the incident; that case was settled. The purported
class action lawsuit was filed on behalf of various named individuals and
purported plaintiff classes, including residents of Blue Island, Illinois and
students at Eisenhower High School, alleging claims based on common law
nuisance, negligence, willful and wanton negligence and the Illinois Family
Expense Act as a result of this incident. Plaintiffs seek to recover damages in
an unspecified amount for alleged medical expenses, diminished property values,
pain and suffering and other damages. Plaintiffs also seek punitive damages in
an unspecified amount. On November 22, 1995, an amended complaint was filed in
this action which adds several additional plaintiffs and two supplemental
counts. Otherwise, the amended complaint was substantially identical to the
original complaint. On January 6, 1997, several counts of the Amended Complaint
were dismissed or withdrawn subject to refiling. At this time no estimate can
be made as to the Company's potential loss, if any, with respect to this matter.
Other Blue Island Tort Cases, alleging various losses due to emissions from
the Blue Island refinery were filed in September and October, 1996. These
cases, Banks v. UOP and Clark Refining & Marketing, Inc.; Boucher v. Clark
Refining & Marketing, Inc.; Loranger v. Clark Refining & Marketing, Inc.;
Marciano v. Clark Refining & Marketing, Inc.; Szabla v. Clark Refining &
Marketing, Inc.; Webb v. Clark Refining & Marketing, Inc. all brought by named
individuals, seek damages of less than $100,000 each. At this time, no estimate
can be made as to the Company's potential loss, if any, with regard to this
litigation.
17
<PAGE>
EEOC v. Clark Refining & Marketing, Inc., Case No. 94 C 2779, is currently
pending in the United States District Court for the Northern District of
Illinois. In this action, the Equal Employment Opportunity Commission ("EEOC")
has alleged that the Company engaged in age discrimination in violation of the
Age Discrimination in Employment Act through a "pattern and practice" of
discrimination against a class of former retail managers over the age of forty.
The EEOC has identified 40 former managers it believes have been affected by the
alleged pattern and practice. However, two of those managers have since been
dismissed from the case. The relief sought by the EEOC includes reinstatement
or reassignment of the individuals allegedly affected, payment of back wages and
benefits, an injunction prohibiting employment practices which discriminate on
the basis of age and institution of practices to eradicate the effects of any
past discriminatory practices. Fact discovery is nearing completion. A
scheduling order has been entered indicating that a trial will not be held
before the fourth quarter of 1997, unless earlier dismissed. At this point, no
estimate can be made as to the Company's potential loss, if any, with respect to
this litigation.
On May 23, 1995 the Company was served with a Petition entitled Anderson,
et al v. 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 the Company at the time of the purchase of the Port Arthur
Refinery. Chevron and the outplacement service retained by Chevron are also
named as defendants. An Amended Petition has now been filed increasing the
number of plaintiffs to forty. The Company filed an Answer denying all material
allegations of the Amended Petition. Subsequent to the filing of the lawsuit,
the plaintiffs have each filed individual charges with the EEOC and the Texas
Commission of Human Rights. At this point, no estimate can be made as to the
Company's potential liability, if any, with respect to this litigation or the
individual charges filed.
While it is not possible at this time to estimate the ultimate amount of
liability with respect to the legal proceedings 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, however, an adverse outcome
of any one or more of these matters could have a material effect on quarterly or
annual operating results or cash flows when resolved in a future period.
The Company is also the subject of various environmental and other
governmental proceedings. See "Business; Properties--Environmental Matters."
In addition to the specific matters discussed above or under "Business;
Properties--Environmental Matters.", the Company has also been named in various
other suits and claims. While it is not possible to estimate with certainty the
ultimate legal and financial liability with respect to these other legal
proceedings, the Company believes the outcome of these other suits and claims
will not have a material adverse effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security-Holders
Inapplicable.
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
Inapplicable.
18
<PAGE>
Item 6. Selected Financial Data
The following table sets forth, for the periods and dates indicated,
selected financial data derived from the Consolidated Financial Statements of
the Company for each of the years in the five-year period ended December 31,
1996. The Consolidated Financial Statements of the Company for each of the years
in the five-year period ended December 31, 1996 were audited by Coopers &
Lybrand L.L.P. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1992 1993 1994 1995 1996
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In millions, except ratios and operating data)
Income Statement Data:
Net sales and operating revenues $2,253.0 $2,263.4 $2,440.0 $4,486.1 $5,072.7
Cost of sales 1,952.4 1,936.6 2,092.5 4,018.3 4,560.0
Operating expenses (a) 217.3 204.6 219.9 373.3 418.9
General and administrative
expenses (a) 38.3 41.0 51.4 52.3 59.1
Inventory (recovery of) write-down
to market value -- 26.5 (26.5) -- --
Depreciation and amortization(b) 30.4 35.3 37.3 43.5 48.4
-------- -------- -------- -------- --------
Operating income (loss) $ 14.6 $ 19.4 $ 65.4 $ (1.3) $ (13.7)
Interest and financing costs,
net(c) 26.4 29.9 37.6 39.9 38.7
Other income (d) 14.7 11.4 -- -- --
-------- -------- -------- -------- --------
Earnings (loss) before taxes,
extraordinary items and
cumulative effect of change
in accounting principles $ 2.9 $ 0.9 $ 27.8 $ (41.2) $ (52.4)
Income tax provision (benefit) (0.4) (0.5) 9.7 (15.7) (13.9)
-------- -------- -------- -------- --------
Earnings (loss) before extraordinary
items and cumulative effect of
changes in accounting
principles $ 3.3 $ 1.4 $ 18.1 $ (25.5) $ (38.5)
======== ======== ======== ======== ========
Balance Sheet Data:
Cash, cash equivalents and
short-term investments $ 218.3 $ 212.1 $ 134.1 $ 106.6 $ 334.3
Total assets 800.0 829.1 859.5 1,188.3 1,393.3
Long-term debt 401.5 401.0 400.7 420.4 417.6
Stockholders' equity 154.2 146.0 162.9 304.1 534.1
Selected Financial Data:
Cash flows from operating
activities $ 37.1 $ 68.4 $ 53.7 $ (85.6) $ 16.9
Cash flows from financing
activities (38.7) (1.1) (5.4) 174.7 30.0
Ratio of earnings to fixed
charges(e) (f) (f) 1.56x (f) (f)
Expenditures for turnaround 2.7 20.6 11.2 6.5 13.9
Expenditures for property, plant,
and equipment 59.5 67.9 100.3 42.1 45.0
Refinery acquisition expenditures -- -- 13.5 71.8 --
-------- -------- -------- -------- --------
Total capital expenditures $ 62.2 $ 88.5 $ 125.0 $ 120.4 $ 58.9
======== ======== ======== ======== ========
Operating Data:
Refining Division:
Port Arthur Refinery (acquired
February 27, 1995)
Production (m bbls/day) -- -- -- 207.7 210.8
Gross margin (per bbl) (a) -- -- -- $ 2.37 $ 2.78
Operating expenses (per bbl)
(a) -- -- -- 1.90 2.13
Blue Island, Hartford and other
refining
Production (m bbls/day) 142.4 134.7 140.3 136.5 134.2
Gross margin (per bbl) (a) $ 3.03 $ 3.24 $ 3.48 $ 2.64 $ 2.53
Operating expenses (per bbl)
(a) 2.17 2.12 2.28 2.61 2.58
Refining contribution to operating
income (mm) (a) N/A 42.5 46.5 11.1 24.2
Retail Division:
Number of stores (average) 885 860 834 852 823
Gasoline volume (mm gals) 956.7 1,014.8 1,028.5 1,063.8 1,031.9
Gasoline volume (m gals pmps) 90.1 98.6 102.8 104.1 104.5
Gasoline gross margin (c/gal) (a) 10.0c 11.1c 10.9c 11.4c 10.4c
Convenience product sales (mm) $ 203.4 $ 218.0 $ 231.6 $ 252.6 $ 251.7
Convenience product sales (pmps) 19.2 21.2 23.1 24.7 25.5
Convenience product gross margin
and other income (mm) 47.7 54.8 57.2 62.9 65.8
Convenience product gross margin
(pmps) 4.5 5.3 5.7 6.1 6.6
Operating expenses (mm) (a) 96.0 100.1 104.6 121.6 126.2
Retail contribution to operating
income (mm) (a) N/A 52.9 45.9 45.4 25.0
</TABLE>
19
<PAGE>
(a) Certain reclassifications have been made to prior periods to conform to
current period presentation.
(b) Amortization includes amortization of turnaround costs and organizational
costs.
(c) Interest and financing costs, net, includes amortization of debt issuance
costs of $2.9 million, $1.2 million, $1.2 million, $5.2 million and $6.5
million for the years ended December 31, 1992, 1993, 1994, 1995 and 1996,
respectively. Interest and financing costs, net, also includes interest on
all indebtedness, net of capitalized interest and interest income.
(d) Other income in 1993 includes the final settlement of litigation with Drexel
Burnham Lambert Incorporated ("Drexel") of $8.5 million and a gain from
the sale of non-core stores of $2.9 million. Other income in 1992 includes
the settlement of litigation with Apex and Drexel of $9.2 million and $5.5
million, respectively.
(e) The ratio of earnings to fixed charges is computed by dividing (i) earnings
before income taxes (adjusted to recognize only distributed earnings from
less than 50% owned persons accounted for under the equity method) plus
fixed charges by (ii) fixed charges. Fixed charges consist of interest on
indebtedness, including amortization of discount and debt issuance costs and
the estimated interest components (one-third) of rental and lease expense.
(f) As a result of the losses for the years ended December 31, 1992, 1993, 1995
and 1996, earnings were insufficient to cover fixed charges by $2.0 million,
$1.7 million, $44.0 million and $53.6 million, respectively.
20
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Report.
Results of Operations
Overview
The Company's results are significantly affected by a variety of factors
beyond its control, including the supply of, and demand for, crude oil, gasoline
and other refined products which in turn depend on, among other factors, changes
in domestic and foreign economies, weather conditions, domestic and foreign
political affairs and production levels, the availability of imports, the
marketing of competitive fuels and the extent of government regulation. Although
margins are significantly affected by industry and regional factors, the Company
can influence its margins through the efficiency of its operations. While the
Company's net sales and operating revenues fluctuate significantly with
movements in industry crude oil prices, such prices do not generally have a
direct long-term relationship to net earnings. Crude oil price movements may
impact net earnings in the short-term because of fixed crude oil purchase
commitments which average approximately 5 million barrels. The effect of changes
in crude oil prices on the Company's operating results is determined more by the
rate at which the prices of refined products adjust to reflect such changes. The
Company believes that, in general, low crude oil prices indirectly benefit
operating results over the longer term due to increased demand and decreased
working capital requirements. Conversely, the Company believes that high crude
oil prices generally result in decreased demand and increased working capital
requirements over the long term. Increased refinery production is typically
associated with improved results of operations, while reduced production, which
generally occurs during scheduled refinery maintenance turnarounds, negatively
affects results of operations.
The following table illustrates the potential pre-tax earnings impact based
on historical operating rates estimated by the Company resulting from changes
in: (i) sweet crude oil cracking margins--the spread between gasoline and diesel
fuel prices and input (e.g., a benchmark sweet crude oil) costs; (ii) sweet/sour
differentials--the spread between a benchmark sour crude oil and a benchmark
sweet crude oil; (iii) heavy/light differentials--the spread between a benchmark
light crude oil and a benchmark heavy crude oil and (iv) retail margins--the
spread between product prices at the retail level and wholesale product costs.
<TABLE>
<CAPTION>
Pre-Tax Earnings Impact on
the Company (a)
--------------------------
Before Port After Port
Arthur Arthur
Earnings Sensitivity Change Acquisition Acquisition
--------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Refining margins
Sweet crude cracking $ 0.10 per barrel $ 5 million $12 million
margin..................
Sweet/sour differentials. 0.10 per barrel 3 million 9 million
Heavy/light differentials 0.10 per barrel 1 million 2 million
Retail margin.............. $0.01 per gallon $10 million $10 million
</TABLE>
(a) Based on an assumed production of approximately 210,000 barrels per day for
the Port Arthur refinery and 140,000 barrels per day for the Illinois
refineries.
21
<PAGE>
1996 compared with 1995 and 1994:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
(In millions)
Financial Results: (a)
Net sales and operating revenues......... $2,440.0 $4,486.1 $5,072.7
Cost of sales............................ 2,092.5 4,018.3 4,560.0
Operating expenses (b)................... 219.9 373.3 418.9
General and administrative expenses (b).. 50.3 52.3 59.1
Depreciation and amortization............ 37.3 43.5 48.4
Interest and financing costs, net........ 32.1 39.9 38.7
-------- -------- --------
Earnings (loss) before income taxes (c).. 7.9 (41.2) (52.4)
Income tax provision (benefit) (c)....... 2.2 (15.7) (13.9)
-------- -------- --------
Earnings (loss) before unusual items (c). 5.7 (25.5) (38.5)
Unusual items, after taxes (c)........... 12.4 -- --
-------- -------- --------
Net earnings (loss)...................... $ 18.1 $ (25.5) $ (38.5)
======== ======== ========
Operating Income:
Refining contribution to operating
income (b).............................. $ 46.5 $ 11.1 $ 24.2
Retail contribution to operating income
(b)..................................... 45.9 45.4 25.0
Corporate general and administrative
expenses................................ 15.1 14.3 14.5
Depreciation and amortization............ 37.3 43.5 48.4
Unusual items (c)........................ 25.4 -- --
-------- -------- --------
Operating income (loss).................. $ 65.4 $ (1.3) $ 13.7
======== ======== ========
</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) Certain reclassifications have been made to prior periods to conform to
current period presentation.
(c) The Company considers certain items in 1994 to be "unusual". Detail on
these items is presented below.
The Company reported a net loss of $38.5 million in 1996 compared with a
net loss of $25.5 million in 1995 and net earnings of $18.1 million in 1994. Net
earnings in 1996 were below 1995, and 1995 results were below 1994. Improvements
in productivity and fundamental refining industry indicators for crack spreads
and crude oil quality differentials in 1996 were offset by the impact of rising,
volatile and high crude oil prices. Narrow crude oil differentials, an extremely
warm 1994-1995 winter and the resulting oversupply of distillates and market
uncertainty related to the introduction of RFG reduced 1995 results from 1994
levels. The late February 1995 acquisition of the 210,000 barrel per day Port
Arthur, Texas refinery increased net sales and operating revenues, cost of goods
sold, operating and general and administrative expenses and depreciation and
amortization. Net sales and operating revenues and cost of goods sold were also
higher in 1996 due to higher hydrocarbon prices as reflected by 20% higher
prices for benchmark WTI crude oil. Interest and financing costs, increased in
1995 and 1996 over 1994 principally because of costs associated with a larger
working capital facility to support the Port Arthur refinery and capital leases.
The Company's tax benefit was reduced in 1996 because the Company recorded a
$6.1 million valuation reserve for its deferred income tax asset.
22
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1994 1995 1996
------------ ---------- -----------
<S> <C> <C> <C>
(In millions)
Unusual Items:
Recovery of inventory market value
write-down............................... $26.5 $ -- $ --
Other..................................... (1.1) -- --
----- ------ -----
Impact on operating income...... 25.4 -- --
Gain on sale of advance crude oil
purchase receivable...................... -- -- --
Short-term investment losses.............. (5.4) -- --
Other..................................... -- -- --
----- ------ -----
Total........................... $20.0 $ -- $ --
===== ====== =====
Net of income taxes............. $12.4 $ -- $ --
===== ====== =====
</TABLE>
Several items which are considered by management as "unusual" are
excluded throughout this discussion of the Company's results of operations. In
1996, in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, the Company recorded a valuation allowance on its deferred
income tax asset of approximately $6.1 million (not included in the table
above). See Note 12 "Income Taxes" to the Consolidated Financial Statements. A
non-cash accounting charge 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 in 1994 allowing the Company to recover the original
charge. Accordingly, a reversal of the inventory write-down to market was
recorded in 1994. In 1994, the Company realized losses on the sale of short-term
investments due to an increase in market interest rates.
