1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 1-13514
CLARK USA, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1495734
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8182 Maryland Avenue 63105-3721
St. Louis, Missouri (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (314) 854-9696
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
(*) No ( )
Number of shares of registrant's common stock, $.01 par value,
outstanding as of August 8, 1997:
Class Shares Outstanding
Common Stock 19,051,818
Class A Common Stock 10,162,509
2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Clark USA, Inc.
We have reviewed the accompanying consolidated balance sheet of Clark
USA, Inc. and its subsidiaries as of June 30, 1997, and the related
consolidated statements of earnings for the three and six months then
ended and the statement of cash flows for the six month period then
ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying 1997 consolidated financial
statements for them to be in conformity with generally accepted
accounting principles.
The consolidated financial statements of the Company for the three and
six months ended June 30, 1996 were reviewed by other accountants whose
report dated July 29, 1996 expressed that they were not aware of any
material modifications that should be made to those financial statements
in order for them to be in conformity with generally accepted accounting
principles.
The consolidated balance sheet of the Company at December 31, 1996 and
the related consolidated statements of earnings, cash flows and
stockholders' equity for the year then ended (not presented herein) were
audited by other independent accountants whose report dated February 4,
1997 expressed an unqualified opinion on those statements.
Price Waterhouse LLP
July 29, 1997
3
CLARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share data)
Reference December 31, June 30,
Note 1996 1997
--------- ------------ ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 339,963 $ 269,120
Short-term investments 14,881 14,773
Accounts receivable 171,714 124,168
Inventories 2 277,095 289,602
Prepaid expenses and other 17,353 16,432
---------- ----------
Total current assets 821,006 714,095
PROPERTY, PLANT AND EQUIPMENT 557,256 573,258
OTHER ASSETS 3 54,541 71,970
---------- ----------
$1,432,803 $1,359,323
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 294,736 $ 229,577
Accrued expenses and other 4, 5 49,691 45,391
Accrued taxes other than income 46,485 48,308
---------- ----------
Total current liabilities 390,912 323,276
LONG-TERM DEBT 781,362 790,202
OTHER LONG-TERM LIABILITIES 46,141 46,545
CONTINGENCIES 6 -- --
STOCKHOLDERS' EQUITY:
Common stock
Common, $.01 par value, 19,051,818 issued 190 190
Class A Common, $.01 par value, 10,162,509 issued 102 102
Paid-in capital 296,094 296,094
Advance crude oil purchase receivable
from stockholders (26,520) (26,520)
Retained earnings (deficit) (55,478) (70,566)
----------- ----------
Total stockholders' equity 214,388 199,300
----------- ----------
$1,432,803 $1,359,323
=========== ==========
The accompanying notes are an integral part of these statements.
4
CLARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands)
For the three months
Reference ended June 30,
Note 1996 1997
--------- ----------- ----------
NET SALES AND OPERATING REVENUES $ 1,334,877 $1,173,918
EXPENSES:
Cost of sales (1,199,129) (980,429)
Operating expenses (99,741) (104,510)
General and administrative expenses (14,526) (14,187)
Depreciation (9,239) (9,694)
Amortization 3 (2,713) (5,654)
------------ -----------
(1,325,348) (1,114,474)
------------ -----------
OPERATING INCOME 9,529 59,444
Interest and financing costs, net 3, 4 (13,568) (20,171)
------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES (4,039) 39,273
Income tax benefit (provision) 5 1,442 (7,000)
------------ -----------
NET INCOME (LOSS) $ (2,597) $ 32,273
============ ===========
The accompanying notes are an integral part of these statements.
5
CLARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands)
For the six months
Reference ended June 30,
Note 1996 1997
--------- ----------- ----------
NET SALES AND OPERATING REVENUES $ 2,475,115 $ 2,173,073
EXPENSES:
Cost of sales (2,223,683) (1,873,307)
Operating expenses (200,391) (212,135)
General and administrative expenses (28,612) (29,155)
Depreciation (18,292) (19,264)
Amortization 3 (6,326) (8,566)
----------- -----------
(2,477,304) (2,142,427)
----------- -----------
OPERATING INCOME (LOSS) (2,189) 30,646
Interest and financing costs, net 3, 4 (26,286) (38,734)
----------- -----------
LOSS BEFORE INCOME TAXES (28,475) (8,088)
Income tax benefit (provision) 5 10,638 (7,000)
----------- -----------
NET LOSS $ (17,837) $ (15,088)
=========== ===========
The accompanying notes are an integral part of these statements.
