CLARK REFINING & MARKETING INC, 10-K405/A, 1999-07-15

CLARK REFINING & MARKETING INC
10-K405/A, 1999-07-15
PETROLEUM REFINING

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________

FORM 10-K/A
AMENDMENT NO. 1
______________

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998

[_] 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
ST. LOUIS, MISSOURI 63105-3721
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (314) 854-9696

Securities registered pursuant to Section 12(b) of the Act: 9 1/2% Senior
Notes, due 2004
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 February 28, 1999: 100 all of which are owned by Clark USA, Inc.

================================================================================
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FORWARD-LOOKING STATEMENTS

Certain statements in this document are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements are subject to the safe harbor
provisions of this legislation. Words such as "expects," "intends," "plans,"
"projects," "believes," "estimates" and similar expressions typically identify
such forward-looking statements.

Even though the Company believes its expectations regarding future events
are based on reasonable assumptions, forward-looking statements are not
guarantees of future performance. There are many reasons why actual results
could, and probably will, differ from those contemplated in the Company's
forward-looking statements. These include changes in:

. Industry-wide refining margins
. Crude oil and other raw material costs, embargoes, industry expenditures for
the discovery and production of crude oil, and military conflicts between (or
internal instability in) one or more oil-producing countries
. Market volatility due to world and regional events
. Availability and cost of debt and equity financing
. Labor relations
. U.S. and world economic conditions (including recessionary trends, inflation
and interest rates)
. Supply and demand for refined petroleum products
. Reliability and efficiency of the Company's operating facilities. There are
many hazards common to operating oil refining and distribution facilities
(including equipment malfunctions, plant construction/repair delays,
explosions, fires, oil spills and the impact of severe weather)
. Actions taken by competitors (including both pricing and expansion or
retirement of refinery capacity)
. Civil, criminal, regulatory or administrative actions, claims or proceedings
(both domestic and international), and regulations dealing with protection of
the environment (including refined petroleum product composition and
characteristics)
. Other unpredictable or unknown factors not discussed

Because of all of these uncertainties, and others, you should not place
undue reliance on the Company's forward-looking statements.

EXPLANATORY NOTE

On July 8, 1999, Clark Refining & Marketing, Inc. ("Clark R&M" or the
"Company"), a wholly owned subsidiary of Clark USA, Inc. ("Clark USA") which is
a wholly owned subsidiary of Clark Refining Holdings Inc. ("Clark Holdings")
completed the sale of its retail operations to an affiliate of Apollo
Management, L.P. ("Apollo") for cash proceeds of $230 million. The retail
operations sold include all Company-operated retail stores, approximately 200
independently-operated Clark-branded stores and the Clark trade name.

Accordingly, the retail marketing operation's net assets (liabilities) have been
segregated from the Company's continuing operations in the consolidated balance
sheets, and its operating results are segregated and reported as discontinued
operations in the accompanying consolidated statements of operations and cash
flows.

This Form 10-K/A Amendment No. 1 amends the following items of the Form 10-K of
Clark R&M filed for the fiscal year ended December 31, 1998, as follows:

. Items 1 and 2
. Item 6
. Item 7
. Item 7A
. Item 14
. Exhibit 27

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PART I

ITEM 1 AND 2. BUSINESS; PROPERTIES

General

Clark R&M is currently one of the five largest independent refiners of
petroleum products in the United States based on rated crude oil throughput
capacity. Clark R&M is a wholly-owned subsidiary of Clark USA, which is a
wholly-owned subsidiary of Clark Holdings. Clark R&M's four refineries, one in
Texas, two in Illinois and one in Ohio, represent an aggregate of over 547,000
barrels per day of rated crude oil throughput capacity. In July 1999, the
Company sold its retail operations to Apollo for $230 million. In addition, in
June 1999, the Company announced that it was in discussions to sell 12
distribution terminals to Equilon Enterprises, L.L.C. ("Equilon"), a joint
venture between Shell and Texaco. These transactions are part of a strategy to
focus on refining operations which the Company believes will offer higher
potential return. As part of this strategy, Clark R&M announced in June 1999,
that it had signed a non-binding letter of intent to pursue the acquisition of
Equilon's 295,000 barrel per day Wood River, Illinois refinery, which is
adjacent to Clark R&M's Hartford, Illinois refinery.

Clark R&M was incorporated in Delaware in 1988 as Clark Oil & Refining
Corporation although the Clark brand name has been in existence since 1932. Its
principal executive offices are at 8182 Maryland Avenue, St. Louis, Missouri,
63105 and its telephone number is (314) 854-9696.

Blackstone Capital Partners III Merchant Banking Fund L.P. and its affiliates
("Blackstone") acquired its interest in Clark USA from Trizec Hahn Corporation
(formerly The Horsham Corporation, "TrizecHahn") in November 1997. Blackstone
owns a 78.5% voting interest (68.0% economic interest). An affiliate of
Occidental Petroleum Corporation ("Oxy"), Clark USA's other principal
shareholder, acquired its interest in Clark USA in November 1995 in exchange for
rights to future crude oil deliveries that the Company subsequently sold. Oxy
owns a 19.9% voting interest (30.7% economic interest). Much of the debt of
Clark USA and Clark R&M is publicly traded. In May 1999, all existing
shareholders of Clark USA exchanged their shares for equal shares in Clark
Holdings.

BUSINESS STRATEGY

Clark R&M is focused on becoming a world class refiner to capture the
manufacturing value created in refining crude oil into gasoline, diesel fuel,
jet fuel and other petroleum products. Demand for these products have grown at
consistent rates since the mid-1980's and the excess capacity resulting from the
oil crisis' of the 1970's and early 1980's have now been almost fully absorbed.

Clark R&M has a disciplined business approach with a strategy that has been
consistently focused towards i) improving the productivity of existing assets
with minimum capital, ii) selectively adding scale through acquisition at
fractions of replacement costs, iii) optimizing capital investments through a
rigorous project review and implementation process, while iv) maintaining
significant liquidity and financial flexibility. The Company has implemented
this strategy by promoting an entrepreneurial culture where employee incentives
are aligned with performance objectives.

Improving Productivity. Clark R&M continues to implement relatively no or
low-cost initiatives designed to increase production, sales volumes and
production yields and to improve its sales mix while reducing input costs and
operating expenses. Examples of these types of initiatives include improvements
at the Port Arthur Refinery, increased yields and crude oil throughput
capability at its Illinois refineries and the creation of value within the
retail division and subsequent harvesting of that value to be deployed to higher
return uses.

Adding scale through acquisitions. Clark R&M intends to continue to
selectively add scale to its refining operations through the acquisitions of
low-cost, quality assets. Since 1994, the Company has almost quadrupled its
refining capacity by acquiring the Port Arthur refinery in 1995 and the Lima
refinery in 1998. The Company believes there may be additional acquisition
opportunities in the future due to continued consolidation in the industry.

Optimizing capital investment. The Company emphasizes an entrepreneurial
approach to perceived mandatory expenditures, such as those required to comply
with reformulated and low-sulfur fuel regulations. For example, the Company may
seek to comply with such regulations through the access of alternative markets
for existing products if adequate returns on capital investment are not assured.
Discretionary capital expenditures are managed by linking capital investment to
internally generated cash flow. The Company seeks to minimize investment risk,
while maximizing project returns, and most projects in the past three years have
generated paybacks of less than four years.

Promoting entrepreneurial culture. Clark R&M emphasizes an entrepreneurial
management approach that uses employee incentives to enhance financial
performance and safety. All of the Company's employees participate in its
performance management, profit sharing or other incentive plans, and the Company
has adopted a stock incentive plan for Clark R&M's key employees.

Maintaining strong liquidity and financial flexibility. Earnings in the
Company's industry are volatile. As result, the Company has historically
maintained significant liquidity and utilized long-term financing when possible
while retaining some prepayment flexibility. As of December 31, 1998, the
Company had a cash balance of approximately $152.0 million and no long-term debt
maturities prior to 2003. Through December 31, 1998, the Company had utilized
existing cash of approximately $41.5 million to begin funding a major upgrade of
the Port Arthur refinery. These funds, along with subsequent expenditures will
be reimbursed in connection with the Port Arthur project (see the "Port Arthur
Upgrade Project").

2
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REFINING DIVISION

Overview
- ---------

The Company currently operates one refinery in Texas, one refinery in Ohio
and two refineries in Illinois with a combined crude oil throughput capacity of
approximately 547,000 barrels per day ("bpd"). The Company also owns 17 product
terminals located in its Midwest and Gulf Coast market areas, two crude oil
terminals, an LPG terminal and crude oil pipeline interests. The following table
shows the rated crude oil throughput capacities of the Company's four refineries
in barrels per day as of December 31, 1998:

Port Arthur, Texas......................................... 232,000
Lima, Ohio................................................. 170,000
Blue Island, Illinois...................................... 80,000
Hartford, Illinois......................................... 65,000
-------
Total................................................... 547,000
=======

The Company's principal refined products are gasoline, on and off-road diesel
fuel, jet fuel, residual oil and petroleum coke. Gasoline, on-road (low sulfur)
diesel fuel and jet fuel are principally used for transportation purposes. Off-
road (high sulfur) diesel fuel is principally used as a fuel for agriculture and
trains. Residual oil (slurry oil and vacuum tower bottoms) is used mainly for
heavy industrial fuel (e.g., power generation) and in the manufacturing of
roofing flux or for asphalt used in highway paving. Petroleum coke is a by-
product of the coking process and is a coal-like substance that can be burned
for power generation. The Company also produces many unfinished petrochemical
products that are sold to neighboring chemical plants at the Port Arthur and
Lima refineries. Most of the Company's products are sold in the eastern half of
the U.S.

The Company currently sells gasoline and diesel fuel on an unbranded basis to
approximately 475 distributors and chain retailers through Company-owned
terminals and third-party facilities. The Company believes these sales offer
higher profitability than spot market alternatives. Wholesale sales are also
made to the transportation, agricultural and commercial sectors, including
airlines, railroads, barge lines and other industrial end-users. Fuel sales to
all channels of trade focus on maximizing netback realizations (revenue less all
distribution and working capital investment costs).

3
<PAGE>

Port Arthur Refinery
- --------------------

The Port Arthur refinery is located in Port Arthur, Texas, approximately 90
miles east of Houston, on a 4,000-acre site. The Port Arthur refinery was
acquired from Chevron U.S.A. Inc. in February 1995. The Port Arthur refinery
has the ability to process 100% sour crude oil, including up to 20% heavy crude
oil, and has coking capabilities. Heavy sour 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's Texas Gulf
Coast location provides access to numerous cost-effective domestic and
international crude oil sources that can be accessed by waterborne delivery or
through the West Texas Gulf pipeline. The Port Arthur refinery can produce
conventional gasoline, up to 55% summer and 75% winter reformulated gasoline
("RFG"), 100% low-sulfur diesel fuel and jet fuel. The refinery's products can
be sold in the Mid-continent and Eastern U.S. as well as in export markets.
These markets can be accessed through the Explorer, Texas Eastern and Colonial
pipelines or by ship or barge.

The Company has agreements to sell to Chevron up to 27,000 bpd of gasoline
and up to 2,100 bpd of low-sulfur diesel at market prices from the Port Arthur
refinery through February 28, 2000. This contract is cancelable upon 90 days'
notice by either party. The Company also has an agreement to exchange certain
refined products and chemicals at market prices with Chevron Chemical Company,
which exchanged amounts averaged approximately 24,700 bpd during 1996, 1997 and
1998. This contract is cancelable upon 18 months notice by either party or by
mutual agreement.

Since acquiring the Port Arthur refinery, the Company increased crude oil
throughput capability from approximately 178,000 bpd to its current 232,000 bpd
and immediately lowered operating expenses by approximately 50c per barrel. The
Port Arthur refinery has generated annual average Operating Contribution (as
defined herein) of over $95 million in its three full years of the Company's
ownership.

Port Arthur Upgrade Project

In March 1998, the Company entered into a long-term crude oil supply
agreement with PMI Comercio Internacional, S.A. de C.V. ("PMI"), an affiliate of
Petroleos Mexicanos, the Mexican state oil company which provides the Company
with the foundation necessary to continue developing a project to upgrade the
Port Arthur refinery to process primarily lower-cost, heavy sour crude oil.
Under the agreement, 150,000 to 210,000 bpd of heavy, sour Maya crude oil would
be purchased for use at the Port Arthur refinery. The supply contract would also
assist in stabilizing gross margins and cash flows from the project. The
contract period would run for a minimum of eight years from the completion of
the project, which could be as early as January 2001. The Port Arthur refinery
has several important characteristics that make it attractive for this type of
arrangement. Its Gulf Coast location provides excellent access to waterborne
Mexican crude oil. Additionally, the refinery already has much of the
infrastructure (docks, tanks, utilities) and processing capability necessary to
support an upgraded operation.

The project is currently projected to cost approximately $600-$700 million
and is designed to include construction of an 80,000 bpd delayed coker and a
35,000 bpd hydrocracking unit and the expansion of crude unit capacity to
approximately 250,000 bpd. If the project is completed, the Port Arthur refinery
will have the ability to process heavy, sour crude oil up to an estimated 80% of
its capacity. Although the Company, Clark USA, Clark Holdings and its
shareholders are currently evaluating alternatives for financing the project, it
is expected that the financing will be on a non-recourse basis to the Company.
The crude oil supply agreement with PMI and the construction work-in-process are
expected to be transferred for value to a non-recourse entity that will likely
be an affiliate of, but not controlled by, the Company and its subsidiaries. The
Company expects to enter into agreements with this affiliate pursuant to which
the Company would provide certain operating, maintenance and other services and
would purchase the output from the new coking and hydrocracking equipment for
further processing into finished products. The Company is expected to earn fair
market value fees for providing such services and will pay fair market prices
for such products. These arrangements are expected in the aggregate to be
beneficial to the Company.

4
<PAGE>

The average daily feedstocks and production of the Port Arthur refinery for
the years ended December 31, 1996, 1997 and 1998 were as follows:

PORT ARTHUR REFINERY FEEDSTOCKS AND PRODUCTION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997(A) 1998
---- ------- ----
BPD % BPD % BPD %
--- --- --- --- --- ---
(BARRELS PER DAY IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FEEDSTOCKS
Light Sweet Crude Oil............ 30.1 14.5% 23.0 11.1% 14.8 6.6%
Light Sour Crude Oil............. 100.7 48.3 95.4 46.2 87.9 39.5
Heavy Sweet Crude Oil............ 65.4 31.4 15.6 7.6 2.3 1.0
Heavy Sour Crude Oil............. 3.6 1.7 72.6 35.1 114.3 51.4
Unfinished & Blendstocks......... 8.5 4.1 -- -- 3.3 1.5
----- ----- ----- ----- ----- -----
Total........................ 208.3 100.0% 206.6 100.0% 222.6 100.0%
===== ===== ===== ===== ===== =====
PRODUCTION
Gasoline
Unleaded......................... 56.9 27.0 54.6 25.6 78.5 35.1
Premium Unleaded................. 33.5 15.9 30.5 14.3 20.4 9.1
----- ----- ----- ----- ----- -----
90.4 42.9 85.1 39.9 98.9 44.2
Other Products
Low-Sulfur Diesel Fuel........... 47.7 22.6 59.6 27.9 58.3 26.0
Jet Fuel......................... 30.5 14.5 22.2 10.4 23.7 10.6
Petrochemical Products........... 18.4 8.7 26.0 12.2 24.1 10.8
Others........................... 23.8 11.3 20.6 9.6 18.9 8.4
----- ----- ----- ----- ----- -----
120.4 57.1 128.4 60.1 125.0 55.8
----- ----- ----- ----- ----- -----
Total........................ 210.8 100.0% 213.5 100.0% 223.9 100.0%
===== ===== ===== ===== ===== =====
</TABLE>

(a) Feedstocks and production in 1997 reflect maintenance turnaround downtime of
approximately one month on selected units.