Refining
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1994 1995 1996
------------ ---------- -----------
<S> <C> <C> <C>
(In millions, except operating data)
Operating Statistics:
Port Arthur Refinery (acquired February
27, 1995)
Crude oil throughput (m bbls/day).......... -- 198.9 199.8
Production (m bbls/day).................... -- 207.7 210.8
Gross margin (per barrel of production)(a). -- $ 2.37 $ 2.78
Operating expenses (per barrel of
production) (a)........................... -- $ 1.90 $ 2.13
Net margin (a)............................. -- $ 30.0 $ 49.6
Blue Island, Hartford and other refining
Crude oil throughput (m bbls/day).......... 138.2 133.6 132.7
Production (m bbls/day).................... 140.3 136.5 134.2
Gross margin (per barrel of
production) (a)........................... $ 3.48 $ 2.64 $ 2.53
Operating expenses (per barrel of
production) (a)........................... $ 2.28 $ 2.61 $ 2.58
Net margin (a)............................. $ 61.4 $ 1.5 $ (2.3)
Divisional general and administrative
expenses (a).............................. 14.9 20.4 23.1
Contribution to operating income (a)...... $ 46.5 $ 11.1 $ 24.2
</TABLE>
(a) Certain reclassifications have been made to prior periods to conform to
current period presentation.
Refining division contribution to operating income in 1996 was $24.2
million more than double 1995 levels ($11.1 million), but below 1994 results
($46.5 million). Contribution improved over 1995 principally because of an
improvement in the Port Arthur refinery gross margin resulting from improvements
in operational rates, reliability and overall yields. The Hartford refinery
realized the benefit from a capital project designed to recover additional
higher value products from processing units. Certain key refining market
indicators also improved in 1996,
23
<PAGE>
including gasoline and distillate margins and crude oil quality differentials.
More normal winter weather, and corresponding demand, contributed to a 2.4%
increase in fuels demand from 1995 to 1996. However, these positive market
trends were more than offset by reduced by-product margins and the increased
cost of crude oil acquisition activities caused by rising, volatile and high
absolute crude oil prices. Refining results for 1995 were below 1994 levels as
refining margins were particularly weak in 1995 and late 1994 due to the warmest
Northern Hemisphere winter in 40 years, which reduced demand for heating oil,
and the transition to RFG. Several geographical areas unexpectedly opted not to
switch to RFG which caused confusion and concern in the marketplace, and caused
gasoline prices to fall relative to the price of crude oil.
Operating expenses increased at the Port Arthur refinery from 1995 to 1996
principally due to increased refinery fuel costs associated with higher natural
gas prices. Operating expenses increased in 1995 over 1994 principally due to
the addition of the Port Arthur refinery and related terminal expenses in early
1995 and expenses associated with unplanned downtime at the Blue Island
refinery. Reduced throughput at the Company's Illinois refineries due to poor
first quarter 1995 market conditions and scheduled and unscheduled downtime also
contributed to lower production and a higher per barrel operating costs in 1996
and 1995 as compared with 1994. Divisional general and administrative expenses
increased in 1996 and 1995 principally because of the inclusion of
administrative functions located at the Port Arthur refinery.
Retail
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
(In millions, except operating data)
Operating Statistics:
Gasoline volume (mm gals).................. 1,028.5 1,063.8 1,031.9
Gasoline gross margin (c/gal) (a).......... 10.9c 11.4c 10.4c
Gasoline gross margin (a).................. $ 112.3 $ 121.7 $ 107.0
Convenience product sales.................. $ 231.6 $ 252.6 $ 251.7
Convenience product gross margin and
other income.............................. 57.2 62.9 65.8
Operating expenses (a)..................... $ 104.6 $ 121.6 $ 126.2
Divisional general and administrative
expenses (a).............................. 19.0 17.6 21.6
Contribution to operating income (a)....... $ 45.9 $ 45.4 $ 25.0
Per Month Per Store:
Company operated stores (average).......... 834 852 823
Gasoline volume (m gals)................... 102.8 104.1 104.5
Convenience product sales (m).............. $ 23.1 $ 24.7 $ 25.5
Convenience product gross margin (m)....... $ 5.7 $ 6.1 $ 6.6
</TABLE>
(a) Certain reclassifications have been made to prior periods to conform to
current period presentation.
The retail division contributed $25.0 million to operating income in 1996
(1995 - $45.4 million; 1994 - $45.9 million). The retail division contribution
was below 1995 levels due mostly to a sharp drop in retail gasoline margins.
This resulted from an increase in wholesale gasoline costs associated with
higher crude oil prices that was not fully captured in retail selling prices due
to an extremely competitive Midwest retail market environment. This was
particularly the case in the last half of 1996. In addition, high retail prices
impaired sales of higher margin premium gasoline grades. Gross margins on
convenience product sales and monthly convenience product sales and gross
margins per store improved over the last three years due to the addition of
larger stores and an improved mix of higher margin On The Go/(R)/(non-cigarette)
products. Operating and general and administrative expenses increased in 1996
and 1995 over 1994 principally due to operating leases and other costs related
to new store acquisitions and increased costs related to the expansion of the
Company's credit card programs. Year over year credit card sales increased 31%
in 1996 and 41% in 1995.
24
<PAGE>
During 1996, the retail network continued to be upgraded in the core Great
Lakes' markets. This was achieved by acquiring 10 high volume stores in the
Chicago market, introducing a branded marketer program and closing
underperforming stores. A further 48 store acquisition was completed in
Michigan in January 1997. In 1995, the Company acquired through an operating
lease 35 retail stores in central Illinois. In late 1994, the Company similarly
acquired 25 stores in Chicago, Illinois. Four additional stores related to the
Chicago acquisition were added in 1996. Consistent with the Company's strategy
to exit non-core markets, the Company divested 41 stores in the Kansas, western
Missouri and Minnesota markets in late 1995 and early 1996 and 11 Dayton, Ohio
stores were converted to branded marketer locations in January 1997. As part of
its overall growth strategy, the Company expects to continue to consider retail
store growth in both existing and new markets while also evaluating
underperforming markets for possible divestiture.
Other Financial Matters
Depreciation and amortization expenses increased in 1996 and 1995
principally because of the Port Arthur refinery acquisition and 1994 capital
expenditures.
Interest and financing costs, net in 1996 were below 1995 principally due
to increased interest income on larger invested balances. Net costs increased in
1996 and 1995 as compared to 1994 primarily because of higher amortization
associated with the Company's larger working capital facility which was
increased to support the crude oil supply needs of the Port Arthur Refinery,
higher amortization of bondholder consent payments paid in connection with the
acquisition of the Port Arthur refinery and capital leases. See Note 8 "Long-
Term Debt" to the Consolidated Financial Statements.
In December 1995, Clark USA completed separate transactions with Occidental
and Gulf. Pursuant to a merger agreement and a series of related agreements
with Occidental, Clark USA acquired the right to receive the equivalent of
17.661 million barrels of WTI to be delivered over six years according to a
defined schedule. This contract was contributed to the Company at market value
and sold in October 1996 for $235.4 million. Pursuant to a merger agreement and
a series of related agreements with Gulf, Clark USA acquired the right to
receive 3.164 million barrels of certain royalty oil to be received by Gulf
pursuant to agreements among Gulf, an Occidental subsidiary and the Government
of the Congo. The crude oil was to be delivered over six years according to a
minimum schedule of (in millions of barrels) 0.72, 0.62, 0.56, 0.48, 0.42 and
0.36 in 1996, 1997, 1998, 1999, 2000 and 2001, respectively. Gulf has not made
their required deliveries since July 1996.
Outlook
Since most of the Company's products are commodities, supply and demand for
crude oil and refined products has a significant impact on the Company's
results. Demand for fuels products has grown by an average of 2% since 1992
primarily as a result of increased miles driven and little improvement in the
fuel efficiency of the U.S. automobile fleet. The Company believes that capital
spending in the refining sector is highly correlated to refining industry
profitability. As a result of the high capital spending levels of the early
1990s, the industry's ability to produce products exceeded demand in recent
years. Since then, industry refinery capital spending has declined. The Company
expects that there will continue to be volatility in refining margins and the
Company's earnings because of the seasonal nature of refined product demand and
the commodity nature of the Company's products. In the first quarter of 1997 the
Company completed a maintenance turnaround at its Port Arthur refinery which
reduced production for the quarter by approximately one-third.
In the short-term, retail margins are generally squeezed in periods of
rapid oil price increases, as was the case in 1996, and widen as prices
stabilize or fall. Prices for crude oil have fallen substantially since the end
of 1996. Longer term, the Company believes margins are driven by market share
and concentration. The Company believes that over the last five years the
Company's Midwest market has averaged among the lowest margins in the U.S. due
to its relatively high level of fragmentation.
25
<PAGE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
(In millions)
Financial Position:
Cash and short-term investments.... $134.1 $106.6 $334.3
Working capital................... 130.4 193.1 399.5
Property, plant and equipment..... 429.8 549.3 555.7
Long-term debt.................... 400.7 420.4 417.6
Stockholders' equity.............. 162.9 304.1 534.1
Operating cash flow................ $ 46.0 $ 7.6 $ (4.5)
</TABLE>
Operating cash flow (cash generated by operating activities before working
capital changes) for the year ended December 31, 1996 was negative $4.5 million
compared with cash flow of $7.6 million in 1995 and $46.0 million in 1994. Cash
flow declined from 1994 to 1996 principally because of the weaker refining
margin environment and a decline in retail gasoline margins in 1996. Working
capital at December 31, 1996 was $399.5 million, a 2.00 to 1 current ratio,
versus $193.1 million at December 31, 1995, a 1.48 to 1 current ratio and $130.4
million at December 31, 1994, a 1.52 to 1 current ratio. Working capital
increased in 1996 as a result of the sale of one of Clark USA's advance crude
oil purchase receivables for net cash proceeds of $235.4 million. An increase
was realized in 1995 due to the Port Arthur refinery acquisition and partial
financing with equity of the refinery's working capital requirements.
As part of its overall inventory management and crude acquisition
strategies, the Company routinely buys and sells, in varying degrees, crude oil
in the spot market. Such on-going activities carry various payment terms and
require the Company to maintain adequate liquidity and working capital
facilities. The Company's short-term working capital requirements (primarily
letter of credit issuances to support crude oil requirements) fluctuate with the
pricing and sourcing of crude oil. Historically, the Company's internally
generated cash flows have been sufficient to meet its needs. The Company has a
$400 million committed revolving line of credit (the "Clark Credit Agreement")
for limited short-term cash borrowings and for the issuance of letters of credit
primarily for purchases of crude oil, other feedstocks and refined products. See
Note 7 "Working Capital Facility" to the Consolidated Financial Statements.
Under the defined borrowing base of the Clark Credit Agreement, $400 million was
available at December 31, 1996. At December 31, 1996, $299 million of the
facility was used for letters of credit. There were no direct borrowings under
the Company's line of credit at December 31, 1994, 1995 or 1996.
The Clark Credit Agreement contains covenants and conditions which, among
other things, limit dividends, indebtedness, liens, investments, contingent
obligations and capital expenditures, and require the Company to maintain its
property and insurance, to pay all taxes and comply with all laws, and to
provide periodic information and conduct periodic audits on behalf of the
lenders. The Company is also required to comply with certain financial
covenants. The Company renegotiated certain covenants in the Clark Credit
Agreement in connection with the 1995 and 1996 advance crude oil purchase
transactions, received consent for the issuance of the 10 7/8% Notes by Clark
USA, modified the change of control provisions and received approval of a
bondholder consent solicitation. The financial covenants are: (i) maintenance of
working capital of at least $150 million at all times; (ii) maintenance of a
tangible net worth (as defined) of at least $254 million adjusted quarterly to
give effect to a portion of future earnings or capital contributions by Clark
USA to the Company; (iii) maximum indebtedness to tangible net worth ratio (as
defined) of 2.5 to 1.0; (iv) maintenance of minimum levels of balance sheet cash
(as defined) of $50 million at all times; and (v) a minimum ratio of adjusted
cash flow (as defined) to debt service (as defined) of 1.5 to 1.0. The covenants
also limit the Company's ability to pay dividends to an amount not exceeding the
Net Cash Proceeds (as defined) from the sale of one of the advance crude oil
purchase receivables less $40 million, plus the lesser of (i) $10 million during
any consecutive two quarter period and $20 million during any consecutive four
quarter period or (ii) a dividend basket, which consists of the greater of $20
million less previous dividend payments of the Company's cumulative Adjusted
Free Cash Flow, as defined in the Clark Credit Agreement, provided there is no
default under the Clark Credit Agreement. As of February 28, 1997, the total
amount available for dividends was $215.4 million. The Clark Credit Agreement
also limits the amount of future indebtedness that may be incurred by the
Company without creating an event of default to an amount equal to $25 million
less the amount of certain future debt incurred by the Company. From December
29, 1995 to January 31, 1997, Clark USA made $80 million
26
<PAGE>
of equity contributions to the Company in connection with certain modifications
to the Clark Credit Agreement. The Company was in compliance with all covenants
of the Clark Credit Agreement at December 31, 1996.
Cash flows from investing activities (excluding short-term investment
activities which the Company manages similar to cash and cash equivalents) are
primarily affected by acquisitions and capital expenditures, including refinery
maintenance turnarounds. Cash flows provided by investing activities (excluding
short-term investments) in 1996 was $180.9 million as compared to cash flows
used of $118.5 million in 1995 and $119.0 million in 1994. In 1996, Clark USA
contributed capital to the Company in the form of the Occidental advance crude
oil purchase receivable which was immediately sold for $235.4 million. Cash
flows used in investing activities of $71.8 million in 1995 was related to the
acquisition of the Port Arthur Refinery. Otherwise, capital spending was reduced
in 1995 and 1996 from 1994 levels in line with the Company's philosophy to link
capital expenditures to cash flow. Capital expenditures for property, plant and
equipment totaled $45.0 million in 1996 (1995--$42.1 million; 1994--$100.3
million) and expenditures for refinery maintenance turnarounds totaled $13.9
million (1995--$6.5 million; 1994--$11.2 million). Refining division capital
expenditures were $19.4 million in 1996 (1995--$15.8 million, 1994--$59.7
million). Approximately one-half of 1996 expenditures were discretionary with
the balance and most of 1995 expenditures primarily for mandatory maintenance
and environmental expenditures. In 1994, projects included adding the capability
to produce RFG at the Blue Island refinery and a revamp of the FCC and
alkylation units at the Hartford refinery. Retail capital expenditures in 1996
totaled $24.6 million (1995--$25.2 million; 1994--$38.2 million). Approximately
one-half of 1996 and 1995 expenditures were for regulatory compliance,
principally underground storage tank related work and vapor recovery. The
remainder of 1996 and 1995 retail capital expenditures were discretionary and
primarily related to new store acquisitions, a reimaging program and
miscellaneous store equipment. In 1994, approximately one-third of retail
division capital expenditures was for regulatory compliance with the balance for
discretionary projects such as reimaging locations, canopies, expansion of store
interior selling space and systems automation.
The Company invested $25 million in a project initiated to produce low
sulfur diesel fuel at the Hartford refinery (the "DHDS Project") which was
delayed in 1992 based on internal and third party analyses that indicated an
oversupply of low sulfur diesel fuel capacity in the Company's marketplace.
Based on these analyses, the Company projected relatively narrow price
differentials between low and high sulfur diesel products. This projection has
thus far been borne out. High sulfur diesel fuel is utilized by the railroad,
marine and farm industries. If price differentials widen sufficiently to justify
investment, the Company could install the necessary equipment over a 14 to 16
month period at an estimated additional cost of $40 million. The Company
believes there may be potential for improved future economic returns related to
the production of low sulfur diesel fuel, but is still deferring further
construction on this project and also reviewing other options for the project.
The Company believes it would not recover its entire investment in this project
should it not be completed.
In February 1995, the Company acquired the Port Arthur Refinery from
Chevron for approximately $70 million plus inventory and spare parts of
approximately $122 million (a $5 million deposit was paid in 1994) and the
assumption of certain liabilities estimated at $19.4 million. The purchase
agreement also provided for contingent payments to Chevron of up to $125 million
over a five year period from the closing date of the Port Arthur Refinery
acquisition in the event that refining industry margin indicators exceed certain
escalating levels. The Company believes that even if such contingent payments
would be required to be made, they would not have a material adverse effect on
the Company's results of operations since the Company would also benefit by
retaining one-half of such increased margins. Such contingent payments were not
payable for the first two measurement periods ended September 30, 1995 and 1996,
and based on these industry margin indicators from inception through December
31, 1996, the Company has a cumulative benefit to be applied to future periods
of approximately $36 million applicable to future calculations.