6
CLARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the six months
ended June 30,
1996 1997
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17,837) $ (15,088)
Adjustments:
Depreciation 18,292 19,264
Amortization 11,506 13,867
Accretion of Zero Coupon Notes 9,163 10,382
Share of earnings of affiliates,
net of dividends 59 (120)
Deferred income taxes (11,066) --
Other, net (1,019) 412
Cash provided by (reinvested in) working capital -
Accounts receivable, prepaid expenses and other 643 45,769
Inventories (44,715) (12,178)
Accounts payable, accrued expenses,
taxes other than income and other 9,182 (62,596)
-------- --------
Net cash used in operating activities (25,792) (288)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments 25 108
Sales of short-term investments 19,000 --
Expenditures for property, plant and equipment (14,613) (41,240)
Expenditures for turnaround (5,441) (30,044)
Proceeds from disposals of property,
plant and equipment 3,834 2,186
Advance crude oil purchase receivable 5,468 --
-------- --------
Net cash provided by (used in) investing
activities 8,273 (68,990)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt payments (2,234) (1,541)
Deferred financing costs (1,312) (24)
-------- --------
Net cash used in financing activities (3,546) (1,565)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (21,065) (70,843)
CASH AND CASH EQUIVALENTS, beginning of period 103,729 339,963
-------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 82,664 $269,120
========= =========
The accompanying notes are an integral part of these statements.
7
FORM 10-Q - PART I
ITEM 1 Financial Statements (continued)
Clark USA, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1997
(tabular dollar amounts in thousands of US dollars)
1. Basis of Preparation
The unaudited consolidated balance sheet of Clark USA, Inc. and
Subsidiaries (the "Company") as of June 30, 1997, and the related
consolidated statements of earnings and cash flows for the three month
and six month periods ended June 30, 1996 and 1997, have been reviewed
by independent accountants. Clark Refining & Marketing, Inc. ("Clark"),
a subsidiary of the Company, makes up the majority of the consolidated
financial information. In the opinion of the management of the Company,
all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial statements have been
included therein. The results of this interim period are not
necessarily indicative of results for the entire year.
Certain reclassifications have been made to the operating and general
and administrative expenses in the 1996 financial statements to conform
to current year presentation.
The financial statements have been prepared in accordance with the
instructions to Form 10-Q. Accordingly, certain information and
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These unaudited financial statements should be
read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1996.
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. Inventories
The carrying value of inventories consisted of the following:
December 31, June 30,
1996 1997
----------- --------
Crude oil $ 105,786 $ 83,555
Refined and blendstocks 136,747 168,553
Convenience products 17,643 21,429
Warehouse stock and other 16,919 16,065
----------- --------
$ 277,095 $289,602
=========== ========
The market value of the crude oil and refined product inventories at
June 30, 1997, was approximately $18.0 million above the carrying value
(December 31, 1996 - $81.7 million).
8
3. Other Assets
Amortization of deferred financing costs for the three and six
month periods ended June 30, 1997, was $2.6 million (1996 - $2.6
million) and $5.3 million (1996 - $5.1 million) respectively, and was
included in " Interest and financing costs, net ".
Amortization of refinery maintenance turnaround costs for the three
month and six month periods ended June 30, 1997, was $5.7 million
(1996 - $2.7 million) and $8.6 million (1996 - $6.3 million), respectively.
4. Interest Expense and Finance Income, Net
Interest and financing costs, net, consisted of the following:
For the three months For the six months
ended June 30, ended June 30,
1996 1997 1996 1997
--------- -------- -------- --------
Interest expense $ 20,197 $ 20,779 $ 40,252 $ 41,301
Financing costs 2,552 2,676 5,058 5,349
Interest and finance income (8,941) (3,059) (18,556) (7,269)
--------- --------- -------- ---------
13,808 20,396 26,754 39,381
Capitalized interest (240) (225) (468) (647)
--------- --------- -------- ---------
$ 13,568 $ 20,171 $ 26,286 $ 38,734
========= ========= ========== =========
Accrued interest payable at June 30, 1997, of $8.4 million (December
31, 1996 - $8.4 million) was included in "Accrued expenses and other".