Lima Refinery
- --------------

The Lima refinery is located in Lima, Ohio, approximately halfway between
Toledo and Dayton, on a 650-acre site. The first refinery on the site was
constructed in 1886 to take advantage of what was to become the world's greatest
oil producing area until 1910. Most of the processing units in the Lima
refinery have been rebuilt since 1970, making the Lima refinery relatively young
among Midwest refineries.

In 1996, British Petroleum ("BP") unsuccessfully attempted to sell the Lima
refinery and announced they would close the refinery in two years. Despite such
announcement, BP continued to invest at near historical levels for maintenance
operating expenses and mandatory capital expenditures at the Lima refinery
during 1997. The Company acquired the Lima refinery, related terminal facilities
and non-hydrocarbon inventory from affiliates of BP in August 1998 for $175
million plus approximately $35 million for hydrocarbon inventory and $7 million
for assumed liabilities principally related to employee benefits (the "Lima
Acquisition").

The Lima refinery is highly automated and modern with a Nelson complexity
rating of 8.7 and an estimated replacement cost of $1.2 billion. The Lima
refinery is large enough to realize economies of scale and other efficiencies.
The Midwest location of the refinery has historically provided it with a

5
<PAGE>

transportation cost advantage and less gross margin volatility than refineries
in other regions since demand for refined products has exceeded supply in the
region.

The Lima refinery was designed to process light, sweet crude oil, but the
refinery does have coking capability allowing it to upgrade lower-valued
products. The Lima refinery obtains 100% of its crude oil supply by pipeline
from a variety of domestic and foreign sources. The Mid-Valley, Salem-Stoy-Lima
(SSL) and Marathon pipeline systems provide final delivery capability to the
refinery. These pipelines allow ultimate connection to the Capline, Louisiana
Offshore Oil Port, Mobil, Ozark, IPL, West Texas Gulf and other pipeline
systems. The Lima refinery can produce conventional gasoline, diesel fuel, jet
fuel and certain specialty chemical products. Products can be distributed
through the Buckeye and Inland Pipeline systems and by rail, truck or an
adjacent terminal. The Buckeye system allows access to markets in
Northern/Central Ohio, Indiana, Michigan and Western Pennsylvania. The Inland
Pipeline System is a private intra-state system jointly owned by BP, Shell,
Unocal and Sun and available solely for their use.

The average daily feedstocks and production of the Lima refinery from the
acquisition date of August 10, 1998 through December 31, 1998 were as follows:

LIMA REFINERY FEEDSTOCKS AND PRODUCTION

<TABLE>
<CAPTION>
YEAR ENDED
----------
DECEMBER 31, 1998 (A)
---------------------
BPD %
--- ---
(BARRELS PER DAY IN
THOUSANDS)
<S> <C> <C>
FEEDSTOCKS
Light Sweet Crude Oil................ 53.3 105.3%
Light Sour Crude Oil................. --- ---
Other................................ (2.7) (5.3)
---- -----
Total........................... 50.6 100.0
==== =====
PRODUCTION
Gasoline
Unleaded............................. 24.0 46.5
Premium Unleaded..................... 5.6 10.8
---- -----
29.6 57.3

Other Products
Diesel Fuel.......................... 10.7 20.7
Jet Fuel............................. 5.3 10.2
Petrochemical Products............... --- ---
Others............................... 6.1 11.8
---- -----
22.1 42.7
---- -----
Total........................... 51.7 100.0%
==== =====
</TABLE>

(a) Includes feedstocks and production since the acquisition date of August
10, 1998

Illinois Refineries
- --------------------

The Illinois refineries are connected by product pipelines, increasing their
flexibility relative to stand-alone operations. Both refineries are situated on
major water transportation routes that provide flexibility to receive crude oil
or intermediate feedstocks by barge when economical. The Company believes that
the Midwest location of these refineries has provided relatively high refining
margins with less volatility than comparable operations located in other regions
of the U.S., principally because demand for refined products has exceeded
production in the region. This excess demand has been satisfied by imports from
other regions, providing Midwest refineries with a transportation advantage.

6
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Blue Island Refinery
- ---------------------

The Blue Island refinery is located on the Cal-Sag canal in Blue Island,
Illinois, approximately 17 miles south of Chicago on a 170-acre site. The Blue
Island refinery was designed to process light, sweet crude oil, but can process
up to 25% light sour crude oil. 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 Blue Island refinery has among
the highest capabilities to produce gasoline relative to the other refineries in
its market area. During most of the year, gasoline is the most profitable
refinery product. The Blue Island refinery can produce conventional gasoline,
up to 60% RFG, high sulfur diesel fuel and residual fuel. It can also produce
30% low-sulfur diesel fuel when market prices warrant and based on the clean
fuels attainment of the Company's total refining system. Products can be
distributed through the Wolverine, West Shore, Badger, Transmontaigne and
Marathon pipeline systems or by barge.

Since 1992, the Company has increased the crude oil throughput capability at
the Blue Island refinery by approximately 10,000 bpd, introduced light sour
crude oil as a lower-cost feedstock, improved the fluid catalytic cracking
("FCC") unit operation and introduced the capability to produce RFG.

The average daily feedstocks and production of the Blue Island refinery for
the years ended December 31, 1996, 1997 and 1998 were as follows:

BLUE ISLAND REFINERY FEEDSTOCKS AND PRODUCTION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 (A) 1997 1998 (A)
-------- ---- --------
BPD % BPD % BPD %
--- --- --- --- --- ---
(BARRELS PER DAY IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FEEDSTOCKS
Light Sweet Crude Oil........... 57.9 84.2% 51.7 72.3% 48.5 74.9%
Light Sour Crude Oil............ 10.5 15.3 18.1 25.4 14.8 22.8
Unfinished & Blendstocks........ 0.4 0.5 1.7 2.3 1.5 2.3
---- ----- ---- ----- ---- -----
Total...................... 68.8 100.0% 71.5 100.0% 64.8 100.0%
==== ===== ==== ===== ==== =====
PRODUCTION
Gasoline
Unleaded........................ 34.1 50.9 37.7 52.5 36.7 56.9
Premium Unleaded................ 8.0 11.6 8.4 11.7 6.5 10.1
---- ----- ---- ----- ---- -----
42.1 62.5 46.1 64.2 43.2 67.0
Other Products
Diesel Fuel..................... 15.6 22.5 14.9 20.7 13.2 20.3
Others.......................... 10.3 15.0 10.8 15.1 8.2 12.7
---- ----- ---- ----- ---- -----
25.9 37.5 25.6 35.8 21.4 33.0
---- ----- ---- ----- ---- -----
Total...................... 68.0 100.0% 71.7 100.0% 64.6 100.0%
==== ===== ==== ===== ==== =====
</TABLE>

(a) Output during 1996 and 1998 was reduced by significant planned and unplanned
downtime.

Hartford Refinery
- ------------------

The Hartford refinery is located on the Mississippi River in Hartford,
Illinois, approximately 17 miles northeast of St. Louis, on a 400-acre site.
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 60% 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 priced at a significant
discount to light sweet crude oil. 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. The Hartford refinery can produce conventional gasoline,

7
<PAGE>

high sulfur diesel fuel, residual fuel and petroleum coke. Products can be
distributed through the Marathon/Wabash and Explorer pipeline systems or by
barge.

Since 1992, the Company has increased the crude oil throughput capability at
the Hartford refinery by approximately 10,000 bpd, improved overall liquid
recovery by approximately 3%, improved FCC unit yields by approximately 3%,
increased higher-valued crude unit yields by approximately 2,000 bpd and
dramatically reduced combined "recordable" and "days away from work" rates
from 27 in 1990 to an average of less than one during 1998.

The average daily feedstocks and production of the Hartford refinery for the
years ended December 31, 1996, 1997 and 1998 were as follows:

HARTFORD REFINERY FEEDSTOCKS AND PRODUCTION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997(A) 1998
---- ------- ----
BPD % BPD % BPD %
--- --- --- --- --- ---
(BARRELS PER DAY IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FEEDSTOCKS
Light Sweet Crude Oil........... 10.2 15.5% 7.1 10.9% 8.2 12.9%
Light Sour Crude Oil............ 53.5 81.4 37.3 57.9 35.1 55.0
Heavy Sour Crude Oil............ 0.5 0.7 14.2 22.1 21.7 34.0
Unfinished & Blendstocks........ 1.5 2.4 5.9 9.1 (1.2) (1.9)
---- ----- ---- ----- ---- -----
Total...................... 65.7 100.0% 64.5 100.0% 63.8 100.0
==== ===== ==== ===== ==== =====
PRODUCTION
Gasoline
Unleaded........................ 29.7 44.9 31.5 49.0 29.6 45.7
Premium Unleaded................ 4.7 7.1 2.5 4.0 2.8 4.3
---- ----- ---- ----- ---- -----
34.4 52.0 34.0 53.0 32.4 50.0
Other Products
High-Sulfur Diesel Fuel......... 24.4 36.9 19.6 30.5 20.9 32.3
Others.......................... 7.4 11.1 10.5 16.5 11.5 17.7
---- ----- ---- ----- ---- -----
31.8 48.0 30.1 47.0 32.4 50.0
---- ----- ---- ----- ---- -----
Total....................... 66.2 100.0% 64.1 100.0% 64.8 100.0%
==== ===== ==== ===== ==== =====
</TABLE>

(a) The 1997 results reflect maintenance turnaround downtime of approximately
one month on selected units.

Terminals and Pipelines
- ------------------------

The Company owns 15 refined product terminals with a combined capacity of
approximately 3.9 million barrels throughout its upper Midwest market area. The
Company owns a 1.1 million barrel crude oil terminal associated with the Lima
refinery and also owns a crude oil and refined product terminal, a refined
product 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 also enters into refined product exchange agreements with unaffiliated
companies to broaden its geographical distribution capabilities.

The Company owns and operates a common carrier pipeline system that connects
its Port Arthur refinery with three Company-owned terminals. It also owns
proprietary refined products pipelines from the Blue Island refinery to its
terminal in Hammond, Indiana, and from the Port Arthur refinery to its LPG
terminal in Fannett, Texas.

In 1998, the Company sold minority interests in the Southcap and Chicap crude
oil pipelines, and the Wolverine and West Shore product pipelines, after
determining they were not strategic. The Company's shipping rights are assured
due to the pipelines' operation as common carrier pipelines and the Company's
historical throughput on these pipelines. In February 1999, the Company
announced it was soliciting offers for the sale of certain refined product
terminals. In June 1999, the Company entered into a letter of intent to sell 12
distribution terminals to Equilon.

8
<PAGE>

Crude Oil Supply
- ----------------

The majority of the Company's crude oil supply requirements are acquired on
the spot market from unaffiliated foreign and domestic sources. In addition to
the contract with PMI related to the Port Arthur heavy sour crude oil upgrade
project, the Company has several crude oil supply contracts that total
approximately 176,800 bpd with several third-party suppliers, including PMI, Bay
Oil and Mobil Oil Corporation. 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 following table shows the Company's daily average
sources of crude oil in 1998:

SOURCES OF CRUDE OIL SUPPLY

<TABLE>
<CAPTION>
1998
----
BPD %
--- ---
(IN
THOUSANDS)
----------
<S> <C> <C>
United States................................... 53.9 13.4%
Latin America................................... 163.9 40.9
Canada.......................................... 47.8 11.9
West Africa..................................... 18.4 4.6
Middle East..................................... 78.5 19.6
North Sea....................................... 35.6 8.9
Other........................................... 2.8 0.7
----- -----
Total 400.9 100.0%
===== =====
</TABLE>

Clean Air Act/Reformulated Fuels
- --------------------------------

Under the Clean Air Act, the 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 certain pollutants every five years. In July 1997, after such a
review, the EPA adopted more stringent national standards for ground level ozone
(smog) and particulate matter (soot). These standards, when implemented, are
likely to increase significantly the number of non-attainment areas and thus
require additional pollution controls, more extensive use of RFG, and possibly
new diesel fuel standards. Efforts are being made to influence the legislative
branch to repeal the new standards under the Congressional Review Act. A
lawsuit filed by the U.S. Chamber of Commerce, the American Trucking Association
and the National Coalition of Petroleum Retailers is challenging the
implementation of these standards. As a result, it is too early to determine
what impact this rule could have on the Company.

The Company anticipates that the EPA will announce a Proposed Rule that will
establish national fuel standards for sulfur specifications in gasoline. The
Company believes that the EPA will recommend that sulfur levels in gasoline be
reduced to coincide with the introduction of 2004 motor vehicles. This proposal
would likely require the Company to make some level of capital investments at
its refineries to reduce the sulfur levels in its gasoline. Until the
announcement and evaluation of the Proposed Rule, the Company is unable to
determine the specific impact of the proposal on the Company.

Expenditures required to comply with existing 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

9
<PAGE>

capability to produce up to approximately 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 feedstocks and refined 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, changes in
domestic and foreign economies, weather conditions, political affairs, crude oil
production levels, the rate of industry investments, the availability of
imports, the marketing of competitive fuels and the extent of government
regulations. The Company's results are also impacted by seasonal fluctuations
with generally stronger earnings recorded during the higher transportation-
demand periods of the spring and summer and weaker earnings recorded during the
fall and winter.

The Company believes that it is well positioned to benefit from potential
long-term improvements in refining industry profitability. The Company believes
refining industry improvement may result from (i) increased demand for gasoline
and distillate fuel, (ii) domestic refinery crude oil distillation utilization
rates nearing maximum sustainable rates, (iii) reduced growth in conversion
capacity, and (iv) increased availability of lower cost heavy sour crude oil.
Conversion refers to the ability to extract more higher valued products, such as
gasoline and distillate fuel, out of the same barrel of crude oil.

The Company believes industry improvement has occurred since 1995 and
particularly in 1997 as indicated by the Company's record 1997 Operating
Contribution and improvement in certain key industry market indicators.

According to the U.S. Department of Energy, Energy Information Administration
("EIA"), U.S. demand for gasoline and distillate fuel grew from 9.4 million
bpd in 1980 to 11.9 million bpd in 1998, averaging growth of 1.5% per year
during this period. The Company believes this growth in U.S. demand for
gasoline and distillate fuel is principally due to increased economic activity
in the U.S. This growth reflects the expansion of the U.S. vehicle fleet miles
driven, increased seat-miles flown on U.S. airlines and reduced improvement in
vehicle miles per gallon due to consumer preference for light trucks and sport-
utility vehicles as indicated by statistics from the U.S. Department of
Transportation. The Company believes U.S. gasoline and distillate fuel demand
will continue to track U.S. economic activity.

Since 1980, U.S. crude oil distillation capacity decreased from 18.1 million
bpd to 15.9 million bpd in 1998, according to the Oil & Gas Journal, as 137
refineries closed between 1980 and 1998. However, during this period,
conversion capacity increased to meet the growing demand for transportation
fuels. From the early 1990s until 1996, growth in conversion capacity exceeded
demand growth. According to the Oil and Gas Journal and the American Petroleum
Institute, since the early 1990s, industry capital spending, especially non-
environmental capital spending, much of which was for increased conversion
capacity, has decreased as indicated in the table below. The Company believes
this decrease is due to reduced industry profitability caused by overcapacity.
The Company believes "excess" conversion capacity may have reached equilibrium
with demand in 1996.