The Company classifies its capital expenditures into two categories,
mandatory and discretionary. There are mandatory maintenance capital
expenditures and mandatory environmental expenditures to comply with regulations
pertaining to ground, water and air contamination and occupational, safety and
health issues. The Company estimates that total mandatory expenditures through
2000 will be approximately $70 million per year in the refining division and $15
million per year in the retail division. Costs to comply with future regulations
cannot be estimated.
Expenditures to comply with reformulated and low sulfur fuels regulations
are primarily discretionary, subject to market conditions and economic
justification. These fuel programs impose restrictions on properties of fuels to
be refined and marketed, including those pertaining to gasoline volatility,
oxygenate content, detergent addition and sulfur content. The regulations
regarding these fuel properties vary in markets in which the Company operates,
based on attainment of air quality standards and the time of the year. The
Company's Port Arthur, Blue Island and
27
<PAGE>
Hartford refineries have the capability to produce 60%, 60%, and 25%,
respectively, of their gasoline production in RFG. Each refinery's maximum RFG
production may be limited based on the clean fuels attainment of the Company's
total refining system. The Port Arthur refinery has the capability to produce
100% low sulfur diesel fuel.
The Company has a philosophy to link total capital expenditures to cash
generated from operations. The Company has a total capital and refinery
maintenance turnaround expenditure budget of $100-$110 million for 1997. This
amount includes approximately $18 million, net, related to the January 1997
acquisition of 48 retail stores in Michigan and expenditures related to a major
maintenance turnaround at the Port Arthur refinery in the first quarter of 1997.
Total capital expenditures may be under budget if cash flow is less than
expected, and higher than budget if cash flow is better than expected.
Cash flow from financing activities was $30.0 million in 1996 and $174.7
million in 1995 compared to a use of $5.4 million in 1994. In 1995, financing
activities reflected the partial financing of the Port Arthur refinery
acquisition with the sale of stock (the balance was financed with cash on hand),
fees related to the larger working capital facility associated with the expanded
working capital needs of the Company following the Port Arthur Refinery
acquisition and two capital leases associated with the sale and leaseback of
certain refinery equipment at the Hartford and Port Arthur refineries. In 1994,
expenditures related principally to the acquisition of a new working capital
facility.
Funds generated from operating activities together with 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. Due to the commodity nature of its products, the Company's
operating results are subject to rapid and wide fluctuations. While the Company
believes that its maintenance of large cash, cash equivalents and short-term
investment balances and other operating philosophies will be sufficient to
provide the Company with adequate liquidity through the end of 1997, there can
be no assurance that refining industry conditions will not be worse than
anticipated. Due to the contribution and subsequent sale of the Occidental
advance crude oil purchase receivable, the Company had higher cash, cash
equivalents and short-term investments at December 31, 1996 than it has
historically maintained. These balances are available for investment in current
operations, debt reduction or acquisitions. Future working capital,
discretionary capital expenditures, environmentally-mandated spending and
acquisitions may require additional debt or equity capital.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by reference
to Part IV Item 14 (a) 1 and 2. Financial Statements and Financial Statement
Schedules.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Inapplicable.
28
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors, executive officers, Controller, Treasurer and Secretary of
the Company and their respective ages and positions are set forth in the table
below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Peter Munk 69 Chairman of the Board and Director
Paul D. Melnuk 42 President and Chief Executive Officer;
Chief Operating Officer; Director
Bradley D. Aldrich 42 Executive Vice President--Refining
Brandon K. Barnholt 38 Executive Vice President--Marketing
Maura J. Clark 38 Executive Vice President--Corporate Development and
Chief Financial Officer
Edward J. Stiften 42 Executive Vice President, Chief Administrative Officer
C. William D. Birchall 54 Director
Gregory C. Wilkins 41 Director
Dennis R. Eichholz 43 Controller and Treasurer
Katherine D. Knocke 39 Secretary
</TABLE>
The Board of Directors of the Company consists of four directors who serve
until the next annual meeting of stockholders or until a successor is duly
elected. Directors do not receive any compensation for their services as such.
Executive officers of the Company serve at the discretion of the Board of
Directors of the Company.
Peter Munk has served as Chairman of the Board of the Company since July
1992 and as Chairman of the Board and Chief Executive Officer of the Company
from August 1990 through July 1992. Mr. Munk has served as a director of the
Company since November 1988. Mr. Munk has served as a director and as Chairman
of the Board of Clark USA since November 1988. Mr. Munk has served as Chairman
of the Board of Directors of TrizecHahn since its formation in June 1987 and as
Chairman and Chief Executive Officer and a director of Barrick Gold Corporation
("Barrick") since July 1984.
Paul D. Melnuk has served as a director of the Company since October 1992,
as President and Chief Executive Officer of the Company since July 1992, as
Chief Operating Officer of the Company since December 1991, as President of the
Company from February 1992 through July 1992, as Executive Vice President of the
Company from December 1991 through February 1992, and served in various other
capacities since November 1988. Mr. Melnuk has served as a director and as
President of Clark USA since September 1992 and as Vice President and Treasurer
of Clark USA from November 1988 through September 1992. Mr. Melnuk served as a
director of TrizecHahn from March 1992 through November 1996. Mr. Melnuk served
as President and Chief Operating Officer of TrizecHahn from March 1992 through
April 1994 and as Executive Vice President and Chief Financial Officer of
TrizecHahn from May 1990 through February 1992.
Bradley D. Aldrich has served as Executive Vice President--Refining, since
December 1994. From August 1991 through November 1994, Mr. Aldrich served as
Vice President, Supply & Distribution for CF Industries, Inc., a chemical
fertilizer manufacturer and distributor. Mr. Aldrich previously served as
Manager, Light Oil Supply-North America of Conoco, Inc. from August 1989 through
July 1991.
Brandon K. Barnholt has served as Executive Vice President--Marketing of
the Company since February 1995 and served as Executive Vice President--Retail
Marketing from December 1993 through February 1995, as Vice President--Retail
Marketing of the Company from July 1992 through December 1993 and as Managing
Director--Retail Marketing of the Company from May 1992 through July 1992. Mr.
Barnholt previously served as Retail Marketing Manager of Conoco, Inc. from
March 1991 through March 1992.
Maura J. Clark has served as Executive Vice President--Corporate
Development and Chief Financial Officer of Clark USA and the Company since
August 1995. Ms. Clark previously served as Vice President--Finance at North
American Life Assurance Company, a financial services company, from September
1993 through July 1995.
29
<PAGE>
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.
Edward J. Stiften joined Clark in March 1997 as Executive Vice President,
Chief Administrative Officer. Mr. Stiften was previously in private business
from June 1995 through March 1997. Mr. Stiften served as Subsidiary Executive
Vice President and Acting General Manager of General Dynamics, Inc. from October
1994 through May 1995, as Corporate Staff Vice President of Internal Audit from
February 1994 through October 1994 and as Corporate Staff Vice President--
Financial Analysis from December 1991 through January 1994.
C. William D. Birchall has been a director of Clark USA and the Company
since November 1988. Mr. Birchall has been Chief Financial Officer of Arlington
Investments Limited, a private investment holding company located in Nassau,
Bahamas, for the last five years. Mr. Birchall has been a director of Barrick
since July 1984 and a director of TrizecHahn since 1987.
Gregory C. Wilkins has been a director of Clark USA and the Company since
August 1994 and has served as President of TrizecHahn since April 1994. Mr.
Wilkins served as President of Trizec Corporation Ltd. from February 1996
through November 1996 and has served as Executive Director, Office of the
Chairman of TrizecHahn and Barrick since September 1993; Executive Vice-
President and Chief Financial Officer of Barrick from April 1990 through
September 1993; Senior Vice-President, Finance of Barrick prior to April 1990.
Dennis R. Eichholz who joined the Company in November 1988 has served as
Controller and Treasurer of Clark USA and Vice President-Controller and
Treasurer of the Company since February 1995. Mr. Eichholz has served as Vice
President-Treasurer of the Company since December 1991.
Katherine D. Knocke has served as Secretary of Clark USA and the Company
since April 1995. Ms. Knocke has served as in-house counsel of the Company since
August 1994. Ms. Knocke previously was employed as an associate with the St.
Louis law firm of Armstrong, Teasdale, Schlafly & Davis from September 1989
through August 1994.
Except as described above, there are no arrangements or understandings
between any director or executive officer and any other person pursuant to which
such person was elected or appointed as a director or executive officer. There
are no family relationships between any director or executive officer and any
other director or executive officer.
Executive Committee
The Executive Committee is principally responsible for making management
policy for the Company as well as developing and implementing financial and
human resource strategies, and improving the Company's financial position and
results of operations. The five members of the Executive Committee are: Bradley
D. Aldrich, Executive Vice President--Refining; Brandon K. Barnholt, Executive
Vice President--Marketing; Maura J. Clark, Executive Vice President--Corporate
Development and Chief Financial Officer; Paul D. Melnuk, President, Chief
Executive Officer and Chief Operating Officer; and Edward J. Stiften, Executive
Vice President and Chief Administrative Officer.
30
<PAGE>
Item 11. Executive Compensation
Executive Compensation
The following table sets forth all cash compensation paid by the Company to
its Chief Executive Officer and its other executive officers whose total annual
compensation exceeded $100,000 for each of the years in the three-year period
ended December 31, 1996.
<TABLE>
<CAPTION>
Annual Compensation
--------------------- Long Term
Other Annual Compensation All Other
Name and Principal Position Year Salary Bonus Compensation Awards Options Compensation (d)
- ------------------------------- ---- --------- -------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Paul D. Melnuk................. 1996 $325,000 $130,000 -- -- $6,816
President and Chief 1995 326,836 75,000 -- 100,000(b) 5,479
Executive Officer 1994 325,893 150,000 -- -- 7,528
Bradley D. Aldrich (a)......... 1996 211,779 47,500 -- -- 6,849
Executive Vice President-- 1995 176,224 42,500 -- 130,000(b)(c) --
Refining 1994 6,731 60,000 -- -- --
Brandon K. Barnholt............ 1996 211,799 87,500 -- -- 6,802
Executive Vice President-- 1995 176,273 75,000 -- 50,000(b) 5,329
Marketing 1994 171,846 100,000 -- -- 8,330
Maura J. Clark (e)............. 1996 36,779 47,500 -- -- --
Executive Vice President-- 1995 -- -- -- -- --
Corporate Development 1994 -- -- -- -- --
and Chief Financial Officer
</TABLE>
(a) Mr. Aldrich commenced employment on December 1, 1994. See "--Employment
Agreement."
(b) Options issued pursuant to the Performance Plan as described below.
(c) Mr. Aldrich and Mr. Barnholt (granted in 1993) hold options to acquire
TrizecHahn Subordinate Voting Shares ("TrizecHahn Shares") received as
compensation from TrizecHahn for services performed for the Company under
the TrizecHahn Amended and Restated 1987 Stock Option Plan (the "TrizecHahn
Option Plan").
(d) Represents amount accrued for the account of such individuals under the
Clark Retirement Savings Plan (the "Savings Plan").
(e) In 1995 and 1996, Ms. Clark was an employee of TrizecHahn and served the
Company under a management consulting arrangement. Ms. Clark earned
approximately $175,000 in 1996 and $117,000 in 1995 under such arrangement.
As of January 1, 1997, Ms. Clark became an employee of the Company. The
amounts reflected in this table are for 1996 compensation paid by the
Company in 1997.
Stock Options Granted During 1996
The were no options granted during 1996 to the named executive officers
under the Performance Plan (defined below) for services performed for the
Company.
31
<PAGE>
Year-End Option Values
The following table sets forth information with respect to the number and
value of unexercised options to purchase Common Stock of Clark USA and
TrizecHahn Shares held by the executive officers named in the executive
compensation table at December 31, 1996.
<TABLE>
<CAPTION>
Shares Acquired Number of Value of Unexercised
on Exercise Value Unexercised Options Held In-the-Money Options Held
During Year Ended Realized at December 31, 1996 at December 31, 1996 (a)
-------------------------- --------------------------
Name December 31, 1996 on Exercise Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ----------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul D. Melnuk (b)... -- -- -- 100,000 $ -- $700,000
Bradley D. Aldrich... -- -- 33,333 96,667 289,000 789,000
Brandon K. Barnholt.. 20,000 $184,700 70,000 50,000 742,000 350,000
</TABLE>
(a) For the TrizecHahn Shares the value is based upon the closing price on the
New York Stock Exchange-Composite Transactions on December 31, 1996. For
the Common Stock of Clark USA the value is based on the issuance price in
the Oil Transactions.
(b) Mr. Melnuk also holds options to acquire TrizecHahn Shares received as
compensation for services provided to TrizecHahn.
Short-Term Performance Plan
Employees of the Company participate in an annual incentive plan which
places at risk an incremental portion of their total compensation based on
company, business unit and/or individual performance. The targeted at risk
compensation increases with the ability of the individual to affect business
performance, ranging from 12% for support personnel to 200% for the Chief
Executive Officer. The other executive officers have the opportunity to earn an
annual incentive equal to 125% of the individual's base salary. The actual award
is determined based on financial performance as measured by return on equity
with individual and executive team performance evaluated against pre-established
operating objectives designed to achieve planned financial results. For
essentially all other employees, annual incentives are based on specific
performance indicators utilized to operate the business, principally
productivity and profitability measures.
Long-Term Performance Plan
The Company has adopted a Long-Term Performance Plan (the "Performance
Plan"). Under the Performance Plan, designated employees, including executive
officers, of Clark USA and its subsidiaries and other related entities are
eligible to receive awards in the form of stock options, stock appreciation
rights and stock grants. The Performance Plan is intended to promote the growth
and performance of the Company by encouraging employees to acquire an ownership
interest in the Company and to provide incentives for employee performance. An
aggregate of 1,250,000 shares of Common Stock may be awarded under the
Performance Plan, either from authorized, unissued shares which have been
reserved for such purpose or from shares purchased on the open market, subject
to adjustment in the event of a stock split, stock dividend, recapitalization or
similar change in the outstanding common stock of Clark USA. As of December 31,
1996, 549,000 stock options have been issued under the Performance Plan.
The Performance Plan is administered by the Board of Directors'
Compensation Committee. Subject to the provisions of the Performance Plan, the
Compensation Committee is authorized to determine who may participate in the
Performance Plan and the number and types of awards made to each participant,
and the terms, conditions and limitations applicable to each award. Awards may
be granted singularly, in combination or in tandem. Subject to certain
limitations, the Board of Directors is authorized to amend, modify or terminate
the Performance Plan to meet any changes in legal requirements or for any other
purpose permitted by law.
Payment of awards may be made in the form of cash, stock or combinations
thereof and may include such restrictions as the Compensation Committee shall
determine, including, in the case of stock, restrictions on transfer
32
<PAGE>
and forfeiture provisions. The price at which shares of Common Stock may be
purchased under a stock option may not be less than the fair market value of
such shares on the date of grant. If permitted by the Compensation Committee,
such price may be paid by means of tendering Common Stock, or surrendering
another award, including restricted stock, valued at fair market value on the
date of exercise, or any combination thereof. Further, with Compensation
Committee approval, payments may be deferred, either in the form of installments
or as a future lump sum payment. Dividends or dividend equivalent rights may be
extended to and made part of any award denominated in stock, subject to such
terms, conditions and restrictions as the Compensation Committee may establish.
At the discretion of the Compensation Committee, a participant may be offered an
election to substitute an award for another award or awards of the same or
different type. Stock options initially have a 10 year term with a three year
vesting schedule and are not exercisable until Clark USA's Common Stock is
publicly traded. In accordance with the Stock Purchase Agreement (as defined
herein), executive officers are restricted from exercising options for four
years or until Tiger's interest in Clark USA falls below 10%.