5. Income Taxes
The income tax provision of $7.0 million for the three and six month
periods ended June 30, 1997, was entirely related to the resolution of an
Internal Revenue Service examination for the years 1993 and 1994. The
resolution had the effect of accelerating the recognition of certain net
taxable temporary differences and, as a result, required a concurrent $5.0
million increase in the valuation allowance related to the Company's net
deferred tax asset. The remaining provision of $2.0 million represented
associated interest.
6. Contingencies
On May 5, 1997 a complaint, entitled AOC Limited Partnership ("AOC
L.P.") et al., vs. TrizecHahn Corporation, et al., Case No. 97 CH 05543
naming the Company as a defendant was filed in the Circuit Court of Cook
County, Illinois. The Complaint seeks $21 million, plus continuing
interest, related to the sale of equity by the Company to finance the
Port Arthur refinery acquisition. The sale of such equity triggered a
calculation of a potential contingent payment to AOC L.P. (the "AOC L.P.
Contingent Payment") pursuant to the agreement related to the December
1992 purchase and redemption of its minority interest. According to the
Company's calculation, no payment is required. The Complaint disputes
the Company's method of calculation. The AOC L.P. Contingent Payment is
an amount which shall not exceed in the aggregate $33.9 million and is
contractually payable 89% by the Company and 11% by TrizecHahn.
TrizecHahn has indemnified the Company for any AOC L.P. Contingent
Payment in excess of $7 million. At this time no estimate can be made
as to the Company's potential liability, if any, with respect to this
matter.
Clark and the Company are subject to various other legal proceedings
related to governmental regulations and other actions arising out of the
normal course of business, including legal proceedings related to
environmental matters. While it is not possible at this time to
establish the ultimate amount of liability with respect to such
contingent liabilities, Clark and the Company are of the opinion that
the aggregate amount of any such liabilities, for which provision has
not been made, will not have a material adverse effect on 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.
9
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Clark USA, Inc. (the "Company") owns all of the outstanding capital
stock of Clark Refining & Marketing, Inc. ("Clark"). The Company also
owns all of the outstanding capital stock of Clark Pipe Line Company.
Because Clark is the principal subsidiary of the Company, a discussion
of the Company's results of operations consists principally of a
discussion of Clark's results of operations.
Results of Operations
Financial Highlights
The following tables reflect the Company's financial and operating
highlights for the three and six month periods ended June 30, 1996 and
1997. All dollars listed are in millions. The tables provide
supplementary and pro forma data and are not intended to represent an
income statement presented in accordance with generally accepted
accounting principles.
For the three months For the six months
ended June 30, ended June 30,
1996 1997 1996 1997
--------- -------- -------- --------
Financial Results:
Net sales and operating revenues $ 1,334.9 $ 1,173.9 $ 2,475.1 $2,173.1
Cost of sales 1,199.1 980.4 2,223.7 1,873.3
Operating expenses 99.7 104.5 200.4 212.1
General and administrative expenses 14.5 14.2 28.6 29.2
Depreciation and amortization 12.0 15.4 24.6 27.9
Interest expense and financing costs 22.5 23.2 44.8 46.0
Interest and finance income 8.9 3.1 18.5 7.3
-------- -------- -------- --------
Earnings (loss) before income taxes (4.0) 39.3 (28.5) (8.1)
Income tax (provision) benefit 1.4 (7.0) 10.7 (7.0)
-------- -------- -------- --------
Net earnings (loss) $ (2.6) $ 32.3 $ (17.8) $ (15.1)
========= ======== ======== ========
Operating Income:
Pro forma refining contribution to
operating income (a) $ 22.2 $ 69.3 $ 8.1 $ 99.7
Retail contribution to operating
income 10.0 5.9 19.0 10.1
Corporate general and
administrative expenses 3.6 3.6 7.0 7.5
-------- -------- -------- --------
28.6 71.6 20.1 102.3
Depreciation and amortization 12.0 15.4 24.6 27.9
Special item gain (loss) (a) (7.1) 3.2 2.3 (43.8)
-------- -------- -------- --------
Operating income (loss) $ 9.5 $ 59.4 $ (2.2) $ 30.6
======== ======= ======= ========
(a) Special items are described in detail below.