<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
(IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total capital expenditures............ $4.4 $6.1 $6.1 $5.4 $5.1 $4.9 $3.9 $3.9 $3.9
Environmental capital expenditures.... 1.3 1.8 3.3 3.2 3.1 2.2 0.8 N/A N/A
</TABLE>

According to the EIA, U.S. crude oil distillation utilization rates have
steadily increased from approximately 75% in 1980 to approximately 95% in 1998.
The Company believes U.S. crude oil

10
<PAGE>

distillation utilization rates may be approaching long-term sustainable maximums
due to the requirement for routine maintenance and the likelihood of unplanned
downtime.

The Company believes that, due to the crude oil processing capabilities of
its refineries, it may benefit from increased availability of heavy sour crude
oil. Crude oil pipeline expansions into the U.S. Midwest in 1996 and 1997
increased the availability of Canadian heavy sour crude oil and thereby improved
competition for crude oil sales to Midwest refiners. Additionally, industry
studies indicate improved availability of heavy and light sour crude oil over
the next several years due to increased crude oil supply from several Western
Hemisphere sources, primarily Canada and Latin America. The availability and
associated discounts for heavy sour crude oil were reduced in 1998 due to low
absolute crude oil prices.

RETAIL DIVISION

The Clark brand began during the 1930s with the opening of a store in
Milwaukee, Wisconsin. The brand then expanded throughout the Midwest. By the
early 1970s, there were more than 1,800 Clark retail stores with a strong market
reputation for the sale of high-octane gasoline at discount prices. In line
with the general industry trends, stores were rationalized during the 1970s and
1980s. The Company acquired the Clark brand and retail assets in 1988.

In February 1999, the Company announced that it would solicit buyers for its
marketing operation. The assets offered include all company-operated retail
stores, the Clark trade name, certain wholesale sales activities and several
distribution terminals. This action was taken to allow the Company to focus its
financial resources and management attention on the continued improvement and
expansion of its refining business, which it believes will generate higher
future returns.

On July 8, 1999, the Company completed the sale of its retail marketing
operations in a recapitalization transaction to a company controlled by Apollo
for cash proceeds of $230 million. Apollo assumed all unknown and future
environmental responsibility while the Company will retain all known
contamination. Clark Holdings will hold a six percent equity interest in the
retail marketing operation. As part of the sale agreement, the Company also
entered into a two-year, market-based supply agreement for refined products that
is based on market pricing and payment terms. The supply agreement may be
canceled with 90 days notice by the buyer.

The Company expects to recognize a gain on sale in the quarter ended
September 30, 1999. The retail marketing operation sold included all Company-
operated retail stores, approximately 200 independently-operated, Clark-branded
stores and the Clark trade name. Accordingly, the retail marketing operation's
net assets (liabilities) have been segregated from the Company's continuing
operations in the consolidated balance sheets, and its operating results were
segregated and reported as discontinued operations in the accompanying
consolidated statements of operations and cash flows.

The Company's retail presence was focused in the Great Lakes region of the
U.S. where Company-operated stores market value-oriented gasoline and
convenience products. As of December 31, 1998, the Company had 672 Company-
operated retail locations, nearly all of which operated under the Clark brand
name. The Company operates a high proportion of its locations and believes this
enables it to respond more quickly and 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. As of
December 31, 1998, an additional 191 Clark-branded retail stores were owned and
operated by independent jobbers.

Over the past several years, the Company has focused on building core markets
where it 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. The Company has acquired 130 stores since 1994.
Simultaneously with growing the Company's market share in core markets through
acquisitions, the Company has divested 305 stores in non-core markets.

In 1998, the Company's core market monthly gasoline sales per store averaged
113,500 gallons, which exceeded the 1997 national industry average of 86,400
gallons, while monthly sales per square foot averaged approximately $53 for
convenience products versus the industry average of approximately $26. The
Company believes that it is in the first quartile in terms of operating costs in
its regions, which provides it with an important competitive advantage.
Chicago, Central Illinois, Southern Michigan, Cleveland, Milwaukee and Toledo
are currently the Company's six highest volume core metropolitan markets, with
market shares of 4% to 12%.

11
<PAGE>

The geographic distribution of Company-operated retail stores by state as of
December 31, 1998, was as follows:

GEOGRAPHICAL DISTRIBUTION OF RETAIL STORES

<TABLE>
<CAPTION>
COMPANY- INDEPENDENTLY-
OPERATED OPERATED TOTAL
-------- -------------- -----
<S> <C> <C> <C>
Illinois................................. 229 42 271
Michigan................................. 202 26 228
Ohio..................................... 109 51 160
Indiana.................................. 78 11 89
Wisconsin................................ 53 15 68
Missouri................................. 1 46 47
--- --- ---
Total.................................... 672 191 863
=== === ===
</TABLE>

The Company has continued 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. The following
table shows a profile of Company-operated stores as of December 31, 1998:

PROFILE OF COMPANY-OPERATED RETAIL STORES
(PERCENT OF TOTAL COMPANY-OPERATED STORES)

Owned........................................................ 73.4%
Canopy....................................................... 95.4
Full Convenience Store (1200+ square feet)................... 26.3
Mini-mart (400-1199 square feet)............................. 58.0
Multi-Product Dispenser...................................... 74.6
Pay-at-the-Pump.............................................. 13.1
Automated Teller Machine..................................... 79.2
Car Wash..................................................... 1.2
Branded Fast Food............................................ 1.5

As a result of productivity initiatives and recent acquisitions, the Company
has increased core market monthly convenience product sales per store by over
60% to $34,100, increased the mix of higher margin non-cigarette convenience
products from 32% to 42% of total convenience product sales, and improved
monthly convenience product gross margin per store by 80% to $9,000 since 1992.

The Company implemented a number of environmental projects at its retail
stores. These projects included the response to the September 1988 regulations
related to the design, construction, installation, repair and testing of
underground storage tanks ("UST"). These regulations provided for a ten-year
transition period through 1998. As of December 31, 1998, all current locations
met the December 1998 federal UST compliance standards.

COMPETITION

The refining 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 their
diversity, integration of operations, larger capitalization and greater
resources, these major oil companies may be better able to withstand volatile
market conditions, more effectively compete on the basis of price and more
readily obtain crude oil in times of shortages.

12
<PAGE>

The principal competitive factors affecting the Company's refining operations
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 higher 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 on the
spot market 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 wholesale distribution system are product price and quality,
reliability and availability of supply and location of distribution points.

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 wastewater
and stormwater, and the handling and disposal of non-hazardous and hazardous
waste. Federal, state and local laws and regulations establishing numerous
requirements and providing penalties for violations thereof affect nearly all of
the operations of the Company. Included among such laws and regulations are the
Clean Air Act, the Clean Water Act, the 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 the 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. As discussed below, federal and state agencies have filed various
enforcement actions alleging that the Company has violated a number of
environmental laws and regulations. The Company nevertheless believes that, in
all material respects, its existing operations are in compliance with such laws
and regulations.

The Company's 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. Accordingly, the Company
may be required to make additional expenditures to comply with existing
environmental requirements. Such expenditures, along with compliance with
environmental requirements, could have a material adverse effect on the
Company's financial condition, results of operations, cash flow or liquidity.

Regulations issued by the EPA in 1988 with respect to USTs required 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 Company completed this work on schedule and
implemented a program to continue to remediate soil and groundwater in
accordance with appropriate standards. The Company also implemented measures,
including tightness testing and monitoring, to prevent the release of petroleum
to soil or groundwater.

13
<PAGE>

The Company anticipates that, in addition to expenditures necessary to comply
with existing environmental requirements, it will incur costs in the future to
comply with new requirements. 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 ongoing
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 (including petroleum) 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.

The release or discharge of petroleum and other 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 that 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
- ----------------------------------

The Company is also the subject of various environmental-related legal
proceedings. See "--Legal Proceedings."

EMPLOYEES

Currently the Company employs approximately 6,700 people, approximately 18%
of who were covered by collective bargaining agreements at the Blue Island,
Hartford, Lima and Port Arthur refineries. The Port Arthur refinery contract
expires in January 2002, the Hartford refinery contract expires in February 2002
and the Blue Island and Lima refinery contracts expire in August 2002. In
addition, the Company has union contracts for certain employees at its Hammond,
Indiana, and St. Louis, Missouri, terminals. Relationships with the unions have
been good and the Company has never experienced a work stoppage as a result of
labor disagreements.

14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below for the Company as
of December 31, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998 are derived from the audited financial statements
included elsewhere herein, which have been restated to report the Company's
retail marketing operations as discontinued operations. The selected financial
data set forth below as of December 31, 1994, 1995 and 1996 and for each of the
two years in the period ended December 31, 1995 are derived from audited
financial statements not included herein, which have been restated to report the
Company's retail marketing operations as discontinued operations. 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 included elsewhere herein.

<TABLE>
<CAPTION>
($ In millions)
Year Ended December 31,
-----------------------------------------------------------
1994 1995 1996 1997 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement data:

Net sales and operating revenue $ 2,061.8 $ 4,070.5 $ 4,656.9 $ 3,880.0 $ 3,580.5
Cost of sales (1,883.8) (3,787.3) (4,318.1) (3,434.6) (3,115.1)
Operating expenses (115.1) (251.8) (291.3) (293.9) (341.6)
General and administrative expenses (31.1) (34.4) (37.8) (43.0) (50.0)
Depreciation and amortization/(b)/ (27.3) (32.4) (35.7) (46.7) (54.4)
Inventory recovery of (write-down) to market value 26.5 - - (19.2) (86.6)
Recapitalization, asset write-offs and other charges - - - (40.0) -
Gain on sale of pipeline interests - - - - 69.3
--------- --------- --------- --------- ---------
Operating income (loss) $ 31.0 $ (35.4) $ (26.0) $ 2.6 $ 2.1
Interest and financing costs, net/(c)/ (37.6) (39.9) (38.7) (39.8) (51.0)
--------- --------- --------- --------- ---------
Loss from continuing operations before taxes and
extraordinary items $ (6.6) $ (75.3) $ (64.7) $ (37.2) $ (48.9)
Income tax (provision) benefit 3.4 28.6 18.6 (10.4) 12.9
--------- --------- --------- --------- ---------
Loss from continuing operations before extraordinary
items $ (3.2) $ (46.7) $ (46.1) $ (47.6) $ (36.0)
Discontinued operations, net of income taxes of $9.2 (1997 -
$0.1, 1996 - $4.7, 1995 - $12.9, 1994 - $13.1) $ 21.3 $ 21.2 $ 7.6 $ 0.1 $ 15.1
Extraordinary items - - - (10.7) -
--------- --------- --------- --------- ---------
Net earnings (loss) $ 18.1 $ (25.5) $ (38.5) $ (58.2) $ (20.9)
========= ========= ========= ========= =========

Balance sheet data:
Cash, cash equivalents and short-term investments $ 132.5 $ 105.0 $ 332.7 $ 243.0 $ 152.0
Total assets 768.9 1,097.6 1,339.0 1,180.4 1,447.0
Long-term debt 400.1 419.8 417.0 586.8 805.2
Stockholder's equity 162.9 304.1 534.9 260.9 225.0

Selected financial data:

Cash flows from operating activities 53.7 (85.6) 16.9 94.9 (44.7)
Cash flows from investing activities (21.2) (134.1) 212.0 (123.6) (229.9)
Cash flows from financing activities (5.4) 174.7 30.0 (61.0) 194.0
Expenditures for turnaround 11.2 6.5 13.9 47.4 28.3
Expenditures for property, plant and equipment 68.0 15.7 20.1 26.4 101.3
Refinery acquisition expenditures 13.5 71.8 - - 175.0

Operating statistics:
Port Arthur refinery (acquired February 27, 1995)
Production (m bbls/day) - 207.7 210.8 213.5 223.9
Gross margin (per barrel of production)/(a)/ $ - $ 2.28 $ 2.78 $ 3.84 $ 3.48
Operating expenses(mm)/(a)/ - 121.6 164.7 170.7 172.7

Blue Island, Hartford, Lime and other refining
Production (m bbls/day) 140.3 136.5 134.2 135.8 181.1
Gross margin (per barrel of production)/(a)/ $ 3.35 $ 2.51 $ 2.56 $ 3.79 $ 2.95
Operating expenses(mm)/(a)/ 115.1 130.2 126.6 123.2 168.9
</TABLE>

(a) Certain reclassifications have been made to prior periods to conform to
current period presentation.

(b) Amortization includes amortization of turnaround and organizational costs.

(c) Interest and financing costs, net, includes amortization of debt issuances
cost of $1.2 million, $5.2 million, $6.5 million, $7.0 million, $2.2 for
the years ended December 31, 1994, 1995, 1996, 1997 and 1998 respectively.
Interest and financial costs, net also includes interest on all
indebtedness net of capitalized interest and interest income.

15
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

RESULTS OF OPERATIONS

The following table provides supplementary data for the Company's continuing
operations in a format that is not intended to represent an income statement
presented in accordance with generally accepted accounting principles. The
operating results of the retail marketing operations have been segregated from
the Company's continuing operations and as a result have been excluded from the
following table. In addition, certain reclassifications have been made to prior
periods to conform to current period presentation. The Company considers certain
items in each of the periods discussed to be special items. These items are
discussed separately.

1998 compared with 1997 and 1996:
- ----------------------------------

FINANCIAL RESULTS:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
OPERATING INCOME:
Port Arthur refinery
Crude oil throughput (m bbls/day)........................ 199.8 206.6 219.3
Production (m bbls/day).................................. 210.8 213.5 223.9
Gross margin (per barrel of production).................. $ 2.78 $ 3.84 $ 3.48
Golf coast 3/2/1 crack spread ($/barrel)................. 2.65 3.24 2.39
Operating expenses....................................... (164.7) (170.7) (172.7)
Net margin............................................... 49.7 128.6 112.1

Midwest refineries and other
Crude oil throughout (m bbls/day)........................ 132.7 128.5 181.6
Production (m bbls/day).................................. 134.2 135.8 181.1
Gross margin (per barrel of production).................. $ 2.56 $ 3.79 $ 2.95
Chicago 3/2/1 crack spread ($/barrel).................... 4.02 4.04 3.33
Operating expenses....................................... (126.6) (123.2) (168.9)
Net margin............................................... $ (0.9) $ 64.9 $ 26.3
General and administrative expenses...................... (37.8) (43.0) (50.0)
------- ------- -------
Operating Contribution................................... $ 11.0 $ 150.5 $ 88.4
Inventory timing adjustments gain (loss)................. (1.3) (42.0) (14.6)
Inventory write-down to market........................... -- (19.2) (86.6)
Recapitalization, asset write-offs and other costs....... -- (40.0) --
Gain on sale of minority pipeline interests.............. -- -- 69.3
Depreciation and amortization............................ (35.7) (46.7) (54.4)
------- ------- -------
Operating income (loss).................................. $ (26.0) $ 2.6 $ 2.1
======= ======= =======
</TABLE>

(a) Includes adjustments to inventory costs caused by timing differences
between when crude oil is actually purchased and refined products are
actually sold, and a daily "market in, market out" operations measurement
methodology for the refining division.