If the employment of a participant terminates, subject to certain
exceptions for retirement, resignation, death or disability, all unexercised,
deferred and unpaid awards will be canceled immediately, unless the award
agreement provides otherwise. Subject to certain exceptions for death or
disability, or employment by a governmental, charitable or educational
institution, no award or other benefit under the Performance Plan is assignable
or transferable, or payable to or exercisable by anyone other than the
participant to whom it was granted.
In the event of a "Change of Control" of Clark USA or TrizecHahn (as
defined in the Performance Plan), with respect to awards held by Performance
Plan participants who have been employed by the Company for at least six months,
(a) all stock appreciation rights which have not been granted in tandem with
stock options will become exercisable in full, (b) the restrictions applicable
to all shares of restricted stock will lapse and such shares will be deemed
fully vested, (c) all stock awards will be deemed to be earned in full, and (d)
any participant who has been granted a stock option which is not exercisable in
full will be entitled, in lieu of the exercise of such stock option, to obtain
cash payment in an amount equal to the difference between the option price of
such stock option and the offer price (in the case of a tender offer or exchange
offer) or the value of common stock covered by such stock option, determined as
provided in the Performance Plan.
Under the Performance Plan, a "Change in Control" includes, without
limitation, with respect to Clark USA or TrizecHahn, (i) the acquisition (other
than by TrizecHahn) of beneficial ownership of 25% or more of the voting power
of its outstanding securities without the prior approval of at least two-thirds
of its directors then in office, (ii) a merger, consolidation, proxy contest,
sale of assets or reorganization which results in directors previously in office
constituting less than a majority of its directors thereafter, or (iii) any
change of at least a majority of its directors during any period of two years.
Clark Savings Plan
The Clark Savings Plan, which became effective in 1989, permits employees
to make before-tax and after-tax contributions and provides for employer
incentive matching contributions. Savings Plan assets are held in trust by
Boatmen's Trust Company. Under the Savings Plan, each employee of the Company
(and such other related companies as may adopt the Savings Plan) who has
completed at least six months of service may become a participant. Participants
are permitted to make before-tax contributions to the Savings Plan, effected
through payroll deduction, of from 1% to 15% of their compensation. The Company
makes matching contributions equal to 200% of a participant's before-tax
contributions up to 3% of compensation. Participants are also permitted to make
after-tax contributions through payroll deduction, of from 1% to 5% of
compensation, which are not matched by employer contributions; provided that
before-tax contributions and after-tax contributions, in the aggregate, may not
exceed the lesser of 15% of compensation or $9,500 in 1996. All employer
contributions are vested at a rate of 20% per year of service, becoming fully
vested after five years of service. Amounts in employees' accounts may be
invested in a variety of permitted investments, as directed by the employee,
including in TrizecHahn Shares. Participants' vested accounts are distributable
upon a participant's disability, death, retirement or separation from service.
Subject to certain restrictions, employees may make loans or withdrawals of
employee contributions during the term of their employment.
33
<PAGE>
Compensation Committee Interlocks and Insider Participation
Compensation of the Company's executive officers has historically been
determined by the Company's Board of Directors. Mr. Melnuk, Clark USA's and the
Company's President and Chief Executive Officer, is a member of Clark USA's and
the Company's Board of Directors. Other than reimbursement of their expenses,
neither Clark USA's nor the Company's directors receive any compensation for
their services as directors. There are no interlocks between the Company and
other entities involving the Company's executive officers and board members who
serve as executive officers or board members of other entities, except with
respect to Clark USA and TrizecHahn. Mr. Munk (Chairman and Chief Executive
Officer of TrizecHahn) serves as a director of the Company and Clark USA, Mr.
Wilkins (President and Chief Operating Officer of TrizecHahn) serves as a
director of the Company and Clark USA, and Mr. Birchall serves as a director of
the Company and Clark USA and as a director and Vice Chairman of TrizecHahn.
Employment Agreement
The Company has an employment agreement with Mr. Aldrich which provides for
a term of thirty months commencing December 1, 1994 at a minimum annual salary
of $175,000. In addition, in February 1995 Mr. Aldrich was granted an option to
purchase 100,000 shares of TrizecHahn Shares under the TrizecHahn Option Plan.
34
<PAGE>
Item 12. Security Ownership of Certain Owners and Management
All of the Company's common stock is owned by Clark USA. The following
table and the accompanying notes set forth certain information concerning the
beneficial ownership of the Common Stock and Class A Common Stock of Clark USA,
as of the date hereof: (i) each person who is known by the Company to own
beneficially more than 5% of the common stock of Clark USA, (ii) each director
and each executive officer who is the beneficial owner of shares of common stock
and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Percent of
Name and Address Title of Class Number of Shares Percent of Class Total Voting Power(a)
- --------------------------- -------------- ---------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
Peter Munk (b)............. Common 12,375,000 65% 46%
TrizecHahn Corporation Class A Common 1,125,000 11
BCE Place
181 Bay Street, Suite 3900
P.O. Box 768
Toronto, Ontario
M5J 2T3 Canada
Julian H. Robertson, Jr.
(c)....................... Class A Common 9,000,000 89 31
Tiger Management
Corporation
101 Park Avenue
New York, New York 10178
Paul D. Melnuk............. Class A Common 37,509 (d) (d)
Occidental Petroleum
Corporation............... Common 5,454,545 29 19
10889 Wilshire Boulevard
Los Angeles, California
90024
J. M. Salaam (e)........... Common 1,222,273 6 4
Gulf Resources Corporation
24-26 Regent's Bridge
Gardens
London SW8 1HB England
All directors and
executive officers
as a group (b)............ Common 12,375,000 65 46
Class A Common 1,162,509 11
</TABLE>
(a) Represents the total voting power of all shares of common stock
beneficially owned by the named stockholder. See "--Restrictions Under
Tiger Agreements."
(b) As of December 31, 1996, Peter Munk, the Chairman of the Board of Directors
of TrizecHahn, held approximately 53% voting control of TrizecHahn and as a
result is deemed to own beneficially the shares owned by TrizecHahn.
(c) Tiger has informed the Company that Julian H. Robertson, Jr., Tiger's chief
executive officer, may be deemed to control Tiger. Mr. Robertson's address
is 101 Park Avenue, New York, New York 10178.
(d) Less than 1%.
(e) Gulf has informed the Company that H. M. Salaam, Gulf's chairman, may be
deemed to control Gulf. Mr. Salaam's address is 24-26 Regent's Bridge
Gardens, London SW8 1HB England.
35
<PAGE>
Restrictions Under Tiger Agreements
Pursuant to the Stock Purchase Agreement, dated as of February 27, 1995
(the "Stock Purchase Agreement") between Clark USA, a subsidiary of
TrizecHahn, TrizecHahn and Tiger, Clark USA agreed to the following:
Limitation on Certain Transactions
Pursuant to the Stock Purchase Agreement, Clark USA agreed that, so long as
Tiger and/or its affiliates collectively own 20% of the issued and outstanding
capital stock of Clark USA, the affirmative vote of the holders of a majority of
the outstanding shares of Class A Common Stock shall be required for any of the
following actions:
(a) acquisitions by Clark USA during any calendar year of equity or
debt securities (other than equity or debt securities purchased in
connection with Clark USA's investment of excess cash) or fixed assets
(other than pursuant to operating leases and other than as part of capital
expenditure programs (whether or not requiring approval as contemplated by
(c) below)) or assumptions by Clark USA of liabilities which, in the
aggregate, exceed $10,000,000;
(b) other than certain identified financings, financings by Clark USA
(other than fully underwritten widely dispersed public offerings of common
stock or pursuant to working capital arrangements) during any calendar year
which in the aggregate exceed $10,000,000;
(c) any increase in any calendar year (in excess of the Consumer Price
Index increase from the previous calendar year) in compensation payable at
any time to any senior management member, and any termination of employment
by Clark USA, or significant reduction by Clark USA in duties, of Paul D.
Melnuk, the President and Chief Executive Officer of Clark USA;
(d) other than a fully underwritten widely dispersed public offering
of common stock, any material change in the capital structure of Clark USA
(including, without limitation, any issuance of debt securities (except as
permitted by (b) above)) or equity securities (other than pursuant to the
Performance Plan );
36
<PAGE>
(e) any transactions between Clark USA on the one hand and any of its
affiliates or TrizecHahn or its affiliates on the other hand (other than
pursuant to the Performance Plan ) which (a) are not on reasonable arm's
length terms at fair market valuations or (b) during any calendar year
exceed, in the aggregate, $2,500,000;
(f) a merger or sale of Clark USA or more than 10% of its assets; and
(g) prior to the second anniversary of the Public Float Target Date
(as defined in the Stock Purchase Agreement), any acquisition by Clark USA
which is funded by the issuance of new equity securities of Clark USA.
In addition, so long as Tiger and/or its affiliates own collectively 20% of
the issued and outstanding capital stock of Clark USA, Clark USA may not, and
shall cause each of its subsidiaries not to, engage in any business other than
its current business.
Tiger Director
So long as Tiger and/or its affiliates own collectively 10% or more of the
issued and outstanding capital stock of Clark USA, at each annual election of
the Board of Directors of Clark USA thereafter, Clark USA will take all
necessary action to elect to the Board of Directors of Clark USA one person
nominated by Tiger. James J. Murchie currently serves as the director nominated
by Tiger.
Limitations on Sale of Capital Stock of Clark USA
With respect to any public offering of common stock, Tiger on the one hand
and Clark USA on the other hand may participate for the same number of shares,
and TrizecHahn and its affiliates may participate (with respect only to the
Common Stock into which its Class A Common Stock is convertible) for a
percentage of the number of shares being offered by Tiger which is equal to the
percentage that the Common Stock into which TrizecHahn's Class A Common Stock is
convertible represents of the capital stock of Clark USA owned in the aggregate
by Tiger; provided, however, that Clark USA shall have priority to the extent
that funding is required in connection with such offering for mandatory
redemption of Clark USA's Zero Coupon Notes.
Other than as provided in the preceding paragraph or with Tiger's consent
(which Tiger may grant or withhold at Tiger's sole discretion), TrizecHahn shall
not sell any equity securities of Clark USA owned by it (other than the Class A
Common Stock issued to TrizecHahn under the Stock Purchase Agreement or the
Common Stock into which it is convertible), provided, however, that TrizecHahn
may sell equity securities of Clark USA after 120 days after Tiger no longer
owns at least 10% of the then issued and outstanding capital stock of Clark USA
unless Tiger shall at such time be actively attempting to sell any capital stock
or shall have taken substantial steps in such regard.
If any Purchaser (a "Selling Purchaser") proposes to sell all or any
portion of its Class A Common Stock in a private sale to an entity engaged in
the refining industry (a "Proposed Sale"), the Selling Purchaser will provide
Clark USA with at least 45 days' written notice prior to the closing thereof
(which closing shall be subject to Clark USA's right here under), and Clark USA
will have the right, prior to the date of such closing (the "Proposed Sale
Closing Date"), to produce an alternative buyer for the same number of shares
at a higher price than in the Proposed Sale and otherwise on terms (including
the date of closing being no later than the Proposed Sale Closing Date) equal or
superior to the terms of the Proposed Sale. If the transaction with such
alternative buyer does not close for any reason by the Proposed Sale Closing
Date (other than by reason of a breach by the Selling Purchaser of its
obligations), the Selling Purchaser shall be free during the next 90 days to
sell the shares it proposed to sell in the Proposed Sale to any buyer (including
the buyer in the Proposed Sale). Notwithstanding the above, Clark USA shall have
the right, in its sole discretion, to prohibit any sales of capital stock of
Clark USA for a period of time not to exceed 90 days from (i) the date of the
initial public offering (the "IPO") of Clark USA's common stock if so required
by the managing underwriters of the IPO or (ii) the date of the notice referred
to in the first sentence of this paragraph in the event of a pending material
transaction. In the event Clark USA shall prohibit any sales of its capital
stock of Clark USA pursuant to the preceding sentence, the 90 day period during
which the Selling
37
<PAGE>
Purchaser would have otherwise been free to sell the shares it proposed to sell
in the Proposed Sale shall be extended to the date following expiration of such
prohibition which is the same number of days thereafter as the number of days
during such 90-day period that such prohibition was in effect.
Any executive officer of the Company exercising options issued pursuant to
the Performance Plan may not sell equity securities of Clark USA issued upon
exercise of options issued pursuant to the Performance Plan until the earlier of
four years after February 27, 1995 or 120 days after Tiger and its affiliates
own less than 10% of the capital stock of Clark USA and then only if Tiger and
its affiliates shall not at such time be actively attempting to sell equity
securities of Clark USA or have taken substantial steps in such regard.
Registration Rights
In connection with the execution of the Stock Purchase Agreement, Clark USA
entered into a registration rights agreement (the "'Tiger Registration Rights
Agreement") with Tiger, a subsidiary of TrizecHahn and Paul D. Melnuk. In the
Tiger Registration Rights Agreement, Clark USA agreed, among other things, to
provide Tiger with demand and piggyback registration rights with respect to
their shares of Common Stock issuable upon conversion of their Class A Common
Stock. Clark USA also agreed to file a shelf registration and to use its best
efforts to cause the shelf registration to become effective not later than 90
days after consummation of an initial public offering and to remain effective
for a period of four years from the date upon which the shelf registration is
declared effective.
The Occidental Stockholders' Agreement
Clark USA and Occidental, entered into a Stockholders' Agreement (the ''Oxy
Stockholders' Agreement''). The Oxy Stockholders' Agreement provides that
Occidental will be entitled to designate one director to the Board of Directors
of Clark USA so long as Occidental and its affiliates own at least 10% of the
outstanding shares of capital stock of Clark USA on a fully diluted basis.
Stephen I. Chazen currently serves as the director designated by Occidental.
The Oxy Stockholders' Agreement generally prohibits the sale of shares of
capital stock of Clark USA by Occidental and its transferees except (a) pursuant
to a public offering, (b) to Clark USA or any subsidiary of Clark USA,
TrizecHahn, Occidental, Tiger or their respective affiliates, (c) subject to
certain restrictions, pursuant to Rule 144 under the Securities Act, or (d) to
third parties, subject to a right of first refusal granted to Clark USA. The Oxy
Stockholders' Agreement prohibits any sale of shares of capital stock of Clark
USA without the consent of Tiger whenever Tiger is actively attempting to sell
any capital stock of Clark USA or has taken substantial steps in such regard.
Pursuant to the Oxy Stockholders' Agreement, Occidental will be entitled to
receive additional shares of Class D Common Stock if Clark USA, whether or not
for its own account, effects a public offering of common stock at a price, net
of all fees, commissions and discounts (the ''Net Price'') below $22 per share.
Subject to appropriate adjustments for stock dividends, recapitalizations and
similar events, the additional shares of Class D Common Stock to be received by
Occidental in this circumstance will be valued at a minimum of $20 per share and
will not exceed 545,455 shares in the aggregate. See "--Restrictions Under Tiger
Agreements".
Clark USA has granted to Occidental the right, after Clark USA has made a
public offering of equity securities, to make one demand that Clark USA register
under the Securities Act shares of Clark USA's capital stock held by Occidental.
Occidental will also have the right to participate in registrations effected by
Clark USA for its account or for the account of another stockholder.
The Gulf Stockholders' Agreement
Clark USA and Gulf entered into a Stockholders' Agreement (the ''Gulf
Stockholders' Agreement''). The Gulf Stockholders' Agreement generally prohibits
the sale of shares of capital stock of Clark USA by the Gulf Stockholders and
their transferees except (a) to Gulf or an affiliate of Gulf or (b) in a
transaction in which TrizecHahn sells any shares of capital stock of Clark USA.
The Oxy Stockholders' Agreement prohibits any sale of
38
<PAGE>
shares of capital stock of Clark USA without the consent of Tiger whenever Tiger
is actively attempting to sell any capital stock of Clark USA or has taken
substantial steps in such regard. In any such sale by TrizecHahn, Gulf shall
have the right to elect to include in such sale a number of shares of common
stock of Clark USA owned by Gulf proportionate to the total number of shares
owned by Gulf relative to TrizecHahn.
Pursuant to the Gulf Stockholders' Agreement, Gulf will be entitled to
receive additional shares of Class D Common Stock if Clark USA, whether or not
for its own account, effects a public offering of common stock at a Net Price
below $22 per share. Subject to appropriate adjustments for stock, dividends,
recapitalizations and similar events, the additional shares of Class D Common
Stock to be received by the Gulf Stockholders in this circumstance will be
valued at a minimum of $20 per share and will not exceed 122,227 shares in the
aggregate.