The Company reported record net earnings of $32.3 million for the
second quarter of 1997 which compared to a net loss of $2.6 million in
the same period of 1996. Refining division results improved
significantly over the previous year due to good unit reliability and
numerous processing unit throughput records. In addition, there was
some improvement in refining industry fundamentals, particularly crude
oil quality differentials. For the six months ended June 30, 1997, the
Company recorded a net loss of $15.1 million which was improved over a
net loss of $17.8 million in the year-ago period. Special items reduced
first half pre-tax earnings on a pro forma basis by $43.8 million in
1997 as compared to a pre-tax gain of $2.3 million in the first half of
1996. The Company recorded an income tax provision of $7.0 million in
the second quarter of 1997 associated with settlement of prior period
audit examinations. Unlike 1996, the Company did not record a tax
provision on current year results due to its cumulative tax loss
carryforward position.
10
Special items associated with the estimated impact of a fall in
crude oil prices on feedstock costs and the hypothetical cost of lost
production associated with a major maintenance turnaround reduced 1997
first half pre-tax earnings by $43.8 million (second quarter - $3.2
million gain) on a pro forma basis. A decrease in crude oil prices of
over $6.00 per barrel in 1997 had a negative impact on the Company's
pre-tax earnings of approximately $28.3 million (second quarter - $2.4
million gain), resulting from the fact that feedstock acquisition costs
are fixed on average two to three weeks prior to the manufacture and
sale of the finished products. The Company has not historically hedged
this price risk because of the unrecoverable cost of entering into
appropriate hedge-related derivatives, especially in a backwardated
market. In 1996, this policy resulted in a gain of $2.3 million in the
first half (second quarter - $7.1 million loss) because crude oil
prices increased over $1 per barrel in that period. The Company
successfully completed an extensive planned maintenance turnaround on
most units at its Port Arthur refinery in the first quarter of 1997.
The opportunity cost of lost production from essentially the entire
refinery being out of service for one month was approximately $15.5
million on a pro forma basis.
Net sales and operating revenues decreased approximately 12% in the
second quarter and first six months of 1997 as compared to the prior
year. This decrease was principally the result of the crude oil price
decline, noted above, that reduced both sales and cost of goods sold and
the major maintenance turnaround at the Port Arthur refinery, which
reduced the Company's production and sales of refined products.
Refining
Refining Division Operating Statistics:
(dollars in millions, except per barrel data)
For the three months For the six months
ended June 30, ended June 30,
1996 1997 1996 1997
--------- -------- -------- --------
Port Arthur Refinery
Crude oil throughput (m bbls/day) 209.7 218.4 204.3 192.6
Production (m bbls/day) 220.9 230.5 212.3 198.5
Pro forma gross margin
($/barrel of production) (a) $ 2.44 $ 3.96 $ 2.23 $ 3.94
Operating expenses 38.5 40.6 77.2 83.7
Net margin including
turnaround impact $ 10.6 $ 42.5 $ 9.0 $ 57.9
Estimated turnaround impact (b) -- (0.8) -- 15.5
Pro forma net margin (a) (b) $ 10.6 $ 41.7 $ 9.0 $ 73.4
Blue Island, Hartford and other refining
Crude oil throughput (m bbls/day) 139.7 137.2 132.6 135.3
Production (m bbls/day) 133.0 145.7 132.6 141.2
Pro forma gross margin
($/barrel of production) (a) $ 3.82 $ 4.80 $ 2.91 $ 3.88
Operating expenses 29.6 31.3 61.1 63.3
Pro forma net margin (a) $ 16.6 $ 32.4 $ 9.2 $ 35.8
Clark Pipe Line net margin 0.6 0.5 1.1 1.1
Divisional G & A expenses 5.6 5.3 11.2 10.6
Pro forma contribution to earnings(b) $ 22.2 $ 69.3 $ 8.1 $ 99.7
(a) Excludes the impact of the change in crude oil prices on feedstock
costs. Actual gross margin per barrel was as follows: For the three
months ended June 30, Port Arthur, 1996 - $2.36; 1997 - $4.07, Blue
Island, Hartford and other refining, 1996 - $3.37; 1997 - $4.81; For
the six months ended June 30, Port Arthur, 1996 - $2.38; 1997 -
$3.43, Blue Island, Hartford and other refining, 1996 - $2.77;
1997 - $3.49.
(b) Includes hypothetical adjustment for lost production at foregone
margins during the period of the turnaround shutdown.