The Company recorded an Operating Contribution (earnings before interest,
taxes, depreciation, amortization, inventory-related items, the gain on the sale
of minority pipeline interests and recapitalization, asset write-offs and other
costs) of $88.4 million in 1998, which was less than the $150.5 million
Operating Contribution achieved in 1997, but improved over $11.0 million in
1996. Operating Contribution was reduced principally due to lower margins for
refined products in 1998 than 1997 or 1996 due to excess industry inventories.
Inventories increased as a result of a warmer than normal 1997-1998 winter
heating oil season, high refinery utilization rates and the impact on world
demand from the Asian economic slowdown. In 1997, Operating Contribution
improved over 1996 due to improved refining industry conditions and strong
operations. Net income in 1997 and 1998 was materially reduced by several
significant items the Company considers special. As a result, the Company
reported net losses of $20.9 million in 1998, $58.2 million in 1997 and $38.5
million in 1996. Net sales and operating revenues and cost of goods sold were
higher in 1996 than 1997 or 1998 principally because of higher hydrocarbon
prices in that period.

<PAGE>

Special items totaled $31.9 million in 1998 and $111.9 million in 1997, of
which $101.2 million reduced operating income and $10.7 million was recorded as
an extraordinary item for early retirement of debt. See Note 9 "Long Term
Debt" and Note 14 "Equity Recapitalization and Change in Control" to the
Consolidated Financial Statements. These special items consisted of the
following:

Inventory Timing Adjustments. Inventory timing adjustment losses of $14.6
million in 1998 and $42.0 million in 1997 were principally due to the timing
impact on crude oil purchases, and refined product sale commitments of an
over $5 per barrel decrease in crude oil prices in 1998 and $8 per barrel
decrease in 1997. Petroleum prices fell over the past two years as world
energy markets became oversupplied principally as a result of an increase in
OPEC production and reduced demand resulting from the Asian economic slowdown
and the warm 1997-1998 winter. Gains in 1996 resulting from rising crude oil
prices were offset by the volatility of the crude oil market principally
related to the uncertainty associated with Iraq's pending reentry into the
world markets. These gains and losses resulted 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 does not currently
hedge this price risk because of the cost of entering into appropriate hedge-
related derivatives and the long-term nature of such risk.

Inventory Write-downs to Market. Also as a result of decreasing petroleum
prices, the Company was required to record non-cash accounting charges of
$86.6 million in 1998 and $19.2 million in 1997 to reflect the decline in the
value of petroleum inventories below carrying value.

Recapitalization, asset write-offs and other costs. Recapitalization, asset
write-offs and other costs totaled a charge of $40.0 million in 1997. In 1997
this item included a non-cash charge of $20.3 million principally to write
down the value of an idled refining capital project that was being dismantled
for more productive use. A non-cash charge of $9.0 million was also recorded
in 1997 due to a change in strategic direction principally for certain legal,
environmental and other accruals related to existing actions. In addition,
the Company incurred costs of $10.7 million in connection with affiliates of
Blackstone acquiring an indirect controlling interest in the Company.

Gain on sale of minority pipeline interests. In 1997, the Company determined
that its minority interests in the Southcap and Chicap crude oil pipelines,
and the Wolverine and West Shore product pipelines, were not strategic since
the Company's shipping rights are assured due to the pipelines' operation as
common carrier pipelines and the Company's historical throughput on these
pipelines. In 1998, the Company sold its interests in these pipelines for net
proceeds of $76.4 million which resulted in a before and after-tax book gain
of approximately $69.3 million. These pipelines contributed earnings of
approximately $5.3 million in 1998, $8.2 million in 1997 and $9.0 million in
1996 and were recorded as a component of refinery gross margin for the
Midwest refineries.

17
<PAGE>

The principal reason for the decrease in Operating Contribution in 1998 was
reduced margins on refined products as indicated by a 26% decrease in the Gulf
Coast refining margin indicator (3/2/1 crack spread) and an 18% decrease in the
Chicago refining margin indicator. Refining margins for the Hartford refinery
were further reduced by a decrease in discounts for heavy sour Canadian crude
oil as a result of low absolute crude oil prices which caused the lower-valued
oil to be unavailable.

Operating Contribution increased in 1997 due to improved yields and
throughput and wider crude oil quality differentials. Crude oil quality
differential market indicators for light sour crude oil improved from $1.24 per
barrel in 1996 to $1.71 per barrel in 1997 and $1.56 per barrel in 1998. Market
indicators for benchmark heavy sour crude oil discounts improved from $4.78 per
barrel in 1996 to $5.63 per barrel in 1997 and $5.68 in 1998. The Company
believes crude oil quality differential indicators improved primarily due to
increased production of heavy and sour crude oil, increased availability of
Canadian light and heavy sour crude oil from the Express and Interprovincial
pipelines, higher levels of industry refinery maintenance turnarounds and milder
winter weather in the first quarter of 1997 and 1998. Hartford refinery results
in 1997 particularly benefited from improved access to lower-cost Canadian heavy
crude oil. Discounts for heavy sour crude oil narrowed throughout 1998 and
averaged $4.90 per barrel in the fourth quarter.

Major scheduled maintenance turnarounds at the Blue Island refinery (1998),
the Port Arthur refinery (1997), and the Hartford refinery (1997 and 1996)
resulted in an opportunity cost from lost production of $17.1 million in 1998,
$19.3 million in 1997 and $7.2 million in 1996. Unscheduled downtime at the
Blue Island refinery in 1996 reduced gross margins by an estimated $3.1 million.

Port Arthur refinery throughput rates increased in both 1997 and 1998 over
the previous year. Results in 1997 were buoyed by the operational benefits
realized from a first quarter maintenance turnaround and in 1998 due to less
scheduled downtime. The Port Arthur refinery achieved record annual throughput
rates on all major units, including the crude, FCC and coker units in 1998.
Production increased in the Midwest refineries due to the acquisition in August
1998 of the Lima refinery which averaged 131,800 bpd during the nearly five
months it was owned by the Company. Record rates were achieved in 1998 at the
Hartford refinery on most major units, including the crude, FCC and coker units.

<PAGE>

Operating expenses increased from 1996 through 1998 at the Port Arthur
refinery principally due to higher throughput rates and incentive compensation.
Operating expenses for the Midwest refineries continued to benefit from cost
containment programs with the increase in 1998 primarily attributable to the
acquisition of the Lima refinery. General and administrative expenses increased
in 1997 principally because of higher incentive pay in 1997 due to a stronger
Operating Contribution, and in 1998 due to the addition of the Lima refinery,
increased employee placement costs and an increase in information services costs
related to year 2000 remediation and upgrades and increased consulting services.

19
<PAGE>

Other Financial Matters

Depreciation and amortization expenses increased in each of the past three
years principally because of amortization of the Port Arthur refinery
maintenance turnaround performed in the first quarter of 1997, the acquisition
of the Lima refinery in 1998 and higher capital expenditures.

Interest and finance costs, net increased in 1997 and 1998 over 1996
principally because of incremental debt added by the Company associated with the
acquisition of the Lima refinery in August 1998 and as part of the financial
restructuring of the Company and Clark USA in late 1997. This additional debt
more than offset the benefit of reduced borrowing rates and reduced financing
cost amortization resulting from the Company's and Clark USA's financing
activities in late 1997. The Company issued $110 million of 8 5/8% Senior Notes,
due 2008 and expanded a $115 million floating rate term loan to finance the Lima
refinery acquisition. In late 1997, the Company redeemed its 10 1/2% Senior
Notes, due 2001 ("10 1/2% Senior Notes") and returned capital of $215 million to
Clark USA so that Clark USA could repurchase substantially all of its Senior
Secured Zero Coupon Notes, due 2000 ("Zero Coupon Notes"). The Company issued
$100 million 8 3/8% Senior Notes due 2007 ("8 3/8% Senior Notes") and $175
million 8 7/8% Senior Subordinated Notes due 2007 ("8 7/8% Senior Subordinated
Notes") and entered into a $125 million floating rate term loan due 2004
("Floating Rate Loan"). The Company also entered into an amended and restated
working capital facility. See Note 8 "Working Capital Facility" and Note 14
"Equity Recapitalization and Change in Control" to the Consolidated Financial
Statements.

Sale of Retail Division

On July 8, 1999, the Company completed the sale of its retail marketing
operations in a recapitalization transaction to a company controlled by Apollo
for cash proceeds of $230 million. Apollo assumed all unknown and future
environmental responsibility while the Company will retain all known
contamination. Clark Holdings will hold a six percent equity interest in the
retail marketing operation. As part of the sale agreement , the Company also
entered into a two-year, market-based supply agreement for refined products that
is based on market pricing and payment terms. The supply agreement may be
canceled with 90 days notice by the buyer. The retail marketing operation was
sold in order to allow the Company to focus its human and financial resources on
the continued improvement and expansion of its refining business, which it
believes will generate higher future returns.

The Company expects to recognize a gain on sale in the quarter ended
September 30, 1999. The retail marketing operation sold included all
Company-operated retail stores, approximately 200 independently-operated,
Clark-branded stores and the Clark trade name. Accordingly, the retail marketing
operation's net assets (liabilities) have been segregated from the Company's
continuing operations in the consolidated balance sheets, and its operating
results were segregated and reported as discontinued operations in the
accompanying consolidated statements of operations and cash flows.

Year 2000 Readiness Disclosure

The Company is faced with the year 2000 issue as a result of its use of
computer systems that were programmed to identify calendar dates with only the
last two digits of the year. As a result, such programs are unable to
distinguish between the year 1900 and 2000, potentially resulting in
malfunctions, miscalculations or failures of such programs. In addition to its
potential effect on computer systems, the century date change may also result in
malfunctions or failures of non-IT equipment which contain embedded systems with
date sensitive functions.

The Company began significant efforts to address its exposures related to the
year 2000 issue in 1997. A project team was put in place to assess, remediate or
replace, test and implement computer systems and applications so that such
systems and related processes will continue to operate and properly process
information after December 31, 1999.

Many applications and embedded systems have already been replaced or
modified. The Company has committed the financial and human resources expected
to be required to replace or modify the remaining applications and embedded
systems. The Company has expended $2.3 million through December 31, 1998 and
estimates the total cost of program conversions or replacements to be
approximately $5 million to $8 million, and estimates substantial completion by
June 30, 1999. Such costs will be expensed as incurred and funded from
operations. The Company will also develop contingency plans for these systems as
well as the business processes and operations that they support. Such plans will
be drafted during second quarter 1999 and are expected to be completed by June
30, 1999. The Company reviews the progress of its year 2000 program weekly and
if it is determined that any item is falling behind schedule the Company has, or
will, identify an alternative remediation or replacement approach.

In addition, the Company is communicating, and evaluating the systems of its
customers, suppliers, financial institutions and others with which it does
business to identify any year 2000 issues. Presently, the Company does not
anticipate that the year 2000 problem will have a material adverse effect on the
operations or financial performance of the Company.

The estimated completion dates and costs of compliance noted above are the
current best estimates of the Company and are believed to be reasonably
accurate. In the event unanticipated problems are encountered which cause the
compliance plan to fall behind schedule, the Company may devote additional
resources to completing the plan and additional costs may be incurred.

If the Company were not able to satisfactorily complete the year 2000
program, potential consequences could include among other things, unit downtime
or damage to the Company's refineries, delays in transporting refinery
feedstocks and refined products, impairment of relationships with significant
customers or suppliers, loss of accounting data or delays in processing such
data and loss of or delays in communications both internal and external. The
occurrence of any or all of these above events could result in a material
adverse effect on the Company's operational or financial results. The
contingency plans described above are intended to mitigate these potential
events if they were to occur.

Although the Company currently believes that it will satisfactorily complete
the year 2000 program as described above, prior to January 1, 2000, there can be
no assurance that the program will be completed by such time or that the year
2000 problem will not adversely affect the Company and its business. Likewise,
there can be no assurance that the Company's customers, suppliers, financial
institutions and others will be successful in their efforts to be year 2000
compliant which could also adversely affect the Company.

Accounting Standard Not Yet Adopted

In June 1998, the FASB adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement becomes effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company is currently evaluating this new
standard, the impact it may have on the Company's accounting and reporting, and
planning for when to adopt the standard.

20
<PAGE>

Outlook

Since most of the Company's products are commodities, supply and demand for
crude oil and refined products have a significant impact on the Company's
results. Demand for fuel products has grown by an average of 2% per year 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 refined 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 refined products.
Industry margins in early 1999 remained below historical averages as the third
consecutive warm winter limited demand and resulted in excess refined product
inventories.

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
FINANCIAL POSITION: YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Cash and short-term investments........ $332.7 $243.0 $152.0
Working capital........................ 547.4 433.8 361.8
Property, plant and equipment.......... 391.0 380.4 627.4
Long-term debt......................... 417.0 586.8 805.2
Stockholder's equity................... 534.9 260.9 225.0
Operating Cash Flow.................... (24.6) 46.6 33.1
</TABLE>

Net cash provided by operating activities, excluding working capital changes
("Operating Cash Flow"), for the year ended December 31, 1998 was $33.1 million
compared to $46.6 million in 1997 and cash flow used of $24.6 million in 1996.
Operating Cash Flow decreased in 1998 compared to 1997 due to weaker refining
market conditions, while 1997 was improved over 1996 because of a stronger
refining margin environment and improved refining productivity in that period.
Working capital as of December 31, 1998 was $361.8 million, a 1.99 to 1 current
ratio, versus $433.8 million, a 2.51 to 1 current ratio, at December 31, 1997
and $547.4 million, a 2.58 to 1 current ratio, as of December 31, 1996. Working
capital decreased in 1998 compared to 1997 principally due to lower hydrocarbon
prices and increased capital spending. Working capital also decreased during
1997 because of lower inventory carrying values and the capital cost of the Port
Arthur and Hartford refinery maintenance turnarounds.

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 ongoing 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 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 Credit Agreement is used for
the issuance of letters of credit primarily for the purchase of crude oil and
other feedstocks and refined products.

In September 1997, the Company entered into a credit agreement that provides
for borrowings and the issuance of letters of credit. The credit agreement was
amended in August 1998 to increase the facility to the lesser of $700 million,
or the amount of a borrowing base calculated with respect to the Company's cash
and cash equivalents, eligible investments, eligible receivables and eligible
petroleum inventories. Direct borrowings under the facility are limited to $150
million. The facility is secured by liens on substantially all of the Company's
cash and cash equivalents, receivables, crude oil, refined product inventories
and other inventories and trademarks and other intellectual property. The
amount available

<PAGE>

under the borrowing base associated with such facility at December 31, 1998 was
$457 million and approximately $245 million of the facility was utilized for
letters of credit. As of December 31, 1998, there were no direct borrowings
under the credit agreement and the Company was in compliance with all covenants.

The credit agreement contains covenants and conditions that, among other
things, limit dividends, indebtedness, liens, investments, contingent
obligations and capital expenditures. It also requires 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 financial covenants are (i) maintenance of working capital of at
least $150 million; (ii) maintenance of a tangible net worth (as defined) of at
least $280 million (subject to adjustment); and (iii) maintenance of minimum
levels of balance sheet cash (as defined) of $50 million. The covenants also
provide for a cumulative cash flow test (as defined) from March 31, 1997, which
must be greater than zero. The credit agreement also limits the amount of
future additional indebtedness that may be incurred by the Company to $75
million, subject to certain exceptions.