The common shares of Clark USA held by Gulf secure the obligations of Gulf
in the Oil Transactions. Gulf has not made their required deliveries under the
Oil Transactions since July 1996.
Item 13. Certain Relationships and Related Transactions
TrizecHahn and the Company have agreements to provide certain management
services to each other from time to time. The Company established trade credit
with various suppliers of its petroleum requirements, requiring the guarantee of
TrizecHahn. Fees related to trade credit guarantees totaled $0.1 million, $0.2
million and $0.2 million in 1994, 1995 and 1996, respectively. All trade credit
guarantees were terminated in August 1996.
The business relationships described above and any future business
relationships between the Company and TrizecHahn will be on terms no less
favorable in any respect than those which could be obtained through dealings
with third parties.
39
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) 1. and 2. Financial Statements and Financial Statement Schedules
The financial statements and schedule filed as a part of this Report on
Form 10-K are listed in the accompanying index to financial statements and
schedule.
3. Exhibits
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of Clark Refining &
Marketing, Inc. (Incorporated by reference to Exhibit 3.1 filed
with Clark Oil & Refining Corporation Registration Statement on
Form S-1 (Registration No. 33-28146))
3.2 Certificate of Amendment to Certificate of Incorporation of Clark
Refining & Marketing, Inc. (Incorporated by reference to Exhibit
3.2 filed with Clark Oil & Refining Corporation Annual Report on
Form 10-K (Registration No. 1-11392))
3.3 By-laws of Clark Refining & Marketing, Inc. (Incorporated by
reference to Exhibit 3.2 filed with Clark Oil & Refining
Corporation Registration Statement on Form S-1 (Registration No.
33-28146))
4.1 Indenture between Clark Refining & Marketing, Inc. (formerly Clark
Oil & Refining Corporation) and NationsBank of Virginia, N.A.
(formerly Sovran Bank, N.A.) including the form of 10 1/2% Senior
Notes due 2001 (Incorporated by reference to Exhibit 4.1 filed with
Clark Oil & Refining Corporation Registration Statement on Form S-1
(File No. 33-43358))
4.2 Supplemental Indenture between Clark Refining & Marketing, Inc. and
NationsBank of Virginia, N.A., dated February 17, 1995
(Incorporated by reference to Exhibit 4.4 filed with Clark USA,
Inc. Annual Report on Form 10-K for the year ended December 31,
1994) (File No. 33-59144))
4.3 Indenture between Clark Refining & Marketing, Inc. (formerly Clark
Oil & Refining Corporation) and NationsBank of Virginia, N.A.
including the form of 9 1/2% Senior Notes due 2004 (Incorporated by
reference to Exhibit 4.1 filed with Clark Oil & Refining
Corporation Registration Statement on Form S-1 (File No. 33-50748))
4.4 Supplemental Indenture between Clark Refining & Marketing, Inc. and
NationsBank of Virginia, N.A., dated February 17, 1995
(Incorporated by reference to Exhibit 4.6 filed with Clark USA,
Inc. Annual Report on Form 10-K for the year ended December 31,
1994) (File No. 33-59144))
10.10 Amended and Restated Credit Agreement, dated as of April 19, 1995
(the "Amended and Restated Credit Agreement"), among Clark Refining
& Marketing, Inc., as Borrower, Bank of America National Trust and
Savings Association, as Administrative Agent, Bankers Trust
Company, as Documentation Agent, The Toronto-Dominion Bank, as
Syndication Agent, BA Securities, Inc., as Technical Agent, and
the other financial institutions party thereto (Incorporated by
reference to Exhibit 10.1 filed with Clark USA, Inc. Form 8-K,
dated December 1, 1995 (File No. 33-59144))
10.12 First Amendment to Amended and Restated Credit Agreement, dated as
of June 14, 1995 (Incorporated by reference to Exhibit 10.2 filed
with Clark USA, Inc. Form 8-K, dated December 1, 1995 (File No. 99-
59144))
40
<PAGE>
10.13 Second Amendment to Amended and Restated Credit Agreement, dated as
of November 27, 1995 (Incorporated by reference to Exhibit 10.3
filed with Clark USA, Inc. Form 8-K, dated December 1, 1995 (File
No. 33-59144))
10.14 Third Amendment to Amended and Restated Credit Agreement, dated as
of January 31, 1996
10.15 Fourth Amendment to Amended and Restated Credit Agreement, dated as
of July 12, 1996 (Incorporated by reference to Exhibit 10.2 filed
with Clark Refining & Marketing, Inc. Form 8-K, dated October 4,
1996 (File No. 1-11392))
10.16 Fifth Amendment to Amended and Restated Credit Agreement, dated as
of October 4, 1996 (Incorporated by reference to Exhibit 10.1 filed
with Clark Refining & Marketing, Inc. Form 10-Q, for the period
ending September 30, 1996 (File No. 1-11392))
10.17 Sixth Amendment to Amended and Restated Credit Agreement, dated as
of December 13, 1996
10.18 Agreement Regarding Limited Consent and Waiver to the Amended and
Restated Credit Agreement, dated as of September 30, 1996
(Incorporated by reference to Exhibit 10.1 filed with Clark Refining
& Marketing, Inc. Form 8-K dated October 4, 1996 (File No. 1-11392))
10.20 Clark Refining & Marketing, Inc. Stock Option Plan (Incorporated by
reference to Exhibit 10.5 filed with Clark Registration Statement on
Form S-1 (Registration No. 33-43358))
10.21 Clark Refining & Marketing, Inc. Savings Plan, as amended and
restated effective as of October 1, 1989 (Incorporated by reference
to Exhibit 10.6 filed with Clark Oil & Refining Corporation Annual
Report on Form 10-K for the year ended December 31, 1989 (Commission
File No. 1-11392))
10.22 Employment Agreement of Bradley D. Aldrich. (Incorporated by
reference to Exhibit 10.4 filed with Clark USA, Inc. Annual Report
on Form 10-K for the year ended December 31, 1994 (File No. 33-
59144))
10.30 Amended and Restated Asset Sale Agreement, dated as of August 16,
1994 between Chevron U.S.A. Inc. and Clark Refining & Marketing,
Inc., (Incorporated by reference to Exhibit 10.3 filed with Clark
USA, Inc. Current Report on Form 8-K, dated February 27, 1995
(Registration No. 33-59144))
10.31 Chemical Facility Lease with Option to Purchase, dated as of August
16, 1994 between Chevron U.S.A. Inc. and Clark Refining & Marketing,
Inc., (Incorporated by reference to Exhibit 10.9.2 filed with Clark
USA, Inc. Registration Statement on Form S-1 (Registration No. 33-
84192))
10.32 Sublease of Chemical Facility Lease, dated as of August 16, 1994
between Chevron U.S.A. Inc. and Clark Refining & Marketing, Inc.,
(Incorporated by reference to Exhibit 10.9.3 filed with Clark USA,
Inc. Registration Statement on Form S-1 (Registration No. 33-84192))
10.33 PADC Facility Lease with Option to Purchase, dated as of August 16,
1994 between Chevron U.S.A. Inc. and Clark Refining & Marketing,
Inc., (Incorporated by reference to Exhibit 10.9.4 filed with Clark
USA, Inc. Registration Statement on Form S-1 (Registration No. 33-
84192))
10.34 Supply Agreement for the Chemical Facility, dated as of August 16,
1994 between Chevron U.S.A. Inc. and Clark Refining & Marketing,
Inc., (Incorporated by reference to Exhibit 10.9.5 filed with Clark
USA, Inc. Registration Statement on Form S-1 (Registration No. 33-
84192))
41
<PAGE>
10.35 Services Agreement for the Chemical Facility, dated as of August 16,
1994 between Chevron U.S.A. Inc. and Clark Refining & Marketing,
Inc., (Incorporated by reference to Exhibit 10.9.6 filed with Clark
USA, Inc. Registration Statement on Form S-1 (Registration No. 33-
84192))
10.36 Supply Agreement for the PADC Facility, dated as of August 16, 1994
between Chevron U.S.A. Inc. and Clark Refining & Marketing, Inc.,
(Incorporated by reference to Exhibit 10.9.7 filed with Clark USA,
Inc. Registration Statement on Form S-1 (Registration No. 33-84192))
10.37 Services Agreement for the PADC Facility, dated as of August 16,
1994 between Chevron U.S.A. Inc. and Clark Refining & Marketing,
Inc., (Incorporated by reference to Exhibit 10.9.8 filed with Clark
USA, Inc. Registration Statement on Form S-1 (Registration No. 33-
84192))
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
42
<PAGE>
GLOSSARY OF TERMS
Refining
Alkylation Unit - Also known as the alky unit; a refinery unit that uses
hydrofluoric acid as a catalyst to combine lower value
products from the FCC unit and purchased gases (isobutane) to
produce gasoline.
BPD - Barrels per day.
Barrel (Bbl)- A common unit of measure in the oil industry which equates to
42 gallons.
Blendstocks - Various compounds that are combined with product from the
crude separator process to make finished gasoline and diesel
fuel; these may include natural gasoline, FCC gasoline,
ethanol, reformate or butane, among others.
CP - Convenience products such as beverages, cigarettes and
snacks.
Catalyst - A substance that alters, accelerates or instigates chemical
changes, but is neither produced nor consumed in the process.
Coker Unit - A refinery unit which takes the lowest value component of
crude oil after higher value products are removed, further
extracts more valuable products and converts the rest into
petroleum coke.
Crack Spread - A simplified model that measures the difference between the
price for finished products and crude oil. A 3/2/1 crack
spread is often referenced and represents the approximate
revenue and cost breakdown of a barrel of crude being, three
barrels of crude produce two barrels of gasoline and one
barrel of diesel fuel.
Crude Unit - The initial refinery unit that the crude oil runs through
where it is heated and various products separated. As crude
oil is heated to certain temperatures it vaporizes and
different products are separated. This is the distillation
process. Listed below are the products that typically come
from crude oil and the approximate temperatures at which they
are separated from it:
butanes/lighter less than 90(degrees) F
gasoline 90(degrees) F - 220(degrees) F
naphtha 220(degrees) F - 315(degrees) F
kerosene 315(degrees) F - 450(degrees) F
diesel 450(degrees) F - 650(degrees) F
gas oil 650(degrees) F - 800(degrees) F
residue 800(degrees) F and higher
DHDS Unit - Also known as distillate hydrotreater desulfurizer; removes
sulfur and other impurities from distillates, primarily
diesel and jet fuel.
Distillates - Primarily diesel, jet fuel and kerosene.
Djeno Crude Oil - Also known as Djeno Melange crude oil. A heavy sweet crude
oil from the Republic of the Congo.
Djeno Melange - See Djeno crude oil.
Ethanol - An alcohol, primarily derived from corn and other feed
grains, sometimes used in gasoline blending.
43
<PAGE>
FCC Unit - Also known as the fluid catalytic cracker; the unit takes low
grade products from the crude unit and converts them to
gasoline through a chemical process using catalysts.
Feedstock - Hydrocarbon compounds, such as crude oil and natural gas
liquids, that are processed and blended into refined products.
Gal. - Gallon.
Heavy Crude
Oil - A crude oil that is relatively viscous in texture which
is harder to process yields less high value products such as
gasoline and diesel fuel, but is cheaper.
Isomax Unit - Similar to FCC unit.
LPG - Also known as Liquefied Petroleum Gases. Liquefied light ends
gases used for home heating and cooking.
Light Crude Oil - A crude oil that is relatively thin in texture which is easier
to process and yields more high value products such as
gasoline and diesel fuel, but is more expensive.
M - Thousands.
MM - Millions.
Maya - A heavy, sour crude oil from Mexico.
Naphtha - Natural or unrefined gasoline with a low octane rating that is
separated out of the crude oil during the refining process.
Oxygenates - Compounds containing oxygen which, when added to conventional
gasoline, reduce the carbon monoxide emissions of the
gasoline.
PMPS - Per month per store.
Petroleum Coke - Also known as coke; a coal like substance that can be burned
to generate electricity or used as a hardener in concrete.
Production - The finished products such as gasoline and diesel fuel which
are converted from crude oil by a refinery.
Rated Crude Oil
Capacity - The crude oil processing capacity of a refinery that is
established by engineering design.
Refined
products - The hydrocarbon compounds, such as gasoline, diesel fuel, jet
fuel and residual fuel, that are produced by a refinery.
Refining
margin - The difference between crude oil and other feedstock,
intermediate stock and blendstock component costs and the cost
of refined products sold, expressed in dollars per barrel of
refined product.
Reformulated
Gasoline - Gasoline blended in accordance with certain specifications,
that is designed to reduce ozone-forming and toxic pollutants.
Residual Oil - Resids or residue. A derivative of crude oil obtained from the
basic stages of refining operations. Also known as atmospheric
or vacuum tower bottoms.
44
<PAGE>
Sour Crude Oil - A crude oil that is relatively high in sulfur content,
requiring additional processing to remove the sulfur, but is
typically less expensive.
Sweet Crude Oil - A crude oil that is relatively low in sulfur content,
requiring less processing to remove the sulfur, but is
typically more expensive.
Throughput - The amount of a substance processed through a unit.
Turnaround - Shutting down various units of a refinery to service, clean
and refurbish the components; maintenance turnaround occurs
every three to four years or as needed.
Unusual Items - Those charges or credits not occurring in the normal course
of business.
Utilization - Ratio of total refinery production to the rated crude oil
capacity of the refinery.
WTI - West Texas Intermediate crude oil, a light; sweet crude oil
that is used as a benchmark for other crude oil types.