11
On a pro forma basis, the refining division contributed $69.3
million to operating income in the second quarter of 1997 (1996 - $22.2
million). Actual second quarter refining contribution was $72.5
million in 1997 versus $15.1 million in 1996. These improved results
were achieved principally due to record refining production levels,
good refinery reliability, larger discounts for heavy and sour crude
oil and improved Gulf Coast refining margins. Hartford refinery results
particularly benefited from improved access to lower cost Canadian
heavy crude oil. Port Arthur results were also buoyed by the
operational benefits realized from the first quarter maintenance
turnaround. On a comparative basis, last year's second quarter was
negatively impacted by severe crude oil market volatility and
backwardation that raised the cost of the Company's feedstocks. On a
pro forma basis, the refining division contributed $99.7 million to
operating income in the first six months of 1997 (1996 - $8.1 million).
Actual first half refining contribution was $55.9 million in 1997
versus $10.4 million in 1996. Results for the first half of 1997 have
similarly benefited due to improved yields and throughput and better
crude oil quality differentials. Crude oil quality differential
indicators for sour crude oil improved from $0.99 per barrel to $1.91
per barrel and the benefit for heavy sour crude oil improved from $4.68
per barrel to $5.90 per barrel from the first half of 1996 to the first
half of 1997. The Company believes these crude oil quality
differential indicators improved primarily due to increased
availability of light and heavy sour crude oil, higher levels of
industry refinery maintenance turnarounds and milder winter weather in
the first quarter of 1997.
Port Arthur crude oil throughput and production reached record levels
in the second quarter of 1997, but were below 1996 levels for the first
half of the year due to the planned maintenance turnaround in the first
quarter of 1997. Second quarter and first half Midwest refining crude
oil throughput and production increased over the prior year due to lower
levels of planned and unplanned processing unit downtime in 1997. Port
Arthur refinery operating expenses for the first six months of 1997 were
higher than the previous year principally because of higher natural gas
prices in January of 1997. Natural gas is consumed as a fuel in the
refining process.
Retail
Retail Division Operating Statistics:
(dollars in millions, except per gallon and per store data)
For the three months For the six months
ended June 30, ended June 30,
1996 1997 1996 1997
--------- -------- -------- --------
Gasoline volume (mm gals.) 271.2 262.2 507.7 500.2
Gasoline gross margin (cents/gal) 10.6 9.4 11.2 10.1
Gasoline gross margin $ 28.7 $ 24.6 $ 56.9 $ 50.4
Convenience product sales $ 66.9 $ 75.7 $ 125.4 $ 136.0
Convenience product margin
and other income 17.9 19.0 32.4 35.3
Gain on asset sales $ -- $ -- $ 1.8 $ --
Operating expenses 31.4 32.4 61.8 64.6
Divisional G & A expenses 5.2 5.3 10.3 11.0
Contribution to operating income $ 10.0 $ 5.9 $ 19.0 $ 10.1
Per Month Per Store
Company operated stores (average) (a) 829 819 828 816
Gasoline volume (m gals.) 109.1 107.9 102.2 103.2
Convenience product
sales (thousands) $ 26.9 $ 30.8 $ 25.2 $ 27.8
Convenience product gross
margin (thousands) $ 7.2 $ 7.7 $ 6.5 $ 7.2
(a) Nine stores included in 1997 did not sell fuel.
12
Retail contribution to operating income for the second quarter of
1997 was $5.9 million as compared to $10.0 million in the second
quarter of 1996, and decreased to $10.1 million in the first six months
of 1997 from $19.0 million in the first half of 1996. Retail
contribution declined primarily because of weaker retail fuel margins
in 1997 and a $1.8 million first quarter gain on the sale of stores in
the prior year. Retail margins have historically benefited when crude
oil prices fall, but the benefit of the crude oil price decline in the
first half of 1997 was not fully realized because wholesale prices did
not fall as much as crude oil prices and due to highly competitive
retail markets. This continues a trend of tighter retail margins that
started in the last half of 1996. Certain store operating measures did
show improvement in 1997, including an 11% improvement in convenience
product margins per store on 10% higher sales. Operating expenses
increased principally because of lease expenses and higher operating
costs for larger stores acquired in the last year.
Other Financial Highlights
Interest and finance income for the second quarter and first half of
1997 decreased over the comparable periods of 1996 due principally to
the absence in 1997 of an advance crude oil purchase receivable that was
sold in late 1996. This receivable provided finance income $7.0 million
and $14.1 million in the second quarter and first six months of 1996,
respectively.
Amortization expense increased in the second quarter and first half
of 1997 over the same periods in 1996 due to amortization on the 1997
first quarter Port Arthur refinery maintenance turnaround.