In August 1998, the Company acquired BP's 170,000 barrel per day Lima, Ohio
refinery, related terminal facilities, and non-hydrocarbon inventories for a
purchase price of approximately $175.0 million plus related acquisition costs of
$11.3 million. Hydrocarbon inventories were purchased for $34.9 million. The
Company assumed liabilities mainly related to employee benefits of $7.0 million.
BP retained permanent responsibility for all known pre-existing environmental
liabilities and responsibility for a minimum of twelve years for pre-existing
but unknown environmental liabilities. The total cost of the acquisition was
accounted for using the purchase method of accounting with $175.0 million
allocated to the refinery long-term assets and $53.2 million allocated to
current assets for hydrocarbon and non-hydrocarbon inventories and catalysts.
From 1991 to 1997 the Company believes BP invested an aggregate of approximately
$212 million in the Lima refinery. Based on the Company's due diligence, it
expects mandatory capital expenditures for the Lima refinery to average
approximately $20 million per year for the period from 1999 to 2002 and
maintenance turnaround expenditures to cost approximately $30 million once every
five years. The Lima refinery is scheduled to have the first such major
maintenance turnaround in 1999. The Company expects cash flows from the Lima
refinery to be more than adequate to cover incremental financing and mandatory
capital and turnaround costs.

In 1998, the Company sold its minority interests in West Shore Pipeline
Company, Wolverine Pipeline Company, Chicap Pipeline Company and Southcap
Pipeline Company after determining they were not strategic. The Company's
shipping rights are assured due to the pipelines' operation as common carrier
pipelines and the Company's historical throughput on such pipelines. The sale
of the interests in these pipelines generated net proceeds of $76.4 million.
These pipelines contributed earnings of approximately $5.3 million for the year
ended December 31, 1998, $8.2 million in 1997 and $9.0 million in 1996.

Cash flows used in investing activities (excluding short-term investment
activities which the Company manages similar to cash and cash equivalents) in
1998 were $240.3 million compared to $123.6 million in 1997 and cash flow
generated from investing activities of $180.9 million in 1996. Net cash flows
used in investing activities in 1998 were higher than 1997 principally due to
the Lima Acquisition, which was partially offset by proceeds from the sale of
the minority pipeline interests and certain non-core retail stores. Two major
refinery maintenance turnarounds and a large retail store acquisition increased
cash flows used in investing activities in 1997 over 1996. Cash flow was
generated in 1996 from the sale of an advance crude oil purchase receivable.

Capital expenditures for property, plant and equipment totaled $101.3 million
in 1998 (1997--$26.4 million; 1996--$20.1 million) and expenditures for refinery
maintenance turnarounds totaled $28.3 million in 1998 (1997--$47.4 million; 1996
- --$13.9 million). Approximately 36% of expenditures in 1998 were non-
discretionary with discretionary expenditures principally for the Port Arthur
refinery heavy oil upgrade project ($41.5 million), expansion of the Blue

22
<PAGE>

Island refinery's vacuum tower ($6.7 million) and the expansion of coker
capacity at the Hartford refinery ($3.6 million). Approximately 50% of 1997 and
1996 expenditures were non-discretionary with discretionary capital expenditures
in 1997 for a project to increase the ability of the Hartford refinery to
process heavy, sour Canadian crude oil ($2.3 million) and debottlenecking
improvements to the Port Arthur refinery's FCC unit ($8.0 million).

The Company classifies its capital expenditures into two categories, non-
discretionary and discretionary. Non-discretionary capital expenditures are
required to maintain safe and reliable operations, and non-discretionary
environmental expenditures are required to comply with regulations pertaining to
ground, water and air contamination and occupational, safety and health issues.
The Company estimates that total non-discretionary capital and turnaround
expenditures will average approximately $90 million per year over the next three
years. Costs to comply with future regulations cannot be estimated.

In March 1998, the Company entered into a long-term crude oil supply agreement
with PMI, an affiliate of Petroleos Mexicanos, the Mexican state oil company,
which provides the Company with the foundation necessary to continue developing
a project to upgrade the Port Arthur refinery to process primarily lower-cost,
heavy sour crude oil. The project is expected to cost $600-$700 million and
include the construction of additional coking and hydrocracking capability, and
the expansion of crude unit capacity to approximately 250,000 barrels per day.
Although the Company, Clark USA and its shareholders are currently evaluating
alternatives for financing the project, it is expected that the financing will
be on a non-recourse basis to the Company. The oil supply agreement with PMI
and the construction work-in-progress are expected to be transferred for value
to a non-recourse entity that will likely be an affiliate of, but not be
controlled by, the Company and its subsidiaries. The Company expects to enter
into agreements with its affiliate pursuant to which the Company would provide
certain operating, maintenance and other services and would purchase the output
from the new coking and hydrocracking equipment for further processing into
finished products. The Company expects to receive compensation under these
agreements at fair market value that is expected to be favorable to the Company.

In the event the project financing cannot be completed on a non-recourse basis
to the Company as contemplated, the restrictions in the Company's existing debt
instruments would likely prohibit the Company and its subsidiaries from raising
the financing themselves and thus completing the project. Notwithstanding the
foregoing, however, the Company has begun entering into purchase orders, some of
which contain cancellation penalties and provisions, for material, equipment and
services related to this project. As of December 31, 1998, non-cancelable
amounts of approximately $80 million had accumulated under these purchase
orders. Additional purchase orders and commitments have been made and are
expected to continue to be made during 1999. If the project were cancelled, the
Company would be required to pay a termination fee of approximately $200,000 per
month to PMI from September 1, 1998 to the cancellation date. In addition, the
Company would be subject to payment of the non-cancelable commitments and
required to record a charge to earnings for all expenditures to date. Although
the financing is expected to be completed in the first half of 1999, there can
be no assurance that the financing for the project will be successful or that
the project can be completed as contemplated.

The Company has a philosophy to link routine capital expenditures to cash
generated from operations. The Company has a total capital and refinery
maintenance turnaround expenditure budget, excluding the Port Arthur refinery
upgrade project, of approximately $130 million for 1999. 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.

23
<PAGE>

Cash flow provided by financing activities in 1998 was $194.0 million and was
principally related to the acquisition of the Lima refinery. The Company funded
the acquisition of the Lima refinery and related costs with cash on hand and the
proceeds of a private placement to institutional investors of $110 million 8
5/8% Senior Notes due 2008 and a $115 million floating rate term loan due 2004.
In November 1997, the Company returned capital of $215 million to Clark USA so
that it could repurchase for $206.6 million, $259.2 million (value at maturity)
of Zero Coupon Notes tendered pursuant to a tender offer. Subsequently in 1997,
the Company received net proceeds of approximately $390 million from the
issuance of the 8 3/8% Senior Notes, the 8 7/8% Senior Subordinated Notes and a
floating rate term loan. On December 24, 1997, Clark R&M redeemed all $225
million of the 10 1/2% Senior Notes outstanding at a price of $1,032.96 for each
$1,000.00 principal amount of the notes. In early 1998, Clark USA called the
remaining Zero Coupon Notes outstanding ($3.6 million) and the Company
repurchased some of its 9 1/2% Senior Notes tendered under its required change
of control offer ($3.3 million).

On November 3, 1997, Blackstone acquired the 13.5 million shares of Common
Stock of Clark USA previously held by TrizecHahn and certain of its
subsidiaries. As a result, Blackstone obtained an indirect controlling interest
in the Company. Clark R&M's credit facility was amended to permit the
acquisition by Blackstone of Clark USA's Common Stock.

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,
excluding the Port Arthur refinery upgrade project, 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 its operating philosophies will be sufficient to provide the Company with
adequate liquidity through the next year, there can be no assurance that market
conditions will not be worse than anticipated. Future working capital,
discretionary capital expenditures, environmentally mandated spending and
acquisitions may require additional debt or equity capital.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in the Company's market risk sensitive instruments
and positions is the potential loss from adverse changes in commodity prices and
interest rates. None of the Company's market risk sensitive instruments are
held for trading.

COMMODITY RISK

The Company's earnings, cash flow and liquidity are significantly affected by
a variety of factors beyond its control, including the supply of, and demand
for, commodities such as crude oil, gasoline and other refined products. The
demand for these refined products depends on, among other factors, changes in
domestic and foreign economies, weather conditions, domestic and foreign
political affairs, production levels, the availability of imports, the marketing
of competitive fuels and the extent of government regulation. As a result,
crude oil and refined product prices fluctuate significantly, which directly
impact the Company's net sales and operating revenues and costs of goods sold.

The movement in petroleum prices does not necessarily have a direct long-term
relationship to net earnings. 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 is required to
fix the price of its crude oil purchases approximately two to three weeks prior
to when the crude oil can be processed and sold. As a result, the Company is
exposed to crude oil price movements during such period. In addition, the
market value of the Company's petroleum inventory is currently below original
cost, which has resulted in a writedown of inventory to fair market value. The
Company's earnings will continue to be impacted by these writedowns, or recovery
of writedowns, to market value until market prices exceed LIFO cost.

24
<PAGE>

Earnings Sensitivity
- --------------------

The following table illustrates the estimated pre-tax earnings impact based
on average historical operating rates, fixed price purchase commitments and
inventory levels resulting from potential changes in several key refining market
margin indicators and crude oil prices described below. This analysis may differ
from actual results.

. Sweet crude oil cracking margins--the spread between gasoline and diesel fuel
prices and input (e.g., a benchmark light sweet crude oil) costs
. Sweet/sour differentials--the spread between a benchmark light sour crude oil
and a benchmark light sweet crude oil
. Heavy/light differentials--the spread between a benchmark light sweet crude
oil and a benchmark heavy sour crude oil
. Fixed price purchase commitments - fixed price purchase commitments for crude
oil required for the two to three weeks prior to when products are refined
and sold.
. Lower of cost or market adjustment - physical inventory subject to lower of
cost or market adjustments while carrying value is below original cost

<TABLE>
<CAPTION>
ASSUMED PRE-TAX EARNINGS
CHANGE BARRELS IMPACT
------ ------- ------
(PER BARREL) (IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C>
REFINING MARGINS
Sweet crude oil cracking margin $0.10 200 $20
Sweet/sour differentials 0.10 90 9
Heavy/light differentials 0.10 30 3
CRUDE OIL PRICES
Fixed price purchase commitments 2.00 4 8
Lower of cost or market adjustment 2.00 17 34
</TABLE>

The Company utilizes limited risk management tools to mitigate risk
associated with fluctuations in petroleum prices on its normal operating
petroleum inventories. The Company believes this policy is appropriate since
inventories are required to operate the business and are expected to be owned
for an extended period of time. The Company believes the cost of using such
tools to manage short-term fluctuations outweigh the benefits.

The Company occasionally uses several strategies to minimize the impact on
profitability of 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 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. 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.

A sensitivity analysis was prepared to estimate the Company's exposure to
market risk associated with derivative commodity positions. This analysis may
differ from actual results. The fair value of each derivative commodity
position was based on quoted futures prices. Market risk was estimated based on
a 10% change in prices. As of December 31, 1998, the Company's sensitivity to
market risk associated with derivative commodity instruments was immaterial.

25
<PAGE>

INTEREST RATE RISK

The Company's principal interest rate risk is associated with its long-term
debt. The Company manages this rate risk by maintaining a high percentage of its
long-term debt with fixed rates. In addition, the Company has no material
principal payments due prior to 2003, but as of December 31, 1998 had the
flexibility to call $411.7 million of its long term debt, including all of its
floating rate bank term loan. A 1% change in the fair market value of long-term
debt would result in a $8.1 million change in fair value. The Company is subject
to interest rate risk on this floating rate bank term loan and any direct
borrowings under the Company's credit facility. As of December 31, 1998, $240.0
million of the Company's long-term debt was based on floating interest rates.
There were no borrowings under the Company's credit facility.

26
<PAGE>

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) 1. AND 2. FINANCIAL STATEMENTS

The financial statements filed as a part of the Report on Form 10-K are
listed in the accompanying index to financial statements. There are no financial
statement schedules.

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 dated as of August 10, 1998 between Clark Refining &
Marketing, Inc. and Bankers Trust Company, as Trustee, including
the form of the 8 5/8% Senior Notes due 2008 (Incorporated by
reference to Exhibit 4.1 filed with Clark Refining & Marketing,
Inc. Form S-4 (Registration No. 333-64387)
4.2 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))
4.3 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))
4.4 Indenture between Clark Refining & Marketing, Inc. and Bankers Trust
Company, dated as of November 21, 1997, including the form of 8
3/8% Senior Notes due 2007 (Incorporated by reference to Exhibit
4.5 filed with Clark Refining & Marketing, Inc. Registration
Statement on Form S-4 (Registration No. 333-42431))

27
<PAGE>

EXHIBIT
NUMBER DESCRIPTION
- ------ -----------

4.5 Indenture between Clark Refining & Marketing, Inc. and Marine Midland
Bank, dated as of November 21, 1997, including the form of 8 7/8%
Senior Subordinated Notes due 2007 (Incorporated by reference to
Exhibit 4.6 filed with Clark Refining & Marketing, Inc. Registration
Statement on Form S-4 (Registration No. 333-42431))
4.6 Supplemental Indenture between Clark Refining & Marketing, Inc. and
Marine Midland Bank, dated as of November 21, 1997 (Incorporated by
reference to Exhibit 6.1 filed with Clark Refining & Marketing, Inc.
Registration Statement on Form S-4 (Registration No. 333-42431))
10.10 Credit Agreement, dated as of September 25, 1997, among Clark Refining
& Marketing, Inc., Bankers Trust Company, as Administrative Agent,
The Toronto-Dominion Bank, as Syndication Agent, BankBoston, N.A.,
as Documentation Agent, and the other financial institutions party
thereto. (Incorporated by reference to Exhibit 10.10 filed with
Clark Refining & Marketing, Inc. Current Report on Form 8-K, dated
October 1,1997 (File No. 1-11392))
10.11 Amendment No. 1 to Credit Agreement, dated as of October 29, 1997,
among Clark Refining & Marketing, Inc., Bankers Trust Company, as
Administrative Agent and Collateral Agent, The Toronto-Dominion
Bank, as Syndication Agent, and BankBoston, N.A., as Documentation
Agent, and the other financial institutions party thereto
(Incorporated by reference to Exhibit 10.11 filed with Clark
Refining & Marketing, Inc. Registration Statement on Form S-4
(Registration No. 333-42431))
10.12 Amendment No. 2 to Credit Agreement, dated as of November 7, 1997,
among Clark Refining & Marketing, Inc., Bankers Trust Company, as
Administrative Agent and Collateral Agent, The Toronto-Dominion
Bank, as Syndication Agent, and BankBoston, N.A., as Documentation
Agent, and the other financial institutions party thereto
(Incorporated by reference to Exhibit 10.12 filed with Clark
Refining & Marketing, Inc. Registration Statement on Form S-4
(Registration No. 333-42431))
10.13 Amendment No. 3 to Credit Agreement, dated as of July 24, 1998, among
Clark Refining & Marketing, Inc., Bankers Trust Company, as
Administrative Agent and Collateral Agent, The Toronto-Dominion
Bank, as Syndication Agent, and BankBoston, N.A., as Documentation
Agent, and the other financial institutions party thereto
(Incorporated by reference to Exhibit 10.13 filed with Clark
Refining & Marketing, Inc. Registration Statement on Form S-4
(Registration No. 333-64387)).
10.14 Amendment No. 4 to Credit Agreement, dated as of October 2, 1998,
among Clark Refining & Marketing, Inc., Bankers Trust Company, as
Administrative Agent and Collateral Agent, The Toronto-Dominion
Bank, as Syndication Agent, and BankBoston, N.A., as Documentation
Agent, and the other financial institutions party thereto
(Incorporated by reference to Exhibit 10.131 filed with Clark
Refining & Marketing, Inc. Registration Statement on Form S-4
(Registration No. 333-64387)).
10.15 Credit Agreement, dated as of November 21, 1997, among Clark Refining
& Marketing, Inc., Goldman, Sachs Credit Partners L.P., as Arranger
and Syndication Agent, and State Street Bank and Trust Company of
Missouri, N.A., as Payment Agent, the financial institutions listed
on the signature pages thereof, and Goldman Sachs Credit Partners,
as Administrative Agent (Incorporated by reference to Exhibit 10.13
filed with Clark Refining & Marketing, Inc. Registration Statement
on Form S-4 (Registration No. 333-42431))
10.16 First Amended and Restated Credit Agreement, dated as of August 10,
1998, among Clark Refining & Marketing, Inc., as Borrower, Goldman
Sachs Credit Partners L.P., as Arranger, Syndication Agent and
Administrative Agent, and State Street Bank & Trust Company of
Missouri, N.A., as Paying Agent (Incorporated by reference to
Exhibit 10.15 filed with Clark Refining & Marketing, Inc.
Registration Statement on Form S-4 (Registration No. 333-64387))
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))