Yield - The percentage of higher value refined products that are
produced from feedstocks.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Clark Refining & Marketing, Inc. and Subsidiary:
Annual Financial Statements
Report of Independent Accountants....................................... 47
Consolidated Balance Sheets as of December 31, 1995 and 1996............ 48
Consolidated Statements of Earnings for the years ended
December 31, 1994, 1995 and 1996....................................... 49
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996....................................... 50
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996....................................... 51
Notes to Consolidated Financial Statements.............................. 52
</TABLE>
46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Clark Refining & Marketing, Inc.:
We have audited the accompanying balance sheets of Clark Refining &
Marketing, Inc. (a Delaware corporation and wholly-owned subsidiary of Clark
USA, Inc.) as of December 31, 1995 and 1996 and the related statements of
earnings, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Clark Refining & Marketing,
Inc. as of December 31, 1995 and 1996 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
February 4, 1997
47
<PAGE>
<TABLE>
<CAPTION>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share data)
Reference December 31, December 31,
ASSETS Note 1995 1996
--------- ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 2 $ 60,477 $ 319,378
Short-term investments 2,3 46,116 14,881
Accounts receivable 2 179,200 171,733
Inventories 2,4 290,444 277,095
Prepaid expenses and other 18,875 15,411
------------ ------------
Total current assets 595,112 798,498
PROPERTY, PLANT AND EQUIPMENT 2,5 549,292 555,691
OTHER ASSETS 2,6 43,930 39,131
------------ ------------
$ 1,188,334 $ 1,393,320
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 7 $ 315,236 $ 303,141
Accrued expenses and other 8,9 41,501 49,384
Accrued taxes other than income 45,240 46,484
------------- ------------
Total current liabilities 401,977 399,009
LONG-TERM DEBT 8,9 420,441 417,606
DEFERRED INCOME TAXES 2,12 22,861 802
OTHER LONG-TERM LIABILITIES 11 38,937 41,774
CONTINGENCIES 15 -- --
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value per share;
1,000 shares authorized and 100 shares -- --
issued and outstanding)
Paid-in capital 10,13 195,610 464,210
Retained earnings 3,7 108,508 69,919
------------ ------------
Total stockholder's equity 304,118 534,129
------------ ------------
$ 1,188,334 $ 1,393,320
============ ============
</TABLE>
48
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
Reference -----------------------------------------
Note 1994 1995 1996
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES AND OPERATING REVENUES $ 2,440,028 $ 4,486,083 $ 5,072,718
EXPENSES:
Cost of sales (2,092,516) (4,018,274) (4,559,982)
Operating expenses (219,883) (373,377) (418,903)
General and administrative expenses (51,439) (52,280) (59,169)
Depreciation 2 (26,540) (31,435) (37,290)
Amortization 2,6 (10,797) (12,001) (11,127)
Recovery of inventory market value write-down 4 26,500 -- --
----------- ----------- -----------
(2,374,675) (4,487,367) (5,086,471)
----------- ----------- -----------
OPERATING INCOME (LOSS) 65,353 (1,284) (13,753)
Interest expense and finance income, net 8 (37,547) (39,916) (38,688)
----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES 27,806 (41,200) (52,441)
Income tax (provision) benefit 2,12 (9,732) 15,656 13,914
----------- ----------- -----------
NET EARNINGS (LOSS) $ 18,074 $ (25,544) $ (38,527)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
49
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
-----------------------------------
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 18,074 $ (25,544) $ (38,527)
Adjustments:
Depreciation 26,540 31,435 37,290
Amortization 11,973 17,370 17,842
Realized loss on sales of investments 5,396 -- --
Share of earnings of affiliates, net of dividends (468) (1,413) (136)
Deferred income taxes 9,732 (15,656) (22,059)
Recovery of inventory market value write-down (26,500) -- --
Other 1,271 1,385 1,062
Cash provided by (reinvested in) working capital -
Accounts receivable, prepaid expenses and other (21,135) (110,966) 12,758
Inventories 22,995 (138,978) 13,266
Accounts payable, accrued expenses, taxes other
than income and other 5,859 156,814 (4,640)
-------- --------- ---------
Net cash provided by (used in) operating activities 53,737 (85,553) 16,856
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (89,987) (41,500) --
Sales of short-term investments 187,785 25,942 31,135
Expenditures for property, plant and equipment (100,276) (42,093) (44,996)
Expenditures for turnaround (11,191) (6,525) (13,862)
Refinery acquisition expenditures (13,514) (71,776) --
Proceeds from disposals of property, plant and equipment 5,941 1,866 4,359
Advance crude oil purchase receivable -- -- 235,400
-------- --------- ---------
Net cash provided by (used in) investing activities (21,242) (134,086) 212,036
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt payments (585) (1,620) (2,835)
Proceeds from capital lease transactions -- 24,301 --
Capital contribution -- 165,610 33,600
Deferred financing costs (4,804) (13,625) (756)
-------- --------- ---------
Net cash provided by (used in) financing activities (5,389) 174,666 30,009
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,106 (44,973) 258,901
CASH AND CASH EQUIVALENTS, beginning of period 78,344 105,450 60,477
-------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $105,450 $ 60,477 $ 319,378
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
50
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Paid-in Retained
Stock Capital Earnings Total
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balance - January 1, 1994 $ -- $ 30,000 $115,978 $145,978
Change in unrealized short-term
investment gains and losses,
net of taxes -- -- (1,200) (1,200)
Capital contributions -- -- -- --
Net earnings -- -- 18,074 18,074
------ -------- -------- --------
Balance - December 31, 1994 $ -- $ 30,000 $132,852 $162,852
Change in unrealized short-term
investment gains and losses,
net of taxes -- -- 1,200 1,200
Capital contributions -- 165,610 -- 165,610
Net earnings -- -- (25,544) (25,544)
------ -------- -------- --------
Balance - December 31, 1995 -- 195,610 108,508 304,118
Change in unrealized short-term
investment gains and losses,
net of taxes -- -- (62) (62)
Capital contributions -- 268,600 -- 268,600
Net loss -- -- (38,527) (38,527)
------ -------- -------- --------
Balance - December 31, 1996 $ -- $464,210 $ 69,919 $534,129
====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
51
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1994, 1995 and 1996
(tabular dollar amounts in thousands of US dollars)
1. General
Clark Refining & Marketing, Inc., a Delaware corporation ("Clark" or "the
Company"), is wholly owned by Clark USA, Inc., a Delaware corporation ("Clark
USA"). Clark's principal operations include crude oil refining, wholesale and
retail marketing of refined petroleum products and retail marketing of
convenience store items in the Central United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
The Company's earnings and cash flow from operations are primarily
dependent upon processing crude oil and selling quantities of refined petroleum
products at margins sufficient to cover operating expenses. Crude oil and
refined petroleum products are commodities, and factors largely out of the
Company's control can cause prices to vary, in a wide range, over a short period
of time. This potential margin volatility can have a material effect on
financial position, current period earnings and cash flow.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents; Short-term Investments
Clark considers all highly liquid investments, such as time deposits, money
market instruments, commercial paper and United States and foreign government
securities, purchased with an original maturity of three months or less, to be
cash equivalents. Short-term investments consist of similar investments, as well
as United States government security funds, maturing more than three months from
date of purchase and are carried at fair value (see Note 3 "Short-term
Investments"). Clark invests only in AA rated or better fixed income marketable
securities or the short-term rated equivalent.
The Company classifies checks issued which have not yet cleared the bank
account as accounts payable. Such balances included in "Accounts payable" were
$12.1 million and $12.9 million at December 31, 1995 and 1996, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade receivables. Credit risk on trade
receivables is minimized as a result of the credit quality of the Company's
customer base and industry collateralization practices. As of December 31, 1996,
the Company had $36.4 million (1995 - $17.0 million) due from Chevron USA
Products Co. ("Chevron"). Sales to Chevron in 1996 totaled $455.8 million (1995-
$448.8 million).
52
<PAGE>
Inventories
Inventories are stated at the lower of cost, predominantly using the last-
in, first-out "LIFO" method, or market on an aggregate basis. During the year
ended December 31, 1996, total petroleum inventory quantities were reduced,
resulting in a LIFO liquidation, the effect of which increased pretax earnings
by $2.4 million. There was no such effect in the year ended December 31, 1995.
To limit risk related to price fluctuations, Clark employs risk strategies
using crude oil and refined products futures and options contracts to manage
potentially volatile market movements on aggregate physical and contracted
inventory positions. At December 31, 1996, Clark's open contracts represented
0.7 million barrels of crude oil and refined products, and had terms extending
into February, 1997. At December 31, 1995, Clark's open contracts represented
1.7 million barrels of crude oil and refined products, and had terms extending
into December, 1996.
The Company considers all futures and options contracts to be part of its
risk management strategy. Unrealized gains and losses on open contracts are
recognized as a product cost component unless the contract can be identified as
a price risk hedge of specific inventory positions or open commitments, in which
case the unrealized gain or loss is deferred and recognized as an adjustment to
the carrying amount of petroleum inventories or accounts payable if related to
open commitments. Deferred gains and losses on these contracts are recognized as
an adjustment to product cost when such inventories are sold or consumed. At
December 31, 1996, the Company had net unrealized gains on open futures and
options contracts of $1.2 million (1995 - unrealized loss of $0.4 million) all
of which have been recognized in operations.
Property, Plant and Equipment
Property, plant and equipment additions are recorded at cost. Depreciation
of property, plant and equipment is computed using the straight-line method over
the estimated useful lives of the assets or group of assets. The cost of
buildings and marketing facilities on leased land and leasehold improvements are
amortized on a straight-line basis over the shorter of the estimated useful life
or the lease term. The Company capitalizes the interest cost associated with
major construction projects based on the effective interest rate on aggregate
borrowings.
Expenditures for maintenance and repairs are expensed. Major replacements
and additions are capitalized. Gains and losses on assets depreciated on an
individual basis are included in current income. Upon disposal of assets
depreciated on a group basis, unless unusual in nature or amount, residual cost
less salvage is charged against accumulated depreciation.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 121 concerning "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The standard requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable with future cash flows. The Company adopted this standard beginning
January 1, 1996 which did not have any effect on the financial statements. The
Company believes that if a project initiated to produce low sulfur diesel fuel
at the Hartford refinery ("DHDS Project"), which was delayed in 1992 due to an
expectation of narrow differentials between low and high sulfur diesel fuel,
does not proceed due to continued relatively narrow price differentials between
low and high sulfur diesel fuel, future cash flows from the asset would not
likely support the carrying value which is approximately $24.1 million as of
December 31, 1996. Effective January 1, 1996, the Company began to depreciate
the DHDS Project over 30 years.
Environmental Costs
Environmental expenditures are expensed or capitalized depending upon their
future economic benefit. Costs which improve a property as compared with the
condition of the property when originally constructed or acquired and costs
which prevent future environmental contamination are capitalized. Costs which
return a property to its condition at the time of acquisition or original
construction are expensed.
53
<PAGE>
Deferred Turnaround and Financing Costs
A turnaround is a periodically required standard procedure for maintenance
of a refinery that involves the shutdown and inspection of major processing
units and generally occurs approximately every three years. Turnaround costs,
which are included in "Other assets", are amortized over the period to the next
scheduled turnaround, beginning the month following completion.
Financing costs related to obtaining or refinancing of debt are deferred
and amortized over the expected life of the debt.
Income Taxes
Clark files a consolidated U.S. federal income tax return with Clark USA
but computes its provision on a separate company basis. The Company provides
for deferred taxes under the asset and liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109") (see Note 12 "Income Taxes"). Deferred taxes are classified
as current, included in prepaid or accrued expenses, or noncurrent depending on
the classification of the assets and liabilities to which the temporary
differences relate. Deferred taxes arising from temporary differences that are
not related to a specific asset or liability are classified as current or
noncurrent depending on the periods in which the temporary differences are
expected to reverse. In accordance with the provisions of SFAS 109, the Company
records a valuation allowance when necessary to reduce the net deferred tax
asset to an amount expected to be realized.
Employee Benefit Plans
The Clark Refining & Marketing, Inc. Savings Plan and separate Trust (the
"Plan"), a defined contribution plan, covers substantially all employees of
Clark. Under terms of the Plan, Clark matches the amount of employee
contributions, subject to specified limits. Contributions to the Plan during
1996 were $6.4 million (1995 - $5.5 million; 1994 - $3.4 million).
Clark provides certain benefits for most retirees once they have reached a
specified age and specified years of service. These benefits include health
insurance in excess of social security and an employee paid deductible amount,
and life insurance equal to the employee's annual salary.
3. 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>
1995 1996
----------------------------------- ----------------------------------
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 $46,116 $ - $46,116 $14,981 $(100) $14,881
</TABLE>
The net unrealized position at December 31, 1996 included gains of $0.0
million and losses of $0.1 million (1995 - gains of $0.1 million and losses of
$0.1 million).
The contractual maturities of the short-term investments at December 31,
1996 were:
Amortized Aggregate
54
<PAGE>
<TABLE>
<CAPTION>
Amortized Aggregate
Cost Fair Value
--------- ----------
<S> <C> <C>
Due in one year or less $ 3,019 $ 3,002
Due after one year through five years 11,962 11,879
------- -------
$14,981 $14,881
======= =======
</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.
For the year ended December 31, 1996 the proceeds from sales of short-term
investments were $31.1 million with no realized gains or losses recorded for the
period. For the same period in 1995 and 1994, the proceeds from the sale of
short-term investments were $25.9 million and $187.8 million, respectively, with
no realized gains or losses in 1995 and $5.4 million realized losses in 1994.
Realized gains and losses are presented in "Interest and financing costs, net"
and are computed using the specific identification method.
The change in the net unrealized holding gains or losses on Available-for-
Sale securities for the year ended December 31, 1996, was a loss of $0.1 million
($0.1 million after taxes). For the same period in 1995, there was a net
unrealized holding gain of $1.9 million ($1.2 million after taxes), and in 1994,
there was a net unrealized holding loss of $1.9 million ($1.2 million after
taxes).
Cash and cash equivalents include $20.0 million of debt securities whose
cost approximated market value at December 31, 1996 (1995 - $45.0 million) and
for which there were no realized gains or losses recorded in the period.
4. Inventories
The carrying value of inventories consisted of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Crude oil......................... $ 90,635 $105,786
Refined products and blendstocks.. 163,915 136,747
Convenience products.............. 20,532 17,643
Warehouse stock and other......... 15,362 16,919
-------- --------
$290,444 $277,095
======== ========
</TABLE>
The market value of the crude and refined product inventories at December
31, 1996 was approximately $81.7 million above the carrying value (1995 - $5.4
million above the carrying value). In the first half of 1994, crude oil and
related refined product prices rose substantially, allowing the reversal of the
inventory write-down to market which was recorded in 1993 due to falling crude
oil and product prices.
55
<PAGE>
5. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Land........................................ $ 20,006 $ 19,650
Refineries.................................. 418,675 434,623
Retail stores............................... 187,921 210,033
Product terminals and pipelines............. 59,151 62,580
Other....................................... 11,346 12,051
--------- ---------
697,099 738,937
Accumulated depreciation and amortization... (147,807) (183,246)
--------- ---------
$ 549,292 $ 555,691
========= =========
</TABLE>
At December 31, 1996 property, plant and equipment included $43.8 million
(1995- $52.2 million) of construction in progress. Capital lease assets of
$22.7 million (1995- $23.9 million) are included in property, plant and
equipment at December 31, 1996.
6. Other Assets
Other assets consisted of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred financing costs................... $20,255 $14,439
Deferred turnaround costs.................. 14,243 16,978
Investment in non-consolidated affiliate... 6,291 6,427
Other...................................... 3,141 1,287
------- -------
$43,930 $39,131
======= =======
</TABLE>
Amortization of deferred financing costs for the year ended December 31,
1996, was $6.5 million (1995 - $5.2 million; 1994 - $1.2 million). Amortization
of turnaround costs for the year ended December 31, 1996 was $11.1 million
(1995 -$12.0 million; 1994 - $10.8 million).
7. Working Capital Facility
At all times during 1996 Clark had in place a working capital facility which
provided a revolving line of credit principally for the issuance of letters of
credit which are used primarily for securing purchases of crude oil, other
feedstocks and refined products, and for limited cash borrowings. This facility
is collateralized by substantially all of Clark's current assets and certain
intangibles. The amount of the 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 ($489.5 million at December 31, 1996). Clark is required
to comply with certain financial covenants including maintaining defined levels
of working capital, cash, tangible net worth, maximum indebtedness to tangible
net worth and a minimum ratio of adjusted cash flow to debt service. At
December 31, 1996, $298.5 million (1995 - $221.0 million) of the line of credit
was utilized for letters of credit, of which $78.4 million (1995 - $91.4
million) supported commitments for future deliveries of petroleum products.
There were no direct cash borrowings under the facility at December 31, 1996 and
1995.
8. Long-Term Debt
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
10 1/2% Senior Notes due December 1, 2001
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C>
("10 1/2% Senior Notes")....................... $225,000 $225,000
9 1/2% Senior Notes due September 15, 2004
("9 1/2% Senior Notes")........................ 175,000 175,000
Obligations under capital leases and other notes. 23,498 20,673
-------- --------
423,498 420,673
Less current portion............................. 3,057 3,067
-------- --------
$420,441 $417,606
======== ========
</TABLE>
The estimated fair value of the long-term debt at December 31, 1996 was
$431.8 million, (1995 - $442.0 million), determined using quoted market prices
for these issues. The capital leases and other notes have a market value which
approximates cost.
The 9 1/2% Senior Notes and 10 1/2% Senior Notes were issued by Clark in
September 1992 and December 1991, respectively, and are unsecured. The 9 1/2%
Senior Notes and 10 1/2% Senior Notes are redeemable at the Company's option
beginning September 1997 and December 1996, respectively, at a redemption price
which starts at 105.25% and decreases to 100% of principal two years later.
The Clark note indentures contain certain restrictive covenants including
limitations on the payment of dividends, limitations on the payment of amounts
to related parties, limitations on the level of debt, provisions related to
change of control and incurrence of liens. Under these covenants, Clark must
maintain a minimum net worth of $100 million.
During 1995, Clark entered into two sale/leaseback lease transactions for a
total of $24.3 million. Each capital lease has a term of five years. One lease
has a fixed rate of 8.36% and the other lease rate floats at a spread of 2.25%
over the London Interbank Offer Rate (LIBOR).
The scheduled maturities of long-term debt during the next five years are
(in thousands): 1997 - $3,067 (included in "Accrued expenses and other"); 1998 -
$3,828; 1999 - $3,737; 2000 - $6,775; 2001 - $225,012; 2002 and thereafter -
$175,057.