Liquidity and Capital Resources
Net cash generated by operating activities, excluding working capital
changes, for the six months ended June 30, 1997 was $28.7 million
compared to $9.1 million in the year-earlier period. Working capital at
June 30, 1997 was $390.8 million, a 2.21 to 1 current ratio, versus
$430.1 million at December 31, 1996, a 2.10 to 1 current ratio. Working
capital at June 30, 1997 decreased from the end of 1996 because of a
retail store acquisition that was financed with cash and the capital
cost of the Port Arthur refinery turnaround.
In general, the Company's short-term working capital requirements
fluctuate with the price and payment terms of crude oil and refined
petroleum products. Clark has in place a $400 million committed
revolving line of credit expiring December 31, 1997 for the issuance of
letters of credit primarily to support purchases of crude oil, other
feedstocks and refined products. The amount available under the
borrowing base associated with such facility at June 30, 1997 was $400
million and approximately $274 million of the facility was utilized for
letters of credit. There were no direct borrowings under Clark's line
of credit at June 30, 1997. Clark expects to have an amended and
restated agreement in place by September 30, 1997.
Cash flows used in investing activities in the first half of 1997,
excluding short-term investment activities which management treats
similar to cash and cash equivalents, was $69.1 million as compared to
$10.8 million in the year-earlier period. The higher investing
activities in 1997 resulted principally from the Port Arthur refinery
turnaround ($30.0 million) and the acquisition of 48 retail stores in
Michigan ($20.1 million). Refinery capital expenditures totaled $12.5
million in the first six months of 1997 (1996 - $8.3 million), most of
which related to discretionary and non-discretionary projects undertaken
in conjunction with the Port Arthur refinery turnaround. Retail capital
expenditures for the first six months of 1997, excluding the Michigan
acquisition, totaled $7.0 million (1996 - $6.1 million) and were
principally for underground storage tank-related work.
Funds generated from operating activities together with the Company's
existing cash, cash equivalents and short-term investments are expected
to be adequate to fund requirements for working capital and capital
expenditure programs for the next year. Future working capital,
discretionary or non-discretionary capital expenditures, or acquisitions
may require additional debt or equity financing.
13
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
On May 5, 1997 a complaint, entitled AOC Limited Partnership ("AOC
L.P.") et al., vs. TrizecHahn Corporation, et al., Case No. 97 CH 05543
naming the Company as a defendant was filed in the Circuit Court of Cook
County, Illinois. The Complaint seeks $21 million, plus continuing
interest, related to the sale of equity by the Company to finance the
Port Arthur refinery acquisition. The sale of such equity triggered a
calculation of a potential contingent payment to AOC L.P. (the "AOC L.P.
Contingent Payment") pursuant to the agreement related to the December
1992 purchase and redemption of its minority interest. According to the
Company's calculation, no payment is required. The Complaint disputes
the Company's method of calculation. The AOC L.P. Contingent Payment is
an amount which shall not exceed in the aggregate $33.9 million and is
contractually payable 89% by the Company and 11% by TrizecHahn.
TrizecHahn has indemnified the Company for any AOC L.P. Contingent
Payment in excess of $7 million. At this time no estimate can be made
as to the Company's potential liability, if any, with respect to this
matter.
In April 1997, the Company was advised of the termination of an
investigation by the Office of the United States Attorney concerning a
1994 gasoline spill at the Company's St. Louis, Missouri terminal. In
May 1997, the Company received correspondence from the State of Missouri
seeking to resolve any dispute arising from the events of January 1994
and seeking the payment of a penalty of less than $200,000.
ITEM 5 - Other Information
Effective May 16, 1997, James J. Murchie voluntarily resigned as a
director of the Company and Kevin M. Becker, 31, was unanimously elected
a director of the Company. Mr. Becker joined Tiger Management
Corporation in February 1996 as Associate Director. Mr. Becker
previously served as Vice-President-Finance at Premium Standard Farms
from October 1994 to February 1996. From September 1989 to September
1994, Mr. Becker held the position of Associate at Morgan Stanley
International in London. Mr. Becker is serving as Tiger's nominee on
the Company's Board of Directors.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27.0 - Financial Data Schedule
(b) Reports on Form 8-K
None
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CLARK USA, INC.
(Registrant)
/s/ Dennis R. Eichholz
Dennis R. Eichholz
Controller and Treasurer (Authorized
Officer and Chief Accounting Officer)
August 12, 1997