28
<PAGE>

EXHIBIT
NUMBER DESCRIPTION
- ------ -----------

10.22 Employment Agreement of Paul D. Melnuk (Incorporated by reference to
Exhibit 10.2 filed with Clark Refining & Marketing, Inc. Current
Report on Form 8-K, dated October 1,1997 (File No.1-11392))
10.23 Employment Agreement of William C. Rusnack (Incorporated by reference
to Exhibit 10.15 filed with Clark Refining & Marketing, Inc.
Registration Statement on Form S-4 (Registration No. 333-64387))
10.24 Memorandum of Agreement, dated as of July 8,1997, between Clark
Refining & Marketing, Inc. and Bradley D. Aldrich (Incorporated by
reference to Exhibit 10.23 filed with Clark Refining & Marketing,
Inc. Registration Statement on Form S-4 (Registration No. 333-
42431))
10.25 Memorandum of Agreement, dated as of July 8,1997, between Clark
Refining & Marketing, Inc. and Brandon K. Barnholt (Incorporated by
reference to Exhibit 10.24 filed with Clark Refining & Marketing,
Inc. Registration Statement on Form S-4 (Registration No. 333-
42431))
10.26 Memorandum of Agreement, dated as of July 8,1997, between Clark
Refining & Marketing, Inc. and Maura J. Clark (Incorporated by
reference to Exhibit 10.25 filed with Clark Refining & Marketing,
Inc. Registration Statement on Form S-4 (Registration No. 333-
42431))
10.30 Agreement for the Purchase and Sale of Lima Oil Refinery, dated as of
July 1, 1998 between BP Exploration & Oil Inc., The Standard Oil
Company, BP Oil Pipeline Company, BP Chemicals Inc. and Clark
Refining & Marketing, Inc. (Incorporated by reference to Exhibit 2.1
filed with Clark Refining & Marketing, Inc. Current Report on Form
8-K, dated August 21, 1998 (File No. 1-11392))
10.31 Letter Amendment No.1, dated August 10, 1998, to Agreement for
Purchase and Sale of Lima Oil Refinery dated July 1, 1998
(Incorporated by reference to Exhibit 2.2 filed with Clark Refining
& Marketing, Inc. Current Report on Form 8-K, dated August 21,1998
(File No. 1-11392))
16.1 Letter from Coopers & Lybrand L.L.P. dated April 15, 1997
(Incorporated by reference to Exhibit 16.1 filed with Clark Refining
& Marketing, Inc. Current Report on Form 8-K dated April 7, 1997
(File No. 1-11392))
16.2 Letter from Price Waterhouse LLP dated December 3, 1997 (Incorporated
by reference to Exhibit 16.1 filed with Clark Refining & Marketing,
Inc. Current Report on Form 8-K dated November 21, 1997 (File No. 1-
11392))
27.0 Financial Data Schedule

(B) REPORTS ON FORM 8-K

None

29
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARIES:
Annual Financial Statements
Reports of Independent Accountants..................................................... 31
Consolidated Balance Sheets as of December 31, 1997 and 1998........................... 33
Consolidated Statements of Operations for the years ended December 31, 1996,
1997 and 1998........................................................................ 34

Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1997 and 1998........................................................................ 35
Consolidated Statements of Stockholder's Equity for the years ended December 31,
1996, 1997 and 1998.................................................................. 36
Notes to Consolidated Financial Statements............................................. 37
</TABLE>

30
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Clark Refining & Marketing, Inc.

We have audited the accompanying consolidated balance sheets of Clark Refining &
Marketing, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and
1998 and the related consolidated statement of operations, stockholder's equity,
and cash flows for the years then ended. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1997
and 1998, and the results of their operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

St. Louis, Missouri
February 6, 1999
(July 8, 1999 as to the discontinued
operations described in Note 3)

31
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Clark Refining & Marketing, Inc.:

We have audited the accompanying consolidated statements of operations,
stockholder's equity and cash flows for the year ended December 31, 1996 of
Clark Refining & Marketing, Inc. and Subsidiaries (a Delaware corporation and
wholly-owned subsidiary of Clark USA, Inc.) 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of the operations and the cash
flows of Clark Refining & Marketing, Inc. for the year ended December 31, 1996
in conformity with generally accepted accounting principles. We have not audited
the consolidated financial statements of Clark Refining & Marketing, Inc. for
any period subsequent to December 31, 1996.

PricewaterhouseCoopers LLP

St. Louis, Missouri
February 4, 1997, except
for Note 3 as it relates to
discontinued operations, for
which the date is July 8, 1999

32
<PAGE>

CLARK REFINING & MARKETING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
REFERENCE -----------------------
ASSETS NOTE 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 2 $ 228.1 $ 147.5
Short-term investments 4 14.9 4.5
Accounts receivable 4 99.2 130.7
Receivable from affiliates 2.2 2.3
Inventories 2,5 228.6 267.7
Prepaid expenses and other 13.7 31.6
Net assets held for sale 3 134.0 143.2
---------- ----------
Total current assets 720.7 727.5

PROPERTY, PLANT, AND EQUIPMENT, NET 2,6 380.4 627.4
OTHER ASSETS 2,7 79.3 92.1

---------- ----------
$ 1,180.4 $ 1,447.0
========== ==========

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Accounts payable 2,8 $ 206.2 $ 250.3
Payable to affiliates 14.8 25.2
Accrued expenses and other 9,11 45.2 64.3
Accrued taxes other than income 20.7 25.9
---------- ----------
Total current liabilities 286.9 365.7

LONG-TERM DEBT 9,11 586.8 805.2
OTHER LONG-TERM LIABILITIES 12 45.8 51.1
CONTINGENCIES 16 -- --

STOCKHOLDER'S EQUITY:
Common stock ($.01 par value per share;
1,000 shares authorized and 100 shares
issued and outstanding) -- --
Paid-in capital 11 249.2 234.2
Retained earnings (deficit) 4 11.7 (9.2)
---------- ----------
Total stockholder's equity 260.9 225.0
---------- ----------

$ 1,180.4 $ 1,447.0
========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>

CLARK REFINING & MARKETING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
REFERENCE FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
NOTE 1996 1997 1998
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES AND OPERATING REVENUES 2 $ 4,656.9 $ 3,880.0 $ 3,580.5

EXPENSES:
Cost of sales (4,318.1) (3,434.6) (3,115.1)
Operating expenses (291.3) (293.9) (341.6)
General and administrative expenses (37.8) (43.0) (50.0)
Depreciation 2 (24.6) (26.2) (28.7)
Amortization 2,7 (11.1) (20.5) (25.7)
Inventory write-down to market 5 -- (19.2) (86.6)
Recapitalization, asset write-offs, and other charges 14 -- (40.0) --
---------- ---------- ----------
(4,682.9) (3,877.4) (3,647.7)

GAIN ON SALE OF PIPELINE INTERESTS 3 -- -- 69.3
---------- ---------- ----------

OPERATING INCOME (LOSS) (26.0) 2.6 2.1

Interest expense and finance income, net 9 (38.7) (39.8) (51.0)
---------- ---------- ----------

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (64.7) (37.2) (48.9)

Income tax (provision) benefit 2,13 18.6 (10.4) 12.9
---------- ---------- ----------

LOSS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM (46.1) (47.6) (36.0)

Discontinued operations, net of income taxes of $9.2
(1997--$0.1, 1996--$4.7) 3 7.6 0.1 15.1

Extinguishment of debt 9 -- (10.7) --
---------- ---------- ----------

NET LOSS $ (38.5) $ (58.2) $ (20.9)
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>

CLARK REFINING & MARKETING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (38.5) $ (58.2) $ (20.9)
Discontinued operations (7.6) (0.1) (15.1)
Extraordinary item -- 10.7 --

Adjustments:
Depreciation 24.6 26.2 28.7
Amortization 17.8 27.5 28.2
Share of earnings of affiliates, net of dividends (0.1) (1.3) 0.4
Deferred income taxes (22.1) 0.2 (10.9)
Gain on sale of pipeline interests -- -- (69.3)
Inventory write-down to market -- 19.2 86.6
Recapitalization, asset write-offs, and other charges -- 21.0 --
Other 1.3 1.4 5.4

Cash provided by (reinvested in) working capital -
Accounts receivable, prepaid expenses and other 12.8 79.7 (45.5)
Inventories 13.3 2.4 (125.5)
Accounts payable, accrued expenses, taxes other than
income and other (5.4) (71.7) 75.0
-------- -------- --------
Net cash provided by (used in) operating activities
of continuing operations (3.9) 57.0 (62.9)
Net cash provided by operating activities of
discontinued operations 20.8 37.9 18.2
-------- -------- --------
Net cash provided by (used in) operating activities 16.9 94.9 (44.7)
-------- -------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments -- (3.0) (3.2)
Sales and maturities of short-term investments 31.1 3.0 13.6
Expenditures for property, plant, and equipment (20.1) (26.4) (101.3)
Expenditures for turnaround (13.9) (47.4) (28.3)
Refinery acquisition expenditures -- -- (175.0)
Proceeds from disposals of property, plant, and equipment 3.6 0.1 --
Discontinued operations (24.1) (49.9) (12.1)
Proceeds from sale of pipeline interests -- -- 76.4
Advance crude oil purchase receivable 235.4 -- --
-------- -------- --------
Net cash provided by (used in) investing activities 212.0 (123.6) (229.9)
-------- -------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt payments (2.8) (234.2) (6.7)
Proceeds from issuance of long-term debt -- 398.0 224.7
Capital contribution received (returned) 33.6 (215.0) (15.0)
Deferred financing costs (0.8) (9.8) (9.0)
-------- -------- --------
Net cash provided by (used in) financing activities 30.0 (61.0) 194.0
-------- -------- --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 258.9 (89.7) (80.6)
CASH AND CASH EQUIVALENTS, beginning of period 58.9 317.8 228.1
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 317.8 $ 228.1 $ 147.5
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

35
<PAGE>

CLARK REFINING & MARKETING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Balance - January 1, 1996 $ -- $ 195.6 $ 108.5 $ 304.1

Change in unrealized short-term investment
gains and losses, net of taxes -- -- (0.1) (0.1)
Capital contribution received -- 268.6 -- 268.6
Net loss -- -- (38.5) (38.5)

-------- --------- ---------- ---------
Balance - December 31, 1996 $ -- $ 464.2 $ 69.9 $ 534.1

Capital contribution returned -- (215.0) -- (215.0)
Net loss -- -- (58.2) (58.2)

-------- --------- ---------- ---------
Balance - December 31, 1997 $ -- $ 249.2 $ 11.7 $ 260.9

Capital contribution returned -- (15.0) -- (15.0)
Net loss -- -- (20.9) (20.9)

-------- --------- ---------- ---------
Balance - December 31, 1998 $ -- $ 234.2 $ (9.2) $ 225.0
======== ========= ========== =========
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>

CLARK REFINING & MARKETING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998

(TABULAR DOLLAR AMOUNTS IN MILLIONS OF US DOLLARS)

1. NATURE OF BUSINESS

Clark Refining & Marketing, Inc., a Delaware corporation ("Clark R&M" or
"the Company") is wholly owned by Clark USA, Inc., a Delaware corporation
("Clark USA"), which is a wholly owned subsidiary of Clark Refining Holdings
Inc. ("Clark Holdings"). Clark R&M's principal operations include the refining
of crude oil into gasoline, diesel fuel, jet fuel and other petroleum products
and the marketing of these products. The Company also sold petroleum products
and convenience store items in retail stores in the central United States. On
July 8, 1999, the Company sold these retail operations. Accordingly, the retail
marketing operation's net assets (liabilities) have been segregated from the
Company's continuing operations in the consolidated balance sheets, and its
operating results are segregated and reported as discontinued operations in the
accompanying consolidated statements of operations and cash flows.

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

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Clark Refining & Marketing, Inc. and its wholly owned subsidiaries, principally
Clark Port Arthur Pipeline, Inc., a Delaware corporation, and Clark Investments,
Inc., a Nevada corporation. The Company consolidates the assets, liabilities,
and results of operations of subsidiaries in which the Company has a controlling
interest. Investments in companies in which less than a controlling interest is
held are generally accounted for by the equity method. All significant
intercompany accounts and transactions have been eliminated.

Use of Estimates

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.

Cash and Cash Equivalents

The Company 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.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
under the last-in, first-out "LIFO" method for all hydrocarbon inventories
including crude oil, refined products, and blendstocks. The cost of convenience
products is determined under the retail LIFO method, and the cost of warehouse
stock and other inventories is determined under the first-in, first-out method
"FIFO".

37
<PAGE>

Hedging Activity

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.

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 groups 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 reflected in current operating 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 Company reviews long-lived assets for impairments whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.

Deferred Turnaround

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 to five years. Turnaround
costs, which are included in "Other assets", are amortized over the period to
the next scheduled turnaround, beginning the month following completion. The
amortization is presented in "Amortization" on the statements of net and other
comprehensive earnings.

Environmental Costs

Environmental liabilities are recorded when environmental assessments and/or
remedial efforts are probable and can be reasonably estimated. Reimbursements
for underground storage remediation are also recorded when probable and can be
reasonably estimated.

Environmental expenditures are expensed or capitalized depending upon their
future economic benefit. Costs that improve a property as compared with the
condition of the property when originally constructed or acquired and costs that
prevent future environmental contamination are capitalized. Costs that return a
property to its condition at the time of acquisition or original construction
are expensed.

Income Taxes

Clark R&M files a consolidated U.S. federal income tax return with Clark USA
but computes its provision on a separate company basis. Deferred taxes are
classified as current 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. The Company records a
valuation allowance when necessary to reduce the net deferred tax asset to an
amount expected to be realized.

38
<PAGE>

Stock Based Compensation Plan

The Company accounts for stock-based compensation issued to employees in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB Opinion No. 25") which generally requires
recognizing compensation cost based upon the intrinsic value at the date granted
of the equity instrument awarded. The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," which encourages, but does not require, companies
to recognize compensation expense for grants of stock, stock options and other
equity instruments based on the fair value of those instruments, but
alternatively allows companies to disclose such impact in their footnotes. The
Company has elected to adopt the footnote disclosure method.

New Accounting Standards

The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income", effective January 1, 1998, with no
effect on the Company's financial statements for the three years ending December
31, 1996, 1997, and 1998. This statement establishes standards for reporting
and display of comprehensive income and its components in a full set of general-
purpose financial statements.