Interest and financing costs
Interest and financing costs, net, included in the statements of earnings,
consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Interest expense.................... $40,979 $42,150 $42,929
Financing costs..................... 1,178 5,244 6,526
Interest and finance income......... (2,201) (6,074) (9,734)
------- ------- -------
39,956 41,320 39,721
Capitalized interest................ (2,409) (1,404) (1,033)
------- ------- -------
Interest and financing costs, net.. $37,547 $39,916 $38,688
======= ======= =======
</TABLE>
Cash paid for interest expense in 1995 was $42.9 million (1995 - $42.2
million; 1994 - $40.3 million). Accrued interest payable at December 31, 1996
of $6.8 million (December 31, 1995 - $6.8 million) is included in "Accrued
expenses and other."
57
<PAGE>
9. LEASE COMMITMENTS
Clark leases premises and equipment under lease arrangements, many of which
are non-cancelable. Clark leases store property and equipment with lease terms
extending to 2015, some of which have escalation clauses based on a set amount
or increases in the Consumer Price Index. Clark also has operating lease
agreements for certain equipment at the refineries, retail stores, and the
general office. These lease terms range from 1 to 8 years with the option to
purchase some of the equipment at the end of the lease term at fair market
value. The leases generally provide that Clark pay taxes, insurance, and
maintenance expenses related to the leased assets. At December 31, 1996, future
minimum lease payments under capital leases and non-cancelable operating leases
were as follows (in millions): 1997 - $17.2; 1998 - $16.8; 1999 - $15.8; 2000 -
$17.8; 2001 - $9.8; and $122.0 in the aggregate thereafter. Rental expense
during 1996 was $16.5 million (1995 - $9.1 million; 1994 - $7.6 million).
10. RELATED PARTY TRANSACTIONS
Transactions of significance with related parties not disclosed elsewhere
in the footnotes are detailed below:
Clark USA, Inc.
Clark USA contributed $268.6 million of capital to its subsidiary, Clark,
during 1996. Clark USA contributed $33.6 million from the proceeds of debt
issued in the Occidental/Gulf transactions in January of 1996. In addition,
$235.0 million was contributed to Clark from the contribution and subsequent
sale of the Occidental advance crude oil purchase receivable and the associated
hedge contracts in October of 1996. During 1995, Clark USA contributed $165.6
million to Clark. Upon the issuance of stock in the first quarter of 1995, Clark
USA contributed $150.0 million for the purchase of the Port Arthur Refinery (see
Note 13 "Acquisition of Port Arthur Refinery") and also contributed $9.2 million
for operating purposes. In addition, from the proceeds of debt issued in the
Occidental/Gulf transactions, Clark USA contributed $6.4 million in December
1995 to Clark.
HSM Insurance Inc.
Clark USA paid premiums of $2.0 million in 1994 to HSM Insurance, Inc., an
affiliate of TrizecHahn Corporation (formerly the Horsham Corporation)
("TrizecHahn"), the Clark USA's 46 % shareholder, for providing environmental
impairment liability insurance. No loss claims have been made under the policy.
The policy was terminated on December 31, 1994.
Management Services and Trade Credit Guarantees
TrizecHahn and Clark have agreements to provide certain management services
to each other from time to time. Clark established trade credit with various
suppliers of its petroleum requirements, occasionally requiring the guarantee of
TrizecHahn. Fees related to trade credit guarantees totaled $0.1 million, $0.2
million and $0.2 million in 1994, 1995 and 1996, respectively. The last trade
credit guarantee was terminated in August, 1996.
58
<PAGE>
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The following table sets forth the unfunded status for the post retirement
health and life insurance plans:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees......................................... $12,045 $11,889
Fully eligible plan participants................. 1,288 873
Other plan participants.......................... 20,025 16,687
------- -------
Total.......................................... 33,358 29,449
Accrued postretirement benefit cost................ -- --
Plan assets at fair value.......................... -- --
Unrecognized net (gain)/loss....................... (1,921) (216)
Unrecognized prior service cost.................... -- 635
------- -------
Accrued postretirement benefit liability........... $31,437 $29,868
======= =======
</TABLE>
The components of net periodic postretirement benefit costs are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Service Costs................................... $ 415 $ 999 $1,074
Interest Costs.................................. 1,271 2,174 2,095
------ ------ ------
Net periodic postretirement benefit cost........ $1,686 $3,173 $3,169
====== ====== ======
</TABLE>
A discount rate of 7.50% (1995 - 7.25%) was assumed as well as a 4.25%
(1995 - 4.25%) rate of increase in the compensation level. For measuring the
expected postretirement benefit obligation, the health care cost trend rate
ranged from 7.25% to 10.25% in 1996, grading down to an ultimate rate in 2003 of
5.25%. The effect of increasing the average health care cost trend rates by one
percentage point would increase the accumulated postretirement benefit
obligation, as of December 31, 1996, by $4.3 million and increase the annual
aggregate service and interest costs by $0.6 million.
12. INCOME TAXES
Clark provides for deferred taxes under the asset and liability approach which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities.
The income tax provision (benefit) is summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Earnings (loss) before provision for
income taxes................................ $27,806 $(41,200) $(52,441)
======= ======== ========
Current provision (benefit) - Federal........ $ -- $ -- $ 3,353
- State.......... -- -- 4,754
------- -------- --------
-- -- 8,107
------- -------- --------
Deferred provision (benefit) - Federal....... 7,755 (15,656) (15,235)
- State......... 1,977 -- (6,786)
------- -------- --------
9,732 (15,656) (22,021)
------- -------- --------
Income tax provision (benefit)............... $ 9,732 $(15,656) $(13,914)
======= ======== ========
</TABLE>
59
<PAGE>
A reconciliation between the income tax provision computed on pretax income
at the statutory federal rate and the actual provision for income taxes is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------------- -------- -----------
<S> <C> <C> <C> <C>
Federal taxes computed at 35%..... $ 9,732 $(14,420) $(18,354)
State taxes, net of federal effect 1,285 (1,649) (1,320)
Nontaxable dividend income........ (1,453) (2,172) (2,416)
Valuation allowance............... -- -- 6,099
Other items, net.................. 168 2,585 2,077
------- -------- --------
Income tax provision (benefit).... $ 9,732 $(15,656) $(13,914)
======= ======= ========
</TABLE>
The following represents the approximate tax effect of each significant
temporary difference giving rise to deferred tax liabilities and assets as of
December 31, 1995 and 1996.
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C> <C>
Deferred tax liabilities:
Property, plant and equipment... $ 79,191 $ 85,421
Turnaround costs................ 5,559 4,939
Inventory....................... 19,204 18,008
Other........................... 4,297 28
-------- --------
108,251 108,396
--------------------
Deferred tax assets:
Alternative minimum tax credit.. 19,376 15,403
Trademarks...................... 4,491 4,376
Environmental and other future costs 22,958 18,992
Tax loss carryforwards.......... 36,438 68,980
Other........................... 2,127 5,942
-------- --------
85,390 113,693
-------- --------
Valuation allowance............... -- (6,099)
-------- --------
Net deferred tax liability........ $ 22,861 $ 802
======== ========
</TABLE>
As of December 31, 1996, Clark has made payments of $15.4 million under the
Federal alternative minimum tax system which are available to reduce future
regular income tax payments. As of December 31, 1996, Clark had a Federal net
operating loss carryforward of $183.1 million and Federal tax credit
carryforwards in the amount of $1.5 million. Such operating loss and tax credit
carryforwards have carryover periods of 15 years and are available to reduce
future tax liabilities through the years ending December 31, 2011 and 2010,
respectively.
Clark recorded a valuation allowance of $6.1 million at December 31, 1996
(1995--None). In calculating the increase in the valuation allowance, Clark
assumed as future taxable income only future reversals of existing taxable
temporary differences.
During 1996 Clark made a Federal tax payment of $2.7 million in settlement
of an Internal Revenue Service examination for tax years ended December 31, 1991
and December 31, 1992 and made net cash state tax payments of $0.6 million.
(1995 - net cash tax payments of $0.7 million; 1994 - net cash tax refunds of
$2.9 million).
Section 382 of the Internal Revenue Code restricts the utilization of net
operating losses upon the occurrence of an ownership change, as defined. An
ownership change that restricts future operating loss utilization occurred
during 1995, but based upon and to the extent of future taxable income from
reversals of existing taxable temporary differences management believes such
limitations will not restrict Clark's ability to significantly utilize the net
operating losses over the 15 year carryforward period.
60
<PAGE>
13. 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 (excluding acquired hydrocarbon and non-hydrocarbon inventories of
$121.7 million and assumed liabilities of $19.4 million) plus related
acquisition costs of $14.9 million and accrued liabilities of $5.7 million. The
total assumed and accrued liabilities of $25.1 million were considered non-cash
activity for purposes of the Statement of Cash Flows. The total cost of the
acquisition was accounted for using the purchase method of accounting with
$110.0 million allocated to the refinery long-term assets and $121.7 million
charged to current assets for hydrocarbon and non-hydrocarbon inventories.
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 are calculated annually and the
appropriate liability, if any, will be recorded at that time. At December 31,
1996 and 1995, Clark had no obligation to Chevron relating to the contingent
payment agreement. 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. Clark accrued $7.5 million as part of
the acquisition for the expected cost of remediating pipe trenches and the
recovery of free phase hydrocarbons in its responsibility area of the Port
Arthur refinery.
On February 27, 1995, Clark USA obtained a portion of the funds necessary
to finance the Port Arthur acquisition from a subsidiary of its major
shareholder, TrizecHahn. Clark USA sold 9,000,000 shares of Class A Common
Stock, 562,500 shares of Class B Common Stock and 562,500 shares of Class C
Common stock for an aggregate consideration of $135 million. Subsequently, the
TrizecHahn subsidiary sold 8,000,000 shares of Class A Common Stock and 500,000
shares of Class C Common Stock to Tiger Management Corporation for $120 million.
Clark USA subsequently contributed $150 million to Clark for the purchase of the
Port Arthur refinery.
14. Stock Option Plans
The Company has adopted a compensatory Long-Term Performance Plan (the
"Performance Plan"). Under the Performance Plan, designated employees, including
executive officers, of the Company and its subsidiaries and other related
entities are eligible to receive awards in the form of stock options, stock
appreciation rights and stock grants. An aggregate of 1,250,000 shares of Clark
USA Inc., Common Stock may be awarded under the Performance Plan, either from
authorized, unissued shares which have been reserved for such purpose or from
shares purchased on the open market, subject to adjustment in the event of a
stock split, stock dividend, recapitalization or similar change in the
outstanding Common Stock of the Company. The options normally extend for 10
years and become exercisable within 3 years of the grant date. Additionally,
under this plan the stock options granted may not be sold or otherwise
transferred, and are not exercisable until after a public offering of stock is
completed by the Company or change of control (as defined in the Plan). Stock
granted under this plan is priced at the fair market value at the date of grant.
61
<PAGE>
During 1996 no additional shares were granted under this Plan. In 1995,
549,000 shares were granted under this Plan and priced at the fair market value
at the date of grant. As of December 31, 1996, 549,000 stock options were
outstanding (1995 - 549,000) at an exercise price of $15 per share.
15. Contingencies
Clark USA and the Company are 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. Among those actions and proceedings are the following:
The Equal Employment Opportunity Commission ("EEOC") has alleged that Clark
had engaged in age discrimination in violation of the Age Discrimination in
Employment Act. The action involves 38 former managers it believes have been
affected by an alleged pattern and practice. The relief sought by the EEOC
includes reinstatement or reassignment of the individuals allegedly affected,
payment of back wages and benefits, an injunction prohibiting employment
practices which discriminate on the basis of age, and institution of practices
to eradicate the effects of any past discriminatory practices.
A Petition entitled Anderson, et al vs. Chevron and Clark, was filed in
Jefferson County, Texas by forty individual plaintiffs who were Chevron
employees who did not receive offers of employment by Clark at the time of
purchase of the Port Arthur Refinery. Chevron and the outplacement service
retained by Chevron are also named as defendants. Subsequent to the filing of
the lawsuit, the plaintiffs have each filed individual charges with the EEOC and
the Texas Commission of Human Rights.
The Company is the subject of a purported class action lawsuit related to
an on-site electrical malfunction at Clark's Blue Island refinery on October 7,
1994, which resulted in the release to the atmosphere of used catalyst
containing low levels of heavy metals, including antimony, nickel and vanadium.
This release resulted in the temporary evacuation of certain areas near the
refinery, including a high school, and approximately fifty people were taken to
area hospitals. Clark offered to reimburse the medical expenses incurred by
persons receiving treatment. The purported class action lawsuit was filed on
behalf of various named individuals and purported plaintiff classes, including
residents of Blue Island, Illinois and Eisenhower High School students, alleging
claims based on common law nuisance, negligence, willful and wanton negligence
and the Illinois Family Expense Act as a result of this incident. Plaintiffs
seek to recover damages in an unspecified amount for alleged medical expenses,
diminished property values, pain and suffering and other damages. Plaintiffs
also seek punitive damages in an unspecified amount.
While it is not possible at this time to establish the ultimate amount of
liability with respect to the Company's contingent liabilities, Clark USA and
the Company are of the opinion that the aggregate amount of any such
liabilities, for
62
<PAGE>
which provision has not been made, will not have a material adverse effect on
their financial position, however, an adverse outcome of any one or more of
these matters could have a material effect on quarterly or annual operating
results or cash flows when resolved in a future period.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Paul D. Melnuk
-----------------------------
Paul D. Melnuk
President and Chief Executive Officer
March 20, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title
--------- -----
/s/ Peter Munk Director and Chairman of the Board
-------------------------
Peter Munk
/s/ Paul D. Melnuk Director, Chief Executive Officer,
------------------------- Chief Operating Officer and President
Paul D. Melnuk
/s/ C. William D. Birchall Director
-------------------------
C. William D. Birchall
/s/ Gregory C. Wilkins Director
-------------------------
Gregory C. Wilkins
/s/ Maura J. Clark Executive Vice President, Corporate
-------------------------- Development and Chief Financial
Maura J. Clark Officer (Principal Financial Officer)
/s/ Dennis R. Eichholz Controller and Treasurer (Principal
------------------------- Accounting Officer)
Dennis R. Eichholz
March 20, 1997
64
<PAGE>
Exhibit 10.14
CLARK REFINING & MARKETING, INC.
THIRD AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT
This THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendement") is dated as of January 31, 1996 and entered into by and among
Clark Refining & Marketing, Inc., a Delaware corporation, Bank of America
National Trust and Savings Association, a national banking association, as
Administrative Agent, Bankers Trust Company, a New York banking corporation, as
Documentation Agent, The Toronto-Dominion Bank, a Canadian chartered bank, as
Syndications Agent, BA Securities, Inc., a Delaware corporation, as Technical
Agent, and the other financial institutions party hereto. This Amendment amends
the Amended and Restated Credit Agreement dated as of April 19, 1995, as amended
by (i) the First Amendment to Amended and Restated Credit Agreement dated as of
June 14, 1995 and (ii) the Second Amendment to Amended and Restated Credit
Agreement dated as of November 27, 1995 (as amended, the "Credit Agreement"), by
and among the parties hereto. Capitalized terms used herein without definition
shall have the same meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, the parties hereto entered into the Credit Agreement, which
provides for aggregate Commitments of $400,000,000;
WHEREAS, the parties hereto desire to make certain amendments as set
forth below.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and convenants herein contained, the parties hereto agree as follows:
Article I
AMENDMENTS TO THE CREDIT AGREEMENT
----------------------------------
1.01 Amendments to Section 1.01: Certain Defined Terms.
(a) The definition of EBITDA set forth in Section 1.01 of the
Credit Agreement is hereby amended by deleting it in its entirety and
substituting the following therefor:
1
<PAGE>
"`EBITDA' means, for any period, an amount equal to (a) Net Income
determined on a LIFO basis for such period, plus (b) gross accrued interest
expense (other than capitalized interest) during such period, plus (c) an amount
equal to the Company's income tax expense as reflected on the Company's books of
account during such period, plus (d) charges for depreciation and amortization
during such period, plus (e) the amount of expense, if any, from inventory
write-down to market, minus (f) the amount of income, if any, from inventory
write-up to market, plus (g) any items of loss which are extraordinary items as
defined by GAAP, together (without duplication) with the amount of any write-
down of book value with respect to the DHDS Unit, minus (h) any items of gain
which are extraordinary items as defined by GAAP, together (without duplication)
with the amount of any gain from the sale of the DHDS Unit, plus (i) for the
fiscal quarter ended December 31, 1995, an amount equal to the amount of equity
capital contributions made by Holdings to the Company during the period
beginning on December 29, 1995 and ending on the Third Amendment Effective Date,
which amount shall not be less than $20,000,000 nor more than $40,000,000;
provided, that the full amount of such equity capital contributions shall be
deemed made in the fiscal quarter ended December 31, 1995, but with respect to
the four fiscal quarters ended December 31, 1996, the full amount of such equity
capital contributions shall be deemed made in the fiscal quarter ended March 31,
1996."