The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This statement requires that public
business enterprises report certain information about operating segments in
complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to shareholders. With the
divesture of the retail operations, Clark R&M's sole business segment consists
of the refining of crude oil into petroleum products and segment reporting is
not applicable.

The Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" (see Note 12 "Employee Benefit Plans"). This
statement standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures
previously required.

The Company adopted Statement of Position ("SOP") No. 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use". The SOP
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. This statement allows for capitalization of internal
labor costs for certain information system projects. The Company's previous
accounting policy was consistent with the requirements of this SOP, and
therefore, the adoption of this SOP did not represent an accounting change.

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
is required to adopt this statement effective January 1, 2001. SFAS No. 133 will
require the Company to record all derivatives on the balance sheet at fair
value. Changes in derivative fair value will either be recognized in earnings as
offsets to the changes in fair value of related hedged assets, liabilities, and
firm commitments or, for forecasted transactions, deferred and recorded as a
component of other stockholders' equity until the hedged transactions occur and
are recognized in earnings. The ineffective portion of a hedging derivative's
change in fair value will be recognized in earnings immediately. The Company is
currently evaluating when it will adopt this standard and the impact of the
standard on the Company. The

39
<PAGE>

impact of SFAS No. 133 will depend on a variety of factors, including future
interpretive guidance, the future level of hedging activity, the types of
hedging instruments used, and the effectiveness of such instruments.

3. ACQUISITION AND DISPOSITION

In August 1998, Clark R&M purchased BP Amoco PLC's, formerly British
Petroleum, ("BP"), 170,000 barrel per day Lima, Ohio refinery, related terminal
facilities, and non-hydrocarbon inventories for a purchase price of $175.0
million plus related acquisition costs of $11.3 million (the "Lima
Acquisition"). Hydrocarbon inventories were purchased for $34.9 million. The
Company assumed liabilities mainly related to employee benefits of $7.0 million.
BP retained permanent responsibility for all known pre-existing environmental
liabilities and responsibility for a minimum of twelve years for pre-existing
but unknown environmental liabilities. The total cost of the acquisition was
accounted for using the purchase method of accounting with $175.0 million
allocated to the refinery long-term assets and $53.2 million allocated to
current assets for hydrocarbon and non-hydrocarbon inventories and catalysts.
Clark R&M funded the Lima Acquisition with existing cash and the proceeds from
the issuance of $110 million 8 5/8% Senior Notes due 2008 and $115 million
floating rate term loan due 2004 (see Note 9 "Long-Term Debt").

In 1998, the Company sold minority interests in West Shore Pipeline Company,
Wolverine Pipeline Company, Chicap Pipeline Company, and Southcap Pipeline
Company, for net proceeds of $76.4 million that resulted in a before and after-
tax gain of $69.3 million. Income from these interests for the year ended
December 31, 1998 was $5.3 million (1997 - $8.2 million; 1996 - $9.0 million).

On July 8, 1999, the Company completed the sale of its retail marketing
operation in a recapitalization transaction to a company controlled by Apollo
Management L.P. for cash proceeds of $230 million. An affiliate of the Company
will hold a six percent equity interest in the retail marketing operation. As
part of the sale agreement, the Company also entered into a two-year, market-
based supply agreement for refined products that will be provided to the retail
business through the Company's Midwest refining and distribution network, which
is not included in the sale. The supply agreement may be canceled with 90 days
notice by the buyer.

Assets sold included all company-operated retail stores, approximately 200
independently-operated, Clark-branded stores and the Clark trade name.
Accordingly, the retail marketing operation's net assets (liabilities) have been
segregated from the Company's continuing operations in the consolidated balance
sheets, and its operating results are segregated and reported as discontinued
operations in the accompanying consolidated statements of operations and cash
flows.

The components of Net assets held for sale included in the Company's
Consolidated Balance Sheets for December 31, 1997 and December 31, 1998 are as
follows:

<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Current Assets................. $ 50.9 $ 43.1
Noncurrent Assets.............. 195.3 187.5
------ ------
Total Assets................... 246.2 230.6
------ ------
Current Liabilities............ 84.8 62.7
Noncurrent Liabilities......... 27.4 24.7
------ ------
Total Liabilities.............. 112.2 87.4
------ ------
Net Assets Held For Sale....... $134.0 $143.2
====== ======
</TABLE>

The Statements of Operations for retail operations are as follows:

<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Net sales and Operating Revenues............. $ 1,128.7 $ 1,151.3 $ 938.8

Expenses:
Cost of Sales............................... (954.8) (966.7) (752.7)
Operating expenses.......................... (127.6) (138.4) (127.4)
General and administrative expenses......... (21.3) (22.5) (22.4)
Depreciation................................ (12.7) (14.5) (13.7)
Inventory write-down to market.............. -- -- (0.5)
Recapitalization, asset write-offs and
other charges.............................. -- (9.0) 2.2
---------- --------- ---------
(1,116.4) (1,151.1) (914.5)
---------- --------- ---------

Operating Income............................. 12.3 0.2 24.3

Income tax provision........................ (4.7) (0.1) (9.2)

---------- --------- ---------
Net Earnings of Discontinued Operations...... $ 7.6 $ 0.1 $ 15.1
========== ========= =========
</TABLE>

The retail operations collected federal excise and state motor fuel taxes on
the sale of products and remitted to governmental agencies $374.7 million for
the year ended December 31, 1998 (1997 - $411.5 million; 1996 -$411.6 million).
These taxes are not included in "Net sales and operating revenue," "Cost of
sales," or "Operating expenses."

The continuing operations will sell fuel previously sold to the retail
operations to outside buyers. Refinery sales and retail cost of sales of $478.1
million for the year ended December 31, 1998 (1997 - $695.6 million; 1996 -
$712.9 million) that were previously eliminated from financial statements
prepared according to generally accepted accounting principles are included in
the financial statements of the continuing operations to reflect this change.

The discontinued operations in the Cash Flows from Investing Activities
consist of expenditures for property and equipment of $28.7 million for the year
ended December 31, 1998 (1997 - $55.3 million; 1996 - $24.9 million), net of
proceeds from the disposal of property and equipment of $16.6 million for the
year ended December 31, 1998 (1997 - $5.4 million; 1996 - $0.8 million).

4. FINANCIAL INSTRUMENTS

Short-term Investments

Short-term investments consist of investments, including United States
government security funds, maturing more than three months from date of
purchase. The Company invests only in AA rated or better fixed income
marketable securities or the short-term rated equivalent. 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 stockholders' equity. Realized gains and losses are presented
in "Interest and finance costs, net" and are computed using the specific
identification method. As of December 31, 1998, short-term investments consisted
of U.S. Debt Securities of $4.5 million (1997 - $14.9 million). In 1998 and
1997, $4.5 million and $9.9 million, respectively, of the U.S. Debt Securities
were pledged as collateral for the Company's self-insured workers compensation
programs, certain retail leases, and in 1997 for futures positions.

For the years ended December 31, 1996, 1997 and 1998, there were no material
unrealized or realized gains or losses on the short-term investments. The
amortized cost of short-term investments as of December 31, 1998 was $4.5
million, with $2.9 million maturing in one year or less, and $1.6 million
maturing after one year through two years.

Derivative Instruments

Clark R&M enters into crude oil and refined products futures and options
contracts to limit risk related to hydrocarbon price fluctuations created by a
potentially volatile market. As of December 31, 1998, Clark R&M's open
contracts represented 1.2 million barrels of crude oil and refined products, and
had terms extending into September 1999. As of December 31, 1997, Clark R&M's
open contracts represented 2.3 million barrels of crude oil and refined products
and had terms extending into July 1998. As of December 31, 1998, the Company had
net unrealized gains on open futures and options contracts of $1.3 million (1997
- - net unrealized losses of $1.9 million) all of which have been recognized and
reflected as a component of operating income.

40
<PAGE>

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. The Company conducts
ongoing evaluations of its customers and requires letters of credit or other
collateral as appropriate. Trade receivable credit losses for the three years
ended December 31, 1998 were not material. As of December 31, 1998, the Company
had $11.4 million (1997 - $20.6 million) due from Chevron USA Products Co.
("Chevron"). Sales to Chevron in 1998 totaled $340.1 million (1997 - $455.7
million; 1996 - 455.8 million).

The Company does not believe that is has a significant credit risk on its
derivative instruments which are transacted through the New York Mercantile
Exchange or with counterparties meeting established collateral and credit
criteria.

5. INVENTORIES

The carrying value of inventories consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ---------
<S> <C> <C>
Crude oil.................................... $ 86.2 $165.3
Refined products and blendstocks............. 147.9 186.4
LIFO inventory value excess over market...... (19.2) (105.8)
Warehouse stock and other.................... 13.7 21.8
------ ------
$228.6 $267.7
====== ======
</TABLE>

6. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Real property................................ $ 3.6 $ 12.4
Refineries................................... 443.7 699.3
Product terminals and pipelines.............. 65.3 69.1
Other........................................ 9.9 17.1
------- --------
522.5 797.9
Accumulated depreciation and amortization.... (142.1) (170.5)
------- --------
$ 380.4 $ 627.4
======= ========
</TABLE>

As of December 31, 1998, property, plant, and equipment included $90.1
million (1997 - $35.5 million) of construction in progress, of which $43.7
million related to a project at the Port Arthur refinery that includes
construction of additional coking and hydrocracking capability and expansion of
the crude unit capacity to approximately 250,000 barrels per day. This project
is scheduled to be completed by January 2001. Capital lease assets of $20.1
million (1997 - $21.3 million) were included in property, plant, and equipment
as of December 31, 1998.

41
<PAGE>

7. OTHER ASSETS

Other assets consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- --------
<S> <C> <C>
Deferred financing costs.................... $13.4 $19.5
Deferred turnaround costs................... 43.9 46.5
Deferred tax asset.......................... 13.4 24.2
Other....................................... 8.6 1.9
----- -----
$79.3 $92.1
===== =====
</TABLE>

The company incurred deferred financing costs of $8.9 million associated
with the financing of the Lima Acquisition. Amortization of deferred financing
costs for the year ended December 31, 1998 was $2.2 million (1997 - $7.0
million; 1996- $6.5 million) and is included in "Interest and finance costs,
net".

8. WORKING CAPITAL FACILITY

In August 1998, Clark R&M amended its September 1997, secured revolving
credit facility increasing capacity from the original $400 million to $700
million. The credit facility, which expires on December 31, 1999, provides for
borrowings and the issuance of letters of credit of up to the lesser of $700
million or the amount available under a defined borrowing base calculated with
respect to Clark R&M's cash and cash equivalents, eligible investments, eligible
receivables and eligible petroleum inventories ($457.0 million as of December
31, 1998). Direct borrowings under the credit facility are limited to $150
million at interest rates ranging from London Interbank Offer Rate ("LIBOR")
plus 62.5 basis points to LIBOR plus 225 basis points depending on the
attainment of certain financial ratios. Clark R&M uses the facility primarily
for the issuance of letters of credit to secure purchases of crude oil. Clark
R&M is required to comply with certain financial covenants including maintaining
defined levels of working capital, cash, cash equivalents and qualifying
investments, tangible net worth, and cumulative cash flow. As of December 31,
1998, $244.8 million (1997 -$272.1 million) of the line of credit was utilized
for letters of credit, of which $98.3 million supported commitments for future
deliveries of petroleum products. There were no direct cash borrowings under any
revolving credit facility as of December 31, 1998 and 1997.

9. LONG-TERM DEBT

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
---------- ----------
<S> <C> <C>
8 5/8% Senior Notes due August 15, 2008
("8 5/8% Senior Notes")................................ $ -- $ 109.7
8 3/8% Senior Notes due November 15, 2007
("8 3/8% Senior Notes")................................ 99.3 99.3
8 7/8% Senior Subordinated Notes due November 15, 2007
("8 7/8% Senior Subordinated Notes")................... 173.8 173.9
Floating Rate Term Loan due November 15, 2003 and 2004
("Floating Rate Loan")................................. 125.0 240.0
9 1/2% Senior Notes due September 15, 2004
("9 1/2% Senior Notes")................................ 175.0 171.7
Obligations under capital leases and other notes.......... 16.8 13.8
------- -------
589.9 808.4
Less current portion.............................. 3.1 3.2
------- -------
$ 586.8 $ 805.2
======= =======
</TABLE>

42
<PAGE>

The estimated fair value of long-term debt as of December 31, 1998 was
$760.2 million (1997- $602.2 million, 1996 - $431.8 million), determined using
quoted market prices for these issues.

The 8 5/8% Senior Notes were issued by Clark R&M in August 1998, at a
discount of 0.234% and are unsecured. The 8 5/8% Senior Notes are redeemable at
the option of the Company beginning August 2003, at a redemption price of
104.312% of principal, which decreases to 100% of principal amount in 2005. Up
to 35% in aggregate principal amount of the notes originally issued are
redeemable at the option of the Company out of the net proceeds of one or more
equity offerings at any time prior to August 15, 2002, at a redemption price
equal to 108.625% of principal.

The 8 3/8% Senior Notes and 8 7/8% Senior Subordinated Notes were issued by
Clark R&M in November 1997, at a discount of 0.734% and 0.719%, respectively.
These notes are unsecured, with the 8 7/8% Senior Subordinated Notes
subordinated in right of payment to all unsubordinated indebtedness of the
Company. The 8 3/8% Senior Notes and 8 7/8% Senior Subordinated Notes are
redeemable at the option of the Company beginning November 2002, at a redemption
price of 104.187% of principal and 104.437% of principal, respectively, which
decreases to 100% of principal amount in 2004 and 2005, respectively. Up to 35%
in aggregate principal amount of the notes originally issued are redeemable at
the option of the Company out of the net proceeds of one or more equity
offerings at any time prior to November 15, 2001, at a redemption price equal to
108.375% of principal for the 8 3/8% Senior Notes and 108.875% of principal for
the 8 7/8% Senior Notes.

Clark R&M borrowed $125.0 million in November 1997, and an additional $115.0
million in August 1998, under a floating rate term loan agreement expiring in
2004. Of the principal outstanding, 25% must be repaid in 2003. The Floating
Rate Loan is a senior unsecured obligation of Clark R&M and bears interest LIBOR
plus a margin of 275 basis points. The loan may be repaid in whole or in part
at any time at the redemption price of 101.25% of principal through November
1999 and at 100% of principal thereafter.

The 9 1/2% Senior Notes were issued by Clark R&M in September 1992 and are
unsecured. The 9 1/2% Senior Notes are currently redeemable at the Company's
option at a redemption price of 102.375% of principal, decreasing to 100% of
principal in September 1999.

The Clark R&M 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 incurrence of debt, redemption
provisions related to change of control, and incurrence of liens. Clark R&M must
maintain a minimum net worth of $100 million.

The scheduled maturities of long-term debt during the next five years are
(in millions): 1999 - $3.2 (included in "Accrued expenses and other"); 2000 -
$10.6; 2001 - $0.0; 2002 - $0.0; 2003 - $31.3; 2004 and thereafter - $765.4.

Extinguishment of Debt

In 1997, the Company redeemed its 10 1/2% Senior Notes. As a result, the
Company recorded an extraordinary loss of $10.7 million for the redemption
premiums ($5.9 million), the write-off of deferred financing costs ($3.7
million), and other related costs ($1.1 million).

43
<PAGE>

Interest and finance costs, net

Interest and finance costs, net, included in the statements of net and other
comprehensive earnings, consisted of the following:

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ---------
<S> <C> <C> <C>
Interest expense................... $42.9 $ 44.7 $61.4
Finance costs...................... 6.5 11.0 2.4
Interest and finance income........ (9.7) (14.5) (9.8)
----- ------ -----
39.7 41.2 54.0
Capitalized interest............... (1.0) (1.4) (3.0)
----- ------ -----
Interest and finance costs, net.... $38.7 $ 39.8 $51.0
===== ====== =====
</TABLE>

Cash paid for interest expense in 1998 was $56.6 million (1997 - $44.8
million; 1996 - $42.9 million). Accrued interest payable as of December 31,
1998 of $13.3 million (December 31, 1997 - $8.7 million, December 31, 1996 -
$6.8 million) was included in "Accrued expenses and other."

10. LEASE COMMITMENTS

The Company leases refinery equipment, office space, and office equipment.
The lease terms for refinery equipment and office space and equipment 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 the Company
pay taxes, insurance, and maintenance expenses related to the leased assets. As
of December 31, 1998, net future minimum lease payments under non-cancelable
operating leases were as follows (in millions): 1999- $7.0; 2000- $13.7; 2001 -
$2.6; 2002 - $2.5; 2003 - $2.3; and $1.0 in the aggregate thereafter. Rental
expense during 1998 was $5.4 million (1997 - $4.6 million; 1996 - $4.4 million).

11. RELATED PARTY TRANSACTIONS

Clark USA, Inc.

During 1998, the Company returned $15.0 million of capital to Clark USA for
its repayment of interest related to the 10 7/8% Senior Notes.

During 1997, the Company returned $215.0 million of capital to Clark USA for
its repurchase of the Zero Coupon Notes.

Management Services

As of December 31, 1998, the Company had a payable to The Blackstone Group
("Blackstone"), an affiliate of its principal shareholder, of $3.2 million
(December 31, 1997 - $2.0 million) for annual monitoring fees and transaction
fees related to the Lima Acquisition. The Company has an agreement with an
affiliate of Blackstone under which Blackstone would receive a monitoring fee
equal to $2.0 million per annum (subject to increases relating to inflation and
in respect of additional acquisitions by the Company). Affiliates of Blackstone
may in the future receive customary fees for advisory services rendered to the
Company. Such fees will be negotiated from time to time with the independent
members of the Company's board of directors on an arm's-length basis and will be
based on the services performed and the prevailing fees then charged by third
parties for comparable services.

In connection with the Blackstone Transaction in 1997 (see Note 14 "Equity
Recapitalization and Change in Control"), affiliates of Blackstone received fees
of $7.0 million, and the Company reimbursed Blackstone for $1.7 million of out-
of-pocket expenses related to the Blackstone Transaction and the issuance of the
8 3/8% Senior Notes and 8 7/8% Senior Subordinated Notes.

44
<PAGE>

12. EMPLOYEE BENEFIT PLANS

Postretirement Benefits Other Than Pensions

Clark R&M provides health insurance in excess of social security and an
employee paid deductible amount, and life insurance to most retirees once they
have reached a specified age and specified years of service.

The following table sets forth the changes in the benefit obligation for the
unfunded post retirement health and life insurance plans for 1997 and 1998:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year....... $27.3 $25.2
Service costs................................. 0.8 1.1
Interest costs................................ 1.7 2.1
Actuarial loss (gain)......................... (3.7) 3.3
Benefits paid................................. (0.9) (1.5)
Lima acquisition.............................. -- 4.8
----- -----
Benefit obligation at end of year............. 25.2 35.0
Unrecognized net gain......................... 3.9 0.5
Unrecognized prior service benefit............ 0.2 0.2
----- -----
Accrued postretirement benefit liability...... $29.3 $35.7
===== =====
</TABLE>

The components of net periodic postretirement benefit costs are as follows:

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Service costs................................. $ 0.9 $ 0.8 $ 1.1
Interest costs................................ 1.9 1.7 2.1
Amortization of prior service cost and
(gains) or losses............................ -- -- (0.2)
------ ------ ------
Net periodic postretirement benefit cost...... $ 2.8 $ 2.5 $ 3.0
====== ====== ======

</TABLE>

In measuring the expected postretirement benefit obligation, the Company
assumed a discount rate of 7.00% (1997 - 7.50%) as well as a 4.00% (1997 -
4.00%) rate of increase in the compensation level, and utilized a health care
cost trend ranging from 7.25% to 8.25% in 1998, grading down to an ultimate rate
of 5.25% in 2003. 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, 1998, by $7.4 million and increase the
annual aggregate service and interest costs by $0.6 million. The effect of
decreasing the average health care cost trend rates by one percentage point
would decrease the accumulated postretirement benefit obligation as of December
31, 1998, by $6.1 million and decrease the annual aggregate service and interest
costs by $0.5 million.

Employee Savings Plan

The Clark Refining & Marketing, Inc. Retirement Savings Plan and separate
Trust (the "Plan"), a defined contribution plan, covers substantially all
employees of Clark. Under terms of the Plan, Clark R&M matches the amount of
employee contributions, subject to specified limits. Company contributions to
the Plan during 1998 were $6.4 million (1997 - $5.4 million; 1996 - $5.3
million).

45
<PAGE>

13. 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>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Earnings (loss) before provision for
income taxes
Continuing operations.................. $ (64.7) $ (37.2) $ (48.9)
Extraordinary item..................... -- (10.7) --
-------- -------- --------
$ (64.7) $ (47.9) $ (48.9)
======== ======== ========

Income tax provision (benefit):
Continuing operations.................. $ (18.6) $ 10.4 $ (12.9)
Extraordinary item..................... -- -- --
-------- -------- --------
$ (18.6) $ 10.4 $ (12.9)
======== ======== ========

Current provision (benefit) - Federal..... $ (0.2) $ 8.7 $ (1.7)
- State....... 4.4 1.5 (0.4)
-------- -------- --------
4.2 10.2 (2.1)
-------- -------- --------
Deferred provision (benefit) - Federal.... (15.9) -- (10.4)
- State...... (6.9) 0.2 (0.4)
-------- -------- --------
(22.8) 0.2 (10.8)
-------- -------- --------
Income tax provision (benefit)............ $ (18.6) $ 10.4 $ (12.9)
======== ======== ========
</TABLE>

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>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Federal taxes computed at 35%.......... $ (22.6) $ (16.8) $ (17.1)
State taxes, net of federal effect..... (1.6) 1.1 (0.5)
Nontaxable dividend income............. (2.4) (1.9) (0.4)
Valuation allowance.................... 6.1 28.4 2.3
Other items, net....................... 1.9 (0.4) 2.8
-------- -------- -------
Income tax provision (benefit)......... $ (18.6) $ 10.4 $ (12.9)
======== ======== =======
</TABLE>

<PAGE>

The following represents the approximate tax effect of each significant
temporary difference giving rise to deferred tax liabilities and assets:

<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment............. $ 73.2 $ 84.9
Turnaround costs.......................... 13.1 14.1
Other..................................... 0.8 3.6
-------- --------
87.1 102.6
-------- --------
Deferred tax assets:
Alternative minimum tax credit............ 12.0 18.8
Trademarks................................ -- --
Environmental and other future costs...... 14.7 19.5
Tax loss carryforwards.................... 87.4 67.0
Inventory................................. 3.7 44.8
Other..................................... 17.2 13.5
-------- --------
135.0 163.6
-------- --------
Valuation allowance.......................... (34.5) (36.8)
-------- --------
Net deferred tax asset....................... $ 13.4 $ 24.2
======== ========
</TABLE>

As of December 31, 1998, Clark has made net cumulative payments of $18.8
million under the Federal alternative minimum tax system which are available to
reduce future regular income tax payments. As of December 31, 1998, Clark had a
Federal net operating loss carryforward of $160.2 million and Federal business
tax credit carryforwards in the amount of $3.7 million. Such operating losses
and tax credit carryforwards have carryover periods of 15 years (20 years for
losses and credits originating in 1998 and years thereafter) and are available
to reduce future tax liabilities through the year ending December 31, 2018.

The valuation allowance as of December 31, 1998 was $36.8 million (1997 -
$34.5 million). In calculating the increase in the valuation allowance, Clark
assumed as future taxable income only future reversals of existing taxable
temporary differences and available tax planning strategies.

Section 172 of the Internal Revenue Code ("Code") allows a 10-year carryback
period for specified liability losses, as defined. During 1997 and 1998, Clark
filed federal and state refund claims based upon the carryback of $85.6 million
of specified liability losses. The carryback of specified liability losses has
reduced Clark's Federal net operating loss carryforward as of December 31, 1998
to $160.2 million. The refund claims, if fully recovered, would provide a
current tax benefit of $18.2 million. In addition, the refund claims, if fully
recovered, would recharacterize $15.2 million of deferred tax assets from tax
loss carryforwards to alternative minimum tax credit carryforwards. However,
Section 172 of the Code is an unsettled area of the law and the refund claims
are currently under audit examination. Of the total potential current tax
benefit, Clark has recognized $7.6 million.

During 1998, Clark USA received net federal cash refunds of $10.2 million
and during 1997 and 1996, made Federal tax payments of $5.0 million and $2.7
million, respectively. The Company provides for its portion of such consolidated
refunds and liability under its tax sharing agreement with Clark USA. During
1998, Clark made net cash state tax payments of $1.3 million (1997- $2.6
million; 1996 - $0.6 million).

Section 382 of the Code restricts the utilization of net operating losses
and other carryover tax attributes upon the occurrence of an ownership change,
as defined. Such an ownership change occurred during 1997 as a result of the
purchase of a majority interest in the Company by an affiliate of Blackstone
(see Note 14 "Equity Recapitalization and Change in Control"). However, based
upon the existence of

47
<PAGE>

future taxable income from reversals of existing taxable temporary differences
and available tax planning strategies, management believes such limitation will
not restrict the Company's ability to significantly utilize the net operating
losses over the allowable carryforward periods.

14. EQUITY RECAPITALIZATION AND CHANGE IN CONTROL

On November 3, 1997, Blackstone acquired the 13,500,000 shares of Common
Stock of Clark USA previously held by TrizecHahn and certain of its subsidiaries
(the "Blackstone Transaction"), as a result of which Blackstone obtained a
controlling interest in the Clark USA.

In 1997, the Company recorded a charge to operations in the amount of $40.0
million for recapitalization expenses, asset write-offs, and other charges
incurred in connection with the Company's equity recapitalization and change in
control. The total charge includes $20.3 million of asset write-offs principally
related to an investment in a project initiated to produce low-sulfur diesel
fuel at the Hartford refinery (the "DHDS Project"); $10.7 million of
transaction, advisory, and monitoring fees related to the Blackstone
Transaction; and $9.0 million resulting from a change in strategic direction
primarily for certain environmental, legal and other accruals related to
existing actions.

In 1992, the DHDS Project was delayed based on internal and third party
analysis that indicated an oversupply of low-sulfur diesel fuel capacity in the
Company's market. Based on the analysis, the Company projected relatively
narrow price differentials between low and high sulfur products. In December
1997, subsequent to the Blackstone Transaction, the Company determined that
certain equipment purchased for the DHDS Project would yield a higher value
being utilized at the Hartford and Port Arthur refineries, rather than remaining
idle until the diesel fuel differentials widened sufficiently to justify
completing the DHDS Project. As a result of this decision, the equipment was
written down to its fair market value.

15. 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 fully vested within
3 years of the grant date, or with a change of control, as defined in the Plan.
Also upon change of control, participants are entitled to a cash payment in an
amount equal to the difference between the option price and either the final
offer price in a tender or exchange offer or a price determined by the
Compensation Committee. The Blackstone Transaction constituted a change in
control under the Plan, which caused all granted shares to become fully vested,
but did not invoke any cash payments. 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. Stock granted under this plan is
priced at the fair market value at the date of grant.

No stock options have been granted under the Performance Plan since 1995. As
of December 31, 1998, 323,750 stock options were outstanding (1997 - 531,500;
1996 - 549,000) at an exercise price of $15 per share. No shares were exercised
in 1998 or 1997, and 207,750 and 17,500 shares were forfeited in 1998 and 1997,
respectively. As of December 31, 1998, 323,750 shares were fully vested (1997-
531,500).

48
<PAGE>

16. COMMITMENTS AND CONTINGENCIES

Clark R&M is subject to various legal proceedings related to governmental
regulations and other actions arising out of the normal course of business,
including legal proceedings related to environmental matters. Among those
actions and proceedings are the following:

Clark R&M is the subject of a purported class action lawsuit related to an
on-site electrical malfunction at Clark R&M'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 R&M 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.

<PAGE>

While it is not possible at this time to establish the ultimate amount of
liability with respect to the Company's contingent liabilities, Clark R&M 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.

In March 1998, the Company entered into a long-term crude oil supply
agreement with PMI, an affiliate of Petroleos Mexicanos, the Mexican state oil
company, which provides the Company with the foundation necessary to continue
developing a project to upgrade the Port Arthur refinery to process primarily
lower-cost, heavy sour crude oil. The project is expected to cost $600-$700
million and include the construction of additional coking and hydrocracking
capability, and the expansion of crude unit capacity to approximately 250,000
barrels per day. Although the Company, Clark USA and its shareholders are
currently evaluating alternatives for financing the project, it is expected that
the financing will be on a non-recourse basis to the Company. The oil supply
agreement with PMI and the construction work-in-progress are expected to be
transferred for value to a non-recourse entity that will likely be an affiliate
of, but not be controlled by, the Company and its subsidiaries. The Company
expects to enter into agreements with its affiliate pursuant to which the
Company would provide certain operating, maintenance and other services and
would purchase the output from the new coking and hydrocracking equipment for
further processing into finished products. The Company expects to receive
compensation under these agreements at fair market value that is expected to be
favorable to the Company.

In the event the project financing cannot be completed on a non-recourse
basis to the Company as contemplated, the restrictions in the Company's existing
debt instruments would likely prohibit the Company and its subsidiaries from
raising the financing themselves and thus completing the project.
Notwithstanding the foregoing, however, the Company has begun entering into
purchase orders, some of which contain cancellation penalties and provisions,
for material, equipment and services related to this project. As of December 31,
1998, non-cancelable amounts of approximately $80 million had accumulated under
these purchase orders. Additional purchase orders and commitments have been made
and are expected to continue to be made during 1999. If the project were
cancelled, the Company would be required to pay a termination fee of
approximately $200,000 per month to PMI from September 1, 1998 to the
cancellation date. In addition, the Company would be subject to payment of the
non-cancelable commitments and required to record a charge to earnings for all
expenditures to date. Although the financing is expected to be completed in the
first half of 1999, there can be no assurance that the financing for the project
will be successful or that the project can be completed as contemplated.

50
<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/ William C. Rusnack
------------------------------------------
William C. Rusnack
President and Chief Executive Officer

July 14, 1999

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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William C. Rusnack Director, Chief Executive Officer July 14, 1999
----------------------
William C. Rusnack and President

/s/ Marshall A. Cohen Director and Chairman of the Board July 14, 1999
---------------------
Marshall A. Cohen

/s/ David I. Foley Director July 14, 1999
------------------
David I. Foley

/s/ Robert L. Friedman Director July 14, 1999
---------------------
Robert L. Friedman

/s/ David A. Stockman Director July 14, 1999
---------------------
David A. Stockman

/s/ Maura J. Clark Executive Vice President, Corporate July 14, 1999
------------------
Maura J. Clark Development and Chief Financial Officer
(Principal Financial Officer)

/s/ Dennis R. Eichholz Controller and Treasurer (Principal July 14, 1999
----------------------
Dennis R. Eichholz Accounting Officer)
</TABLE>

July 14, 1999

<PAGE>

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