(b) The definition of GAAP set forth in Section 1.01 of the Credit
Agreement is hereby amended by deleting it in its entirety and substituting the
following therefor:
"`GAAP' means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are (a) for all purposes as used in the Loan Documents (other
than for purposes of Section 7.01) as in effect on the Closing Date, and (b) for
purposes of Section 7.01 as in effect on the date of determination; provided
that if such generally accepted accounting principles as of such date of
determination differ from those as of the Closing Date, the Company shall
deliver to the Administrative Agent and the Banks, concurrently with the
delivery of financial statements required to be delivered under Section 7.01,
reconciliation statements in form and substance satisfactory to the Majority
Banks; provided further, that with respect to the financial statements required
to be delivered under Section 7.01, any adjustment under Statement of Financial
Accounting Standards No. 121 shall be given effect when any
2
<PAGE>
such adjustment is made and the Company shall be required to deliver only one
reconciliation statement as described above with respect to such adjustment."
(c) The definition of "DHDS Unit" is hereby added to Section 1.01 of
the Credit Agreement as follows:
"`DHDS Unit' means all equipment and related costs constituting the project
initiated to produce low sulfur diesel fuel at the Hartford refinery."
(d) The definition of "Third Amendment Effective Date" is hereby
added to Section 1.01 of the Credit Agreement as follows:
"`Third Amendment Effective Date' has the meaning specified in Article II
of the Third Amendment to Amended and Restated Credit Agreement dated as of
January 31, 1995."
1.02 Amendments to Section 7.02: Certificates; Other Information.
Subsection 7.02(f) of the Credit Agreement is hereby amended by deleting it in
its entirety and substituting the following therefor:
"(f) prior to the close of business on the fifth Business Day after (i)
the Sunday most proximate to the fifteenth day of each month, (ii) the last
Business Day of each month, including the month in which the Closing Date
occurs, and (iii) any other Sunday upon two Business Days' prior written request
of the Administrative Agent, a certificate (the "Borrowing Base Certificate")
substantially in the form of Exhibit D hereto, signed by a Responsible Officer,
setting forth, on an itemized basis, the Borrowing Base, as of the close of
business on such Sunday, month end or other Sunday as requested by the
Administrative Agent, and the Borrowing Base computations based thereon, as well
as certifications by a Responsible Officer of the Company that the information
set forth in such Borrowing Base Certificate is true and correct and that from
the date of the most recent Borrowing Base Certificate previously delivered to
the date of the new Borrowing Base Certificate being delivered with such
certification, no Default or Event of Default has occurred. Each Borrowing Base
Certificate shall become effective upon the Administrative Agent's receipt
thereof and shall remain in effect until the earlier of (A) the receipt by the
Administrative Agent of the next Borrowing Base Certificate to be delivered
hereunder, and (B) the close of business on the date on which the next Borrowing
Base Certificate is required to be delivered hereunder; provided, that during
any month in which the United States Environmental Protection Agency or
Department of Transportation mandates a change in gasoline vapor pressure, the
Company shall provide two Borrowing Base Certificates in lieu of the Borrowing
Base Certificate
3
<PAGE>
described in clause (i) above, each dated as of one of the two Sundays during
such month other than the Sunday affected by the mandated change;"
1.03 Amendments to Section 8.16: Financial Covenants.
(a) Subsection 8.16(a) of the Credit Agreement is hereby amended by
deleting it in its entirety and substituting the following therefor:
"(a) The Company shall not permit Working Capital to be less than
$150,000,000."
(b) Subsection 8.16(c) of the Credit Agreement is hereby amended by
deleting it in its entirety and substituting the following therefor:
"(c) The Company shall not permit the Tangible Net Worth of the Company
plus the amount of any after tax writedown of book value with respect to the
DHDS Unit minus any after tax gain from the sale of the DHDS Unit, at any time,
to be less than $254,209,812.78 plus a cumulative amount determined by adding
(i) 50% of Net Income for all fiscal quarters ending after September 30, 1995
and on or before such date of determination plus (ii) 50% of the aggregate
amount of equity capital contributions made by Holdings to the Company after the
later of (x) the Second Amendment Effective Date and (y) the issuing date of the
Additional Holdings Indebtedness; provided, that the following equity capital
contributions shall be excluded for all purposes from this clause (ii) (but
shall be included for the purpose of calculating Net Worth): (A) the equity
capital contribution made by Holdings to the Company on December 29, 1995 in
the amount of $6,400,000 and (B) any equity capital contributions made by
Holdings to the Company during the period after December 29, 1995 and before the
Third Amendment Effective Date in an amount of not less than $13,600,000 and not
more than $33,600,000."
1.04 Amendments to Compliance Certificate. The form of Compliance
Certificate set forth in Exhibit C to the Credit Agreement is hereby amended by
deleting it in its entirety and substituting therefor Exhibit C attached to this
Amendment.
Article II
EFFECTIVENESS OF AMENDMENT
This Amendment shall become effective on the opening of business in San
Francisco on the Business Day (the "Third Amendment Effective Date") on which
the Administrative Agent has notified the Company and the Banks that the
conditions
4
<PAGE>
precedent set forth in subsections 2.01 and 2.02 have been satisfied; provided,
that the Third Amendment Effective Date shall not be later than March 31, 1996.
2.01 Receipt of Signatures. The Administrative Agent shall have (i)
executed a counterpart signature page of this Amendment and (ii) received
executed counterpart signature pages of this Amendment from the Company and the
Majority Banks.
2.02 Equity Contribution. The Administrative Agent shall have received an
officer's certificate signed by a Responsible Officer certifying that Holdings
has made equity capital contributions to the Company during the period beginning
on December 29, 1995 and ending on the business day prior to the Third Amendment
Effective Date in a total amount of not less $20,000,000 and not more than
$40,000,000.
Article III
MISCELLANEOUS
3.01 Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(a) On and after the Third Amendment Effective Date, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended by this Amendment.
(b) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.
(c) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any provision
of, or operate as a waiver of any right, power or remedy of the Administrative
Agent, any Bank or any Issuing Bank under, the Credit Agreement or any of the
other Loan Documents.
3.02 Headings. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
5
<PAGE>
3.03 Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
3.04 Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
[reminder of page intentionally left blank]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
CLARK REFINING & MARKETING, INC.
By: /s/ M. J. Clark
Name: Maura J. Clark
Title: Executive Vice President
& Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By: /s/ Kay S. Warren
Name: Kay S. Warren
Title: Vice President
BA SECURITIES, INC.,
as Technical Agent
By: N/A
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as an
Issuing Bank and as a Bank
By: /s/ David E. Sisler
Name: David E. Sisler
Title: Vice President
7
<PAGE>
THE TORONTO-DOMINION BANK, as
Syndications Agent, as a Co-Arranger,
as an Issuing Bank and as a Bank
By: /s/ Warren Finlay
Name: Warren Finlay
Title: Manager, Credit Administration
BANKERS TRUST COMPANY, as
Documentation Agent, as a Co-Arranger,
as an Issuing Bank and as a Bank
By: /s/ Basil Palmeri
Name: Basil Palmeri
Title: Vice President
THE FIRST NATIONAL BANK OF
BOSTON, as an Issuing Bank and
as a Bank
By: /s/ Christopher Holmgren
Name: Christopher Holmgren
Title: Director
BANK OF AMERICA ILLINOIS, N.A.,
as an Issuing Bank
By: /s/ David Sisler
Name: David Sisler
Title: Vice President
UNION BANK, as a Bank
By: /s/ W. M. Roth
Name: Walter M. Roth
Title: Vice President
8
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH,
as a Bank
By: /s/ Pascal Poupelle
Name: Pascal Poupelle
Title: Senior Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH, as a Bank
By: /s/ Pascal Poupelle
Name: Pascal Poupelle
Title: Authorized Signature
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., CHICAGO BRANCH, as
a Bank
By: /s/ Armund J. Schoen, Jr.
Name: Armund J. Schoen, Jr.
Title: V.P. & Deputy General Manager
NBD BANK, as a Bank
By: /s/ D. Andrew Bateman
Name: D. Andrew Bateman
Title: First Vice President
9
<PAGE>
ABN AMRO BANK N.V., CHICAGO
BRANCH, as a Bank
By: /s/ Scott J. Albert
Name: Scott J. Albert
Title: Vice President
By: /s/ James Morgan
Name: James Morgan
Title: Vice President
BANK OF SCOTLAND, NEW YORK
BRANCH, as a Bank
By: /s/ Catherine M. Oniffrey
Name: Catherine M. Oniffrey
Title: Vice President
THE FUJI BANK, LIMITED, CHICAGO
BRANCH, as a Bank
By: /s/ Hidekazu Seo
Name: Hidekazu Seo
Title: Joint General Manager
COMERICA BANK, as a Bank
By: /s/ Thomas J. Parnell
Name: Thomas J. Parnell
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as a Bank
By: /s/ Hiroaki Nakamura
Name: Hiroaki Nakamura
Title: Joint General Manager
10
<PAGE>
NATIONAL CITY BANK, as a Bank
By:
Name:
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION, CHICAGO BRANCH, as
a Bank
By: /s/ Akira Suzuki
Name: Akira Suzuki
Title: Deputy General Manager
THE YASUDA TRUST AND BANKING
CO., LTD., CHICAGO BRANCH
as a Bank
By: /s/ Koichiro Inouye
Name: Koichiro Inouye
Title: Joint General Manager
WELLS FARGO BANK, N.A.,
as a Bank
By: /s/ K. H. Szagg
Name: K. H. Szagg
Title: Vice President
11
<PAGE>
Exhibit 10.17
December 13, 1996
Clark Refining & Marketing, Inc.
8182 Maryland Avenue
St. Louis, Missouri 63105-3721
Re: Certain Amendments
------------------
Ladies and Gentlemen:
Reference is hereby made to that certain Amended and Restated Credit
Agreement dated as of April 19, 1995 by and among Clark Refining & Marketing,
Inc., a Delaware corporation (the "Company"), and certain financial
institutions, as amended (the "Credit Agreement"; capitalized not otherwise
defined herein have the definitions set forth in the Credit Agreement).
The undersigned agree that, with respect to clause (ii) of Section 2 of the
Collateral Account Agreement, the reference to "640-84230" shall be deleted
therefrom and "770-01261" shall be substituted therefor.
The undersigned agree that Schedule 1.01(e) to the Credit Agreement shall
be amended by deleting it in its entirety and substituting therefor Schedule
1.01(e) attached hereto.
The amendments set forth herein shall become effective upon the execution
of a counterpart of this letter agreement by the Company, the Administrative
Agent and Banks constituting Majority Banks.
The agreements set forth herein shall be limited precisely as written and
nothing in this letter agreement shall be deemed to waive any term, provision or
condition of the Credit Agreement or the Collateral Account Agreement.
[Remainder of page is intentionally blank.]
1
<PAGE>
SCHEDULE 1.01(e) TO
AMENDED AND RESTATED CREDIT AGREEMENT
Approved Money Market Mutual Funds
----------------------------------
Manager Fund
- ------- ----
AIM Liquid Assets Portfolio
Prime Portfolio
Federated Investors Prime Obligations Fund #10
Prime Money Market Fund
Prime Value Money Market Fund
Fidelity U.S. Treasury Portfolio
U.S. Treasury Portfolio II
U.S. Government Portfolio
Domestic Money Market Portfolio
Money Market Portfolio
Goldman Sachs Financial Square Prime Obligations Fund
Financial Square Money Market Fund
Financial Square Treasury Obligations Fund
Merrill Lynch Government Fund
Institutional Fund
Provident Money Market Temp Cash
Temp Fund
SEI Prime Obligations Fund #34
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
CLARK REFINING & MARKETING, INC.
By: /s/ M. J. Clark
Name: Maura J. Clark
Title: Executive Vice President
& Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By: /s/ Leandro Balidoy
Name: Leandro Balidoy
Title: Vice President
BA SECURITIES, INC.,
as Technical Agent
By: N/A
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as an
Issuing Bank and as a Bank
By: /s/ David E. Sisler
Name: David E. Sisler
Title: Vice President
3
<PAGE>
THE TORONTO-DOMINION BANK, as
Syndications Agent, as a Co-Arranger,
as an Issuing Bank and as a Bank
By: /s/
Name:
Title:
BANKERS TRUST COMPANY, as
Documentation Agent, as a Co-Arranger,
as an Issuing Bank and as a Bank
By: /s/ Basil Palmeri
Name: Basil Palmeri
Title: Vice President
THE FIRST NATIONAL BANK OF
BOSTON, as an Issuing Bank and
as a Bank
By: /s/ J. R. Vaughan, Jr.
Name: J. R. Vaughan, Jr.
Title: Director
BANK OF AMERICA ILLINOIS, N.A.,
as an Issuing Bank
By: /s/ David Sisler
Name: David Sisler
Title: Vice President
UNION BANK, as a Bank
By: /s/ W. M. Roth
Name: Walter M. Roth
Title: Vice President
4
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH,
as a Bank
By: /s/ Pascal Poupelle
Name: Pascal Poupelle
Title: Senior Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH, as a Bank
By: /s/ Pascal Poupelle
Name: Pascal Poupelle
Title: Authorized Signature
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., CHICAGO BRANCH, as
a Bank
By: /s/ Richard Stahl
Name: Richard Stahl
Title: Senior Vice President
NBD BANK, as a Bank
By:
Name:
Title:
5
<PAGE>
ABN AMRO BANK N.V., CHICAGO
BRANCH, as a Bank
By: /s/ Scott J. Albert
Name: Scott J. Albert
Title: Vice President
By: /s/ Mary Honda
Name: Mary Honda
Title: Vice President
BANK OF SCOTLAND, NEW YORK
BRANCH, as a Bank
By: /s/ Elizabeth Wilson
Name: Elizabeth Wilson
Title: Vice President
THE FUJI BANK, LIMITED, CHICAGO
BRANCH, as a Bank
By: /s/ Peter Chinnici
Name: Peter Chinnici
Title: Joint General Manager
COMERICA BANK, as a Bank
By: /s/ Thomas J. Parnell
Name: Thomas J. Parnell
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as a Bank
By:
Name:
Title:
6
<PAGE>
NATIONAL CITY BANK, as a Bank
By: /s/ Barry Robinson
Name: Barry Robinson
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION, CHICAGO BRANCH, as
a Bank
By: /s/ M. Masaki Yamagishi
Name: M. Masaki Yamagishi
Title: Chief Manager
THE YASUDA TRUST AND BANKING
CO., LTD., CHICAGO BRANCH
as a Bank
By: /s/ Koichiro Inouye
Name: Koichiro Inouye
Title: Joint General Manager
WELLS FARGO BANK, N.A.,
as a Bank
By:
Name:
Title:
7
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 319,378
<SECURITIES> 14,881
<RECEIVABLES> 172,622
<ALLOWANCES> 889
<INVENTORY> 277,095
<CURRENT-ASSETS> 798,498
<PP&E> 738,937
<DEPRECIATION> 183,246
<TOTAL-ASSETS> 1,393,320
<CURRENT-LIABILITIES> 399,009
<BONDS> 417,606
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,393,320
<SALES> 5,063,594
<TOTAL-REVENUES> 5,082,449
<CGS> 4,559,982
<TOTAL-COSTS> 5,038,054
<OTHER-EXPENSES> 53,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,929
<INCOME-PRETAX> (52,441)
<INCOME-TAX> 13,914
<INCOME-CONTINUING> (38,527)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,527)
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<EPS-DILUTED> 0
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